Monthly Archives: January 2012

Well-structured economic incentives could massively reduce deforestation emissions in Indonesia

Indonesia’s tropical forests are the world's third-largest, covering more than half of the country and possessing some of the richest and most unique biodiversity on earth. But Indonesia has lost more than 20% of its forest since 1990.

Indonesia's forests

Indonesia's forests offer a huge opportunity to cut carbon emissions that cause global warming -- and earn significant income for national and state governments. (Photo credit and thanks to CIFOR)

The carbon released through deforestation and related changes in land use has made Indonesia the third-largest national contributor of greenhouse gas emissions (behind China and the U.S.) – and also one of the most promising areas in the world to put into action effective policies to reduce deforestation and combat climate change.

In a study developed in collaboration with Indonesian government and non-governmental partners and published in one of the world’s leading scientific publications, the Proceedings of the National Academy of Sciences, my colleagues and I have found that the ways countries could choose to set up a framework of economic incentives for reducing deforestation really matter.

While most economic analyses of the potential for reducing deforestation emissions have been at a high theoretical level, our study takes the analysis closer to the level of policy implementation.

We found that, with an international carbon price of $10 per ton of carbon dioxide, which is relatively modest compared to existing and projected greenhouse gas compliance markets, and strong and specific economic incentives for local decision-makers, Indonesia could:

  • achieve major reductions in national greenhouse gas emissions from deforestation — up to a 26% reduction in national greenhouse gas emissions
  • earn significant new income for national and regional governments – as much as $1 billion of net national revenue per year over and above payments to local governments

Worldwide, emissions from deforestation contribute about 15% of global greenhouse emissions; the Indonesian government estimates 85% of its country’s emissions come from agriculture, forests and land-use change.

Policies to Reduce Emissions from Deforestation and forest Degradation (REDD+) aim to provide incentives for forest conservation by giving living forests an economic value, and have the potential to cut greenhouse gas emissions substantially right away while protecting ecosystems and generating economic and social benefits for indigenous and local communities.

Important economic analysis of REDD+

Our analysis, “Structuring economic incentives to reduce emissions from deforestation within Indonesia” by Jonah Busch of Conservation International, myself, and others, is an important advance because it:

1) Analyzes specific policy choices for designing a national framework to reward REDD+ activities at the local level

Our results show that Indonesia can maximize its emissions reductions while staying within its budget through a comprehensive national policy framework that both encourages broad participation and includes rewards for reductions measured across larger geographic scales, such as the political units of districts or provinces.   This system would be superior to more traditional approaches based on payments only on a site-by-site basis, which run the risk of overpaying certain sites while providing insufficient incentives to others, and thus have an increased risk of emissions shifting to these locations (“leakage”).

In particular, we found that either of two REDD+ policy scenarios would lead to strong outcomes for both the climate and Indonesia’s economic interest:

Graph showing deforestation in Indonesia from 2000–2005. (a) observed deforestation; (b) modeled expected deforestation without REDD+; (c) expected deforestation with “improved voluntary incentive structure” for REDD+ at a carbon price of $10 per ton.

    1. A cap-and-trade or tax-and-subsidy REDD+ program with international carbon payments at $10/ton showed the highest potential benefits for Indonesia during the 2000-2005 study period. Such a program could: reduce national emissions from deforestation 20-31% over five years; avoid 163-247 million metric tons of carbon dioxide from deforestation emissions every year; and inject into Indonesia’s national REDD+ program a net budget surplus of $1 billion per year.
    2. A well-structured voluntary incentive structure could be a more politically attractive option, compared to a mandatory system. To be effective environmentally but not exceed the program budget, a voluntary REDD+ system must balance robust and widespread local incentives with maintenance of revenue, through policies that, for example, combine shared revenues and responsibilities for the program between national and subnational governments, and that make payments for emissions reductions to districts or provinces rather than individual site. Operating at these larger scales helps target resources and account for possible emission shifts (“leakage”) as well as less predictable emissions at more local levels. Structured this way, Indonesia’s REDD+ program could: reduce national emissions from deforestation 17-26% over five years; avoid 136-207 million metric tons of carbon dioxide from deforestation emissions each year; and, with international carbon payments at $10/ton, yield a net budget surplus of $331 million per year for Indonesia.

Either system would be more than twice as effective at reducing emissions as a “basic voluntary structure," where payments would be made for voluntary reductions in emissions at the level of individual sites on a solely project or landowner basis.

These results show the way REDD+ policies are designed can have important implications for national and local budgets and make a huge difference in achieving large-scale, cost-effective emissions reductions.

2) Relies on actual historical data

This is the first time potential emissions reductions from deforestation in Indonesia have been estimated using actual historical data on how deforestation varies with economic factors. This provides a stronger basis for informing REDD+ policies than prior analyses that rely on various assumptions for how readily deforestation can be reduced.

3) Develops “OSIRIS” model to help inform policy decisions

To conduct our analysis, we used a model called OSIRIS (the Open Source Impacts of REDD+ Incentives Spreadsheet), a set of free, transparent, open-source, spreadsheet-based decision support tools.

The model estimates and maps the climate, forest and revenue benefits of alternative policy decisions for REDD+.  EDF and Conservation International developed a version of OSIRIS for Indonesian policy makers in collaboration with its National Council on Climate Change, and with co-authorship from Padjadjaran University and World Resources Institute. We have versions of the model for other countries and are working to enhance the analysis and extend the model to additional countries.

Analysis timely as Indonesia develops its REDD+ strategy

Our analysis, published in this week's Proceedings of National Science, offers valuable information for Indonesia's REDD+ strategy.

Indonesia’s President Susilo Yudhoyono committed in 2009 to reducing his country’s greenhouse gas emissions by 26-41% below its “business as usual” levels (the amount of emissions Indonesia expects to hit if no efforts are made to curb emissions) by 2020.  These goals could translate to substantial reductions below current levels, based on the best current projections.

In May 2011, Indonesia and Norway signed a $1 billion agreement to cooperate on reducing emissions from deforestation and forest degradation.

Currently the Indonesian government is developing its National REDD+ Strategy, and our analysis offers some valuable information as the country decides how to implement REDD+. We’ve already received positive feedback from our analysis – in fact, the National Council on Climate Change in Indonesia published our findings in a joint policy memo and chapter in a book about REDD+.

We look forward to Indonesia’s policy-makers’ using the best knowledge and technology to structure a REDD+ framework that will provide the economic incentives to achieve the country’s enormous potential to fight climate change and protect biodiversity.

You can read more in our full PNAS article,  “Structuring economic incentives to reduce emissions from deforestation within Indonesia,” our joint press release with Conservation International and at the ORISIS webpage.

Posted in Deforestation, Economics, REDD+ / 1 Response

Europe’s law to reduce emissions from aviation takes off

The first week of 2012 was a busy one for developments in the European Union's law requiring airlines to cut their global warming pollution.

On Jan. 1, Europe’s “Aviation Directive” took effect.  The law holds all flights using EU airports accountable for their pollution and requires the airlines to make modest cuts in their carbon emissions. (Remember that last month, after Secretary of State Hillary Rodham Clinton and Secretary of Transportation Ray LaHood sent a letter to the European Commission saying the U.S. might retaliate against the law, the EU's highest court upheld the law against a challenge by United-Continental and American Airlines and their trade association.)

Obama administration weighs its options

Last week some officials from the Obama administration alluded to retaliatory measures but declined to give specifics on what the U.S. will do next. These unnamed U.S. officials told Reuters, in a Jan. 6 story:

We are contemplating a wide range of possible steps that we could take … we haven’t decided how to move forward on any specific one.

Maybe these officials’ vagueness is because the administration is currently gathering data from U.S. and European airlines to determine whether EU law discriminates against US airlines. But maybe they are starting to realize that the legal case for retaliation is thinner than the snow that didn't blanket most of the US at Christmas.

Despite what Chinese airlines say, the EU law is an emissions cap, not a “tax”

Across the world, Chinese airlines announced on Jan. 4 they wouldn’t comply with the EU law, and promptly watched their stocks slide.

plane taking off from airport. Thanks and credit to

Airlines, as of Jan. 1, are now accountable for their pollution from flights to and from Europe. (Thanks and photo credit to Flickr user chanelcoco872.)

Too bad the Chinese airlines' trade association doesn’t understand the EU law, inaccurately referring to it in a Reuters interview as a “tax,” and missing – to the detriment of its members' shareholders and customers – what the law really is: an opportunity to fly more efficiently and make money.

I want to make this point perfectly clear: the EU law is a cap on emissions, not a tax.

With a typical carbon tax, the more companies pollute, the more they pay. But under a cap-and-trade system like the EU’s that puts limits on pollution, airlines that cut emissions can comply without paying a nickel. In fact, companies that come up with better, deeper, faster ways of cutting pollution can actually make money. The EU’s top court recognizes that airlines participating in the EU law could “even make a profit” by cutting pollution and selling their surplus emissions allowances.  (See paragraphs 136-145, especially 142, of the Court’s decision.)

China's foreign ministry was reportedly more nuanced in its comments about the EU law than the airline trade association.  It didn't threaten non-compliance and it didn't threaten retaliation.  Instead a foreign ministry spokesperson told reporters:

We hope the EU can take careful precautions with a cautious and practical attitude, and regarding those aspects involving China, appropriately discuss and handle this matter.

Airlines are participating in EU law

Despite the discord, airlines have actually been preparing to comply with the EU law for months; they’ve all filed emissions data and applied for the law’s generous free allowances.

And with the start of 2012, the world’s smartest airlines are quietly lining up to participate, not litigate:

While German-based Lufthansa – the world’s second largest long-haul carrier, according to Reuters – has announced it will address the EU law by passing on the costs to its customers, it hasn’t clarified how much or what the money would be used for. Green groups and consumer groups will be watching to see whether and how much they and others like Emirates and Hong Kong-based Cathay Pacific raise fares.

With his new focus on holding airlines to be more transparent about the fees and charges they add to fares, Secretary LaHood might want to make sure airlines tell customers how they use environmental surcharges – with airlines ideally limiting the fare increase to the modest true cost of complying with the EU law.  That would be a win for the flying public and the environment.

Posted in Aviation / 2 Responses