Chapter 3. The land-use, ecosystems and climate nexus

This chapter examines how Indonesia is managing its land to achieve the objectives of ecosystem protection and tackling climate change. It provides an overview of drivers and trends relating to land conversion, ecosystem services and climate change. It analyses the performance of institutional arrangements and policy tools in achieving a coherent approach to the nexus of land use, ecosystems and climate change, and explores the challenges of financing management of this nexus, supporting innovation and ensuring social inclusion.

    

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

3.1. Introduction

The use of land is critical for economic growth, inclusive development and environmental sustainability. Exploitation of Indonesia’s rich natural resources has enabled continued economic growth, particularly in land-based sectors (agriculture, forestry, mining). However, it has also brought severe problems, including rapid deforestation and conflicts over land rights. Deforestation has led to forest fires and haze, biodiversity loss and substantial greenhouse gas (GHG) emissions. These all have a serious economic cost: the World Bank estimates that in 2015, forest fires alone led to USD 16 billion in damage.

Achieving a sustainable land-use sector will be pivotal to meeting the Paris Agreement targets and Sustainable Development Goals (SDGs) and, ultimately, to unleashing Indonesia’s full potential for green growth. Its climate change mitigation goals rest on a substantial contribution by the forestry sector. Efforts to tackle peat fires and decomposition will be crucial for meeting these goals. Improving policy coherence in the land-use sector will reinforce the sector’s competitiveness and capacity to enhance local communities’ prosperity. Ultimately, the aim is to decouple production from environmental degradation by improving the management of natural capital.

The government is striving to achieve better balance between social, economic and environmental objectives. Its efforts to improve the mapping of land and clarify its legal status are removing one of the main barriers to greening the land-use sector. Indonesia is developing a unified map for land use and stepping up efforts to rationalise the system of land allocation through the social forestry and agricultural reform programmes. These provide a foundation for increasing policy consistency. Institutional strengthening and capacity development will be needed to achieve better land management, particularly of forest and peatland. Improved management would in turn facilitate increased productivity, legal recognition of local communities’ land rights and protection of ecosystems.

3.2. Trends in land-use change

3.2.1. Changes in land use

Agriculture, forestry and mining caused large, rapid changes in land use during the review period. Growing demand for land by these activities has led to conversion of forest and peatland.

Forest and peatland resources

Forest and peatland are essential for provision of ecosystem services, including carbon sequestration. In 2016, half of Indonesia’s land area was covered by forest, which totalled 90.3 million ha.1 Of this, 46 million ha is megadiverse, carbon-rich primary forest. The rest consists of other naturally regenerated forest2 and planted forest. These figures refer to the physical status of land, which is not necessarily the same as whether the land is legally defined as forest (Box 3.1).

Box 3.1. Forest classification in Indonesia

Indonesia legally classifies its land into two broad categories: state forest (kawasan hutan), an area to be maintained as permanent forest; and non-state forest (area pengunaan lain), an area for other uses. This legal classification determines how the land is managed.

In 2017, two-thirds of Indonesia’s land, or 120.6 million ha, was classified as state forest. This land is almost exclusively state owned; it is not legally possible for businesses or individuals to own land in the state forest. The exception is the 0.1% of state forest that is community owned and referred to as customary forest (hutan adat). The Ministry of Environment and Forestry (MoEF) is responsible for state forest land and issues usage rights.

Further classification is used to define allowable uses of state forest land under norms and standards set by the MoEF:

  • Conservation forest (22.1 million ha) (hutan konservasi) is land designated for biodiversity protection and ecosystem integrity. Conservation forest corresponds to the IUCN definition of protected area. In 2017, 21% of land legally classified as conservation forest was not forested.

  • Protection forest (29.7 million ha) (hutan lindung) is land identified as important for provision of ecosystem services, such as controlling erosion, preventing flooding, maintaining soil fertility and preventing seawater intrusion. In 2017, 20% of land legally classified as protection forest was not forested.

  • Production forest (68.8 million ha) (hutan produksi) is land designated for production through logging, timber plantation and ecosystem restoration. It may be designated as convertible production forest, which is eligible for use for non-forestry purposes, such as mining, agriculture and infrastructure development. Once converted, such land is no longer managed as forest or classified as state forest. In 2017, 42% of land legally classified as production forest was not forested.

The legal classification does not always match the land’s current physical characteristics, even though legal mechanisms exist to change the classification. Overall, 29% of state forest land is not forested, and 8% of forested land is not legally defined as state forest. The latter, classified as non-state forest, is subject to a different management regime, overseen by the Ministry of Agrarian Affairs and Spatial Planning.

Source: MoEF, 2018a; MoEF, 2018b.

Indonesia has the world’s largest area of tropical peatland, a type of wetland established on peat soil and important for carbon sequestration and biodiversity (Box 3.2). Indonesia’s peatland and primary forest resources are concentrated on four islands: Kalimantan (the Indonesian part of Borneo), Papua, Sumatra and, to a lesser extent, Sulawesi and Moluccas (MoEF, 2018a).

Box 3.2. Defining peatland and peat ecosystem areas

Peatland refers to peat soil (decaying organic matter thousands of years old) and the wetland habitat growing on its surface. The presence of water significantly slows the decaying of peat, enabling the sequestration and accumulation of large amounts of carbon over time.

Peatland has both a legal and a biophysical classification in Indonesia. The legal classification refers to the area covered with peat soil, estimated at 15 million ha. The biophysical classification concerns peat ecosystem areas, the share of landscape that forms an integrated system with peatland. Their combined area is estimated at 24 million ha. Peat ecosystems are broken down into peat hydrological units for peatland management and protection.

In 2017, the MoEF issued a National Peat Ecosystem Function map indicating that half the combined peat ecosystem area was to be protected. Cultivation is allowed in the other half, provided it does not interfere with preservation of the overall peat ecosystem.

Indonesia has calculated deforestation levels since the early 1990s. The highest deforestation rates were recorded in the late 1990s: 3.5 million ha per year over 1996-2000 (MoEF, 2018a). Deforestation rates declined thereafter, reflecting strengthened policies to combat deforestation, but they remain considerable. The share of forest cover in land area decreased by four percentage points between 2005 and 2016 – the largest decline among the five countries with the largest tropical forest area (Figure 3.1). Although more than half the loss occurred in naturally regenerated forest (also of ecological importance), primary forest cover loss was also high by international standards. The United Nations Environment Programme projected that, under a business-as-usual scenario, Indonesia’s forest cover could further decline by 15% over 2015-30, equivalent to a cumulative economic loss of USD 10 billion to USD 25 billion (UNEP, 2015).

Figure 3.1. Forest cover has declined fast since 2005
Figure 3.1. Forest cover has declined fast since 2005

 StatLink http://dx.doi.org/10.1787/888933931658

The annual average deforestation rate over 2005-16 ranked among the world’s highest. After peaking at 1.2 million ha in 2015, the rate decreased to 0.6 million ha in 2016 and 0.5 million ha in 2017. Most forest loss occurred in Sumatra and Kalimantan, where oil palm and timber plantation development has been highest (Figure 3.2). The other major forested island, Papua, has registered lower deforestation rates (including in absolute terms) because it is under less economic development pressure (Figure 3.3). Data for 2013-16 show that reforestation was low compared to forest loss and was essentially driven by plantation expansion rather than forest rehabilitation (MoEF, 2013; MoEF, 2014; MoEF, 2015a; MoEF, 2016).

Figure 3.2. Forest clearance and degradation were highest in Sumatra and Kalimantan
Figure 3.2. Forest clearance and degradation were highest in Sumatra and Kalimantan

Source: Based on Margono et al., 2014; FAO, 2015.

Quantitative government data on deforestation drivers are limited. Illegal activities are likely a major contributor to tree loss. Abood et al. (2014) indicate that between 2000 and 2010, only 45% of total forest loss occurred on land where industrial concessions (e.g. for timber or agriculture) were permitted. Outside concession areas, deforestation partly reflects illegal land conversion and logging, a major share of which occurs in legally protected state forest (Figure 3.3). Recurring human-caused fires are a significant factor in forest loss and degradation.

The main fire cause has been so-called slash-and-burn clearing for agriculture or timber, the cheapest and fastest way to clear land and often a means of illegally claiming land. Peatlands are drained (using canals to evacuate water) and set aflame for clearing. Dried peat areas are highly flammable and can burn for days or weeks.

Following large fires in 2015, the government put in place an extensive set of measures to reduce the incidence of fire, underpinned by Presidential Instruction No. 11/2015 regarding the Acceleration of Forest and Land Fire Control. The instruction aims to encourage co-ordinated responses at the national and subnational levels. The Ministry of National Development Planning (BAPPENAS) later issued the Grand Design of Forest, Garden, and Land Fire Management 2017-19, and Ministry of Agriculture Regulation No. 5/2018 on zero burning for land clearance and land management requires plantations to anticipate and reduce fires from plantation activities. The incidence of fire hotspots has declined significantly since 2015 in parallel with the introduction of these measures, facilitated by wetter weather.

Figure 3.3. Deforestation has been rapid
Figure 3.3. Deforestation has been rapid

 StatLink http://dx.doi.org/10.1787/888933931677

A further challenge, in addition to deforestation, is loss of intact forest landscapes. These landscapes, which are defined as having no remotely detectable signs of human activity, play a crucial role as biodiversity habitats and for ecosystem service provision. Indonesia’s annual rate of degradation is typical for forest countries, but in terms of total area it has witnessed the third highest loss globally (Figure 3.4). Logging, agricultural activity and infrastructure development all contribute to the loss of intact ecosystems.

Figure 3.4. Forest degradation remains a challenge
Figure 3.4. Forest degradation remains a challenge

 StatLink http://dx.doi.org/10.1787/888933931696

Timber production and forestry concessions

Indonesia’s forests have mostly been used for timber extraction, making the country one of the world’s largest producers and exporters of tropical logs (ITTO, 2016). Concessions for selective logging of natural forest (called HPH concessions) had been the main type of timber production, but output has progressively shifted towards industrial plantations in the past two decades, as they tend to be more productive per hectare. Since 2008, the MoEF has directed industrial timber concessions (known as HT concessions) towards non-productive production forest. The policy is intended to prevent conversion of productive natural forest to industrial timber plantations. High-quality wood from natural forest is diminishing fast, particularly in the more accessible lowland areas. Log supply from industrial timber concessions more than doubled over 2005-17 and now represents 87.5% of total log supply at 37.8 million m3. The rapid expansion of HT concessions has come at the expense of peatland and forest (Abood et al., 2014; Gaveau et al., 2016). In 2017, the government instructed holders of HT concessions in peatland to halt production until they had taken protection and rehabilitation measures to protect the peatland’s water storage function.

Overcapacity in wood processing has encouraged the shift from selective logging to industrial plantations, as plantations have been better able to scale up production. The overcapacity is due to policies encouraging downstream investment in plywood, pulp and paper mills. The policies’ effect has been compounded by slow development of industrial concessions; in 2014, only 68.5% of concession areas were planted (MoEF, 2015b). Forest Trends, a non-government organisation (NGO), estimated that 30% of the resulting gap between log supply and demand was filled by illegal logging, often carried out as a prelude to establishing oil palm and timber plantations (Forest Trends, 2015; ITTO, 2016). The share may have declined in recent years, however, following government efforts to improve law enforcement.

Figure 3.5. Industrial timber concessions play a growing role in log production
Figure 3.5. Industrial timber concessions play a growing role in log production

 StatLink http://dx.doi.org/10.1787/888933931715

Agricultural production

The landscape has long been shaped by mosaics of agricultural plantation. Indonesia is a major producer and exporter of agricultural commodities, including rice, cocoa, coffee, tobacco, tea, rubber and palm oil. Agricultural cropland occupies 35% of the total land area (OECD, 2019), including rice on 15 million ha, coconut and rubber on 3.6 million ha and cocoa on 1.7 million ha. Agricultural land use has increased substantially over the last decade (more than in Brazil or India, for instance), driven by growing domestic and global demand (Figure 3.6). Coffee and cacao plantations, often small to medium-sized, are reported to have contributed to forest loss in parts of Sumatra and Sulawesi, but it is oil palm that has had the largest impact on deforestation and peatland loss (Abood et al., 2014; Gaveau et al., 2016).

The harvested area expanded more rapidly for oil palm than other major crops, albeit with regional variation (Figure 3.6). Oil palm is attractive to growers because of its high yields and potential for continual harvesting. These qualities, combined with rising demand, have led to rapid increases in harvested area. Planted area doubled nationwide (and tripled in West Kalimantan) over 2005-15, driven by fast-growing demand for palm oil-derived products. Plantations now cover around 12.3 million ha, mostly on Borneo and Sumatra (Figure 3.6) (MoA, 2018). By 2017, around 5.5 million ha previously in the state forest (classified as convertible production forest), or 4.5% of state forest land, had been converted to oil palm plantations (MoEF, 2018c).

Global demand for palm oil is projected to continue increasing over the next decade (OECD/FAO, 2017). Indonesia’s strengthened domestic biofuel mandate, which has stimulated demand for biofuel based on palm oil, is also likely to drive palm oil production growth (Chapter 2) (USDA, 2017). On current trends, rising demand for palm oil will need to be met by expansion of harvested area, if productivity per hectare does not improve. Yields, in terms of oil palm fruit, have decreased by 14.4 % since 2005 and have been lower than maximum theoretical yields. The government plans to increase palm oil productivity.

Figure 3.6. Oil palm plantation has grown rapidly since 2005
Figure 3.6. Oil palm plantation has grown rapidly since 2005

 StatLink http://dx.doi.org/10.1787/888933931734

Mining concessions

Indonesia has significant energy resources (coal, geothermal, natural gas, oil) and minerals (copper, bauxite, gold, nickel ore, tin). Mining concessions occupy a negligible proportion of state forest at 0.4 million ha, much of it devoted to exploration (MoEF, 2018a). Mining has been a minor contributor to deforestation due to its small share of total land area, but has disturbed surrounding natural ecosystems. Widespread illegal small-scale mining is a significant contributor to this problem due to lack of compliance with environmental safeguards (Abood et al., 2014).

Investment in developing new mining concessions slowed recently as global prices fell, the business environment became more challenging and reserves of some minerals, such as tin, oil and gas, neared depletion (Tang, 2017; PwC, 2017). However, an improving business environment (OECD, 2018) and increased global demand for mineral and energy resources could reverse this trend, stimulating investment.

Current and projected impact of climate change on the land-use sector

The impact of climate change could increase demand for land, as it can result in lower agricultural productivity. Yields of oilseed crops (including oil palm) could decrease by 20% and rice production by 12% by 2050 (OECD, 2015a). Oilseed crops could have a higher dieback level at younger ages as dry seasons (compounded by El Niño) become more severe and diseases develop in parallel with rising temperatures and changing rainfall patterns. The need for expansion would grow accordingly. Higher temperatures and more severe dry spells could also increase vulnerability to forest fires, such as those that occurred in 2015 (Box 3.3). More frequent floods and droughts could also affect productivity in other land-based sectors, including mining and forestry.

Box 3.3. Consequences of the 2015 forest fires in Indonesia

Forest fires have severe environmental and social consequences, particularly in El Niño years, when the Indonesian dry season (around March-October) is particularly arid.

The 2015 forest fires were notably severe. Around 136 100 hotspots were declared (compared to 4 448 in 2016) and an estimated 2.6 million ha was burnt, generating toxic smog and haze that also affected Malaysia and Singapore. This contributed to some 500 000 cases of respiratory disease and potentially more than 100 000 premature deaths across the region. The haze caused economic activity to slow, schools to close and flights to be cancelled or delayed. The total cost of the fires was estimated at USD 16 billion.

In response, a range of policy measures have been implemented (MoEF, 2018a):

  • Establishment of fire task forces at the provincial and district levels to provide a co-ordinated response to forest fires. The MoEF also established fire brigades called Manggala Agni in 38 areas at particularly high fire risk.

  • Commitment to restore 2 million ha of peatlands and an extended moratorium on peatland development.

  • Improved monitoring. The MoEF developed a forest fire monitoring system (http://sipongi.menlhk.go.id/home/main), and satellite monitoring from the National Institute of Aeronautics and Space is used to identify potential hotspots.

  • Establishment of the Peatland Restoration Agency in 2016 to restore degraded peatland, with a focus on fire-prone areas.

  • Establishment of community-level firefighting programmes.

Source: Carrington, 2015; MoEF, 2015c; MoEF, 2018b; World Bank, 2016.

3.2.2. Impact of land-use change on the environment

Sustainable management of Indonesia’s forest and peatland is of global importance. The country contains two of the 25 world’s biodiversity hotspots and many endemic species, most of which are supported by its extensive forests and peatlands. The land can have cultural and religious importance to local communities. Pressures on forest and peatland threaten biodiversity and provision of essential ecosystem services. These services include freshwater provision (provisioning services), water cycling (supporting services), climate and water regulation, and carbon sequestration (regulating services). Carbon sequestration is essential to help Indonesia achieve climate goals. The country is among the world’s largest GHG emitters, with a large share of emissions stemming from burning and conversion of carbon-rich forest and peatland (Chapter 1).

Forest ecosystem services

The rapid degradation, fragmentation and loss of forest ecosystems contributes to habitat loss and threatens biodiversity (BAPPENAS, 2016). About 60% of rainforest species in Indonesia are endemic, including iconic mammal species such as the Bornean orangutan and Sumatra elephant. The elephant population declined by 84% over 1984-2007 in Riau province due to high forest loss (Petrenko, Paltseva and Searle, 2016). The Bornean orangutan population declined at a rate above 25% over the last decade, with acute pressures in Central and West Kalimantan (MoEF, 2017a).

Monoculture plantations support less diversity of species than natural forest (Petrenko, Paltseva and Searle, 2016). They also support rodents, snakes, beetles and other pests that affect surrounding habitats and plantations (Meijaard et al., 2018). By contrast, selective logging is less damaging to biodiversity and forest, though the damage varies by amount of timber felled (Burivalova, Sekercioğlu and Koh, 2014). Maintaining intact natural forest is essential for carbon sequestration. The estimated average economic value of the carbon stored in Central Kalimantan’s forest as of 2010 was USD 19.5 billion (UNEP, 2015).

Forest loss around watersheds is adversely affecting water quality and increasing flood frequency. Around 14% of Indonesia’s watersheds are in a critical state,3 in large part due to land-based sector activities (particularly on Borneo and Sumatra). The resulting increase in flood frequency has affected many vulnerable downstream communities (BPS, 2014). A study in Sumatra found that oil palm plantations in certain areas had increased sedimentation levels in nearby waterways due to vegetation loss (Carlson et al., 2014). Forest plays a key role in preventing soil erosion and thus avoiding water and soil quality degradation; in Central Sulawesi, the value of soil conservation services of primary forest are estimated at USD 81 million (UNEP, 2015).

Forest loss is furthermore affecting local microclimates by decreasing daily precipitation and increasing average and extreme temperatures. In Borneo, dry-season temperatures were found to be 1.7°C higher in deforested than forested areas; in Jambi, areas around young oil palm plantations were up to 6°C warmer than forested areas.4 Deforestation thus puts a double burden on local microclimates, both directly and, through climate change, indirectly (Jasechko et al., 2013; Sabajo et al., 2017; McAlpine et al., 2018).

Peatland ecosystem services

Peat ecosystem degradation (Figure 3.7) is damaging biodiversity. Peatland (especially peat swamp forest) is an important habitat for species, of which many are endemic. Around 33% of birds and 45% of mammals in peat swamp forest are threatened, vulnerable or endangered, by IUCN classification (Posa, Wijedasa and Corlett, 2011).

Peatland is the predominant source of GHG emissions from the land-use sector, through releases from decomposition and peat fires. The emissions are driven by land conversion for agriculture. Peatland’s low economic value has made it particularly vulnerable to conversion, especially as pre-2016 legislation provided little protection to areas where peat soil was less than 300 cm deep (i.e. 64% of Indonesia’s peatland) (MoEF, 2018b) (Section 3.5, Moratoriums). As a result, much peatland has been drained, burned or left to decompose.

In 2014, peat decomposition led to emissions of 342 Mt CO2 eq, or 18.5% of total GHG emissions that year. Carbon emissions from peat decomposition continues even after plantation establishment, outweighing the amount of carbon stored by oil palms or other species. Emissions from peat fires vary by year, but amounted to 499 Mt CO2 eq (27% of total emissions) in 2014.

Peatland conversion also increases flood risk and thus threatens the long-term viability of newly planted crops. Peat soil acts as a sponge, absorbing tremendous amounts of water. Draining it can lead to subsidence and increase flood exposure. A study in Central Kalimantan found that oil palm plantations established on drained peatland could become unmaintainable due to projected increases in flood frequency (Sumarga et al., 2016).

Figure 3.7. Most peat ecosystems are already degraded
Figure 3.7. Most peat ecosystems are already degraded

 StatLink http://dx.doi.org/10.1787/888933931753

Air, soil and water pollution

Air quality has been degraded by repeated forest and peat fires, combined with other pressures such as emissions from transport (Chapter 1). Fires increase air pollutant concentrations to dangerous levels and expose nearby communities to noxious amounts of pollution, putting their health at risk. In addition, oil palm plantations emit up to seven times more volatile organic compounds (VOCs, primarily isoprene) per unit area than forest (Meijaard et al., 2018). Some VOCs are associated with increased risk of cancer and respiratory illness.

Water and soil quality has been damaged by chemical inputs used in mining and on large plantations. Direct discharge of mining effluent, including from illegal mining, into surface waterways has led to numerous cases of local communities being poisoned by mercury and other metals (National Geographic, 2016; Hardjanto, 2017). Land areas and waterways have been contaminated by chemical discharges, mainly from agribusiness and mining. In East Kalimantan, for example, fish from the Mahakam River were found to contain dangerous amount of metals (Adri, 2015).

Emissions from land use, land-use change and forestry

In 2014, the land use, land-use change and forestry (LULUCF) sector emitted 979 Mt CO2 eq, more than half of Indonesia’s total emissions that year and up 40% from the 2005 level of 700 Mt CO2 eq (though year-to-year variation is high due to forest fires. Peat decomposition and fires were the main drivers, accounting for 86% of the sector’s total net emissions in 2014. Forest conversion for crops, construction, mining and other activities accounted for much of the rest (Figure 3.8). Recent government estimates indicate emissions from peat fires peaked at 713 Mt CO2 eq in 2015 and declined in 2016, helped by wetter weather and fire reduction measures (MoEF, 2018a).

Figure 3.8. LULUCF emission variations follow forest fire occurrences
Figure 3.8. LULUCF emission variations follow forest fire occurrences

 StatLink http://dx.doi.org/10.1787/888933931772

Forests are reported as having become a net sink by 2010 as a result of a change in methodology used to estimate past emissions. The revised methodology, used since 2014, assumes lower rates of forest degradation resulting from illegal logging following introduction of timber verification in 2010. For 2014, around 165 Mt CO2 eq was reported as being removed, mostly by forest and cropland.

3.2.3. Economic and social role of land-based sectors

Land-based sectors are a mainstay of the Indonesian economy, particularly in East Kalimantan, Riau and Papua, where they account for more than 50% of GDP (Chapter 1). The sectors have been a key source of income for rural Indonesians, particularly the 32.5 million people (8.6 million households) living in or near state forest. Agriculture accounts for 30% of employment nationally and is the main activity (excluding forestry) of 57% of households living around state forest (BPS, 2014b). The capital-intensive formal mining sector has played a lesser role in rural households’ livelihoods, but illegal small-scale mining has been a considerable source of income for some of the rural poor (Edwards, 2016; Purwanto, 2017).

The growth of palm oil production over the last two decades has significantly improved local communities’ livelihoods, providing jobs to 16-20 million people on and off farms (MoEF, 2018b; Euler et al., 2015). Oil palm’s profitability has led many smallholders to shift to it either as a complement to or substitute for more traditional crops such as rubber (Rist, Feintrenie and Levang, 2010). Smallholders now account for around 41% of the area of Indonesia’s oil palm plantations.

Strengthening the capacity of smallholders will be crucial to improving the productivity of the palm oil sector. Smallholdings have lower average productivity than larger estates, partly because they rely on cheaper but less productive seedlings and fertilisers. The technical potential for improvement is considerable: a pilot study found that application of best management approaches to suitable land could achieve yields 50% higher than the national average (Fairhurst et al., 2010). Faced with a similar challenge, Malaysia is using a combination of subsidies for replanting, technical support and the creation of co-operatives to secure access to cheaper inputs (Varkkey, Tyson and Choiruzzad, 2018). Indonesia, using a “nucleus-plasma” approach, has struggled to raise productivity. The approach relies on partnerships between larger plantations and smallholders, but the quality of support provided is variable (OECD, 2015b; Varkkey, Tyson and Choiruzzad, 2018).

Only a small share of people living in or near state forest rely on forestry activities as their main source of income, but forests contribute to the livelihoods of many local communities (BPS, 2014a). Global estimates have found that the benefits of ecosystem services accrue mainly to nearby communities, including the poor (Mullan, 2014). Forests support the spiritual values, knowledge and traditions of the country’s forest-dependent communities and play a determining role in the quality of their diet (Ickowitz et al., 2016). Around 37.5% of the 1.7 million households exerting de facto control over state forest land collect forest products or hunt to meet their needs; the share is 90.7% in Papua and 70% in West Kalimantan (BPS, 2014a). Beyond this, forests support livelihoods by contributing to other ecosystem services, including cultural and religious services (essential to many forest-dependent groups), clean water, flood protection and climate regulation (Rist, Feintrenie and Levang, 2010).

The economic potential of forest-based tourism has yet to be fully exploited, despite increased tourist flows (OECD, 2018). The recent designation of four tourism priority areas could accelerate regional growth and open new opportunities. Mahadevan, Amir and Nugroho (2017) estimate that tourism-led growth in Indonesia could significantly improve rural and urban poverty outcomes. Sound land management will be key to reconciling growth and sustainability of tourism.

3.3. The institutional and policy frameworks for the nexus: Improving coherence

Indonesia has made international commitments that have implications for land use. These include the Indonesia National Biodiversity Strategy and Action Plan (NBSAP) under the Convention on Biological Diversity (CBD) and the Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC). The NBSAP (2015-20) includes commitments to strengthen capacity, sustainably develop resources and support biodiversity conservation and rehabilitation. This requires protecting and linking habitats to offset forest landscape fragmentation and provide corridors allowing species to roam between protected areas. The land use sector is expected to deliver the majority of reductions to the NDC by 2030.

Indonesia has also made national-level commitments with implications for land use, in addition to the objective of achieving 7% annual GDP growth. It intends to achieve self-sufficiency in staple crop production, which will require significant production increases given the current gap between consumption and production. The biofuel mandate (Chapter 2) will entail using an increasing volume of palm oil in fuels. The target of a 60% share for coal in electricity generation capacity by 2025 has implications for mining.

Government Regulation No. 13/2017 on National Spatial Planning set specific targets, ranging from 30% to 70%, for the extent of protected land (kawasan lindung) on the eight largest islands and archipelagos. The Peatland Restoration Agency (Badan Restorasi Gambut) has a target of restoring 2 million ha of peatland forest by 2020 and the MoEF has a target of restoring 100 000 ha of degraded land in conservation areas by 2019. The following sections explain the trade-offs and synergies between these goals and the mechanisms in place to manage them.

3.3.1. Identifying trade-offs and synergies between sectoral policy goals for the nexus

The importance of environmental issues, including ecosystems and climate change, are recognised in the developing planning process. The 2015-19 National Medium-Term Development Plan (RPJMN) explicitly recognises the importance of sustainable development and the role of spatial planning, and adopts the targets from the NDC and the National Action Plan for Climate Change Adaptation (RAN-API). The secretariat for the National Action Plan for Reducing Greenhouse Gas Emissions (RAN-GRK) helped mainstream the NDC targets into the RPJMN and ministerial work plans.

The development of the RPJMN is being informed by Statistics Indonesia’s System of Environmental-Economic Accounts (SEEA). The core accounts include the value of land, energy, mineral and timber resources. Satellite accounts recognise the value of ecosystem services, such watershed protection, carbon sequestration and biodiversity, and provide a useful basis for making well-informed decisions about alternative land uses. Indonesia is continuing to develop SEEA to better capture changes in the value of natural capital. Pilot studies have been undertaken in several provinces and the government aims to link the land accounts with ecosystem accounts. Continuing efforts to improve data coverage and quality will facilitate the use of these accounts to inform policy development, including development planning.

The elaboration of sector targets in the RPJMN, however, does not appear to have fully considered interactions between objectives. As the stock of land is finite, implicit demand for land from each objective needs to be consistent. For example, increased production will require a combination of increased productivity and increased land area. However, the production targets for food and fuel crops imply claims on the stock of degraded land that are likely to exceed the volume of suitable land available (Bellfield et al., 2017).

The experience of Malaysia demonstrates how setting clear, realistic overall land use targets can help shape behaviour. In 1992, Malaysia committed to keeping at least 50% of forest cover intact. This signalled to the industry that output increases would have to be met through productivity gains rather than expansion of planted area (Varkkey, Tyson and Choiruzzad, 2018). Robust enforcement helped establish credibility. Setting realistic, overarching targets for how land is to be used can improve coherence and predictability.

As in many countries, mainstreaming of government targets has not been co-ordinated across sectors, and the alignment of targets is sometimes limited, posing a risk of inter- and intra-ministerial conflict. For example, reducing GHG emissions from land use is a central pillar of the NDC but there are no specific targets for reducing emissions from LULUCF in the MoEF 2015-20 work plan. The Master Plan for Acceleration and Expansion of Indonesian Economic Development (2011-25) promotes transport infrastructure development, but only highlights potential environmental impact from agriculture and mining. Indonesia has the conflicting goals of expanding oil palm and timber plantations while reducing GHG emissions from forestry and land use change, and of reducing emissions by 29% by 2020 but also expanding electricity generation using coal.

Barriers hampering the adoption of a coherent approach to managing these interactions include (GGGI, 2015a; Bellfield et al., 2017):

  • Insufficient data and tools, which are needed to understand the consequences of various policy choices and identify potential trade-offs. The work is resource intensive, particularly when modelling policy choices’ impact on ecosystems and climate.

  • The vast number of strategies and documents that have to be aligned to achieve greater coherence. They include national strategies and commitments (such as the NDCs), ministerial work plans, budgets and the formal development planning process.

The next phase of the medium-term development plan, the 2020-24 RPJMN, provides an opportunity to reconcile developmental policy goals with climate change, land use and ecosystem targets. As part of the preparation for the 2020-24 RPJMN, BAPPENAS has undertaken economic modelling to facilitate discussion between stakeholders and ensure that relevant sector targets are compatible. This modelling aims to integrate the role of natural capital to reveal interactions between economic development and environmental outcomes. The improved modelling could also achieve greater clarity and specificity in land use and biodiversity targets, which would aid in mainstreaming them at the national and subnational levels.

3.3.2. Central government and horizontal co-ordination

As in other countries, the management of the nexus cuts across several key ministries. For example, policies relevant to oil palm are produced by the Ministry of Energy and Mineral Resources (national biofuel blending mandate), Ministry of Agriculture (plantations on non-state forest land) and the MoEF (land required for plantation expansion in state forest areas). The Coordinating Ministry for Economic Affairs has the remit of ensuring co-ordination among most ministries relevant to management of the nexus. The exception is the Ministry of Energy and Mineral Resources, under the Coordinating Ministry for Maritime Affairs and Natural Resources. BAPPENAS also has a co-ordinating function, particularly in relation to the national development planning process. Thus there is a need for co-ordination between co-ordinating ministries.

Various approaches have been tried over time for enhancing policy coherence. Under the previous administration, independent bodies reporting directly to the president were created, e.g. a co-ordinating body for climate change in 2008 and the Reduced Emissions from Deforestation and Forest Degradation (REDD+) agency in 2013. While they facilitated horizontal links, they struggled to gain legitimacy among the relevant ministries (Di Gregorio et al., 2017).

Following the 2014 election, the functions of the REDD+ agency were moved to the MoEF, and the MoEF and BAPPENAS have since shared responsibility for climate policy more generally. An autonomous Peatland Restoration Agency was established in 2016 to help achieve the target of restoring 2 million ha of peatland by 2020. The current policy development structure has aligned responsibilities within MoEF and BAPPENAS, but faces challenges in facilitating co-ordination more generally (Di Gregorio et al., 2017).

3.3.3. Subnational institutions and vertical co-ordination

The subnational administrative landscape in Indonesia is complex, with 34 provinces, 416 districts (or regencies) and 98 cities, each with its own separate administrative bodies. In the nexus, local governments play several key roles in setting and co-ordinating the policy agenda. Both provincial and district governments are responsible for further defining the spatial development plan, following guidelines laid out in the sometimes conflicting sector spatial plans produced at the national level.

Vertical integration of policy goals is facilitated by MoEF, and also by BAPPENAS, which has offices in each province. For example, the RAN-GRK secretariat, based in BAPPENAS, provides technical assistance to district governments in the production of their climate change mitigation action plans, which include provisions for ecosystem resilience. These mechanisms are intended to align regional policy targets with broader national policy objectives. There has been some success in mainstreaming and vertical co-ordination of policy goals for climate change. All provinces have submitted local mitigation plans and integrated them in their latest medium-term development plans.

Progress on climate change adaptation has lagged behind mitigation, with only 8 of the 34 provinces having produced an adaptation plan. Uptake has also been lower at the district level but several cities, including Semarang, Bandung and Lampung, have incorporated adaptation plans in their development plans. These cities were included in a pilot programme funded by the Asian Development Bank, however; broader adoption of adaptation work has yet to be achieved.

A major challenge involves limited local capacity for spatial and development planning, which hampers vertical co-ordination and coherence of policy at the provincial and district levels. As a result, policies protecting ecosystems and tackling climate change are often secondary to policies promoting development, and district policies can be poorly aligned (WRI, 2014).

Efforts to improve capacity in provincial and district governments are under way (MoEF, 2018a). For example, Forest Management Units (FMUs, Box 3.4) are expected to play a central role in supporting management of forest areas. They will not only aid in local government capacity building but will also be essential for improving land allocation and both vertical and horizontal policy integration at the land-use, ecosystem and climate change nexus across layers of government. There is a particular need to strengthen capacity for integrating climate change and biodiversity into regional spatial and development plans.

Box 3.4. Enhancing state forest management with Forest Management Units

Indonesia is introducing Forest Management Units (Kesatuan Pengelolaan Hutan) to enhance management of state forest. FMUs are on-site organisations undertaking day-to-day, ground-level management activities to ensure that the functions and services of given forest units are maintained. FMUs act as intermediaries between local stakeholders and local and national governments, which retain responsibilities for forest administration.

An FMU’s activities include establishing its forest unit’s boundaries, conducting a forest inventory, assisting local communities in the management of social forestry activities (particularly as regards community forests), carrying out monitoring and fire prevention, creating short- and long-term management and business plans in line with national and local plans, and contributing to the resolution of land conflicts.

The direct relationship between FMUs and local communities can help resolve land conflicts and create economic opportunities. Kim et al. (2015) highlight the role of the West Rinjani FMU in supporting the development of community partnership agreements between communities and other stakeholders to ensure rights to non-timber products from production forests. It implemented a successful programme of community monitoring to reduce the incidence of illegal activity. It also acted as a mediator in a land conflict between the provincial government and local communities.

The 430 FMUs to date across Indonesia face considerable constraints. For instance, Ota (2018) found that one FMU managed 80 000 ha with a staff of 15. In addition, unclear responsibilities can hamper FMUs’ effectiveness. Donors are supporting the development of FMUs through multilateral development banks and agencies, as well as bilateral co-operation.

Source: FORCLIME, n.d.; Ota, 2018.

3.4. Enabling environment for sustainable land management

As in many emerging market economies, lack of clarity about land classification and rights poses a continuing challenge to effective land management in Indonesia. The main issues, which are interrelated, include conflicting claims to land, the status of land belonging to indigenous communities, the lack of a single map of land rights and weaknesses in enforcement.

3.4.1. Land classification and rights

Indonesia’s Constitution declares that the state controls the land, natural resources and water and must use this ownership to support the common good.

The MoEF is responsible for the administration and management of state forest areas and access to them (Box 3.1). Other forested land is generally controlled by the Ministry of Agrarian Affairs and Spatial Planning, while each sector ministry can define its own national spatial plan. The status of customary lands (adat) has changed: under the 1999 Forestry Law they could be treated as state forest, but the Constitutional Court invalidated this provision in 2013. The implication is that the state should not allocate such land without local communities’ agreement (Butt, 2014). This requirement of more inclusive decision making should help reduce the incidence of land-related conflicts.

Spatial planning at the local level affects which objectives at the nexus are ultimately prioritised. At the national level, spatial planning is regulated by Law No. 26/2008, which requires spatial plans to take into account the carrying capacity of the land in terms of water, ecosystems and agriculture. Provinces and districts are to define their spatial plans in reference to national ones. However, effective integration of the goal on carrying capacity into local spatial plans is challenging due to a lack of clear guidance and targets to operationalise the concept. Improving local land allocation with respect to national climate change and ecosystem targets would require more provincial and national guidance and targets for district spatial plans.

Mainstreaming systematic use of strategic environmental assessment at the local level would help in addressing these issues (Chapter 2). However, that would require developing new and better metrics for the ecological and economic value of land and resources, particularly outside state forest land, where ecosystem protection is weaker overall. In 2014, the government issued guidelines on high conservation value (HCV) assessment, in line with international standards, and is now developing HCV identification and management guidelines to be adopted at the highest level. A province-level HCV assessment of Central Kalimantan was conducted in 2016 (CPI, 2016). The functional classification of peat ecosystems (cultivation/protection) by the MoEF provides further guidance for spatial plans (Box 3.2).

For Indonesia to make significant progress towards its NDC and CBD targets, it is essential for new plantations to be directed towards degraded lands, but the current system of land allocation does not actively encourage this. While the legal mechanisms exist to change land classification to and from forested areas, in practice they are mainly used to allow oil palm development – nearly 90% of all state forest reclassification registered until 2017 was for oil palm (MoEF, 2018c). The most widely used legal reclassification is to change convertible production forest into non-state forest to allow the development of oil palm plantations, which cannot be legally established on state forest land. Swaps between degraded state forest land and forest outside the state forest are hindered by administrative complexity (Rosenbarger et al., 2013).

Decisions on the issuance of permits and conversion of land type do not fully reflect the conservation value of land, particularly outside state forest areas. Current legislation requires holders of agricultural permits outside the state forest, including oil palm for plantations, to clear the area for which they have a use permit of the type known as HGU5 (Daemeter Consulting, 2015). This is true even if the areas concerned includes ecologically sensitive or primary forest except where land is land designated as conservation or protection forest. For example, if a plantation operator fails to convert its entire concession to production, it could result in the concession permit being revoked, even though Law No. 40/1996 on the Right of Exploitation, Right of Building and Right of Use of Land obliges HGU permit holders to prevent damage to natural resources and maintain environmental capabilities.

Setting aside HCV area is legally feasible but complex, and eventually depends on willingness by the local government and permit-issuing authority6 (TFT, 2017). In 2015, the Ministry of Agrarian Affairs and Spatial Planning issued two circulars calling for the preservation and recognition of HCV forest within concessions. The instruments’ low legal value cast doubts over their effectiveness, however. As efforts to mainstream HCV considerations into land permitting are undertaken, the designation of essential ecosystem areas (EEAs) potentially offers a way around these issues (Box 3.5). In addition, plantations over 25 ha must hold, and report on, an environmental permit but various cases indicate that many companies do not comply with one or both requirements (Obidzinski et al., 2012; Maradona, 2015; IDM, 2016).

Box 3.5. Protecting ecosystems within concessions
The essential ecosystem area (kawasan ekosisstem esensial) designation means an HCV area within a concession that is ecologically integrated with the surrounding landscape. Typically, a permit holder for a concession where an HCV area is connected or serves as a bridge to tracts of forest or peatland either inside or outside a state forest area (e.g. an ecological corridor) may be eligible for an EEA programme and thereby benefit from legal protection, upon application to the local government. The land remains under the overall supervision of the MoEF, but is managed collaboratively by local stakeholders through the establishment of EEA collaborative management forums.

The EEA in the Wehea-Kelay landscape in East Kalimantan illustrates how the designation can be used. The Wehea-Kelay landscape spans more than 500 000 ha, including a luxuriant lowland and plateau forest, hills and various ecosystems; it also supports the livelihoods of many local communities. It is an essential carbon sink and home to rich biodiversity, including around 25 000 orangutans. In 2016, the governor of East Kalimantan and the MoEF established a multi-stakeholder forum, including oil palm and timber plantations and logging concessions, to conserve and manage an EEA in the Wehea-Kelay landscape.

The development of EEAs is promising but has been slow thus far. It really took off when authority was transferred from the MoEF to local government, which facilitated administration and co-ordination. But there is as yet little incentive to develop the approach, as it limits potential revenue from plantations and other economic activity.

Source: TFT, 2017.

The complex system of land permitting has undermined the coherence of the land classification process. Responsibilities for issuing permits are divided among several ministries and government levels, depending on the type of resource to be extracted (Ardiansyah, Marthen and Amalia, 2015). The introduction of an online permitting system in 2018 represented progress, but the underlying issue is that land parcels are subject to various legal regimes that are not necessarily consistent with the interconnected nature of the ecosystems. The number of permits required can make the legality of extraction operations unclear. Moreover, agreement is lacking on which maps to base land-use decisions on, with inconsistencies among national sector plans, leading to further confusion and conflicts at the subnational level (Brockhaus et al., 2012).

Local land allocation is intended to be a participatory process involving affected communities. But the multiple conflicting maps, poor recognition of customary (adat) land tenure and the influence of powerful commercial and political interests have left local communities mostly excluded from the final allocation process (Brockhaus et al., 2012).

3.4.2. Improving mapping of land resources

The One Map initiative is a significant effort to address a major underlying weakness in land management, which is the lack of a single map. The goal is to reflect and present development objectives in spatial maps. Integration of regulatory aspects and inter-ministerial coherence are important elements of the process. The project is not only a cartographic challenge but also a policy endeavour. The aim is to facilitate coherent land use reflecting sector and development objectives.

The need for a single map arose because ministries and agencies have used different maps, leading to lack of clarity about land status and overlapping permits. The aim of Law No. 4/2011, the One Map initiative, is to create a unified map of Indonesia at a scale of 1:50 000. It will have 85 thematic layers, including concession boundaries, to inform land use management decisions. Public access to the base map was provided in 2018, with the thematic maps added over the course of 2019. The project is in line with the government’s One Data Policy for providing public access to information. Discussions are still under way about how much public access to the thematic layers will be granted.

All but two of the 85 layers are ready, despite the complexity of the undertaking. On the technical side, previous thematic maps used different scales and base maps, making it difficult to reconcile the thematic levels. Capacity building was required to ensure that maps of customary forest lands met the technical standards set by the geospatial agency. Institutionally, the existence of overlapping boundaries has necessitated a politically sensitive process of reconciling land classification. Continued high-level support, combined with sufficient resources, will be required to maintain progress in this vital area.

3.4.3. Social forestry and agrarian reform

Indonesia is working to provide predictable, legal access to land to communities through its social forestry and agricultural programmes. One target is to have 12.7 million ha (6.8% of total land area) under social forestry, providing legal usage rights to communities for the first time. A further 9 million ha (4.8% of total land area) will be redistributed for agrarian reform. These programmes are part of a broader effort to reduce inequality and support the livelihoods of poor rural communities. Social forestry programmes aim to provide usage rights to forest communities for 35 years for uses specified in social forestry permits: agroforestry, agro-silvopasture, silvofishery, ecosystem service provision and ecotourism. Ownership of the land remains with the state. The agricultural reform programme goes further by providing legal ownership as well as usage.

By clarifying land rights, these programmes could address a major source of tension between local communities and fast-expanding land-based sectors (OECD, 2015b). It is estimated that local communities use 9.3 million ha, two-thirds of it as customary forest, but few have already been granted legal status (Arumingtyas, 2018). Only 60% of households exerting control over state forest land have permits to do so (BPS, 2014a). Consequently, land claimed or owned by local communities often overlaps with industrial concessions, leading to conflicts.

Secure access to land is intended to encourage adoption of sustainable natural resource management and discourage land clearing as a de facto means of securing property rights. Social forestry may reduce GHG emissions from deforestation: RAN-GRK estimated that designating 2.5 million ha for social forestry would reduce emissions by 92 Mt CO2 relative to the baseline. In Brazil, a land registration programme known as SICAR is estimated to have reduced deforestation rates by 10% relative to business as usual (Alix-Garcia et al., 2018). In Indonesia, the social forestry designation of village forest (hutan desa) has reduced deforestation, but it remains to be seen whether other types of designation have similar influence (Santika et al., 2017). Box 3.6 provides an example of social forestry.

Box 3.6. Environmental and economic benefits of community forestry in Yogyakarta

Kulon Progo Community Forest is located within the Yogyakarta production FMU in Yogyakarta province. It was designated in 2007, with 197 ha of forest to be managed by community. Ecotourism is a major income source for this area, with visitors attracted by the landscape. Social media exposure helped visitor numbers increase from 7 161 in 2010 to 443 070 by 2016. It is estimated that tourism has created jobs for 236 people. There have also been environmental benefits, with watershed protection safeguarding drinking water supplies.

Source: MoEF, 2018a.

These land reform programmes should also support investment, as legal land rights serve as collateral for loans. To help realise these benefits, the government is working with banks to facilitate access to microcredit and with state-owned enterprises to support marketing of non-timber forest products from social forestry (MoEF, 2018a). By increasing the economic value communities reap from standing forest, such agroforestry can provide an incentive for longer-term sustainable management.

Concerted effort is needed to meet the social forestry goals. The government has allocated 12.7 million ha to be used social forestry and aims to distribute 4.3 million ha of it by the end of 2019. Over 2007-18, 2.5 million ha was put into social forestry (MoEF, 2018a). The rate of uptake increased over time, but strengthened effort is required to meet the target for distributing land. Efforts to streamline the application process have been successful: reforms in 2016 reduced it from 2-3 years to about 1 year. Significant capacity building is required to improve access to social forestry programmes, notably the training of facilitators to assist communities in registering social forestry rights. This is especially true of less developed regions, where uptake of social forestry programmes has been low.

3.5. Aligning goals and policy instruments

A wide range of policy instruments influence the nexus in Indonesia. Regulatory instruments are the primary tool used to support land management, particularly through the development of spatial plans and requirements to undertake environmental impact assessment (EIA). As in many emerging economies, weaknesses in the enabling environment, such as capacity constraints and inconsistent enforcement, hinder the tools’ effectiveness.

There is scope to increase the use of economic instruments to enhance the efficiency and effectiveness of nexus policies. The use of positive incentives for conservation, such as payment for ecosystem services (PES), remains at an early stage. There are also economic instruments that indirectly encourage unsustainable behaviour, including provision of subsidised inputs. Charges for the use of natural capital remain generally low and do not internalise environmental costs to change relevant behaviours.

3.5.1. Regulatory instruments

Protected areas

The designation of terrestrial conservation areas (protected areas) is intended to prevent conversion of forest that is important for wildlife and plant biodiversity. Some 22 million ha (18%) of state forest land is classed as conservation forest and is afforded legal protection from conversion and logging. Conservation forest is subdivided into classes with varying degrees of protection. Around 30% of Indonesia’s remaining primary forest is conservation forest. The definition is similar to that of the internationally recognised concept of protected areas. Under Law No. 23/2014, all forest designations are gazetted at the national level by the MoEF, which also manages them at the national level. Grand forest parks, a type of protected area, are managed at the district level.

The designation of protected areas has not prevented deforestation. Studies have found that the legal protection does not significantly reduce deforestation rates when compared to logging concessions (Gaveau et al., 2012). Land under strict protection (equivalent to IUCN category 1a) saw increased deforestation rates over 2000-10 (Brun et al., 2015). Around 10% (2.2 million ha) of the area designated as conservation forest is devoid of tree cover as a result of encroachment by activities such as agriculture, plantations and illegal mining.

Particularly in the context of constrained government funding, it is essential for communities to have a stake in the continued preservation of protected areas (Waldron et al., 2017). Government enforcement of protected areas is hampered by insufficient funding, capacity gaps and development pressures. Allowing limited resource use, such as harvesting of non-timber forest products, would permit local communities to support their livelihoods while protecting the land. There is also increasing recognition of tourism’s revenue stream potential, e.g. at Gunung Leuser National Park on Sumatra (Hang, 2018). Visitors are drawn to the area for nature activities, and villagers earn revenue by providing guiding, transport, homestays and food.

Comparison with Brazil illustrates opportunities for effective policy implementation. Between 2002 and 2012, Indonesia lost 4.4% of the total carbon contained within protected areas, while Brazil lost 2.6%. Brazil had established a dedicated agency, ICMBio, to co-ordinate the management of these areas. The majority of protected areas in Brazil have management committees, which provide a formal mechanism for involving local communities and businesses in the management of the areas. In addition, the environmental compensation regime in Brazil provides an additional revenue stream for forest management. The system requires landowners to retain a certain proportion of native vegetation on their land. If they do not do so, they have to purchase credits from landowners who have retained more native vegetation than the legal requirement.

Moratoriums

Two-year moratoriums have been adopted to prevent the issuance of permits for new concessions on forest and peatland of more than 3 metres’ depth, the aim being to stop clearance of primary forest and peatland. A two-year presidential moratorium on new permits for primary state forest land was first issued in 2011 (Presidential Instruction No. 10/2011) and renewed three times. Without the moratorium, 59% of primary forest, designated as suitable for production, could be exploited. The MoEF has developed maps indicating the forest and peatland covered by the moratorium. It now totals 66.4 million ha, or more than half the total area of state forest.

Three issues hinder the moratorium’s effectiveness in preventing forest loss, however: first, there are few legal consequences for disobeying a presidential instruction, weakening its power with local institutions. Second, as a moratorium is by definition temporary, it does not provide a long-term signal to guide investment decisions. Third, the moratorium only concerns new permits, so existing but unused permits are still valid. Still, the moratorium provides a crucial window of opportunity to reduce land clearance pending other reforms to clarify the land tenure system. Firm legislation, informed by evaluation of lessons learned from these temporary measures, would provide greater predictability for the private sector and communities.

Following the 2015 fires, a moratorium on conversion of all peatland was adopted. Government Regulation No. 71/2016 forbids conversion of any peatland (including that covered by the moratorium) countrywide for current and new concessions. The intent was to allow time to verify peat ecosystem maps and design a consistent peat ecosystem zoning system identifying areas suitable for protection and cultivation. Peatlands zoned for protection are to be conserved and restored by permit holders. In 2017, the government issued a further policy to maintain peatland by defining protection and cultivation zones within the peatland area and revising the spatial plans for the affected companies (Government Regulation No. 57/2016). The moratorium represents a step forward as all peatlands and existing concessions are covered. However, there are concerns that if the peat ecosystem zoning system does not take account of the ecological integrity of peat ecosystems, it will not grant sufficient protection (Mongabay, 2016).

In 2018, a three-year presidential moratorium was issued on new palm oil development, combined with a review of existing licences. The aims are to pause new development while land ownership is clarified, reduce GHG emissions from land conversion and provide an incentive to increase productivity on existing plantations.

Mandatory palm oil certification

Indonesia has a national standard for palm oil sustainability. The Indonesian Standard for Sustainable Palm Oil (ISPO) intends to ensure that palm oil is produced legally and meets certain environmental performance standards. It is mandatory for large producers and expected to become mandatory for smallholders by 2022. ISPO bans the use of fire but allows expansion of plantations onto peat soils (though this is currently prevented by presidential moratorium).7 ISPO certification incorporates environment-related requirements covering the entire palm oil production process, including standard procedures for land clearing, plantation, soil and water conservation, and waste management. The ISPO certification process encourages the use of best available practices to increase production efficiency and reduce GHG emissions. Around 17% of Indonesian palm oil output is ISPO certified, which is less than under the voluntary Roundtable on Sustainable Palm Oil (RSPO) (Section 3.5.3) (Barthel et al., 2018).

Although it has broad coverage, the ISPO’s targets are insufficiently stringent to make a significant contribution to meeting climate change targets and reducing ecosystem degradation. A recent comparative study on the world’s main certification regimes ranked the ISPO as the weakest (Forest Peoples Programme, 2017). Under the ISPO, only protection and conservation forests, as designated by the MoEF, are considered land of high conservation value and thus protected from clearance. Moreover, as was noted earlier, concessionaires may be obliged to clear the land or risk having their permits revoked.

ISPO enforcement capacity is limited. Local governments are responsible for penalising non-compliance, and are subject to local pressures for continued development. In addition, many smallholders may not be able to meet ISPO criteria by 2022. Complying with basic ISPO criteria such as a land ownership certificate or ISPO-compliant fertilisers and seedlings is already proving challenging for many (Jong, 2018).

The ISPO can help improve the baseline environmental performance standard by ensuring minimum legal and regulatory compliance. It could be used to complement the more stringent RSPO, which might help reduce sustainability concerns. Such concerns led to revision of the EU Renewable Energy Directive, which by 2030 will phase out import of biofuels that pose a high risk of indirect land-use change. This could have a major impact, as 40% of European palm oil imports are currently used for biofuels (Deutsche Welle, 2018). The criteria for which feedstocks will continue to be eligible have yet to be determined, but are expected to include at least some palm oil production.

Timber legality system

Indonesia has made strides towards reducing illegal logging through the timber assurance legality system (SVLK). It has won EU acceptance, with SVLK registration now automatically qualifying exporters for Forest Law Enforcement Governance and Trade licences. The SVLK was designed to ensure that all Indonesian timber and wood products come from sustainably managed forests. Enrolment, which is based on an annual audit, is mandatory for all companies in the timber supply chain (logging and processing). The SVLK is intended to be collaborative, bringing together stakeholders including business associations, NGOs, academic experts and government officials. The stakeholders can file reports if they suspect that licences have been improperly issued. The licences of assessment bodies can be revoked if they are found to be improperly issuing licences.

The SVLK has made progress in ensuring legality and sustainability of timber production, but some major challenges remain. The 26 registered SVLK assessment bodies in Indonesia are accredited by the National Accreditation Committee and endorsed by the MoEF. The assessment process has focused on whether companies have the correct paperwork, rather than whether permits were correctly issued. In addition, there have been cases of suspected laundering of illegal timber through legal companies and inconsistent sanctions against offenders (EIA, 2014). While there have been no sanctions to date, companies that do not implement the SVLK cannot export their timber.

Compliance, monitoring and enforcement

Most compliance assurance activities are conducted by provincial and district authorities. The MoEF’s role has increased in recent years, with enforcement becoming one of its priorities. The 2015 merger of the environment and forestry ministries helped strengthen central government enforcement efforts. However, important gaps remain at the subnational level, where institutional capacity is limited by lack of technical skills and high staff turnover.

Weaknesses in enforcement hinder effectiveness of land management, leading to a gap between the land uses envisaged by policy and the situation on the ground. Examples include activities undertaken without the correct permits, activities that are not reported to avoid taxes, and activities in which permits have been improperly issued. Irregularities include issuance of permits without completion of the necessary EIA and district government issuance of permits that are inconsistent with national legislation. Strict penalties against forest crime exist: for example, illegal clearance of state forest is punishable by ten years in prison. However, the penalties’ deterrent effect is lessened by prosecution bottlenecks.

The nature of illegal and unreported activity makes it hard to closely estimate its scale, but studies suggest it is extensive. The Corruption Eradication Commission (KPK) found that 77-81% of timber production was unreported between 2003 and 2014, leading to annual state revenue losses between USD 539 million and USD 739 million from uncollected charges and taxes. The value of the state-owned timber taken rose to between USD 7.7 million and USD 9.9 billion in 2014 (KPK, 2015). Forest Trends (2014) estimated that 70-80% of forest conversion was probably illegal, due either to illegal methods (such as using fire for clearance) or to a lack of valid permits. After the KPK issued its report, the MoEF integrated the Timber Administration Information System with the non-tax revenue database to keep timber industries from using illegal products.

In 2008, there were fewer than 500 environmental inspection officers and only about 400 environmental civil servant investigators across the entire country. In 2018, the MoEF alone employed over 2 800 forest police, 247 environmental inspectors and 468 investigators. The national police and MoEF investigators have equal authority to enforce environmental and forestry law. While the MoEF usually focuses its compliance assurance efforts on illegal logging and wildlife trade, the police concentrate on crimes related to pollution and forest fires. Local police officers, who are often the only agents in a position to respond to offences, do not always act. Environmental investigators often support police cases with technical expertise, data and laboratory analysis.

Formally, inspectors must have the title “regional environmental inspection officer” (PPLHD) to carry out their duties. The number of PPLHDs is very limited, partly because there are few opportunities to follow the required training, and partly because the position is perceived as unattractive in terms of career opportunities and benefits. For example, only one of the Gresik district’s environmental agency’s 77 officials is a PPLHD (Fatimah et al., 2017). This shortage of certified inspectors severely hampers local compliance monitoring and enforcement. Inspections are often conducted by non-certified officials carrying a letter from the head of the agency. This compromises their ability to impose sanctions if they detect a violation (Sembiring et al., 2017).

The central, provincial and district governments are authorised to monitor and enforce compliance with permits they issue. Since co-ordination among the various authorities’ inspectors is insufficient, they often send non-binding recommendations to each other following detection of a violation and avoid taking enforcement action themselves. The MoEF, as part of so-called second-line enforcement, can inspect and penalise facilities permitted by subnational governments if it suspects serious unaddressed violations.

In 2013, the national police, attorney general and ministries of environment and forestry signed a memorandum of understanding to adopt a “multi-door approach” when handling natural resource and environment-related crimes in forest areas and peatlands. However, guidelines for interagency co-ordination and standard inspection and enforcement procedures are still being developed.

Over half of inspections carried out by the MoEF are planned. However, inspections at the provincial and district levels are mostly reactive, responding to accidents, complaints and third-party reports of non-compliance. In handling complaints, provinces are often more active than local governments, even where the latter are authorised to undertake inspections. Provinces may receive referrals from the central government and take up complaints to which the district has not responded within ten days. Complaints are often received via text message or at a desk at the agency; many agencies do not make it possible to file complaints via email or a website. Usually no information is provided to citizens on how to file a complaint (Sembiring et al., 2017).

The fragmentation of authority to impose administrative sanctions across sectoral agencies and government levels has resulted in inconsistent application. Enforcement approaches often vary within the same authority, as officials have considerable discretion in carrying out their tasks. For example, the East Java Environmental Agency’s standard procedure describes complaint handling but stops where the complainant is informed about the result of complaint verification and does not address how to respond to a detected violation (Fatimah et al., 2017). Moreover, inspectors involved in complaint verification are often not involved in enforcement decisions (Sembiring et al., 2017). To try to address this issue, the MoEF produced guidelines on inspections (last revised in 2015) and complaint handling (in 2017). It also conducts capacity-building activities at the provincial and district levels.

In response to non-compliance, provincial governors and the MoEF can issue warning letters and compliance orders, suspend or revoke permits or impose environmental audits. The environment minister may ask the governor to impose such sanctions on the violator and, if this does not happen, apply the sanction directly. The number of administrative actions by the MoEF has increased in recent years. There are no fines, but a ministerial decree introducing fines for failing to implement a compliance order is under preparation.

Criminal enforcement depends heavily on the time-consuming trial process in courts of general jurisdiction. Although the public prosecutor’s office usually pursues cases it receives from the police or environmental investigators (568 cases were brought to court over 2015-18), the majority of these prosecutions are unsuccessful. The Supreme Court issued guidelines to courts on handling environmental cases in 2013. Nevertheless, Indonesian courts have been criticised for their lack of judges with expertise on environmental issues (Dawborn et al., 2017). As the law does not provide for specialist courts handling environmental cases, a major effort has been made to train and certify judges on environmental issues: 780 judges had been certified as of 2018.

Despite these challenges, the government is taking action to strengthen enforcement. There were 970 operations to secure land against encroachment, illegal logging and wildlife crime over 2015-18, resulting in the protection of 12.7 million ha. Seizures of illegal timber increased from 1 042 m3 in 2015 to 11 122 m3 in 2018, which is a positive trend but represents only a small fraction of the estimated 40-52 million m3 per year of illegal logging (MoEF, 2018a; KPK, 2015). On average, 80 criminal cases a year went to trial between 2015 and 2017 for illegal logging and forest encroachment. In a landmark case, one company was fined USD 1.2 billion for activities linked to illegal deforestation (MoEF, 2018b).

Detection of forest crime is being enhanced by the creation of the One Map system, which will provide greater clarity and transparency on land status. The government has also established a database to integrate data sources to support forest management: the Sustainable Production Forest Management Information System. It will help in cross-checking databases, including the non-tax state revenue system and the SVLK, and thereby identify potential irregularities.

3.5.2. Economic instruments

Payment for ecosystem services

PES is increasingly used to support sustainable land management in Indonesia. The government estimated that REDD+ could reduce emissions from land-use change by up to 70% (MoEF, 2017b). REDD+ provides financial incentives in exchange for reductions in deforestation. In addition, smaller programmes demonstrate the potential for using voluntary payments to encourage provision of ecosystem services.

In 2010, Norway pledged up to USD 1 billion to support Indonesia’s REDD+ efforts. However, Indonesia has yet to meet the requirements for receiving this contribution. The main requirements are establishing a reference GHG emission level, a financing mechanism and a monitoring, reporting and verification (MRV) system. An interim evaluation of the Norwegian initiative found that the timetable outlined in 2010 was overly ambitious given governance challenges and capacity gaps (Caldecott et al., 2013).

Nonetheless, there are clear signs of progress on access to this REDD+ funding. The reference emission level, used as a baseline for payments, was submitted to the UNFCCC in 2015 and passed technical review in 2016. The government also established a reporting system, SIS-REDD+, to assess whether social and environmental safeguards are being respected. There has been progress on putting the MRV and financing systems into place. The scale of disbursements is increasing, with NOK 365 million (USD 44 million) disbursed in 2016, compared to NOK 416 million (USD 50 million) over 2010-15. The government is establishing a financing agency, the Environmental Fund Management Agency, to host the funding mechanism required for access to the Norwegian funding.

The government has proposed complementing the Norwegian funding by creating a mechanism to aggregate the carbon credits generated by smaller-scale conservation programmes. Global finance flows for REDD+ are significant, with over USD 500 million of carbon credits purchased in 2017 (Forest Trends, 2018). The revenue could increase significantly if REDD+ were linked to the forthcoming emission trading scheme for aviation, known as CORSIA.

Several projects related to watershed services have succeeded in improving the sustainability of forest management, such as an inverse auction in Sumberjaya8 (OECD, 2010) and the Cidanau River programme (Box 3.7). The continued success of the Cidanau programme shows the potential for PES to provide benefits to upstream and downstream users of environmental services. An analysis of 90 PES projects in Indonesia found that the vast majority were either not operational or did not meet the criteria for PES. Only four water and four carbon projects were making conditional payments by 2016 (Suich et al., 2017).

Box 3.7. Payments for water quality improvements in Banten

The Cidanau River catchment in Banten, West Java, is one of the longest-running PES programmes in Indonesia. Clearing of upland vegetation and encroachment into the protected swamp forest had led to increased siltation and reduced flow in the Cidanau River, particularly in the dry season. Downstream users of the river, most notably PT KTI, the company holding the contract for water distribution in Jakarta, was concerned about future water supplies. PT KTI identified measures to ensure the integrity of upstream ecosystems as the cheapest option to ensure supply and entered into a voluntary contract to pay for reforestation and management of the upstream catchment. The payment is made to a management team, which disburses it to the landowners, who are organised into farmer groups (Munawir et al., 2007). The first payments were made in 2005.

Source: OECD, 2010.

High transaction costs pose a significant barrier to widespread PES in Indonesia. All currently operational PES programmes have involved significant inputs from intermediary bodies, typically international and/or local NGOs, which bear much of the costs of the initial set-up and administration of payments. In many cases the operational PES projects are pilot projects intended to be a proof of concept and test methodologies, and the same resource is unlikely to be available to other projects in the future (Pirard and Billé, 2010; Suich et al., 2017). Strengthening the enabling environment to provide greater clarity about land rights and improved enforcement will lower transaction costs for individual projects and increase overall investor confidence.

Agricultural subsidies

The OECD estimated that Indonesian agricultural support rose to USD 36 billion in 2015, the world’s highest as a percentage of GDP (OECD, 2017).9 Fertiliser subsidies constitute a large and growing amount of budget expenditure on agricultural subsidies, budgeted at IDR 31 trillion (USD 2.3 billion) in 2017 (Chapter 2). There are 14 financial subsidies linked to palm oil production and six to timber products, providing a perverse incentive to increase deforestation and environmental degradation (Mcfarland, Whitley and Kissinger, 2015). The subsidies include tax exemptions for investment in the biofuel and palm oil sectors, concessional loans for biofuel production and subsidies for domestically produced cooking oil. These subsidies reduce the cost of expanding plantations, often in forested areas, and drive land use change and ecosystem degradation. There are also tax exemptions for investment in timber plantations, below-market levies on timber harvests and a national subsidy on transport fuel, all of which encourage further expansion of industrial plantations and conversion of natural forest (Mcfarland, Whitley and Kissinger, 2015).

The Reforestation Fund has the potential to support sustainable forest management by funding restoration activities. However, it has been hampered by fraud, corruption and lack of capacity. Improved governance could help it increase land use efficiency by financing plantation development on already cleared land (Barr et al., 2010).

There are plans to reform the fertiliser subsidy system. This would be a welcome development, as subsidising fertiliser can encourage inefficient use of chemicals and contribute to ecosystem degradation through leaching of excess nitrogen into ecosystems (which particularly affects freshwater ecosystems).

3.5.3. Voluntary instruments

Voluntary certification

The Roundtable on Sustainable Palm Oil is a voluntary certification programme intended to assure purchasers that palm oil has been sustainably produced. The RSPO is more stringent than the national ISPO, which is mandatory for large businesses (Section 3.5.1). In 2018, the RSPO certified 1.7 million ha (14% of total planted area) of oil palm plantations (RSPO, 2018). The RSPO was started as a collaborative initiative of the World Wildlife Fund, European demand-side actors and, on the supply side, industry bodies, including the Indonesian Palm Oil Association (GAPKI). It certified its first palm oil in 2008. GAPKI withdrew from the RSPO to concentrate on the ISPO in 2011.

The RSPO requires companies to conduct HCV assessment based on specific guidelines. RSPO-certified plantations are prohibited from converting HCV land, must not have converted any primary forest since 2005 and must obey all national environmental laws and regulations. But Indonesian Law No. 39/2014 requires plantation companies to develop at least 30% of their concession within three years and the whole concession within six years. Land set aside under HCV by an RSPO-certified plantation can be, and has been, excised from the concession and reallocated for development as non-RSPO plantation (Colchester et al., 2009). This is not an issue for the ISPO, as it has a narrower definition of HCV than the RSPO.

There is evidence that RSPO certification leads to decreased rates of deforestation and fire in plantations. However, almost all RSPO-certified plantations contained very limited forest at the time of certification, and RSPO certification seemed to have limited impact on clearing in peat areas, which reduces its contribution to biodiversity and climate change targets (Carlson et al., 2017).

While the RSPO now certifies about 17% of the global market (RSPO, 2018), it is likely reaching the limits of its influence, as it has yet to make a significant impact on the biggest individual importers of palm oil outside the EU. Most significantly, large markets have yet to adopt this standard: very little of the 10.6 Mt of palm oil imported by India and only 50 000 of the 4.8 Mt imported by China is RSPO certified (Schleifer and Sun, 2018). Wider uptake would be needed to reach the goal of raising standards across the industry.

“Zero deforestation” commitments by companies

Corporate zero deforestation commitments could be an important tool for the nexus (Chain Reaction Research, 2014). They could reduce conversion of forest to oil palm and timber plantations and encourage development on degraded land. They also have the potential to deter the shifting of cultivation to areas with high forest cover and low deforestation rates (Austin et al., 2017). Zero deforestation commitments currently apply to around 60% of the global palm oil trade and a smaller proportion of the pulp and paper product industry.

However, for these commitments to have a significant impact in Indonesia, greater clarity on definitions of forest and deforestation from the individual actors is required. It is also essential for Indonesian plantation law to be amended to allow such pledges to be met. Under Indonesian law, the clearing of forest that has been designated for plantation development is not considered deforestation. A commitment to zero illegal deforestation still allows companies extensive leeway to clear forested areas. As with RSPO compliance, land that is set aside may be handed to concessionaires who have not made such a commitment. There also needs to be a comprehensive approach involving local communities, businesses and governments to improve environmental outcomes (Daemeter Consulting, 2015).

Ecosystem restoration concessions

Ecosystem restoration concessions (ERCs) could help reduce deforestation and ecosystem degradation and contribute to the biodiversity and climate change targets. ERCs were introduced by the Ministry of Forestry in 2004 as an attempt to counter degradation of production forests. Companies can apply for ERCs in state forest and use the land to generate ecosystem services. This includes using it for activities such as growing medicinal plants and beekeeping, as well as producing other non-timber forest products (Buergin, 2016). Licence holders must develop partnerships with local communities as part of their social responsibilities. Concession holders may be granted licences to harvest timber provided that the ecological balance of the area is maintained.

ERCs are underutilised. The first ERC was awarded in 2007. By 2016, 16 ERCs had been awarded, covering 623 075 ha of forest. High start-up costs remain a challenge. They are due to the need to address existing degradation and landscape characteristics that can make restoration difficult. The high costs also reflect the more general challenges of complex permitting processes, the need to prevent illegal logging and the frequency of land claims. All have impeded more widespread use of ERCs (Rahmawati, 2013).

PES could help generate demand for ERCs. Establishing ERCs has relied on international NGO funding and development assistance. Developing other revenue streams could help expand ERCs’ use. Alternative revenue streams include ecotourism, non-timber forest products and access to PES (including REDD+). The Katingan-Mentaya project shows how ERCs can be used to conserve forest by generating carbon credits (Box 3.8).

Box 3.8. Revenue from REDD+: The Katingan-Mentaya project

The Katingan-Mentaya project is one of the world’s largest REDD+ forest conservation and restoration projects. Located in Central Kalimantan, it is already generating revenue from carbon trading. Since 2016, the project has been received triple gold accreditation under the Verified Carbon Standards, Climate Community and Biodiversity standards. It has generated revenue of USD 7.5 million annually.

The project is located in Katingan and Kotawaringi Timur districts of East Kalimantan, which contain a 300 000 ha peat swamp forest supporting rich endemic biodiversity. A Global Green Growth Institute assessment of the area in 2015 found that total net benefits of conservation could reach USD 9.9 billion in the long term, accounting for ecosystem, social, climate change mitigation and economic growth benefits. This compares to revenue of USD 482 million if the land were used for oil palm or timber plantations.

An ERC application was submitted in 2007 to protect and restore more than 200 000 ha of the peat swamp forest. Ultimately, the forestry ministry granted an ERC of 108 225 ha in 2013, followed by an additional 49 497 ha by the MoEF in 2016. Due to the lengthy carbon credit accreditation process, the sale of carbon credits only started in 2017, ten years after the first ERC request.

The project has embarked on a wide range of activities to restore and protect the peat swamp forest and support local communities (e.g. development of community co-operatives and 300 artisanal coco sugar businesses). It has been a significant source of local employment. Acceptance by local communities was built through a decade-long community engagement process, initially facilitated by a local NGO, and through community involvement in the project’s activities.

Source: Katingan Mentaya Project, n.d.; Indriatmoko et al., 2014; GGGI, 2015b; Revitalization, 2017.

3.6. Financing for the nexus

Indonesia has estimated that significant financial resources, far in excess of currently recorded finance flows, will be required to improve land and ecosystem management and reduce GHG emissions. There are no estimates for the nexus per se, but indicative results on the scale of finance flows required are available. The RAN-GRK estimated that USD 17 billion of external funding was required for mitigation across all sectors from 2011 to 2020 (MoEF, 2017b). For biodiversity conservation, it has been estimated that USD 725 million per year would be required just for conservation area management (BAPPENAS, 2016).

Domestic resource mobilisation is the primary source of funding on issues relevant to the nexus. However, spending is limited by the government’s ability to raise revenue. Indonesia’s tax/GDP ratio is low compared to other countries at a similar income level (OECD, 2018). BAPPENAS (2014) estimated that, for 2011-14, the domestic budget allocation relevant to GHG emission mitigation totalled IDR 96 trillion (USD 6.3 billion). For biodiversity, an average of USD 119 million was allocated per year for 2010-14 (BAPPENAS, 2016).

Plans call for the volume of domestic investment related to REDD+ to increase, but it will remain a small proportion of overall climate-related finance. Between 2011 and 2014, IDR 8.7 billion (USD 573 000) was spent on activities linked to reducing GHG emissions from forestry. Planned expenditure for 2018-19 through the MoEF is IDR 5.9 billion (USD 389 000) on activities related to REDD+. At the local level, expenditure related to climate has been increasing since 2011, with the bulk of resources dedicated to forestry activities.

3.6.1. Intergovernmental fiscal transfers

District governments could use the system of intergovernmental fiscal transfers (IFT) to encourage more sustainable land management. IFT is made up of three mechanisms: the general allocation fund (dana alokasi umum), the specific allocation fund (dana alokasi kusus) and shared revenue (dana bagi hasil). The general and specific allocation funds finance administration and specific national priorities. Shared revenue is allocated to local governments from national revenue based on the percentage of tax and non-tax revenue generated in the local area. Shared revenue is important to the land use, climate change and biodiversity nexus, since a primary source of revenue in some provinces is economic exploitation of forest land.

The current IFT arrangements encourage conversion of forest to economically productive uses. Income to districts from shared revenue is directly proportional to the value of forestry revenue earned, and there is no penalty for overexploiting forest. About 40% of forestry activity revenue is currently returned to the producing district. District governments thus have an incentive to maximise revenue though logging and conversion of forest to timber plantations (Nurfatriani et al., 2015). Palm oil plantations also generate revenue that is returned to the producing district, and while the proportion is much lower, the higher profitability of oil palm results in more money to the producing district in real terms (Irawan, Tacconi and Ring, 2013). District governments thus similarly have an incentive to maximise revenue by facilitating palm oil plantation development.

Linking allocation of shared revenue to compliance with previously agreed environmental standards, such as protection of sensitive ecosystems, and measures of environmental quality would help achieve sustainability (Nurfatriani et al., 2015). In Brazil, for example, fiscal transfers serve as an incentive for biodiversity conservation because a share of the revenue from the state-level value added tax (ICMS) is allocated on the basis of environmental criteria (OECD, 2015). Integrating the shared revenue allocation with existing sustainability initiatives, such as the SVLK and ISPO, would be mutually beneficial. It would provide an incentive to develop local capacity and enforce the standards, which in turn could help in monitoring sustainability in the forestry and agricultural sectors.

3.6.2. International support

Development co-operation is being channelled to support management of the nexus, with a primary focus on climate change mitigation rather than adaptation or biodiversity. Bilateral commitments vary considerably by year, so the figures are expressed as multiyear averages. In 2014-15, more than one-third (38%) of the USD 5 billion Indonesia received as official development assistance (ODA) was marked as contributing to climate mitigation,10 8% as contributing to biodiversity and 7% for climate adaptation.

The volume of resources and degree of mainstreaming vary by sector. The majority of bilateral climate ODA went to infrastructure, which accounted for USD 1.7 billion of the USD 2 billion marked for mitigation. Climate mitigation was mainstreamed into 71% of infrastructure ODA in 2014-15, including USD 622 million to support public transport in Jakarta. More than 71% of support to general environmental protection (USD 284 million) also supported climate objectives. Most support for biodiversity was also counted as general environmental protection. The majority of the projects concerned support enhanced forest management.

There was limited direct support for biodiversity or climate in productive sectors. Support to productive sectors, including forestry, was smaller in absolute terms, accounting for USD 71 million in 2014-15. Only 25% of ODA for productive sectors was marked for climate, while the proportion has been variable for biodiversity.

Further progress is needed to obtain financial resources from dedicated climate funds. In addition to finance from bilateral donors, Indonesia has received USD 746 million from the Global Environment Facility and USD 5 million from the Special Climate Change Fund. It has yet to receive funding from the Green Climate Fund (GCF). PT Sarana Multi Infrastruktur, the only accredited entity for the GCF in Indonesia, focuses on infrastructure provision. Expediting approval of entities with a forestry remit would broaden potential access to these funds for addressing nexus issues.

Efforts to co-ordinate finance flows through the Indonesia Climate Change Trust Fund have not yet come to fruition. Originally managed by UNDP, the fund became an independent unit under BAPPENAS in 2015. The scale of funding remains limited: between 2010 and 2014, it received USD 11 million. Progress was delayed by capacity constraints and high staff turnover (ICCTF, 2015), along with ministries’ desire to retain autonomy in resource use. The scale of planned expenditure for 2015-18 remains modest.

Box 3.9. Recommendations on the land-use, ecosystems and climate change nexus

Knowledge base

  • Maintain and strengthen work to value ecosystem services consistent with the SEEA, including ecosystem accounts. Ensure that the potential to identify priority areas for policy action is exploited to contribute to a coherent policy framework informed by natural capital.

  • Finalise the remaining elements of the One Map, including the development of thematic layers and larger-scale (e.g. 1:50 000) maps. Use the One Map to develop and refine a long-term land-use strategy. Provide public access to the mapping information to facilitate transparency and detection of illegal activities. Provide technical support and capacity building to facilitate participatory mapping of customary (adat) lands.

  • Continue to improve the measurement and mapping of peatlands and forests to more accurately identify areas that are particularly valuable for providing ecosystem services. Enhance public access to information by providing open data where possible.

  • Continue efforts to monitor, evaluate and disclose data on deforestation and drivers of land-use change.

Policy and institutional framework

  • Set specific, realistic targets for overall land use in the 2020-24 RPJMN, including targets for reducing deforestation. Ensure that the targets are agreed by all relevant ministries (especially those for environment and forestry, agriculture, and energy and mineral resources), included in sector work plans and monitored by BAPPENAS.

Clarifying land rights

  • Ensure that the system for land allocation and permitting redirects development towards land of lower ecological value. Allow concession holders to leave standing land of high conservation value within their concession area. Simplify the administrative processes governing land swaps between degraded state forest land and standing forest that is permitted for clearance.

Social forestry and agrarian reform

  • Provide additional resources to accelerate registration of social forestry and recognition of customary forests. Encourage peer learning between communities to improve access to the social forestry programme. Disseminate guidance and encourage use of the mobile application for submitting monitoring information for social forestry.

  • Accelerate agrarian reform by using the land redistribution programme to recognise community tenure claims, transparently delineate and register state lands and assets, and provide legal access for communities to co-manage state lands and forest resources.

Enforcement

  • Accelerate efforts to deter, identify and penalise illegal land use by providing additional resources for enforcement agencies and increased investment in satellite monitoring systems. Provide additional training for law enforcement officials to increase their capacity for investigation of environmental crimes.

  • Further develop online systems for managing land-use permits. Cross-reference databases governing permits, tax receipts and regulatory compliance to target illegal logging and agricultural activities.

  • Consolidate and streamline the set of permits required for land-use activities. Develop clear guidance for ministries and subnational governments on the legal requirements for various land-based activities. Audit existing permits for land-based activities to ensure that they were issued following the required processes.

  • Strengthen capacity of FMUs through recruitment, training and peer learning. Identify potential sources of private-sector funding to complement resources from public budgets.

  • Undertake voluntary agreements with supply chain nodes (traders, consumers, banks) to reinforce the effectiveness of the SVLK.

Policy instruments

  • Evaluate the effectiveness and ancillary impact of forest moratoriums. Replace the use of time-limited moratoriums with legislation that provides a predictable legal framework governing sustainable development of primary forests and peatland.

  • Expand the terrestrial protected area network and establish mechanisms to encourage effective conservation and sustainable use inside these areas, working with the FMUs and local communities.

  • Continue progress towards the target of restoring 2 million ha of degraded peatland. Put in place arrangements to continue restoration activities after the Peatland Restoration Agency deadline of 2020.

  • Raise yields per hectare of agricultural commodities through increased investment in agricultural extension programmes, including increased training for agricultural extension works.

  • Review support measures to the forest sector with a view to phasing out subsidies that encourage deforestation and propose alternative options for social considerations. Use the system of support measures to incentivise the provision of ecosystem services, such as those provided through sustainable forest management.

  • Ensure that the Environmental Fund Management Agency starts operating on time and follows international good practice regarding governance, fiduciary responsibilities and environmental and social safeguards. Explore opportunities for this REDD+ financing mechanism to mobilise additional public and private resources.

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Notes

← 1. These data are from the 2015 FAO Global Forest Resources Assessment. Indonesia uses a different definition of forested areas (in MoEF Regulation No. 14/2004): in 2018, official data had a total extent of forested area of 93.9 million ha (of which 46.1 million ha was primary forest).

← 2. Naturally regenerated forest is forest where there are clearly visible indications of human activities. It includes i) selectively logged-over areas, areas regenerating following agricultural use, areas recovering from human-induced fires, etc.; ii) forest where it is not possible to distinguish whether vegetation was planted or naturally regenerated; and iii) forest with a mix of naturally regenerated trees and planted/seeded trees, where the naturally regenerated trees will constitute more than 50% of the growing stock at stand maturity.

← 3. Indonesia defines two states for watershed areas: i) “to be restored” (dipulihkan), designating watersheds in critical condition; and ii) “to be maintained” (dipertahankan), designating watersheds in relatively good condition.

← 4. Young oil palm plantations tend to have less transpiration and canopy cover than mature oil palm plantations and old-growth forest.

← 5. HGU permits are provided for cultivation activities (e.g. farming, fisheries, livestock raising) on non-state forest land, including as part of a swap of state forest for non-state forest land.

← 6. Establishment of a set-aside area for conservation exceeding 10% can be allowed if the permit holder can show that i) the conservation area is integral to the functioning of the plantation; ii) the conservation area shall be protected as proved by an HCV report. Demonstrating the former requires ground truthing, analysing the reason for not developing the land, preparing a report, conducting a committee hearing and providing recommendations to the competent authority.

← 7. Hidayat et al. (2017) emphasise that the ISPO both prohibits and allows conversion of peatland to plantation.

← 8. In an inverse auction, bidders offer to supply a good or service, and the bidder(s) offering the lowest price win the contract.

← 9. Agricultural support is defined as the annual monetary value of gross transfers to agriculture from consumers and taxpayers arising from government policies that support agriculture, regardless of their objectives and economic impact.

← 10. The Indonesian government uses a different method for recording financial support than that adopted by donors. It records finance received by ministries, while the figures here represent commitments from donors to the country.

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