Carbon Finance Schemes in Indonesia

Abstract

Solutions are sought throughout the world to counter land and forest conversion processes, as well as strategies for climate change mitigation. Payments for Environmental Service (PES) schemes, which are market-based incentives, are promoted as a possibility to enforce or support sustainable forest management and conservation activities. Using empirical evidence from the island of Sulawesi in Indonesia, this study provides a contribution to ongoing research to determine strategies to actively sequester and conserve remaining stocks of carbon. Farming households in the vicinity of the Lore Lindu National Park contribute to conversion processes at the forest margin as a result of their agricultural practices and specifically the expansion of their cacao plantations. The objective is to investigate the impact of payments for carbon sequestration on the households and their land-use systems, as well as the institutional framework of such a PES scheme. A comparative static linear programming model was used to analyse the household behaviour and changes observed due to the introduction of the policy option of carbon payments. In addition, we discussed and evaluated the impact of the institutional arrangement of the existing natural resource management schemes in focus groups in four villages, using participatory rural appraisal tools. If the carbon credits are specifically targeted towards more sustainable agroforestry systems, increased environmental benefits in terms of higher carbon sequestration rates, as well as higher income benefits for the poorer households can be obtained. A PES scheme could build upon the community conservation agreements, which are in place already, as they provide an initial basis to reduce transaction costs and integrate the local communities. However, the participation structures for the villagers, as well as monitoring and enforcement need to be improved to safeguard the stability of the rainforest margin in the Lore Lindu region.