# A market-based mechanism to preserve Indonesia's forests

Wed Aug 19 2020

## Introduction

Enormous swathes of virgin forest in Indonesia are being cut and burned down all the time and this contributes significantly to the climate crisis. How can we stop this? I propose a decentralised market-based mechanism that has the following desirable properties:

• Scalable
• Decentralised
• Bounded cost for the philantropist
• Owners of the land are better off

## Background

Norway has some sort of agreement with Indonesia where they pay Indonesia $1 billion to reduce their forest emissions: see links here and here. The two countries signed the$1 billion pact in 2010, under the REDD+ (reducing emissions from deforestation and forest degradation) mechanism. In exchange for the funding, Indonesia would have to slow its emissions from deforestation, which accounts for the bulk of its CO2 emissions.

This is great and should be applauded. But this sort of enormous government-to-government approach has its problems. First of all, what can we do as private citizens, apart from lobbying our governments? Also, this approach is slow: the first payment was paid out almost ten years after the agreement was signed.

That it’s taken so long for the first payment to be announced is due to a combination of the structuring of the agreement and a change in the Indonesian government since the 2010 signing.

I present a market mechanism that might help safeguard the forests, but doesn't require long and protracted intergovernmental negotations and can work with only a few dollars of funding. The idea is probably not original and I would greatly appreciate if someone could point me to the relevant literature.

## The mechanism in brief

In brief, the idea is as follows: philantropists can sell a ticket attached to some forested area that pays out if and only if that area remains pristine. People would bid on the price of this ticket and the highest bidder would stand to gain (Ticket Payout Price - Price Paid for Ticket). With satellite imagery, we can easily tell whether an area has been logged or not, and this would serve as a source of truth.

## An explanation of the mechanism

### A system like this doesn't benefit the poor farmers! Won't the surplus go to some finance bro?

I agree, and while the thought of this is indeed somewhat unsavory, I believe under a competitive market it should be the case that the finance bros will bid each other up until the surplus accrues to the farmers.

## Questions I still have

I'd really be interested in knowing whether this mechanism works, and whether it has already been thought of by somebody else under a different name.

## Conclusion

Of course, this works with any resource that we want to preserve, not just Indonesia's forests. You can even sell tickets on areas where the land has already been cut down, and pay out iff the land gets reforested. To handle the issues of escrow, we could do it on the blockchain.

Have I missed something? Interested in implementing this? Send me a message, please.

## Appendix: Things I cut, links, and text dumps

The key here is to realise that a) the forests are a positive externality in the sense that they sequester carbon and reduce global temperatures, and b) we are much richer than many of the Indonesians who own the forests, and they need to eat.

https://www.newmandala.org/cultivating-consent/

Bernardinus,* a village elder from the Basik-Basik clan, for instance, noted that “oil palm companies come here, obtain government permits and plant oil palm without asking permission from the traditional landowners. They think no one lives on this land because all they see is forest. Sure, Indonesia’s largest remaining forests are in Papua. However, people live in and depend on these forests. Indigenous people like Marind, Mandobo, Auyu, Jair, and many more. We own this land under customary law. And yet our voices are not heard”.

In a similar vein, Perpetua, a mother-of-four living in Khalaoyam village, stated that “Decisions about oil palm projects are made in Jakarta, not in Papuan villages. These decisions are made without our consent or participation. Of course, there are problems and conflict. It’s like planting a tree without making sure the soil is fertile and that there is enough water and shade for the tree to flourish. The tree will grow crooked and struggle to survive. It’s the same with oil palm projects in Merauke. The problem is that there is no consultation or consent”.

Consent on paper, however, does not guarantee consent in practice. Bernardinus and Perpetua are just two of dozens of community members who report not having been involved in or informed about oil palm developments now taking place in and around their home villages. Another is Kosmas, a Marind participant at a workshop on sustainable palm oil that I organized in July 2019, who told me, “I only found out about that oil palm was coming after the forest had already been cleared. Before that, I knew nothing about the project”.

In a small number of cases, government and corporate bodies have invited indigenous landowners to participate in sosialisasi before land developments. But sosialisasi, a term that can be translated loosely as ‘awareness raising’ or ‘public information dissemination’, is also problematic.

Firstly, sosialisasi often takes the form of a one-way transfer of information about the planned development from the government and companies to the communities, rather than a two-way conversation in which communities have a say in whether or not the project will go ahead, and under what conditions. Secondly, sosialisasi usually takes place in urban centres, such as Merauke City or Jayapura, rather than in the villages where indigenous communities are based. Those invited to attend these events are often handpicked by the government and companies and do not represent the broader interests or rights of the communities to which they belong. Thirdly, sosialisasi meetings are frequently supervised or attended by members of the police and military, who work with oil palm companies in the capacity of plantation security patrols and brokers. Many Marind are reluctant to speak out freely under such conditions for fear of consequent reprisal.

Meanwhile, Marind villagers who have already voiced their opposition to oil palm projects during consultations complained of being persistently approached, and sometimes intimidated, by company personnel and police officials to surrender their lands for agribusiness development. “They keep coming and asking us to change our minds,” reported village elder Geronimo. “We already said no, but they think that if they keep pushing us, we will agree to collaborate. That is not seeking consent. That is harassment”.

Why this harassment? Incentives not aligned. At the moment, oil companies want to skirt the law any way they can. If we can pay the oil palm companies or local governments more money to leave the land intact, this problem solves itself.

1. The \$50,000 needs to be "burned" (to use a crypto term) somehow. It cannot go back to the philantropist/to charity or to any third party, because then that person will have a perverse incentive to make sure the area of land is cut down in order to receive the payout. ↩︎