Economics of Indonesian Forest Fires

EDA G3 CSG 1a Wong Hong Wei Lin Fangjun Marcus Wong

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Introduction

Economic Loss

Property Rights

Transnational Issues

Solutions and Policy evaluation

Conclusion

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Slash and burn results in forest fires ◦ Enabled by El Nino which causes dry weather in ASEAN

Slash and burn is effective to clear forests ◦ i) Creates space, ii) ash acts as fertilizers, iii) improves

soil structure for seed planting iv) kills weeds and pests

◦ Is cheap and is the favoured method

3

Direct Losses

◦ Loss of timber value

◦ Loss of non-timber forest products

◦ Loss of genetic resources

4

Indirect Losses & Externalities

◦ Welfare loss from working less

◦ Fall in regional tourism

◦ Health complications

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However, net losses not as large as reported. ◦ Economic wealth could have been transferred

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Total damage equals 7.6% of the Indonesian GDP

Question: Why didn’t the losers compensate the winners to prevent slash and burn? (Slides 7-11) ◦ Kaldor-Hicks-Scitovksy

According to an estimate, the losses due to 1997-1998 slash and burn equals…

Net Direct Losses Net indirect Losses

US$21.1bn (Anshuman Varma, 2003)

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Officially all forest belong to govt

Forest management: ◦ Conservation forest: environment protection

◦ Protection forest: prevent erosion & flooding

◦ Production forest: sustainable timber production

No recognition for communal ownership

Lack of ownership enforcement (Muhtaman 2004)

No way to control

Emphasis on short term gain

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Brazil and Amazon: ◦ Auction off timber rights

◦ Attempt to contain illegal logging (unlikely to work)

◦ Landowner replanting or denied finance or key market by govt (working)

◦ Different degree of property rights

Ownership key to saving fisheries ◦ Individual transferable quotas (ITQs) prevent collapse

Coase Theorem: ◦ Lack of sufficient property rights makes haze problem

worse

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Class of pollution problems where the adverse impacts of effluents and emissions created in one jurisdiction extend beyond its own boundary and are observed and suffered by its neighbouring jurisdictions (Lee 2002)

Damage asymmetry: ◦ Disproportional damage to different jurisdictions

Indonesia: benefit most from slash and burn

SG & M’sia: mainly losses

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Pigovian tax: ◦ Different jurisdiction tax not possible

◦ Tax rate optimal for Indonesian govt but not for the entire region

ASEAN non-interference policy ◦ Loss of autonomy and limit development

HK environmental cooperation with China (Lee 2002)

Lack of international law & enforcement

The transnational nature exacerbates the matter

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Legislation ◦ 1999 Forestry Law

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Financing ◦ ASEAN Haze Fund

◦ Jambi Master Plan

Education ◦ Workshops

Technology ◦ Geographical Information System

◦ Air and weather monitoring stations

Agreement ◦ ASEAN Agreement on Transboundary Haze Pollution

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Political/Governance

Weak Enforcement/Regulation

Corruption

Economic Reasons

Lack of Financial Support

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The haze problem in Southeast Asia is a complicated issue. Many factors are involved, negative externalities, evaluation, property rights issues and its transnational nature. It is also a development problem. Hence, effective solutions are yet to be found to solve this problem.

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Anshuman Varma (2003), ‘The economics of slash and burn: a case study of the 1997-1998 Indonesian forest fires’ Ecological Economics, 46 (2003) ,159-171

Quirine M. Ketterings, Titus Tri Wibowo, Meine van Noordwijk, Eric Penot (1998), ‘Farmers' perspectives on slash-and-burn as a land clearing method for small-scale rubber producers in Sepunggur, Jambi Province, Sumatra, Indonesia’ Forest Ecology and Management, 120 (1999), 157-169

Suresh Narayan (2002), ‘Assessing the economic damage from Indonesian fires and the haze: A conceptual note’ The Singapore Economic Review, Vol. 47, No. 2 (2002), 229-241

Thomas P. Tomich and Meine van Noordwijk (1995), ‘What drives deforestation in Sumatra?’ ASB Indonesia

Yok­shiu F. Lee (2002). Tackling Cross­border Environmental Problems in Hong Kong: Initial Responses and Institutional Constraints. The China Quarterly,172, pp 986­1009 doi:10.1017/S000944390200058X

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Muhtaman, D. R., & Prasetyo, F. A. (2004). Forest Certification in Indonesia. Yale Program on Forest Certification.

Black, R. (2008, September 19). BBC. Retrieved September 9, 2012, from http://news.bbc.co.uk/2/hi/science/nature/7623341.stm

Darlington, S. (2012, March 12). Retrieved September 9, 2012, from CNN: http://edition.cnn.com

Rohter, L. (2007, January 14). Brazil Gambles on Monitoring of Amazon Loggers. New York Times .

Kheng Lian Koh, ASEAN Air Plan: Up in Smoke, The Environmental Forum, vol. 15, no. 1 (Jan/Feb 1998), pp. 50–51

Simon S.C. Tay, The South-East Asian Fires and Sustainable Development: What Should be Done About the Haze? Indonesian Quarterly, vol. xxvi, no. 2, pp. 99–117

Ednardo Araral, The Fire and Haze Problem: Causes, Consequences and Long Term Solutions, October 2006 (unpublished).

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N.A. Robinson, ‘Forest Fires as a Common International Concern: Precedents for the Progressive Development of International Environmental Law, Pace Environmental Law Review, vol. 18 (2000)

S Tahir Qadri (ed.), in Fire, Smoke, and Haze: The ASEAN Response Strategy (ASEAN & ADB: 2001)

Ebinezer R. Florano, Assessment of the ‘Strengths’ of the New ASEAN Agreement on Transboundary Haze Pollution, International Review for Environmental Strategies, vo1. 4, no. 1 (2003), pp. 127–147

Florano, Regional Environmental Cooperation, supra note 24

Florano, Regional Environmental Governance, supra note 24

Alan K.J. Tan, The ASEAN Agreement on Transboundary Haze Pollution: Prospects for Compliance and Effectiveness in Post-Suharto Indonesia, New York University Environmental Law Journal, vol. 13, no. 3 (2005), p. 647

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