Reducing Indonesia’s Deforestation-based Greenhouse Gas Emissions

Indonesia has set the target that by the year 2020 its emissions of greenhouse gases will be reduced by 26 per cent relative to business-as-usual conditions. This paper analyzes the effectiveness of a subsidy to the use of land in forestry as a means of achieving this goal. The analysis uses a general equilibrium model of the Indonesian economy characterized by explicit treatment of land use, disaggregated by industry and by region. The results of the analysis indicate that the subsidy cost of permanently reducing carbon emissions by 26% is a little over US$1 per metric tonne of carbon emissions abated. This cost needs to be compared with that of alternative instruments and with the price of carbon that might be agreed under the proposed REDD scheme (Reducing Emissions through Deforestation and Land Degradation), to be administered through the World Bank and the UN