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. Pricing in relation to the opportunity costs options forgone for the seller and the costs of alternative provision of the service to the buyer
Again, project support through some sort of national REDD Payment Mechanism or other entity will aid sellers and buyers of carbon credit enter contractual
agreements and voluntary agreements and will settle their payments according to these types of contracts.
Managing investment risk is an important consideration because payment from
REDD incentives will be subject to corruption, fraud, and other irregularities common in any incentive mechanism aimed at protecting the environment. Review
of current and past environmental incentives shows many of these incentives have failed to reach their targets for this reason.
To avoid misappropriation of REDD incentives the payment mechanism must be accountable, auditable, and transparent. t should involve government auditor
agencies, private accountants, the Financial ntelligence Unit, and the Anti Corruption Commission. Each agency could play a part in preventing irregularities
and enforcing the REDD incentive mechanism. The recipients of REDD incentives and any other parties, including brokers should also be subject to the same rules.
3.5 Payment Distribution Systems
3.5.1 Concepts
3.5.1.1 What is a Payment Distribution System? The objective of a REDD payment distribution mechanism is to support policies
and measures that reduce deforestation and degradation through transfer of revenues from international REDD funds or carbon markets to or within national
levels to the responsible management agents. A well designed PDM will provide three benefits:
. Shared responsibility for reducing a major driver of global climate change, . Financial payments and co-investment that exceed the economic opportunities
foregone from decisions to maintain carbon stocks, and . Co-benefits through the other environmental service functions that well-
managed forests can provide. To ensure verifiable results on emissions reduction, these mechanisms must
be effective in targeting the wide range of agents involved in deforestation and degradation. They must
. reward good performance; . provide an incentive for improved performance compared to reference
scenarios; and . adequately compensate agents that suffer losses from changed practices.
nternational payments are likely to be performance based, both in terms of emission reduction at national scale and the environmental and social impacts
of the system. Accountability, transparency, risk management, adequate benefit transfer and administration mechanisms will be essential for attracting investment.
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ndonesia will be effectively competing for attention for REDD funds with other countries with high emissions andor large forest areas. A strong international
bargaining position requires that internal conflicts and strategic positioning be overcome.
3.5.1.2 What are the challenges for a national REDD payment mechanism? An effective national REDD mechanism in ndonesia will have to find an appropriate
balance between environmental, economic and social issues. This is because a focus on any one of these dimensions will be unlikely to achieve permanent
emissions reductions. For example, a focus on efficient reduction of emissions alone is unlikely to have a long-term impact on the drivers of deforestation and
could result in negative impacts on people, leading to further deforestation. Triple accountability requires the emergence of incentive systems that are:
. Efficient in reducing emissions at affordable cost, linking local to international . scales in ways that are accountable for emissions but that are as simple as
possible; . Address climate justice, equity and fairness, within improved systems of
governance and accountability from local to international scales; . Support transformations to sustainability for the long term within the local
context of options and aspirations, and . Express a commitment to learning and accountability for the process.
Each of these principles raise a set of challenges for ndonesia, which it will have to overcome if it is to reduce its net emissions from deforestation and forest
degradation and access REDD markets. These principles and challenges are summarized in Figure .
n putting the principles into practice a number of issues are likely to emerge that will affect the detailed design of the system: For example:
. Which areas, activities and actors can receive REDD funds? . What influence do the various definitions of forest have?
. ow is the exclusioninclusion of degradation and other land uses accommodated?
. ow are the causes of emissions dealt with? For example, how is the impact of natural forest fires dealt with in relation to anthropogenic fires? This issue
will influence risk sharing and insurance instruments and the level at which accountability lies.
. ow will payment decisions deal with the complex mix of legal, semi-legal and illegal activities, which drive deforestation?
. ow will the design of the system deal with trade-offs that have inhibited existing carbon markets, such as safeguards against risk increasing transaction
costs? . ow will effective cross-scalar institutions be established that can deal with
opportunity costs, liability and management arrangements arising in REDD at different levels in the REDD supply chain
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Challenge
To provide efficiency as well as fairness: Focus on the areas, drivers
and sectors that are currently most directly linked legally or illegally to
emissions. To provide appropriate incentives to
areas, drivers and sectors that actively contribute to resource conservation
and provide new options to those at a cross-roads of alternative development
pathways
Principle
Do the activities support transformations to sustainability
for the long term within the local context of options and aspirations.
Principle
Do the activities express a commitment to learning and
accountability for the process.
Challenge
To improve the transparency and accountability of governance systems
that link the local to the national scale
Challenge
To develop and operationalise a vision of a long term transition to
sustainability that meets the Millennium Development Goals,
transcends economic dependence on extractive industries and finds a
balance between goods and services ,
Principle
Are climate justice, equity and fairness addressed within improved
systems of governance and accountability
Challenge
To increase awareness of REDD and its opportunities among local and national
stakeholders awareness.
Principle
Are the actions being taken efficient in reducing emissions at affordable
cost, linking local to international scales in ways that are accountable
for emissions but are as simple as
Figure 18.
Principles and challenges for implementation of REDD and associated payment distribution mechanisms
3.5.1.3 How can improved governances optimize the impact of REDD Payments on Reduced Deforestation?
Payments and other incentives should be directed where they will have substantial, measurable impact to achieve REDD objectives to reduce deforestation at either
the national or sub-national levels. There are a number of different pathways through which REDD payments might
be distributed. They are not mutually exclusive and could be used in combination, or different payment mechanisms might be suitable for different kinds of
payments, or in different sub-national regions. As stated earlier, payments and other incentives should be directed equitably, transparently, and in such a way as
to achieve REDD objectives to reduce deforestation. ncentives and disincentives can be linked to deforestation drivers at different levels of government, depending
on where they are likely to have the most impact.
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National-level drivers include the following: . Forest and investment policies including regulation of foreign and domestic
investment in forest-based industry ; . Delineation and regulation of forest functions;
. Licensing of large wood-processing plants, logging concessions, and plantations; . National tax and fiscal policy;
. National law enforcement policy. Regional and local-level drivers are more directly linked to proximate causes of
deforestation illegal logging, encroachment, illegal and quasi-legal logging and land-clearing , so incentives to shift or deter these are more appropriately and
effectively directed to, and through, local government agencies and civil society. Schemes to improve livelihoods of forest-dependent people while reducing
pressures on the forest have failed in the past in part because they operate too close to the forest edge and serve more as magnets that attract and keep people
close to or inside the forest rather than pulling them away towards less forest- dependent livelihood options. This can be overcome by addressing the problem
on a larger scale. Poverty alleviation funds that draw people away from, rather than into, forests—such as through agricultural intensification in areas of good
productivity and adequate infrastructure far from the forest frontier—have proven effective. nstruments that may be applied include disbursement through
projects, or block payments to local governments implementing the programs. The renewed emphasis by the Government of ndonesia and the World Bank on
agricultural development as a cornerstone of economic development and poverty alleviation could make this a particularly attractive option if REDD payments were
to supplement more traditional development funds. Direct payments to individuals or village-level groups, modeled on the successful
Kecamatan Development Program KDP , could be used to reward specific, local efforts to reduce deforestation, perhaps through village projects such as in the KDP.
Managing such payments directly from the national level entails high transaction costs both in managing payments and in monitoring many small-scale projects,
though KDP shows it is possible. Another option would be to make block payments to intermediary agencies,
such as district-level Forest Management Units established under Government Regulation
Kesatuan Pengelolaan Hutan—KP , for avoided deforestation in those districts. Further disbursement to local beneficiaries might be managed
by the KP or a parallel agency such as a district branch of a REDD Public Service Agency Badan Pelayaan Umum, or BLU . Accredited private agents and NGOs
interested in bundling REDD sellers for resale on the national or international market could also be linked into governance structures centered around a KP.
Local government Kabupaten license and would therefore receive of REDD
credits on forest land zoned as PK and in the process of conversion to non-forest use Areal Pengunaan Lain, or APL .Thus, if a proportion of the APL were not
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deforested but retained under local government jurisdiction, REDD payments would compensate for forgone non-forest use.
Local government Kabupaten also license Payments for Environmental Services PES under PP
Protection Forest L , Protection Forest cannot be converted or exploited and remains a part of the national forest estate. REDD
payments could thus be bundled with other PES payments collected by local government and redistributed to licensed concession-holders including
community-based groups who directly manage the environmental services. MoFr might collect a portion of REDD payments for costs of monitoring, for example.
Forest concessionaires are licensed by the national government and administered by local government. Concessionaires would therefore be eligible to receive
a substantial portion of REDD payments where the management reduced deforestation and degradation and so fostered the perpetuation of the forests
beyond their concession periods. The balance would be shared among central and local government. Concessionaires are usually companies but cooperatives,
community-based organizations, and even individuals can also hold forest exploitation rights. Concessionaires can be community-based groups at least
for forest protection and rehabilitation . MoFr would receive the REDD payments in Protected Areas and a share of
payments in PA buffer zones. Co-management services can be licensed by MoFr to local partners engaged in co-management schemes, including community-based
groups and private firms, which would then receive REDD payments under the auspices of the PA management authority.
Under PP , Forest Management Units KP will be able to issue licenses,
bundle services of REDD sellers, receive REDD payments, and distribute them to service-providers in mixed or multifunctional landscapes comprised of different
forest types.
3.5.2 The Situation in Indonesia
