New CLTS Report on "Explaining the recent reduction of Indonesia’s deforestation"

Executive summary

Deforestation in Indonesia has declined sharply since 2015-2016. We use a combination of spatial land use change data, interviews with stakeholders and statistical analysis to explain this reduction.

The exact extent of the reduction in deforestation depends on the data set used, and the years or time periods compared, varying between 40% and 90%. A robust estimate is that deforestation has fallen by at least 50% since ca. 2016.

The decline is uneven across islands and provinces. The two main “deforestation islands” Kalimantan and Sumatra experienced a major decline, with a relatively larger decline in the former. The provinces with the largest absolute decline were Riau, South Sumatra and Central Kalimantan, followed by West and East Kalimantan.

In terms of commodities driving deforestation (“direct drivers”), palm oil is still the most important commodity (46% for 2018-2022, according to MapBiomas Indonesia data, compared to 55% for the period 2010-2017).

Pulp is on the rise as a deforestation driver, particularly in Kalimantan. In the three high deforestation provinces on that island, the demand for pulp was behind almost 1/3 of the natural forest conversion in 2022.

Mining for coal and valuable minerals such as nickel is also on the rise, with MBI data suggesting its share of national deforestation being 5.4% (2021-2022), compared to less than one (0.9%) for the 2010-2017 period. Mining is particularly important in Sulawesi, where it according to one estimate accounted for 30% of the deforestation in 2021-2022.

Five hypotheses are put forward to explain the reduction, related to public policies, private (corporate) policies, civil society pressure, commodity prices, and forest scarcity. 

New public (government) policies have been a main reason for the decline. The moratorium of new permits of primary forest and peatlands in 2011 has had an impact, but also took time to produce an effect on the ground effect (in part as it was a ban on issuing new licences). Interviewees also stressed that better sectoral coordination related to the moratorium and other reforms has been key for the slowdown.

A second set of reforms relate to fire management and peatland protection, sparked by the devastating 2015 forest fires. The interviewees highlight this as a key policy reform by, for example, increasing the accountability of subnational government officials for fire management.

Results-based payments (RBP) or result-based contributions were central in the Letter of Intent between Indonesia and Norway in 2011 and in the new MoU of 2022, although the first payment was not made before in 2022. An RBP-based project of more than USD 100 million was approved by the Green Climate Fund in 2020. RBP has also been implemented at subnational level starting in East Kalimantan and Jambi with external donor support. Some reports indicate positive results, although they are likely to be too location-specific and came too late to have had major impacts on the observed decline in national deforestation figures since 2016.

Private regulation such as certification and corporate pledges show promising signs with an increasing share of oil palm plantations being certified. Yet, breached are reported, and the forest encroachment factor (i.e., the share of new land being converted from forest) has not dropped as much as to be expected. Moreover, certification of pulp production and mining is lagging behind.

Civil society pressure has played a role in particularly two areas, although the exact role and contribution are hard to assess. First, CSOs are active actors on the policy arena, also to influence private sector initiatives and policies. Second, CSOs are important watchdogs for both implementation of public and private regulations and pledges. This has helped “bringing the forests to the court”, as one interviewee observed.

Key commodity prices were relatively stable during the 2016-2020 period, and thus cannot explain much of the decline. Yet, no major increase in the prices of deforestation-risk commodities made the implementation of both public and private policies less costly (both for politicians and producers), and made violations of laws and regulations less profitable, increasing policy effectiveness.

The prices of coal and minerals such as gold and nickel have, however, increased steadily over the period. The nickel price quadrupled between 2016 and 2022. The increasing role of mining in deforestation can largely be explained by the high and increasing profitability, and demand is likely to grow steadily in the coming years due to the global energy transition.

The statistical analysis suggests that up to 1/3 of the reduction in deforestation can be explained by forest scarcity (forest transition). When a province hits ca. 40% forest cover, deforestation tend to decline.

While we conclude that all five hypotheses put forward are relevant to explain the recent decline in deforestation, we tentative conclude that public polices – in combination with a forest transition (scarcity) effect – has been the most important factors. Private policies show more mixed results. Behind the public and private policy changes, civil society has played a key role in policy reforms and in promoting more effective implementation though its watchdog role. Non-increasing agricultural commodity prices have made the implementation of forest conservation policies less costly.

Deforestation is still a profitable activity for land users and (sub)national governments, and forest conservation is a continuous battle, with future challenges emerging: the effectiveness of current policies may weakened over time, political priorities may change, prices of deforestation-risk commodities may rise, and the composition of direct drivers change – requiring a shift in the policy focus.

Recommendations

1. Be ahead of the curve: The forest transition suggests a natural development with decreasing deforestation in low forest cover regions (provinces) and increasing deforestation in high forest cover regions. The major future deforestation threats have moved eastwards in Indonesia. Mining is likely to be a key driver of deforestation in Sulawesi, while food estates, oil palm and pulpwood plantations in Papua are emerging as direct drivers in new deforestation hotspot.
2. Incentives for high-forest, low-deforestation areas: Much focus in the REDD+ discussion has been on reducing emissions from high-deforestation areas, and rightly so. Taking a more long-term view and preventing future increases in deforestation, mechanisms that incentivise the conservation of high-forest, low-deforestation areas are also needed, while noting the challenges of estimating additionality – particularly if carbon credits from these areas enter carbon trading.
3. New deforestation-risk commodities: The deforestation debate in Indonesia has traditionally focussed on timber logs and palm oil. Timber production is in decline, and the share of palm oil-driven deforestation is also declining, although oil palm cultivation is still the main immediate land use after forest clearing. Demand for biodiesel based on palm oil may make it maintain its role as the no. 1 deforestation-risk commodity. Pulp and mining (nickel) have increased its share of direct deforestation drivers, and with pricing of key minerals on the rise this pressure is likely to continue. Plans for large food estates is also likely to make it an increasingly important driver.
4. The energy transition and deforestation: The global energy transition has increased the demand for both renewable energy (palm oil and wood pellets) and minerals (such as nickel). Paradoxically, these also pose a threat to Indonesia’s natural forests, and balancing these trade-offs remains a major challenge both for policy makers and advocacy groups.
5. CSOs watchdog role important for effective implementation: The private sector initiatives are commendable, but their impact hinges on their effective implementation. Clearing new forest land remains a profitable option from a business perspective, and without clear sanctions of violations (both formal and informal such as reputational risk) illegal and semi-illegal forest conversion is likely to continue.
6. Better data on “other agriculture” commodities: The share of “other agriculture” as a direct driver is increasing, yet this remains a black box in many data sets and analyses. More data on what constitutes this driver and their relative importance (including cocoa, coconut, coffee, rice, rubber sugar) are needed to design and implement targeted policies, also related to the EUDR.
7. Transparency in data sets and their uses: Several data sets on deforestation or tree cover loss are available, with quite different primary data sources and forest/deforestation definitions. This creates a wide range of figures, opening for cherry picking and selective uses. Full transparency on definition and data transformations is needed to enable better comparison and detect underlying trends.