Title: Fiscal incentives and disincentives for reducing emissions from deforestation and forest degradation: case studies from Indonesia Author (s): Tapan Sarker, Tim Cadman, and Fitri Nurfatriani Organisation: Griffith University and Ministry of Environmental & Forestry, Government of Indonesia Abstract: In this the paper we explore the many and varied fiscal instruments that contribute either positively or negatively to reducing emissions from deforestation and forest degradation in Indonesia. The country is an important participant in the UN Framework Convention on Climate Change (UNFCCC) programme 'Reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries’ (REDD+). The programme is funded through financial contributions from developed to developing countries, and may eventually be part of a country’s nationally determined contribution (NDC) to reducing emissions, either domestically, or via international emissions trading (IET). Fiscal instruments in the forestry sector in Indonesia refer to the charges and fees imposed by government at the national and sub-national levels to generate revenue. They include non-taxed sources of income, such as the forest restoration fund, forest license fees and the forest resource provision etc., and conventional taxes such as the land and building tax, value added tax (VAT), and income tax. In this paper we chart the impacts of these fees and charges on encouraging the sustainable use of forests, including for REDD+. Incentives to reduce deforestation and forest based emissions include non-financial incentives such as clarification of land tenure or granting clear rights over use of the land; and financial incentives such as upfront payments, such as grants, loans and investments, or results-based payments, such as payments for environmental services (which could include carbon). They also include the removal of perverse incentives such as increasing the accessibility of forests for activities leading to deforestation or forest degradation (which could include forest conversion). The paper is based on in-depth interviews with a range of forest users and stakeholders, including businesses, non-governmental organisations (NGOs) and governmental agencies. The preliminary results reveal that payment of forest-related fees and charges up front by proponents in various activities which might eventuate as REDD+ projects is costly, and there is a lack of clarity around who will ultimately benefit from payments associated with schemes such as REDD+ (i.e., government, business, community). Because of the cost of sustainability-related activities, forest users are more attracted to forestry and plantation conversion due to up-front payments from companies seeking to benefit from extractive uses of forest land. Interviewees also identified difficulties in linking carbon from REDD+ projects to buyers, and markets. Interviewees suggested that proponents of sustainability-related projects should pay fees and charges in instalments over the life span of projects, and that formal institutional arrangements and governance systems are required to clarify the benefits sharing arrangements between stakeholders. In  

   

order to discourage unsustainable land use, it was further recommended that for REDD+ to be effective, forest users need to be provided with payments for avoiding or reducing deforestation at a project's inception, not at the end. In terms of developing carbon markets, interviewees further recommended the creation of a ‘clearing house’ to act as a mechanism for facilitating market relations between REDD+ projects and end users/purchasers of emissions reductions.