Policy Options to Tackle Haze Fires in Indonesia


Published on

This paper lays out three options to deal with the problem of recurrent fires and haze in Indonesia. Further, it presents a preliminary analysis of these options on a set of evaluation parameters.

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Policy Options to Tackle Haze Fires in Indonesia

  1. 1. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 1 Policy Options to Tackle Recurrent Fires in Indonesia Executive Summary This paper serves as a draft policy proposal aimed at reducing the number of recurrent fires in Indonesia. These fires have become a serious and pervasive issue for the country, causing damage on numerous fronts – Economic, Health, Environmental and Diplomatic. Root causes include – 1) Burning for land clearance by smallholders and plantations 2) Revenge acts directed against large plantations 3) Predatory land-acquisition tactics employed by plantations 4) Human error. Status quo is eliminated as a viable option due to continued worsening of the problem under the current arrangement. Three policy options are proposed to address the problem at hand. The three options are analyzed on comprehensive framework of criteria including – Effectiveness, Outlay, Administrative Capability, and Stakeholder Support. A long list of possible stakeholders are evaluated – Plantations, Smallholders, Financial Institutions, NGOs/Think-tanks, and Regional Governments. Upon analyzing the options, analysis matrices are developed to assist in comparing between them. Upon comparison, Option 1 (PENALIZE) emerges as the most favorable, and has been recommended for implementation. Some potential implementation issues relating to stakeholder concerns, inter-agency coordination, monitoring and public relations are also discussed. Option Description Penalize Link credit financing approval for plantations to fire-safety practices; Impose fines equal to attributable economic loss per hectare; Defer new licenses for errant plantations Reward Promote plantations with good fire-safety records; Introduce eco-labeling to raise consumer awareness; Subsidize investments in zero-burning infrastructure; Reward villages that report/help suppress fires Educate Conduct training programs for smallholders on controlled burning techniques; Promote zero-burning infrastructure as a viable long-term investment to plantations 1 2 3
  2. 2. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 2 Background – Recurring Fires in Indonesia Forest fires have become a pervasive and serious issue for Indonesia, causing damage on numerous fronts. Economic losses during 1997/98 were estimated at almost USD 4 billion, in the form of losses in productivity and revenues in industries like tourism, agriculture, forestry, manufacturing etc. Losses in heavily affected villages amounted to as much as 50% of township income. Adverse public health impact has included sharp rise in cases of respiratory illnesses and eye/skin disorders; with thousands hospitalized annually, and even cases of premature mortality. Damage to indigenous flora and fauna has been severe, with large swaths of forests permanently destroyed and animal species either extinguished or forced to live in fragmented habitats. Additionally, massive carbon emissions from the fires are adding to green-house gases and threatening to derail Indonesia’s commitment to the Kyoto Protocol. Also, smoke-haze escaping to neighboring countries has created diplomatic tensions on several occasions. While the drought conditions of ENSO years have a role to play (trees shed leaves/branches that dry up and provide fire risk; water tables go down allowing for more intense fires), and have been frequently cited in media, the root causes for the fires are discussed below: Underlying Root Causes: 1. Small farmers use fires as a cheap method to clear land for cultivation and believe that it helps release nutrients into soil and reduce occurrence of pests/diseases. This is especially true of farmers who were relocated under the Transmigration initiative to less fertile areas 2. Large plantations frequently use fires for land clearance, shunning more environment-friendly but costlier alternatives such as zero-burning. While this is clearly illegal, it is suspected that corrupt local authorities turn a blind eye in return for bribes 3. Land tenure disputes have seen fire being used out of frustration by smallholders as means of retribution against large plantations 4. Plantations are known to deliberately set fire to smallholders’ lands to negotiate lowered compensation when trying to purchase their land 5. Accidental fires emanating from discarded cigarettes or cooking fires in forests/peat lands have also contributed to a lesser extent
  3. 3. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 3 Proposed Options Considering the problem to be tackled, three distinct policy options are proposed for consideration as shown in the figure below. The suggested options are directed only at small-scale farmers and plantations. Options targeting internal reviews and legislative amendments at the government level have been excluded for now. Also, the ‘status quo’ option in this context equates to not devising any new policy to tackle the fire problem. Since that would not improve the situation in any conceivable way, it has been discarded. Each option is envisaged as a ‘bucket’ of underlying initiatives that are explained further. Option 1: Penalize Description: This option proposes punitive measures against parties responsible for fires. The suggested initiatives are primarily directed at commercial plantations. Details: • Initiative 1: Financial institutions to be encouraged to incorporate good fire practices in their lending criteria when evaluating credit applications from plantations. Applicant firms must show evidence of fire-fighting capacity, compulsory insurance, adoption of zero-burning practices, and track record of fire safety before approval. • Initiative 2: Especially in fire-susceptible peat lands, zero-burning to be mandated for plantations in ENSO years. Economic studies are available that estimate economic losses attributable to fires (in terms of USD/hectare). Fines tagged to such estimates should be Penalize Reward Educate Option 1 Option 2 Option 3
  4. 4. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 4 imposed and enforced upon errant plantations that are detected to be fire sources, and award of further licenses to them should be deferred indefinitely Option 2: Reward Description: This option proposes incentives intended to encourage safe fire practices Details: • Initiative 1: State-owned media (newspapers, television, govt. portals etc.) to run promotional campaigns highlighting plantations that have exceptional fire-safety records • Initiative 2: Eco-labeling to be introduced for plantation products to raise customer awareness and create competitive advantages for firms that employ fire-safety practices • Initiative 3: Subsidies or tax breaks to be granted to selected plantations to facilitate adoption of zero-burning practices. Selection to be based on scale of operations and past record • Initiative 4: Villages that contribute by reporting or helping suppress fires to be rewarded with targeted subsidies/tax breaks/prioritized infrastructure deployment Option 3: Educate Description: This option proposes measures intended to raise awareness and adoption of fire-safety Details: • Initiative 1: For smallholders, adopting costly zero-burning measures is not a practical option given their means and scale. Programs training them on controlled burning techniques and long-term effects of burning on fertility/crop output to be introduced • Initiative 2: Zero-burning to be promoted to plantations as a viable long-term investment that would maintain fertility, decrease reliance on fertilizers, and enhance corporate image
  5. 5. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 5 Effectiveness Outlay Administrative Operability Stakeholder Support Evaluation Framework Plantations Smallholders NGOs/Think-tanks Financial Institutions Regional Governments Key Stakeholders Involved Firms in other industries Evaluation Criteria An analysis framework comprising four distinct criteria is proposed to analyze the generated options. • Effectiveness: This criterion assesses the ability of the policy alternatives to achieve the ‘focal’ objective (which in this case is reducing recurrent fires in Indonesia). • Outlay: Each of the proposed options involves some level of public finance commitment. This criterion assesses the expected monetary outlay required for each option • Administrative Operability: The three policy options should be assessed on the readiness and ability of the existing administrative set up to roll them out. This criterion assesses how each option would perform in terms of commitment, skills, knowledge and support required from the agency/agencies overseeing it. • Stakeholder Support: Each option would need to be assessed on the level of support it can hope to garner from the various stakeholders involved. Some key stakeholders (domestic and international) are depicted. It should be noted that only stakeholders ‘external’ to the Indonesian government have been considered in the analysis, not ‘internal’ govt. agencies.
  6. 6. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 6 a) Plantations: Commercial operations that own plantations over large tracts of land; have access to capital and other infrastructure. Primary targets of proposed options. b) Smallholders: Typically small-scale farmers that own <100 hectares of land and use it for cash and food crops, fishing, grazing etc. Primary targets of proposed options. c) Financial Institutions: Banks, lending cooperatives and others that provide credit facilities to plantations (primarily) and smallholders. d) NGOs/Think-tanks: These groups would likely comment on the suitability of the adopted policies. It would be ideal to consider their views and aim to achieve their support. e) Regional Governments: The intent is to develop a ‘domestic’ policy, not one targeting regional/international cooperation. Nevertheless, several large plantations in Indonesia are owned by companies based in neighboring countries such as Singapore and Malaysia. It is ideal to consider their governments’ reactions to proposed policies. f) Firms in Other Industries: Errant burning practices impact the fortunes of firms in other industries as well as they endure productivity losses, lower receipts etc. It is important therefore to include them in the analysis as well. Analysis of the Options This section discusses the performance of the three policy options on the evaluation criteria. Stakeholder analysis is provided by each stakeholder category. • Effectiveness: Measures under Option 1, if implemented well, would affect offending firms’ bottom line most significantly and hence, most effective in changing their behavior. Option 2 ranks second. While PR campaigns/eco-labeling are attractive incentives, subsidies for zero- burning infrastructure may be prone to misappropriation. Option 3 ranks last. Plantations have long known benefits of safe fire-practices and not changed behavior. • Outlay: Option 3 requires least cost-outlay among all. Under Option 1, cancelled permits/licenses can conceivably lead to loss of corporate tax-income. Under Option 2,
  7. 7. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 7 subsidizing purchase of zero-burning infrastructure for plantations and giving out rewards to villages requires significant cost outlay and hence, Option 2 ranks lowest on this criterion. • Administrative Operability: Option 1 requires least (non-monetary) resource commitment and effort. Fines and enforcement mechanisms, properly implemented, would work over a long period. Option 3 requires more continuous and proactive effort in running educational/promotional efforts. Option 2 involves on-going PR campaigns; on-going selection of firms for subsidies and villages for rewards; conceivably requiring the highest resource commitment over time. Hence, Option 2 is ranked lowest on this criterion. • Large Plantations: Would provide most support to Option 2 due to in-built subsidies they can benefit from, and least support to Option 1 due to punitive measures. • Smallholders: Smallholders’ extreme discontent with predatory land-acquisition tactics used by plantations indicates most support for Option 1. Rewards built into Option 2 for villages that help in fire prevention/suppression place it second-ranked in terms of support • Financial Institutions: Tightening credit evaluation criteria for plantations (as suggested in Option 1) would significantly impact monies lent out by banks. Also, if plantations lose licenses, banks would lose important customers. Hence, Option 1 would be lowest ranked. Option 2 involves giving subsidies to plantations to finance acquisition of zero-burning infrastructure. This would probably go through banks and hence, Option 2 is ranked highest. • NGOs/Think-tanks: Strict measures enumerated in Option 1 against errant plantations would find great support among environmental NGOs/Think-tanks, ranking it highest. The subsidies offered in Option 2 would be seen as detrimental to Indonesia’s already weak public finance situation and hence, ranked lowest. • Regional Governments: Concerned about stamping out the spillover effects of fire pollution to their countries, regional governments would conceivably back Option 1 the most, even though it may involve sanctions against some of their own firms. Wary of incremental financial support they may have to provide to Indonesia to support financial obligations in Option 2, regional governments would rank it last.
  8. 8. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 8 Analysis Matrices For ease of reading and visual interpretation, the above analysis results have been summarized in the two matrices given below – one for all criteria (except stakeholders) and one for stakeholders. Policy Recommendation Taking both the Options Evaluation Matrix and the Stakeholder Analysis Matrix together in consideration, Option 1 seems to emerge as the most favorable. In the Option Evaluation Matrix, it emerges BEST twice and MODERATE once on the three parameters. In the Stakeholder Analysis Matrix, it emerges MOST supported thrice out of the 5 stakeholder segments. Hence, based on the information available and the analysis of the three options, Option 1 (PENALIZE) is recommended. Options Evaluation Matrix (excludes Stakeholder Analysis) Criteria Ranking of Proposed Options Option 1 (PENALIZE) Option 2 (REWARD) Option 3 (EDUCATE) Administrative Operability BEST WORST MODERATE Effectiveness BEST MODERATE WORST Outlay MODERATE WORST BEST Regional Governments MOST LEAST MODERATE Financial Institutions LEAST MOST MODERATE NGOs/Think-tanks MOST LEAST MODERATE Plantations LEAST MOST MODERATE Smallholders MOST MODERATE LEAST Stakeholder Analysis Stakeholder Category Support for Proposed Options Option 1 (PENALIZE) Option 2 (REWARD) Option 3 (EDUCATE)
  9. 9. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 9 Implementation Issues – Stakeholder Concerns Given the punitive nature of the recommended policy, adverse reactions from certain stakeholder segments are to be expected (as was briefly touched upon in the stakeholder analysis earlier). Some possible concerns and ways to address them are listed: Plantations: 1) Concern: May dispute the efficacy of data used to calculate fines Solution: Commission/use data from reputable research institutes on the estimated economic impact attributable per hectare of burning land 2) Concern: May claim that fires were not started by them Solution: In collaboration with the plantations themselves, enhance security on plantation perimeters. Also, use verifiable satellite monitoring of hotspots to pinpoint origin of fires 3) Concern: May protest that capabilities such as mandatory fire-fighting capacity, compulsory insurance, zero-burning practices, would require prohibitive resource commitment Solution: Impress upon plantations the necessity of following these regulations as cost of doing business. To allow more time to build capabilities, mandate implementation in more susceptible peatlands first Financial Institutions: 1) Concern: Tightening lending criteria for plantations would impact their business significantly. Also, if plantations lose licenses, financial institutions lose customers Solution: For financial institutions that take part in the initiative, consider measures such as:1) Preferential treatment in financing government schemes 2) Lowered fractional reserve rates to enlarge monetary pool they can lend out Foreign Governments: 1) Concern: May worry that their firms operating in Indonesia would be targeted as scapegoats for the proposed punitive measures
  10. 10. Vikas Sharma, PMP® Principal Consultant, Frost & Sullivan July 2013 P a g e | 10 Solution: Assure regional governments of the transparency of processes behind meting out fines/ deferring licenses, and emphasize that the policy is geared towards addressing their concerns over recurrent spillover fire pollution Implementation Issues – Interagency Coordination and Monitoring For the success of this policy, significant coordination and collaboration would be required among a host of agencies related to Finance, Environment, Police, Forestry, Health and Statistics, all having their own existing agendas and resource commitments. It is therefore paramount that efforts are made to bring them to the same page and convince them of the underlying merit and usefulness of the policy. Especially important is to communicate the policy’s merits to ‘street-level’ bureaucrats that hold significant discretion over eventual outcomes of policies. Clear assignment of roles and responsibilities needs to be done among the various agencies involved, along with setting measurable Key Performance Indicators (KPIs) to track implementation progress. Implementation Issues – Public Relations Given its punitive nature, the policy can be expected to be not a popular one in several segments (as has been discussed under stakeholder concerns). Imposing fines, deferring licenses, limiting access to financing, are measures that would affect plantation firms’ bottom-line significantly and the government should ready itself for a severe lash back. A concerted and effective public relations campaign would be needed to communicate the motivations behind the policy and the potential benefits it could bring over the longer term. Conclusion Recurrent fires have become a serious issue for Indonesia, causing damage on numerous fronts – Economic, Health, Environmental and Diplomatic. Having analyzed various options, Option 1 (PENALIZE) has been recommended for implementation. While sure to face several challenges (stakeholder concerns, coordination, monitoring, public relations etc.), it is hoped that successful implementation can significantly mitigate the problem at hand.