Estimating the opportunity costs of avoiding oil palm-based deforestation in Indonesia: Implications for REDD+

Abstract

Reducing emissions due to deforestation is considered a low-cost option for mitigating climate change. However, the recent literature suggests higher opportunity costs because of specific deforestation drivers, which render reducing emissions from deforestation and forest degradation (REDD+) for mitigating climate change an uncertain, less attractive, and controversial option. Indonesia is one of the largest greenhouse gas emitters. Since 1989, 53.80% of its oil palm expansion has come from forestlands, which has generated a significant amount of carbon emissions. This study uses official data and results from the relevant literature to estimate the costs of oil palm-based deforestation under various scenario assumptions, including different output prices, yields, time horizons, and discount rates. We also calculate the additional cost to preserve a 1-ha forest. We demonstrate that the average opportunity cost from avoiding oil palm-based deforestation is 24.42 USD/tCO2eq in Indonesia, approximately 1.3 times the 2011 EUA carbon price. Additional sums of around 5,466.90–11,042.96 USD/ha should be provided to landowners for the deforestation avoidance caused by oil palm expansion. Special attention should be given to the extensive oil palm expansion in Indonesia and the resulting high opportunity costs for achieving the REDD+ ​target.

Keywords

• REDD+
• Deforestation
• Oil palm
• Opportunity cost
• Net present value