Forest policy in Indonesia has been decentralized. Experiences from other countries suggest that decentralized systems of forest management often lead to more sustainable and equitable use of forest resources, as decision-makers are physically located closer to where their policies will be implemented.
Decentralization has encouraged an unprecedented race for claims over forest resources in the local districts resulting in conflicts over forest resources. Managing forest resources in a sustainable manner is not an easy task. One possibility that might reduce conflicts is the sharing of forest benefits by considering all stakeholders. Increasing the returns from forest at local level can provide opportunities for a more sustainable use. Local governments have started initiatives to generate additional local income from forests via payment for environmental services (PES).
A recent possibility for PES from forests is carbon trading through Reducing Emission from Deforestation and forest Degradation (REDD). The core idea of REDD is to reward individuals, communities, projects and countries that reduce greenhouse gas emissions from forests (Angelsen et al., 2008). This project will investigate the possibilities for efficient, fair, and sustainable financing mechanism of PES via REDD by modeling the additional income and incentive structure for the local and central government, and other stakeholders providing environmental services under various regimes of PES. The economic model is developed by extending the Faustman model including non-timber benefits, government transfers, and distribution of benefits and costs among stakeholders under various scenarios.