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Study on economic loss from Indonesia’s peat policies criticized

The critically endangered Sumatran tiger. The peat forests of the Kampar Peninsula is one of its last strongholds. Photo by Rhett A. Butler

  • A recent study estimates that Indonesia’s various peat-protection policies could lead to $5.7 billion in economic losses.
  • Those losses arise mainly from the pulp and palm oil industries, which are now obliged to conserve and restore peatlands that fall within their concessions.
  • Researchers and officials have criticized the study, saying it fails to make a holistic accounting of the environmental, social, health and climate costs from the continued destruction of carbon-rich peat areas.
  • They warn the study’s findings could be used to undermine policies aimed at preventing a repeat of the 2015 fires that cost Indonesia an estimated $16 billion from economic disruption.

JAKARTA — Experts and officials have taken issue with a new study that warns of hefty economic losses as a result of the Indonesian government’s policies to protect peatlands from being cleared by the palm oil and pulp industries.

The study by the University of Indonesia’s Institute for Economic and Social Research, or LPEM, pegged the losses over the next five years as a direct result of the policies at $5.72 billion — a figure that critics say fails to account for the massive disruptions to economic activity, public health and climate change as a result of fires on peatlands and the attendant toxic haze and carbon dioxide emissions.

At the heart of the issue are measures stemming from a 2016 presidential regulation that seeks to prevent fires on peatlands, in response to widespread blazes and some of the worst haze on record in 2015 — much of it originating from peat forests rendered highly combustible after being drained in preparation for planting. A derivative regulation issued in 2017 by the Ministry of Environment and Forestry imposed a new map of protected peat areas and ordered companies with concessions that encompassed these newly defined zones to conserve and restore those areas.

LPEM senior researcher Riyanto said these policies would drastically reduce the total plantation area for the palm oil and pulp and paper industries in Indonesia, leading to production declines, mass layoffs and a loss of confidence from international investors in the Indonesian government’s commitment to upholding business deals.

“This peat regulation will affect the macro economy, lower [the country’s] investment rating and lead to layoffs,” Riyanto said in a press statement.

“[It] will not only hurt the investment climate in the provinces, especially in Riau and South Sumatra, it will also spook off existing investors and others who plan to invest,” he added.

The study estimated up to 7,000 square kilometers (2,700 square miles) of pulp concessions could be lost under the regulations, which require companies to retire plantation lands on deep peat in an effort to prevent burning in peat domes – landscapes where the peat is so deep that the center is topographically higher than the edges.

It identified Riau province, in Sumatra, as particularly vulnerable to the policies. The province is home to 14,000 square kilometers (5,400 square miles) of industrial timber plantations — an area the size of the state of Connecticut. The LPEM study found Riau stands to lose 16.15 trillion rupiah ($1.13 billion) in annual income should the peat-protection measures be fully enforced.

The regulation would also cause 134,000 people to lose their jobs, according to the study.

The claims come amid a pushback by industry groups and local officials against the policies on the grounds that they hurt investor confidence.

A peat swamp in Sumatra smolders during the 2015 haze crisis. The drainage canals were dug in order to prepare the land for planting with oil palm, but the practice renders the land vulnerable to catching fire. Photo by Rhett A. Butler/Mongabay.

A partial accounting

That line of reasoning carries little weight with environmental activists, researchers and senior government officials, who argue that it is far more important over the long term to conserve peatlands.

One of the main criticisms is that the study fails to take into account economic losses from unsustainable practices in peat-based plantations, such as the large-scale drainage of peat soil, which leaves the land highly prone to fires.

Land and forest fires are an annual occurrence throughout Indonesia, in large part to clear forests for agriculture. But fires in carbon-rich peatlands are of particular concern because of the sheer amount of greenhouse gases they emit and the particulate-dense haze they generate. During the height of the 2015 fires, daily carbon dioxide emissions from the burning alone exceeded emissions from all economic activity in the United States.

The World Bank estimated that the fires that year cost the country $16 billion in losses just from the disruption to economic activity.

“We all agree that the losses are much greater than the economic benefit that comes from burning peatlands,” said Iwan Gunawan, a senior national resources manager at the World Bank, during a recent discussion in Jakarta. “Even with a conservative figure, it’s clear that the losses are massive.”

The World Bank estimate doesn’t account for losses incurred by other countries affected by the haze. Schools in Malaysia were ordered shut during the worst of the phenomenon, while air quality in Singapore hit such hazardous levels that residents were advised to avoid outdoor activity.

“We haven’t calculated the losses to Singapore as well as the losses from children who become disadvantaged [due to school closures],” Iwan said.

A 2016 study by Harvard and Columbia universities estimated there would be more than 100,000 premature deaths caused by the 2015 haze, using air pollution readings and satellite data to come up with the number. A separate study published in Atmospheric Chemistry and Physics found that emissions from burning peatlands contained potent carcinogens and over 90 different gases, some of them highly toxic, including formaldehyde, acrolein, benzene, carbon monoxide and nitrogen dioxide.

Other costs overlooked in the LPEM study include land conflicts caused by economic development in peat forests, and loss of local livelihoods, according to Suraya Afiff, an anthropologist at the University of Indonesia.

“For tenurial conflicts, there are 1,600 conflicts that have yet to be resolved by the Ministry of Environment and Forestry,” she said. “But this cost is never calculated. And then there are lots of economic benefits from peatlands that are gone when the peat zones are given up as concessions.”

By failing to make a full accounting, the study risks sabotaging the public discourse on how best to manage Indonesia’s remaining peatlands, said Sonny Mumbunan, an economist with the University of Indonesia’s Research Center for Climate Change.

“This study has a social implication that we can’t ignore,” he cautioned.

Officials at the Peatland Restoration Agency (BRG), established by President Joko “Jokowi” Widodo to spearhead the nationwide effort of restoring degraded peatlands, are also worried that the study could undermine the government’s work.

BRG head Nazir Foead said a repeat of the 2015 fires could only be avoided if peatlands were protected and degraded areas were rewetted and restored to their original state.

He said the 2017 wildfires that razed large part of southern California should serve as a reminder for Indonesia on how fires could spread out of control and inflict devastating damage.

“I really like to use America as an example,” Nazir said. “The country with the largest economy and most sophisticated technology in the world still struggles [to put out the fires]. The only problem for America is the wind… So no matter how smart humans are, we still have to pay attention to nature. We have to be smarter and more preventive.”


Banner image: The critically endangered Sumatran tiger. The peat forests of the Kampar Peninsula are one of its last strongholds. Photo by Rhett A. Butler.

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