The agreement on Reducing Emissions from Deforestation and Forest Degradation (REDD+) reached at the 2010 Cancun meeting of the UN Framework Convention on Climate Change (UNFCCC) is expected to result in a significant flow of funds from developed to developing countries.
The opportunity costs of Reducing Emissions from Deforestation and Forest Degradation (REDD+) accruing to different stakeholders in Indonesia, including companies and the national, provincial and district level governments, are estimated, with particular emphasis on the influence of alternative discount rates. A cost–benefit analysis of the opportunity costs of avoided deforestation is conducted. The three major land-use activities considered are commercial logging, timber and oil palm plantation. The opportunity cost of oil palm plantations on mineral soil preceded by logging of degraded forest is prohibitively high. REDD+ measures that impose restrictions on the development of those land-use activities would lead to a substantial loss of public revenues at the various government levels. The design of a national REDD+ scheme needs, therefore, to take into account the opportunity costs faced by subnational governments. To influence their behaviour towards land-use change, REDD+ schemes need to create a direct link between the distribution of public revenues and district governments’ decisions on land-use activities in their localities.