Indonesia’s Haze: Should the Victims Pay the Polluters?

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Indonesia’s Haze: Should the Victims Pay the Polluters?

Providing a monetary incentive might be the best way to deal with a complex, transboundary problem.

Indonesia’s Haze: Should the Victims Pay the Polluters?

A satellite image of haze over Indonesia in 2015.

Credit: NASA image by Adam Voiland (NASA Earth Observatory) and Jeff Schmaltz (LANCE MODIS Rapid Response)

Transboundary haze pollution (THP) in Southeast Asia is a recurrent phenomenon and has become a long-standing environmental issue, afflicting not only Indonesia as the main producer of the haze, but also the rest of the Southeast Asian countries. Although some causes have been identified and corresponding policies have been put into force, the haze problem persists.

Various causes have been put forward to explain the THP: the El Nino phenomenon, logging, agriculture, palm oil plantations, weak institutional capacity, government policies, decentralization, and corruption. However, very few people realize that the root causes of the recurring haze problem are actually the clearing and draining of peatlands. In the 1997-1998 forest fires episode, for instance, around 60 percent to 80 percent of the haze was produced by fires on 1.5 million hectares of peatlands, while in the forest fires of 2005 about 81 percent of the haze came from peatlands. Similarly, in the most recent forest fires in 2015, around 60 percent of the fire alerts were identified on peatlands.

In the past, undisturbed peatlands had not caused any serious haze pollution problem because they are originally very resistant to fire, experiencing infrequent fires only during catastrophic and extraordinary dry episodes. Peatlands by nature are water-logged thanks to the accumulation of dead vegetation over a long period of time, enabling them to absorb monsoon rains and to keep moisture in times of light rainfall. In the last two decades, however, these peat swamp forests have been drained for logging or agricultural purposes. Consequently, the peatlands become flammable.

Indonesia has made some domestic policy responses to the THP. The 1997 forest fires, for example, led to the issuance of Presidential Decree No. 23/1997 banning any kind of burning. In 2013, Indonesia enacted a two-year moratorium on the issuance of new licenses to develop forests and peatlands. The moratorium was extended for another two years in 2015. The government has also issued regulations on the protection and management of the peatland ecosystem (No. 71/2014), and on the creation of a peatland restoration agency(No. 1/2016).

All these policy responses have been in force for years, but none of them seem to have successfully solved the recurring THP. One of the key challenges hindering the success of such policies is policy inconsistency in Indonesia. The changing laws or policies are often overlapping and not synchronized. For instance, law No. 41/1999 and government regulation No. 4/2001 prohibit the use of fire in clearing land, but law No. 32/2009 allows open fires on less than two hectares under particular weather conditions, with the permission of local government. In addition to this, decentralization is a key challenge to enforcing national policy since local authorities have more power and tend to abuse the power to protect their interests, which are often not in line with the national agenda. This is worsened by the fact that different levels of government and agencies use different maps and data, leading to different interpretations and disputes, and weakening law enforcement.

The rest of countries in the region cannot ignore the issue and let Indonesia solve the problem alone. First, THP involves international externalities, costs or benefits imposed by one nation on another. Domestic haze produced by Indonesia affects not only Indonesia itself but also neighboring countries. In fact, the THP will affect their economic activities and population’s health. Second, a lack of communication often gives rise to the “prisoner’s dilemma” scenario, a game theory that shows how two individuals pursue their own best interests though that may not result in the optimal outcome. When cooperation is absent, it is highly likely that Indonesia will continue burning the forests and draining the peatlands for agricultural development purposes, as it is the fastest and cheapest way to clear land. This in turn will increase income for poor people and create more job opportunities, leading to economic growth in Indonesia. Changing the incentives through cooperation is the only way that countries in Southeast Asia can achieve the most optimal outcome and solve the transboundary haze problem in the region.

In fact, Indonesia and Southeast Asia have taken a number of step toward regional cooperation, such as the 1997 Regional Haze Action Plan (RHAP), the 2002 Agreement on Transboundary Haze Pollution (ATHP), and the Roadmap on ASEAN Cooperation Towards Transboundary Haze Pollution Control. However, the recurring THP exists, and has even worsened. As noted by the World Bank, the THP in 2015 is considered as the worst transboundary haze episode since the initiation of the ATHP. Identifying weaknesses and strengthening the existing cooperation may result in better outcomes.

Ensuring and institutionalizing mutual benefits between the polluters and the victims will be useful to offset the weaknesses of existing cooperation. Mutual benefit is important because it could reduce conflicts among nations, which are likely to comply if the benefit they obtain from cooperating is more than what they would gain from not cooperating. Given the economic benefits Indonesia receives from developing peatlands and land clearing by fire, compensation contributed by the rest of the countries in the region is needed. Compensation should be high or attractive enough to offset the economic incentives Indonesia gains from polluting. In addition, compensation should be paid not only by the worst affected countries, but also by the less affected ones to avoid free riders.

Although the victim countries might not get direct benefits from compensating the polluters, they still benefit in the form of reduced air pollution and infrequent haze events. This model has already been used with some success to lower the rate of SO2 pollution in China’s Beijing-Tianjin-Hebei region. To minimize the risk of cheating, the inclusion of enforcement instruments is vital. These instruments should involve not only financial compensation for the affected countries, but also penalties for offenders. Decreasing incentives to cheat can potentially increase compliance rates. To improve the efficacy of financial compensation contributed by the harmed countries, conditions and clear objectives and targets that have to be met by the recipients should be agreed to.

In addition to the Victim Pays Principle (VPP), the Polluter Pays Principle (PPP) could also be applied to domestic companies that are causing the haze pollution. To achieve environmental policy goals domestically, monetary incentives could be combined with law enforcement mechanisms. The provision of job opportunities and cash transfers are some examples of compensation that might incentivize local people, while subsidizing high land clearing costs (as a result of not using fire) for companies.

Although the reduction of pollution is technically difficult to measure, collaboration among experts in the region on a Cost Benefit Analysis (CBA) will be very useful in the decision making processes, particularly in calculating the amount of social costs or benefits that have to be charged to the polluting companies. In addition, adaptive management and direct involvement of stakeholders should be incorporated into cooperative efforts, in order to make the decision making processes credible, constructive, and inclusive.

To sum up, THP is a wicked environmental problem, which is complex, difficult to define, and it involves many stakeholders with competing interests. Relying on domestic responses and policy settings is insufficient and could not guarantee improvements. Although the Victim Pay Principle (VPP) seems unrealistic, using a “stick” or the Polluter Pay Principle (PPP) may not be an effective way to force Indonesia to make a serious commitment to deal with its haze pollution.

Regional cooperation is a good instrument to mitigate a transboundary environmental problem. Cooperation, while not a panacea for all the environmental problems, is the only way to achieve the optimal outcome, and it can be achieved by incorporating mutual benefits, compliance and law enforcement mechanisms, stakeholder participation in the decision making processes, and the collaboration of experts. Yet these steps all rely heavily on political will — there is no easy solution.

Emba Emba is a graduate student of Policy and Governance at Crawford School of Public Policy in the Australian National University (ANU), and also currently works for the Local Government of Sumbawa in NTB Province of Indonesia.