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Analyzing a Payment for Environmental Services (PES) scheme in Indonesia, this article questions the alleged effectiveness of economic incentives to change land use decisions. According to the standard PES theory of change, farmers respond to payments and change their land use decisions accordingly. However, at the project level impacts depend on how the signal is transmitted and understood. Results from an extensive household survey indicate that farmers join the scheme for intrinsic motivations rather than because of economic incentives; and farmer group leaders display disproportionate power of decision while individual farmers have limited understanding of the PES. Hence, land use patterns might not depend on the economic incentive only; rather they are determined by the local social and cultural context. This in turn qualifies the strong (yet contested) economic assumptions that underlie the emergence of PES schemes and their modus operandi in developing countries.

Worldwide many businesses have recently pledged to sourcing agricultural and timber products exclusively from deforestation and fire‐free supply chains. Geoinvestigations—monitoring the activities of plantation companies using satellites and concession maps—are now applied to identify which companies breach their commitments and regulations. We investigate the limitations of geoinvestigations by analyzing land‐use and fire in and around 163 Indonesian concessions of oil‐palm and pulpwood, where recurring forest and peatland fires are a national and international concern. We reveal a mismatch between de jure and de facto land occupancy inside and outside concessions. Independent farmers are present in concessions while some companies expand outside concessions. Thus, both actors may be responsible for deforestation and fire inside and outside concessions. On peatland, fire can start outside and spread into concessions, while draining in concessions may promote fire outside. These dynamics make attribution of fire and deforestation in Indonesian concessions impossible without detailed field investigations. This study highlights the need to combine very high‐resolution satellite data with extensive field investigations of de facto land ownership, claims and disputes inside and outside concessions. In Indonesia, such activities could fall under the One Map Policy, whose remit is to identify and resolve overlapping land claims.

Payments for Environmental Services (PES) are praised as innovative policy instruments and they influence the governance of forest restoration efforts in two major ways. The first is the establishment of multi-stakeholder agencies as intermediary bodies between funders and planters to manage the funds and to distribute incentives to planters. The second implication is that specific contracts assign objectives to land users in the form of conditions for payments that are believed to increase the chances for sustained impacts on the ground. These implications are important in the assessment of the potential of PES to operate as new and effective funding schemes for forest restoration. They are analyzed by looking at two prominent payments for watershed service programs in Indonesia—Cidanau (Banten province in Java) and West Lombok (Eastern Indonesia)—with combined economic and political science approaches. We derive lessons for the governance of funding efforts (e.g., multi-stakeholder agencies are not a guarantee of success; mixed results are obtained from a reliance on mandatory funding with ad hoc regulations, as opposed to voluntary contributions by the service beneficiary) and for the governance of financial expenditure (e.g., absolute need for evaluation procedures for the internal governance of farmer groups). Furthermore, we observe that these governance features provide no guarantee that restoration plots with the highest relevance for ecosystem services are targeted by the PES.

Developing countries are expected to contribute to climate change mitigation efforts by reducing deforestation, with financial compensations for associated economic losses. These losses are due to foregone revenues and limited economic development, all of these labeled “opportunity costs”. Their accurate estimation is strategic for at least two reasons: to determine fair compensations, and to prioritize low cost strategies to reduce emissions. However, numerous interpretations of the opportunity cost concept coexist in the literature and in influential reports (e.g. Stern review), with differing estimated values for similar cases. This paper presents a framework to better identify relevant values to the calculations: profits / total national economic value, conservation site / downstream industries. When applied to the pulp sector in Indonesia, the framework yields contrasted opportunity costs. This contrast is due to several factors, including the heterogeneity of the pulp industry, or the availability of non-forested lands to displace activities. These values range from zero to one thousand dollars per hectare per year. To use such a framework would help gain credibility and achieve fairness in negotiations between host countries and other stakeholders, in particular those who fund activities to reduce deforestation.

Cet article analyse un dispositif de paiements pour services environnementaux (PSE) en Indonésie. Selon la théorie standard du changement, les fermiers, des agents économiques supposés rationnels, modifient leurs décisions en réponse à des paiements. Mais à l’échelle des projets, l’impact des PSE dépend de la transmission d’un signal et d’une bonne diffusion de l’information. Selon nos résultats, les fermiers participent en fait au PSE pour des raisons sociales et intrinsèques plutôt que financières ; en outre leur compréhension du dispositif est limitée. Ainsi, les décisions sont principalement déterminées par le contexte social et culturel. Ceci questionne les hypothèses économiques fortes qui ont justifié l’émergence des PSE dans les pays en développement.

This analysis suggests important considerations for assessing social impacts of large-scale pulpwood production in Indonesia, emphasizing the extremely limited conditions under which pulp plantations may complement, rather than threaten, livelihoods of existing communities in their vicinity. Pulpwood plantations are expanding rapidly in Indonesia to feed major new pulp mills. Though officially developed on “unproductive forest lands”, pulpwood monocultures are commonly established at the expense of natural forests and indigenous agroforestry systems in Sumatra and Kalimantan. Based on a South Sumatra case study, this article analyzes how pulpwood plantations may be combined with more traditional land uses to improve livelihoods for local populations, considering the potential for “complementary” labor opportunities. This analysis is built on two assumptions: (1) village smallholder activities represent a first choice for village-based workers and smallholders, with relatively high financial returns per hectare; and (2) seasonal variations in labor requirements for village-based livelihoods open opportunities for complementary labor and land uses such as industrial plantations. Applying our model to a Sumatra case study highlights an upper limit to “complementary labor” for industrial timber plantation land use at a ratio of 5:1 (no more than 5 ha of pulpwood to each 1 ha remaining in intensified local agriculture and agroforestry). Other conditions required to minimize risks for local livelihoods include: flexible timing of company operations; priority to local employment; cautious determination of plantation sites; more transparent government licensing of plantation concessions and pulp mills recognizing local and customary land and resource rights.

This article was submitted without an abstract, please refer to the full-text PDF file.