The Thinker: The Price of Green
Jakarta Globe, July 13, 2010
At the end of May, Indonesia and Norway reached an agreement under which Norway is expected to provide a billion dollars in aid to fund Reducing Emissions from Deforestation and Forest Degradation (REDD) projects in Indonesia. This agreement is in line with Indonesia's determination to reduce its level of greenhouse gas emissions by 26 percent, or 41 percent with international support, by 2020.
One aspect of the deal that has caused debate is a clause for a two-year moratorium on the conversion of forests and peatland.
Indonesia is a country that is still largely dependent on the utilization of its natural resources, causing some observers to worry that the moratorium will reduce the rate of economic growth in sectors such as forestry and palm oil.
The economic gains derived from crude palm oil are tempting considering that the price of CPO recently climbed to an average $750 per ton.
Indonesia is the world's biggest CPO producer, accounting for about 23 million tons per year. The necessary question, therefore, is whether policies to preserve the environment will impinge upon needed economic growth.
Questions concerning the trade-off between economic growth and environmental conservation are increasingly prominent, especially in developing countries in Asia, Latin America and Africa, which generally rely on natural resources as major sources of income.
A 1996 study, published in Ecological Economics, on the relationship between environmental quality and economic performance in Indonesia concluded that policies to protect the environment did not negatively impact income distribution and, in certain aspects, encouraged more rapid gross domestic product growth.
A similar study in the United States in 2001 concluded that: the level of private investment and economic development can be enhanced by environmental regulations that can reduce uncertainty.
The researchers also said that while conflicts of interest between businesses and the environment were inevitable, in general environmental policies coupled with institutional reforms in the institutions in charge of environmental regulations would likely encourage investment and accelerate economic development.
The findings would seem to allay concerns about economic development being negatively impacted by environmental policy and regulations.
Economic growth is required to improve people's living standards. However, the excessive exploitation of natural resources will lead to far greater costs than benefits when Mother Nature fights back in the form of natural disasters and environmental damage.
We have already started to feel the impact of climate change, for instance, in the increasing uncertainty over the boundary between the wet and dry seasons.
We also see more frequent news about crop failures and damage due to an increasingly erratic climate.
In a country like ours where a huge proportion of the population still relies mainly on agriculture, aggravated environmental circumstances from poor planning when exploiting natural resources will directly affect people's livelihoods.
People who are still living below the poverty line, especially in rural areas, will be especially affected by the unwise exploitation of natural resources and will be hit by the loss of clean air and clean water.
In striking a balance between environmental protection and economic development, Herman E Daly, a professor of ecological economics at the University of Maryland in the United States, offers some advice that we should bear in mind when managing our natural resources.
First, limit the use of all resources to rates that ultimately result in waste levels that can be absorbed by the ecosystem.
Second, exploit renewable resources at rates that do not preclude the regeneration of those resources.
And third, deplete nonrenewable resources at rates that, as far as possible, do not exceed the rate of development of renewable substitutes.
If we can manage the potential of our natural resources wisely while optimally distributing the benefits of these natural resources for the welfare of all people, surely this wealth would be a blessing and not a curse.
Teddy Lesmana is a researcher at the Center for Economic Studies at the Indonesian Institute of Sciences (LIPI) and a USAID Indonesia Forecast Scholar at the University of Maryland.
Lembaga Ilmu Pengetahuan Indonesia - LIPI