Presentation on theme: "Indonesia's moratorium on palm oil expansion from natural forest: Economy-wide impact and the role of international transfer Mark Horridge*, Arief A. Yusuf**,"— Presentation transcript:
1Indonesia's moratorium on palm oil expansion from natural forest: Economy-wide impact and the role of international transferMark Horridge*, Arief A. Yusuf**, Louise Roose*,*) CoPS, Victoria University, **) Universitas PadjadjaranStopping Deforestation in Agricultural Supply Chains in Indonesia: A Modeling WorkshopDecember 11, 2014, JakartaEnvironmental Defense Funds – World Resource Institute
2This presentation is about: What is IndoTERM model?Analysis of palm-oil land moratorium using IndoTERM model
3A large system of non-linear equation solved by specialized software IndoTERMEach region is modeled as a separate economy, prices are different across regions.Recursively run for every year toward 2030 through capital accumulation and other dynamic mechanismRegions are connected through inter-regional trade of commodities and factorsis a dynamic inter-regional, bottom-up, computable general equilibrium (CGE) model of the Indonesian economyMulti markets 175 COM33 REG175 IND9 LAB 1 CAP1 LNDA large system of non-linear equation solved by specialized softwareCover the whole national economy, generating standard macroeconomic variables
4IndoTERM is a mathematical model which contains … many equations (a system of non-linear equations with n equations, n endogenous variables, and many exogenous variables)that determines prices and quantitiesof commodities (many of them)and inputs (including primary and intermediates)characterized byoptimizing rational economic agents (e.g. producers and consumers)who interact in a competitive market economysuch that all the markets are in equilibrium.
5IndoTERMA family of Australian TERM The Enermous Regional Model Developed by CoPS (Centre of Policy Studies), Victoria University (formerly: Monash University)Applied in:Australia, Brazil, Finland, China, South Africa, IndonesiaIn IndonesiaEmerald (Pambudi)IndoTERM v.1 (CEDS UNPAD, CoPS, 2006)IndoTERM v.2 (ADB, CoPS, CEDS UNPAD, 2012)IndoTERM v.3 - Dynamic (CoPS, CEDS UNPAD, BAPPENAS, AusAID, )A result of years of collaboration among these institutions:CoPS
6IndoTERM Database structure Source:Input-Output Table, Inter-regional input-output table, regional data of production, Social Accounting Matrix, Spatial dataIndex Set Descriptionc COM Commoditiess SRC Domestic or imported (ROW) sourcesm MAR Margin commoditiesr ORG Regions of origind DST Regions of use (destination)p PRD Regions of margin productionf FINDEM Final demanders(HOU, INV,GOV, EXP)i IND Industriesu USR Users = IND + FINDEMo OCC Skillsh HOU Households
7IndoTERM can be used for variety of purposes Analyzing regional impact of national or international shock/policiesInternational oil price shocksImport TariffNation-wide indirect taxesAnalyzing nation-wide impact of region-specific shocksRegional policies (regional taxes)Regional specific productivity shocks (draught)Analyzing impact of improving connectivityEfficiency in transport servicesSpecific source-destination transport efficiencyOther areas
8Research QuestionsWhat is the implication of Indonesian Moratorium on Palm Oil Expansion from natural forest?To what extent international transfer can mitigate its negative economic impact?
9Scenarios and Assumptions In the baseline, palm oil land grow by 3-8% per year toward 2030½ of the land expansion come from natural forest, another ½ from production forest.In scenario 1 (S1), expansion of palm oil land from natural forest is stopped in 2015 onward.In scenario 2 (S2), expansion of palm oil land from natural forest is stopped in 2015 onward and Indonesia receives international transfers amount to $10x[CO2 emissions avoided]Transfers is given directly to household in each region (in proportion to the region’s avoided emissions) to be spent on consumption.
10Incorporating carbon emissions from land use change in IndoTERM We estimate the carbon intensity per ha for each region and each land-using sector, including natural forest areaWe added carbon emissions equation, and international transfers equation for avoided emissions.
11Regional aggregation for this analysis Western Sumatera: NAD, North Sumatera, West Sumatera, Bengkulu, LampungNorthern Sulawesi: North Sulawesi, Gorontalo, South East SulawesiSouth Sulawesi: South Sulawesi, West Sulawesi, SulTraEastern Sumatera: Riau, Kepri, Jambi, South Sumatera, BabelBaliNorth Western Java: DKI, West Java, BantenNusa Tenggara: West Nusa Tenggara, East Nusa TenggaraEastern Java: Central Java, DIY, East JavaMaluku: Maluku, North MalukuWestern Kalimantan: West Kalimantan, Central KalimantanPapua: West Papua, PapuaEastern Kalimantan: South Kalimantan, East Kalimantan
12Palm Oil Production and Export of Edible Oil (S1, 2005=100) Palm oil outputExport of edible oil
13GDP, Consumption, and GNE (% deviation from baseline) Note: GDP = C + I + G + X – MGNE = C + I + G
14Household consumption by region in 2030 (% deviation from baseline)
15Household consumption by provinces in 2030 (% deviation from baseline)
16Highlights Impact on Indonesian GDP is negative but small International transfers does not offset the impact on national GDPYet, international transfers (nationally) still make Indonesian on average better-off if consumption or national expenditure is a measure of welfare. This is the nature of international financing.The effect varies widely across regionsSumatera, and Western Kalimantan (West Kalimantan & Central Kalimantan) are the most heavily affected with moratorium without transfers.Western Kalimantan benefit the most from international transfers.International transfers does not offset the loss welfare of Sumatera.Policy implication: Should there be any mechanism of equalization of the benefit of international transfers, if something like this happen?
17Thank You! But some models are useful. All models are wrong! William DemingThank You!