Executive Summary

Indonesia’s land provides significant benefits to the economy, businesses, and communities. Some of these benefits, such as agricultural and mining production, are reflected in land values. Other benefits, however, are not included in the cost or valuation of land despite their importance. These benefits include water provisioning services, carbon stock, and wildlife habitats, to name a few. This gap means that when communities, the government, or businesses make decisions about how to allocate or use land, they have access to only part of the picture.

This challenge is exemplified in the Central Kalimantan province, which is the third largest province in Indonesia and home to approximately 10% of Indonesia’s forests as well as a network of rivers flowing into the Java Sea and the Schwaner mountains, which host biodiverse flora and fauna supported by a rich indigenous Dayak culture. Growing pressure to increase oil palm output has led to deforestation, which threatens the valuable land services available to communities (Busch et al. 2015). This occurs despite the large amount of alternative land available for oil palm expansion in the region, for example through conversion of an estimated 3.3 million hectares of suitable degraded lands (Gingold et al 2012).

There is a win-win solution for Central Kalimantan and for Indonesia that promotes both economic growth and natural resource protection, which is to optimize land use through policy that is based on natural capital valuation. Natural capital valuation, or natural capital assessment, is a toolset used in major economies around the world that maps the value of various land uses on actual pieces of land, drawing upon a range of social, environmental, and economic indicators.

However, current land valuations in Indonesia do not comprehensively reflect the true value of land and natural resources. Existing assessments underestimate the value of land and ecosystem services and do not take all variables and land uses into account due to the difficulty in accessing consistent data, especially spatial data.

For example, studies that assess a business as usual projected scenario show variations to the value of natural capital into the future. These valuations range from a loss of USD 72 per Ha per year through deforestation, to a gain of USD 91 per Ha per year through sale of timber and other forest and agriculture services. Similarly, in assessing a green growth scenario, they show benefits of valuations that span a wide range of USD 17 to USD 816 Per Ha per year. While most studies cover variables of carbon provisioning services and timber and non-forest timber products, variables like hydropower and other water provisioning services are mostly excluded due to data or methodological limitations, with no link with high conservation values or translated policy impact on the ground (Berghöfer et al 2016).

Further, even when land valuations do exist, policy making in the land use sector that applies these results has been severely limited. Currently, land use licenses for forestry are not issued on the basis of the guidelines of economic valuation of forest ecosystems regulated by the Ministry of Forestry. Indonesia’s Ministry of Finance and Ministry of Forestry have conflicting and inconsistent regulations and guidelines to value land with varying levels of comprehensiveness, especially on inclusion of ecosystem and carbon provisioning services. It is unclear which of the various regulations takes precedence, and how license issuance links with the spatial planning process and contribute to policy in practice.

This working paper, produced by Climate Policy Initiative with the technical support of Palangkaraya Institute for Land Use and Agricultural Research (PILAR) and University of Palangkaraya (UNPAR), lays the foundation for district level natural capital assessment by reviewing existing mapping and regulations, and describing the design of such a study.

• This is the first time that a comprehensive, need-based valuation has been designed based on high conservation value mapping and a regulatory review of guidelines for valuation, land use, and spatial planning. The assessment, when completed, will assign the true value of land throughout a district, laying the ground for further district assessments, and forming the foundation for management strategies that reflect the opportunities for production and protection for Central Kalimantan’s natural resources. We find opportunities for district level natural capital assessment across a number of key districts, including Seruyan, Katingan, Gunung Mas, and Murung Raya, however, we recommend a pilot in Kotawaringin Timur. While more than half of the land area of Central Kalimantan would benefit from an improved land management approach, Kotawaringin Timur provides the greatest opportunity because it shows promise for both low emissions palm oil cultivation and productivity gains, as well as protection of high conservation value areas.
• Kotawaringin Timur contains the highest amount of high conservation value area — 27,502 hectare — amongst all districts under plantation status, i.e. areas that presently have licensed palm oil cultivations. However, presently, the district contains only 2.89% of Central Kalimantan’s high conservation value area under protected status as national reserve and protected forests, the lowest compared to all districts.
• Historically, Kotawaringin Timur has among the most severe levels of deforestation across districts based on forest cover analysis from 1973-2012.
• Kotawaringin Timur also has the highest installed capacity and concentration of palm oil mills (27 in total with 1,585 ton Fresh Fruit Bunches/hour installed capacity) and palm kernel mills (4 in total with 39.5 ton kernel/hour capacity).

Almost 48,839 hectares of high conservation value areas identified in Kotawaringin Timur are at risk of oil palm expansion, which are under convertible-production forest status, allowing amongst other uses, issuing of licenses for oil palm cultivation.

These areas would be important, especially in terms of valuing land in scenarios of forest versus cultivated oil palm. There are significant opportunities that lie within the district for low emission expansion of palm oil cultivation over an estimated 365,407 hectare, and for protection of 48,839 hectare of critical high conservation value area for ‘land management’ corridors.

We have developed a new approach for a natural capital assessment that would harmonize the guidelines and regulations around land valuation across government agencies and contexts, and link these with spatial planning and policymaking processes. A combination of geographic information systems (GIS), inventories, participatory approaches, and expert opinions are the most efficient and reliable approach based on integrating economic valuation methods for forest ecosystems described in Ministry of Environment Regulation No. 15/2012 and the Ministry of Finance Regulation No. 98/PMK.06/2010 on the assessment of natural resource assets owned by the state. This approach will be recommended for future natural capital assessment within district level in Central Kalimantan.