ndonesia is naturally blessed. The country sits on some of the most valuable, most extensive ecological real estate in the world: rainforest, mangrove swamp, coral reefs and temperate woodland all abound across the archipelago.
Until recently, this ecological wealth wouldn't have mattered all that much, at least in monetary terms. After all, no one actually pays for this natural endowment.
Until now, that is. ""Payment for environmental services"", often abbreviated to PES, is now hitting the economic mainstream -- and Indonesia could be in for some windfall profits.
There is no better illustration of Indonesia's natural good fortune than the Leuser ecosystem in northern Sumatra. Leuser is one of the ecologically richest places on earth. It contains over twenty-five thousand known species, including 4 percent of the worlds birds and 3 percent of its mammals.
Economists estimate that Leuser generates some US$22 billion of benefits annually for Indonesia. These include the beneficial effect forest cover has on flood prevention, as well as soil conservation for farmers and the supply of uncontaminated river water to downstream fishing, dams and agriculture.
Of course, this $22 billion figure is a notional value. The benefits are real enough, but no money actually changes hands. No one pays local communities for protecting the trees that prevent flooding. Downstream water users don't pay upstream users for keeping the water coming.
But that's beginning to change, thanks to a new approach to protecting the environment: Payment for Environmental Services.
The idea behind PES is simple. Ecosystems provide a wide variety of useful goods and services that enhance human welfare. Some of these goods and services are well known and already play a significant part in the market economy: obvious examples include crops, livestock, clothing and construction materials.
So, goes the PES reasoning, why not pay for all the other services ecosystems provide -- the regulation of rainwater run-off, soil formation, nutrient cycling, the maintenance of biodiversity, climate stabilization and so on. After all, they're no less important than clothes or construction materials, and, in many cases, are a whole lot more so.
The Costa Rican town of Heredia, for example, has established an ""environmentally-adjusted water charge"" to compensate communities living upstream for not engaging in agricultural practices -- such as chopping down trees -- that would jeopardize the town's water supply. New York City has engaged in a similar deal with residents of the upstream Catskill Mountains, reasoning that it's cheaper to pay them than to build a new filtration plant.
Or consider biodiversity. The European Union spent $12 billion in the second half of the 1990s to divert 20 million hectares of farmland into long-term set-aside for conservation purposes. The United States government annually spends $1.5 billion to remove 12-15 million hectares from intensive agriculture, an area twice the size of all national and state wildlife parks combined in the lower 48 states.
The international community is slowly recognizing that life on Earth is more precarious than previously imagined. Global warming threatens to change weather patterns, raise sea levels and undermine economies. Loss of biodiversity is a once-and-for-all loss to all of humanity, and might take with it untold medical and scientific possibilities, such as the fabled cure for cancer.
So attention is turning to an obvious solution: Why not simply pay Indonesian communities not to chop down forests, or pollute rivers, or burn grasslands? Even better, why not pay them to plant more trees and restore degraded ecosystems?
The fullest embodiment of this approach comes courtesy of the Kyoto Protocol, designed to combat global warming. Under Kyoto, governments and private firms in the developed world are positively encouraged to invest in forestation projects in the developing world. They are then able to claim ""offset credits"" for the additional carbon dioxide that the forests absorb.
Five million hectares of such ""offset plantations"" have now been established, and the figure is growing daily. The International Automobile Association, for instance, is planting 30,000 trees in Mexico to partly offset the 5,500 tons of carbon emitted annually by Formula One car racing. The Tokyo Electric Power Company is planting 3,000 hectares of eucalyptus forest in Tasmania in order to yield 130,000 tons of carbon credits. The Dutch government is investing heavily in a 20,000 hectare poplar plantation in Romania.
The Costa Rican government has developed an elaborate, nationwide PES program to protect biodiversity -- and has received over $40 million from the World Bank and the UN's Global Environment Facility to do so. As the Leuser ecosystem ably demonstrates, Indonesia is not short of ecological assets worth preserving either.
Indonesia is already making big strides in deriving payments from more traditional environmental sources -- promoting wildlife eco-tourism, for example. But it now has the opportunity to tap into a huge reservoir of new funding by doing little more than conserving its unique natural heritage.
