DESIGN OF A REDD+ COMPLIANT BENEFIT DISTRIBUTION SYSTEM FOR INDONESIA UN -REDD PROGRAM 27/09/2012 Jakarta, Indonesia DESIGN OF A REDD + COMPLIANT BENEFIT DISTRIBUTION SYSTEM FOR INDONESIA Page 1 Contents Contents.................................................................................................................................................. 1 List of Tables ........................................................................................................................................... 3 List of Figures .......................................................................................................................................... 4 List of Boxes ............................................................................................................................................ 5 Glossary .................................................................................................................................................. 6 Terms on Local Government .................................................................................................................... 9 Executive Summary ............................................................................................................................... 13 INTRODUCTION ..................................................................................................................................... 28 1.1 Objectives............................................................................................................................... 29 1.2 Methodology .......................................................................................................................... 29 1.3 Background ............................................................................................................................ 29 1.3.1 Overview of the Project Area: Central Sulawesi ............................................................... 31 1.3.2 Brief History and Geographic Condition of Central Sulawesi ............................................ 33 1.4 Regional Government Analysis................................................................................................ 34 1.4.1 National and Local Government Structure ....................................................................... 34 1.4.2 Structure and Key Player of Local Government ................................................................ 37 2 LEGAL FRAMEWORK OF REDD+ AND BENEFIT DISTRIBUTION SYSTEM ANALYSIS ............................ 41 2.1 Compliance of REDD+ to the Indonesia Legal System ............................................................. 41 2.2 Disharmony of Laws and Technical Regulations....................................................................... 44 3 INSTITUTIONAL FRAMEWORK FINANCE ......................................................................................... 48 3.1 National Level ......................................................................................................................... 48 3.1.1 Parties Involved ............................................................................................................... 55 3.1.2 REDD+ Source of Funds and Its Mechanism ..................................................................... 57 3.1.3 Grants ............................................................................................................................. 62 3.2 REDD+ Financing Mechanism through CERs ............................................................................ 65 3.3 Provincial Level ....................................................................................................................... 68 3.4 Disbursment Mechanism ........................................................................................................ 72 3.5 Definition of The Current Available BDS .................................................................................. 79 3.6 Issues, Options, Recommendations and Actions for BDS REDD+ .............................................. 81 3.7 BDS at Forestry Sector ........................................................................................................... 91 DESIGN OF A REDD + COMPLIANT BENEFIT DISTRIBUTION SYSTEM FOR INDONESIA Page 2 3.8 BDS at Agriculture Sector ....................................................................................................... 93 3.9 Eligibility, Principles and Performance in the Distribution System ........................................... 94 3.10 Linking Corruption, Illegal Logging, and Deforestation ............................................................ 96 3.10.1 Possible Corruption Challenges for REDD+ ....................................................................... 97 3.10.2 Anti Corruption Mechanism ............................................................................................ 98 3.11 Best Practices of Benefit Distribution System ....................................................................... 100 3.12 International Best Practices .................................................................................................. 101 3.13 National Best Practices ......................................................................................................... 103 3.13.1 Berau Forest Carbon Program ....................................................................................... 103 3.13.2 PNPM: Village Capacity in Maintaining Infrastructure: Evidence from Rural Indonesia ... 107 3.13.3 Small Grants Program for Operations to Promote Tropical Forests (SGP PTF) in Indonesia ...................................................................................................................... 108 3.13.4 Cinta Mekar Micro-Hydro Power Plant .......................................................................... 112 3.13.5 Payment for Environmental Services (PES) in Cidanau Watershed ................................. 115 4 LAND USES OPPORTUNITY COST IN CENTRAL SULAWESI .............................................................. 119 4.1 Measuring Opportunity Cost of REDD+ ................................................................................. 127 4.2 Opportunity Costs of Land Use Change in Central Sulawesi ................................................... 129 5 MONITORING, FPIC AND GRIEVANCE MECHANISM ...................................................................... 127 5.1 Monitoring ........................................................................................................................... 127 5.2 Free, Prior, and Informed Consent in REDD+ ......................................................................... 129 5.3 Grievance Mechanism .......................................................................................................... 133 6 IDENTIFYING SUITABLE BDS FOR CENTRAL SULAWESI .................................................................. 137 6.1 Project Location Short Brief .................................................................................................. 127 6.2 “Musrenbang”: A Proposed Way to Identify BDS at Grassroot Level...................................... 129 7 POSSIBLE DESIGNS OF BENEFIT DISTRIBUTION SYSTEM IN SULAWESI........................................... 145 7.1 Forest and Carbon Dynamics: A Financial Framework ........................................................... 152 7.2 BDS Options for Central Sulawesi .......................................................................................... 152 8 SUMMARY AND FUTURE WORKS ................................................................................................. 155 8.1 Summary .............................................................................................................................. 155 7.1 Future Works ........................................................................................................................ 152 References .......................................................................................................................................... 165 DESIGN OF A REDD + COMPLIANT BENEFIT DISTRIBUTION SYSTEM FOR INDONESIA Page 3 List of Tables Table 1 Condition of forest areas at district or municipality level in Central Sulawesi Province ............... 32 Table 2 Total Area and Number of Administrative Units by Region/City ................................................. 33 Table 3 Laws related to the implementation of REDD+ schemes ............................................................ 42 Table 4 Implementative regulations related to the implementation of REDD ......................................... 45 Table 5 Disharmony of laws and regulations related to REDD+ .............................................................. 46 Table 6 Fiscal Balance of Natural Resources Utilizations......................................................................... 49 Table 7 Types of areas, units and implementer of REDD in Indonesia ..................................................... 51 Table 8 Parties Involved in Implementation of REDD+ in Indonesia ........................................................ 56 Table 9 Types of forest sector benefits distributed through BDS ............................................................ 75 Table 10 BDS Participants ...................................................................................................................... 76 Table 11 LULUCF and REDD+