Transboundary Haze Pollution

by Khairul Rizal

This short piece is one of my serial papers written some ten years ago when haze pollution engendred by illegal land clearing was, and is still actually, a problem not only for Indonesia but also for its neighbouring countries. Again, some information might be outdated. However, the underlying idea is still highly relevant and actual.

In struggling with the transboundary haze pollution (THP) problem, the government of Indonesia is facing intense pressure both from uncooperative domestic politics and affected neighbouring countries. Putting the situation into two-level games framework introduced by Putnam (1988), there are strong international pressures on the government to commit with the ASEAN Agreement on THP, at the same time the government also ought to compromise with opposing domestic interests. Considering the uneasy situation faced by the government, this paper offers a policy advice on how to address the THP problem that has been long shadowing the country.

Key Issue

The key issue is the cost of abatement. This becomes crucial for two reasons. First, Indonesia is a developing country and has limited financial capacity in dealing with the THP problem. Abating the THP would require much of its resources which are needed for other development purposes. More importantly, forestry sector is considered as one of the main sources of revenue not only for national and local governments but also for most communities in Indonesia (Ulya & Yunardy, 2006). This means that abating haze pollution would not only impose high cost but also incur revenue loss for those stakeholders. Second, in the regional context, the ASEAN Agreement seems to be framed based on externalities instead of public good approach. As a result, Indonesia is viewed as the source of negative externalities that should be charged for causing THP rather than as provider of regional public good for supplying environmental services like biodiversity and oxygen. ‘Zero burning policy’ adopted in the Agreement and ‘agreed voluntary contributions from parties’ indicate that Indonesia is under pressure to solve the problem alone while other parties are enjoying ‘voluntary contribution’. In March 2008, the ASEAN THP Control Fund agreed to provide an initial target amount of only US$500,000 (ASEAN Secretariat, 2007).

Limited financial capacity, potential revenue loss, and uneven distribution of costs among beneficiaries eventually lead to lack of domestic political support in dealing with the problem.

Command and control approach

Command-and-control strategy refers to a wide range of regulatory standards including standards for maximum allowable pollutants, minimum technology requirements, and other measures that regulate the use of input, output and also locations. This approach has been locally and globally applied such in limiting emission from vehicles or imposing GHGs emission cap on countries (Grafton et al. 2004, p. 65-6). In ensuring compliance to the standards, rigid control with tight monitoring and strict enforcement is the main characteristic of this approach. Accordingly, this option proposes similar approach in coping with the THP.

This option recommends the government of Indonesia to proceed with the ratification process, which requires domestic political supports. Then, in line with the parties’ obligations in the Agreement, the government should establish and put into action legislative and regulatory measures as well as administrative and other relevant measures required to endorse ‘zero burning policy’ (Guinness 2009, p. 15). One major advantage of this option is in maintaining Indonesia’s reputation worldwide regarding its commitment to address the THP problem as well as to promote climate change mitigation.

Despite its advantage, theoretically command-and-control strategy suffers with one major weakness which is not cost-effective (Tietenberg 2007, p. 289). Transaction costs in terms of cost to obtain information and to monitor are high. Uniformity as the main feature of regulatory standard thwarts the cost of abatement from being equalized and minimized (Grafton et al. 2004, p. 66.). Moreover, non-binding ASEAN Agreement which is more emphasizing on persuasive approach seems to be not strong enough to drive domestic politics to produce required measures (Tan 2005, p. 721).

Payment for environmental services as an alternative

Payment for environmental services (PES) is a financial transfer from a buyer, who wants to secure the provision of environmental services, to a provider of a well-defined environmental service (Wunder 2005, p. 664). In short, this instrument is based on the beneficiary-pays rather than the polluter-pays principle (p. 663). In this case, the providers are the local governments and communities while the buyers of environmental services could be national government or international communities.

This option requires the government of Indonesia to renegotiate the ASEAN Agreement by offering public goods framework, as opposed to externalities framework, as solution to THP problem. In the proposed framework, all parties in the Agreement must equally contribute in the provision and preservation of this particular public good, i.e. environmental service of tropical forest in Indonesia.

The contribution from parties can be used as incentive to encourage local governments and communities to protect and preserve their forest and peat lands. Participation from local governments and communities is strategically important for two grounds. First, local governments are in fact the major players in forest management since decentralization took place in 2001 (Tan 2005, pp. 687-8). Second, local and indigenous communities are also contributing to the wild fire through traditional agricultures (Tacconi et al. 2008, pp. 7-8).

The financial payment from international buyers to local providers (i.e. local governments and communities) under PES scheme can be considered as a contribution for protecting and preserving the forests and peat lands as regional public goods. There are some evidences that this kind of payment can encourage participation if it is set so local governments would be better off of participating than not participating (Chandler and Tulkens, 1997). Moreover, just in case of failure in renegotiating the Agreement, the PES scheme can also be linked to broader international scheme such Reduction Emissions from Deforestation and Degradation (REDD)[1], where the PES could be designed to redistribute REDD revenues to local governments and communities’ forests.

Proposed Policies

The two policy options will be assessed by using two criteria: cost-effectiveness and political acceptability. The command and control approach seems to be effective assuming compliance from local governments and other relevant stakeholders are high. However, it suffers with high transaction costs for monitoring and enforcement and also high political costs to deal with politicians in the House during ratification process. The PES option is very likely to be effective because the payment scheme would be a strong incentive for local governments and other relevant stakeholders to protect the forests and peat lands from fire. Resistance from domestic politics are very unlikely since costs of abatement are evenly distributed among parties (not concentrated in Indonesia). Further, PES scheme which can generate revenue is considered as an affordable instrument available for Indonesia in addressing the THP problem. It is obvious that the later option is highly recommended.


ASEAN Secretariat 2007, ASEAN Ministerial Meetings on Transboundary Haze Pollution, Media Release, HazeOnline, viewed on 13 October 2010, <>.

Chandler, P and Tulkens, H 1997, ‘The core of an economy with multilateral environmental externalities’, International Journal  of Game Theory, vol. 26, pp. 279-295.

Engel, S, Pagiola, S and Wunder, S 2008, ‘Designing payments for environmental services in theory and practice: an overview of the issues’, Ecological Economics, vol. 65, no. 4, pp. 663-674.

Grafton, RQ, Adamowicz, W, Duppont, D, Nelson, H, Hill, RJ & Renzetti, S 2004, The Economics of the Environment and Natural Resources, Chapter 2 & 3, Blackwell Publishing, Oxford, UK.

Guinness, H 2009, Indonesia and the problem of transboundary haze, Case Paper for CRWF 8000 Government, Markets and Global Change, The Crawford School of Economic and Government, The Australian National University.

Howes, S 2009, ‘Cheap but not Easy: the reduction of greenhouse gas emissions from deforestation and forest degradation in Papua New Guinea’, Pacific Economic Bulletin, vol. 24, no. 1, pp. 130-143.

Putnam, RD 1988, ‘Diplomacy and domestic politics: the logic of two-level games’, International Organization, Vol. 42, No. 3, pp. 427-460.

Tacconi, L, Jotzo, F & Grafton, RQ 2008, ‘Local causes, regional co-operation and global financing for environmental problems: the case of Southeast Asian haze pollution’, International Environmental Agreement: Politics, Law and Economics, vol. 8, no.1, pp. 1-16.

Tan, AK 2005, ‘The ASEAN agreement on transboundary haze pollution: prospects for complianceand effectiveness in post-Soeharto Indonesia’, Environmental Law Journal, vol. 33, pp. 647-722.

Tietenberg, TH 2007, Environmental Economics and Policy, 5th ed., Chapter 14 & 15, Addison Wesley, Boston.

Ulya, NA & Yunardy, S 2006, Analysis of Forestry Sector Role in Indonesia Economy: an Input-Output Model Approach, Jurnal Penelitian Sosial Ekonomi, Pusat penelitian sosial ekonomi dan kebijakan kehutanan, vol 7, no. 1, viewed on 13 October 2010, <>.

[1] REDD scheme is a mechanism for compensating countries with carbon finance for reducing national rates of deforestation (Howes 2009, p. 130).

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