The Rimba Raya Biodiversity Reserve REDD Project

Outsourcing. No palm oil is currently under production withinthe Project Area, so outsourcing leakage is unlikely.Market effects. Though relevant to any national leakageaccounting system, market effects are too speculative to gaugeon a project basis. For palm oil, moreover, the size of the marketdwarfs any shifts in supply and demand likely to occur due to anyone REDD project, and the economic incentives to convert anyremaining forests to plantations are so overwhelming that addedcompetition from REDD does little to increase them.The rapid rate of deforestation of peatland has brought aboutgreat cause for concern. With the advent of REDD, there ispotential to dramatically reduce the rate of global deforestation,which is critically important to both bio-­‐diversity and climatestability. The primary challenge to the efficacy of REDD is theissue of leakage, which suggests that the prevention of carbon ina localized project area may not lead to net carbon avoidance in abroader context if the carbon output activities merely shift toother areas, a practice referred to as activity shifting.The basic premise of REDD is to assign a market value to eco-­systemsservices, namely carbon sequestration, that havepreviously not been factored into the total real cost of a givenproduct. The idea is that if the fully burdened cost of theproducts we consume reflected the total real cost of production,including hitherto unpaid environmental services, then the priceof environmentally damaging products would increase, therebymaking them less competitive than more sustainable alternatives.This realignment of market pricing mechanisms is intended tobring into balance a system that currently is in disequilibriumbecause, up to now, there has been no cost associated with thegreen house gases released as a result of deforestation.Therefore, any theoretical argument surrounding the benefits orconsequences of REDD and possible risks of leakage, mustnecessarily entail a review of the basic economic concepts relatedto supply/demand elasticities and their relationship to priceequilibriums and disequilibrium. In the pages that follow, thefollowing issues will be addressed:Due to the non-­‐renewable nature of peat land given thehundred’s and even thousands of years required toregenerate, peat land should be treated as a non-­renewableresource that is being depleted at a rate fromwhich it will not be able to regenerate, eventually yieldingvery volatile climatic outcomes.Unaccounted for economic costs, known as negativeexternalities, will ultimately wreak havoc on eco-­‐systemsand long term regional and global climate stability.Essentially, a negative externality is a cost, in this case tothe environment and to all those reliant on its stabilityincluding plants, animals and people. In the currentmarket paradigm, this cost is not reflected in the price ofthe palm oil and the products that use palm oil.Ultimately all costs are not accounted for when peat landis converted, which leads to an artificially sustaineddisequilibrium in excess short-­‐term demand and long-­termlimited supply due to the fact that currentenvironmental degradation is not being factored into theprice today, but is rather being pushed off to the future.Because peat land is currently not considered, eithersocially or in terms of acknowledged importance, a non-­renewableresource therefore peat land is significantly213