The Rimba Raya Biodiversity Reserve REDD Project

undervalued. Moreover, the arguments in favor of palmoil production for bio-­‐fuel development are highly flawedwhen environmental costs, also known as externalities,are unaccounted for.Once enacted, REDD will assist in providing somerevaluation to peat, both literal and figurative, as a resultof the worth placed on stored carbon values andincreased land use competition.Added competition to land will have upward pressures onshort term palm oil prices due to increased demand.Ultimately, once palm oil producers shift productioncapacity to marginalized non-­‐peat land the short terminput price increases would equilibrate as lower costplantation land will be identified and developed throughallocative efficiency. Moreover, the carbon credit marketwould settle at a higher equilibrium price and quantity asdemand gains traction among REDD adopting developedcountries.Increased input prices will cause activity shifting amongpalm oil producers due to the high level of demandelasticity for palm oil in commodities and consumermarkets in order to keep costs competitive.This activity shifting away from the depletion andconversion of peat land to agricultural uses will ultimatelyyield positive leakages with respect to emissions, all elseequal and the value placed on preserved peat will help tobring market outcomes closer to equilibrium as a result ofexternal effect accounting.By definition, a non-­‐renewable resource is a natural resourcethat cannot be produced, re-­‐grown, regenerated, or reused on ascale which can sustain its consumption rate (Wikipedia, 2009).The acceptance of REDD will address the critical importance ofpeat land and, in doing so will implicitly re-­‐align peat land as ahighly necessary source of climate stability and biodiversity.Conceptually, this will systemically motivate governments,private enterprises, NGO’s and individuals to place higher valueon peat land as a non-­‐renewable resource as opposed to aninefficient land use when compared to agricultural production.Moreover, unaccounted external costs will be brought in linewhich will provide for a more realistic picture of marketoutcomes.Therefore, it is appropriate to examine the market functions ofpeatlands, both before and after REDD, from the perspective ofthe economics of non-­‐renewable resources, which will beexamined at depth in coming paragraphs. Moreover, insubsequent paragraphs the implications of REDD on palm oilproduction, land use changes and resource allocation will befocused on.Furthermore, the concept of leakage will be defined andaddressed as it relates to the acceptance of REDD. A commonargument in favor of degradation is the use of palm oil as a bio-­fuel.This will be addressed in terms of flaws in the argumentsand negative leakages associated with the development thereof.Additionally, an examination of the relationship between scarcityand resource allocation and how these relate to and influenceactivity shifting will be discussed. In addition, the marketinteractions that will likely take place as a result of the addedcompetition, with respect to palm oil companies’ activity shifting,relative to plantation land acquisition will be addressed.214