**3. Results and discussion**

*Land Use Change and Sustainability*

available for combustion. The latter is estimated for the BAU scenario by multiplying the mean depth of burned peat with the bulk density (BD) as assumed in the studies by Mulyani et al. [32] and Ballhorn et al. [2]. From here, the average depth of burned peat in other scenarios was calculated by building a linear relationship between the assumed water table depth (WTD) and the burned depth. Furthermore, **Gef** denotes the CO2 emission factor calculated by multiplying the organic carbon content (Corg, % of weight) of 0.4986 [32] with the conversion factor from tC to tCO2e which is 3.67. This conversion factor was derived through dividing the atomic weight of carbon dioxide (i.e., 44) by the atomic weight of

*Central Kalimantan hotspots and Nino3.4 SST correlation (for the period July–August–September–October) [57].*

Land subsidence was estimated to forecast the amount of flooded agricultural land to be subtracted from agricultural land, production, and profits in the Green GDP calculations. The KT-GEM Peatland Module calculates the subsidence rate using the equation from Hooijer et al. [21] which measured a relationship between

This formula was simulated for each land use category in all selected peatland management scenarios and adjusted the WTD accordingly. Based on the subsidence rate, the module then measured the risk of flooding in agricultural peatlands with an equation from that demonstrates the relationship between the accumulated agricultural subsidence and the proportion of flooded agricultural peatlands. The result was then multiplied with the existing agricultural land (in hectare) and the inverted Nino3.4 SST Index (where wet years are positive instead of the other way

In estimating the total costs and profits, the KT-GEM included costs of rewetting and reforestation, costs from fires, and profits from palm oil plantations and jelutung.

*Subsidence rate* (*cm per year*) = 0.69 − 5.98 × *WTD*

around) in order to obtain the extent of flooded agricultural land.

**82**

carbon (i.e., 12).

**Figure 2.**

*2.4.2 Land subsidence and flooding*

*2.4.3 Calculating costs and profits*

water table depth and subsidence level, as follows:

1.Policy interventions in the GE and Jelutung scenarios lead to lower cumulative peatland emissions

**Figure 3** shows the total cumulative peatland emissions in the four selected peatland management scenarios. Up to 2015, the year in which the interventions are expected to begin, total peatland emissions are the same in all the scenarios considered. The GE and Jelutung scenarios result in significantly lower cumulative peatland emissions in Central Kalimantan compared to the BAU and BAU + Palm scenarios in the simulation up to 2045, with the scenario BAU + Palm having the highest level of cumulative emissions. Given the large contribution of peat-related emissions in Central Kalimantan to Indonesia's total GHG emissions, the adoption of policies aimed at reducing peatland emissions will significantly help the country achieve its climate change mitigation goals [31].

High peatland emissions are correlated with higher costs associated with fires on peatlands, as reflected in **Figure 4**. Results of the BAU and BAU + Palm coincide and are highly fluctuating over time, signifying that there is a high variability in the probability that peat fires will take place on any given year. Ultimately, this trend illustrates that both the BAU and the BAU + Palm scenarios generate the highest costs related to annual fire damage as compared to the other two scenarios. The model forecasts that future fire damage costs in the BAU and the BAU + Palm scenarios could reach up to 700 billion IDR; whereas, in the GE and Jelutung scenarios,

#### **Figure 3.**

*Cumulative peatland emissions of different policy scenarios in Central Kalimantan.*

#### **Figure 4.**

*Cost due to peatland fire in Central Kalimantan.*

these costs would be equal to zero after the initial years of intervention. In the KT-GEM peatland module, these results are further integrated in the calculation of Green GDP as part of natural capital losses and the BAU and BAU + Palm scenarios are therefore significantly contributing to lower Green GDP than the other two scenarios.

The 2015 fires, which were caused by El Niño, are proof that historical data alone are inadequate to be used as a benchmark for forecast the actual costs of fire damage. In addition to the direct impacts and costs of fire and haze, studies indicate long-term negative health impacts from endured exposure to haze, including a significant increase in mortality [26]. The World Bank [53] calculated that post-fire and haze rehabilitation costs of 2015 amount to USD 16.1 billion, more than double the costs of the Aceh-Nias tsunami in 2004.

The BAU and BAU + Palm Oil scenarios are so-called high risk, high reward scenarios with short-term economic benefits. Keeping in mind Indonesia's sustainability and economic ambitions, the more effective scenarios (Jelutung and GE)—as illustrated on the graphs—should be prioritized; as they signify the lower levels of deviation from predicted future emission levels, and this "predictability" is a stable environment for government officials to formulate policies as well as for other key stakeholders that have initiatives in this area.

**85**

**Figure 5.**

*Applying Systems Analysis to Evaluate Options for Sustainable Use of Peatlands...*

generating more emissions are not captured by traditional GDP.

dence on nature is not considered in the conventional GDP indicator.

*The projection of GDP of the simulated policy scenarios in the Central Kalimantan.*

Implicitly, the lower cost due to reduced peatland fires will inherently improve

2.Jelutung and GE scenarios are less profitable than palm oil development, but

The GE and Jelutung scenarios are less profitable than palm oil development when relying on traditional GDP indicators, as is made apparent in **Figure 5**. The calculation of the natural capital component in the Green GDP valuation is dependent on both the release of emissions, as well as on the revenues from agricultural activities. As a result, the direct income derived from palm oil production increases short-term profitability, but the negative impacts of depleting natural resources and

At the end of the study period, the GDP of BAU + Palm Oil scenario would reach more than 100 trillion IDR, while the real GDP in the other three scenarios approximates IDR 75 trillion. The major increase in GDP for the BAU + Palm Oil scenario is due to the high profits obtained from palm oil plantations. This remains as one of the direct challenges faced by key stakeholders that want to shift practices to more

However, the conventional GDP indicator has many shortcomings, which makes it unreliable as a measure of social welfare. The GDP indicator ignores the future consequences of current consumption [5] and is criticized for not internalizing environmental externalities and natural resources depletion (e.g., [4]). Consequently, the value of nature is often underestimated in policy making since its contribution is deemed low, and this leads to struggling efforts in conserving nature. In Indonesia, conventional GDP only captures a small portion of nature's contribution to the economy, estimated around 21% of the total GDP. Yet, Indonesia has approximately 99 million poor inhabitants who depend on ecosystem services, and their depen-

The KT-GEM clearly points out these shortcomings, and estimates an alternative indicator: Green GDP. This indicator shows that the GE and Jelutung scenarios would reduce economic volatility and the vulnerability to external shocks as well as to climate change (and peat fires). Furthermore, the economic performance now differs only slightly across all the scenarios, indicating that the value of nature is relevant and should be explicitly considered. Overall, the GE scenario achieves the best performance with regard to the Green GDP indicator, as its value is higher than BAU

*DOI: http://dx.doi.org/10.5772/intechopen.85677*

the latter is unsustainable

results of Green GDP.

sustainable alternatives.

*Applying Systems Analysis to Evaluate Options for Sustainable Use of Peatlands... DOI: http://dx.doi.org/10.5772/intechopen.85677*

Implicitly, the lower cost due to reduced peatland fires will inherently improve results of Green GDP.

2.Jelutung and GE scenarios are less profitable than palm oil development, but the latter is unsustainable

The GE and Jelutung scenarios are less profitable than palm oil development when relying on traditional GDP indicators, as is made apparent in **Figure 5**. The calculation of the natural capital component in the Green GDP valuation is dependent on both the release of emissions, as well as on the revenues from agricultural activities. As a result, the direct income derived from palm oil production increases short-term profitability, but the negative impacts of depleting natural resources and generating more emissions are not captured by traditional GDP.

At the end of the study period, the GDP of BAU + Palm Oil scenario would reach more than 100 trillion IDR, while the real GDP in the other three scenarios approximates IDR 75 trillion. The major increase in GDP for the BAU + Palm Oil scenario is due to the high profits obtained from palm oil plantations. This remains as one of the direct challenges faced by key stakeholders that want to shift practices to more sustainable alternatives.

However, the conventional GDP indicator has many shortcomings, which makes it unreliable as a measure of social welfare. The GDP indicator ignores the future consequences of current consumption [5] and is criticized for not internalizing environmental externalities and natural resources depletion (e.g., [4]). Consequently, the value of nature is often underestimated in policy making since its contribution is deemed low, and this leads to struggling efforts in conserving nature. In Indonesia, conventional GDP only captures a small portion of nature's contribution to the economy, estimated around 21% of the total GDP. Yet, Indonesia has approximately 99 million poor inhabitants who depend on ecosystem services, and their dependence on nature is not considered in the conventional GDP indicator.

The KT-GEM clearly points out these shortcomings, and estimates an alternative indicator: Green GDP. This indicator shows that the GE and Jelutung scenarios would reduce economic volatility and the vulnerability to external shocks as well as to climate change (and peat fires). Furthermore, the economic performance now differs only slightly across all the scenarios, indicating that the value of nature is relevant and should be explicitly considered. Overall, the GE scenario achieves the best performance with regard to the Green GDP indicator, as its value is higher than BAU

**Figure 5.** *The projection of GDP of the simulated policy scenarios in the Central Kalimantan.*

*Land Use Change and Sustainability*

**84**

**Figure 4.**

**Figure 3.**

scenarios.

*Cost due to peatland fire in Central Kalimantan.*

the costs of the Aceh-Nias tsunami in 2004.

these costs would be equal to zero after the initial years of intervention. In the KT-GEM peatland module, these results are further integrated in the calculation of Green GDP as part of natural capital losses and the BAU and BAU + Palm scenarios are therefore significantly contributing to lower Green GDP than the other two

*Cumulative peatland emissions of different policy scenarios in Central Kalimantan.*

The 2015 fires, which were caused by El Niño, are proof that historical data alone are inadequate to be used as a benchmark for forecast the actual costs of fire damage. In addition to the direct impacts and costs of fire and haze, studies indicate long-term negative health impacts from endured exposure to haze, including a significant increase in mortality [26]. The World Bank [53] calculated that post-fire and haze rehabilitation costs of 2015 amount to USD 16.1 billion, more than double

The BAU and BAU + Palm Oil scenarios are so-called high risk, high reward

scenarios with short-term economic benefits. Keeping in mind Indonesia's sustainability and economic ambitions, the more effective scenarios (Jelutung and GE)—as illustrated on the graphs—should be prioritized; as they signify the lower levels of deviation from predicted future emission levels, and this "predictability" is a stable environment for government officials to formulate policies as well as for other key stakeholders that have initiatives in this area.

**Figure 6.** *The projection of green GDP of the simulated policy scenarios in Central Kalimantan.*

and Jelutung annually and cumulatively, and it is also highly competitive with the BAU + Palm oil scenario. Most importantly, the growth of the GE scenario is more consistent and resilient than what is observed for the other scenarios (**Figure 6**).

3.The Jelutung and GE scenarios result in lower total natural capital change costs

The analysis shows that both the BAU and the BAU + Palm Oil scenario result in heavily fluctuating costs due to peat fires and natural capital depletion, a sign that palm oil and continued deforestation continue to undermine the value of natural capital throughout the study period (**Figure 7**). This is also one of the strong inputs that explain the reduced fluctuation of Green GDP, in which a smaller number of peat fires is forecasted. The years 2018 and 2032, in particular, show high losses of natural capital due to forest fires, but only in the BAU and BAU + Palm Oil scenarios.

The total Natural Capital Net Change becomes a key piece of information when development practitioners attempt to negotiate with private sector institutions that a win-win solution can be obtained by adopting GE or Jelutung policy scenarios and moving away from traditional BAU practices and palm oil development. Many initiatives—most famously, efforts by Pavan Sukhdev and the TEEB initiative—have attempted to formulate tools and processes to give ecosystem services a numerical

**87**

**Figure 8.**

*Applying Systems Analysis to Evaluate Options for Sustainable Use of Peatlands...*

value; intended to drive new conservative business practices that go along with the assumed primary interest of businesses—maximizing profit. This can be looked at as a marketing attempt to increase the tangibility of ecosystem services. By giving natural resources and ecosystem services a numerical value, private sector

institutions—especially those in industries that are highly dependent on these shared assets—become inclined to input these numbers onto their financial scorecards and

4.Under a higher carbon price the Jelutung scenario outperforms the BAU + Palm

The valuation of natural capital in the Green Economy Model is dependent on the carbon price that is used, which in this case is the baseline carbon price that is set in the Letter of Intent between Indonesia and Norway. However, carbon prices may fluctuate leading to different impacts on Green GDP depending on land use management scenarios. As the effect of the Jelutung scenario on Green GDP is highly dependent on carbon price and profitability of Jelutung, a sensitivity analysis of the carbon price on the cumulative Green GDP was carried out. Results demonstrate that under a higher carbon price, the Jelutung scenario generates a higher cumulative Green GDP than the BAU and the BAU + Palm Oil scenarios (see **Figure 8**). This is caused by the gain in revenues from the decrease in peatland emissions

Doing so could lead to a more sustainable business environment, with a long-term accumulation of profit for businesses at a consistent rate. The question and challenge is whether businesses, government officials, and other key stakeholders are able to envision this outcome and make the trade-off between BAU/BAU + Palm oil and GE/Jelutung scenario, which leads to short-term profit loss, but sustainable long-term business activity—inherently meaning, increased accumulative profit. In fact, the GE scenario has the highest cumulative Green GDP, and that even though BAU + Palm oil is a little more profitable than Jelutung, the Jelutung scenario is just as competitive considering it possesses far more intangible benefits (e.g., in the provision of ecosystem services and resilience) for policy makers, businesses, and communities. On the other hand, being intangible and not being accrued by any specific economic actors, these benefits are difficult

*DOI: http://dx.doi.org/10.5772/intechopen.85677*

to quantify and can hardly influence decision making.

*The effect of the carbon price on the cumulative Green GDP in Central Kalimantan.*

balance sheets.

Oil scenario

**Figure 7.** *Total Natural Capital Net Change.*

*Applying Systems Analysis to Evaluate Options for Sustainable Use of Peatlands... DOI: http://dx.doi.org/10.5772/intechopen.85677*

value; intended to drive new conservative business practices that go along with the assumed primary interest of businesses—maximizing profit. This can be looked at as a marketing attempt to increase the tangibility of ecosystem services. By giving natural resources and ecosystem services a numerical value, private sector institutions—especially those in industries that are highly dependent on these shared assets—become inclined to input these numbers onto their financial scorecards and balance sheets.

Doing so could lead to a more sustainable business environment, with a long-term accumulation of profit for businesses at a consistent rate. The question and challenge is whether businesses, government officials, and other key stakeholders are able to envision this outcome and make the trade-off between BAU/BAU + Palm oil and GE/Jelutung scenario, which leads to short-term profit loss, but sustainable long-term business activity—inherently meaning, increased accumulative profit. In fact, the GE scenario has the highest cumulative Green GDP, and that even though BAU + Palm oil is a little more profitable than Jelutung, the Jelutung scenario is just as competitive considering it possesses far more intangible benefits (e.g., in the provision of ecosystem services and resilience) for policy makers, businesses, and communities. On the other hand, being intangible and not being accrued by any specific economic actors, these benefits are difficult to quantify and can hardly influence decision making.

4.Under a higher carbon price the Jelutung scenario outperforms the BAU + Palm Oil scenario

The valuation of natural capital in the Green Economy Model is dependent on the carbon price that is used, which in this case is the baseline carbon price that is set in the Letter of Intent between Indonesia and Norway. However, carbon prices may fluctuate leading to different impacts on Green GDP depending on land use management scenarios. As the effect of the Jelutung scenario on Green GDP is highly dependent on carbon price and profitability of Jelutung, a sensitivity analysis of the carbon price on the cumulative Green GDP was carried out. Results demonstrate that under a higher carbon price, the Jelutung scenario generates a higher cumulative Green GDP than the BAU and the BAU + Palm Oil scenarios (see **Figure 8**). This is caused by the gain in revenues from the decrease in peatland emissions

**Figure 8.** *The effect of the carbon price on the cumulative Green GDP in Central Kalimantan.*

*Land Use Change and Sustainability*

**Figure 6.**

and Jelutung annually and cumulatively, and it is also highly competitive with the BAU + Palm oil scenario. Most importantly, the growth of the GE scenario is more consistent and resilient than what is observed for the other scenarios (**Figure 6**).

*The projection of green GDP of the simulated policy scenarios in Central Kalimantan.*

3.The Jelutung and GE scenarios result in lower total natural capital change costs

The analysis shows that both the BAU and the BAU + Palm Oil scenario result in heavily fluctuating costs due to peat fires and natural capital depletion, a sign that palm oil and continued deforestation continue to undermine the value of natural capital throughout the study period (**Figure 7**). This is also one of the strong inputs that explain the reduced fluctuation of Green GDP, in which a smaller number of peat fires is forecasted. The years 2018 and 2032, in particular, show high losses of natural capital due to forest fires, but only in the BAU and BAU + Palm Oil scenarios. The total Natural Capital Net Change becomes a key piece of information when development practitioners attempt to negotiate with private sector institutions that a win-win solution can be obtained by adopting GE or Jelutung policy scenarios and moving away from traditional BAU practices and palm oil development. Many initiatives—most famously, efforts by Pavan Sukhdev and the TEEB initiative—have attempted to formulate tools and processes to give ecosystem services a numerical

**86**

**Figure 7.**

*Total Natural Capital Net Change.*

under the Jelutung scenario as compared to the high peatland emissions under BAU and BAU + Palm Oil scenarios.

For policy makers, this means that an increase in carbon prices will result in more favorable conditions—higher profit—for GE/Jelutung scenarios and an increase in the costs of BAU/BAU and oil Palm ones. As carbon prices increase, these results become more distinct and would encourage a change in policies. Yet, if national policy makers remain reluctant in adopting sustainable policy options with carbon pricing incentives, local government, the private sector, and local communities will not be incentivized to transition to the GE and/or the Jelutung scenario, because the profit margins remain low.
