Peatland Economy and Forest Fires in Riau Province: Negative Externalities,Socioeconomic Impacts, and Economic Solutions
Keywords:
negative externalities, peatland , forest fires, Payment for Ecosystem Services, peatland-friendly commodities, riauAbstract
Research aims: This study examines negative externalities of peatland burning in Riau Province, Indonesia, and evaluates economic instruments—Payment for Ecosystem Services (PES) and peatland-friendly commodity development—as sustainable solutions to the resulting market failure.
Design/Methodology/Approach: A systematic literature review was conducted using Scopus, ScienceDirect, and Google Scholar (keywords: 'peatland fire' AND 'Riau' AND 'economic'). From an initial pool of 127 records, 38 studies met the inclusion criteria (peer-reviewed, 2011–2024, empirical or theoretical focus on Riau peatland economics). The analysis employs Pigouvian externality theory and cost-benefit frameworks.
Research findings: Private burning costs (IDR 500,000–1,500,000/ha) are vastly below social costs, with 2015 national economic losses reaching USD 16.1 billion across Indonesia, highlighting the scale of the externality. Children exposed to haze show persistent lung function deficits—an intergenerational externality systematically underestimated by conventional analyses. PES payments of IDR 2,000,000/ha/year (2016–2017 pilot, Bengkalis) reduced fire incidence by 70%; peatland-friendly commodities generate IDR 30–100 million/ha/year without drainage or burning.
Theoretical contribution/Originality: This review is the first to integrate Pigouvian externality theory with intergenerational welfare loss evidence from Riau, demonstrating that market failure requires simultaneous regulatory and incentive-based instruments. Practitioner/Policy implication: Policymakers should fund PES through APBN, DBH-DR, and the Green Climate Fund, while investing in peatland-friendly commodity market linkages over a sustained 10–15 year horizon.
Research limitation/Implication: Limited post-2020 primary data constrains the analysis. Grey literature from BRGM and KLHK was excluded due to inconsistent methodological transparency, though this may understate recent restoration outcomes. Future research should conduct longitudinal household welfare surveys.
