Payments for Environmental Services: A new instrument to address long-standing watershed and coastal issues in Indonesia? Policy Paper

Watershed and coastal management have long been priority areas for environmental conservation and development policies in Indonesia. Debates over watershed degradation on Java and its effects downstream can be traced back at least to the early 20th century. These debates have been closely linked to forest policies from early on and shaped by agricultural development strategies and environmental conservation goals. Political attention and interventions shifted between the lower river basins and the uplands and later incorporated coastal areas. Substantial international and national funds have been invested into watershed and coastal management. Yet, many of Indonesia’s watersheds continue to be regarded as degraded, with corresponding negative effects on coastal ecosystems. It has proven challenging also to effectively translate high-level policy positions, which aim to integrate watershed and coastal management, into action on the ground, let alone action which takes into consideration complex region-specific and historically grown socio-political realities. More recently, market-based approaches to environmental governance have increasingly gained attention in the policy sphere, where payments for environmental services (PES) have emerged as a potential alternative or compliment to state-led approaches. Before adoption of such approaches, however, there are urgent questions that need to be answered, including: What are the underlying causes of the long-standing watershed issues, and why have previous interventions failed to effectively address them? What are the causes of high river sediment loads and coastal sedimentation, and how have they been addressed? What are the challenges of managing these changes in coastal areas? Is PES a suitable instrument to address these watershed and coastal issues? The paper deals with these questions based on research in the Segara Anakan Lagoon and its watershed area in Central and West Java and on watershed PES initiatives, with case studies in East Java, Sumatra and Kalimantan. It provides careful recommendations that could strengthen development and environmental conservation policies in the Segara Anakan lagoon and its watershed.