Toward Addressing the Root Causes of the Haze

The situation on the ground

Sir, I have not physically visited the hotspots in Indonesia that have given rise to the transboundary haze we are experiencing. But here is my understanding of what is occurring on the ground.

The haze is the result of selective burning of Indonesian forest and peatland, which are cleared for cash crop agriculture. In recent months, the problem has been exacerbated by strong El Niño conditions this year, as was the case in 2015. The burning is initiated by, among others, commercial plantation operators and smallholder farmers. 

Smallholder farmers have a right, under Indonesian law, to clear up to 2 hectares of land by burning. In contrast, larger commercial operators are legally prohibited from clearing through burning, and tend to clear land mechanically.

However, this prohibition is inconsistently enforced, and since operators frequently purchase the output of small farmers, they may still indirectly contribute to burning practices. Independent studies reveal that the majority of hotspots have, historically, occurred in nonconcession land, although overlapping land claims make attribution difficult.

Moreover, when fires start, they easily spread from nonconcession to concession land, because these lands are often embedded within the larger holdings. And once started, fires tend to continue burning, due to the presence of carbon-rich peat in the soil.

If we accept this diagnosis, then any enduring solution to the problem of transboundary cannot simply target a single group, but requires aligning the incentives of all parties involved.

Positive and negative incentives to resolve environmental externalities

Economics provides two broad sets of solutions to environmental problems that impose uncompensated costs on others, what we call externalities. One is negative: to help perpetrators internalize costs, a government can impose sanctions, typically in the form of a (Pigouvian) tax, although this may include fines and other punishments. The other is positive: when property rights are clearly assigned, parties tend to treat fire risks on neighboring plots similarly to those on their own, consistent with what is known as the Coase Theorem.

Both of these approaches can, and do, apply to the case of forest fires in Indonesia. Much of the debate in this House—and the focus of the Bill—is on negative incentives. Hence, I will focus my speech on positive ones.

The principle behind the Coase Theorem

Without a long and boring digression into economic theory, let me to explain the principle behind the Coase Theorem—which helped its author win an Economics Nobel in 1991—in terms of a situation many Singaporeans would be familiar with: airline seats.

Just about all of us who have been seated in economy class on a plane will be familiar with this conundrum: the person in front  might recline their seat, which invariably reduces the space available for the person behind, and makes their flight experience more uncomfortable. The question is who has the right to the 6 inches of shared space between the two.

Typically, airlines say that those in front have the right to recline, except during meal service, and that is the end of the discussion. However, this outcome might not be ideal for all involved. The person at the back may be tall, and really appreciate the additional space. In contrast, perhaps the one up front doesn’t really mind seated up straight, in exchange for a small token of appreciation, such as a gift bag.

The Coase Theorem tells us that such a negotiated outcome is possible. Now, this may strike some as unfair: after all, the person up front has the right to recline, given to them by the airline. Why should he or she voluntarily accept a restriction on their movement? And by the same token, why should the one at the back feel compelled to pay the other, just so that they may be comfortable for a long flight?

But here’s the nub: it may well be the case that both parties are better off accepting the bargain. The person in front prefers the gift and doesn’t care much about reclining, while the person at back really enjoys the extra space. We could argue about rights and responsibilities and liabilities and fairness till the cows come home, or we could actually do something that makes life better for all involved.

The same applies to the Indonesian forest fires. We may strongly believe that we have a right to clean air in our country, and that the perpetrators of the burning should be held responsible for their actions that have robbed us of this right. Without dismissing how we should deploy any and all legal tools we may have available for recourse, we could still be missing the big picture, if we insist on the pursuit of justice over an even better outcome: no haze, perhaps at some cost that we would be prepared to incur, to bring this to pass.

Applying Coase in practice

How might we do so, in practice? Well, the proposal basically amounts to how one might provide positive incentives for those engaged in burning to stop. I understand that this sounds counterintuitive: contribute toward those creating the problem? Isn’t this the wrong way round?

Admittedly, this may seem unfair, from a natural justice perspective. But frame this another way: if the pollution would persist in the absence of such an exchange, would we rather have clean air, at some cost, or continue to suffer the effects of the haze, which may well be in excess of whatever expenditures are involved? I put it to this House that, as long as we are assured that the haze will stop, incurring some cost on our part to bring this to pass might well be an acceptable bargain. Let me offer some possibilities.

First, we could insist that commercial enterprises, particularly those based in Singapore, clear neighboring nonconcession land in the vicinity of their holdings. This will relieve small landowners—whose holdings often abut those of concession holders anyway—from the need to engage in burning for forest clearance. It would also focus liability more clearly on these firms. These large corporations, rather than incur the costs of extended litigation or potential fines, may well acquiesce to such an arrangement.

However, there are practical complications to moving forward with this approach. There will need to be a common arbiter to deal with legal and logistical considerations: who holds the land rights, what the zoning of the land currently is, how much carbon stock or conservation value is associated with the land, and so on, before the necessary trades may be realized in practice. 

This is, ultimately, the domain of the Indonesian government. But with cooperation and coordination on our part—especially when concession holders are registered in Singapore, and hence subject to local jurisdiction—we can bring to bear legal action that could compel forward movement on this front.

Second, we can provide support for improved policing and violator punishment. The inconvenient truth is that, so long as there remains a patronage network of beneficiaries from indiscriminate burning, there will have to be ongoing efforts directed toward fire suppression and prevention. Singapore has consistently offered firefighting support in the past. Recently, a joint haze task force, aimed at facilitating information sharing that will hold those responsible accountable, was set up. We can do more.

Beyond information exchange, we can work together to push concession holders—especially those headquartered here—to undertake additional, pre-emptive fire management measures, including doing so on nonconcession lands adjacent to theirs. These include firebreaks and peatland rewetting, which have a proven track record in reducing fire occurrence.

The costs for such enhanced enforcement, especially set against our own economic losses, are small. We may easily justify extraordinary expenditures by appealing to how effective enforcement becomes more urgent when climate conditions exacerbate the situation, and enforcement becomes more complicated when dealing with a large swathe of ongoing wildfires. Of course, this does not preclude pre-emptive actions, even in other years.

Yet even under the best of circumstances, the haze problem would never be resolved by enforcement alone. Fires persisted, and in El Niño seasons like now, this approach alone is insufficient. 

That is why, as a third, complementary, angle is needed. We can target support to regions where burning is endemic. Since 2005, such support has typically been in kind—firefighting, information sharing on hotspots, and aircraft for cloud seeding—for haze-fighting purposes. Support has also not been limited to Indonesia, but has also been extended to Malaysia and Thailand.

Indonesia has indicated that its national disaster management agency will coordinate recent offers of assistance. If possible, we should further focus on directing our assistance toward small landholders, rather than concession land held by large corporations. This ensures that the ones with the least means of clearing land by methods other than burning are also the beneficiaries. For prudence, we can deliver our support in tranches, making it conditional on verifiable cessation of burning activity. There is evidence that such positive incentives, focused at the village level, do help small landholders comply with environmental regulations.

Ideally, we do so within the ambit of ASEAN. To the extent that the haze is a common problem, we can work together with other countries, such as Brunei, Malaysia, and Thailand, toward a coordinated solution. The Indonesian government must, of course, be the one that primarily finances and leads this initiative. But doing so within a regional forum significantly increases diplomatic and financial leverage.

As Singapore assumes the chairmanship of the body in January next year, we could make regional cooperation to address transboundary haze a priority focus. In response to a parliamentary question (PQ) filed by my honorable friend, He Ting Ru, yesterday, as well as earlier PQs on regional measures, the government has shared that Singapore works within the framework of the ASEAN Agreement on Transboundary Haze Pollution (AATHP), with a goal of establishing a coordinating center. This  is an important step, but we should not satisfy ourselves with haze monitoring and mitigation approaches alone.

Rather, we can look to deploy instruments that focus on the protection of carbon stocks, which focuses on prevention by way of compensation and financing. My Workers’ Party colleague, Kenneth Tiong, has mentioned such a mechanism in his speech. There is also a ready-made, UN-backed scheme—the Reducing Emissions from Deforestation and Forest Degradation (REDD+) framework—designed to work along these very lines. We should also build on this instrument in our chairmanship year ahead.

Of course, such direct support strategies will need to be accompanied by an accountability mechanism, to limit leakage and ensure that any disbursements end up with the intended beneficiaries. This will require diplomatic finesse, cooperation and coordination with the Indonesian government, and the accountability and credibility that would be conferred by working within the rubric of ASEAN.

It will also require money. One may recoil at the thought of expending taxpayer funds abroad. But we must remember that the present status quo is not costless to  us, either. One estimate points to losses of close to 1 percent of annual income, due to the adverse effects we suffer in terms of health, along with disruptions to transport and tourism. Even lower-end estimates place the cost at close to half a percentage point of GDP. It is clearly in our economic interest to consider how we may contribute, directly and indirectly, to permanently resolving the haze problem.

And to be clear, I am not suggesting that we spend this entire amount, or anything close to it. Still, we need to ask the sober question of whether, on a purely cost-benefit basis, whether it may be worthwhile spending a fraction of what we would otherwise lose anyway, to help mitigate the problem at its root.

Closing appeal

Mr Speaker, when we are harmed by the actions of others, it is easy—tempting, even—to rely on the strong hand of the law to bring about compliance. This is a human reaction, and very understandable. After all, we have all been adversely affected by the ongoing haze (some of us more disproportionately, health-wise, than others). 

While I support the Bill, my speech has emphasized how incentives can be positive or negative. Rather than solely relying on coercion or compunction, we can also be constructive in our efforts to promote change. The three mechanisms I’ve proposed— have corporations finance land clearance on small landholders’ behalf, expand the scope of support for enforcement, and to direct in-kind assistance toward such small farmers—may seem to reward undesirable behavior.

But I hope I’ve explained how vilifying one actor or another, while satisfying to some, is unlikely to solve the problem. Different groups are endowed with more or less means to tackle the problem head-on, and genuine reform must look to how we can help those least able to choose a way forward, other than to burn the forest as a means of subsistence.

I believe that the proposals I’ve offered strike at the heart of the problem. They go beyond just settling for a short-term fix or wildly wielding the questionable hammer of laws that extend beyond our 0wn jurisdiction. Instead, these proposals offer the tantalizing possibility of enduring solutions, delivered with empathy, so that we might finally return to the blue skies we all so deeply crave.

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