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The report argues that existing village development indices in Indonesia fail to adequately measure or reward environmental performance. To address this, the Climate Policy Initiative (CPI) proposes the Indeks Desa Membangun Plus (IDM+), which adds 10 ecological indicators to the existing Indeks Desa Membangun (IDM). The report suggests using IDM+ as a basis for Ecological Fiscal Transfers (EFT), specifically through a mixed fiscal instrument approach in Berau Regency, East Kalimantan. This approach combines performance-based incentives via the Alokasi Dana Desa (ADD) with affirmative action funding for low-performing villages, potentially utilizing untapped reforestation funds (DBH DR).

The report argues that diversifying oil palm plantations with crops like maize and cocoa can significantly increase smallholder incomes in Berau, East Kalimantan, compared to monocropping. It identifies that oil palm alone often fails to meet minimum living costs and exposes farmers to price volatility. The study recommends a strategy of diversification starting when oil palm reaches peak productivity (around year 10) to ensure positive cash flow and bankability. Key financial instruments proposed to support this transition include Kredit Usaha Rakyat (KUR), credit guarantee schemes, and maize crop insurance. The report emphasizes that diversification must occur on existing allocated land to avoid deforestation.

The report analyzes the economic risks of palm oil monocropping for independent smallholders in Berau, Indonesia, finding that palm oil returns are often below minimum living costs. It argues that diversifying into crops like maize and cocoa can significantly increase revenue—potentially by up to 825% for maize—while enhancing regional food security and economic stability. The study recommends that the Berau government strengthen priority economic programs, facilitate access to agricultural financing and insurance, and implement environmental safeguards for alternative crops.

The document argues that existing village-level evaluation tools in Indonesia, such as the IDM and IPD, are inadequate for measuring environmental performance and mainstreaming Sustainable Development Goals (SDGs). To address this, the Climate Policy Initiative (CPI) proposes the Sustainable Village Development Index (IDM+), which adds 10 ecological indicators covering land-use, natural resource management, and climate actions to the existing index. Using Berau District in East Kalimantan as a case study, the paper demonstrates how IDM+ can be linked to fiscal instruments like Village Fund Allocation (ADD) and Financial Assistance (Bantuan Keuangan Kabupaten) to reward high-performing villages while providing affirmative support to low-performing ones. The author recommends that the central government incorporate IDM+ into the national IDM and that local governments ensure transparent implementation and capacity building.

The report argues that existing village-level evaluation tools in Indonesia, such as the Village Development Index (IDM), are inadequate for measuring and rewarding environmental sustainability. To address this, the Climate Policy Initiative (CPI) proposes the 'IDM+', which adds 10 ecological indicators covering land-use, natural resource management, and climate actions. Using Berau Regency in East Kalimantan as a case study, the report demonstrates how this index can underpin Ecological Fiscal Transfers (EFTs) to reward high-performing villages. It recommends a mixed fiscal approach—combining reformulated Village Fund Allocations (ADD) with targeted financial assistance—to incentivize green growth while supporting low-performing villages.

The report argues that independent palm oil smallholders in Berau face significant economic risks due to monocropping and low productivity, with returns often falling far below the regional minimum wage. Through financial modelling, the study finds that diversifying into maize and cocoa can substantially increase revenue—potentially up to 825% more than monocropping—while reducing sensitivity to market price volatility. It recommends that diversification begin during the peak productivity of palm oil trees (around year 10) to ensure bankability and positive cash flow. To facilitate this transition, the report suggests leveraging financial instruments such as the Kredit Usaha Rakyat (KUR) interest rate subsidy, credit guarantee schemes, and maize insurance, while strengthening local programs like PRUKADES and farmers' corporation plantation zones.

The author contends that Indonesia's COVID-19 recovery stimulus should shift away from fossil fuel support toward renewable energy, sustainable agriculture, and decentralized energy systems to ensure long-term economic stability and climate resilience.

This executive summary by the Climate Policy Initiative analyzes the economic transition of the Berau District in East Kalimantan, Indonesia, from a coal-dependent economy to one based on palm oil. The study finds that shifting from coal to a palm oil mono-crop is unsustainable and risks food security. It recommends a transition plan focusing on RSPO certification, increasing production efficiency, diversifying into other high-value crops like pepper and cocoa, and developing downstream processing refineries to capture added value and increase government revenue.

The report analyzes the economic fragility of Berau, East Kalimantan, caused by its heavy reliance on coal mining, which contributes over 60% of its GRDP. While the district is shifting toward palm oil, the study warns that mono-cropping palm oil risks replicating the same commodity-dependency trap. It recommends a transition plan based on increasing productivity and efficiency over land expansion, diversifying into high-value crops like pepper and cocoa, and developing downstream processing refineries to capture added value. Additionally, the report suggests optimizing government revenue through 'Own-Source Revenue' and implementing innovative ecological fiscal transfer mechanisms to reward sustainable land management.

The report analyzes the economic fragility of Berau Regency due to its heavy reliance on coal mining and the risks of replacing it with a palm oil monoculture. It argues for a multi-dimensional transition focusing on palm oil productivity efficiency over expansion, diversification into high-value crops like pepper and cocoa, and the development of downstream processing industries. The document also proposes optimizing local government revenue and implementing innovative ecological fiscal transfer mechanisms to incentivize sustainable land management.

The report analyzes the palm oil sector in Berau, East Kalimantan, finding that the region can meet its production targets and mill capacities without further land expansion by focusing on productivity increases. While corporate plantations operate efficiently, smallholders face significant barriers, including lack of land certification, limited access to finance, and inefficient transport routes. The report recommends strengthening smallholder cooperatives, improving financial access, and exploring the feasibility of local CPO refineries to increase regional value-add.

The report finds that Berau can meet its palm oil production needs and fulfill mill capacities by 2021-2023 by improving agricultural practices and reaching 90% optimum productivity, eliminating the need for further land expansion. While company plantations operate efficiently, independent smallholders face significant barriers, including lack of land certificates, limited access to finance, and inefficient transport routes to mills. The region lacks CPO refineries, resulting in most crude palm oil being exported to other provinces or Malaysia. The authors recommend strengthening smallholder cooperatives, improving bankability, and analyzing the business case for local refineries to increase regional value addition.

The report analyzes the governance and utilization of Indonesia's Village Fund, finding that while the fund has grown significantly and is a major revenue source for villages, it is predominantly spent on transportation infrastructure. The authors identify five key challenges—including a lack of technical capacity, misaligned planning between village and district levels, and insufficient regulatory guidelines—that hinder the fund's potential to support environmental conservation and sustainable land use. To address these, the report recommends integrating village priorities into district planning, empowering the Village and Community Empowerment Office, creating specific sustainability guidelines, adopting a 'negative-list' for spending, and introducing a sustainability variable into the fund's allocation formula.

The document outlines how village governments can align the use of Village Funds with regional priorities through the Village Medium-Term Development Plan (RPJM Desa) and the Village Government Work Plan (RKP Desa). It suggests that regional governments can enhance this synchronization by providing clearer technical guidelines, including a 'negative list' of prohibited expenditures, as exemplified by the Bupati of Berau's 2016 circular.