Indonesia, which contains the third-largest area of tropical forest in the world, is currently exploring policy options for the effective implementation of REDD , the global initiative to reduce emissions from deforestation and forest degradation. This article analyses the major questions regarding the effective distribution of benefits on the basis of three village case studies in Kutai Barat district in the province of East Kalimantan. The case studies demonstrate that companies are unlikely to take up compensation payments for stopping large-scale activities that cause deforestation and forest degradation, due to high opportunity costs. REDD finance may be more effectively used to reward small-scale dispersed activities that enhance carbon stocks, such as those already happening under Indonesia's community nursery programme. The analysis indicates the necessity for forest tenure reform, and in particular recognition of customary forest tenure through communal titles, which is more advantageous than the transfer of individual titles to households.
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