From Incentives to Rights: What Costa Rica and Indonesia Teach Us About Forest Governance

By: Mirnayanti Jayasari

Edited by: Rose Kores

Introduction

Deforestation is one of the world’s leading environmental challenges. The Food and Agriculture Organization (FAO) estimates that the world lost 420 million hectares of forest between 1990 and 2020.¹ Since deforestation also intensifies climate-related risks, the preservation of forests is integral to promoting biodiversity and climate stability. Based on the Global Nature Watch (GNW), Indonesia is one of the most significant forest frontiers, with 94 million hectares of natural forest in 2020, approximately half of its territory.² Yet, the country experienced 11 million hectares of primary forest loss between 2002 and 2025. Although annual forest loss has declined from 929,000 hectares in 2016 to around 300,000 hectares in 2025, deforestation pressures from logging, mining, peatland fires, and plantation expansion persist.

In contrast, Costa Rica represents an example of long-term forest recovery. The country maintained 2.6 million hectares of tree cover in 2020, or 52% of its land area, and recorded only 32 thousand hectares of primary forest loss over two decades, one of the lowest rates in the tropics.³

These contrasting outcomes raise an important policy question: How do the different governance models in Costa Rica and Indonesia shape forest conservation outcomes, and what lessons can each country learn from the other?

This article argues that differences in forest conservation outcomes are shaped by three key factors: institutional coherence, incentive alignment, and tenure clarity. Costa Rica demonstrates the effectiveness of aligning these elements within a centralized and incentive-based system, while Indonesia highlights both the potential and limitations of large-scale, community-based governance in a more complex institutional setting.

Institutional Structure

Costa Rica’s system is characterized by a relatively centralized and coordinated institutional structure. Policy direction is anchored in the Ministry of Environment and Energy (MINAE), with implementation delegated to specialized agencies such as Fondo Nacional de Financamiento Forestal (FONAFIFO) and the National System of Conservation Areas (SINAC). The country’s governance model is further strengthened by integrated monitoring systems that combine satellite verification with field inspections, supporting effective oversight of forest areas.

Indonesia, by contrast, operates within a decentralized and multilayered governance system. Authority is distributed across national ministries, provincial and district governments, and Forest Management Units (FMUs/KPH).⁴ While this structure allows policies to be adapted to local contexts, it also creates overlapping mandates and uneven administrative capacity. These challenges are further amplified by Indonesia’s large geographic scale and archipelagic structure, resulting in varied enforcement and limited policy consistency across regions.

Legal and Policy Frameworks

Costa Rica’s legal framework provides a stable and coherent foundation for forest conservation. The Forest Law 7575 (1996) prohibits unauthorized land-use change and establishes the legal basis for the Payment for Environmental Services (PES) program.⁵ This framework is reinforced by complementary regulations and aligned with Reducing Emissions from Deforestation and Forest Degradation (REDD+) strategies and carbon markets. As a result, policies are implemented consistently over time with minimal institutional ambiguity.

Indonesia has also developed an extensive legal framework, including the forest and peatland moratorium, Social Forestry Programme, and the FOLU Net Sink 2030 strategy.⁶ While these initiatives reflect strong national commitment, overlapping regulations across forestry, land rights, and regional autonomy create complexity. Consequently, legal commitments do not always translate into consistent implementation at the local level.

Policy Instruments: Incentives and Community-Based Governance

A key difference between Costa Rica and Indonesia lies in how policy instruments engage communities. Costa Rica relies on incentive-based mechanisms, while Indonesia emphasizes a rights-based approach. These approaches shape not only participation but also conservation outcomes.

Costa Rica’s PES: Aligning Incentives with Conservation

Costa Rica’s Payment for Environmental Services program is widely recognized as a successful incentive-based mechanism.⁷ It has contributed to a dramatic increase in forest cover—from around 21% in the 1980s to over 50% by the mid-2000s—and continues to maintain low deforestation rates. The program currently covers over 574,000 hectares and is financed through a fossil fuel tax and REDD+ carbon revenues, ensuring relatively stable funding. Standardized selection and prioritization matrices are able to provide transparent allocation of contracts while monitoring integrated field inspections and high-resolution satellite imagery.

This program has generated significant positive environmental and social impacts. It expands conservation on private lands, supports watershed protection, and strengthens the role of Indigenous territories by enhancing public acceptance through transparent criteria and stable governance by FONAFIFO. Studies also show that PES encouraged landowners’ long-term commitment to forest conservation by reinforcing property rights, strengthening local stewardship, and expanding participation of rural communities in conservation programs.^7,8

However, the program faces limitations. The most pressing issue is financing, as current funding, derived from the fossil fuel tax and REDD+ carbon credit sales, covers only about 10% of national forest area, leaving nearly 45% of eligible forests outside the program. As fossil fuel consumption declines under Costa Rica’s decarbonization agenda, the sustainability of PES funding becomes increasingly uncertain. Payments may also be insufficient in high-opportunity-cost areas such as agricultural land. Additionally, participation is limited by land tenure requirements, excluding smallholders without formal titles.

Indonesia Social Forestry Programme: Expanding Rights and Participation at Scale

The Social Forestry Programme consists of rights-based instruments that legally enable villages, cooperatives, and Indigenous groups to manage forest areas under several schemes (Village Forest, Community Forest, Community Plantation Forest, Partnership Schemes, and Customary Forests). In 2024, the Kementerian Lingkungan Hidup dan Kehutanan (KLHK) recorded 8.38 million hectares of land cover in this program, which involves 1.4 million households and supports 14,812 community enterprises (KUPS).⁶ In contrast with PES, social forestry does not provide direct financial payments. Instead, it offers legal access, tenure security, and livelihood opportunities as incentives for community-led forest management.

The program has contributed to rural development by improving household livelihoods while strengthening community participation in forest governance. Studies also show that community-based forest management like social forestry is more likely to encourage sustainable forest management when local communities are supported by secure tenure, strong local institutions, and transparent governance.^11,12

However, implementation challenges remain significant. Many communities struggle with administrative requirements, including forming legal entities and developing management plans. Capacity varies widely across regions and many groups lack access to capital, markets, and technical support. Research also shows that tenure recognition alone is insufficient.¹¹ Without effective management, weak local institutions will not be able to enforce legal rights or protections, and overlapping land claims will complicate policy implementation. As a result, program effectiveness depends heavily on governance capacity, economic support, and institutional coordination.

Policy Lessons and Implications

The comparison between Costa Rica and Indonesia highlights several governance lessons for strengthening forest conservation and community-based management. Three cross-cutting factors emerge as critical foundations for durable conservation outcomes: incentive alignment, institutional coherence, and tenure security.

First, incentive alignment matters. Costa Rica’s PES program demonstrates how financial incentives can directly influence conservation behavior. Indonesia’s Social Forestry Programme, while progressive, relies primarily on non-financial incentives. Integrating performance-based incentives into this program could enhance its impact. This may include conditional grants, payments for ecosystem services, or blended finance mechanisms. Establishing a dedicated funding source, such as environmental taxes or carbon revenues, would improve long-term sustainability. However, Costa Rica’s experience also highlights a key limitation: the long-term sustainability of PES financing remains uncertain, particularly as reliance on fossil fuel tax revenues declines with decarbonization efforts. This suggests that while incentive-based systems are effective, they require diversified and resilient funding mechanisms to remain viable over time.

Second, the comparison underscores the importance of institutional coherence. Costa Rica’s centralized coordination enables alignment between policy, financing, and monitoring while Indonesia’s decentralized system creates coordination challenges. Strengthening institutional coherence in Indonesia requires clearer delegation of authority, improved coordination across different government levels, and the standardization of monitoring systems. Capacity building for local institutions is also essential.

Third, secure and clearly defined land tenure remains foundational. Costa Rica’s requirement for tenure verification prior to PES enrollment reduces disputes and strengthens compliance. Indonesia continues to face structural tenure ambiguity due to overlapping claims between state forests, customary territories, village lands, and concessions. As a result, accelerating boundary verification, expanding recognition of customary rights, and integrating tenure reform into social forestry governance would reduce conflict and enhance local stewardship.

Costa Rica can also learn from Indonesia’s experience in expanding community participation at scale. While PES has been highly effective, its reliance on formal land ownership can limit access for some groups. Incorporating elements of community-based and co-management approaches could enhance inclusiveness and broaden participation.

Conclusion

The comparison between Costa Rica and Indonesia shows that forest conservation outcomes are shaped not by a single governance model, but by how institutions, incentives, and tenure systems are aligned in practice. Costa Rica’s approach highlights the effectiveness of coordinated institutions and incentive-based policies, while Indonesia demonstrates the importance of scale, inclusivity, and community participation.

Rather than representing competing models, the two approaches offer complementary strengths. Integrating incentive mechanisms with community-based governance while simultaneously strengthening institutional coordination and tenure clarity provides a pathway toward more effective and inclusive forest conservation.

Appendix A

Force Field Analysis of PES and Social Forestry

	Costa Rica – PES	Indonesia – Social Forestry Programme
Driving Forces	Clear financing through fuel tax and REDD+ revenues provides predictability. Strong legal mandate with clear institutional roles for MINAE, FONAFIFO, and SINAC, ensuring policy coherence and effective implementation. Clear private land tenure combined with direct monetary incentives strengthens compliance and conservation goals. Strong satellite & field-based monitoring system allows consistent oversight and rapid detection of deforestation. High public legitimacy due to transparent, voluntary participation.	Formal recognition of community rights enhances local stewardship and collective monitoring. Strong national policy commitment, including FOLU Net Sink 2030. Large-scale geographic and social reach—8.38 million hectares, 1.4 million households. Inclusive governance framework enabling participation of villages, cooperatives, and Indigenous peoples. Potential for diversified livelihood opportunities (agroforestry, ecotourism).
Restraining Forces	Limited funding: current financing covers only a fraction of national forest area. Dependence on fuel tax creates long-term sustainability concerns under decarbonization. Land title requirements exclude untitled smallholders. Payment levels may be insufficient in high-opportunity-cost areas. Administrative constraints including limited staff and high monitoring system costs.	Highly diverse administrative capacity across FMUs/KPH results in inconsistent facilitation and oversight. Weak internal governance and limited enterprise capacity in community groups. Absence of direct financial incentives reduces conservation uptake. Persistent tenure overlaps and boundary ambiguities hinder permit issuance and enforcement. Monitoring capacity remains weak and uneven, as FMUs have limited resources and technologies.

Works Cited

Food and Agriculture Organization (FAO). 2020. “Global Forest Resources Assessment.” https://openknowledge.fao.org/items/d6f0df61-cb5d-4030-8814-0e466176d9a1.
Global Nature Watch. 2025. “Indonesia.” https://www.globalforestwatch.org/dashboards/country/IDN/.
Global Nature Watch. 2025. “Costa Rica.” https://www.globalforestwatch.org/dashboards/country/CRI/.
Sahide, M. A. K., S. Supratman, A. Maryudi, Y.-S. Kim, & L. Giessen. 2016. “Decentralisation Policy As Recentralisation Strategy: Forest Management Units and Community Forestry in Indonesia.” International Forestry Review 18(1): 78–95. https://www-jstor-org.proxy.library.cornell.edu/stable/44132623?seq=1.
Government of Costa Rica. 1996. Forest Law No. 7575.
Kementerian Lingkungan Hidup dan Kehutanan (KLHK). 2024. “Laporan Kinerja Kementerian Lingkungan Hidup dan Kehutanan.” https://kemenlh.go.id/publikasi/detail/10.
Pagiola, Stefano. 2008. “Payments for Environmental Services in Costa Rica.” 10.1016/j.ecolecon.2007.07.033.
Arriagada, R. A., E. O. Sills, P.J. Ferraro, & S.K. Pattanayak. 2015. “Do Payments Pay Off? Evidence From Participation in Costa Rica’s PES Program.” https://pmc.ncbi.nlm.nih.gov/articles/PMC4498908/.
Porras, I., M. Miranda, & F. Salas. 2008. “Social Impacts of Costa Rica’s PSA Program.” World Bank: Latin America and Caribbean Sustainable Development Department. https://documents1.worldbank.org/curated/en/280971468261580657/pdf/870580NWP0PESL00Box385172B00PUBLIC0.pdf.
MINAE. 2016. “REDD+ Strategy of Costa Rica.”
Bong, I. W., M. Moeliono, G. Y. Wong, & M. Brockhaus. 2019. “What is Success? Gaps and Trade-offs in Assessing the Performance of Traditional Social Forestry Systems in Indonesia.” Forest and Society 3(1): 1–21. https://doi.org/10.24259/fs.v3i1.5184.
Ramadhan, R., M.D. Afiq, A. Anggara, & J. Triwanto. 2025. “Community Welfare and Forest Sustainability in Social Forestry Programs: A Case Study of KTH Bhakti Alam Lestari in Malang, East Java. Indonesian Journal of Forestry Research 12(1): 13–26. https://doi.org/10.59465/ijfr.2025.12.1.13-26.

Author Bio

In May of 2026, Mirnayanti Jayasari earned her MPA from Cornell University’s Brooks School of Public Policy. She has a background in industrial engineering and previously worked as an economic analyst at the Central Bank of Indonesia, where she contributed to regional economic analysis and policy recommendations.
Her work focuses on sustainable economic development and financial inclusion, with particular interest in how policy design can support community-based solutions and women empowerment. She has also been involved in initiatives supporting small and medium enterprises (SMEs) and sustainable local economies in Indonesia.