Regional Environmental Governance and the Transboundary Haze Problem in Southeast Asia

Transboundary haze resulting from forest and peatland fires in Indonesia imposes substantial environmental, public health, and economic costs on Malaysia. Despite Indonesia’s formal ban on peatland conversion, weak financing, monitoring, and enforcement have limited effective compliance. This paper analyses the haze problem using a game theory framework, modelling Malaysia and Indonesia’s interactions as a ‘Prisoner’s Dilemma’ in which each state has incentives to underinvest in mitigation while free-riding on the efforts of others. Such strategic incentives produce a collectively suboptimal equilibrium, explaining the persistence of haze despite shared regional costs. The paper argues that the ASEAN Agreement on Transboundary Haze Pollution (ATHP) can mitigate this dilemma by altering payoffs through cooperation, monitoring, and repeated interaction. Strengthening the treaty’s accountability and compensation mechanisms, particularly via increased side payments from Malaysia and the international community, can reduce incentives to defect by lowering Indonesia’s compliance costs and increasing the benefits of cooperation. These resources can support joint monitoring, firefighting, peatland restoration, and livelihood alternatives for farmers, while empowering subnational enforcement. By institutionalizing cooperation and enabling credible commitments, the ATHP could transform the strategic environment from non-cooperation to sustained collaboration, offering a feasible pathway to reducing transboundary haze while respecting regional norms of sovereignty.