A dynamic recursive CGE model of the Berau District (East Kalimantan Province, Indonesia) was constructed, to analysis the impact of REDD policies. The model was used to simulate a policy to implement reduced-impact logging (RIL) by inducing a seven percent raise in logging cost. Results suggest that impact of the policy to the Berau economy is small. Agricultural-based households’ welfare decreased (with forestry households the most impacted) while non-agricultural households were better off. As logging output declines, other agricultural outputs increase, since factors of production that are not used in the logging sector, are re-employed in other agricultural sectors, especially the oil palm sector.