Creating Disincentives for Tropical Deforestation: A Myth?

By Baruani Mshale

Methodological and sovereignty concerns blocked the inclusion of avoided deforestation (AD) in Kyoto’s Clean Development Mechanism (CDM) during the first commitment period. AD in the tropics can avoid carbon emissions to the tune of 1.5 billion metric tons annually and provide multiple economic, livelihoods, social, and cultural benefits. To avoid tropical deforestation, we need to address create disincentives for deforestation. To achieve this we need to capture the full economic value of AD. This article attempts to derive an empirical economic model for estimating the net benefit of AD in the tropics. Using this model, I find out total net benefits of AD to be significantly higher when all benefits of AD are included compared to when only carbon sequestration is considered. However revenues from forest conversions such as for soybean plantations are higher than total AD value due to methodological limitations in capturing non-market forest products.

Tropical deforestation and carbon emission

Globally tropical forests store the largest amount of carbon stored in vegetations (Houghton et al 1983). According to the Intergovernmental Panel on Climate Change (IPCC, 2007) tropical deforestation accounts for about 20% of anthropogenic green house gas emissions and destroys globally important carbon sinks. Annual release of carbon to the atmosphere from tropical deforestation was approximately 1.5 billion metric tons of carbon every year during the 1990s and this rate might have increased (Gullison et al 2007; Noughton-Treves 2004). Therefore avoiding tropical deforestation promises a significant reduction in green house gas emissions and enhancing a globally important sink. However, current mitigation mechanisms under the Kyoto protocol do not include AD.

A decision was reached during the14th Conference of the Parties (COP) to the UNFCCC at Bali, Indonesia in 2007 not to include AD due to methodological and sovereignty concerns (ref: personal experiences). Methodological concerns included measurements, establishing baselines, proving additionality, and ensuring permanence of forest carbon credits. Establishing baselines was the most contentious issue: Baseline emissions based on historical emissions were rejected because they would reward bad past forest management practices and create deforestation incentives for well managed forests in other countries so as to hike up their respective future baselines. On sovereignty concerns, developing countries were concerned about AD’s impacts on their economies since deforestation generates high economic returns through timber sell and increased commercial agricultural production.

Instead a two year program called reduced emissions from deforestation and degradation in developing countries (REDD) was agreed. The REDD program hinges on creating incentives for forest owners to avoid deforestation. Hence the success of the REDD approach will be useful in proving the significance of tropical forests in reducing emissions and providing other benefits.

Drivers and Creating Disincentives for Tropical Deforestation
Drivers of tropical deforestation are categorized into biophysical, economic, technological, demographic, institutional and cultural factors (Lambin and Geist, 2006). The interaction of factors is more important than effects of each individual category of factors. It is no surprise that economic factors combined with demographic and technological factors play the strongest role in driving tropical deforestation. Economic growth and population increase resulted to increased demand for various ecosystem goods and services (Millennium Ecosystem Assessment 2005). Increase in market demands of forest products and shifts from subsistence to commercial agriculture of crops such as soybean and palm oil trees in Brazil and Indonesia, respectively, necessitated clearing more tropical forests.

Creating disincentives for deforestation requires capturing the total value of a standing forest and paying forest owners to stop deforestation. In the tropics, most forests are under public ownership (Agrawal et al. 2008) that is, owned by governments but are used by local people. Therefore, it is complicated in terms of who should be paid to avoid deforestation. This is similar to the Payment for Ecosystem Services (PES) program whereby providers or enhancers of a particular ecosystem service are paid by users of that service to continue providing it. Regarding AD and carbon sequestration, the combination of PES and REDD might be fruitful in that: the PES program will ensure sustainable provision of other forest products and the REDD program will pay for the carbon content of the forest. Currently REDD and PES programs are implemented separately.

The rest of this brief article attempts to create a model that can be used where data is available to capture the value of a standing tropical forest. It makes economic sense to use total economic value of a forest for tropical forests because tropical forests provide multiple benefits unlike temperate managed forests that are usually established for their timber value.

Benefits of Avoided Deforestation

This article derives a simple economic model for estimating the total economic value of avoided deforestation. Economic modeling challenges remain particularly on estimating the value of non-market forest goods and services. For simplicity, most existing economic models estimate the value of one benefit at time. The complex model below provides a starting point and highlights areas of improvement for future models.

Total Value of Avoided Deforestation (VAD) = AD Obtainable Benefits – AD Costs

VAD = Benefits – Costs

The above equation can be expounded to:

VAD = {Vcarbseq + Vntfp + Vrec + Veco + Vother} – {Management Costs + Transaction Costs + Other costs}

Below is a description, estimation and discussion of each of the terms in the equation above. For illustration purposes, this discussion is limited to benefits only and not the costs.

Vcarbseq is the value of carbon sequestration of a forest measured as the amount of tons of carbon that would have been emitted per year times the current price of carbon per ton. In this context carbon sequestration is measured in terms of avoided emissions using past global emission averages from tropical forests. Carbon prices fluctuate just like prices of other commodities from time to time and from place to place. For instance the price per ton under the Chicago Climate Excange Market dropped from over $7 to less than $1 between July and December 2008 following the economic downturn (CCX, 2009). Currently the price ranges between $2 in the US and $19 per ton in Australia. Using the lowest and highest prices shows that value of carbon sequestration in the tropics ranges between $ 3.0 million and $28.5 million per year for all tropical forests. Both prices are relevant because they reveal the amount a particular country is willing to pay per ton of carbon.

Vntfp is the value of non-timber forest products. Methodological issues limit the valuation of NTFPs and this value will differ from place to place and from time to time. NTFP include fruits, feed, fodder, fuelwood, thatching grass, building poles, medicinal plants, and many others. Valuing NTFP can be done using direct market methods, indirect market methods and non-market estimates. In one empirical study by Godoy et al (1993), the value of NTFPs was estimated at $50/ha/yr. This value per hectare can not simply be multiplied by the total size of tropical forests to get the total value because not all patches of tropical forests produce the same amount of NTFPs. Assuming that 50 % of natural tropical forests produce valuable NTFPs then the total value can be $ 2.2 billion for all tropical forests.

Vrec is the value people derive from visiting forests. There are various methods used to estimate this value including the hedonic travel cost method and contingent valuation methods to reveal people’s preference for a particular forest. Given the rich diversity, scenic beauty and other attributes of tropical forests, this value can be very high. For instance, Tobias and Mendelsohn (1991) used the hedonic travel costs method to estimate the value of a tropical rainforest in Costa Rica to be around $500,000 and $600,000 per year. This value could be very high at present prices. Recreation values can not be expressed in dollars per hectare because the recreation value is not determined by quantity only, rather the quality of the forest is a more important factor in influencing visitation. Assuming that there are at least five highly visited forests in each of the 10 countries with largest portions of tropical forests in South America, Central Africa, and Tropical Asia then the total recreation value can be about $ 25 million and $ 30 million per year.

Veco is the value of ecological services other than carbon sequestration derived from a forest. Depending on the geographic location this can include habitat for wildlife, water catchment and others. Appropriate valuation techniques should be derived for appropriate ecological functions. For instance if the forest is proved to be the source of a river, then the water catchment value can be obtained by calculating the amount of obtainable water from a river times the price people pay per unit of water. Similarly if the forest provides habitat for large animals that can be hunted, and then the price per animal and hunting costs multiplied by the total number of animals can provide an estimate of the habitat value of a forest.

Vother this is included in the equation to capture the error term in order to correct for the value of avoided deforestation for any overlooked forest product. For instance ecotourism benefits can be as high as USD 1.6 billion per year (Carr and Mendelsohn, 2003)

Simple Comparisons and Discussion
From the previous section, the total value of avoided deforestation in the tropics can be estimated in excess of USD 4.0 billion per year and a significant proportion of which comes from NTFPs. Compared to the carbon sequestration value of USD 3.0 to 28.5 million, this value is very high suggesting that when only the carbon content of a forest is considered, the value of avoided deforestation is seriously under estimated.

However, comparing the total value of AD to revenues generated from forest conversion, the latter still promises higher returns than AD. Using soybean net productivity values of $430 per hectare (www.soystats.com) multiplied by the total area of tropical forests that can likely be converted to soybean plantations (random estimate of 10% of the 0.88 billion hectares) gives the total yield in excess of USD 30 billion per year. This however does not imply we should continue deforesting tropical forests. Forest land conversion that result to net emission of carbon might be unsustainable in the long run since the climatic changes caused by carbon emissions will affect agricultural productivity in the future through altered rainfall, increased temperature and other unforeseen consequences. Moreover soybean and other crops could be planted in other places such as abandoned crop lands and therefore capturing the benefits from soybean production without loosing benefits from avoided deforestation.

Conclusion

Complete avoided deforestation will reduce global anthropogenic green house emissions by about 20%. Moreover AD will provide multiple economic, environmental, social, cultural and livelihood benefits. AD can be included in the second Kyoto Commitment Period if methodological and sovereignty concerns are resolved. Capturing and paying for the total value of AD will likely resolve some aspects of both concerns. Carbon sequestration value should not be the only determinant in avoiding tropical deforestation. Combining carbon sequestration and other benefits is likely to provide incentives for avoiding tropical deforestation. Serious improvements are needed for economic models to capture the total value of AD including both market and non-market forest products.

References

Agrawal, A. Chhatre, A., and Hardin, R. 2008. Changing Governance of the World’s Forests. Science. Volume 320. No. 5882, pp. 1460-1462

Carr, L. and Mendelsohn, R. 2003. Valuing Coral Reefs: A Travel Cost Analysis of the Great Barrier Reef. Ambio Vol. 32 No. 5

Chicago Climate Exchange Carbon Market. Carbon Prices for 2008 available at www.chicagoclimateexchange.com

Godoy, R., Lubowski, R., and Markandya, A. 1993. A Method for the Economic Valuation of Non-Timber-Forest-Products. Economic Botany. Volume 47 (3)

Houghton, R. A., Hobbie, J. E., and Melillo, J. M. 1983. Changes in the Carbon Content of Terrestrial Biota and Soils Between 1860 and 1980: A Net Release of CO2 to the Atmosphere. Ecological Monographs Vol. 53 (3) pp. 235 -262

IPCC, 2007: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning Z. Chen, M. Marquis, K. B. Averyt, M. Tignor and H. L. Miller 9eds.)]. Cambridge University Press, Cambdrdge, United Kingdom and New York, NY. USA, 996 pp.

Lambin, E. F. & H. J. Geist (eds) 2006. Land-use and Land-Cover Change: Local Processes and Global Impacts. Springer, Berlin

Millennium Ecosystem Assessment (2005). Ecosystems and Human Well-being: Synthesis. Island Press, Washington D.C., 137 pp

Noughton-Treves, L. 2004. Deforestation and Carbon Emissions at Tropical Frontiers: A Case Study from the Peruvian Amazon. World Development. Vol. 32, No. 1, pp.173-190

Raymond E. Gullison, Peter C. Frumhoff, Josep G Canadell, Christopher B. Field, Daniel C. Nepstad, Katharine Hayhoe, Roni Avissar, Lisa M. Currab, Pierre Friedlingstein, Chris D. Jones and Carlos Nobre. Tropical Forests and Climate Policy. Science Express available at www.scienceexpress.org 10 May 2007/Page 2/10.1126/science.1136163

Soybean Statistics Available at www.soystats.com/2007/page_12.htm accessed on 03/17/2009

Tobias, D. and Mendelsohn, R. 1991. Valuing Ecotourism in a Tropical Rainforest Reserve. Ambio Vol. 20 No. 2

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1 Response so far »

  1. 1

    Kristen J. said,

    Your discussion of the various values that should be considered when assigning a VAD to a tropical forest (the NTFPs, the value derived from visiting the forest, the value afforded by water or hunting resources) is really interesting. It illustrates the complexity of assigning a comprehensive value to a tropical forest, but also shows the importance of capturing the full range of economic, social, and ecological benefits the forest provides. It was also really interesting to see this value compared to the potential revenue of converting the forests to cropland–a disheartening comparison that suggests soybean production may win out, especially if soybean prices remain high because of demand for biodiesel. Nice work!


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