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by Charles Palmer, London School of Economics, UK
Acre State in Brazil is at the forefront of efforts to institutionalize jurisdictional-scale policies that aim to reduce emissions from deforestation and forest degradation (REDD+). It has established an Incentive System for Environmental Services (SISA) framework and a number of operational principles for a system of incentives for conserving forest carbon as well as biodiversity and hydrological services. Despite a Memorandum of Understanding signed in 2010 with the US State of California to provide REDD+ credits and initiatives to attract private sector finance, funds for SISA remain dependent on public sources of funding; there is currently little scope for the use of carbon markets and offsetting to augment Acre’s limited forest conservation funds. Acre aims to reduce deforestation by 80% by 2020, conserving 5.5 million hectares of forest in order to prevent the release of 62.5 million tons of CO2 emissions at an estimated total cost of US$260 million (Herbert, 2010).
Deforestation rates in Acre have fallen in recent decades, to around 50,000 hectares per year between 2001 and 2010, driven mainly by the expansion of cattle pasture. Thus, any policies that aim to reduce deforestation further would need to target farmers and private landowners. Policies could either attempt to reduce the profitability of agriculture, e.g. by removing agricultural subsidies, or offer financial incentives that attempt to put a price on forest externalities (Angelsen, 2010; Palmer, 2011). The latter, particularly in the form of payments for environmental services (PES) schemes, are widespread in Latin American forests but suffer various problems in implementation, including the setting of level of incentive, weak property rights, and imperfect enforcement of conservation contracts.
If coming from a limited conservation budget like in Acre, a rational policymaker may seek to minimise the level of incentive while ensuring that it achieves the aim of preventing deforestation, i.e. by equalling or exceeding the opportunity costs of conserving forests. But even if the policymaker could somehow access private information on opportunity costs, there is the problem of ensuring compliance over the duration of the conservation contract given changing and uncertain returns from forest conversion. In other words, opportunity costs are essentially a moving target for policymakers. Up-front investments combined with greater uncertainty in agricultural returns creates incentives to delay the decision to convert forest to an alternative use (Schatzki, 2003). This implies that the level of incentives like PES may need to be higher when faced by alternative land uses that have relatively low up-front conversion costs and stable returns over time.
In collaboration with Luca Taschini and Tim Laing, two related questions were addressed in a piece of research undertaken for the project ‘Developing an options market and complementary financial structures to mobilise private capital for REDD+ and manage climate policy risks’, which was funded by the Norwegian Agency for Development Cooperation (Norad). First, given uncertain land-use returns from forest conversion, what was the minimum REDD+ payment Acre’s government should pay to landowners in order to ensure forest conservation with a 90% probability? Reflecting the common practice of Latin American incentive payment schemes, our hypothetical payment was held constant over time while the 90% probability acknowledged that should alternative land uses become highly profitable, e.g. due to rising commodity prices, it may not be possible to prevent contract breach. For each municipality, we estimated the uncertain returns for three alternative land uses: cattle, corn, and coffee. From these, we identified the minimum per hectare cost to the policymaker of conserving forest in every municipality before ranking municipalities according to ascending payment levels. We then asked whether this ranking of municipalities was efficient once we took into account their carbon stocks.
The motivation behind our analysis was to explore whether, given limited conservation budgets, there were any parts of Acre where it might be possible to conserve a lot of carbon but at relatively low cost. Our aim was to contribute to Acre’s ongoing efforts to design an efficient and effective set of forest conservation institutions, particularly with respect to jurisdictional REDD+. We did so by adapting the model of uncertain land-use returns by Engel et al. (2015), who focused on a single alternative land use and a single starting point for estimating policy costs. In examining three different land uses and with 22 different starting points, i.e. one for each municipality in Acre, our analysis explicitly acknowledged that both the costs and benefits of keeping forests standing vary across space. Thus we exploited spatial heterogeneity in land-use returns and modelled these returns over time using publically-available data. In addition, we exploited the spatial variation in forest carbon stocks across the state and by comparing these with the relative land use returns, an economic rationale emerged for the targeting of REDD+ payments.
Our results suggest that although pasture and cattle ranching was not particularly profitable, it is the land use which resulted in the highest (relative) returns to landowners under uncertainty, in 19 out of 22 municipalities. With relatively low conversion costs and little volatility in its returns, pasture determined the minimum payment level in these areas. Upon ranking municipalities by payment level and by carbon stock, we found that cheaper municipalities tended not to have higher stocks. However, our ranking masked differences among municipalities. On the basis of cost per tonne of carbon, we identified 13 municipalities in which it might be possible to obtain a substantially larger 'carbon bang' for one's 'buck' in contrast to the other nine municipalities.
- Angelsen, A. (2010). What Policies are Effective to Reduce Deforestation while Enhancing Production? Proceedings of the National Academy of Sciences 107 (46), 19639-19644.
- Engel, S., Palmer, C., Taschini, L., & Urech, S. (2015). Conservation payments under uncertainty. Land Economics, 91 (1), 36-56.
- Herbert, T (2010) 'Setting up Nest: Acre, Brazil, and the Future of REDD', published online at Ecosystem Marketplace, accessed December 2015
- Palmer, C. (2011). Property rights and liability for deforestation under REDD+: Implications for ‘permanence’ in policy design. Ecological Economics 70 (4), 571-576.
- Schatzki, T. (2003). Options, uncertainty and sunk costs: An empirical analysis of land use change. Journal of Environmental Economics and Management 46 (1), 86-105.
- Schwartzman, S (2015) Acre: low-emissions, high-growth sustainable development in the Amazon. Environmental Defense Fund, Washington D. C.
18th BIOECON Conference
From THE PARTNERS
BIOECON 2015 follow up
Following from their session at the 2015 Bioecon conference, Nick Hanley and co-authors are producing a short policy briefing note for UNEP on the economics of invasive pests and diseases. This will summarise the insights from papers presented at Bioecon, and will be available in March 2016. If you are interested in receiving a copy, please contact Prof. Nick Hanley
First Workshop on Experimental Economics for the Environment
Osnabrueck, Germany | 28-29 January 2016
The Alexander von Humboldt professorship of Environmental Economics at the University of Osnabrueck organized the First Workshop on Experimental Economics for the Environment, which took place in Osnabrueck on January 28-29. Its objective was to build a network of teams working with experimental economic methods on environmental issues located in Germany and nearby countries, and to provide a forum for presenting work in progress. The next workshop will take place on February 2-3, 2017 in Bremen and will be organized by the group of Achim Schl?ter at ZMT, University of Bremen - contact: Prof. Stefanie Engel
New blog at MERE
The Management and Economics of Resources and the Environment (MERE) research group of the Department of Environmental and Business Economics at the University of Southern Denmark has a new blog focused on environmental and resource economics issues - visit the blog
A new project on fish production
The Horizon 2020 project ClimeFish (Co-creating a decision support framework to ensure sustainable fish production in Europe under climate change) with over 20 partners has been positively evaluated and will start in April 2016. The Brandenburg University of Technology is responsible for the work package on decision support and will develop a software-based decision support tool - info: Prof. Frank Waetzold
Professor James Salzman joined BIOECON in September 2015. Jim Salzman is the Donald Bren Distinguished Professor of Environmental Law with joint appointments at the Bren School and the UCLA Law School. In more than eight books and eighty articles and book chapters, his broad-ranging scholarship has addressed topics spanning drinking water, trade and environment conflicts, policy instrument design, and the legal and institutional issues in creating markets for ecosystem services.
Professor Eli Fenichel joined BIOECON in September 2015. Dr. Eli Fenichel is an assistant professor of bioeconomics and ecosystem management at the Yale School of Forestry & Environmental Studies. He continues to work at the interface of ecology and economics with some applied math mixed in. His research applies capital theory to natural resources, and Dr. Fenichel views natural resource management problems as investment decisions.
2 PhD positions in Environment and Natural resource Economics at Economic Department NTNU, Norway
Deadline: 6 March 2016
There are three temporary PhD positions available at the department:
One 4-year position within the field of Environmental and Resource Economics, with teaching duties
One 3-year position within the field of Macroeconometrics
One 4-year position within the field of Economics of Natural Resources, with teaching duties
Lectureship in Environmental and Development Economics at University of St Andrews, UK
Deadline: 11 March 2016
The Department of Geography and Sustainable Development is seeking a suitably-qualified person to a new lectureship in environmental and development economics. Ideally, we are looking for someone who has interests and expertise in the fields of sustainable development, growth, and economic geography, but talented researchers in all fields of environmental economics are welcome to apply
Handbook on the Economics and Management for Sustainable Oceans
edited by Paulo A.L.D. Nunes, Pushpam Kumar, Lisa Emelia Svensson, Anil Markandya
The trans-disciplinary thematic areas of Oceans management and policy require a stocktaking of the state of knowledge on ecosystem services being derived from coastal and marine areas. The management and relevant response policies are still growing and not well understood by the decision makers. This creates a situation where various types of drivers impact the condition and resilience of the marine ecosystems. The ocean management and strategic intervention need to embrace latest scientific evidence. For example, “How can over use of the oceanic resources be regulated? How can the damage inflicted upon them be prevented? How can we promote more responsible and sustainable practices? In short, how can our civilization and the seas on which it depends co-exist harmoniously?” (H.S.H. Prince Albert II of Monaco, Presidential Residence, Cascais, June 3, 2013) Keynote address at the EU-U.S. Conference Series: "Sustainable Oceans: Reconciling Economic Use and Protection", 3rd conference: 'Good Governance for Sustainable Marine Development', Cascais. In this context, the Handbook brings together a carefully chosen set of world class contributions from different disciplines. The book also explores the pathways for possible nexus of robust science, comprehensive economic valuation, flexible legislation and adaptive management approach. This Handbook also focuses on the science-society and science-policy interfaces with a particular focus on the role, and contribution, of high-level policy makers, governmental agencies, the corporate sector towards, and civil society in general with respect to sustainable management of Oceans. A carefully selected fresh and authoritative set of contributions from the acknowledged experts of the subject, this volume attempts to address the new concepts and its application, identifies knowledge gaps and provides policy relevant recommendations for better governance of the oceans.
Designing REDD+ schemes when forest users are not forest landowners: Evidence from a survey-based experiment in Kenya
Veronesi, M., Reutemann, T., Zabel, A., and S. Engel, 2015, Ecological Economics 116: 46-57
This study contributes to the debate on Reducing Emissions from Deforestation and Forest Degradation (REDD +) and the relationship between land tenure and forest conservation. We investigate policies that create alternative livelihood options for people around REDD + forests who are forest users but not forest landowners. We compare the performance of a conventional integrated conservation and development policy (ICDP) with an alternative hybrid policy that combines features of ICDP and payments for environmental services. Through a survey-based experiment in Kenya, we compare the effectiveness of different REDD + payment schemes given rising opportunity costs of forest use. This study shows that hybrid approaches that provide alternative income opportunities to local people, target the local drivers of deforestation, are conditional on environmental outcomes, and account for changing opportunity costs could work as effective policy options.
A Novel, Spatiotemporally Explicit Ecological-economic Modeling Procedure for the Design of Cost-effective Agri-environment Schemes to Conserve Biodiversity
Waetzold, F.,Drechsler, M., Johst, K., Mewes, M., Sturm, A. (2015), American Journal of Agricultural Economics, doi: 10.1093/ajae/aav058
Agri-environment schemes (AES) compensate farmers for land use measures that are costly to them but beneficial to biodiversity and the environment. We present an ecological-economic modeling procedure for the design of cost-effective AES to conserve grassland biodiversity, which is applicable to large areas, covers many endangered species and grassland types, and includes several hundred different types of mowing regimes, grazing regimes, and combinations of mowing and grazing regimes as land use measures. The modeling procedure also accounts for the spatial variations in the land use measures' costs and in the effects on species and grassland types. The procedure's main novelty is that it considers variations of the costs and impacts on species and grassland types that arise from different timings of the land use measures. Considering the spatial and the temporal dimension of land use measures makes the modeling procedure spatiotemporally explicit. We demonstrate the power of the modeling procedure by evaluating an existing grassland AES in Saxony, Germany, and identify substantial improvements in terms of cost-effectiveness.
Conservation Payments under Uncertainty
Stefanie Engel, Charles Palmer, Luca Taschini, Simon Urech, 2015, Land Economics 91(1):36-56
The decision of whether to retain forest or convert to another land use is affected by uncertainty over future land use returns. This paper examines the design of conservation payments to landowners under uncertainty. Payments are either indexed to the returns from deforestation (agriculture), or to a market value associated with forest nonuse benefits. Payment size depends on the degree of correlation between payments and agricultural returns, and their relative volatility. Market-based payments for reducing emissions from deforestation and degradation (REDD) are simulated for Brazilian soybean growers. Payments indexed to carbon prices are larger than those indexed to international soybean prices.
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