SPECIAL REPORTS Economic valuation of the Leuser Ecosystem in # By Pieter van Beukering, Herman Cesar and Marco Janssen

espite its formally protected use of economic techniques for the cooking. The classic example of status, the Leuser Ecosystem appraisal of projects and policies. an indirect use value as it relates Dis under severe threat of A method central to this effort is to rainforest ecosystems is the water deforestation due to the economic ‘economic valuation’. In this study, retention function provided by for- crisis in . Not only is this economic valuation is used as the ests to support downstream agri- believed to have severe ecologi- main analytical tool to compare cultural areas. Non-use values, cal consequences, but the local the advantages and disadvantages among others, refers to an economy is also expected to be of certain scenarios in the Leuser individual’s willingness to pay structurally damaged. The decline Ecosystem. Nowadays, most (WTP) to secure the continued ex- of several crucial ecological func- economists agree that the value of istence of, for instance, an endan- tions of the rainforest may have natural resources depends not only gered wildlife species, without ever serious consequences for numer- on the market prices of its direct actually seeing it in the wild (a ous economic activities in and uses, but also on all other func- ‘use’). The classic example here is around the Leuser Ecosystem. tions of the natural resources that the contributions people make to Mainly, this study aims to determine generate value in its broadest actions that aim to preserve char- the Total Economic Value (TEV) of sense. This is reflected in the con- ismatic mega-fauna such as the the Leuser Ecosystem and evaluate cept of the so-called TEV. tiger or the panda. If an individual the consequences of deforestation In determining the TEV of a is willing to pay $400 for preserv- for its main stakeholders.1 tropical rainforest, a distinction is ing biodiversity in some rainforest often made between direct use area without any present or future What is economic valuation? values, indirect use values and use in mind (source of food, lei- The road towards sustainable non-use values. The first relates to sure hunting, wildlife viewing, etc.), development involves better inte- the values derived from direct use then this is his or her non-use value. gration of environmental consid- or interaction with a rainforest’s re- A common way to determine erations into economic decision- sources and services; the second use and non-use values is to pur- making, in particular through the stems from the indirect support and sue the sequence of underlying protection provided to economic processes, starting with the cause 1 The lack of reliable data in combination activity and property by the of an impact, on to the physical with the need for quantification and monetisation of the main effects forced rainforests’ natural functions, or impact and ending with the social us to adopt rather compromising regulatory ‘environmental’ services. and economic effects. The ap- assumptions. Therefore, these results should be considered as indicative, but A typical example of a direct use proach in this study proceeds in a not as authoritative if it comes to actual value of rainforest ecosystems is the series of methodological steps. investment decisions in the Leuser Ecosystem. provision of wood for housing or Figure 1 provides an example of

Reduced pest Increase use Increase production control fertilizer and costs (in US$) and pollination pesticides (in kg)

Reduction in water: floods and drought Change in Increase in crop Decrease in crop Deforestation Economic Value of damage (in kg) yield (in US$) Agriculture (in US$) Increased erosion

Reduction of Increase in crop Increase in crop forest cover production (in kg) yield (in US$) Impact on ecological Physical impact of Socio-economic effects Overall impact of Socio- function and service change in fucntions of physical interest economic effects

Figure 1. Overall approach applied to the agricultural sector

A S E A N B I O D I V E R S I T Y 17 SPECIAL REPORTS how the economic value derived from the Leuser Ecosystem by the Net Annual Gains agricultural sector is calculated. 1,000 First, ecological consequences are 900 Conservation estimated in terms of, for example, 800 changes in water retention, erosion, 700 and pest control. Next, these changes in the ecological services 600 are translated into the physical 500 impact for the agricultural sector. 400 (in million US$)

Deforestation For example, the reduction of 300 humus availability due to erosion 200 may cause a decline in the overall agricultural output. Also, the re- 100 duced natural pest-control by birds 0 and animals may cause an in- 2000 2010 2020 2030 creased need for fertiliser and Figure 2. Net gains over time of Leuser National Park for the two scenarios. pesticides. Subsequently, these changes in the physical perfor- Figure 2, which highlights the TEV The accumulated TEV at a zero dis- mance of the agricultural sector in the two scenarios over time. In count rate of a deforested Leuser may cause a decline in the crop the deforestation scenario, ample (US$ 16.9 billion) and of a con- yield as well as an increase in the revenues are generated in the first served Leuser (US$ 22.3 billion) costs of production. This in turn can seven years. After the year 2006, differs in US$ 5.4 billion. This be translated into a change in the revenues decline. The conservation amount can be considered as the economic value of the Leuser Eco- scenario shows a steady increase benefit of conservation (or the costs system for the agricultural sector. in annual benefits throughout the of deforestation). Economic valuation has been 30-year period. By the year 2030, applied to evaluate the TEV of the the annual benefits in the conser- What is the value of the Leuser Ecosystem under two pos- vation scenario outweigh those of Leuser Ecosystem composed of? sible future scenarios: (1) the ‘con- the deforestation scenario by a The TEV is composed of numer- servation’ scenario, implying that factor of 2. ous categories. These categories protection of the rainforest is strictly By aggregating the annual are shown in the first two columns enforced and thus logging will be gains over the 30-year period, the of Table 1 for the two scenarios. excluded as an economic activity; overall TEV has been determined. The main contributors to the TEV and (2) the ‘deforestation’ sce- nario, implying a continuation of Table 1. Distribution of TEV among goods and services provided by the Leuser Ecosystem the current trend of clear cutting. over the period 2000-2030. The current level and the change Economic Economic Value of Value of Net Benefits of of a large number of benefits have deforestation conservation conservation been determined. These benefits (in million US$) (in million US$) (in million US$) (proportion) include: water supply; fisheries; flood and drought prevention; Water supply 1,601 3,730 2,129 25% agriculture and plantations; hydro- Fishery 1,351 1,404 53 1 % electricity; tourism; biodiversity; Flood prevention 3,269 5,174 1,905 22% carbon sequestration; fire preven- Hydro-electricity 1,000 1,643 644 8 % tion; non-timber forest products; Tourism 350 1,645 1,294 15% and timber. Biodiversity 150 1,484 1,334 16% Sequestration 0 682 682 8 % Fire prevention 400 762 362 4 % What is the TEV Non-timber forest products 100 241 141 2 % of the Leuser Ecosystem? Deforestation may be consid- Net-benefits of conservation 8,544 100% ered an easy way to generate Agriculture 7,003 5,535 -1,468 47% fast cash. In the long term, how- Timber 1,651 0 -1,651 53% ever, the negative consequences Net-costs of conservation -3,119 100% will dominate. This is shown in Total Economic Value 16,875 22,299 5,424

18 A P R I L - J U N E 2 0 0 2 SPECIAL REPORTS distribution of the economic value Net Benefit of Conservation among the stakeholders is pre- 2,500 sented in Table 2. Contrary to 2,000 popular belief, the local commu- nity is at present by far the main 1,500 beneficiary of the Leuser Ecosys- 1,000 tem. In the conservation scenario, 500 they receive 57% of the benefits. 0 These benefits mainly result from the support of water supply, pre- (in million US$) 500 vention of floods, tourism, fisher- 1,000 ies and agriculture. Similarly, the 1,500 local government is a major ben- eficiary of the Leuser Ecosystem. 2,000 Compared to the distribution in

Timber the deforestation scenario, only Tourism Fishery

Agriculture the plantation and logging indus- Biodiversity Sequestration Water Supply NTF products try sees its economic value derived Fire prevention Hydro-electricity Flood Prevention from the Leuser Ecosystem declin- ing as a result of conservation. This Figure 3. Net Benefits over time of Leuser National Park for the two scenarios distributed over the various categories. is shown in the last column of Table 2. are water supply, flood prevention, value of the Leuser Ecosystem, it is The net benefits shown in the tourism and agriculture. Not sur- important to be aware of the dis- last column of Table 2 are the sum prisingly, timber revenues play an tribution of the TEV of deforesta- of benefits and costs (see Table important role in the deforestation tion and conservation among the 3). For example, by conserving the scenario. different stakeholders. Five groups Leuser Ecosystem, the local popu- Figure 3 looks at the net ben- of stakeholders have been identi- lation will gain benefits in the form efits in more detail. Except for tim- fied in this study: (1) local commu- of prevented flood damage and ber and agriculture, the value of nities; (2) local government; (3) sufficient water supply but at the all benefits is higher in a scenario elite logging and plantation indus- same time they will experience the of conservation. Therefore, these try; (4) national government; and (opportunity) costs of not being categories are presented as ben- (5) international community. The able to collect the timber or clear efits of conservation while timber and agriculture are presented as Table 2. Distribution of the TEV among stakeholders over the period 2000-2030 the (opportunity) costs of conser- (in million US$) vation. The third column of Table TEV Conservation TEV Deforestation Net Benefits 1 also shows this difference be- Local community 12,750 57% 8,923 53% 3,827 tween the TEV of conservation and Local government 4,168 19% 3,065 18% 1,104 deforestation. The total aggre- Elite industry 2,086 9 % 3,093 18% -1,007 gated benefits amount to US$ 8.5 billion and the costs of conserva- National government 1,192 5 % 910 5 % 282 tion, US$ 3.1 billion. The main International community 2,102 9 % 884 5 % 1,218 categories that gain from conser- Total 22,298 16,875 5,425 vation are water supply, flood prevention, tourism and Table 3. Distribution of the costs and benefits among stakeholders over the biodiversity. At the cost side of con- period 2000-2030 (in million US$) servation, timber and agriculture Benefits of Conservation Costs of Conservation Net Benefits are approximately of the same size. Local community 4,882 57% 143 5 % 3,827 On balance, the local economy Local government 1,571 18% 174 6 % 1,104 gains US$5.4 billion from conser- Elite industry 0 0 % 2,602 83% -1,007 vation over a 30-year period. National government 592 7 % 200 6 % 282 International community 1,498 18% 0 0 % 1,218 Who wins and who loses? Besides the overall economic Total 8,544 3,119 5,425

A S E A N B I O D I V E R S I T Y 19 SPECIAL REPORTS the land for additional agriculture. bridges, houses). Therefore, the US$ 8.5 billion while defor- For the local communities, how- TEV derived from the Leuser Eco- estation generates US$ 3.1 ever, conservation results in a system is also likely to vary among billion of revenues in the positive net benefit of US$3.8 the regencies. coming 30 years; billion. Therefore, local communi- Figure 4 presents the distribu- • Conservation spreads the ties gain 57% of the benefits of tion of the overall TEV of the Leuser benefits of Leuser equally conservation. If logging takes place Ecosystem across the 11 regencies. among the Kabupaten and in the forest, the plantation and Among others, the shares depend thus prevents further conflict, logging industry receives 83% of on the size of the economy and the while deforestation widens the gains. In conclusion, defores- dependency on the Leuser Ecosys- the income gap between the tation harms the majority of the tem. All the regencies are shown to Kabupaten and may be an population (i.e. local communities) benefit from the conservation of additional source of discord. at the cost of the welfare of the rich the Leuser Ecosystem. Singkil This dependency may form minority (i.e. plantation and log- and Aceh Timur take the smallest a strong incentive for the re- ging industry). The opposite is true part of the pie, mainly due to the gencies to develop and en- for conservation. small size of their economies. In force a common plan; contrast, Langkat and Deli • Conservation promotes so- How is the value of the Leuser Sardang generate high TEV from cial and economic equity be- Ecosystem geographically the Leuser Ecosystem. The regen- cause it mainly supports the distributed? cies in are least poor majority of society while Each regency that forms part of affected by the negative impacts deforestation widens the gap the Leuser Ecosystem has very dif- of deforestation. between the rich and the poor. ferent characteristics. Geographi- The above results should be cally, they vary in the structure of What are the main lessons of considered as tentative outcomes the land (e.g. mountainous, low- economic valuation of the of the economic valuation in the land), the type of land use (pri- Leuser Ecosystem? context of the management of the mary forest, secondary forest), and Economic valuation has proved Leuser Ecosystem. The work in the precipitation (amount and intensity to be a strong and useful tool in field of economic valuation of the of rain fall). Economically and so- analysing welfare changes for the Leuser Ecosystem goes on. Meth- cially, differences may be in terms different scenarios in the Leuser ods will be improved and converted of population characteristics (size, Ecosystem. Several lessons can be to more user-friendly software to density, income), economic struc- learned from the analysis: encourage application of eco- ture (industry, agriculture, public • Conservation prevents dam- nomic valuation by local experts. sector), and infrastructure (roads, age and loss of income of As data collection continues, the uncertainties surrounding the analy- sis decline. Also the spatial appli- Total Economic Value cation of economic valuation by 3,500 linking with methods of Geo- graphic Information Systems (GIS) 3,000 will be investigated. Finally, 2,500 additional scenarios will be simu- Conservation Deforestation lated. For example, by focusing on 2,000 the cost-benefit conditions of ‘projects’ rather than the cost-ben- 1,500 efit situation of the Leuser Ecosys- (in million US$)

1,000 tem ‘as a whole’, the concept of economic valuation can be used 500 more effectively as a communica- tive tool.# 0 Diari Karo

Langkat Pieter van Beukering is connected

Aceh Barat with the Institute for Environmental Aceh Utara Aceh Timur Aceh Singkil Aceh Tengah Deli Serdang Aceh Selatan Studies (IVM), Vrije Universiteit, Aceh Tenggara Boelelaan 1115, 1018 VR Amsterdam, Figure 4. Distribution of the TEV of Leuser Ecosystem among the regencies over the period the Netherlands; email 2000-2030. [email protected]

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