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An Economic Valuation of Aceh's Forests

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An Economic Valuation of Aceh's Forests An Economic Valuation of Aceh’s forests The road towards sustainable development Pieter van Beukering Kenneth Grogan Sofie Louise Hansfort Daniel Seager Report number R-09/14 January 2009 This report was commissioned by: Fauna & Flora International IVM Institute for Environmental Studies VU University De Boelelaan 1087 1081 HV Amsterdam The Netherlands T +31-20-5989 555 F +31-20-5989 553 E [email protected] All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the copyright holder. An Economic Valuation of Aceh’s forests i Contents Executive summary iii 1. Introduction 1 1.1 Forest resources of Aceh 2 1.2 Objective 4 1.3 Structure of report 4 2. Economic valuation 5 2.1 Overall approach 6 2.2 Types of values 9 2.3 Comparing TEV over time 10 2.4 Valuation techniques 11 3. Background, boundaries and physical impacts 13 3.1 Forest types 13 3.2 Threats 15 3.3 Development of a Green Aceh 16 3.4 Scenarios 17 3.5 Changes in underlying drivers of ecosystem services 18 3.6 Districts 23 3.7 Stakeholders 26 4. Ecosystem services 29 4.1 Water supply 30 4.2 Fisheries 34 4.3 Flood and landslide prevention 37 4.4 Agriculture and plantations 41 4.5 Hydro-electricity 45 4.6 Tourism 48 4.7 Biodiversity 51 4.8 Carbon sequestration 53 4.9 Fire prevention 58 4.10 Non-timber forest products 61 4.11 Timber 64 5. Results 69 5.1 Overall TEV 69 5.2 Sectors 71 5.3 Sensitivity analysis 73 ii Institute for Environmental Studies 6. Lessons learned 77 6.1 Approach 77 6.2 Conclusions 78 6.3 Policy recommendations 79 6.4 Future research 81 References 83 Appendix I. 91 An Economic Valuation of Aceh’s forests iii Executive summary Indonesia is a country that has shown one of the highest rates of deforestation in the world. With a large majority of the island states’ forest gone, the province of Aceh is one of the last areas in the country that still retains a large part of its forest ecosystem intact. The forest area in Aceh comprises of over 3.1 million hectares. Aceh has been spared from the high deforestation rates elsewhere in the country due to years of civil conflict between the government and the Gerakan Aceh Merdeka (GAM) making commercial timber activities precarious. However, times are catching up with Aceh. Following the devastating tsunami in December 2004 and the more recent peace accord in 2005 large pressures are re-emerging to use the forest resources to fuel re-construction plans and economic development. With the disappearance of the forests, vital ecosystem services such as water retention, erosion control and pollination services also disappear, services that play an important role in varying economic activities. In 2006 a new governor (Mr. Irwandi Yusuf) was elected who endorsed a Green Economic Development and Investment Strategy for Aceh Province, (Aceh Green for short) following years of ineffective command and control policies plagued with inef- ficiencies and corruption. His vision is a comprehensive, holistic strategy to re-build Aceh’s economy with a focus on employment, income and protection and preservation of Aceh’s natural forest resources. In order to allow the governor and associated parties time to develop this plan and the new laws a moratorium on all logging activities has been declared in the province. “Aceh Green will integrate and expand carefully and con- sciously integrated themes of climate change via renewable energy and land use manage- ment, community development, commerce and conservation. The governor recognises that achieving environmentally sustainable outcomes is only possible with economically sustainable livelihoods for the people of Aceh, especially the dispossessed and disenfranchised.” (Aceh Green, 2008 p.2) In order to aid the initiation of Aceh Green this study focuses on valuing the forest resources and services therein by applying various valuation techniques. Economic valuation has been applied to evaluate the Total Economic Value (TEV) of the forest ecosystem in Aceh Province. A comprehensive model was built using data on forest cover, socio-economic indicators and various ecosystem services provided by the forest. Two scenarios are evaluated: 1. Conservation scenario: All extractive activities cease to occur. Forest ecosystem services are fully maintained and the economy continues to enjoy the benefits from these services into the future. 2. Deforestation scenario: This scenario assumes business as usual where deforestation continues at 1.3% per year into the future. A certain proportion of land is converted to agriculture but yields gradually fall as ecosystem services become depleted. The TEV of the Aceh forest is comprised of benefits enjoyed by eleven sectors in the economy in Indonesia and abroad. These sectors are shown in the first column of Table E.1. This table also shows a major change in the composition of the TEV between the deforestation and the conservation scenarios. Deforestation may be considered an easy way to generate fast cash, however, once land is converted to plantations soil erosion iv Institute for Environmental Studies rapidly follows reducing yields. Timber sales reduce as low-lying forest is cleared and ecosystem service degradation begins to take its toll. Over a 30-year time frame the conservation scenario yields higher benefits (US$ 13.4 billion) than its deforestation counterpart (US$ 12 billion) as can be seen in Table E.1. Table E.1 Total value and distribution of benefits amongst sectors for both scenarios (30-year time frame, 3.5% discounting). Deforestation Conservation Proportion Proportion Sector Value (in million (%) Value (in million US$) (%) US$) Water supply 1,059 8.8 2,487 18.5 Fishery 2,025 16.9 2,490 18.6 Flood prevention 1,622 13.5 1,860 13.9 Agriculture 3,512 29.2 3,991 29.8 Hydro-electricity 15 0.1 26 0.2 Tourism 25 0.2 139 1.0 Biodiversity 103 0.9 582 4.3 Sequestration - 0.0 1,217 9.1 Fire prevention 183 1.5 225 1.7 Non-timber forest products 161 1.3 391 2.9 Timber 3,308 27.5 0 0.0 Total 12,011 100.0 13,408 100.0 Discounting these benefits at higher levels means that eventually the short-term benefits yielded under the deforestation scenario become more preferable. At an 8% discount rate, both scenarios yield equal net benefits, after which the deforestation scenario becomes ever so slightly more preferable with each incremental raise in discounting. Having mentioned this, it must however be mentioned that under such circumstances, clear felling the forest resources, apart from being irreversible is an activity fraught with uncertainties as to the ecological side effects. For the sustainability of future generations and to avoid ecological and economic future uncertainties the precautionary principle should be adopted as a logical and indeed responsible decision as to the fate of Aceh’s diverse and rich forest ecosystem. An Economic Valuation of Aceh’s forests 1 1. Introduction Indonesia has shown one of the highest rates of deforestation in South East Asia. Since 1950 over 40% of its standing tropical rainforest has already been felled to make way for agriculture, population growth, grazing land and more recently a seemingly clean source of fuel and cooking oil, Palm Oil (GFW, 2008). With the conversion of its once exten- sive forest comes short-term prosperity in the name of permanent loss of long-term wealth. Forest ecosystem services such as water retention, local climate control, pest control and pollination services for subsistence agriculture, fire risk prevention and water runoff attenuation are being substituted for hard capital in order to fuel current develop- ment priorities such as public health, infrastructural developments, post tsunami recon- struction and repayments of burgeoning foreign debt. What goes unnoticed however is the gradual depletion and deterioration of these ecosystem services. Services, without which, the cost of replacement and derived damages possibly surpass the immediate benefits yielded by increased primary production and raw timber sales. The decline of several crucial ecological functions of the rainforest may have serious consequences for numerous economic activities in and around the deforested areas. A recent push for conservation is underway in the province of Nanggroe Aceh Darussalam (hereinafter referred to as simply ‘Aceh Province’) located in the north of Sumatra. Following the recent historic gubernatorial elections in December 2006 the province of Aceh elected its first democratically elected governor. Govenor Irwandi Yusuf has refined his vision to rebuild Aceh in the aftermath of the Tsunami into a more holistic and comprehensive strategy that will focus on peace, the economy and sus- tainable development. Following the cessation of conflict in 2005 which ravaged the area for many years and the tsunami in December 2004 there has been a massive increase in the demand for timber, both for re-construction and to supply the global timber market, placing serious pressure on Aceh’s largely intact forest ecosystem. Since Irwandi Yusuf’s election a moratorium on all logging activities has been declared in the province in order to allow time to a) gather data and information regarding the current status of Aceh’s forest resources and to b) develop and redesign a proper sustainable forestry management plan which can eventually be put into place with an aim at managing the remaining forest resources in a more holistic and sustainable manner. The moratorium is also sending a message to the international community that Aceh is willing to embrace conservation and sustainable forestry management but not without receiving something in return.
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