SPECIAL REPORTS Economic valuation of the Leuser Ecosystem in Sumatra # 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 Indonesia. 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.