VALUATION OF ECOSYSTEM SERVICESLINKING THEORY AND PRACTICEAnirban GangulyTERI

IGNFA, June 19, 2013

ECOSYSTEM SERVICES

Ecosystem services are those services that are enjoyed by human beings on account of the functioning of ecosystem processes, without the need of any capital-intensive transformation

VALUATION OF ECOSYSTEM SERVICES Putting a label (a price tag) Creating a basis for comparison Creating a basis for exchange Creating a rallying point (a basis for

negotiation)

LOOKING THROUGH – WHAT MOTIVATES VALUATION Valuation as rhetoric Valuation for scorekeeping (natural resource

accounting) Valuation for planning(say land use change

decisions) Valuation for impact assessment Valuation for payment Valuation as politics

VALUATION AS RHETORIC

VALUATION AS RHETORIC

Costanza (1997) estimates the value of 17 ecosystem services of the world at $ 16-54 trillion /yr. The average value of $ 33 trillion / yr is almost double that of the global GNP.

Value of forests Tropical: $2007/ha/yr (Rs10000/ha/yr)Temperate/boreal:$302/ha/yr

(Rs1500/ha/yr)

VALUATION AS RHETORIC Makes the potential value of ecosystems

apparent Makes a first approximation of the relative

magnitude of ecosystem services Sets up a framework for further research Stimulates debate and advocacy

VALUATION FOR SCOREKEEPING

VALUATION FOR ACCOUNTING Keeping track of the national economy

Forests (timber, fuelwood, NTFPs) contribute 1.2-1.8% of India’s GDP [Services: 57%, Industry: 26%, Agriculture/fishing/forestry: 17% (CSO estimates for 2008-09)] Are the figures comparable Are methods consistent

Keeping track of the global economyGeniune savingsEcological footprints

NATIONAL INCOME ACCOUNTS (CONVENTIONAL)

Forestry (Gathering of forest products – major and minor)

Logging and transportation of forest products to depots

Farmyard wood (Industrial and fuelwood collected by primary producers from trees outside forests)

Fuelwood based on household and industrial

consumption, rather than on productionThe value added ignores consumption of natural

capital.

NATIONAL INCOME ACCOUNTING (ALTERNATIVE/ GREEN) Depletion (Logging, including illegal) Reductions (Forest fires, shifting cultivation

etc) Haripriya (2001) estimates depletion value at

34% of her estimates of total value added. Deducting depletion value from the NDP gives the Environmentally Adjusted NDP (EDP)

ECOLOGICAL FOOTPRINT An estimate of the amount of biologically

productive land and sea area to regenerate the resources a human population consumes and to absorb the corresponding waste, given prevailing technology

Source: http://www.footprintnetwork.org/gfn_sub.php?content=global_footprint

Ecological footprint

http://www.footprintnetwork.org/gfn_sub.php?content=maps_page

Ecological footprint

VALUATION FOR PLANNING

VALUATION FOR PLANNING Providing a basis for land use change

decisions

Providing a basis for sectoral allocations

FOREST LAND DIVERSIONWhen forest land is diverted into a non-forest

use, the new set of benefits can be either of private or public nature.

Private: Industrial use, mining, SEZPublic: Defence, roads, schools, hospitals

THE CASE OF HYDROPOWER Hydropower development is dependent on

availability of water and a suitable gradient Highest hydropotential is expectedly offered

by the North-eastern states (31857 MW; 95% untapped) and the northern states (30155; 73% untapped)

INDIA’S (UNTAPPED) HYDROPOWER MAP

72% of 5590 MW

43.5% of 10763 MW

73.3% of 30155 MW

Source: Indian National Hydropower Association (2005)

95.5% of 31857 MW

INDIA’S FOREST MAP

The N-E Region, with 8% of the country’s GA has 25% of FC.

Overlap among areas of high forest cover, high poverty rate and high tribal concentration

Source: Village Voices, Forest ChoicesPoffenberger and McGean (1996)

Forests and poverty

FOREST VS POVERTY RATE

State level data (2009) shows a relatively weak correlation between % Forest cover and % BPL (Correlation Coefficient =

0.25)

FORESTS AND HYDROPOWER Forests have a public good nature India’s forest policy mandates 33% forest cover Areas of high forest cover and high

hydropotential co-exist 44% of households do not have access to

electricity (2001 census) The National Electricity Policy (2005) aims to

meet power demand fully by 2012 (Power for All) Thermal power remains the main source of

electricity (65% of total compared to 25% for hydro and 10% for nuclear and renewables)

The ‘desired’ thermal-hydro mix is at 60-40; in this sense, hydropower development is a priority

DIVERSION OF FOREST LAND An issue of converting one public good (forests) into

another (electricity?) Both associated with large externalities (1 Kwh of

electricity consumption raises output by Rs 40, as per a 2007 TERI estimate)

An issue of mandatory payments by the project developer (user agency) Compensatory afforestation NPV CAT Mandatory R&R 12% free power to home state 1% free power for Local Area Development (2008

Hydro Policy)

THE NPV ISSUE A payment of Rs 5.8 – Rs 9.2 lakh / ha in

addition to the payments for Compensatory Afforestation as per FCA, 1980A payment for lost ecological services? What constitutes forests – recorded forest

area or forest coverWhat is the basis for the amount, and is

the range too narrow? Distribution of the NPV amountDoes it cause a burden to hydro

developers? Which agencies deserve exemption?

CEC RECOMMENDATIONS ON NPV 16 forest types grouped into 6 ecological

classes NPV recommended as per rates below (all

figures in Rs ‘000/ha)

Eco-class Very dense Dense OpenI 1043 939 730II 1043 939 730III 887 803 626IV 626 563 438V 939 845 657VI 991 897 699

Case no. WP (Civil) 202 of 1995, Judgement dated 28-3-08

THE VALUATION CHALLENGE Value the ecosystem services lost due to

forest land conversion and the benefit stream created by the alternative land use using a consistent methodology

Valuation results could then provide a basis for informed debate and negotiations towards the land use change decision

VALUATION FOR IMPACT ASSESSMENT

QUESTIONS FOR VALUATION STUDIES (AN ILLUSTRATION)

Does the PFM programme generate significant non-labour benefit in the short run?

Does the PFM programme enhance equity at the intra and inter-village level?

T THE CONTEXT

Poorer villages/ PFM villages have higher forest dependence (r = - 0.81)

Paonta-N

Solan-N

Seraj-N

Solan-PSeraj-P

Paonta-P

6000

7000

8000

9000

10000

11000

12000

13000

20 30 40 50 60 70 80

Forest income as % of total income

Ann

ual t

otal

inco

me

(Rs.

/cap

ita)

FOREST INCOME DISTRIBUTION (AGGREGATE LEVEL)

Solan

0.00

0.25

0.50

0.75

1.00

0.00 0.25 0.50 0.75 1.00

Cumulative populat ion (%)

Cum

ulat

ive

fore

st in

com

e (%

)

Non-PFM

PFM

Seraj

0.00

0.25

0.50

0.75

1.00

0.00 0.25 0.50 0.75 1.00

Cumulative population (%)

Cum

ulat

ive

fore

st in

com

e (%

) Non-PFM

PFM

Paonta

0.00

0.25

0.50

0.75

1.00

0.00 0.25 0.50 0.75 1.00

Cumulat ive population (%)

Cum

ulat

ive

fore

st in

com

e (%

) Non-PFMPFM

INCREMENTAL FOREST INCOMES

Inter-village equity (+), within village equity (-)

Solan Seraj Paonta-3000

-2000

-1000

0

1000

2000

3000

4000

5000

Incr

emen

tal f

ores

t inc

ome

(Rs.

/pc)

Income category 1Income category 2Income category 3Income category 4

EQUITYIncome distributional weight (Wk) is defined asWk = (Ỹ / Yk) ε

where Ỹ = per capita income of comparator (H.P. in this case)

Yk = per capita income of village k ε = Income aversion parameter

Weights ε = 1.5 ε = 2.0Kolthi-Kaniyara 3.114 4.547Hirab 3.18 4.67Pilorhi 3.061 4.445

ADJUSTING FOR EQUITY

BCR Adjusted BCR

Kolthi-Kanyara -2.96 -9.217Hirab 4.373 13.906Pilorhi 4.462 13.658

VALUATION FOR PAYMENT

THE NOTIONAL RECOGNITION NPV (Net Present Value) (again!) : The

payments for the diversion of forest land for non-forestry purposes include the values of ecosystem services.

The recommendations of the 13th Finance Commission link centre-state fiscal transfers with the states’ forest cover and quality of the forest.

CLASSIC CASES OF INTRA-REGION TRANSFERS

New York drinking water supplyBuyer: NYCSeller: Upstream forest users

Vittel mineral water bottling, FranceBuyer: VittelSeller: Upstream farmers

VALUATION IN THE REDD+ CONTEXT Carbon a co-benefit; not the key benefit

(India’s position) Non carbon benefits such as biodiversity and

hydrological benefits need to clearly identified and valued (at the relevant scale) as part of REDD preparedness

Benefit-sharing mechanisms to be worked out based on the ‘spread’ of values

VALUATION AS POLITICS

VALUATION AS POLITICS The issue of intra-state transfers

Defining the boundary of externalities Defining the recipients

The issue of land-use change Defining the boundary of externalities Defining the national interest Dealing with the private interest

The issue of impact assessment Defining the stakeholders Defining the equity weights

The issue of international transfers Understanding/ assessing the dominant services Distinguishing local and global benefits

CONCLUDING THOUGHTS Valuation is best seen as a public policy tool Valuation could have several competing

motivations – the results are not ‘motivation-neutral’

Valuation can be a basis for informed politics (much like the anti-corruption movement)

Valuation can even be a tool for social levelling (numbers can be added/subtracted – but not words/thoughts/ideas – or can they?)

Concern for man and his fate must always form the chief interest of all technical endeavors. Never forget this in the midst of your diagrams and equations.

Albert Einstein

THANK YOU!