What are Rainforests Worth?

And why it makes economic sense to keep them standing

Acknowledgements

This document was originally prepared by the Global Canopy Programme (GCP) for
the Prince’s Rainforests Project (PRP) with generous financial support from the PRP
and The Rufford Maurice Laing Foundation. We thank Paul Holland, Anna Creed,
Simon Rietbergen, Andrew Mitchell, and Mohammed Shah Othman for helpful
discussions and guidance. We thank Djuna Ivereigh (indonesiawild.com) for kindly
donating the cover photograph. We would also like to thank all the scientists upon
whose work we have been able to draw in producing this report and who provide
input to the work of the Global Canopy Programme, including Antonio Nobre,
Yadvinder Malhi, John Grace and Jose Marengo.

This report was conducted as a literature review but benefited greatly from long-
standing collaborations with academics and friends drawn from the GCP Alliance.
Special thanks are extended to Dr Antonio Donato Nobre of Instituto Nacional de
Pesquisas de Amazonas (INPA), GCP Chief Science Advisor.

© Global Canopy Programme 2008

www.globalcanopy.org

i
 Executive Summary

Rainforests harbour more than half of the terrestrial species on Earth. Their
destruction represents a huge loss to the planet and its people, which cannot be
adequately summarised in economic terms. However, in order to prevent further
deforestation, rainforests have to be shown to be worth more alive than dead.

The myriad animals, plants, fungi and bacteria in the rainforest web of life contribute
to ecosystem processes such as photosynthesis, carbon storage, and nutrient cycling.
In turn, humanity depends on the resulting ecosystem goods and services including
food, medicines, fibres, watershed protection, disease control, fuelwood and cultural
and spiritual identity. We depend on forests to such an extent that deforestation was a
factor in several previous societal collapses, including the demise of the Maya
civilisation.

One reason for the continued loss of tropical rainforests is the failure of markets, and
society in general, to adequately value rainforest ecosystem services in economic or
financial terms. Going beyond carbon, this report investigates the economic value of
rainforests, distinguishing between direct and indirect use values. Direct use values
refer to ecosystem goods and services that are used directly by humans, such as food
and fuels. Indirect use values are typically enjoyed by people residing outside
rainforest ecosystems, such as carbon storage, rainfall generation and watershed
protection.

Land users usually have an incentive to preserve ecosystem services that provide
direct benefits to themselves. However, they have little or no incentive to preserve
services that provide indirect benefits to society even though they can be substantial.
As long as local land users receive no compensation for providing indirect ecosystem
services to society, they are unlikely to conserve rainforests.

The economic rationale for compensating land users for providing indirect rainforest
services is illustrated by considering the public costs associated with destroying
rainforests and the public benefits gained by conserving them.

Benefits of rainforest conservation

Substantial direct benefits from goods such as food and fuel accrue to people living in
and around rainforests. While many goods and services do not enter markets but
represent a ‘natural subsidy’ to livelihoods and food security, some generate large
revenues when marketed. For instance, the international trade in non-timber forest
products such as Brazil nuts and rattan is worth $7.5–9 billion per year, with another
estimated $108 billion in processed medicines and medicinal plants.

Tropical rainforests generate ecosystem services that benefit the global community.
For example, they are thought to act as a carbon sink. Although there is much debate
as to the extent of the sink, they could be providing a ‘free’ carbon-offsetting service
worth up to $43 billion per year.

Water is recycled by rainforests back into the atmosphere, often falling as rain in
distant locations. For example, moisture recycled by the Amazon falls as rain and

ii
supports agriculture, industry and hydro-electricity in the major economic region of
Latin America where 70% of the total GNP of five countries is produced (~$1.5
trillion in 2004).

Costs of rainforest destruction

When rainforests are cleared, the huge volume of carbon stored in the trees and soils
is released, warming the atmosphere at a cost of $43-65 billion per year.

Deforestation increases the likelihood of flooding in developing countries, which

during the 1990s killed nearly 100,000 people and displaced 320 million others, with
total reported economic damages exceeding $1.1 trillion.

The rainforest fires of 1997 and 1998 affected health, timber and non-timber forest
products, agriculture, industry, tourism, and increased CO2 emissions, costing $4.5-
6.3 billion in SE Asia and up to $9.5 billion in the Amazon.

Cost-Benefit Analysis

We screened the rainforest valuation literature and found ten reliable studies which
considered the net cost of deforestation, i.e. the costs minus the benefits of
deforestation. In all cases the costs to society (through the loss of indirect, non-market
benefits) outweighed the private (direct, marketed) benefits to land users. Therefore,
continued deforestation does not benefit the global economy.

Rainforests are destroyed in part due to:

1. Failures of information – Many rainforest goods and services have not been
valued or their value is not recognised by society. Efforts to place a value on
rainforest services and communicate that value should be heightened. Current
work to determine the opportunity cost of conservation could be broadened to
include such valuations.

2. Market failures – The major benefits associated with retaining rainforests more or
less intact are indirect and outside of markets, accruing to society at local to global
scales. The development of market instruments that capture at a private level the
social and global values of relatively undisturbed rainforests – for instance,
through carbon or biodiversity credits or through premium pricing for sustainably
harvested timber – are a crucial step toward sustainability.

3. Perverse incentives – The private benefits of conversion are often exaggerated by

intervention failures, so-called ‘perverse subsidies’, such as tax incentives to clear
land. Conversely, there are few incentives to use land that has been previously
degraded but is no longer used.

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 Contents

Introduction…………………………………………………………………. 1
Part 1 – Introduction to ecosystem services………………………………. 3
1.1. Definitions of ecosystem services……………………………….. 4
1.2. Why are ecosystem services lost?……………………………….. 6
1.3. Payments for rainforest ecosystem services……………………... 7
1.4. How much will rainforest conservation cost?…………………… 8
1.5. Respecting local values………………………………………….. 8
1.6. Degraded areas can provide ecosystem services………………… 9
Part 2 – Large-scale rainforest ecosystem services……………………….. 10
2.1. Tropical rainforests and the Earth System……………………..... 10
2.1.1. Effects on atmospheric chemistry…………………….... 10
2.1.2. Effects on land surface properties……………………… 15
2.2. Flood control services…………………………………………… 22
2.3. Fires resulting from encroachment on rainforests…….................. 23
2.4. Diseases resulting from encroachment on rainforests………….... 26
Part 3 – Local rainforest ecosystem services……………………………… 29
3.1. Non-timber forest products…………………………………….... 29
3.2. Fuelwood……………………………………………………….... 30
3.3. Watershed regulation…………………………………………….. 31
3.4. Pollination of crops in neighbouring farms……………………… 31
3.5. Tourism (recreation).…………………………………………….. 32
3.6. Timber………………………………………………………….... 32
3.7. Biodiversity……………………………………………………… 33
Part 4 – Rainforest valuation case studies………………………………… 34
4.1. Latin America…………………………………………………..... 35
4.2. Southeast Asia…………………………………………………… 35
4.3. Africa…………………………………………………………….. 36
Conclusions………………………………………………………………….. 38
Annex 1………………………………………………………………………. 40
Annex 2………………………………………………………………………. 41
Annex 3………………………………………………………………………. 42
References…………………………………………………………………… 43

Abbreviations

CO2 – carbon dioxide

$ – United States Dollar
ENSO – El Niño-Southern Oscillation
ESV – Ecosystem Service Value
FAO – Food and Agriculture Organization of the United Nations
GtC/yr = gigatonne of carbon per year = billion metric tonnes of carbon per year
IPCC – Intergovernmental Panel on Climate Change
NPV – Net Present Value
TEV – Total Economic Value

iv
Introduction

Why are forests important?

KEY MESSAGE: We depend on forests for essential services such as food, fuel and
fodder; we destroy them at our peril.

We depend on forests for our future. In his book Collapse: How societies choose to
fail or survive, the eminent biologist and geographer Jared Diamond (2005) showed
that deforestation was a factor in several recorded past societal collapses, including
the demise of the Maya civilisation. He goes on to describe why: “For humans, forests
represent much value that becomes jeopardised by cutting them down. Most
obviously, they are our principal source of timber products, among which are
firewood, office paper, newspaper, paper for books, toilet paper, construction timber,
plywood, and wood for furniture. For Third World people, who constitute a
substantial fraction of the world’s population, they are also the principal source of
non-timber products such as natural rope and roofing materials, birds and mammals
hunted for food, fruits and nuts and other edible plant parts, and plant-derived
medicines. For First World people, forests offer popular recreational sites. They
function as the world’s major air filter removing carbon monoxide and other air
pollutants, and forests and their soils are a major sink1 for carbon, with the result that
deforestation is an important driving force behind global warming by decreasing that
carbon sink. Water transpiration from trees returns water to the atmosphere, so that
deforestation tends to cause diminished rainfall and increased desertification. Trees
retain water in the soil and keep it moist. They protect the land surface against
landslides, erosion, and sediment runoff into streams. Some forests, notably some
tropical rainforests, hold the major portion of an ecosystem’s nutrients, so that
logging and carting the logs away tends to leave the cleared land infertile. Finally,
forests provide the habitat for most other living things on the land: for instance,
tropical forests cover 6% of the world’s land surface but hold between 50% and 80%
of the world’s terrestrial species of plant and animals.”

So, forests are fundamentally important from a material, utilitarian perspective. There
are also of course fundamental moral reasons to conserve forests, and rainforests in
particular. These are frequently expressed in religious or spiritual terms, or in terms of
the rights of non-voting species, such as our cousins the orangutans, chimpanzees and
gorillas (Balmford and Bond, 2005). The need to protect wildlife has been one of the
primary motivating factors behind public support for conservation. However, this
support has not been enough and tropical rainforests continue to fall.

1
Diamond uses the term carbon sink. It would be more accurate to say that forests are both a large
carbon ‘store’ and are a major ‘sink’ for carbon by removing carbon dioxide from the atmosphere.
Deforestation turns the store into a ‘source’ of carbon to the atmosphere and also reduces the area that
can act as a carbon sink.

1
Why do tropical rainforests continue to fall?

KEY MESSAGE: Rainforests continue to fall in part due to a market failure: the
services they provide are not valued by society.

One reason for deforestation is the failure of markets, and society in general, to
adequately value forest environmental services in economic or financial terms.
Consequently, forest services are rarely accounted for in national economic statistics
and few well-developed markets exist for them. However, there is growing awareness
of the need to adequately acknowledge and measure the value of these services, so
that decisions involving forest land use change are based on the true worth of forests
(World Conservation Union, 2008). This report outlines what rainforests do for us in
economic terms so that we can help to demonstrate that they are worth more alive
than dead.

Structure of this report

This report is divided into four sections. First we explain what we mean by the term
‘ecosystem services’. Second, we explore large-scale ecosystem services provided by
entire rainforest regions, such as climate regulation. Third, we discuss more locally-
relevant ecosystem services, such as food and fuelwood. Fourth, we list key studies
that have sought to estimate the economic value of standing rainforests versus the
conversion of the land to alternative uses, such as agriculture. This then allows us to
weigh up the costs and benefits of rainforest conversion.

2
Part 1 – Introduction to ecosystem services

KEY MESSAGE: Rainforests harbour huge amounts of biodiversity, which create the
ecosystem services that contribute to human well-being. The loss of this biodiversity
jeopardises human well-being.

Human well-being is part of a cycle of flows, drivers and responses that is dependent
on biodiversity, ecosystems and the services they provide (Fig. 1).

HUMAN WELL-BEING
Basic materials for a good life
GLOBAL CHANGE DRIVERS
Freedom of choice and action
Climate Health
Biogeochemical cycles Identity
Land use
Security
Species introductions

ECOSYSTEM SERVICES
ECOSYSTEM PROCESSES Climate regulation (carbon & water cycles)
Primary production (photosynthesis) Sustained production of plant and animal
Secondary production (herbivory) biomass
Nutrient cycling Soil formation, retention and fertility
Evapotranspiration Water regulation (quantity & quality)
Resistance Provision of habitat
Resilience Pollination and seed dispersal
Resistance to invasive organisms
Agricultural pest and disease control
Protection against natural hazards
Human disease regulation

BIODIVERSITY
Genetic Food, fibre and fuel
Number Genetic resources
Species
Abundance Biochemicals
Functional groups
Composition Knowledge systems
• Trees
Interactions Education and inspiration
• Grasses
Spatial Recreation and aesthetic values
• etc.
distribution Spiritual and religious values
Landscape units
Sense of place

Figure 1. Human well-being depends on ecosystem goods and services, which are a function of
ecosystem processes and biodiversity, which are in turn affected by global change drivers. Items in
blue are dealt with in this report. From Diaz et al. (2006).

Rainforests are one of the largest repositories of biodiversity in the world. The
functions carried out by the myriad species contribute to the processes occurring in
rainforest ecosystems, thereby contributing to the ecosystem services upon which
human well-being depends (Fig. 1).

3
As illustrated in Figure 2, rainforests and other highly biodiverse ecosystems tend to
have the highest value in terms of ecosystem services, although this is not to say that
low-diversity ecosystems such as salt-marshes do not provide valuable services.

Figure 2. Spatial agreement between global terrestrial biodiversity and ecosystem service value (ESV).
Increasing intensities of green and red represent, respectively, increasing ESV and increasing terrestrial
biodiversity priority. White corresponds to low values for both variables, black to high values for both,
and shades of grey to covarying values for both. Source: Turner et al. (2007).

The extinction of species or reductions in their populations and/or distributions

contributes to the degradation of ecosystem services. The relationship between
biodiversity and ecosystem services has been likened to the role of the rivets in an
aeroplane’s wing (Ehrlich and Walker, 1998). We may not need all the rivets in an
aeroplane’s wing for it to function, but we do not know how many could be removed
before it malfunctions. Some rivets may be more critical than others, but likewise we
do not know which these are. It is therefore sensible to insure against wing
malfunction by maintaining as many rivets as possible. In the same way, we ought to
maintain as much natural biodiversity as possible in order to insure against ecosystem
service failure.

1.1. Definitions of ecosystem services

KEY MESSAGE: Ecosystem services are ‘the benefits people obtain from
ecosystems’. In economic terms, the most important services are those that benefit
people either directly such as food and timber, or indirectly such as climate regulation
and watershed protection.

The Millennium Ecosystem Assessment (MA) defines ecosystem services as ‘the

benefits people obtain from ecosystems’ (McMichael et al., 2005). Fifteen of the 24
ecosystem services identified in the MA were found to be in decline at the global
scale.

This section is drawn primarily from Pagiola and Platais (2008). The MA
distinguishes four kinds of services: provisioning services, regulating services,

4
cultural services and supporting services (Fig. 3, top panel). An alternative
classification often used by economists is that of Total Economic Value (TEV; Fig. 3,
bottom panel), which classifies the value of services according to the nature of their
use and how they enter markets. The TEV framework distinguishes between direct
and indirect use values. Direct use values refer to ecosystem goods and services that
are used directly by humans, corresponding to the MA’s provisioning services and
some cultural services. They include consumed products such as timber, medicinal
products, and food, as well non-consumptive uses such as recreation. Indirect use
values are typically enjoyed by people residing outside the ecosystem itself. Examples
include the natural water filtration of mangrove forests, watershed protection, climate
regulation and carbon sequestration2. These services correspond broadly with the
MA’s regulating and supporting services categories.

MILLENNIUM ECOSYSTEM ASSESSMENT

Supporting services
Services necessary for the production of all other ecosystem services

Provisioning services Regulating services Cultural services

Products obtained from ecosystems Benefits obtained from regulation Non-material benefits obtained
of ecosystem processes from ecosystems

Direct use value Indirect use value Option value Existence value
• Consumptive • Option
• Non-consumptive • Bequest

Use values Non-use value

TOTAL ECONOMIC VALUE

Figure 3. Typologies of ecosystem services as devised by the Millennium Ecosystem Assessment (top)
and commonly used by economists (bottom). Arrows illustrate the approximate mapping of the two
typologies onto each other. After Pagiola and Platais (2008).

2
Growing plants absorb carbon dioxide and use photosynthesis to create sugars that are then used for
energy and to make plant tissue (e.g. cellulose). These tissues form a long-term store of ‘sequestered’
terrestrial carbon.

5
1.2. Why are ecosystem services lost?

KEY MESSAGE: Land users have an incentive to maintain ecosystem services that
they benefit from directly, but normally have no financial incentive to maintain
services that benefit society as a whole.

Ecosystem services are lost even though they can be hugely valuable (Box 1).

Box 1. The Total Economic Value of Earth’s ecosystem goods and services

One widely cited synthesis of small-scale studies has estimated the global value of
ecosystem services at very roughly $38 trillion per year (in US$2000) – more than global
GDP – with tropical forests representing about $4 trillion of that total (Costanza et al.,
1997). On this basis, the global expenditure of about $3 billion per year to manage tropical
forests (Cleary, 2006) is about 1000 times smaller than their estimated economic value.
According to Balmford and Bond (2005), Costanza and colleagues’ “analysis has been
criticized for its extrapolation from the margin to the globe, and its reliance on a globally
unrepresentative data set, but regional studies provide estimates which, although lower,
are broadly similar in scale.”

This section is also drawn from Pagiola and Platais (2008). There are many causes for
the loss of ecosystems, including perverse subsidies, lack of clear land tenure, and
poor environmental governance. Here we focus on the market failure aspects of the
problem: that ecosystem services are often externalities3 from the perspective of land
users. Figure 4 represents a stylized form of the problem. Simply put, the benefits
received by land users for converting ecosystems outweigh the benefits they would
receive from conserving them. This cost-benefit ratio is called the opportunity cost of
conservation, because by conserving the land the user foregoes economic benefits.
This is only a partial cost-benefit analysis since conversion reduces the indirect
services provided by ecosystems to society, such as carbon sequestration. But land
users perceive few of these benefits. As long as local land users receive no
compensation for providing indirect ecosystem services to the global community, they
are unlikely to conserve them.

3
Some effects of an activity are not taken into account in its price: these are externalities.

6
Benefits
($/ha) Conversion Rainforest
to pasture conservation

Biodiversity
Key:
Benefits to global
Biodiversity community
Carbon
Carbon

Water Benefits to
Water downstream
populations

Benefits to land
users

Figure 4. Why ecosystem services are lost. The benefits in yellow and blue are often not captured by
markets so there is no economic incentive to conserve rainforests. Red arrow represents the opportunity
cost of conservation which must be compensated if rainforests are to be conserved. From Pagiola and
Platais (2008).

1.3. Payments for rainforest ecosystem services

KEY MESSAGE: The recognition of the global importance of rainforest ecosystem

services provides an opportunity for international payments to maintain rainforests.

Advocates of rainforest conservation have in the past focused on issues of

biodiversity and the preservation of indigenous communities. More recently, urban
populations have started paying rural populations for the maintenance of watershed
forests that protect urban water supplies. However, such payments tend to be made
between populations within developing countries and therefore cannot generate very
large financial flows. The climatic implications of deforestation both heighten the
urgency and open the door to potential solutions based on international payments. The
future global climate change mitigation strategy will likely allow tropical nations to
receive payments from developed nations to avoid deforestation. In such a situation,
the international community and emissions trading markets would determine the price
of a tonne of carbon dioxide and hence the value of protecting any particular hectare
of rainforest from destruction. As long as this amount of money is greater than the
opportunity cost of conservation then, theoretically, the land user should choose to
take the payment and avoid converting that hectare of land.

7
1.4. How much will rainforest conservation cost?

KEY MESSAGE: One study put the cost of conserving half the world’s rainforests at
$5 billion per year, rising over time. None of the studies of opportunity costs of
rainforest conservation include a full analysis of the benefits generated by maintaining
rainforest ecosystem services. Such benefits would be provided by rainforest
communities and land users.

The Stern Review (2006) estimated that it would cost $5 billion per year initially to
halt deforestation in eight countries (Brazil, Indonesia, Papua New Guinea,
Democratic Republic of Congo, Cameroon, Bolivia, Ghana and Malaysia), equivalent
to reducing global deforestation by half (Grieg-Gran, 2006). The Stern Review team
had to make a number of assumptions in order to produce a rapid appraisal of the
costs of reducing deforestation. For example, they assumed that the alternative to
deforestation is forest conservation without any exploitation of timber and
corresponding revenues. Nor did they factor-in the benefits derived from tropical
forest ecosystem services because they are difficult to quantify and are often outside
markets. A number of other studies are under way to derive new estimates of the cost
of reducing deforestation, including the Eliasch Review of the UK Government.
However, all of these studies focus on the costs of Reducing Emissions from
Deforestation and Degradation (termed ‘REDD’ by the UN), with little attention to
the substantial benefits of rainforest ecosystem services.

REDD will form part of the global mitigation strategy and it may be that some
portion of future industrial countries’ emissions will be offset by paying for forest
protection. So the global community will pay land users to give up their right to
convert tropical forests. As such, REDD would follow the ‘polluter pays’ principle,
which holds that those who create negative externalities should pay for the damage
they cause. In this case, the payment is going to conserve tropical forests. However,
REDD can also follow the ‘provider gets’ principle, in which those who create
positive externalities should be compensated for providing them. This is because
rainforest conservation not only decreases carbon dioxide emissions, but also provides
substantial co-benefits derived from ecosystem services, such as regional climate
stability. It is important to recognize the relevance of the ‘provider gets’ principle,
since in many cases the managers of rainforest ecosystems are worse off than the
users of those services (Pagiola and Platais, 2008).

1.5. Respecting local values

KEY MESSAGE: A strategy of maintaining rainforest ecosystem services for global

benefits must respect the rights, values and requirements of the rural poor.

Value is crucially dependant on the scale at which ecosystem services are viewed.
Locally and globally, forest conservation in Madagascar was shown to have a higher
value than logging, but the opposite was true at the national scale (Kremen et al.,

8
2000). Much current attention is focused on the carbon stored in rainforests and the
need to conserve these carbon stocks. However, although the international community
places emphasis on conserving carbon, local rainforest people see their forest in a
different way. Areas designed to protect carbon stocks must also provide tangible
local benefits, such as breeding grounds for animals and sources of pollinators, seeds,
clean water, timber, fuelwood, or valued products, within a larger landscape
(Kaimowitz and Sheil, 2007).

1.6. Degraded areas can provide ecosystem services

KEY MESSAGE: Human impacts in the tropics are not always wholly detrimental,
and many land-use alternatives have biodiversity and carbon benefits as well as costs.

Conservationists have often viewed modified habitats as a ‘glass half empty’ rather
than a ‘glass half full.’ According to Kaimowitz and Sheil (2007), “This bias reduces
the recognition of opportunities. Many species can and do flourish in non-pristine
environments. Bwindi Forest in Uganda (now a National Park) contains half the
world’s mountain gorillas despite once being a productive timber forest. These
gorillas like to feed where thick herbaceous growth follows disturbance and so they
may have benefited from logging. Logged-over forests in Borneo maintain significant
wildlife conservation values that can be further improved by appropriate management.
While no one is arguing that oil palm estates are ‘good for conservation,’ those in
Sumatra have some value as habitat for tigers and other endangered species. From the
community forests in Mexico to the tree-dominated agroforestry systems in Sumatra,
studies continue to highlight the diverse biodiversity and carbon present in
multifunctional landscapes that poor people also depend upon.”

9
Part 2 – Large-scale rainforest ecosystem services

Large-scale ecosystem services such as carbon sequestration, rainfall recycling and

flood control have indirect use value to large numbers of people over regional to
global scales. Deforestation creates negative externalities (e.g. carbon dioxide, smoke
and rainfall reductions), which are also considered in this section, since they relate to
‘damage costs’ associated with business-as-usual.

2.1. Tropical rainforests and the Earth System

KEY MESSAGE: Deforestation affects the chemical composition of the atmosphere

and the physical state of the land surface, with local to global impacts on climate.

Rainforests play an important role in the Earth System, which is composed of the
oceans, land surface and vegetation, soils, atmosphere, and geology. The Earth
System includes biological activity, including humans. Interactions among the
components of the Earth System tend to keep it in a dynamic state of equilibrium. For
example, increasing carbon dioxide concentrations in the atmosphere are countered to
some extent by CO2 uptake by oceans and forests. Human activities, however, are
now upsetting this equilibrium in several ways, including the destruction of
rainforests.

Deforestation has a number of effects on the climate components of the Earth System
that can be divided broadly into either effects on the chemical composition of the
atmosphere (also called biogeochemical effects) or effects on the physical properties
of the surface (also called biophysical effects).

2.1.1. Effects on atmospheric chemistry

These effects are primarily concerned with the role of tropical forests in maintaining
the balance of carbon between the atmosphere and the land surface. These effects can
be broadly split into the carbon emissions resulting from deforestation and the role of
forests as a carbon sink.

10
Carbon dioxide emissions

KEY MESSAGE: The IPCC stated that greenhouse gas emissions from tropical
deforestation account for about 20% of total emissions. Although this estimate was
based on potentially overestimated deforestation rates, it underestimated emissions
from vast stores of carbon in SE Asian tropical peat swamp forests, with the two
effects tending to cancel each other out. As industrial emissions continue to increase,
the fraction due to deforestation will decline.

Rainforests are a large pool of terrestrial carbon which deforestation is converting into
a flow of carbon dioxide into the atmosphere, where an increasing concentration of
CO2 contributes to global warming (see Fig. 5 for a breakdown of the emissions from
land use change). The most widely used estimates of global deforestation rates are
those published by the FAO, based upon periodic assessments of global forest cover.
The FAO estimated that about 15.2 million hectares of tropical forest were deforested
each year during 1990-2000, while 13 million hectares were converted each year in
the period 2000-2005 (FAO, 2001;FAO, 2006). The FAO data are based mainly on
questionnaire survey responses from developing countries, which are more open to
error than satellite estimates. Comparison with satellite estimates of deforestation
indicate that the FAO figures are overestimates, perhaps by up to a factor of two.
However, the main global satellite study, by Achard et al. (2002), did not include the
major deforestation event of the decade, the 1997–1998 El Niño-Southern Oscillation
(ENSO)4 event. Inclusion of the ENSO years may remove some of the differences
between the FAO data and the satellite results. The IPCC (Nabuurs et al., 2007)
reported the average of the FAO and satellite figures, stating that it was too early to
rely solely on satellite estimates. As a result, the IPCC stated that greenhouse gas
emissions from tropical deforestation account for about 20% of total global
greenhouse gas emissions. As noted above, this may be an overestimate. Also, as
industrial emissions continue to increase, the fraction due to deforestation will decline
over time.

Another confounding factor is that the studies used by the IPCC generally did not pay
sufficient attention to soil carbon losses from land use changes in SE Asian tropical
peat swamp forests. Assuming conservatively that tropical deforestation (excluding
peat fires and decomposition of deforested peatlands) emits about 1 GtC/yr (Achard et
al., 2004), recent research suggests that the inclusion of emissions from fires and
decomposition of tropical peat forests could increase this figure by about 50%, to
1.5GtC. This figure represents 17% of annual global carbon emissions (with fossil
fuel emissions of 7.6 GtC/yr (+/- 0.4) in the period 2000-5 (Canadell et al., 2007).
Hence, emissions from tropical peat forests could have equated to 6% of total global
carbon emissions during 2000-2005. Greater efforts are currently being made to
understand the effect of peatland degradation on carbon emissions.

4
ENSO (El Niño-South Oscillation) is a see-saw pattern in the tropical Pacific, affecting the prevailing
wind system and ocean currents. ENSO is a major cause of the year-to-year variation in global climate.

11
Figure 5. CO2 emission hotspots from land use change. Source: UNEP/GRID-Arendal.

Effects of smoke on rainfall patterns

KEY MESSAGE: Vast plumes of smoke from forest fires and agricultural burning are
common in the tropics. Satellite evidence shows that these plumes reduce rainfall
production and create huge rain-shadows over downwind areas.

Smoke from burning forests creates haze, which mingles with clouds and traps water
molecules, reducing water droplet formation, thereby reducing rainfall (Rosenfeld,
1999). A joint NASA-Japanese satellite called the Tropical Rainfall Measuring
Mission (TRMM) flew over Indonesia in March 1998 during massive forest fires. At
one point, much of the island of Borneo was shrouded by a thick pall, while part of it
was still clear of smoke. Data from TRMM showed that clouds within the two regions
grew to similar sizes and heights. Clouds in the smoke-free area dumped normal
levels of rain, but no water fell from the smoke-laden clouds (Rosenfeld, 1999).

Furthermore, smoke absorbs solar radiation (sunlight), warming the atmosphere,

while simultaneously reducing the solar radiation hitting the surface, cooling the land.
This combination of a cooler surface and a warmer atmosphere increases the thermal
stability of the air column and reduces the chances of cloud formation, thus reducing
the possibility of rainfall (Pielke et al., 2007b). Koren et al. (2004) analysed satellite
data collected during the vegetation burning season in the Amazon and found that
smoky skies had much lower cloud cover.

The smoke from burning vegetation in the Amazonian dry season is carried south in
air currents and seems to have an impact on the onset of the rainy season in southern
Amazonia (Marengo, 2006). An individual burning event studied by Freitas et al.
(2004 cited in Silva Dias, 2006) during the transition period from the dry to the wet
season (September in central South America) suggests a reduction in precipitation of
the order of 10-15% in The Plata Basin to the south of the Amazon.

12
The cost of carbon emissions from tropical land use change

KEY MESSAGE: The social cost of the carbon emissions from deforestation are
between $43 and $65 billion per year.

There are two distinct procedures used to attribute monetary values to CO2 emissions:
(i) damage caused by emissions or the benefits of emissions mitigation, and (ii) the
cost of mitigation. There is ongoing work into the cost of mitigation, e.g. the Eliasch
Review, and it is not considered further in this report. In this section, we consider (i)
the damage costs of CO2 emissions. There are three ways to investigate the damage
costs of emissions from deforestation.

First, some economists have tried to estimate the aggregate net economic costs of
damages from climate change across the globe. Such estimates have so far failed to
reach conclusive findings. According to the IPCC (2007): “Many estimates of
aggregate net economic costs of damages from climate change across the globe (i.e.,
the social cost of carbon (SCC), expressed in terms of future net benefits and costs
that are discounted to the present) are now available. Peer-reviewed estimates of the
SCC for 2005 have an average value of $43 per tonne of carbon (i.e., $12 per tonne of
carbon dioxide), but the range around this mean is large. For example, in a survey of
100 estimates, the values ran from $-10 per tonne of carbon ($-3 per tonne of carbon
dioxide) up to $350 per tonne of carbon (US$95 per tonne of carbon dioxide).” The
IPCC also states: “The large ranges of SCC are due in the large part to differences in
assumptions regarding climate sensitivity, response lags, the treatment of risk and
equity, economic and non-economic impacts, the inclusion of potentially catastrophic
losses, and discount rates. It is very likely that globally aggregated figures
underestimate the damage costs because they cannot include many non-quantifiable
impacts. Taken as a whole, the range of published evidence indicates that the net
damage costs of climate change are likely to be significant and to increase over time.”
The SCC signals what society should, in theory, be willing to pay now to avoid the
future damage caused by incremental carbon emissions. We have used the IPCC’s
average SCC estimate ($43/tC) in this report, and assume here that this is a
conservative estimate5.

In the second method, the shadow price of carbon (SPC) is used to value the expected
increase or decrease in emissions of greenhouse gas emissions resulting from a
proposed policy
(www.defra.gov.uk/environment/climatechange/research/carboncost/). Put simply, the
SPC reflects the damage costs of climate change caused by each additional tonne of
greenhouse gas emitted – converted into carbon dioxide equivalent (CO2e) for ease of
comparison. Although it is the recommended method of the UK Government for
policy analyses, we have not used the SPC as we are simply seeking an approximate
guide to the cost of current emissions from deforestation.

A third alternative would be to take the trading price of a carbon dioxide credit in the
European Emissions Trading Scheme (EU ETS), currently €21.70 per tCO2
(equivalent to €79.6 per tC).

5
See George Monbiot’s critique: http://www.monbiot.com/archives/2008/02/19/an-exchange-of-souls

13
Taking an estimate of 1.5GtC per year emitted from tropical deforestation and an
average SCC of $43 per tC, results in a social cost of the carbon emissions from
deforestation of $65 billion per year. Taking a more conservative estimate of 1 GtC
per year in emissions results in a cost of $43 billion per year6.

Terrestrial carbon sequestration service

KEY MESSAGE: Tropical forests are thought to be a net sink of carbon through
absorbing and storing carbon dioxide. Although there is much uncertainty, this service
could be worth $43 billion a year.

By absorbing and storing (i.e. ‘sequestering’) more carbon from the atmosphere than
they emit through energy production (in which respiration burns sugars and produces
CO2), tropical forests are thought to act as a carbon sink, although there is much
debate as to the extent of this service.

The total carbon release from land-use change and fossil fuel use from 1750-2000 has
been estimated at 463 GtC, but the increase in atmospheric CO2 concentrations has
been only 174 GtC (Prentice, 2001). The remainder has been absorbed into the oceans
(129 GtC; Feely et al. (2004)) and terrestrial ecosystems (160 GtC), half of which is
thought to have gone into the tropics (Fig. 6). The oceans and terrestrial ecosystems
are effectively giving humanity a discount on our carbon emissions.

Figure 6. The distribution of anthropogenic carbon dioxide emissions (1750-2000) among three sinks
of the Earth System.

Researchers have been measuring tree density and size in forest plots across the
tropics for the last two decades. Many, but not all (Feeley et al., 2007a), forest plots
appear to be increasing in biomass7. Amazonian forest plots appear to be sequestering
just under a tonne of carbon per year, which would equate to a carbon sink of about
0.6 GtC/yr across the entire Amazon (Philips et al., 1998;Baker et al., 2004). If
African and South East Asian forests are increasing in biomass similarly to the
Amazon, then the global tropical rainforest carbon sink could be around 1 GtC/yr.
The existence of the tropical sink is debated (Wright, 2005;Feeley et al., 2007b) but is
strongly supported by a recent re-evaluation of global sources and sinks of

6
For comparison, Microsoft sold $50 billion worth of goods and services in 2007.
7
Biomass is the living biological material (leaves, stems, roots) produced by plants. Carbon makes up
roughly half of the mass of dry wood.

14
atmospheric carbon dioxide (Stephens et al., 2007). Carbon uptake by intact tropical
rainforests may be driven by enhanced growth associated with enriched atmospheric
CO2 concentration (acting as a fertilizer), changes in sunlight regime, or other factors
not yet identified (Malhi et al., 2008).

Although there is still much uncertainty, if we assume that tropical rainforests are a
sink for about 1 GtC {Lewis, 2006 #177}, then biological activity in these forests is
providing a ‘free’ offsetting service helping to buffer climate change, worth up to $43
billion per year, taking the previous SCC of $43/tC. However, Phillips and Malhi
(2005) warn that this carbon sink should not be taken for granted since it will be
dwarfed by increasing fossil fuel emissions in the coming decades. Furthermore,
climate change and deforestation could push tropical rainforests over a ‘tipping point’
where they lose their structure and function and become a source of carbon, thereby
accelerating climate change (Phillips and Malhi, 2005).

2.1.2. Effects on land surface properties

Tropical rainfall provides three quarters of the energy that drives the atmospheric
wind circulation through the release of latent heat8. Thus perturbations to tropical
rainfall from deforestation and forest burning can have potentially critical climate
consequences – in addition to the effects of carbon dioxide emissions (Pielke et al.,
2007a).

Transpiration service

KEY MESSAGE: Rainforests return water to the atmosphere by transpiration from

leaves. This is perhaps the most important regional ecosystem service, providing
valuable moisture to downwind regions. Large-scale conversion of rainforest to
pasture or cropland has the potential to undermine this service.

Tropical rainforest tree roots help the soil hold water like a sponge and release it
slowly to streams and rivers. Roots are able to extract soil water from up to 10 m
deep. Trees then return this water to the atmosphere by transpiration – water vapour
escapes from leaves as CO2 gas enters through the pores (stomates)9. So the canopies
can be seen as fine mist fountains connected to the sponge in the ground (Laurance,
2007). Water is thus recycled by rainforests back into the atmosphere, where it can
then form rainfall again (Fig. 7). This transpiration service is perhaps the most
important regional ecosystem service (Malhi et al. 2008). Across the Amazon basin,
25 to 50% of rainfall is recycled by the forest (Eltahir and Bras, 1994;Marengo,
2006). The percentage of rainfall derived from recycled water increases from east to
west across the Amazon basin, and according to studies from 30 years ago by the time
it reaches the foot of the Andes an estimated 88% of the water has fallen twice as

8
Sunlight warms the Earth’s surface and part of this heat energy, latent heat, is used to evaporate water
from leaves, soil, and other surfaces. This energy is then subsequently released to the atmosphere when
the water vapour condenses to form clouds.
9
We use the term ‘transpiration’ but it is more accurate to say ‘evapotranspiration’ since water also
evaporates from the surface of vegetation and soil.

15
 precipitation (Lettau et al., 1979). There is large uncertainty in these recycling
estimates and therefore in the impact of deforestation on recycling.

West Amazon Basin East

1288mm

Atmospheric transport
Atmospheric transport 2750mm
1931mm 1462mm
(75%)

488mm Rainfall
(25%) 1950mm
643mm (100%)
(33%)

Transpiration
1131mm
(58%) Runoff
819mm
(42%)

Root absorption Infiltration

Figure 7. Schematic of rainfall recycling in the Amazon Basin. Dark blue arrows highlight rainfall
recycling. Numbers in brackets show flows as a percent of rainfall. There is great uncertainty in the
actual proportion of rainfall that is recycled, but it is likely in the range 25-50%. After Bonan (2002).

Pasture has much lower leaf area than forest (McWilliam et al., 1993). Because
transpiration is proportional to leaf area, pasture recycles much less water than forest
– especially in the dry season, when pasture is dry but forest remains evergreen
because of the deep roots (Roberts et al., 1996). Transpiration from pasture can be as
much as 24% lower than from forest (von Randow et al., 2004). Soybean crops,
which are becoming more widespread, have even lower transpiration levels than
pasture (Costa et al., 2007). Moderate and localized deforestation may locally
enhance convection10 and rainfall (Chagnon and Bras, 2005), but this increase is
deceptive, since large-scale forest loss tends to reduce rainfall (Fig. 8). The magnitude
of reduction is dependent on how regional circulation of atmospheric moisture is
affected. Some global climate model (GCM) studies suggest that the regional forest-
climate system may have two stable states: removal of 30 to 40% of the forest could
push much of Amazonia into a drier climate regime, leading to establishment of
savannah in the east of the basin (Oyama and Nobre, 2003).

Current plans for infrastructure expansion and integration could reduce forest cover
from 5.4 million km2 (2001, 87% of original area) to 3.2 million km2 (53%) by 2050
(Soares et al., 2006). A recent analysis that ran this deforestation scenario in a
regional climate model (RCM) indicated that wet season rainfall would decrease
significantly in western Amazonia due to reduced rainfall recycling, with a stronger
effect in El Niño years (Da Silva et al., 2008). It has been speculated that El Niños

10
In convection, surface heating causes warm air to rise up from the land surface and carry moisture
from nearby forest upwards to form clouds.

16
will increase in frequency, intensity and duration under global warming, although
there is considerable uncertainty.

Figure 8. Schematic representation of the hydrological impact of different extents of clearing (in dark
grey) in Amazonia. Trade winds bring moist air from the Atlantic Ocean and in the case of (a) no
deforestation, this flow of moist air is sustained by rainfall recycling. Areas of (b) local deforestation
are too small to affect rainfall, but runoff increases and transpiration decreases. Areas of (c) regional
deforestation are large enough to influence circulation, strengthening convection and potentially
increasing rainfall. A (d) basin-wide deforestation scenario would impose a severe decline on
transpiration and then on rainfall recycling, weakening the hydrological cycle in Amazonia as a whole.
From D’Almeida et al. (2007).

There is evidence to suggest that an intact Amazon would be resistant to some initial
climate warming, since tree roots are able to tap deep soil water during droughts
(Saleska et al., 2007) and increases in transpiration will help cool the surface through
evaporation, thereby countering the warming trend (Feddema et al., 2005). However,
climate models agree that, even without including the effects of deforestation, there is
a high probability of substantial rainfall decline (> 20%) in eastern Amazonia (Fig. 9).
In addition, increasing atmospheric CO2 levels will increase the flow of CO2 through
stomates. Therefore, leaves will be able to absorb CO2 even with partially closed
stomates, but as a consequence less water vapour will escape, thus enabling plants to
retain more water. Such a decline in transpiration could result in a reduction in
Amazonian rainfall of up to 20% (Cox et al., 2004). This will also have the effect of
reducing evaporative cooling of the forest, raising the temperature further.

Reductions in rainfall are troubling because the diversity of plant species in tropical
forests is strongly correlated with rainfall and, in turn, the diversity of animal species
tends to be linked to that of plants.

The possible synergy between enhanced drought, reduced transpiration, fire leakage
from land clearance activities and increased fire risk due to forest degradation could
send the Amazon into a vicious destructive cycle – accelerating carbon emissions
from forest loss (Cochrane et al., 1999;Laurance and Williamson, 2001;Aragao et al.,
2008) and changing the species composition of the rainforest.

17
 Dec-Feb – dry season in north Jun-Aug – dry season in central
and southern Amazonia

Figure 9. A metric of the probability of enhanced drought in Amazonia: the proportion of 23 climate
models that project a decline in precipitation for 2090 under mid-range (A1B) global greenhouse gas
emissions scenarios of the IPCC. From Malhi et al. (2008). Inset maps of observed average
precipitation for January (left) and July (right) (Legates and Willmott, 1990).

The Amazon provides moisture to the economic heart of South America

KEY MESSAGE: The most important region receiving the Amazon´s moisture is the
La Plata Basin, over the Parana, Paraguay and Uruguay River basins. Amazonian
deforestation could reduce the transport of moisture to this part of southern Latin
America.

The Amazon is one of the major ‘engines’ of the global atmospheric and hydrological
circulation, and changes in the hydrological regime of Amazonia may change rainfall
patterns far ‘downstream’ in mid-latitude regions of North America and Eurasia (see
references in Maslin et al., 2005).

At a regional level, water vapour from Amazonia falls as rainfall across Brazil as well
as in neighbouring countries such as Argentina (Salati and Vose, 1984;Eagleson
1986). The process begins by trade winds taking moisture from the Atlantic Ocean to
the Amazon, producing rain (Fig. 10). The Amazon then recycles the water back into
the air currents. When the east-west air current hits the Andes Mountains it turns
south and east, forming an air current called the South American Low-Level Jet
(SALLJ), which flows to the east of the Andes year-round. The SALLJ supplies the
warm, moist tropical air that fuels the mesoscale convective systems (MCS)11 that
generate rainfall in the Rio de la Plata river basin, a vast subtropical plain (Fig. 11).
SALLJ is thus a key feature of the continent’s climate, transporting considerable
moisture from the Amazon to the Plata Basin (Vera et al., 2006). A reduction in water
recycling due to Amazonian deforestation would therefore reduce rainfall in the Plata
Basin.

11
A mesoscale convective system (MCS) is a complex of thunderstorms, which becomes organised on
a scale larger than the individual thunderstorms, and normally persists for several hours or more.

18
Figure 10. Schematic diagram of the moisture transport over South America. Blue and green arrows
depict the moisture transport into the continent from the tropical and South Atlantic Ocean,
respectively. ET = evapotranspiration from the Amazon, MCS = mesoscale convective system. The
inset represents the flow of air from the Atlantic across the Amazon basin. Sources: Vera et al 2006
(originally Marengo et al., 2004), inset: Koren et al. (2004).

Figure 11. Annual average rainfall (mm) in La Plata Basin 1979-2000. From Caffera (2006).
Approximately 70% of this rainfall has been supplied by the transpiration service of the Amazon.

19
The potential costs of a reduced transpiration service and reduced
rainfall

KEY MESSAGE: Reduced rainfall in the Plata Basin will impact agriculture, industry
and hydro-electricity responsible for 70% of the GNP of five Latin American nations.

The major economic region of Latin America depends to an as yet unknown extent on
rainfall from the Amazon. Changes in rainfall resulting from declines in Amazonian
forest cover will need to be considered in addition to changes resulting from global
climate change. Available evidence suggests that hydroelectric power generation in
the Plata Basin may be negatively affected by both a reduced transpiration service and
global climate change, however, the two effects could be difficult to separate.

The Plata Basin drains a region similar in size to the Mississippi River. According to
Vera et al. (2006), it is similar to the better-known Amazon River system in terms of
its biological and habitat diversity, and far exceeds that system in its economic
importance to southern and central South America in terms of hydroelectricity and
food production. The basin covers parts of five countries: Argentina, Bolivia, Brazil,
Paraguay, and Uruguay; about 70% of the total GNP of the five countries combined
(~$1.5 trillion in 2004) is produced within the basin, which is also inhabited by about
50% (>200 million people) of their combined population. Numerous hydroelectric
plants provide 3/4 of the region’s energy, while agriculture and livestock are among
the region’s most important resources (Vera et al., 2006).

The Plata Basin is Brazil’s most productive agricultural region (Volpi, 2007).
Agriculture contributes 14% of Brazilian GDP, accounts for 25% of its exports and
employs 27% of the national labour force (Moran et al., 2007). In 2007, Brazil
generated $58 billion in agribusiness exports, of which $13 billion was soya and $12
billion was beef. Silviculture (tree plantations) is also important in this region.

According to Fearnside (2005), water vapour supply to the Plata Basin has different
magnitudes and differing importance depending on the season. During the dry-to-wet
transition period (September-October) in southwest Amazonia, water vapour supply is
particularly important to avoid a lengthening of the dry season in São Paulo.
Hydroelectric generation capacity, on the other hand, is particularly dependent on rain
in the austral summer (December-February), corresponding to the rainy season in
southwest Amazonia when the difference between the hydrological behaviour of
forested and deforested areas is least. According to preliminary estimates, roughly
70% of the rainfall in the state of São Paulo comes from Amazonian water vapour
during this period (Fearnside, 2005). Regional climate modelling suggests that
deforestation could reduce wet season rainfall in the western Amazon (da Silva et al.
2008) and thereby potentially reduce onward moisture transport to São Paulo. Recent
examples, given below, of the effects of anomalous weather conditions and
projections of future impacts of climate change illustrate the sensitivity of the region
to changes in rainfall. However, without specific modelling of the effects of
deforestation on moisture transport, it is difficult to draw any firm conclusions.

20
Agriculture

It is unclear as to how deforestation-related declines in rainfall will affect agriculture,

since global climate change will also affect rainfall patterns. Travasso et al. (2006)
reported that, in South Brazil, Uruguay and Argentina, the negative impacts of future
climate change on maize and soybean production could be offset by changing
planting dates and adding supplementary irrigation. A global study (which includes
case studies of northern Argentina and south-eastern Brazil) concluded that in
northern Argentina occasional problems in water supply for agriculture under the
current climate may be exacerbated by climate change, and may require timely
improvements in crop cultivars, irrigation and drainage technology, and water
management. Conversely, in south-eastern Brazil, future water supply for agriculture
is likely to be plentiful (Rosenzweig et al. 2004, cited in Magrin et al. 2007).

Drinking water

In 2003 both Rio de Janeiro and São Paulo were within 15 days of lacking drinking
water – if the beginning of the rainy season had been delayed by two weeks, serious
social consequences would have resulted (Fearnside, 2006). During this period, water
rationing in Greater São Paolo affected 440,000 inhabitants. The Pedro Beicht dam,
the only one in the system, was providing less than 1/10 of its required flow due to the
lowest volume (7.6%) since its creation in 1916 (Chamorro, 2006).

Hydroelectricity

Water supply is normally sufficient across most of the Plata Basin, but it can fall
below required levels in the headwaters of rivers with large urban populations, such
as São Paolo, Curitiba and Campo Grande in Brazil. From December to February
(austral summer) hydroelectric reservoirs fill during a critical few weeks of the rainy
season. If these rains fail, the reservoirs do not fill. Power installations in the Plata
Basin in 2000 were generating 97,800 MW, with 76% from hydropower. The
installed power was only 1.34 times higher than the maximum demand, jeopardizing
the supply in the case of long droughts (Chamorro, 2006).

In 2001, rainfall deficits during summer and fall resulted in a significant reduction in
riverflow throughout Northeast, Central-West and Southeast Brazil. At the same time,
southern Brazil experienced above-normal rainfall and occasional flooding
(Cavalcanti and Kousky, 2001). The entire non-Amazonian portion of Brazil suffered
blackouts and electricity rationing (the “Apagão”) due to lack of water in reservoirs,
which contributed to a GDP reduction of 1.5% (Magrin et al., 2007).

During dry periods when reservoir volumes are depleted, natural gas power plants are
often activated to guarantee minimum energy supplies. The Brazilian
thermoelectricity sector is highly dependent on imports of Bolivian natural gas. In
other words, the back-up generation options have a significant economic cost (Moran
et al., 2007). To alleviate this problem, at least 19 major (100-13,000 MW) dams are
planned in the Brazilian Amazon over the next 10-20 years, nearly all in forested

21
areas (Volpi, 2007). The resulting inundation of rainforest will lead to methane
emissions from rotting vegetation (De Lima et al., 1998), contributing to climate
change. The infrastructure required to maintain the dams will open up more of the
forest to immigration and consequent degradation (Volpi, 2007).

Climate models predict reductions in future rainfall in the Amazon and Pantanal
(Malhi et al. 2008; Fig. 9). In contrast, rainfall has intensified in the Plata Basin over
the last 40 years, resulting in flooding in areas of human development (Berbery et al.,
2006). Although the transport of moisture from the Amazon may decline, the pattern
of increasing rainfall extremes is projected to continue in Brazil’s southern and
southeast regions and in parts of Argentina, as warmer sea surface temperatures in the
Atlantic result in greater evaporation and hence transport by winds from the ocean.
These rains, however, will be intense and concentrated into a few days, resulting in
increased surface runoff (Milly et al., 2005), and so will not be sufficient to fill water
reservoirs at hydroelectric power stations (Volpi, 2007).

Deforestation impacts in Africa and SE Asia

KEY MESSAGE: Africa’s rainforests are already fairly dry and so small reductions
in rainfall due to deforestation could have a significant impact. Southeast Asia tends
to be dominated by a maritime climate and so the effects of deforestation are harder to
predict.

There is far less information on the potential effects of deforestation on the water
cycle in Africa and SE Asia. However, the general principle of large-scale
deforestation tending to reduce the transpiration service should apply.

In Central Africa it is thought that deforestation would have a strong effect on local
rainfall because a large proportion of the rain is recycled (Cadet and Nnoli, 1987).
Africa’s tropical rainforest zone is the driest tropical rainforest region and some parts
have become drier since the 1960s (Malhi and Wright, 2004). According to Velarde et
al. (2005) some climate change studies predict an increase of annual average
temperature of +2.8-8C over tropical Africa and an associated rainfall increase of 4.2
mm/month. If the effects of deforestation are added to global warming, transpiration
reduction would occur by about 6 mm/month and total rainfall is also reduced in most
months by 10–20 mm/month (Zhang et al., 2001). The potential sensitivity of the
region to drying and the current trend highlights the importance of more intensive
research to understand potential future impacts.

Total SE Asian deforestation is predicted to reduce Asian rainfall throughout the year
(Werth and Avissar, 2005). In SE Asia, however, the Asian Monsoon circulation and
maritime rainfall regime could tend to override land cover change effects, maintaining
rainfall (Feddema et al., 2005). Such increased, more intense rainfall combined with
deforestation would result in greater flood risk for downstream populations (see the
next section on flood risk).

22
2.2. Flood control services

KEY MESSAGE: Deforestation increases the likelihood of flooding in developing

countries, which killed nearly 100,000 people and displaced 320 million others during
the 1990s, with total reported economic damages exceeding $1.1 trillion.

Using data collected from 1990 to 2000 from 56 developing countries, Bradshaw et
al. (2007) showed that flood frequency in developing countries is negatively
correlated with the amount of remaining natural forest and positively correlated with
natural forest area loss. During the decade investigated, nearly 100,000 people were
killed and 320 million people displaced by floods, with total reported economic
damages exceeding $1.1 trillion to these countries.

Laurance (2007) states: “Forests are thought to reduce flooding by acting as sponges –
that is, they trap water during heavy rainfall, then release it slowly into streams, which
lessens the severity of floods and maintains stream flows during dry periods. Forests
also increase the permeability of the soil and emit water vapour into the atmosphere
through evaporation and transpiration, further reducing the run-off of rainwater. For
these reasons, a nation such as Costa Rica, which places high value on natural-
ecosystem services, and those such as China, India, Nepal and Bangladesh, which
have been plagued by devastating floods, have invested heavily in forest protection or
reforestation.”

However, not all local studies have pointed to deforestation as a key driver of floods,
implying that broad-scale patterns are not always mimicked at finer scales, and vice
versa (see references in Bradshaw et al. 2007). Despite a suite of complex and
confounding relationships between potential drivers of flood risk, Bradshaw’s models
explained over 65% of the variation in the flood frequency data. Associations between
forest cover and the damage caused by floods were weak but still evident. Statistical
simulations suggested that arbitrarily removing a tenth of the remaining native forest
would increase the frequency of floods by 4–28%, and lengthen their duration by 4–
8%.

Bradshaw and colleagues, however, excluded floods driven by extreme events, such
as cyclones and typhoons, which they suggest can cause flooding “independently of
landscape characteristics” such as forest cover. Their rationale is that massive storms
can dump vast amounts of rainfall in just a few days. Even if upstream forests were
intact, almost nothing could prevent downstream lowland areas from flooding
(Laurance, 2007). Their models could also not incorporate the increasing trend for
people in land-restricted areas to develop and settle in floodplains (FAO & CIFOR,
2005).

FAO/CIFOR (2005) argue that for extreme events, investments would be better aimed
at other measures than forest protection/reforestation, such as discouraging human
settlement in flood plains, which can be devastated by flooding during monsoons
(Laurance, 2007).

23
2.3. Fires resulting from encroachment on rainforests

KEY MESSAGE: The rainforest fires of 1997 and 1998 affected health, timber, non-
timber forest products, agriculture, industry and tourism, and increased CO2
emissions, costing $4.5-6.3 billion in SE Asia and up to $9.5 billion in the Amazon.

Fire is a naturally very rare event in rainforests, only occurring after prolonged
drought followed by lightning. Rainforest species are therefore not adapted to fires
and can be seriously damaged by them. Fire is often used as a tool to clear land for
agriculture (once valuable timber has been extracted), a process termed ‘slash and
burn’. Growing use of fire, increasing levels of ignition sources from poor logging
techniques and more severe droughts have caused fire to become a major factor in
deforestation – with large economic impacts.

South East Asian fires

In 1997 and 1998, during a drought caused by an El Niño-Southern Oscillation

(ENSO) period, fires ravaged about 6 million hectares of Indonesia’s rainforests and
peatlands, emitting trans-boundary smoke pollution that affected a significant portion
of SE Asia (Vayda, 2006).

The following extract is from Tacconi and Vayda (2006). “The main contributors to
the smoke-haze pollution that affected Singapore and mainland Malaysia, as well as
Sumatra itself were fires in Sumatra’s Jambi, Riau, and South Sumatra provinces.
These were mainly due to land clearing for oil palm and timber plantations and, in the
South Sumatran wetlands, also due, to a yet unclear degree, to livelihood activities. In
non-ENSO years, land clearing for plantations on peatlands appears to be the main
source of smoke-haze. In 1997, peatland fires in the area of the government-initiated
One Million Hectare Rice Project (“Mega-Rice Project”) in Central Kalimantan
apparently were the main source of smoke haze in Kalimantan and also affected
Sarawak state, Malaysia (Fig. 12). In West Kalimantan in 1997, extensive burning,
probably for land clearing in oil palm and timber plantations in peat areas as well as
for local livelihood activities, contributed to smoke-haze pollution in West
Kalimantan and Sarawak. In January–April 1998, both the fires in the Central
Mahakam Lakes area (East Kalimantan province), apparently for clearing vegetation
to facilitate resource exploitation, and the large-scale fires in other parts of East
Kalimantan contributed to smoke-haze pollution in the province.”

The largely deliberate burning of forests and peat in 1997 released up to 40% as much
CO2 as a typical year’s global emissions from burning fossil fuels (Page et al., 2002)
and affected around 70 million people (Glover and Jessup, 1999). Some 12 million
required health care due to the smoke. Overall economic costs, through lost timber
and non-timber forest products, lost agriculture, reduced health, increased CO2
emissions, lost industrial production, and lost tourism revenues, have been estimated
to run to $4.5-6.3 billion (Glover and Jessup, 1999;Tacconi, 2003;Balmford and
Bond, 2005).

24
 ENSO

Figure 12. The Indonesian fires during the 1997-98 El Niño-Southern Oscillation (ENSO) event
resulted in an estimated 12 million cases of smoke-related illness. The graph represents variation in
rainfall and fires between 1997 and 2005. Blue lines on the graph are from two different estimates of
monthly rainfall, red bars represent the area of land burned. Graph for Kalimantan Province, Indonesia
from Spessa et al. (Submitted).

The region has not seen a recurrence of fires and haze on the scale of 1997–98 (Fig.
12). According to Glover (2006) “this is in large part due to favourable climate
conditions. Without the very dry conditions created by the El Niño climatic
disturbance, the conditions for massive spread of fire have not been present. But the
deliberate setting of fires to clear land for agriculture continues, and when conditions
are right, smoke haze and its spread to neighbouring countries have been the result.
Parts of peninsular Malaysia were severely affected by smoke blowing in from
Indonesia in September 2005. Schools and businesses were closed, and people
complained of health problems. Furthermore, new research shows that the
consequences of recurring fires may be more serious than originally realized, and the
costs of preventing them even lower. One study shows that the 1997–98 haze may
have resulted not only in short-term health costs but in large increases in infant
mortality in Indonesia. Meanwhile, World Wide Fund for Nature (WWF) research has
shown the cost of preventive measures, such as clearing land for agriculture without
burning, to be modest (Wakker, 1998).”

25
Amazonian fires

Fire is also used as a land-clearing and preparation tool for agriculture in the Amazon.
During the 1997-98 El Niño period, such fires got out of control and destroyed about
4 million hectares of rainforest (de Mendonca et al., 2004), as well affecting large
areas of savanna and pasture (Fig. 13).

The total cost of the fires in 1998 was estimated at between $0.16 and 9.5 billion, with
the major source of costs and uncertainty being the amount of CO2 emitted from
burning forests (de Mendonca et al., 2004). Health costs resulting from smoke-
inhalation totalled between $3 and $10 million in that year.

Figure 13. Lower panel: a satellite image of Brazilian Legal Amazonia with focus of heat in the 1998
burning season (http://www.ibama.gov.br). Upper panel: map of Brazil with State divisions. In grey are
the four states where deforestation is most intense. Source: Ometto et al. (2005).

2.4. Diseases resulting from encroachment on rainforests

KEY MESSAGE: Human encroachment on tropical rainforests generally increases

population sizes of hosts and vectors of disease and brings people into greater contact
with them.

There is growing awareness of the links between wild nature and human health
(Balmford and Bond, 2005). Besides disruptions to the provision of healthy drinking
water, the diverse concerns include the decreasing availability (as a result of habitat
loss and overexploitation) of wild-harvested medicines; the loss of species that may
contain as yet undiscovered drugs; the apparently negative effects of reduced contact
with nature on people’s mental and physical health and recovery from illness;
increases in population sizes of reservoir and vector species and in people’s exposure
to them, through a combination of reductions in predator numbers and habitat
fragmentation; and increased exposure to novel diseases because of greatly increased

26
trade in wildlife (Balmford and Bond, 2005). In this section we focus on the latter
concerns.

In a recent survey of emerging infectious diseases, Jones et al. (2008) showed that of
the emerging diseases that have leapt from animals to humans, such as HIV, 72%
came from wildlife as opposed to domesticated animals. Recent examples include
Nipah virus in Malaysia, and the infamous SARS outbreak in Guangdong, China,
which practically shut down international travel in Southeast Asia in 2002. Jones et
al. (2008) conclude that efforts to conserve areas rich in wildlife diversity (e.g.
tropical rainforests) by reducing human activity may have added value in reducing the
likelihood of future diseases jumping from wildlife to humans (Fig. 14).

Figure 14. Global distribution of relative risk of an emerging infectious disease event. Maps are
derived for events caused by (a) pathogens jumping from wildlife to humans, and (d) vector-borne
pathogens, such as malaria. From Jones et al. (2008)

Deforestation and malaria

An estimated 700,000 to 2.7 million people die of malaria each year, and 75% of
those are African children (www.cdc.gov malaria). Broadly speaking, deforestation
increases malaria risk in Africa and the Americas and diminishes it in Southeast Asia
and the Western Pacific (see review by Guerra et al., 2006). In the latter regions, high
population densities in or near areas of malarious closed forest expose large numbers
of people to malarial parasites transmitted by highly efficient forest vectors. Hence,
forest clearance tends to reduce malaria risk.

Mechanisms linking deforestation and agricultural development with mosquito

ecology and malaria epidemiology are extremely complex. The impacts of
deforestation on mosquito density and malaria incidence are influenced by both the
nature of the agricultural development and the ecological characteristics of the local
vector mosquitoes. In a recent review of the literature, Yasuoka and Levins (2007)
showed that some Anopheline mosquito species were directly affected by
deforestation and/or subsequent agricultural development, some favored or could
adapt to the different environmental conditions that were created, and some invaded
and/or replaced other species in the process of development and cultivation.

Deforestation changes the local climate and hydrology, which affects mosquitoes, but
perhaps more important are social processes facilitated by roads such as migration,
creation of new communities, and increased density of existing communities, that can
affect pathogen transmission.

27
Various studies have examined the impact of road construction on disease incidence.
For example, the building of the Trans-Amazon Highway was associated with an
increase in malaria. These increases in incidence were attributed to the presence of
water pools created by road construction practices. More recently, a study in the
Peruvian Amazon indicated that mosquito biting rates are significantly higher in areas
that have undergone deforestation and development associated with road
development. The construction of a new road in a previously roadless area of northern
coastal Ecuador increased the local prevalence of water-borne diseases such as
Giardia (Eisenberg et al., 2006).

28
Part 3 – Local rainforest ecosystem services

In this section we briefly consider more localised ecosystem services, which tend to
be of more direct use to people and so have been the focus of a large body of
literature. Much of the information in this section is taken from Pearce and Pearce
(2001).

3.1. Non-Timber Forests Products (NTFPs)

KEY MESSAGE: Many NTFPs do not enter markets but represent a ‘natural subsidy’
to livelihoods and food security, helping people cope with stresses such as crop
failures. Some, however, generate large revenues when marketed. For instance, the
international trade in NTFPs such as Brazil nuts and rattan is worth $7.5–9 billion per
year, with another estimated $108 billion in processed medicines and medicinal
plants.

The very fact that NTFPs are defined by what they are ‘not’ is indicative of the wide
range of potential products they encompass (Belcher, 2003). A great number of
NTFPs are of importance to people in virtually every forest ecosystem and elsewhere.
These products contribute directly to the livelihoods of an estimated 400 million
people worldwide and indirectly to those of more than a billion (World Bank, 2004).
They include foods, fibres (Box 2), medicinal products, dyes, minerals, latex, and
ornamentals among others. NTFPs can be used directly in consumption or sold to fill
cash gaps.

Box 2. Rattan

Rattan is a scaly, fruited climbing palm that needs tall trees for support. There are around 600 different
species of rattan, of which 20% are of any commercial value. The most important product of rattan
palms is cane from the stem stripped of leaf sheaths. The range of indigenous uses of rattan canes is
vast—from bridges to baskets, fish traps to furniture, crossbow strings to yam ties.

Rattans are almost exclusively harvested from the wild tropical forests of South and Southeast Asia,
parts of the South Pacific (particularly Papua New Guinea), and West Africa. Much of the world’s stock
of rattan grows in over 5 million hectares of forest in Indonesia. Other Southeast Asian countries, such
as the Philippines and Laos, have less rattan but have been relatively self-sufficient due to the
appropriate size of their processing sector.

In the last 20 years, the international trade in rattan has undergone rapid expansion. The trade is
dominated by Southeast Asia, and by the late 1980s the combined annual value of exports of Indonesia,
Philippines, Thailand, and Malaysia had risen to almost $400 million, with Indonesia accounting for
50% of this trade. Worldwide, over 700 million people trade in or use rattan. Domestic trade and
subsistence use of rattan are estimated to be worth $2.5 billion per year. Global exports of rattan
generate another $4 billion.

Indonesia has a clear advantage over other countries, with its overwhelming supply of wild and
cultivated rattan (80% of the world’s raw material), and rattan contributes about $300 million to
Indonesia’s foreign exchange and is an important vehicle for rural development. It also raises the value
of standing forests, as rattan is the most valuable of the non-wood forest products in the country,
earning 90% of total export earnings from such products.
Sampson et al. (2005)

29
The total value of international trade in NTFPs is $7.5–9 billion per year, with another
estimated $108 billion in processed medicines and medicinal plants (Simula, 1999).
Domestic markets for NTFPs are many times larger (e.g. domestic consumption
accounted for 94% of the global output of fresh tropical fruits in 1995-2000).
Although caution must be exercised in drawing conclusions from local studies, NTFP
net values cluster around a few dollars per hectare per annum up to around $100.
However, since there is no way to know at this time how much total area of tropical
forests receives financial benefits from these markets (Scherr et al., 2004), it would be
a serious error to extrapolate these benchmark values to all forest (Pearce and Pearce,
2001). Typically, the higher values relate to readily accessible forest and values for
non-accessible forest would be close to zero in net terms due to the costs of access
and extraction (Pearce and Pearce, 2001).

While such values on their own will not ‘compete’ with many land conversion values,
the importance of NTFPs lies more in the role they play in supporting local
community incomes (Pearce and Pearce, 2001). Vedeld and others (2007) conducted a
meta-review of 54 case studies that measured income from forest products. The
studies are not a representative sample, so their data are merely indicative. Forest
income (averaging $678 a year, adjusted for purchasing power parity) accounted for
about a fifth of household income in the sample – a significant contribution,
particularly for families near the survival line. Wild food and fuelwood were the most
important products, accounting for 70 percent of forest income (although some
products, such as fodder, were probably underreported in the sample). In developing
countries, agricultural crops face many risks and NTFP extraction can provide
insurance against unexpected losses, such as price shocks, seasonal flooding,
unpredictable soil quality, pests, crop diseases, or illnesses (Delacote, 2007). Hence,
NTFPs can play an important role in reducing communities’ vulnerability to climate
change.

Belcher and Schreckenberg (2007) concluded that, “In general, NTFP

commercialisation is less likely to be successful primarily as a means of achieving
conservation. However, it remains a useful means of contributing to improved
livelihoods, particularly of the marginalised forest-dependent poor.”

3.2. Fuelwood

KEY MESSAGE: Most of the wood consumed in tropical regions goes to make
fuelwood or charcoal.

Although they account for less than 7% of world energy use, fuelwood and charcoal
provide 40% of energy used in Africa and 10% of energy used in Latin America, and
80% of the wood used in tropical regions goes to fuelwood and charcoal. In Africa,
90% of wood use goes to fuelwood and charcoal, the highest of any region in the
world. Fuelwood is often produced and consumed largely outside the market system,
in subsistence societies, and its value to human well-being is therefore not captured in
unadjusted national economic statistics, such as GDP (Sampson et al., 2005).

30
3.3. Watershed regulation

KEY MESSAGE: Tropical forests regulate the flow of water, maintain clean water
supplies and prevent build-up of sediments and silt, with potentially very large
economic value. Increasing our understanding of watershed services and developing
appropriate payments for populations that maintain watershed forests are key
challenges.

Numerous studies have investigated the role of forests in watershed regulation.

Functions include soil conservation – and hence control of siltation and
sedimentation, water flow regulation – including flood and storm protection, water
supply, water quality regulation – including nutrient outflow (Pearce and Pearce,
2001).

Supplies of clean water are important in terms of health and sanitation: one study in
Indonesia found a correlation between the degree of watershed forest protection – and
hence stream flow – and the incidence of water-borne diseases (Pattanayak and
Wendland, 2007).

In Madagascar, an assessment by international and Malagasy economists concluded

that continued upland deforestation by an estimated 50,000 slash-and-burn farmers
lead to increased siltation and reduced water flows to > 2.5 million downstream rice
farmers (Carret and Denis Loyer, 2003). Comparing the total costs of conservation
with a conservative estimate of its economic benefits (focusing on hydrological,
tourism and existence values), the report’s authors concluded that expanding current
conservation efforts made sound economic sense. These findings are believed to have
played a pivotal role in the Malagasy government’s 2003 decision to triple the size of
Madagascar’s network of protected forests (Balmford and Bond, 2005).

Watershed protection values appear to be small (a few dollars) when expressed per
hectare but it is important to bear in mind that watershed areas may be large, so that a
small unit value is being aggregated across a large area. Secondly, such protective
functions have a ‘public good’ characteristic since the benefits accruing to any one
householder or farmer also accrue to all others in the protected area. Third, the few
studies available tend to focus on single attributes of the protective function: nutrient
loss, flood prevention, etc. Fourth, fisheries protection values could be substantial in
locations where there is a significant in-shore fisheries industry (Pearce and Pearce,
2001).

Generating more knowledge on this forest ecosystem service, and developing

appropriate payment or compensation mechanisms between upstream watershed
service providers and the downstream beneficiaries, is a key challenge for the forestry
sector in the coming years (World Conservation Union, 2008).

3.4. Pollination of crops in neighbouring farms

Although forest wildlife can cause significant damage to neighbouring farms in

human-dominated tropical landscapes, they can also provide benefits. In Costa Rica,

31
forest-based bees pollinated neighbouring coffee plantations and increased coffee
yields by 20% within 1km of the forest edge. Pollination also improved coffee quality
near forest by reducing the frequency of deformed beans by 27%, translating into
$60,000 per year for one farm. Policies that allow landowners to capture the value of
pollination and other services (e.g. certification schemes) could provide powerful
incentives for forest conservation in some of the most biodiverse and threatened
regions of the tropics (Ricketts et al., 2004).

3.5. Tourism (recreation)

Some ecotourism sites attract enormous numbers of visitors and consequently have
very high per hectare values. Again, it is difficult to suggest representative valuations
since values clearly vary with location and the nature of the attractions. According to
Balmford and Bond (2005): “On the one hand, tourism is currently the world’s fastest
growing industry, with nature-based tourism considered its fastest-growing sector.
Across southern Africa, nature-based tourism has recently been estimated to generate
roughly the same revenue as agriculture, fisheries and forestry combined, and to be
growing much more rapidly. On the other hand, scope for nature-based tourism in
more remote areas with less charismatic species or scenery is likely to be much more
limited. Moreover, the economic benefits of nature-based tourism accrue mostly at
national or international rather than local scales, and are highly sensitive to periods of
political instability.”

3.6. Timber

KEY MESSAGE: The total value of tropical timber exports is $8 billion, which is a
small fraction of total exports of products derived from tropical wood. In some
countries, the illegal logging industry is larger than the legal one, reducing the
benefits derived by the national population from their forest resources.

The total value of tropical timber exports is $8 billion (including only logs,
sawnwood, veneer and plywood), which in turn is a small fraction of the total wood
exports and domestic timber, pulpwood and fuelwood markets in tropical countries
(Scherr et al., 2004).

The following is primarily taken from Sampson et al. (2005). Illegal logging is a
significant factor that skews timber markets and trade, particularly in tropical forest
regions and countries with weak or transitional governments. It is estimated that up to
15% of global timber trade involves illegal activities, and the annual economic toll is
around $10 billion. Addressing this problem will require a major effort by both
governments and private industry. Curry et al. (2001) conclude that ‘illegal logging is
rife in all the major tropical timber producing countries,’ citing studies showing that
70% of log production in Indonesia (50 million cubic meters per year) is derived from
illegal sources, costing the economy $4 billion annually (EIA and Telepak, 2007);
80% of logging in the Brazilian Amazon during 1998 was illegal, and half of all
timber in Cameroon is sourced through illegal logging (WRI, 2000b). Weak or poorly
enforced legislation has been ineffective in protecting forests from illegal logging (for
example, in the Congo basin) (Global Witness, 2002).

32
3.7. Biodiversity

Given that rainforests hold more than half of the terrestrial species on Earth, some of
these could have widespread economic or medicinal uses that are still unknown to us.
The conservation of these valuable genetic resources for future options that are yet
undiscovered is thus a valuable service (termed ‘option value’) that forests provide to
us and to future generations (World Conservation Union, 2008).

33
Part 4 – Rainforest valuation case studies

KEY MESSAGE: A survey of the literature on the economic value of rainforests

yielded a selection of reliable case studies that illustrated that the value of non-
marketed services such as NTFPs, watershed protection and carbon sequestration
were greater than the marketed benefits of deforestation. Therefore, deforestation
does not benefit society as a whole.

While the ultimate goal is to evaluate, and hence generate payments for, all tropical
rainforests, it is important to first consider examples of economic valuations at local
scales. It is dangerous to extrapolate values from such studies to wider areas without a
thorough understanding of the factors governing the values present at the local level.
Furthermore, it is important to remember that ecosystems like rainforests can yield
substantial (albeit rather different) flows of goods and services after, as well as
before, conversion by humans (which is of course why people convert them)
(Balmford et al., 2002). We can gain a picture of the value of retaining rainforests in
relatively undisturbed condition by estimating the difference in benefit flows (goods
and services) between relatively intact and converted rainforests.

We screened more than 50 studies on the value of rainforests by various criteria in

order to produce a set of ten reliable studies which indicate the total economic value
(TEV) associated with conservation versus deforestation (or unsustainable use) of
rainforests (see the Annex). The most important selection criterion for retaining a
study in the dataset was that present values were presented. Studies vary in terms of
whether they are a one-off evaluation of returns for an area under different uses (i.e.
sustainable use versus some less sustainable alternative) or figures on present value
resource flows are derived. Present value (i.e. having used some discounting) suggests
that a study has been undertaken with data on multiple (normally) successive years of
use (e.g. harvests or recreational visitation). Hopefully these studies have considered
the sustainability of any extraction over successive periods. They avoid the potential
pitfalls of earlier ‘snapshot’ studies that derived high per hectare values from
excessive harvesting in one year or abnormal over-estimates for the specific one year
of the study in question. Some over-estimates could occur simply because abundant
harvest can happen in cycles. In the present value studies, differing discount rates
have been used and this essentially reflects differing time preference rates in the
relevant countries, we have not attempted to put rates on any comparable basis.

Within studies, various value categories have been identified for differing forest uses
– i.e. direct, indirect and non-use. It is prudent to base values on more tangible uses
(direct and indirect uses) rather than non-use value. Although the latter may be high,
there is some dispute about how to use non-use values as an evidence base.

However, when considering use value categories, one must be careful to avoid double
counting values where these values are clearly mutually exclusive on the same hectare
of forest (e.g. recreation and reduced impact logging). This is not always clear in the
way valuation studies are presented. In comparing forest values to any opportunity
cost then, we must choose the likely combinations of values that represent the
“conservation” use.

34
Unless otherwise stated, all values in this section have been transformed to 2007 US$
prices using a GDP deflator index from the U.S. Bureau of Economic Analysis, but
retaining the discount rates considered by the authors.

Six of the ten selected examples of the valuation of rainforests are illustrated in Figure
15. In the bar charts, the benefits derived by the land user are shown in green, benefits
to downstream populations are in blue, and benefits accruing to the global community
are shown in yellow. Where space allowed, we have also indicated the nature of the
benefits, e.g. timber, carbon, water. Fuller information is provided in the tables
presented in the Annexes. Below, we consider each rainforest region in turn.

4.1. Latin America

Torras (2000) estimated the total economic value of a ‘representative’ hectare of the
Amazon (Fig. 15a). As such, it is presented here as an illustration rather than a case
study of a particular study site. A number of assumptions were made in order to arrive
at this estimate, including seemingly high values for timber and non-timber forest
products. Nor did Torras provide estimates of the indirect services provided by
converted land, e.g. carbon storage or watershed protection. Nevertheless, if the
demonstrated values of standing rainforests were captured (i.e. monetised), the
rainforest would be worth roughly double the price of the land on the agricultural
market (Chomitz, 2006).

Naidoo and colleagues (2006) considered a rainforest reserve in Paraguay, south of

the Amazon (Fig. 15b). In this case, they used a high discount rate (20%) compared
with the other studies. Hence, the estimated values are much lower than those given in
other studies. Private benefits favour conversion of the rainforest to agriculture.
Naidoo and colleagues did not present information on the social benefits to regional
and global populations derived from converted land. However, assuming these are
relatively low, the total economic value (TEV) would be greater under sustainable use
of the forest.

4.2. South East Asia

Kumari (1995) compared revenues obtained from timber plus a suite of NTFPs, as
well as other values such as recreation and the maintenance of carbon stocks for a
range of management regimes in a peat swamp forest in Selangor, Malaysia. Here we
consider a comparison between conventional (unsustainable) logging and reduced-
impact logging (Fig. 15c). Unsustainable logging was associated with greater private
benefits to the land user through timber harvesting (at least at a relatively high
discount rate and over one harvesting cycle), but reduced regional and global benefits
(through loss of NTFPs, flood protection, carbon stocks, and endangered species).
Summed together, the total economic value (TEV) of forest was about 14% greater
when placed under more sustainable management (Balmford et al., 2002). However,
it is unclear to what extent Kumari considered the long-term effects of drainage of
peat swamps on carbon emissions. Conventional logging would tend to open up the
canopy, drying the surface of the peat and resulting in emissions of carbon dioxide as

35
the peat decomposes. We suspect that such processes were not adequately accounted
for and so the global benefits accruing from carbon storage under conventional
logging may be overestimates.

Bann (1997) analysed the costs and benefits of conventional logging and sustainable
extractive activities in a richly forested province of northeast Cambodia (Fig. 15d). At
the time of the study, the area was under pressure from outside logging and palm oil
interests and the local population had little involvement in the land-use decision-
making process. Cash compensation to villagers for loss of their forest was typically
of the order of 1997 US$36 per hectare, while the potential value of NTFPs
approached 1997 US$4,000 per hectare under maximum sustainable harvesting. In
contrast, unsustainable logging had a value of the order of 1997 US$2000 per hectare.
The benefits associated with unsustainable uses of forestland would be gained by
outside businesses rather than the local population. Only 30% of households in the
region were estimated to have a family member engaged in the wage economy. Non-
timber forest products therefore provided an important natural mechanism (or ‘forest
subsidy’) for alleviating poverty without explicit government investments. In
addition, one forest product, the malva nut, had extremely high potential commercial
value. The inequity in the land-conversion process arose primarily because of the
weak bargaining position of indigenous people, which was exacerbated by their
economic vulnerability.

Van Beukering et al. (2003) considered a suite of benefits associated with the
conservation of the Leuser rainforest in Sumatra (Fig. 15e). The largest benefits of
rainforest conservation accrued to downstream populations through protection of
watersheds. The accumulated TEV for the rainforest over the 30-year period was
2003 US$7 billion under a ‘deforestation scenario’, 2003 US$9.5 billion under the
‘conservation scenario’ and 2003 US$9.1 billion under the ‘selective utilisation
scenario’. Compared with deforestation, conservation benefits all categories of
stakeholders – local communities, downstream populations and the global community
– except for the elite logging and plantation industry.

4.3. Africa

Yaron (2002) compared low-impact logging with more extreme land-use change on
Mount Cameroon, Cameroon (Fig. 15f). Private benefits favoured conversion to
small-scale agriculture. A second alternative to retaining the forest, conversion to oil
palm and rubber plantations, yielded negative private benefits once the effect of
market distortions was removed. Social benefits to the local, regional and global
communities were highest under sustainable forestry. The TEV of sustainable forestry
was 18% greater than that of small-scale farming (Balmford et al., 2002).

36
 (a) (b)

Carbon

Erosion
protection
Carbon
Water

NTFP

Land Timber
price
NTFP
Timber

(c) (d)

Carbon
Recreation
Water

Carbon

Erosion
NTFP
Biodiversity Water
Water
NTFP
Timber Timber

(e) (f)

Carbon
Flood
prevention
Carbon
Carbon

Water Timber
Carbon
Timber
Fire
prevention
Timber

NTFP
Timber

Figure 15. The benefits of retaining versus converting rainforests, expressed as net present value (NPV;
in 2007 US$/ha). Values of measured goods and services are plotted as green for private benefits to
land users, blue for regional or downstream populations, and yellow for benefits to the global
community. Note the vertical axes are not all to the same scale.

37
Conclusions

The few studies of the ‘total economic value’ of rainforests which could give reliable
information only considered a handful of all the services that rainforests provide,
omitting for example important services such as nutrient cycling, transpiration and
water recycling, and disease control. Part 2 of this report highlighted the importance
of these services to the global community. Future research will need to explore and
quantify these large-scale services further.

Despite the limited and variable data in the focal case studies, in all cases the loss of
non-marketed services outweighs the marketed marginal12 benefits of deforestation.
Excluding the Latin American case studies, which did not include an assessment of
the TEV of deforested land, conversion on average results in a loss of nearly half
(mean = 40%) the TEV of rainforest ecosystems. Clearly, some people derive benefits
from conversion of rainforests to other land uses (otherwise they would not do it).
However, more than a billion of the world’s poorest people depend on tropical forests
for their daily needs – eating, staying healthy, and finding shelter (World Bank,
2004). Although poorer nations gain benefits through international trade based upon
destruction of their forests, the number of people living in poverty has increased or
stayed the same during the past 25 years, and the gains of economic globalization
have been heavily skewed towards wealthy nations, who bear the least environmental
costs (Turner and Fisher, 2008). Therefore, continued deforestation does not make
sense from the perspectives of poverty alleviation or global economic and ecological
sustainability. Instead, meeting poor people’s basic needs through sustainable forest
management should be a global priority (Kaimowitz and Sheil, 2007).

The reasons for the continued conversion of natural ecosystems and the potential
solutions have been discussed by several authors. The following information is
taken from a wider discussion of the loss of ecosystem services by Balmford and
colleagues (2002).

In economic terms, our case studies illustrate three broad, interrelated reasons why we
are continuing to lose rainforests despite their overall benefits to society. First, there
are often failures of information. For many services, there is a lack of valuations of
their provision by natural systems like rainforests, and particularly of changes in this
provision as human impacts increase. Although this is an understandable reflection of
substantial technical difficulties, future work needs to compare delivery of multiple
services across a range of competing land uses if it is to better inform policy
decisions. Our examples show that even when only a few ecosystem services are
considered, their loss upon conversion typically outweighs any gains in marketed
benefits. On the other hand, much effort is currently being made to understand the
opportunity costs of reducing emissions from deforestation and degradation (REDD)
at local to global scales. There is therefore potential scope for greater awareness and
consideration of a more complete range of ecosystem goods and services (so-called
‘co-benefits’) within such opportunity cost analyses.

12
The marginal benefits equate to how much society would gain (or lose) if a little more (or less) of a
good were made available.

38
Second, these findings highlight the fundamental role of market failures in driving
deforestation. In the cases studies, the major benefits associated with retaining
rainforests more or less intact are non-marketed externalities, accruing to society at
local and global scales. Conversion generally makes narrow economic sense, because
such external benefits (or related external costs, such as the health impacts of smoke)
have very little impact on those standing to gain immediate private benefits from
land-use change. Hence, conserving relatively intact forests will often require
compensatory mechanisms to mitigate the impact of private, local benefits foregone
(opportunity costs), especially in developing countries. The development of market
instruments that capture at a private level the social and global values of relatively
undisturbed rainforests – for instance, through carbon or biodiversity credits or
through premium pricing for sustainably harvested timber – are a crucial step toward
sustainability. A further step is that appropriate transfer and implementation
mechanisms are designed so that payments are not captured by elites and the rural
poor retain access to forests.

Third, the private benefits of conversion are often exaggerated by intervention

failures. In the Cameroon study, for example, forests were cleared for plantations
because of private benefits arising from government tax incentives and subsidies.
While over the short term such perverse incentives may be rational with respect to
public or private policy objectives, over the longer term many result in both economic
inefficiency and the erosion of natural services. Globally, the subset of subsidies
which are both economically and ecologically perverse totals between $950 billion
and $1.95 trillion each year (depending on whether the hidden subsidies of external
costs are also factored in). Furthermore, there are few incentives to use the vast areas
of degraded land available but unused in many developing countries. Identifying and
then working to remove these market distortions would simultaneously reduce rates of
deforestation, free up public funds for investing in sustainable resource use, and save
money.

In conclusion, there is growing awareness of the need to adequately acknowledge and

measure the value of rainforest ecosystem goods and services, so that decisions
involving land use change are based on the true worth of rainforests, rather than on
the immediate tangible goods that they provide. This report has summarised the range
of services that rainforests provide the world. There is now an urgent need to continue
to evaluate large-scale services and develop appropriate mechanisms, market-based or
otherwise, that can generate income flows to communities or institutions protecting
forests and providing these services, so that there is a direct incentive for them to
continue doing so (World Conservation Union, 2008).

39