MSc programme Environment & Resource Management Vrije Universiteit, Faculteit der Aard- en Levenswetenschappen IVM / Institute for Environmental

Studies

Valuing CO2 sequestration as a mechanism to reduce deforestation

Essay for the course ‘Sustainability and Growth’ (468011) Chimed Jansen Student number 1438042 25 September 2008

Introduction
“The development of civilization and of industry in general has ever shown itself so active in the destruction of forests, that everything done by it for their preservation and production, compared to its destructive effect, appears infinitesimal.” (Marx 1909) At present forests are worth more felled than standing. This situation is having a devastating effect on the world’s forests. In 2005 about 13 million hectares of forest were lost due to deforestation, including 6 million hectares of primary forest. Of this 7.3 million hectares were not replaced by forest plantation, or reforestation of other areas. Which equates to almost 0.2% of all forested land and 0.4% of primary forest cleared in a single year (FAO 2006). The effects of deforestation are multifaceted. Primarily they lead to a change of habitat, conversion of tropical rain forest to palm oil plantation for example, leads to the loss of at least half the vertebrate species on the land (Fitzherbert, Struebig et al. 2008). Losses in flora and insect diversity are similar. This diversity forms a resilience to a changing environment, through the varying abilities of different species to survive. It also contains a rich resource in chemical diversity, both in smaller drug-like molecules and in larger macromolecules, of which less than 10% have been tested (Harvey 2000). Deforestation leads to knock on effects in soil richness and soil erosion. This can be seen in nutrient loss and reduced soil enzyme activity, resulting in lower levels of total soil nitrogen, alkaline phosphatases and organic carbon (An, Zheng et al.). Left unchecked these processes can lead to degradation of the soil beyond levels able to support agriculture. Finally, deforestation leads to the release of some of the 283 Gt of carbon stored in the biomass, often through fire, in the form of CO2 (FAO 2006). This release can be significant, it is estimated that forest fires in Indonesia in 1997 released carbon equivalent to 13-40% of the mean global carbon emissions from fossil fuels that year (Page, Siegert et al. 2002). The release of carbon from forest biomass makes deforestation a significant aggravating factor in global warming. Given the problems of deforestation, the question arises: How can forests be made to be more valuable when standing than when converted to timber and alternative forms of land? Despite the many services performed by forests, few are integrated in the global economy. One of the services which is gaining an economic value is CO2 sequestration. In this essay I will look at the extent to which this service could make forests worth more standing than felled.

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Putting a price on CO2 sequestration by forests
It is estimated that forests globally sequester around 120 Gt of carbon per year, equal to around 60 Gt after respiration, 10 Gt after decomposition and including the forest disturbances (including forest fires and deforestation) brings the total carbon sequestered annually by forests to 0.7 to 2 Gt (IGBP Terrestrial Carbon Working Group 1998) (Matthews, Payne et al. 2000). Simulation calculations place the figure for current sequestration by forrests between 1.5 and 3 Gt per year (Canadell and Raupach 2008). Taken together these figures give an mean value of 1.8 Gt carbon sequestered by forests per year.

Figure 1: This graph shows the added cost to the economy of employing various technologies to abate carbon release and their potential impact. Notice the cost of Carbon Capture and Storage, or CCS, for coal at around $35 and up to around $60 for high cost power sector abatement (Vattenvall). The original McKinsey cost curve places avoiding deforestation at the position of the dark bar to the left of the $40 mark (Enkvist, Nauclér et al. 2007).

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Current technology can capture and store CO2 at around $40 per tonne at coal fired power plants. Capture in this method is temporary and will have to be repeated after around 50 to 200 years which could lead to a vicious circle, see Figure 2 (Bode and Jung 2004).

Figure 3: This is a vicious circle which could potentially result from CCS systems (Bode and Jung 2004).

So assuming that forests sequester 1.8 Gt of carbon per year, if that function were performed by CCS, at a rate of $40 per ton, the cost would be $72 billion per year. This value could be brought into the economic sphere as the yearly cost of the services rendered by forests. This value is not increased by the temporary nature of CCS, because there are signs that carbon capture by forests may drop and even reverse under conditions of increased CO2 concentration (Shaw, Zavaleta et al. 2002), increased temperature (Arnone III, Verburg et al. 2008) and droughts (Canadell, Ciais et al. 2008). These are conditions expected to arise due to global warming, therefore forest carbon sequestration shares some of the long term insecurity associated with CCS. The CO2 sequestering effects of forests could be included in the coming global carbon trading scheme, whereby countries would be eligible to benefits equivalent to the value of their forest’s CO2 sequestering activity. This could lead to a more positive attitude towards the carbon trading scheme, particularly considering Russia, Canada, USA, China, and Australia make up 5 of the 6 countries with the largest areas of forest cover. These countries currently show moderate, or no, support for the implementation of the carbon trading scheme. Eventually distinctions could be made to redirect more of the funds for countries with tropical rain forests and more funds to primary forest as opposed to tree plantations. However initially applying a blanket rate would provide the cheapest implementation and perhaps the most international support.

Case study in Brazil
Brazil has the second largest amount of forest land in the world. Recently it has had significant economic success due to agriculture, a situation which was both brought on by, and lead to, deforestation. It is therefore of interest to know how including CO2 sequestration funding could alter the economics of the conversion land use.

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Table 1: This table describes the incomes achievable from soybean farming in Brazil and the proposed CO2 sequestration income for forests in Brazil.

Case Study of Brazil 2007/2008
Income from land through soybean farming 60.1 Millions of tons soybean produced 36.74 Bushels per ton 2208 Millions of bushels produced 8.5 Price paid per bushel to farmer in US dollars 18769 Total value of production in millions of US dollars 21.7 Millions of hectares of soybean plantations 865 Turnover per hectare in US dollars 30 Percent profit in US dollars 259 Income per hectare in US dollars References (Mello 2008)

(Melby 2008) (averaged) (Mello 2008) (Melby 2008) (averaged)

Income from land through proposed forest CO2 sequestration funds 478 Million hectares of Brazilian forest (FAO 2006) 3953 Total hectares of forest in world (FAO 2006) 12 Percent of total forest in Brazil 72 Total income from CO2 sequestration in billions of dollars 8.7 Income for brazil in billions of in US dollars 18 Income per hectare in US dollars From the results in Table 1, it is clear that the economic incentive provided by pure CO2 sequestration, is not sufficient to compensate a farmer’s opportunity cost of not farming deforested land. The margin is significant and the value of produce is more likely to rise than the CO2 sequestration value of the forest. However, the remaining forest is large enough to provide 8.7 billion US dollars, which is greater than the profit from the entire soybean industry. If used to promote sustainable farming practices and development goals, these funds could significantly reduce deforestation in the future.

Paying the price of CO2 released by deforestation
With this funding comes an obligation to take responsibility for forest maintenance. This could be made effective by making countries responsible for the CO2 released in forest fires or other deforestation activities. A move that would lead to improved controls against forest fires and illegal logging being implemented. The price of CO2 credits are now trading between for $10 to $20 per ton, however they are projected to rise to around $50 as more industries become subject to carbon caps and cheap solutions run out (Capoor and Ambrosi 2008). The value of hardwood timber varies from around $80 to $600 with most species sold for around $200 per ton (ITTO 2008). These values are likely to rise as hardwood becomes more scarce. This means adding CO2 release costs to timber will raise prices by an average of 25%, based on pricing the timber alone. However, inclusion of the calculated CO2 release from foliage, shrubbery, disrupted soil and other biomass not brought to market, could greatly enhance this figure. These measures would increase the price of timber relative to other materials and could lead to a significant fall in demand through substitution.

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There is still some discussion as to how much carbon is being released annually by deforestation (Cramer, Bondeau et al. 2004), however the value most often used is 1.6 gt of carbon (Matthews, Payne et al. 2000). Taking this figure gives an added expense of $80 billion globally, at a rate of $50 dollars per ton carbon, which would need to be paid at current rates of deforestation. This is greater than the projected income from CO2 sequestration and would lead to certain countries effectively paying for the carbon credits of other countries. However, in cases where countries are unable to bear the costs of deforestation, aid should be provided, preferably combined with help in developing services to reduce deforestation.

Other services provided by forests
Of course CO2 sequestration only represents one of the many values of forests. Forests are able to generate sustainable incomes from ecotourism, hunting, sustainable forest management and nontimber forest products, although these have not been included in this analysis, they all of have quantifiable values. Furthermore forests provide services which are currently unquantified in economic terms, so called ecosystem services. There are also ethical and spiritual considerations in the removal of forests. Should future generations be denied the possibility of experiencing nature as it still exists today? Should we replace what is unique and diverse with what is common and cloned? The spiritual bond of humans and trees is evident in religions, as in the Tree of Knowledge of Good and Evil in Abrahamic religions and the Bodhi Tree in Buddhism. While their importance in animist and pantheistic religions is even more obvious. This shows there are many ways in which forests could have their value increased to that needed to bridge the gap from being worth the CO2 they sequester, to being worth more than timber and farming.

Conclusion
In conclusion, it seems unlikely that forests will be worth more standing than felled based on the CO2 sequestration services they provide, even with a two pronged incentive-penalty approach. In the case of comparing sustained incomes from farming and CO2 sequestration, it appears that forests are worth more when converted to farm land. This should not be a reason for not adopting such a practice, as it could provide invaluable funding, which could be earmarked for use in sustainable development projects. This could provide a powerful tool to provide alternative sources of income in the future. With the value of tropical hardwood likely to rise with its increasing scarcity, felling forests could become more attractive, even with CO2 compensation. However, the increased prices should lead to a fall in demand, through improvements in efficiency, as in the case of dematerialisation of furniture and the adoption of alternative materials, as in the case of using fibers from sustainable sources in the paper industry. It should not be forgotten that the many other services provided by forests have value too. The inclusion of all these services could see forests valued at rates equivalent to logging and farming. Perhaps this will lead to significant preservation and restoration of forests with the help of the mechanisms of the capitalist system, which till now have lead to their destruction.

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References
An, S., F. Zheng, et al. "Soil quality degradation processes along a deforestation chronosequence in the Ziwuling area, China." CATENA In Press, Corrected Proof. Arnone III, J. A., P. S. J. Verburg, et al. (2008). "Prolonged suppression of ecosystem carbon dioxide uptake after an anomalously warm year." Nature 455(7211): 383-386. Bode, S. and M. Jung (2004). On the Integration of Carbon Capture and Storage into the International Climate Regime, Hamburg Institute of International Economics. Canadell, J. G. and M. R. Raupach (2008). "Managing Forests for Climate Change Mitigation." Science 320(5882): 1456-1457. Canadell, P., P. Ciais, et al. (2008). Recent Carbon Trends and the Global Carbon Budget. Capoor, K. and P. Ambrosi (2008). State and Trends of the Carbon Market 2008, World Bank Institute. Cramer, W., A. Bondeau, et al. (2004). "Tropical forests and the global carbon cycle: impacts of atmospheric carbon dioxide, climate change and rate of deforestation." Philos Trans R Soc Lond B Biol Sci 359(1443): 331-343. Enkvist, P.-A., T. Nauclér, et al. (2007). A cost curve for greenhouse gas reduction. The McKinsey Quarterly. FAO (2006). Global Forest Resources Assessment 2005. Progress towards sustainable forest management, FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS. Fitzherbert, E. B., M. J. Struebig, et al. (2008). "How will oil palm expansion affect biodiversity?" Trends in Ecology & Evolution 23(10): 538-545. Harvey, A. (2000). "Strategies for discovering drugs from previously unexplored natural products." Drug Discovery Today 5(7): 294-300. IGBP Terrestrial Carbon Working Group (1998). "CLIMATE: The Terrestrial Carbon Cycle: Implications for the Kyoto Protocol." Science 280(5368): 1393-1394. ITTO (2008). Tropical Timber Market Report, International Tropical Timber Organization. 13. Marx, K. (1909). Capital: A Critique of Political Economy, Vol. II. The Process of Circulation of Capital., Charles H. Kerr and Co. Matthews, E., R. Payne, et al. (2000). PILOT ANALYSIS OF GLOBAL ECOSYSTEMS Forest Ecosystems. Melby, K. (2008). "Preview Agriculture Brazil 2008." My Comments and Observations (Direct from Brazil). from http://www.brazilintl.com/states/matogrosso/korymelby/kory_co/kmco_0711_06_2008.htm. Mello, E. (2008). Brazil Oilseeds and Products Annual Soybean Report 2008. GAIN Report, USDA Foreign Agricultural Service.

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Page, S. E., F. Siegert, et al. (2002). "The amount of carbon released from peat and forest fires in Indonesia during 1997." Nature 420(6911): 61-65. Shaw, M. R., E. S. Zavaleta, et al. (2002). "Grassland Responses to Global Environmental Changes Suppressed by Elevated CO2." Science 298(5600): 1987-1990. Vattenvall. "Global cost curve." Climate Map. from http://www.vattenfall.com/www/ccc/ccc/Gemeinsame_Inhalte/IMAGE/Pressebilder/574736curb/8 10800glob/810800glob_m.jpg.

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