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 longstanding 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


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 $4.56.3 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.


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

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


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.


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.


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 locallyrelevant 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.


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 Freedom of choice and action Health Identity Security

GLOBAL CHANGE DRIVERS Climate Biogeochemical cycles Land use Species introductions

ECOSYSTEM SERVICES ECOSYSTEM PROCESSES Primary production (photosynthesis) Secondary production (herbivory) Nutrient cycling Evapotranspiration Resistance Resilience Climate regulation (carbon & water cycles) Sustained production of plant and animal biomass Soil formation, retention and fertility Water regulation (quantity & quality) Provision of habitat Pollination and seed dispersal Resistance to invasive organisms Agricultural pest and disease control Protection against natural hazards Human disease regulation Food, fibre and fuel Genetic resources Biochemicals Knowledge systems Education and inspiration Recreation and aesthetic values Spiritual and religious values Sense of place

BIODIVERSITY Genetic Species Functional groups • Trees • Grasses • etc. Landscape units

Number Abundance Composition Interactions Spatial distribution

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).


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
Products obtained from ecosystems

Regulating services
Benefits obtained from regulation of ecosystem processes

Cultural services
Non-material benefits obtained from ecosystems

Direct use value
• • Consumptive Non-consumptive

Indirect use value

Option value
• • Option Bequest

Existence value


Non-use 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).


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.


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.


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


Benefits ($/ha)

Conversion to pasture

Rainforest conservation Biodiversity

Benefits to global community

Biodiversity Carbon Carbon Water Water

Benefits to 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.


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.,


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.”


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.


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.


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.


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.


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).

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


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 7

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


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

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.


precipitation (Lettau et al., 1979). There is large uncertainty in these recycling estimates and therefore in the impact of deforestation on recycling.
1288mm Atmospheric transport 1931mm Atmospheric transport 2750mm

Amazon Basin


1462mm (75%)

643mm (33%)

488mm (25%)

Rainfall 1950mm (100%)

Transpiration 1131mm (58%)

Runoff 819mm (42%)

Root absorption


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 forestclimate 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

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


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.


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.


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.


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.


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.


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


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).


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 naturalecosystem 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).


2.3. Fires resulting from encroachment on rainforests
KEY MESSAGE: The rainforest fires of 1997 and 1998 affected health, timber, nontimber 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).



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).”


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 smokeinhalation 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


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.


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).


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)


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).


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,


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).


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 nonmarketed 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 reducedimpact 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 decisionmaking 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. Nontimber 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).




Carbon Erosion protection Carbon Water


Land price

Timber NTFP Timber


Carbon Recreation Water

Carbon Erosion Biodiversity Water Timber Timber NTFP Water NTFP



Carbon Flood prevention

Carbon Carbon

Water Fire prevention

Timber Carbon Timber

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.


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.


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


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).


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