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The case for using ecosystem service valuation and economic instruments to support the scaling up of SLM strategies.
Vanja Westerberg IUCN Global Economics Programme
Workshop on alignment and implementation of National Action Plans with the UNCCD 10 year strategy, Dubai 18-20 June 2014
• Why do we need to value ecosystem goods and services resulting from SLM?
• The case for using ecosystem valuation to support decision making over land uses.
• Example of sustainable pasture management from Jordan.
• The case for using ecosystem valuation to identify and mobilize resources for SLM.
• The role of regulatory and economic instruments to help mobilize finance for implementation of the 10 year strategic plan
Outline
• Reversing land degradation as a national development priority.
• Benefits to SLM and landscape restoration are found:
• On-site
• Off-site
Economics of Land Degradation
A problem of externalities
• Off-site benefits of SLM
Private level of investment in SLM < Social optimal level of investment in SLM
• Off-site costs of Land degradation:
Actual level of land degradation > social optimal rate
Explaining the economic rationale
behind Land Degradation
• Rate at which topsoil degrades, through agricultural cultivation or grazing > rates at which it regenerates.
• Since SLM has a positive impact on soils, SLM implies saving soil for future use.
• Alternatively, farmers may choose to continue to work the soil intensively at the expense of less soil available in the future.
The economic rationale behind LD
Farm level economics:
ELD theoretical framework
With
SLM
With erosion
(baseline)
Time
Net
Present
Value
T 2014
On-site costs of land degradation may be defined in terms of
The loss in the long-run net profitability of farming systems.
• Farming households ignore the gains in future production or income generation
• E.g. due to insecure tenure, lack of understanding of benefits of SLM, or high private discount rates.
• Any off-site, or external costs or benefits are ignored.
2 CUES
Hence, land degradation is an economic problem if
As for the off-site costs and benefits…
Economists would like to see them: 1) Recognised, valued 2) And accounted for
Economic values from pasture restoration
Direct Use Value
Increased supply of: Medicinal plants Fodder
Valued using
-Avoided costs -Stated preference
Indirect Use Value
Improved: Carbon sequestration Sediment stabilisation Ground water infiltration Dry season water baseflow Annual water yield
Valued using
-Social cost of carbon -Avoided costs -Production function approaches
-InVEST -ArcSWOT -AquaCrop
Biophysical data processing tool
Benefits
Cost Benefit Analysis of SLM strategies in Sudan (Geradef), Mali (Mopti) and Jordan (Zarqa river basin)
• ELD initiative
The case for Ecosystem Valuation
•One way to do that • Ecosystem service valuation
An Economic Valuation of
Large-scale rangeland restoration
through the HIMA system within the
Zarqa river basin in Jordan.
Vanja Westerberg
Under the ELD initiative
Rationale
The case for revisiting the ancient Hima-restoration principle
o Involving carefully managed grazing protocols
o « Costs » or necessary efforts visible.
o Benefits, multiple, but not as visible
Benefits needs to be translated into a terminology that everybody (or most people) can relate to $
• We study the value of enhanced:
• Rangeland productivity
• Infiltration of rainfall to groundwater aquifers
• Stabilisation and trapping of sediments
• Carbon sequestration and storage
An economic valuation ecosystem goods and
services associated with HIMA restoration
o Define the location
o Bani Hashem Hima
o Within the larger Zarqa river basin.
Step 1: Where?
o MOE MAP
WHERE: ZARQA RIVER BASIN
Step 2: Define the baseline scenario
What would happen over a 25 year time horizon if there is no changes in current rangeland practices?
Rangeland productivity rapidly declining – halving of edible dry matter per ha in 20 years (MoA 2009)
High livestock numbers compared to carrying capacity of land (as long as feed subsidy persist)
Step 3: Define the future scenario
o …Against which the economic valuation is undertaken
LARGE-SCALE HIMA RESTORATION USING ROTATIONAL PASTURES
Step 3: Define the future scenario
o 109’093 ha suitable for HIMA restoration
o Out of a total 359’675.2 ha within the Zarqa river basin
In TOTAL
Value of enhanced rangeland
productivity
o We use the experience from Bani Hashem
Value of enhanced rangeland
productivity – building blocks
• We have a Hima management principle.
• We know the starting value for plant biomass per ha.
• We know the plant biomass per ha after 2 years of protection.
• We know the maximum plant biomass per ha for the Baadia ecosystem ~ 500 kg/ha (100-200 mm of rain)
Value of enhanced rangeland
productivity – building blocks
The Noy-Meir sigmoid curve has been shown to accurately reflect pasture growth in a managed grazing setting (Cacho 1993; Cooper and Huffaker 1997; Ritten 2013)
Growth(biomasst ) *biomasst (1biomasst
biomassMAX)
Value of enhanced rangeland
productivity – building blocks
We can predict biomass growth within a
HIMA year-by-year.
Biomassperha in himat1 biomasst Growth(biomasst ) biomassgrazedt
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Dry yield per hectare
DRY BIOMASS ACCUMULATION AND WITHIN A HIMA SYSTEM
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Dry yield/ha
BASELINE
Dry biomass grazed in the HIMA versus in the pure open access baseline scenario
HIMA
How to value increased forage availability?
70-90% of all forage is purchased
Any additional natural rangeland forage will replace the need to purchase forage.
Predicted world market price for barley feed
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HIMA with 25% open
access
Open access/baseline
JD/ha
Present Value per ha of rotational Hima pasture versus a continuation of the current land use/baseline scenario
(r=5%)
Value of enhanced rangeland
productivity
o Value of additional forage from HIMA restoration (in terms of barley equivalent) over 25 years
16.8 million JD
o 61 800 JD per 400 ha HIMA
The Premium Value of Natural Forage
• Natural forage is praised for its properties:
• Better quality of milk
• Better health of livestock
• We cannot purchase « natural grazing » on the market, nor « natural forage »
• We therefore need to construct a Hypothetical Market to elicit values for these ecosystem services
Using a Choice Experiment to elicit the value
of rangeland restoration
Using a Choice Experiment to elicit the value
of rangeland restoration
ALL FOOD FROM
NATURAL PASTURES
105 JD/month
o Households purchase on average 1.7 tons of fodder per months
o Households are willing to pay a price premium of = 61.8 JD/ton (105 JD/1.7 tons) on natural forage over ‘concentrated feed’.
o True economic value of natural forage over a 25 year time horizon
o 20.5 million JOD
Using a Choice Experiment to elicit the
value of rangeland restoration
o The Zarqa river basin is considered as one of the major productive ground water basins in Jordan.
o Important to analyse the contribution of rorational pasture HIMA systems to ground water recharge.
o We use:
o Soil and Water Assessment tool (SWAT model)
Value of enhanced aquifer recharge ?
Value of enhanced aquifer recharge and water yield?
2013 2015 2020 2030
Hima
restoration
scenarion
Baseline/
Open access
Value of shallow aquifer recharge
96 000 m3 /year
o We look at what pastoralists are Willing To Pay for water for their flocks
Value of shallow aquifer recharge
~ 2 JD / m3
o Present value of water infiltration over a 25 year time horizon.
o 2.9 million JOD
o Lower bound estimate Increasing scarcity of water, the value goes up
Value of shallow ground-water infiltration
o Sediments reduce water storage capacity of dams
Value of sediment stabilisation
KING TALAL DAM
7.6 Million Cubic Meter (MCM) over 25 years of sediments are trapped and not deposited in King Talal Dam as a result of HIMA restoration
Reduced sedimentation from HIMA
restoration
……Demand for water will not decline.
o Any lost water storage capacity will have to be replaced !
Value of sediment stabilisation
= 10.9 million JOD
Value of sediment stabilisation
Avoided Dam Construction Cost of replacing 7.6 MCM of water storage:
FOR Soil Organic Carbon we use estimates provided by
the:
UNEP Global Environmental Facility Soil Organic Carbon (GEFSOC) system
Al-Amadat et al., (2007)
Above ground carbon sequestration is calculated
using IPCC tier 2 guidelines.
Value of Carbon Sequestration
Predicted carbon sequestration in HIMA
versus open-access rangelands
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Value? Social cost of carbon
JD/ha
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20112012201320142015201620172018201920202021202220232024202420252026202720282029203020312032203320342035
The SCC is an estimate of the economic
damages associated with a one ton increase
in carbon dioxide (CO2) emissions.
Damages include, decreased agricultural
productivity, damage from rising sea levels
and harm to human health related to climate
change
Avoided social cost of carbon of Large
Scale Hima restoration
PVof carbonsequesteredt0
24
CarbonSequestrationSCCt
(1 r)t*Area
Present Value of Carbon sequestration from large-scale HIMA restoration over a 25 year time horizon (r=5%)
= 6.9 million JOD
Implementation costs:
o Community workshops, participatory processes, biomass studies, observation tower ~ 1 000 JD – 2 000 JD
Management costs:
o Biomass and stocking density studies ~ 800 JD / year for 5-10 years
o Surveilliance by community ~ 8 00 JD / year
Tentative implementation costs and
surveilliance costs:
Benefits
Natural forage / Rangeland productivity 21.5 million JD
Groundwater percolation 2.8 million JD
Sediment control 10.1 million JD
Total Present Economic Value 32.1 million JD
Costs
Implementation, community surveillance and biomass studies
7.3 million JD
Benefits - Costs
Total Net Present Value of HIMA restoration
24.8 million JD
NPV of Cell rotation for 100,000 ha of HIMA including global carbon sequestration benefits (r=5%)
Benefits
Natural forage / Rangeland productivity 20.5 million JD
Groundwater percolation 2.8 million JD
Sediment control 9.1 million JD
Carbon sequestration 32.8 million JD
Total Present Economic Value 64.8 million JD
Costs
Community surveillance and biomass studies 7.3 million JD
Benefits - Costs
Total Net Present Value of HIMA restoration
31.7 million JD
NPV of Cell rotation for 100,000 ha of HIMA including global carbon sequestration benefits (r=5%)
o Costs associated with HIMA implementation and management will be minimised if management/land rights are delegated to the community
o The importance of tenure security
Lessons
Livestock numbers within the Zarqa River Basin are currently too high for 100% Hima restoration
Raises a question about fodder subsidies…
Make fodder subsidies conditional on SLM practices by the community.
Other lessons
o The HIMA system is extremely valuable:
o To pastoral communities in terms of an increased availability of natural forage
o Also to the Jordanian Society as a whole.
o Large-scale HIMA-restoration can provide
30-60 million JD worth of services over and above continuing the present land use system over a 25 year time horizon.
Lessons
o HIMA communities are service providers
o Could we imagine schemes whereby ‘beneficiaries’ (e.g. dam owners) help finance SLM providers?
o In general, how to create the necessary incentives
to scale-up HIMA systems, rotational grazing and SLM practices in general?
Lessons and perspectives
The 10-year strategic plan..
Call for affected countries to revise their NAPs into
Strategic documents supported by biophysical and socio-economic baseline information
And include them in integrated investment frameworks
(Operational objective 2: Policy frameworks)
Using economic instruments to
halt land degradation and scale-
up SLM investment
o Tackling policy failures
o Cross-compliance schemes
o Economic instruments
o Price based and quantity-based approaches
o Market facilitation approaches
o Regulatory approaches
Enabling policy instruments
o Arise when public policies have unintended adverse consequences. Encourage over-exploitation of the natural environment.
o E.g. subsidies for cultivation of upland crops that drive expansion into the marginal lands, subsidies on water and energy in irrigation schemes, tariff protection for land degrading crops, and fertilizer subsidies.
The need to tackle policy failures
o Example from uplands of Ethiopia (Shifera 2000)
o Subsidies on fertilizer and seeds
o Case for cross-compliance
Subsidies on productive inputs linked to conservation (soil stone bunds) can enable poor households to comply with conservation requirements without the adverse impacts on their welfare.
The need to tackle policy failures
o Those that engender land degradation or damage soil productivity must pay the costs either to those directly affected or to the state, who will act on behalf of the affected.
China’s soil erosion control fee
E-VAT in Brazil
Trading in emission allowances
Economic instruments (PPP)
Those entities that provide benefits by lowering, for instance, off-site impacts of land degradation should be compensated for their efforts, either directly by beneficiaries or indirectly by the state.
Economic instruments (BPP)
PES Various public payment schemes
Subsidies, permanent conservation easements, payments for set-asides, co-finance investments, etc.
The former can finance the latter
When number of applications to participate in PES programme exceeds available financing?
Market facilitation approaches:
Aim to make existing markets better by enhancing information or lower transaction costs..
The case for auction tenders.
Net-benefit of each bid is derived using bid price information and by assessing the environmental benefits that nominated conservation activities generate.
Innovative financial instruments III
In the absence of economic instruments, insufficient resources will be devoted to minimizing the impacts of land degradation
But, it is also unlikely that SLM can be achieved if tenure rights are not explicitly considered.
The classical example relating to tree-tenure…
Economic instruments
Clearly specified, well defined, enforceable property rights or long term leases:
Help extend the planning horizon and vest land uses with the benefits of investing in SLM
Help improve access to credit for SLM
The use of economics instruments hinge on property or management rights.
Regulatory preconditions
Different countries, different context:
The GM SCORE-CARD approach an effective way of exploring different mechanisms for resource mobilization.
Resource mobilization tool-kit
Rio convention synergies and co-financing
opportunities
Vanja
Westerberg
NAPs should translate the principles of the 10-year strategy into fundable programmes of work.
Need to increase the scope of resource mobilisation for SLM.
Distinct and complementary roles can be played by different different instruments and sources of financing:
Foreign, domestic, public and private, economic and regulatory
Conclusion
Many possible funding mechanisms.
Incentives should be implemented with reference to the problem at hand.
But fundamentally important first to tackle:
Underlying policy failures (that promote land degradation)
Can free up significant resources of SLM investment
Information failures (who pays who benefits from SLM)
The case for Ecosystem Service Valuation
Concluding remarks
Thank you for your attention !
Question, comments and suggestions? vanja.westerberg@iucn.org
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