Benefits of tropical forest management under the new climate change agreement—a case study in Cambodia

Jul 10, 2010
Source: CostBenefit

Abstract: Promoting sustainable forest management as part of the reduced emissions from deforestation and degradation in developing countries (REDD)-plus mechanism in the Copenhagen Accord of December 2009 implies that tropical forests will no longer be ignored in the new climate change agreement. As new financial incentives are pledged, costs and revenues on a 1-ha tract of tropical forestland being managed or cleared for other land use options need to be assessed so that appropriate compensation measures can be proposed. Cambodia's highly stocked evergreen forest, which has experienced rapid degradation and deforestation, will be the first priority forest to be managed if financial incentives through a carbon payment scheme are available. By analyzing forest inventory data, Nophea Sasaki and Atsushi Yoshimoto assessed the revenues and costs for managing a hypothetical 1 ha of forestland against six land use options: business-as-usual timber harvesting (BAU-timber), forest management under the REDD-plus mechanism, forest-to-teak plantation, forest-to-acacia plantation, forest-to-rubber plantation, and forest-to-oil palm plantation. They determined annual equivalent values for each option, and the BAU-timber and REDD-plus management options were the highest, with both options influenced by logging costs and timber price. Financial incentives should be provided at a level that would allow continuation of sustainable logging and be attractive to REDD-plus project developers.

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Total stand volume of all trees with a diameter at breast height (DBH) ≥ 5 cm was calculated as 244.5 m3 ha-1 (equivalent to about 632.0 t CO2), of which 61.8% or 151.0 m3 is that of mature trees (mature trees are determined in accordance with the DBH minimum size for harvesting: all trees with DBH ≥ the DBH minimum size are considered to be mature trees, of which 30% are then available for harvest. See SM for more explanation). Because only 30% of mature trees in a stand can be harvested, the total volume of wood available for harvest is 45.31 m3 ha-1 for all trees per 25-yr cutting cycle. This comprises G1T 4.35, G2T 26.24, G3T 4.92, and OGT 9.56 m3 ha-1, and we assumed that 0.24 m3 ha-1 of GLT would be harvested due to unavoidable road construction. Timber royalties (per ha) received are $38.06 (GLT), $260.98 (G1T), $1,049.63 (G2T), $157.46 (G3T), and $191.27 (OGT), for a total of $1,697.40 ha-1 per 25-yr cycle. Revenues per management or cutting cycle from taxes on reforestation, concession fees, and export services of processed wood (sawn wood and veneer wood) were estimated to be $44.22, $25.00, and $478.01 ha-1, respectively. Altogether, we estimated revenues for the government from harvesting 1 ha of tropical natural forest to be $2,244.63 ha-1 per 25-yr cutting cycle (management cycle) and revenues for the company to be $4,312.20 ha-1. Under BAU-timber, total revenues were estimated to be $6,556.83 ha-1; while under REDD-plus management, total revenues were estimated to be $7,820.57 ha-1 at a carbon price of $2.00 t-1 CO2. Revenues under REDD-plus are strongly influenced by the price of carbon. Price of carbon is likely to rise when REDD-plus agreement is finally reached. Currently, carbon under the European Union Allowances and Certified Emission Reductions (CERs) is traded at $17.29 (euro 12.69) and $15.30 (euro11.23) (www.pointcarbon.com).
To generate the above revenue ($2 244.63 ha-1), the government employs 0.015 staff ha-1, equivalent to about $70.76 ha-1 [(=0.015*(745.1+2400+1572.55)]. For the company, total costs were estimated to be $5,054.87 ha-1. Due to the low timber price, logging operates at a loss of $742.67 ha-1 per management cycle. Costs for government and company are the same for both BAU-timber and REDD-plus options. Due to the low costs incurred by the government, the total benefit from logging under BAU-timber is $2,173.87; however, the government can only continue to generate revenue if legal logging occurs. Without sufficient financial incentives, logging companies might hide the revenues, for example, by paying corrupt officers or through an abandoned logging business. Costs for REDD-plus project developer are $292.50 ha-1 in addition to costs incurred by government and company. Therefore, total benefits under REDD-plus option are $2,400.65 [=7,820.57-(292.50+5125.63)], of which $1,264.00 (=2*632, total carbon stock is 172.2 t C or 632.0 t CO2) is from the sale of carbon avoided from deforestation and forest degradation. Under BAU-timber, AEVs were estimated to be $32.26, $17.88, and $13.09 ha-1 for discount rates of 4.0%, 8.0%, and 10%, respectively. The corresponding REDD-plus AEVs are $54.18, $30.03, and $21.99 ha-1. Revenues under REDD-plus option would have been higher if co-benefits such as from watershed protection, soil erosion control, recreation, and other non-carbon ecosystem services were included in our estimates. Information on co-benefits is difficult to quantify and it is not available for present study.
Benefits from forest-to-teak: Converting natural forest to a teak plantation incurred a total cost of $41.25 ha-1 over a 30-year period, with a total return of about $1,000 ha-1 (Agrifood Consulting International, 2005). The benefit from this option is $958.75 ha-1 per management cycle, with AEVs of $16.16, $7.77, and $5.27 for 4.0%, 8.0%, and 10% discount rates, respectively.
Benefits from forest-to-acacia: If a plantation of Acacia or Eucalyptus species is established over a 10-yr cutting rotation, the annual cost and revenue are $688.88 and $61.60 ha-1 yr-1, respectively (Agrifood Consulting International, 2005), representing an AEV loss of about $46.51, $37.68, and 33.85 ha-1 yr-1 for discount rates of 4.0%, 8.0%, and 10%, respectively. Converting natural forest to Acacia or Eucalyptus plantations (mainly E. grandis and A. auriculiformis) is not profitable because the mean annual growth increment for these species in Cambodia is low (about 2.8 m3 ha-1 yr-1) (Agrifood Consulting International, 2005) compared to 34 and 45 m3 ha-1 yr-1 (average) for A. mangium and Eucalyptus hybrid clone 0321, respectively, in Brazil (Rossi et al., 2003), 68 m3 ha-1 yr-1 for E. grandis in Brazil (Dedecek et al., 2001), 21 m3 ha-1 yr-1 for E. robusta in Malaysia and India (NAS, 1983), 28 m3 ha-1 yr-1 for Eucalyptus species in Thailand (Mayers, 2000), and 7–15 m3 ha-1 yr-1 for Eucalyptus species in Vietnam (GTZ, 2007). The lack of access to a local market is another factor that increases production costs.
Benefits from forest-to-rubber: Rubber plantations are the second highest source of government revenues, earning $83 million or about 4% of the total national exports in 2004. The area covered by rubber plantations is projected to increase rapidly from 66,000 ha in 2004 to 94,000 ha in 2010, 124,000 ha in 2020, and 150,000 ha in 2030 (Cambodian Embassy, 2007). Although information on total costs and revenues from rubber plantations in Cambodia is only partially available, for the initial years between year 0 and year 6, the average cost per ha ranges from $1,520.00 (MAFF, 2006) to $2,460.00 (Marubeni, 2004) or about $253.30 to $410.00 ha-1 yr-1. The annual maximum maintenance cost after year 6 is estimated to be $200.00 ha-1 yr-1 (Agrifood Consulting International, 2005), whereas the annual revenue from rubber production is, on average, $1,500.00 ha-1 from year 6 until year 30. Over a 30-yr period, the average cost for a rubber plantation has been estimated to be $211.93 (MAFF, 2006) or $250.50 (Marubeni, 2004) and proceeds are $1,200.00 ha-1 yr-1, while the AEVs are $16.00 to $16.65, $7.70 to $8.01, and $5.22 to $5.43 ha-1 yr-1 for the discount rates of 4.0%, 8.0%, and 10%, respectively.
Benefits from forest-to-oil palm: Oil palm productivity is lower in Cambodia (10.6 t ha-1 yr-1 over a 25-yr cycle; Agrifood Consulting International, 2005) as compared to Sumatra, Indonesia (23.0–26.0 t ha-1 yr-1; Redshaw and Siggs, 1993; Butler et al., 2009). The total annual cost over a 25-yr management cycle (from planting to harvesting) for oil palm plantations in Cambodia is $852.49 ha-1, while the total revenue is only $747.60 ha-1, resulting in a loss of AEVs of about $2.37, $1.31, and 0.96 ha-1 yr-1 at the discount rates of 4.0%, 8.0%, and 10%, respectively (Agrifood Consulting International, 2005). Therefore, converting natural forests to oil palm plantation is currently not profitable in Cambodia.