The World’s Largest Open Access Agricultural & Applied Economics Digital Library This document is discoverable and free to researchers across the globe due to the work of AgEcon Search. Help ensure our sustainability. Give to AgE con Search AgEcon Search http://ageconsearch.umn.edu [email protected] Papers downloaded from AgEcon Search may be used for non-commercial purposes and personal study only. No other use, including posting to another Internet site, is permitted without permission from the copyright owner (not AgEcon Search), or as allowed under the provisions of Fair Use, U.S. Copyright Act, Title 17 U.S.C. Turning Carbon into Cash: Economic Model of Payments for Carbon Sequestration in the Dry Tropical Forest of Costal Ecuador Trent Blare University of Florida Food and Resource Economics Department P.O. Box 110240, Gainesville, Florida 32611 (352)392-1826 [email protected] Xavier Haro-Carrión University of Florida Department of Biology P.O. Box 118525, Gainesville Florida 32611 (352)392-1175 [email protected] Selected paper prepared for presentation at the Southern Agricultural Economics Association (SSEA) Annual Meeting, Orlando, Florida, 3-5 February 2013 Copyright 2013 by Trent Blare and Xavier Haro-Carrión. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. 2 Introduction Carbon payments have been receiving attention in the tropics because of their ability not only to mitigate climate change but also incentivize the conservation of forests (Angelsen et al. 2009). Some of these programs in developing countries have been promoted as providing additional income for the poor (Pfaff et al. 2007). One particular program under the Kyoto Protocol is the clean developing mechanisms (CDM), which offers financial incentives for carbon sequestration for afforestation and reforestation (Davidson et al. 2001). A new approach that seeks to provide compensation for carbon storage in standing forests has been referred to as Reduced Emissions from Deforestation and Degradation, and increased carbon sequestration from improved forest management (REDD+) (Macedo et al. 2012) . Even though these schemes have garnered much attention, evaluation of carbon-based conservation interventions outside the lowland moist tropics and in landscapes dedicated to commercial activities are relatively scarce. Some previous work has examined the economic and ecological impact of carbon sequestration programs. The economic research has looked at the costs of implementing programs to reforest or establish tree plantations (Wunder and Albán 2008; Algoni 2011), how much farmers would have to be paid per ton of carbon sequestered to adopt agroforestry practices in the Phillipines (Shivery et al. 2003), what Brazilian Amazonian households would need to be paid to prevent further deforestation (Carpentier 2000),how payments can extent the rotation cycle of plantations (Olschewski and Benítez 2010), and how payments should be delivered to the communities or individuals (Skutsch et al. 2011). The research on the ecological impacts has studied how carbon payments can provide other environmental benefits such as biodiversity (Stephen et al. 2002; Venter, Laurence et al. 2009) or species protection (Venter, Meijraad et al. 2009). These studies provide a good understanding of how carbon payments impact environmental outcomes for forest conservation of standing forests. However, they fail 3 to examine the complex mosaic of land use choices facing landowners of degraded tropical landscapes. In Ecuador where carbon sequestration schemes have been started (Wunder and Albán 2008), work has not examined how much carbon payments would need to be in order to obtain the desired outcome given the opportunity cost of landowners for other land use options. This paper fills this gap by examining the role of carbon payments to promote secondary forest conservation and/or induce raising monoculture tree plantations in a highly fragmented tropical landscape of semi-deciduous forest in costal Ecuador, where land users have been forgoing forest conservation to maximize profitability. This paper is divided into five sections. The first section examines the current situation in Ecuador for payments for forest conservation and efforts to conserve the forest remnants in the study site. The second section explains the biological and social study methods used to measure the carbon captured by different land uses. This section includes the factors that influence the households in the area to use/ adopt certain practices including profits from various land uses. The fourth section explains the model developed to determine how much landowners would need to be paid in carbon payments in order to be no worse off in order to adopt forest conservation practices. The final section discusses the results produced by the model and their implications for developing a carbon payment scheme. Forest Conservation Efforts in Costal Ecuador The semi-deciduous forest of coastal Ecuador provides a unique opportunity to study carbon payments in fragmented landscapes since less than 5% of the native vegetation cover remains in this region (Dodson and Gentry 1991; Sierra 2002). However, the area between the towns of Pedernales (0°03’50’’N 80°03’06’’W) and Canoa (0°27’45’’N 80°27’27’’W) of approximately 125,000 ha is estimated to be 20% forested and constitutes the largest patch of forest remnants of this vegetation type (Neill 1999). The area is part of the Chocó/Darien western Ecuador 4 biodiversity hotspot and is a priority for conservation (Myers et al. 2000; Cuesta-Camacho 2006; MAE 2011). Besides the area that has been dedicated to native forest preservation, the land uses in this area include pasture for livestock production, Teak Tectona grandis and Balsa Ochroma pyramidale plantations, and some afforested and reforested areas. From our analysis of our plots of primary and secondary forests, we found that these forests are made up of 20 different tree species much less than the 74 in primary forests but much higher than other land use types with Albizia guachapele, Cocholospermum vitifolium, and Guazuma ulmifolia being the most prevalent species in these forests. The Ecuadorian government has recently, since 2008, made a concentrated effort to preserve the country’s forested areas through the Socio Bosque Program. Indeed, many landowners in the region have already joined the program (MAE 2010). Secondary forests 30 years or older are eligible for the program (MAE 2010). Due to the fragmented nature of the current forested areas, an Ecuadorian nongovernmental organization, the Ceiba Foundation, and Conservation International have been active in encouraging landowners near these forest areas to convert their land use form pastures to secondary forests. The objectives of this effort are to provide corridors between the forests, preserve the regions biodiversity, and enhance other environmental services provided by these forests. Payments for carbon sequestration in secondary forests have been seen by the Ecuadorian governmental, Conservation International, and the Ceiba Foundation as an avenue to encourage these landowners to switch their land use from pasture land to secondary forests. The payments would have to be large enough so that the land owner who earn as much by having a secondary forest as she would receive by ranching. However, monoculture tree plantations also sequester carbon and could receive these payments. Thus, these payments might actually encourage the 5 landowner to convert her land to a plantation instead of a secondary forest, which would mean that the additional benefits from the forest such as enhanced biodiversity and the protection of endangered or threatened species would not be realized. The following section discusses our research methods to determine how much landowners would need to paid in order to reforest. Methodology Field data was gathered on the species composition and tree diameter size in 38 plots of 60 by 60 meter in June of 2010 and in May and June of 2012. The data includes three Balsa plantation plots, eight forest plots, seven pasture plots, thirteen secondary forest plots, four Teak plantation plots, and three Pachaco Schizolobium parahyba plantation plots. Our estimates of the average above ground biomass estimates for the various land uses form our plots, AB, were based on the equations developed by Brown et al. (1989) and Chave et al. (2005). D represents wood density and Dm diameter and H height of the tree i in plot j with being the conversion factor. (1) (2) Figure 2 shows how biomass accumulation and, thus, the amount of carbon stored differed by land use from based on data we gathered from our plots. Figure 1. Average biomass in various land use types 6 350000 300000 250000 e r a t 200000 c e H r e 150000 p g K 100000 50000 0 Balsa Forest Pasture Pachaco Secondary Teak forest In addition to the test plots, twenty-four households including the landowners of the plots were interviewed about their land use including production costs and profits for each land use type, future and past land use of each parcel, opinions about the ecological benefits of primary and secondary forests, participation in the Socio Bosque program, and household composition and demographics. One clear distinction between households was the difference between land poor and land rich households. The landholdings held by the households included in the study ranged from just 1 hectare to 2,730 hectares of land. Ten households own less than 25 hectares of land while 11 own 180 hectares of land or more. The last three households own between 50 and 125 hectares of land. Although this sample cannot be considered a representative sample of households in the county of Jama, this discrepancy in landholdings mimics the inequality in landholdings between wealthy and poor households in Ecuador and Latin America as Ecuador still struggles with land reform (Deere and León 2001).These land disparities will have a large impact on conservation policy as efforts to have the largest impact on afforestation, reforestation, and conservation will need to target the large landowners in order have the largest impact which limits the ability of the 7 programs to alleviate poverty. Furthermore, large landowners have the space to dedicate to forest or secondary forest as they have other land to use for economic activities. In fact, only 3 households that have less than 25 hectares in the sample have forested land with the rest owned by households that own 90 hectares or more. This result is bolstered by fact that the households that participate in the Socio Bosque program in this county as smallest forest area registered in this program is 20 hectares and the largest 230 hectares (Madden 2012). There is also a distinction in the land uses adopted by households with limited landholdings and those with more extensive land areas. The tree plantations are held by households that own more than 200 hectares of land. Pasture land is owned by all classes of household from the smallest group to the largest, which provides an opportunity for all these households to reforest this land. Figure 3 displays the land use preferences of the households included in the survey. Clearly, landowners prefer to dedicate their land to pasture, primary forest, and secondary forest make up nearly the entirety of land use of the participants. As pasture land is a majority of the land use, it provides the clearest opportunity for reforestation efforts. Figure 3. Land use of land owners surveyed in Jama, Ecuador Annual, 0.28% Perrenial, Other, 0.73% 0.44% Forest, 37.02% Pasture, 54.20% Secondary, 6.89% Tree Plantaion, 1.14% 8 Model The carbon conversion equations are based on the model utilized by the Shively et al. (2003). This model expands on this work by including a net present value estimation of land use types to determine how much a landowner would have to be paid for each ton of carbon sequestered in order to be indifferent between land use options. As Figure 1 demonstrates pasture areas have very little biomass. Therefore, they have little potential for sequestering carbon. Furthermore, the household surveys revealed that it is common practice to burn the pasture every three years, which would release the stored carbon in these landscapes. Thus, the carbon sequestration rate of pasture is set to zero. For computing the carbon stored each year in a secondary forest the following model was utilized (3) (4) for B <190, otherwise 1.74 (5) t (6) (7) (8) (9) (10) V is the board volume of stand at time t. A is the age in years of the stand at time t t t. S is the product of the space between tree rows and between trees within a row. Q represents soil quality index with an average value of 30 used for the sites from 9 indications provided by Shively et al. (2003). B is the merchantable tree biomass at time t t. D represents the wood density. The densities for all the tree species in the secondary forest were determined and a weighted average that took into account species abundance was utilized. F provides a conversation of biomass to carbon with 0.474 utilized as indicated by Martin and Thomas (2011) as the correct value for tropical forests. E is t the expansion factor to convert merchantable biomass to total biomass at time t. M is at the total above ground biomass at time t. M measures the root biomass with T rt t providing an estimate of total biomass. C determines the accumulation of carbon at time t t and C is the average accumulation of carbon per year. T is the time period at the end of the cycle which is twenty years in our study as carbon sequestration contracts in Ecuador and Socio Bosque contracts are twenty years long (Wunder and Albán 2008). Estimation of the payments for only Balsa and Teak plantations and not Pachaco area estimated as these are the dominate types of plantations in this region. Since much of the carbon stored in the soil is lost when the trees are harvested, wood is the only product that provides a permanent carbon sink. Thus, the equation has been modified to only consider board volume for carbon storage. In addition, the densities used are different with 0.6013 used for Teak and 0.14 for Balsa. Balsa is a very fast growing low density wood often used for ship building, thus, the large difference in densities between the two species. The following net present value model provides an estimation of the price that needs to be paid to a landowner to change her land use from pasture to secondary forest or Teak or Balsa plantations. (14)