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Forests and Markets
To
say that drinking water conditions in rural India are bad will be a
cliché. But still, one should have a clear picture about the current
state of affairs in India. More than 80% of the diseases in India are
water-related, including typhoid, hepatitis, diarrhoea, cholera, to name
a few. Around 37.7 million Indians are affected by water-borne diseases
annually. Some 1.5 million children are estimated to die of diarrhoea
alone. Unsafe water makes one in five babies ill every fortnight. This
list is endless, but the biggest surprise still remains that we ignore
such grave conditions that are killing our nation.
Introduction
Forests offer a wide variety of services to the society. Broadly, these
services may be classified as production services (food, water,
pharmaceuticals, biochemicals, industrial products, crops, wild foods,
spices and energy), regulatory services (carbon sequestration and
climate regulation, maintainence of nutrient cycles, waste decomposition
and detoxification, purification of water and air, crop pollination, and
pest and disease control) and cultural services (cultural, intellectual
and spiritual inspiration, recreational experiences and scientific
discovery).
Currently, forests are not being valued for all the services that they
provide, due to which deforestation is occuring at a very rapid rate. If
the forests are properly valued for all the benefits which accrue from
them, the rate of deforestation would be much less than what we find
today. A few of the services offered by the forests are traded in the
market (e.g., carbon and timber) but the valuations are based purely on
the market forces which rarely take into account the environmental costs
associated with the services (labelled as externalities) and, hence, the
opportunity cost for these services is much higher as compared to the
prevailing market prices. A majority of the services provided by the
forests are not valued by the market. Some examples would include flood
regulation, oxygen production and inspirational values. Since some
services are valued by the market but not all, in order to maximise the
economic benefit, the society forgoes those benefits not linked to
monetary gains.
A classic example of this can be provided by the Ganga basin. The Ganges
originates in the Himalayan state of Uttarakhand and then flows down
into the plains of Uttar Pradesh, where it has contributed in developing
one of the most agriculturally fertile areas as also one of the oldest
civilisations of our planet. However, Uttarakhand alone takes care of
the forests which are responsible for maintaining the flow of the
Ganges. Thus, even though one state maintains the river system, another
gains out of it. While Uttar Pradesh reaps the benefit out of the
agriculture, Uttarakhand needs to maintain the forests for no economic
advantage. Proper valuation of the services provided by the forests will
lead to removal of this discrepancy.
Established
Markets
Perhaps one of the most well established and also the oldest market for
forest services is for timber. Timber is an essential commodity in the
international market. In pre-indendence India, timber was harvested over
wide swathes of land without considering the ill effects. However, after
independence, a number of initiatives have been undertaken to conserve
the forest wealth. In recent years, certified forestry has become well
established, wherein the forests are certified by external agencies to
being sustainably managed.
A new mechanism introduced under the aegis of the Kyoto Protocol is
‘Reducing Emissions from Deforestation and forest Degradation’ (REDD).
However, issues related to leakage, long-term viability and
demonstration of additionality still persist. Apart from these, there
are some other industries such as plant-based medicines and ecotourism.
Emerging
Markets
As mentioned earlier, there are a number of services provided by forests
which are not traditionally recognised. However, many initiatives have
been undertaken around the world related to forest ecoservices
valuation. Various mechanisms exist by which market support either is or
could be lent to the services provided by forests. Some important
mechanisms are taxes and tariffs, minimum price, market caps and direct
payments. One example is that of the Payment for Environmental Services
(PES). From 1997 to 2004, Costa Rica invested around US$ 200 million in
its PES programme, protecting over 4,60,000 hectares of forests and
forestry plantations and indirectly contributing to the well being of
more than 8,000 people. A series of associations and partnerships at
both national and international levels were built around the programme,
contributing to its long-term financial sustainability. The PES
programme in Costa Rica is practically a national strategy for forest
and biodiversity conservation and sustainable development. It has been a
powerful tool to demonstrate the additional values of forest ecosystems
rather than just the wood, and has thus offered incentives for the
producers to provide these values. Legislation compensates for four
environmental services: greenhouse gas mitigation, water services,
scenic value and biodiversity. The PES programme has contributed to
reducing deforestation and simultaneously reactivated the forestry
industry.
Similar initiatives focussing on conservation of biodiversity have been
undertaken in other parts of the world. A biodiversity cap-and-trade
system in the United States has created ‘endangered species credits’,
which can be used to offset a company’s negative impacts on threatened
species and their habitats. The market volume as of May 2005 was over
US$ 40 million, with 930 transactions carried out and more than 44,600
hectares of endangered species habitat protected. In 2006, Australia
began a pilot project in New South Wales through the 2006 BioBanking
Bill to create incentives for protecting private land with high
ecological value. The project resulted in developers buying
‘biodiversity credits’ to offset the negative impacts on biodiversity.
These credits can be created by enhancing and permanently protecting the
land.
Initiatives are also being taken for conservation at the ecosystem
level. In the United States of America, companies or individuals can buy
environmental credits from Wetland Mitigation Banks to pay for
degradation of wetland ecosystems due to agriculture or development
activities. More than 400 banks had been approved by September 2005,
with trade in 2006 reaching an amount of US$ 350 million. Insurance
firms and major shipping companies are financing a 25-year project to
restore forest ecosystems along the length of the Panama Canal. The
canal’s operation is becoming increasingly affected by floods, erratic
water supply and heavy silting as a result of deforestation of the
surrounding land. Since 1995, the Ugandan legislation places the
management of natural resources in the hands of local authorities.
Consequently, the Ugandan Wildlife Authority (UWA) disburses 20% of all
revenues from protected area (PA) tourism to the local communities
neighbouring the PAs.
Way Forward
In the present conditions of globalisation and rapid economic
development, it is essential to develop markets for ecosystem services
in general and forests in particular. In order to develop markets for
ecosystem services, it is necessary to take concerted steps at various
levels. Knowledge dialogue at the village, district, state, regional and
national and international levels is a step in the right direction. Also
needed is the realisation by people of the need of forests and its role
in sustaining livelihoods for them. Conservation of forests by
market-driven processes will help in proper valuation of forests which,
in turn, will encourage the decision making processes. q
Mustafa Ali
Khan
makhan@devalt.org
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