Economic Valuation of Forests: Valuing Ecosystem Services from Uttarakhand Forests

Goods provided by natural ecosystems are the basic building blocks of human welfare. The ability of ecosystems to provide these goods depends on the less obvious ecosystem services or processes through which the goods are created and maintained. Despite considerable backstage work by many ecosystem services, their contribution is poorly reflected in the national accounting framework of the country due to lack of measurement of their true economic value. The present system of income accounting in forestry sector in India only takes note of contributions such as industrial wood, fuel wood and minor forest products. Even then, the recorded removals are accounted for, which are only a small portion of actual removals but no valuation and accounting is done for unrecorded tangible values and the entire array of intangible values, i.e., ecological services from forests.

Furthermore, while taking the decision to alter the natural forest ecosystems, very often, little thought is given to the consequences that change may have on forest ecosystem services or to the ultimate cost of losing those services. This oversight stems from our incomplete knowledge about how changes in ecosystems affect the level of services that the systems provide and our inadequate understanding of the roles played by seemingly trivial ecosystem components. Perhaps the most significant factor is that few ecosystem services have clearly established monetary values but most of them not. And this can have a strong impact, considering the fact that many decisions are based on monetary estimates of ecosystem services. The forests of Uttarakhand state are facing the same problem of non-recognition of contribution of these ecosystem services in the overall economic system and, thus, in exchange, they have been receiving a miniscule amount for conserving 64.81% of its geographical area as forests, as mandated by the 1988 Forest Policy.

The forests of the state of Uttarakhand support a wide range of biodiversity. Two major ‘hotspots’ of significance to biodiversity, viz., the Kumaon-Garhwal Himalayas and the Shivaliks lie in this state. The region has six national parks, six wildlife sanctuaries, one biosphere reserve, one UNESCO World Heritage Site and two elephant ranges. These biodiversity rich forests, however, confront an ironic scenario where despite being the provider of a wide array of ecosystem services, described as ‘life supporting systems’, their contribution reflected is only 3.5% of the State Domestic Product (SDP). It is high time to recognise, value and account for the contribution of ecosystem services from Uttarakhand forests in the state domestic product estimation framework and also develop incentive-based mechanisms for the communities conserving the forests of the state, specially the 12,064 Van Panchayats1 of the state currently managing 523,289 hectares of forest.

The article thus exemplifies the estimation of monetary value of various ecosystem services from Uttarakhand forests based on secondary data under different valuation scenarios that could be ascribed to the identified ecosystem services. It also shows how such an exercise can help the decision-making process, increased budgetary allocation from various financing agencies, specially the 13th Finance Commission, and in achieving forest policy objectives. It also suggests mechanisms that facilitate developing markets for ecosystem services from Uttarakhand forests and incentive-based mechanisms for stakeholders the engaged in the conservation process.

The first Scenario calculates the value of Ecosystem Services on the basis of estimates of Costanza’s2 Framework (Costanza et al. 1997b), the very first study conducted in the world which identified 17 specific goods and services provided by ecosystems: gas regulation, water regulation, water supply, erosion control and sediment retention, soil formation, nutrient cycling, waste treatment, pollination, biological control, refugia, food production, raw materials, genetic resources, recreation and cultural services. The Costanza study provides a revealing but rough estimate of the magnitude of ecosystem service values on a global scale, and the reported values can serve as a basis for estimates relevant to specific regions or ecosystems. It also provided estimates of forest ecosystem values for tropical, temperate and all forests of the United States.

Applying the tropical forest values, it has been found that Uttarakhand’s forest area generates Rs 22,610 crores per annum worth of the total economic value. Amongst the ecological services, the nutrient cycling function adds the maximum value of Rs 14,298 crores, followed by value of raw materials (Rs 4912 crores), erosion control and sediment retention (Rs 3818 crores), recreation (Rs 1745 crores), climate regulation (Rs 350 crores), genetic resources (Rs 639 crores) and food production (Rs 497 crores). Low values were found for water supply and regulation, soil formation and noise disturbance.

The second scenario uses the opportunity cost approach of the forest disability index developed by the Planning Commission (2003) based on the reasoning that on account of keeping a large area under forest cover, there has been a loss of Rs 1,124,906 per km2 net revenue from forest conservation in relation to the agricultural sector productivity. Taking the value further to the overall loss, there has been a total loss of Rs 1621 crores annually to the state on account of forest conservation. The current contribution of the forest sector to the SDP of Uttarakhand is only Rs 511 crores annually. If we further subtract this contribution from the value at par with agriculture, i.e., Rs 1621 crores, the final annual loss to the forestry sector comes to Rs 1110 crores. While sacrificing this revenue, the sector provides a considerable amount of watershed services - specially water - to the downstream regions but no compensation is being provided to the state for keeping aside such a large tract under forestry and not taking into account agricultural or industrial development.

The third scenario estimates the ecosystem services value based on the framework developed and data generated by Verma et al. (2003-2006) for annual values from forests from the states of Madhya Pradesh and Himachal Pradesh using various direct and indirect methods of valuation. The states of Himachal Pradesh and Uttarakhand have nearly the same forest area, i.e., 37,033 km2 and 34,66 km2, with forest and tree cover on 14,844 km2 and 25,036 km2, respectively. Thus, due to vegetative and location similarity, the per hectare values for forest ecosystem services generated for Himachal Pradesh have been used to extrapolate values for Uttarakhand, which provides Rs 1,61,921 crores (1619.21 billion) worth of ecosystem services annually, whereas the recorded value in the current system of SDP is only Rs 510 crores in 2003-04, a mere 0.31% of the actual provisioning of various services.

Evolving Markets and Incentive based Mechanisms for ESs From Uttarakhand Forests
There is increasing appreciation around the world of the role played by forests in providing important environmental services such as carbon sequestration, landscape beauty, biodiversity conservation and watershed protection. As many of these services are facing increasing threats, there is recognition that the existing traditional regulatory approaches and public expenditures alone may not ensure their protection and sustained flow. Thus, in many parts of the world, explicit value is being placed on these services and real payments are being generated for forest owners and managers, acting as incentives for conservation. In many cases, poor communities residing in upstream catchments in and around forests have an important role to play as stewards of the area. The increased incentives for undertaking conservation, therefore, hold a huge potential for directly improving their livelihoods. This paradigm shift from the regulatory centralised and command and control type approach to the need for exploring the relevance of alternative and complementary approaches such as ‘Payments for Environmental Services’ (PES) is particularly true in the case of Uttarakhand, where forests constitute an important component not only for the people living here but also in downstream regions. Thus, stakes of various organisations and communities like the forest department, downstream users, Van Panchayats and other conserving communities providing the service, the funding agencies investing in forest capital are very high in conserving the forests of the state.

There has been an increasing trend all over the world to set up mechanisms for PES. A recent global survey found more than 300 such cases of payments across the world. In Karnataka, India, farmers have formed a fund with the assistance of an NGO, the Government of India and the Swiss Agency for Development Cooperation (SDC) to help other local farmers with watershed protection activities such as regenerating forest and maintaining fallow land. Such markets have also been experimented in the states of Himachal Pradesh and Madhya Pradesh. In fact, Indians can learn lessons from Costa Rica, where their 1996 forestry law explicitly recognises four ecosystem services provided by forests: carbon fixation and sequestration, hydrological services, biodiversity protection and scenic beauty. The law compensates those who provide these services and, in July 2003, a forest fund was established to protect forests and developed mechanisms for PES. The aim of the fund was to reduce both poverty and deforestation. The fund has initiated payments for hydrological services in 1.3 lakh hectares. Renewable contracts have been issued for a period of five years. Local communities are paid annually – approximately $350 Mexican Pesos (US$38) per hectare – based on results verified through inventories from satellite imagery. As service providers, they have to maintain land use, prohibit deforestation or deterioration, monitor and evaluation, and report any noncompliance.

Conclusion
It is very pertinent in the given context to develop a framework for appropriate valuation of forest ecosystem services to recognise their role which, in turn, shall help the sector to get appropriate budgetary allocation from various planning agencies for sustainable management of Uttarakhand forests and to also set up incentive mechanisms for forest conservation and livelihood support of the conserving communities.  q

Madhu Verma
mverma@iifm.ac.in

(The author is Professor, Environment and Developmental Economics, Indian Institute of Forest Management, (IIFM), Box 357, Nehru Nagar, Bhopal, Madhya Pradesh)

1 Forest Panchayats, popularly known as Van Panchayats (VP) were constituted in 1931 in Uttaranchal to enable the people to manage a portion of revenue forests lying in the vicinity of their villages. Later, in 1976, the Uttar Pradesh (UP) Government made amendment to the VP Act in order to bring VPs within the ambit of the Indian Forest Act and framed a set of rules to govern their area. The Uttaranchal Forest Rules, 2001 made a further amendment to the VP Act that has given greater control to the Forest Department (FD) in the management of these forests

2 Costanza R et al., 1997b. The Value of World’s Ecosystem Services and Natural Capital. Nature 387:253-60

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