The case for using ecosystem service valuation and economic instruments to support the scaling up of SLM strategies.

Vanja WesterbergIUCN 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

T2014

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, valued2) And accounted for

Economic values from pasture restoration

Direct Use Value

Increased supply of: Medicinal plantsFodder

Valued using

-Avoided costs-Stated preference

Indirect Use Value

Improved:Carbon sequestrationSediment stabilisationGround water infiltrationDry season water baseflowAnnual 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

THE BENEFITS OF HIMA RESTORATION ??

RANGELAND PRODUCTIVITY

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 ) = γ *biomasst (1−biomasst

biomass MAX)

Value of enhanced rangeland productivity – building blocks

We can predict biomass growth within a HIMA year-by-year.

€

Biomass per ha in himat+1 = biomasst +Growth(biomasst ) −biomass grazedt

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DRY BIOMASS ACCUMULATION AND WITHIN A HIMA SYSTEM

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BASELINE

Dry biomass grazed in the HIMA versus in the pure open access baseline scenario

HIMA

Value of 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/base-line

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 valueof rangeland restoration

Using a Choice Experiment to elicit the valueof 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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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

€

PV of carbon sequestered =t=0

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∑ΔCarbon Sequestration∗SCCt

(1+ r)t* Area

Present Value of Carbon sequestration from large-scale HIMA restoration over a 25 year time horizon

= 6.9 million JOD

Many benefits, but what about:

THE COSTS OF HIMA RESTORATION ??

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:

COST-BENEFIT ANALYSIS OUTCOME?

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%)

LESSONS AND CONCLUSIONS

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 approacheso 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 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

Principles of 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)

PESVarious 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. Labels and certification schemes

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

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

The case for agroforestry?

Mopti region in Mali, our initial results point out that:

Intercropping Acacia Albida trees with millet

May increase soil moisture by 9% throughout the growing season Which would increase millet crop yield of about 10%

Geradef: Acacia senegal and sorghium intercropped can increase yields by up to 28% five years after planting trees

Sudan – Geradef : Demonstrating the returns to acacia senegal and seyal agroforestry.

• The development of mechanized farming systems in Eastern Sudan has led to a rapid expansion of crop area…but at the expense of drastically reduced fallow periods.

• Current farming practices (no nutrient import process + monocropping) has led to soil nutrient mining: Sorghum yields declined at a rate of approx. 1% per year over the last 20 years.

• Crop and water growth model with local climate and soil data show an agroforestry system (sorghum + Acacia senegal) has the potential to increase sorghium yield by 28% after only 5 years of planting the trees.