The Valuation of Conservation Options Versus Tropical Deforestation


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EOS Sustainability Office presentation during the International Conference on Biodiversity, Climate Change, and Food Security, 3 July 2013

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The Valuation of Conservation Options Versus Tropical Deforestation

  1. 1. The Valuation of Conservation Options Versus Tropical Deforestation 1 Edmund Hoh, Project Leader Gunung Palung National Park , West Kalimantan, Indonesia. International Conference on Biodiversity, Climate Change, and Food Security 3 July 2013
  2. 2. Outline • Project Objectives • Context • Study Site • Methods • Data Collection • Results & Discussions • Conclusion 2
  3. 3. 30-Year Net Present Values US$ Non-Timber Forest Products Illegal Woodfuel Collection Ecotourism Illegal Agriculture Biodiversity Credits Bioprospecting Illegal Logging Carbon Credits BAU Portfolio GHG emissions High in tons of CO2e Low Project Objectives Assess the economic case for reducing greenhouse gas emissions (GHG) from deforestation in Gunung Palung National Park. Compares ‘Business As Usual’ (BAU) high GHG emissions activities … [hypothetical chart, for illustration only] … a Portfolio of low emission alternatives … versus Frequently proposed ‘solutions’ but … … are these viable alternatives to BAU practices?
  4. 4. Context – Deforestation & CO2 Emissions 4 bursts of faunal reproduction (Curran et al., 1999). Although 64% of Kalimantan’s land area were allocated to production forest uses from 1967 to 1972, protected areas were delineated or redrawn in 1984 and 1985 to maintain representative ecosystems and to be managed by the government (MacKinnon et al., 1996). Since then, however, protected areas have experienced concomitant threats from logging, forest fires, and conversions (Curran et al., 2004). Nelleman et al. (2007) illustrated the extent of deforestation in this island and its projection towards 2020 as depicted in Figure 2.1. Figure 2.1. Extent of deforestation in Borneo 1950 – 2005, and its projection towards 2020 Rapid deforestation in Borneo: Indonesia is the world’s third largest emitter of greenhouse gas, accounting for 2.1 billion tons of CO2e in 2005. bursts of faunal reproduction (Curran et al., 1999). Although 64% of Kalimantan’s land area were allocated to production forest uses from 1967 to 1972, protected areas were delineated or redrawn in 1984 and 1985 to maintain representative ecosystems and to be managed by the government (MacKinnon et al., 1996). Since then, however, protected areas have experienced concomitant threats from logging, forest fires, and conversions (Curran et al., 2004). Nelleman et al. (2007) illustrated the extent of deforestation in this island and its projection towards 2020 as depicted in Figure 2.1. Source: Nelleman et al 2007; NCCC Indonesia GHG Cost Curve. Project Site
  5. 5. Study Site – West Kalimantan, Indonesia 5 oRich in bio-diversity* oHistory of empirical data Gunung Palung National Park (GPNP) - 90 000ha. *One of the most species rich parks, orangutan, clouded leopards, sun bears, others. Credits: Google Earth oAccess to local stakeholders oHistory of illegal deforestation NatGeo Edmund Hoh Edmund Hoh
  6. 6. Study Site – Illegal Deforestation @ GPNP 6 Illegal logging on the edge of GPNP. Credits: Edmund Hoh, 2011. GoogleEarth Over 9,000ha lost within GPNP in 2002 (Curran et al 2004) NatGeo Surrounding area slated for palm oil developments.
  7. 7. Methods - Project Phases 7 Stakeholder Buy-in Model Validation Model Design • Project briefing to key local stakeholders  Bupati.  GPNP Admini- stration .  Ministry of Forestry.  Local Community and NGO’s. • Literature review of existing models. • Meta architecture design and key modules. • Mapping of socio- economic drivers and assumptions. • Scenario generation. • Model feedback from experts:  Bogor Agriculture University.  Centre for International Forestry Research.  UN FAO Forestry Department. Data Collection • Secondary research + literature data gathering . • Primary research  EOS Household Survey of villages surrounding GPNP. Findings & Stakeholder Review • Interim results: • Final results: • Final stakeholder discussions. • Final publications. Develop a valuation tool that allows for decision making - valuation based on Discounted Cash Flow (DCF)
  8. 8. Methods - Model Design, meta architecture Toggles between scenarios, which are based on 3 scenarios parameters that drive the value levels of key assumptions. Calculates physical units in the model for BAU (e.g. volume of timber extracted in m3) and for Portfolio (e.g. CO2 emissions). Scenario Layer Physical Layer Economic Layer Output Layer Calculates economic values for key stakeholders by converting physical units into values using prices, costs, margins, etc. Displays key model outputs via tables and graphs. 8
  9. 9. Methods - Main Scenarios 9 Scenarios Scenario Parameters Base Case Pessimistic Optimistic Economic Growth Medium Moderate Indonesian GDP growth at ~5.5% p.a. High Strong economic growth at 7% p.a., higher prices. Low Lower economic growth at 4% p.a., lower prices. Physical Impact of Climate Change Medium IPCC A1B scenario, 25% reduction in crop yields by 2100, pro-rated annually. High Up to 40% rice yield reduction by 2100. Low No reduction in rice yield assumed. Policy Support for the Environment Medium No change in CO2 emissions, log extraction rates from GPNP. Low Illegal logging accelerates; no carbon credit program. High Lower log extraction rate in GPNP; 70% of CO2 results in credits. Remarks Most assumptions follow historical trends. Table shows assumption levels of scenario parameters for each scenario.
  10. 10. Data Collection - EOS Household Survey 10 255 households (HH) from 21 villages around GPNP and Sukadana were surveyed in 2011 to obtain data on farming, logging practices, socio-economic.
  11. 11. EOS Household Survey – Profile of Loggers, GPNP • Households (HH) income of active loggers was 22% lower compared to non-logging HH’s. • Had 20% fewer common HH assets. 11 Cash Income & Assets Motivation & Perception • Engage in logging due to lack of alternative jobs* (40%), (perceived) higher income (58%). • Willing to stop logging if there were alternative steady higher paying jobs. Other Illegal Forest Activities • Also tended to engage in other illegal forest activities: land clearing for farming, woodfuel and NTFP collection inside GPNP. Active loggers tend to come from householders with significantly lower incomes; driven by cash income needs. *Health in Harmony survey: to pay medical bills • 2.4% of the HH around GPNP may be actively logging, potentially representing ~250 HH’s.
  12. 12. EOS Household Survey – Logging Statistics Survey data suggests that the current logging activity at GPNP has fallen compared to historical data. 12 1991,1999: Hiller et al 2004.
  13. 13. EOS Household Survey – Estimated Deforestation Rates 13 Deforestation from illegal timber extraction estimated at 11-24 ha, potentially understated; 50ha assumed (inclusive of land clearing for farming) • Total Households = 250 • Members/HH = 1.04 • Ave team size = 6.6 • #teams = 39 • Trips/team = 1.7 • Total trips = 67 p.a. • Timber/trip = 14 to 30 m3 • Total timber = 940 – 2000 m3 • Timber Yield = 50% • Growing Stock (GS) = 1900-4000 m3 • GS density = 170m3/ha • Calculated area cleared = 11 – 24 ha. Deforestation rate at GPNP appears to have fallen significantly*. *2011: EOS-MRI household survey in Oct 2011. Subject to verification e.g. by satellite imaging and analysis, land surveys.
  14. 14. Outline • Project Objectives • Context • Study Site • Methods • Data Collection • Results & Discussions • Conclusion 14
  15. 15. Results & Discussion 15 ‘Business As Usual’ (BAU) : • Illegal Timber • Illegal Farmland • Illegal Woodfuel ‘Portfolio’ alternatives: • Carbon Credits • Ecotourism • Biodiversity Credits • Bio-prospecting • Non Timber Forest Products Food Security implications
  16. 16. 16 Illegal Timber Module – Overall Demand Annual TIMBER DEMAND Potential in GPNP (m3) Physical Layer Local* Demand (m3) External Demand (m3) Population Size GDP Growth Rate (%) Indonesia Timber Consumption Indonesia Timber Exports Ave Per Capita Consumption (m3/person) Annual Deforestation Rate in GPNP (ha) Population growth rate (%) Literature Data Market/other Data HH-Survey Calculated Sawnwood + Panels + Pulp Indonesia Timber Production Log extraction rate from GPNP (%) Growing stock density (m3/ha) Farmland Demand (ha) Indonesia Timber Supply Indonesia Timber Sub-Module *Around GPNP
  17. 17. Timber Sub-Module – External Demand (Indonesia) 17 Indonesia Timber Supply (m3) Plantation Forests Natural Forest (legal) Natural Forest (illegal) Others Planting Rate *(ha/yr) Deforestation Rate & Forest Cover (ha) Sawnwood Panels Pulp Indonesia Timber Production (m3) Conversion Factors Indonesia Timber Consumption (m3) Ave Per Capita Consumption (m3/person) Population Size GDP Growth Rate (%) Population growth rate (%) *7-8 years to harvest Exports (m3) Industrial Roundwood or ‘Logs’ Timber Products Timber & forestry data obtained from various sources including Ministry of Forestry (Indonesia), FAO, ITTO, others
  18. 18. Global Timber Industry 18 Industrial Roundwood (logs) Panels Sawnwood (veneers) Pulp Paper & PaperboardSecondary Products Hardwoods vs Softwoods Woodfuel Globally, 1.5 billion m3 of logs produced in 2008.
  19. 19. Illegal Logging in Indonesia 19Source: A road map for the revitalization of Indonesia’s forestry industry, Ministry of Forestry (MoF) 2007. EOS estimated based on other sources. Illegal logging volumes fell since the peak in 2002-3. 0 10 20 30 40 50 60 2000 2005 2010 2010 EOS estimate Manurung et al 2007 EOS estimate based on recent FAO data using similar methodology.
  20. 20. 20 Assumption - Timber Consumption Per Capita Timber consumption per capita tends to increase with higher levels of income. (Bhati 2006) Indonesia = 19 m3/1000 persons in 2010, assumed to grow to 28m3/1000 persons by 2041 if GDP rises to US$12,000 per capita.Source: FAO 28 ?! Developed Economies (e.g. US: 154, US$47,100) 45 EOS Base Case
  21. 21. 21 Indonesia Timber - Demand Indonesia’s demand for logs could double over next 30 years EOS timber projections output falls within projections of other models. UN FAO 2007; and CFPS (Ministry of Forestry, Indonesia) 2008. EOS Projections. 2x
  22. 22. 22 Indonesian Timber - Supply Level of illegal logging may depend on potential new supply from forest plantations. Million m3 [sustainable?] [achievable?] EOS projections. [competition from palm oil?]
  23. 23. Illegal Timber – Projections for GPNP This deforestation rate (ha) will be used as the baseline projections for the carbon credit calculations. 23EOS projections. Implications: Deforestation rate at GPNP could triple over the next 30 years 144 m3 Ha Assumes similar extraction rates
  24. 24. Log Prices 24 International log price have been increasing at about 4% p.a. for the last 30 years (up 3x), with two significant surges. CAGR: 5.0% $455 4.0% $340 3.0% $250 Malaysian meranti hard logs, import price Japan, US$/m3. US$320, Feb 2013 US$100 US$500
  25. 25. Timber Pricing Value Ladder and Local Price Components 25 International Prices for Meranti logs, Japan in Dec 2011 (Source: IndexMundi); Domestic – ITTO; Illegal Domestic prices - EOS estimate based on Obidzinski, 2003) 365 200 100 0 50 100 150 200 250 300 350 400 International Prices Domestic Prices Illegal Domestic Prices US$ / m3 Illegal Domestic Price Components (%)Pricing Value Ladder Source: Estimates based on various studies including Obidzinski (2003), Klassen, (2010), Yonariza (2007), EIA/Telapak. Most of illegal logging proceeds goes to the financiers (‘cukong’) and ‘informal payments’ to bribe takers; only a fraction goes to the villagers (as labor wages). Extraction Costs
  26. 26. Illegal Logging in Indonesia - a US$ 3 Billion Industry 26Note: International prices - Meranti logs, Japan cif (indexmundi). Domestic prices – ITTO. Illegal logging estimated at ~US$3 billion in 2012.
  27. 27. Illegal Timber – NPV Results • Base case NPV = ~ US$3.7m (over 30 years @ 20% discount rate). 27 US$3.7m Other stakeholders = takers of bribes Rhett A. Butler, Mongabay, 2011.
  28. 28. Illegal Timber - Summary Demand for timber in Indonesia may double over the next 30 years; log extraction rate may triple in GPNP. • Illegal logging in GPNP driven by local and external demand, and high profits. • Illegal logging across Indonesia could be reduced if more plantation forests are developed. • Local loggers around GPNP tend to come from much poorer households and get only a fraction of the proceeds; are prepared to stop if there were alternative livelihood options. • Deforestation at GPNP ~50ha in 2011, projected to triple over next 30 years; base case NPV ~ US$3.7m. 28
  29. 29. Modules 29 ‘Business As Usual’ (BAU) Activities: • Illegal Timber • Illegal Farmland • Illegal Woodfuel ‘Portfolio’ Activities: • Carbon Credits • Ecotourism • Biodiversity Credits • Bio-prospecting • Non Timber Forest Products Food Security implications
  30. 30. Illegal Farming in GPNP 30 Newly opened (illegal) land inside GPNP (2007) Credits: Zamzani (2007)Credits: Ano Afuera (2011) Lowland farm on the edge GPNP (2007)
  31. 31. 31 Physical Layer ILLEGAL VILLAGE FARMLAND DEMAND (ha) Average HH Size (persons) Annual HH Income (Rp/mth) Changes in HH Income (%) Changes in HH Size (%) Population Size Growth Rate (%) Calorie Needs Per HH (kCal/HH) Food Needs Per HH - By Category (kg/HH) Food Crops Grown (kg/HH) Food Purchased (kg/HH) Cash Crops Grown (kg/HH) Land Productivity by Crop (kg/ha) Cultivated Land Per HH (ha/HH) Crop Mix # or % of HH with land inside GPNP per village # Villages around GPNP Crop Income (Rp/HH) Crop Costs (Rp/ha) Price Per Unit (Rp/kg) Food Expenses (Rp/HH) Inflation (% p.a.) Net Crop Income (Rp/HH) 2450kcal/ person/day 44kg/mth /person Literature Data Market/other Data HH-Survey Calculated i.e. area planted inside GPNP If Food Production < Food Needs If Cash Crop Income > Food Deficit Value Yes No No change in planted area Yes Increase planted area No Illegal Farming - Flowchart *Impact of climate change on crop yields
  32. 32. EOS Household Survey – Farming Practices At least 80ha being cultivated within GPNP, potentially more. • Less than 3% of respondents admitted to having cleared land within the park, averaging 0.3ha. • Main reason cited for clearing land or planting inside GPNP was for the income to feed the family. 32 • Crop Mix – mainly rice, rubber, and some palm oil, vegetables. • Value of Crops - estimated at ~Rp9 million per HH per year (US$1,000) • Costs - planting & harvesting cost of Rp1 million. B4. Crop Mix Planted area (m2) Crop Mix (as % of area) Ave # harvest per year Claimed Yield (kg)/season orha Adjusted Est. Annual Production Qty (tons) Unit Value (Rp/kg) Est. Total Value (Rp) Rice - upland 152,525 16% 1.1 660 30.0 5,944 178,615,249 Rice - lowland 407,787 43% 1.4 1,411 135.4 2,559 346,397,965 Cassava 1,300 0.1% 1.5 132 2.0 500 1,001,000 Vegetables 1,220 0.1% 2.7 113 - 3,500 - Food Crops 562,832 167.4 526,014,214 Palm oil 40,070 4% 9.1 1,400 12,790,344 Rubber 338,855 36% 11.2 13,574 151,791,999 Others 512 0.1% - 1,000 - Cash Crops 378,925 20.3 690,596,557 TOTAL 941,757 100% 187.8 1,216,610,770 Numberof HH's 136 Average 6,925 m2 (Rp/HH/yr) 8,945,667
  33. 33. Climate Change 33 Temperature Scenario’s • The IPCC 2007 AIB scenario projects a temperature change of 2.5-3.0°C in Borneo (EOS Base Case). • In 2011, Hadley Centre projected a potential change of 6°C for Borneo by 2100.  Increased weather volatility, changes in season timings. Up to +6°C for Borneo by 2100.
  34. 34. Rice Yields 34 Source: Walker et al A temperature rise of 2-3°C would reduce grain yields by 7-25% (Hundal and Kaur). • With 6°C increase in temperature, yield falls by ~40% (Walker et al). • Fertility of rice falls from 90% to 20% only after a 2 hour exposure to temperatures above 38°C (Yoshida).  risk of sterility beyond this level.
  35. 35. Illegal Farming – Projected Food Production • Potential food production deficit after 2025, but income from (high value) cash crops (e.g. palm oil) projected to offset shortfall value  no increase in planted area/HH inside GPNP. 35 0 100 200 300 400 500 600 700 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 Food Production Requirements vs Achieved Food production achieved (tons) Own food production requirements (tons) Source: EOS projections. *Assumes a 25% decline in rice yields by 2100, pro-rated annually. Production deficit 0 100 200 300 400 500 600 700 800 900 1000 0 2000 4000 6000 8000 10000 12000 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 TonsRp'm Value of Food Deficit & Cash Crops Food deficit volume (tons) [RHS] Value of food deficit (Rp'm) Value of cash crops(Rp'm)
  36. 36. Illegal Farming – Historical Rice Prices 36 Wholesale Rice Prices 30 years (US$/ton) CAGR: 3.0% Risk of steep rises in international price of rice in event of actual production shortfall. IndexMundi Perceived shortage only, no actual shortage in rice production volumes
  37. 37. Illegal Farming - Summary Farming within GPNP by poor families, lack of land; risk of food production deficit in future; cultivated area likely to increase. • Those engaged in illegal farming within GPNP (<3% of HH, >80ha) tend to be illegal loggers; farmers have relatively small plots (0.6ha), significantly below province average (1.9ha). • Potential rice yield reduction of 25% by 2100 due to climate change. • Potential food production deficit after 2025, but income from cash crops expected to neutralize risk of further land clearing. • Cultivated area could increase from 80ha to 108ha over 30 years. • Base case NPV of ~US$2.3m 37
  38. 38. Modules 38 ‘Business As Usual’ (BAU) Activities: • Illegal Timber • Illegal Farmland • Illegal Woodfuel ‘Portfolio’ Activities: • Carbon Credits • Ecotourism • Biodiversity Credits • Bio-prospecting • Non Timber Forest Products
  39. 39. Annual Illegal WOODFUEL EXTRACTION (m3) Non-Woodfuel HHKerosene (MJ/litre) Others (MJ/kWH) Cooking Energy Needs per HH (MJ/HH/day) Price Per Energy Unit by Source (Rp/unit) Population Growth Rate (%) Changes in HH Size (%) Population Size around GPNP Changes in HH Income (%) Inflation (%) BAU: Illegal Woodfuel Extraction Average HH Size (Persons / HH) Literature Data Market Data HH-Survey Results Calculated Cooking Energy Needs per Person (18MJ/Person/day) Woodfuel HH Avg. HH Income (Rp/mth) Woodfuel (15MJ/kg) # HH around GPNP 39 Physical Layer Collected Food-Income Distribution (food expenses~ cooking energy needs Purchased Cooking Energy Purchases (Rp/HH) Kg to m3 conversion Energy Source (Energy/unit) Quantity Required (units) Within GPNP (kg/HH) Outside GPNP (kg/HH) # & % of HH with illegal woodfuel collection 43 kg/HH/mth
  40. 40. Illegal Woodfuel (WF) – Conclusion 40Credits: Allianz.Source: EOS 2011 Household Survey conducted by MRI, Indonesia. Estimated woodfuel volume collected annually potentially equivalent to 2ha … … but not likely to result in actual deforestation, according to experts*. NPV = ~ $2m (based on charcoal market prices as proxy) *Due to re-growth of forest, dead limbs used.
  41. 41. Modules 41 ‘Business As Usual’ (BAU) Activities: • Illegal Timber • Illegal Farmland • Illegal Woodfuel ‘Portfolio’ Activities: • Carbon Credits • Ecotourism • Biodiversity Credits • Bio-prospecting • Non Timber Forest Products
  42. 42. Carbon Credit Market 42 • Mandatory (or “Cap and Trade”), and the voluntary systems. • The main market of the EU Emissions Trading Scheme traded volume was at 5.5 billion tons CO2 in 2010, (accounts for 80% of global transacted volume). • Reducing Emissions from Deforestation and Degradation (REDD) – voluntary. • 20 million tons CO2 in 2010 Prices (Mandatory) BlueNext CER Spot Prices (EUR) Trading Volume (Forestry) Previous high of ~EUR35 in mid 2008
  43. 43. 43 Baseline Deforestation rate (ha p.a.) Projected/Actual Deforestation Rate* (ha p.a.) Reduction in deforestation* (ha/yr) Above ground growing stock removed (tonnes/yr) Growing stock density (m3/ha) CO2 content (tonnes/m3) Credits to ‘buffer’ account CO2 available for carbon credits to project (tonnes) Verified CO2 emissions reductions (tonnes) Gross Revenue for carbon credit project ($) Carbon credit prices ($/tonne) 30% ~174 m3/ha 1.84 tonnes/m3 Carbon content (tonnes/m3) 0.47x 3.67x Literature Data Market Data HH-Survey Results Calculated *Resulting directly from the Emission Reduction Activities of the carbon credit project. Historical Deforestation rate (ha p.a.) Emission Reduction Activities Demand for Timber Forestry Dept Monitoring Credits available for sale by Project company Third party Physical Layer Carbon Credit Program • Carbon standards, methodologies.
  44. 44. Carbon Credits – Assumptions & Projections Carbon credit project possible only in the optimistic scenario 44 50 144 60 - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… 2… Ha GPNP Baseline & Projected Deforestation Rate Baseline Scenario Projections EOS Projections • Deforestation rates are projected need to be lower that the baseline (reference levels). • Carbon credit prices are significantly higher. • Multiple challenges to overcome
  45. 45. Carbon Credits – Conclusion • Currently not viable from project developer/investor perspective; • Needs international treaty, and stronger prices. 45Credits: Arbre Billets ? • Low NPV of US$0.6m comprising: (a) $1.1 m to local community*, (b) - $0.5m to investor/project developer/government.
  46. 46. Modules 46 ‘Business As Usual’ (BAU) Activities: • Illegal Timber • Illegal Farmland • Illegal Woodfuel ‘Portfolio’ Activities: • Carbon Credits • Ecotourism • Biodiversity Credits • Bio-prospecting • Non Timber Forest Products
  47. 47. Ecotourism Industry 47 • There were 7.7 million visitors to Indonesia in 2011. • Spent an average of US$143/day over 8 days. • 80% headed to Bali. • Less than 8,000 to West Kalimantan. About 90,000 foreigners visited its 50+ national parks in 2009, where the top 5 sites accounted for 70 % of visitors.
  48. 48. Input Sought from Leading Operators Borneo Adventure - Malaysia’s most established inbound tour operators, which offers a range of over 100 tours of Borneo. • Local community • Carrying capacity • Attractions Ecotourism in GPNP • Low Traffic. In 2011, a total of 219 persons visited GPNP including foreigners who numbered 119 , spent an average of $138/person over 2 days. • Monopoly at GPNP by Nasalis Tour & Travel, limited marketing. • Options: (a) Increase marketing for existing facilities, (b) Develop higher priced mid-range accommodation, (c) Develop more attractions. (d) Partner with larger player. 48 Credits: Edmund Hoh Low traffic, basic facilities, monopoly.
  49. 49. 49 Literature Data Market/other Data HH-Survey Calculated TOTAL DEMAND (total stay-days) # of arrivals in GPNP annually # of arrivals West Kalimantan # of arrivals Indonesia Growth rate tourist arrivals(%) Average Stay Days Per Person Capacity # of lodges No of operators # Rooms/lodge Occupancy rate (%) # Room Days Available Global Economic Growth (%) Visitors to National Parks BAU Existing Ecolodge ‘Enhanced’ Mid Range Ecolodge [growth rate in visitors to GPNP] Portfolio: Ecotourism in GPNP
  50. 50. Ecolodges – a study by IFC Average Number of rooms 11 - 35 Occupancy rates 30 – 67% Daily Room Rates - economical - mid range - luxury ($/day) % of Total (#) < $60 73% $61 – 200 18% > $200 7% Annual revenue > $100,000 to $3 million No of staff per room 2 Operating costs - personnel - marketing & sales 22% 6-10% Start-up costs $500,000 - $1 million Ave cost per room $58,000 50 Source: International Finance Corporation, ‘Ecolodges: Exploring opportunities for sustainable businesses’, 2004. Key Success Factors • No more than 1 hour from a local airport, reasonable connection to international gateway. • Capable entrepreneurs, with sufficient capital, good business plan. • Cost < $60,000 per room. • Well trained local staff with foreign language skills, <2 staff per room. • Long term community programs. • Word of mouth, does not depend on advertising. • Part of a multi-lodge model, with additional products and services. Performance and impact varies widely, 10% growth expected, consumer demand for certification not demonstrated, considered a risky market. Survey of 15 enterprises, comprising 73 ecolodges located worldwide.
  51. 51. Ecotourism - Key Assumptions/Projections 51 GPNP can potentially support a 3-room mid-priced ecolodge, (potentially at expense of existing ecolodge). Range of occupancy rate for most ecolodges EOS Projections Carrying Capacity
  52. 52. Ecotourism in GPNP - Conclusion 52 Breakeven is after 2 years, and base case NPV is estimated at S$0.7 million with a new mid-priced ‘enhanced’ ecolodge. • Investor’s base case IRR of 15% not that compelling. • Marketing effort require, competition from the 50 other national parks. At discount rate of 10%
  53. 53. Modules 53 ‘Business As Usual’ (BAU) Activities: • Illegal Timber • Illegal Farmland • Illegal Woodfuel ‘Portfolio’ Activities: • Carbon Credits • Ecotourism • Biodiversity Credits • Bio-prospecting • Non Timber Forest Products
  54. 54. Biodiversity Credits - Approach 54Source: The mitigation hierarchy is widely regarded as a best practice approach to manage biodiversity risk. • Efforts should first be made to prevent or avoid impacts to biodiversity. • This should be followed by minimizing (reducing) • Followed by restoration (repair, reinstate) and finally • Those externalities which cannot be restored must be offset. 1. Avoid 2. Minimize 3. Restore 4. Mitigate/Offset
  55. 55. Biodiversity Programs Globally 55 Region Program Legislation Methodology US (1) Wetlands Compensatory Mitigation (2) Conservation Banking (3) FWS’ Conservation Banking Guidance Yes Yes EU (1) Birds and Habitats Directives (2) European Liability Directive Yes Yes Australia (1) Habitat Hectares Method (Victoria) (2) The Biodiversity Banking and Offsets Scheme Yes Yes Brazil Forest Regulation and National System of Conservation Units Yes Yes World Bank Operational Policy 4.04: Natural Habitats No No IFC Performance Std. 6: Biodiversity Conservation and Sustainable Natural Resource Management No No EBRD Performance Requirement 6: Biodiversity Conservation and Sustainable Management of Living Resources No No Malaysia Malua Biobank No No
  56. 56. 56Source: Malaysia - Malua ‘Biobank’, Sabah. • Who: Sabah Government-owned company license to the Malua Forest Reserve; ceased all logging operations end 2007. • What: US$10 million fund to rehabilitate the Malua Forest Reserve , sell Biodiversity Conservation Certificates. • Status: few sold to- date; seeking new investors and strategies. Voluntary basis.
  57. 57. Biodiversity Credits - Conclusion • Success in developed markets due to supporting legislation. • Credits are not “transportable” i.e. they are location specific. • Deemed not viable in Indonesia, lack of a regulated market. • Insufficient studies on GPNP in terms of impact on biodiversity; additionality clause makes the park not eligible under current methodology. Therefore, unlikely to be viable in the case of GPNP (hence no NPV calculated for biodiversity credits). 57
  58. 58. Modules 58 ‘Business As Usual’ (BAU) Activities: • Illegal Timber • Illegal Farmland • Illegal Woodfuel ‘Portfolio’ Activities: • Carbon Credits • Ecotourism • Biodiversity Credits • Bio-prospecting • Non Timber Forest Products
  59. 59. Bio-prospecting 59 Bio-prospecting is the systemic search for genes, compounds, designs and organisms that might have a potential economic use and might lead to a product being developed. 3 20 75 (Laird’2002) Cosmetics and Personal Care Botanical Medicines Pharmaceutical Industry • Annual sales derived from Traditional Knowledge using genetic resource estimated at around US$100 billion.
  60. 60. Regulations - International • Convention on Biological Diversity (CBD) – conservation of biological diversity the sustainable use of its components and the fair and equitable sharing of the benefits arising out of the utilization of genetic resources • UN Convention on Law of the Sea (UNCLOS) – contains provisions relating to the seabed, the high seas, marine scientific research, and protection of the marine environment which may be relevant to bioprospecting activities. • Trade-Related Aspects of Intellectual Property Rights Agreement – inter alia, minimum standards for the protection of patents in all fields of technology including the use of biological and genetic resources in Biotechnology 60
  61. 61. Regulations - Indonesia (1/2) Indonesia is signatory to the Nagoya Protocol on fair and equitable sharing of benefits arising from use of genetic resources, but there are no regulations at the national level to ensure that it is implemented. • Convention on Biological Diversity – Signatory to the Convention – Ratify the Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization • Trade-Related Aspects of Intellectual Property Rights Agreement – Law No.29/2000 on Plant Variety Protection – regulation No. 13/2004 on the denomination, registration, and utilization of initial variety to develop essentially derived variety • International Treaty on Plant Genetic Resources for Food and Agriculture – international agreement aimed at guaranteeing food security through the conservation, exchange and sustainable use of the world's plant genetic resources for food and agriculture – Implemented through Law No. 4/2006 61
  62. 62. Regulations - Indonesia (2/2) • Cultural Practices Law - 12/1992 – Regulates access to genetic resources • Conservation of Biodiversity and Ecosystems Law – 5/1990 – Based on conservation and potential use of biodiversity and ecosystems in a balanced and compatible manner to support community prosperity and quality of life – Regulates protection of life support systems and conservation and sustainable use of biodiversity • Ministerial Decree No. 1X/2001 on Agrarian Reform and Natural Resources Management – Implement policies on agrarian reform and management of natural resources according to principles of sustainable development – Recognizes and protects the rights of traditional communities in management of natural resources in Indonesia 62
  63. 63. Case Study: INBio-Merck Agreement, Costa Rica • Type of Genetic Resource – Plants, insects and environmental samples across all national parks in Costa Rica • Stakeholders – National Institute of Biodiversity of Costa Rica (INBio): a non-profit association established under Costa Rican Law – Merck and Co Inc.: one of the largest pharmaceutical companies in the world based out of USA • The Agreement – Merck provided INBio with a research fund of US$ 1million over two years, plus laboratory equipment and materials worth $130,000. – Royalty rate not disclosed, 27 patents filed till 2004 63
  64. 64. Potential Revenue to Local Communities 64 Item Range Comments/Reference Sample Collection fee (US$) 50-200 Figures indented to cover actual costs (packaging, transport etc.) Hit rate 1:6,000 – 1:30,000 Probability of developing one commercially viable product; averages 1 in 12,000 Development Period (yrs) 10 – 12 Average duration to develop a marketable commercial product Product revenues (US$) 100m -1bn Total worldwide sales over the lifespan of the product. Royalty payment (%) 1-5 % of gross revenues payable Two potential sources of revenue to local communities: (1) Sample collection fee, and/or (2) Royalties from success development of a commercial product. Stakeholders • Local Communities • Host Governments • Companies • International Donor Agencies • Brokers • NGO’s
  65. 65. Bio Prospecting : Conclusion • Low revenues from sample collection (while upfront). • Royalty payments are uncertain, as it may take over 10 years to develop a product. • No recent successful cases of bioprospecting in Indonesia. • GPNP has a confirmed database of 500 plant species, but deemed low given the above ‘hit’rate of one in 12,000. Therefore, no NPV is attributed to bioprospecting. 65
  66. 66. Modules 66 ‘Business As Usual’ (BAU) Activities: • Illegal Timber • Illegal Farmland • Illegal Woodfuel ‘Portfolio’ Activities: • Carbon Credits • Ecotourism • Biodiversity Credits • Bio-prospecting • Non Timber Forest Products
  67. 67. NTFP in Indonesia Examples: • Rattan and bamboo • Rubber sap • Gaharu (resin wood) • Honey • Plants, flowers, fruits • Animals (pets, meat) including birdsnest 67 • Used for own consumption or for sale. • Rattan used to be a major export for Indonesia. • Gaharu is highly prized internationally. • More sustainable methods for wild honey being promoted. Historical exploitation of NTFP has led to almost complete depletion of these resources [Sellato]. Durian collectors in Gunung Palung, 2009.
  68. 68. NTFP Collection in GPNP - Household Survey Results (1/2) In 2011, less than 2% of the population entered GPNP to collect NTFPs. 68 • Key items were fruits, gaharu (resin wood) and traditional medicinal plants. • Collectors tended to be also engaged in (illegal) logging. Gaharu (resin wood)
  69. 69. NTFP Collection in GPNP - Household Survey Results (2/2) The highest value NTFP collected was gaharu (resin impregnated wood). 69 NTFP Total Qty Collected Rp/unit Total Value (Rp) Total Qty Total Value (Rp) Total Value (US$) Gaharu 3 30,000,000 90,000,000 56 1,681,035,930 186,782 Fruits 104 3,558 370,000 1,943 6,910,925 768 Honey 3 50,000 150,000 56 2,801,727 311 Obattraditional 7 11,429 80,000 131 1,494,254 166 Rattan 25 1,200 30,000 467 560,345 62 Others 30 2,000 60,000 560 1,120,691 125 Total 172 30,068,186 90,690,000 3,213 1,693,923,872 188,214 #of HH 10 187 EOS Household Survey Est. forwhole population *Unit price of Rp30m or US$3,150 (figure provided by respondents) are only for the highest quality. Actual market values could be as low as a few dollars for the lowest quality. • Historical exploitation led to almost complete depletion e.g. extraction of gaharu in GPNP let to almost 98% of trees being ‘liquidated’ (Paoli et al 2001).
  70. 70. NTFP - Conclusion Sustainable NTFP will have to be cultivated outside GPNP - some potential, but a number of issues remain; values (if any) are speculative and considered unlikely to be significant. 70 • Any collection of flora and fauna within GPNP is illegal, hence any ‘sustainable’ collection of NTFP has to be from cultivation of such products outside the park. • Efforts to cultivate the Aquilaria trees (gaharu) have not been successful. • Limited value of other NTFP collected from GPNP. • Some preliminary development of other NTFP (palm sugar, honey) but no evidence of significant success yet. Therefore, no NPV projections/values were projected.
  71. 71. • Project Overview • Modules • Key Challenges & Issues • Summary of Key Results • Conclusions • Appendix 71 Contents
  72. 72. Results – NPV Summary 72 Conservation based activities offer some value but lower Excludes non- monetary ‘value’ from other forest uses. $8m <$2m US$ values over 30 years
  73. 73. Results – NPV Summary 73 Local communities do not benefit much from illegal logging US$ values over 30 years
  74. 74. Outline • Project Objectives • Context • Study Site • Methods • Data Collection • Results & Discussions • Conclusion 74
  75. 75. Food Security Implications • Potential climate change effects may reduce rice yields and due to higher temperature, and/or changes in weather/seasons. • Possible food reduction or food deficit (rice) in 15-20 years, and resulting significantly higher rice prices. • Farming plots are also becoming smaller, harder for households to produce enough, especially for the poor. • Impact may be mitigated by: planting cash crops, more farming land, higher yielding genetic planting material/technology, reorganization of farming practices (economies of scale), or migration/urbanization (for higher incomes). 75
  76. 76. Overall Conclusion 76 Current BAU activities provide significant value; and apart from ecotourism, the other portfolio options show limited value. • Alternative jobs/livelihood options needed • Park surveillance and monitoring needed. • Commercial plantation forests as alternative • Global legal framework for environmental conservation. Continued conservation efforts are likely to remain critical in minimizing future deforestation rates.
  77. 77. Thank You! Contact: Earth Observatory of Singapore (EOS) Andreas Schaffer, Sustainability Director (Principal Investigator) Edmund Hoh, Project Leader Ankit Joshi, Researcher c/o Nanyang Technological University 50 Nanyang Avenue, Block N2-01a-03, Singapore 639798. Tel: (65) 6592-7709 Email: Website: