Ecosystem Services in plantations: from economic
valuations to market-based instruments
New Generation Plantations Annual Summit,
Cape Town 18-19 June
Himlal Baral & Romain Pirard

Economic evaluation of ecosystem goods and services
under different landscape management scenarios

Study landscape background
 Australian landscapes are changing due to changing demands of
society and climate change and variability
 Land use has gone through many cycles of land clearance,
investment, abandonment
 Since European settlement of Victoria in the1830s, ~66% of native
vegetation has been cleared
 Key NRM issues – declining water quality and quantity, salinity
(irrigation and dryland), deterioration of soils, declining biodiversity,
degradation of rivers and wetlands, increasing weeds and pest
infestations

Background – policy context
 Bold, strategic and landscape-scale
initiatives are required to reverse
the land degradation
 The Australian Government and
regional NRM agencies have
adopted a wide range of
sustainability approaches
 Range of market-based
instruments for NRM are being
operated in Australia – e.g., bush
tender, eco-tender
 Carbon farming initiative – as a
new economic opportunities for
farmers and land managers

Study aims
 Identify and define the plausible future land use scenarios
 Identify and assess the key ecosystem services such as, carbon
sequestration, agriculture production, water, biodiversity and timber in
heavily modified and fragmented landscape
 Assess the projected changes in ecosystem goods and services under
plausible future land use scenarios
 Analyse trade-offs and synergies

Study area and major land use categories
• Largely degraded from clearing of native
vegetation for agriculture as well as over
allocation of irrigation water
• Rainfall ~350 mm, 70 m asl
• Size: 30,000 ha
• High conservation value

Timber
Methods: key research steps
Step I
• Collate spatial and attribute data
• Land use and land cover classification
• Identify and define ES for assessment
Step II
• 3 cost based scenarios, and assumptions
• Estimation of ES flow
• Value per ha
Step III
• Develop and define 5 future land use scenarios
• Identify proposed land use change under each scenarios
• Ecosystem services under each scenario
Step IV
• Spatial assessment – tradeoffs, synergies and interactions
• Policy implications
Carbon
Water
Biodiversity

Plausible future land use scenarios
 Business-as-usual
• current farming and management systems continue with no significant
changes in land use and land cover in the future
 Mosaic farming landscapes
• reconfiguration of irrigated farming landscapes to more sustainable use,
such as improved farming, low rainfall forestry and biodiversity plantings
 Eco-centric or environmental plantings
• growing environmental concern and growth of new environmental
commodities such as carbon and biodiversity credits, there will be
substantial increase in environmental plantings
 Agro-centric or production oriented
• higher demand of food/livestock production due to continued population
growth in Australia and globally
 Abandoned land use
• land abandonment due to the depopulation in rural areas, and significant
uncertainly due to changing climate

Timber
Methods: tools and resources
Water
Bush tender payments

Calculation - example
NPV is the net present value ($/ha)
P is the price of carbon,
Qt is the quantity of CO2e sequestrated in year t, EC is the establishment
cost,
MC is the annual management cost, and
r is the rate of discount

Returns from Carbon under various scenarios
-$50 $0 $50 $100 $150 $200 $250
1%
3%
5%
7%
10%
NPV $/ha
Discountrate
Conservative
Optimistic
Central

Returns from carbon +environmental payments
-$50 $0 $50 $100 $150 $200 $250
1%
3%
5%
7%
10%
NPV $/ha
Discountrate
Conservative
Optimistic
Central

Returns from Timber Plantations
-$6,000 -$4,000 -$2,000 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000
1%
3%
5%
7%
10%
NPV $/ha
Discountrate
Conservative
Optimistic
Central

EGS trend under various scenarios
Land use scenarios
Ecosystem Services
Carbon Agri prodn Water Biodiversity Timber
Business-as-usual
 =   =
Future farming
landscapes
  =  
Eco-centric
  =  
Agro-centric
    =
Land abandonment
  ?  =
For $ value see Baral et al. 2014, Land Use Policy

Conclusions
 Against any realistic investment criteria returns from carbon alone
may not be commercially attractive in the study region
 Additional payments via the Victorian Government’s market based
instruments such as, bush tender makes some scenarios attractive
but they are nowhere close to current expected return from
agriculture
 Planting for timber is not commercially attractive as it delivers only
negative or very low returns under all except the most optimistic
scenario (low cost with low discount rate)

Conclusions
 Business-as-Usual and Abandoned Land Use are not a sustainable
solutions the for future as they lead to a decline in ecosystem
services
 Abandoned Land Use potentially threatens native biodiversity and
produces ecosystem dis-services due to potential growth of weeds
and pest animals
 Although Agro-centric is commercially attractive but produces poor
environmental outcome, there is also a growing uncertainty due to
declining rural populations, volatile commodity market, and climate
variability
 Mosaic Farming Landscapes and Eco-centric produces better
environmental outcomes. However, Eco-centric is not commercially
attractive due to harsh environmental condition and associated low
carbon and timber productivity
 Supplemental payments are required to reverse the declining
environmental situation and restore fragmented natural capital

Acknowledgements
 Contributors
• Dr. S Kasel, Melbourne School of Land and Environment
• Prof. RJ Keenan, Melbourne School of Land and Environment
• Prof. NE Stork, Griffith University
• Dr. SK Sharma, Carbon Planet
 Data and support
• Kilter Pty Ltd
• Bureau of Rural Sciences
• North Central Catchment Management Authority
• Victorian Department of Sustainability and Environment
• Dr. R Benyon, CSIRO/ Uni of Melb
 Financial support
• University of Melbourne
• CRC For Forestry
Himlal Baral © University of Melbourne 2012

Another economic approach to plantations:
Market-based instruments for ES

THE ‘DISCOVERY’ OF A NEW GALAXY

With assumed strengths…
Economic signals more effective and flexible
Better resource allocation and efficiency
Filling the funding gap for ES provision

… but also lots of confusion
Inconsistent use of terms
Mis-information of policy-makers
An impediment to policy evaluation

1. Direct markets (e.g. NTFPs for conservation)
2. Tradable permits (e.g. transferable development rights, carbon
markets)
3. Regulatory price changes (e.g. eco-taxes or subsidies)
4. Voluntary price signals (e.g. FSC certification)
5. Coasean-type agreements (some PES, conservation concessions)
A rough guide to the literature jungle

Broad range of analytical approaches:
0%
10%
20%
30%
40%
50%
Local case-
study (ex-post)
Case-study on
national
mechanism
(ex-post)
Theory &
discourse
Comparative
analysis
Advocacy Linkage market
and
biodiversity
Modelling or
simulation (ex-
ante analysis)

Broad range of evaluation criteria:
0% 10% 20% 30% 40% 50% 60%
Efficiency
Environmental effectiveness
Equity
Feasibility
Food security
Freedom of choice
Legitimacy
Participation
Pro-poor
Welfare
Governance
Development

Payments for Ecosystem Services
2.3%
7%
4.7%
34.9%
20.9%
0%
30.2%
0%
10%
20%
30%
40%

Do PES improve governance of reforestation?
Two Indonesian cases

General implications of relying on PES
Establishment of multi-stakeholder agencies as intermediary bodies
between funder and planters to manage funds / distribute incentives
Specific contracts assign objectives to planters with conditional
payments

Results from case studies
Evaluation procedures for the internal governance of farmer groups are
necessary
Multi-stakeholder bodies do not guarantee equal power in decision making
The effectiveness is affected by political purposes
… but is this specific to ‘PES’?

Converging results from previous researches
Governance needs to complement economic tools to achieve outcomes
- Impacts of P&P expansion depend on corporate governance and political will;
- Impacts of plantations on forest conservation depend on public support policies;
- Economic valuations in response to demand by policy makers;
- MBIs require proper regulatory frameworks.

CIFOR Planted forests initiative
- Stakeholders’ perceptions and expectations;
- Labor issues;
- Conflict mediation;
- Community forestry / company-community partnerships;
- Mapping of planted forests.

Further reading
Pirard R., de Buren, and R. Lapeyre, 2014, Do PES improve governance of forest
restoration?, Forests, 5 (3), pp. 404-24.
Pirard, R., 2012, Payments for Environmental Services (PES) in the public policy
landscape: “Mandatory” spices in the Indonesian recipe, Forest Policy and Economics,
18, pp. 23-29.
Pirard, R., 2012, Market-based instruments for biodiversity and ecosystem services: A
lexicon, Environmental Science & Policy, 19-20, pp. 59-68.