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MSc programme Environment & Resource Management

Vrije Universiteit, Faculteit der Aard- en Levenswetenschappen


IVM / Institute for Environmental Studies

Valuing CO2 sequestration as a


mechanism to reduce deforestation

Essay for the course ‘Sustainability and Growth’ (468011)

Chimed Jansen

Student number 1438042

25 September 2008
Introduction

“The development of civilization and of industry in general has ever shown itself so
active in the destruction of forests, that everything done by it for their preservation
and production, compared to its destructive effect, appears infinitesimal.”

(Marx 1909)

At present forests are worth more felled than standing. This situation is having a devastating effect
on the world’s forests. In 2005 about 13 million hectares of forest were lost due to deforestation,
including 6 million hectares of primary forest. Of this 7.3 million hectares were not replaced by
forest plantation, or reforestation of other areas. Which equates to almost 0.2% of all forested land
and 0.4% of primary forest cleared in a single year (FAO 2006).

The effects of deforestation are multifaceted. Primarily they lead to a change of habitat, conversion
of tropical rain forest to palm oil plantation for example, leads to the loss of at least half the
vertebrate species on the land (Fitzherbert, Struebig et al. 2008). Losses in flora and insect diversity
are similar. This diversity forms a resilience to a changing environment, through the varying abilities
of different species to survive. It also contains a rich resource in chemical diversity, both in smaller
drug-like molecules and in larger macromolecules, of which less than 10% have been tested (Harvey
2000).

Deforestation leads to knock on effects in soil richness and soil erosion. This can be seen in nutrient
loss and reduced soil enzyme activity, resulting in lower levels of total soil nitrogen, alkaline
phosphatases and organic carbon (An, Zheng et al.). Left unchecked these processes can lead to
degradation of the soil beyond levels able to support agriculture. Finally, deforestation leads to the
release of some of the 283 Gt of carbon stored in the biomass, often through fire, in the form of CO2
(FAO 2006). This release can be significant, it is estimated that forest fires in Indonesia in 1997
released carbon equivalent to 13-40% of the mean global carbon emissions from fossil fuels that
year (Page, Siegert et al. 2002). The release of carbon from forest biomass makes deforestation a
significant aggravating factor in global warming.

Given the problems of deforestation, the question arises: How can forests be made to be more
valuable when standing than when converted to timber and alternative forms of land?

Despite the many services performed by forests, few are integrated in the global economy. One of
the services which is gaining an economic value is CO2 sequestration. In this essay I will look at the
extent to which this service could make forests worth more standing than felled.

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Putting a price on CO2 sequestration by forests
It is estimated that forests globally sequester around 120 Gt of carbon per year, equal to around 60
Gt after respiration, 10 Gt after decomposition and including the forest disturbances (including
forest fires and deforestation) brings the total carbon sequestered annually by forests to 0.7 to 2 Gt
(IGBP Terrestrial Carbon Working Group 1998) (Matthews, Payne et al. 2000). Simulation
calculations place the figure for current sequestration by forrests between 1.5 and 3 Gt per year
(Canadell and Raupach 2008). Taken together these figures give an mean value of 1.8 Gt carbon
sequestered by forests per year.

Figure 1: This graph shows the added cost to the economy of employing various technologies to abate carbon release
and their potential impact. Notice the cost of Carbon Capture and Storage, or CCS, for coal at around $35 and up to
around $60 for high cost power sector abatement (Vattenvall). The original McKinsey cost curve places avoiding
deforestation at the position of the dark bar to the left of the $40 mark (Enkvist, Nauclér et al. 2007).

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Current technology can capture and store CO2 at around $40 per tonne at coal fired power plants.
Capture in this method is temporary and will have to be repeated after around 50 to 200 years
which could lead to a vicious circle, see Figure 2 (Bode and Jung 2004).

Figure 3: This is a vicious circle which could potentially result from CCS systems (Bode and Jung 2004).

So assuming that forests sequester 1.8 Gt of carbon per year, if that function were performed by
CCS, at a rate of $40 per ton, the cost would be $72 billion per year. This value could be brought into
the economic sphere as the yearly cost of the services rendered by forests. This value is not
increased by the temporary nature of CCS, because there are signs that carbon capture by forests
may drop and even reverse under conditions of increased CO2 concentration (Shaw, Zavaleta et al.
2002), increased temperature (Arnone III, Verburg et al. 2008) and droughts (Canadell, Ciais et al.
2008). These are conditions expected to arise due to global warming, therefore forest carbon
sequestration shares some of the long term insecurity associated with CCS.

The CO2 sequestering effects of forests could be included in the coming global carbon trading
scheme, whereby countries would be eligible to benefits equivalent to the value of their forest’s CO2
sequestering activity. This could lead to a more positive attitude towards the carbon trading scheme,
particularly considering Russia, Canada, USA, China, and Australia make up 5 of the 6 countries with
the largest areas of forest cover. These countries currently show moderate, or no, support for the
implementation of the carbon trading scheme. Eventually distinctions could be made to redirect
more of the funds for countries with tropical rain forests and more funds to primary forest as
opposed to tree plantations. However initially applying a blanket rate would provide the cheapest
implementation and perhaps the most international support.

Case study in Brazil


Brazil has the second largest amount of forest land in the world. Recently it has had significant
economic success due to agriculture, a situation which was both brought on by, and lead to,
deforestation. It is therefore of interest to know how including CO2 sequestration funding could alter
the economics of the conversion land use.

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Table 1: This table describes the incomes achievable from soybean farming in Brazil and the proposed CO2 sequestration
income for forests in Brazil.

Case Study of Brazil 2007/2008


Income from land through soybean farming References
60.1 Millions of tons soybean produced (Mello 2008)
36.74 Bushels per ton
2208 Millions of bushels produced
8.5 Price paid per bushel to farmer in US dollars (Melby 2008) (averaged)
18769 Total value of production in millions of US dollars
21.7 Millions of hectares of soybean plantations (Mello 2008)
865 Turnover per hectare in US dollars
30 Percent profit in US dollars (Melby 2008) (averaged)
259 Income per hectare in US dollars

Income from land through proposed forest CO2 sequestration funds


478 Million hectares of Brazilian forest (FAO 2006)
3953 Total hectares of forest in world (FAO 2006)
12 Percent of total forest in Brazil
72 Total income from CO2 sequestration in billions of dollars
8.7 Income for brazil in billions of in US dollars
18 Income per hectare in US dollars

From the results in Table 1, it is clear that the economic incentive provided by pure CO2
sequestration, is not sufficient to compensate a farmer’s opportunity cost of not farming deforested
land. The margin is significant and the value of produce is more likely to rise than the CO2
sequestration value of the forest. However, the remaining forest is large enough to provide 8.7
billion US dollars, which is greater than the profit from the entire soybean industry. If used to
promote sustainable farming practices and development goals, these funds could significantly
reduce deforestation in the future.

Paying the price of CO2 released by deforestation


With this funding comes an obligation to take responsibility for forest maintenance. This could be
made effective by making countries responsible for the CO2 released in forest fires or other
deforestation activities. A move that would lead to improved controls against forest fires and illegal
logging being implemented. The price of CO2 credits are now trading between for $10 to $20 per
ton, however they are projected to rise to around $50 as more industries become subject to carbon
caps and cheap solutions run out (Capoor and Ambrosi 2008). The value of hardwood timber varies
from around $80 to $600 with most species sold for around $200 per ton (ITTO 2008). These values
are likely to rise as hardwood becomes more scarce. This means adding CO2 release costs to timber
will raise prices by an average of 25%, based on pricing the timber alone. However, inclusion of the
calculated CO2 release from foliage, shrubbery, disrupted soil and other biomass not brought to
market, could greatly enhance this figure. These measures would increase the price of timber
relative to other materials and could lead to a significant fall in demand through substitution.

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There is still some discussion as to how much carbon is being released annually by deforestation
(Cramer, Bondeau et al. 2004), however the value most often used is 1.6 gt of carbon (Matthews,
Payne et al. 2000). Taking this figure gives an added expense of $80 billion globally, at a rate of $50
dollars per ton carbon, which would need to be paid at current rates of deforestation. This is greater
than the projected income from CO2 sequestration and would lead to certain countries effectively
paying for the carbon credits of other countries. However, in cases where countries are unable to
bear the costs of deforestation, aid should be provided, preferably combined with help in developing
services to reduce deforestation.

Other services provided by forests


Of course CO2 sequestration only represents one of the many values of forests. Forests are able to
generate sustainable incomes from ecotourism, hunting, sustainable forest management and non-
timber forest products, although these have not been included in this analysis, they all of have
quantifiable values. Furthermore forests provide services which are currently unquantified in
economic terms, so called ecosystem services. There are also ethical and spiritual considerations in
the removal of forests. Should future generations be denied the possibility of experiencing nature as
it still exists today? Should we replace what is unique and diverse with what is common and cloned?
The spiritual bond of humans and trees is evident in religions, as in the Tree of Knowledge of Good
and Evil in Abrahamic religions and the Bodhi Tree in Buddhism. While their importance in animist
and pantheistic religions is even more obvious. This shows there are many ways in which forests
could have their value increased to that needed to bridge the gap from being worth the CO2 they
sequester, to being worth more than timber and farming.

Conclusion
In conclusion, it seems unlikely that forests will be worth more standing than felled based on the CO2
sequestration services they provide, even with a two pronged incentive-penalty approach. In the
case of comparing sustained incomes from farming and CO2 sequestration, it appears that forests
are worth more when converted to farm land. This should not be a reason for not adopting such a
practice, as it could provide invaluable funding, which could be earmarked for use in sustainable
development projects. This could provide a powerful tool to provide alternative sources of income in
the future.

With the value of tropical hardwood likely to rise with its increasing scarcity, felling forests could
become more attractive, even with CO2 compensation. However, the increased prices should lead to
a fall in demand, through improvements in efficiency, as in the case of dematerialisation of furniture
and the adoption of alternative materials, as in the case of using fibers from sustainable sources in
the paper industry.

It should not be forgotten that the many other services provided by forests have value too. The
inclusion of all these services could see forests valued at rates equivalent to logging and farming.
Perhaps this will lead to significant preservation and restoration of forests with the help of the
mechanisms of the capitalist system, which till now have lead to their destruction.

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