1 Part IV. Renewable Resources A.Fish B.Forests – tropical C.Water D.Biodiversity

2 A. Tropical Forests Chapter 13

3 Introduction Tropical deforestation is an area of environmental degradation that has captured media attention; perceived as a metaphor for and indicator of the decline in the biosphere. While tropical deforestation is not a new phenomenon, the pace has increased. This chapter examines the economic and ecological relationships that shape the answers to questions concerning tropical forest policy.

4 Introduction As defined by the Food and Agricultural Organization, tropical forests are areas located between the Tropics of Capricorn and Cancer where at least 10% of the area is covered by woody vegetation. Tropical rain forests receive over 100 inches of rain per year, with the wettest areas well over twice that amount. Tropical dry forests are semi-arid with a mixture of grassland and forests.

5 Tropical Rain Forests Dominated by broadleaved evergreens, with completely interlocking canopies, with some giant trees rising above the canopy. These giant trees, called emergent trees, support the growth of vines that try to reach the sunlight. Below the canopy there is an understory of shrub-like plants, and a series of non-woody plants that occupy the forest floor.

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7 Diversity Rich diversity of species, with up to 95 % of the world's plant and animal species found in rain forest habitat. According to Perry (1990), as many as 10 to 30 million yet to be discovered species live in the rain forest (only know about 2 million now). Rain forest rivers are correspondingly more diverse than their temperate counterparts.

8 Tropical Dry Forests The tropical dry forest has decidedly less rain and biomass per unit acre than the wet forest. This also results in a greater ratio of nutrients in the soil than in the trees, although the ratio is still less than that in temperate forests.

9 Benefits of Tropical Forests Primary importance: source of ecological services, including the maintenance of hydrological and nutrient cycles, sequestration of carbon, and the provision of habitat for a variety of species, including humans. An additional benefit: harvested to supply wood, which can be used in construction of buildings or furniture, or the manufacture of paper and wood products. Tropical dry forests serve as an important source of fuel for the majority of people who inhabit the tropics.

10 Global public good One of the major market failures associated with management of rainforests involves the public good properties of the rainforest, which create social benefits that the landowners can not capture. However, the domestic country tends to consider only domestic costs and benefits when making choices about rainforest use. As a result, because tropical forests constitute a global public good, deforestation rates which are optimal from a forested country’s point of view may not be optimal from a global point of view.

11 Potential market failure Tremendous potential for two-tiered market failure. The rate of harvest within the country may exceed the socially optimal rate; however, policies designed to correct this would likely not consider the benefits derived by citizens in other countries. In other words, even if countries choose internally efficient policies to address market failure, they may not be globally efficient.

12 Activities that Lead to Deforestation The 3 activities that are primarily responsible for tropical deforestation include: 1.Cutting trees for timber 2.Cutting trees for fuel 3.Conversion of land to crop or range land In addition, mining and urbanization are sources of deforestation, but not to the same extent as the other 3 activities.

13 Sustainable harvesting While timbering is a major source of deforestation, sustainable harvesting could mitigate its impact. Sustainable harvesting is a method of timber harvesting where disturbances caused by harvesting are similar to natural disturbances. There are two basic methods to accomplish this goal: 1.strip harvesting 2.selective harvesting.

14 1. Strip method The strip method identifies small finger-like areas and cuts all the trees within this area. The total quantity cut represents 6% to 10% of the volume of wood in the general area where the harvesting activity takes place. After harvesting, the entire area is left unharvested and undisturbed for a minimum of 30 years.

15 2. Selective harvesting Harvest of individual trees, not a small clearing. These individual trees would be scattered across the entire acreage and would comprise less than 6% to 10% of volume of wood in entire acreage. Again, once harvest was complete, the entire acreage would be left undisturbed for a minimum period of 30 years.

16 Why is most timbering activity destructive to the rain forest? Even though it is technically possible to harvest wood in a rainforest in a manner that keeps the rainforest intact, virtually all commercial harvesting of rainforests results in destruction to the rainforest. Due to a series of market failures, poorly designed government policies and a divergence between private and public benefits associated with changing harvesting methods. Figure 13.4 illustrates the difference between the income paths of a sustainable and non-sustainable forestry.

17 Non-sustainable gives an initial high level of income, but low levels of income into the future. Sustainable forestry management provides lower levels of income for greater periods of time. Unfortunately, firms may focus on the short term income rather than the long term sustainability.

18 Concessionaire agreements Even where the tropical forest is publicly owned, the forest might be harvested in a destructive fashion. One of the major reasons is the way that countries issue leases (concessionaire agreements). The length of the leases is too short a time period and as a result companies harvest at a faster rate than optimal and have no incentive to reduce the environmental damage associated with the harvest activity.

19 Concessionaire agreements Granting the firms long term harvesting rights, which they can either exercise or sell, creates an incentive to maintain the productivity of the forest. If the actions of the firm result in a reduction of the productivity of the forest, then the firm bears the cost. However, long term leases do not give the firms an incentive to protect the flow of ecological services into the future. Economists have suggested that better management of the forest resource could be accomplished by changing the fee structure of the lease for harvesting.

20 Area-based fee Fee structures can be based on area, revenue earned, undifferentiated volume, or differentiated volume. Fee based on the number of hectares in which it operates. This type of fee would give the firm an incentive to clear cut that area. In addition, this fee structure also provides an incentive for the firm to harvest species of trees with the highest profit (“high grading”) and fundamentally change the stability of the ecosystem.

21 Revenue-based fee Charges the firm a fee based on a fixed percentage of total revenue. This type of fee reduces the incentive to clear cut but still retains an incentive for the firms to high-grade harvest because the fee is based on revenue and not profits. It also gives the firm an incentive to harvest in lower-cost areas such as in the proximity of roads and rivers.

22 Volume-based An undifferentiated volume-based fee charges the firm per cubic meter of wood harvested. The fee is constant across all types of wood harvested and will lead to problems of high-grading A differentiated volume-based fee charges a different fee for each type of tree species. If the fees are set properly this type of fee will remove the incentive to high grade. However high administrative costs

23 Other policies – how to harvest While a fee system can influence how many trees are harvested, and what type of trees are harvested, it can not influence how the harvesting activity is conducted. As such, fee systems do not provide incentives to ensure that the rain forests are not destroyed by the process of harvesting. To ensure that harvesting methods are consistent with the recoverability of the forest, the government has choices between 2 broad categories of environmental policy: 1.direct controls 2.economic incentives.

24 Direct controls Specify the techniques that harvesters would be required to use and place restraints on their activities to protect the rainforest. For most economic problems direct controls are associated with lower monitoring and enforcement costs as compared to economic incentives, this is not true for forestry. It is possible for firms to engage in “hit and run” harvesting where the firm goes out into the forest, harvests intensively and destructively and then disappears before penalties can be enforced. Since the assets of the firm are highly mobile, it is difficult to locate and seize these assets.

25 Economic incentives Economic incentives work better because they can be configured to provide an incentive that exists even before the cutting begins. The most useful incentive for environmental management of forests is a performance bond, where money is collected from the firm before it begins its activities. The money is placed in an escrow account, if the firm complies with the environmental regulations during harvesting, the money is returned. If not, the performance bond monies are forfeited. The focus of performance bonds in this context is not to remediate damage (as in strip mining) but to prevent large scale disturbances.

26 Alternative patterns of harvest Forest has better chance of regenerating if following conditions are met: 1.Large ratio of undisturbed: cleared area 2.Cleared area has high ratio of the edge of cleared: surface area cleared Goal is to design economic incentives to ensure timbering activities conform to these requirements

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28 Summary Tropical forests are diverse ecosystems that provide many benefits, including consumable and nonconsumable benefits. Microeconomic conditions, such as poorly defined property rights, and macroeconomic conditions, such as high foreign debt, have contributed to a high rate of deforestation of tropical forests. Improved economic conditions can reduce deforestation. Of particular importance are policies which provide an incentive for sustainable alternatives to current activities.