Options and impact of forest-based climate change mitigation: Ex-ante assessing cost-effectiveness

and equity implications of REDD in the Amazon

Justification

Due to historically high deforestation rates, the Amazon Basin is considered one of the prime targets for
initiatives to Reducing Emissions from Deforestation and Forest Degradation (REDD). Several studies
have suggested REDD in the Amazon to be a highly competitive climate change mitigation option
(Armas et al., 2009, Börner & Wunder, 2008, Grieg-Gran, 2006, Swallow et al., 2007). Most REDD
cost assessments, however, do not go beyond the quantification of the opportunity costs of forest
conservation as a first step towards estimating the potential costs of compensating land users for the
forgone benefits of using forest resources for converting forests to more profitable land uses, e.g.
through payments for environmental services (Brown et al., 2009) (see Nepstad et al., 2009 for a very
rough enumeration of other potential costs). The quantification of other ongoing emission reduction
costs, like running costs and transaction costs, remains a major knowledge gap in devising cost-effective
REDD strategies.

Moreover, it has become clear that PES can only be one component of an effective REDD strategy,
mainly because a large share of annual deforestation in the Amazon is already illegal or occurs on land
with unclear or undefined tenure rights; the rights situation for incentive schemes like PES are seldom
provided (Börner et al. in press). Governments will thus have to combine different policy instruments if
REDD funds from international sources were to be applied in a cost-effective manner. At the national
level, however, we expect governments to make decisions about applying REDD funds on the basis of
equity criteria rather than according to how much emission is avoided per dollar spent. Careful design of
REDD policies therefore requires knowledge about where which REDD interventions can be most cost-
effective as well as what their impact will be on the distribution of benefits and costs among land users
and local economies.

Objective

This project aims at developing policy proposals that optimize REDD interventions according to
quantitative cost-effectiveness and equity criteria.

Methodology

The Brazilian and Peruvian Amazon are chosen as case studies for a comparative analysis, mainly
because they boast considerable differences in the distribution of land among land users, while being
relatively similar in bio-physical conditions. In Brazil, land is highly concentrated with about 20% of
deforestation caused by large landowners, whereas in Peru the lion’s share of deforestation is caused by
smallholders. The distributional effects of REDD interventions are thus likely to be very different, and
would entail taking different approaches to treat very different drivers of deforestation.

The design phase will focus on developing appropriate measures/indicators for REDD cost-
effectiveness and equity impacts in the context of the two case study countries. While it is possible that
indicators exist to estimate REDD opportunity costs, relatively little empirical work has been done to
estimate transaction costs of market-based interventions, forest protection costs which are part of
running costs, and the equity impact of environmental policy measures.

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For the purpose at hand, an appropriate indicator must not only represent the variable in question
reasonably well. It should, moreover, be an indicator that can be constructed based on existing data or
data that can be collected and processed in time spans relevant for decision-making. The research design
phase will thus involve checking potentially relevant alternative indicators against data availability in
both countries in order to arrive at a consistent set of indicators for comparative analyses.

The empirical research component will begin with defining what data is needed and the construction of
a common database for the analysis. This will include spatial and remote sensing information; scientific
and social indicators of cost-efficiency and equity from national statistics; secondary data from
literature; land-use and land-use change scenarios; related public policies and expert information.

The results of the next step, which is the development of analytical scenarios based on this data, will
conduct us to construct spatial data layers for subsequent analyses using GIS-techniques 1.

Spatial analysis will be conducted at three levels: national, regional and local, including areas far from
agricultural border, areas on agricultural border and in dispute, and mixed areas with agriculture and
depredated forest. The analysis will be complemented by verification through ground truthing in defined
sample plots.

The two major methodological challenges of this research consist in developing an adequate spatial
representation of policy implementation costs and spatially explicit measures of equity. In the following
we detail the method for the estimation of implementation costs. A procedure to measure equity is
outlined below.

REDD policy options can be broadly categorized into market and non-market approaches. Command-
and-control (C&C) measures alone have not succeeded in the forestry sectors of most Latin-American
countries. C&C generally functions as a preventive environmental policy tool, enforced through fines on
polluting activities, such as illegal forest clearing. Costa Rica has been among the pioneers of
introducing incentive-based forest conservation policies, through its national Program of Payments for
Environmental Services (Brown et al., 2007). PES, too, can function as a preventive environmental
policy tool compensating economic actors for avoiding polluting activities, such as forest clearing.

Abstracting from all sorts of transaction costs, which apply to both2 PES and C&C, we could say that
the intervention costs of C&C depend primarily on the effort necessary to enforce fines on identified
polluters, whereas the intervention costs of PES depend primarily on the idea of ‘polluter pays’. It is
important to mention here that where C&C is successful and deforestation is prevented, the forest owner
faces the opportunity costs as in the PES scheme. In the context of REDD, C&C requires identified
deforestation polygons to be visited at least once in order to establish liability and initiate a legal

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Overlay analyses using Geographic Information System (GIS) tools, such as Spatial Analyst included in the ArcGIS software
suite and Third Party packages, such as Accessibility Analyst developed by the Center for International Tropical Agriculture
(CIAT)

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PES (e.g., payment negotiation and transfer); C&C (e.g., legal processes and enforcement of convictions). These costs will be
included in the analysis at a later stage on the basis of expert interviews in the environmental protection agencies of Peru and
Brazil.

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process. PES, on the other hand, requires transfers to land users that at least compensate for the foregone
benefits of planned forest conversion.

As a result, potential PES costs increase proportionally with the scale of “planned forest conversion”,
whereas C&C costs, once deforestation has occurred, remain the same (all else equal). C&C costs, on
the contrary, crucially depend on the remoteness access conditions of identified deforestation polygons,
which PES costs are assumed to be rather independent from.

Formally, we could write:

CC &C = f (d p vc)
C PES = f (oc p s p )

Where, C is the cost of ex-post visiting (C&C) or ex-ante compensating (Brown et al., 2009) a given
deforestation polygon, dp is the distance of the polygon in hours travel time, vc is the cost per hour
travel time, ocp is the opportunity cost of conserving the polygon, and sp is the size of the polygon.

For a given deforestation polygon and purely on the grounds of cost-effectiveness criteria, PES turns out
to be the first best policy option whenever CPES < CC&C. Using existing data and spatial analysis tools the
parameters of both equations above can be determined for spatial units of grid cells, i.e. the lowest
spatial resolution of analysis. Figure 1 shows that a Maximum PES Competitive Deforestation Patch
Size can be calculated for each grid cell, i.e. the intersection of the two functions CPES and CC&C.

CC&C/CPES

f(oc1 s1)

f(d1 vc)

Max. PES competitive Deforestation

deforestation patch size patch size (s)

Figure 1: Maximum PES competitive deforestation patch size

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As a result, policy makers can be informed on where in a given study area, which of the two policy
instruments is most likely to become effective at a lower cost.

The choice between market and non market-based approaches REDD policies will most likely be the
major determinant of equity impacts of REDD interventions on the ground. Ideally, the potential income
effects of alternative REDD scenarios would be measured on the same scale as their potential costs.
Equity indicators could then easily be derived. Since data availability generally does not permit an
equity assessment at this level of detail, it is proposed to conduct an analysis at the level of tenure
categories (see also Armas et al. 2009). For both Brazil and Peru spatial information on the location,
size, and population of indigenous territories, protected areas, and different kinds of farmer settlements
is publicly available.

Combining the above described cost and equity assessments with information on transaction costs
collected from government institutions and PES-pilot projects in Brazil and Peru, will allow for a
comprehensive economic assessment of REDD intervention options.

Products from the research

This assessment will serve as a basis for the development of concrete policy proposals as stated in the
objective above. Results will be published in peer-reviewed scientific international journals as well as in
policy briefs tailored to the needs of Brazilian and Peruvian decision-makers to promote replication in
the other Amazon countries.

We will have developed a data set of cost-effectiveness and equity indicators which are verified and
applicable in Brazil and Peru but can also be extended as is or with some modifications, to other
countries in the Amazon region.

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REFERENCES

Armas A., Börner J., Tito M. R., Cubas L. D., Coral S. T., Wunder S., Reymond L. & Nascimento N., 2009.
Pagos por Servicios Ambientales para la conservación de bosques en la Amazonía peruana: Un
análisis de viabilidad. SERNANP, Lima, Perú.
Börner J. & Wunder S., 2008. Paying for avoided deforestation in the Brazilian Amazon:From cost
assessment to scheme design. International Forestry Review, 10(3): 496-511.
Brown D., Frances S. & Peskett L., 2009. Chapter 11. How do we achieve REDD co-benefits and avoid
doing harm? In: A. Angelsen (Ed.) Moving ahead with REDD: Issues, options and implications.
CIFOR, Bogor, Indonesia, pp. 107-118.
Brown S., Hall M., Andrasko K., Fernando R., Marzoli W., Guerrero G., Masera O., Dushku A., DeJong B.
& Cornell J., 2007. Baseline for land-use change in tropics: application to avoided
deforestation projects. Mitigation and Adaptation Strategies for Global Change: 26.
Grieg-Gran M., 2006. The Cost of Avoiding Deforestation. Report prepared for the Stern Review of the
Economics of Climate Change. International Institute for Environment and Development (IIED),
London.
Nepstad D., Soares-Filho B. S., Merry F., Lima A., Moutinho P., Carter J., Bowman M., Cattaneo A.,
Rodrigues H., Schwartzman S., McGrath D. G., Stickler C. M., Lubowski R., Piris-Cabezas P.,
Rivero S., Alencar A., Almeida O. & Stella O., 2009. The End of Deforestation in the Brazilian
Amazon. Science, 326(5958): 1350-1351.
Swallow B., Noordwijk M. v., Dewi S., Murdiyarso D., White D., Gockowski J., Hyman G., Budidarsono
S., Robiglio V., Meadu V., Ekadinata A., Agus F., Hairiah K., Mbile P., Sonwa D. & Weise D.,
2007. Opportunities for Avoided Deforestation with Sustainable Benefits. An Interim Report by
the ASB Partnership for the Tropical Forest Margins. Nairobi, Kenya.

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 Time Schedule of the Project
Type Name Schedule of the activities
Phase Research design oct-10 nov-10 dic-10 ene-11 feb-11 mar-11 abr-11 may-11 jun-11 jul-11
Develop measures/indicators for REDD cost-effectiveness and
Main Task equity
Task Compilation of statistical data
Task Compilation of spatial data
Task Data Collection : transaction costs
Task Develop cost-efficiency and equity indicators for C&C and PES
Task Indicators check/validation
Output Data set of indicators of cost-efficiency and equity
Milestone Indicators data set defined
Phase Application
Main Task Spatial and statistical analysis
Task Regional database construction
Definition and priorization of scenarios (national, regional, local/far
Task from agricultural margins, in agricultural margins, agriculture mixed
with forest)
Task Spatial representation of indicators and scenarios in GIS
Task Define models for analysis based on indicators and scenarios
Task Ground truthing
Output Article of spatial analysis and modelisation of REDD scenarios
Milestone Models represented in each scenario
Main Task Spatial targeting of costs-efficiency and equity
Task Analysis of variability indicators using spatial models and scenarios
Calculation of the costs of C&C and PES with regard to deforested or
Task high-risk areas, as well as areas with different land-uses and
populated areas
Task Cross-spatial analysis of costs and all land-use categories
Assessment report of cost-effectiveness and equity implications of
Output
REDD in the Amazon
Milestone Spatial targeting of cost-efficiency and equity