Ecosystem Services

Valuation and Accounting

of Himachal Forests

Supported by
Himachal Pradesh Forest Department, Talland,
Shimla – 171001. Phone: 91-177-2624186, 2623147

Ministry of Environment, Forest & Climate Change, GoI.

Authors
Madhu Verma, Professor, Indian Institute of Forest Management
R.B. Lal, Ex- Director, Indian Institute of Forest Management
Dhaval Negandhi, Subject Expert, Indian Institute of Forest Management
Chandan Khanna, Special Project Associate, Indian Institute of Forest
Management
Gitanjali Shahi, Special Project Associate, Indian Institute of Forest
Management

Suggested Citation
Verma, M., Lal, R.B., Negandhi, D.,Khanna, C., Shahi,
G. Ecosystem Services Valuation and Accounting of Himachal Forests.
Indian Institute of Forest Management. Bhopal, India. September 2016.

Contact information
Indian Institute of Forest Management, PO. Box 357, Nehru Nagar, Bhopal
(462003), Madhya Pradesh, India Phone: +91-755-2775716 (Ext: 334) |
Email: mverma@iifm.ac.in

Photo Credits : Madhu Verma

Disclaimer : The views expressed and any errors herein are entirely those of the lead
and collaborating authors. The views as expressed do not necessarily reflect those of
and cannot be attributed to the contacted individuals, institutions and organizations
involved. The information contained herein has been obtained from Himachal Pradesh
Forest Department, Forest Survey of India, discussions with stakeholders; a review
of publications, deliberations of the workshop conducted and is to the best of our
knowledge accurate. Despite all precautions taken to accurately reflect the information
that was collected for this report, any errors pointed out subsequently by any party
cannot lead to any liability on the part of the authors. The contents of this report may be
used by anyone providing proper acknowledgements

II
Ecosystem Services Valuation and
Accounting of Himachal Forests

Lead Authors
Madhu Verma
R.B. Lal
Dhaval Negandhi

Contributing Authors
Chandan Khanna
Geetanjali Shahi

Executed By
Centre for Ecological Services Management,
Indian Institute of Forest Management

With the support of the

Himachal Pradesh Forest Department

September 2016

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 Ecosystem Services Valuation and
Accounting of Himachal Forests
About IIFM and CESM
Indian Institute of Forest Management (IIFM)
Established in 1982, the Indian Institute of Forest
Management is a sectoral management institute, which
constantly endeavours to evolve knowledge useful for
the managers in the area of Forest, Environment and
Natural Resources Management and allied sectors. It
disseminates such knowledge in ways that promote
its application by individuals and organizations. The
mandate of IIFM is appropriately reflected in its mission
statement, "to Provide Leadership in Professional
Forestry Management Aimed at Environmental
Conservation and Sustainable Development of
Ecosystems."
IIFM is a registered society under the Societies
Registration Act at Bhopal. The Hon'ble Minister
for Forests and Environment, Government of India
is the President of the Society. The members of the
society consist of State Forest Departments, State
Forest Development Corporations, Ministries of
Human Resource Development, Finance, Forest and
Environment, Rural Development at the centre, and
Forest-based Industries.
The mandate of IIFM is appropriately reflected in its
mission statement:
"To Provide Leadership in Professional
Forestry Management Aimed at
Environmental Conservation and
Sustainable Development of Ecosystems"
2
The Director of the Institute, as its executive head,
supervises the activities of the faculty and the
administration. The Institute prides itself in having a
multi-disciplinary faculty which is a mix of academicians
and practising forest officers in the following nine
faculty areas:
• Communication and Extension Management
• Ecosystem and Environment Management
• Environment and Developmental Economics
• Financial Management
• Human Resource Management
• Information Technology and Quantitative Techniques
• Marketing Management
• Sociology and Community Development
• Technical Forestry
Centre for Ecological Services Management
(CESM), IIFM
CESM is a centre of excellence established in 2007 at the
Indian Institute of Forest Management with a mission
to conduct action and policy research for ecosystem
services management. The goal of the centre is to
function as a think tank to generate a useful database
and an appreciation for ecosystem services, their
physical assessment, valuation and establish incentive-
based mechanisms to promote conservation. The centre
has contributed significantly to many important policy
decisions in the area of forest and natural resource
management in the country.

IIFM’s Contribution to Valuation and Accounting Studies Since 2000
• Economic Valuation of Forests of
Himachal Pradesh – Introduction
of CLEV (Compensation for the
Loss of Ecological Values) an
Ecological Cess Instrument (2000)
-HPFD
• Developing Methodology for
Forest and Land Resources (2003-
05) – Used by Supreme Court
Committee on NPV (2006) –IEG &
MoEFCC
• National Forestry Commission:
Framework for Natural Resource
Accounting (2006) - NFC
• Developing Markets for Payments
for Ecosystem Services in
Himachal Pradesh (2007) – IIED
• Valuation of Forest Ecosystem
Services in Uttarakhand
Himalayas (2007) –LEAD India
and HBF
Studies Conducted Under the
Centre of Ecological Services
Management, IIFM, Bhopal
(Established in 2007)
• Developing Mechanism for
Increased Allocation of Budgets
for States Managing Large
Geographical Areas Under Forests
(2009) - Thirteenth Finance
Commission
• Strengthening Capacity for
Alleviating Poverty Through
Ecosystem Services – Developing
Markets for Ecosystem Services
Through Generating Livelihood
Benefits (2009-2010) - UNEP
• Roles of CNRM Institution and
Poverty Reduction in Gujarat and
Madhya Pradesh – Effectiveness
of JFMCs in Poverty Alleviation
(2009-2012) - ISCG
• Forest Carbon Modelling – for
Proposing REDD+ Value from
International Markets (2011-
2013) – IIASA & TIFAC
• Revision of NPV Rates of Forest
Diversion – Fixing Charge for
Forest Diversion (2014)- MoEFCC
Ecosystem Services Valuation and Accounting of Himachal Forests
• Protected Area – Wetland Valuation • Green Accounting of Forest
– Providing Value of Carbon from
PA Wetlands (2014)-MoEFCC
• Estimating Ecosystem Services
Values of Himachal Forests –
Revisiting the Value of Forests of
Himachal Pradesh (2014) -HPFD
• Guidelines of Cost Benefit Analysis
for Forest Diversion (2014) –
MoEFCC
• High Conservation Value Forests
(2013-2014) – 14FC
• Capacity Building in National
Planning for Food Security (2011-
2014)- UNEP
• Economic Valuation of Tiger
Reserves in India (2013-15) – NTCA
• Regional Research to Inform
the High Level Panel on Global
Assessment of Resources for
Implementing the Strategic Plan for Report Finalization Workshop
Biodiversity 2011-20 for the South (September 2016)
Asia Region (2013-14) – CBD-
WCMC
• Co-author National REDD+
Policy and Reference Documents
(2014)-MoEFCC
• Co-author in the International TEEB
(The Economics of Ecosystems and • Dr. Anu Nagar, CF(HRD)
Biodiversity) 2007-2010- UNEP
• Evolved and Set Up TEEB
IndiaStudy (2010-12) - MoEFCC
• Expert Member and Lead Author
- IPBES (Inter-Governmental
Platform on Biodiversity and
Ecosystem Services) – Ongoing
Since 2013 – UNEP
Ongoing Valuation and
Accounting Studies at CESM
• Economic Valuation of Ten
Additional Tiger Reserves in India
for National Tiger Conservation
Authority, , MoEFCC, GOI (2016-17)
• Building Regional and Technical
Capacity for Economic Valuation of
Tiger and Leopard Landscapes in
Selected Tiger and Snow Leopard
Range Countries for Global Tiger
Forum (2015-16)
Resources, Framework for Other
Natural Resources, and Index
for Sustainable Environmental
Performance for Uttarakhand
and Capacity Building on
Environmental Statistics and
Green Accounting for Directorate
of Economics & Statistics,
Uttarakhand Government. (2016-
17)
• Forest Resource Accounting
and Valuation of Economic
Contribution of Forests and
Protected Areas in Rajasthan
and Capacity Building on
Environmental Statistics and
Green Accounting for Rajasthan
Forest Department (2016-17)
Execution Support
• Mr. S.P. Vasudev, PCCF (HOFF),
HPFD
• Dr. Vineet Kumar, APCCF (Admin.)
• Mr. Ramesh Chand,APCCF (CAT
Plans)
Steering Committee
(Constituted during October
2011- December 2013)
• Mr. R.K. Gupta, IFS, PCCF
• Dr. R.B.Lal, IFS, Director, IIFM,
Bhopal
• Mr. J.S. Walia, IFS,APCCF (CAT
Plans)
• Members of the Core Committee
Core Committee (Constituted
during October 2011- December
2013)
• Mr. Tejinder Singh, IFS, CCF
(Working Plans and Settlements),
Nodal Officer of the Study
• Mr. Rajiv Kumar, CCF(IT)
• Mr. S.P. Vasudeva, CCF(S&A)
• Mr. Sanjeeva Pandey, CCF(Wildlife)
• Mr. V. K. Tiwari, CCF, HPPC
• Dr. SushilKapta, DCF
3
 Ecosystem Services Valuation and
Accounting of Himachal Forests
Acknowledgements
The report is prepared for the consultancy
project titled “Ecosystem Services
Valuation and Accounting of Himachal
Forests” awarded by the Himachal Pradesh
Forest Department (HPFD), Government
of Himachal Pradesh. However, the views
expressed and any errors are entirely
those of the authors and do not necessarily
corroborate the policy view points of the
contacted individuals and institutions.
At the very outset, the team expresses
its deep gratitude to Mr.S.P.Vasudev,
PCCF (HoFF), Government of Himachal
for making aspecial intervention for
finalization of the Report in September
2016. We are deeply indebted to Mr Vineet
Kumar, APCCF(Admin), HPFDfor his
constant guidance in Report finalization.
We would also like to put on record inputs
that we received from all participants of
the day long report finalization workshop
held at the conference hall of HPDF on
September 22, 2016 (list of the participants
attached in Annexure 4)
We are extremely thankful to Mr. R.K.
Gupta, Principal Chief Conservator of
Forests, Himachal Pradesh, the then PCCF
(HoFF) for expressing his confidence in
delegating such a challenging task to the
Indian Institute of Forest Management,
Bhopal. We express our deep appreciation
for his warm hospitality and immense
help throughout the project execution.His
valuable inputs on the related issues, out of
his sheer work experience and tremendous
knowledge in forest management held the
project team in shaping the methodology
and execution process.
We are deeply indebted to Mr.Vinay
Tandon, Advisor, Forests (the then Principal
Chief Conservator of Forests) Government
of Himachal Pradesh when the project was
conceptualized, for encouraging us to take
this assignment and his enriched inputs in
evolving the framework for the study.
The authors are extremely grateful for the
concentrated involvement and methodical
4
leadership of Mr. J.S Walia, APCCF, HPFD
who provided immense field support to
the team and necessary guidance in terms
of selecting the sites for case studies. The
authors gained considerable information
about various challenging issues relating to
valuation exercise of the forest ecosystem
services and payment for ecosystem services
in the state from him.
We wish to extend our heartfelt thanks to
Mr.Tejinder Singh, Additional Principal Chief
Conservator of Forests (APCCF), HPFDfor
his support in accomplishing the project
asa Nodal Officer. The technical inputs
provided by him from time to time have been
very valuable. The authors express their
gratitude to him for sharing his enriched
experience in the state, giving us a powerful
body of knowledge, connecting us with the
concerned stakeholders and also extending
his support in organizing the stakeholder’s
consultation workshop in October, 2011 in
Shimla and the Steering Committee Meeting
in February 2012 in Bhopal.
The authors are especially thankful to the
Steering Committee Members and the Core
Committee Members for supporting the team
to refine the methodology for economic
valuation and site selection for case studies
and constant guidance to streamline the
execution process and to come out with
meaningful outcomes.
The team has immensely benefited from
various experts and practitioners present
in the inception workshop of the project
held on October 21, 2011 at Hotel Peterhof,
Shimla who participated with great
enthusiasm and interest and provided very
useful inputs to the study. In this regard,
we are especially thankful to Mr. Sudipto
Roy, Addl. Chief Secretary, Government
of Himachal Pradesh who shared his vast
national and international experience and
advised the team to consider the middle
path to evolve outcomes of the present study
with practical applications. We would like to
extend our heartfelt thanks to Mr G.S Goraya

and his team for their logistics
and technical support to the
team for executing the household
survey. Our documentation of
case studies at the field was not
possible without the help of Mr.
Vinod K Tiwari, CCF, HP Power
Corporation Limited; Mr. Rajeev
Kumar, CCF, HPFD, Shimla; Mr.
ArvindAlipuriya, Mid Himalayan
Watershed Development Project,
Solan; Dr. Suresh Kumar,
CCF (WL), Dharamshala and
Ms.SangeetaChandel, DFO,
Dharamshala. We express
our sincere thanks for their
wholehearted assistance and
inputs for understanding the sites
as well as organizing logistic
support for the team.
It was a great experience learning
from the interventions made by Mr.
Ratan Chand, Jadera Panchayat
and Mr. Chain Lal of Baant
Panchayat for their intervention
in the region and making the
difference in the entire hinterland.
We are extremely thankful to
them for very passionately
sharing their experience and
giving us many insights about
their panchayats. We are indebted
to Mr. Bakshi Ram, Van Sevak,
Forest Development Committee,
Bhawarna, Palampur for sharing
his journey of forest conservation
and encouraging us to document
many more such cases. We also
wish to put on record the help
extended by villagers on different
work sites for making us aware
about the issues and challenges
and their help in exploring
solutions.
We wish to extend our sincere
appreciation to the Forest Survey
of India, Dehradun for sharing its
Ecosystem Services Valuation and Accounting of Himachal Forests
quality data and expert guidance
in estimation of carbon stocks
and their value. The authors
gained immense knowledge from
interactions with Mr. Rajesh
Kumar who has vast and enriched
experience in the area of forest
inventory and carbon estimation of
Indian Forests.
We are deeply indebted to
the Himachal Pradesh Forest
Department for giving us an
opportunity to share the outcomes
of the project in the Study
Presentation Workshop held on
January 29, 2014 at Shimla which
greatlyhelped us in finalizing the
report.
We are extremely grateful to
Mr. Anil Vaidya, Nodal Officer,
HP State CAMPA -cum- CF (CAT
Plans) Shimla for his facilitation
in the Draft Study presentation in
January 2014 and followup support
in finalization of the Report.
We express our deep gratitude to
Dr. R.B. Lal, Ex-Director, IIFM, who
was also a team member for all
his support and for his immense
contribution to the study. We are
thankful to Mr. Arun K. Bansal,
Ex-Director, IIFM and Mr. A.K.
Srivastava,Ex-Director, IIFM for
their unconditional support in
accomplishing the project. We
extend our heartfelt thankstoDr.
G.A. Kinhal, Ex-Director,
IIFMfor his support in the draft
studypresentation workshop held
in January 2014. We wish to put
on record the supports extended
by Mr. Anil Kumar, Director (In-
charge) for accomplishment of the
final report.
The project is executed under the
Centre for Ecological Services
Management (CESM) at IIFM
and we gratefully acknowledge
the support provided through
the Centre for execution of
the project. In this regard
we sincerely acknowledge
the diligent efforts of Mr.
DhavalNegandhifor meticulously
developing various scenarios in
light of the comments received
during the January 2014
workshop in Shimla. We would
like to put on record the efforts
ofMr.Chandan Khanna, Subject
Matter Experts at CESM for
his inputs to the report till its
finalization. Ms.GeetanjaliShahi,
deserves acknowledgement for
her support in the initial stages
of the study and development of
casestudies in 2012-13. Ms. Ritika
Agarwal and Ms. Charu Tiwari,
subject experts at CESM, deserve
appreciation for their inputs
in finalization of the report in
September 2016.
We wish to extend our sincere
thanks to Mr. Manoj Kumar Jha
and Mr. Sekar for their constant
secretarial support over the time
periods in the preparation of this
report. In the end, we extend
our heartfelt thanks to all the
individuals and their institutions
who contributed their time and
expertise in realization of the
objectives of the project.
(MadhuVerma)
September28, 2016
Bhopal
5
 Ecosystem Services Valuation and
Accounting of Himachal Forests

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Ecosystem Services Valuation and Accounting of Himachal Forests

7
 Ecosystem Services Valuation and
Accounting of Himachal Forests
Glossary
Carbon Credits
Carbon credits as defined by Kyoto Protocol are one
metric ton of carbon emitted by the burning of fossil
fuels.
Carbon Flux
Carbon flux refers to the net difference between carbon
sequestration and carbon respiration.
Carbon Sequestration
The removal and storage of carbon from the atmosphere
in carbon sinks (such as oceans, forests or soils) through
physical or biological processes, such as photosynthesis.
Carbon Stock
The quantity of carbon contained in a “pool”, meaning a
reservoir or system which has the capacity to accumulate
or release carbon.
Consumer Surplus
The consumer surplus is the amount that consumers
benefit by being able to purchase a product for a price
that is less than they would be willing to pay.
Contingent Valuation Method
A valuation from a survey technique using direct
questioning of individuals to estimate individual’s
willingness to pay.
Cultural Services
The non-material benefits obtained from ecosystems.
Dense Forest
All lands with a forest cover having a canopy density of
40 percent and above.
Direct Use Value
The value derived from direct use or interaction with the
ecosystem’s resources and services such as food and
timber.
Ecosystem Services
Ecosystem services are the benefits people obtain from
ecosystems.
Existence Value
Values reflecting a willingness to pay for the ecosystem
in a conserved or sustainable use state, but the
willingness to pay is unrelated to current or planned use
in future.
8
Forest Area
The area recorded as a forest in the government records.
It is also referred to as “recorded forest area”.
Forest Cover
All lands, more than one hectare in area, with a tree
canopy density of more than 10 percent irrespective
of ownership and legal status. Such lands may not
necessarily be a recorded forest area. It also includes
orchards, bamboo and palm.
Hedonic Pricing
Method to value ecosystem services on the basis that
reflection of service demand in the prices people pay for
associated marketed goods
Indirect Use Value
Indirect support and protection provided by economic
activity and property by the ecosystem’s natural
functions, or regulatory ‘environmental’ services, such
as flood protection.
Market Price Method
Method that uses the exchange value (based on marginal
productivity cost) that ecosystem services have in trade.
National Park
Means an area declared, whether under Section 35 or
Section 38 or deemed under sub section (3) of Section 66
of the Wildlife (Protection) Act, 1972.
Opportunity Cost
The value of that which must be given up to acquire or
achieve something.
Option Value
Values reflecting the willingness to pay to conserve the
option of making use of a natural resource even though
no current use is made of it.
Payment for Ecosystem Services
A PES is a voluntary transaction where a well-defined
ecosystem service (ES) (or a land-use likely to secure
that service) is being ‘bought’ by a (minimum one) ES
buyer from a (minimum one) ES provider if and only if the
ES provider secures ES provision (conditionality).
Producer Surplus
The producer surplus is the amount that producers
benefit by selling at a market price mechanism that is
higher than they would be willing to sell for.
 Ecosystem Services Valuation and Accounting of Himachal Forests

Protected Forest
An area notified under the provisions of the Indian
Forest Act or other State Forest Acts, having a limited
degree of protection. In protected forest all activities
are permitted unless prohibited.
Provisioning Services
The goods or products obtained from ecosystems.
Regulating Services
The benefits obtained from an ecosystem’s control of
natural processes.
Willingness to Pay (WTP)
It is the amount an individual is willing to pay to
acquire some good or service.
Sanctuary
Means an area declared by notification under Section
18 of the Wildlife (Protection) Act, 1972, and includes
a deemed sanctuary under sub section (4) of Section
66 of the Wildlife (Protection) Act, 1972
Shadow Pricing
The price ‘adjusted’ to eliminate any distortions
caused by policies or market imperfections so as to
reflect true willingness to pay.
Supporting Services
Natural processes that maintain other ecosystem
services.
Total Economic Value (TEV)
It is as an aggregation of the main function based
values provided by a given ecosystem. This includes
the use and the non-use values.
Travel Cost Method
The value of visiting an area derived from the cost of
travel, including recognition of the opportunity costs
of travel time.

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 Ecosystem Services Valuation and
Accounting of Himachal Forests

List of Acronyms

HPFSR Himachal Pradesh Forest Sector Review TC Travel Cost Method

PES Payment for Environmental Services
FAO Food and Agricultural Organization
IBM Incentive Based Mechanisms
NWFP Non-Wood Forest Products
CLEV Compensation for Loss of Ecological Value
TEEB The Economics of Ecosystem and Biodiversity
REDD Reduced Emissions from Deforestation and
Forest Degraded
BNP Banakun National Park
CVM Contingent Valuation Method
TEV Total Economic Value
GDP Gross Domestic Product
FRA Forest Resource Accounting
CDM Clean Development Mechanism
CAMPA Compensatory Afforestation Management
and Planning
ITTO International Timber Trade Organization
UNDP United Nations Development Programme
GEF Global Environmental Facility
CES Cultural Ecosystem Services
UNEP United Nations Environment Programme
FSC Forest Certification Council
HPFD Himachal Pradesh Forest Department
GSDP Gross State Domestic Product

Terms of Reference (MoU datedFebruary 20,2011 and Revised Agreement datedNovember 9, 2012)
• Estimating the economic value of ecosystem services of HP forests and develop ecosystem services accounts
• Analysing the distribution of costs and benefits associated with conservation of HP forests
• Providing policy and institutional recommendations for internalizing these values into decision-making
Project Progression
• Project Agreement signed:February 28,2011 foroneyear execution period
• Project Agreement revised:December 14, 2012 and extended upto February 2013
• First Draft submitted: January 2013
• Organization of First PresentationWorkshop:January 29, 2014
• Final Draft Report submitted after inclusion of workshop suggestions: May 2014
• Organization ofReport Finalization Workshop:September 22, 2016

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Ecosystem Services Valuation and Accounting of Himachal Forests

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 Ecosystem Services Valuation and
Accounting of Himachal Forests

Table of Contents
Acknowledgements 04
Glossary 08
List of Acronyms 10
Terms of Reference 10
Executive Summary 14
1. Introduction 19
1.1 Background 20
1.2 Objectives of the Study 20
1.3 Structure of the Report 21
1.4 Approach 21
1.5 Methodology 26
Millennium Ecosystem Assessment 27
Stock and Flow Benefits 27
Tangible and Intangible Benefits 27
Investment Multiplier 27
2. Valuation and Accounting of Forest Ecosystem Services: A Methodology 29
2.1 Valuing Forests 30
2.2 Need for Conserving Forests 30
2.3 Forest Valuation in India 31
2.4 Need for Total Estimate of Ecosystem Services 33
2.5 Ecosystem Valuation: An Introduction 33
2.6 Broad Categories of Economic Valuation 33
2.7 Economic Valuation Techniques in Detail 35
2.7.1 Total Economic Value 35
2.7.2 Benefit Transfer Method 36
2.7.3 Replacement Cost Approach 36
2.7.4 Hedonic Pricing Method 37
2.7.5 Production Function Approach 37
2.7.6 Travel Cost Method 38
2.7.7 Contingent Valuation Method 38
2.8 Forest Resource Accounting 38
2.8.1 Scope of Forest Resource Accounting (FRA) 39
2.8.2 Beneficiaries of FRA and Typical FRA Products 40
2.9 Accounts in FRA 43
2.9.1 Asset Accounting 43
2.9.2 Physical Accounting 44
2.9.3 Monetary Accounting 46
2.9.4 Wooded Land 48

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 Ecosystem Services Valuation and Accounting of Himachal Forests

2.10 Proposed FRA Framework and Methodology 49

2.10.1 framework 49
2.10.2 Methodology 50
2.11 Revisit to the Study Conducted by the Lead Author: Estimating 51
Total Economic Value of Forests of India :
A Case of Forests of Himachal Pradesh (HPFSR, 2000) 35
3. Policy Environment for Internalization of Value of Forest 55
Ecosystem Services in the Decision-Making Process
3.1 Introduction 56
3.2 HPFSR: A Proactive Forest Climate in Himachal Pradesh 58
4. Valuation of Ecosystem Services from Forests of Himachal Pradesh 61
4.1 Study Site and Methodology 62
4.2 Valuation Approach 64
4.3 Valuation Scenarios 65
4.4Estimation of Individual Ecosystem Services 75
4.5 Detailed Discussion on Ecosystem Services District Wise Using NPV Scenario: 89
4.6 Cross Analysis of Values 95
4.7 Adding Possession Value to Other Scenarios 99
4.8 Comparison Across Scenarios and the Current Study 100
4.9 Forest Resource Accounting of Himachal Forests 101
4.9.1 SEEA Framework 101
4.9.2 WAVES Framework 102
4.9.3 Zhu X. et al. (1994) Framework 106
4.10 Timber, Flow, Expenditure Accounts and Other Frameworks 106
5. Incentives Based Mechanism for Payments for 115
Forest Ecosystem Services of Himachal Pradesh
5.1 Introduction 117
5.2 Cost Benefit Analysis of Conservation Decision 119
5.3 Relevance of PES in India 121
5.4 Innovative Payment Mechanisms for Forest Ecosystem Services 122
5.5 Payment Mechanisms for Forest Ecosystem Services: 124
Examples with Illustrations
Case 1 - Pong Lake: Various Conservation and 129
Social Issues and Their Economic Linkages
Case Study 2 – Jadera Panchayat 135
Case Study 3 – Baant Panchayat 136
Case Study 4 - SWAN River Integrated Watershed Management Project 138
Recommendations and Conclusion 142
Works Cited 144
ANNEXURES 149

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 Ecosystem Services Valuation and
Accounting of Himachal Forests
Executive Summary
Forests of Himachal Pradesh
generate a wide range of benefits
calledecosystem services that
support not only people of the
state but also human well-being
of many other states downstream.
Nevertheless, on account of lack
of market transactions for many of
these essential and life-supporting
ecosystem services from forests
of Himachal Pradesh, their value
is often misunderstood to be zero.
This leads to individual and policy
decisions that are detrimental to the
health of forests of the state which
compromises the ability of forests
of the state to generate the flow of
services that we all depend on.
Valuation of ecosystem services
seeks to address this gap by clearly
articulating that while the price of
many of these services may be zero,
their value is very significant and
actually constitutes a significant
proportion of the metric we use
for measuring national economic
growth, the Gross Domestic
14
Product. To bridge this void, as
a part of the HPFSR process, for
the first time in India a complete
assessment was done by the
Principal Author of this study in
2000 on the ‘Economic Valuation of
Forests in Himachal Pradesh’ which
estimated that Himachal Pradesh’s
forests contribute total economic
value of various ecosystem services
to the tune of Rs. 106,000 crores
annually along with value of growing
stock to the tune of Rs. 40860
crores. The value so calculated was
taken forward by the Himachal
government and a Special Purpose
Vehicle called Compensation for
Loss of Ecological Value (CLEV) was
introduced in the state to charge for
forest diversion.
Since that ground-breaking study,
many more ecosystem services
have been added to the calculus of
valuation, methods to capture these
values have progressed and enriched
data sets are available now and
so is the urgency to make policy-
makers aware of the enormous
values that forests of Himachal
holds and emanates. To account for
such progression, another study was
assigned by the Himachal Pradesh
Forest Department to the Principal
Author to recalculate the economic
value of ecosystem services from the
forests of Himachal Pradesh which is
accomplished now in 2016.
The study takes cognizance of
several other international and
national studies conducted by
various world renowned authors
for various sites and develops
various scenarios to provide
the range of values. The study
recalculates economic value in
terms of Net Present Value of
Himachal for 12 major ecosystem
services from forests such as
timber, bamboo, fodder, fuel wood,
bioprospecting, pollination and seed
dispersal, carbon storage, carbon
sequestration, water recharge and
water purification. The summary of
estimates is as follows:
 Ecosystem Services Valuation and Accounting of Himachal Forests

Table 1: Economic Value of Himachal Forests Based on Stock and Flow Values

Recorded Forest Area of the State 37033 sq. kms.

Total flow benefits (timber, bamboo, fodder, fuel wood, bioprospecting, Rs 53434 crore per year
pollination and seed dispersal, carbon storage, carbon sequestration, water
recharge and water purification)
Economic value of flow benefits per unit area Rs. 1.44 crore per year per sq. km.
Recorded Forest Area of the state 37033 sq. kms
Total stock benefits (from Timber,Bamboo,Carbon, Bioprospecting) Rs. 2226535 crore per year
Economic value of stock benefits per unit area Rs. 60.12 crore per year per sq. km.
Based on the recommendations of the recent work done by two study authors (Madhu Verma and Dhaval Negandhi,
2014) on the Recalculating Net Present value of India’s Forests for the Ministry of Environment, Forests and Climate
Change, also introduces the concept of premium value for protected areas. Himachal Pradesh has notified 5 National
Parks, 26 Wildlife Sanctuaries and 3 Conservation Reserves. Regarding the NPV Rates for forest diversion, the
Supreme Court has ordered that in light of inadequate knowledge on the values embedded and emanating from
protected areas in the country, the NPV rates should be charged as 10 times the rates in adjoining non-PA forest
area for National Parks and 5 times the rates in adjoining non-PA forest area for Wildlife Sanctuaries. Assuming the
same multiplication factor for Conservation Reserves, the value of protected areas in Himachal are explained in the
following Table 2.

Table 2: Economic Value of Flow Benefits from the Forests of Himachal Pradesh Adding Premium Value to
Protected Areas

Economic Value of Flow Benefits of Non-PA Forest Area 1.44 Rs crore per year per km2
Total Non-PA Forest Area 27342 km2
Total Economic Value of Flow Benefits of Non-PA Forest Area (I) 39455 Rs. 1.44 crore per year per sq. km.
Average Economic Value of Flow Benefits of Non-PA Forest Area 1.44 Rs. crore per year per km2
Total Area Under National Parks 2271 km2
Multiplying Factor for National Parks 10
Total Area Under Wildlife Sanctuary and Conservation Reserve 7420 km2
Multiplying Factor for Wildlife Sanctuary and Conservation Reserve 5
Total Economic Value of Flow Benefits of Protected Areas (II) 86306 Rs. crore per year
Total Economic Value of Flow Benefits from Forests of Himachal 125760 Rs. crore per year
Pradesh

15
 Ecosystem Services Valuation and
Accounting of Himachal Forests
While many studies have attempted to estimate the economic value of forests in terms of the ecosystem services they
generate, an important aspect that is often missed is the value of land itself. To address this concern, the NPV report
(Verma et al. 2014) suggested that the possession value of land should also be included in the NPV to be charged for
agencies seeking to divert forest land. Along similar lines, the median circle rates for one tehsil in each district of the
state of Himachal have been calculated to estimate the possession value of land. Care has been taken not to include
the major city centres of the district so that the average value is not overestimated. The calculations for estimating
the possession value of land are given below in Table 3.

Table 3: Possession Value of Forest Land in Himachal

District Median Circle Rate (Rs. / ha) Recorded Forest Area (sq. km.) Value of Land (Rs. Crores)
Bilaspur 24,71,000 428 10576
Chamba 17,59,352 4917 86507
Hamirpur 23,00,000 219 5037
Kangra 15,20,000 2842 43198
Kinnaur 31,00,000 5093 1,57883
Kullu 44,00,000 5065 2,22860
Lahaul & Spiti 21,62,125 10133 2,19088
Mandi 29,30,606 1860 54509
Shimla 44,30,000 3418 1,51417
Sirmaur 24,71,000 1843 45541
Solan 24,71,000 728 17989
Una 22,10,000 487 10763
Possession Value 1025,369
of Forest Land

If the two values, i.e. Stock and Flow values from forests are combined, the total annual
value of forests of Himachal Pradesh, estimates to be more than Rs. 5300,000 crores and if
the annual value of possession the forest land is added, it is Rs. 6390,882 crores.
To demonstrate the benefits of investing in natural capital, the aggregate flow benefits
from Himachal forests is compared with its management costs to obtain an ‘Investment
multiplier’. The aggregate flow benefits are derived from the ecosystem services that are
possible to value in monetary terms. The management costs are derived from the annual
budget of the department. Broadly, the ‘Investment multiplier’ demonstrates the quantum
of benefits derived from Himachal forests by spending 1 rupee in its management costs.
If the annual expenditure figure of the year 2011-12 is taken as denominator i.e. Rs. 377
crores, the multiplier value of investment comes to 14232 for the total value of Himachal
forests and 16951 for adding the annual possession value.
To take the valuation results further for policy relevance, the study has also documented
four case studies with potential for establishing mechanisms for payments of forest
ecosystem services,viz. the Pong Lake Case Study, the Jadera Panchayat Case Study, the
Boont Panchayat Case Study and the SWAN River Integrated Watershed Management
Project Case Study which have immense potential for establishing such mechanisms which
can finance conservation of forests in the state.

16
Ecosystem Services Valuation and Accounting of Himachal Forests

17
01Introduction
Key Messages
Forest ecosystems provide a range of services for the well-being of
mankind. In the recent times several studies have been conducted
to estimate an approximate value of these services. The present
study intends to revisit and review the values of forest ecosystems
of Himachal Pradesh estimated in the year 2000 under the HPFSR
project by the Lead author. It attempts to take into cognizance the
changes in recognition of ecosystem services, methodology and
datasets and the set of instruments that have taken place in the
lastdecade andprovides a comparative analysis of various scenarios of
valuation.

“Forest resources and forest lands shall be

managed and used sustainably to fulfil
social, economic, ecological, cultural
and spiritual needs of present and future
generations”.
(Forest Principles 1992)
 1. Introduction
1.1 Background
Natural forest ecosystems provide a range
of goods and services that are essential
for human well-being. Any decision to
alter natural forest ecosystems may affect
the level of services that these forest
ecosystems provide. This oversight can be
attributed to our incomplete knowledge
about how changes in ecosystems
affect the level of services that the
systems provide and to the inadequate
understanding of the roles played by
seemingly trivial ecosystem components.
Several techniques have been developed
and applied under ecological economics
to estimate values for ecosystem services.
Globally, Costanza et al. (1997b) estimated
the total value of forest ecosystem goods
and services at $4.7 trillion annually.
Several studies have been undertaken
to provide realistic estimates of various
ecosystem services provided by forests
like watershed, climate regulation
and carbon sequestration, biodiversity
regulation and landscape values such as
tourism and recreation services.
The present study intends to revisit and
review the values of ecosystem services
from forests of Himachal Pradesh
estimated by the lead author in 2000
under the HPFSR project to take into
cognizance the changes that have taken
place in the last 13 years in the datasets
and methodology to capture ecosystem
services values. It responds to its Terms
of Reference and attempts to connect
forest ecosystem service classification
and valuation process to accounting and
incentives’based mechanisms so as to
equip decision-makers with a larger body
of knowledge for judicious
decision-making.
TOR of the Study
• Estimating the economic value of ecosystem services of HP forests and develop ecosystem
services accounts
• Analysing the distribution of costs and benefits associated with conservation of HP forests
• Providing policy and institutional recommendations for internalizing these values into
decision-making
20
1.2 Objectives of the
Study
The study attempts to respond to its TOR
through enlisting the following objectives:
• To enlist the ecosystem services of
Himachal Forests (natural and planted)
using the Millennium Ecosystem
Assessment Framework of provisioning
(fish, fuelwood, etc.), regulating
(carbon sequestration, biodiversity,
watershed services) and cultural services
(recreational/ecotourism value) and
Supporting Services (nutrient recycling,
soil formation)
• To consider additional values like
landscape values,pollination, soil
building, nutrient movement, water
production, cultural values, air quality,
erosion regulation, spiritual-religious-
sacred values, values accruing to the
nomadic communities.
• To develop stock and flow accounts for
HP forests by conservatively estimating
these values using available datasets,
secondary literature using Meta Analysis
Techniques across various altitudes,
forest types, density, protected areas,
plantations and primary study as well
which involves household questionnaire
survey, semi-structured interviews
and documentation of best practices
case studies in the context of efficient
management of such services.
• To conduct site-specific studies to
demonstrate sites having potential
for Payment for Ecosystem Services/
Incentive Based Mechanisms for forest
and biodiversity conservation. The cases
that have been documented are; Pong
Lake and the various economic linkages
in Dharamshala, district of Kangra, SWAN
River Integrated Watershed Management
Programme in Una district, A case of
Jadera and Baant Panchayat in Chamba
district.

1.3 Structure of the
Report
The report is structured as follows: Chapter
1 provides Introduction, TORs, objectives,
study approach and recent frameworks
of classifying and valuing and ecosystem
services. Chapter 2 provides a very brief
discussion on essential ecosystem services
from forests and the economic value
estimates and compares international and
Indian valuation. Chapter 3 discusses the
study methodology used in the report to
review and revise the value of Himachal
forests ecosystem services. Chapter 4
discusses policy environment in Himachal
to internalize forest ecosystem services in
decision-making. Chapter 5 is the crux of
this report with economic value estimates
for all forest ecosystem services valued
in this study. In addition to the specific
methodology used to estimate each
service and final estimates discussed in
this Chapter, detailed calculations for
all ecosystem services across various
scenarios based, Costanza (1997), Ida et
al. (2013), Costanza 2014, opportunity cost
and NPV scenarios are being presented.
The study also discusses valuation based on
primary data and in the end all such have
been comparativelyanalysed and forest
accounts have been revisedto reflect these
values. Chapter 6 includes discussion on
connecting the valuation exercise with
various economic instrumentsand provides
discussion on incentive-based mechanisms
and provides framework based cases from
Himachal where PES may be established.
1.4 Approach
The importance of forest ecosystems to
human well-being cannot be understated.
These multifunctional ecosystems provide
various services on all spatial and temporal
levels. The ecosystem services are benefits
which people derive from forests and
include provisioning services such as food,
“The felling of trees inall forests is to remain suspended except in accordance with the Working
Plans of the State Governments, as approved by the Central Government.” – Hon’ble Supreme Court
order dated December 12, 1996.
Ecosystem Services Valuation and Accounting of Himachal Forests
water, timber; regulating services such
as climate and water quality regulation;
cultural services such as recreation and
spiritual benefits; and supporting services
such as nutrient cycling (MA 2005).
Ensuring flow of these services from forests
has significant implications on human
well-being. Many countries identify more
than 100 different kinds of services from
forests(Sheingauz and Sapozhnikov 1988;
Mather 1999). This multi-functionality of
forests has also been recognized in the
Forest Principles agreed at the United
Nations Conference on Environment and
Development held at Rio deJaneiro. Without
the ecosystem services emanating from
forests, life on earth would not be possible.
Among all the ecosystem goods and
services that forests provide, timber
is currently one of the most readily
marketable benefits. While green felling
is regulated in the country as per the
direction of the Hon’ble Supreme Court,
the large stock of unharvested wood
contributes to the total economic value
of forests. Wood is also used in house,
construction, furniture and agricultural
implements. In addition, a large proportion
of people in rural regions depend on
forests as a source of fuelwood for energy
requirement. According to the Forest
Survey of India, the annual consumption
of fuelwood from forests is estimated to
be about 58 million tonnes, while annual
wood consumption for house construction,
furniture and agricultural implements is
estimated to be about 33 million cum (FSI
2011b). Apart from wood and fuelwood,
forests provide goods in the form of a range
of non-wood forest products (NWFPs) which
are termed as goods of biological origin
other than wood, derived from forests and
other wooded land and trees outside the
forests (FAO 1999). These NWFPs include
a tremendous diversity of items–many
of which do not enter the formal market
(UNECE 1998). However, they play an
21
 1. Introduction
important role in the daily life and well-
being of hundreds of millions of people
dependent on forests (Lampietti and
Dixon 1995). Their importance becomes
more pronounced while considering the
role of NWFPs in providing livelihood
opportunities (Vinod Kumar Bahuguna
2000). In addition, forests are a great
source of fodder, particularly where animal-
based production systems dominate the
socio-economic system. In India roughly 1
in 4 adult cattle units depend on forests for
grazing and fodder (FSI 2011b).
Forests are multifunctional ecosystems
which provide various services on all
spatial and temporal levels. These
ecosystem services are benefits which
people derive from forests are an important
repository of terrestrial biodiversity. The
forest biodiversity has both – its existence
value as well as its utilitarian value as
the source of innumerable biological
resources used by people (WRI 1992). It is
now a recognized fact that biodiversity, in
addition, is an essential factor in sustaining
ecosystem functioning and hence the
underpinning for many other forest
ecosystem services (Naeem et al. 1999).
Forest biodiversity is also associated with
an option value, being a vast storehouse
of information from which future services
such as new pharmaceutical discoveries
can be derived (Rausser and Small 2000;
Simpson et al. 1996).
Forest ecosystem goods and services, and
the natural capital stocks that produce
them, make significant direct and indirect
contributions to national economies and
human welfare. Ecosystem services are the
benefits people obtain from ecosystems.
This definition is derived from two other
commonly referenced and representative
definitions:
Ecosystem services are the conditions
and processes through which natural
ecosystems, and the species that make
them up, sustain and fulfil human life. They
maintain biodiversity and the production of
ecosystem goods, such as seafood, forage
timber, biomass fuels, natural fibre, and
many pharmaceuticals, industrial products,
22
and their precursors (Daily 1997).
Ecosystem goods (such as food) and
services (such as waste assimilation)
represent the benefits human populations
derive, directly or indirectly, from
ecosystem functions (Costanza et al.
1997:253).
The earlier used term for benefits from
ecosystem, i.e. Ecosystem Goods and
Services is now given a generic name of
Ecosystem Service. Henceforth, the term
Ecosystem Services will be used in the
report. Ecosystem services have been
categorized in a number of different ways,
including by:
• Functional groupings, such as
regulation, carrier, habitat, production,
and information services (Lobo 2001; de
Groot et al. 2002).
• Organizational groupings, such as
services that are associated with certain
species, that regulate some exogenous
input, or that are related to the
organization of biotic entities (Norberg
1999); and
• Descriptive groupings, such as
renewable resource goods, non-
renewable resource goods, physical
structure services, biotic services,
biogeochemical services, information
services, social and cultural services
(Moberg and Folke 1999).
These ecosystem services have many
uses and influence the welfare of human
population. Over the past few decades
several attempts have been made to
systematically link the functioning of
ecosystems with human well-being. Central
elements in this ‘link’ are the intertwined
notions of natural capital ‘stocks’ and the
ecosystem services that flow like interest
or dividends from those stocks. According
to the Millennium Ecosystem Assessment
(MA 2005a), natural capital is “an economic
metaphor for the limited stocks of physical
and biological resources found on earth”.
The continuing depletion and degradation
of natural capital has generated concerns
and debate over the capacity of the
economic system to substitute for these
losses with human-made capital, and the
conditions for sustainable development,

defined as non-declining welfare over
generations (Pezzey 1992; Pearce et al.
1989). While the degree of substitutability
is ultimately an empirical question, it is
generally recognized that there are limits
on substitution (Barbier 1994; Daly 1996;
Prugh 1999; Daly and Farley 2004), and that
a critical amount of natural capital has to
be preserved.
Forests are a major stabilizing component
of natural landscapes, providing protection
of soil and water, households and fields,
and reducing floods and landslides (Lele
et al. 2008). It has been estimated that in a
tropical country such as India, the levels of
soil erosion may be 10-20 times higher on
areas cleared of forests than in undisturbed
natural forests, and this is particularly the
case in mountainous regions characterized
by fragile soils (Wiersum 1984; Chomitz
and Kumari 1998).
Regulation of hydrological cycles and
processes is one of the other important
services provided by forests. These
functions include increasing precipitation,
decreasing potential evaporation,
regulating the total and redistribution of
surface and belowground runoff, smoothing
out the seasonal course of river discharges,
increasing total annual river runoff,
preventing and mitigating consequences
of floods, maintaining water quality,
preventing siltation of reservoirs among
many others (Bruijnzeel 2004; Dhawan
1993; P. Kumar et al. 2006).
Forests also play an important role in the
global carbon cycle and consequently in
Ecosystem Services Valuation and Accounting of Himachal Forests
regulating the global climate system. Two
main features – forests as major terrestrial
accumulators of carbon (Lal et al. 2011;
Bansal et al. 2012) and their ability to
provide long–term sequestration are
particularly important in this regard (MA
2005). According to a new report based on
empirical evidence from across the country,
the net increment in carbon stock of forests
in India was approximately 592 million
tonnes between 1994 and 2004 (FSI 2013a).
In terms of absolute estimates, the carbon
stock of forests in India was approximately
6663 million tonnes in 2004 (FSI 2013a).
Further, forests provide numerous
regulating ecosystem services such as
pollination and seed dispersal, water
purification, pest and disease control, soil
formation, nutrient cycling, waste treatment
among many others which are essential
for human existence (Verma et al. 2009;
P. Kumar et al. 2010). Table 1 lists major
ecosystem services from forests with their
brief description.Lastly, forests are highly
valued for a host of social, cultural and
spiritual reasons in the country (Sheil and
Wunder 2002; CBD 2001).
For many indigenous communities and
traditional societies, forests are sacred and
linked to both religious beliefs and the very
identity of some communities and tribes
(Malhotra et al. 2001). Forests also provide
spiritual and recreational services to many
people through forest-related tourism.
Forests and the species therein support
a significant element of many nature-
based tourism destinations in the country.
23
 1. Introduction
Table 1.1 “Major Ecosystem Service Provided by Forests (Earth Economics 2013)”

Services Infrastructure and Processes Goods and Services

Provisioning services – Provision of natural resources
Food Conversion of solar energy into edible plants
and animals
Raw materials Conversion of solar energy into biomass for
human construction and other uses
Genetic resources Genetic material and evolution in wild plants
and animals
Medicinal resources Variety in (bio)chemical substances in, and
other medicinal uses of, natural biota
Ornamental resources Variety of biota in natural ecosystems with
(potential) ornamental use
Regulating services - Maintenance of essential ecological processes and life support systems
Hunting, gathering of fish, game, fruits,
etc.; small -scale subsistence farming and
aquaculture
Building and manufacturing; fuel and
energy; fodder and fertilizer
Improve crop resistance to pathogens and
pests
Drugs, pharmaceuticals, chemical models,
tools, test and essay organisms
Resources for fashion, handicraft,
jewellery, pets, worship, decoration and
souvenirs

Gas regulation Role of ecosystems in bio-geochemical cycles Provides clean, breathable air, disease
prevention, and a habitable planet
Climate regulation Influence of land cover and biological Maintenance of a favourable climate
mediated processes on climate promotes human health, crop productivity,
recreation, and other services
Disturbance Influence of ecosystem structure on Prevents and mitigates natural hazards and
prevention dampening environmental disturbances natural events, generally associated with
storms and other severe weather
Water regulation Role of land cover in regulating runoff and Provides natural irrigation, drainage,
river discharge channel flow regulation, and navigable
transportation
Water supply Filtering, retention and storage of fresh Provision of water for consumptive use,
water (e.g. in aquifers and snow pack) includes both quality and quantity
Soil retention Role of vegetation root matrix and soil biota Maintains arable land and prevents damage
in soil retention from erosion, and promotes agricultural
productivity
Soil formation Weathering of rock, accumulation of organic Promotes agricultural productivity, and the
matter integrity of natural ecosystems
Nutrient cycling Role of biota in storage and recycling of Promotes health and productive soils, and
nutrients gas, climate, and water regulations
Waste treatment Role of vegetation and biota in removal or Pollution control / detoxification; Filtering
breakdown of xenic nutrients and compounds of dust particles through canopy services
Pollination Role of biota in movement of floral gametes Pollination of wild plant species and
harvested crops
Biological control Population control through trophic-dynamic Provides pest and disease control, reduces
relations crop damage

24
 Ecosystem Services Valuation and Accounting of Himachal Forests

Cultural services - Providing opportunities for cognitive development

Aesthetic information Attractive landscape features Enjoyment of scenery

Recreation Variety in landscapes with (potential) Travel to natural ecosystems for eco-
recreational uses tourism, outdoor sports, etc.
Cultural and artistic Variety in natural features with cultural and Use of nature as motive in books, film,
information artistic value painting, folklore, national symbols,
architecture, advertising, etc.
Spiritual and historic Variety in natural features with spiritual and Use of nature for religious or historic
information historic value purposes (i.e., heritage value of natural
ecosystems and features)
Science and education Variety in nature with scientific and Use of natural systems for school
educational value excursions, etc. Use of nature for scientific
research
Supporting services - Providing habitat (suitable living space) for wild plant and animal species

Habitat and Suitable living space for wild plants and Maintenance of biological and genetic
biodiversity animals diversity (and thus the basis for most other
functions)
Nursery Suitable reproduction habitat Maintenance of commercially harvested
species

The study thus uses the comprehensive framework of The Millennium Ecosystem Assessment which classifies
services provided by ecosystems in four major categories – provisioning services, regulating services, cultural
services and supporting services as depicted in the Figure 1.1

25
 1. Introduction
Figure 1.1 – Title “Ecosystem Services from forests and Human
Well-Being (MA 2005)”
Figure 1.1 represents the linkages between
ecosystem services and human well-
being.Such linkages provide incentives to
value the ecosystem services by taking an
economic approach.The strength of the
linkages can be very easily inferred from
the lines along with their potential to be
valued by socio-economic indicators.This
assessment demonstrates the linkages
between the categories of ecosystem
services and the components of human
1.5 Methodology
As the outcome of the workshop held
on October21, 2011 at Shimla and the
core committee meeting that followed a
day after with the IIFM team and a core
team of IFS officials from the Himachal
Pradesh Forest Department, six major
services were shortlisted to be covered
under the valuation study following the MA
classification. Requisite methods were also
discussed for estimation of such services
and the outcome achieved based on primary
and secondary data collection were also
compared with other scenarios developed
using various other studies estimates. The
results were discussed in the draft Report
submitted in January 2013 (Annexure III).
However on account of lapse of time, the
final Report submitted now in September
2016 also considers many influential global
26
well-being that are commonly encountered,
and includes indications of the extent to
which it is possible for socio-economic
factors to mediatethe linkage and its
importance to the well-being of mankind
notwithstanding their linkages to the whole
biotic environment. Ecosystem services
provide outputs that directly or indirectly
affect human well-being.
studies conducted by various eminent
economists like Dr. Robert Costanza (1997,
2014), Ida,2013 and a study conducted
by the lead authors of the study on Net
Present Value of Forests of India using
databases managed by the Forest Survey
of India and other sources. The study
besides estimating the value of stocks and
flows, tangibles and intangibles; direct and
indirect; provisioning, regulating, cultural
values using the Millennium Ecosystem
Framework (2005) for forests of Himachal
also uses the concept of possession value
of land where besides the value of standing
forest in terms of stocks and flow values.
To demonstrate the benefits of investing in
natural capital, the aggregate flow benefits
from Himachal forests is compared with its
management costs to obtain an ‘Investment
Multiplier’. The aggregate flow benefits are
derived from the ecosystem services that

are possible to value in monetary terms.
The management costs are derived from the
annual budget of the department. Broadly,
the ‘Investment Multiplier’ demonstrates
the quantum of benefits derived from
Himachal forests by spending 1 rupee in its
management costs.
To suit various contexts and differential
needs for decision-making, various
frameworks on valuation have been
proposed. In order to consider the
categories of benefits derived from forests
of Himachal Pradesh, the study uses four
frameworks under which different benefits
have been categorized and estimated/
qualified. These are listed below and
described briefly in the context of this study
in the following sections.
• Millennium Ecosystem Assessment (MA)
• Stock and Flow Benefits
• Tangibles and Intangibles Benefits
• Investment Multiplier
Millennium Ecosystem Assessment
The Millennium Ecosystem Assessment
(MA) has identified four overarching
categories of benefits provided by
ecosystems as depicted in Figure 1.1 which
include:
• Provisioning Services: Products obtained
from forests such as timber and fodder
• Regulating Services: Benefits obtained
from regulation of ecosystem processes
such as water and climate regulation
• Cultural Services: Non-material
benefits people obtain from forests
through spiritual enrichment, cognitive
development, recreation and aesthetic
experiences such as sacred sites and
wildlife safari
• Supporting Services: Services that
are necessary for the production of
provisioning, regulating and cultural
services such as soil formation and
retention
Ecosystem Services Valuation and Accounting of Himachal Forests
Stock and Flow Benefits
The benefits forests can also be
categorized into stock and flow benefits.
Broadly, stock benefits refer to potential
supply, while flow benefits refer to real
feasible flow of benefits. In the study
context, standing timber and carbon
stock refer to stock benefits, while carbon
sequestration can be referred to as a flow
benefit (See Figure 2.3).
Tangible and Intangible Benefits
Broadly, tangible benefits from ecosystems
refer to goods obtained from the forest
while intangible benefits include the set
of services which improve human well-
being indirectly. While tangible benefits
may be of great importance, especially to
the local community, the current study
has put special emphasis on intangible
benefits as many of these are not marketed
and perhaps not appropriately managed.
The study is a deliberate attempt to
factor intangibles in our decision-making
calculus.
Investment Multiplier
To demonstrate the benefits of investing
in natural capital, the aggregate flow
benefits from forests is compared with its
management costs to obtain an ‘Investment
multiplier’. The aggregate flow benefits
are derived from the ecosystem services
that are possible to value in monetary
terms. The management costs are derived
from the annual expenditure by HPFD.
Broadly, the ‘Investment multiplier’
demonstrates the quantum of benefits
derived from forests by spending 1 rupee in
its management costs.
27
02
Valuation and
Accounting of
Forest Ecosystem
Services: A
Methodology

Key Messages
The present chapter describes the broad categories of
valuation techniques commonly used for valuation of
ecosystem services, such as Revealed Preference Methods
and Stated Preference Methods. There are other techniques
under these two broad categories which have been
discussed in detail, for example, Total Economic Value,
Benefit Transfer Approach, Replacement Cost Approach,
Hedonic Pricing, Production Function Approach and
Contingent Valuation Method (CVM). It substantiated the
techniques with International and Indian cases of valuation
of forestsecosystem services.
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
2.1 Valuing
Forests
The concept of Total Economic Value (TEV)
is one of the most widely used frameworks
for identifying and categorizing forest
benefits (Pearce 1990; Emerton 2003). It
attempts to account comprehensively for
all forest ecosystem services, categorizing
these into direct values, indirect values,
option values and existence values. Ideally,
values of goods and services should reflect
the best alternative use for resources (true
opportunity cost), or the true willingness to
pay for the goods and services, excluding
A first-of-its external government interventions and
including all the externalities (Kadekodi
kind initiative 1999). However, conventional analysis,
based mostly on limited information of
on valuation marketable value, often fails to capture the
of ecosystem benefits completely (Verma 2008; Verma
and C. V. Kumar 2008). This is because
services and many of these goods and services do not
biodiversity, enter the market, and for those that enter
only a part of the total benefits are actually
known as recorded by market transactions. Many
of these benefits are also misattributed
TEEB (The (Panayotou 1998). For example, the water
Economics of regulation services provided by forests
may appear as higher profits in water using
Ecosystems
sectors and not as benefits provided by the
forest ecosystem.
and
Biodiversity), 2.2 Need for
estimates that
Conserving
the benefits of
halving global
Forests
As mentioned earlier, the unique nature
deforestation of forest ecosystems has long been
by 2030 due acknowledged. Forest ecosystems play
multiple roles at global as well as local
to climate levels: as providers of environmental
services to nature in general — and
change alone humans in particular — and as sources
are about US$ of economically valued products as
well. The 1972 Stockholm Conference
3.7 trillion in recognized that forests are the largest,
NPV terms most complex and self-perpetuating of
all ecosystems, and hence the need for a
(TEEB 2010). sound land and forest use policies, ongoing
30
monitoring of the state of the world’s
forests and the introduction of forest
management planning was emphasized. It
was recommended in the conference that
ratified countries should: strengthen basic
and applied research for improved forest
planning and management, with emphasis
on environmental functions of forests; and
modernize forest management concepts by
including multiple functions and reflecting
the cost and benefits of the amenities that
forests provide. (State of the Environment
and Policy Retrospective 1972:2002, 2002)
Forest governance systems are evolving
rapidly, together with the respective roles
and responsibilities of government, the
private sector, indigenous communities and
civil society and are increasingly getting
streamlined. The concept of sustainable
forest management and efforts to achieve
it has gained a lot of momentum around
the world during the past decade and it is
only going to increase in the times to come.
Broader approaches to forest management,
such as integrated ecosystem and
landscape management, are also gaining
ground and have thus become widely
accepted and put into practice. These
approaches recognize the dynamic nature
of ecological and social systems, and the
importance of adaptive management and
collaborative decision-making.
Valuation of forests ecosystem and
accounting of these natural resources have
thus become crucial for proper realization
of their services. Forests and wildlife are
part of national wealth or stock.However,
unlike many other goods and services
these resources may not have a ready
market. The use, overuse, misuse or abuse
of such natural resources is a flow towards
the welfare of society. Since their use
adds to the welfare and abuse reduces
it, their valuation and accounting on the
lines of capital formation is necessary
to understand the state of welfare of the
nation. (Verma M. , Valuation of Forest
Ecosystem Services in Uttarakhand
Himalayas, May 2007).
A first-of-its kind initiative on valuation of
ecosystem services and biodiversity, known

as TEEB (The Economics of Ecosystems and
Biodiversity), estimates that the benefits
of halving global deforestation by 2030
due to climate change alone are about US$
3.7 trillion in NPV terms (TEEB 2010). The
Green Economy Initiative of UNEP also
recognizes that forest ecosystems provide
shelter, food, jobs, water, and medicine to
more than 1 billion people and regulate
the global climate. The Initiative illustrates
that investing in forest resources is one of
the significant requirements for transition
to the green economy (UNEP 2011).
2.3 Forest
Valuation in
India
India has still a long way to go before
it attains the national requirement of
one-third of the total geographical area
to be under forest cover. Valuation of
forest resources can sensitize the state
and central governments towards its
conservation.
Under-valuation of forest resources in
India is causing immense losses to the
sector and to the economic system. The
current national accounting system under-
records tangible benefits and ignores
the contribution of intangible ecological
services by forests (Verma, M. , Framework
for Forest Resource Accounting: Factoring
in the Intangibles, 2008). To reflect the
true contribution of the forestry sector
to the Indian economy, the Government
of Himachal Pradesh levied a charge
called the ‘compensation for loss of
environmental value (CLEV)’ for the forest
lands diverted to non-forestry use under
the Forest Conservation Act, 1980 on the
basis of a valuation exercise (Verma M.,
Economic Valuation of Forests in Himachal
Pradesh, 2000) in June 2002. This charge
was later replaced by Net Present Value or
NPV, in accordance with the order of the
Honourable Supreme Court of India.
The situation of forested wetland resources
is similar to that of forests. Although
wetlands extend numerous economic,
Ecosystem Services Valuation and Accounting of Himachal Forests
environmental and social benefits
in terms of recharging groundwater
table, maintenance of soil moisture,
microclimatic effects like temperature
and moisture control, flood control,
maintenance of flora and fauna, provide
recreation to locals and visitors and
offer educational aspect, owing to their
poorly understood economic value, these
wetlands are not only used, but overused,
misused and abused (Verma 2008). In this
regard, a valuation exercise was carried
out in Bhoj wetland which demonstrated
that these wetlands have surprisingly high
values for the services they offer. (Verma,
Bakshi and Nair, 2001).
A study on Yamuna Basin by Chopra
&Kadekodi (1997) titled ‘Natural
Resources Accounting in the Yamuna
Basin: Accounting for Forest Resources’,
included three districts from Himachal
Pradesh viz. Solan, Shimla and Sirmour
out of the total number of 40 districts from
five states from hill and foot hill regions
were covered). The study estimated the
growing stock and biomass depletion and
degradation rates in the forests of Yamuna
basin but found 23.18% improvement in
quality of forests in Himachal Pradesh. It
used alternative approaches to workout
value of fuel wood, fodder, tourism and
recreation. It covered Kufri National
Park and estimated consumers’ surplus
worth Rs. 427 per tourist visit to this
site. Two watersheds from Himachal
Pradesh State were selected where the
sampled households (also from other hilly
watersheds) were willing to pay Rs. 454.04
per household per year for plantations and
protection of village forests.
While the methodology for valuation of
ecosystem services from forests is still
evolving, many landmark studies have
attempted to shed light on the economic
importance of forest ecosystem services.
One of the first and highly influential
estimate of the annual value of global
forest ecosystem services totalled US$
4.7 trillion, roughly one-fourth of the
global GNP (Costanza et al. 1997). The
lower bound annual value of Mexico’s
forest was estimated to be about US$ 4
31
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process

billion (Adger et al. 1994). This aggregate (amended in 2004) specifies that “as a thumb
value is derived mainly from non-marketed rule, the environmental value of fully stocked
services provided by non-consumptive (density 1.0) forest would be taken as 126.74
uses, from future potential uses of genetic lakhs to accrue over a period of 50 years.
resources and the largest proportion This value will reduce with the decrease in
from hydrological regulation and carbon the density of forest”.
cycling. Another study estimated the
While a few attempts have been made
net economic value of forests in Canada
to estimate the total economic value of
to be approximately US$ 27 billion per
forest ecosystems, a large number of
year (Anielski and Wilson 2005). The
studies have estimated only one or more
major components contributing to this
ecosystem services from forests (Verma
estimate were pest control services by
2007; Verma 2000; Chopra and Kadekodi
birds, nature-related activities, carbon
1997). For example, pollination services
sequestration, NWFPs, watershed services
from two forests with a total area of about
and subsistence value for Aboriginal
150 hectares was estimated to be about US$
peopleamong other services from forests.
60,000 a year for a Costa Rican coffee firm
In the Indian context, the total annual loss
due to impact of pollination on coffee yield
as a result of forest degradation in India
and quality (Ricketts et al. 2004). Based on
is estimated to be about US$ 12 billion
the replacement cost method, the on-site
(Joshi and P.P. Singh 2003). The annual
costs of soil erosion in the Magat watershed
Total Economic Value of forests of the state
of the Philippines as a result of conversion of
of Himachal Pradesh was estimated to be
primary and secondary forest to grasslands
more than ₹ 1 lakh crore (Verma 2000). In
and other land uses was estimated to be
another study, Verma (2007) estimated the
US$ 51/ha/year in terms of nominal price of
ecosystem service values from forests of
replacing soil nutrients and US$ 127/ha/year
Uttarakhand to be in the order of ₹1,61,921
in terms of shadow price of soil nutrients
crores annually. Further, 2004 Annexure
(Cruz et al. 1988).
VI (b) of the Forest Conservation Act 1980

32

In the Indian context, some estimates
of the storm protection services from
mangrove forests to reduce damage
caused by tsunamis and tropical storms
are available. It was found that the
average opportunity cost of saving a life
by retaining mangrove forests was 11.7
million rupees per life saved during the
super cyclone (Das and Vincent 2009).
Each 1 hectare of remaining mangrove
forests wasestimated to save 0.0148 lives.
The hydrological services from forests
were estimated by a production function
approach in South India and the reduction
in expected annual income resulting from
changes in forest cover was found to be
US$ 107/household (Lele et al. 2008). In
terms of air quality regulation services
from forests, avoided morbidity method
was used to estimate the economic
costs of respiratory infections caused
by air pollution from mining-induced
deforestation and degradation. The study
found that living 1 km closer to mines is
associated with a 2.7% increase in log-
odds of respiratory infections (Saha et al.
2011).
2.4 Need for
Total Estimate
of Ecosystem
Services
National scale aggregate indicators
of ecosystem services are useful for
stimulating and supporting a broad public
discussion about trends in the provision
of these services. These are important
considerations involved in producing an
aggregate indicator, including whether
the scientific and technological capacity
exists, how to address varying perceptions
of the societal importance of different
services and how to communicate
information about these services to
both decision-makers and the general
public. Although the challenges are
formidable, they are not insurmountable.
Quantification of ecosystem services and
Ecosystem Services Valuation and Accounting of Himachal Forests
dissemination of information to decision-
makers and the public is critical for the
responsible and sustainable management
of natural resources .
2.5 Ecosystem
Valuation: An
Introduction
Many approaches have been used to define
and describe ecosystems and estimate
their economic value. Estimating direct
use values is relatively straightforward
and relies on existing market prices. It is
more challenging, however, to assign a
monetary figure to indirect use values (e.g.
regulating and supporting services such
as climate regulation, water purification,
flood moderation, disease regulation,
watershed protection, and nutrient cycling)
and non-use values (e.g. the value of
maintaining the ecosystems for future
generations, and the value of the continued
existence of the ecosystem) that are not
market-traded commodities(Rasul, Chettri
and Sharma, 2011).
2.6 Broad
Categories
of Economic
Valuation
Economic valuation techniques most
commonly fall under two categories based
on the valuation process or the underlying
theme. The two categories are shown in
the figure below (Figure 2). These two
categories are Revealed Preference Method
and Stated Preference Method.Stated
Preference Method is further categorized
into Contingent Valuation Methods, while
Revealed Preference Method is categorized
into techniques such as Benefit Transfer,
Hedonic Pricing, Replacement Cost
Method, Production Function Approach
and Total Economic Value.
33
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Nature has given a lot to mankind. Human
beings survive on this planet by fulfilling
all their needs through natural resources.
Be it food, water or air, natural resources
are essential for the survival of man.
Unfortunately, the use of natural resources
has not always been optimal. It rotates
between gross overuse to misuse mainly
because these resources have no price
or a very nominal one attached to them.
Efficient use of natural and environmental
resources requires knowledge of the value
of these resources in various uses (Prato,
1998).
In order to make better decisions regarding
the use and management of wetland
ecosystem services, their importance to
human society must be assessed. ‘Valuation’
is defined by the (Millennium Ecosystem
Assessment, 2003) as “the process of
expressing a value for a particular good
or service in terms of something that
can be counted, often money, but also
through methods and measures from other
disciplines (sociology, ecology and so on)”.
Thus valuing ecosystem services serves
34
a number of purposes. Valuing the
benefits – both current and future – from
the natural environment illustrates its
significant contribution to well-being
and the high dependency of society on its
ecological base. In one sense, the natural
environment is of infinite value since it
underpins and supports all human activity.
However, for policy-making, the more
relevant application of valuation is to
marginal changes in the environment.
In a policy appraisal context, valuing
ecosystem services can help in:
determining whether a policy intervention
that alters an ecosystem condition delivers
net benefits to society; providing evidence
on which to base decisions on ‘value for
money’ and prioritizing funding; choosing
between competing uses, e.g. of land
use; assessing liability for damage to the
environment; and in wider communication,
e.g. to the public and land managers
on the value of the environment. Hence
the importance of wetlands cannot be
underestimated, it is necessary to evaluate
the Ecosystem Services provided by them.

FIGURE 2.1 Total Economic Value
Total Economic Value
Use Value
Direct Use Value In Direct Use Value
2.7 Economic
Valuation
Techniques in
Detail
The major types of economic valuation
methodologies are explained below in the
following paragraphs.
2.7.1 Total Economic
Value
The type of valuation technique used depends
on the type of ecosystem service to be valued,
as well as the quantity and quality of data
available. Some valuation methods may
be more suited to capturing the values of
particular ecosystem services than others.
Total economic value is given by the sum of a
number of components:
Total Economic Value (TEV) =Direct-
use value + Indirect-use value +
Optionvalue + Existence value
As seen in the figure above, Total economic
value has two components, i.e. use value and
non-use value. They are further categorized
into direct values, indirect values, option
values and existence values. These are
explained below along with examples:
Ecosystem Services Valuation and Accounting of Himachal Forests
Non-use Value
Option Value Bequest Value Existence Value
• Direct use values include revenues
from timber and values of non-timber
forest products. While timber values
are not the main focus of interest of
this paper, the sector is considered
to have considerable commercial
potential given appropriate
management regimes.
• Indirect-use values or “functional”
values relate to the ecological
functions performed by forests, such
as global biogeochemical cycling, the
protection of soils, and the regulation
of watersheds.
• Option value or quasi-option value is
the expected value of the information
on the benefits of an asset, conditional
on its preservation enabling an
increase in the stock of knowledge
relevant to the utilization of the
asset. A frequently evoked example of
quasi-option value is associated with
genetic resources; for example, future
pharmaceuticals developed from plant
materials.
• Existence value relates to the value
of environmental assets irrespective
of current or optional uses. Empirical
measures of existence values
based on donations to conservation
organizations, or on the contingent
valuation method suggest these can be
a significant element in total economic
value, especially in contexts where
the asset has unique characteristics or
cultural significance(DEFRA, 2007).
35
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
2.7.2 Benefit Transfer A more rigorous approach involves
transferring a benefit function from another
Method study.The benefit function statistically
The benefit transfer method is used to relates people’s willingness to pay to
estimate economic values for ecosystem characteristics of the ecosystem and the
services by transferring available people whose values were elicited.When a
information from studies already completed benefit function is transferred, adjustments
in another location and/or context. For can be made for differences in these
example, values for recreational fishing characteristics, thus allowing for more
in a particular state may be estimated by precision in transferring benefit estimates
applying measures of recreational fishing between contexts.
values from a study conducted in another
Different standards for benefit transfer
state. Thus, the basic goal of benefit
may be applied in different contexts.For
transfer is to estimate benefits for one
example, a higher standard of accuracy may
context by adapting an estimate of benefits
be required when the costs of making a poor
from some other context.Benefit transfer
decision are higher.A lower standard of
is often used when it is too expensive
accuracy may be acceptable when costs are
and/or there is too little time available to
lower, such as when the information from
conduct an original valuation study, yet
the benefit transfer is only one of a number
some measure of benefits is needed. It is
of sources of information, or when it is used
important to note that benefit transfers can
as a screening tool for the early stages of a
only be as accurate as the initial study.
policy analysis. (King and Mazzota, 2012)
The simplest type of benefit transfer is the
The benefit transfer method is most reliable
unit day approach, where existing values
when the original site and the study
for activity days are used to value the same
site are very similar in terms of factors
activity at other sites. These estimates are
such as quality, location, and population
based on expert judgment in combining and
characteristics; when the environmental
averaging benefit estimates from a number
change is very similar for the two sites;
of existing studies.These “unit day values”
and when the original valuation study
may be adjusted for characteristics of the
was carefully conducted and used sound
study site when they are applied.
valuation techniques.

2.7.3 Replacement
Cost Approach
Replacement cost estimate values of
ecosystem services based on either the
costs of avoiding damages due to lost
services, the cost of replacing ecosystem
services, or the cost of providing substitute
services.These methods do not provide
strict measures of economic values,
which are based on people’s willingness
to pay for a product or service.Instead,
they assume that the costs of avoiding
damages or replacing ecosystems or their
services provide useful estimates of the
value of these ecosystems or services.This
is based on the assumption that, if people
incur costs to avoid damages caused by
lost ecosystem services, or to replace
the services of ecosystems, then those

36

services must be worth at least what people
paid to replace them.Thus, the methods
are most appropriately applied in cases
where damage avoidance or replacement
expenditures have actually been, or will
actually be, made. (King and Mazzota, 2012)
Some examples of cases where these
methods might be applied include:
• Valuing improved water quality by
measuring the cost of controlling
effluent emissions.
• Valuing erosion protection services of
a forest or wetland by measuring the
cost of removing eroded sediment from
downstream areas.
• Valuing the water purification services
of a wetland by measuring the cost of
filtering and chemically treating water.
• Valuing storm protection services of
coastal wetlands by measuring the cost
of building retaining walls.
• Valuing fish habitat and nursery services
by measuring the cost of fish breeding
and stocking programmes.
This is based on the assumption that, if
people incur costs to avoid damages caused
by lost ecosystem services, or to replace the
services of ecosystems, then those services
must be worth at least what people paid to
replace them. This assumption may or may
not be true.However, in some cases it may
be reasonable to make such assumptions,
and measures of damage cost avoided or
replacement cost are generally much easier
to estimate than people’s willingness to pay
for certain ecosystem services.The methods
are most appropriately applied in cases
where damage avoidance or replacement
expenditures have actually been, or will
actually be, made.
2.7.4 Hedonic Pricing
Method
The hedonic pricing method is used to
estimate economic values for ecosystem or
environmental services that directly affect
market prices.It is most commonly applied
to variations in housing prices that reflect
the value of local environmental attributes.
It can be used to estimate economic
benefits or costs associated with:
Ecosystem Services Valuation and Accounting of Himachal Forests
• environmental quality, including air
pollution, water pollution, or noise
• environmental amenities, such
as aesthetic views or proximity to
recreational sites
The basic premise of the hedonic pricing
method is that the price of a marketed
good is related to its characteristics, or
the services it provides.For example, the
price of a car reflects the characteristics
of that car—transportation, comfort, style,
luxury, fuel economy, etc.Therefore, we
can value the individual characteristics
of a car or other goods by looking at how
the price people are willing to pay for it
changes when the characteristics change.
The hedonic pricing method is most often
used to value environmental amenities that
affect the price of residential properties.
The method’s main strength is that it can
be used to estimate values based on actual
choices.Property markets are relatively
efficient in responding to information, so
can be good indications of value.
This method has certain limitations as
well, like, the scope of environmental
benefits that can be measured is limited to
things that are related to housing prices.
The method will only capture people’s
willingness to pay for perceived differences
in environmental attributes, and their direct
consequences.Thus, if people are not aware
of the linkages between the environmental
attributes and benefits to them or their
property, the value will not be reflected
in home prices.The method assumes that
people have the opportunity to select the
combination of features they prefer, given
their income.However, the housing market
may be affected by outside influences, like
taxes, interest rates, or other factors.
2.7.5 Production
Function Approach
This approach recognizes that ecosystem
services areimportant inputs to traditional
economic production processes and also
contribute directly to human welfare
without ever passing through the market
economy. This valuation method can be
effectively linked to ecological models
37
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
(of the type we will be developing)that
provide estimates of the levels of services
under various scenarios and link them to
production and welfare functions built into
the models. For example, forests provide
water supply and flood protection services
that can be valued in proportion to their
marginal contributions to the model’s
production and welfare functions.
(King and Mazzota, 2012)
2.7.6 Travel Cost
Method
The travel cost (TC) method is an example of
a technique that attempts to deduce value
from observed behaviour in a surrogate
market. It uses information on visitors’ total
expenditure to visit a site to derive their
demand curve for the site’s services. The
technique assumes that changes in total
travel costs are equivalent to changes in
admission fees. From this demand curve,
the total benefit visitors obtain can be
calculated. (It is important to note that the
value of the site is not given by the total
travel cost; this information is only used to
derive the demand curve). This method was
designed and has been used extensively to
value the benefits of recreation, but has
limited utility in other settings.
2.7.7 Contingent
Valuation Method
Contingent Valuation (CV) is carried out
by asking consumers directly about their
willingness to pay (WTP) to obtain an
environmental good or service. A detailed
description of the good involved is provided,
along with details about how it will be
provided. The actual valuation can be
obtained in several ways, such as asking
respondents to name a figure, having
themchoose from a number of options or
asking them whether they would pay a
specific amount (in which case, follow-up
questions with higher or lower amounts
are often used). CV can, in principle,be
used to value any environmental benefit.
Moreover, since it is not limited to deducing
preferences from available data, it can
be targeted quite accurately to ask about
38
the specific changes in benefits that the
proposed project would result in. Because
of the need to describe in detail the good
being valued, interviews in CV surveys
are often quite time-consuming. It is also
very important that the questionnaire be
extensively pre-tested to avoid various
sources of bias. CV methods have been
the subject of severe criticism by some
analysts. A “blue-ribbon” panel was
organized by the USDepartment of Interior
following controversy over the use of CV to
value damages from the 1989Exxon Valdez
oil spill. The report of this panel (NOAA,
1993) concluded that CV can provide
useful and reliable information when used
carefully, and provided guidance on doing
so. This report is generally regarded as
authoritative on appropriate use of the
technique. In a nutshell, in the context of
valuation of ecosystem services, its purpose
and appropriateness ofmethodology are the
key considerations. (Kumar, 2005)
Determining precise and credible value
of ecosystem services strengthens the
functioning of markets for them. This
provides for a transparent mechanism not
only for acceptable payment mechanism
in place but sustainable management of
ecosystems as well. In the last decade,
payment for different types of ecosystem
services has emerged as one for the
innovative responses for management of
ecosystems. Overall, the US government
spends over $1.7 billion per year to induce
farmers to protect land.
2.8 Forest
Resource
Accounting
Forests are one of the most important
components of the terrestrial
environmental system and a complete
resource base. They form an ecological
system consisting of tree-dominated
vegetative cover (Verma and Kumar, 2006).
IIED and WCMC (1994) define forest
resource accounting (FRA) as a

management tool which integrates forest
information from many sources and
makes it available in forms which are
useful for policy-making and planning.
An FRA system tracks changes in forests
used for both production and protection
– especially in their area, legal status,
condition and management. It reports
these changes in ways which help to
improve forest valuation, policy, planning
and management, and which help to
demonstrate national progress in achieving
policy objectives. FRA contributes to the
development of natural resource accounts
by providing much of the core, stock taking
information required for the resource
accounts (IIED and WCMC, 1994; IIED and
WCMC, 1996). The calculation of natural
growth should be based on the forest
resources available at the beginning of
the accounting period (Balasubramanium,
2013). Accounting for forest wealth has
a number of policy useful benefits, that
is why it is necessary to maintain such
accounts which incorporate all those
benefits.
2.8.1 Scope of
Forest Resource
Accounting (FRA)
Quantifying and monitoring the flows
of ecosystem services is critical. Forest
Resource Accounting (FRA) provides a
realistic estimate of the contribution
of forest to the GDP of the economy.
Presently, the budgetary allocation in
Ecosystem Services Valuation and Accounting of Himachal Forests
India is nearly following the quid pro
quo technique of budgetary allocation
in relation to contribution to GDP, states
with large geographical areas under
forests like Madhya Pradesh, Himachal
Pradesh, Arunachal Pradesh, Uttarakhand,
Chhattisgarh, etc. could make a strong
case for higher budgetary allocation
using Ecosystem quantity and value
estimate for their forestry sector so as to
promote sustainable development. Else
the states will always face a resource
crunch in the forestry sector. Further
the communities conserving forests like
JFM committees will also have sustained
interest in investing in this natural capital.
When the contributions are recorded
through a system of FRA, the contributing
stakeholders can also be identified and
this would help setting up a compensation/
payment /incentive-based mechanism to
such conservationists. The logic hasbeen
appreciated by the Government of Indiaand
other fund allocation agencies and as per
the recent development an amount of
Rs.1000/- (one thousand crores) has been
earmarkedfrom the centre for distribution
amongst the states sacrificing development
of agriculture and industrial development
by conserving large areas under forests. If a
regular system of FRA is established, it will
further help in such budgetary allocations
leading to improved management of India’s
forests. In fact the state of Himachal
Pradesh in India, based on the findings of
Verma (2000) seem to have learnt a lesson
39
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
from Brazil and haslevied one time ecological value added tax to compensate for the loss
of revenue to those Indian states which have done a commendable job of protecting their
forests.

2.8.2 Beneficiaries of FRA and Typical FRA

Products
The FRA so developed could be of immense use to national and state legislatures, natural
resource management agencies, forest owners and concessionaires, forest industry and
trade groups, local communities’ dependent on forests and supporting NGOs, international
flora, secretariat to conventions and donor agencies etc. (IIED, WCMC, 1996). Depending
on need, the particular FRA ‘products’ selected for a given location may contain State-
of-the Forests Report (baseline data and maps selectedcriteria and indicators),Balance
sheet of forest stocks and flows (including non-timber forest products), Concession
monitoring and forest investment programme, Forest valuation (national or forest unit
level), Audits of forest management (by different stakeholders) and administration, Forest
sustainability assessment (according to national standards/ international principles) ,
Country level forest management certification, etc. FRA can also play a key role in cross-
sectoral initiatives such as land capability information system, national environmental
management system, national biodiversity database and national resource accounts
(monetary or physical)Figure2.1 explains a step by step procedure for economic valuation
of forest ecosystem. It is a flow chart explaining notonly the valuation steps but also
how to use the values for policy recommendations and implementation in conservation
initiatives by government, multilateral and bilateral agencies.

40
 Ecosystem Services Valuation and Accounting of Himachal Forests

Figure 2.2 Procedure for Economic Valuation of Forest Ecosystem

Choose goods and services for valuation What ecosystem services will be valued?
under different ecosystems What is the geographical scale?

Which method is the most appropriate

Identify valuation methods
for capturing which services? Combining
and techniques
different methods?

What data are already available? What

Specify data need for valuation new data needs to be collected? Benefits
transfer?

How will data be collected? How will

Develop a detailed research design and
questions be framed? If CVM is chosen,
instruments for data collection
should we measure WTP? or WTA?

Expert survey? Brainstorming? How to

Collect data: primary, secondary, expert
collect field data, from how many sites, by
survey
whom? How to measure data quality?

How will data be analysed? How will

Analyse data: calculations, cost benefits
data collected by different techniques be
of alternative options, write report
integrated?

Develop options and make

How to provide meaningful inputs
recommendations for sustainable use
to the decision- makers?
and conservation of ecosystem

in the previous section that the benefits forest can also be categorized into stock and
flow benefits. Broadly, stock benefits refer to potential supply, while flow benefits refer
to real feasible flow of benefits. In the study context, standing timber and carbon stock
refer to stock benefits, while carbon sequestration can be referred to as a flow benefit
adopting the framework developed by Hou and Wu (2008).

41
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Figure 2.3 Stock and Flow benefits from Forest Ecosystems

Forest natural Forest land assets Aiming at the evaluation

capital stocks of sustainability of
Standing timber assets
development based on the
Forest environmental assets change of capital stocks

Annual increment
Forest goods Products of economis forests
valuation of Non wood Forest produce
forest ecosystem
Water Conservation
Soil Protection
Agricultural Protection
Annual valueof Forest Carbon sequestration and Gross analysis Aiming at
flow of forest environment oxygen supply (GDP, income, the macro-
ecosystem goods services Biodiversity conservation consumption, level policy
and services Air purification/temperature savings, evaluation
regulation
investment) and analysis
Forest ecotourism
within and
Job opportunities
Science and education

Socio-cultural Aesthetics and living

conditions
benefits
Cultural/artistic services
Spiritual/historic services

Source : Adapted from HOU and Wu, 2008

• The estimation of Gross Value Added • Major products comprising industrial

from the “Forestry and Logging” sector
in India is presently carried out by
the production approach. It aims at
estimating the value of output at factor
cost in the first instance and then
deducting the value of various inputs
at purchaser’s prices. The economic
activities included in the present system
are as follows:
• Forestry (e.g. Planting and conservation
of forests, gathering of forest products,
charcoal burning carried out in the
forests)
• Logging (e.g. Felling and rough cutting
of trees, hewing or rough shaping of
poles, blocks etc.) and transportation of
the forest products to the sales depot /
assembly centres
• Farm-yard wood (industrial wood and
fuel wood collected by the primary
producers from trees outside regular
forests).
• The forest products are being classified
into the following broad groups, viz.
wood (timber, round-wood, match and
pulp wood) and fuel wood (fire wood
and charcoal wood)
• Minor products comprising a large
number of heterogeneous items such
as bamboo, fodder, lac, sandal wood,
honey, resin gum, tendu leaves, etc.).
• The collection of data related to such
activities, outturn of products and
prices thereof is done by Central
Statistical Organization, MOSPI, GOI,
from the state forest departments on a
financial year basis.
• A serious limitation of such out-
turn data is that they represent
only authorized exploited forest
resources and a substantial quantity
of production goes unrecorded. This
usually comprises of
• Unrecorded and unauthorized
removals of timber and firewood from
reserved /protected forests
• Unrecorded production from private

42

owned forests and non-traditional
forest areas (trees in village commons,
field ridges, canal sides, road sides,
fruit trees no longer productive etc.).
Central Statistical Organization, the agency
responsible for computing and developing
the National Accounts for the country,
uses a norm of 10% of recorded production
for estimating the value of unrecorded
production from all the states of the
country. This norm was based on a timber
trend study done way back in 1957-58. A
revision done for unrecorded fuel-wood
production now base itself on household
consumption of fuel-wood as recorded by
NSSO Surveys.
Being an unorganized sector for the most
part, reliable data on other non-wood /
minor forest produces (MFP) are usually
not available. In many of the states only the
royalty value realized by the state-trading
agency for the MFP are available, which
seldom reflects the economic value of the
products. Types of minor forest produce
often run into several hundred, given the
rich bio-diversity of the country and the
strong user base of such products, both
nationally and internationally. The market
chain for such products is also very complex
and the open market price movement
difficult to track.
The current data available from the states
on production and prices suffer from other
limitations as well. One of the significant
is the non-availability of species wise
production and prices. Forest timber in the
country has a lot of variability with regard
to their quality and the prices even vary
within the same species. Depending upon
climatic and other factors, trees belonging
to the same species may belong to different
quality classes. Thus it becomes imperative
to have the production and price data not
only species wise but also quality/class
wise for the same species. The present
system of recording a single figure by the
state forest department for volume and
price prevents realistic assessment of forest
assets.
Ecosystem Services Valuation and Accounting of Himachal Forests
2.9 Accounts in
FRA
2.9.1 Asset Accounting
The typical FRA exercise accounts for
forest land and related ecosystems,
biological assets in the forest and other
assets related to forests.
• Land
Forest land is explicitly distinguished
as a land category. SEEA Forest land
classification includes Non- exploitable
virgin forests, whereas they are
not included in SNA. SEEA clearly
distinguishes economic forest land
(Cultivated and Uncultivated) from
Non- Economic (Environmental) Forest
land. Cultivated economic forest land
corresponds to land over which ownership
rights are enforced, and for which natural
growth and/or regeneration of timber and
other biological assets is under the direct
control, management and responsibility of
institutional units and is likely to produce
economic benefits to the owner of the
land (SEEA, 2003). Uncultivated economic
forest land is similar to the Cultivated
Economic Forest land but for which the
natural growth and/or regeneration is not
under the direct control, management
and responsibility of institutional units,
although growth and regeneration are
likely to produce economic benefits to the
owner of the land. Non- Economic Forest
land (Environmental) covers land of both
protected and non-exploitable forests.
• Ecosystem
Forest land, regardless of its classification
may be categorized according to the
associated ecosystems and can be
further classified according to its state or
management objectives.
• Biological Resources
Biological resources include timber
resources, crop and plant resources,
aquatic resources and animal resources
other than aquatic that brings use benefits
today or that may do so in future. Each
43
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
category of biological resource is again
subdivided into cultivated and non-
cultivated sub categories.
• Other Assets
Other assets related to forests include:
produced assets such as forest roads and
other structures, non-residential buildings,
equipment for forestry and logging
industries, accommodation for tourists or
visitors.
There are two features that distinguish
the SEEA from other database about the
environment:
• Integration of environmental data with
economic accounts, and
• Comprehensive treatment of all
important natural resources linking them
with the economic sectors that rely on
them, and those sectors that affects
them.
2.9.2 Physical
Accounting
Environment statistics attempt to compile
raw data from multiple sources, and present
them in a coordinated manner; they can be
further aggregated and presented in the
form of stocks and flows in physical terms
in the form of following major Accounts
which is the objective of natural resource parameters for FRA used in this study are
accounting.
44
• Asset accounts record stocks and
changes in stocks of natural resources
over time. Forest asset account typically
includes balance account for forest land
& stocks of standing timber, accounts to
record forest health are alsoincluded.
• Forest flow accounts, include supply
and use tables for detailed forest
products (wood &non wood, marketed
& non-marketed) by sector, which are
linked to the input output (IO) tables
and social accounting matrices (SAMs)
used in economic models. Forest flow
accounts also include measures of forest
ecosystem services, environmental
degradation associated with forest use.
• Environmental protection and resource
management expenditures accounts
identify expenditure undertaken by public
and private sectors to manage resources
and protect environment.
• Environmentally- adjusted aggregates
include commonly used indicators of
macroeconomic performances than
have been adjusted to better reflect
sustainability. For this component of
the SEEA, forestry accounts provide the
addition to GDP of unvalued forest goods
and services, the subtraction from NDP
of economic cost of deforestation or
loss of forest service due to change in
management.
The methodological framework and its
given in the following Box.
 Ecosystem Services Valuation and Accounting of Himachal Forests

Box2.1: Components of the Forest Resource Accounts

1. Forest-related asset accounts

Wooded land: Land area and economic value by main species, natural &cultivated forest
land, available for wood supply/ not available, etc.
Standing timber: Volume and monetary value of the main sp., natural &cultivated forest land,
available for wood supply or not available, etc. Depletion anddepreciation of standing timber.

2. Flow accounts: Forest goods and services (volume and economic value)
orestry and logging products: Market and non-market production
Non timber products: Output of game, edible plants, medicinal plants, etc.
Forest services: Direct intermediate inputs to other sectors, e.g.
• Livestock grazing
• Recreation and tourism
• Carbon sequestration
• Protective services:
• Biodiversity and habitat preservation
• Protective services
Supply and use tables for wood products, forestry and related industries
Degradation of forests due to forestry and non-forestry activities, such as defoliation
Environmental degradation caused by forest-related activities

F3. Expenditure on forests management and protection

Government expenditures
Private Sector expenditures

4. Macroeconomic Aggregates

Value of forest depletion and degradation

Measures of national wealth, national savings and net domestic product adjusted for
forest depletion / accumulation.

5. Memorandum Items:
Employment income, exports from non-timber goods and services
Number of households dependent on NTFPs.
Rights of forest exploitation
Stumpage fees and other taxes / subsidies for forestry and related industries
Manufactured assets like roads. Buildings and equipment for forestry, logging.
Tourism and other uses of forestry

Source SEEA 2003

45
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process

2.9.3 Monetary Accounting

Physical indicators and accounts cannot be compared directly with the standard measures
of economic performance to assess the sustainability of economic growth or development.
So the physical accounts should be converted to monetary accounts by the valuation of
Physical accounts. For monetary accounts, the entries correspond to the physical accounts
but contain an additional entry for revaluation, which records the change in asset value
due to changes in prices between the beginning and end of the period.
Ideally, forest accounts would identify three components of the forest goods andservices:
• The output or production value.
• The value added part or added value
• And the in-situ value of a resource.
The value added generated by forest goods and services is a portion of the extraction
cost, measured as output minus all intermediate costs of production. The value is the
contribution to GDP.The in-situ value is the resource rent generated by forest products,
the value of the product minus its extraction cost, which is comparable to the stumpage
value of timber. It is, in principle the amount that someone will be willing to pay to rent
the forest in order to have access to the product. If non-market forest products were to be
included in forest asset accounts, it is the in-situ value that would be used. The following
box provides common valuation techniques used for valuation for specific forest resources.

Box 2.2: Valuation Techniques for Forest Goods and Services

Forest Products Valuation Techniques

Land • Market price
Commercial Timber • Market price
Non-Commercial Timber • Market prices
• Local market prices of the same product
• Price of close substitute products
Non-timber Forest Goods • Local market price of the same product
• Price of close substitute product
• Production cost
Forest Services • Price of close substitute product
-Livestock Grazing • Production cost
• Travel cost
-Recreation and Tourism
• Hedonic price of land
• CVM and conjoint analysis
Forest Environmental and Protection • Carbon tax
Services • Carbon emission permit trading tax
- Carbon Storage • Global damage from climate change averted
- Biodiversity and Habitat • CVM and conjoint analysis
- Preservation • Damage cost
- Protective Services • Damage prevention costs
• CVM and conjoint analysis

46

The concept of economic rent is central to
natural-resource valuation. Economic rent
is defined as the return to any production
input over the minimum amount required
to retain it in its present use. It is broadly
equivalent to the profit that can be derived
or earned from a factor of production (for
example, a natural-resource stock) beyond
its normal supply cost. In forest economics,
the concept of “stumpage value” is very
close to the economic rent. Stumpage
value represents timber sale proceeds
less the costs of logging, transportation,
and processing. Better quality and more
accessible timber stands will command a
higher stumpage value. Rents to natural
resources arise from their scarcity, and
from location and other cost advantages of
particular stocks. In principle, rents can be
determined as the international resource
commodity price less all factor costs
incurred in extraction, including a normal
return to capital but excluding taxes, duties,
and royalties. Thus, the economic rent is
equivalent to the net price.
This is equivalent to the economic rent in
a Ricardian scarcity model, which assumes
that resources from different “deposits”
will be supplied at a rising incremental cost
till profit on the marginal source of supply
is completely exhausted. In this Ricardian
model, rents rise on relatively low-cost,
infra-marginal sources of supply.
It is also equivalent to a user cost in a
Malthusian stocks carcity model, which
assumes that a homogeneous exhaustible
resource is exploited at an economically
efficient rate, a rate such that the profit on
the marginal amount brought to the market
is equal to the expected return derived from
holding the asset in stock for future capital
gain. In such a Malthusian model, if the
resource is being extracted at an efficient
rate, the current rent on the last unit of
resources extracted is thus equal to the
discounted present value of future returns
from a unit remaining in stock.
The gross operating surplus of the
extractive sector in the SNA, represented
by the sum of the profits made by all the
different enterprises involved in resource-
Ecosystem Services Valuation and Accounting of Himachal Forests
extraction activities, does not represent
true rewards to factors of production
alone but also reflects rents from a
“one time only” irredeemable sale of a
non-renewable natural asset. The basic
definition of income as the amount that
can be consumed without becoming worse
off is clearly being infringed as the value of
the asset base declines. Asset transactions
in natural resources, such as competitive
auction sales of rights to extract timber
or minerals, closely follow estimated
stumpage values or rents, with allowance
for risk. Since holders of those rights can
usually hold the resources in stock or
bring them to the market immediately, the
current rent or stumpage value tends to
reflect the present value of the expected
net income that can be derived from them
in the future.
In order for adjustments to national
income accounts for changes in natural-
resource stock to attain broad acceptance,
a credible standard technique for valuing
natural resources must be adopted that
can be applied to a variety of resources by
statisticians in different countries. That
method must be as free as possible from
speculative estimates (about future market
prices, for example), and must depend
on underlying data that are reasonably
available to statistical agencies.
The three principal methods for estimating
the value of natural-resource stocks are (1)
the present value of future net revenues; (2)
the transaction value of market purchases
and sales of the resource in situ and (3)
the net price or unit rent, of the resource
multiplied by the relevant quantity of
the reserve. The present-value method
requires that future prices, operating costs,
production levels, and interest rates be
forecast over the life of a given field after
its discovery. The present value of the
stream of net revenue is then calculated,
net revenue representing the total revenue
from the resource less all extraction costs.
The United Nations Statistical Office
has recommended use of the present-
value method when market values for
transactions in resource stock are not
available.
47
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
The net-price method applies the prevailing
average net price per unit of the resource
(current revenues less current production
costs) to the physical quantities of proven
reserves and changes in their levels.
While the net-price method requires only
current data on prices and costs, it will
be equivalent to the other two methods if
output prices behave in accordance with
long-run competitive market equilibrium.
The assumption here is derived from the
theory of optimal depletion of exhaustible
resources - that resource owners will
tend to arbitrage returns from holding the
stock into future periods with returns from
bringing it immediately to the market,
adjusting current and future supplies till
price changes equate those returns.
The national accounts data are mainly
based on market prices, while most non
–market valuation techniques include
the consumer surplus, mainly used for
valuation of Non timber forest products
used directly by the households after being
collected/processed.
According to SEEA, in principle wooded
land and standing timber should be treated
as separate assets.
2.9.4 Wooded Land
• Ideally, the value of forestland is based
on the market value of the bare land
that is revealed through sales of land.
Where data are not available, the
SEEA recommends that land value to
be estimated based on the basis of tax
values, or other administrative data, or
as share of the market value for forest
estates (land and standing timber
combined)
Standing Timber
• Timber asset value is the discounted
future stumpage price of mature timber
after deducting the cost of bringing the
timber to maturity. The stumpage price is
the price paid to the owner of the forest
for standing timber, or in the absence of
such markets, the stumpage value can
be estimated by deducting the cost of
logging & transportation from the price
received for raw wood, costs include
thinning (net of any income), other forest
48
management costs & rent on forest land.
• Although conceptually preferred, Euro
stat found the present value approach
to standing timber to be complicated
& required a great deal of data.
Consequently, the stumpage value
approach was recommended.
Non -Timber Forest Product (NTFP)
• Traded informally in scattered markets
poses practical and even some
theoretical problems related to validity
of any such valuation exercises (refer
FAO Forestry Paper 127 –Valuing Forests:
issues and guidelines) Hence, valuing
forest products for subsistence use has
been done indirectly using surrogate
prices.
Environmental Protection Services
• Because of the difficulty in establishing
the level of services provided by a forest
and the change resulting from a given
change in forest use, the SEEA-2003
and the Euro State framework makes no
recommendations regarding valuation of
these protective services.
Valuation of Deforestation and
Forest Degradation
• There are two alternative approaches;
one approach applies the stumpage
value to the excess of felling over natural
growth. The other approach measures
the difference in asset value from the
beginning to the end of the period. The
latter approach takes into account both
excess of felling over natural growth as
well as change in stumpage value during
the period that affects asset value.
The European Pilot Programme does not
recommend monetary estimates of the cost
of deforestation or defoliation. The SEEA
–2003 provides two different conceptual
approaches to valuing degradation: the
maintenance cost approach & the damage
cost approach. The revised SEEA-2003
proposes a concept of depletion cost more
consistent with economic depreciation:
the change in asset value from one
period to the next. Calculating the cost of
degradation relies on good data linking the
physical status of a forest and the services
it provides.
 Ecosystem Services Valuation and Accounting of Himachal Forests

2.10 Proposed FRA I) Actual capacity accounts measure the

Framework and
Methodology
2.10.1 Framework
A typical resource accounting exercise for
the forestry sector would take into account
the existing system of recording of the
stocks and flows, and then try to create
linkage with potential accounts. This is
done usually by either expanding the assets
boundary or by accounting for implicit
depletion/degradation of assets which
were not done before. The system of Forest
Resource Accounting proposed by Xhu et
al talks on the concepts of actual accounts,
Linkage accounts and Potential accounts
has been adopted particularly in respect of
parameters indicated in Figurein the next
page.
flow of goods and services flowing from
the forest ecosystem to the economy
currently. This flow can be assessed by
the construction of Asset Accounts both
Physical and Monetary asset accounts.
II) Potential capacity accounts record
the various ecosystem features which
determines both the Actual Capacity and
Potential flow of benefits of those features,
based on various ecosystem quality
indices.
III) Linkage Accounts tries to link together
the Actual Capacity Accounts and Potential
Capacity Accounts, and consists of
estimates of costs of various ecological
imperatives required to maintain some
ecological indicators at specified level or
to avoid losses in flow of future goods and
services (potential benefits )

Figure 2.4 Proposed Framework

Actual Accounts Linkage/Use Accounts Protential Accounts

(Economic Accounts) (Cost/potential Accounts) (Ecological/environmental
Accounts)
• Timber Products • Eco-constraint losses
• Non-timber products • Damage values • Plants/flora
• Minerals • Maintenance expenses • Animal/fauna
• Water • land and soil
• Forage

• Monetary Accounts • Flow Accounts

• Qualitative indicators • Quantitative indicators
• Stock Accounts

Use Values Conservation Bioligical, ecological and

• Market value environmental indicators
• Opportunity costs
• Surrogate market • Stability
• Bequest value
value
• Structure

Source : Zhu X.et al 1994

49
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Valuing depletion and degradation
within a national accounting framework
is a viable proposition today, as a result
of significant progress in valuation
techniques for environmental resources
and as a result of the expanding
foundation that theoretical developments
are placing under the methods of “green”
national accounting (Hamilton, 2002). But
the very complexity of forest –economy
and land-economy interactions, especially
in a country like India, makes forest and
land related adjustments prone to error,
if not guided by economic theory as well
as complete set of relevant and reliable
data to support the assumptions of such
theories. The SEEA proposes a framework
of creating and linking a system of
satellite environmental accounts to the
national income accounts which this study
has adopted.
One of the major lacunae in the present
system of accounting for the contribution
of the “forestry and logging” in the
national income accounts is the high
degree of underestimation that riddles
the computation. One of the major
reasons for this is the fact that a varied
type and amount of forest outturn is
50
attributed to other sectors, mainly agriculture
and livestock, fisheries and tourism. For
example, all forest food and food additives,
forest grazing and fodder are reported
under agriculture for most part. Non-wood
construction materials (thatching materials,
bamboo, grass, fibres, etc.) are estimated to
be used by 250 million Indians living below
the poverty line, with a value of 2500 million
US Dollars (UN-CSD/IPF, 1996).
Forest land transferred to support
development in other sectors like mining,
irrigation, hydropower, surface transport
etc. adds to the capital stock of these
recipient sectors, while forestry hardly gets
compensated for such transfers.Hence the
major focus of the accounting exercise had
been to rectify the imputation of zero cost
to the consumption of the above mentioned
resources.
2.10.2 Methodology
Asset accounts record stocks and changes in
stocks of natural resources over time. Forest
asset account typically includes balance
account for forest land and stocks of standing
timber.
The Forest related asset accounts can be
of the following types, both in Physical and
Monetary terms:
Area Accounts (Wooded Land): Land area
and economic value by main species, natural
and cultivated forest land, available for wood
supply/ not available, etc.
Volume Accounts (Standing Timber): Volume
and monetary value of the main sp., natural
and cultivated forest land, available for wood
supply or not available, etc., Depletion and
depreciation of standing timber.
The study thus conducts economic valuation
of forests of Himachal and then uses the
above framework to generate forest resource
accounts to provide relevant information
for its use for various purposes like
substantiating demand for incentives and
reward for forest conservation and receiving
due compensation for damage to the forest
ecosystem and desired budget for various
forest management interventions.
 Ecosystem Services Valuation and Accounting of Himachal Forests

2.11 Revisit to the Study Conducted by the

Lead Author: Estimating Total Economic
Value of Forests of India - A Case of
Forests of Himachal Pradesh(HPFSR, 2000)
Besides the above, it will be useful to mention structure developed in the study on Forest
Resource Valuation and Accounting for the State of Himachal Pradesh done by Verma
(2000) conducted as a component of Himachal Pradesh State’s Forestry Sector Reforms
Project (HPFSR), executed by DFID and IIED incorporating various estimates, both
physical and monetary, on the contribution of forests to the state economy, as per Table
2.5 below:

Table 2.5Total Economic Value of Forests of India: A Case of Forests of Himachal Pradesh

Economic Value of Direct and Indirect Benefits

Physical value Monetary value
(Rs. crores)
Total growing stock 10.25 crore m3 40860
I. Direct Benefits
A. DirectConsumptive benefits
1.Salvage 3.50 lakhs m3 32
2.Timber for right holders 1.06 lakhs m3 60
3. Fuel wood 27.60 lakh tonnes 276
4.Fodder 92.0 lakh tonnes 690
5.Minor forest produce 1161.56 tonnes 25
Total Direct consumptive 1083
benefits
B. Direct Non Consumptive
Benefits
6.Ecotourism 66.56 lakh - Tourists 6657
Total Direct Benefits(A+B) 7740
II. Indirect Benefits
7.Watershed 6.77crore m3 - Growing stock in river Basin 73972
Forest Circle and 36986 km2 - entire forest
area
8.Microclimatic factors 969018 Households 145
9.Carbon Sink 14346 km2 - Area under tree cover and scrub 17645
forest
10.Biodiversity/ Endangered 8966- Total no. of species found in Himachal 7137
Species Pradesh and 125 -Endangered species
11.Employment Generation 48.40 lakh man days 25
Total Indirect Benefits (7+11) 98924
Total Economic Value(I+II) 106664

51
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
It is evident from the table that except for some contribution by way of salvage removals,
TD Rights and MFPS, all values go totally unaccounted despite having enormous monetary
worth. The watershed values contribute the most (69%) followed by carbon sink values
(16%). When TEV in terms of Rs/Hectare contribution of forests is calculated for the legal
forest area (36,986 km2) it stands at Rs. 2.89 lakhs, whereas for the actual forest cover
(143, 46 km2) it approximates to Rs. 7.43 lakhs.If we take the contribution only in terms of
intangibles, it stands at Rs. 6.90 lakhs as against Rs. 53000 per hectare for direct values
for actual forest cover and Rs. 2.89 lakhs as against Rs. 21,000 for direct values for legal
forests.
The total contribution of forests amounts to Rs. 106664 crores but what is accounted is
only Rs. 41 crores by way of revenue realized by the department. The total economic value
so generated is compared with the value of the growing stock, total expenditure incurred
on forests (Annual Budget) and the revenue realized from forests as per the following
table.

Forest Resource Contribution vs. Investment (Rs Crores)

Value of Growing Stock 40860
Total Economic Value of Forests 106664
Total Expenditure Incurred in Forests (Annual Budget) 109
Revenue Realized by Forests
41
Total GSDP 9258
Forestry as Logging 487
Forestry as % of GSDP 5.26
Total Economic Value of Forests(as per current estimation) 106664
Corrected GSDP
Forestry as % of Corrected GSDP 115434
92.40

The table finds that the total economic value is 2.61 times the value of the growing stock,
980 times the total expenditure incurred in the forestry sector of Himachal Pradesh and
2607 times the revenue realized by the forests annually. This comparison proves gross
underestimation of the forestry sector’s contribution to the economy of the state. When
the GSDP of the state is corrected for total economic value calculated through the current
study the contribution of the forestry sector increases from 5.26% of GSDP to 92.40 % of
GSDP. The framework adopted in the above study could be adopted for the Indian economy
as a whole to reflect the monetary value of contributions and the opening and closing
stock model would be useful to assess the net changes in the current year.
The estimates show that the value of annual flow of goods and services of dense forests
varies from Rs. 2187 per hectare to Rs. 3.2 lakh per hectare. In case of protected areas,
the value is from Rs. 12425 per hectare to Rs. 3.4 lakhs per hectare. The Present Values
(PV) of the forests flows have been worked out at 5 per cent rate of discount for a period of
20 years. The PV of dense forests varies from Rs. 2.65 lakh per hectare to Rs. 40 lakh per
hectare and that of Protected Areas varies from Rs. 2.67 lakhs per hectare to Rs. 42 lakhs
per hectare.

52
Ecosystem Services Valuation and Accounting of Himachal Forests

53
03
Ecosystem Services Valuation and Accounting of Himachal Forests

Policy
Environment for
Internalization
of Value of
Forest Ecosystem
Services in the
Decision-Making
Process
Key Messages
Forests in India have always acquired a special place in its culture. For
a long time, the communities residing in the forests have been known
to worship trees as their protector and nurturer. ‘Nature Nurtures’
has been the key word. However, with more and more development
initiatives, deforestation and degradation of forests have become
significant issues that the country is facing in the current times. The
present chapter describes briefly the policy environment that India
has currently and how it has evolved over a period of time, from
British colonial rule to now in the democratic set up. A conducive
policy environment is crucial for any step towards forest conservation.
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
3.1 Introduction
The nexus between nature, its preservation
or destruction and human welfare needs
to be established. Historically nature has
always been regarded as a nurturer of
mankind whose services where taken as
given and for granted. Consequently, it
made its place in mythologies and epics. In
India, there are many tribal communities
who worship nature as their lord. As man’s
understanding of nature’s services has
grown, it has been slowly recognized that
there is a limit to which the ecosystem
can bear the exponential growth of man’s
needs. Other than spiritual, it is important
that man puts an ecological and economic
value to its services and functions .
The extinction The fact that environmental services are
of species getting degraded is being increasingly
recognized by man. A number of animal
owing to species such as pandas, rhinos and tigers
anthropogenic are already on the verge of extinction,
whereas ecosystems like rainforests,
activities has wetlands, coral reefs, etc are getting
been estimated severely pressurized due to uncontrolled
human activity. The extinction of species
to be owing to anthropogenic activities has been
1,000
estimated to be 1,000 times more rapid
than the “natural” rate of extinction which
is a characteristic of earth’s evolution
times more (Millennium Ecosystem Assessment
2005b). Besides, natural disasters such
rapid than the as floods, droughts and landslides have
“natural” become uncommonly frequent today.
Though the health of the natural ecosystem
rate of has been linked to human wellbeing, there
are many opposing schools of thought that
extinction coexist with this. There is a widespread
which is a feeling that nature will get back to its
‘normalcy’ again and the above mentioned
characteristic activities are mere aberrations rather than
of earth’s a trend. Since 1990, 50% of the world’s
wetlands have been lost, and since 1950
evolution there has been tremendous pressure to
(Millennium convert tropical and sub-tropical wetlands
to alternative uses. Thirty per cent of
Ecosystem coral reefs which have higher level of
Assessment biodiversity than tropical forests have been
severely damaged due to fishing, coral
2005b).
56
bleaching and pollution. These facts are
evidence enough for human kind to adopt
a fresh perspective towards ecosystem
services.
Forests in India have a special place in its
culture. It provides livelihood opportunities
to many communities who have been
dependent on it for a long time. It has
played a crucial role in the well-being
of communities and the commercial
establishment of the state. Long before
the onset of British colonial rule, the
Indian community was dependent on
forest resources as an essential element
of their life. With the advent of British
rule, the ownership of forests went
into the state hands. Clearing away of
forests for agricultural expansion and
for commercial purposes like timber and
other raw materials was carried out at a
very high rate. Indian forests served the
needs of UK Royal Navy ships. Teak was
in great demand. As a matter of fact, the
first Conservator of Forests in India was
appointed in 1806 with a view to facilitate
teak extraction from the southern regions
of Malabar and Travencore in India. Any
land that was not productive in terms of
generating revenue was considered to be a
‘wasteland’ by the policy makers in British
India . Hence the forested areas were not
considered profitable and the large-scale
cutting down of forests was promoted
widely.
The notable forest policies under British
Rule were:
3.1.1 Lord Dalhousie’s
Forest Charter of
1855
This charter is known to have started
an intellectual revolution of its time.
It reversed the laissez faire policy and
brought all the wastelands under state
jurisdiction. The private concept of
absolute ownership was extended from the
individual to state.

3.1.2 The Indian
Forest Act of 1865,
1878, 1891 and 1927
The Forest Acts of 1865, and the successive
amendments in 1878, 1891 and 1927
brought the concept of reserved forests in
India which till today are the biodiversity
hotspots despite the timber use under
the working plan. These forests have
been sustainable as well as serving the
development needs of the country. It is
generally said that it is because of these
early initiatives that Indian forestry got a
scientific base.
Lord Dalhousie’s Forest Charter of
1855 paved the way for environmental
interventions which were radical and
previously untried. Although these policies
established British sovereignty over Indian
forests and land but there were many
forest officials who had a fear of long-term
environmental impacts of indiscriminate
logging. Mr. J.D. Hooker, who was the
director of the Royal Botanical Garden,
had often warned Lord Dalhousie about
the potential environmental impacts of
deforestation. It is because of this that
the consequent forestry policies had a
scientific basis, though commercialism was
undeterred and logging continued for a
long time. Nonetheless, environmentalism
had already started .
3.1.3 National
Environmental
Policy 2006
India as a nation is committed to a
clean and green environment under the
constitutional mandate of Articles 48 (A)
and 51(A).The National Environmental
Policy of 2006 is a response to this belief
and a continuation of earlier initiatives
like National Forest Policy, 1988,
National Conservation Strategy and
Policy Statement on Environment and
Development, 1992 Policy Statement on
Abatement of Pollution,1992 National
Agriculture Policy, 2000 National
Population Policy, 2000 National
Water Policy, 2002, which in their own
ways contributed to environmental
management. The uniqueness of the
Ecosystem Services Valuation and Accounting of Himachal Forests
National Environmental Policy lies in
the fact that it is the first initiative in
strategy formulation for environmental
protection, analysing the causative
factors of environmental degradation in
order to suggest remedial measures for
the same like various fiscal, tariffs and
sectoral policies that are needed to take
into account the negative externalities
of development projects. It builds on the
earlier policies rather than displacing them,
filling the gap in the earlier initiatives in
the light of present knowledge, recent
technological developments and political
scenario.
The various remedial measures that have
been suggested in this policy comprise of:
i) Adoption of a mixture of both science-
based and traditional land-use
practices,
ii) Demonstrations of best land-use
practices at pilot scale,
iii) Large-scale dissemination of the
adopted technology and scientific
ideas
iv) Adoption of multi-stakeholder
partnerships,
v) Promotion of agro-forestry, organic
farming and sustainable cropping
patterns
vi) Adoption of efficient irrigation
techniques.
The National Environmental Policy 2006
has been evolved with a very intensive
stakeholder consultation along with
the subject experts. By stimulating the
partnerships of various stakeholders, the
motive is to act as directive principles
for various projects of environmental
conservation by the Centre or State.
The streamlined objectives of the National
Environmental Policy are:
• Conservation of Critical Environmental Resources
• Livelihood Security for the Poor
• Integration of Environmental Concerns in Development
• Efficiency in Environmental Resource Use
• To ensure higher resource flows, comprising finance,
technology, management skills for environmental
conservation
57
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
3.2 HPFSR: A
Proactive
Forest Climate
in Himachal
Pradesh
Himachal Pradesh, predominantly a
mountainous state in the Western Himalayas,
has a geographical area of 55,673 km2.
The altitude of the state varies from 350 m
to 6,975 m above the mean sea level. It is
located between latitude 30022’ to 33°12’ N
and longitude 75°45’ to 79°04’E.
Historical Background
Himachal Pradesh came into being on
April 15, 1948 as a centrally administered
territory by the integration of 30 erstwhile
princely states. At that time the state had
four districts, viz. Chamba, Mahasu, Mandi
and Sirmaur and its area was 25,839 sq.
kms. Later in 1951, it became a part “C”
state under a Governor with a 36-Member
Legislative Assembly and a three-member
cabinet. In 1954, Bilaspur, another part ‘C’
state was merged with Himachal Pradesh
thereby adding one more district with an
area of 1,168 sq. kms. The strength of its
Assembly was thus raised to 41.
In 1956, despite the majority
recommendations of the State Re-
Organization Commission for its merger
with Punjab, Himachal Pradesh retained
its separate entity. On November 1, 1956
it again became a Union Territory under
an Administrator designated as Lieutenant
Governor and its Assembly was abolished. In
1960, a new border district of Kinnaur was
carved out of Mahasu district. Then in 1963
the Assembly was revived and a popular
Ministry was formed. Till October 1966 the
old Himachal Pradesh comprised the six
hill districts of Bilaspur, Chamba, Kinnaur,
Mahasu, Mandi and Sirmaur with an area of
27,007 sq. kms and a population of 13,51,144
persons (1951 Census).
On November 1, 1966, it was enlarged by
merging the district of Kangra, Shimla,
58
Kullu, Lahaul-Spiti, the Nalagarh tehsil of
Ambala district, some parts of Una tehsil
of Hoshiarpur district and Dalhousie of
Gurdaspur district of the then Punjab State.
With this merger the total area of Himachal
Pradesh increased to 55,673 sq. kms and
its population to 28,12,463(1961 Census).
Now it comprised the Districts of Bilaspur,
Chamba, Kangra, Kinnaur, Kullu, Lahaul-
Spiti, Mahasu, Mandi, Shimla and Sirmaur.
On January 25, 1971, Himachal Pradesh
attained statehood.
Reorganization of the districts took place
on September 1, 1972 as a consequence
whereby two more new districts, namely
Una and Hamirpur were created mainly
as a result of trifurcation of the erstwhile
Kangra district. Also from the then existing
districts of Mahasu and Shimla, new
districts of Shimla and Solan were formed by
reorganizing the boundaries of old districts.
Presently, the strength of the Legislative
Assembly of Himachal Pradesh is 68. To
the Union Legislature, Himachal Pradesh is
represented by 4 Members to the Lok Sabha
and 3 Members to the Rajya Sabha. The
Pradesh has got a High Court and a Public
Service Commission located at Shimla. There
are three Universities in the Pradesh. One for
general education with its seat at Shimla, the
other Agricultural University with its seat at
Palampur and the third is the Horticulture
and Forestry University with its seat at
Nauni(Solan).
The state has three distinct regions, viz. the
Shiwaliks with altitudes upto 1,500m, Middle
Himalayan region between 1,500m to 3,000m
and the Himadris higher than 3,000m. About
one-third of the state is permanently under
snow, glaciers and cold deserts which do
not support tree growth. The average annual
rainfall is about 1,800mm. The temperature
varies from sub-zero to 35°c. The population
of the state is 6.86 million (Census 2011)
which constitutes 0.57% of the country’s
population. Of this, the rural population
is 89.96% and the urban 10.04%. The
population density is 123 persons per km2.
The scheduled tribes constituting 4.02%
of the population are mainly distributed in
three districts. The livestock population is
5.23 million (Livestock Census 2007).

The Himachal Pradesh Forest Department
(HPFD) regularly calls for a comprehensive
Forest Sector Review (FSR). The Review
aims to provide a basis of information and
consensus on which to build the future
policies and strategies of the HPFD,
another key institution, so that they meet
the needs of key forest stakeholders and
ensure sustainable management of forest
resources, integrating forest sector planning
with socio-economic development. It
started in 2000 with the publishing of the
first such forestry sector review report. It
was prepared in collaboration with Forest
officials.
The FSR has been based firmly on a twin
-track approach of multi-stakeholder
consultations and multi-disciplinary
analysis. This has helped not only to get
better information from key informants,
but also to stimulate a strategic series of
informed debates between the stakeholders
on the policy and institutional issues
affecting the forest sector. Since the FSR
serves as a ‘bridge’ between understanding
the present and defining a future vision,
it employed an analytical framework
which can assess the current situation in
relation to possible future, broader needs
for sustainable forest management (SFM).
The analysis has not been confined to strict
‘forestry’ concerns, but has given equal
attention to cross-sectoral and livelihood
-level issues.
The forests of Himachal Pradesh play vital
roles in preserving the fragile Himalayan
ecosystem. All HP’s Himalayan area
forms the upper watersheds of four major
tributaries of the river Indus (the Chenab,
Ravi, Beas and Sutlej) and of the Yamuna
river, which flows into the Ganges. Thus
the management of HP’s forests in these
watersheds has impacts outside the state,
in terms of downstream water supply. There
is a wide range of altitudes and climatic
conditions, with a rich and diversified flora.
Major forest types include moist tropical,
dry tropical, montane sub-tropical, montane
temperate, sub -alpine and alpine scrub.
The FSR commissioned a study by the Indian
Institute of Forest Management to provide
Ecosystem Services Valuation and Accounting of Himachal Forests
a first estimate of these values. Using
methodologies that are accepted in India
and internationally, and information
obtained through the FSR on HP forests
and their use, the various direct and
indirect values were computed (Figure
3.1). Apart from the possible variance
due to methodological and informational
inconsistencies, the study points to the
huge values of HP forests’ watershed
functions, timber growing stock, carbon
storage, biodiversity and eco-tourism
services.
The State of Forestry Review emphasized
the need to develop a transparent
information system on forests, to inform
all the stakeholders who have legitimate
roles in forestry and hence they need
suitable information to act appropriately.
It is clear that private management
affects the public benefits that are
obtainable from forests. Transparency of
information about private management
is therefore specially needed. It was
also noted that current information was
not perfect: therefore, a need to update
it when new facts came to light. It was
suggested that policy should continuously
improve, depending on impacts and
evolving conditions: therefore, we need
to keep up-to-date with those changes. A
successful transition to SFM will depend
on learning from experience: this requires
better information flow and a step-by-
step approach, including mechanisms for
monitoring and feedback on policy impacts
(IIED, 2000).
59
04
Ecosystem Services Valuation and Accounting of Himachal Forests

Valuation of
Ecosystem
Services from
Forests of
Himachal
Pradesh
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process

4.1 Study Site and Methodology

4.1.1 Forest Capital of the State
The state has three distinct regions, viz. the Shiwaliks with altitudes up to 1,500m, the
Middle Himalayan region between 1,500m to 3,000m and the Himadris higher than
3,000m. About one third of the state is permanently under snow, glaciers and cold
deserts which do not support tree growth. The average annual rainfall is about 1,800mm.
The temperature varies from sub-zero to 35°c.
The population of the state is 6.86 million (Census 2011) which constitutes 0.57% of
the country’s population. Of this, the rural population is 89.96% and urban 10.04%. The
population density is 123 persons per km2. The Scheduled Tribes constituting 4.02% of
The Shiwaliks the population are mainly distributed in three districts. The livestock population is 5.23
with altitudes million (Livestock Census 2007). The land use pattern of the state is given in the

up to
Table 4.1 below.

Land Use Area in '000 ha Percentage

1,500m, Total geographical area

Reporting area for land utilization
5,567
4,549 100
the Middle Forests 1,101 24.21
Himalayan Not available for cultivation 1,129 24.82

region between Permanent pastures and other grazing lands 1,496 32.89

1,500m to Land under miscellaneous tree crops and groves 65 1.43

Culturable wasteland 138 3.03
3,000m and
Fallow lands other than current fallows 15 0.33
the Himadris
Current fallows 64 1.41
higher than Net area sown 541 11.9

3,000m.
About one third
of the state is
permanently
under snow,
glaciers and
cold deserts
which do not
support tree
growth.

62
 Ecosystem Services Valuation and Accounting of Himachal Forests

4.1.2 Recorded Forest Area

The recorded forest area of the state is 37,033 km2which is 66.52% of its geographical
area. Reserved Forests constitute 5.13%, Protected Forests 89.46% and Unclassed Forests
5.41% of the recorded forest area. About two-third of the state's geographical area is
under recorded forests but a substantial part of this is not conducive for tree growth, being
under permanent snow, glaciers and cold deserts.

Fig 4.1Forest cover of Uttarakhand

63
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
4.1.3 Protected
Areas
Himachal Pradesh has two National Parks
and 33 Wildlife Sanctuaries covering 0.76
million ha which constitutes 13.65% of
the state’s geographical area. The Great
Himalayan National Park is famous for
snow leopards.
4.1.4 Forest Cover
The forest cover in the state, based on
interpretation of satellite data of October-
December 2008, is 14,679 km2 which is
26.37% of the state’s geographical area. In
terms of forest canopy density classes, the
state has 3,224 km2 area under very dense
forest, 6,381 km2 area under moderately
dense forest and 5,074 km2 area under
open forest. The forest cover of the state is
shown in Figure 4.1.
4.2 Valuation
Approach
Forests of Himachal Pradesh generate a
wide range of benefits known as ecosystem
services that support not only the people
of the state but also human well-being
of many other states downstream.
Nevertheless, on account of lack of market
transactions for many of these essential
and life-supporting ecosystem services
from the forests of Himachal Pradesh,
their value is often misunderstood to be
zero. This leads to individual and policy
decisions that are detrimental to the health
of thestate’s forests of the state which
compromises the ability of the state’s
forests to generate the flow of services that
we all depend on.
Valuation of ecosystem services seeks to
address this gap by clearly articulating
that while the price of many of these
services may be zero, their value is very
significant and actually constitutes a
significant proportion of the metric we use
for measuring national economic growth,
the Gross Domestic Product. To bridge
this void, as a part of the HPFSR process,
for the first time in India a complete
64
assessment was done by the Principal
Author of this study in 2000 on the
‘Economic Valuation of Forests in Himachal
Pradesh’ which estimated the Himachal
Pradesh’s forests contribute total economic
value of various ecosystem services to the
tune of Rs. 106,000 crores annually along
with value of growing stock to the tune of
Rs. 40860 crores. The value so calculated
was taken forward by the Himachal
government and a Special Purpose Vehicle
called Compensation for Loss of Ecological
Value (CLEV) was introduced in the state to
charge for forest diversion.
Since that ground-breaking study, many
more ecosystem services have been added
to the calculus of valuation, methods to
capture these values have progressed and
enriched data sets are available now and
so is the urgency to make policy-makers
aware of the enormous values that the
forests of Himachal hold and emanate.
To account for such progression, another
study was assigned by the Himachal
Pradesh Forest Department to the Principal
Author to recalculate the economic value
of ecosystem services from the forests of
Himachal Pradesh which is accomplished
now in 2016.
The study takes cognizance of several
other international and national studies
conducted by many world renowned
authors for various sites and develops
different scenarios to provide the range of
values. The study recalculates economic
value in terms of Net Present Value of
Himachal for 12 major ecosystem services
from forests such as timber, bamboo,
fodder, fuel wood, bioprospecting,
pollination and seed dispersal, carbon
storage, carbon sequestration, water
recharge and water purification. While
Himachal Pradesh has a significant
proportion of its geographical area under
forests in records, a considerable part of
this area is covered with snow for most
part of the year. While estimating the total
economic value of forests by extrapolating
a per hectare value of forests to the forest
area, it is important to bear in mind the
implication of area covered with snow.

To make this distinction more apparent,
scenarios developed to compare the total
estimated economic value of forests to
other widely used or relevant valuation
studies, the estimates were developed for
both forest cover and forest area.
4.3 Valuation
Scenarios
While an attempt has been made to
estimate the economic value of ecosystem
services from forests in Himachal Pradesh
using both primary sources, it has its
own limitations mainly in the number of
ecosystem services considered. The results
of the estimation are attached in Annexure
7. The enlisting of ecosystem services from
forest ecosystems, the availability of data
sets and methodologies have been enriched
since the first level estimates developed
by the current study. Thus to gain a better
perspective on the total economic value of
forests, sixscenarios have been developed
based on widely acclaimed or relevant
studieswhich provide such progression
in enlisting, data and methodologies and
provide spectrum of value of the same
resource, i.e. Himachal Forests with these
six different lenses.
Ecosystem Services Valuation and Accounting of Himachal Forests
• Costanza 1997 Scenario:Costanza, R.
et al., 1997. The Value of the World’s
Ecosystem Services and Natural Capital.
Nature, 387(May), pp.253–260.
• IIFM(CSO) 2006 Scenario. Madhu
Verma, and CVRS Vijay Kumar. (2006).
Natural Resource Accounting of Land
and Forestry sector (excluding Mining)
for the States of Madhya Pradesh and
Himachal Pradesh. Bhopal: Indian
Institute of Forest Management.
• Ida et al. 2013 Scenario:Ida Kubiszewski,
Robert Costanza, Lham Dorji, Philip
Thoennes, and Kuenga Tshering. An
Initial Estimate of the Value of Ecosystem
Services in Bhutan. 2013.
• Conservation Cost 2014 Scenario:
Verma, M., Negandhi, D., Mehra, S.,
Singh, R., Kumar, A. and Kumar, R.
High Conservation Value Forests: An
Instrument for Effective Forest Fiscal
Federalism in India. Indian Institute of
Forest Management. Bhopal, India. June
2014.
• Costanza, 2014 Scenario:Costanza, R. et
al., 2014.Changes in the Global Value of
Ecosystem Services.Global Environment
Change. 26(2014) 152-158.
• NPV Scenario 2014Scenario:Verma, M.
Negandhi, D. Wahal, A.K., Kumar, R.,
Kinhal, G. A., and Kumar, A. Revision of
Rates of NPV Applicable for Different
Class/Category of Forests. Indian
Institute of Forest Management. Bhopal,
India. November 2014.
65
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Study Description and Reasons for Choosing the Study for Scenario
Costanza et al. (1997) One of the earliest studies which attempted to estimate the total economic value of
ecosystem services from various ecosystems and considers a whole gamut of ecosystem
services.
Although somewhat controversial, it nevertheless provided the first-of-its-kind methodology
to put an economic value to services that nature provides. Costanza and his team stated
that the services of ecological systems and the natural capital stocks that produce them
are critical to the functioning of the earth’s life-support system. They contribute to human
welfare, both directly and indirectly, and therefore represent part of the total economic value
of the planet.
They estimated the current economic value of 17 ecosystem services for 16 biomes, based
on published studies and a few original calculations. For the entire biosphere, the value
(most of which is outside the market) is estimated to be in the range of US$16–54 trillion
(1012) per year, with an average of US$33 trillion per year. On account of the nature of the
uncertainties, this must be considered a minimum estimate. Global gross national product
total is around US$18 trillion per year.
IIFM and CSO (2006) Highly relevant study done in Himachal Pradesh which estimated the economic value of
various ecosystem services within the context of special characteristics of the state of
Himachal Pradesh.
Ida et al. (2013) Based on benefit transfer approach having used more than 200 valuation studies from
which many are contemporary and thus provides an updated economic value for ecosystem
services.
The study site is temperate forests of Bhutan which have a close socio-economic and
environmental resemblance to the current study location of Himachal Pradesh.
Provides value for a wide array of ecosystem services from forests.
Ida and her team estimated the value of ecosystem services in Bhutan using a quick and cost
effective benefit transfer methodology in order to get an initial rough assessment of their
overall contribution to human well-being. They estimated the annual value of 22 different
ecosystem services in Bhutan for 9 different land cover types. The total estimated value was
approximately $15.5 billion/year (NU 760 billion/yr), significantly greater than the gross
domestic product (GDP) of $3.5 billion /yr1. Most of this value was from forested land, which
covers over 74.5% of the land surface and contributes 93.8% of the total estimated value.
Cropland is second in value with 3.7% of total value, from only 8.0% of land area.
Conservation cost As the state of Himachal Pradesh, like other hilly states of India, is mandated to keep two-
scenario (2014) third of their geographical area under forests, there is huge revenue foregone for the sake of
public benefits from forests.
Estimation of conservation cost provides an indication of what the country or society is
willing to pay for keeping area under forests.
Costanza et al. (2014) In 1997, the global value of ecosystem services was estimated to average $33 trillion/yr in
1995 $US ($46 trillion/yr in 2007 $US). This paper provides an updated estimate based on
updated unit ecosystem service values and land use change estimates between 1997 and
2011. It also addresses some of the critiques of the 1997 paper. Using the same methods as
in the 1997 paper but with updated data, the estimate for the total global ecosystem services
in 2011 is $125 trillion/yr (assuming updated unit values and changes to biome areas) and
$145 trillion/yr (assuming only unit values changed), both in 2007 $US. From this Costanza
and his team estimated the loss of eco-services from 1997 to 2011 due to land use change at
$4.3–20.2 trillion/yr, depending on which unit values are used.

66
 Ecosystem Services Valuation and Accounting of Himachal Forests

NPV Scenario (Year A very recent study that takes a wide array of ecosystem services from forests into account.
-2014, IIFM)
The study being policy-oriented can provide useful management prescriptions.
The current study classifies the forests into 14 Forest Type Groups on the basis of Champion
and Seth Classification and 4 Forest Canopy Cover Density Class (Very Dense, Moderately
Dense, Open Forest and Low Density Forest). The economic value of forest ecosystem
services is estimated for these (14 x 4 = 56) classification units individually.
The array of forest goods and services valued in the report comprise timber, bamboo,
fodder, fuelwood, NWFP, genepool conservation, carbon sequestration, carbon storage, soil
conservation, water recharge, pollination and seed dispersal, and water purification.

As explained, the scenarios developed are an attempt to demonstrate that the estimated
economic value of forests is much higher than what assessed currently. The exercise
also seeks to identify ecosystem services whose economic value is significantly higher
and districts within the state of Himachal Pradesh that provide a considerable portion of
economic value provided by forests of Himachal Pradesh. A brief discussion on findings
from each of these scenarios is given below.

4.3.1 Scenario 1 –Costanza et al. (1997)

Tables 5.1 and 5.2 provide detailed estimates for economic value of various ecosystem
services from different districts of Himachal Pradesh based on the widely cited Costanza
et al. (1997). Ecosystem services which contribute significantly to the total economic
value in this case include water regulation, climate regulation, waste treatment and food
production. Other services such as erosion control, water supply, and recreation are also
found to be important from the perspective of economic value. As done for Scenarios 1
and 2, estimates of economic value were developed for both forest cover and forest area.
With respect to forest cover, the distribution of economic value of ecosystem services from
forests is again generally even as seen in Scenarios 1 and 2. However with respect to forest
area, districts such as Lahaul and Spiti, Chamba, Kinnaur and Kullu stand out from the rest
of the districts on account of large recorded forest area which is mostly covered with snow.
A brief summary of total economic value of ecosystem services for various categories of
ecosystem services in Himachal Pradesh based on this scenario is given in
Table 4.2 - Value of ecosystem services as per scenario1.

Based on Provisioning Regulating Cultural Total Economic Value

Services Services Services (INR crores)
Forest cover 3236 8736 561 12533
Forest area 4535 12010 1116 17661

67
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Table 4.3 - Detailed Estimates of Economic Value of Various Ecosystem Services for
Different Districts of Himachal Pradesh Based on Forest Cover Estimates for Costanza
et al. (1997)

4.3.2 Scenario 2 – IIFM and CSO (2006)

Tables5.3 and 5.4 provide detailed estimates for economic value of various ecosystem
services from different districts of Himachal Pradesh based on the IIFM and CSO Study.
Ecosystem services which contribute significantly to the total economic value include
watershed regulation and carbon stock. Other services such as biodiversity protection,
recreation and grazing are also found to be important from the perspective of economic
value but are overshadowed by the economic value of watershed regulation and carbon
stock services. As done for Scenario 1, estimates of economic value were developed for
both forest cover and forest area. With respect to forest cover, the distribution of economic
value of ecosystem services from forests is again generally even as seen in Scenario 1.
However, with respect to forest area, districts such as Lahaul and Spiti, Chamba, Kinnaur
and Kullu stand out from the rest of the districts. As these districts have large areas
covered with snow mostly recorded as forest, the economic value of ecosystem services
from forests in these districts is significantly higher than other districts of Himachal
Pradesh. A brief summary of total economic value of ecosystem services for various
categories of ecosystem services in Himachal Pradesh based on this scenario is given in
Table 4.4.

68
 Ecosystem Services Valuation and Accounting of Himachal Forests

Table 4.4 Land use of Himachal Pradesh (Dept. of Environment, 2011)

Table 4.5 Economic Values (INR Crores) of Different Ecosystem Services Based on Forest
Cover Estimates Developed with Methodology Adapted from (IIFM and CSO, 2006)

Table 4.6: A Brief Summary of Total Economic Value of Ecosystem Services for Various Categories of Ecosystem
Services in Himachal Pradesh Based Scenario 2
Based on Provisioning Regulating Cultural Total Economic Value
Services Services Services (INR crores)
Forest cover 661 93796 480 94937
Forest area 1667 236633 1211 239511

69
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
4.3.3 Scenario 3 - Ida et al. (2013)
Tables5.5.1 and 5.6 provide detailed estimates for economic value of various ecosystem
services from different districts of Himachal Pradesh. Ecosystem services which contribute
significantly to the total economic value include air quality, biodiversity protection,
climate regulation and recreation. Other services such as pollination, food and water are
also found to be important from the perspective of economic value. As mentioned before,
estimates of economic value were developed for both – forest cover and forest area. Some
of the districts in Himachal Pradesh including Lahaul and Spiti and Kinnaur have large
differences in these estimates as these regions are covered with snow for most of the year.
With respect to forest cover, the distribution of economic value of ecosystem services
from forests is generally even. However, with respect to forest area, districts such as
Lahaul &Spiti, Chamba, Kinnaur and Kullu stand out from the rest of the districts. As these
districts have extensive areas covered with snow mostly recorded as forest, the economic
value of ecosystem services from forests in these districts is significantly higher than
other districts of Himachal Pradesh. A brief summary of total economic value of ecosystem
services for various categories of ecosystem services in Himachal Pradesh based on this
scenario is given in Table 5.5.1. It is interesting to note that due to large difference in
forest cover and forest area, the estimates for total economic value of ecosystem services
based on forest area is more than twice of the same based on forest cover.

Table 4.7: Total Economic Value of Ecosystem Services for Various Categories of
Ecosystem services in Himachal Pradesh

Based on Provisioning Regulating Cultural Total Economic Value

Services Services Services (INR crores)
Forest cover 5497 31204 8807 45508
Forest area 11019 72156 20907 104082

Table 4.8 Economic Values of Different Ecosystem Services Based on Forest Area
Estimates Developed with Methodology Adapted from (Kubiszewski, Costanza, Dorji,
Thoennes, & Tshering, n.d.)

70
 Ecosystem Services Valuation and Accounting of Himachal Forests

4.3.4 Scenario 4: Conservation Cost

Results Based on Conservations Scenario:

Opportunity Cost
According to the National Forest Policy, 1988 two-thirds of the land mass for hilly and
mountainous regions should be under forest and tree cover. One of the implications of
having to maintain almost two-thirds of area under forest cover is constraining the land to
be used for alternative uses. This reveals an interesting ownership pattern that emerges
out of such constraints. Only one-third of the geographical area remains available to the
local populations and the state government exploitable for creating an economy with
diverse livelihood options. Also this places large geographical areas in the custody of the
State Forest Department which look after the management of forest resources in most of
the cases where forests are state-owned. Again with the National Forest Policy placing
emphasis on conservation, the capacity to raise revenue in forestry becomes limited as
the option of production forestry for commercial purposes becomes secondary or in some
cases declines substantially.
The recorded
The report submitted by the Indian Institute of Forest Management to the Thirteenth
Finance Commission of India raised this concern of opportunity cost incurred to hilly forest area
and mountain states. The study estimated the opportunity costs as on the premises had of the state is
forests not been there, what could have been the alternative land use that would have
been adopted by the state yielding it benefits and thus adding to its economic growth...’.
Based on the calculations, the opportunity costs for the state of Himachal Pradesh is as
shown below. The recorded forest area of the state is 37,033 sq. kms but about 11,290
37,033 sq.
sq. kms is unfit for cultivation. The calculations for opportunity cost are thus done
kms but about
considering the net forest area fit for cultivation, i.e. 25,743 sq. kms.
Table 4.9 Opportunity Cost 11,290 sq.
Altitude Opportunity Conversion Forest Forest Area Used Opportunity
kms is unfit for
Zone (msl) Cost Ratio Area (%) for Cultivation Cost (Rs. cultivation. The
(Rs./ha) (sq. km.) crores / year)
calculations
Less than 48,535 0.95 9.39 2417.27 1110
500
for opportunity
500-1500 16,405 0.85 32.51 8369.05 1170 cost are
1500-2500 50,00,280 0.02 28.07 7226.06 7230
thus done
(I) considering
1500-2500 80,245 0.73 28.07 7226.06 4230 the net forest
(II)
area fit for
2500-3500 37,000 0.65 19.14 4927.21 1180
cultivation, i.e.
Above 22,400 0.5 10.89 2803.41 310
3500 25,743 sq. kms.
25743.00 15240

71
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Management Costs
In addition to the opportunity costs borne by the state for keeping area under forests, the
state also incurs costs for management of forest areas. According to the Himachal Forest
Statistics 2010, the costs for management of the state’s forest for 2009-10 are as below.

Table 4.10 Management Costs

Sr. Particulars Amount Cultural Total Economic

No. (Rs. Lakhs) Services Value (INR crores)
1 State Revenue (revised estimates) 1282937 8807 45508
2 Forest Revenue 7211 20907 104082
3 Forestry Expenditure 34667
3.a Non-Plan Expenditure 21851
3.b Planned Expenditure 11707
3.c Capital Outlay 1109

The annual management costs of forests are thus approximately Rs. 350crores.

Total Costs of Conservation

The total costs (opportunity costs and management costs) of conservation of forests
for the state of Himachal Pradesh are thus roughly Rs. 15590crores annually. It can be
assumed that in order to ensure flow of benefits from forests, the state is prepared to bear
the cost of conservation and thus this estimate can also be used as a proxy for economic
value of ecosystem services flowing from the forests of Himachal Pradesh.

4.3.5 Scenario 5- Costanza, 2014

In 1997, the global value of ecosystem services was estimated to average $33 trillion/yr
in 1995 $US ($46 trillion/yr in 2007 $US). This paper provides an updated estimate based
on updated unit ecosystem service values and land use change estimates between 1997
and 2011. It also address some of the critiques of the 1997 paper. Using the same methods
as in the 1997 paper but with updated data, the estimate for the total global ecosystem
services in 2011 is $125 trillion/yr (assuming updated unit values and changes to biome
areas) and $145 trillion/yr (assuming only unit values changed), both in 2007 $US. From
this Costanza and his team estimated the loss of eco-services from 1997 to 2011 due to
land use change at $4.3–20.2 trillion/yr, depending on which unit values are used. Global
estimates expressed in monetary accounting units, such as this, are useful to highlight the
magnitude of eco-services, but have no specific decision-making context. However, the
underlying data and models can be applied at multiple scales to assess changes resulting
from various scenarios and policies. The paper emphasized that valuation of eco-services
(in whatever units) is not the same as commodification or privatization. Many eco-services
are best considered public goods or common pool resources, so conventional markets are
often not the best institutional frameworks to manage them. Authors reiterate that these
services must be (and are being) valued, and we need new, common asset institutions to
better take these values into account.

72
 Ecosystem Services Valuation and Accounting of Himachal Forests

Table 4.11 Values Using Costanza 2014 Framework (in crores)

District Bilaspur Chamba Hamirpur Kanga Kinnaur Kullu L&Spiti Mandi Shimla Sirmaur Solan Una Total

Gas 286.6 2.2 72.7 177.3 0 178.9 78.3 202.1 46.9 63.9 10.9 1153
regulation
Climate 225 1514.8 151.7 1282.9 372.9 1217.7 120.6 1041.2 1483.1 860.9 528.3 325.1 9124.2
regulation
Water 690.6 377.2 119.9 1917.7 348 157.8 663.6 235.5 215.7 564.7 176 397.2 5863.9
regulation
Water 263 98.9 46.2 733.5 105.8 61.3 228.2 78.5 50.2 211.7 57.8 152.6 2087.7
supply
Erosion 137.9 1187.2 9.2 301.2 734.4 0 741.1 324.5 837.2 194.2 264.5 45.2 4776.6
control
Soil 30.3 213.1 17.6 156.2 67.7 138.4 39.3 129.5 197.4 104.5 69.2 38.5 1201.6
formation

Waste 718.7 5090.2 191.9 2402.3 2605.2 1223.1 2414.2 2027.5 3993.7 1500.3 1334.1 505 24006.3
treatment
Pollination 129.1 1092.3 14.8 318 650.1 55.3 644.4 327.1 789.2 206.6 252.1 53.7 4532.5
Biological 237.2 1802.2 93.4 967.8 794.4 691.9 656.3 848.9 1506.7 643.2 510 220.6 8972.6
control
Food 387.6 3175 65.1 1074.5 1804.8 347.1 1750.9 1047 2356.6 697.4 762.4 199.8 13668.2
production
Recreation 130.1 712.3 67.7 625.3 214.7 504.8 125.2 456.8 669.9 388.6 240.7 152.7 4288.9
Cultural 5.1 34.4 3.4 29.2 8.5 27.7 2.7 23.7 33.7 19.6 12 7.4 207.4
Total 2987.8 15584.2 783.1 9881.2 7883.8 4425.1 7565.3 6618.6 12335.4 5438.7 4271.1 2108.6

4.3.6 Scenario 6: Results Based on Net

Present Value Scenario
Recognizing the fact that forests across the country vary greatly in terms of their
composition, species, and biodiversity among various other factors, the recently submitted
NPV report by IIFM to the Ministry of Environment & Forests computed a detailed matrix
for NPV rates of forest diversion according to Forest Type Groups and Canopy Density
Cover (Verma et al. 2013). To confirm the statistical requirements based on a number
of samples from each unit of classification, a few of the forest type groups as identified
according to Champion and Seth needed to be aggregated into one (Champion and Seth
1968). In addition, a few of the forest type groups such as Tropical Wet Evergreen Forests
are located in more than one patch across the country, often in unique climatic zones and
with different species composition. Recognizing this fact, few type groups were sub-
divided. Forests of Himachal Pradesh consist of 8 of the 16 Forest Type Groups according
to Champion and Seth classification as listed in Table 4.12 below.

73
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Table 4.12 -Forest Type Groups of Himachal Pradesh

Tropical Moist Deciduous Forests Himalayan Dry Temperate Forests

Tropical Dry Deciduous Forests Sub Alpine Forest

Subtropical Pine Forests Moist Alpine Scrub
Himalayan Moist Temperate Forests Dry Alpine Scrub

In addition, the Forest Survey of India also releases information on canopy cover density of
forests for the entire country including Himachal Pradesh. Forest density has a direct link
to the quantum of ecosystem services flowing from it and is thus included in valuation of
these services. Accordingly, the forests of Himachal Pradesh can also be categorized into
four classes as per the canopy cover density, i.e. Very Dense Forest (canopy cover greater
than 70%), Moderately Dense Forest (canopy cover between 40% and 70%), Open Forest
(canopy cover between 10% and 40%) and Scrub (canopy cover less than 10%).
The information on forest area for different forest type groups of Himachal Pradesh has
been estimated in a recently released Forest Type Atlas by the Forest Survey of India (FSI
2011a) which is as shown in Table 4.13 below.
Table 4.13 – Forest Type Groups of Himachal Pradesh (FSI 2011a)

Forest Type Group (area in km2) VDF MDF OF Scrub Total

Tropical Moist Deciduous Forests 38 233 131 0 403

Tropical Dry Deciduous Forests 43 488 780 72 1383
Subtropical Pine Forests 122 1702 1377 96 3297
Himalayan Moist Temperate Forests 680 4051 1733 57 6521
Himalayan Dry Temperate Forests 46 466 418 26 956
Sub Alpine Forest 121 425 290 14 850
Moist Alpine Scrub 3 46 39 8 96
Dry Alpine Scrub 44 212 322 109 687
Plantation / TOF 0 209 351 0 560
Total 1097 7831 5441 383 14752

74
 Ecosystem Services Valuation and Accounting of Himachal Forests

For estimating the rotation period of timber species in each forest type group, the rotation
period estimated in the NPV report for the corresponding forest type group has been used
which estimated weighted averaged rotation period for forest type group based on the
rotation period of dominant tree species within that type group (Shiva 1998). The rotation
period for relevant forest type groups of Himachal Pradesh is given in Table 4.14 below.

Table 4.14 – Rotation Period of Forest Type Groups of Himachal Pradesh (Verma et al. 2013)
Forest Type Group (area in sq. kms) Average Rotation Period (years)

Tropical Moist Deciduous Forests 63

Tropical Dry Deciduous Forests 55
Subtropical Pine Forests 69
Himalayan Moist Temperate Forests 76
Himalayan Dry Temperate Forests 84
Sub Alpine Forest 84
Moist Alpine Scrub 71
Dry Alpine Scrub 71
Plantation / TOF 72
Total 73

4.4 Estimation of Individual

Ecosystem Services
Timber
While green felling is regulated in India following the Hon'ble Supreme Court order,
timber continues to be one of the most readily marketable benefits from forests.
Although after the National Forest Policy of 1952 and & 1988, forests in India are not
specifically managed with the goal of timber production, it is important to recognize
that the economic value of timber production from forests of India is significant.
While the standing timber represents the stock value, the annual potential timber
production is a flow value. The growing stock estimates forests as well as trees outside
forests (TOF) has been used to estimate the economic value of timber. The growing
stock estimates were sourced from the State of Forest Report (FSI 2011b) while Von
Mantel's formula (Armitage 1998), a conservative approach of yield determination, has
been subsequently used to derive mean annual increment on the basis of the average
rotation period estimated for forests of Himachal Pradesh. Further, a very conservative
50% cost factor has been applied on the market value of timber to account for costs of
bringing timber to maturity along with other costs such as transportation, for getting
at in-situ value of timber. The estimated market price of timber was sourced from the
latest issue of Timber and Bamboo TradeBulletin published by the ICFRE (ICFRE 2011).
The final estimates of economic value of timber so obtained are presented in Table 4.15
below.

75
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process

Table 4.15 – Economic Value of Timber

Growing Stock

Forest 321 million cum

TOF 21 million cum
Weighted Average Rotation Period 73 years
Total growing stock 342 million cum
Mean Annual Increment (MAI) 9.37 million cum
Price of timber 50000 Rs. / cum
Discount factor 50%
Ex-factory price of timber 25000 Rs. / cum
Total Economic Value of MAI 23425 Rs. crores
Total Economic Value of Timber Stock 855000 Rs. crores

76
 Ecosystem Services Valuation and Accounting of Himachal Forests

Bamboo
Bamboo estimates for Himachal Pradesh including number of culms has
been estimated in the latest State of Forest Report which has been used for
calculating the economic value of bamboo (FSI 2011b). An average rotation
period of five years is assumed for calculation. In addition, a cost factor of
20% is used to obtain the cost-adjusted price of bamboo from the market
price of bamboo on account of factors such as high proportion of use by local
communities and opportunity cost of bamboo extraction and transportation
cost to local communities (ICFRE 2011). The final estimates of economic value
of bamboo production are presented in Table 4.16 below.

Table 4.16 – Economic Value of Timber

Bamboo Culms Green Dry Decayed Total

Number of culms (in millions) 161 103 27 291

Equivalent green weight (in ‘000 tonnes) 773 567 0 1340
Market price of 1 culm 75 Rs.
Discount on market price 20%
Ex-factory market price 60 Rs.
Total number of green and dry bamboo culms 1584 Rs. crores
Total stock value of bamboo culms 317 Rs. crores

Fodder / Grazing
A recent study conducted by the Forest Survey of India found that about 2.73
million Adult Cattle Units (ACUs) in Himachal Pradesh are completely dependent
on forests for fodder requirements (FSI 2011b). Based on standard fodder
requirements for each ACU (22 kg./ACU/day), the total consumption of fodder from
forests is estimated (Pandey 2011). Again, assuming a 10% cost factor on market
price of fodder, cost-adjusted price of fodder is obtained which is finally used in the
estimation of the economic value of fodder production from forests in Himachal
Pradesh as shown in Table 4.17 below.

Table 4.17– Economic Value of Fodder

Total Adult Cattle Units Completely Dependent on 2.73 million

Forests in Himachal Pradesh
Standard fodder requirement per ACU 22 kg/ACU/day
Total fodder consumption from forests 21.92 million tonne
Market price of fodder 1000 Rs. / Tonne
Discount factor 10%
Ex-factor market price of fodder 900 Rs. / Tonne
Economic value of annual fodder consumption from 1973 Rs. Crores
forests of Himachal Pradesh

77
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Fuel wood
A recent study conducted by the Forest Survey of India found that about 1.163 million
tonnes of fuel wood is extracted from the forests of Himachal Pradesh (FSI 2011b). To
account for unauthorized removal of fuel wood, it is conservatively assumed here that
only 50% of the fuelwood consumed from forests was actually recorded in the FSI study.
The market price of fuelwood (ICFRE 2011) and a cost factor of 10% were used to obtain
the cost-adjusted price of fuelwood services from the forests of Himachal Pradesh. The
detailed calculations are shown in Table 4.18 below.

Table 4.18– Economic Value of Fuel Wood

Quantity of fuelwood used from the forests of Himachal Pradesh 1.163 million tonnes

Market price of fuel wood 3000 Rs./ tonne

Discount factor for ex-factory price 10%
Ex-factory price for fuelwood 2700 Rs./ tonne
Multiplying factor to account for under-reporting 2
of fuelwood consumption
Total economic value of annual fuel wood 628 Rs. crores
consumption from forests

Carbon Sequestration and Storage

Drawing an analogy from timber, while carbon stock relates to the standing timber
whose value is being accounted for, carbon sequestration relates to the potential timber
production that cannot be neglected. Forests sequester large amounts of CO2 while
mitigating the perilous impacts of climate change. To estimate the economic value of
carbon sequestered and storage in the forests of Himachal Pradesh, the social cost of
carbon and CO2 estimated for India by a recent study has been used (Nordhaus 2011).
Owing to a longer time horizon, a low discount rate is being applied and the associated
social cost of carbon is 53.13 US$ per ton of CO2. To estimate the amount of CO2 that
would be sequestered in the forests of Himachal Pradesh, the mean annual increment as
estimated for timber estimation has been used. Further, default IPCC values and social cost
of carbon are used to estimate the economic value of carbon sequestration.
The Forest Survey of India has estimated the stock of carbon stock in the forests of
Himachal Pradesh(FSI 2013). These estimates include carbon in above ground biomass,
below ground biomass, soil carbon and dead organic matter. The carbon stock estimates
have been used along with the social cost of carbon as used for estimating the economic
value of carbon sequestration to calculate the economic value of carbon storage function
of the forests of Himachal Pradesh. The detailed calculations for carbon sequestration and
carbon storage are shown in Table 4.19 below.

78
 Ecosystem Services Valuation and Accounting of Himachal Forests

Table 4.19 – Economic Value of Carbon Sequestration and Carbon Storage

Biomass Conversion Factor 0.5

Mean Annual Increment 9.37 million cum

Weighted average timber density 0.76 tonne / cum
Mean Annual Biomass Increment 7.12 million tonne
Conversion factor for tC to tCO2 3.67
Social cost of carbon 53.13 $ / tCO2
Exchange rate 1$ = 61 Rs.
Annual carbon sequestration 13.07 million tCO2
Annual economic value of carbon sequestration from the 4235 Rs. crores
forests of Himachal Pradesh
Total carbon stock (C) 241.71 million tonnes
Total CO2 stored 887.08 million tonnes
Economic value of CO2 stored in the forests of Himachal 287496 Rs. crores
Pradesh

Bioprospecting
The Green India States Trust published a study in 2006 in which the economic value of
bioprospecting was estimated for the forests of Himachal Pradesh (Gundimeda et al.
2006). According to the valuation model which considers the total number of all species
in the state, the economic value of bioprospecting service is Rs. 154,152 per hectare.
Considering the recorded forest area of 37033 km2 of Himachal Pradesh, the total
economic value of bioprospecting service from the forests of Himachal Pradesh is thus
estimated to be Rs. 57087 crores.

Recreation
The same study from Green India States Trust has also estimated net consumer surplus
of tourists visiting national parks of Himachal Pradesh (Gundimeda et al. 2006). It may
be noted that the study only includes national parks and not the remaining forests for
estimation of recreational value, and can thus be considered a gross underestimate. As the
figures are more than a decade old, the consumer surplus has been adjusted according to
the Wholesale Price Index. In addition, the protected area of Himachal Pradesh has also
increased by more than 2000 km2 and thus the actual economic value is likely to be much
higher than estimated. The detailed calculations for estimating the economic value of
recreation from the forests of Himachal Pradesh are shown in Table 4.20 below.

8
As estimated for timber.
9
Based on Forest Inventory Data of Forest Survey of India supplied for the NPV study.
10
Nordhaus, W. 2011. “Estimates of the Social Cost of Carbon: Background and Results from the
RICE-2011 Model”. New Haven: Yale University.
11
FSI. 2013. “Carbon Stock of India’s Forests”. Dehradun: Forest Survey of India.

79
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process

Table 4.20 – Economic Value of Recreation

Total consumer surplus for domestic tourists visiting the national 63.07 Rs. crores
parks (2001-02)
Total consumer surplus for foreign tourists visiting the national parks 33.8 Rs. crores
(2001-02)
Multiplying factor (based on WPI) 2.13
Total consumer surplus for domestic tourists visiting the national parks 134.339 Rs.crores
Total consumer surplus for foreign tourists visiting the national parks 71.994 Rs. crores
Total consumer surplus for tourists visiting the national parks 206 Rs. crores

Pollination and Seed Dispersal

The current study acknowledges the importance of pollination and seed dispersal service
for a state such as Himachal Pradesh where the majority of the workforce is dependent on
agriculture for their livelihoods. The impact of degradation of such services has also been
greatly felt, including the impact on apple production in Himachal Pradesh due to shrinking of
forests. The economic value of pollination and seed dispersal service has been estimated from
two aspects, i.e. for forests and for agriculture.
For forests, the estimation is based on natural forest regeneration and its replacement cost
if done artificially according to the model cost of Rs. 17,100 per hectare as recommended
by the National Afforestation Programme Guidelines (NAP 2009). The estimates of natural
forest regeneration in different forest type groups were obtained for the NPV study from
the Forest Survey of India and the same have been used here. These estimates are further
adjusted according to the forest regeneration in plantations. It may be noted here that the
economic value so estimated is limited only to the value of artificially replacing the process
of natural forest regeneration and also partly covers the economic value of forest succession.
In addition, on account of absence of any reliable estimates for Himachal Pradesh or India, it
is conservatively assumed here that only 50% of the natural regeneration in forests can be

80
 Ecosystem Services Valuation and Accounting of Himachal Forests

attributed to pollination and seed dispersal services by insects,

birds and other animals and the remaining can be attributed to
natural processes such as water flow and wind.
For agriculture, a recent study conducted by ICIMOD has
estimated the economic value of insect pollinators for agriculture
in Himachal Pradesh (Pratap et al. 2012). On account of absence
of data for the percentage of insect pollinators coming from forest
areas, it is assumed that about 67% of insect pollinators can be
attributed to forest areas in Himachal Pradesh, the same as the
ratio of recorded forest area (37033 km2) to the total geographical
area of the state (55670 km2).
The association calculations for estimating the economic value of
pollination and seed dispersal service for forest regeneration and
agricultural productivity is as shown in Table 4.21 below.

Table 4.21 – Economic Value of Pollination and Seed Dispersal

Assumptions

Cost of artificial regeneration 1,710,000 Rs. /

sq. km.
Average regeneration rate in plantations (%) 62.6
Proportion of regeneration attributable to 0.5
pollination and seed dispersal by wildlife
(excluding wind, water and self-dispersal)

Pollination and Seed Dispersal for Natural Forest Regeneration

Forest Type Group % to Ideal Regeneration Value of Forest Value of

Regeneration after pollination and area pollination
adjustmentof seed dispersal (sq. km.) for entire
regeneration in services forest area
plantations (%) attributable to (Rs. crores/
forests (million year)
Rs./ km2. /yr)
Tropical Moist Deciduous Forests 77.2 123.3 1.05 402.58 424
Tropical Dry Deciduous Forests 74.4 118.8 1.02 1382.71 1405
Subtropical Pine Forests 60.8 97.1 0.83 3296.86 2738
Himalayan Moist Temperate 53.2 85.0 0.73 6521.12 4738
Forests
Himalayan Dry Temperate Forests 50.4 80.5 0.69 956.07 658
Sub Alpine Forest 50.4 80.5 0.69 850.24 585
Moist Alpine Scrub 75.5 120.6 1.03 95.85 99
Dry Alpine Scrub 75.5 120.6 1.03 686.51 708
Plantation / TOF 62.6 100.0 0.86 560.06 479
TOTAL 7.92 14752 11835

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Pollination for Agricultural
Production
Economic value of insect 365.04 million USD
pollination
Consumer surplus loss (CSL) with 648.2 million USD
elasticity of -0.8
Exchange rate 1USD = 61 Rs.
Consumer surplus loss (CSL) with 3954 Rs. crores
elasticity of -0.8
Proportion to insect pollinators in 67%
agriculture attributable to forest
Economic value of insect 2630 Rs. crores
pollinators for crops attributable to
forest areas

Total Economic Value of Pollination and Seed Dispersal Services 144.65 Rs. crores

Soil Conservation
A study done by Kumar (2000) in the Doon Valley region estimated that the
economic cost of soil erosion is Rs. 21,583 per hectare using the replacement cost
approach. As the estimate is more than a decade old, it has been adjusted according
to the Wholesale Price Index. Considering that a large part of the recorded forest
area of the state is under snow cover for the greater part of the year, the current
calculations have only considered the forest cover of the state for estimation of the
economic value of soil conservation benefits from forests. The detailed calculations
for the same can be found in Table 4.22 below.
Table 4.22 – Economic Value of Soil Conservation

Cost of Soil Erosion 21,583 Rs. / ha

WPI-based multiplying factor 2.13

Cost of soil erosion (present) 45929 Rs. / ha
Total forest cover 14679 sq. km.
Total Value of Soil Conservation Services 6742 Rs. crores

12
Source: Pratap, Uma, Tej Pratap, Harish Sharma, Pushkin
Phartiyal, Aungsathwi Marma, Nar Tamang, Tan Ken, and
Muhammad Munawar. 2012. “Value of Insect Pollinators
of Himalayan Agricultural Economics”. Kathmandu, Nepal:
International Centre for Integrated Mountain Development.
13
Source: Kumar, P. 2000. “Valuation of Soil Erosion: A
Case Study of Upland Region (Doon Valley) in India.” In
Stockholm.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Water Recharge
Based on a study estimating the economic value of water augmentation function of forests
(Kumar et al. 2006), the difference in water recharge from a forest area as compared
to a non-forest area in Himachal Pradesh is about 129 mm. Based on the estimate,
the economic value of water recharge service from the forests of Himachal Pradesh is
calculated in Table 4.23 below.

Table 4.23 – Economic Value of Water Recharge

Water Recharge for a Forest Area 169 mm

Water recharge for a non-forest area 40 mm

Difference in water recharge 129 mm
Total forest area 14679 sq. km.
Total forest area 1.47 million ha
Total additional water recharge attributable to forests of 189.36 million m3
Himachal Pradesh
Economic value of water 5 Rs. / m3
Total economic value of additional water recharged by the 95 Rs. crores
forests of Himachal Pradesh

Flood Mitigation
It is widely believed that the forest acts as a sponge, absorbing large quantities of water
during the rainy season. Forest vegetation slows down water movement, reduces surface
flow, and facilitates water infiltration into the ground. The economic value of flood
mitigation benefits of the forests of Himachal Pradesh have been estimated by Kumar et al.
(2006) to be approximately Rs. 256 crores annually.

Water Purification
The streams originating as well as fed by forested catchments of Himachal Pradesh provide
pure drinking water to millions downstream. While there are not many estimates on the
economic value of water purification service of forests in India, the NPV report arrived at
an estimate of Rs. 2,950 per hectare based on studies conducted in various countries after
adjusting for Purchasing Power Parity (Verma et al. 2013). Based on the recorded forest
area of 37,033 km2, the total economic value of water purification services from the forests
of Himachal Pradesh is about Rs. 1092 crores.

14
Source: Kumar, P., S. Sanyal, R. Sinha, and P. Sukhdev.
2006. “Accounting for the Ecological Services of India’s
Forests: Soil Conservation, Water Augmentation and
Flood Prevention”. New Delhi: Green Indian States Trust.
15
Source: Kumar, M. D., A. K. Malla, and S. K. Tripathy.
2008. “Economic Value of Water in Agriculture:
Comparative Analysis of a Water-Scarce and a Water-Rich
Region in India.” Water International 33 (2): 214–30.

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Possession Value of Land
While many studies have attempted to estimate the economic value of forests in terms of the
ecosystem services they generate, an important aspect that is often missed is the value of
land itself. To address this concern, the NPV report suggested that the possession value of
land should also be included in the NPV to be charged for agencies seeking to divert forest
land. Along similar lines, the median circle rates for one tehsil in each district of the state
have been calculated to estimate the possession value of land. Care has been taken not to
include the major city centres of the district so that the average value is not overestimated.
The calculations for estimating the possession value of land are given in Table 4.24 below.

Table 4.24 – Possession Value of Forest Land

District Median Circle Unit Rate per Comments

Rate (Rs.) ha (Rs.)
Bilaspur 200000 bigha 24,71,000 Ghumarwin Tehsil
Chamba 356 Biswani 17,59,352 Bharmour Tehsil
Hamirpur 230 sq. mt. 23,00,000 Bhoranj Tehsil
Kangra 152 sq. mt. 15,20,000 Khundian Tehsil
Kinnaur 310 sq. mt. 31,00,000 Sangla Tehsil
Kullu 440 sq. mt. 44,00,000 Banjar Tehsil
Lahaul & Spiti 8750 biswa 21,62,125 Tandi Tehsil
Mandi 593 Biswani 29,30,606 Thunag Tehsil
Shimla 443 sq. mt. 44,30,000 Nerwa Tehsil
Sirmaur 200000 bigha 24,71,000 Rajgarh Tehsil
Solan 200000 bigha 24,71,000 Arki Tehsil
Una 221 sq. mt. 22,10,000 Amb Tehsil

District Median Circle Recorded Forest Value of land

Rate (Rs. / ha) Area (sq. km.) (Rs. crores)
Bilaspur 24,71,000 428 10576
Chamba 17,59,352 4917 86507
Hamirpur 23,00,000 219 5037
Kangra 15,20,000 2842 43198
Kinnaur 31,00,000 5093 1,57883
Kullu 44,00,000 5065 2,22860
Lahaul & Spiti 21,62,125 10133 2,19088
Mandi 29,30,606 1860 54509
Shimla 44,30,000 3418 1,51417
Sirmaur 24,71,000 1843 45541
Solan 24,71,000 728 17989
Una 22,10,000 487 10.63
Possession Value of Forest Land 10,25.69

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Summary of Economic Values

The wide array of ecosystem benefits estimated above can be broadly categorized into
two classes – flow benefits and stock benefits. Those services which provide regular
periodic benefits can be termed as flow benefits while those that provide services due to
their existence and do not lead to periodic flows can be termed as the stock benefits. The
economic values estimated earlier for the forests of Himachal Pradesh are summarized in
the Table 4.25 below.
Table 4.25 – Possession Value of Forest Land

Ecosystem Service Annual Flow Value (Rs. crores) Stock Value (Rs. crores)

Bamboo 317 1584

Timber 23425 855000
Fodder 1973
Fuel wood 628
Carbon 4235 287496
Bioprospecting 57087
Recreation 206
Pollination 14465
Soil conservation 6742
Water recharge 95
Flood mitigation 256
Water purification 1092
Possession Value 10,25369
Total 53434 2226535

Recorded Forest Area of the State 37033 sq. kms

Recorded Forest Area of the State 37033 sq.kms

Total flow benefits Rs. 53434 crores per year

Economic value of flow benefits per unit area Rs. 1.443 crores per year per sq. km.
Total stock benefits Rs. 2226535 crores per year
Economic value of stock benefits per unit area Rs. 60122 crores per year per sq. km.

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process

Protected Areas of Himachal Pradesh

Himachal Pradesh has notified 5 National Parks, 26 Wildlife Sanctuaries and 3
Conservation Reserves. Regarding the NPV Rates for forest diversion, the Supreme Court
has ordered that in light of inadequate knowledge on the values embedded and emanating
from protected areas in the country, the NPV rates should be charged as 10 times the
rates in adjoining non-PA forest area for National Parks and 5 times the rates in adjoining
non-PA forest area for Wildlife Sanctuaries. Assuming the same multiplication factor for
Conservation Reserves, the aggregate area under different types of protected areas in
Himachal Pradesh is as follows Table 4.26:
Table 4.26– Protected Areas of Himachal Pradesh

Type of Protected Area Total Number Total Area (sq. km.) Rate per ha (Rs.)

National Parks 05 2271 24,71,000

Wildlife Sanctuary 26 7251 17,59,352
Conservation Reserve 03 169 23,00,000

Total Economic Value of Forests of Himachal Pradesh

Considering that the economic value of National Parks and Wildlife Sanctuaries should be
treated as 10 times and 5 times the economic value of benefits from a non-PA forest area
and assuming that a Conservation Reserve is treated at par with a Wildlife Sanctuary, the
total economic value of forests of Himachal Pradesh can be summarized as follows:

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Table 4.27 – Economic Value of Flow Benefits from the Forests of Himachal Pradesh

Economic value of flow 14.43 Rs. Million per Rate per ha Comments
benefits of non-PA year per km2 (Rs.)
forest area
Total non-PA forest area 27342 km2 24,71,000 Ghumarwin Tehsil
Total economic value of 39455 Rs. crores per 17,59,352 Bharmour Tehsil
flow benefits of non-PA year
forest area
23,00,000 Bhoranj Tehsil
Economic value of flow 1.443 Rs.crores per
benefits of non-PA year per km2
forest area
Total area under 2271 km2
national parks
Multiplying factor for 10
national parks
Total area under 7420 km2
wildlife sanctuary and
conservation reserve
Multiplying factor for 5
wildlife sanctuary and
conservation reserve
Total economic value 86306 Rs. crores per
of flow benefits of year
protected areas
Total Economic Value 125760 Rs. crores per
of Flow Benefits from year
Forests of Himachal
Pradesh

Himachal Pradesh
has notified
5 National Parks,
26 Wildlife
Sanctuaries and
3 Conservation

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Table 4.28 – Economic Value of Stock Benefits from Forests of Himachal Pradesh

Economic value of stock 60122 Rs. crores per Rate per ha Comments
benefits of non-PA year per km2 (Rs.)
forest area
Total non-PA forest area 27342 km2 24,71,000 Ghumarwin Tehsil
Total economic value of 1643856 Rs. crores per 17,59,352 Bharmour Tehsil
stock benefits of non-PA year
forest area
23,00,000 Bhoranj Tehsil
Economic value of stock 60.122 Rs. crores per
benefits of non-PA year per km2
forest area
Total area under 2271 km2
national parks
Multiplying factor for 10
national parks
Total area under 7420 km2
wildlife sanctuary and
conservation reserve
Multiplying factor for 5
wildlife sanctuary and
conservation reserve
Total economic value 3595897 Rs. crores per
of stock benefits of year
protected Areas
Total Economic Value 5239753 Rs. crores per
of Stock Benefits from year
Forests of Himachal
Pradesh

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 Ecosystem Services Valuation and Accounting of Himachal Forests

4.5 Detailed Discussion on

Ecosystem Services District Wise
using NPV Scenario:
Forests of Himachal Pradesh provides ecosystem services worth Rs. 53,434 crore annually.
These values calculated for different ecosystem services were spread across the districts
of the state. In order to do so, per ha values of the services were taken and multiplied
with corresponding forest area or forest cover depending on the nature of the ecosystem
service.
Values for bamboo, timber and forest were taken on the basis of forest cover while values
for fodder, carbon, recreation, pollination, soil conservation, water recharge, flood
mitigation and forest cover were taken on the basis of forest area. This approach helped
calculating the forest flows for each district more accurately. Hamirpur district has the
least amount of forest flows in the state. This is because of the low forest cover and low
forest area. Hamirpur has the second lowest forest cover in the state (after Lahaul &Spiti)
and lowest forest area. This is in contrast to Lahaul &Spiti which provides the highest
forest flows to the state as it has almost 74% of its total area classified as forests.
To suit various contexts and differential needs for decision-making, many frameworks on
valuation have been proposed. In order to consider the categories of benefits derived from
the forests of Himachal Pradesh, the study uses four frameworks under which different
benefits have been categorized and estimated/qualified. These are listed below and
described briefly in the context of this study in the following sections.
• Millennium Ecosystem Assessment (MA)
• Stock and Flow Benefits
• Tangibles and Intangibles Benefits
• Investment Multiplier
1. Total Economic Value (TEV)
In the context of this study, TEV refers to the gain in well-being or welfare from the forest
captured by the net sum of the willingness to pay (WTP) or willingness to accept (WTA) and
consists of use and non-use values.
Direct Use Value
This refers to the consumptive use through extraction of resources from forest areas
(e.g. food, timber, NWFP) and non-consumptive use without resource extraction (e.g.
recreation, landscape amenity). As the core area of any tiger reserve is an inviolate area,
the consumptive use of direct use value refers to resources extracted only from the buffer
area of the tiger reserve, if any. Many benefits in this category may be traded in the market
(e.g. timber) or may also be non-marketable (e.g. deriving inspiration from nature).
Indirect Use Value
These refer to indirect benefits and include key life-supporting functions performed by the
forests such as regulation of climate, regulation of water quality and quantity, pollination,
among others. Measuring these values is often more challenging than measuring direct
use values on account of inadequate information, market and / or understanding.
Option Value
This refers to the value people place on having the option to postpone the use of a resource
(directly or indirectly) for the future even if they are not using it currently. In the study

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
context, these refer to, inter alia, the value of genetic information stored in the biodiversity
of forest areas which may be of great pharmaceutical or agricultural value in future. These
values can also be considered as a form of insurance which these forest areas provide
through resilience and ensuring continuity of natural evolution processes.
For Himachal forests, Option Value is the highest (1201167 crore Rs.) while Direct and
Indirect Use Values are at almost the same level (26343 and 27091 crore Rs. respectively.
Figure 3 below provides a graphic representation of the values. The high Option Value
reflects the rich biodiversity stored in the forests of the state. It also reflects the immense
potential that the forests have which is yet to be explored.

Option

InDIrect

DIrect

0 3000 6000 9000 12000 15000

Figure 4.1 Classification of Values Using Total Economic Value Framework (Rs. Crore)

Table 4.29 - Summary of values using Total Economic Value Framework

Type of Value Value Units Rate per ha (Rs.) Comments

Direct Use Value 26,343 Rs. crore / year 24,71,000 Ghumarwin Tehsil
Bamboo, timber, fodder, fuel wood 1643856 Rs. crores per year 17,59,352 Bharmour Tehsil
23,00,000 Bhoranj Tehsil
Indirect Use Value 27,091 Rs. crore / year
Carbon sequestration, recreation, 2271 km2
pollination, soil conservation, water
recharge, flood mitigation, water
purification
Option Value 12,01,167 Rs. crore / year
Bamboo stock, timber stock, carbon 7420 km2
stock, bioprospecting
Total Value of Ecosystem Services from 12,54,601 Rs. crore / year
Forest (A)
(Direct + Indirect Value)
Possession Value of Forest Land (B) 10,25,369 Rs. crore
Value of Forest Land Per Se Based on
Median Circle Rates
Total Economic Value of Forest (A+B) 22,26,536 Rs. crore

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 Ecosystem Services Valuation and Accounting of Himachal Forests

2. Millennium Ecosystem Assessment

The Millennium Ecosystem Assessment (MA) has identified four overarching
categories of benefits provided by ecosystems. These include:
• Provisioning Services: Products obtained from forests such as timber and fodder
• Regulating Services: Benefits obtained from regulation of ecosystem processes
such as water and climate regulation
• Cultural Services: Non-material benefits people obtain from forests through
spiritual enrichment, cognitive development, recreation and aesthetic
experiences such as sacred sites and wildlife safari
• Supporting Services: Services that are necessary for the production of
provisioning, regulating and cultural services such as soil formation and retention
These ecosystem services are directly linked to various components of human well-
being such as security (e.g. access to resources, avoidance or mitigation of disaster),
basic materials for a good life (e.g. provision of nutritious food, shelter, employment
opportunities), health (e.g. access to clean air and water, emotional and spiritual
Figure 3 provides
well-being), and cordial social relations (e.g. social cohesion). This is further a glimpse of the
depicted in Figure 1.1.
classification of
Figure 4.2 Classification of Forest Services Using MA Classification ecosystem services
0.01 emanating from
the forests of
Himachal Pradesh.
29.6 Of the total
services,
70.3
70% are
provision
Provisioning Regulating Cultural

The share of provision services is high because of the high presence of various services
economically important timber species like deodar, chir, etc. in the state

Table 4.30 Summary of values as per MA Classification

and the
Type of Value Value Units remaining
30% are
Provisioning Services 882927 Rs. crore
Bamboo, timber, fodder, fuel wood Rs. crores per year
Regulating Services 371468 Rs. crore regulating
Carbon storage, carbon sequestration, 27,091 Rs. crore / year services. Cultural
bioprospecting, pollination, soil conservation,
water recharge, flood mitigation, water purification
services are also
Cultural 206 Rs. crore being provided by
Recreation the forests but its
Total Economic Value 1,254,601 Rs. crore value is very low

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Figure 4 below 3. Stock and Flow Benefits
provides details The benefits from forests can also be categorized into stock and flow benefits. Broadly,
stock benefits refer to potential supply, while flow benefits refer to real feasible flow of
of the flow and benefits. In the study context, standing timber and carbon stock refer to stock benefits,
stock benefits while carbon sequestration can be referred to as a flow benefit (See Figure 4).
emanating
from the forests It is to be noted that the value of flows of ecosystem service is directly
dependent on the ecological stock in the forests.
of Himachal
Pradesh.. A total
of Rs 12, 01,167
crore is the value
of the ecological
stock as stored
in the forests
of Himachal. 0 300000 600000 900000 1200000 1500000
Conservation Table 4.31 Summary of values as per Stock and Flow classification
of this stock Type of Value Value Units
provides the Flow Benefits 53434 Rs. crore / year
state with various Bamboo, timber, fodder, fuel wood, carbon Rs. crores per year
ecosystem sequestration, pollination, soil conservation, water
recharge, flood mitigation, water purification,
services with a recreation
value of Stock 1201167 Rs. crore

Rs 53, 534 Carbon storage, standing timber, standing bamboo,

bioprospecting
27,091 Rs. crore / year

crore Total Economic Value

1,254,601 Rs. crore
206 Rs. crore

Total Economic Value 1,254,601 Rs. crore

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 Ecosystem Services Valuation and Accounting of Himachal Forests

4. Tangible and Intangible Benefits

Broadly, tangible benefits from ecosystems refer to goods obtained from the forests while
intangible benefits include the set of services which improve human well-being indirectly.
While tangible benefits may be of great importance, especially to the local community,
the current study has put special focus on intangible benefits as many of these are not
marketed and perhaps not appropriately managed. The study is a deliberate attempt to
factor intangibles in our decision-making calculus.

Figure 4.3 Tangible and intangible Ecosystem Services from the Forests of Himachal Pradesh

Tangible and Intangible Framework

Intangibles
29%

Tangibles
71%

Table 4.32 - Summary of values as per Tangible & Intangible clssification

Type of Value Value Units

Tangibles (A) 8,82,927 Rs. crore

Flows: Bamboo, timber, fodder, fuel wood 26,343 Rs. crore / year
Stocks: Bamboo, timber 8,56,584 Rs. crore
Intangibles (B) 3,62,674 Rs. crore

Flows:Carbon sequestration, pollination, soil 27,091 Rs. crore/ year

conservation, water recharge, flood mitigation, water
purification, recreation:
Stocks:Carbon storage, standing timber, standing 3,35,583 Rs. crore
bamboo, bioprospecting,
Total Economic Value (A+B)
12,54,601 Rs. crore

In Himachal Pradesh, more than 93% of the benefits are intangible benefits, whereas only
7% are tangible benefits. This reflects the underreporting of the contribution of forests in
the state GDP

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
5. Investment Multiplier
To demonstrate the benefits of investing in natural capital, the aggregate flow benefits
from forests is compared with its management costs to obtain an ‘Investment multiplier’.
The aggregate flow benefits are derived from the ecosystem services that are possible to
value in monetary terms. The management costs are derived from the annual expenditure
by HPFD. Broadly, the ‘Investment Multiplier’ demonstrates the quantum of benefits
derived from forests by spending 1 rupee in its management costs.

Table 4.33 - Summary of Investment Multiplier scenario

PA Scenario –Investment Multiplier

As per Total Economic Value of Flow Benefits from the Forests of Himachal 334
Pradesh
As per Total Economic Value of stock Benefits from the Forests of Himachal 13899
Pradesh
As per Total Economic Value of Stock and Flow Benefits from the Forests of 14232
Himachal Pradesh
Non -PA Scenario
As per Total Economic Value of Flow Benefits from the Forests of Himachal 142
Pradesh
As per Total Economic Value of stock Benefits from the Forests of Himachal 3186
Pradesh
As per Total Economic Value of Stock and Flow Benefits from the Forests of 3328
Himachal Pradesh
Non-PA Scenario Including Possession Value of Land
As per Total Economic Value of Stock Benefits from the Forests of Himachal 5906
Pradesh
As per Total Economic Value of Stock and Flow Benefits from the Forests of 6048
Himachal Pradesh

The table above explains the various scenarios through which the investment multiplier
can be calculated. The PA scenario considers the values of stocks and flows in which
multiplication factors have been used for various protected areas.
In the Non-PA scenario, the same values have been taken for all protected areas
irrespective of the protection status awarded to any forest area.
In the third scenario, this is the non-PA scenario with possession value of land taken into
account; the possession value of land is added to the total stock benefits being provided
by forests. As is evident from the table, a rupee being invested in the forest provides a
return of 142 times at least and a maximum of 14232 times. This shows the deprivation of
investments to the sector.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

4.6 Cross Analysis of Values

4.6.1 Tangibles and Intangible Framework
Among ecosystem services, the various categories of intangible services linked to human
perception, such as aesthetics, recreational values and cultural heritage, must be rated
alongside tangible services linked to physical processes, such as wildlife habitats, clean
water and air, and filter- and buffer effects. This is a pre requisite for a sustainable
development with a balance between ecological, social and economic values.
Broadly, tangible benefits from ecosystems refer to goods obtained from forests while
intangible benefits include the set of services which improve human well-being indirectly.
While tangible benefits may be of great importance, especially to the local community,
intangible benefits are not marketed and perhaps not appropriately managed.

Table 4.34 - Summary as per Tangibles & Intangibles framework

Tangibles and Intangible Framework

Name of Ecosystem Service Tangibles

(Rs. in crores) Intangibles
(Rs. in crores)
Bamboo 1901
Timber 878425
Fodder 1973
Fuel wood 628
Carbon 291731
Bioprospecting 57087
Recreation 206
Pollination 14465
Soil conservation 6742
Water recharge 95
Flood mitigation 256
Water purification 1092
Total 882927 371674
Grand Total 1254601

Analysis
A total of Rs 882927 crores is the value of the tangible ecosystem services offered by the
forests of Himachal and Rs 371674 crores as intangibles benefits.

4.6.2 Stock and Flow Framework

The benefits from forests can also be categorized into stock and flow benefits. Broadly,
stock benefits refer to potential supply, while flow benefits refer to real feasible flow of
benefits.

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Ecosystem Services in the Decision-Making Process
Table 4.35 Summary as per Stock and Flow framework
Stock and Flow Framework

Name of Ecosystem Service Stock (Rs. in crores) Flow (Rs. in crores)

Bamboo 1584 317
Timber 855000 23425
Fodder 1973
Fuel wood 628
Carbon 287496 4235
Bioprospecting 57087
Recreation 206
Pollination 14465
Soil conservation 6742
Water recharge 95
Flood mitigation 256
Water purification 1092
Total 1201167 53434
Total 1254601 371674
Grand Total 1254601

Analysis
A total of Rs 12, 01,167 crore is the value of the ecological stock as stored in the forests of
Himachal. Conservation of this is stock provides the state with various ecosystem services
with a value of Rs 53, 534 crore.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

4.6.3 TEV Framework

TEV refers to the gain in well-being or welfare from the tiger reserves captured by the net
sum of the willingness to pay (WTP) or willingness to accept (WTA) and comprises of use
and non-use values. The TEV framework is a useful tool for exploring the types of values
for each ecosystem service we try to elicit.

Table 4.36 - Summary as per TEV Framework

TEV Framework (Rs. in crores)

Name of Tangibles
Ecosystem Service Direct Indirect Option
Bamboo 317 1584
Timber 23425 855000
Fodder 1973
Fuel wood 628
Carbon 4235 287496
Bioprospecting 57087
Recreation 206
Pollination 14465
Soil conservation 6742
Water recharge 95
Flood mitigation 256
Water purification 1092
Total 26343 27091 1201167
Grand Total 1254601

Analysis
According to the TEV Framework, Option Value is the highest (Rs 1202267 crore.) while
Direct and Indirect Use Values are at almost the same level, i.e. Rs. 26343 and 27091 crore
respectively for Himachal forests.

4.6.4 MA Framework
Millennium Ecosystem Assessment, which was carried out between 2001 and 2005, was
an attempt to provide the report card of the health of various ecosystems of the world. It
identified provisioning, regulating, cultural and supporting services as four major services
that the ecosystems provide to human beings for their livelihood security. It placed human
well-being as the central focus for assessment, while recognizing that biodiversity and
ecosystems also have intrinsic value. The term ‘ecosystem services’ as defined and used by
the MA encompasses both goods, such as timber, and services such as air purification.

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Ecosystem Services in the Decision-Making Process
Table 4.37 - Summary as per MA framework
Name of Ecosystem Service Provisioning

(Rs. in crores) Regulating Flow (Rs. in crores)

(Rs in crores) Cultural 317
(Rs in crores) 855000 23425
Bamboo 1901
Timber 878425
Fodder 1973
Fuel wood 628
Carbon 291731
Bioprospecting 57087
Recreation 206
Pollination 14465
Soil conservation 6742
Water recharge 95
Flood mitigation 256
Water purification 1092
Total 882927 371468 206
Grand Total 1254601

Analysis
Of the total services, 70%, i.e. Rs 882927 crores are provisioning services and the
remaining 30% ,i.e. Rs. 371468 crores are regulating services. Cultural services are also
being provided by the forests but its value is very low, i.e. Rs 206 crores.

98
 4.7 Adding Possession Value to Other Scenarios
Table 4.38: District-Wise Values Using NPV Estimates (amount in crores)

District Bilaspur Chamba Hamirpur Kanga Kinnaur Kullu Lahaul Mandi Shimla Sirmaur Solan Una Total
&Spiti
Gas regulation 286.6 2.2 72.7 177.3 0 178.9 78.3 202.1 46.9 63.9 10.9 1153
Climate 225 1514.8 151.7 1282.9 372.9 1217.7 120.6 1041.2 1483.1 860.9 528.3 325.1 9124.2
regulation
Water regulation 690.6 377.2 119.9 1917.7 348 157.8 663.6 235.5 215.7 564.7 176 397.2 5863.9
Water supply 263 98.9 46.2 733.5 105.8 61.3 228.2 78.5 50.2 211.7 57.8 152.6 2087.7
Erosion control 137.9 1187.2 9.2 301.2 734.4 0 741.1 324.5 837.2 194.2 264.5 45.2 4776.6
Soil formation 30.3 213.1 17.6 156.2 67.7 138.4 39.3 129.5 197.4 104.5 69.2 38.5 1201.6
Waste treatment 718.7 5090.2 191.9 2402.3 2605.2 1223.1 2414.2 2027.5 3993.7 1500.3 1334.1 505 24006.3
Pollination 129.1 1092.3 14.8 318 650.1 55.3 644.4 327.1 789.2 206.6 252.1 53.7 4532.5
Biological 237.2 1802.2 93.4 967.8 794.4 691.9 656.3 848.9 1506.7 643.2 510 220.6 8972.6
control
Food production 387.6 3175 65.1 1074.5 1804.8 347.1 1750.9 1047 2356.6 697.4 762.4 199.8 13668.2
Recreation 130.1 712.3 67.7 625.3 214.7 504.8 125.2 456.8 669.9 388.6 240.7 152.7 4288.9
Cultural 5.1 34.4 3.4 29.2 8.5 27.7 2.7 23.7 33.7 19.6 12 7.4 207.4
Posession Value 10575.88 86507.34 5037 43198.4 157883 222860 219088.1 54509.27 151417.4 45540.53 17988.88 10762.7 1025369
Total 13530.48 101804.9 5817.9 53007 165589.5 227285.1 226474.6 61049.47 163550.8 50932.23 22195.98 12860.5
Ecosystem Services Valuation and Accounting of Himachal Forests

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 Policy Environment for Internalization of Value of Forest
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4.8 Comparison Across Scenarios
and the Current Study
As seen from the estimates developed for six scenarios discussed above, the economic
value of ecosystem services from the forests of Himachal Pradesh vary significantly. This
is partly due to the differences in economic value of various ecosystem services in studies
used for scenarios and partly due to the differences between forest cover and forest area
in many districts of Himachal Pradesh. Table 7 gives a summary of the economic value of
different categories of ecosystem services estimated for the 3 scenarios. The table also
provides the estimates for the economic value of different ecosystem services categories
calculated in this study.
This is Table 4.39
District Flow Values Stock Values Possession Value
Bilaspur 936.88 13882.19726 10,575.9
Chamba 7993.47 163148.2529 86,507.3
Hamirpur 576.96 7103.273833 5,037.0
Kanga 5657.04 92180.38463 43,198.4
Kinnaur 4993.20 165191.6604 1,57,883.0
Kullu 7138.70 160618.3197 2,22,860.0
Lahaul &Spiti 8274.69 328664.2637 2,19,088.1
Mandi 4240.54 60329.17502 54,509.3
Shimla 6643.67 110862.9679 1,51,417.4
Sirmaur 3745.75 59777.77933 45,540.5
Solan 1982.49 23612.70936 17,988.9
Una 1250.47 15795.86464 10,762.7
Total 53433.84 1201166.85 1025368.53

Table 4.40 - Summary of various scenarios

All Values in INR Crores / Year Based on Provisioning Services Regulating Cultural Total Economic Value
Services Services

Costanza et al. (1997) Forest cover 3236 8736 561 12533

Forest area 4535 12010 1116 17661

IIFM CSO (2006) Forest cover 6.61 937.96 4.80 949.37

Forest area 16.67 2366.33 12.11 2395.11

Ida et al. (2013) Forest cover 5497 31204 8807 45508

Forest area 11019 72156 20907 104082

Conservation cost Forest area - - - 0

Costanza et al. (2014) Forest area 15755.9 59630.7 4496.3 79882.9

Net Present Value Forest cover / area 61997 63275 488 125760

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 Ecosystem Services Valuation and Accounting of Himachal Forests

The total economic value of ecosystem services for forests in Himachal Pradesh not only
varies considerably across scenarios but also across different categories of ecosystem
services. The value of regulating service across all scenarios as well as the current study
is considerably higher than provisioning and cultural services. Very often, the regulating
services from forests are invisible and hence are generally ignored in the decision-making
framework. However, as the estimates point out, the economic value of these services is
significantly more than other categories of ecosystem services and thus should be especially
considered. Degradation of regulating services has a profound implication on the flow of
other categories of ecosystem services and a high value for regulating services points out
the essential role that these services play in ensuring human well-being.
Excluding Ida et al. (2013), the economic value of cultural services is generally the lowest
among categories of ecosystem services considered. This is partly due to the lack of accurate
valuation methodologies to capture these services. Often, cultural services need indirect
measurement approaches which have their own limitations and pitfalls.
While accepting the argument that not all these services can be generated simultaneously,
there are a wide range of ecosystem services which are currently not captured in the
economic valuation framework. Thus, while more sophisticated approaches may be applied
to reduce double counting of economic value, it can be said that even with such inaccuracies,
the figures calculated are grossly lower estimates.
Extrapolating from per hectare value of forests, the approach of estimating the total
economic value of ecosystem services from forests has its limitations which are largely
apparent from the estimates. Deciding whether to use forest cover or recorded forest area
for valuation has large implications on the total economic value, which in this case, is
change in the magnitude of more than 100%. To better incorporate the results of valuation
in decision-making calculus, it is important to develop robust methodologies which minimize
inaccuracies by deciding on the parameter which best describes the extent of forest and flow
of services from it.
As discussed before, the current study estimates the economic value of only a handful
of ecosystem services from the forests of Himachal Pradesh. The range of estimates
based on other scenarios indicates that the estimates derived in the current study are
gross underestimates. However, even these underestimates present a very strong case
for conservation of forests for ensuring the flow of ecosystem services from them. As
more robust methodologies are developed, a more accurate picture of the total economic
value of ecosystem services from the forests in Himachal Pradesh can assist in improving
incorporation of forest conservation in decision-making.

4.9 Forest Resource Accounting

of Himachal Forests
4.9.1 SEEA Framework
The SEEA is a satellite system of the System of National Accounts (SNA). It is a framework
that allows measuring the impact of environment on the economy and vice-versa. It
comprises four categories of accounts. The first considers flows of products, that is the
goods and services produced in an economy. The second accounts for the flow of natural
resources such as energy, water and mineral resources within an economy. The third
account takes care of the flow of ecosystem inputs such as oxygen which are necessary for
the growth of plants and animals. The last account deals with the flow of residuals which
are unwanted materials in an economy. Three sorts of adjustments are considered in the
above mentioned four accounts. One adjustment is owing to depletion in any of the factors

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
in the account, one is concerned with the so-called defensive expenditures and the last
relates itself to degradation in the accounts. SEEA is an attempt to incorporate the impact
of economic activities by governments, households and Industries on natural assets as an
environmental cost resulting from such activities. It is a useful tool for the policy makers to
set their priorities in terms of activities which are potentially harmful to the environment.

Main Features of SEEA

• Links flows and stocks: Impacts of human activities on the state of the environment
• Links physical information on the environment with economic information: Resource
productivity, evaluation of trade-offs and impacts of economic instruments
• Presents all resources in a common framework: Impacts of deforestation on water
resources(UNSD, 2009)
Basic Framework of SEEA
For reflecting the true value of forests to the nation’s national income, it is imperative to
conduct natural resource accounting (NRA) in India. NRA is a revaluation of the National
Income Accounts of a country, adjusting for the values of natural resources used in various
economic activities during the past “fiscal year”. The changes in both “stock” and “flow”
of forests need to be accounted for. Forests get degraded in quality and quantum owing
to economic and human activities. They also go through natural decay and regeneration.
Forests may also have been enhanced due to plan interventions, forest conservation and
management of Protected Areas (NBSAP, 2002).
There are three alternate methods to NRA. The first is the UNSTAT proposed satellite system
for environmental accounting (SEA). It does not make any change in the core System of
National Accounting (SNA), but proposes establishing linkages between the SNA and the
integrated economic and environmental accounting. The second method is to treat natural
resources as a separate set of activities in an Input-Output table. Then the outflows from
such natural resource sectors will have been absorbed by other sectors of the economy. For
example, water production from the Water Resource Sector would flow to many industrial
sectors, household sectors and of course, to the agriculture sector as irrigation. The third
method of arriving at the Green GDP is to account for depletion of natural resources using
either the Use Cost method or Depreciation or Net Price method .
Improvements in methods of the existing System of National Accounts (SNA) were debated
in 1992 during UNCED held at Rio de Janeiro, which recommended the System of Integrated
Environmental and Economic Accounting (IEEA). The UN Statistical Division in 1993
suggested a satellite system of environmental and economic accounting (SEEA) showing
environmental-related sectoral activities along with their physical accounts of flow changes,
valuation and links to the main SNA.

The SEEA Asset Classification

The classification of assets in the SEEA is divided into three broad categories; natural
resources, land and surface water ecosystems.

4.9.2 WAVES Framework

The overall goal of the Global Partnership for Wealth Accounting and Valuation of Ecosystem
Services (WAVES) is to support partner countries to achieve sustainable development by
systematically integrating values for natural capital in their national accounts systems,
and, through the national accounts, mainstream natural capital valuation in both macro-
economic indicators that monitor development progress, and natural resource management.
WAVES is being led by the World Bank in partnership with United Nations Development
Programme, the United Nations Environment Programme (UNEP) and other partners.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Meaning of Wealth
Wealth could be defined in terms of an economy’s productive base, which comprises
the entire range of capital assets to which people have access. Traditionally wealth has
been defined as a stock of produced capital such as buildings, machinery, equipment and
infrastructure. Economic theory tells us that there is a strong link between changes in
wealth and the sustainability of development (World Bank, 2006).
Table 4.41 - Meanining of Wealth

S.No Type of Meaning/ Description Indicators

Capital
1 Financial A system of ownership or GDP,National income, exports,
capital control of physical capital deficit
2 Natural The resources and Forests, ecosystem accounting
capital ecosystem services of the (terrestrial, coastal and marine),
natural world land accounts, water accounts,
minerals, etc.
3 Produced Consists of physical assets Goods and services manufactured,
capital generated by applying public infrastructure, etc.
human productive
activities to natural capital
and capable of providing a
flow of goods or services.
4 Human Productive capacities Skills Inventory, public subsidies
capital of an individual, both for education to households,
inherited and acquired Percentage of GDP spent on
through education and educational institutions, Matching
training. of education to occupation,
investment in health care, etc.
5 Social Consists of a stock Personal Relationships,
capital of trust, mutual Social Network Support,
understanding, shared Civic Engagement, Trust and
values and socially held Cooperative Norms.
knowledge.

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Approaches
1. World Bank Approach
There are two broad approaches to calculate total wealth. It could either be measured by
estimating the total wealth (top-down) and then breaking it down into various capitals.
This is the World Bank approach adopted in Where is the Wealth of Nations? (2006) and
The Changing Wealth of Nations (2011).
The World Bank (2006, 2011)estimated total wealth as:

Total Wealth
Net
Produced Intangible
Capital
Natural Capital Capital
Foreign
Assests

Machinary Agri- Timber, Pro- Total

Subsoil Social, Human Assests-
Equipment Urban land Assests cultural Non tected Capital Total
Structures LAnd Timber Area Unbilities

Natural Capital Accounting

Wealth = Produced capital + Natural capital + Intangible capital (human capital, social
capital and quality of institutions)

2. Inclusive Wealth Report

The other approach is to add up all the individual capitals to estimate the total wealth
(bottom-up), which is adopted in The Inclusive Wealth Report (2012).
IWR= Wealth (IWI) = Produced capital + Natural capital + Human capital
Currently, the WAVES Core Implementing Partner include Botswana, Columbia, Costa
Rica, Guatemala, Indonesia, Madagascar, the Philippines and Rwanda. Each country’s
needs, their rationale for developing Wealth Accounts and their current work is briefly
summarized below.
• Philippines
Phillippines is working on the following priority areas for WAVES: Mineral Accounts
(as Philippines is the fifth most mineralized country in the world), Mangrove Accounts
(Philippines being among the top global disaster hotspots. Mangroves play an important
role in mitigating the impacts of weather-induced disasters) and Ecosystem Accounts at
two sites.

104

• Botswana
Botswana is working on four priority
areas for NCA: Water Accounts (To
better assess the availability, uses,
and economic contribution of water),
Land and Ecosystem Accounts (Inform
management of ecotourism and land use
in four key ecosystems: Okavango, Chobe,
Makgadikgadi Pans, and Central Kalahari),
Mineral and Energy Accounts (Determine
the optimal energy mix for the future and
examine the role of Botswana’s coal in
a green economy) and macroeconomic
Indicators of Sustainable Development
(develop indicators like adjusted net
national income, adjusted savings, and
national wealth accounts to assess the
prospects for long-term, sustainable
growth).
• Colombia
For conducting WAVES in Colombia,
priority accounts considered are on
forestry and water, focusing in particular
on three selected pilot watersheds: Tota
Lake—the largest lake in Colombia, the
Suarez River and Chinchina—in the coffee
zone of Colombia, and is considering
broadening the scope to strategic river
basins. They all represent different
ecosystems and serve as pilot projects in
the country.
• Costa Rica
WAVES will support the construction
of asset accounts for water and forest
resources. Outcomes will include a
water account to organize the existing
hydrological and economic information of
the country in a coherent and consistent
framework and a forests account to
incorporate physical and monetary values
of services provided by forests to inform
policy decisions on forest management.
• Madagascar
For the WAVES project, seven broad policy
issues were identified as priority points
Ecosystem Services Valuation and Accounting of Himachal Forests
for WAVES activities: (i) integrated water
resource management; (ii) sustainable
timber exploitation; (iii) promotion of
nature-based tourism; (iv) sustainable
financing of the protected area network;
(v) mining rent capture, distribution
and investment; (vi) integrated coastal
resource management plan; and (vii) sector
investments and budget allocation.
• Guatemala
The WAVES initiative will help the
government take NCA to the next level by
mainstreaming and integrating the data
from the natural capital accounts into
development planning and environment,
economic and social policies.
• Rwanda
Rwanda’s Vision 2020 aims for the country
to become a middle-income, knowledge-
based economy that is competitive both
regionally and globally.
For WAVES, the priority accounts are
land, water and minerals as identified in
Rwanda’s Vision 2020 (as natural capital
accounts for land and water can add value
by providing indicators and trend analysis
to help in tracking performance towards
sustainability, land allocation, service
delivery and productivity targets).
• Indonesia
Indonesia joined the WAVES partnership as
a core implementing country in September
2013. The development of the WAVES
Programme components is being done
consistently with the World Bank’s new
Landscape Strategy that is being developed
to support the National Development
priorities of the new government
administration. Further the WAVES
Programme aims to provide a platform for
addressing water security issues (in terms
of both quantity and quality) and develop
non-mineral and energy accounts on
priority.
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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
4.9.3 Zhu X. et al. (1994) Framework
The system of forest resource accounting proposed by Zhu X. et al. (1994) focuses on the
concepts of actual accounts, linkage accounts and potential accounts.
• Actual accounts: It measures the flow of goods and services flowing from the forest
ecosystem to the economy currently. These flows can be assessed by the construction of
asset accounts both physical and monetary asset accounts.
• Potential capacity accounts record the various ecosystem features which determines
both the actual capacity and potential flow of benefits of those features, based on
various ecosystem quality indices.
• Linkage accounts try to link together the actual capacity accounts and potential
capacity accounts and consists of estimates of costs of various ecological imperatives
required to maintain some ecological indicators at specified level or to avoid losses in
the flow of future goods and services (potential benefits).

4.10 Timber, Flow, Expenditure

Accounts and Other Frameworks
TIMBER Asset Account (Physical)

table 4.42

Physical Value (in m3)

Opening Stock 342000000
Additions
Mean Annual Increment 9370000
Extractions
By state forest corporation 145984
For department use 46
For right holders 27
Losses
Forest Fires 186752.5
Forest Diversion 384439
Closing Stock 350652751.5

Analysis
The Timber Asset Accounts provides estimation of output of timber in physical terms.
The opening stock is 342 million m3. The additions include the Mean Annual increment
calculated scientifically using formula specified by FSI. The major extractions are by the
State Forest Corporation, i.e. 145984 m3. The major losses accrue due to forest fires and
forest diversion.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Flow Accounts for Himachal Pradesh

Table 4.43- Flow accounts of forests of Himachal Pradesh

Economic Value of Direct and Indirect Benefits

S.No Physical value Monetary (in crores)
Total Recorded Forest Area 3703300 ha
Forest Cover 1467900 ha
1 Total Growing Stock (Timber) 342 million cum 855000
Direct Benefits
Direct Consumptive Benefits
Physical Value Monetary
2 Timber 9.37 million cum 23425
3 Bamboo 291 million 1901
4 Fuelwood 1.163 m tonnes 628
5 Fodder/ Grazing 21.92 m tonnes 1973
Total 27900
Direct Non- Consumptive Benefits
6 Ecotourism- Recreation 206
Total Direct Benefits (A) 8,83100
Indirect Benefits
7 Water Recharge 95
8 Water Purification 1092
9 Flood Mitigation 256
11 Carbon Sequestration 13.07 million tCO2 4235
12 Carbon Stock 241.71 m tonnes
CO2 storage 887.08 m tonnes
13 Bioprospecting 57087
14 Soil Conservation 6742
15 Pollination and Seed Dispersal 14465
Total Indirect Benefits (B) 371468
Total Economic Value ( A+B) 1254601

Analysis
The flow accounts for Himachal Pradesh include:

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 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
1. Direct benefits
1.1 Direct Consumptive
Benefits:
• Timber
While the standing timber represents the
stock value, the annual potential timber
production is a flow value. The growing
stock estimates were sourced from
the State of Forest Report (FSI 2011b)
while Von Mantel's formula (Armitage
1998), a conservative approach of yield
determination, has been subsequently
used to derive mean annual increment on
the basis of the average rotation period
estimated for the forests of Himachal
Pradesh.
• Bamboo
Bamboo estimates for Himachal Pradesh
including the number of culms has
been estimated in the latest State of
Forest Report which has been used for
calculating the economic value of bamboo
(FSI 2011b). An average rotation period of
5 years is assumed for calculation.
• Fodder
Based on standard fodder requirements
for each ACU (22 kg./ACU/day), the total
consumption of fodder from forests is
estimated (Pandey 2011).
• Fuel wood
A recent study conducted by the Forest
Survey of India found that about 1.163
million tonnes of fuel wood are extracted
from the forests of Himachal Pradesh
(FSI 2011b). To account for unauthorized
removal of fuel wood, it is conservatively
assumed here that only 50% of the
fuelwood consumed from forests was
actually recorded in the FSI study.
1.2 Direct Non- Consumptive
Benefits
• Recreation
The same study from Green India States
Trust has also estimated net consumer
surplus of tourists visiting the national
parks of Himachal Pradesh (Gundimeda
et al. 2006). It may be noted that the
study only includes national parks and
not the remaining forests for estimation
108
of recreational value, and can thus be
considered a gross underestimate. As
the figures are more than a decade old,
the consumer surplus has been adjusted
according to the Wholesale Price Index.
2. Indirect Benefits
• Carbon Sequestration
To estimate the amount of CO2 that would
be sequestered in the forests of Himachal
Pradesh, the mean annual increment
as estimated for timber estimation has
been used. Further, default IPCC values
and social cost of carbon are used to
estimate the economic value of carbon
sequestration.
• Carbon Storage
The Forest Survey of India has estimated
the stock of carbon stock in the forests
of Himachal Pradesh(FSI 2013). These
estimates include carbon in above ground
biomass, below ground biomass, soil carbon
and dead organic matter.
• Bioprospecting
The Green India States Trust came out with
a study in 2006 in which the economic value
of bioprospecting was estimated for the
forests of Himachal Pradesh (Gundimeda et
al. 2006). According to the valuation model
which considers the total number of all
species in the state, the economic value of
bioprospecting service is Rs. 154,152 per
hectare. Considering the recorded forest
area of 37033 km2 of Himachal Pradesh,
the total economic value of bioprospecting
service from the forests of Himachal
Pradesh is thus estimated to be Rs. 570.87
billion.
• Pollination and Seed Dispersal
The economic value of pollination and
seed dispersal service has been estimated
from two aspects, i.e. for forests and for
agriculture. For forests, the estimation is
based on natural forest regeneration and
its replacement cost if done artificially
according to the model cost of Rs.
17,100 per hectare as recommended by
the National Afforestation Programme
Guidelines (NAP 2009).For agriculture,
a recent study conducted by ICIMOD has
 Ecosystem Services Valuation and Accounting of Himachal Forests

estimated the economic value of insect pollinators for agriculture in Himachal Pradesh
(Pratap et al. 2012). On account of absence of data for the percentage of insect pollinators
coming from forest areas, it is assumed that about 67% of insect pollinators can be
attributed to forest areas in Himachal Pradesh, the same as the ratio of recorded forest
area (37033 km2) to the total geographical area of the state (55670 km2).
• Soil Conservation
A study done by Kumar (2000) in the Doon Valley region estimated that the economic
cost of soil erosion is Rs. 21,583 per hectare using the replacement cost approach. As the
estimate is more than a decade old, it has been adjusted according to the Wholesale Price
Index.
• Water Recharge
Based on a study estimating the economic value of water augmentation function of forests
(Kumar et al. 2006), the difference in water recharge from a forest area as compared to a
non-forest area in Himachal Pradesh is about 129 mm.
• Flood Mitigation
The economic value of flood mitigation benefits of the forests of Himachal Pradesh have
been estimated by Kumar et al. (2006) to be approximately Rs. 2.56 billion annually.
• Water Purification
While there are not many estimates on the economic value of water purification service
of forests in India, the NPV report arrived at an estimate of Rs. 2,950 / hectare based on
studies conducted in various countries after adjusting for Purchasing Power Parity (Verma
et al. 2013). Based on the recorded forest area of 37,033 km2, the total economic value of
water purification services from the forests of Himachal Pradesh is about Rs. 10.92 billion.

109
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process

Table 4.44

Per Hectare Values for Himachal Pradesh Forest Goods and Services
Physical Value Monetary (in crores)
Total Growing Stock 342 million cum 855000
Direct Benefits
Direct Consumptive Benefits
Forest Cover
1467900 ha Forest Area
3703300 ha
Timber 15957938.23 6325346.997
Bamboo 215818.5162 85545.32444
Fuelwood 427835.6836 169583.8846
Fodder/ Grazing 1344077.253 532760.2409
Total 71,13200
Direct Non- Consumptive Benefits
Ecotourism- Recreation 140563.458 55716.01005
Indirect Benefits
Watershed
Water Recharge 64500 25566.26522
Water Purification 744242.4552 295000
Flood Mitigation 174372.4368 69117.08476
Micro Climatic Factors
Carbon 2885068.194 1143572.382
Bioprospecting 0 0
Soil Conservation 4592943.263 1820533.42
Pollination and Seed Dispersal 9854196.401 3905968.973
Employment Generation 0 0

Analysis:
Per hectare values have been estimated for 12 ecosystem services for Himachal Pradesh.
The Forest Cover is 1467900 ha and Forest Area is 3703300 ha. Using the values of forest
cover and forest area, per hectare values have been estimated. The highest per ha value
being of timber followed by Pollination and seed dispersal and carbon.

110
 Ecosystem Services Valuation and Accounting of Himachal Forests

Major Ecosystem Services

Table 4.45

Name of Ecosystem Service Total Value (Rs in crores)

Timber 878425
Carbon 291731
Bioprospecting 57087
Pollination 14465
Soil conservation 6742
Fodder 1973
Bamboo 1901
Water purification 1092
Fuel wood 628
Flood mitigation 256
Recreation 206
Water recharge 95
Total 1254601

Analysis
The above table illustrates the value of ecosystem services in descending order, i.e. largest
to smallest. The highest value being accrued to timber followed by carbon and the smallest
value for water recharge.

111
 Policy Environment for Internalization of Value of Forest
Ecosystem Services in the Decision-Making Process
Table 4.46

Expenditure for Forestry and Wildlife Management, Protection, Extension and Soil
Conservation of Himachal Pradesh Forest Department (Rs in 'ooo)

S.No. Particulars Year 2011-12

State Sector Central Sector Charged Total
1 Non-tribal direction and administration 1804427 43573 1804427
2 Communication and buildings 26300 26300
3 Forest conservation, development and regeneration 12364 34559 0 46923
4 Social and farm forestry 766311 766311
5 Forest produce 7265 7265
6 Assistance to public sector and other undertakings 254435 254435
7 Other expenditure 1718 1718
8 Wildlife preservation 80959 15791 96750
9 Zoological park 30495 30495
10 Public works 3812 3812
11 Unknown head 176642 176642
12 Environmental, forestry and wildlife 14059 10548 24607
13 Agriculture, research and education 2750 3270 2750
14 Social forestry 36429 36429
15 Thirteenth Finance Commission 277400 277400
16 Soil conservation 90826 44452 135278
17 Extension and training 1710 1710
18 Soil and water conservation programme 25674 25674
19 Protective afforestation 5000 5000
Grand Total ( 2011-12) 3618576 105350 46843 3723926

Analysis:
The above mentioned expenditure accounts furnish details about the expenses pertaining to Forestry and
Wildlife Management, Protection, Extension and Soil Conservation of Himachal Pradesh Forest Department. The
expenses have been incurred in the year 2011-2012. The major expenses have been incurred under the head Non-
Tribal Direction and Administration, Thirteenth Finance Commission and Assistance to Public Sector and Other
Undertakings.

112
 Ecosystem Services Valuation and Accounting of Himachal Forests

Figure - Forest resource account of Himachal Pradesh

Actual Accounts Linkage/Use Accounts Potential Accounts

(Economic Accounts) (Cost/potential Accounts) (Ecological/Environmental
Accounts)

Ecosystem Service Amount Expenditure Head Amount Ecosystem Stock

(Flow value) ( Rs crores) service (Rs in crores)
(Rs in crores) Non-tribal Direction and 180.4427 Bamboo 1584
Bamboo 317 Administration Timber 855000
Timber 23425 Communication and 2.6300 Carbon 287496
Fodder 1973 buildings
Bioprospecting 57087
Fuel wood 628 Forest conservation, 4.6923
development and Total 1201167
Carbon 4235 regeneration
Recreation 206 Social and farm forestry 76.6311
Pollination 14465 Forest produce 0.7265
Soil Conservation 6742 Assistance to public 25.4435
Water Recharge 95 sector and other
undertakings
Flood Mitigation 256
Other expenditure 0.1718
Water Purification 1092
Wildlife preservation 9.6750
Total 53434
Zoological park 3.0495
Public works 0.3812
Unknown head 17.6642
Environmental, forestry 2.4607
and wildlife
Agriculture, research 0.2750
and education
Social Forestry 3.6429
Thirteenth Finance 27.7400
Commission
Soil conservation 13.5278
Extension and training 0.1710
Soil and water 2.5674
conservation programme
Protective afforestation 0.5000

Conclusion: The above diagram has been adapted from Zhu X. et al. (1994). The diagram illustrates the actual
accounts, i.e. the flow values from the 12 estimated ecosystem services, the use/ cost accounts, i.e. expenditures
incurred by Himachal Forest Department under the head Forestry and Wildlife Management, Protection, Extension
and Soil Conservation and the potential accounts which indicates the stock values of 12 estimated ecosystem services

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 Ecosystem Services Valuation and Accounting of Himachal Forests

05
Incentives Based
Mechanism for
Payments for
Forest Ecosystem
Services of
Himachal Pradesh
 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
5 Incentives Based Mechanism for
Payments for Forest Ecosystem
Services of Himachal Pradesh
Incentive-based mechanisms for payments of forest ecosystem services generate long-
term and diversified sources of revenue for its conservation. The purpose of such a
mechanism is to create revenues for ensuring biodiversity conservation, if possible, in
perpetuity. It includes an array of innovative financing schemes, such as tourism-related
taxes and fees, debt-for-nature swaps, conservation trust funds, and payments for
environmental services. Although such financing mechanisms alone are not sufficient
as solutions to achieve the targeted conservation goals, they have the power to leverage
revenues for the same which provides motivation for conservation. A healthy and
productive forest ecosystem is important for the survival and well-being of all species,
including humans. However, funding for forest ecosystem conservation and protection is
difficult to be achieved by governments alone, especially in a developing economy, which
is already facing daunting social needs and political challenges. It is only ironical that
most of the biodiversity-rich areas on earth are in places threatened by poverty, extensive
resource extraction and uncontrolled development. Hence, the objective of having an
incentive-based mechanism at place is to identify solutions that not only generate revenue
for conservation, but also to allocate the funds to provide community and social benefits
and generate awareness for the same as well.

116

5.1 Introduction
Incentive-based mechanisms for payments
of forest ecosystem services generate
long-term and diversified sources of
revenue for its conservation. The purpose
of such a mechanism is to create revenues
for ensuring biodiversity conservation, if
possible, in perpetuity. It includes an array
of innovative financing schemes, such as
tourism-related taxes and fees, debt-for-
nature swaps, conservation trust funds,
and payments for environmental services.
Although such financing mechanisms alone
are not sufficient as solutions to achieve
the targeted conservation goals, they have
the power to leverage revenues for the same
which provides motivation for conservation.
A healthy and productive forest ecosystem
is important for the survival and well-being
of all species, including humans. However,
funding for forest ecosystem conservation
and protection is difficult to be achieved
by governments alone, especially in a
developing economy, which is already
facing daunting social needs and political
challenges. It is only ironical that most of
the biodiversity-rich areas on earth are in
places threatened by poverty, extensive
resource extraction and uncontrolled
development. Hence, the objective of having
an incentive-based mechanism at place is
to identify solutions that not only generate
revenue for conservation, but also to
allocate the funds to provide community and
social benefits and generate awareness for
the same as well.
5.1.1 Traditional
Funding Sources and
Emerging Finance
Opportunities
There is an increasing realization around
the world of the importance of forests in
providing important environmental services
Ecosystem Services Valuation and Accounting of Himachal Forests
such as carbon sequestration, landscape
beauty, biodiversity conservation and
watershed protection. As many of these
services today face severe threats, there
is a wide recognition among the world
community that existing traditional
regulatory approaches and public
expenditures alone are not sufficient to
ensure their protection and sustained flow.
Thus, in many parts of the world, monetary
value is being placed on these services
and real payments are being generated for
local communities which act as incentives
for their conservation activities.
The primary funding sources for
conservation of forest ecosystems have
traditionally been grants, donations and
government budget allocations, which are
largely determined by national priorities.
Donors mostly include non-governmental
organizations (NGOs), private
corporations, foundations and individuals.
Each type of donor differs in terms of their
priorities, with funding directed towards
conservation projects that reflect the
donor’s interests and timeframe and not
necessarily the needs of a given place or
species. NGOs raise millions of dollars
for conservation activities, leveraging
technical expertise, supplies and
equipment, and other critical resources
to achieve conservation results. Bilateral
donors provide direct assistance towards
specific countries of strategic importance
and work with host countries to achieve
joint priorities. Multilateral agencies that
fund conservation activities include the
Global Environment Facility (GEF), the
United Nations Development Programme
(UNDP), the United Nations Environment
Programme (UNEP), and the World Bank.
Such projects are large in geographic
scope or reflect multiple country priorities.
Some multilateral agencies, such as
regional development banks, provide loans
to governments, rather than grants or
donations.
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 Incentives Based Mechanism for Payments for Forest
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Table 5.1 – Ecosystem Services and Associated Commodities (Source: Silver Bullet or
Fools Gold: A Global Review of Markets for Forest Environmental Services and Their
Impact on the Poor)

Ecosystem Service Commodity

Watershed Water quality credits, salinity credits, transpiration credits, salmon
Protection Services habitat credits
Landscape Beauty Entrance rights, access permits, ecotourism concessions,
photographic rights, land acquisition, land lease
Biodiversity Bio-prospecting rights, biodiversity credits, conservation
Conservation concession, tradable development rights
Carbon Assigned Amount units, CERs, Removal units, conservation
Sequestration easements

5.1.2 Payments for Environmental Services

(PES)
The term “Payments for Ecosystem Services” (PES) describes a wide range of payment
arrangements in which the beneficiaries of an ecosystem service provide payment to the
providers of that particular ecosystem service. For example, carbon finance and payments
for watershed services are increasingly gaining recognition as viable payment schemes
for forest, water and biodiversity conservation. The global carbon market alone has grown
The global substantially in recent years with a staggering 4.9 billion tons of carbon credits being
carbon market traded in 2008, an increase of 83 percent from the previous year, 2007. The total value of
global trading for voluntary and compliance carbon markets amounted to $125 billion in
alone has grown 2008, more than a twofold increase from $51 billion in 2007 (Tvinnereim, 2009). There is
substantially considerable potential to draw on funding generated by these emerging markets to support
conservation efforts worldwide. Conservation finance mechanisms, such as water funds,
in recent green taxes, bio-prospecting, tourism-based revenues, and carbon finance represent
years with a types of payments for ecosystem services that can be used to finance a shift away from
conventional and unsustainable resource use practices and create a market in favour of
staggering preservation, restoration and sustainable management. They can also provide benefits for

4.9
local communities, who are the stewards of conservation areas.
Table 5.2 - Terms Used for the Remuneration of Environmental Services (CIFOR;
Payment for Environmental Services; Some Nuts and Bolts)

billion tons ‘Payment’ for ES It is a very generic term used and has a direct monetary association.
of carbon ‘Markets’ for ES The term was first used by the Katoomba group and IIED. It involves
a number of role players, choices and to some extent competition.
credits being There are a number of buyers and sellers of ecosystem services. It is
traded in 2008, mostly evident in developed countries.

an increase of ‘Rewards’ for ES It is a term having a connotation of entitlement and justice for
ecosystem service providers and conservators. It is in favour of

83%
from the
‘Compensation’
for ES
rewarding those who deliver an ecosystem service.
It refers to a direct or opportunity cost on behalf of a service supplier
which creates a moral duty for the society to pay. Compensation
restricts the scope to only those who bear the cost.
previous year, Carbon Assigned Amount units, CERs, Removal units, conservation
2007. Sequestration easements

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 Ecosystem Services Valuation and Accounting of Himachal Forests

To meet international commitments to support critically endangered areas, countries

are developing sustainable financing strategies that combine a more effective financial
management with initiatives to diversify funding sources. PES is such an initiative. In many
cases poor communities residing in upstream catchments in and around forests have an
important role to play as stewards of the area. The increased incentives for undertaking
conservation therefore hold a huge potential for directly improving their livelihoods. The
case of Himachal Pradesh becomes more specific where the forest constitutes an important
component not only for the people living in the state but also in downstream regions.
Traditionally, environmental conservation has been the responsibility of governments to
ensure its sustainability.Instruments used by the governments have usually been direct
forest management by government agencies, regulation of private forest use, public
investment to improve private management and targeted taxes and subsidies. Recently,
there has been a paradigm shift towards market-based instruments with the involvement of
all the concerned stakeholders.

5.2 Cost Benefit Analysis of

Conservation Decision
Cost Benefit Analysis of Conservation Decision demonstrates what is to be incentivized
or compensated or rewarded. The figure shown below highlights whether any particular
management intervention is worth undertaking or not compared to its cost from an
economic perspective.
It is quite likely that a change in management will increase the value of some services and
decrease the value of others; what matters is the net difference between the total value of
all services, as shown in the next figure. This difference is the value of conservation and
is not necessarily positive. In other words, there may be cases in which the value of the
additional services obtained by converting an ecosystem to an alternative use exceeds
the value of the services obtained under conservation. The change in value must then
be compared to its cost in order to determine whether it is worth undertaking, from an
economic perspective.
Figure 5.1 Benefits from Ecosystem and Cost of Conservation, Adapted from The
World Bank Environment Department, October 2014

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The next figure illustrates this same approach in a different way. Here the values of the
various services that would be obtained with and without conservation are compared
directly. Some services are increased thanks to conservation, while others (in this case,
extraction of forest products) are reduced. The third column shows the net changes in each
service, along with the cost of conservation.

Figure 5.2 Cost Benefit Analysis of Conservation Decision

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Name of Ecosystem Service Commodity

Total Value (Rs in crores) Water quality credits, salinity credits,
transpiration credits, salmon habitat credits
Timber 878425
Carbon 291731
Bioprospecting 57087
Pollination 14465
Soil conservation 6742
Fodder 1973
Bamboo 1901
Water purification 1092
Fuel wood 628
Flood mitigation 256
Recreation 206
Water recharge 95
Total 1254601
Opportunity Cost 15240
Management Cost 350
Table 5.3: Extended Version of Cost Benefit Analysis of Conservation Decision of
Himachal Pradesh

5.3 Relevance of PES in India

Payments for Environmental Services (PES) are particularly relevant in the case of India,
where over two-thirds of the country’s total cultivable land is environmentally fragile and
facing severe degradation. Public forests, which legally constitute 23 % of the country’s
total geographical area, and comprise some of the most important water sheds also
face intense pressures from an exponentially growing human and livestock population.
Still, a large proportion of the rural population is directly dependent on forests for their
basic subsistence and livelihood needs. It is estimated that approximately 1,70,000
villages with a total population of 147 million are located in the vicinity of forests.
Further, many upstream areas are being increasingly harnessed for hydropower and
other projects, the benefits of which accrue over a large-scale downstream area, but the
efficient functioning of which is contingent upon the protection of critical forest areas
/ watersheds upstream. The recent draft National Environment Policy of India mentions
that foremost amongst the environmental services provided by forests is the role played
in the recharging of mountain aquifers, which sustain our rivers (Elliasch Review, 2008).
The need for introduction of enough incentives for all forest conserving communities
is more pertinent in the case of Himachal Pradesh for sustainably managing the
strategically located forests. Given this scenario, facilitation of Payment for Ecosystem
Services (PES) are extremely relevant in India, as they offer the potential of addressing
both conservation and livelihood concerns (WWF, 2009).

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Saving a Watershed by Working with Neighbours Upstream

Location: India
Strategy: Incentive-based mechanism
When the wells ran dry in Suan, a village in India’s far north, residents looked upstream. There, in the town
of Bhodi, overgrazing and deforestation were threatening the quality — and quanti¬ty — of water supplies
throughout the area. So the Suan villagers made a deal with their neighbours upstream. With support from
the government, the Suan villagers offered their labour to help re-plant the slopes of the upper watershed,
and the residents of Bhodi agreed to curb grazing and improve soil conservation. Although they were initially
sceptical and reluctant to lose prime grazing land, the people of Bhodi were rewarded with an increased
supply of fodder and fuel wood. And villagers in Suan have noticed an improvement in the flow of water as
well as re¬duced soil erosion.

Many new cases of Payments of Environmental Services have arisen across the globe,
such as the private Costa Rican utility company voluntarily contributes to a fund that
provides money for private upstream landholders to increase forest cover. This reduces
sedimentation, thus providing sufficient water flow for hydroelectricity generation. In an
another example, in Paraguay, AES, an international power company, paid US$2 million
to establish a protective reserve for one of South America’s last remaining areas of
undisturbed dense tropical forest. This helps to offset carbon emissions.

In Karnataka State, India, farmers have formed a fund with the assistance of an NGO,
the Government of India and the Swiss Agency for Development Cooperation to help
other local farmers with watershed protection activities such as regenerating forests
and maintaining fallow land.(Rowcroft, 2005)

However, Payment for Ecosystem Services have only been partly put to practice. For its
implementation, the following conditions must be met:
• The sources of funding must be taped and contractually bound.
• There must be a functioning administrative structure (FONAFIFO).
• The prices for the various environmental services and the procedures for disbursing the
payments to the forest owners have to be established (Heindrichs, 1997).
• The conditions mentioned have to be met to design and implement a PES framework.
This makes it different from the other incentive-based mechanisms.

5.4 Innovative Payment Mechanisms

for Forest Ecosystem Services
Innovative incentive-based payment mechanisms for forest conservation generate long-
term revenues for the same and in addition increases the awareness levels among the
masses. A range of such mechanisms have been discussed with a number of successful
cases to back them. The potential ecosystem services have been listed along with the
methodology/ indicators required to estimate it. The table below lists all the different PES
instruments pertaining to identified ecosystem services, which can help in generation of
source of revenues.

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Table 5.4 Suggestive payment mechanismsle
Ecosystem Service / Benefit
from Tiger Reserve
Employment generation
Agriculture
Fishing
Fuel wood
Fodder / Grazing
Timber
Standing Timber
Non-Wood Forest Produce
Gene-pool protection
Carbon storage
Carbon sequestration
Water provisioning
Water purification
Soil conservation / sediment
regulation
Nutrient cycling / retention
Biological control
Moderation of extreme events Avoided damage to life and property
Pollination
Nursery function
Habitat / refugia
Cultural heritage
Recreation
Research, education and
nature interpretation
Gas regulation
Waste assimilation
Ecosystem Services Valuation and Accounting of Himachal Forests
Methodology / Indicator
Number of man-days generated
Value of agriculture produce
Value of fish catch
Quantity of fuel wood collected
Dependent Adult Cattle Units
Quantity harvested
Growing stock
Quantity harvested
Benefits Transfer (land cover)
Carbon stock in 5 pools
Growing stock
Agriculture Production Function /
Water Recharge
Avoided cost of water purification
Soil erosion; cost of excavation
Nutrient loss (NPK); cost of fertilizers nutrient reduction credits
Benefits Transfer (land cover)
Benefits Transfer (land cover)
Production Function
Benefits Transfer (land cover)
Qualitative description
Travel Cost Method; Consumer
Surplus
Qualitative description; number of
studies carried out
Benefits Transfer (land cover)
Avoided cost of waste treatment
plant / Benefits Transfer (land cover)
Instruments
Tourism fee/ entrance fee
Biodiversity credits/ Fishing permits
Access rights
Access rights
Emission Reduction Credits
Carbon storage credits
Emission Reduction Credits
Biodiversity credits/ Bioprospecting credits
Carbon credits/ Climate Care/Warranties
Carbon credits/ Climate Care/ Warranties/
Emission Reduction Credits
Tradable wetland mitigation credits/ water
quality, Credits/ transpiration credits
Tradable wetland mitigation credits/water
quality, Credits/ transpiration credits
Water quality credits
Biodiversity credits/ Bioprospecting rights/
Debt-for-nature swaps
Pay for forest establishment/ Climate Care
Warranties
Biodiversity credits/ Bioprospecting rights/
Debt-for-nature swaps
Biodiversity credits
Tradable development rights
Ecotourism use/ Research permits
Ecotourism use/ natural resource
management agreements; ecotourism
concessions; photographic permits,
entrance rights, access permits, ecotourism
concessions, land acquisition, land lease
Research permits/ photography permits
Conservation easements/ Debt-for-nature
swaps
Conservation easements/ Debt-for-nature
swaps
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 Incentives Based Mechanism for Payments for Forest
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5.5 Payment Mechanisms for Forest
Ecosystem Services- Examples
with Illustrations
REDD +
REDD+ is an incentive-based mechanism for promoting and rewarding forest ecosystem
conservation (Verma etal. 2012). REDD+ evolved in response to a growing recognition of
the need to preserve the standing forest stocks and in fact promote growth of forests to
sequester carbon. It would also provide forest communities and private owners, access to
the market for forest ecosystem services. It has a prime focus on biodiversity conservation
and community participation. This approach shows substantive results and leads to
re-building of stock and flow resources of the ecosystem, thus addressing the issue in
totality. REDD financing as a win-win instrument can bring a whole range of benefits but
the interests vary among stakeholder groups. For all governments REDD is an instrument
to implement climate change mitigation objectives. In addition, for developing country
governments REDD would represent a new source of financing for national development
priorities (e.g. health and education); and for developed countries it would be a cost-
effective option for carbon offsets. For environmental NGOs, REDD could generate
additional resources for biodiversity conservation. For the rural poor it could bring badly
needed income and financial support to communities and smallholders as well as a means
to improve their forest tenure rights. For the private sector, REDD can be an additional
source of funding to make SFM investments in natural tropical forests and rehabilitation
of degraded lands financially viable. For politically powerful groups REDD financing can
become yet another opportunity of income. For multilateral development banks it can
open up new ways of doing business in the context of maintenance of global public goods;
and for intergovernmental organizations it offers a new area of intervention in technical
assistance and a new funding source (Simura, 2009).

Figure 5.3– RED, REDD and REDD+ (Adapted from Lasco (2010))

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Green Bonus investment possibility through a highly

The Environment Ministry has declared a
reward system called "Green Bonus" as an
incentive for states to protect and increase
their green cover. The Centre is considering
releasing green dividends/bonus to the
Himalayan states from the next financial
year as a compensatory measure for
protecting the Himalayan ecology.
Green Fund
Environmental issues that the world
currently faces highlight both risks as well
as a plethora of opportunities. While on the
risk side there is pollution of all kinds, land
degradation, degradation of other natural
resources financial institutions that have
degradation, etc. on the opportunity side,
there are put finance in a revolutionary
successful new light, using money as
‘sustainability funds’ or ‘green funds’ in
which there is an instrument of social
change. Apparently there is no dearth of
investors. Banks, as financial intermediaries,
are seen as efficient assessors of risk.
One example of such a bank has adopted
sustainable deals with certain governments
and would have actually banking as its
core model ever since its inception and has
facilitated a war! They figured that many
people didn’t know today, looking forward to
substantial expansion and probably wouldn’t
approve if their bank’s future is Triodos Bank,
headquartered in a town called Zeist in the
Netherlands and having offices in the UK,
Belgium and Spain and a representative
office in Germany.

Case: Green Fund of Trinidad and Tobago

A Green Fund was established in Trinidad and Tobago, which was based on financial flows from a Green Fund
Levy, which amounted to a tax of 1% on corporate income. The objective is to target a range of environmental
issues, the foremost being protection of biodiversity. It has been collected since March 2001. By August of the
same year, the collection had grown to US $7 million. An amount upto 20% of the annual receipts of this fund
will be directed for the use of the Environmental Management Agency to carry out its objectives (UNEP, 2004).

Endowment Funds
It can be established either by public or private resources, the interest so earned can
be put to use for conservation purposes. The initial capital remains as it is. Grants from
international donors in addition to the host country funding can be used to establish such
funds (UNEP, 2004)

Biodiversity Venture Capital Funds

These funds are programmes similar to sector investment programmes or venture funds
which are specifically designed to cater to the needs of inherently high risk biodiversity
based business. Such funds help in counterbalancing risks of such enterprises thereby
increasing the value of biodiversity (UNEP, 2004).

The Mexican Fund for the Conservation of Nature (FMCN) was created in 1994 with a US$ 30 million donations
from the United States and the Mexican Government. Interest in conservation has supported more than 500
projects to date. In 1997 the Global Environment Facility via the World Bank allocated US$ 16.48 million
for the creation of the Fund for Protected Areas (FANP) within the FMCN. The FANP is the result of a public-
private partnership. While the National Commission for Protected Areas (CONANP) is responsible for applying
the funds in priority protected areas to achieve biodiversity conservation, the FMCN oversees the financial
management and administration of the managed areas, the application of funds, and fundraising endeavours.
The FANP has grown with contributions from ten additional donors, and its present US$ 61.5 million capital
supports the operation of 29 protected areas in the country(Mexican Nature Conservation Fund, 2007)

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 Incentives Based Mechanism for Payments for Forest
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Compensation for Loss of Ecological Values
As mentioned earlier, the present study is an extension of the earlier total economic
valuation of Himachal Forests conducted by the lead author of the present study. Based
on the former study, a payment mechanism called Compensation for Loss of Ecological
Values (CLEV) was developed in the year 2002. This compensatory mechanism is being
used for preparing a case of carbon credits in Himachal Pradesh (Verma, D., Valuation
and Accounting of Ecosystem Services: Connect with Environmental Finance: Himalayan
Forest Perspective, 2011).

Case: Triodos Sustainable Pioneer Fund (Green Fund)

Through Triodos Sustainable Pioneer Fund, a customer can invest worldwide in small and medium-sized listed
companies engaged in innovative and ground -breaking activities in the field of sustainability. It is an opportunity
to contribute directly to the development of businesses that are working on much needed sustainable solutions
for the future. Triodos Sustainable Pioneer Fund focuses on companies in the fields of sustainable energy
(climate protection), environmental technology (clean earth), medical technology (healthy people), as well as
companies that are pioneers in Corporate Social Responsibility (CSR). Triodos Bank is considered as a Green Bank
with a difference, as it only finances organizations which add social, environmental and cultural value to the
society (Triodos Bank, 2012)

Salmon Credits: A Case from USA

Salmon needs a habitat that provides them cover to protect them from aviate and aquatic
predation. The structure may range from a piece of large wood that provides in-stream
shelter for a single fish, or individual pools that provide cool water for several rearing
juveniles during the hot summer months. Directly or indirectly, improving this habitat is a
step towards improving water quality. This currency provides a metric to enhance the near
stream habitats to generate credits (Williamette Partnership, 2013).

NTT is a web-based field model that was developed to assist producers, their technical
service providers, and others to calculate nutrient and sediment loss reductions resulting
from various conservation practices. Since NTT provides nutrient reduction estimates for
a wide array of practices and scenarios, the tool can be used for conservation practice
evaluations. Some of the conservation practices that can be evaluated under NTT, Contour
farming, Cover Crops, Fencing, Filter and Buffer strips, prescribed grazing, Riparian Zone
Management etc. The results obtained under NTT are estimates of nutrient and sediment
run off from the down slope edge of the field being evaluated. The results are combined
with other factors to calculate the number of water quality credits that can be further
traded. (Saleh, Gallego, Osei, Tanter, and Lord, 2011)

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Carbon Credits
Carbon credits are attempts made nationally and internationally to
mitigate the concentration of greenhouse gases. One carbon credit
is equivalent to one metric tonne of carbon dioxide (Environmental
Protection Agency, 2013). The objective is to drive industrial
mechanisms and processes towards a low carbon environment.
Himachal Pradesh is the first state in India to have signed a Clean
Development Mechanism (CDM) project with the World Bank. It is
the world’s largest and India’s first such project. Under this, World
Bank will buy carbon credits from the new forests being developed
on the degraded lands under the watershed management
programme of the state (The Times of India, 2011).
Other market-based instruments such as eco-labelling can also
be used as a financial instrument for conservation of forests and
biodiversity. Apart from the market-based instruments, liability
mechanisms such as environmental fines can also be considered
as an important instrument for conservation of a forest ecosystem.
To illustrate the importance of incentive-based mechanisms and
the role such instruments play in ecosystem conservation and
sustainable management, a few case studies have been conducted.
These case studies have been documented on the suggestions
and guidance by the core committee members of the project. The
cases are successful stories of how conservation initiatives when
sustained can bring out good enough results to be replicated
elsewhere. In a few cases, the change has been brought about by a
single man initiative with some help from the Forest Department.
The cases are summarized in the following section. However, the
details are attached in Annexure III.

High Conservation Value Forests: An Instrument for Effective Forest Fiscal Federalism in India

Source: Verma, M. et al. High Conservation Value Forests: An Instrument for Effective Forest
Fiscal Federalism in India, 2014

The Finance Commission of India recognizes that forests constitute the first line of
defence against pollution resulting from economic activities. Recognizing this, the Twelfth
Finance Commission of India provided a grant of Rs 1000 crore to states, distributed
between them in accordance with the share accounted for by each in the total forested
acreage in the country. The Thirteenth Finance Commission of India realized the
paramount need to carry that grant forward and allocated a grant of Rs 5000 crore to
states allocated primarily on the basis of forest area in the state with due consideration to
total geographical area of the state, highly dense forest area and moderately dense forest
area of the state. While acknowledging the increased grant-in-aid to states based on forest
area, local factors such as forest dependency, biodiversity, and geographical location,
among others apart from the area per se needs to be considered. Thus the study proposed
that the allocation should also be based on the identification Nationally Appropriate High
Conservation Value (HCV) forests to actually reflect the contribution of forests in addition
to parameters already used in the Thirteenth Finance Commission along with inclusion of
parameters that reflect the role of forests in mitigation and adaptation of climate change,
various stock and flow values as well as the important role of forested wetlands also needs
to be highlighted.

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 Incentives Based Mechanism for Payments for Forest
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Incorporating the concept of High Conservation Value Forest in the allocation formula
used by the Thirteenth Finance Commission of India, an improved allocation formula was
suggested which is currently under consideration by the Fourteenth Finance Commission
of India.
Based on cost estimates for National Afforestation Programme Guidelines, approximately
Rs. 32,776 crore would be required for the restoration of degraded forests cover across the
country. Further, cost derived from loss of potential agricultural productivity for keeping
the area under forests was estimated to be Rs. 244,000 crore.
Two scenarios are suggested for estimation of High Conservation Value Forest Index

Scenario 1 All indicators of HCVF carry equal weights

Scenario 2 Indicators with differential weights i.e. Action Factors (0.5), Cross-cutting
Factors (0.3) and Natural Endowment Factors (0.2)

Index for Sustainable Environmental Performance for the State of

Uttarakhand
An Index for Sustainable Environmental Performance for the State of Uttarakhand
is being developed, it is a comparative analysis of the environmental achievements,
challenges and priorities of a state. It is indicative of a state’s general environmental
condition, capturing both historical resource endowments and achievements of policies
and strategies undertaken by various stakeholders in conserving natural resources. The
index aggregates indicators that reflect, first, anthropogenic activities of production,
consumption and distribution, secondly, state of air quality, water quality, land use
and agriculture, forests and biodiversity; thirdly, measures of the impact of the current
state of the environment and resource extraction on ecosystem and human health;
and fourthly, policy responses and society’s efforts to preserve the environment. Such
an index helps in promoting the performance of the state’s forests and its natural
resources to the policy makers which in turn help in generating a source of revenue for
conservation of forests.

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Case 1 - Pong Lake: Various Conservation and Social
Issues and Their Economic Linkages
Context
Ecosystem services
Valuation method
Soil conservation – Productivity
function approach or replacement
cost approach
Water flow regulation – Modelling
water flow at watershed level
Generation of hydroelectricity –
Modelling water yield at watershed
level.
Ecosystem service providers
Ecosystem service beneficiaries
Soil conservation – farmers
downstream in Himachal Pradesh
Water flow regulation – farmers
downstream in Himachal Pradesh,
Rajasthan, Punjab and Haryana
Generation of hydroelectricity
– states received power such as
Himachal Pradesh, Rajasthan,
Punjab, Haryana and New Delhi.
Local institutions
Issues
Scale
Ecosystem Services Valuation and Accounting of Himachal Forests
Pong Lake, a Ramsar site, has been created by the backwaters of the Pong
Dam that was created 35 years ago. It is the hotbed for a large biodiversity
including more than 200 migratory birds from Europe and Central Asia. Not
long ago, the lake was under threat due to illegal poaching of migratory birds,
illegal fishing and loss of fertile soil due to excessive soil erosion leading
to decline in agricultural productivity. This pressure is now arrested after
involvement of local committees in conservation activities. The main objective
behind construction of the dam was to provide irrigation benefits to farmers
in Punjab, Haryana and Rajasthan. The dam also generates 150 Megawatts of
electricity which is supplied to Rajasthan, Punjab, Haryana and Delhi.
Recreation for tourists (potential), soil conservation (through construction of
bawdis), employment to local community (to monitor anti-poaching activities),
water flow regulation, generation of hydroelectricity.
Recreation – Travel cost method
Value of fish catch
Quantity of fuel wood collected
Dependent Adult Cattle Units
Local community (through soil and water conservation activities and through
involvement in anti-poaching activities)
Recreation – tourists
Quantity harvested
Benefits Transfer (land cover)
Carbon stock in 5 pools
40 Eco-Development Committees have been constituted by the Forest
Department for initiating microplan activities and conservation interventions
in nearby villages.
Inadequate funding for local institutions,
Watershed
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 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
Objective
Pong Lake and the interdependence of various ecosystem services and the life of the local
community members present an interesting case from the point of view of valuation of
ecosystem services, which is the mandate of the study undertaken. The valuation can be
in monetary terms as well as from the conservation perspective rendering significant
examples of harmony between various forms of life and nature’s services. Pong Lake has
been created by the backwaters of the Pong Dam that was created 35 years ago. It is the
hotbed for more than 200 migratory birds that visit the lake from Europe and Central Asia
every year from October to March. It is the breeding ground for 12 types of fishes that
are found here. Apart from the tangible services that the lake offers, various intangible
ones also come to the fore, such as the visual beauty of the lake that hardly figures as
one of its services. Though tourism around the lake is yet to take off, there is a huge
potential to develop it and generate employment opportunities for the local communities,
and at the same time also sensitizing them towards the conservation of the lake and
its bountiful services. This case study is an attempt to highlight all such services, the
various conservation and social issues that are to be dealt with and recommendations for
developing the lake as a potential tourism site.

Description of the Site: Pong Lake

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Pong Lake is a recently created water
storage reservoir on the Beas river in the low
foothills of the Himalayas on the northern
edge of Indo Gangetic Plain. The Dhauladhar
mountain range forms a backdrop to the
lake. The size of the Pong Lake and its
location in the extreme northwest of the
northern plains makes it a suitable habitat
for migratory birds entering the plains of
India from Central Asia. The lake is situated
at a distance of 115 kms from Dharamshala,
nestled in the sylvan surroundings of the
Kangra Valley. It has emerged as a major
habitat for migratory birds in the country
and as a consequence, a hub for ardent bird
watchers. The number of species visiting
the lake is more than the number of species
in some of the well-known lakes of India
such as Chilka Lake in Orissa and Bharatpur
Sanctuary in Rajasthan. It is a Ramsar site
and was designated as a Ramsar wetland
in the 2002.The watershed area of 307 sq.
kmsof Pong Dam Sanctuary (A Ramsar Site)
draws from 12,563 sq. kms of catchments.
The lake has nearly 312 local species birds
and receives nearly 103 migratory birds
annually. In total 1, 50,000 birds reside
during the season (October – March) in and
around the lake.
Pong Lake is a popular Ramsar site and has
been recognized internationally as one of
the finest and largest manmade wetlands
of North India situated in the Dhauladhar
mountain ranges of Himachal Pradesh. The
lake has rich bio-diversity with meagre
forests around it having several tree
species which serve as edible fruits for the
migratory birds.
From an administrative point of view, the
Pong Lake has been divided in two ranges
under the Forest Department, these are;
Nagronta Range and Dhameta Range. To
further ease the communication channels
between the locals and the department, 40
committees known as Eco-Development
Committees have been constituted by the
department itself for initiating micro plan
activities and conservation interventions
in the villages nearby. Twenty-two of these
committees are in Nagronta Range and the
remaining18 committees are in Dhameta
Range.
Ecosystem Services Valuation and Accounting of Himachal Forests
Discussion of Issues
An interaction with the committee
members of the Nagronta Range was
organized by the Forest Department for
the documentation of this case study,
on September 16 and 19, 2012. An
interaction meeting with the villagers and
VEDCs members was done in coordination
with Mrs. Sangeeta Chandel, DFO
(Wildlife), Hamirpur Division at Nagrota
Surian Range and Mr. Devendra Singh
Dadhwal who was earlier the Range
Officer in the same range. There were
representatives from 12 Eco-Development
Committees, from various villages
around the lake in Nagronta Range. From
our interaction with the committee’s
representatives, a detailed background
of the lake formation, the establishment
of 40 eco-development committees and
a number of micro plan initiatives with
an objective of conservation, started by
the Forest Department came to light. The
Centre for Science and Technology is the
funding agency for various micro plan and
entry point activities being supervised
and conducted by the Forest Department.
Although, only five of such committees
have received their share of funding, while
the other committees are about to get it at
the end of the current financial year.The
money allotted for the various micro plan
activities varies amongst the committees.
The basic economic activity amongst the
local communities is agriculture. Before
the establishment of these committees,
the lake was under immense pressure
due to illegal poaching of migratory birds,
illegal fishing carried out by households
that were not provided fishing licenses
by the Fisheries Department, and loss of
fertile soil owing to excessive soil erosion
was leading to a decline in the agricultural
productivity. The fishing activity in
the lake is managed by the fisheries
department which introduces fish seeds
in the lake, funding of Rs. 50,000 is
provided by the forest department. About
1800 fisherman depend on the lake
through 23 fishery societies. The fisheries
department through centrally sponsored
funds provides equipment for fishing like
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 Incentives Based Mechanism for Payments for Forest
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nets, etc. and monitors the access through
the lake in specific seasons and the size of
net for fish catch.
On account of construction of the dam
35 years ago a considerable area of
cultivated land came under submersion
which affected 3000 families which were
given land in Rajasthan in exchange
for their lost lands in Himachal. But for
various reasons like less fertile or barren
land in compensation in Rajasthan, less
adaptability by the Himachal Pradesh
villagers in Rajasthan, most of them made
a choice to return to Himachal Pradesh and
are now settled in areas around the lake.
Fifty per cent of the dam area is shallow
and the water tends to recede after the
monsoons, making it a very fertile ground.
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Illegal cultivation by farmers having large
landholding size is being practised which
generated a multiple crore income for them
and the marginalized community remains
deprived of using that land for community
activities like plantation of fruit orchards
and fodder trees.
The main objective of the construction of
the dam was to provide water for irrigation
purposes to farmers in Punjab, Haryana
and Rajasthan. The dam generates 150
megawatts of electricity which is supplied
to Rajasthan, Punjab, Haryana and Delhi but
the revenue so generated is not shared with
the local region for the lake’s conservation,
improvement of the neighbourhood and for
creating ecotourism activities which in turn
can generate employment opportunities for
the community members.

Conservation
Interventions by the
Forest Department
Around Pong Lake
The forest department has been
involved with the local communities in
a number of micro plan activities which
are implemented through the Eco-
Development Committees of the villages.
Many such conservation activities have
helped in soil conservation, reduced soil
erosion and thereby improved agriculture
productivity and also reduced silt load, etc.
Construction of various ‘bawdis’ along the
road side and inside the villages has helped
in increasing the ground water recharge
and thus increasing its level. Functional
knowledge of Vermi Composting has been
imparted through the Eco-Development
Committees. Several Vermi Compost plants
have been established. Locals have been
motivated to use the extra land around
their homes to build kitchen gardens so
that some of their household needs can
be met. The Forest Department gets the
labour for conducting such activities from
the villages itself. The local community
members involved in these activities are
hired on the basis of daily wages which
is approximately Rs. 150 per day. The
department has involved the locals in the
anti-poaching, anti-grazing activities as
well, and they are paid daily wages for
helping the department deal with poaching
and grazing around the lake area.
The Fisheries Department has given
licenses for fishing to the 1800 households
in the villages nearby. For a span of two
months, i.e. July and August, the lake is
closed for fishing as that is the time for
breeding. A few of the locals have been
hired to check illegal fishing by households
that do not have the license to fish. Again
the locals are hired on daily wages.
VFDCs have been created since 2004
and 2005 for lake conservation, 40
eco-developments cum bird protection
committees have been created. The anti-
poaching activities are conducted by the
forest department using boats by the forest
Ecosystem Services Valuation and Accounting of Himachal Forests
department for which villagers are also
engaged. To create awareness about bird
conservation and anti-poaching activities,
Pong Birding Society (PBS) was created
and villagers were engaged for a few
months with the payment of Rs.120-150
per day. The PBS is currently defunct on
account of lack of tourists whose number
has declined due to poor connection of
the lake and lack of access to the lake for
recreation and bird watching.
Forest department boats are used for
patrolling activities and there is no
provisioning by them for the purchase of
boats for tourism. There are a few watch
towers in and around the lake for anti
poaching activities.
No irrigation activities are allowed legally
from the lake. Some plantation activity
comprising of fruit and fodder trees is
undertaken in the shore line area but no
plantation can be done in the receded area
where illegal cultivation is taking place.
Conclusion
andRecommendations
Due to conservation interventions made
by the Forest Department with funding
received from the Centre for Science
and Technology, illegal poaching of the
migratory birds fell by a huge margin to
an extent that it has completely stopped
now. Local communities themselves
have started realizing the importance of
these migratory birds as well as the under
grown fishes in the lake. A total of 15,000
tourists visited the lake area in the last
financial year, local communities have
been trained by the forest department
in bird watching, and they have their
own boats for patrolling. After intensive
efforts by the department, all the 35
villages located around Pong Dam and the
lake treat the birds as their treasure and
have taken initiatives for protection of
birds from poaching and promoting their
conservation. It has also helped them in
getting employment with the department,
as tourist guides for bird watching, as
patrollers, in anti-poaching activities, etc.
Analysing the present scenario of
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 Incentives Based Mechanism for Payments for Forest
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the lake and the various successful interventions that have been carried out by the
Forest Department, it is clearly established that the local communities respond to the
sensitization efforts and are keen to change their present status by working towards
conservation. It also shows that the interventions have been successful and the results
are evident to be seen by everyone. Banking on the confidence that has been generated
in the local communities towards such interventions, a great deal can be done to promote
tourism in and around the Pong Lake. The concept of home stays can be used to increase
their earnings. A total of 15,000 tourists visited in the last financial year.They need
guides for bird watching and as the distance between Dharamshala and the lake is quite
long, hence to reduce the travelling time, the tourists can share their stay with a local
household for a few days on payment basis. Plantation activity can be carried out in the
water receded area so that the continuous supply of fruit and fodder can be maintained.
Fishermen should use inches sizes of net for the fish catch. They can be further advised
for construction of roads around the lake for tourists and access points such that the
hinterland can be benefited from such activity.
As a case for promoting incentive-based mechanisms in the state for conservation of
critical sites and species in terms of their fragility to degradation, a suggestion can be put
forward that the states such as Haryana, Punjab and Rajasthan who receive water from the
Pong reservoir should pay a certain amount as decided by all the concerned stakeholders
to the local communities in the villages around Pong Lake. Without the support of the local
communities and their biodiversity conservation initiatives such as ban on illegal fishing
and poaching of migratory birds, the sustainability of the benefits of the dam such as water
supply for irrigation and electricity production would be hindered. Apart from this, the
local communities are also involved in conservation efforts of physical infrastructure as
well as soil which helps in improving agricultural productivity and increasing the water
table. Due to its terrain, the area could retain very little water earlier and the run off
rate was very high. Activities such as plantations helped reducing the runoff and hence
increased storage of rain water. Also, a team at the state level or at the department level
can be formed which caters to the issues in the local communities of Pong Lake and
sustainably manages the fund received from the downstream states of Haryana, Punjab
and Rajasthan.

A total of 15,000 tourists

visited in the last financial
year.They need guides for bird
watching and as the distance
between Dharamshala and
the lake is quite long, hence
to reduce the travelling time,
the tourists can share their
stay with a local household for
a few days on payment basis.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Case 2 - Case Study 2 – Jadera Panchayat

Context
Ecosystem services
Valuation method
Water flow regulation – Water flow Value of fish catch
modelling at the watershed level
Non-timber forest produce –
market price approach.
Ecosystem service providers
The residents of the Jadera Panchayat of Chamba district have closely
observed the degradation of the diversity of neighbouring forest area which
comprises of various trees, shrubs, wildlife, bee flora, many species of birds,
and white goats among many others due to illicit felling in the area. With a
sizable Gujjar population, long before the Hon’ble Supreme Court’s directive
to regulate green felling in hilly regions, a local initiative in 1984 organized
45 Pradhans of the region to evolve ban on green felling and regulate the
practices of grazing livestock in forest areas.
Microclimate regulation, Water flow regulation, Non-timber forest produce.
Microclimate regulation – replacement cost approach
Quantity of fuel wood collected
Local community

Ecosystem service beneficiaries Water flow regulation – farming community downstream in the state and
potential hydropower generation units.
Local institutions Van Panchayats have been functioning for over two decades now. Each
household is allocated a patch of forest and the household is allowed to carry
out its activities such as livestock grazing only in a patch which leads to
sustainable resource use.
Issues The local community believes that instead of establishing large hydropower
units which significantly damage the biodiversity of the region, small
decentralized hydropower units should be encouraged.
Scale Watershed

Mr. Ratan Chand is a resident of the JaderaPanchayat of Chamba district located

near the Hole Khud which later joins the Ravi River with Sal Khud. He has been
living in the area since his childhood and has closely observed the degradation of
the diversity of the neighbouring forest area which comprises of a variety of trees,
shrubs, wildlife, bee flora, many species of birds, white goat, fodder, etc. The
impact has been on account of green felling and illicit felling in the area. Timber
Drawing Rights of the local communities also hinder the conservation efforts.
In 1984, he took the initiative of organizing 45 Pradhans of the regions evolve
(i) green felling ban (ii) to put a control on the practices of the grazing to reduce
over pressure on grazing land, which is slowly leading to conversion of forest into
desert areas. For Timber Drawing Rights, he prepared a map to assess the damage.
JadeeraPanchayat faces considerable pressure due to over grazing as the majority
of Gujjar population is found here. To overcome the pressures due to grazing
issues, Mr.Ratan Chand along with a University Professor made a presentation
to the Chief Minister that the rights of the revenue villages should be confined
to the revenue area only. Mr. Ratan Chand took an innovative step to control
open grazing by distributing the state forest area for management amongst the
villagers on a household basis.
The area has also been facing paucity of rainfall as the oak trees which play a
significant role in attracting clouds and hence rainfall have been lopped speedily

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 Incentives Based Mechanism for Payments for Forest
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in recent times. Mr. Ratan Chand stressed the
plantation of oaks to bring adequate water
supply to the region. He further suggested
plantation of oaks with wild apricots which
suits the local area.
However, a number of small hydro power plants
have started coming up threatening the local
biodiversity which the community members
have been preserving till now through their
decentralized management of planted areas
and public forest areas thereby protecting
them from grazers and illicit green felling. Each
household is allotted a pre-decided area.
He showed his concern over construction of
four and a half mega projects across Hole nala
by a Hyderabad-based agency as on account
of conservation interventions there has been
a considerable rise in the biodiversity in the
region which will be greatly affected. He
further shared that the adjoining Saunala
already has five small power generating
projects. Thus this region which is served by
the Hole nala may be left intact. He shared the
experience of firing, torture and accident by
the power company agents when the villagers
protested about the construction of the power
generation plant in the Holenala. He took pride
in sharing that Chamba has been the second
district in the state to have electrification in
all its villages. Thus, small projects are given
to the villagers, so that they can have self-
generation of electricity.
He recommended that the water / electricity
policy should be changed to incorporate self-
power generation plants in the villages.
Interaction with the Pradhan of
JaderaPanchayat: Besides sharing the
issues raised by Mr. Ratanchand he shared
the learnings of Jaderapanachayat from the
Uttarakhand’s model of Van Panchayat. He
mentioned that for construction of any such
projects for power generation in their village
panchayat domain and NOC of the gram sabha
should be sought but this has not been done.
Further there have been constant requests
from the Mining Department of the Agencies to
mine JaderaPanchayat region which is rich in
minerals.

Case Study 3 – Baant Panchayat

Context After retiring as Hawaldar from the Indian Army, Mr. Chain Lal came back to his
village and started the initiative of reforestation of denuded forest area. While
the history of ‘Pan Chakkies’ in the villages of Chamba dates back more than 1000
years, declining flow of water in the streams due to construction of power plants
and deforestation has slowly been reducing its occurrence. The livelihoods of
people running these ‘Pan Chakkies’ has also been negatively affected. As a result of
initiative by Mr. Lal, the villages are now meeting the requirement of 30 kg of fodder
per livestock per day for around 50-60 cattle in their villages from the adjoining
forests and this has resulted in higher incomes from livestock rearing.
Ecosystem services Fuel wood, fodder, non-timber forest produce (mainly fruits), soil conservation
Valuation method Fuel wood – Market price method
Fodder – Market price method and productivity function approach
Non-timber forest produce – Market price method
Soil conservation – productivity function approach and replacement cost approach
Ecosystem service providers Local community involved in running Pan Chakkies
Ecosystem service Easy availability of fuel wood, fodder and non-timber forest produce – Village
beneficiaries community
Local institutions A Van Panchayat model has been followed in which people were allocated forest land
for ensuring its sustainable use.
Issues Availability of ‘green fund’ from banks to help such entrepreneurs can make a
difference in the lives of people.
Scale Panchayat

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Mr. Chain Lal has retired as Hawaldar in
the Indian Army after serving All India for
19 years. After his return to his village,
he took the initiative of reforestation of
the denuded forest area of his village. He
confirmed the existence of a number of
‘Pan Chakkies’ in the villages of Chamba
which has been almost 1000 years old
practice but on account of declining flow
of water in the streams due to construction
of power plants and deforestation, the
livelihoods of people running these ‘Pan
Chakkies’ has been negatively affected.
He took some crucial action to help
restore the original dense forests such as
reforestation along with plantation of fruit
species and other relevant species which
provide a substantial amount of fodder
and fuel. For example, he planted the
local variety of ‘Pyak’ Tree which is a fast
growing species and its leaves are used
for making the beds of animals. Further,
plantations of Pahari neem, ritha, akhrot,
babugosa, etc. were done. Their village
followed the JaderaPanchayat model to
give government land to the people for
proper forest management. Thus the village
size of 6-7 hectares is complemented by
the government forest land of 12 hectares
for generation of fodder, fuel wood and
fruits. About 21-15 thousand saplings of
planted in the degraded forest area which
has considerably saved erosion of soil.
In 1984, he took the initiative of organizing
45 Pradhans of the regions evolve (i) green felling
ban (ii) to put a control on the practices of the
grazing to reduce over pressure on grazing
land, which is slowly leading to conversion of
forest into desert areas. For Timber Drawing Rights, he
prepared a map to assess the damage.
Ecosystem Services Valuation and Accounting of Himachal Forests
The villages are meeting the requirement
of 30 kg of fodder per livestock per day for
around 50-60 cattle in their villages from the
adjoining forests. As a result, there has been
a considerable increase in the production
of milk, ghee, etc., which are organically
produced.
Mr. Chan Lal is also experimenting in
bringing Kiwi fruit to his field following the
practice of neighbouring farmers and he is
able to produce two and a half quintals of
Kiwis from his field. He is also cultivating
a considerable amount of fresh flowers and
has also been produced rose water and rose
oil.
His interventions have made a difference
to not only his own family, but the
entire village. Soil erosion has reduced
considerably. Fire wood and fodder is now
easily accessible in their private land, and
hence the pressure on the public forest areas
has come down. The silt load has reduced
significantly in the Ravi River, thereby saving
the river and maintaining its flow in the area.
A financial mechanism to maintain the
motivation level of the fellow villagers
involved and to bring others in the loop as
well would go a long way. For example, easy
availability of the ‘green fund’ from banks to
help such entrepreneurs make a difference to
the lives of people.
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Case Study 4 - SWAN River Integrated Watershed Management Project
Context The Swan River Integrated Watershed Management Project (SRIWMP) was started in
the Una district of Himachal Pradesh in 2006 on the river Swan, a tributary of river
Sutlej. The major objectives of the project are to regenerate degraded forest in the
catchment, enhance agricultural productivity in the catchment, promote horticulture
and other livelihood generation activities and reduce soil erosion and silt load in the
river. Out of 42 sub-watersheds lying in the state of Himachal, 22 sub-watersheds
were selected for SRIWMP. More than 2/5th of the area in which the project is
implemented is forest land.
Ecosystem services Soil conservation (through arresting soil erosion), Water flow regulation (through
plantation activities),
Valuation method Soil conservation – Productivity function approach or replacement cost approach
Water flow regulation – Modelling water flow at watershed level.
Ecosystem service providers Community in the catchment area.
Ecosystem service Socially disadvantaged people of the society such as women, marginal and small
beneficiaries farmers with less than two hectares of land holding
Soil conservation – farmer community in the catchment and downstream area
Water flow regulation – farmer community in the catchment, downstream areas;
hydropower units downstream.
Local institutions The communities have been organized in groups such as SHGs / User Groups so as
to effectively manage the watershed in a participatory, transparent and demand
driven manner. All the activities in the project are carried out after the community’s
acceptance and after prior consent of the Gram Sabha.
Other benefits Availability of revolving fund for micro-crediting to SHGs have also led to increase in
their annual income.
Scale Watershed / District

The Swan River Integrated Watershed
Management Project was started in
Una district of Himachal Pradesh, in
collaboration with the Japan International
Corporation Agency (JICA) and the State
Government of Himachal Pradesh, in
July 2006.Una is a district of Himachal
Pradesh which lies in its south-western
part. On September 1,1972 the Himachal
Pradesh Government reorganized the
then Kangra district into three districts,
namely Una, Hamirpur and Kangra. It has
an average elevation of 369 metres. The
total geographical area of the district is
1540 sqkms. Out of this, the total area
under forests is 251.23 sq.kms. Most of the
population resides in rural areas and are
dependent upon agriculture and related
activities for their livelihood. According to
a report (title of report, year and author) by
the State’s Agriculture Department, 75% of
the total geographical area of the district is
affected by intense soil erosion. Swan river
is a tributary of Sutlej River with its length
85 kms. The river originates in the state of
Himachal Pradesh and flows through the
fragile Shivalik hills. Out of the river length
of 85 kms, 20 kms is in the state of Punjab.
The river has 73 tributaries and the total
catchment area of the river is 1400 square
Kms, out of which 1240 square kms falls in
Himachal Pradesh. This catchment area has
been divided into 42 sub watersheds. Out
of these, 22sub watersheds having an area
of 619 sq kms. have been selected as the
project area for implementation of various
components of Swan River Integrated
Watershed Management Project.
Certain salient features of the SWAN River
Integrated Watershed Management Project
have been shown in the table below

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Table 5.5 Salient Features of SWAN River Integrated Watershed Management Project

Land Use Pattern Area (Hectares) Percentage (%)

Government Land
Forest Area 54833 46
Wetlands 303 0.25
Roads, Rail 3855 3
Private Land

Agricultural Land 27504 23

Area under Crops 12399
Fallow Land 15105
Plantation Area 7300 6
Grazing Land 4178 3
Uncultivated Land 19108 16
Area under SWAN River 3314 3
Total Area under SWAN Project 120400

The Swan River catchment is a part of fragile and vulnerable Shivalik hills. It is
characterized by sparse vegetation cover, which is not suitably managed on the private
lands. The river usually overflows the banks during the monsoons and causes erosion of
valuable soil resources. In a similar way, it is affected by droughts during thesummers and
winter.

The objectives of the Swan River Integrated Watershed Management

Project are:
• To regenerate the degraded forest in the catchment area
• To enhance agriculture and forestry production in the catchment area
• To reduce soil erosion and decrease sediment load on the river beds
Aim of Swan River Integrated Watershed Management Project:
• To organize the community into groups such as SHGs/User groups
• To effectively manage watersheds in a participatory, transparent and demand-driven
manner
• To finance soil and water conservation activities, non-arable land treatments, crops and
livestock production and development of rural infrastructure and community works
• To promote horticulture, animal husbandry and other income-generating activities
• To set up a Panchayat Development Committee, which oversees the income-generating
activities in the villages

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Table 5.6 Fact Sheet of Swan River Integrated Management Project

Name of the Project Swan River (IVM) Project

Donor Agency Japan International Cooperation Agency (JICA)
Implementation Period 8 years (w.e.f. April 1, 2006 to March 31, 2016)

JICA Share Rs 135 crores

State Share Rs 25 crores
Total Cost Rs 160 crores
Total Project Outlay Rs 160 crores

Gram Panchayats to be Covered 95 panchayats

Area to be covered in hectares 61900 hectares
Expected Time of Completion 31-Mar-14

Table 5.7 Particulars of Project Component and Effective Cost Breakup

Project Component Amount (Crores)

Afforestation 32
Civil Works for Soil and Water management 35.84
Soil Protection and Land Reclamation 8
Livelihood Improvement 15.72
Institutional Building 21.4
Price Escalation 5.2
Physical Contingencies 5.9
Consulting Services 10.84
Administration 25
Tax and Duties 0
Total 160

On September 1,1972 the Himachal

Pradesh Government reorganized the then
Kangra district into three districts, namely
Una, Hamirpur and Kangra. It has an
average elevation of 369 metres. The total
geographical area of the district is
1540 sqkms.
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 Ecosystem Services Valuation and Accounting of Himachal Forests

Organogram

Government of Himachal Pradesh

HP Forest Department

Project Implementation Unit

Management Consultants

Officials from Participating Experts/WDCs/GOs Panchayat Divisional Forest

Development Officer

Implementation Arrangement

Project Director

Deputy Director/Deputy Project Director

MCs and Experts Assistant Director

WDCs and GOs and Other GDST Members

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 Incentives Based Mechanism for Payments for Forest
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Interaction with
Community
The detailed plan and design for civil works
for Soil and River Management Component,
which includes large and small-scale
check dams, silt detention dams, spur and
embankment, ground still and riverbed
excavation is carried out with the assistance
of the consultants employed under the
project, also the detailed plan is submitted
to JICA for its review and concurrence.
These activities are carried out after the
community’s acceptance. In areas where
Panchayat Development Committees (PDCs)
are not set up under the Project, Gram
Sabha’s consent is obtained in advance.
The various activities carried out by the
Forest Department under the Project are:
Civil Works for Soil and River Management
• Brushwood check dams are constructed on
existing or potential rill erosions to avoid
their further development. More than one
such check dams are constructed along a
particular rill.
• Small-scale check dams are constructed
at downstream of brushwood check dams
along a rill, so that the entire structure has
a series of check dams. Such check dams
are carefully designed to avoid scouring,
collapse and erosion around the structure.
• Silt detention dams are large-scale check
dams, constructed along a site that is
carefully selected to receive a significant
amount of sediment from upstream.
• Spurs and embankments are constructed
at locations that have valuable lands,
assets and human lives to be protected
behind such structures. These are based
on the scientific knowledge of hydraulics
and river engineering.
• Ground sills are constructed at sites where
the movement of riverbed materials needs
to be stopped to avoid changes in the
course of a river.
• Soil Protection, Land Reclamation and
Livelihood Improvement Component
• The beneficiaries of activities under
this component are usually socially
disadvantaged people of the society
such as women and marginal and small
farmers with less than two hectares of land
holding.
142
• The activities included under this
component are wattling, bench terracing,
contour bunding, plantation of bushes
and grasses, levelling and soil addition
and construction of irrigation facilities
for reclaiming the eroded private lands.
• Livelihood component consists of
activities such as agriculture, irrigation,
horticulture and animal husbandry. Other
income-generating activities are also
carried out through provision of revolving
fund for micro crediting to SHGs.
• Institutional Strengthening Activities by
the Forest Department
• Environment awareness programmes
are promoted through mass media,
publications, videos, workshops as well
as school education.
• All members of user groups are covered
under this component. They are trained
with respect to the rules, regulations and
guidelines for the project formulation,
process of micro-planning, regarding
the duties and responsibilities of PDCs,
financial management and record
keeping, group management and
communication skills, conflict resolution
and technology and management
practices with respect to agriculture
production.
Recommendations and
Conclusion
The Swan River Integrated Development
Programme has changed the face of Una
district in terms of the total land that has
been reclaimed from being converted into
a mini desert. The plantation activities
have increased the water table in the
area. It was conducted in a very scientific
manner by demarcating the catchment area
of the river. All the treatment activities
were undertaken in the catchment area.
Interaction with the communities revealed
that the result was to be seen in a few years.
There is a very well known incident that a
hand pump that had earlier been discarded
due to non-availability of water, when used
accidentally once, was working well and
water was coming out of it. This in itself is
evidence of the success of the programmme
and the efforts undertaken by the Forest
Department in collaboration with the local
communities.
 Ecosystem Services Valuation and Accounting of Himachal Forests

The programme has been a success owing to the involvement of the local communities
on a very large scale. To make it more sustainable in the future, an incentive mechanism
can be worked out for them. They should get well incentivized for their conservation
efforts, for example, plantation activities have helped reduce soil erosion and hence an
improvement in the soil productivity. Soil credits can be charged from the residents living
in the downstream area of the river. The amount can be decided by using the cost-benefit
analysis of the conservation activities.The Forest Department can monitor the scheme
and the sustainability of the incentives mechanism. This way, even when the Department
is not directly funding the conservation activities of the residents, sustainability of
such activities would not be a distant dream. Residents will be self-motivated to involve
themselves actively and work as a group for the betterment of the area.

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Ecosystem Services of Himachal Pradesh
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06
ANNEXURES
 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
ANNEXURES
Annexure I: Questionnaire for Household Survey to
Estimate a Few Forest Ecosystem Services
[1] Identification of the household
State:
5. Name of the head of the household:
District
Tehsil/town:
6. Name of the informant
Village name:

[2] Household Characteristics

2.1 Household size:
2.2 Household type (code)
2.3 Religion (code)
2.4 Social group (code)
2.5 Does the household possess ration card
(Yes-1, No-2)
2.6 If yes in item 2.5, type of ration card
Primary source of energy for 2.7 cooking (code)
2.8 lighting (code)
2.9 Is any member of the household a regular salary earner? (yes-
1, no -2)
2.10 Monthly income of the household (Rs.)
2.11 Whether they own any land (yes-1, no-2)

2.12 if yes in item 2.11, type of land owned (homestead only – 1, homestead and other
land – 2, other land only – 3)
land as on the date of survey (in 2.13 owned and possessed
local units) 2.14 leased-in
2.15 neither owned nor leased-in
2.16 leased-out
2.17 total possessed
During last one year 2.18 Land cultivated (in local units)
2.19 Land irrigated (in local units)
2.20 Does the household own any
livestock (yes-1, no-2)
If yes, number of livestock 2.21 cows
2.22 buffaloes
2.23 goat/ssheep
2.24 oxen
2.25 others

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Codes for [2]

Item 2.2: Household type:self-employed in non-agriculture-1, agricultural labour-2, other
labour-3, self-employed in agriculture-4, self-employed (Urban)-5, regular wage/salary
earning-6, casual labour-7, others-8
Item 2.3: Religion: Hinduism-1, Islam-2, Christianity -3, Sikhism-4, Jainism-5, Buddhism-6,
Zoroastrianism-7, others-9
Item 2.4: Social group: Scheduled tribe-1, scheduled caste-2, other backward class-3,
others-9
Item 2.6: Ration card type: APL-1, BPL – 2
Item2.7: Primary source of energy for cooking:Firewood and chips-01, LPG-02, Biogas-03,
dung cake-05, kerosene-06, electricity-07, others-08
Item 2.8: Primary source of energy for lighting: kerosene-1, other oil -2, gas-3, candle-4,
electricity-5, gobar gas-6, others-7, no lighting arrangement-8

[3] Particulars of the Household Members

Sl. Name of the Relation to head Sex (male-1, Age (years) Marital Status General Educational
No. Member (code) female-2) (code) Level (code)
(1) (2) (3) (4) (5) (6) (7)

Codes for [3]

Col. (3): Relation to head: self-1, spouse of head-2, married child-3, spouse of married
child-4, unmarried child-5, grandchild-6, father/mother/father-in-law/mother-in-law-7,
brother/sister/brother-in-law/sister-in-law/other relatives-8, servants/employees/other
non-relatives-9
Col. (6):Marital status: never married – 1, currently married – 2, widowed – 3, divorced/
separated – 4
Col. (7) : General educational level: not literate –01, literate without formal schooling –02,
literate but below primary –03, primary –04, middle –05,secondary –06, higher secondary
–07,diploma/certificate course –08,graduate - 10, postgraduateandabove -11

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(4). Details of CookingDevices in a Household

Srl. Cooking devices How long Many purposesvarious Qty of fuel used Source If purchased
No. household using using this cooking devices are per day (Kgs/ of the then price
presently device (code) used Ltrs) fuel (Rs)
(1) (2) (3) (4) (5) (6) (7)
1 Chullah
2 Hamam
3 Angithi
4 Kerosene Stove
5 LPG Stove
6 Electricity Stove
7 Biogas Stove
8 Solar cooker/
heater
9 Others

Codes for [4]

Col (3): How long using device: past 30 days-1, past 30 to 180 days-2, past 180 to 365 days-
3, more than 365 days-4
Col (4): Purpose of cooking devices: heating water -1, cooking meals-2, preparing tea, milk
and other beverages-3, Room heating purposes-4,if 1,2 options-5, if 2,3 option-6, if 1,3
option-7, if 1,2,3 options-7
Col (6): Source of the fuel: fuel wood collection from forests- 1, biomass collection from
private land-2, Public Distribution System- 3, purchase of firewood-4, Electricity- 5

[5] Collection of Medicinal Plants and Other NWFPs from the Forests
Name of the medicinal Frequency of Average hours/ Income
plant/Non- wood forest collection day spent in (sale of
products (NWFPs) collection For Self Use For Sale NWFPs)

(1) (2) (3) (4) (5) (6)

Codes for (5)

Col (2): Frequency of collection: once a day (1), once in two days (2), once a week (3), once
in 10 days (4), seasonal (5)

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 Ecosystem Services Valuation and Accounting of Himachal Forests

[5] Collection of Medicinal Plants and Other NWFPs from the Forests
Name of the plant/Type Frequency of Average hours/ Income
of plant used as fodder collection day spent in (sale of
collection NWFPs)
For Self Use For Sale
(1) (2) (3) (4) (5) (6)

[7] Collection of Firewood from the Forests

Frequency of Average hours/day Daily collection
collection spent in collection (kgs)

(1) (2) (3) (4) (5) (6)

[8] Collection of Bamboo from the Forests

Frequency of Average hours Daily /seasonal Species
collection spent in collection collection (kgs) bamboo Cuttings

(1) (2) (3) (4) (5) (6)

[9]Consumption of Water for Household Purposes

Quantity of Quantity of Source of
water used water used for water supply
for drinking other household for drinking
purposes chores purposes

(1) (2) (3) (4) (5) (6)

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 Incentives Based Mechanism for Payments for Forest
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Annexure II:Methodology and Results on Himachal
Forest Ecosystem Valuation Based on Primary Data

Methods
Within these broad categories of six ecosystem services, there are sub-functions or
services that can be further categorized following the MA Classification. This is shown in
the table below. It minimizes repetition or double counting in the valuation study while
covering a plethora of ecosystem goods and services.

Provisioning Services Regulating Services Cultural Supporting

Services Services
Water Services Water (HEP), agriculture, Soil conservation, protection Aesthetic, Nutrient cycling,
domestic, industry and regulation of water supplies, artistic, soil formation,
sediment control, shelter from hot spiritual, hydrological
and cold winds, absorption of dust scientific cycle
and noise,
Landscape Recreation Maintenance of visual quality of the Aesthetic, -
Beauty environment, artistic,
spiritual,
historic,
scientific,
educational,
inspirational,
sacred groves,
Biodiversity Aromatic and medicinal Maintenance of genetic pool Symbolic, -
plants, edible fruits, (Biodiversity), sacred groves,
wild fruits, habitat ritualistic
(indigenous people and values
wildlife),
Pollination Agricultural produce/ Pollination - -
Services food
Carbon - Maintenance of carbon dioxide - Nutrient cycling,
Sequestration balance in the atmosphere, hydrological
temperature and humidity, cycle
NTFP/Timber Timber, firewood , - - -
pulpwood, fodder- (tree
and grass), bark, non-
edible oils ; cedar oil,
, other NTFPs, fibres
, resins, edible fruits,
wild fruits, other leaves,
bamboo, raw materials
for manufacturing, and
construction, food (fish,
meat)

The Ecosystem Services in bold in the above table represent values to be quantified as per core committee
recommendations

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2. Ecosystem Services Across the Various

Stakeholders of Himachal Forests
Identifying the relevant stakeholders is a very important precondition for the valuation
study; these stakeholders are directly-indirectly affected by changes in the ecosystem
functions as mentioned. They are broadly categorized as primary, secondary and tertiary
based on the degree of their involvement with these ecosystem services.

Stakeholders in Primary Secondary Tertiary

the shortlisted
ecosystem
services
Water Services Forest village communities,
self help groups, forest
cooperatives, gram
panchayat
Landscape Forest village communities,
Beauty gram panchayat, tourist
guides, tourist agencies
Biodiversity Forest village communities,
forest cooperatives, gram
panchayat
Pollination Local farmers, local
communities directly
affected by the variations in
the agricultural produce
Carbon Villages residing within the
Sequestration forests, forest protection
committees
Timber/NTFPs Forest village communities,
self help groups, forest
cooperatives, disadvantaged
sections
State Government., HP Forest General population,
Department, NGOs National/international
tourists, Hydel power
companies
Tourists from the different districts, National and
Government of the state international tourists
State Universities for Research National/ International
purpose, tourists coming from research laboratories and
different districts firms
Middlemen, processing companies, General Population/
local industries based on agricultural International Markets for
produce, communities at large, state agricultural produce
universities for research purpose
State Government., HP Forest Government at the
Department, NGOs, State Forest centre, general
Corporation population, funding
agencies
Private companies based in the Trade agencies/export-
state for timber collection/ HP import business,
Forest Department, State Forest Certification Agencies,
Corporation, sawmills ITTO, FSC

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 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
Methodology for the Quantification of Selected
Ecosystem Services
Water Services of a Forest Ecosystem
Essential services: water purification, water for irrigation purposes, water for industrial
uses
In the present study the objective is to associate the role of forests in the seasonality of the
water available, that is how much do the forests affect the productivity of the agricultural
land in the lean season, how much will the electricity produced by hydel power be reduced
in the absence of forests and last but not the least how do the forests affect the quality
and quantity of the drinking water? Related to this is the pilot project onRivanna River
watershed called Forests to Faucets, funded by the US Endowment for Forestry and
Communities, which has been a step towards understanding the link between urban water
resources and related forest stewardship practices(US Endowment Fund for Forestry and
Communities, 2012). The objective of the study was to understand the linkages between
good forest management practices by the forest landowners and the forest filtered water
being delivered to the municipalities. Accordingly, the forest landowners were suitably
incentivized for their services. (Brey, Riera, and Mogas, 2007). A similar kind of pilot
exercise can be carried out in the Bhodi-Suan and KuhanCatchment in the Palampur area
of Himachal Pradesh to quantify the role of forests in provision of good quality water. It
would also be helpful in exploring as to what kind of tree species increase the base flow
of water and thereby helping in increasing the perenniality(Brander, Florax, and Vermaat,
The Empirics of Wetland Valuation: A Comprehensive Summary and a Meta Analysis of the
Literature, 2003).
Some techniques useful for the valuation study are; Replacement Cost Method and Market
Price Method. The reason for using the Replacement Cost Method is that in the absence
of the forested catchment, the local communities will have to come up with an alternative
such as a water purification plant to ensure supply of clean drinking water. The cost
of establishing the water purification plant and the subsequent recurring cost that the
communities will have to pay to maintain the supply, can be regarded as the cost of the
water services of the wetland (Ministry of the Environment, Canada, 2001).

Replacement Cost Method: A Case from New York

New York City floated an environmental bond issue, and uses the proceeds to restore the functioning of
the watershed ecosystems responsible for water purification. The cost of the bond issue will be met by
the savings produced: the avoidance of a capital investment of $6 billion-$8 billion, plus the $300 million
annual running costs of the plant. The money that would otherwise have paid for these costs will pay
the interest on the bonds. New York City could have “securitized' these savings by opening a `watershed
savings account' into which it paid a fraction of the costs avoided by not having to build and run a filtration
plant. This account would then pay investors for the use of their capital(Mayrand and Pacquin, 2004)

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Valuation Technique Data Required Probable Sites

Replacement Cost Method No. of filtration plants Forested catchments under various
to be required to meet altitudinal ranges (Renuka Lake,
The figurative cost of an alternate option such
the demands of the local Shimla Urban Water Catchment),
as installation of water purification plant (s)
communities as well as by Reservoirs (Pong Dam Reservoir)
along with its maintenance charges collected
the communities affected
from the dependent communities to be worked As a case study a comparison can
by it.
out be done between a monoculture
Amount paid by the plantation and a multilayer mixed
Total cost = (Installation cost per plant X
dependent households to plantations. Cases from Chamba
total no. of plants) + (maintenance cost per
avail of the services of the and Chadiar can be included in the
household X no. of households dependant on
catchment area if any. study
the plant
Socio-economic
Cost incurred for getting irrigation water from
characteristics of the local
distant sources by pipelines or wells in the
communities
absence of the wetland
Agricultural crops
The cost incurred by the forest department for
dependent upon the
maintenance of the forested catchment would
catchment for irrigation
be subtracted in the final valuation
No. of households and
Market Price Method
industries dependent upon
Tariff charged from the Industries using the forested catchment.
the catchment’s water for drinking or other
Farmlands irrigated directly
purposes X No. of such industries
or indirectly by the forested
Tariff charged from the households for using catchment.
the forested catchment water for domestic
purposes
Other consumptive uses such as irrigation.
Both the Replacement and Market Price
method are based on the forest impact
percentage on the electricity production,
agricultural productivity and quality of water.
Production Function approach:Select a minor List of relevant stakeholders
watershed like Sirmour to study agricultural
pattern, cash crop cultivation, on accountof
forest conservation: also role of mixed and
single species forest in water production:
kandi project, Una catchment can be studied in
this regard. How difference in flows occur on
account of first story and complete ecosystem
plantation (second and third story plantation)

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 Incentives Based Mechanism for Payments for Forest
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Landscape Beauty
Landscape beauty is a broad term to
include all the forested areas in the
state of Himachal Pradesh that attract a
number of tourists coming from all over
the country as well as abroad. Ecotourism,
on the other hand, is still limited to small
pockets in the state and is still evolving.
Hence landscape beauty has been taken
as an ecosystem function which includes
both general tourism and eco-tourism.
Forests provide landscape beauty in
recreational areas which people enjoy
and value. “Beauty” can here refer to
both a scenic view, or to the likely sight
of a rare and charismatic animal in the
wild. High altitude wetlands or cold
desert wetlands that are a part of the
legally classified forest area were also
considered as potential sites for the
study. Wetlands are crucial parts of the
“natural infrastructure”. Degradation and
loss of wetlands can worsen the climate
change leaving people more vulnerable to
its impacts. Conservation and restoration
of wetlands, and safeguarding their
resilience and range of functions, are
therefore effective climate adaptation
strategies.They tend to be sinks for carbon
and nitrogen, and sources for methane
and sulphur compounds but overall, the
long-term negative effect of methane
emissions is lower than the positive effect
of CO2 sequestration. A case of REDD
can be developed on such wetlands.
Ramsar Convention, an international body
working for conservation and restoration
of wetlands, entered into a private sector
partnership with the Danone Group,
establishing the Danone-Evian Fund for
Nature, to be jointly administered by
Ramsar, the company and IUCN. One
of the objectives is to fund wetland
restoration activities as a contribution
to carbon capture. Hence forested and
158
cold desert high altitude wetlands were
considered to be suitable sites for assessing
landscape beauty other than the many other
ecological functions performed by them. It
is to be noted that tourism in Himachal is
largely nature tourism and forests have a
direct relation to it.However,there are some
places like Kangra district which is also
very popular among tourists for religious
purposes, even if there is no forest in this
district, tourists would continue to come. So
the forests relation to tourism would again
need to be worked out.
• Both domestic and international tourists
are willing to pay for landscape beauty,
and this has proved to have been the most
important economic value possessed by
many forests in developing countries.
Tourists often reveal the value they place
on this beauty by paying elevated travel
costs to get to an attractive site and, in
some cases, by paying additional entrance
fees, higher-than-normal accommodation
costs and other surplus charges.
• Travel cost methodology (TCM) has been
used for discussing the tourism value.
Among other proposed methodology is
the contingent valuation method (CVM)
(Community Forestry International). TCM
is usually applied in estimating the on-site
recreation (tourism) use value of a natural
area, while CVM is used to find economic
value of most of the non-market goods
and services. TCM is an indirect valuation
method where visitors’ travel costs to a
“recreational site” are used as proxy for
the price of the “recreational activity”
and the visitation rate (Vj/Pj) expresses
the amount of recreational experience
bought(Pritchard, 2009).
• Forest landscape restoration activities in
the state to be captured.
To study increase in air pollution due to
increasing vehicular traffic and increasing
construction of roads have a bearing on
forests and then on HEP projects in terms
of increasing silt load, i.e. to work out
ecological cost of
 Ecosystem Services Valuation and Accounting of Himachal Forests

Importance of Forest Wetlands for Recreation: A Case

from Philippines
The Philippines has an estimated 27,000 kms of coral reef, with only about 5 per cent of this area
being considered to be in excellent condition. Valuation studies indicate that reefs in the country
are contribut¬ing approximately US$ 1.35 billion to the national economy. Oneof the healthy
Philippine reefs with some tourism potential generates annual net revenues ranging from US$
29,400 to US$ 113,000. For example, Olango Island, Cebu, with 40 kms2 of poor quality coral reef
has annual net revenue ranging from US$ 38,300 to 63,400 per km2 or US$ 1.53 to 2.54 million for
the entire 40 kmss reef area. Another US$ 389,000 is added when other associated wetlands are
considered. The revenues accrue primarily from diving tourists. Costs of managing Olango Island
coral reefs and wetland habitats for improved net revenues (benefits) and conservation on the
other hand would pave the way amount to less than US$ 100,000 per year. Improved reef quality
would pavethe way for a 60 per cent (US$ 1.4 million) increase in annual net revenues from reef
and mangrove fisheries and tourism(Brander, Flloraxx, & Varmaat, 2006)

Tourism in Andaman & Nicobar Islands in India

Andaman & Nicobar Islands, rightly called the emerald necklace of India, lie along an arc in
long and narrow broken chain of about 800 kms in North-South direction covering an area of
about 8250 sq. kms in the Bay of Bengal. These islands are a paradise for ecologically-friendly
holidaymakers with about 86 % of forest cover, coral reef varieties, unpolluted waters and
wealth of marine bio diversity.
Zonal Travel Cost Method was used to estimate recreational use value of MGMNP tourist site in
Andamans which was the most important spot as this park provided a single platform for viewing
tropical flora and fauna of the islands including marine diversity.It was the most frequently
visited site by the tourists. Based on the TCM method applied, a “whole experience demand
curve” based on visitation rates was developed. It was used to estimate the actual number of
visitors to the site and to visualize as to how the numbers would change according to different
hypothetical entrance fees at the recreational site. It was assumed that an entrance fee would be
viewed by the visitors in the same way as travel costs to reach the site and that each household
had equal taste and preferences. The total area under this demand curve provided the tourism or
use benefits of the site to the visitors.
Based on the survey results, it was found that the reason for it being frequently visited was
that it was a relatively clean and pollution free site. Using this as a cue to develop other tourist
sites, the tourism potential of the state has been upbeat despite the Tsunami in 2004(Tourism
Research, 2006).

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 Incentives Based Mechanism for Payments for Forest
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Valuation Technique for Landscape Beauty Data Required Probable Sites
TCM:No. of people visiting different circles Water (HEP), agriculture, Soil conservation, protection and
per year mainly due to natural beauty X domestic, industry regulation of water supplies, sediment
Average expenditure incurred per person control, shelter from hot and cold
winds, absorption of dust and noise,
The average expenditure incurred per Recreation Maintenance of visual quality of the
person: Travelling cost + Hotel charges + environment,
food charges +Ticket Prices
Value of Landscape Beauty:Value of TCM – Total no. of tourists
Total cost incurred by the forest department visiting the area due to
for maintenance of the area natural beauty

Carbon Sequestration
Carbon sequestration refers to the removal of carbon from the atmosphere to
counterbalance the effects of fossil fuel emissions on global warming. Species-wise forest
inventory along with biomass estimation would be required for the valuation exercise,
though for a thorough exercise, the details regarding the sites and methodology are yet
to worked out with FSI, Dehradun and Mid Himalayan Watershed Project, HPFD. With the
IPCC guidelines though a cost-benefit analysis of the same can be done, which is shown
below:

For annual benefit:

Value of carbon stock = carbon content× market rate of carbon.
Where carbon content = biomass× IPCC-GPG7 default value (2003 guidelines).
Biomass = growing stock × conversion factor
Calculation of living biomass with general formulas and conversion factors.
• SB = GS × WD (1)
• AGB = SB × BEF (2)
• BGB = AGB × R (3)
• Where,
• SB = stem biomass (tonnes)
• GS = growing stock (volume) overbark (m3)
• WD = wood density (dry weight/green volume expressedintonnes/m3)
• AGB = above-ground biomass (tonnes)
• BGB = below-ground biomass (tonnes)
• BEF = biomass expansion factor (above-ground biomass/stem biomass)
• R = root–shoot ratio (below-ground biomass/abovegroundbiomass)
For annual cost: no direct costs.
The value of the carbon stocks can be calculated as per the following process:
Value of carbon stocks = carbon stocks × market rate for carbon dioxide.
For estimating the value of carbon stock in monetary terms, the price of certified emission
reduction (CER) to be used (one CER = one tonne of carbon dioxide).
For example, using the same technique, the comparative monetary value of carbon sink in
Himachal Forests in the year 2000, was calculated to be Rs 17, 645 crores. In a 1989 study

160
 Ecosystem Services Valuation and Accounting of Himachal Forests

of economic valuation of Mexican forests, the social value of avoiding the carbon fluxes
associated with changing land use range from $650 to $3400 (equivalent to $20 to $100
per ha per year), depending on the forest type and the subsequent land use.
The methodology for carbon stocks calculation is standard and accepted, but there have
been a few additions in the use and application of the carbon stocks thus calculated such
as, linking it with the impact on climate change. Also there has been a complete ban on
green felling since 1995, so with the help of historical data, an attempt has been made
to compare the pre ban and post ban scenario in terms of carbon stocks potential of the
forests. The value of the last three decades are also compared using the biomass data
since the1980s.

Biodiversity Values
While there is growing awareness of the value and importance of diversity per se, there
is a lack of consensus on how diversity can be defined and measured. A head count of the
number of apparently different species in an area may not be a good proxy for the portfolio
effect of genetic distance between them.
• Referring to the above diagram, the value of the biodiversity necessarily encompasses
two things, value related to the use and non-use values of its link to ecosystem
functions, and the value associated with its role in strengthening ecosystem resilience.
• The following valuation techniques can be applied for assessing the value of biodiversity
in a forest area; CVM, Travel cost method (it is primarily used to measure the value of
landscape beauty, but if we take a site such as GHNP, where a tourist is coming to get a
feel of multiple services offered by the ecosystem not just a static landscape beauty and
that also includes the floral and faunal diversity found in this area)

Bio -Prospecting Value in India (Dr. M.Verma, Dr. C.V.R.S

Vijay Kumar et al., CSO and IIFM, 2007)
The value of bio-prospecting in a particular type of forests indicates the potential value
of drugs that can be obtained from the bio-diversity present in such forests. According to
the National Medicinal Plant Board of India (NMPB) the total contribution of herbal Plants
in India’s GDP is currently to the extent of Rs. 4,446 crores (Rs.4000 crores domestic +
Rs.446 croresexport). Currently about 500 herbal plant species are actively used in the
manufacture of drugs (NMPB) and other herbal products in India.

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 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
Bio-prospecting values, Option Price Method, market price of medicinal plants found if any
are some other techniques that can be applied. The cost –benefit analysis is also a suitable
technique for the valuation (OECD, 2002).
Valuation Technique
Bioprospecting Values: Market Price of the medicinal plants found
Actual value approach
for annual benefit:potential value of drugs that can be obtained from the bio-diversity chosen for convenience
present in forests For annual cost:cost of collection
Option value approach
For annual benefit:insurance premium paid to ensure the supply of an asset, the
availability of which otherwise would be uncertain
For annual cost:R&D costs
Cost of biological disservice to be adjusted as well.
Pollination Services
A range of studies have shown that
pollination makes a very significant
contribution to the agricultural production
of a broad range of crops, in particular
fruits, vegetables, fibre crops and
nuts. Pollination is a critical link in the
functioning of Ecosystems, important for
the maintenance of the other services
supplied by the forest, e.g. the supply of
fuel wood, timber, food products, carbon
sequestration and the regulation of water
flows, and pollination does not by itself
provide a benefit to people, there is no
need to include the value of the pollination
service in the total value estimate of
the forest as this would lead to double
counting. However, a certain number of
pollinators inside the forest might be
crucial for agricultural productivity in an
adjacent area. Here the value of pollination
services becomes important.
• The market prices paid by farmers to
commercial beekeepers reflect the
marginal value of the pollination service.
• In order to calculate the total value of
the pollination service, for instance in a
country, the consumer’s and producer’s
surplus have to be calculated.
162
Data Required
List of medicinal plants,
alkaloids medicinal plants
(a sample of 10-20 can be
• The consumer’s surplus is reflected in
the demand curve that represents the
farmer’s willingness to hire commercial
bee-hives for pollination at different
prices.
• The producer surplus reflects the
revenues of the commercial beekeepers
minus their costs (inputs, material, and
transport of beehives, capital costs and
shadow costs of labour).
• One widely used technique is the
change in productivity technique. It
consists of tracing through chains of
causality so that the impact of changes
in the condition of an ecosystem can be
related to various measures of human
well-being. an agricultural production
process in which output (y) depends on
purchased inputs (x), ecosystem services
such as pollination (q), and another fixed
factor (k) representing the fixed costs
such as land and capital investments. In
this case,
y = f(x, q, k).
Output sells for a price p, and inputs can
be purchased for a price w. Thus the role of
pollination services in the productivity of
crops can be assessed and thus valued.
 Ecosystem Services Valuation and Accounting of Himachal Forests

Non- Market Values of Protected Areas

Protected areas provide substantial economic benefits to the countries in which they
are located. For example the 8,728 hectares Sarawak Mangroves forest Reserve in
Malaysia supports fisheries worth $ 21.1million per annum and up to 3,000 jobs, timber
products worth$ 123,21 per year, and a tourist industry worth $3.7 million per year.
If the Mangroves were to be damaged, all the fisheries and timber and many of the
tourism benefits will be damaged, and at the same time highly expensive civil engineer
works would be required to prevent coastal erosion, flooding and other damage.
Outdoor recreation value in the US amounts to be $122 billion annually, much of which
is attributed to Protected Areas.

Canadian Pollination Initiative, Pollination Pollination Station, based in New Jersey,

Station are some organizations involved work towards creating awareness by
in creating awareness about pollinators, making presentations for garden clubs,
to protect and conserve them and their nature clubs, church organizations and
habitats. The Canadian Pollination conservation groups with programmes
Initiative (CANPOLIN) is one of nine generally geared towards adults and teens
new Strategic Networks announced via lecture/power point presentations.
in September 2009 and supported by
Other pollinators will be considered as
the Natural Sciences and Engineering
well apart from honey bees. With the
Research Council, Canada (NSERC).
above methodology a proxy value of the
NSERC-CANPOLIN has funding for five
Himachal forests is being calculated. The
years to address a perceived decline
list of important pollinators in terms of
in pollinators in both agricultural and
horticulture and agricultural production
natural ecosystems in Canada. At
will be considered with the help of Parmar
present 26 universities and a number of
University, Nauni. Also, apart from the
government agencies, NGOs, and industry
methodology discussed a small control
groups are involved. Over the coming
experiment can also be carried out to
five years, NSERC-CANPOLIN will make
see how two places one where natural
major contributions to the conservation
pollinators from the forests are allowed to
of pollinator and plant biodiversity,
enter and one where the forest is closed
improve the health of managed bees, and
by a net and the natural pollinators are
enhance pollination by native pollinators.
not allowed to go out. This controlled
The Network will also provide critical
experiment can help in quantifying the role
information on the economic aspects of
of forests in pollination services
pollination and future management needs
based on expected changes in climate and
land use.

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 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
Valuation Data Requirements Probable Sites
Technique
Market prices The price of rented bee colonies provides, under a Case of production of Kesar, black
of beehives. number of conditions, an indication of the marginal cumin is being documented; case of
value of pollination. These condition include: DeraPanchayat, Ratan Chand in Chamba
is being documented which demonstrates
(i) there is a (non-distorted) market for the pollinator,
protection of forests which is the abode
and (ii) there is full information on the impacts of
for pollinators and production of honey
pollination on crop production among farmers and
beekeepers. This assumption may or may not be
realistic depending on the crop and country.
Cost-based This method can be used to calculate the value of
methods (natural) pollination, in particular if there is a clear
with/without pollination scenario. The method is
mostly applicable to the scale of the farmer of the
community as it does not involve analysis of market
responses to reductions or increases in the supply of
the pollination service.
Production To assess the economic value of pollination for
function specific crops at the scale of a country. This method
approaches requires the construction of supply and demand
curves to calculate the consumer and producer
surplus related to pollination.

Timber/NWFPs valuation as this fall within the legally

Timber has been the most
recognizedeconomic product from
tropicalforests and other non-timber/
non-woodforest products (NTFP/
NWFP)have been labelled as ‘minor
forestproducts’. However, forest is
asource of many valuable NWFPssuch as
parts of plants and animalsfor medicinal
use, tanningcompounds and waxes,
extractives such as bark, dyes, fibres,
gums,latexes, oils, resins, food such
asbush meat, flowers, fruits, honey,nuts,
leaves, seeds and spices andother
products such as fuel-wood, fodder and
grazing.As per FAO definition, ‘Non-
woodforest products include allgoods
of biological origin, as well asservices,
derived from forests or anyland under
similar use, and excludewood in all its
forms’. As per thisdefinition, timber,
poles, small woodfuel-wood and charcoal
are excluded. For the study, sand, stones
and boulders will also be included for
defined forest area (Verma M. , Valuation of
Forest Ecosystem Services in Uttarakhand
Himalayas, May, 2007)
• Market Price Method for timber and
NWFPs can be applied to estimate the
value of these services provided by
forests.
• In areas where timber felling is banned,
a CVM exercise to know the consumer’s
willingness to accept compensation in
lieu of timber can be carried out.
• Household Production Function Approach
is also a suitable method for the valuation
of NTFPs.
The Box below describes another applicable
methodology of Household Production
Function Model for the quantification of
ecosystem goods and services. Sullivan’s
Household Production Function Model has
been suitably adapted to suit the context
of a village economy and hence put an
economic value to timber and NTFPs based
on household consumption.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Probable Sites
Market Price Method: • Physical and
monetary value
• Timber: Total Annual Revenue (Benefits)- Total Annual
of the mentioned
costs
timber, fodder, fuel
Total Annual Revenue : Long run Stumpage value approach or wood and NWFPs
Stumpage price of mature timber and salvaged timber • Total growing stock
Total Annual cost : cost incurred by Forest Department for its • Royalty rate of
production and transportation standing tree
• Fuel wood : Total Annual Revenue (benefits)- Total Annual • Socio-economic
costs background of the
sites
Total Annual Revenue: No. of rural households collecting fuel
• Rate of milk,
wood from forest in last 365 days x Average value of collection silk, average
per collecting household. (the value to be used is the relevant transportation cost
price in the nearest local market)
Total Annual Costs: (No. of rural households) X (Total annual
time cost of collection per household valued at NREGA daily
wage rate)
Replacement cost can be used to get an indirect value of the
fuel-wood, for example, the cost of kerosene used by the
family, wherever applicable the benefit cost method as well as
the replacement cost method will be used.
• Fodder :
Sale of fodder is not carried out in the state; hence the
replacement cost method will be more suitable here. The
cost of the milk, meat, wool, manure, etc. can be indirectly
used as the value derived from the forest goods/services.
On the other hand, the cost to be deducted would be the
transportation costs of the same. A nomadic family’s income
is based on the sale of such items; the income of such a family
would indirectly give the valuation of one aspect of a forest
ecosystem.
Grazing can be included under the head of fodder only.

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 Incentives Based Mechanism for Payments for Forest
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The Household Production Function Model for the Valuation of NTFPs (Verma and Kumar, 2006)
The Sullivan’s Household Production function model is based on the United Nations System of National
Accounts, (UNEP, 1993), It has been slightly modified for a village economy for calculation of the net village
product (NVP). The sumption of the model is that:
Value of Household Input = Value of Household Output
Here
Household inputs = wLh +rKh +Kh +PfFh (1)
Where:
W = Wage rate
Lh = weightedhours worked by households h, (weighted for men, women and child labour inputs)
r- Rate of interest for the use of capital in production
Kh= Productive capital used by the household h
 = Capital depreciation rate
Pf = Implicit price of each unit of (forest) used
Fh=Implicit quantity of nature (forest) used by household h.

Household outputs = ∑Pi QhI (2)

i=1
Here
Pi= price of good
i- Counter for NTFPs; handicrafts, farming, livestock, outputs, etc.
QhI = Quantity of nature (NTFPs) used by household h.
All values used here refer to the period of one year, and so for convenience, the time subscript (t) usually
applied was omitted. Without intertemporal household data, it is impossible to identify any specific value
for capital accumulation by households. As a result, this value is included in the total of “value added”
associated with the use of the forest. By equating the value of household inputs and outputs, we get:
wLh +rKh +Kh +PfFh= ∑PiQhi (3)
To build the complete model of the village, all the data was consolidated, and the net village product (NVP)
was obtained by summing across all households h:
NVP = (wLh +rKh +Kh +PfFh) =PiQhI (4)
Determiningthe value of from Net Village product
The value of PfFhwas derived as forest inputs a residual from the completed equation of all other inputs
and outputs as shownbelow:
∑PfFh = ( PiQh i - (wLh +rKh +Kh )) (5)

The Household Production Function Model for the valuation of NTFPs (Verma & Kumar, 2006)
The Sullivan’s household Production function model is based on the United Nations System of National
Accounts, (UNEP, 1993), It has been slightly modified for a village economy for calculation of the net
village product (NVP). The sumption of the model is that:

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 Ecosystem Services Valuation and Accounting of Himachal Forests

Box 12: Multidisciplinary Landscape Assessment Approach:

• 1. A Case from Kalimantan, Indonesia (Meer, Bairaktari, De Groot, Heist, and Schmerbeck, 2007)
Multidisciplinary Landscape Assessment (MLA) is a set of methods initially developed by CIFOR and
partners to address biodiversity conservation through the eyes of local communities. The principle behind
this approach is that the importance of biodiversity maintenance can be quite underestimated by decision-
makers when considered separately.
The aim of MLA as developed for the survey in Kalimantan, Indonesia was to find out what isimportant in
terms of biodiversity, to whom, how much and why. In the context of MLA ‘importance’ is used instead of
‘value’ for avoiding economic associations. In this sense, importance is used in order to determine the social
and moral factors that local people take into account when they state their relative preferences. The tools
employed by CIFOR are the community meetings, community landscape mapping, censuses and Pebble
Distribution Methods (PDMs). PDM is a data collection method which has long been part of Rapid Rural
appraisals.
• 2. Valuation of EGS from Forest Plantations in Uttaranchal and Haryana, India(Meer, Bairaktari, De
Groot, Heist, and Schmerbeck, 2007)
Ecosystem Goods and Services from forest plantation areas near 9 villages in Uttranchal and Haryana,
Northern India were quantified using methodologies like community meetings, household survey and
Pebblle Distribution Method (PDM). The villages were selected from three ecological zones:
• Low Zone: Sal Trees (600- 1000 m)
• Middle Zone: Chir Pine (1000-1600 m)
• High Zone: Oak Trees (>1600 m)
The community meetings gave an input to the identification of the EGS for each of the four categories of.
Provisioning, Regulating, Cultural and Supporting; The answers of the household questionnaires were
quantified and the average consumption rates were used as an input to the economic, ecological and
socio-cultural valuation. The integration of the three values finally produces the total value of the examined
services. The results of the PDM method provide a direct assessment of the importance of the forest. The
economic value of the provisioning and regulating services was 75- 100% of the average annual income.

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 Incentives Based Mechanism for Payments for Forest
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4. Results
(i) Provisioning Services
Provisioning services are the goods or tangible services produced by or in an ecosystem.
A provisioning service is any type of benefit to people that can be extracted from nature.
In the present study, the following services or tangible benefits accrued out of Himachal
Forests have been taken for economic valuation under provisioning services.

Timber
Timber is one of the most important resources in the life of ethnic communities and
villagers. Timber resources are used by the ethnic communities and the villagers for
various purposes, i.e. house construction, furniture, and agricultural implements; for
making walking sticks, musical instruments and packing cases among others. According to
the 2011 figures received from Himachal Pradesh State Forest Development Corporation,
the value of timber can be categorized into two, value of private timber and value of
government timber and their recorded value for the year 2011 (till October 2011) was Rs
1,805 lakhs and Rs 5,232 lakhs respectively. According to the Forest Statistics Report
released by the State Forest Department in the year 2010, the total revenue generated out
of sale of timber in the state for the year 2010 was Rs 3.65 billion.

Non-Wood Forest Produce

Out of 425 families of flowering plants in the world, 328 families with 21,000 species
occur in India. Out of this, Non-Wood Forest Products (NWFPs) are derived from over 3,000
species. In the present study for the state of Himachal Pradesh, Rosin, Turpentine Oil,
Charcoal, Khair and other Minor Forest Produces have been taken under Non-Wood Forest
Products for monetary valuation. The figures obtained for different NWFPs are listed
below.

NWFP Economic Value Unit Data Source

Rosin 8.79 Rs. Crores Forest Statistics Report by HPSFDC
Turpentine oil 1.79 Rs. Crores Forest Statistics Report by HPSFDC
Charcoal 7.36 Rs. Lakhs Vital Forest Statistics by HPFD
Khair 1.92 Rs. Crores Vital Forest Statistics by HPFD
Medicinal plants 2.66 Rs. Crores Vital Forest Statistics by HPFD
Others 32.44 Rs. Lakhs Vital Forest Statistics by HPFD

Fodder
In a mountain state such as Himachal Pradesh, rural communities depend on forests
for their basic necessities which include collecting fodder for their livestock. Very little
fodder is arranged from the agricultural fields. Either the livestock is left in the open for
grazing on the forest land or members of the households go to the upper reaches of the
forests to collect fodder for them. Generally, every household in the rural community has
at least one domesticated animal. For the economic valuation of the fodder harnessed by
the rural households as a daily necessity the primary (household questionnaire) technique
was used. A household questionnaire survey (see Annexure) was carried out to assess the
amount of firewood, fodder, and other relevant NWFPs being used in the forest dependent
rural areas of the state. It was conducted in two districts of the state, Kullu and Mandi.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

From the analysis of the household questionnaire survey of 97 households, it came to

light that on an average, 30.25 kilograms of fodder is collected from the forests everyday
from each rural household. 87.90 % of the total households in the state have one or more
species of cattle poultry and only 8 households did not have any cattle. The total number
of households in the state is 1.22 million (2001 census). Extrapolating to the entire state
based on the results obtained from primary data, about 1.07 million households (87.9%)
own at least one or more species of cattle poultry. Based on average fodder collection of
Rs. 30.25 kilograms per day per household, the annual utilization of fodder in the state is
approximately equal to 11.81 million tonnes. Assuming a price of Rs. 5 per kg for fodder,
the economic value of fodder collected from the forests of Himachal Pradesh is equal to
Rs. 59.07 billion.

Fuel Wood
The value of fuel wood from the forests of Himachal Pradesh has been accessed from the
household questionnaire survey mentioned earlier. A large number of households are
dependent on forest area for their fuel wood need. It is collected every day from September
to April, and it stocked for use in later parts of the year. According to the survey, average
fuel wood collection per day from each rural household is approximately 31 kilograms.
Assuming that 3/4th of the population collect fuel wood from forests, the total fuel wood
consumption from the forests of Himachal Pradesh is approximately equal to 10.35 million
tonnes. With a market price of fuel wood as Rs. 5 per kilogram, the economic value of fuel
wood collected from the forests of Himachal Pradesh is roughly equal to Rs 51.76 billion.

Forest Type Group Area Total carbon Total carbon

(sq. km.) stock (T/Ha) stock (million T)
Tropical Moist Deciduous Forests 402.18 237.82 9.56
Tropical Dry Deciduous Forests 1311.2 294.57 38.62
Sub-Tropical Pine Forests 3200.79 304.16 97.36
Montane and Moist Temperate Forests 6463.97 418.6 270.58
Sub Alpine and Dry Temperate Forests 1765.88 517.39 91.36

Table 25 – Forest Carbon Stock of Himachal Pradesh (FSI 2013)

2. Regulating Services
Forest Carbon
To get the data required for the carbon stocks calculation, the Forest Survey of India (FSI)
was approached. In 2010, FSI completed estimation of forest carbon stocks and change
between the two time periods and the associated data is given in Table 2. Based on the
result of 542.83 million tonnes of carbon stock in the forests of Himachal Pradesh and a
market price of 7 EURO per tonne of carbon (as being traded in EU-ETS), the economic
value of forest carbon stock of Himachal Pradesh has an economic value of Rs. 316 billion.

Alpine Scrub 665.15 387.73 25.79

Plantations/Tree Outside Forests 559.89 170.65 9.55
Total 14369.1 542.83

169
 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
Water Services
Forested watersheds capture and store
water thus contributing to the quantity
of water available and its seasonal flow.
Forests also help purify water by stabilizing
soil and filtering contaminant. Streamside
(riparian) forests are “living filters” that
absorb sediments and transform pollutants
before they reach drinking water sources.
Forests also soak up storm water and
provide shade for streams that keeps water
cool, which is critical to the health of
fish and other aquatic organisms. Forest
conversion to non-forest land uses means
the loss of vital forest watershed benefits
— including water flow regulation, flood
control, water purification, erosion control,
and fish habitat—to the region’s citizens,
communities, and businesses (Goldmark
2012). These services are particularly
important for communities in the tropics,
either because rainfall is highly seasonal
or locally limited, or because intensively
cultivated and densely populated agrarian
landscapes downstream are affected by
soil-hydrological processes in the upstream
forests. They also receive more global
attention because tropical forests are
major repositories of biodiversity, leading
to interest in identifying win-win situations
or trade-offs between biodiversity and
watershed services (Lele 2009).
According to an economic valuation study
conducted by Mullan and Kontoleon,
2008, the monetary value of multitude
of watershed services of a tropical forest
ranges from US $ 200 to US $ 1000 per
hectare of forest area. Applying the benefit
transfer method, adjusted according to the
per capita GDP purchasing power parity
of India, using a mid-value of US $ 600 per
hectare, the value in Indian reference is
approximately US $ 451 per hectare, which
amounts to a sum of approximately Rs. 90
billion. Also, the hydel potential of the state
is estimated to be 23000MW. As all the
streams of the state are glacial fed, and the
glaciers in turn fall under the total forest
area of the state, hence its economic value
can be applied as an approximate value of
the water services of the forests of Himachal
Pradesh.
170
3 Cultural Services
These benefits are so hard to precisely
quantify because many of them tend
towards abstraction. Of course included
among the list are factors like ecotourism
and recreation, which are more easily
accounted for within traditional
economics, but concepts like aesthetic
appreciation and spiritual enrichment are
very difficult to quantify. As Kanowski
and Williams (2009) note, although there
seems to be a disconnect between the
more economic (´realµ) value and the
more abstract (´imaginedµ) value, they
are actually inextricably linked due to
the psychological development of the
latter alongside the former. The fact
that so many people find certain forest
landscapes more beautiful than others is
no mere coincidence. Those preferences
developed in the context of each
individual’s psychological profile and also
perhaps their cultural or even evolutionary
backgrounds.
In the present study of economic valuation
of Himachal Pradesh’s forests, landscape
beauty has been taken as one of the
cultural services being provided by the
forests. Tourism or rather eco-tourism
is too broad a term to be used just in the
context of forests. Himachal Pradesh
being a hill state, eco-tourism has a
connotation much wider than to be used
just in the context of forests. So a neutral
term landscape beauty is being used in the
present study.
Landscape Beauty
For the valuation of landscape beauty
as a service provided by the forests of
Himachal Pradesh, an assessment was
made as to how many tourists visit the
state for its serene natural beauty rather
than official, religious or adventure
purposes. According to the Economic
Survey of the state 2011, tourism in the
state contributes approximately 10% of
the state’s entire Gross State Domestic
Product (GSDP). The GSDP of the state
is Rs. 200 Billion and thus tourism in the
state is roughly valued at Rs 20 Billion.
 Ecosystem Services Valuation and Accounting of Himachal Forests

According to the same report, 57% of the
tourists visit Himachal Pradesh due to
its natural beauty that makes the value
of landscape beauty to be approximately
Rs 11.40 billion. The total Indian tourists
that visited the state in 2011 were 13.2
million and the total number of foreign
tourists that visited the state was 0.43
million. Travel Cost Method (TCM) can
be another technique which can be used
to assess how much does a tourist spend
on travelling alone from the place of his
stay to the places where he intends to
go. Since it is not known whether the
foreign tourists visiting the state are the
ones who are already staying in India for
other purposes or visiting India for other
reasons or have just come to Himachal
Pradesh from their country of origin. With
this assumption, both the Indian as well as
foreign tourists can be safely assumed to
visit the state of Himachal Pradesh from
the neighbouring states such as Punjab,
Haryana, Uttar Pradesh, and Delhi. Let
us say, conservatively a tourist visiting
Himachal Pradesh spends around Rs 1,500
for his to and fro journey and around the
same amount for his travel within the
state. The total number of tourists visiting
the state is 27.3 million, applying the
partial Travel Cost Method; the economic
value of tourism to the state comes out
to be approximately Rs 81.9 billion. 57%
of this value comes from tourists who are
visiting the state for its serene location
and landscape beauty, which gives the
economic value to be Rs 46.7 billion. This
is just the travelling aspect of the tourism
due to landscape beauty. It is an indicative
value based on the interaction of the
team to other fellow tourists in different
parts of the state. Further, the cost of
lodging and boarding can be added to it.
According to the data from the State Excise
Department, the luxury tax that has been
collected up to October 2011 is Rs. 223
million, this amount is 12.5% of the total
revenues generated out of the tourism,
and hence the total revenue of all the
hotels is approximately 1.8 billion. Out of
this value, the revenue of the hotels due
to nature tourists (57%) is approximately
Rs 1 billion. Hence the monetary value of
landscape beauty in Himachal Pradesh is
approximately Rs 47.7 billion.
Apart from the primary values that have
been calculated, secondary literature can
also be used to extrapolate the values of
cultural services under similar setting to
the entire state of Himachal Pradesh. For
example, recreation Values of tropical
forests as per the study of Mullan and
Kontoleon (2008) ranges from 1-2000$
US per hectare. An average value of
1000$ US/ha can be taken for the forests
in Himachal Pradesh. Extrapolating this
value for the entire state, using the Benefit
Transfer Method, thereby adjusting the
value according to Indian per capita GDP
purchasing power parity, the value is 75.38
$ US per hectare. This translates into an
economic value of Rs. 16.7 Billion.

Existence value
1. According to the same authors, the existence value of cultural services
is 159.5 $US per hectare for tropical forests. Applying the Benefit Transfer
Method, the value in the Indian context is approximately 12.02 $ US per hectare
which translates into an economic value of

Rs. 2.7 billion.

171
 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
Annexure IV short welcome address by Mr.Tejinder Singh,
IFS, CCF (WP& Settlement), Mandi, Himachal
Draft Proceedings of the Workshopfor the
Pradesh, Nodal Officer. It was followed by
project entitled on “Ecosystem Services
an opening remark by Dr. R.B. Lal, Director,
Valuation and Accounting of Himachal
IIFM, Bhopal, on the purpose of the meeting.
Forests” organized by IFM, Bhopal in
His view points are mentioned briefly in the
collaboration with Himachal Pradesh Forest
following paragraph.
Department, Shimla, held on October 21,
2011 at Hotel Peterhof, Shimla, HP Dr. R.B .Lal, Director, IIFM, Bhopal
Introduction Talking about the project, Dr.Lal observed
that though the preliminary work has already
The workshop on Ecosystem Services
been started to have a wide stakeholder
Valuation and Accounting of Himachal
consultation is always helpful for a smooth
Forests, organized in collaboration with
execution of the study. He discussed briefly
the Himachal Pradesh Forest Department
the conception of the study also mentioning
was a successful event where many crucial
IIFM’s role in the TEEB study for which
aspects of the Project were discussed in
Himachal Pradesh again can be one of the
detail. The objective of the workshop was
potential sites.
to arrive at important decisions regarding
enlisting of the ecosystem services for the Key note address by Mr.R.K.Gupta,
valuation study that are vital for the entire
PCCF, Himachal Pradesh Forest
state. Attended by luminaries in the field
of forestry and environment, the workshop Department, Shimla
involved meaningful discussion on various Mr. Gupta briefly mentioned the initial study
points of the project such as the expected carried out by Dr.MadhuVerma, in the year
outcome from the study, required time 2000. Quoting the values from this study, he
frame, path to be followed, secondary data emphasized the importance of such valuation
sources, also by revisiting the earlier study exercises for a state like Himachal Pradesh
the pitfalls to be avoided in the present where 66.5% of the entire geographical area
study was also discussed. consists of forests. He briefly mentioned
the umbrella project launched in the state
Inaugural Session in the late 1980s where it was realized by
the government that forest wealth cannot
(10:30 am – 11:15 am) be sustained without the involvement of
the local community. Following in the same
The participants in the workshop included footsteps and ideology, HP became the first
senior Forest Officers from various divisions state in the nation to get carbon credit under
who are also experts in their respective the Green Carbon project. He raised some
fields (list of participants in Annexe 1). very important points for the project;
The Inaugural session panel consisted of
Mr.Sudipto Roy, Additional Chief Secretary • Since the state has undergone many
to the Government of Himachal Pradesh, Mr. changes since the last study, redundancy
of the information should be avoided.
R.K Gupta, PCCF, Himachal Pradesh Forest
Department, Dr. R.B. Lal, Director, IIFM, • The study should not become a research
document, but should have practical
Bhopal, Mr. A.K. Gulati, PCCF (Wildlife),
applications.
Himachal Pradesh Forest Department,
Mr.VinayTandon, Adviser, Forests, • There should be a free and frank
deliberation on the project.
Environment and Natural Resources,
Government of Himachal Pradesh, Mr. J.S. • There should be a meaningful outcome
Walia, APCCF (CAT), Himachal Pradesh from the workshop.
Forest Department and Mr. V.P. Mohan,
PCCF (Retd.), Himachal Pradesh Forest
Department. The workshop started with a

172

Presidential Address by Mr. Sudipto
Roy, Additional Chief Secretary,
Government of Himachal Pradesh,
Shimla
Mr. Roy in his address stated that such
studies should help support sustainable
consumption of forests as in the debate
between development and environment,
development cannot be avoided but
should also not be carried out at the cost
of environment. Hence, a middle path
should evolve out of the present study with
practical applications. He mentioned the
Amazon forests getting denuded every year
to serve the demands of jute and cotton
by the local community. In this regard the
present study is extremely important for
the state so as to avoid any hypothetical
claims or values to be generated.Talking
about climate change issue and degrading
natural environment he mentioned an
example that during the time of Columbus,
there were 117 types of grains and pulses,
today we have only 6-7 types but has our
earth been affected due to it or is it that
this is just an evolution process? For an
objective decision-making, we need to have
an estimation of the values derived from
our natural surroundings such as forests
so as to know what we have, whatare we
sacrificing, what is the cost of the sacrifice
and whether we will be able to regenerate
what we are losing. In local parlance,
forests generally mean timber obtained
from it. After the Forest Conservation Act,
there has been an absolute ban on felling
in the forests of HP, but letting timber
rot inside a forest is not a good idea for a
forest community for whom it means loss of
livelihood. Protecting forests does not mean
allowing trees to stay where they are. Many
communities draw their livelihoods out of
NWFPs. To protect, preserve, develop and
exploit should be the way forward in case
of consumption of MFPs. The policy makers
should focus on scientific management of
the forests.Also, there should be an eco-
tourism policy which is very vital for the
state.The present study should become
a road map for the future, so that forests
become the wealth of the nation as well as
the state
Ecosystem Services Valuation and Accounting of Himachal Forests
Remarks by Mr. A.K. Gulati, PCCF
(Wildlife), Himachal Pradesh Forest
Department
Mr.Gulati suggested that a Landscape
approach should be followed for the study,
focusing not just on the trees within a forest
but also on trees outside a forest (TOF). For
the TOF inventory, FSI methodology can
be used and applied in Himachal Pradesh
State. Values of the faunal diversity should
also be a focus of the study. On the policy
implications, an important question to be
raised is whether forestry will be benefited
out of the outcome of the present study.
Experts Views
(11:30 am – 12:00 pm)
“Issues to be Addressed in the Valuation
of Forest Resources of Himachal” by
Mr.V.P.Mohan, PCCF (Retd.), Himachal
Pradesh Forest Department, Shimla
Dr.V.P.Mohan in his presentation on ‘’
Economic Valuation of Forests in HP;
Lessons Learnt and Next Steps’’ gave a brief
summary of the findings of the earlier study
of the year 2000, its implications for the
forest department, changes brought about
in the last 10 years due to the earlier study
and pitfalls to be avoided in the current
study. The main points suggested by Dr. V.P.
Mohan were:
• To revisit the earlier study and focus on
the lessons learnt so far
• Having focused on the lessons learnt
from the past study, to explore new
methodologies for the similar study,
keeping in mind its objectives
• To come up with the scope of the
study with a package of outputs for
operationalization by the Himachal
Pradesh Forest Department
173
 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
Project Vision by ShriVinayTandon,
IFS, Advisor (Forestry, Wildlife and
Natural Resources), GoHP, Shimla
The Project on Ecosystem Services Valuation
and Accounting of Himachal Forests was
conceived and conceptualized by Shri.
VinayTandon who was the then PCCF of
Himachal Pradesh Forest Department. He
gave a brief summary of how this project
came into being and linking it with the earlier
study he also mentioned that the present
project should aim for a more practical
application and should have a wide outreach
Presentation of the Objectives
and Methodology of the Project by
Dr.MadhuVerma, Professor, IIFM,
Bhopal
(12:00 pm – 12:30 pm)
Dr.MadhuVerma in her presentation
described the current standard classification
of ecosystem services, specifically of the
forest ecosystem services and need for
valuation studies. She then introduced the
objectives, scope and methodology for the
present project on ‘’Ecosystem Services
Valuation and Accounting of Himachal
Forests”.Examples were cited from all over
the world of similar studies, their learning
and impact on the state or national economy
due to such studies. The floor was left open
for further discussion and deliberation on
the way forward for the project after the
presentation. Certain crucial aspects of the
study such as enlisting of forest ecosystem
services for the valuation exercise and
brainstorming on sites for primary and
secondary data collection were to be decided
at the discussion stage of the workshop.
The group then dispersed for lunch
(1:30 pm – 2:30 pm)
174
Discussion on Selection of
Ecosystem Services and Sites
(12:30 pm- 1:30 pm &
2:30 – 5:00 pm)
After lunch the discussion session was
presided over by Mr. R.K. Gupta, PCCF,
HPFD and was moderated by Mr. J.S.
Walia, APCCF (CAT). He reiterated the
importance of this study saying that it can
help in more fund allocation towards the
forest department also recognizing the
services offered by forestry as a sector.
It was unanimously agreed upon that the
ecosystem services and goods will be
classified into four types. These were
Provisioning Services, Regulating
Services, Cultural Services and Supporting
Services. The ecosystem services enlisted
within these categories are shown in the
table below.
From the ecosystem services in the
above mentioned category, the following
major services were brought out that the
study would intend to capture for the
quantification and valuation of the forest
ecosystem services. These major services
are;
• Timber, Fuel wood and NTFP.
• Carbon sequestration services of
the forests (dense forests or planted
forests)
• Biodiversity within and outside the
forests (Protected Areas, National Parks
and Territorial Areas)
• Water Services (water catchment areas
within forests and reservoirs)
• Landscape beauty tourism (forests and
high altitude wetlands)
• Pollination services
• Forest succession services (potential in
the state to be explored)
 Ecosystem Services Valuation and Accounting of Himachal Forests

A core committee was formed in the

workshop to further discuss and reflect
on study sites, methodology to be
applied, and sources for the secondary
literature review and to review the
study at regular intervals with the IIFM
team. The core committee from the
Forest Department, Shimla consisted
of Mr. Tejinder Singh, CCF (Working
Plans) who is also the nodal officer of
the project, Mr. Rajiv Kumar, IFS, CCF,
Mr.. S.P.Vasudeva, CCF (S& A), Mr.
SanjeevaPandey, CCF(Wildlife),Mr..
V.K.Tiwari, CF, HPSEB, andDr.
SushilKapta, IFSDCF. A Steering
committee was also formed to monitor
the developments in the project.
It consists of Mr.R.K.Gupta, PCCF,
Dr.R.B.Lal, Director, IIFM, Bhopal, Mr.
J.S. Walia, APCCF (CAT), members of
the core committee as mentioned above
and the project team from IIFM. The
steering committee so formed will meet
from time to time as per the need of the
project. No particular time frame was
decided for the project completion.
The workshop ended by brief remarks
of Mr.R.K.Gupta, PCCF, HPFD and
Dr.R.B.Lal, Director, IIFM. The
way forward was summarized by
Dr.MadhuVerma, Professor, IIFM. It was
also decided that the core committee
would meet further the next day that is
on 22nd October to discuss about the
project in detail.

175
 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
Annexure IV
List of Participants for The Report Finalization
Workshop on “Valuation of Forest Resources” held
on September 22, 2016
Presenters: Dr. Madhu Verma and Chandan Khanna

Sl.No Name of Designation Place of Posting

Participants S/
Sh./Smt.
1. S.P.Vasudeva, Pr.CCF (HoFF) HP Talland, Shimla -01.
IFS
2. Sanjeeva Pande, Pr.CCF (PFM & FDA) Mist Chamber Khalini, Shimla -02.
IFS
3. S.S.Negi, IFS Pr.CCF (WL) HP Talland, Shimla -01
4. A.C.Sharma, IFS APCCF (Fin.&Plg.) O/o Pr.CCF (HoFF) HP Talland,
Shimla -01.
5. Vineet Kumar, APCCF (Admn.) O/o Pr.CCF (HoFF) HP Talland,
IFS Shimla -01.
6. Ramesh Chand, APCCF (CAT Plan) O/o Pr.CCF (HoFF) HP Talland,
IFS Shimla -01.
7. Nagin Nanda, APCCF (M&E) O/o Pr.CCF (HoFF) HP Talland,
IFS Shimla -01.
8. V.R.R.Singh, IFS APCCF (Proj. & Mgt.) O/o Pr.CCF (HoFF) HP Talland,
Shimla -01.
9. S.K.Sharma, IFS APCCF (PAN & O/o Pr.CCF (WL) HP Talland, Shimla
Biodiversity) -01.
10. Archana Sharma, CCF (PF) O/o Pr.CCF (HoFF) HP Talland,
IFS Shimla -01.
11. V.L.Tiwari, IFS CCF (MIS) O/o Pr.CCF (HoFF) HP Talland,
Shimla -01.
12. V.K.Tiwari, IFS CCF (HRD) O/o Pr.CCF (HoFF) HP Talland,
Shimla -01.
13. S.D.Sharma, IFS CCF (FCA) O/o Pr.CCF (HoFF) HP Talland,
Shimla -01.
14. A.R.M.Reddy, IFS CCF (Soil) O/o Pr.CCF (HoFF) HP Talland,
Shimla -01.
15. P.L.Chauhan, IFS CCF (WL) South O/o CCF (WL) S Shimla -02.
16. Rajesh J. Ekka, CCF (P&L) O/o Pr.CCF (HoFF) HP Talland,
IFS Shimla -01.
17. G.R.Sahibi, IFS CCF (Eco-tourism) O/o CCF (Eco-tourism) Shimla -02.

176
 Ecosystem Services Valuation and Accounting of Himachal Forests

18. K.S.Thakur, IFS CCF (Finance) O/o Pr.CCF (HoFF) HP Talland,

Shimla -01.
19. Anil Vaidya, IFS CF (CAT Plan) O/o Pr.CCF (HoFF) HP Talland,
Shimla -01.
20. Anu Nagar, IFS CF (HRD & TE) O/o Pr.CCF (HoFF) HP Talland,
Shimla -01.
21. Alok Prem Nagar, CF Conservator of Forests, Shimla -02.
IFS
22. Anil Joshi, IFS CF O/o CF Bilaspur
23. Neeraj Kumar, DFO O/o DFO Kullu
IFS
24. Raman Sharma, DFO-cum-FU O/o Pr.CCF (HoFF) HP Talland,
HPFS Shimla -01.
25. B.D.Suyal, IFS CCF Regional Director, Forest Survey of
India, Longwood, Shimla
26. V.P.Tiwari Director HFRI Conifer Campus, Panthagahti,
Shimla -09
27. Pradeep Economic Advisor Directorate of Economics &
Chauhan to the Government Statistics, GoHP, 38, SDA Complex,
of HP Kasumpti, Shimla -09
28. GIZ
Representative
29. GIZ
Representative

177
 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh
STUDY TEAM
MADHU VERMA
mverma@iifm.ac.in
Dr. Madhu Verma is a Biological Science graduate with
Masters, MPhil and PhD in Economics and works as a
Professor of Environment & Developmental Economics
and Coordinator for the Centre for Ecological Services
Management, Indian Institute of Forest Management,
Bhopal. She has been a Visiting Professor at the
University of Massachusetts, Amherst and a Visiting
Scholar at the University of California, Berkeley, USA
(2001) for her Post-Doctoral research work. She is
a Lead International Fellow (2007) and a Fulbright
Fellow (2012). She does action and policy research in
the areas of valuation and environmental modelling
of forest, wetland and agriculture ecosystems and
biodiversity; green accounting; PES, livelihoods
economics; conservation finance. In her career of
30 years she has worked with various Ministries and
Commissions of Government of India and several
national and international funding and research
organizations. She has several publications to her
credit and her many research recommendations have
been internalized in the decision-making process of the
government and creation of conservation instruments.
R. B. LAL
R. B. Lal holds a Master’s degree in Physics and
Forestry, PhD. in Forestry. He is a retired Indian
Forest Service (IFS) officer of the 1975 batch of
Manipur/ Tripura cadre and has worked in various
capacities under the State Government of Manipur
and Government of India. Some of the important
assignments he has held include Member of Faculty
at Indira Gandhi National Forest Academy, Chief
Conservator of Forest, Manipur, Special Secretary
(Forest & Environment), Government of Manipur,
Chief Wildlife Warden, Manipur, Director, Tropical
Forest Research Institute, Dy. Director General, Indian
Council of Forestry Research& Education, Inspector
General of Forest, Ministry of Environment and Forest,
Government of India and Director, Indian Institute of
Forest Management. He had been national focal point
to various international conventions. He has worked
extensively on valuation of eco system services,
forest conservation and wildlife management. He has
about 50 research/technical papers including two
books to his credit. Presently, he is a member on the
Board of Governors of the Indian Institute of Forest
Management.
178
DHAVAL NEGANDHI
dhaval.negandhi@mespom.eu
With postgraduate diploma in Forestry Management and
Erasmus Mundus Master's in Environmental Science,
Policy and Management from three universities across
Europe, Dhaval Negandhi possesses a multi-disciplinary
and macro-level understanding of environmental
concerns. He is currently working as a Subject Expert
at the Centre for Ecological Services Management at
the Indian Institute of Forest Management. His research
interests, publications and areas of expertise include
valuation of ecosystem services (especially those from
forest, wetland and agriculture ecosystems), spatial
analysis, climate change, carbon accounting and
statistical analysis. He has contributed to many policy-
driven research including the recalculation of Net Present
Value rates for forest diversion, cost-benefit analysis for
forest diversion, and regional research to inform High
Level Panel on assessment of resources for implementing
the Strategic Plan for Biodiversity 2011-20 for South Asia.
CHANDAN KHANNA
chandankhanna1984@gmail.com
Chandan Khanna is working as Subject Expert at the
Centre for Ecological Services Management (CESM),
IIFM, Bhopal, which acts as an interdisciplinary centre to
address crucial policy issues on ecosystem management.
He has more than six years of research experience with
major focus on economic aspects of natural resource, in
development planning, environmental management and
policy development. Prior to this position with CESM he
has worked with the Madhya Pradesh State Government
in developing Climate Change Action plan for the state.
Chandan holds a Bachelor of Engineering in Electrical
& Electronics Engineering and Postgraduate diploma in
Forestry Management from IIFM.
GEETANJALI SHAHI
Ecosystem Services Valuation and Accounting of Himachal Forests

179
 Incentives Based Mechanism for Payments for Forest
Ecosystem Services of Himachal Pradesh

Author’s Profiles

MADHU VERMA
mverma@iifm.ac.in

Dr.MadhuVerma is a Biological Science graduate with Masters, MPhil and PhD in Economics
and works as a Professor of Environment & Developmental Economics and Coordinator
for the Centre for Ecological Services Management, Indian Institute of Forest Management,
Bhopal. She has been a Visiting Professor at the University of Massachusetts, Amherst and a
Visiting Scholar at the University of California, Berkeley, USA (2001) for her Post-Doctoral
research work. She is a Lead International Fellow (2007) and a Fulbright Fellow (2012). She
does action and policy research in the areas of valuation and environmental modelling of
forest, wetland and agriculture ecosystems and biodiversity; green accounting; PES, livelihoods
economics; conservation finance. In her career of 30 years she has worked with various Ministries
and Commissions of Government of India and several national and international funding
and research organizations. She has several publications to her credit and her many research
recommendations have been internalized in the decision-making process of the government and
creation of conservation instruments.

R. B. Lal
R. B. Lal holds a Master’s degree in Physics and Forestry, PhD. in Forestry. He is a retired
Indian Forest Service (IFS) officer of the 1975 batch of Manipur/ Tripura cadre and has
worked in various capacities under the State Government of Manipur and Government of
India. Some of the important assignments he has held include Member of Faculty at Indira
Gandhi National Forest Academy, Chief Conservator of Forest, Manipur, Special Secretary
(Forest & Environment), Government of Manipur, Chief Wildlife Warden, Manipur, Director,
Tropical Forest Research Institute, Dy. Director General, Indian Council of Forestry Research&
Education, Inspector General of Forest, Ministry of Environment and Forest, Government of
India and Director, Indian Institute of Forest Management. He had been national focal point
to various international conventions. He has worked extensively on valuation of eco system
services, forest conservation and wildlife management. He has about 50 research/technical papers
including two books to his credit. Presently, he is a member on the Board of Governors of the
Indian Institute of Forest Management.

DHAVAL NEGANDHI
dhaval.negandhi@mespom.eu

With postgraduate diploma in Forestry Management and Erasmus Mundus Master’s in

Environmental Science, Policy and Management from three universities across Europe,
DhavalNegandhi possesses a multi-disciplinary and macro-level understanding of environmental
concerns. He is currently working as a Subject Expert at the Centre for Ecological Services
Management at the Indian Institute of Forest Management. His research interests, publications
and areas of expertise include valuation of ecosystem services (especially those from forest,
wetland and agriculture ecosystems), spatial analysis, climate change, carbon accounting and
statistical analysis. He has contributed to many policy-driven research including the recalculation
of Net Present Value rates for forest diversion, cost-benefit analysis for forest diversion, and
regional research to inform High Level Panel on assessment of resources for implementing the
Strategic Plan for Biodiversity 2011-20 for South Asia.

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 Ecosystem Services Valuation and Accounting of Himachal Forests

CHANDAN KHANNA
chandankhanna1984@gmail.com

Chandan Khanna is working as Subject Expert at the Centre for Ecological

Services Management (CESM), IIFM, Bhopal, which acts as an interdisciplinary
centre to address crucial policy issues on ecosystem management. He has more
than six years of research experience with major focus on economic aspects of
natural resource, in development planning, environmental management and
policy development. Prior to this position with CESM he has worked with the
Madhya Pradesh State Government in developing Climate Change Action plan
for the state. Chandan holds a Bachelor of Engineering in Electrical & Electronics
Engineering and Postgraduate diploma in Forestry Management from IIFM.

GEETANJALI SHAHI
GeetanjaliShahiworked as Subject Expert at the Centre for Ecological Services
Management (CESM), IIFM, Bhopal, which acts as an interdisciplinary centre
to address crucial policy issues on ecosystem management. A Development
professional with over five years of experience in research and consulting working
on a wide range of projects in the domain of Natural Resources Management,
Rural Livelihoods, Forestry, off-grid Renewable Energy and Adaptation Studies.
She has worked intensively with the BoP segment on various aspects such as
alternate livelihoods, demand and need for clean energy, clean drinking water,
improved cook-stoves and the impact of government schemes on this segment.
Her Experience and interest areas include Monitoring and Evaluation, Impact
Assessment Studies, Access to Clean Energy, Ecosystem Services Valuation Studies.
She holds a Masters in Environment and Development Management from Indian
Institute of Forest Management (IIFM), Bhopal.

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 Contact information:
design@innomedia.in, +91-9830012392

Centre for Ecological Services Management

Indian Institute of Forest Management,
P. O. Box 357, Nehru Nagar, Bhopal (462003), M.P., India
Tel: +91-755-2775716 (Ext: 334)
Fax: +91-755-5772878
Email: mverma@iifm.ac.in; cesm@iifm.ac.in
Web: www.iifm.ac.in/cesm

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