Friday, July 8, 2016

Cash for Carbon: A Randomized Controlled Trial of Payments for Ecosystem Services to Reduce Deforestation

This paper evaluates a Payments for Ecosystem Services (PES) program in western Uganda that offered forest-owning households cash payments if they conserved their forest. The program was implemented as a randomized trial in 121 villages, 60 of which received the program for two years. The PES program reduced deforestation and forest degradation: Tree cover, measured using high-resolution satellite imagery, declined by 2% to 5% in treatment villages compared to 7% to 10% in control villages during the study period. We find no evidence of shifting of tree-cutting to nearby land. We then use the estimated effect size and the "social cost of carbon" to value the delayed carbon dioxide emissions, and compare this benefit to the program's cost. 
Addressing deforestation in developing countries is, thus, a key pillar of international climate policy. REDD+ (Reducing Emissions from Deforestation and Forest Degradation) is a United Nations mechanism through which developing countries are rewarded financially for preservation of forestland; annually, about $500 million dollars flow to developing countries (Silva-Ch´avez, Schaap, and Breitfeller, 2015). The Paris Agreement negotiated in 2015 bolstered the role of REDD+ in climate policy (United Nations FCCC, 2015).
Over the two-year pilot program from 2011 to 2013, for each hectare of forest they owned, enrollees received 70,000 Ugandan shillings (UGX), or $28 in 2012 US dollars, per year if they complied with the contract. The implementing NGO employed forest monitors who conducted spot checks of enrollees’ land to check for recent tree-clearing. The program also offered additional payments in exchange for planting tree seedlings.
File:Kibale, Uganda.jpg
We estimate that for each $0.25 in payments, or $0.57 in total program costs, a ton of CO2 emissions due to deforestation was delayed. We then calculate the externality benefit of the delayed emissions, using a “social cost of carbon” (SCC) of $39 (in 2012 US dollars) per ton (Interagency Working Group on Social Cost of Carbon, 2013). The SCC is the benefit of permanently averting CO2 emissions, while this 2-year program’s benefit was to delay deforestation and emissions. To quantify the delay, we need to make assumptions about deforestation after the program ends, which we do not observe in our data. Our base case scenario assumes PFOs deforest at a 50% higher rate than usual after the program ends, converging to the control group after four years. The social benefit of the delayed CO2 emissions is then $1.11 per ton, or roughly 2 times the $0.57 program cost.

We repeat the calculation for a range of assumptions. At one extreme, if PFOs catch up on their backlog of avoided deforestation the moment the program ends, the benefitcost ratio falls to 0.7. At the other extreme, if PFOs pause their deforestation during the intervention and then resume deforesting at their typical rate, not an accelerated rate, after the program ends, then the benefit cost-ratio rises to 12.3. This last scenario, which represents a permanent delay in deforestation, is the most relevant one for extrapolating to a permanent or longer-duration program.
On average, revenue from timber products in the previous year is 110,000 UGX or $44....per PFO who enrolled, the average payment was $113 ($36 ÷ 31.9%)... in the treatment group, total revenue from timber products is lower by 2.89 million UGX ($116), or 23 log points, and there is a 4 percentage point (27%) lower likelihood of receiving any revenue from timber in the past year.
Monitoring costs were $88 per program enrollee, or $28 per eligible PFO. We assume an additional cost per eligible PFO of $30 for marketing of the program and overall program management. We further assume a 10%
transaction fee for PES payments. Combining these assumptions, the administrative costs amount to $0.41 per averted ton of CO2
...our best guess of the total program costs at scale-up—incentive payments plus administrative costs—is $0.57 per averted ton of CO2

by Seema Jayachandran, Joost de Laat, Eric F. Lambin, Charlotte Y. Stanton
National Bureau of Economic Research (NBER)
NBER Working Paper No. 22378; Issued in June 2016

via/hat tip Chris Mooney

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