Too cut & dried

Too cut & dried

"States like Madhya Pradesh (mp) must be compensated at least in proportion to the forest cover that it has protected, which is far more than the national average", said Digvijay Singh, ex-chief minister, at a National Development Council meeting in 2002. The question was raised again in November 2004, when the Planning Commission held consultations with state governments as part of its mid-term appraisal of the Tenth Five-Year Plan.

Conserving forests has been India's key priority for some time now. In colonial times and after, the State appropriated resources from local communities. Over years, logging or mining led to rampant degradation. If the British stripped the forests of Ratnagiri in coastal Maharashtra to make ships and railway lines, independent India sold its forests for a pittance to the pulp and paper industry. This was the extractive phase.

Then the country changed tack. It passed the Forest Conservation Act, 1980; this act centralised decision-making over forests, only the central government could now sanction the diversion of forest land for non-forest purposes (making roads or power stations or dams). The hitherto rampant 'diversion of land' stopped, but deforestation couldn't be adequately controlled. So, in the 1990s, the Supreme Court stepped in, imposing checks on how forests were to be 'worked' (see box: Fell blow). But most states did not really understand what conservation-oriented forestry was all about. Consequently, revenue generation from forests has virtually dried up.

Consider India's export and import of forest products. In 2000-2001, India exported wood and forest-based products worth Rs 4,459 crore; major export earners were rubber and its products, paper, paperboards and printed books. In that year, imports stood at Rs 12,177 crore, including Rs 2,000 crore spent on importing raw wood. In other words, imports were 3 times higher than exports; the country spent precious foreign exchange on buying wood and other forest-based products from other countries. The trend is revealing (see graph: Peculiar process). Till the early 1990s, the exports and imports of forest produce were steadily increasing, but since 1998-1999 the gap between imports and exports has increased exponentially.

This skew is but one aspect of a many-layered crisis forest-rich states are today facing (see infographic: Hydra-headed crisis). The urgency is such that the 12 th Finance Commission -- set up to look into the allocation of resources between states and the Centre -- has taken cognisance of the need to compensate forest-rich states. It has set aside Rs 1,000 crore as grants-in-aid, to be given to states over five years in proportion to the forest cover they possess. According to B D Suyal, conservator of forests (policy and law), Himachal Pradesh, the grants-in-aid are a nominal amount compared to what forest-rich states are actually asking as compensation.

Nevertheless, the commission has accorded recognition to an important fact: someone is bearing the costs of keeping forests intact. Also, for the first time in India, a tangible -- economic -- value has been put on the many, intangible, benefits a forest provides.

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Just monetise it

Because most of the values it provides are not bought and sold in the market, it can be cut down, either for the wood or to use the land on which a forest stands for agriculture. Either action leads to externalities -- economic impacts occurring when those taking the decision (to chop or change land-use) do not bear all the costs of their action. When a piece of forest land is ploughed, for example, the conversion makes sense to the land owner, but also damages fisheries downstream, increases flooding and chokes rivers and dams with sediment, so creating costs for others. Moreover such actions actually reduce, and not add to, a country's total wealth. "The assumption is that more development projects correspond to greater benefits. But, in fact, benefits are often lower than costs," says Kanchan Chopra, Institute of Economic Growth, adding: "This is especially true if one takes into account the actual value of forests and costs borne by local communities for loss of forests."

The loss of a forest is fundamentally economic in nature. So it is that its conservation needs to be addressed in economic terms. For forests to be conserved, they need to be perceived as being more valuable than the usual, standard, utilities they provide. Once these other benefits are given a value that people can use to compare with other uses, the cost of cutting a forest becomes huge. This is what valuation does: by expressing the other benefits in terms of money, it assigns a value to forests most people can understand. Such valuation then provides those protecting a forest -- be it states maintaining the forest cover or local communities protecting a forest, thus providing all its services for whomsoever it may concern -- an empirical platform to negotiate a price for its actions.

Consider Himachal Pradesh, or Uttaranchal, following the former's footsteps. Their efforts to protect Himalayan biodiversity are now enumerated. They have now begun asking for payments for the benefits their forests provide -- freshwater for drinking or irrigation, controlling silt, watershed protection, checking glacier melt -- to downstream states. Uttaranchal has even calculated the value of added carbon content due to the recent net increase in its forest cover -- a global benefit -- as ranging from Rs 66 crore to Rs 86 crore.

Fortunately today, toting up the ecological benefits of a forest is an established branch of economics. In India, there exist studies that use a variety of methods whereby the benefits of a forest can be calculated. Everyone directly or indirectly dependent on a forest -- forest dwellers, state governments, a nation, international conservation groups, member-countries of global environmental treaties -- figures in such a calculation. Economists prefer to use a combination of methods. For two reasons, point out Kanchan Chopra, and Gopal Kadekodi of the Institute for Social and Economic Change: one, forests are heterogeneous, with types and sub-types, and each has a unique set of goods and services. Two, each forest has a range of functions; while some can be attributed market values, others cannot, and need to be estimated. Broadly, the methodologies follow two principles -- revealed or indirect values, and stated or direct preference values. Both are based on the value perceived by stakeholders. (see box: Ways of evaluation). Even the Supreme Court has made feeble steps towards valuation (see box: Courting NPV).

Valuation makes a case for increasing allocation to the forestry sector so that more money can be spent on protection and regeneration. A sensible approach would lead to the capture of this value by local communities, in the form of payment for the benefits from forests they protect -- where tribal, or forest-dependant, communities in forest-rich states would be paid for their standing trees, not cut ones.

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Taking root

I n India, forest evaluation is an emergent practice. And those that have done so have realised its immense utility: the benefits from Himachal Pradesh's (hp's) forests, Verma's evaluation shows, are 2.61 times the value of the growing stock, 980 times the total expenditure incurred by the state's forestry sector and 2,607 times the revenue realised by the forests annually. Armed with this knowledge, in 2002 -- before the Supreme Court began to considering the need to levy a price on forests lost to development projects -- hp began to charge an environmental value tax, levied on each hectare of forestland diverted for private and industrial purposes, at the rate of Rs 5 lakh to Rs 8 lakh per ha. The state is now demanding compensation from the Centre for being an important carbon sink. Its forest sector is undergoing a sea change; hp 's draft environmental policy now speaks of developing ways to provide incentives to local communities that protect forests.

Is this feasible?
Elsewhere, too, evaluating forests is an established practice (see box: Real conservation). In the late 1980s, New York, usa, realised it had to act to safeguard the quality of its drinking water. They could set up water filtration plants, at a whopping us$4 billion to us$6 billion, and spend another us $300 million annually in maintenance costs. So they went for another option: paying a mere us$1.4 billion to protect the forests the water came from.

New York's nine million residents get 90 per cent of their drinking water from the Catskill and Delaware watersheds close by. The smaller and more industrialized Croton watershed supplies the rest. The quality of water they provided was historically very good but subsequently concern arose about microbial contamination. In 1989 the United States Environmental Protection Agency said that all surface water supplies had to be filtered, if not treated naturally.

This led the city water authority to address the changing agricultural practices of farmers in the Catskill/Delaware catchment, the cause of the problem. A Watershed Protection and Partnership Programme was created. It pays landowners to introduce soil and water conservation practices. People are given incentives to 'retire' buffer areas near streams from production through cost-sharing agreements; farmers are paid us$100 million a year to minimise water pollution -- a pittance compared to the treatment plant option. Within five years, 93 per cent of farmers in the watershed had chosen to participate.

It is feasible
When there is a direct link between providers of services and those who benefit from them, the reason for paying and receiving incentives is very clear. The International Institute for Environment and Development and Winrock have been working on setting up such systems in India, focusing on hp and Madhya Pradesh, to facilitate arrangements for payments for watershed services in three sites -- two at the micro level and one at the macro level -- by mid 2006.

Another example of where a new system could be established is the Greater Himalayan National Park (ghnp), which comprises the catchment of four rivers and numerous downstream hydroelectric project beneficiaries. Hydropower companies are aware of the link between upstream catchment protection and silt flowing into their systems. They incur huge expenses in de-siltation. Control of silt flow and sedimentation, which considerably reduce the life of projects, can be an essential watershed service for them. The Bhakra Beas reservoir in hp silted up in nine years instead of the projected twenty-eight; the Larji project would have to spend over Rs 50 crore on desilting; for Nathpa-Jhakri it is 200 crore. Thus, their interest in forest protection upstream is high.

gnhp also has high recreational and ecotourism value. hp has adopted a new ecotourism policy in 2001 with the forest department as the nodal agency. It aims to involve local people in tourism, create a direct stake in the park's conservation.

Bhopal: for supply's sake
In recent years, Bhopal has been facing an increasing water crisis with the drying up of the Upper lake, a part of the Bhoj wetlands, during summer. Winrock has undertaken a study of Bhopal, where over 200,000 households depend on water mainly from this lake and the Kolar dam. Increased siltation of the lake was traced to intensification of agriculture in the catchment area -- which comprised almost entirely of forests about 30-40 years ago. The Bhoj Wetlands project attempted to tackle the problem of siltation and eutrophication of the lake, but nothing was done to change the land-use practices of poor farmers.

The Kolar dam supplies nearly 60 per cent of Bhopal's water. The dam itself receives water from the Kolar river, which originates from a thickly forested area 70 kilometres upstream. About 60-70 villages in this catchment area put significant biotic pressure on these forests -- they are largely poor tribal communities dependent on the forests for their fuelwood, fodder and non-timber forest produce.

Municipal water supply agencies depend on upstream catchments for water supply. To maintain watershed protection services in the long run, an incentive-based system is what would motivate the communities in the catchment areas to protect the forests. Also, providing incentives to farmers to shift from pesticide based farming to horticulture and organic farming, for example, would be so much cheaper than bringing water to Bhopal from the Narmada. Bhopal currently makes no payments at all for the watershed protection services it receives from these forests. Water tariffs in the city are highly subsidised.

Madhu Verma, in her valuation of the Bhoj wetlands, found that consumers were willing to make additional payments if reliable water supply was ensured. Potential beneficiaries in Bhopal were the water supply agencies, fisherfolk, boatmen, washermen and the people of the city. Livelihood benefits were calculated using incomes or the market price of products. On the other hand, it costs Rs 9.5 crore to supply drinking water -- this is how much is being paid for lack of forest services. She estimated the value of preventive measures people use to avoid water borne diseases: Rs 12 lakh, borne for cost of illness, and Rs 1.24 crore for purification. Verma's study shows Bhopal was willing to pay Rs 4.8 crore to enjoy better recreational facilities from the Bhoj Wetland. The presence of the Upper Lake was found to increase property values by 50 per cent for lake front homeowners.

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Rethink

This is a huge step ahead, but leads directly to a question: why should a forest acquire value only when it is slated to be lost? If the npv the Court has assigned -- Rs 5.8 lakh for each hectare (ha) of scrub forest land; Rs 7 lakh per ha for open forest and Rs 9.2 lakh per ha of dense forest -- is applied to standing forests in states, what would India's forest cover be worth? (see table:Rs 5,92,01,90,20 lakh). It is completely inconceivable that the Centre would (be able to) cough up such an amount and distribute them to states. And if the Centre did, forest conservation would remain the dole game it is today.

In this situation, the positive thing to do would be to create a system of localised payments for the ecosystem services of forests, necessarily involving local communities. There are four basic services for which there is a clear demand: one could reward people for conserving biodiversity, providing carbon sinks, protecting watersheds, and maintaining scenic beauty or recreational values. But the only way this can happen is if these services have real values attached to them.

Paying for ecological services is not a new phenomenon. Many countries are already on this road to conservation. And they are on this road because, wherever forest evaluation has been applied, the 'command and control' approach of governments have failed. Add to this the problem of limited state budgets and decreasing funding from external agencies, and localized payments could prove a longer-term solution to financing conservation in India.

Speaking of the payments the sc wants made, Chopra, who has carried out numerous valuations, believes "The money needs to go back to the people dependant on forests -- as incentives to protect forestland or in compensation for its loss." Local communities obviously have the highest stakes. Thus, a 'beneficiary pays' principle would better suit standing forests, where they pay who need the services, in the form of incentives to local communities.

Other developing countries have initiated incentive-based conservation, recognizing that degradation of forests is primarily financial, and that the main players in forest conservation are local communities. The basic approach is to change the behaviour of land-users, encouraging them to adopt environmentally benign landuse and discouraging them from harmful land uses. All of these involve externalities as well as the need to price ecological services correctly: if Catskill farmers had not changed their methods, for example, New York City would not have faced the question of how to keep its water potable. But when an externality affects a relatively small, recognisable group of people, negotiation between the parties can often resolve the matter.

Projects going on in the Changar region of Kangra district in Himachal Pradesh are exploring micro-level intra- and inter-village payments. A model thay have dreawn inspiration from is that of the older traditional systems of water harvesting -- like the kuhl or canal system -- had elaborate mechanisms for management, with intricate upstream-downstream rules, rights and responsibilities negotiated over time. Significantly, at the macro level, project initiators found that mechanisms for payments for watershed protection services -- by downstream beneficiaries such as hydroelectric power projects and city municipal water supply agencies to communities protecting or depending on forests located in upstream areas or to Joint Forest Management committees -- could bring substantial livelihood and equity benefits to local communities.

The right to land Over 300 pes (payment for environmental services) systems have been inventoried in the world. The diversity of pes approaches is mind-boggling. In other words, not only is pes eminently applicable, but also it is not a monolith. India's approach too, needs to be tailored to its own circumstances. The main peculiarity here is that our poorest people, many of whom live in forests, have no rights. Since many pes systems link land use to the provision of services -- payments are based upon clear land rights -- its application without a land rights regime for those who protect forests could create more alienation.

The example of the participatory watershed management programme in India is particularly relevant here. Improved irrigation and increased agricultural productivity were immediate benefits of the programme. But these were benefits that only landholders enjoyed; the main incentive for the landless was employment as labour while work related to project lasted. Once this got over, they no longer had a stake in protecting the watershed, or the forests in them. Also the value of marginal lands improving led to more powerful groups putting a claim on it.

Lack of secure rights to land or even to forest produce makes forest conservation extremely complex. There are many examples in India where people protect forests, but for this communities need -- at least -- access and withdrawal rights, and management rights. But it is also true that incentives do not have to be land-based, nor do they have to be direct cash payments, as was shown in Sukhomajri, where water rights were delinked from land. The pani panchayats in Maharashtra also work this way. Such innovative approaches to expand rights -- including rights to environmental benefits, for example -- are needed.

To move ahead, J Rao Matta and John Kerr, who did an empirical study of Joint Forest Management (jfm) -- also about giving people incentives to protect forests -- in Tamil Nadu say that "there is no discussion on compensating those who live on forest fringes for environmental services they provide through improved protection and ecological restoration". jfm in India has faltered because incentives to people, tied just to forest produce, were too small to make it sustainable. The strategy was that local communities would manage forests if they were compensated with resultant forest produce; many states elaborately talked of 'benefit sharing'. In reality, either the highly degraded forests provided little by way of tangible benefits, or the 1996 ban on felling came in the way of gaining from harvesting timber. And various rules in different states -- that keep changing -- restrict access to non-timber forest produce.

This points to the fact that the process needs to be accompanied by enabling policy. One that ensures benefits also go to the poorest, and one that takes into account certain subsidies -- for example those that encourage agriculture to the extent that it becomes more profitable to cut forests to grow crops -- as well as conflicting forest regulations and other blind spots that would riddle holes in any attempts to move in a new direction.

Putting a true value to forests could transform the way forest conservation is done. Methods exist. But does the political will exist that trusts local communities?

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Uncertain future