Pieter J. H. van Beukering,fig
Herman S. J. Cesara and Marco A.
a Institute for Environmental Studies,
Vrije Universiteit, Boelelaan 1115, Amsterdam 1081 HV, The Netherlands
b Center for the Study of Institutions,
Population and Environmental Change, Indiana University, 408 N.
Indiana, Bloomington, IN 47408, USA
Received 19 March 2002; revised 15 July 2002; accepted
21 August 2002. ; Available online 24 January 2003.
The Leuser Ecosystem in Northern Sumatra is officially protected
by its status as an Indonesian national park. Nevertheless, it
remains under severe threat of deforestation. Rainforest destruction
has already caused a decline in ecological functions and services.
Besides, it is affecting numerous economic activities in and around
the Leuser National Park. The objectives of this study are twofold:
firstly, to determine the total economic value (TEV) of the Leuser
Ecosystem through a systems dynamic model. And secondly, to evaluate
the economic consequences of deforestation versus conservation,
disaggregating the economic value for the main stakeholders and
regions involved. Using a dynamic simulation model, economic valuation
is applied to evaluate the TEV of the Leuser National Park over
the period 2000–2030. Three scenarios are considered: `conservation',
`deforestation' and, `selective use'. The results
are presented in terms of (1) the type of benefits, (2) the allocation
of these benefits among stakeholders, and (3) the regional distribution
of benefits. The economic benefits considered include: water supply,
fisheries, flood and drought prevention, agriculture and plantations,
hydro-electricity, tourism, biodiversity, carbon sequestration,
fire prevention, non-timber forest products, and timber. The stakeholders
include: local community members, the local government, the logging
and plantation industry, the national government, and the international
community. The regions considered cover the 11 districts involved
in the management of the Leuser Ecosystem. With a 4% discount
rate, the accumulated TEV for the ecosystem over the 30-year period
is: US $7.0 billion under the `deforestation scenario',
US $9.5 billion under the `conservation scenario' and
US $9.1 billion under the `selective utilisation scenario'.
The main contributors in the conservation and selective use scenarios
are water supply, flood prevention, tourism and agriculture. Timber
revenues play an important role in the deforestation scenario.
Compared to deforestation, conservation of the Leuser Ecosystem
benefits all categories of stakeholders, except for the elite
logging and plantation industry.
Author Keywords: Natural resource valuation;
Conservation; Deforestation; Indonesia
- 1. Introduction
- 2. The Leuser Ecosystem
- 2.1. Threats
- 2.2. Scenarios
- 2.2.1. Deforestation
- 2.2.2. Conservation
- 2.2.3. Selective use
- 2.3. Changes of ecological functions
- 2.3.1. Reduction of forest area
- 2.3.2. Increased erosion
- 2.3.3. Water retention
- 2.3.4. Reduced pollination and pest
- 2.4. Stakeholders
- 2.4.1. Regency level
- 2.4.2. Societal level
- 3. Methodology
- 3.1. Overall approach
- 3.1.1. Defining the boundaries of
- 3.1.2. Identifying impacts that are
- 3.1.3. Physically quantifying the
- 3.1.4. Calculating monetary values
and conducting a sensitivity analysis
- 3.2. Calculating the overall value
- 4. Benefits
- 4.1. Water supply
- 4.2. Fishery
- 4.3. Flood and drought prevention
- 4.4. Agriculture and plantations
- 4.5. Hydro-electricity
- 4.6. Tourism
- 4.7. Biodiversity
- 4.8. Carbon sequestration
- 4.9. Fire prevention
- 4.10. Non-timber forest products
- 4.11. Timber
- 5. Results
- 5.1. Overall total economic value
- 5.2. Sectors
- 5.3. Regencies
- 5.4. Stakeholders
- 5.5. Sensitivity analysis
- 6. Conclusions
The Leuser Ecosystem in Northern Sumatra (Indonesia) covers 25,000
km2 and consists of a national park and a buffer zone
(figure 1). Deforestation in this ecosystem
is widespread, despite its formally protected status (van
Schaik et al., 2001). This is believed to have severe ecological
consequences, such as the probable local extinction of the Sumatran
orangutan, rhinoceros, tiger and elephant. In addition, the local
economy could become structurally damaged as crucial ecological
functions of the rainforest decline. Consequent damage caused
by floods, erosion and loss of water supply can greatly exceed
the revenues derived from timber extraction and land conversion.
The objectives of this study are to determine the total economic
value (TEV) of the Leuser Ecosystem and evaluate the consequences
of deforestation. A dynamic simulation model is applied to evaluate
the TEV of the Park over the period 2000–2030. The originality
of this study lies in the dynamic link exposed between ecological
functions and their related economic values. In addition this
study provides a breakdown of impacts on different stakeholder
groups and geographic units.1
To determine both the complex systems dynamics of tropical rainforests
and the stakeholder elements, the authors have closely collaborated
with social and ecological experts working in Sumatra. The scenarios
have been determined through consultations with local policy makers
involved in the management of the national park. These include:
(1) the `conservation' scenario, implying that protection
of the rainforest is strictly enforced and that logging will be
excluded as an economic activity; (2) the `deforestation'
scenario, implying a continuation of the current trend of clear-cutting;
and (3) the `selective use' scenario, in which logging
of primary forest is substantially reduced and replanting of logged
forest is assumed to be compulsory. The results are presented
in terms of the types of benefits, the allocation of these benefits
among stakeholders, and the regional distribution of these benefits.
The paper is structured as follows: Section 2
elaborates on the general background of the Leuser Ecosystem,
including its main threats and the foreseen scenarios. Section
3 provides a background of the applied methodology. Section
4 addresses the benefits outlined in the analysis. The results
of the valuation process are presented in Section
5. Finally, conclusions are drawn in Section
2. The Leuser Ecosystem
Despite its protected status, the Leuser Ecosystem is under enormous
pressure. Its lowland forests are being rapidly logged and non-timber
forest products (NTFP) are being overexploited. Furthermore continued
illegal poaching will cause animal species to verge on extinction.
An additional threat is the tourist industry which is being developed
in an unsustainable manner. At present, 20% of the Leuser National
Park has already been degraded (GIS Unit, LDP 2000). Most of this
deforestation is taking place through legal or semi-legal conversion
of former logging concessions into plantation estate crops (mainly
oil palm and rubber). In addition the army is allegedly involved
in largescale clear-cutting just inside the park boundaries. The
remaining conversions are transmigration areas (often including
a plantation component), other forestry plantations, infrastructure
areas (roads and bridges), and regions of spontaneous settlement
with associated small-scale agriculture. Both local governments
and business interests view this development as the first step
towards `developing' the region.
Three macro-economic scenarios have been selected for further
In the `deforestation' scenario, the current trend of
controlled and uncontrolled logging and unsustainable harvesting
of NTFP is assumed to continue. Eco-tourism will not be developed
and international interests to invest in conservation and carbon
sequestration funds declines. Furthermore natural functions of
the rainforest decline which impacts local community use of these
functions. If the current lack of enforcement remains, this development
is quite likely to occur.
The logging of primary and secondary forest entirely ceases in
the `conservation' scenario. No timber revenues and only
a limited amount of NTFP accrue. Eco-tourism is developed to its
maximum allowable potential and international interests to invest
in conservation funds remain high. Carbon sequestration funds
increase and natural functions of the rainforest are maintained
for community use.
2.2.3. Selective use
In the `selective use' scenario, logging of primary forest
is substantially reduced and replanting of logged forest is assumed
to be compulsory. Although the area of primary forest will decline,
the overall forest area remains constant due to the increase of
secondary forest. In addition, the harvesting of NTFP is actively
developed. Despite efforts to develop eco-tourism, the tourist
sector will not reach levels found in the conservation scenario,
due to lower levels of biodiversity. Likewise, there is less international
interest to invest in conservation and carbon sequestration. The
natural functions of the rainforest (such as water supply and
flood prevention) are only partially maintained.
2.3. Changes of ecological functions
As shown in the first column of Fig. 4, deforestation changes
several ecological functions. The assumptions underlying these
changes are described below. Because the study focused predominantly
on the economic dimensions of deforestation, the ecological relationships
have been somewhat simplified.
2.3.1. Reduction of forest area
In the deforestation scenario increased logging, especially during
the first decade, is assumed. After 2010, the logging intensity
declines because only the less financially-attractive highland
forests remain. This non-linear process is depicted in Fig. 2.
Due to the steep slopes of the highlands, only areas of low lands
are converted into plantations. This causes an increase in so-called
`waste lands', mainly consisting of grasslands (i.e.,
alang alang). In the conservation scenario, the allocation of
different forms of land use remains the same. In the `selective
use' scenario the area of primary forest will decline. This
decline is compensated for by an increase in secondary forest.
Because replanting is not successful in every soil type, ultimately
wastelands will develop.
2.3.2. Increased erosion
Population pressure and inappropriate agricultural techniques
cause local communities to encroach on the park. Given the mountainous
landscape, people often farm steep slopes where soil depths are
only between 50 and 100 cm. The removal or alteration of the forest
vegetation has immediate repercussions. Studies have shown that
the removal of the forest floor litter layers alone may cause
a 20-fold increase in soil erosion (Edwards,
1994). In the Leuser Ecosystem, annual losses of up to 1,350
tonnes ha-1 of maize cultivation area have been
measured. Within a few years, these lands will be unfit for any
agricultural, forestry or tourist activity (BZD, 2000a). In this
study, increased erosion has been incorporated indirectly as a
degrading impact on agriculture. This influence varies for the
type of crop and region considered.
2.3.3. Water retention
Deforestation reduces the water retention function of rainforests
thereby increasing the frequency and intensity of floods and droughts.
Moreover, due to the change in the micro-climatic conditions,
less water is generated in perpetuity. These effects are clearly
recorded: compared to 10 years ago, approximately 50% of the streams
in Aceh have less than 50% of the typical water flow in the springtime.
Furthermore 20% of the flows are completely dry throughout the
year. For North Sumatra the situation is comparable: on average
80% of the rivers contain less than 50% of the usual water flow.
Roughly 15% of the rivers have fallen completely dry (BZD,
Fig. 3 shows how, due to reduced water availability, local communities'
consumption of surface and groundwater provided by the Leuser
Ecosystem declines in the deforestation scenario. If the rainforest
is conserved, the availability of water is assumed to be sufficient
to meet the demands of the local communities.
2.3.4. Reduced pollination and pest control
Rainforest flora and fauna provide indirect benefits by creating
and maintaining the forest environment. In many ways they sustain
the ecological services (e.g., pollination, decomposition, seed
dispersal, seed predation, herbivory and predation) on which human
livelihoods depend. They influence the reproductive success of
plants, contribute to soil fertility and serve as regulators of
pest populations (Redford,
1996). A typical example of this function in Leuser is the
role of fruit bats. At least 443 products useful to man are derived
from 163 plant species that rely to some degree on bats for pollination
and seed dispersal. The destruction of the habitat of the fruit
bat would, for example, lead to the disappearance of the popular
durian ( Mickleburgh et
al., 1992). The degree of pest control is assumed to be proportional
to the amount of remaining primary and secondary forest. Thus,
as more forest is logged, the production costs of agriculture
increase, while production levels fall.
The stakeholder dimension can be viewed in two ways: (1) at the
societal level (e.g., local, national, international level), and
(2) at district or regency level (i.e., Kabupatens). At both levels
stakeholders can gain or lose from deforestation depending on
location-specific characteristics (for instance whether the stakeholder
is located upstream or downstream from a certain logging concession).
Both levels are considered here.
2.4.1. Regency level
As indicated by the map in Fig. 1,
the study region is limited to the 11 regencies that are part
of the Leuser Ecosystem. Of these 11 regencies, 4 belong to the
province of North Sumatra and 7 belong to the province of Aceh.
Each regency benefits in a different manner from the Leuser Ecosystem,
depending on the structure of the economy, population demographics,
land cover, vulnerability to floods and fires. To illustrate these
distinctions, and the results are presented at the level of the
2.4.2. Societal level
Table 1 shows how the changes in benefits
are likely to affect the different stakeholders. An important
question that is addressed by the stakeholder analysis is whether
the potential imbalance between costs arising at the local level
and benefits accruing at the national and international levels
should be neutralised by compensating people living in or near
protected areas for their losses (Ferraro
and Kramer, 1997).
Five categories of stakeholders are identified: (1) local communities
(households, small-scale farmers and entrepreneurs); (2) local
government (a responsible body that maintains infrastructure and
collects local taxes); (3) the elite logging and plantation industry
(the owners of concessions); (4) the national government (a law
enforcing body); and (5) the international community (representing
global concerns for poverty, climate change and biodiversity loss).
The road towards sustainable development involves improved integration
of the environment into economic decision-making, in particular
by using economic techniques to appraise projects and policies.
In this study, economic valuation is used as the main analytical
tool to compare the advantages and disadvantages of three scenarios
in Leuser. Nowadays, most economists agree that the value of natural
resources depends not only on the market prices of their direct
uses, but also on all other components that generate value in
the broadest sense. This is reflected in the concept of the so-called
TEV. In this section, a brief description of the applied methodology
3.1. Overall approach
In order to make sound policy decisions with regard to environmental
problems, decision-makers need information on the benefits and
costs of alternative options. An evident way to organise this
information is to consider the underlying processes, starting
with the cause, followed by the resultant physical impact and
finally the social and economic effects. This is known as the
`impact pathway approach'.
The impact pathway for Leuser is shown in Fig.
4 indicating the physical and socioeconomic processes resulting
from deforestation of the Leuser Ecosystem. The impact pathway
approach proceeds in a series of methodological steps. These include
(1) defining the study boundaries (i.e., impacts on ecological
functions/services); (2) identifying the physical impacts that
are economically significant; (3) quantifying the significant
socio-economic effects; and (4) calculating monetary values and
conducting a sensitivity analysis. In reality this `ideal'
approach can rarely be followed completely. Often there is lack
of information. Some impacts can be quantified reasonably well
while others can be estimated only by order of magnitude. In these
cases, it is particularly important to undertake a sensitivity
analysis in order to understand which factors and assumptions
influence the overall results the most. Further, the quantitative
analyses can be complemented with more qualitative considerations.
3.1.1. Defining the boundaries of the study
To maintain a transparent and comprehensible overview of the
TEV of the Leuser Ecosystem, only three scenarios are analysed
(see earlier explanation). The temporal boundary of the project
is 2000–2030. This period leaves enough time for the main
environmental impacts to come into effect, while it is sufficiently
short to estimate future developments. The geographic boundaries
have two dimensions: the area where ecological impacts occur (the
boundaries of the Leuser Ecosystem) and the area where changes
in benefits take place. The beneficiaries are not limited to the
Leuser Ecosystem. For example, tourism benefits for travel agents
abroad may change as a result of deforestation. This economic
loss, however, is partly avoided because rather than not making
the journey, tourists may simply choose another destination.
3.1.2. Identifying impacts that are economically significant
Effects may be economically significant or insignificant. Only
the former category is relevant to this appraisal. Inevitably,
judgement must be used in deciding what is and is not significant.
To judge the magnitude of environmental effects, the following
criteria are used: (a) the location, timing and reversibility
of the effect; (b) the potential effect on the natural, human,
chemical and physical environment; and (c) whether the effect
is positive or negative.
3.1.3. Physically quantifying the significant impacts
To assist in the prediction of the approximate physical consequences
of the scenarios, a dynamic simulation model was developed. The
model approximates the main effects of each scenario on the various
benefit categories and evaluates the changes for the various stakeholders
(i.e., local/national/international agents and the involved regencies).
To calculate these impacts, simplifying assumptions have been
adopted for certain aspects (for example, climatic/hydrological
conditions and future economic activities).
3.1.4. Calculating monetary values and conducting a sensitivity
Having established and tabulated the full range and significance
of the effects, changes are valued in monetary terms. The main
impact pathways, including nine categories, will be covered in
the following sections. The last column of Fig.
4 shows the specific valuation technique applied to estimate
the economic value of a particular effect. The selection of a
valuation technique depends on the characteristics of the cost
or benefit to be valued. We lack the space to elaborate on the
techniques applied. Dixon
and Brown and Bann
(1998) provide a practical and detailed description of the
steps involved in applying the methods described, specifically
for the valuation of tropical rainforest.
3.2. Calculating the overall value
Most scenarios yield benefits at least intermittently over their
lifetimes, and usually they incur costs over that lifetime. Because
the distribution of these costs and benefits may vary for different
scenarios over time, they need to be converted to net present
values (NPVs) by discounting both categories of values. The choice
of the appropriate discount rate remains a controversial issue
because it may have a significant impact on the outcome of the
analysis. The usual way to deal with this is to apply different
discount rates so as to allow the decision-maker to choose the
most appropriate rate. Following Pearce
and Ulph (1995) we adopt a 4% discount rate as a starting
point and report values for other discount rates as well.
Not all effects can be expressed in monetary units and some effects
can only be assessed qualitatively. Therefore, NPVs of different
scenarios cannot always be directly compared. This underlies part
of the variation in earlier studies investigating the NPV of rainforest
conversion. Therefore, the NPV based on the quantifiable parts
of the TEV should not be the sole criterion for selection.
We acknowledge that there are many conceptual and empirical problems
inherent in producing TEV estimates for the Leuser Ecosystem under
the given scenario conditions. For example, the valuation approach
taken here assumes that there are no sharp thresholds, discontinuities
or irreversibilities in the ecosystem respond functions. Also,
different valuation techniques have been used simultaneously to
estimate the TEV. Although we have carefully prevented overlapping
values, such an approach is rather uncommon in valuation studies.
Studies that have attempted similar exercises have been criticised
in the scientific community for their disregard for the significant
uncertainties in the data and their underlying assumptions (e.g.,
Constanza et al., 1997).
We stress, however, that given the uncertainties involved, we
may never have a precise estimate of the TEV of the Leuser Ecosystem.
Nevertheless, the crude estimate we have assembled is a useful
starting point for further research.
Because the focus of the study is limited to the first-order
effects, the valuation of individual benefits of the Leuser Ecosystem
can be considered as separate and independent analyses. This assumption
is plausible because benefits are largely compatible. The analyses
are based on a number of methodological and empirical assumptions
(van Beukering et al., 2001),
which will be summarised in this section.
4.1. Water supply
As mentioned, the first signs of reduced water replenishment
have already been seen in and around the Leuser Ecosystem. Groundwater
reservoirs are rapidly being exhausted and several rivers fall
completely dry during part of the year. This has severe consequences
for the local community. Both households and industries need to
anticipate water shortages and higher costs for water.
The economic damage of reduced water supply from the Leuser Ecosystem
for households and industries is based on a `quantitative'
component (volume of water provided per m3 of ecosystem)
and a `price' component (focusing on the minimal cost
(Rp. m-3)). The `quantitative' component
refers to reduced water availability. In the deforestation scenario,
this water shortage increases (Fig. 3) and demand will have to
be met by another water source. The dependency on water from Leuser
declines from 74% in 2000 to 12% in 2030. In the conservation
scenario, the water supply is sufficient to meet the increasing
demand. The `price' component of the water value refers
to the cost-reducing impact of water supply. In the deforestation
scenario, water will be retrieved from more costly sources with
prices increasing by 0.3% annually. In the conservation scenario,
prices remain constant at their 2000 level.
Coastal fisheries and aquaculture in and around Leuser are very
important. They provide a large portion of the animal protein
in local people's diets and generate ample foreign exchange. Their
annual value currently exceeds US $171 million. If the Leuser
Ecosystem is degraded, the decline in fresh water may have a detrimental
impact on the functioning of the fishery sector. In the valuation
of the Leuser fishery sector the following subdivisions are used:
(1) maritime fishery, (2) brackish water fishery, (3) brackish
water aquaculture, and (4) freshwater aquaculture.
The dependency of fisheries on Leuser varies across these different
categories and between the regencies. The average share of the
fishery sector dependent on Leuser is estimated at 2% for the
maritime fishery, 9% for brackish water fishery and 100% for brackish
and freshwater aquaculture (van Beukering et
al., 2001). This generated an economic value of US $33 million
in the year 2000. In the `conservation' scenario, this
value is assumed to remain constant. In the `deforestation'
scenario, support from the Leuser Ecosystem is expected to decline
at an annual rate of 1% and the prices are assumed to increase
at 0.5% annually.
4.3. Flood and drought prevention
Flooding generally becomes more frequent and more destructive
as a result of converting forests to other uses. Annual storm
flows from a secondary forest are about threefold higher than
from a similar-sized primary forest catchment area (Kramer
et al., 1995). In Aceh, local farmers have reported an increasing
frequency of drought and damaging floods due to degradation of
the water-catchment area. In May 1998, over 5,000 ha of intensive
rice growing areas were taken out of active production. This was
the result of the failure of 29 irrigation schemes due to a water
shortage. Furthermore, floods in December 2000 cost the lives
of at least 190 people and left 660,000 people homeless. This
cost the Aceh province almost US $90 million in losses ( Jakarta
Post, 2000a). Logging companies are slowly recognising their
role in increased flooding and have made large donations to support
the victims ( Jakarta Post,
For this study, the following three damage categories of floods
and droughts are identified: (1) residential houses; (2) infrastructure
(such as bridges and roads); and (3) mortality.2
The probability of a flood occurring in the area is assumed to
increase linearly with the area of deforestation.
4.4. Agriculture and plantations
Agriculture is a major source of income for the local communities
around Leuser. Large rubber and oil palm plantations in northern
Sumatra play a major role in the national economy. Almost all
remaining lowland forest has been given out officially for oil
palm plantations. Yield decline has been recorded, however, in
several Leuser regencies. This decline can be ascribed mainly
to a deterioration of nutrients in the soil, along with soil erosion,
drought and floods, and an increase in weeds. Clearly, these causes
of decline are linked to the deforestation of Leuser. For example,
the logging of water-catchment areas in Leuser is found to be
responsible for taking 94% of failed irrigation areas out of production
A simplified dose–response relationship is applied to
estimate agricultural losses due to flooding, erosion and droughts.
In the case of flooding, damage is estimated based on the following
parameters: area of inundation, and depth, duration, seasonality,
intensity and frequency of flood events. Kramer et al. (1995)
calculated that all 654 ha would be lost over a period of 100
years. For year 1, this results in a damage of US $51700, given
an average annual net return of US $453 on 1 ha. The damage in
the `with park' scenario is only US $50800. Therefore,
the NPV of conservation for avoided crop loss is US $900 per year.
To determine the economic value of the agricultural sector of
the Leuser Ecosystem, three types of crops are considered: (1)
rice, (2) vegetables and (3) cash crops.
Deforestation is assumed to result in a reduction of output volumes
and an increase in the production costs. As shown in Fig. 5, deforestation
has two types of impacts on the volume of agricultural production.
On the one hand, converting forestland to other uses will have
a positive effect on the overall agricultural yield. However,
steeps slopes in the high lands and soil acidity in peat swamps
makes agriculture in these areas unviable in the long term; production
will decline after a few years. Also, deforestation will have
negative structural effects on off-site agriculture. We therefore
assume an annual decline in off-site agricultural output of 2%.
In addition, the costs of production are assumed to increase by
0.1% per year.
Several regencies, such as Aceh Tenggara., have hydro-electricity
plants that use water from Leuser. The plants operated in Aceh
Tenggara are designed as small-scale economic activities, and
may therefore be considered as supplementary to the conservation
scenario. It appears that the operational conditions for the hydro-plants
have worsened in recent years. Increased erosion of the waterways
has forced the operators to remove excessive sediments from their
turbines. This has led to frequent interruption of the power supply,
higher operational costs and damage to the blades of the turbines.
One plant closed down due to lack of water supply. Most of these
disturbances are considered abnormal and may therefore be attributed
To determine the value of power generation dependent on the Leuser
Ecosystem, the amount of electricity potentially produced through
hydropower technologies is estimated at 22%. In the conservation
scenario, this share will stay constant over time. In the deforestation
scenario, this share is assumed to decline from 22 to 16%. Furthermore,
the cost of electricity generation is assumed to increase by 2%
Low-impact eco-tourism can be one of the most important sustainable,
non-consumptive uses of Leuser, thereby giving local communities
powerful incentives for conservation. Wildlife tourism accounts
for approximately 20–40% of international tourism and in
1988 there were between 157 and 236 million international eco-tourists
1996). Fig. 6 depicts the number of visiting tourists in the
period 1989–1999, showing the dramatic decline since 1995
in response to the security problems in Aceh. Nevertheless, given
the opportunities to view wildlife such as orang-utans, some experts
view eco-tourism as a major potential source of revenue for communities
living around Leuser (van
To improve our understanding of the motivations and preferences
of local and foreign tourists, a survey was conducted in 2000–2001.
Special attention was paid to spending patterns and willingness
to pay (WTP) for the conservation of the Leuser Ecosystem. Table
2 provides an overview of the results. Interestingly, the
differences in spending patterns between local and foreign tourists
are much lower than expected. Respondents were also asked about
their WTP a `general' donation for the purpose of biodiversity
conservation in Indonesia, regardless of whether they would ever
visit a natural park. This value represents the non-use value
of biodiversity. Here, a large difference between local and foreign
tourists can be observed. The main reason for not providing any
donation is not so much a disinterest in nature but more a distrust
in the institution that collected the donation.
The number of tourist days is assumed to decline annually by
5% in the deforestation scenario. Furthermore, the spending and
WTP for the entrance fee is assumed to decrease by 2% annually
due to reduced attractiveness of Leuser. The local tourist sector
also fears that orang-utans will become locally extinct. In the
conservation scenario, tourist numbers are assumed to increase
gradually until a maximum is reached, with the WTP and spending
increasing by 2% annually. Note that few tourists travel to Sumatra
just to visit Leuser. Therefore, only half of the ticket cost
is included in the calculation.
People living in areas with a high biodiversity value tend to
be relatively poor. Hence, the highest economic values for biodiversity
are likely to be found within institutions and people in wealthy
countries. Funds can come from several sources, including bio-prospecting,
the GEF and grants from international NGOs (with donations possibly
being proportional to biodiversity value) (Wind
and Legg, 2000). In the Leuser Ecosystem, both research and
conservation interests are active. The Leuser Development Programme
was initiated in 1996 as a seven year EU-funded programme with
annual costs of US $6 million or Rp. 57.7 billion ( LDP,
1994). Of the total amount, 22% is spent on European input
(consultants, monitoring) and 78% is used on Sumatra-based inputs
(labour, equipment, training, etc.). It is assumed that 50% of
European inputs benefit the local community given that certain
EU funds are conditional. The programme will continue to run on
the same financial basis if the Leuser National Park remains in
good condition. If deforestation continues it is expected that
the EU will gradually pull out.
Similar assumptions hold for the current national and international
research and bio-prospecting interests in the Leuser Ecosystem.
The valuation of this research benefit is based on actual expenditures
within the park. Although such expenditures do not represent economic
value per se, they do indicate a minimum WTP to take advantage
of the park resources (IIED,
1994). Also, the potential return from commercial drugs derived
from plants species is one strong argument for identifying and
preserving the world's biodiversity. About 25% of all Western
prescription drugs and 75% of developing world drugs are based
on plants extracts. To determine the bio-prospecting value, we
used several literature sources such as Pearce
and Simpson, and Nunes
and van den Bergh (2001). The estimates referring to the value
of land for medicinal plants vary substantially from location
to location. In the case of the Leuser National Park we have assumed
an intermediate value of US $1 ha-1 of primary forests.
The other types of forest are ignored.
4.8. Carbon sequestration
Anthropogenic increases in the concentrations of greenhouse gases
(such as CO2) in the atmosphere are widely believed
to lead to climate change. Carbon sequestration by rainforest
ecosystems therefore has an economic value, since the carbon fixed
in the ecosystem reduces atmospheric concentrations. For example,
according to Aylward et al.
(1995), following Pearce
(1990), conserving 1 ha of tropical forest would be worth
$2,000 in avoided damage.
Each type of conversion generates a different amount of carbon
release (Brown et al., 1993). Combining the
prevailing conversion pattern in Leuser with standard carbon release
values gives these releases. Estimates of the marginal damage
costs range between US $6.3 and 228 per tonne of carbon. In this
study, the most recent estimates from the FUND model are adopted
( Tol, 1999). The carbon
value in Indonesia is set 50% lower due to the difficult investment
climate, leading to a price of Rp. 50000 (US $5) for 1 tonne of
4.9. Fire prevention
The forest fires that engulfed vast areas in Indonesia in 1997
and 1998 were a true disaster. A prolonged dry season caused by
El Nino created conditions for uncontrollable forest fires, often
initially started by local people as part of slash-and-burn agriculture.
Nearly 10 million ha burned, exposing some 20 million people across
Southeast Asia to harmful smoke-borne pollutants. Economic damages
due to tourism and transportation losses, destruction of crops
and timber, health care costs, and other costs have been estimated
at around US $10 billion (Barber
and Schweithelm, 2000).
To what extent does primary rainforest have a fire prevention
function, and thus an additional value for preventing economic
damage? There are various factors that make disturbed forest more
prone to fires than primary forests. The likelihood that a forest
will burn depends on the level of fire hazard and fire risk: (1)
fire hazard is a measure of the amount, type, and dryness of potential
fuel in the forest. Logged forest has relatively large amount
of dry logging wastes lying around; (2) Fire risk is a measure
of the probability that the fuel will ignite. In the presence
of abandoned logging roads, which provide easy access to otherwise
remote forests, the fire risk is greatly increased when settlers
use fire for land clearance.
Two impact categories for fires are identified. These include
(1) damage to the local economy, and (2) damage to the international
economy (e.g., Singapore and Malaysia). The main question is:
would damage from fires change if the forest in the Leuser Ecosystem
were degraded? In other words this addresses the avoided damage
from an intact forest. To calculate the avoided damage for the
local economy, we multiplied the total average local damage of
a fire event for a specific regency with the probability that
the event will occur. The average damage is assumed to grow proportionally
with the local economy for each regency. The probability of a
fire occurring in the area due to deforestation is determined
by the current probability of fire events in different forms of
land use multiplied by an indicator of the current composition
of land uses. For example, a fire event in a primary forest is
assumed to occur once every 50 years. In contrast, fire events
in grasslands are assumed to occur every five years.
4.10. Non-timber forest products
NTFP can provide local communities with cash as long as exploitation
does not surpass a threshold level. Here, we assume that harvested
NTFP in Leuser does not exceed this threshold, although in reality,
this may not be the case. An analysis by Homma
(1996) of NTFPs in Brazil suggests that in small markets,
extractive activities can survive. However, as markets grow, such
as in the Leuser Ecosystem, supply from the extractive sector
becomes inadequate, substitutes are developed and the extractive
economy can eventually collapse. Moreover, increased market demand
may lead to short-term overexploitation and even to local extinction
of plants and animals in high demand ( Arnold
and Pérez, 1998).
Annual values range from US $5 ha-1 in the Brazilian
Amazon to US $422 ha-1 for the Peruvian jungle. Here,
we generated the value of NTFP by using local field surveys, as
well as expert judgements from LDP staff and local statistics.
Three types of products are identified, for which production and
prices are given in Table 3. They are
categorised according to their value. We assume that in the `deforestation'
scenario, overexploitation of NTFP will occur. As a result, a
short-term increase in harvested NTFP will be observed in the
first decade after which this sector collapses. This phenomenon
can already be seen for rattan, turtles and cobras (van
Dijk et al., 1999).
The total timber value is derived by applying the market price
for a unit of timber to the estimated quantities that could be
sustainably harvested from an area of forest (Bann,
1998). In Leuser, this condition of sustainability does not
necessarily hold because the purpose of this study is to determine
the costs and benefits of unsustainable logging practises, while
the conservation scenario assumes a strict ban on logging. Note
that the costs of harvesting and transporting timber must be deducted
from the market price to establish the net standing timber in
the forest. The cost of extraction is assumed to be US $17 m-3
(Brown, 1999). Market
prices should also be corrected for any known market and policy
failures. Timber prices in Indonesia are far below international
standards due to subsidies, non-tariff barriers and because the
market is flooded with illegal timber. Red meranti, for example,
is currently sold for US $50 m-3; without distortions
it could sell for US $80 (Brown, 1999). The
rent for a cubic metre sold at US $80 is roughly US $58. To establish
the economic value of timber, an approach comparable to that applied
to NTFP was used.
A future increase in wood prices is a real threat for Indonesia.
In 1995, the first signs of a national wood shortage were noticed.
A study by the World Bank
(1995) stressed that the remaining virgin forest in companies'
concessions will last no more than 10–15 years. In addition,
it is doubtful that the conditions for regenerating forests will
allow for adequate supply beyond that period. The pattern of logging
in the three scenarios is shown in Fig. 2.
We assume that the harvesting efficiency of meranti, hardwood
in general and other types of wood from primary forest is 0.5,
5 and 2 m3 ha-1, respectively. For
secondary forest the logging efficiency for these species is much
lower, at 0.25, 2.5 and 1 m3 ha-1,
respectively. To determine the value of the harvested timber we
assume a round wood/plywood ratio of 2:1 (Monk
et al., 1997).
The results are presented in several forms: (1) TEV at different
levels of discounting; (2) distribution of TEV among different
sectors; (3) distribution of TEV among different regencies; and
(4) distribution of TEV among different stakeholders.
5.1. Overall total economic value
By aggregating the net benefits over time, the TEV for the individual
scenarios can be determined. Fig. 7 shows the annual net benefits
for the scenarios over the period 2000–2030. Until 2010,
the deforestation and selective use scenario generate higher socio-economic
benefits than the conservation scenario. This is the result of
two underlying mechanisms: (1) large revenues are generated from
increased logging and harvesting of NTFP, and (2) the negative
impacts of deforestation are still manageable. After 2010, however,
the net annual benefits of conservation outweigh the benefits
of increased logging. The `low-hanging-fruits' have been
picked and their branches destroyed. The forest that is left is
difficult to reach and therefore less attractive to logging industries.
Moreover, the negative effects of declining water retention, reduced
pest control, increased erosion, and more frequent floods and
droughts, now start to take their toll. The net annual benefits
of the conservation scenario, on the other hand, increase as the
growing economy becomes more efficient in utilising the `goods
and services' of the Leuser Ecosystem. Various sectors, such
as the tourist industry, agriculture, and hydro-electricity, gain
from the existence of the rainforest. They both expand their activities
and generate higher per unit benefits (Fig. 7).
Based on the annual benefits the TEV can be calculated. The choice
of the discount rate is crucially important for the calculation
of the NPV and hence for the TEV. Fig. 8 shows the TEV for the
three scenarios as a function of the discount rate. Discount rates
ranging from 0 to 15% have been used. The higher the rate, the
more future benefits will be discounted away. Fig. 8 shows the
converging TEV of the deforestation, conservation and selective
use scenarios with increasing discount rates. This confirms that
the former scenario generates high benefits in the short-term
while the benefits of the conservation scenario materialise in
the long run. Although the curves converge, the NPV of the scenarios
only coincide at a 15% discount rate. This implies that within
the time frame and the range of discount rates considered, the
conservation scenario remains largely superior from a TEV perspective.
The results of this study are in line with results from previous
research. All values of different land use types lie between US
$500 and 7,000 ha-1, depending on type of conversion
and discount rate.
The TEV comprises numerous benefits of ecosystem goods and services
provided by Leuser Ecosystem. The composition of the accumulated
benefits is shown in Table 4. The configuration
varies widely between the three scenarios. A trivial difference
between the scenarios is the role of timber, which is significant
in the deforestation scenario but absent in the conservation scenario.
What is also typical is the fact that the average net value for
agriculture is higher in the deforestation scenario. This is the
result of the short-term encroachment of farmers after the forest
has been cleared. Besides timber and agriculture, all other benefits
are higher in the conservation and selective use scenario. The
most important benefits in these latter two scenarios include
water supply and flood prevention. In the selective use scenario,
NTFP comprise an important share of the TEV.
Table 5 presents the distribution of
the TEV across the 12 regencies. The allocation of the benefits
depends on geographical characteristics, the size of the economy
and the level of dependency on the park. Aceh Utara and Aceh Tengah
receive only a small share; Langkat and Deli Sardang generate
a high TEV. The regencies in North Sumatra are least affected
by the negative impacts of deforestation. All regencies in the
province of Aceh, however, remain net losers in the deforestation
scenario. Typically, most of the political and military power
in the region is concentrated in North Sumatra. This may be considered
the driving force of this unbalanced distribution of losses of
Table 6 shows the distribution of the
NPV among the stakeholders for the different scenarios. Several
typical features can be observed. The local communities are by
far the main beneficiaries of the Leuser Ecosystem. As such, their
share will grow in the conservation scenario. As expected, deforestation
benefits mainly the logging industry in the short run. In the
long run, however, deforestation also harms the wealthier stakeholders
to a certain extent. As owners of large plantations and industries,
they suffer negative consequences of reduced ecological services
from the Leuser Ecosystem. The local and national government may
also gain in the short-term by collecting part of the rent from
the harvested timber. In the long run, however, infrastructural
damages increase while tax income decline. The international community
only benefits from conservation of Leuser. Both the biodiversity
and sequestration values are important gains for developed countries.
A striking element is that the elite (logging) industry collects
a much larger share of the total value in the deforestation scenario
(23%). If the Leuser Ecosystem were strictly conserved, their
share would only be 11%. This reduction in value for the elite
industry in the conservation scenario contrasts with benefits
for the local and international community. The power structure
of the elite (logging and plantation) industry and the socio-spatial
distribution of the local and the international community, however,
prevents the conservation scenario from being realised. For similar
reasons, compensation of the latter by the former group is constrained.
5.5. Sensitivity analysis
A large number of assumptions have been made in order to generate
the results given data, budget and time constraints. These assumptions
need not be problematic as long as the results are relatively
robust vis-à-vis changes in the assumed parameter values.
Several crucial parameters are tested for robustness (van
Beukering et al., 2001). These include population growth,
the deforestation rate and the value of timber and water. None
of these parameters change the results fundamentally. Therefore,
the conclusions still hold.
Economic valuation has proved to be a strong and useful tool
in the analysis of welfare changes for the different scenarios
in the Leuser Ecosystem. Several lessons can be learned from the
analysis: (1) with a 4% discount rate, the accumulated TEV for
the ecosystem over the 30-year period is: US $7.0 billion under
the `deforestation scenario', US $9.5 billion under the
`conservation scenario' and US $9.1 billion under the
`selective utilisation scenario';. (2) Conservation spreads
the benefits of Leuser equally among regencies and thus prevents
further social conflict, while deforestation widens the regional
income gap and thus may be a source of conflict. This may form
a strong incentive for the regencies to develop and enforce a
common plan; and (3) Finally, conservation promotes social and
economic equity because it mainly supports the underprivileged
majority of society. Deforestation widens the gap between rich
Despite these positive features of conservation, deforestation
continues uninterrupted in the Leuser Ecosystem. The main reason
for this destruction is the strong political power of the logging
and plantation industries as well as the wide dispersion of the
main beneficiaries of conservation. This stops the most economically
desirable scenario from occurring and prevents the losers of deforestation
being compensated by those who gain.
The authors would like to thank the staff of the Leuser Development
Programme. In particular the support of Kathryn Monk and Mike
Griffith is much appreciated. We would also like to thank Jack
Ruitenbeek and Joshua Dickinson for providing very useful comments
in the review process. Finally, we are grateful to Annabelle Aish
for her language advice.
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2 The individual
values of impacts are estimated to be US $3000 per residential
house, US $5000 for 1 km of road, and US $15000 for a mortality
case. The first two values are based on local prices while the
latter value was derived through benefit transfer of the value
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Source: Ecological Economics Volume 44, Issue 1, February
2003, pp. 43-6