Would REDD work in Bolivia?

In Bolivia, agricultural land generates on average three times as much GDP per hectare as standing forest (1), which is one of the reasons why the Bolivian government largely ignores the quarter million hectares of illegal deforestation that occurs every year.

However, forests provide many valuable functions that are not currently included in GDP (e.g. habitat for thousands of plant and animal species; carbon storage to protect against climate change; water capture, storage and cleansing for a cleaner and more stable water flow; recreational and aesthetic values; etc.). As long as all these benefits are not taken into account, natural forests stand little chance against other land uses.

The REDD mechanism intends to tip the balance slightly in favor of forests by recognizing at least one of the values of forest, namely carbon storage. The idea behind REDD is that rich countries would reward poor countries if they manage to reduce carbon emissions from deforestation and forest degradation (below what it would have been in the absence of this mechanism). Any mechanism that promises to simultaneously reduce rural poverty and environmental degradation (with strict safeguards to secure that nobody is harmed by the mechanism) deserves a serious analysis.

The minimum requirements for REDD to work for a poor country are the following: 1) substantial amounts of forests, 2) substantial deforestation, and 3) relatively low opportunity costs of forested land. Bolivia qualifies on all three accounts, with more than 50 million hectares of forest, more than 300,000 hectares of annual deforestation, and typical land prices of $300-600 per hectare (compared to $3,000 in Brazil and $30,000 in the US). With this evident potential, Bolivia has been invited to receive funds to prepare for REDD by both the UN (UN-REDD) and the World Bank (FCPF), with support from several bilateral donors (especially Germany, Denmark and the Netherlands).

However, even if the mechanism makes sense economically (it could bring in billions of dollars for rural development), it also has to be politically acceptable. Whether it is politically acceptable depends a lot on who would benefit from the mechanism, and who would lose.

The most influential parts of the government have intuitively rejected REDD, probably because they suspect that the mechanism would benefit mostly large landowners in the forested Bolivian lowlands, which belong mostly to the opposition.

While this is a very sensible intuition, it is worth doing a more careful empirical analysis of the potential winners and losers from REDD. In order to do this analysis we have developed a neat tool at Conservation International called OSIRIS-Bolivia (Open Source Impacts of REDD Incentives Spreadsheet for Bolivia). The tool divides Bolivia into roughly 120,000 pixels of 3 by 3 km, and provides information on forest cover, deforestation rates, opportunity costs, and all the relevant geographical and socio-economic conditions for each pixel necessary to estimate the effect of REDD under different circumstances (2). Being a little bit outdated due to data limitations, OSIRIS simulates the effects REDD would have caused if the mechanism had been fully working during the period 2001-2005.

Our very first simulation was run to satisfy my curiosity about where REDD might work in Bolivia, and the results look as presented in Map 1:

Map 1: Estimated Gross per capita REDD revenues (USD), by municipality

Source: Map elaborated by Juan Carlos Ledezma based on results from OSIRIS-Bolivia. Notes: Net present value in USD over a 4 year period, assuming a price of $5/tCO2, with compensation made at the municipal level, and the reference level set to Business as Usual.

All the white municipalities in the map either have no significant forest (the highlands of Bolivia) or wouldn’t be interested in participating in a REDD mechanism because agriculture is much more profitable (most of Santa Cruz and Pando). The green and yellow municipalities are the ones who might potentially benefit from a REDD mechanism (at the price of $5/tCO₂; if the price were higher more lowland municipalities would want to participate). Especially the green municipalities would experience very significant gains from REDD, easily doubling per capita incomes. The yellow ones would experience more modest, but still significant, gains.

The rural population inhabiting the colored municipalities represents one third of the total rural population in the country, so two thirds of the rural population wouldn’t receive any benefits. Even with the generous assumption that REDD benefits are distributed evenly across all rural inhabitants in each municipality, 10% of the rural population in Bolivia would receive 90% of the REDD benefits (the Gini coefficient of gross REDD revenues is a whooping 0.922). Approximately 26 municipalities would receive 90% of gross REDD revenues, and only 3 of these municipalities would be among the poorest half of municipalities (as measured by the Human Development Index).

So, with the current focus on compensating reduced deforestation, REDD would tend to benefit a small, relatively rich, rural minority.

Although the REDD mechanism supposedly has built-in safeguards to assure that nobody will be harmed by the mechanism, this is not true according to the OSIRIS simulation.

With an international price of $5/tCO₂(a conservative estimate), and a 20% loss to bureaucracy (also conservative), the REDD mechanism would cause a 22% reduction in deforestation in Bolivia, which is very respectable. However, the reduction in deforestation would be directly associated with a reduction in agricultural production, and as we have all recently experienced, the price of food products is very sensitive to reductions in agricultural production both in Bolivia and in the rest of the world. Thus, according to OSIRIS, a 22% reduction in deforestation would cause a 69% increase in the domestic price of food products. This means that the entire urban population, and especially the poorest, would suffer significantly from the REDD mechanism due to higher food prices. The urban population constitutes more than two thirds of voters, and any political leader would be reluctant to implement a measure harming the majority of voters. In addition, the inflationary pressure this would cause would also be politically unacceptable in Bolivia.

So, the Government’s intuitive rejection of REDD does indeed seem justified. And there are many more problems with REDD than the ones mentioned above.

What the Government doesn’t realize is that there are solutions to all these problems, which would vastly improve the political acceptability of the mechanism and allow Bolivia to receive billions of dollars in compensation for reduced deforestation.

Presenting the solutions to all the problems of REDD is beyond the scope of this short newsletter, but a first step towards finding solutions is at least to be explicit about the problems. Nothing is gained by glossing over the problems and pretending that REDD is an easy and cheap way to combat climate change, because it is not. Likewise, nothing is gained by just rejecting the mechanism on philosophical grounds. The only way forward is to carefully analyze the problems and devise practical solutions. REDD is still in the design phase, and this is the time to tackle potential problems. If REDD is prematurely and uncritically implemented, it will fail miserably, and a great opportunity for saving at least some of the World’s remaining natural forests will be lost.

Do you think REDD in its present form could benefit Bolivia? Leave a reply below.

Lykke E. Andersen is the Director of the Center for Economic and Environmental Modeling and Analysis (CEEMA) at the Institute of Advanced Development Studies (INESAD), La Paz, Bolivia.

(1) Jemio, L. C. & L. E. Andersen (2010) “Insights from Bolivia’s Green National Accounts” Institute for Advanced Develoment Studies, Development Research Working Paper No. 15/2010. December.
(2) OSIRIS-Bolivia is still under development, but will soon be made freely available for anyone who wants to explore the potential effects of REDD in Bolivia.