Chapter 2: State and Trends
Box 2.5.1: The economic value of Kenya’s montane forests
In the 10-year period 2000-2010, deforestation in Kenya’s Water Towers amounted to an estimated 50 000 ha. By 2010 such deforestation of montane forests yielded 250 m3
per ha of timber and fuelwood. Until 2010 the forests were being
deforested at an estimated annual rate of 5 000 ha, causing significant losses in ecosystems services and revenues. Revenue streams from such deforestation provide an incentive for illegal deforestation activities. However, this cash revenue comes at a large cost to the national economy, through losses in regulating services. Whereas the cash value of forest products has a once-off value, the benefits of regulating services in preceding years continue to be felt in the economy in every subsequent year that the national asset, the Water Towers, is degraded. By 2010, the cumulative negative effect of deforestation on the economy through reduction in regulating services was an estimated USD 36 million per year, more than 2.8 times the cash revenue of deforestation.
The largest component of the loss in revenue was attributable to changes in river flows resulting from a reduction in dry-season river flows, which reduced the assurance of water supply to irrigation agriculture. This reduced agricultural output by USD 26 million in 2010 (UNEP 2012a). Reduced river flows also lowered hydropower revenue by USD 0.12 million. Although not a very high value in relative terms, the multiplier effect of hydropower on the rest of the economy is considerable. In 2010, reduction in water quality due to siltation and elevated nutrient levels running off degraded land into freshwater systems reduced inland fish catches by USD 0.86 million and increased the cost of water treatment for potable use by USD 1.9 million. Well-managed montane forest cover reduces malaria prevalence. Incidence of malaria as a result of deforestation is estimated to have cost Kenya almost USD 4 million by 2010. This resulted in additional health costs to the Government of Kenya and through losses in labour productivity. Forest loss is also detrimental to the global carbon cycle. The above-ground carbon storage value forgone through deforestation was estimated at USD 3 million in 2010 (UNEP 2012a).
The benefits of forests have an economy-wide effect with a considerable multiplier effect. An industry that directly depends on regulating services generates demand upstream (for intermediates from other industries) and also supplies inputs to other industries downstream. Taking into account these interdependencies between sectors, the decrease of regulating services due to deforestation caused a total impact of USD 5.8 million in 2010. This means that the cost of limiting regulating ecosystem services as a production factor for the economy was all in all 4.2 times higher than the actual cash revenue of USD 1.3 million (UNEP 2012b).
The challenge for Kenya (and other countries facing natural-resource degradation) is to institutionalise incentives for internalising the benefits of sustainable management of forests. For instance, in the case of the UN’s Reducing Emissions from Deforestation and forest Degradation (REDD+) initiative, a hypothetical carbon value of USD 6/ton provides insufficient economic incentive to compensate for deforestation. However, this analysis shows that the total ecosystem service value of the montane forests far exceeds the carbon-storage value. Carbon, as a proxy for regulating ecosystem services, has a regulating-service multiplier effect of more than seven (UNEP 2012a).
It is clear from the analysis given above that appropriate and well-funded policies, policy instruments and response strategies are required to protect the natural assets that Kenya’s Water Towers represent.
Source: UNEP 2012
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