Valuing the trees through the forest

How do you value an ecosystem? Putting a dollar value on natural systems such as forests has long beset economists.

Forests provide “non-use values,” such as the pleasure of knowing that a natural system exists, and recreational values, such as hunting, fishing and wildlife viewing. But recently, ecologists have also sought to value a broader set of “ecosystem services,” or the goods and services that ecosystems provide to a market economy.

Ecosystem services related to land include conventional food and forest products, as well as the potential to produce biofuels. But ecosystems also have the ability to store carbon. If a price on carbon were established, an incentive to enhance carbon storage would be created. This new ecosystem service would need to be balanced against conventional food, forestry and biofuels production services. As the number of ecosystem services expand and are fully priced in a market, the demand for land naturally increases.

Researchers from the MIT Joint Program on the Science and Policy of Global Change have used an economic model to explicitly represent recreation value of ecosystems and their carbon storage value. The study examines how demand for ecosystem services will affect land use, food prices and the prospects for biofuels production.

Their study found that growth in demand for biofuels increases when a carbon tax is implemented, leading to increases in CO₂ emissions from the conversion of forests to cropland. However, if that carbon tax also includes emissions from land use change, the resulting economic incentive is enough to avoid deforestation. And, if a tradeable credit program to incentivize CO₂ sequestration on land is implemented, significant reforestation occurs, such that land use becomes a large net sink for CO₂.

This is a surprising result, as land use emissions currently make up about 20 percent of total emissions. But, with carbon taxes and a tradeable credit program, land use would mitigate emissions by storing carbon in forests and replacing fossil fuels with biofuels. In fact, the analysis shows that if carbon storage were credited, land conversion would eventually store as much as one third of the entire global energy emissions over the coming century.

Unfortunately, it’s not that simple — such policies would imply some difficult tradeoffs. In the scenario with full carbon pricing, substantial reforestation and biofuels production occurs, but at the expense of conventional agricultural products. The two new non-food demands for land cause commodity prices to increase, especially impacting livestock prices. The livestock sector is particularly affected because both the rental prices for grazing land and the price of grains used to feed livestock rise. As food prices rise, poor consumers will be considerably affected and may suffer.

“Since conventional agricultural goods are priced in markets, the higher [food] prices projected are efficient in the sense that they reflect the marginal value of storing carbon that would be lost if more land were devoted to food production,” explains John Reilly, co-director of the MIT Joint Program and co-author of the study. He adds, “However, the market values do not take into account equity considerations, and so in the absence of food programs worldwide such higher prices would place a disproportionate burden on lower income people.“

Some of the resulting increase in food prices may be offset by future agricultural technology. But even with such technologies, increasing food prices would still be a substantial departure from the historical trend of falling food prices. As new demands for land stem from an expanded view of ecosystem services, special attention will be needed to counteract the impacts on development and food security.

“It is a dilemma where climate change itself may have negative consequences for food production but extensive reforestation to limit climate change may also squeeze food production by limiting the land available for conventional agriculture.

Thrown on top is a demand for land for biofuels production that could put further pressure on food prices,” Reilly says. “The results are a cautionary tale in embracing efficient market solutions in a world where there are not ready mechanisms to deal with inequitable outcomes.”