The Economics of Desertification, Land Degradation, and Drought

Box 4.3—Reducing emissions from deforestation and forest degradation and clean development
mechanism as examples of vertical integration to change land management patterns
Recent globalization and global change have accentuated the importance of vertical integration (Berkes 2002).
Carbon offset and other forms of the payment for ecosystem services (PES) program have created opportunities
for building vertical linkages for land management. Horizontal and vertical institutional organization has been
identified as one of the major approaches that will allow small land operators to participate in the carbon market
and other PES programs (see whole issue of Mountain Forum Bulletin, 2010; Capoor and Ambrosi 2008).
One mechanism to reduce carbon dioxide emissions from deforestation (a form of land degradation) is
the Reducing Emissions from Deforestation and Forest Degradation (REDD) scheme, launched by the United
Nations Framework Convention on Climate Change (UNFCCC) at the COP-13 (Conference of Parties) meeting
in Bali. By using market and financial incentives to reduce the emission of greenhouse gases from forest
degradation, REDD offers an opportunity to utilize funding from developed countries to conserve forests in
developing countries. Although its original objective was to reduce greenhouse gases, it can also deliver “cobenefits,”
such as biodiversity conservation and poverty alleviation. Impacts of REDD on the ground still have
to be measured, as in most countries (such as Nepal, Nicaragua, and Indonesia), REDD is in a pilot phase.
The Clean Development Mechanism (CDM) is another tool for vertical linkages across countries
aiming to reduce carbon dioxide emissions and forest degradation. Countries that have to reduce emissions
according to the Kyoto Protocol can buy certified emission reductions (CERs) from countries that have access
rights for emissions. Through this exchange, emissions are reduced in areas where reduction is cheaper, while
local users gain from forest conservation. However, certification for these programs has high entry barriers,
leaving out a number of potential users.
Summary
The purpose of this section was to embed land users’ decision to “degrade” the land or to invest in
land conservation into a broader institutional context. Institutions, which are defined as the formal and
informal rules governing economic production and exchange (North 1991), play a mediating role and
can help explain why the same drivers of degradation can lead to different outcomes (for example,
population pressure leading to both degradation and improvement). The concept of levels of
institutions indicates at which level different schools of economic thought are focusing in their
analysis. This presentation of layers, together with the listing of key groups of actors, set the scene for
looking more closely at some key institutional arrangements and policies affecting land use decisions.
The most important types of actors involved in land management are direct land users,
landowners, governments, custom institutions, industries, beneficiaries of ecosystem services, NGOs,
international organizations and development agencies, research institutions, and academia. A global
assessment must consider all types of actors and how they interact with each other.
Among the strongest incentives for land users are property right structures, which do not
necessarily need to be formalized but which should give sufficient long-term perceptions of security
and incentives to invest in land productivity. The discussion on links between poverty reduction and
land degradation briefly outlined this important link, with causalities running in both directions. There
is potential in reducing poverty through conservation methods; however, adaptation does not always
seem to work (Nkonya et al. 2009). Market opportunities also factor strongly in explaining why some
actors invest in land conservation (for example, off-farm employment with higher wages; Woelcke
2003), as well as explaining what users choose as an optimal rate of degradation.
Institutions play a key role in shaping the actions or inaction of land users. However, the
effectiveness of local institutions is heavily influenced by national-level policies. Decentralization
policies, in particular, have played a pivotal role in mandating local institutions to manage natural
resources more effectively. In addition, local institutions require capacity strengthening to make them
more effective. Establishing horizontal and vertical linkages should improve institutional learning and
sustainability and should be considered when designing institutional reform. As policies try to cope
with complex multiequilibrium environmental and social systems, they should aim for flexibility to
deal with changing circumstances (for example, climatic variability).
The complexity of the institutional setup presented in this section reflects the complexity of
land use decisions and their consequences. Understanding the causes of inaction (or of inappropriate
actions) is the key to delivering effective land degradation policies. It also has a direct impact on the
costs of action against land degradation by ensuring a path of least resistance to adoption of the
measures by land users.
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