The Economics of Desertification, Land Degradation, and Drought

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Figure 1.3—Prevention, mitigation, and rehabilitation costs over time Source: Schwilch et al. 2009. Note: SLM = sustainable land management The choice of discount rates and time horizon is crucial, because the size of the discount rate, as well as the length of the considered time horizon, can radically change the results. Discount rates relate to people’s time preference, with higher discount rates indicating a strong time preference and attaching a higher value to each unit of the natural resource that is consumed now rather than in the future. Assume a future benefit of sustainable land management of $10,000. If the discount rate were 3 percent, then the present value of the benefit of $10,000 earned in 10 years from now would only be $7.441. A zero discount rate refers to no time preference at all and the equal valuation of a unit of the resource consumed in the present or in the future. High discount rates, therefore, tend to discourage investments that generate long-term benefits and favor those that create short-term benefits but significant long-term costs. The social discount rate, from the perspective of society as a whole, is usually much lower than the discount rate of individuals; from a societal point of view, the value of a unit of the natural resource consumed by this generation or the next is the same, everything else being kept constant, whereas this does not hold from an individual’s perspective. Further, discount rates can actually differ across individuals, based on socioeconomic factors, attitude toward risk, and uncertainty. When applying the methodology presented in this report, the issue of discounting and time and planning horizons needs to be clearly elaborated. What discount rate to set is primarily an ethical question. Following the argument that present generations have the moral obligation to protect the interests of future generations would lead to rather low discount rates. Actions of today’s generation impose intergenerational externalities, such as loss of biodiversity, on future generations. On the other hand, today’s investments are likely to increase the wealth of future generations, which allows them to more easily address environmental protection, at least as long as environmental damage is reversible. The existence of inflation, time preference, and the opportunity cost of capital suggests that a positive discount rate better reflects societal preferences. Similar to Stern (2006), we propose using a low discount rate (around the 0.5 percent mark) for the economic assessment of DLDD. This kind of value is particularly motivated by the long-term nature of DLDD processes and their impacts; it also reflects the need to assess the costs of DLDD from the perspective of society as a whole—now and in the future. The choice of discount rate for the valuation of environmental goods is essentially an ethical issue, not one of economic calculation only. As stated earlier, the time preference of individuals, especially in developing countries, is often much higher than the value proposed here for the global analysis. For instance, for land degradation, a strong time preference can reflect constrained choices in land management due to poverty, leading to land-degrading rather than land-conserving practices, or due to the land user’s high level of risk aversion. Typically, in poor rural areas, land degradation, poverty, and a high time preference are all interrelated, which can take the form of a vicious circle, as illustrated in Figure 1.4. As poverty increases, land users form ever-higher preferences for the present over the future, thereby 8
mining the land resource further and increasing land degradation. The increasingly degraded land offers less ecosystem services and benefits upon which the land users (and others) depend, with the former sliding deeper into poverty and therefore favoring the present ever more. Figure 1.4—Illustration of the vicious circle connecting poverty, discount rates, and land degradation Land Degradation Source: Author’s creation. High Discount Rate Poverty The spiral effects depicted in Figure 1.4 can be escaped. An essential dynamic to stop is the ever-increasing level of poverty. There are several examples of schemes that target this dynamic through payment for ecosystem services, in particular when the land resource being held by the poor represents a type of international public good. More and more, public policies aim to make markets work better by integrating ecosystem service values, where possible, into price signals. This technique helps internalize externalities in a way that helps pay for public benefits derived from ecosystem services of land. For example, addressing the lack of secure land tenure rights that contribute to landdegrading behavior is another way to internalize externalities. Fiscal instruments, such as taxes and subsidies, can help in that they consider the social costs and benefits instead of only private ones. Taxes might be imposed on unsustainable land management practices (or a subsidy may be offered for beneficial, land-conserving practices), so that the full environmental damage (benefit) to society is considered in the land use decision. Other innovative financial measures include incentive- and market-based approaches, such as the aforementioned payment schemes or trading (for example, emission trading or the clean development mechanism). The United Nations Reducing Emissions from Deforestation and Forest Degradation (UN-REDD) program is one example of a mechanism aiming to transfer payments to regions of the world with rich rain forest areas, with the goal of halting deforestation and mitigating its climate change impacts. However, the success of all these measures 4 and programs is embedded in their setup and in the rules governing them—the institutional arrangements mentioned in Figure 1.1. These institutional arrangements determine whether the payments provide the appropriate incentives to land users not to deplete the land resource. Payments for ecosystem services and the role of other incentive structures to decrease land degradation are discussed in Section 4. The remainder of this report has the following structure: In Section 2, the report describes global assessments of land degradation and desertification, as well as the causes, processes, and consequences linked to DLDD. In Section 0, we take an economic perspective on DLDD, describing concepts of the economic valuation of the environment and reviewing numerous studies that carried out economic valuations of DLDD. Based on the review, we propose a methodological framework to assess the costs of action versus inaction based on marginal changes in DLDD. This framework draws 4 See Requier-Desjardins, Adhikari, and Sperlich (2010) for a more detailed review of instruments for the management of externalities suitable to prevent or mitigate land degradation and desertification. 9
Page 1 and 2: IFPRI Discussion Paper 01086 May 20
Page 3 and 4: Contents Abstract vii Acknowledgmen
Page 5 and 6: List of Figures 1.1—Conceptual fr
Page 7 and 8: ABSTRACT Attention to land degradat
Page 9 and 10: ABBREVIATIONS AND ACRONYMS ADB Asia
Page 11: SCAR Soil Conservation in Agricultu
Page 14 and 15: In the present report, the conceptu
Page 16 and 17: Framework: Confronting Action versu
Page 18 and 19: understand these arrangements in or
Page 22 and 23: on assessments at the micro level (
Page 24 and 25: does not clearly distinguish betwee
Page 26 and 27: Figure 2.1—GLASOD (1991) global a
Page 28 and 29: International Earth Science Informa
Page 30 and 31: Box 2.1—Continued Normalized Diff
Page 32 and 33: Figure 2.4—Loss of annual NPP, GL
Page 34 and 35: Figure 2.7—Annual loss of NPP in
Page 36 and 37: Table 2.2—Nitrogen application ra
Page 38 and 39: Figure 2.12—Areas affected by hum
Page 40 and 41: output—which is a selection of su
Page 42 and 43: GLADIS also underlines the linkage
Page 44 and 45: Box 2.2—Continued A map on global
Page 46 and 47: Table 2.3—Global land degradation
Page 48 and 49: Table 2.3—Continued Project and d
Page 50 and 51: Table 2.4—Continued Location 10 2
Page 52 and 53: Table 2.6—Extent and severity of
Page 54 and 55: National Level Policies As discusse
Page 56 and 57: Such support has also been directed
Page 58 and 59: Migration, either as outmigration o
Page 60 and 61: The preceding discussion shows the
Page 62 and 63: Results Correlation Analysis Consis
Page 64 and 65: Figure 2.23—Relationship between
Page 66 and 67: Effects of Land Degradation On-Site
Page 68 and 69: soils and higher land productivity.
Page 70 and 71:
Acknowledging the work of GLADIS, a
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health, education, security, enviro
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Box 3.1—Recent major economic ass
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An appropriate economic tool for a
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Figure 3.4—Cost of action and cos
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enefit—for example, income. This
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Figure 3.6—Ecosystem services fra
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Replacement Cost Approaches The rep
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Box 3.2—Measuring land degradatio
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land degradation and conservation m
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Flooding and Aquifer Recharge Richa
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year (Diao and Sarpong 2007). Sonne
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Bringing together the different cos
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This section discusses the most imp
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governing land use patterns (Leeman
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promotion of community forest manag
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Box 4.3—Reducing emissions from d
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Soil Nutrient Depletion Soil nutrie
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that the yields of salt-tolerant wh
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Figure 5.3—Forest area as a perce
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Figure 5.5—Per capita water stora
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Introduction 6. CASE STUDIES Five c
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Salinity The effects of salinity on
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Third, to correctly decide which ac
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Costs of Action and Inaction We eva
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The NGOs and religious organization
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have a strong influence on NRM (And
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We estimated the cost of action (de
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Figure 6.15—Costs of action and i
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Of interest to us is the strategy t
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7. PARTNERSHIP CONCEPT The review o
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degradation. All this should be don
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Finally, the global assessment of D
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the experience of and lessons learn
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Table 7.3—Example of E-DLDD resea
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8. CONCLUSIONS Since the publicatio
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lowest in the region. From a socioe
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Table A.1—Land degradation assess
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Table A.2—Continued Author Region
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Table A.3—Continued Author Countr
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Page 152 and 153:
Page 154 and 155:
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Table A.5—Costs of land degradati
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Figure B.1—Land use systems of th
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REFERENCES Abelson, P. 1979. Cost B
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Benin S., E. Nkonya, G. Okecho, J.
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Clark, E. H. 1985. The Off-Site Cos
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De Jager a., D. Onduru and C. Walag
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Foster, V., and C. Briceño-Garmend
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Holden, S. and H. Lofgren. 2005. As
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Lapar, M. L., and S. Pandey. 1999.
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Nachtergaele, F., M. Petri, R. Bian
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Pender, J. L. 2009. “Food Crisis
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Sauer, J., and H. Tchale. 2006. Alt
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Tan, Z. X., R. Lal, and K. D. Wiebe
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———. 2010. “Assessment of L
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