50207 THE WORLD BANK ENVIRONMENTAL CRISIS OR SUSTAINABLE DEVELOPMENT OPPORTUNITY? Transforming the charcoal sector in Tanzania A Policy Note This note is a technical document of the Staff of the World Bank's Environment and Natural Resources Unit for the Africa Region and does not represent an official position of the World Bank or of its Executive Board. Comments and correspondences can be addressed to Christian Peter (cpeter@worldbank.org). Photographs by Klas Sander, except Pages 55 & 56 by Bariki Kaale. Layout & design Petra Sutila THE WORLD BANK ENVIRONMENTAL CRISIS OR SUSTAINABLE DEVELOPMENT OPPORTUNITY? Transforming the charcoal sector in Tanzania A Policy Note March 2009 CONTENTS iii Abbreviations iv Acknowledgements vi Executive Summary 1 CHAPTER 1 INTRODUCTION 1 The Charcoal Sector ­ Summary of Issues 2 Objectives of the Policy Note 3 Methods used in Preparing this Policy Note 4 CHAPTER 2 THE CHARCOAL SECTOR IN TANZANIA ­ AN OVERVIEW 4 Socioeconomic Considerations 4 Charcoal Use and Consumption Patterns 6 Charcoal Sector Contribution to Rural Employment and Incomes 6 The Charcoal Trade 8 Impact of the Charcoal Trade on Forests and Woodlands 9 Fuel Efficiency and Alternative Energy Sources 12 Economic Considerations of Fuel Switching 13 Policy, Legal and Governance Aspects of the Charcoal Sector 13 Charcoal Production 14 Licensing of Charcoal Production and Trade 15 Effectiveness of Policy Measures to Date 17 CHAPTER 3 LESSONS LEARNED FROM TANZANIA AND OTHER COUNTRIES 17 Charcoal Production 17 Management of Natural Forests and Woodlands 18 Plantations and Woodlots 21 Trees outside Forests 22 Charcoal Production and Briquetting 23 Charcoal Trade 24 Charcoal Consumption and Fuel Switching 25 Conclusion 27 CHAPTER 4 POLICY RECOMMENDATIONS 27 Addressing the Regulatory, Fiscal and Pricing Framework 30 Charcoal Production 33 Charcoal Consumption 35 CHAPTER 5 IMPACT AND COST OF PROPOSED POLICY REFORMS 35 Impact of Proposed Policy Reforms on Deforestation 36 Impact of Fiscal Reforms on Charcoal Pricing 38 Impact of Reforms on Livelihoods and Employment 38 Comparison of Policy Options 40 Estimating Costs of Policy Reforms 42 References 48 Annex 1: Common Misconceptions about Wood Energy 49 Annex 2: Structure of Simulation Model Used in this Policy Note 52 Annex 3: Impact of Various Policy Options on Deforestation Rates i Policy Note Transforming the Charcoal Sector in Tanzania LIST OF BOXES, TABLES AND FIGURES BOXES 1.1 Five Facts about Charcoal Production and Utilization in Tanzania 1 2.1 Summary of Current Initiatives for Promoting Alternative Fuels in Tanzania 10 2.2 Cost of Charcoal and LPG Consumption: The Consumer Viewpoint 11 2.3 Selected Key Legal and Policy Documents Relating to the Charcoal Sector in Tanzania 13 2.4 Key Forest Policy and Forest Act Statements Regarding Community Involvement in Forest Management 14 3.1 The WAJIB Approach to Community-Based Forest Management in Ethiopia 17 3.2 Community-Based Forest Management for Wood Fuel Production in Senegal 18 3.3 Household Tree Plantations for Charcoal Production in Madagascar 19 3.4 Benefit Sharing through a Deposit-Account System in Vietnam 20 3.5 Carbon-Based Payments as Incentives for Tree Planting at the Household Level--Experiences from Tanzania 20 3.6 Outgrower Schemes 21 3.7 Experiences with Fiscal Incentives for Sustainable Charcoal Production in Niger 23 FIGURES 2.1 Sources of Energy for Cooking in Tanzania, 1991 to 2007 4 2.2 Charcoal Prices at Production Sites (2004­07) and in Dar es Salaam (2003­07) 5 2.3 Beneficiaries in the Charcoal Chain in Tanzania 6 2.4 Charcoal Trade Employment and Consumption Estimates in Tanzania 7 2.5 Structure of Forest Exploitation for Charcoal Production and Trade 7 2.6 Distribution of Profits along the Charcoal Value Chain 8 2.7 Simulated Results for Charcoal Consumption and Deforestation in 3 Districts Adjacent to Dar es Salaam 9 2.8 Timing of Key Policy Measures Relevant to the Charcoal Sector 16 3.1 Comparison of the Energy Ladder and Energy Stack Theory 24 5.1 Projected Impact of Policy Options on Forest Cover around Dar es Salaam 36 5.2 Fiscal Incentives for Sustainable Charcoal Production (Scenario 1 and 2) 37 5.3 Impact of Improved Stoves on Fuel Costs 37 5.4 Beneficiaries in the Charcoal Value Chain (Before and After Reform) 38 TABLES 2.1 Reasons for Using Different Fuel Sources 11 2.2 Economic Costs and Benefits of Alterative Fuel Choices 12 3.1 Efficiency of Alternative Kiln Technologies 22 3.2 Commonly Used Stoves for Fuelwood and Charcoal Combustion 25 4.1 Summary of Short- and Long-Term Actions to Implement Policy Recommendations 29 4.2 3-Phased Approach to Group-Based Plantation Establishment 31 4.3 Short- and Long-Term Actions to Implement Proposed Activities 32 4.4 Short- and Long-Term Interventions with the Objective of Reducing Charcoal Consumption 34 5.1 Comparison of Alternative Policy Options 39 5.2 Indicative Investment Costs for Sustainable Charcoal Program 41 ii Policy Note Transforming the Charcoal Sector in Tanzania ABBREVIATIONS BAU Business as usual CBFM Community-Based Forest Management CHAPOSA Charcoal Potential in Southern Africa DoE Division of Environment ESD Energy for Sustainable Development FAO Food and Agriculture Organization FBD Forest and Beekeeping Division FS Fuel switch GDP Gross Domestic Product GoT Government of Tanzania HH Household IK Improved kiln IS Improved stove JFM Joint Forest Management LPG Liquefied Petroleum Gas MEM Ministry of Energy and Minerals MoFEA Ministry of Finance and Economic Affairs MNRT Ministry of Natural Resources and Tourism NGO Nongovernmental organization NRM Natural Resources Management PFM Participatory Forest Management PMO-RALG Prime Minister's Office ­ Regional Administration and Local Government REDD Reducing Emissions from Deforestation and Forest Degradation RPTES Regional Program for the Traditional Energy Sector RWEDP Regional Wood Energy Development Programme TaTEDO Tanzania Traditional Energy Development and Environment Organization TANROADS Tanzania National Roads Agency TOF Trees outside forests TShs Tanzania Shillings USAID United States Agency for International Development VAT Value Added Tax VPO Vice President's Office Unless otherwise stated, all dollars are US Dollars and all tons are metric tons 1 US Dollar = 1,378 TShs (March 31, 2009) iii Policy Note Transforming the Charcoal Sector in Tanzania ACKNOWLEDGEMENTS This report was coauthored by Christian Peter and Klas Sander of the World Bank. A background report was provided by Jeff Felten (Camco Advisory Services Ltd.). The policy note benefited from input and comments from a number of World Bank staff colleagues, including Herbert Acquay, Thomas Danielewitz, Peter Dewees, Kathryn Hollifield, Hans Hoogeveen, John McIntire, and Stephen Mink. Significant contributions were provided by Tom Blomley (Acacia Consulting), Robert van der Plas (MARGE Consult) and Steve Sepp (Eco Consulting Group). The analysis and recommendations presented in this policy note took advantage of the experience and input of a large number of people involved in the charcoal sector, both inside and outside Tanzania. The World Bank wishes to express its great appreciation to the many people in Tanzania who offered information, ideas, comments, and critical points of view over the course of developing this policy note. In particular, we wish to thank the government of Tanzania for providing leadership in the overall process. The team is particularly grateful to Dr. Felician Kilahama (Director, Forestry and Beekeeping Division, Ministry of Natural Resources and Tourism), and Mr. Ngosi Mwihava (Assistant Commissioner, Renewable Energy, Ministry of Energy and Minerals), as well as their respective staff. Furthermore, this policy note benefitted from four stakeholder workshops organized by the Ministry of Natural Resources and Tourism (MNRT) together with the World Bank in Dar es Salaam between October 27 and 30, 2008. The purpose of these workshops was to discuss and agree upon specific policy measures with relevant stakeholders, including charcoal producers, traders, district officials, representatives from different sector ministries (MNRT, Ministry of Energy and Minerals), NGOs, and development partners. These consultations would have not been possible without the assistance of Francis Songela (Camco Advisory Services Ltd.), Felix Mallya (Consultant), and Faith-Lucy Matumbo (World Bank Office, Tanzania). The policy note was prepared under the general supervision of Marjory-Anne Bromhead, and was peer reviewed by Frank Byamugisha and Rasmus Heltberg of the World Bank. iv Policy Note Transforming the Charcoal Sector in Tanzania v Policy Note Transforming the Charcoal Sector in Tanzania EXECUTIVE SUMMARY An estimated 90 percent of Tanzania's energy needs are of the sector by a small number of people has two important satisfied through the use of wood fuels. Charcoal is the implications. First, it means that efforts to reform and regularize single largest source of household energy in urban areas, as it the sector will be intensely resisted and will require significant is considered cheap and easy to transport, distribute, and store. political support. Second, it means that the bulk of charcoal Between 2001 and 2007, the proportion of households in Dar es profits are concentrated within a narrow band along the Salaam using charcoal climbed from 47 percent to 71 percent. production-marketing chain. Producers, small-scale transporters, Approximately half of Tanzania's annual consumption of charcoal and retailers (who far outnumber more powerful wholesalers and takes place in Dar es Salaam amounting to approximately transporters) receive a very small share of the final market price. 500,000 tons. This provides a strong disincentive toward sustainable forest management and afforestation and reforestation investments The amount of charcoal consumed is expected to further by charcoal producers. rise in the coming years. Signs indicate consumption levels will be increasing in both absolute and relative terms in the near Charcoal is generally unsustainably harvested from dry (or and medium term future due to three main factors: (a) rapid miombo) woodlands within a catchment area that extends population growth; (b) continued urbanization; and (c) relative up to 200 kilometers from urban energy markets. Although price increases of fossil fuel-based alternative energy sources. some wood for charcoal is harvested from forest reserves under These trends will apply particularly to the urban center of Dar license from the government, the bulk is harvested in unreserved es Salaam. Due to income constraints, switching to alternative forest areas on village land, or on farmland being cleared fuels will only be an option for better-off households, but even for agriculture. In such situations, little attention is given to among those economic groups, socio-cultural aspects will considerations of sustainable harvesting or longer-term forest still result in the consumption of charcoal, albeit it at a lower management objectives. Continual, unregulated tree removal level. The International Energy Agency (IEA) confirms similar results in deforestation and forest degradation; this, in turn, has trends are occurring in other Sub-Saharan African countries. negative impacts on the protection of water catchments and Considering this, the charcoal sector must become sustainable watersheds, affecting energy and water supplies alike. and formalized as a business. Given that most charcoal is harvested without any payments At present, the contribution of Tanzania's charcoal sector being made for the raw material (wood), and that licenses to employment, rural livelihoods, and the wider economy is and levies are largely evaded, the cost of charcoal to the estimated to be in the region of US$650 million per year, consumer does not reflect its real value. The impact of these providing income to several hundred thousand people in lower costs is to undermine any efforts made by producers or both urban and rural areas. These tend to be members of poorer traders to comply with the law by paying all licenses and levies, households, who work as small-scale producers or traders, and or to invest in efficiency savings such as improved conversion who often have limited alternatives for earning a living. Despite technology, long-term sustainable forest management, or the important role charcoal plays in local economic development, establishment of plantations and woodlots. Without improving its contribution to government revenues and the broader tax the regulatory and fiscal frameworks of the sector, the market base is limited due to widespread evasion of licensing fees and price of legal and sustainably produced charcoal will always be transport levies. National and local governments are estimated undercut by unregulated and unsustainable products. to lose about US$100 million per year due to their failure to effectively regulate the charcoal sector. Significant changes need to be introduced to regularize and legalize the currently informal sector. This would require The charcoal trade is characterized by very weak governance, a major shift both inside and outside government with regard to law enforcement, and other regulatory capacity. Low how charcoal is viewed and managed from a policy perspective. capacity to enforce regulations and effectively collect revenues is Currently, the sector is viewed almost entirely negatively, and as further undermined by corruption at checkpoints along charcoal a result, prevailing policies and laws tend to focus on regulation, transport routes. The charcoal trade is dominated by a small enforcement, restriction, and, where possible, moving away number of powerful and politically connected entrepreneurs from the sector altogether to other energy sources. This policy who are able to use their influence to further avoid and evade note argues that this perception will need to be changed, and payments of fees and obtaining of licenses. The tight control instead a more enabling environment created that allows for vi Policy Note Transforming the Charcoal Sector in Tanzania responsible, sustainable, and profitable enterprises to flourish which is illegally produced. To offset the increased within the sector. This policy note provides recommendations investment costs associated with sustainably produced that, if implemented, would lead to an increased formalization charcoal, it is proposed that a fiscal incentive scheme be of the charcoal sector, changing the regulatory, fiscal, and developed. This scheme would introduce reduced licensing pricing frameworks. These include: costs for charcoal coming from areas with an approved harvesting plan. At the same time, tougher sanctions could · Ensuring that charcoal revenue collection be introduced for illegally produced or traded charcoal. responsibilities of local governments are matched with Ultimately, this would make sustainably produced charcoal an ability to retain a higher share of revenue collected. able to compete with illegal charcoal as the cost for the To achieve this, it is proposed that the Ministry of Natural consumer would become progressively aligned, allowing to Resources and Tourism (MNRT), together with the Prime compete openly and in a profitable manner. If effective over Minister's Office­Regional Administration and Local time, the relative proportion of charcoal traded officially and Government (PMO-RALG), and the Ministry of Finance formally would grow, and illegally produced charcoal would and Economic Affairs (MoFEA) identify pilot districts with decline. Over time, these incentives should be progressively the commitment and political will to reform charcoal reduced. This would require the collaboration of the MNRT, trade. These districts would be allowed to retain charcoal PMO-RALG, and MoFEA to agree on the approach and revenues (licenses and fines) levied on areas outside forest development of a feasible incentive system. reserves. Retained revenues would provide financial and human resources for the regulation and management · For the system to be successful, the government would of the charcoal sector. Subsequently, this would expand need to strengthen its capacity for monitoring and the revenue base of the districts, improve monitoring enforcement of rules and regulations regarding both and control of the charcoal sector, and ultimately reduce transport and trade of charcoal. Aside from increasing unsustainably produced charcoal. These pilots would be the efforts to strengthen the capacity of the Forest closely monitored and, if found successful, the approach Surveillance Units (FSUs) under the MNRT, it would be should be replicated. necessary to improve collaboration with other enforcement agencies. Charcoal should also be an integrated part · Supporting local governments in reinvesting charcoal of the Independent Forest Monitoring currently under income, with the objective to further improve development. In addition, it is proposed that the increase revenue collection and promote sustainable forest of human resources for monitoring and control be management. Most of the limited internal revenue of complemented by investment into critical infrastructure local governments is being invested in priority areas such such as: (a) building fixed trading sites for the transport and as infrastructure, education, and health. Therefore, the trade of charcoal in urban areas, as well as (b) increasing the current system of "earmarking" grant funds continues to be number and effectiveness of checkpoints. These investments critical in the short to mid term, as it provides an incentive would, if closely coordinated with the Tanzania National for local governments to invest in the charcoal sector. Roads Agency (TANROADS), improve not only the revenue However, taking into account the potential a regulated collection system, but also provide important information charcoal sector has in contributing to district and village regarding the dimension of the charcoal sector. budgets, after a grace period of three years (and the better integration of the forest and charcoal sectors into village Given the current political economy of charcoal in the and district development plans), a significant portion of country, bringing the charcoal trade into the tax-based revenue collected from charcoal should be reinvested in economy is a significant challenge, that needs to be tackled support for the sector. Examples of similar models already head-on and would require strong political support if the vested exist in Tanzania, such as the Road Fund, which comes from and powerful interests that currently control the sector are to a levy charged on fuel costs, and is reinvested into the be confronted. Furthermore, as reforms gather pace, increasing construction and maintenance of roads. amounts of traded charcoal would enter the formal economy reflecting the true costs of production (including raw material · Introducing fiscal incentives that reward sustainably costs, and all fees and taxes). As a result, the end price to produced charcoal and place additional costs on that consumers is expected to rise. vii Policy Note Transforming the Charcoal Sector in Tanzania Raising prices of sustainably produced charcoal have require continuous engagement from external sources, as opportunities, but require the introduction of efficiency establishing CBFM arrangements incur substantial initial measures at the consumption level. As in any country, costs, fiscal reforms proposed earlier would ultimately rising fuel prices are strongly opposed, and this would again increase revenue collection at local government levels, be a politically challenging consequence of reform of the which has the potential to cover CBFM support costs in the production and consumption segments of the charcoal value long term. chain. However, the rising price of charcoal would create two important opportunities. First, it would provide a more favorable · Small-scale plantations and woodlots could increase environment for small-scale entrepreneurs to invest in efficient supplies of wood for charcoal and trigger economic production and conversion measures, such as tree planting, opportunities and land-use planning in rural areas. participatory forest management, and improved kilns. Second, Although natural forests are expected to continue supplying it would deliver greater incentives to consumers to invest in much of the raw material for charcoal production, simple technology (such as improved stoves) designed to reduce considering the projected increase in charcoal demand, charcoal consumption, and hence cost. An increased demand natural forests will not be able to meet these demands in for energy-saving technology would also act as a powerful a sustainable manner. Consequently, the establishment of stimulus for urban entrepreneurs to develop and market energy- private or group-based woodlots or plantations could, in efficient stoves. Supporting measures are proposed that would the long term, complement supplies outside forest reserves. reinforce moves to make the charcoal sector more sustainable, Subsidies and incentive payments might be necessary inclusive, and achieve greater impacts on poverty reduction, if in the early stages to trigger local-level investments in implemented alongside the policy reforms mentioned above. establishing planted woodlots. Complementary measures These are as follows. to improve the overall regulation and formalization of the charcoal sector must be introduced to gradually replace · Harvesting plans need to be developed for forest areas subsidies with more market-based credit provision in the administered by central or local governments. Taking medium to long term. As farmers begin to secure financial into account the lack of reliable data on forest resources benefits from the sale of wood for charcoal, it is likely that available in Tanzania, harvesting and licensing decisions are other farmers would engage in similar activities. In this currently driven by inaccurate estimates of standing stock or context, the potential carbon-finance opportunities need resource availability. To address this issue and move toward to be further explored. a sustainable charcoal sector, it will be critical that more accurate assessments are undertaken. The currently planned · Effective pricing policies of raw material by charcoal National Forest Resource Assessment is expected to provide producers could provide an incentive to adopt some relevant data, yet it must be a priority for the MNRT technologies improving the efficiency of charcoal to undertake more local assessments. Once assessments are production. Considering that the raw material has no made and harvesting plans are implemented, it is crucial cost, charcoal producers currently have no incentive to that compliance with harvesting plans is monitored by local invest in more efficient technologies. When raw materials governments and harvesting committees. carry a price, i.e. investment costs for sustainable forest management or plantation establishment, producers would · Scaling up community-based forest management be provided with an incentive to invest in relatively simple (CBFM) will help secure tenure for rural producers. The though effective technologies that improve the efficiency of most devolved form of participatory forest management turning wood into charcoal. While semi-industrial charcoal (PFM)--community-based forest management--offers kilns may achieve significant efficiencies, they may only communities the opportunity to declare forest reserves be a viable option for large-scale production enterprises. on village lands, which are managed in line with local However, small-scale producers should be provided with development priorities. If communities are to become simple training on how efficiencies of traditional charcoal involved in meeting the demands of the charcoal trade production (earth kilns) can be improved. Using the from village forests, efforts need to be directed in a experiences gained by local NGOs (such as the Tanzania more concentrated and targeted manner at remaining Traditional Energy Development Organization (TaTEDO)) unreserved natural forest and woodland patches across the in this regard may prove to be a useful option. These districts neighboring large urban charcoal markets (such efficiency improvements would help producers offset initial as those surrounding Dar es Salaam). While this would investments costs. viii Policy Note Transforming the Charcoal Sector in Tanzania · The promotion of fuel-efficient stoves can compensate and recognition of rights to ecosystem services in support to for expected increases in sustainable charcoal prices. the ongoing expansion of participatory forest management; With charcoal prices likely to increase as fiscal incentives (b) providing necessary incentives for tree planting, woodlot are implemented that favor sustainably produced charcoal, establishment, and technologies improving the efficiency of fuel-efficient stoves must be further promoted in order to charcoal production; and (c) using REDD funding to develop compensate for increased consumer prices. By improving stronger accountability structures, inclusive processes that the availability of high-quality, fuel-efficient stoves, engage a multitude of stakeholders, and monitoring and control consumers would have the possibility to offset increased systems at the local level. charcoal prices. However, price premiums on fuel-efficient stoves need to be smaller than the monetary savings expected through reduced charcoal quantities in order to provide a true incentive. · Fuel switching, targeted at better-off segments of the society, must be an integral part of policy measures to achieve sustainable charcoal production. Fuel switching will not be economically feasible for most parts of urban society due to high initial investment costs and other economic constraints, such as unreliable and fluctuating income streams. In contrast, policies promoting fuel switching need to be further strengthened when targeted at better-off households. These households have the means to switch to a wider portfolio of fuel sources, and the use of gas and electricity for some specific purposes (e.g. heating water for tea in the morning) could stabilize or even reduce absolute charcoal consumption quantities among certain segments of urban consumers. In addition to the employment and income benefits the above measures would deliver, charcoal sector reform would have a number of other important impacts. One such benefit would be an increase in government revenue and a broadening of the tax base. Furthermore, if measures are introduced to improve the supply of raw materials for charcoal production (through tree planting initiatives and participatory forest management), unsustainable production would gradually be replaced by regulated production on a sustainable basis. There is increasing interest inside and outside the Tanzanian government in climate mitigation and adaptation, and in particular Reducing Emissions from Deforestation and Forest Degradation (REDD). With charcoal being one of the main drivers of deforestation and--to some extent--degradation, measures outlined in this policy note would benefit from this additional financing, particularly around urban centers such as Dar es Salaam. For charcoal sector reform, the following considerations for promoting stakeholder participation at the local level, currently discussed under REDD initiatives, are of relevance: (a) strengthening rights and governance through implementation of forest tenure reforms, mapping of lands, ix Policy Note Transforming the Charcoal Sector in Tanzania x CHAPTER 1 INTRODUCTION THE CHARCOAL SECTOR--SUMMARY OF ISSUES Wood fuels (firewood and charcoal) are the most important sources, the proportion of households in the country using energy source in Tanzania. The 2007 Tanzanian Household Budget charcoal for cooking has increased by 7 percent since 2001. In Survey indicates that 90 percent of the country's energy needs urban areas such as Dar es Salaam, the figure is much higher are satisfied through the use of wood fuels. Despite increasing (box 1.1). investments in improving access to electricity and other energy BOX 1.1 FIVE FACTS ABOUT CHARCOAL PRODUCTION AND UTILIZATION IN TANZANIA 1. National Economy: The total annual revenue generated share of fuelwood use increased from 33 percent to 38 percent. by the charcoal sector for Dar es Salaam alone is estimated at The use of electricity for cooking is below 1 percent. US$350 million, and generates employment and cash income for several hundred thousand people. Coffee and tea are 4. Charcoal Production: Total annual charcoal consumption estimated to contribute only US$60 million and US$45 million in Tanzania is estimated at 1 million tons. The annual supply of to the national economy, respectively. Foreign direct investment wood needed for this is estimated at 30 million cubic meters. To for Tanzania was estimated at US$470 million in 2004. produce charcoal it is estimated that as many as 160,000 earth kilns are used each year, or 438 per day. An average annual 2. Revenues: Unregulated and unregistered activities in loss of forest area of about 100,000­125,000 hectares can be charcoal production and utilization lead to an estimated attributed to the charcoal sector. revenue loss of about US$100 million per year. The Forestry and Beekeeping Division (FBD) of the Ministry of Natural Resources 5. Urbanization: The share of the urban population was 33 and Tourism (MNRT) has a financing gap between expenditures percent in 2007 (up from 21 percent in 2001). With a growth and revenues of about US$2 million. rate of 4.3 percent per year, Dar es Salaam is one of the fastest- growing cities in Sub-Saharan Africa. In 2005, the population 3. Cooking Behavior: From 2001 to 2007, the proportion of was estimated at 3 million. Meanwhile, 36 percent of Tanzania's households in Dar es Salaam using charcoal as their primary total population lives below the poverty line, 44 percent of the energy source has increased from 47 percent to 71 percent. Use population is below the age of 15, and life expectancy at birth of liquefied petroleum gas (LPG) has declined from 43 percent is only 52 years. One study estimates that a 1 percent increase to 12 percent. In other urban areas, the share of households in urbanization leads to a 14 percent increase in charcoal using charcoal for cooking remained at 53 percent, while the consumption. Sources: Tanzania at a Glance 2008; Beukering et al 2007; MNRT 2002, 2004; 2007 Tanzanian Household Budget Survey (2008); Hosier 1993; World Resources Institute/Earth Trends 2003. 1 Policy Note Transforming the Charcoal Sector in Tanzania The demand for charcoal is expected to increase for the following drives "short-termism" and results in overexploitation of the reasons. resource, as well as an unwillingness to invest in more efficient production or conversion techniques. · With an estimated population increase of 2 percent to 3 percent per year, Tanzania's population will double in about As charcoal is largely a "hidden" sector, its role in the national 20 to 25 years. economy is almost always overlooked, and as a result its · Tanzania will become increasingly urban, as people continue actual and potential contribution to economic development is to flock from the countryside to urban centers in search of systematically underestimated. Nowhere is this omission more jobs and a better standard of living. Increasing urbanization striking than in the national energy strategy, which completely will lead to increasing demand for charcoal. overlooks charcoal and firewood, despite the fact that it provides · Rising prices for alternative fuels such as LPG, natural gas, energy for around 90 percent of the country's population. or electricity also cause people to continue using charcoal, despite rising incomes. In summary, the use of charcoal is very likely to continue at a rather high level in the near to medium term. Rather than Harvesting wood to produce charcoal is currently very poorly ignoring this fact, a more proactive and development-oriented regulated. It takes place inside and outside government forest involvement by all stakeholders with this sector is needed. The reserves, as well as on open-access public lands. Given the charcoal sector is currently characterized by unsustainable massive demand for charcoal in Dar es Salaam, pressure on forest management, significant revenue losses for the national natural woodlands and forests within 200 kilometers of the economy, and lost opportunities for employment and income capital is high, and rates of deforestation and degradation are generation for poorer members of society. However, a well- increasing. Deforestation (particularly around watersheds and managed charcoal sector has the potential to boost government water sources) has further knock-on effects due to reduced revenues, create incentives for long-term and sustainable forest water flows and subsequent interrupted power generation management, and provide secure and attractive incomes to rural in hydroelectric schemes such as Mtera and Kihansi. The and urban entrepreneurs. economic costs associated with unreliable power supply have been estimated at about US$330 million for 2006 representing OBJECTIVES OF THE POLICY NOTE about 2 percent of GDP (World Bank 2006). Lost revenue to the government (such as reduced collection of value added In light of the challenges described above and in box 1.1, the tax on electricity consumption) was further estimated at about Government of Tanzania (GoT) asked the World Bank to provide US$3 million that year. At the international level, continuing decision makers in Tanzania with a policy note summarizing unsustainable charcoal production undermines the country's the fundamental characteristics of charcoal use in the country efforts to meet its objectives for participating in international and presenting policy options along the entire value chain of initiatives designed to combat climate change, such as Reducing charcoal production and consumption. Emissions from Deforestation and Forest Degradation (REDD). With the understanding that charcoal consumption is expected Much of the potential revenue payable to the government to continue at relatively high levels in the near and medium from effective taxation of charcoal production and trade is term, the policy note identifies the underlying factors behind lost due to the sector's informal nature, as well as the poor the charcoal sector that are driving deforestation, as well as governance and regulation in the forest sector. Lost revenue resulting in lost revenues to the national economy and individual to the government, as a consequence of ineffective revenue traders and producers. Based on this analysis, the objectives of collection, is estimated to be in the region of US$100 million per this policy note are to identify a number of policy options, which year. Despite this massive undercollection, charcoal continues if implemented together, will result in: to play an important role in the national economy-- particularly in its role providing employment to hundreds of thousands · sustainable and long-term management of forest and of people. Charcoal is also especially important as a means of woodland resources; generating income for some of the poorest members of society, · sustainable supply of energy, especially to the urban poor; for whom alternative options are severely limited. Given that · increased revenue capture by the government from the much of the production and trade in charcoal is conducted in charcoal sector as a whole; an illegal or clandestine manner, its potential to provide a secure · greater security and increased incomes for small-scale and stable income is limited. The informal nature of the sector charcoal producers and traders. 2 Policy Note Transforming the Charcoal Sector in Tanzania This policy note will serve as an input to the development of this, chapter 3 summarizes experiences reforming the charcoal a Woodfuel Action Plan, which is currently under preparation sector in Tanzania and elsewhere, as well as an assessment of by the GoT and should be available in mid-2009. The Woodfuel how successful these measures have been. Where possible, Action Plan is in turn intended to inform the review of the key lessons learned are extracted and used to inform policy Energy Strategy for Tanzania. recommendations. In chapter 4, key policy recommendations are made along the production and marketing chain, which METHODS USED IN PREPARING THIS POLICY NOTE are hoped will provide a useful resource for policy makers and implementers. Chapter 5 assesses the likely impact of the reforms The policy note builds on experience from both Tanzania and on reducing deforestation and forest degradation, as well as the other Sub-Saharan African countries with similar socioeconomic positive impacts on boosting employment and improving rural and environmental contexts. This policy note puts forward and livelihoods. The chapter concludes with an assessment of the discusses a range of policy measures along the entire charcoal costs of the policy recommendations made. value chain in Tanzania. The development of this policy note benefited from a variety of recent studies on charcoal utilization and trade conducted in the country. One of the aims of this policy note is to review and consolidate the findings and conclusions of these various reports and translate them into practical policy advice for the government of Tanzania. Given the many studies undertaken in both Tanzania and across Sub-Saharan Africa relating to the charcoal problem, no specific primary data collection or research was conducted to guide this policy note. Instead, the emphasis has been placed on reviewing successful experiences elsewhere, and assessing how these successes might be replicated in a Tanzanian context. A simple bio-economic model has been developed to model charcoal supply and demand, and to assess how different policy options might have varying impacts on forest management. It should be noted that this model is intended to provide general guidance, rather than generate an accurate forecast of future charcoal supplies and demand. A detailed description of the model is provided in annex 2, while the results of various simulations are presented in annex 3. This policy note reflects outcomes of four stakeholder workshops the Ministry of Natural Resources and Tourism (MNRT) organized together with the World Bank in Dar es Salaam between October 27 and October 30, 2008. The purpose of the workshops was to discuss specific policy measures with relevant stakeholders, including charcoal producers, traders, district officials, representatives from different ministries (MNRT and Ministry of Energy and Minerals (MEM)), NGOs, and development partners. The remainder of this policy note is structured as follows: Chapter 2 provides a broad overview of the charcoal sector in Tanzania and some of the key challenges being faced. It also includes a summary of the key legal and policy measures that have been taken over the past two decades and an assessment of how successful they have been in effecting positive change. Following 3 CHAPTER 2 THE CHARCOAL SECTOR IN TANZANIA -- AN OVERVIEW SOCIOECONOMIC CONSIDERATIONS Charcoal Use and Consumption Patterns urban institutions in Tanzania (such as bars, restaurants, schools, and hospitals) also use significant quantities of charcoal as Charcoal is the main energy source for Tanzania's urban their principal source of energy for cooking. Across the whole population. Although electricity and gas are the principal energy country, only 10 percent of the population uses electricity as sources among wealthier households, these households still use their primary energy source. Household energy use patterns considerable quantities of charcoal. Most public and private over the recent years are presented below in figure 2.1. FIGURE 2.1 SOURCES OF ENERGY FOR COOKING IN TANZANIA, 1991 TO 2007 100% 80% 60% 40% 20% 0% 91 /92 00 /01 2007 91 /92 00 /01 2007 91 /92 00 /01 2007 91 /92 00 /01 2007 Dar es Salaam Other urban areas Rural areas Mainland Tanzania Electricity Paraffin /Kerosene Charcoal Firewood Other Source: Government of Tanzania 2008: Household Budget Survey 2006/07 4 Policy Note Transforming the Charcoal Sector in Tanzania The total proportion of disposable income spent by poorer According to the survey, the perceived low cost of charcoal is one households on charcoal is much higher than for richer households. of the main reasons for its use. Second, widespread availability, Furthermore, richer households are able to buy charcoal in bulk, is also important for more than half of the respondents. The where unit prices are significantly lower than for smaller quantities. majority of users tend to buy charcoal several times a week As a result of their limited cash flow and low purchasing power, in small quantities from traders that are located only a few poorer households buy charcoal more frequently and in much minutes from their house. This is confirmed by the CHAPOSA smaller quantities, but at a much higher unit price. report (2002), which found that 36 percent of charcoal users in Dar es Salaam obtain charcoal from a variety of charcoal Fuel use is closely related to income and education level. A recent stores located near their homes, while 26 percent buy from local household survey conducted in Dar es Salaam by Palmula and kiosks that also sell other items, such as vegetables and other Beaudin (2007) indicates that users of firewood have the lowest foods. In addition, 24 percent buy charcoal from larger retailers, income level, with 80 percent living on less than US$77 per while only 12 percent buy from larger roadside retailers. Only month. Charcoal and kerosene consumers are generally lower- 1 percent of users obtain supplies outside the city. CHAPOSA middle-income households, and users of LPG have the highest (2002) also observed that charcoal is easily accessible. For 67 income level, with more than 90 percent of those households percent of respondents, it takes between one and five minutes earning over US$155 per month. Electricity users appear to to get to a selling point, for 21 percent it takes six to 10 minutes, have higher income levels than firewood, charcoal, and kerosene and for 12 percent it requires between 15 and 60 minutes. Those users, but electricity is also used more often than LPG in lower- needing between one and five minutes generally buy in very income families. small quantities, such as in small tins or heaps. Firewood users are characterized by the lowest education level, Between 2004 and 2007, charcoal prices in Dar es Salaam with nearly 80 percent having no education or having completed increased rapidly. At production sites, charcoal prices increased only primary school. Charcoal and kerosene users have similar by 160 percent, from around TShs 3,000 per bag1 to TShs 8,000 educational profiles, with most people having completed at least per bag. Even more dramatically, the retail price of charcoal in secondary school. However, 13 percent of charcoal users have a Dar es Salaam has increased from below TShs 5,000 in 2003, to university degree, indicating that charcoal is often used as part over TShs 20,000 in 2007. By late 2008, retail prices had risen of a mix of energy sources, even when it is used for the same further, to over TShs 25,000 per bag. During the same period, purpose, such as cooking. In a survey among 700 households global prices for fossil fuels rose sharply, and in some cases, in Dar es Salaam, Charcoal Potential in Southern African or supplies of kerosene and LPG were interrupted. As illustrated CHAPOSA (2002) observed that 88 percent of households use in figure 2.1, in some cases this meant that some households more than one energy source, while the remaining 12 percent moved back to charcoal as their primary energy source. combine more than two energy sources for domestic use. FIGURE 2.2 CHARCOAL PRICES AT PRODUCTION SITES (2004­07) AND IN DAR ES SALAAM (2003­07) Charcoal Prices at Production Site Charcoal Prices in Dar es Salaam (in Tanzanian Shillings) (in Tanzanian Shillings) 8,000 25,000 Dry Season Wet Season Low Price High Price 20,000 6,000 15,000 4,000 10,000 2,000 5,000 0 0 2004 2005 2006 2007 2003 2004 2005 2006 2007 Source: Malimbwi et al. 2007 Source: Malimbwi et al. 2007 1 While the legal weight for a charcoal bag is defined as 28 kilograms, the weight of charcoal bags sold in the market place is higher and can go up to 120 kilograms. 5 Policy Note Transforming the Charcoal Sector in Tanzania Charcoal Sector Contribution to Rural Employment by wholesalers or transporters, but they also work and sell their and Income products individually. As in many other Sub-Saharan countries2, several tens of A limited number of people consider charcoal production to thousands of rural and urban entrepreneurs in Tanzania earn be their main economic activity, while a majority engage only vital income from charcoal production and trade. Production in occasionally as a means to generate income, particularly in the Tanzanian charcoal industry is estimated at about 1 million times of financial stress, such as when making large payments tons per year. In financial terms, the value of the entire Tanzania for things such as medical costs, funeral expenses, food supplies charcoal sector is valued at US$650 million. Figure 2.3 illustrates in the event of poor harvests, marriage ceremonies, or school the wide range of beneficiaries along the charcoal value chain, fees. The majority of charcoal is sold to large- or small-scale without taking into account more indirect benefits, such as the transporters. Some large-scale transporters are also wholesalers. sale of diesel to trucks transporting charcoal, the sale and repair These wholesalers then pass the charcoal on to smaller-scale of tools necessary for tree felling and kiln preparation, or even retailers and consumers. Trade in charcoal is conducted by the use of mobile phones for communication between different formal as well as informal actors. One commercialization chain actors. Government is mentioned where royalties, license fees, or begins with government-issued licenses for harvesting of wood taxes are charged. Further indirect effects such as employment to produce charcoal. The product is transported and traded by for government officials or taxes charged on other products officially licensed transporters and traders, who pay the necessary (such as stoves), are not considered. duties and taxes. A second, and larger, commercialization chain is undertaken without official licensing. Charcoal produced through The Charcoal Trade this informal chain is transported and traded clandestinely in an attempt to avoid authorities, taxation, and potential penalties. As illustrated in figure 2.3, the structure of the charcoal chain Nearly 80 percent of the charcoal arriving in Dar es Salaam is complex, comprising many different actors with varying is believed to follow this second path (Malimbwi et al. 2007). interests and stakes. The vast majority of charcoal comes from With the value of Tanzania's charcoal business conservatively natural forests. Plantations, woodlots, or trees outside forests estimated at about US$650 million, this represents unregulated (such as in agroforestry systems, along roads, and around trade of around US$500 million per year. The potential annual fields) play only a negligible role in supplying raw material for taxes and levies lost from this represent around 20 percent of its charcoal production3. Charcoal producers are often contracted total value, or around US$100 million FIGURE 2.3 BENEFICIARIES IN THE CHARCOAL VALUE CHAIN IN TANZANIA Wood Production Charcoal Transport Wholesaling Retailing Consumption Production · Government · Government · Government · Retailer · Stove producer · Producer · Truck owner · Wholesaler · Transporter · Scrap metal collector · Input suppliers · Truck driver · Transporter · Laborer · Scrap metal trader · Loader · Laborer · Stove retailer · Small transporter · Tool retailer Source: van Beukering 2007, authors' adaptation The formal, regulated charcoal trade involves a number of often harvested from open areas at no cost to the producer. In direct and indirect costs that are avoided through the informal addition, government royalties and fees are often lower than trade--particularly in terms of costs related to licenses and the true opportunity cost of the resource. These factors lead fees. Even though unreserved forests in Tanzania are de jure to an underpricing of the resource and reduce incentives for owned and managed by the government, lack of management investments in sustainable charcoal production or trade, either capacity makes them de facto open-access resources. Trees are by the government or private entrepreneurs. 2 Kambewa et al. (2007) estimate employment for about 93,000 people in the charcoal industry in Malawi. 3 These resources tend to be prioritized for other uses such as firewood, poles, or timber. 6 Policy Note Transforming the Charcoal Sector in Tanzania FIGURE 2.4 CHARCOAL TRADE EMPLOYMENT AND CONSUMPTION ESTIMATES IN TANZANIA1 Production Transport & Trade & Retail Consumption Employed Truck transporter & wholesaler Industries producer 3% 2,113 man year 8,980 man year Institutions 11% Independent Truck transporter Large-scale wholesaler producer Food & Hotels 279,000 man year 44,828 man year 16% 34,635 man year Households Farm HH Bicycle transporter Small-scale wholesaler 69% producer 636,549 man year 870,721 man year Others 48,366 man year 1% Subtotal: 91,981 man years Subtotal: 1,831,098 man years = Total: 1,923,079 man years Source: van Beukering et al. 2007; authors' adaptations FIGURE 2.5 STRUCTURE OF FOREST EXPLOITATION FOR CHARCOAL PRODUCTION AND TRADE Employed Producer Delivers (permanent) License Contracts Independent Producer* Holder (permanent) Farm HH Producer** (ad hoc) Truck Transporter / Large Wholesaler* Truck / Car Owner* Bicycle Transport Wholesalers Urban Centers (Retailers, Consumers) * may have a license to transport charcoal; there is evidence that often does not have a license ** generally does not have a license Source: Authors' discussion with stakeholders 1 A man year is a method of describing the amount of work done by an individual throughout the entire year. The man year takes the number of hours worked by an individual during the week and multiplies it by 52 (or the number of weeks worked in a year). The man year calculated will be different for various industries depending on the average number of hours worked each week and the number of weeks worked per year. 7 Policy Note Transforming the Charcoal Sector in Tanzania Despite the involvement of a great number of people in the wood is generally harvested illegally or without direct payment. charcoal trade, profits are usually concentrated in the hands The concentration of benefits in the hands of a few is often of a few intermediaries, mainly engaged as transport agents or reinforced by political elites, who use their power as a means to wholesalers. Retailers in urban centers--often women-- receive efficiently circumvent legal fees and levies. Looking across the a very small share of the final market price, while producers whole value chain, on average, producers are able to capture receive similarly small benefits. Communities whose forest areas around one-third of the final end price of charcoal, with are being harvested may receive no benefits whatsoever, as transporters and wholesalers capturing around half (figure 2.6) FIGURE 2.6 DISTRIBUTION OF PROFITS ALONG THE CHARCOAL VALUE CHAIN · Truck owner · Truck driver · Loader · Wholesaler · Retailer · Burner · Small transporter · Transporter · Transporter · Input suppliers · Repair · Laborer · Laborer Production Transport Wholesaling Retailing Tanzania: 33% 50% 17% Source: van Beukering 2007, authors' adaptation The failure of producers to capture a larger share of the market caution, however, as wood harvesting for charcoal most often price may be due to several reasons: (a) the supply of unskilled is opportunistic, resulting in a gradual degradation of forest labor is large; (b) independent producers are not organized resources over time, rather than clear-cutting over a large area, and, thus, cannot exercise any negotiation power; and (c) leading to real deforestation. Furthermore, the production of transport and large-scale wholesaling is organized by cartel- or charcoal is often a byproduct of other economic activities, such monopolistic-type market structures. At the same time, retailers as the clearance of land for agriculture. A common practice are not organized and lack market influence. The reason that when a farmer wishes to clear a new area for agriculture is to producers and retailers are unable to organize in interest groups invite charcoal producers to clear all woody biomass in a given or cooperatives is largely due to the fact that many operate area in return for the rights to produce and market charcoal illegally. There is anecdotal evidence that public sector employees resulting from the clearance process. and authorities are commonly believed to be dominant actors in the illegal transport and trade of charcoal. About half of the total charcoal produced in Tanzania supplies the Dar es Salaam energy market, estimated at around 1,500 tons IMPACT OF THE CHARCOAL TRADE ON FORESTS each day. Given the projected rapid expansion of Dar es Salaam's AND WOODLANDS urban population over the next two decades, it is estimated that this figure could rise to around 3,300 tons per day by 2030. In total, Tanzanians consume more than 2,650 metric tons Assuming that the current unsustainable charcoal harvesting of charcoal each day or roughly 1 million tons per year. To and production methods continue unchecked, deforestation produce that quantity using traditional methods, the daily rates can only be expected to increase proportionately. As a wood requirement would be equivalent to that contained in result, natural woodland cover within the districts surrounding 342.5 hectares of forest4. A full year of this consumption would Dar es Salaam can be expected to almost disappear over the equate to more than 125,000 hectares of forest destroyed, or next decade. 12 square kilometers5. This figure should be treated with some 4 This is based on a 10:1 ratio between wood and charcoal and 80 tons of wood per hectare. This is a conservative estimate. Some woodlands may hold as little as 40 tons of wood. Average wood production from miombo woodlands is estimated at 35 tons per hectare. 5 Tanzania has an estimated forest cover of 33 million hectares. 8 Policy Note Transforming the Charcoal Sector in Tanzania FIGURE 2.7 SIMULATED RESULTS FOR CHARCOAL CONSUMPTION AND DEFORESTATION IN 3 DISTRICTS ADJACENT TO DAR ES SALAAM2 2.0 70 Natural Forest Area in Hectares 1.8 60 1.6 Bags of Charcoal per Day 1.4 50 (million) 1.2 (thousand) 40 1.0 0.8 30 0.6 20 0.4 10 0.2 0.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years Charcoal bags (56kg) consumed in Dar es Salaam per day Forest area exploitable for charcoal production (Miombo woodland) Source: Authors' Simulations FUEL EFFICIENCY AND ALTERNATIVE ENERGY Economic and financial analyses of energy use and fuel switching SOURCES also frequently mention that charcoal is not as cost-efficient as LPG and other alternative fuels. These analyses, however, are Fuel-efficient stoves have been promoted in Tanzania for more oversimplistic in that they rarely look beyond simple economic than 15 years, and promoters claim that 40 percent of households factors. It is known that there are a wide range of other factors that rely on charcoal use these improved stoves in urban centers. that affect people's choices when selecting fuel types,--beyond A survey conducted in 2007 is less optimistic, indicating market simply price and efficiency (see table 2.1). penetration rates closer to 20 percent (Palmula and Beaudin, 2007). Almost none of the institutional charcoal users, such as schools and hospitals, are reported to use fuel-efficient stoves6. Other initiatives encouraged consumers to switch from charcoal to alternatives such as kerosene and LPG. The main characteristics of the most common alternative fuels currently promoted in Tanzania are summarized in box 2.3. Table 2.1 presents data on reasons for using different fuel sources. 2 The model results should be considered as indicative only. The model takes into account only forest area that is available and usable for charcoal production. The model indicates that under a "Business-as-Usual" scenario, the forests will be significantly degraded and disappear in the three districts adjacent to Dar es Salaam where most of the charcoal for the city is currently produced. Under this scenario, it can be assumed that the supply source will shift to districts farther away, thus, complete deforestation is not likely to occur, but usable and accessible natural forest area (Miombo woodland) will disappear. For degraded Miombo woodland near urban centers wood stocks ranging between 0.3m3/ha near roadsides to 15m3/ ha on public lands are reported. In comparison, stocks of undisturbed Miombo woodland are ranging between 35m3/ha and 47m3/ha (CHAPOSA 2002, Luoga et al. 2002). Other tree resources that will remain in the area are trees outside forests (e.g. agroforestry) which will, for example, continue to be used for fuelwood collection, but also forests in protected areas or other conservation sites. 6 Although institutional-size, ceramic-lined stoves are not generally sold on the market, they can be special ordered from stove manufacturers. 9 Policy Note Transforming the Charcoal Sector in Tanzania BOX 2.1 SUMMARY OF CURRENT INITIATIVES FOR PROMOTING ALTERNATIVE FUELS IN TANZANIA Interest in liquid biofuels is surging in Tanzania. Some biofuels not only have the potential to be used for cooking, but also in generators for producing electricity. Current initiatives focus on developing bioethanol from sugarcane, cassava, or sorghum, and biodiesel from either palm or jatropha oil. There is currently no biofuel production in Tanzania, but a good deal of land clearing and planting is under way, mainly to develop biofuels for transport. Currently there are no government guidelines for biofuel investments in the country. Kerosene is a flammable hydrocarbon liquid, also sometimes referred to as paraffin, and supplies fuel for both lighting and cooking. Kerosene is used as a domestic energy source by about 25 percent of urban Tanzanians, but not for the most part as their primary energy source. Kerosene smokes and has an unpleasant taste and odor, thus, many people find cooking with kerosene disagreeable. LPG (liquefied petroleum gas) is butane and propane liquefied under pressure. It is a colorless, flammable gas, found in natural gas, light crude oil, and gases that are formed when heavy oil is refined to produce gasoline. In 2006, the government of Tanzania exempted LPG cylinders and gas from all forms of taxation. Taxes remain on cookers, hoses, and other accessories. In the six months following this change, suppliers claimed a market increase of 50 percent, which has now stabilized. A compressed biomass briquette is a black, brittle substance that can be used as a direct substitute for charcoal. Briquettes can be made from a number of different substances, including waste products. A number of businesses in Tanzania currently produce briquettes, which are used in almost an identical manner to charcoal. Prices are currently less than half that of charcoal, although their calorific value and combustion is often of lower quality. Ethanol gel is a renewable form of energy made by mixing ethanol with a thickening agent and water. It is easy to use and burns with a carbon-free flame, so it does not cause respiratory problems such as asthma, which can be caused by emissions from paraffin, coal, and wood fuel. Though the product is relatively new, its introduction on the Dar es Salaam market has been rapid and successful. Second-generation biofuels, such as wood plantations for the production of ethanol, have not yet received ample attention in Tanzania, but could provide a viable option in the future. Source: ESD 2007 If successful polices are to be designed to address the charcoal Box 2.2 provides an example of how poor households make challenge and achieve poverty alleviation and economic consumption choices in relation to charcoal, given their own development, the true economic considerations of charcoal financial position and liquidity. It demonstrates that merely users need to be identified. Low adaptation rates for improved comparing costs of alternative energy sources is insufficient to stoves and alternative fuel sources should have been a sufficient explain the energy choices of poor, urban households in Tanzania. indicator that past interventions in this area failed to address As a result, these analyses will be insufficient for developing consumers' wider needs and constraints. innovative; successful polices to promote the adoption of energy-efficient stoves or alternative sources of energy. 10 Policy Note Transforming the Charcoal Sector in Tanzania TABLE 2.1 REASONS FOR USING DIFFERENT FUEL SOURCES Fuelwood Charcoal Kerosene LPG Electricity Inexpensive 89% 71% 23% 53% 2% Easy to purchase 33% 52% 27% 22% 28% Easy to use 19% 28% 71% 42% 70% Traditionally used by household 19% 12% n/a n/a 9% Low initial investment costs 15% 12% 21% 8% 2% Gives high heat / cooks fast 15% 5% 48% 61% 48% Safe to use n/a 20% 2% 8% 26% Food tastes better n/a 10% n/a n/a 4% No negative health effects n/a 6% n/a 14% 26% Clean to cook with n/a 2% 6% 47% 59% Source: Palmula and Beaudin 2007 Note: Multiple answers were possible BOX 2.2 COST OF CHARCOAL AND LPG CONSUMPTION: THE CONSUMER VIEWPOINT Assessments of costs of alternative fuels are generally made "ex-post"--in other words after the consumption has taken place. The costs of consumed amounts are added together for a given time period and compared against one another. However, this ex-post analysis does not take account of the intrinsic valuation of costs of a household, especially as regards its rate of time preference, which is generally expressed as a discount rate. Disregarding initial investment costs, which were estimated at US$83 for LPG and US$3 for a conventional charcoal stove, a household has a consumption choice between a total monthly cost of about US$18 for a refill of LPG (after abolishment of the VAT and import tariffs) or about US$20.80 for purchasing charcoal. The advantage of charcoal is that the household can phase its purchases, such as every two days, while the expenses for LPG have to be made in one payment up front. It can be seen that at rather low positive rates of time preference, charcoal purchases become preferable over LPG purchases. As other studies have demonstrated, rates of time preference for poor households in developing countries are rather high, easily reaching up to 100 percent and more. Based on this simplified calculation, the advantage of charcoal would diminish if LPG could be bought in smaller units, allowing households to phase purchases over time. $30 Some other factors not considered in calculation: Net Present Value (NPV) Charcoal LPG · Initial investment costs $25 · Maintenance costs · Replacement costs $20 · Risk of unavailability of LPG at time of required refill · Price fluctuations of LPG $15 · LPG with VAT and import tariff · Uncertainty of availability of cash income for poor $10 households 0 0.125 0.250 0.375 0.500 Annual Rate of Time Preference Energy expenses Days Monthly in US$ 1 2 3 4 5 ... 10 ... 20 ... 31 Cost Charcoal 1.3 0 1.3 0 1.3 ... 1.3 ... 1.3 ... 1.3 20.80 LPG 18 0 0 0 0 ... 0 ... 0 ... 0 18 Sources: Data from Palmula and Beaudin (2007); authors' own calculations 11 Policy Note Transforming the Charcoal Sector in Tanzania ECONOMIC CONSIDERATIONS OF FUEL Ministry of Finance and Economic Affairs, but also in other SWITCHING sectors, where public investments are made in the most efficient and effective ways. Such an economic evaluation should not only Up until this point, the question of fuel choice has mainly been look at the direct objective of achieving energy security, but also discussed from the viewpoint of private households. Yet it is also must take into consideration broader development objectives necessary to undertake an economic evaluation of alternative of the country, such as employment, economic development investment options from a government perspective. Such a (especially of rural areas), improving public finances and national framework informs decision makers, particularly those in the budgets, and sustainable management of natural resources. TABLE 2.2 ECONOMIC COSTS AND BENEFITS OF ALTERATIVE FUEL CHOICES Sustainable Charcoal LPG Electricity Costs Loss of total number of people Loss of total number of people employed, especially in rural areas. employed, especially in rural areas. Employment Benefits Large number of poor people employed, Limited scope for employment. Limited scope for employment. especially in rural areas. Labor intensive. Mainly skilled and semiskilled and in Mainly skilled and semiskilled and in Without larger material investments will urban areas. urban areas. maintain and create livelihood opportunities for a large labor force. Costs Enforcement of regulations. Reduced revenue collection, Reduced revenue collection, Revenues especially for the forestry sector especially for the forestry sector and and at decentralized levels. at decentralized levels. Benefits Significantly improved revenue, especially at decentralized levels. Costs Possibly subsidies to support plantation and Subsidies for the investment costs Subsidies for the investment costs Subsidies woodlot establishment. Can be refinanced and recurrent costs (e.g. no VAT, and recurrent costs (tariffs below through carbon finance. support of distribution sites, etc.). cost recovery level). Benefits Costs Forests lose economic value. Lowers Forests lose economic value. Lowers opportunities for alternative opportunities for alternative land uses and creates incentives land uses and creates incentives for further deforestation in the for further deforestation in the long term. Increase in fossil-fuel long term. Increase in fossil-fuel Environment emissions. emissions. Benefits REDD-positive outcomes in the medium to Reduced forest degradation for Reduced forest degradation for long term. Possible revenues from carbon charcoal production. charcoal production. payment schemes (incl. afforestation/ reforestation). Positive spillover effects regarding soil conservation, watershed management, irrigation agriculture, biodiversity conservation, etc. Costs Mainly imported technology. Mainly imported technology. Benefits Mainly domestically produced technology, Others e.g. stoves, kilns, etc. Increase in woodlot and plantation areas and extends PFM supported land-use planning and local governance. Source: Authors' compilation 12 Policy Note Transforming the Charcoal Sector in Tanzania Table 2.2 summarizes the main considerations of such an economic (DoE) within the Vice President's Office (VPO), the Ministry of assessment. Given the time and resource constraints of this policy Energy and Minerals (MEM), the Ministry of Natural Resources note, the evaluation is limited to a qualitative discussion of costs and Tourism (MNRT), and the Prime Minister's Office-Regional and benefits. Based on this discussion, a qualitative valuation of Administration and Local Government (PMO-RALG). Over the these aspects could be carried out at a later time. years, each of these ministries has issued a range of legal and policy documents that have either direct or indirect impacts Again, this economic analysis has to be critically looked at with upon the charcoal sector. (box 2.5 and 2.6). the knowledge that different fuels will be used by different groups in society or for different purposes. There is no single With regard to charcoal production, at present the Forestry and energy source that can meet all requirements given the Beekeeping Division (FBD) of the MNRT is the primary policy different uses and applications. Knowing that a large number of lead at the national level. Due to recent legal changes, district households will not be able to switch to alternative fuels such as government offices and village governments increasingly play a LPG or electricity due to the very high initial investment costs, central role in forestry policy and practice. it must be accepted that charcoal will always be in demand, and thus play a role in the country's energy mix. As wood is converted to and then used for energy, policy responsibility becomes more complicated. FBD remains POLICY, LEGAL, AND GOVERNANCE ASPECTS responsible for managing charcoal transportation and trade, OF THE CHARCOAL SECTOR while MEM becomes involved as the primary policy lead on energy use. The Division of Environment (DoE) has authority There is no comprehensive policy, strategy, or legal framework to oversee and coordinate the aforementioned line ministries to in Tanzania addressing the charcoal sector. Four ministries ensure protection of the environment, including requirements share responsibility, including the Division of Environment for environmental impact assessments. BOX 2.3 SELECTED KEY LEGAL AND POLICY DOCUMENTS RELATING TO THE CHARCOAL SECTOR IN TANZANIA · Guidelines for Sustainable Harvesting and Trade in Forest Produce, MNRT-FBD, 2007 · New Royalty Rates for Forest Products, MNRT-FBD, November 2007 · Community-Based Forest Management Guidelines, MNRT-FBD, April 2007 · Joint Forest Management Guidelines, MNRT-FBD, April 2007 · Charcoal Regulations, MNRT-FBD. 2006 · Environmental Management Act, VPO, 2004 · Forest Act, MNRT, 2002 · Subsidiary Legislation to the Forest Act, MNRT, 2002 · National Forest Programme, MNRT, 2001 · National Forest Policy, MNRT, March 1998 · National Land Policy, Ministry of Lands and Human Settlements Development, 1997 · National Environmental Policy, VPO, 1997 PMO-RALG, through its regional and district offices, is tasked forest management through participatory forest management with implementing policy on the ground. As mentioned above, (PFM). The law recognizes two different types of PFM, which: village governments play an increasingly important role in both the management and production of charcoal. In regard to · enable local communities to declare--and ultimately charcoal, village governments possess important independent gazette--village, group, or private forest reserves (commonly powers, and should not be seen merely as a level of government referred to as "community-based forest management," or subsidiary to regional or district governments. CBFM); · allow communities to sign joint forest management Charcoal Production agreements with governments and other forest owners (commonly referred to as "joint forest management" or The National Forest Policy (1998) and the Forest Act (2002) JFM). provide the legal frameworks for rural communities engaged in 13 Policy Note Transforming the Charcoal Sector in Tanzania Data from the FBD indicate that by 2008, 4.1 million hectares were under CBFM, and over 330 village forest reserves have been of forest land was either under local management, or in the declared (MNRT 2008) process of being transferred. Of that area, 2.3 million hectares BOX 2.4 KEY FOREST POLICY AND FOREST ACT STATEMENTS REGARDING COMMUNITY INVOLVEMENT IN FOREST MANAGEMENT Key Statements from the National Forest Policy Policy Statement 5: To enable sustainable management of forests on public lands, clear ownership for all forests and trees on those lands will be defined. The allocation of forests and their management responsibility to villages, private individuals, or to the government will be promoted. Central, local and village governments may demarcate and establish new forest reserves. Key Objectives of the Forest Act · To encourage and facilitate the active citizen involvement in the sustainable planning, management, use, and conservation of forest resources through the development of individual and community rights; · To delegate responsibility for the management of forest resources to the lowest possible level of local management consistent with national policies. Licensing of Charcoal Production and Trade charcoal production (§ 4). It is unclear whether these "local area authorities" include village governments. The Forest Act (2002), Charcoal Regulations (2006), and Guidelines for Sustainable Harvesting and Trade in Forest The scope of the Charcoal Regulations and associated powers Produce (2007) provide the legal basis for the production and of the district harvesting committees are unclear, and in trade of charcoal. many cases have been interpreted to cover all village forest lands, extending control over the harvesting of trees for the The Charcoal Regulations and the Guidelines for Sustainable production of charcoal in these areas to district committees Harvesting require the establishment of a harvesting committee rather than village governments. The issuance by the FBD of the at the district level. This committee includes participation by Guidelines for Sustainable Harvesting have clarified this area of village representatives for areas where charcoal production uncertainty by clearly stating that forest land under recognized is occurring (§ 4(c)). The responsibilities of the harvesting communal management (such as a village forest) or private committee include: management (woodlots or trees on farmland) are not covered under these regulations. Despite this recent clarification, much · developing district harvesting plans (§ 4(c)). No guidance is uncertainty still prevails at the district level regarding the power given in the regulations as to how a district should develop and influence of the district harvesting committee. such a plan or what lands it should cover. · receiving and granting approval for applications for permits Charcoal traders are required to register with local government to harvest forest products (including charcoal) (§ 4). authorities and pay an associated license fee. In addition, the · defining standards for granting permits to produce legal transport of charcoal requires payment of a local levy, or charcoal under section 7. It is unclear whether permits "cess," which is payable to local governments. The collection for "harvesting" forest products, which the committee has of these fees is chronically low in most areas. This is due to a authority to require, and a permit to "produce" charcoal are number of reasons. the same. · considering and issuing licenses for charcoal "dealers" (§ 5). · While local governments have the primary responsibility · requiring district and village governments to create for licensing and regulating the charcoal trade, very little registries of charcoal dealers. of the total revenue can be legally retained at the district · helping "local area authorities" develop special areas for level. Apart from the charcoal transport levy (cess), all other 14 Policy Note Transforming the Charcoal Sector in Tanzania charcoal revenues and fees are remitted to back to the · They also are attracted by the willingness of law enforcement Ministry of Finance and Economic Affairs. This includes fines staff to accept bribes at a fraction of what it would cost to levied on those who are found to be breaking the law. This is obtain a license. a key factor in accounting for the chronic undercollection of charcoal revenues across the country. Clearly, there is As a consequence of the illegal and informal nature of the little incentive for local governments to invest staff time charcoal business, it is estimated that the government fails to and resources into revenue collection when the majority of collect taxes of about US$100 million annually. Similar findings funds are submitted directly to the central government. have been obtained for neighboring countries such as Kenya7, Uganda, Malawi8, and Rwanda. · Local government efforts to collect revenue from charcoal production and transport may be constrained by the A second study undertaken in Iringa District was able to involvement of key local government staff and leaders in demonstrate massive improvements in revenue collection the charcoal trade itself, and their unwillingness to impose efficiency when responsibilities for revenue collection were increased costs on personal business interests. devolved to 14 villages implementing CBFM. The revenue collected by those 14 villages far exceeded the forest revenues · Finally, capacity constraints also undermine local collected by the district council from the remaining 153 villages government efforts to collect charcoal revenues or enforce without established CBFM. Consequently, the decentralization the law. Funds generated from charcoal revenues are of taxation to these villages appears to have massively improved rarely reinvested into revenue collection or sustainable efficiency and effectiveness, and has resulted in considerable natural resource management. These funds tend to be improvements in village-level public finance. targeted toward priority sectors such as health, education, and transport, leaving natural resource staff chronically Effectiveness of Policy Measures to Date underresourced. The government has implemented a range of policy measures These factors in combination result in massive undercollection over the past decade designed to address the production, trade, of local government revenues. In a study conducted in the and consumption of charcoal, as well as other energy sources. Iringa District in 2001, it was estimated that in terms of royalty These are summarized in boxes 2.3 and 2.4, and in figure 2.8, and district cess value, the production of charcoal in the Iringa below. They can be broadly categorized into two main types. District was estimated at potentially generating USD$440,000 Between 1997 and 2004, the main focus of policy makers was to per annum. Actual tax collection in 2001, including license set the foundations for policy, which included key reforms in the fees, was equivalent to US$3,500 or 0.8% of the total (Koppers forest sector designed to increase participation and involvement 2002). of forest users in the management of forests. As indicated earlier in this chapter, it is estimated that around However, from 2004 onward, and following the exposure in the 80 percent of the charcoal trade takes place outside the formal press of large volumes of illegal timber exports in the Dar es system. Instead of obtaining the necessary licenses or paying Salaam harbor, efforts by the government were directed toward required fees, the majority of producers and traders chose exercising greater control and influence over trade in forest to evade payment, and, where necessary, pay bribes when products, including charcoal and timber. This came as wider challenged by either the police or government checkpoints. The environmental concerns such as deforestation, and destruction reasons for evasion are many, but some common causes are of catchment forests, were increasingly being raised in the listed below. press--including the impact of this on water and power supplies across the country, experienced between 2005 and 2007. One of · High costs incurred in travelling to the district forestry the most radical measures designed to reduce deforestation in office and waiting for the license to be issued. water catchments and coastal forests was the ban, by the Minister · Those involved in the trade are unable to pay license of Natural Resources and Tourism of trade and production of fees (and the accompanying bribe needed to facilitate charcoal in 2006. The outcry from urban charcoal users was licensing). predictably loud, and as a result, the measure was short-lived-- 7 For Kenya, revenue losses from clandestine charcoal production and trade are estimated at K Sh 5.1 billion or US$65 million (ESD 2007). 8 For Malawi, Kambewa et al. (2007) estimate the size of the at about MK5.78 billion a year, with a potential to collect about MK1.0 billion annually in revenues. 15 Policy Note Transforming the Charcoal Sector in Tanzania FIGURE 2.8 TIMING OF KEY POLICY MEASURES RELEVANT TO THE CHARCOAL SECTOR Tax exemption National Land Policy on LPG and National Land Act and Village Land Act National Environment Policy Environmental Two week National Forest Energy Management charcoal ban Programme Policy Act 1997 1999 2001 2003 2005 2007 2009 National Forest Act Forest Regulations and Charcoal Forest Policy discovery of illegally Guidelines for Regulations exported timber in Dar Sustainable Harvesting es Salaam port and Trade in Forest Produce Source: ESD 2007 being reversed after only two weeks. An important impact of the Measures that provide incentives for changed behavior are more charcoal ban was the loss of all government revenue collected likely to achieve the desired result than measures designed to from charcoal, as all production and trade was illegal. However, impose greater costs and sanctions. A good example of the more due to the massive demand for charcoal, the trade continued, positive forms of policy making can be seen in the Forest Act, albeit illegally, and corruption at checkpoints increased. The which provides a range of policy incentives for communities to greater transaction costs associated with the (illegal) production declare and sustainably manage village forest reserves (such as and trade in charcoal were simply passed on to the consumer, waiving state royalties, and devolving all management decisions and immediately following the ban, the price of charcoal nearly and benefits to village governments). These legal changes have doubled. Prices have generally remained at these higher levels, resulted in a massive surge of interest in community-based despite the resumption of legalized charcoal trade. forest management over the past decade. 16 CHAPTER 3 LESSONS LEARNED FROM TANZANIA AND OTHER COUNTRIES This section provides an overview of how various countries, responsibilities with which to manage forest resources. including Tanzania, have sought to address the charcoal sector Participatory or community forestry has taken root across along the production-trade-consumption chain. Initiatives are many countries on the continent and uses a range of different presented that include both practical measures implemented on models, including the full transfer of management rights and the ground, as well as changes made at the policy and regulatory responsibilities (community-based forest management) and levels across the whole sector. The section concludes with more collaborative arrangements, where forest management a summary of the various policy options and their respective responsibilities are shared between government and advantages and disadvantages. communities (joint forest management). Despite the variety of approaches, one of the key lessons that has been learned across CHARCOAL PRODUCTION different countries is that security of tenure is a key factor that determines whether PFM succeeds or fails--both from a forest Management of Natural Forests and Woodlands management perspective, and from the perspective of securing and maintaining participation over the long term. One example Across Africa, the past two decades have witnessed a growing of where this appears to be working well is in Ethiopia (see box movement to empower rural communities with rights and 3.1). BOX 3.1 THE WAJIB APPROACH TO COMMUNITY-BASED FOREST MANAGEMENT IN ETHIOPIA In Ethiopia, the approach to natural resources management differs from many other participatory forest management (PFM) approaches in Africa because the number of participating households is limited to the forests' carrying capacity and economic potential. The approach, called "WAJIB" requires a binding agreement between the local forest user groups and the district forest office, with clearly stated rights, duties, and obligations for both partners. The underlying assumption is that households will only invest in forestry operations if they can make a living from sustainable forest management. Thus, the forest in a given village is subdivided into forest blocks, with an average minimum size of 360 hectares. Based on the forest carrying capacity of, for example, 12 hectares per household, each block is managed by a WAJIB group of not more than 30 households. Each WAJIB group has its own bylaws, which govern the use, protection, and rights and responsibilities of each household within the block. In the context of this example, the main duty of the forest administration is to provide technical advice to the WAJIB groups on how to develop and utilize the forest on a sustainable basis. One risk identified for this approach is that well-off households benefit disproportionately from additional income, and the poor and landless (who formerly profited from uncontrolled charcoal making) are excluded. Source: Sepp 2008a 17 Policy Note Transforming the Charcoal Sector in Tanzania A further example is provided from Senegal, where clear and In Iringa District communities have sustainably managed binding agreements have been reached regarding how revenues woodland areas for charcoal production for a number of years, from charcoal production and trade in community forests are following a successful project funded by the Government of shared between user groups and a local development fund (box Denmark that supported community-based forest management. 3.2). Recent studies suggest that communities that produce and market wood from community forests for charcoal production face unfair competition from illegally harvested charcoal. Wood BOX 3.2 COMMUNITY-BASED FOREST that is illegally or unsustainably harvested to produce charcoal MANAGEMENT FOR WOOD FUEL is generally free, and the producer only incurs labor costs, PRODUCTION IN SENEGAL which means the product can be sold at a price that undercuts charcoal produced from sustainable sources. This example In Senegal, the forest law creates opportunities for rural further underlines the need to address the charcoal sector in a communes to formally claim possession of hitherto state- holistic manner and look beyond a single intervention along the controlled forests adjacent to their community, and to production­trade­consumption chain. manage them in accordance with a publicly approved forest management plan. Additionally, state forests may be Plantations and Woodlots allocated to communes for co-management. Although natural forest management through PFM will continue Communes, in turn, enter into contracts for the purpose of to play an important role in meeting future demand for charcoal, granting use rights on the village level. Detailed, inventory- natural forests will not be able to meet growing demands in a based management plans are prepared, which also reflect and harmonize locally perceived needs and expectations. sustainable manner. Therefore, PFM approaches in natural forests Each village establishes a management committee, and need to be reinforced through developing complementary tree households interested in utilization of certain forest products plantations. Building on the PFM approach that is well-embedded form respective user groups. in Tanzanian forest policy, the promotion of new plantation-type forest areas as smallholder woodlots or plantations on village The following benefit-sharing formula has been consensually lands outside of existing natural forests under community- adopted among stakeholders: 55% for the producer groups, based forest management is a key policy option for promoting 25% for a communal forest management fund, and 20% for sustainable charcoal utilization (see box 3.3). the communal development fund. Planted forests, if managed responsibly, have a particularly Source: Sepp 2008a important role to play in providing a renewable and environmentally friendly energy resource. In addition, plantations can play a very positive role in: (a) provision of ecosystem services (e.g. erosion Most charcoal-related management challenges occur in arid control, carbon storage, etc.); (b) reduction of pressure on natural or semiarid regions of Sub-Saharan Africa with low and erratic forests; (c) restoration of marginal or degraded land; and (d) precipitation. Such regions are typically characterized by provision of rural employment and development. savannah-type vegetation. Savannah woodlands of this type are not suited to producing high value timber, although their Two main principles must be followed to fully capture the contribution in terms of non-timber forest products, such as potential of plantations for sustainable charcoal production: fodder, gums, and resins, may be substantial. · No natural forest area should be converted into plantations. In Tanzania, when communities are granted full tenure and Even for degraded natural forests, it is preferable to improve management rights over forests in their village area (village land production potential through enrichment planting, rather forest reserves), evidence suggests that forests are managed than full conversion to plantations or woodlots. both sustainably and to the benefit of local development and · Plantations have to provide direct pecuniary benefits to people. Under joint forest management regimes, the failure of rural households in order to divert pressures from natural government and communities to reach binding and enforceable forests. One of the main reasons for rural households agreements on how the costs and benefits of forest management to engage in unsustainable charcoal production is their are shared has meant that progress has been limited and the long- need for cash, which is almost exclusively provided by the term sustainability of this approach is now being questioned. charcoal business. 18 Policy Note Transforming the Charcoal Sector in Tanzania BOX 3.3 HOUSEHOLD TREE PLANTATIONS FOR CHARCOAL PRODUCTION IN MADAGASCAR A village-based approach in Madagascar, facilitated through bilateral technical assistance and implemented by local NGOs, places local people at the center of planning and implementation of plantation management for sustainable charcoal production. It is based on voluntary participation of communities eager to rehabilitate degraded lands by means of voluntary reforestation. As a first step, an afforestation area is identified by the community and legally registered as a "Réserves Foncières pour le Reboisement" RFR. A village-based participatory approval process allocates individual woodlots to interested households, along with defined use rights and obligations. Each plot is demarcated, mapped, and documented with the community's approval. Technical assistance is provided by specially trained NGOs in a three-stage approach, with a total implementation period of 21 months. Aside from institutional and technical support, the only substantial external input is mechanized soil preparation. Tractors must be used to break up compact layers in degraded soil, to increase percolation of rainwater and ensure higher survival rates of seedlings. Nursery operation, planting, and maintenance are the plantation owners' responsibilities. An overall geographic information system (GIS) based monitoring system provides data for every plantation plot, including productivity figures, income generated, etc.. The establishment costs are estimated at US$ 300 per hectare, of which US$ 195 is needed for mechanized soil preparation, and is borne by external funding and US$ 105 by the households in form of labor input. So far, more than 4,500 hectares have been planted, providing an annual increase in income of more than 20% for more than 1.500 rural households. The monitoring system further revealed that 34% of the poorest and landless people became involved, and 22% of women enrolled as woodlot holders. In addition, the uncontrolled exploitation of natural forests in the vicinity of the villages substantially decreased, as did the incidence of fires. Source: Sepp 2008a and GTZ-ECO 2006 Preferably, plantations should be established on degraded lands. rather than in other uses of the land. An example of how direct Furthermore, rural people should not be forced to engage in payments are used to encourage tree planting at the household plantation establishment. Promotion of plantations at the level using a deposit account system is summarized in box 3.4. community level can only be successful if based on voluntary Increasingly, innovative financing mechanisms are linked to participation of communities eager to put unused land under carbon payments either through the voluntary market or the production by means of voluntary reforestation. Clean Development Mechanism established under the Kyoto Protocol. Recent experiences with a pilot project in Tanzania are It would be expected that in the medium to long term, fiscal summarized in box 3.5. reforms targeted at the charcoal sector would mobilize sufficient resources to make plantation establishment self-sufficient as As an investment, woodlots and small tree plantations have regards external financial inputs. There are best-practice examples a number of additional advantages that increase their overall of innovative financial incentives that provide incremental attractiveness to rural households on limited incomes. First, once financing for afforestation and reforestation in cases where trees are at a harvestable age, the potential period for selling the private incentives are insufficient to prompt rural households to trees and converting them into cash extends over several years engage in tree planting. Similar financing mechanisms should or even decades. This allows farmers to use woodlots rather like be tapped as much as possible to increase the economic viability savings accounts. Farmers can time their harvests to coincide of plantations and increase direct income streams generated with periods when major one-off payments are required (for through plantations. The higher the benefit streams from example for funerals, school fees, or purchases of agricultural plantations, the more likely it is that households will decide to inputs). Second, trees are an inflation-free investment that is engage in plantation establishment as an economic activity, likely to grow in value as prices for charcoal increase. 19 Policy Note Transforming the Charcoal Sector in Tanzania BOX 3.4 BENEFIT SHARING THROUGH A DEPOSIT-ACCOUNT SYSTEM IN VIETNAM Subsistence farmers usually do not have access to capital. Poverty often contributes to environmental degradation, resulting in a progressive depletion of natural resources. Therefore, it requires innovative mechanisms to invest capital in the rehabilitation of natural resources, in particular in the establishment and management of forests. These funds should be directly channeled to the participating smallholders. An innovative approach to promoting afforestation among rural households, and builds on the active participation of smallholders in the entire environmental rehabilitation process was developed for Vietnam. Funds for investments are directly transferred to deposit accounts of participating beneficiaries at a local bank. Three preconditions must be fulfilled for smallholders to participate in these investments: · proof of land tenure security for a piece of forest land; · all land of the village subject to participatory land-use planning; and · participating farmers follow the guidelines governing the respective investments. Only when these prerequisites are met can the smallholder can open an account at a rural bank. In addition, the farmer receives special training, seedlings, and fertilizer free of charge. Depending on the size of the forest land and the volume of his/her investment, a fixed amount of money is credited to the farmer's account. This is to compensate smallholders for their labor input and to serve as an incentive to gain their long-term participation. After planting and final approval of the responsible authorities, the farmer can withdraw 15% of the paid-in capital from his account. The following year he can withdraw another 15%, provided the plantation is managed according to the technical guidelines. Moreover, the account accumulates interests, which can also be withdrawn. For eight years, farmers are able to withdraw from their deposit accounts, provided they manage and protect their forest land according to the guidelines. After nine years the first products can be harvested from the forests, mainly for fuelwood, poles, and nonwood forest products. Source: GFA Consulting Group BOX 3.5 CARBON-BASED PAYMENTS AS INCENTIVES FOR TREE PLANTING AT THE HOUSEHOLD LEVEL-- EXPERIENCES FROM TANZANIA Development benefits of carbon-based payments for Nine of 10 farmers were found to visit the next larger village afforestation and reforestation activities can occur at with a rural bank branch only once per year, most often during several different levels, e.g., including both participants and the Christmas Holidays to visit relatives. However, none of nonparticipants, as well as for the host country as a whole. the banks operating in the research area was open during A particularly thoughtful design of the institutional structures Christmas. Therefore, farmers were often unable to receive the is essential to foster improved rural livelihoods and natural payment they were rightfully expecting for their activities. This resource management. resulted in an increasing lack of trust in the program design and its institutions. For example, a pilot program in Tanzania aimed to channel carbon finance payments to participating local villagers This demonstrates that the benefit-sharing mechanisms must through a voucher-based system by using a network of rural be very carefully designed to address the specific constraints of banks throughout the country. However, bank accounts in farm households in remote rural areas. Exploratory household which to deposit the program's vouchers could often only be surveys and rapid appraisals may be used to learn of location- opened in larger rural villages, while farmers exhibited high specific constraints in order to set up an adequate payment immobility due to prohibitive opportunity costs of transport system. For example, non expiring vouchers would allow for in remote rural areas. As a result, the vast majority of farmers more time and flexibility for the household members to deposit participating in the pilot program ran into difficulties because the vouchers at the nearest local bank. they were unable to travel to the next branch of the rural bank Source: Scholz 2009 on time, leading to criticism that the vouchers would expire and could no longer be deposited. 20 Policy Note Transforming the Charcoal Sector in Tanzania Development of plantations and woodlots at the community table 3.1), but sources its raw material through contractual level can also be promoted through outgrower schemes (see relationships with smallholders. Such a setup would provide box 3.6). Although outgrower schemes are rare in the context adequate benefit-sharing incentives to rural households that of charcoal production in Sub-Saharan Africa that supplies to are necessary to motivate households to engage in tree planting domestic markets, it is theoretically possible that a private entity instead of alternative land uses. invests in modern, industry type carbonization technology (see BOX 3.6 OUTGROWER SCHEMES Through outgrower schemes, companies (or other entities) with inadequate forest holdings or access to public forests seek to secure additional supplies to meet their demand for raw material. Forestry outgrower arrangements between growers (or cooperatives) and processors may be characterized as: · partnerships in which growers are largely responsible for production, with company assurance or guarantee that they will purchase the product; · partnerships in which the company is largely responsible for production, paying landholders market prices for their wood allocation; · land lease agreements in which landholders have little involvement in plantation management; and · land lease agreements with additional benefits for landholders. Under outgrower partnerships, growers allocate land and other resources to the production and management of trees, and sometimes other forest products, for a processing company, with the company providing a guaranteed market. The varying responsibilities of each partner are defined by contract. The incentives for forest processors to develop outgrower schemes include increased supply of wood resources, access to productive land, resource security without the need to purchase land, diversification of supply, and increased cooperation with local communities. For growers, the advantages include an alternate and additional source of income, a guaranteed market for products, reduced market risks and, in some cases, financial support for enterprise development. Existing outgrower arrangements vary considerably as to whether they are mutually beneficial, achieve sustainable forest management, and meet the social, technical, or economic goals of the partners. Not all outgrower partnerships are viewed as successful, and poor grower-industry links are regularly identified as one of the major constraints to forestry development throughout the world. Source: FAO 2001, World Bank 2007 Trees outside Forests Trees outside forests include all trees found on non-forest and non-wooded lands, i.e. trees on agricultural lands, in urban and In the African context, the contribution of trees outside forests settlement areas, along roads, in home gardens, in hedgerows, (TOFs) to the energy supply still remains largely underestimated. scattered in the landscape, and on pasture and rangelands. Statistics on wood fuel supply do not adequately capture this Most of the knowledge on TOFs derives from the experiences in resource, even though a major part of the rural household supply agroforestry9. is covered by TOFs. Existing policies concerning rural development still neglect TOFs as one of the most important wood fuel Although TOFs fulfill a multipurpose function and are part of an supply resources besides natural forests and plantations. Some integrated land-use system, wood fuel can be a main product. countries consider TOFs a responsibility of ministries in charge According to the Food and Agriculture Organization of the of agriculture, while others attribute it a responsibility of the United Nations (FAO), over two-thirds of the energy demand forestry or environment institutions. in the Asia-Pacific region is supplied by wood fuels from non- forest sources. 9 Agroforestry is the practice of growing trees and agricultural products in the same area at the same time. Agroforestry helps farmers create more integrated, diverse, productive, profitable, healthy, and sustainable land-use systems. 21 Policy Note Transforming the Charcoal Sector in Tanzania TOFs for charcoal can occur in various places and ways: in home efficiency rates, these kilns represent practical, low-investment gardens or as replacement or enhancement of natural fallow options for poor producers, particularly when conversion is vegetation. To control soil and water erosion, trees and shrubs taking place illegally, and risks of arrest or confiscation of the can be planted along the contour lines on slopes or on terraces. product is high. Living fences planted as tree lines on farm boundaries or on pasture plots, animal enclosures, or around agricultural fields, Many projects have tried to overcome the challenge of low can also contribute to the energy supply of local households. efficiency levels by promoting more efficient kilns for charcoal production, but adoption rates have been disappointing. The The species most often used for wood fuel should preferably be reasons for this are mainly found in the informal--and often fast growing hardwoods, which can be harvested as coppice after illegal--nature of charcoal production, as frequently described four to six years. The trees should adapt well to site conditions and throughout this paper. Without secure and long-term access have nitrogen-fixing properties. As for plantations, management to wood resources, investments by producers for more efficient procedures must match the capacities of rural populations. It conversion methods are likely to be limited. Additional challenges is imperative to use species resilient to grazing by livestock or that have been encountered when promoting improved wildlife to minimize costs for forest protection10. conversion technology include: The socioeconomic and ecological advantages of agroforestry · the cost of improved kilns, which may be prohibitive for greatly outweigh any ambitious tree planting program because small-scale producers with limited purchasing power and agroforestry can be developed at a fraction of the cost of very little access to credit; plantations (and stimulates greater local participation and a · given that most charcoal is produced in the drylands where wider diversity of goods and services for the local and national forest cover is low, charcoal production tends to be highly economies). The major constraint to wider dissemination of mobile. Improved kilns tend to be stationary, which places agroforestry approaches often arises from complex land tenure additional costs on producers due to the need to carry wood systems in Africa. from the point of harvest to the kiln. This can be an arduous and time-consuming task over rough ground. Charcoal Production and Briquetting In recognition of these potential challenges, there is an The conversion of wood to charcoal plays a small but crucial role in increasing body of experience in Tanzania (and other east the charcoal value chain. In most instances, charcoal production African countries) relating to promoting low-cost improvements takes place using traditional earth or pit kilns, where wood is to the traditional earth kiln design. The Tanzania Traditional cut and stacked before being covered in earth and carbonized. Energy Development and Environmental Organization (TaTEDO) This is a highly inefficient process, with a conversion efficiency has pioneered this approach with a range of simple adaptations of around 8 percent to 12 percent (table 3.1). Despite the low to traditional designs that can achieve significant savings at a TABLE 3.1 EFFICIENCY OF ALTERNATE KILN TECHNOLOGIES Characteristics Traditional Kilns Improved Kilns Semi-industrial Kilns Industrial Kilns Conversion Technology Efficiency 8-12% 12-18% 18-24% >24% Emissions CO2: 450 - 550 CO2: ~400 (in g per kg charcoal CH4: ~700 CH4: ~50 produced) CO: 450 - 650 CO: ~160 Source: Adapted from Sepp 2008b 10 The World Agroforestry Centre maintains freely accessible databases providing information on the management, use, and ecology of a wide range of tree species that can be used for fuelwood purposes in agroforestry. (http://www.worldagroforestry.org/sea/Products/AFDbases/AF/index.asp) 22 Policy Note Transforming the Charcoal Sector in Tanzania low cost. These include the introduction of a chimney, as well as ensuring that wood used in the kiln is adequately dried and cut BOX 3.7 EXPERIENCES WITH FISCAL INCENTIVES into approximately similar sizes. Semi-industrial and industrial FOR SUSTAINABLE CHARCOAL kilns (table 3.1) have met with some success, but only under PRODUCTION IN NIGER intensive production systems (such as in a plantation setting or with significant external investments by a private sector The first country to attempt to use fiscal incentives as a enterprise dedicated exclusively to charcoal production). tool to regulate charcoal production was Niger, where in 1989 the government created "rural markets," or CHARCOAL TRADE well-marked locations where firewood had been sold by villages from locally managed wood resources. Harvesting As described in the previous chapter, poor governance and regimes were based on long-term sustainable harvesting ineffective regulation of the charcoal sector means that charcoal plans. The two key elements for success were: is sold at a price well below its true value, as the cost of the · Villages operating a rural market were allowed to resource itself (wood) is rarely factored into the final price. This levy a tax, which remained largely in the village. means that wood for charcoal that is harvested from regulated This was additional, fixed revenue for the village and and sustainably managed areas will necessarily attract a higher belonging to the whole population, rather than just price than unregulated charcoal. These price distortions provide those involved in the wood fuel business; and significant disincentives for communities or entrepreneurs · The tax level depended on a number of variables: wishing to invest in sustainable and regulated charcoal trade as (a) how far the market is from Niamey, with higher long as the risk of price undercutting prevails from the illegal tax levels the closer the market is; (b) whether it is sector. In the long term, if producers are to be encouraged to sustainably produced wood near the rural market invest in sustainable charcoal trade, they will need to be sure (lower taxes); (c) if it is from a zone with excess wood that they can operate competitively against other producers. This where wood harvesting is allowed; or (d) if the wood illegally cut (highest tax level). can be achieved in a variety of ways, such as: In this way, transporters had an incentive to visit rural · reducing the scale of illegal trade to a level where it does wood markets rather than open access areas. At the not impact significantly on the formal charcoal trade. This same time, villages had an incentive to obtain approval can typically take place through a targeted investment in for operating a rural wood market, for which several regulation and control to ensure that the costs of trading conditions existed: (i) delineation of village borders; (ii) in illegally produced charcoal are higher than the costs of drawing a map of wood resources, including dead wood; trading in charcoal that is licensed and regulated; (iii) developing simple wood fuel harvesting management · providing subsidies or fiscal incentives for sustainably plans; and (iv) establishment of a management committee. produced charcoal that compensate for price differences Once all conditions were fully satisfied, villages were when compared to illegally produced charcoal; allowed to sell wood and levy the tax. Coupons were · "eco-labeling" charcoal so that despite higher prices, used as a mechanism to indicate the origin of the wood consumers buy it based on the knowledge that they are and the quantity transported. Around Niamey, a control contributing to sustainable development and improved system was set up verifying whether wood transporters producer prices. This process of product differentiation, had already paid their taxes. If not, they were assumed however, does not address the widespread and dominant to have obtained wood from a nonmanaged zone and trade in unregulated charcoal. paid tax accordingly. Even though the tax payment compliance mechanism no longer exists, the rural markets All three of these measures have been attempted, with varying still function, and a tax is still levied, but now directly by degrees of success. Perhaps the best-known example of fiscal the village. incentives comes from Niger, which introduced a variable tax Sources: van der Plas 2008, see also Chomitz and Griffiths 1997 regime to incentivize sustainable production and penalize unsustainably produced charcoal (box 3.7). 23 Policy Note Transforming the Charcoal Sector in Tanzania Introducing fiscal measures that encourage illegal charcoal urban centers. Otherwise, failure to address the challenges of producers to move into the formal sector will have a range formalization will ultimately undermine efforts to address the of positive and negative spinoff effects. On the positive side, problems of charcoal trade elsewhere along the production- formalization will provide greater security for producers and marketing chain. traders, which will in turn encourage longer-term investments designed to increase efficiency and sustain supply. On the CHARCOAL CONSUMPTION AND FUEL SWITCHING negative side, however, encouraging producers and traders to engage in legal and regulated business will necessarily result in Conventional wisdom suggests that economic growth will price increases for the end user, as the final market prices reflect trigger a reduced demand for wood and other biomass, with the true value of not only processing and transport costs, but consumers, and countries, increasingly moving toward the use raw materials and licensing as well. However, experience would of LPG, natural gas, and other fossil fuels. More recent research, suggest that these price increases will in turn encourage efficiency however, indicates that this sequential progression from wood savings across the whole production-trade-consumption chain. fuels to commercial fuels is by no means linear. In many cases, households use various fuels for the wide variety of cooking Given the tight control exercised over the charcoal trade by a and heating tasks that are required. The implications of this limited number of influential businessmen in many countries, are that even with economic development, the use of charcoal efforts to reform the sector are often strongly resisted. Linkages may not decline proportionately, as fossil fuels may be used as between large-scale charcoal traders and political leaders are a supplement, rather than a substitute, for wood fuels. In fact, often close. If the strong and vested interests operating in the biomass consumption often still increases in growing economies, charcoal sector are to be overcome, it will require strong political due to the fact that fossil fuels are simply added to the energy support--both within government and the political system-- mix, not substituted for wood fuels (see Matthews 2000). but also among the users and consumers of charcoal within FIGURE 3.1 COMPARISON OF THE ENERGY LADDER AND ENERGY STACK THEORY Advanced Fuels Advanced Fuels LPG LPG Transition Fuels Ethanol gel Ethanol gel Charcoal Electricity Electricity Kerosene Coal Transition Fuels Charcoal Kerosene Coal Socioeconomic Traditional Fuels status Traditional Fuels Firewood Firewood Socioeconomic Animal waste Animal waste status Agricultural waste Agricultural waste ENERGY STACK ENERGY LADDER Source: Adapted from Schlag and Zuzarte 2008 24 Policy Note Transforming the Charcoal Sector in Tanzania As discussed in the previous chapter, incentives for users to preparation tasks were performed using modern cooking stoves, switch from charcoal to fuels such as LPG are not only driven by the study found that efficiency levels might decline. Wealthier issues of price. More often than not, other considerations play households tended to use a mix of traditional and modern an equally important if not greater role in determining fuel use. cooking methods, depending on the tasks. LPG, for example, Poorer households cannot necessarily afford to switch to more was used for short heating tasks (like boiling water for tea or expensive fuel sources, particularly if they have to pay the costs warming a meal), while charcoal was used for preparing meals all at one time. However, if the costs can be broken down into requiring long cooking times, as well as roasting meat that smaller amounts, it is more affordable for those who have only requires high heat. limited disposable budgets. A large number of initiatives have been developed over the past A study conducted by USAID on urban energy use in Uganda three decades with the aim of promoting improved cooking found that stove efficiency varied according to the type of food technology. One of the most well-known and documented of being cooked and the type of heating that was required. Heating these was the design and promotion of the Kenya Ceramic Jiko of traditional foods was in some cases found to be most efficient (see table 3.2) first-generation improved stove, designed for when using traditional methods (USAID 2007). If the same food urban consumers of charcoal. TABLE 3.2 COMMONLY USED STOVES FOR FUELWOOD AND CHARCOAL COMBUSTION3 Characteristics Traditional Phase Transition Phase Semi-industrial Phase Industrial Phase 3-Stone Fire Improved Stove Improved Stove High-Efficiency Stove (First generation) (Second generation) Combustion Technology Efficiency 8-12% 20-25% 25-35% >35% Source: Sepp 2008b Finally, the use of modern fuels and efficient stoves may also CONCLUSION generate significant health and safety benefits. The inefficient and incomplete combustion of wood fuels release a number of The review of experiences in this section has highlighted a number pollutants, such as carbon monoxide, sulfur, and other particulate of key lessons and conclusions. First among these is the necessity matter. Commonly observed diseases resulting from indoor air of addressing the broader regulatory and tax framework around pollution are, for example, chronic respiratory diseases, including which the charcoal sector operates. Unless the market cost of pneumonia, tuberculosis, and acute respiratory infection. Women charcoal reflects its true value--which includes raw materials, and children are exposed to these pollutants at significant levels labor, transport, and all taxes and licenses--any efforts to develop and for longer periods of time. Furthermore, the introduction sustainably produced charcoal will always be undercut by illegal of improved stoves has been shown to reduce the incidence of charcoal, which bypasses many of these key costs. Market prices injuries to children from burns. Traditional open, three-stone of illegal and regulated charcoal can be balanced in two ways: fires present a hazard to young children who spend long periods either by subsidizing the costs of regulated charcoal, or by in the kitchen and are frequently burned or injured by falling imposing a financial penalty on unsustainably produced charcoal. onto or near the fire. While the former poses the question of financial sustainability, 3 In Tanzania, charcoal consumers commonly use first-generation improved stoves or less-efficient stoves. 25 Policy Note Transforming the Charcoal Sector in Tanzania the latter requires complementary enforcement efforts to assess increased costs on illegal producers, with the expected results of greater compliance in the future. Ultimately, a mix of both approaches will be necessary. Achieving greater compliance of the informal illegal sector will necessarily result in an increase in prices to consumers, but this will in turn stimulate investments by both consumers and producers that are designed to achieve greater efficiency savings. Formalizing and regulating an important sector like charcoal requires strong levels of political support and willingness to challenge powerful and vested interests--often with strong links to the political establishment. It is perhaps for this reason that the overall success of interventions in the charcoal sector have met with mixed success. But those countries that have taken these bold steps appear to have made the greatest progress. While the political costs of addressing the charcoal sector head-on may be high, the potential rewards are great. Transforming the charcoal sector into a sustainable and regulated enterprise will deliver politically valuable benefits, including energy security, economic development in poor rural areas through income diversification, improved revenue collection, sustainable natural resource management, and a mitigation of the effects of climate change. In the context of climate change, benefits from carbon finance could offset require public investments in sustainable charcoal production. A second and related conclusion involves the importance of reviewing interventions along the entirety of the supply, marketing, and consumption chain. Many of the least successful interventions both in Tanzania and elsewhere have been those that addressed a single issue or constraint, without considering wider structural challenges. 26 CHAPTER 4 POLICY RECOMMENDATIONS Based on the analysis of the charcoal sector described in chapter Natural Resources and Tourism) develop a pilot initiative in a 2, as well as a review of policy measures adopted in other limited number of districts that have expressed a willingness to countries, this section outlines critical actions that should be participate and commitment to implement the measures in full. taken if the charcoal sector is to be effectively regulated and its The pilot would allow district governments to retain charcoal potential benefits harnessed to the full. revenues (licenses and fines) levied on areas outside national or village land forest reserves. This would include unreserved village The recommendations have been discussed at, and validated forests, as well as local authority forest reserves. The success of through, stakeholder consultations and workshops, which this initiative would be assessed by the degree to which this included decision makers from different levels of the government incentive stimulates local governments to invest increased (Ministry of Natural Resources and Tourism, Ministry of Energy resources and manpower into the regulation and management and Minerals, Prime Minister's Office-Regional Administration of the charcoal sector. If it proves workable, the model could be and Local Government, village environmental committees, replicated elsewhere and the appropriate legislative framework representatives from public institutions that use charcoal be developed to allow for its adoption nationwide. (e.g., schools, hospitals, prisons), charcoal producers, dealers (wholesale and retail), traders, NGOs, producers of alternative Districts should be supported to reinvest charcoal revenues fuels (such as LPG and charcoal briquettes), and others. in revenue collection and sustainable forest management. Given the limited capacity of district governments to generate Policy recommendations are provided along the charcoal value their own sources of internal revenue, any local revenue is chain, but given critical nature and its potential impact on other targeted to priority areas requiring support, such as roads, parts of the charcoal sector, this section will begin with the education, and health, without the usual earmarking from the regulatory and fiscal frameworks. At the end of each section, a central government on conditional grants. However, continued summary table is provided that shows some of the short- and and sustained investments by local governments in revenue long-term actions required to put these recommendations into collection would be necessary if unregulated charcoal production practice, as well as some key institutions that would have to be is to be suppressed in the long term. For this to be possible, involved in leading the process. districts must be encouraged to ensure that a significant portion of revenue collected from charcoal regulation is reinvested to ADDRESSING THE REGULATORY, FISCAL AND support the sector. Examples of similar models already exist PRICING FRAMEWORKS in Tanzania, such as the Road Fund, which is a levy charged on fuel costs, which is reinvested into road construction and Districts should be allowed to retain a portion of fees and maintenance. fines collected from licensing charcoal. If district councils are to be encouraged to regulate the charcoal sector, they Charcoal fees should be transport-based. Because charcoal must be given the resources and incentives to do so effectively. production takes place across wide areas and involves many tens It is proposed that the central government (the Ministry of of thousands of producers, licensing its production has proven Finance and Economic Affairs, together with the Ministry of to be very problematic. The costs of traveling long distances to 27 Policy Note Transforming the Charcoal Sector in Tanzania the district headquarters, only to find that the relevant officer is centers where charcoal can be delivered, sold to transporters, unavailable, means that most producers opt to avoid licensing. and then carried to more distant urban centers provides an It is proposed that instead, licensing of charcoal production and opportunity for greater regulation and formalization of the transport be consolidated through the use of transport-based whole production and trade cycle. Furthermore, it provides fees. Fees would be based on the number of bags transported. economies of scale for producers and traders alike, as well as Payments could be done, against issuing of appropriate dated greater opportunities for the negotiation of fairer prices. receipt, at any legal payment point. At every checkpoint passed, the receipt would have to be shown, or the respective transit Where possible, these trading sites should be administered by fee paid (and receipt issued). The product would have to be established organizations or associations representing charcoal transported to the retail market within one day. If this is not buyers and sellers. Local government must also have a role in possible, a specific written authorization to extend the validity overseeing the operation of these sites, and could opt to use of the receipt would need to be obtained from the nearest forest them as centers for levying taxes and fees. For trading sites to be office. effective, however, it would be important to consult with both traders and producers, with a view to identifying suitable sites The introduction of fiscal incentives can reward sustainably where supplies and demand are sufficiently strong. There are a produced charcoal and fine illegal produced charcoal. number of examples of market, vendor, or trading sites built by To subsidize the increased investment costs associated with governments, with the very best of intentions, but which are sustainably produced charcoal, it is proposed that a fiscal underutilized due to poor planning and location. incentive scheme be introduced. This scheme would introduce reduced licensing costs for charcoal and could, for example, Increasing the number and effectiveness of fixed be implemented by waiving the transport levy (local cess) on checkpoints will improve law enforcement and governance. charcoal produced from an area with an approved management While the main thrust of the policy recommendations made plan. This could include village land forest reserves, or local in this chapter aim at creating incentives for transforming authority forest reserves with approved harvesting plans. At the the charcoal sector, it is important to stress that some form same time, tougher sanctions could be introduced regarding of government regulation or law enforcement will always be trade in illegally produced charcoal. If effective, over time the needed, particularly during the transition phase, when efforts relative proportion of charcoal traded officially and formally are being directed to curbing unsustainable and contraband would grow, and illegally produced charcoal would decline. At trade. the same time, prices to the end consumer of the two forms of charcoal would eventually align, allowing sustainably produced Increasing the collection of revenue would require significant charcoal to profitably compete. Over time, these incentives could investments in terms of building both staff capacity as well as be progressively reduced, as they become increasingly effective. infrastructure. The Ministry of Natural Resources and Tourism has a number of established checkpoints along main transport To be successful, it would be necessary to distinguish sustainably routes, but they are poorly staffed, with low morale, inadequate produced charcoal in an open and unambiguous way. In addition supervision, and correspondingly high levels of corruption. to different licensing arrangements, it might be necessary Police officers are also known to connive with corrupt forest to introduce a more visible way to differentiate legal from guards (for example by permitting the passage of charcoal trucks unregulated products. One option that has been frequently through police checkpoints at night, when forest checkpoints are proposed is the introduction of clearly marked bags for charcoal not operating). Clearly, if increased regulation is to be attained, produced in a sustainable manner. While such a system would these corrupt practices must be addressed. Supervision of these not only facilitate monitoring of charcoal transport from checkpoints would be essential, and in some cases new staff sustainable production, it would also ease the payment of would be required to break established (and corrupt) networks. charges and issuing of permits. In addition, the consumer would Furthermore, strong political support would be important, as it have to destroy the seal or bag when accessing the charcoal, is likely that increased enforcement measures would result in so reuse of the bag and the resulting evasion of transport fees widespread dissatisfaction. would be prevented. The benefits and opportunities generated by these proposals are Fixed Trading Sites would help to better monitor charcoal many. transport and trade. Experiences from a number of countries · They provide a revenue stream for local governments with would suggest that constructing simple charcoal markets in town which to both address pressing local development needs, 28 Policy Note Transforming the Charcoal Sector in Tanzania and also support the continued investment in sustainable trees for charcoal production to areas that are managed natural resource management (such as tree planting, sustainably and efficiently. community forestry, law enforcement, revenue collection). For these to work, however, would require considerable political · If implemented, they would create incentives for investments will, as producers and traders who previously have operated and efficiency savings up and down the supply­marketing outside the law would now face additional charges as the chain (such as participatory forest management, planting trade becomes progressively regularized and formalized. The of woodlots, management of trees outside forests, selection of pilot districts will be critical and will require genuine improved kilns, and improved stoves). This would, in turn, and unconditional support from local councilors and district result in increased employment opportunities in rural areas leadership. The following table provides a summary of short- because of the projected growth in woodland and forest and long-term actions that would be required to implement the management, tree planting, and charcoal production. proposed actions. · They would result in a gradual displacement of unsustainable, opportunistic, inefficient, and unregulated harvesting of TABLE 4.1 SUMMARY OF SHORT- AND LONG-TERM ACTIONS TO IMPLEMENT POLICY RECOMMENDATIONS Key Intervention Areas Short- and Long-Term Interventions Key Institutions · Allowing districts to retain a Short Term Forestry and portion of licenses and fines · Identification of pilot districts with commitment and political Beekeeping Division, collected from licensing charcoal will to reform charcoal trade PMO-RALG, Ministry · Supporting districts to retain and · Written authorization from MNRT to allow selected districts to of Finance and reinvest charcoal revenues in retain percentage of charcoal fees and provide fiscal incentives Economic Affairs revenue collection and sustainable for sustainably produced charcoal (CBFM or planted trees) forest management · Establishment of checkpoints at key points supported by Selected "lead" · Fiscal incentives that reward training and supervision of checkpoint staff districts within sustainably produced charcoal and · Technical support to districts on financial management catchment area of place additional fines on illegal procedures that encourage reinvestment of natural resource major urban center products revenues with political will to Long Term reform finances · Assessment of effectiveness of pilot program on increasing revenue base, improving forest services, and reducing deforestation · Promotion of "success stories" and positive publicity for districts with political will, followed by expansion to other areas · Moving toward transport-based Short Term Forestry and fees for charcoal · The gazettement of legal rules on transport-based fees for Beekeeping Division, · Building fixed trading sites charcoal by FBD Police, judiciary for the transport and trade of · Public information campaign on new rules and training of law charcoal enforcement staff · Increasing the number · Identifying suitable sites for trading around Dar es Salaam and and effectiveness of fixed supporting construction checkpoints · Construction of checkpoints around Dar es Salaam and targeted training and supervision for staff Long Term · Expansion of activities piloted around Dar es Salaam to other regions of the country based an evaluation of lessons learned 29 Policy Note Transforming the Charcoal Sector in Tanzania CHARCOAL PRODUCTION While it is anticipated that establishing CBFM arrangements will incur heavy initial costs that will require external support, Developing harvesting plans for forest areas administered it is expected that fiscal reforms proposed earlier in this section by central or local government would help achieve more will increase revenue collection at the district and village levels, sustainable forest management. If Tanzania is to move which will in turn have the potential to cover CBFM support toward supporting the development of sustainable harvesting costs without having to rely on external support. of wood for charcoal, it will be crucial that more accurate assessments are provided regarding sustainable harvesting and More plantations and woodlots will increase wood supplies off-take levels. Currently, harvesting and licensing decisions for charcoal. Although natural forest management through are rarely driven by accurate assessments of standing stock CBFM will continue to play an important role in meeting future or resource availability. The Tanzanian Government is in the demands for charcoal, natural forests will not be able to meet process of developing a National Forest Resources Monitoring these demands in a sustainable manner given the projected and Assessment, with support from the Government of Finland increase in demand for charcoal and the fact that many natural and the World Bank. It is hoped that this and other, more local woodland areas within 200 kilometers of Dar es Salaam will assessments, will provide important inputs to the development require a period of regeneration and recovery before sustainable of sustainable harvesting plans for forest areas administered by harvesting can be established. central and local governments. Consequently, CBFM in natural forests will need to be reinforced Scaling up Community-Based Forest Management in through the establishment of complementary supplies outside urban catchment areas will help securing tenure for rural forest reserves. One such option is establishing private or group- producers. As outlined in chapter 2 of this report, Tanzania has based woodlots or plantations. undertaken major policy reforms in the forest sector over the past decade, and has made significant progress in the implementation Small- and medium-sized plantations and woodlots, if well of a national program of participatory forest management managed, have a particularly important role to play in providing (PFM). The most devolved form of PFM--community-based forest a renewable and environmentally friendly energy resource. management (CBFM)--offers communities the opportunity to In addition, plantations can play a very positive role in: (a) declare and reserve forest reserves on village lands, managed in provision of ecosystem services (e.g. erosion control, carbon line with local development priorities. storage, etc.); (b) reduction of pressure on natural forests; (c) restoration of marginal or degraded land; and (d) provision of CBFM provides an opportunity for communities to become rural employment and development. involved in establishing and managing sustainable supplies of charcoal, while securing rights over local forest resources and A three-phase approach to plantation establishment under decentralizing control over management planning and decision group management is described in table 4.2. making. Although significant investments have been made in scaling up PFM by both government and development partners Table 4.2 emphasizes the importance of clarifying and legalizing (including the World Bank), at a national level, the total area of tenure over the land and planted trees, as well as developing forestland covered by PFM arrangements is currently only 13 upfront agreements on how rights and responsibilities are percent. shared among participating members. Local NGOs are generally best suited to facilitate the process as outlined above. External If communities are to be supported and become involved in support should only be provided in terms of technical advice, meeting the demands of the charcoal trade from village forests, dialogue with regional- and national-level governments, and the efforts need to be directed in a more concentrated and targeted provision of resources. Experience from Tanzania and elsewhere manner to remaining unreserved natural forest and woodland would suggest that if this model is to work on a scale sufficient patches across the districts neighboring large urban charcoal to have an impact on overall supply characteristics, some kind of markets (such as those surrounding Dar es Salaam). Given the incentive scheme may be necessary. This would assist farmers in rather degraded status of many of these woodland areas (due obtaining financial support during the early stages of plantation to unregulated harvesting of wood for charcoal over recent establishment, when costs are highest (labor, seedlings, and tools). years), it is possible that a period of regeneration and recovery An incentive scheme of this sort might be particularly important will be needed before sustainable harvesting for charcoal can be in overcoming obstacles in participation for poorer members, introduced. for whom such a venture might be too costly. Furthermore, by 30 Policy Note Transforming the Charcoal Sector in Tanzania TABLE 4.2 3-PHASED APPROACH TO GROUP-BASED PLANTATION ESTABLISHMENT Phases Duration Tasks Awareness raising and social mobilization 3 months · Constitution of a "village afforestation body" · Identification of afforestation site · Issuance of legal title · Training in raising seedlings, nursery management, and planting Training, planning, and implementation 8 months · Planning of work organization · Allocation of individual plots and registration · Soil preparation (mechanized input) · Planting of trees Self-management 10 months · Internal and external evaluation · Organizational and technical advice · Creation of sense of responsibility Source: Sepp 2008a linking the establishment of charcoal plantations to an incentive Miombo areas may well mean that modern, stationary kilns may scheme, experience from Vietnam and Madagascar suggest that not be viable. In such circumstances, it is recommended that farmers can be supported to ensure that their product meets producers are provided with simple training on how efficiencies market requirements (particularly relating to species choice), of traditional charcoal production (earth kilns) can be improved. sound production techniques are adopted, and any negative Using the experiences gained by TaTEDO in this regard might environmental impacts are avoided (such as the clearance of prove to be a useful option. natural woodlands to make way for planted exotics). While subsidies and incentive payments may be necessary in The benefits and opportunities generated by the above proposals the early stages to trigger participation, if this is undertaken are summarized as follows. together with measures to improve the overall regulation and · Revenue generation from either individual planting of trees formalization of the charcoal sector, it is likely that in the longer or group-based woodland management will increase in term, such subsidies may not be needed and can be replaced areas where other livelihood opportunities are limited. with more market-based credit provision. As farmers begin to · Tanzania has an established track record with participatory secure financial benefits from the sale of wood for charcoal, it is forest management, and large areas are already legally likely that other farmers will engage in similar activities. transferred to community ownership and management, making sustainable woodland management a realistic There are opportunities for increasing the efficiency of option. wood conversion to charcoal. The review of experiences in · Levels of deforestation will be reduced as production shifts chapter 3 pointed to the fact that while semi-industrial charcoal to sustainably managed woodlots and community forests. kilns may achieve significant efficiencies when compared with traditional earth kilns, they may only be a viable option in The following table provides a summary of short- and long-term large-scale, intensive, plantation-based production enterprises. actions that will be required to implement these actions: Extensive production of charcoal in dryland woodland or 31 Policy Note Transforming the Charcoal Sector in Tanzania TABLE 4.3 SHORT- AND LONG-TERM ACTIONS TO IMPLEMENT PROPOSED ACTIVITIES Key Intervention Areas Short- and Long-Term Interventions Key Institutions · Developing harvesting plans Short Term Forestry and for forest areas administered by · Identifying forest blocs on village land of sufficient size and Beekeeping Division central or local governments condition that would support extensive charcoal management · Securing tenure for rural under community management National Land Use producers by scaling up · Undertaking village land-use mapping and planning exercises Commission community-based forest that secure village land tenure and identify areas of village management in urban forest suitable for community management FBD, PMO-RALG, local catchment areas · Developing charcoal harvesting plans in village forests governments · Supporting selected villages to reserve and declare village land forests NGOs with capacity · Preparing harvesting plans in local authority and national forest in facilitating PFM reserves in selected areas (Tanzania Forest · Monitoring harvesting levels to ensure they are in line with Conservation Group, agreed off-take levels Wildlife Conservation Long Term Society of Tanzania, · Scaling up to other areas etc) · Increasing supplies of wood for Short Term NGO with capacity charcoal through plantations · Developing a performance-based grant scheme that supports in tree planting and and woodlots the establishment of plantations production, FBD, · Design of silvicultural packages (seed sources, species, community groups, management, etc.) that can be rolled out in target areas individuals · Identifying individuals and groups with significant areas of land Private sector tree and interest in tree planting growers, support · Launching grant scheme and ensuring close monitoring and services compliance Long Term · Linking producers to markets and technology (improved kilns) and supporting them through fiscal incentives (see above) · Scaling up to other urban charcoal catchment areas · Increasing efficiency of Short Term NGOs such as TaTEDO converting wood to charcoal · Targeted training support to charcoal producer groups on and charcoal producer improvement of traditional practices in areas are supported by groups other upstream interventions · Assisting individuals and groups with larger tree plantations to identify and invest in improved charcoal kilns 32 Policy Note Transforming the Charcoal Sector in Tanzania CHARCOAL CONSUMPTION In addition to focusing strongly on fossil fuel-based substitutes for charcoal like LPG and electricity, it is recommended to further Fuel-efficient, domestic charcoal stoves should be promoted. evaluate the promotion of substitute fuels based on biomass. Many of the policy recommendations discussed above would These would not only provide a higher degree of domestic value lead to an increase in the final price of charcoal due to the added, but may also fit better in terms of the socio-cultural inclusion of raw materials and licensing costs as the sector aspects of fuel choice. A poor country like Tanzania simply becomes increasingly regulated. In order to offset any potential cannot afford to lose a significant number of employment and hardships created as a result of this anticipated price increase, it income opportunities which provide rare occasions for rural is recommended that fuel-efficient domestic charcoal stoves be people to generate cash income. In the long run, biomass-based promoted in urban areas such as Dar es Salaam and Arusha. substitute fuels are likely to have a better environmental impact than fossil fuel-based substitutes for charcoal. The efficiency of most improved (first-generation) domestic stoves is around double that of traditional cook stoves, so There are opportunities for commercially viable briquetting. adopting such stoves will have a significant impact on reducing Experiences from briquetting initiatives elsewhere suggest that domestic expenditure on charcoal. Furthermore, the increase if commercially viable production operations are to work in an in price will also stimulate urban entrepreneurs in the informal economically viable manner and achieve significant levels of sector to invest in production and marketing. Such initiatives production without external support or subsidies, great care must can be supported by external funds from development partners, be taken in selecting the raw materials for carbonization, as well following lessons learned with the promotion of the Kenya as identifying suitable niche markets. Within Tanzania, there are Ceramic Jiko . already some experiences producing and marketing briquettes. Examples from other countries include Chardust Ltd. in Kenya, Fuel Switching could help to reduce charcoal consumption. which takes advantage of the ready supplies of waste charcoal Complementary to promoting the adoption of fuel-efficient dust (or sawdust). A more in-depth feasibility study would be stoves, efforts to promote fuel switching should continue, needed before potential investors could be approached. although it should be acknowledged that fuel switching alone does not provide the answer to achieving sustainable charcoal Since briquetting uses identical combustion techniques as consumption. Due to household budget and income constraints, charcoal, briquetting represents a complementary fuel, rather fuel switching is only an option for better-off households, so than a fuel switch. Briquette use can reduce the amount of those should be targeted. But even the better-off households charcoal used by an individual household, without requiring are likely to continue using charcoal for some specific purposes significant equipment changes. Therefore, it generally does not due to culinary or socio-cultural reasons. The promotion of require major investments in new technologies and--depending fuel-efficient charcoal stoves then supports the objective of on the availability--households can easily switch back and forth sustainable charcoal consumption. between charcoal and briquettes. Due to this complementary nature, briquetting is not included in the discussion regarding In this context, it is strongly recommended to evaluate current the economic costs of fuel switching. energy subsidy structures as regards poverty impact and financial sustainability. At the moment, substitute fuels such The benefits and opportunities generated by the above proposals as LPG must be highly subsidized to be competitive11. The need are summarized below. They would create: for substantial subsidies creates a long-term foreign exchange burden and negatively influences the country's trade balance. · increased urban employment through increasing production Furthermore, as stated above, only the better-off segments of and trade of improved domestic stoves; and society benefit from subsidies, because substitute fuels continue · reduced expenditure on energy by a wide cross section of to remain too expensive for the poorest households, especially urban households that depend on charcoal as a primary because of the substantial initial investments and maintenance energy supply. and replacement costs. State subsidies for substitute fuels sends the wrong market signals, as it discourages investment into tree The following table provides a summary of short- and long-term planting or forest management by communities or the private actions that will be required to implement these actions: sector. 11 At the moment LPG is exempt from any VAT and import tariffs. 33 Policy Note Transforming the Charcoal Sector in Tanzania TABLE 4.4 SHORT- AND LONG-TERM INTERVENTIONS WITH THE OBJECTIVE OF REDUCING CHARCOAL CONSUMPTION Key Intervention Areas Short- and Long-Term Interventions Key Institutions · Promotion of fuel-efficient, Short Term Informal artisans in domestic charcoal stoves · Identifying suitable designs from other countries (e.g. Kenya) the private sector, · Training informal artisans to produce quality stoves NGOs · Marketing support Long Term · Expansion to other urban centers · Exploring opportunities for Short Term Private sector commercially viable briquetting · Undertaking market survey for possibility of briquetting in enterprises Dar es Salaam or Arusha · Linking entrepreneurs to financing sources · Fuel switching 34 CHAPTER 5 IMPACT AND COST OF PROPOSED POLICY REFORMS IMPACT OF PROPOSED POLICY REFORMS ON · When these two interventions are combined with the DEFORESTATION introduction and promotion of improved kiln technology, which could realistically increase efficiency from 10 percent The primary goal of the proposed policy interventions is to to 15 percent, a significant impact was observed on forest reduce deforestation caused by unregulated trade in charcoal. resources. The relatively larger impact of improved kilns Given this, it is important to assess how the different policy on forest cover, as compared to other consumption- options presented above could potentially impact forest and related policy options, may be explained by the fact that tree cover on a national or regional scale. In this section, the this intervention is not negatively affected by population impact of a number of key interventions is explored by using a increases. simple modeling tool developed for this purpose, and comparing this with a "Business-as-Usual" (BAU) scenario (if no action was Figure 5.1 presents a graphical comparison of how different taken). The assumptions used, and the detailed workings of this policy interventions may--either singly or in combination--affect model, are presented in annex 2, and a more detailed analysis forest cover around Dar es Salaam. The graph indicates that of policy impacts is presented in annex 3. The summary of over the 20-year period used in this model, an afforestation or conclusions is presented below. reforestation initiative amounting to almost 800,000 hectares would be necessary to compensate for the loss of natural The impacts of four policy interventions were reviewed: the forests over this period. It is important to note that this model promotion of fuel switching, the introduction of fuel-efficient only provides indications, and cannot account for a range of charcoal stoves, improved charcoal production kilns, and unforeseen factors. One such factor is the possible expansion of afforestation/reforestation measures designed to increase the charcoal harvesting and transport to a wider area. It is likely that supply of woody biomass. as supplies diminish around the capital, traders will be forced to travel ever greater distances to obtain quality charcoal. Given Some of the key findings were as follows. the increases of fuel prices seen in recent years, this may also impact pricing charcoal. Furthermore, the model does not take · Assuming an adoption rate of 5 percent per annum for fuel account other potential land uses, such as the expansion of switching and energy-saving stoves, these two interventions commercial agriculture (for use as biofuels), and the impact this combined would lead to a reduction in demand for charcoal may have on land availability (for planting and reforestation), as in the Dar es Salaam market of around 63 percent per annum well as the supply of wood due to heavy land clearance. when compared with a BAU scenario. However, when the effects of projected population increases are factored in, In summary, the simulations presented above and in annex 3 this figure declines. suggest that: 35 Policy Note Transforming the Charcoal Sector in Tanzania · increased kiln efficiency would play an important role in Fiscal incentives might play an important role in achieving achieving a reduction of overall wood quantities needed for this goal. charcoal production, while the promotion of fuel switching would mainly buffer against a further increase in demand · no single intervention, implemented alone, would have due to an increase in population. a significant impact on reducing deforestation. Rather, measures must be implemented together and in a mutually · afforestation and the sustainable management of forests supportive manner along the supply-demand chain if through PFM would be required to compensate for a tangible results are to be achieved. continued loss and degradation of existing natural forests. FIGURE 5.1 PROJECTED IMPACT OF POLICY OPTIONS ON FOREST COVER AROUND DAR ES SALAAM 7.0 2,000 6.5 1,800 1,600 Forest Area in ha (thousand) 6.0 Population (million) 1,400 5.5 1,200 5.0 1,000 4.5 800 600 4.0 400 3.5 200 3.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years People (total) Forest Area (BAU) Forest Area (FS) Forest Area (FS+IS) Forest Area (FS+IS+IK) Afforestation BAU: Business as ususal; FS: Fuel switch; IS: Improved stoves Source: Authors' Simulations IMPACT OF FISCAL REFORMS ON CHARCOAL PRICING be equal, and sustainable charcoal would become competitive in the market. These simple scenarios do, however, assume Fiscal reforms have been proposed as a means of incentivizing that government is able to effectively address the widespread, sustainable charcoal production and penalizing illegal, unregulated market, and to impose taxes upon this trade. Traders unregulated, and unsustainable trade. The real costs of charcoal currently employ a range of techniques to evade licenses and production, when undertaken in a regulated and sustainable taxes, including traveling at night, and widespread bribery and manner, include a range of costs including afforestation, forest corruption at checkpoints. Clearly, these are challenges that will management and protection, silviculture, and all fees for licensing require significant investment and political will if they are to be and transport. Figure 5.2 illustrates how fiscal incentives can be overcome. used to balance the costs of regulated charcoal with those of illegal charcoal, which does not incur any of these charges. If Scenario 1 in figure 5.2 presents the situation as it currently the tax charged on unregulated charcoal is equal to the costs exists in Tanzania. Market prices for unsustainably produced involved in sustainable wood production, the market price would charcoal only reflect costs for exploitation, carbonization, and 36 Policy Note Transforming the Charcoal Sector in Tanzania FIGURE 5.2 FISCAL INCENTIVES FOR SUSTAINABLE CHARCOAL PRODUCTION (SCENARIO 1 AND 2) Scenario 1: Business-as-Usual (BAU) Production Exploitation & Transport Market Price Carbonisation Nonsustainable Scenario 0 120 40 160 Sustainable Scenario 150 80 20 250 Scenario 2: Introduction of Sustainability Tax Production Exploitation & Transport Taxes Market Price Carbonisation Nonsustainable Scenario 0 120 40 90 250 Sustainable Scenario 150 80 20 0 250 Illustrative example; no specific currency or %-based tax rate Source: Adapted from Sepp 2008b transport, but not for sustainable wood production via natural room--especially for the poorest households--to adjust their forest management or through tree planting. Charcoal produced consumption patterns. Therefore, an increase in market price has sustainably will be sold at a higher market price, and as a result a direct, negative impact on the poorest people, which can only cannot be competitive on the market, because consumers will be addressed by reducing household consumption. always opt for the cheapest product. Scenario 2 illustrates how a sustainability tax can be introduced to discriminate against One measure to compensate for increased market prices, however, charcoal that is produced using unsustainable practices. is the use of fuel-efficient stoves. As illustrated in Scenario 3 of figure 5.3, the use of fuel-efficient stoves could theoretically The disadvantage of a sustainability tax is that it would compensate for increases in market prices, resulting in market increase market prices for consumers. Consumers are already prices that are equivalent to those under unsustainable charcoal suffering from high market prices for charcoal, leaving little production. FIGURE 5.3 IMPACT OF IMPROVED STOVES ON FUEL COSTS Scenario 3: Promotion of Fuel-Efficient Stoves Production Exploitation & Transport Taxes Charcoal Market Price Carbonisation Savings Nonsustainable Scenario 0 120 40 90 -40% 160 Sustainable Scenario 150 80 20 0 -40% 160 Illustrative example; no specific currency or %-based tax rate Source: Sepp 2008b 37 Policy Note Transforming the Charcoal Sector in Tanzania IMPACT OF REFORMS ON LIVELIHOODS AND illustrates potential new beneficiaries of these measures along EMPLOYMENT the production­trade­ consumption chain. One area that is particularly likely to experience growth and opportunities is Formalizing the charcoal value chain has the potential to provide the production of wood for charcoal through afforestation and new economic opportunities for rural households. Figure 5.4 reforestation. FIGURE 5.4 BENEFICIARIES IN THE CHARCOAL VALUE CHAIN (BEFORE AND AFTER REFORM) Before reforms are implemented · Truck owner · Truck driver · Stove producer · Loader · Wholesaler · Scrap metal collector · District admin. · District admin. · Transporter · Retailer · Scrap metal trader · Burner · Small transporter · Laborer · Transporter · Stove retailer · Input supplies · Mechanic · District admin. · Laborer · Tool retailer Charcoal Wood Production Transport Wholesaling Retailing Consumption Production · Tree owner / planter · Burner · Truck owner · Wholesaler · Retailer · Stove producer · Forest mgt. group · Input supplies · Truck driver · Transporter · Transporter · Scrap metal collector · Nursery owner · Additional labor · Loader · Laborer · Laborer · Scrap metal trader · Tree seed suppliers · District admin. · Small transporter · Charcoal market · Clay provider · Extension services · M&E units · Bag producer supervisor · Stove retailer · Mechanic · District admin. · Tool retailer · District admin. After reforms are implemented = other indirect effects not accounted for: gas, food supply, mobile phone usage Source: van Beukering 2007; Sepp 2008b; authors' adaptation In addition to an increase in the projected number of beneficiaries at the district level that are aimed at improving transparency, anticipated following a reform of the charcoal sector, it is likely as well as wider moves toward improved law enforcement and that an additional advantage would be a more even distribution of governance in the overall forest sector. benefits among all stakeholders involved in charcoal production, trade, and marketing. However, this might equally be one of the COMPARISON OF POLICY OPTIONS largest barriers that needs to be overcome, as the strong vested interests of local elites, who benefit disproportionally from the Table 5.1 summarizes the key aspects of the policy options status quo, are not easily changed. Additional investments will discussed in this paper. be required to support capacity building and incentive structures 38 Policy Note Transforming the Charcoal Sector in Tanzania TABLE 5.1 COMPARISON OF ALTERNATIVE POLICY OPTIONS Policy Option Impact on Charcoal Opportunities Risks Consumption · Reduces the amount of charcoal · Households can save expenses · Adoption rates have been reported households use to satisfy energy for charcoal when prices to be low in the past Improved needs for cooking increase · Factors were: costs, durability, Stoves · Households will continue buying · Being domestically produced, handling of stove, etc. charcoal It will continue to support the · Overall charcoal consumption economy and local economic may still increase, depending on development demographics · Households will stop using · Charcoal consumption will · Some alternative fuels have to be Fuel Switch charcoal significantly decrease imported · Tanzania has good supplies of · Dependence on international market natural gas prices increases · Alternative fuels do not have the same employment opportunities for rural, poor people · Forests will lose value for rural people Trade · Charcoal trade take place within · Revenue collection will · Resistance by vested interest groups clearly defined structures and increase, providing resources fearing a loss of market power, systems for reinvestment at district & market shares, and rents · Charcoal operators will cease national government levels operating in a "grey" zone of · Regularized trade is a Regularisation unclear rights and regulations precondition for introducing · Charcoal will increasingly fiscal incentives be sourced from sustainable · Monitoring of trade can be production systems and improved with positive FLEG* unsustainable production will impact drop · Charcoal operators will cease operating in a "grey" zone of unclear rights and regulations · It will become easier for small- scale wholesalers & traders to participate Fiscal Incentive · Fiscal incentives encourage · Those investing in tree · Resistance by vested interest groups investments in sustainable forest planting and sustainable fearing a loss of market power, management and treeplanting forest management will market shares, and rents be compensated for their investments · Unsustainable practices will be penalized, but not prohibited Conversion · Reduces the amount of wood · Improved kiln efficiency has · Labor intensive Improved Kilns needed for producing a given a high impact on reducing · Additional costs only feasible under unit of charcoal pressure on forests a regularized charcoal sector · Relatively easy to implement · May also require fiscal incentives to with known technology justify higher investments · Requires good monitoring for compliance *FLEG = Forest Law Enforcement and Governance 39 Policy Note Transforming the Charcoal Sector in Tanzania Policy Option Impact on Charcoal Opportunities Risks Production Participatory · The potential of natural · Tanzania has a good track · Capacities too low to achieve PFM Forest forests will be increased to record of PFM at a scale that is needed given Management produce charcoal sustainably · Anchored in national forest the extent of charcoal production (PFM) through management plans, management strategies required management interventions, and · Knowledge is available · Remaining unreserved forest controlled access patches are small and degraded and will require restoration before harvesting can begin Plantations · Increased wood production · Increased revenue for rural · Unclear land and tree tenure through intensively managed people · Investment costs (may only plantations, including small- · Introduction of sustainable work in line with fiscal incentive scale woodlots land-management techniques system) for degraded areas · May require external financial · Increase in efficiency of wood input production · Low capacity in regard to technical input through extension services ESTIMATING COSTS OF POLICY REFORMS This section presents rough estimates of targeted investments along the charcoal value chain that would be required to change the current unsustainable use of forest resources for charcoal utilization into a sustainable, formal sector of the economy. 40 Policy Note Transforming the Charcoal Sector in Tanzania TABLE 5.2 INDICATIVE INVESTMENT COSTS FOR SUSTAINABLE CHARCOAL PROGRAM Component Activities Estimated Amount (in US$) Forest Scaling up of PFM in natural forests in districts affected by charcoal Management production for Dar es Salaam (about 2 million hectares) 12,000,000 Inventories of forest areas in districts near Dar es Salaam 3,000,000 Establishment of management plans for sustainable annual harvests 500,000 Facilitation of the work of district harvesting committees 500,000 Promotion of reforestation & afforestation activities (40,000 hectares at US$250 per hectare; 8,000 hectares per year) 10,000,000 Promotion of agroforestry systems and trees-outside-forests resources 1,500,000 Establishment of capacity building program at community level (through local NGO) 1,000,000 Development and implementation of communication program regarding charcoal 1,000,000 Intensification of monitoring of management plans and harvesting 1,000,000 SUBTOTAL 28,500,000 Carbonization Review existing rules and regulations regarding kiln technologies 200,000 Scaling up capacity building for improved kiln technologies 1,000,000 Intensify monitoring efforts to comply with rules & regulations 750,000 SUBTOTAL 1,950,000 Trade & Construction/improvement of permanent checkpoints along main roads Wholesaling leading to Dar (2 at each main road = 6 total) 600,000 Construction of central marketing posts in each district (3 in each district = 9 total) 1,000,000 Construction of charcoal market infrastructure (3 markets in each district in Dar es Salaam = 9 total) 1,800,000 Piloting fiscal incentive scheme (e.g. nonreusable bags, vouchers) 2,000,000 SUBTOTAL 5,400,000 Consumption Program to improve stove technology 500,000 Intensify dissemination of information, marketing campaigns for improved stoves 1,500,000 Intensify dissemination of information, marketing campaigns for fuel switching 1,500,000 Market research regarding alternative energy sources 250,000 Poverty & Social Impact Analysis of fuel switching alternatives 200,000 Scaling up capacity building of alternative fuel options and usage 500,000 SUBTOTAL 4,450,000 TOTAL 40,300,000 Source: Authors' calculation 41 Policy Note Transforming the Charcoal Sector in Tanzania REFERENCES Beukering van, P., G. 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Comite Inter-Etats de Lutte contre la Secheresse au Sahel and USAID. http://rmportal.net/library/files/woodwell-on-fuelwood- final-1655-002.pdf/view 46 Policy Note Transforming the Charcoal Sector in Tanzania ANNEXES Annex 1 Common Misconceptions about Wood Energy Annex 2 Structure of Simulation Model Used in this Policy Note Annex 3 Impact of Various Policy Options on Deforestation Rates 47 Policy Note Transforming the Charcoal Sector in Tanzania ANNEX 1 COMMON MISCONCEPTIONS ABOUT WOOD ENERGY The importance of wood as a sustainable energy supply option and the problems associated with it are largely undervalued by planners and policy makers. Various widespread misconceptions hamper the development of the wood energy sector. The following are some examples. ANNEX BOX 3.1 COMMON MISCONCEPTIONS ABOUT WOOD ENERGY Wood is not very widely used as an In fact, wood supplies about 90% of Tanzania's energy demands. This is mostly energy source in the form of charcoal and firewood No. In many countries the consumption of wood and other biomass fuels is Wood fuels are phasing out still increasing in absolute terms, even when their share in national energy consumption is decreasing. No. The total value of the charcoal trade in Dar es Salaam is valued at US$350 Wood fuel has little value million per year Only poor and rural households use Surveys have shown that in many towns and even in some metropolitan areas, wood fuel wood fuels are widely used by both low- and high-income groups. Wood fuel is a traditional commodity Generally not. Modern applications use modern fuels, which largely complement only traditional fuel use. At present, modern technologies are increasingly being applied to wood fuel Wood fuels are being substituted by development. Many industrialized countries are deliberately increasing wood modern fuels energy use, for environmental and socioeconomic reasons. Most wood fuel originates from This conflicts with many survey results revealing that some two-thirds of all forests wood fuels originate from areas outside forests. Fuelwood is collected for free Some is, but a lot is not! Wood fuels are a gift from nature Many people, particularly in Asia, treat fuelwood as a commodity that can be, and do not need to be managed or and indeed partly is, produced and harvested like rice or wheat, though with a produced much longer growth period. Wood fuel business is the main source of income for about 10% of rural Wood fuel production is a marginal households, supplying about 40% of their cash earnings. Wood fuel use subsector generates at least 20 times more local employment than energy from oil products (per unit of energy). Wood energy cannot be planned Indicative planning does not require a full set of data. This type of planning can because of lack of data be used in policy making. Burning wood adds more CO2 to the Sustainable regrowth of wood fuel captures the CO2 back from the atmosphere. atmosphere than oil The net effect on the global atmosphere is zero, unlike that of fossil fuels. With respect to renewable forms of Wood energy is renewable. Of the various renewable sources of energy, wood energy, R&D should focus on solar, provides the largest share by far! wind, and hydro energy Source: Adapted from Regional Wood Energy Development Programme (RWEDP) 1997 48 Policy Note Transforming the Charcoal Sector in Tanzania ANNEX 2 STRUCTURE OF SIMULATION MODEL USED IN THIS POLICY NOTE The importance of wood as a sustainable energy supply option and the problems associated with it are largely undervalued by planners and policy makers. Various widespread misconceptions hamper the development of the wood energy sector. The following are some examples. A simple spreadsheet model has been developed using Microsoft Excel to simulate how household demand for cooking energy impacts forest resources, and how different policy interventions may change the current situation. The model was developed for Dar es Salaam, for two principle reasons. · Reliable data already exists for this area from established secondary sources; · Dar es Salaam accounts for over half of Tanzania's charcoal consumption. Charcoal production is frequently reported as one of the main drivers for deforestation and forest degradation in the regions adjacent to the city where charcoal supplies originate. ANNEX FIGURE 2.1 CONCEPTUAL FRAMEWORK OF THE SIMULATION MODEL Number of Households in Dar es Salaam HH using Rate of alternative fuels fuel switch Population Urbanization Household growth trends size Technology HH using charcoal HH using Adoption rate of HH using fuel-efficient stoves fuel-efficient stoves traditional stoves Technology Improved kiln Traditional kiln Area Planted forests Planted forests Trees Stock Trees outside outside forest forest Growth Deforestation and forest degradation around Dar es Salaam Source: Authors 49 Policy Note Transforming the Charcoal Sector in Tanzania The objective of this modeling exercise was to simulate the impacts of different policy options on overall forest cover and deforestation. The flowchart presented above summarizes the main variables and parameters of the model, and how they are interlinked. Variables that cannot be changed through policy intervention are shown in rectangles, while parameters that can be changed through policy interventions are in circles. The model's main basic variable is the number of households (HH) in Dar es Salaam. This number is influenced by three parameters: population growth, urbanization trends, and average household size. Because these parameters are exogenous to the discussion of this policy note they are shown in grey. At the moment, a certain share of households use charcoal, while others use alternative fuels. This share can be influenced by the rate with which households switch from charcoal to alternative cooking fuels. This parameter is again a function of several factors, such as household income, education, availability of alternative fuels, upfront investment, and household size. Due to the complexity of the impacts of and interactions among these factors, the rate of fuel switching was not modeled, but only an average representative number was assumed. Those households that use charcoal have a choice between using a traditional stove, or an improved, fuel-efficient stove. Adoption rates of improved stoves are a function of many factors, but for the purpose of this exercise, a rate was selected that is in line with observed rates. The efficiency increase of improved stoves compared to traditional stoves was assumed, based on data presented in existing literature. Until this point, the model considers variables and parameters influencing the total amount of charcoal consumed by households in Dar es Salaam. The next step is to simulate how charcoal quantities translate into wood-equivalent volumes, and eventually, hectares of forest exploited. In this context, the parameters assumed for the carbonization process play an important role in determining the final outcome. The model differentiates between the carbonization efficiencies of traditional kilns and improved kilns. It is frequently stated that kilns most widely used in Tanzania are the most basic, and hence the most inefficient, with efficiencies not greater than 10 percent. Increased efficiency rates for improved stoves were taken from recent literature on the subject. The final step in simulating the impact of charcoal consumption on deforestation looks at the productivity of forest resources from either natural or planted areas. Three parameters are identified: forest area (in square meters), standing stock (in cubic meters per hectare), and tree growth rates (in cubic meter per hectare per year)--all of which can potentially be altered through policy intervention. For example, the promotion of participatory forest management (PFM) can positively impact the standing stock and growth rates of natural forests. For all of these parameters, reliable data is found in current forestry literature in Tanzania. It should be noted that for planted forests, growth parameters for fast-growing tree species, such as eucalyptus or pine, are considered, because farmers have been observed to prefer these over slower-growing indigenous species. In summary, seven variables (shown in white in annex figure 2.1) have been considered for this simulation model, all of which influence the final outcome of the model, and all of which may be affected by policy interventions. Three additional variables (shown in black in annex figure 2.1) have been included that influence the total number of households in Dar es Salaam (See table annex 2.1). These 10 variables all interact with one another, creating either mitigating or multiplier effects. For example, efficiency increases in kiln technology are reported to have a larger effect on sustainable charcoal production than fuel switching or adoption of fuel-efficient stoves, because the effect of the latter is partly offset by population increases. The deforestation simulated in this model is assumed to originate solely from the exploitation of wood for charcoal production. This is a major simplification, since other, more permanent land-use changes also occur in parallel, such as the extension of agricultural land or the growth of settlement areas. Modeling these effects would have added a level of complexity that would have been beyond the scope of this policy note. Therefore, the results generated through this model should be considered as indicative only, serving as a basis for discussion when evaluating the rationale for applying different measures under the umbrella of a comprehensive policy approach. 50 Policy Note Transforming the Charcoal Sector in Tanzania The model, its parameters, and its projections, rest on a large number of assumptions. Projecting future trends has been done largely by extrapolating historical data, which is a far from perfect approach. Many additional factors and variables--which are unknown today or at least not yet analyzed sufficiently-- are not considered in this model, and may have a significant influence on overall simulation results. For example, increasing charcoal demand, coupled with decreasing availability of wood for charcoal production near urban centers, is likely to lead to an increase in price. Evidence from Tanzania and elsewhere, however, suggests that charcoal prices are affected by a wide number of variables beyond simple supply­demand relationships. One such example is the recent increase in the price of imported fossil fuels, which would tend to increase transport costs, as well as increase the cost of alternative fuels such as gas or kerosene. A number of authors have, and continue to question, the conventional wisdom of receding woodland frontiers due to their exploitation for charcoal production. Small changes in land management practices, regeneration rates, and disturbance levels, combined with incomplete assessments of all woody biomass (including trees outside forests) may combine to produce a more complex mosaic of land use and land-use change. Despite these complications, it is clear that the production of charcoal is often the first step in a process of degradation, as forested land is gradually converted to other land uses such as agriculture. Degradation (as compared to deforestation) is often much more difficult to observe through interpretation and analysis of aerial photographs, but still has significant negative impacts on rural livelihoods and the supply of environmental services. The importance of preventing forest degradation has recently been acknowledged in the context of greenhouse gas emissions and the role of forests in mitigating climate change. ANNEX TABLE 2.1 SUMMARY OF ASSUMPTIONS FOR MODEL PARAMETERS Parameter Value Source Annual population 4.0% Conservative estimation based on various studies indicating growth rates growth between 3.5% and 5.0% for Dar es Salaam Urbanization - Included in assumption for population growth Average HH size 4.5 Household Budget Survey 2007 Share of HH using charcoal 71% Household Budget Survey 2007 Annual rate of fuel switching 5% Assumed; contingent on success of policy measures; optimistic assumption given that over the past years no effective fuel switching has been reported Annual reduction of fuel switching 15% Assumed Share of HH adopting 5% Assumed; contingent on success of policy measures; optimistic assumption improved stoves given that over the past years it was observed that HH resist investing in im- proved stoves Annual reduction of adopting 15% Assumed improved stoves Efficiency of improved stoves 25% Assumed; see table 3.2 Kiln efficiency traditional kiln 10% Assumed; see table 3.1 Annual increase in kiln efficiency 20% Assumed Maximum improved kiln efficiency 15% Assumed; see table 3.1 Stock of natural forests 10 m3/ha CHAPOSA 2002, Luoga et al. 2002 Growth rate of natural forests 2.5 m3/ha/year CHAPOSA 2002, Luoga et al. 2002 Growth rate of planted trees 50 m3/ha/year Based on growth rates of fast-growing eucalyptus plantations 51 Policy Note Transforming the Charcoal Sector in Tanzania ANNEX 3 IMPACT OF VARIOUS POLICY OPTIONS ON DEFORESTATION RATES Two primary interventions can be identified to reduce the quantity of charcoal used by end consumers: promoting a switch to alternative fuels for cooking, and promoting the adoption of improved, fuel-efficient stoves. Both of these policy options have been tried in a range of circumstances, with varying degrees of success. Nevertheless, relatively optimistic assumptions have been applied to the model by assuming an adoption rate of 5 percent in terms of the annual rate of households switching to alternative fuels, and a 5 percent annual adoption rate of households adopting fuel-efficient stoves. Both rates have been assumed to decline by 15 percent annually to account for decreasing switching and adoption rates over time. ANNEX TABLE 3.1 SIMULATED IMPACT OF FUEL SWITCH AND ADOPTION OF IMPROVED STOVE ON CHARCOAL CONSUMPTION FOR DAR ES SALAAM Year 1 5 10 20 Units Business-as-Usual HH using charcoal 71% 71% 71% 71% Volume of charcoal 27,298 32,581 40,646 63,259 bags / day Fuel Switch HH using charcoal 71% 59% 48% 31% Volume of charcoal 27,298 27,171 27,281 27,501 bags / day Fuel Switch + Improved Stoves Volume of charcoal 27,298 26,088 25,074 23,638 bags / day Assumed Parameters for Fuel Switch (FS) *Annual rate of FS 5% *Annual reduction of FS rate 15% Assumed Parameters for Adoption of Improved Stoves (IS) % households adopting IS 5% Annual reduction of adopting IS 15% Stove efficiency (traditional stove vs IS) 25% Annex table 3.1 provides two important conclusions. · Compared to current consumption levels, no significant reduction of charcoal use can be achieved with either intervention. While switching fuel alone only results in a reduction of about 3 percent compared to current consumption levels,[[the table above shows volume of charcoal increasing with time]] fuel switching plus the adoption of improved stoves combined leads to an overall reduction of about 13 percent. · Compared to the Business-as-Usual (BAU) scenario, (where charcoal consumption continues as currently observed, with 71 percent of households using charcoal), the impacts are significant, with reductions of about 56 percent for fuel switching and reductions of 63 percent for fuel switching combined with adoption of improved stoves. 52 Policy Note Transforming the Charcoal Sector in Tanzania The above simulation demonstrates the important impact population growth has on absolute consumption levels. Even if fuel switching and the adoption of improved, fuel-efficient stoves can be successfully introduced, much of the impact on absolute levels of demand will be offset by population growth. The successful implementation of these two policy options alone will not be sufficient to achieve significant impacts on reducing deforestation or degradation rates, but can only be expected to buffer against future increases of charcoal consumption. A third possible policy intervention that can positively impact the use of wood for charcoal production is improving kiln efficiency so that more charcoal can be produced with a given quantity of wood. At the moment, kiln efficiency in Tanzania is very low, estimated at only 19 percent. For the purposes of this simulation model, it is assumed that kiln efficiency can be increased by 15 percent. ANNEX TABLE 3.2 IMPACT OF IMPROVED KIN TECHNOLOGY ON FORESTS Year 1 5 10 20 Units Forest Area under BAU Scenario 1,887,369 607,640 0 0 hectare Forest Area with Policy Intervention A) Traditional Kiln Fuel Switch 1,887,369 838,982 0 0 hectare Fuel Switch + Improved Stoves 1,887,369 886,701 0 0 hectare B) Improved Kiln* Fuel Switch 1,887,369 1,474,745 921,141 0 hectare Fuel Switch + Improved Stoves 1,887,369 1,508,616 1,215,381 0 hectare *Applied Conversion Parameters Kiln Efficiency (traditional kiln) 10% Assumed annual increase in kiln efficiency 20% Maximum kiln efficiency assumed for improved kiln 15% Conversion factor wood weight => Volume (ton => m3) 0.85 Assumed Forest Parameters Natural Forests (Miombo Woodland) Stock per hectare 10 Growth per hectare per year 2.5 Annex table 3.2 illustrates the combined and individual impacts of the three policy options on forest cover. It can be seen that improved kiln technology--although only increasing efficiency from 10 percent to 15 percent--has a significant positive impact on forest area. The relatively larger impact of improved kiln technology on forest management, compared to policy interventions on the consumption side, can be explained by the fact that production-side measures are not offset by population growth and, thus, have a more profound impact. Annex figure 3.1 presents a graphical comparison of how different policy interventions might either singly, or in combination, affect forest cover around Dar es Salaam. The graph indicates that over the 20-year period used in this model, an afforestation or reforestation initiative amounting to almost 800,000 hectares would be necessary to compensate for the loss of natural forests over this period. It is important to note that this model provides indications only and cannot account for a range of unforeseen 53 Policy Note Transforming the Charcoal Sector in Tanzania factors. One such factor is the possible expansion of charcoal harvesting and transport to a wider area. It is likely that as supplies diminish around the capital, traders would be forced to travel ever greater distances to obtain quality charcoal. Given the increases in fuel prices seen in recent years, this might also impact charcoal pricing. Furthermore, the model does not take into account other potential land uses, such as the expansion of commercial agriculture (such as for biofuels), and the impact this might have on land availability (for planting and reforestation), as well as the supply of wood due to heavy land clearance. ANNEX FIGURE 3.1 PROJECTED IMPACT OF POLICY OPTIONS ON FOREST COVER AROUND DAR ES SALAAM 7.0 2,000 6.5 1,800 1,600 Forest Area in ha (thousand) 6.0 Population (million) 1,400 5.5 1,200 5.0 1,000 4.5 800 600 4.0 400 3.5 200 3.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years People (total) Forest Area (BAU) Forest Area (FS) Forest Area (FS+IS) Forest Area (FS+IS+IK) Afforestation BAU: Business as ususal; FS: Fuel switch; IS: Improved stoves Source: Authors' Simulations In summary, the simulations presented above suggest that: · increased kiln efficiency plays an important role for achieving a reduction of overall wood quantities needed for charcoal production, while the promotion of fuel switching will mainly buffer against a further increase in demand due to an increase in population. · afforestation and the sustainable management of forests through PFM will be required to compensate for a continued loss and degradation of existing natural forests. Fiscal incentives may play an important role in achieving this goal. · No single intervention, implemented alone, will have a significant impact on reducing deforestation. Rather, measures must be implemented together and in a mutually supportive manner along the supply-demand chain if tangible results are to be achieved. 54 Sustainable Development Africa Region THE WORLD BANK 1818 H Street, NW Washington, DC 20433, USA http://www.worldbank.org/tz