E N VAi R O N M E N T *D E P A R T I E N T PA P E R S PAPER NO. 026 -n ^ii TOWARD ENVIRONMENTALLY AND SOCIALLY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL ECONOMICS SERIES - An Environmental and Economic Assessment of Forest Management Options: A Case Study in Malaysia Kanta Kumari October 1995 Environmentally Sustainable Development The World Bahk ESD rv Pollution and Environmental Economics Division An Environmental and Economic Assessment of Forest Management Options: A Case Study in Malaysia Kanta Kumari October 1995 Papers in this series are not formal publications of the World Bank. They are circulated to encourage thought and discussion. The use and citation of this paper should take this into account. The views expressed are those of the authors and should not be attributed to the World Bank. Contents Glossary Abstract i 1. Introduction 1 2. The 'Total Economic Value' Concept and the Valuation of Forests 3 3. The Study Site 5 Location and Current Status 5 Characteristics of the Study Site 5 4. Total Economic Valuation at the Study Site under Alternative Management Options 9 Frameworkfor Analysis 9 T'he Value of Timber Benefits 10 Stare of the Forests 10 Stocking Densities and Potential Annual Stock Harvested at the Study Site 12 Estimation of the Valuefor Timber 12 Value of Timberfor The Alternative Options 12 Value of the Hydrological Benefits 13 Agro-Hydrological Value 13 Domestic Water Value 16 Value of the Fish Harvest Benefits 17 Value of the Carbon Stock 18 Benefit of Preservation of Part of the Study Site for an Endangered Species 18 Value of Non-Timber Forest Products: Rattan and Bamboo as Indicators 21 Potential Recreational Value 22 5. Total Economic Valuation Under Alternative Forest Management Options 25 Incremental Changes Between Alternative Management Options 27 Confidence Level 31 The Precautionary Principle 31 Significance of Results at the National and Global Level 32 T7he National Strategy: Implications for Malaysian Forest Policy and Management 33 The Global Strategy: Implications for Transfer Mechanisms 34 References 35 Environmental Economics Series An Environmental and Economic Assessment of Forest Management Options Annexes Annex 1: Logging Methods at the Study Site: Implications on the Peat Swamp Habitat 39 General 39 Kuda-kuda System 39 Winch 39 Excavator 40 Effects of the Logging Methods 40 Annex 2 43 Table 1: Discounted Cash Flow of Timber Benefits under Alternative Management Scenarios 44 Table 2: Discounted cash flowfor the agro-hydrological value (M$/HA) 47 Table 3: Benefitsfrom domestic water abstractedfrom study site (NPV, M$) 48 Table 4: Potential visitation and recreational value (M$) 49 Maps, Figures, and Tables Maps Map 1: Peninsular Malaysia and the North Selangor Peat Swamp Forests 6 Map 2: Location of the Peat Swamp Forests (Study Site) and the Integrated Agricultural Development Project 7 Figures Figure 1: Classification of the TEV Conceptfor Sustainable Forest Management 4 Figure 2: Forest Management Optionsfor which the TEV was Estimated 10 Figure 3: TEV of Management Options (M$, 8% discount rate) 27 Tables Table 1: Summary of the Effects of the Different Logging Methods on the Peat Swamp Forests 8 Table 2: Goods and Services Valued at the Study Site 11 Table 3: Features of the Logging Options at the Study Site 14 Table 4: Summary of the Hydrological Disturbance Scenarios (as at 1990, the baseline year) 15 Table 5: Estimation of the Agro-hydrological Valuefor the Baseline Year, 1990 16 Table 6: Parameters used for Calculation of Carbon Stock and Carbon Sequestration at Study Site 19 Table 7: Utilisation of some Non-timber Forest Products at the Study Site 21 Table 8: Valuation of Rattan at the Study Site 22 Table 9: Valuation of Bamboo at the Study Site 23 Table 10: Discounted Valuefor Rattan and Bamboo 24 Table 11: TEV of the Forest Conservation Benefits at the Study Site (M$/ha, 8% discount rate) 26 Table 12: Summary of Results for the Study Site (M$/ha, 8% discount rate) 29 Table 13: Robustness of the TEV Components of the Recommended Management Options 30 Environment Department Papers Glossary AAC Actual Annual Cut EOP Effect on Production Method GEF Global Environmental Facility IADP Integrated Agricultural Development Project NFA National Forestry Act NPV Net Present Value NTFP(s) Non-timber Forest Product(s) PV Present Value RAC Recommended Annual Cut SFM Sustainable Forest Management SS Study Site TEV Total Economic Valuation (Value) WTP Willingness to Pay Environmental Economics Series Abstract The capacity of natural forests to supply, if requirement for new international financial properly managed, a perpetual stream of mechanisms. These mechanisms would timber and non-timber goods and services has facilitate the local appropriation of globally been overlooked virtually everywhere; and provided forest conservation benefits. Malaysia is no exception. It has been estab- lished that one of the most urgent enabling The results are significant at both the national measures for sustainable forest development and international level. At the national level, a is the valuation of the resource, in order to dual strategy must be adopted, one that highlight the full extent of benefits that can be targets concurrently both the forest and non- provided. The framework for valuation forest timber policies. In particular, Peninsular adopted in this study was the total economic Malaysia must take advantage of its exem- valuation (TEV) approach which represents plary forest policy and legislation, and take both a pragmatic and consistent approach. the step towards its practical enforcement. At the international level, the global public good A TEV of the flow of benefits from the forests nature of conservation benefits require that under a range of management options was new resource transfer mechanisms are agreed derived for the peat swamp forests of North and implemented. Selangor. The analysis sought to illustrate what such TEV would mean in the context of This paper was initially prepared while Kanta the management of a particular forested site. Kumari was a summer intern with the Envi- A variety of methods, such as use of market ronment Department (ENVLW), but was prices (where available), damage cost avoided finalized after the completion of her Doctorate approach, surrogate/replacement cost ap- program when she was placed in the ENVPE proach and production function effect, were where she worked with John Dixon. She is adopted to value some key goods and services most grateful to Ernst Lutz and Colin Rees for of that could be appropriated from the forests their support of the internship and for the of the Study Site. The results of this case study earlier supervision. The final touches and show that even when local benefits alone are review of the paper has benefited much from considered it is financially profitable to shift the close supervision with John Dixon. The from unsustainable to sustainable options. For author is indebted to all of them, and to her the shift to more sustainable options to be doctorate supervisor, Kerry Turner for his actually adopted, however, there is a further continued advice. Environmental Economics Series 1 Introduction The omission of non-timber benefits in con- tained timber practice' to a 'sustainable forest ventional financial and economic analysis has management' system for a specific forest site resulted in the continuous undervaluation of in Malaysia. The results have management forest resources. This in turn has led to and policy relevance, both at the national and unsustainable paths of timber extraction or to global levels. The incremental costs and the conversion of forest land to alternative benefits of shifting from less sustainable to the land uses, since both of these options are more sustainable forms of management financially more attractive. Recent research provide meaningful insight into whether has demonstrated that the real (or potential) 'sustainable forest management' is a realistic magnitude of conservation benefits from option at the national level. The initial results forests is substantial and there is a growing indicate that adoption of more sustainable willingness to include these benefits as an forms of management are practicable, but opportunity cost that would be incurred if some form of commitment needs to be made forest resources are lost or mismanaged. at both the national and global levels. All of this has immediate and direct relevance to the The situation with regard to forests, however, Global Environment Facility, which uses the is not always one of discrete choices i.e. of incremental cost principle to determine what development versus preservation. Vast tracts portion of any activity it can finance. of forests in various countries have been set aside as production forests where the key This paper is set out in five chapters. The next operative rule is that of 'sustained timber chapter, Chapter 2, sets out the theory of the yield.' For example, in Peninsular Malaysia TEV framework used in this case study. alone, of the 4.75 million ha of forest, 60% will Chapter 3 will introduce the study site and be managed as production forests. 'Sustained provide an overview of the characteristics of timber yield' is not, however, synonymous the peat forests, including the diversity of with 'sustainable forest management.' Often, forest interactions between the various goods timber harvesting, the major extractive and services within the forests. Chapter 4 activity conducted within production forests, details the valuation methodology for each of can have disruptive or devastating effects on the TEV components and presents estimates the flow of the other goods and services from of the value for selected benefits provided by the forest. However, if the harvesting is the forests at the Study Site. The last section, conducted 'carefully' it is possible to ensure Chapter 5, provides an aggregate measure of continuity of many of the environmental the TEV under the alternative management services including hydrological and recre- regimes and discusses the implications of ational services, and carbon sequestration. The these results for future forest management task at hand then is to demonstrate that this is strategies, from the local, national and global an economically viable option. perspectives. In addition to direct policy relevance of this case study to Malaysia, the This study seeks to demonstrate, using the approach can also be applied to forests total economic valuation (TEV) approach, the elsewhere in the world. economics of shifting from the narrow 'sus- Environmental Economics Series The 'Total Economic Value' Concept and the Valuation of Forests The concept of 'total economic value' (TEV) value has most recently been re-termed (Pearce, 1990) recognizes a taxonomy of passive use value. These values are still economic values as they relate to the natural anthropocentric but may include a recognition environment; the main elements of which can of the value of the very existence of a species be expressed as: or whole ecosystem. Quasi-option value TEV= UV + NUV relates to willingness to pay to avoid an = DUV + IUV + OV + EV + QOV (1) irreversible commitment to development now, given the expectation of future growth in where TE V = total economic value; knowledge relevant to the implications of UV = use value; development. NUV = non-use value; This TEV concept can be applied to the forest DUV = direct use value; resource. Figure 1 provides a classification of IUV = indirect use value; the concept in the context of sustainable forest OV option value; management. EV = existence value; and QOV = quasi-option value. Direct use values include timber and non- User values or user benefits derive from the timber forest products and tourism (recre- actual use of the environment and can further ation). Although straight forward in concept, be divided into direct use, indirect use and they are not necessarily easy to measure in option values. Values accruing from direct economic terms. The output of 'minor' forest and indirect use of the environment are fairly products (e.g. rattan, latex and fruit etc.) is easy to comprehend. These include logging measurable in terms of market data; but other and fishing which bring direct benefits, whilst outputs such as medicinal plants or house a lot of the environmental benefits (e.g. building materials may be more difficult to watershed protection) are of a more indirect measure and value. nature. Slightly more complex are values expressed through options to use the environ- Indirect values are essentially the ecological ment (option value) in the future. These are functions of the forests; such as their water- essentially expressions of willingness to pay shed protection and mineral cycling functions. for the conservation of the environmental When the tropical forest systems are intact at system or components of systems against the 'landscape' level (Norton and Ulanowicz, some probability that the individual will make 1992) they help to protect watersheds, but use of them at a later date. Non-use values their removal or contraction beyond some comprise existence values and quasi-option threshold level may result in increased water values. Existence values relate to valuations of pollution and siltation, depending on which the environmental asset that are unrelated alternative use the forest land is put to. This either to current or to optional use. Existence watershed function, as with some other Environmental Economics Series 3 An Environmental and Economic Assessment of Forest Management Options Figure 1: Classification of the Total Economic Value Concept for Sustainable Forest Management Total Economic Value Use Value _ + F Non-use Value (1) (2) (3) (4) + (5) Direct + Indirect + Option + Bequest Existence Value Value Value Value Value Sustainable Nutrient Future Uses Future Preserving Timber Cycling as per Generation Biodiversity (1) + (2) Uses as per Non-Timber Catchment (1) + (2) Products Protection + (3) Recreation Air Pollution Medicinal Micro and Macro Plants Climate Education Research Human Habitat Source: Adapted from Pearce (1990) indirect functions, is not bought and sold in not a use value for the current individual the market place. Tropical forests also 'store' valuer, but a potential future use of non-use carbon dioxide which when the forests are value for his or her descendants. burnt for clearance, is released into the atmosphere contributing to greenhouse gas Values conferred by humans on the forests atmospheric warming. Another type of regardless of use constitute existence value. Its indirect use is linked to the efficient nutrient intuitive basis is easy to understand because a cycling that takes place in the forests. The great many people are willing to pay for the capture of above and below ground nutrients existence of environmental assets, and highly is crucial to the forest's stability and resilience endangered species (e.g. bald eagle, blue (Nykvist et. al., 1994). whale) through wildlife and other environ- mental charities, but without taking part in Individuals may also express an option value the direct use of the wildlife through recre- linked to the conservation of the forest stock. ation. Option value is like an insurance premium which individuals are prepared to pay to In the context of this study, the TEV concept ensure the supply of something (the forest and will be applied to a range of forest manage- its multiple goods and services provision), the ment options investigated. What is important availability of which would otherwise be to understand here is that the TEV for a uncertain. A related form of value is bequest particular tract of forest (in this case the Study value, a willingness to pay to preserve the Site) is not a fixed value; rather, the total value forest for the benefit of one's descendants. It is at any one time is a function of the type of management practiced at that forest site. 4 Environment Department Papers 3 The Study Site Location and Current Status years to allow for the movement and trans- portation of logs out of the peat forests (Pons The Study Site selected for analysis consists of et. al., 1988; Chan, 1989). The effects of such the peat swamp forests located in the Malay- modifications will be discussed shortly. sian state of Selangor (Map 1). These swamp forests lie adjacent to the biggest single Characteristics of the Study Site agricultural investment in the state i.e. the Integrated Agricultural Development Project An understanding of the natural characteris- (IADP), a padi producing scheme consoli- tics of the peat swamp forests is integral to the dated in 1978 (Map 2). The World Bank in its derivation of its TEV, as they relate directly to scheme appraisal, recognized these peat the flow of goods and services from the swanmps as vital to the viability of the IADP forests. scheme because of their water storage and supply roles, and they attached great impor- Peat swamps form where there are permanent tance to Government assurances that the peat waterlogging and anaerobic conditions swamps would be protected as Forest Re- (Coulter, 1950). There is considerable scientific serves, and not drained (IBRD, 1978). The evidence that these forests have an important Selangor State Authority endorsed this regulating or controlling function on the position when it gazetted the area into two hydrology of entire catchments; and in their reserves which are contiguous to each other, natural conditions they have been deemed to and which extend over 72,816 ha (Map 2). act as a balancing reservoir, smoothing the Prior to their status as Forest Reserves, the pattern of outflow during periods of heavy forests were classified as Stateland forests, rainfall and drought (Andriesse, 1988). At the and had been subject to logging for more than Study Site four distinct hydrological benefits 30 years. Logging in Stateland forests is not have been identified, namely the agricultural subject to the more stringent rules which water supply, flood mitigation, regulation of apply to reserved forests, and consequently ground water table against saline intrusion the forests are not in an entirely satisfactory from the coast (IBRD, 1978; Low and ecological condition. Balamurugan, 1989; Prentice, 1990) and provision of domestic water needs to the The major rivers in the vicinity of the Study IADP residents. A fair amount of evidence Site are the Bernam River which lies just north exists which is indicative of real and potential of the Study Site, and the Tengi River which dangers to the continuity of these hydrological traverses the swamp forests from east to west services from the Study Site owing to the (Map 2). These two rivers are linked by an indiscriminate patterns of logging prevalent artificial canal referred to as the Feeder Canal. there. The natural drainage density is very low, but quite a large number of drainage canals have Chan (1989) records that in terms of timber been dug by logging companies in recent production, the Study Site is one of the most Environmental Economics Series 5 An Environmental and Economic Assessment of Forest Management Options Map 1 Peninsular Malaysia and the North Selangor Peat Swamp Forests o ~~~~THAILAND~ I / South China Sea W I~PNINSLA MALAYSIA > J Straits of Melaka * __.'T ...- 0 60 km :\v PENINSULAR MALAYSIAAPOR mSungai Karang and Raja Forest Reserves - - International Boundary State Boundary 6 Envirornment Department Papers The Study Site Map 2 Location of the Peat Swamp Forests (Study Site) and the Integrated Agricultural Development Project (IADP) SEL.ANGOR *8~~~~~~~~SNA KAAN F1,1 S. A N ()E STRAITIO [.;:1~ ~ ~ ~~~~~~~~~~~J MUS F.RP . Forest Reserve Environmental Economics Series 7 An Environmental and Economic Assessment of Forest Management Options Table 1 Summary of the Effects of the Different Logging Methods on the Peat Swamp Forests Logging Logging Silvi- Timber Hydrology Other Overall method costs cultural stand & habitat adverse status costs damage modification effects Kuda-kuda L/M L L L L S Winch + tramline M/H L/M M L L S + canal L/M M/H M M/H M/H U Traxcavator + tramline M/H M/H M/H M/H M/H S/U + canal L/M H H H H U Notes: 1. The effect of the logging methods are graded as low (L), medium (M) and high (H). 2. The overall status gives some qualitative indication as to whether the overall resultant habitat will be unsustainable (U) or sustainable (S). productive peat swamp forests in the country. the use of panglongs (special pathways, where Logging in peat swamp forests, however, logs are dragged by man), along tramlines or poses special problems because of the water- along canals dug out in the peat forests. The logged nature of the soil, which cannot logging method used for each phase, and in withstand the high pressure exerted by particular its precise combination of practices, logging equipment typically used in dryland has important implications on the forests. Consequently, special methods have sustainability of the overall ecosystem. This is evolved for logging in these swamp forests. because the logging method has the effect of The logging operation is divided into two not only altering the habitat structure and the phases, namely, extraction and transportation. rate and type of regeneration, but also the The extraction involves the felling of trees and effectiveness of hydrological services from the their transfer to a common hauling point. forests. Annex 1 provides background infor- Felling can be done using the kuda-kuda mation on the evolution of these three logging (timber sledges), the winch or the traxcavator. methods with particular emphasis on their These logs have then to be transported from effects on the peat swamp habitat during the hauling point to the nearest road system logging. Table 1 provides a summary of the from which they can then be taken to the likely intensity of effects of the different sawmills. The transportation can be done by logging methods used in peat swamps. 8 Environment Department Papers 4 Total Economic Valuation at the Study Site under Alternative Management Options Framework for Analysis decreasing damage to the environment'. To demonstrate the effects of such improved Up to very recently, the forests at the Study forest management the hypothetical option B Site have largely been managed for timber; was examined at three levels, represented operating at highly unsustainable rates of here as options B1, B2 and B3. These three extraction. The TEV model was applied to the options represent sustained yield harvests, but Study Site for a series of alternative manage- under increasingly benign logging methods ment options reflecting a shift from which would incur a decreasing amount of unsustainability to sustainability. This shift to damage to the environment. sustainability can be made explicit through a two step move (Figure 2). Hence a total of four options were investi- gated here for their TEV: option A (at current In Step 1 the shift is from the current option A unsustainable timber harvests rate, using which operates at unsustainable rates of prevailing destructive logging method timber extraction to a hypothetical option B (traxcavator + canal)); hypothetical option B1 where the sustained timber yield principles (at sustained timber harvests, using destruc- are observed. The main variable addressed in tive logging method (traxcavator + canal)), this step is that of timber. This shift from hypothetical option B2 (at sustained timber unsustained timber harvests to sustained harvest but with improved logging method timber harvests is a necessary but not suffi- (traxcavator + tramline)) and hypothetical cient condition for overall sustainability of the option B3 (at sustained timber harvest and an forests. That is to say that even if the 'sus- even more benign logging method (winch and tained timber yield' constraint is observed, the tramline)). method of logging practiced could still disrupt the continued flow of the envirorumen- Habitat damage of the remaining stand during tal services from the forests. Hence there is a logging has been reported to be very variable, need for further environmental constraints to from between 15-50% (World Bank, 1991) to be observed. 79% (Lanly, 1982; Liew and Ong, 1986; Chin, 1989). Each of the four options was investi- In Step 2 the hypothetical option B is subject gated for 20% and 50% damage intensities, to increasingly benign methods of logging approximating to the mean lower and upper which would have less adverse impacts on the bounds of damage. continued flow of the environmental services from the forests. In effect, the more environ- Figure 2 provides a schematic diagram of the mentally benign logging methods can be management options investigated in this likened to environmental constraints. Three study, and for which the resulting value of the combinations of logging methods were forest 'outputs' was derived as the 'total considered here: traxcavator + canal (cur- economic value'. The following steps were rently the most popular), traxcavator + performed for each of these management tramline, and winch + tramline; in order of options: Environmental Economics Series 9 An Environmental and Economic Assessment of Forest Management Options Figure 2 Forest Management Optins for Which the Total Economic Value Was Estimated Management Options: Step 1: From I I - unsustained timber Current Option A Hypothetical Option B yield to sustained (Unsustained timber) (Sustained timber) timber harvests: l B1 B2 B3 Step 2: Increasingly benign logging (traxcavator (traxcavator (traxcavator (winch methods: + canal) + canal) + tramline) + tramline) Intensity of damage investigated: 20% 50% 20% 50% 20% 50% 20% 50% Valuation of Selected Forest Goods and Services for each Management Option Aggregation of Values for TEV of each Management Option * a physical audit of each good and service at The Value of Timber Benefits the Study Site under sustainable and unsustainable management regimes; To enable the estimation of the current and potential annual value of the timber resource * valuation and discounting of benefit flow from one hectare of forests at the Study Site for each good and service in order to the following steps were taken: estimate its net present value (in M$/ha); and * an assessment of the state of the forests at the Study Site; * aggregation of the values to derive the TEV, and discussion of the implications of the * estimation of the total physical stock from results on forest management and policy. the stocking density, and from it the potential annual stock available for harvest Table 2 provides a summary of the goods and under sustainable and unsustainable services valued in this study. The details of management options; and the valuation method, assumptions and limitations in deriving the value for each of * potential annual value of the timber re- these TEV components will be outlined in the source from the Study Site, discounted to relevant sections. The value of each of these give the net present value per hectare. goods and services is expressed on a per hectare basis so as to allow for the later State of the Forests aggregation of these components to obtain the There is sufficient information and evidence to TEV at the Study Site under each management show that the Study Site has been subject to option. All projections were carried out over a escalating levels of deterioration (Pons et. al., 100 year period so as to facilitate the proper 1988; Chan, 1989). From an inspection of aerial construction of a physical impacts audit. The photographs taken in 1983 and the maze of cut period also approximates to an infinite period, lines (representing present and previous in discounting terms. A conventional discount extraction tracks and canals) in the Study Site, rate of 8% and a lower 2% rate was used. The Chan (1989) observes that it is unlikely that latter was used in order to give full weight to there is any virgin, primary forest remaining the long run sustained conservation benefits. in the Study Site. This ubiquity of the tracks 10 Environment Department Papers Total Economic Valuation at the Study Site under Alternative Management Options Table 2 Goods and Services Valued at the Study Site Type of Good/ Product Type Valuation Data Source/ Service: Function: of Value: Method: Approach: Timber Wood Direct Market Price From forest harvest levels, mean annual increments, etc. National Forest Inventories (FFD, 1987) Non-timber Rattan, Direct Market Price National Forest Inventory 2 bamboo (FFD, 1988) Hydrological Agricultural Indirect Effect on Equal to second crop of rice. Data production on the hydrological disturbance in the swamps used to determine the effect on water shortage on the crop of padi. Domestic Direct Market price Water abstracted from the Main Canal to meet the domestic require- ments for the residents at the agricul- tural scheme. Recreation Recreation Indirect Surrogate Derived potential recreational value of trave cost the Study Site based on information from existing visitor numbers to the Nearly Kuala Selangor Nature Park. Valued using result of consumer surplus derived using TCM for visits to forest recreational sites in Malaysia. Carbon Carbon sink Indirect Damage Used information on the biomass and sequestration avoided cost carbon stock in peat swamp forests to determine the amount of carbon stored in the forests. Establish the rate of carbon sequestration from the growth activity. Sumatran Endangered Existence Contingent Used mean CVM estimate from other rhino valuation to calculate WTP by Malaysians for the Opportunity population of rhinos at the Stud Site. cost Foregone timber benefits deducted out for area set aside for preservation. was further confirmed from land satellite land satellite pictures, logging history of the photographs taken more recently (obtained area and the recent study by Pons et. al. through the Malaysian Centre for Remote (1988), the assumption that 10% of the Study Sensing (MCRES) for 1987, 1990,1991), and Site is damaged would seem fairly conserva- analyzed in the course of this study. What tive. percentage of this logged forest is damaged is a more difficult issue to resolve. This informa- For the analysis at the Study Site, the percent- tion is necessary for the derivation of stocking age and extent of forests assigned to each density and physical stock of timber, since category is as follows: both these parameters get reduced in logged primary forests: 0% 0 ha over and damaged forests. Based on the logged forests: 90% 65,534 ha available information on the Study Site: the damaged forests: 10% 7,282 ha. Environmental Economics Series 11 An Enviromnental and Economic Assessment of Forest Management Options Stocking Densities and Potential Annual average total logging cost). Now in the case of Stock Harvested at the Study Site the Study Site, the logging costs at any one time would be determined by the logging From the second National Forest Inventory method used: the higher the costs the lower (FFD, 1987), the volume of wood available for the stumpage value. Thus, at any one time, harvest at dbh (diameter at breast height) the stumpage values estimated on the greater than or equal to 45 cm (the official different stumpage values estimated in the above studies can be used as proxies to reflect cutting limnit for commercial harvests) over athvaiioinlgngmhds 45 year cycle was estimated as 48.1 cu.m/ha. the variation in logging methods. Operating at sustainable levels of harvest, this The three logging methods investigated here gives a mean annual increment (MAI) of 1.07 were assigned different stumpage values for cu.m/ha/year. Unsustainable harvests in the the timber harvested (Table 3). The most states of Peninsular Malaysia were known to destructive, but cheapest logging method operate at 80% above the recommended (traxcavator + canal) used in option A and Bl annual cuts i.e. giving a harvest of 1.92 cu.m/ was assigned the highest stumpage value of ha/year. Table 3 provides a summary of the M$ 184/cu.m. The second method main features for each option investigated for (traxcavator + trahline) used in option B2 their timber value, at the different damage represents a slightly more expensive method, levels. and the stumpage value gets reduced to M$ 135/cu.m. Option B3 which uses the least Estimation of the Value for Timber destructive, but most expensive logging Timber from the peat swamps represents a method (winch + tramline) was assigned a direct use good and the method used for its value of M$ 100/cu.m. It was assumed here valuation is that of direct market analysis. An that option B3 would have a stumpage value export restriction on all, except small diameter which is a mean of option B2 and the helicop- logs has been in force in Peninsular Malaysia ter logging method. since 1985. To correct for this distortion information was drawn largely from two Value of Timberfor the Alternative sources: EPU's (1993) natural resource ac- Options counting for timber in Malaysia, and the The more environmentaly benign logging World Bank Forestry Sector Review for methods, and hence more expensive methods, can be likened to environmental constraints. Using the export price for Sabah, but retaining The results in Table 3 show that at a discount UJsing the export pnice for Sabah, but retamnmg logging costs for Peninsular Malaysia, the rate of 8%, the sustainable B1 option gives analysis by EPU (1993) showed stumpage NPVs which are slightly higher than those for values for Peninsular Malaysia to have risen the unsustainable A option. This suggests then from M$100/cu.m to M$135/cu.m between that it would not pay the private logger to 1970 and 1990. Extrapolating from the Sabah adopt a sustainable regime over the current and Sarawak situation, the World Bank cites unsustainable harvest pattern. At lower the corrected stumpage value as M$184/cu.m discount rates of 2%, the B1 sustainable option for 1990; with logging costs of M$70/ cu.m gives NPVs which are higher than the A (World Bank, 1991). According to the same option. These results hold true at both damage report, helicopter logging which is supposed levels. The detailed discounted cash flows are to be the most environmentally friendly gives presented in Annex 2 (Table 1). a stumpage value of only c. M$65/cumr It is important, however, to place the damage because of the higher costs (M$115/cum) of levels in their correct context. It is very the sophisticated equipment. unlikely that logging patterns under option A The stumpage value or resource rent repre- and BI, which employ very destructive sents the difference between the price of logs methods, could operate at damage levels paid by a mill or exporter and the average below 20%, and are more likely to range total cost of harvesting logs and transporting between the 20% and 50% damage levels. On them to the point of sale (i.e. log price - the other hand, logging under option B3 is not 12 Environment Department Papers Total Economic Valuation at the Study Site under Alternative Management Options likely to incur damages beyond 20%, and if the balance of current evidence is in favor of a executed carefully could be even less destruc- positive agro-hydrological role from the tive; the same could be said of option B2. This swamps of the Study Site (Kumari, 1994). suggests that at the 8 % discount rate, the NPV per hectare under Scenario B1 could range In this study the basic premise is that the agro- anywhere between M$ 1453 - M$ 2360/ha, hydrological value of the swamp forests is at whilst under Scenario B2 the mean value least equal to the economic value of the would be c. M$ 1750/ha. This shows that second padi crop which is planted in the dry although the financial returns from quick season, since the latter relies on the swamps logging offer significant short term gains, the for the supplementary water supply. The increased damage incurred during these analysis proceeds by establishing the link operations may reduce the discounted long between measurable changes in the distur- run financial benefits sufficiently to favour bance of the peat swamp forests and changes sound methods of logging. in the level of agro-hydrological services that can be accrued from the Study Site; and Overall, it is difficult to decide which is the subsequently by linking these to changes in best scenario to pursue without considering economic gains and losses of the padi crop. the benefits, and especially the trade-offs, The following steps were taken to estimate the related to the other non-timber goods and agro-hydrological value at the Study Site: services. * to estimate the increase in the extent of Value of the Hydrological Benefits canals and waterways, and the correspond- ing increased seepage (loss) of water out of The hydrological benefits valued at the Study the swamps; Site were confined to the agricultural and * to establish the effect of this increased domestic water benefits. The other two drainage and potential loss of water on the benefits of flood mitigation and regulation of output of padi in the adjacent agricultural water table against saline intrusion were not area; and valued. The rationale is that it is the water retained during the wet season (which helps * to calculate the economic impacts of the in flood mitigation and prevention of saline agro-hydrological benefit using the 'Effect intrusion) that is potentially available for the on Production' method. agricultural needs of the dry season and The logging activity at the Study Site has domestic water supply. This would also resulted in an extensive network of drainage ensure against any double counting. ditches and log extraction canals excavated Agro-Hydrological Value for the transportation of logs out of the peat swamps. The increase in the extent of water- The production effect method was used to ways has implications for the amount of water derive an estimate for the agro-hydrological that potentially seeps outs of the peat swamp benefits of the forests of the Study Site. The ecosystem. The estimated volume of seepage economic value of the second crop of padi varies considerably, from 3.56 1/s/km re- (planted during the dry season) from the ported by JICA (1987) to a higher value of 10- agricultural site adjacent to the Study Site was 12 1/s/km by Low and Balamurugan (1989). taken as a proxy of this agro-hydrological The two seepage rates will be used to repre- value. sent upper and lower estimates for the in- creasingly disturbed conditions of the peat The role of the forests at the Study Site in swamps, and we calculate also a median supplementing water to the padi production, (mean) estimate (Table 4). especially that for the dry season crop, had recently been a subject of controversy due to Land Satellite pictures, taken over the Study the findings of a JICA (1987) study. A review Site were available for 1987 and 1991 through of all the information, and further hydrologi- the MCRES (Malaysian Centre for Remote cal studies in the area, however, suggests that Sensing). These pictures, at a resolution of Environmental Economics Series 13 An Environmental and Economic Assessment of Forest Management Options Table 3 Features of the Logging Optionss at the Study Site Unsustainable Sustainable Feature: Option A: Option B1: Option B2 Option B3: Forest extent (ha) 72816 72816 72816 72816 Logged (ha) 65534 65534 65534 65534 Damaged (ha) 7282 7282 7282 7282 Mean weighted density (cu.m/ha) 48.06 48.06 48.06 48.06 Total potential stock (cu.rn) 3499537 3499537 3499537 3499537 Actual annual cut (ha/yr) 2912 1618 1618 1618 Log cycle (y) 25 45 45 45 Annual harvest (cu.m/y): 0% Damage 1.92 1.07 1.07 1.07 20% Damage 1.54 0.86 0.86 0.86 50% Damage 0.96 0.54 0.54 0.54 Logging method Exc.+Canal Exc.+Canal Exc.+TL Winch+TL Stumpage value (M$/cu.m) 184 184 135 100 NPV/ha (8%) (M$/ha): 0% Damage 4299 2981 2287 1964 20% Damage 3448 2360 1750 1276 50% Damage 2149 1453 1085 804 NPV/ha (2%) (M$/ha): 0% Damage 7994 13388 12285 9100 20% Damage 6412 9693 6048 4477 50% Damage 3997 5163 3467 2573 Notes: 1. The forests at the SS was assessed as 90% logged, and 10% damaged; there being no undisturbed forests. 2. Mean weighted density for all trees > or = 45cm dbh, which represents the cutting limit for commercial trees. 3. The recommended log cycle for peat swamp forests is 45 years, which gives a RAC of 1,618 ha, and which is seen to represent the sustainable regime. The actual cur in the peat swamp is assumed to operate as for the rest of Selangor state i.e. 80% higher than the RAC. This corresponds to the unsustainable harvest of 2,913 ha. 4. For sustainable regime the harvest rate = mean annual increment i.e. 1.07 cu.m/yr. for the unsustainable regime it is 80% higher at 1.92 cu.m/yr. Losses due to damage are in proportion to intensity of damage. 5. At constant timber prices, stumpage value is seen to be the inverse of logging costs. For details on logging methods and costs see text. 6. All projections, physical and monetary, conducted over a 100 year period. 7. Exc. = excavator; TL = tramline. 30m X 30m, were analyzed for information on the waterways was estimated at approxi- the level of dissection due to logging, as this mately 95km in 1987 and 130km in 1991, has direct implications for the hydrology of giving an annual increase of c. 8.8 km/y the area. Use was also made of the Spot (Kumari, 1994). This annual increase in Inagery pictures which because of their waterways was then used to establish projec- higher resolution (lOm X 10m) provide a tions for the extent of hydrological distur- closer magnified view which allowed water- bance into the future. ways to be distinguished from other non- waterway tracks. The spot image pictures, The 'live' available storage capacity of water however, were only available for 1990. Syn- in the swamp forests of the Study Site was thesizing the irformation from the Land estimated by the World Bank (IBRD, 1978) to Satellite and Spot Imagery, the total extent of be c. 148 million cu.mi.. It seems reasonable to 14 Environment Department Papers Total Economic Valuation at the Study Site under Alternative Management Options Table 4 Summary of the Hydrological Disturbance Scenarios Scenario: Seepage Effective Total % of 'Live' Critical year Rate Length Seepage Moisture: of hydrological (I/rIkm): (ki): (cum): disturbance: A: Low 3.56 356 40 X 106 27% Year 88 (2077) B: Medium 7.28 356 82 X 106 55% Year 18 (2007) C: High 11.00 356 124 X 106 84% Year 6 (1995) Notes: 1. See page for baseline year; 1990 is deduced by back calculation from 1991 data. 2. Total extent of waterways in 1990 was 196 km (comprising feeder canal (14.5km), Tengi River (24.5km), Main Canal (36.0km) and logging canals (95 km)). The effective waterways is 356 because seepage losses from forests occur on both sides of the waterways, except for the Main Canal since one side is adjacent to the padi fields. 3. The maximum extractable volume ('live storage') of the swamps was cited as 148 X 106 cu.m. which represents the threshold limit, and abstraction beyond this limit is likely to impair the water balance. 4. The critical year represents that year at which the 'live storage' is exceeded, assuming projections in the increase of hydrological disturbance due to the increase in waterways (at c. 8.8km/year) and corresponding increase in seepage. assume that as long as the abstraction of water year that the seepage exceeded the threshold from the swamps in any one year remains limit (Kumari, 1994). Although the wet season within that of the maximum 'live' storage crop does not rely directly on the water from capacity (IBRD, 1978), then the production of the swamps, it is likely that the disruption of the second crop will not be affected, at least the wider water table may have an effect on any damage cannot be attributed to water the crop. It is assumed here that beyond the deficit conditions. critical year, the cumulative hydrological disturbances will also have the effect of Incorporating the hydrological disturbance at reducing the wet season crop production by a rate of 8.8 km/year, into the respective 2% per year. scenarios demonstrates the cumulative effects of such environmental disturbance. Table 4 The total rice production from the IADP for suggests that at 1990 levels all three scenarios 1990 was 59,200 tons; which at a value of fail to breach the critical 'live' storage limit; M$818/ton gave a total agricultural value of but at high disturbance rates the threshold M$48.4 million2. Expressed on a per hectare (i.e. of 148 million cu.m) will be exceeded by basis for the entire Study Site (i.e. 72,816 ha), Year 6 (1995), whilst at moderate levels it will the agricultural value is estimated at c. be exceeded by Year 18 (2007). The low M$665/ha. To be on the conservative side the disturbance scenario remains within the agro-hydrological value in this study was critical limits up till year 88 (2077). taken to be 10% of this agricultural value i.e. M$66.5/ha/year (Table 5). The next step was to link these measurable changes in the disturbance of the peat swamp The agro-hydrological value was calculated forests to changes in economic gains and on the basis of an incremental loss of produc- losses in the production of padi. Based on tivity (of 10% for the dry season crop and 2% information on production losses associated for the wet season crop) for each year that the with drought in other parts of the country, the live storage is exceeded. The present value, at assumption was made here of a moderate 10% 8% discount rate, of the agro-hydrological decline in production for every successive benefits is observed to decline from M$ 999/ Environmental Economics Series 15 An Environrnental and Economic Assessment of Forest Management Options Table 5 Estimation of the Agro-Hydrological Value for the Baseline Year, 1990 1990 Cropped Area (ha) 16,000 Unit Yield (t/ha) 3.7 Production (t) 59,200 Price (M$/t) 818 Total Agricultural Value (M$) 48,425,600 Agricultural Value/ha (M$) 665 Agro-hydrological Value for Study Site (M$/ha/year) 66.50 Notes: 1. The data on crop production is for the off-season crop at the IADP. 2. The agro-hydrological value is calculated as 10% of the full agricultural value. ha to M$ 730/ha to M$ 319/ha as the hydro- different because the consequences of in- logical disturbance increases from low inten- creased damage during logging are land sity to a high intensity. This represents a loss based rather than water based i.e. as damage of benefit due to the increased hydrological to the standing stock of forest. disruption. Detailed discounted cash flows are presented in Annex 2 (Table 2). The diver- This analysis suggests that if the agro-hydro- gence between the present value per hectare at logical benefits are to be sustained over the the various levels of disturbance increases at long term, and inter alia the flood mitigation the lower discount rate, because of the in- and water table regulation benefits, there has creased relative weight given to benefits to be a definite change in the logging method accrued further into the time horizon. The adopted in the Study Site. estimated agro-hydrological values were based on very cautious assumptions and Domestic Water Value hence represent a very conservative, lower bound estimate. Under a risk averse strategy The storage and supply characteristics of peat therefore hydrological benefit value could swamps facilitate year round abstraction of conceivably be estimated to be twice the value water to supplement the domestic and indus- calculated here. trial water demand for the IADP area. Since 1988, about 6 mgd (million gallons per day, In assigning these agro-hydrological values to where 2200 gallons = 1 cu.m.) of water have the management options, the following been abstracted directly from the Main Canal rationale was applied. Option A and B1 which in the Study Site to supplement the needs of c. use the most destructive logging method 45,000 residents in the IADP area. At the (traxcavator and canal combination) would present time, there is no alternative source of incur the highest hydrological disturbance, water for these residents. The treatment cost and hence the value accrued from the agro- of this water at c. M$0.40/cu.m. is 25% higher hydrological benefit would be the lowest i.e. than at other treatment plants due to the of M$ 319/ha. For option B2 the medium colouration of the water, its acidic nature and value of M$730/ha was used; and for B3 sedimentation load.3 This incremental treat- which uses the most benign logging option, ment cost will be used as a surrogate for the the agro-hydrological value provided by the domestic water benefits derived from the forests would be the highest estimate of M$ Study Site. The cost of treatment quoted here 999/ha. For each of these management corresponds to that incurred under current options, however, the value at the 20% and unsustainable logging practices and the 50% logging damage is not envisaged to be corresponding sedimentation load produced. 16 Environment Department Papers Total Economic Valuation at the Study Site under Alternative Management Options With the shift to sustainable harvests, and the A couple of different methods are used to fish adoption of more environmentally benign at the Study Site, the 'bubu' (bamboo basket logging methods, it is assumed that the traps) and the fishing rods. The bubu are treatment costs could be reduced. This casings made out of bamboo, and floated in reduction may, however, only be marginal the waterways, and fish are trapped upon because the main expense in water treatment entry. A total of 15 bubus were recorded along is to counteract discolouration and acidity. the waterways, and each bubu would produce Hence only a single value for domestic water a catch of about 20 fish (of 1 kg each) every 5 benefits for all the management options days (fishermen, pers. comm.). For a mean appraised in this study. price of M$0.70/kg of fish, the total monthly income was M$1,260. The total annual income The estimated domestic water benefits/ha are from the fish through the bubu traps was based on a projected annual increase of 2% in M$15,120. The fishing rods are fastened to the the annual volume of water abstracted from banks of the river at 10m intervals. These rods the swamps thought necessary to meet the are checked regularly by the fisherman. growing needs of the community JICA, 1986) Monitoring of a stretch of the waterway along at the marginal treatment costs assumed the Tengi River and up the Feeder Canal, above. The present value for the benefits of revealed a total of 300 fishing rods in use. domestic water at 8% and 2% discount rates Interviews with the fishermen showed that on was calculated as M$30/ha and M$230/ha, average each rod would produce a catch of 10 respectively (Annex 2, Table 3). fish every 5 days, with an average weight of lkg. The mean price fetched per fish was Value of the Fish Harvest Benefits reported to be M$0.70/kg. This gave an annual value of M$ 151,200. Together the rod Intensive surveys of the freshwater and the and bubu methods of fishing gave an annual other aquatic fauna in the waterways of the income of M$ 166,320. Study Site and adjacent areas revealed a very high biodiversity, including several new The present value for fish catch from the species and new records (Davies and Study Site was calculated as M$29/ha (or M$ Abdullah, 1989; Ng et. al., 1992). A total of 101 2.1 million for the total Study Site) at a 8 % species of fish were recorded, constituting c. discount rate, and M$98/ha at a 2% discount 40% of the known fish fauna of Peninsular rate. Although it is not realistic to express the Malaysia. One new genus, four new species of fish harvest on a per hectare basis, this was fish, three new records for Peninsular Malay- done in order to be consistent with the other sia and 30 new records for Selangor State TEV components, and to allow for later were reported. In addition, species which had aggregation. The future potential for a man- previously been recorded as rare were re- aged harvest is probably much higher, and corded in large numbers, suggesting that peat also for recreational fishing (which is already swamps represent an important stock area for a popular pursuit). the conservation of fish species. Fish harvesting at the present time seems to be Currently, the fish are harvested by the local confined to a small scale; and the threat to fish fishermen for local sale, and fishing is re- populations is not so much from over-harvest- stricted to the Main Canal and along the Tengi ing but from habitat destruction or degrada- River. Ng. et. al (1992) recorded 18 species to tion due to the logging methods being ap- be harvested and traded locally. In the valua- plied. This would be due to the increase in tion context an estimate was made of the sediments and oil pollution from the boats actual value of fish harvested from the water- transporting the logs. The scant information ways of the forests at the Study Site. Inter- available, however, did not allow for the views with the local fishernen and observa- consideration of the fish value obtained here tion of fishing patterns were utlized in order to be scaled up or down for the various to gain the necessary information. management options. Hence only one value of fish harvest was used here for all the options. Environmental Economics Series 17 An Environmental and Economic Assessment of Forest Management Options Value of the Carbon Stock If the damage factor is included into equation (1), then the total carbon biomass is: The carbon stock and active sequestration of (3) TBt = (a-h)150 + (b + (1-d)h)100 carbon at the Study Site is largely a function of + (b + (1-d)h)m logging activity within the forests. To estimate the current and potential (annual) value of the and where d = 0.2, equation (3) can be ex- carbon stock in one hectare of the peat swamp pressed as: forest under sustainable and unsustainable (4) TBt = (a-h)150 + (b+0.8h)100 harvesting options the following steps were + (b+0.8h)1.8 undertaken: * estimation of the total physical stock and For t>28 years, a part of the h (i.e. 0.8h) corresponding carbon stock changes under reacquires a carbon stock of 150 Ct/ha i.e. the sustainable and unsustainable manage- there iS a shift from b to a. ment options under the different levels of (5) TBt = (a-h+0.8h)150 + (b+0.8h-0.8h)100 damage incurred during logging; and + b(1.8) * valuation of this carbon stock using the (a02h)150 +bl00 + b(1.8) 'damage avoided approach'. Thus the backlog of carbon stock builds up slowly over time. Similar modifications are The initial biomass density of the productive made to equation (4) and (5) for 50% damage loggable forests at the Study Site is taken as levels. A detailed physical audit was under- 150 Ct/ha, which gets reduced to 100 Ct/ha taken for carbon stock changes over the 100 after logging (Kumari, 1994). For any one year year projection period under each of the t, the total carbon biomass at the Study Site is: logging regimes. Table 6 provides a summary (1) TBt = (a-h)150 + (b+h)100 + bm of information and the results of the carbon valuation exercise. where TBt = total carbon biomass at year t a = productive loggable forest at year t The NPV for carbon under the unsustainable h = area logged in year t option A is M$ 8,011/ha and M$ 7,080/ha at b = cumulative logged forests the 20% and 50% damage levels, respectively. m = mean annual carbon sequestration For the sustainable options (B1, B2 and B3), rate of 1.8 Ct/ha.4 the carbon value for the 20% and 50% damage levels would be M$ 8,677/ha and M$ 8,049/ At a sequestration rate of 1.8 Ct/ha it would ha, respectively (Table 6). Because the carbon take c. 28 years for any harvested area h to value is a function of logging activity and not return to the initial density of 150 Ct/ha. logging methods, no distinction is made in the Beyond year 28 the situation reaches an carbon value for the unsustainable option (A) equilibrium position, i.e. although h hectares and the sustainable options (B1, B2 and B3). are logged and biomass density gets reduced The values quoted here are for the 8% dis- from the initial 150 Ct/ha to 100 Ct/ha, the h count rate. The values for the lower discount hectares logged in year 1 would have returned rate of 2% are also given in Table 6. to a steady state biomass of 150 Ct/ha, from the 100 Ct/ha after logging. But the calcula- Benefit of Preservation of Part of the tion in equation (1) has assumed no forest Study Site for an Endangered Species damage due to logging. Thus for any year, where t > 28: The utilization of a part of the Study Site by an (2) TBt = (a-h+h)150 + (b+h-h)100 + bm endangered species gives it a value-added = (a)150 + (b)100 + bm which must be included when estimating its TEV. The north eastern corner of the Study When the damage factor is included in the Site is contiguous to the Sungai Dusun Wild- analysis, the equilibrium position is not life Sanctuary, a totally protected area spe- reached over the same period (i.e. by year 28). cially set aside for the in-situ conservation of the Sumatran rhinoceros (Dicerorhinus 18 Environment Department Papers Total Economic Valuation at the Study Site under Alternative Management Options Table 6 Paramerters Used for the Calculation of the Carbon Stock and Carbon Sequestration at the Stydy Site Sustainable Regime Unsustainable Regime Loggable area 172,816 ha 72,816 ha Actual Annual Cut 1618 ha 2912 ha (AAC)2 Logging cycle2 45 years 25 years Pre-logging carbon stock density3 15OCt/ha 15OCt/ha Post-logging carbon stock density3 10OCt/ha 10OCt/ha Rate of carbon sequestration 41.8Ct/ha 1.8Ct/ha Damage scenarios investigated5 0%, 20% 50% 0%, 20%, 50% Projection period6 100 years 100 years Carbon value/ton M$ 14 M$ 14 NPV (8%) 0% Damage M$ 9096/ha M$ 8630/ha 20% Damage M$ 8677/ha M$ 8011/ha 50% Damage M$ 8049/ha M$ 7080/ha NPV (2%) 0% Damage M$ 29326/ha M$ 28576/ha 20%Damage M$ 25133/ha M$ 25343/ha 50% Damage M$ 18859/ha M$ 20384/ha Notes: 1. It was assumed here that the entire Study Site was available for re-logging at year 1 (1990), the baseline year. 2. Details of the harvest regime, the AAC, the logging cycle have all been described in the section of timber. For the sustainable regime the AAC=RAC and hence after 45 years the forest is again available for logging. For the unsustainable regime, it is assumed here that the forests have to be left fallow for 25 years before there will be sufficiently merchantable timber to make logging economi- cally viable. 3. The forests are not primary (virgin) and almost all of which have been logged before, hence they will be assigned an initial (pre-logging) density of 15OCt/ha, which upon logging will be reduced by c. 5OCt/ha to 10OCt/ha. 4. At a sequestration rate of 1.8Ct/ha, the logged forest (at 0% damage) will take c. 28 years to recover the biomass density of 15OCt/ha. The shift from post-logging to loggable forests must be registered when deriving the physical carbon stock of forest. 5. Areas damaged during logging will first decay to release C°r after which they will be colonized by new seedlings. At the same rate of sequestration (1.8Ct/ha), it will take c. 83.3 years (15OCt/1.8Ct/ ha) for these areas to re-attain the initial density of 15OCt/ha. The time taken for the initial decay has been omitted, to simplify the analysis and because the necessary information is not available. This shift from damaged to mature forests must be registered in the projection. 6. As for the valuation for the other goods and services at the Study Site, the carbon valuation will be projected over a 100 year period, so as to approximate an infinite time. Each ton of carbon was given a value of M$14. sumatrensis). The population of the rhinoceros tive and smallest among the 5 living species in within the sanctuary is believed to range the Rhinocerotidae family (van Strien, 1974) is between 4-6 individuals (Zuber, 1983); which one of the most endangered mammals in the represents about 8 % of the total population of world. the rhinos in Peninsular Malaysia (which ranges from 50 - 75 individuals). This two Earlier work by Strickland (1967) and a more horned Sumatran rhinoceros, the most primi- recent follow-up by Zuber (1983) confirmed Environmental Economics Series 19 An Environmental and Economic Assessment of Forest Management Options that a part of the core range of the rhinoceros context of the Sumatran rhinos in Malaysia extends into the north eastern corner of the where the population is at very critical levels Study Site. Rhinos exhibit a form of wander- and the increased survival probability of ing behaviour, whereby they traverse exten- every individual should be highly valued. sively beyond the core ranges. Although the However, using the M$45/ha represents a reason for this behaviour is not quite under- conservative estimate. Discounting this at 8% stood, it is believed to be an integral part of over the projection period gives a present their social behaviour. Based on ranges value of M$562/ha, and at the lower discount mapped by Zuber (1983), the extent of the core rate of 2% it is M$1939/ha. range of rhinos in the Study Site was esti- mated to be c. 2,590 ha. As a conservative If one accepts that the endangered species estimate, the wandering behaviour range component should be brought into the TEV (buffer range) was assumed to be c. 50% of the equation, then this would require one to core range, giving a total rhino range of c. consider the introduction of a biophysical 3,885 ha within the Study Site5. constraint i.e. a 'set-aside habitat' of at least 3,885 ha. This is because rhino conservation is Recent evidence has shown that there is a not compatible with logging, the prime WTP for the conservation of endangered activity conducted within production forests. species. By corollary then, this part of the The preservation of this extent of the Study Study Site which supports the rhinos has a Site primarily for rhinos through the complete value (albeit a partial value) equivalent to that abstention of logging would therefore reduce which may be placed on the Sumatran rhino. the timber benefits from this part of the forest There is at the present time no such estimate to zero. This is an example of opportunity specifically for Sumatran rhinos, either in costs foregone. Preservation of the area for Malaysia or elsewhere. Information from rhinos also has positive effects on the other other studies indicates that estimates of the services provided by the forests (e.g. hydro- per capita preference valuation for endan- logical services, carbon sequestration, gered species ranges between US$1.2-18.6/yr biodiversity value etc.). In order to keep the (leaving out the exceptionally high values analysis tractable we will model only the accorded to the humpbacked whales), giving a timber benefits foregone as a consequence of mean value of US$9.85 (i.e. M$26) (Pearce, the preservation of the habitat. Since the set- 1993). These values are, however, largely aside area is 5% of the Study Site (3885/ derived for the U.S. population surveys. 72816), the foregone timber benefits are Adjusting this for the Malaysian GNP (at 1990 calculated as c. 5% of the total timber benefits prices) gives a value estimate of c. M$2.86/ calculated in Chapter 4 (Table 3). Thus when capita towards the conservation of endan- deriving the aggregated TEV for each man- gered species. This adjustment based solely on agement option, the opportunity costs fore- GNP must be treated with caution because it gone from the harvest of timber (for the is widely accepted that people in higher biophysical area set aside) must be deducted income countries have a higher WTP towards to get the net benefits of rhino conservation; such conservation initiatives. Applying this otherwise, there will be double counting. value estimate for the endangered Sumatran rhino to Peninsular Malaysia's population Value of Non-Timber Forest (14.4 million) gives a total value of M$ 41X106. Products: Rattan and Bamboo as If one considers further that the rhino popula- Indicators tion at the site contiguous to the Study Site is c. 8 % of the total in Peninsular Malaysia (see Several recorded non-timber forest products above), then on a proportionate basis the Severareorded nombe st Sits value that the population would place on the (NTFPs) are extracted from the Study Site. Sumatran rhinos would be c. M$ 3.3X106 or a Table 7 is a summary of the number of species value of M$45 for a hectare of the Study Site utilized. Although most of these goods and (72,816 ha). This scaling downwards to reflect services do not enter the market, they do the local population of rhinos at the Study Site provide an important part of the subsistence is not a strictly valid one, especially in the needs of the local population. The NTFPs are 20 Environment Department Papers Total Economic Valuation at the Study Site under Alternative Management Options Table 7 Utilization of Some Non-Timber Forest Products at the Study Site Forest Product Number of Species Timber Structure 51 Medicinal 13 Food-fruits, seed and edible nuts 10 Food-vegetable 2 Fibre/Thatch 3 Ornamental 1 Exudates/latex/resin 2 Dyes and tannins 1 Feed plants 1 Occult magic 2 Species/flowers 1 Fuel/charcoal 2 Essential oils 1 Vegetable oils 1 Ceremonial 1 Source: Noor Azlin Yahya (1990), Said and Shahwahid (1992) extracted on a rather informal basis, the rattan manau, the most desirable species of frequency of which appears to have been rattan is not known to occur in peat swamps. declining, a pattern fairly common to Peninsu- Thus, to take these differences into account, lar Malaysia (de Beer and McDermott, 1989). the generalized stocking density for Selangor was adjusted using information from the state This section seeks to derive the potential value of Johore (in the southern part of Peninsular that may be accrued from the Study Site Malaysia). through the harvest of two major NTFPs; namely rattan and bamboo. Rattan collection Table 8 and Table 9 give the stocking density in other parts of the country has been esti- of rattan and bamboo at the study site, which mated to contribute 14.8% of the economic based on their individual growth cycles activity of the residents in the swamp forests would have slightly different harvest rates if of south-east Pahang (Shahwahid and sustainable harvest is to be a goal/objective. Mustapha, 1991; Shahwahid, 1992). Although What is important here is to determine the such intensity of harvesting has not been potential economic value which can be recorded at the Study Site, its potential value derived from both these two NTFPs under should neither be neglected nor ignored. sustainable and unsustainable logging re- gimes, especially in relation to the intensity of Forest inventories for the state of Selangor logging damage which takes place. It is have recorded the density of rattan and assumed here that the damage to the rattan bamboo in the forests, for randomly selected stock will be in proportion to the general sample sites (FFD, 1988a, 1988b). However, forest damage sustained during logging. In some data modifications have to be made in the case of bamboo the reverse holds true, i.e. order to ascertain the stock of rattan and bamboo thrives under disturbed conditions. bamboo available from peat swamp forests, This means that the shift to sustainable and specifically from the Study Site. For regimes and lower damage during logging has instance, cluster forming species such as the effect of reducing the benefits from Calamus caesius (sega) and C. sciponium, both bamboo. Table 10 gives a summary of the PV/ of which are commercially attractive, are ha for rattan and bamboo under the alterna- naturally found in peat swamps, whereas tive management regimes. Environmental Economics Series 21 An Environmental and Economic Assessment of Forest Management Options I Table 8 Valuation of Rattan at the Study Site Types of Rattan: Sega Semambu Dok Dahan Total Stocking Density (clumps/ha) 0.60 1.10 1.10 12.40 Stocking Density (m/ha) 28.80 49.50 49.50 446.40 Price (M$/m) 0.40 0.40 0.25 0.10 Years to maturity 10 10 10 10 Annual Stock (m/yr) 2.88 4.95 4.95 44.64 57.42 Annual Value (M$/ha) 1.15 1.98 1.24 4.46 8.83 Adjusted Annual Value (M$/ha) 2.30 3.96 2.48 8.93 17.67 Note: 1. To correct distortions in price due to banning of the export of rattan in Peninsular Malaysia, a conversion factor of 2 was used (Veitch, 1986). The results of the discounted values for rattan Conceptually, the District Office (Local and bamboo are presented in Table 10. At 8% Authority) proposal for recreational develop- discount rates and for the 20% damage option, ment at the Main Canal and Sungai Tengi the PV of rattan at unsustainable levels was seeks to package an attraction which will estimated at M$ 35/ha, this being c. 80% less combine farming and forest scenes (DOKS, than that at sustainable B1 option of M$ 177/ 1992). The access to the recreational area will ha. The PV of rattan systematically increases be at the southern part of the Study Site, under increasingly sustainable options B2 and which is c. 10-15 km from Kuala Selangor. B3 to M$ 194/ha and M$ 214/ha, respectively. There is to be a high level of local participa- For bamboo the reverse is true, where the tion, where the farmers would be encouraged unsustainable management options (A and to undertake the bed-and-breakfast concept. B13) produce more bamboo, giving an PV of The presence of visitors, both local and M$ 157/ha and M$ 98/ha at 20% and 50% foreign, would foster an increased amount of damage respectively. This gets reduced at the activity in local handicrafts manufacturing more sustainable levels (see Table 10). and sales. It is envisaged that this combination of activities would raise the income from Potential Recreational Value $600/year to $1,000/year. The 'forest wilder- ness' experience will have a recreational and Currently, anywhere between 30-50 visitors an educational element to it, and can be have been sighted in the vicinity of the Study undertaken as a walk or along the tramline Site over any one weekend. Most of these (which had conventionally been used to visitors are bird enthusiasts who walk along transport logs out of the forests). The Main the main canal to catch sight of birds at the Canal and the Sungai Tengi (Map 2) will be fringe of the peat swamp forests. Those who also developed for water borne activities; have private boats also do some recreational including boat rides up the Tengi river, from fishing, or hire out their boats to others for the which circuit forest walks will be available. same purpose. Although these numbers are An additional suggestion is for the ride along fairly small, the potential importance of the the Tengi river to be extended along the site has been noted, and the District Office is Feeder Canal up to the Sungai Dusun Wildlife currently planning to develop this as a recre- Sanctuary. This Sanctuary, especially set aside ational cum tourist attraction, and package it for promoting conservation of the Sumatran together with the other attractions in the rhino, could serve as an added educational District (DOKS, 1992). attraction to visitors. In view of the proposed 22 Environment Department Papers Total Economic Valuation at the Study Site under Alternative Management Options Table 9 Valuation of Bamboo at the Study Site Types of Bamboo: Betong >3cm <3cm Total Stocking Density (clumps/ha) 8.20 3.60 2.50 Stocking Density (m/ha) 984 432 150 Price (M$/m) 0.10 0.10 0.10 Years to maturity 10 10 10 Annual Stock (m/yr) 98.40 43.20 15.00 156.60 Annual Value (M$/ha) 9.84 4.32 1.50 15.66 Notes: 1. Betong and >3cm bamboo, per clump = 120m; < 3cm bamboo, per clump = 60m. 2. Pricing of bamboo (Shahwahid, 1990). PV is calculated only for the Betong species. plans, and current informal use of the area, an be distance domestic visitors are willing to attempt is made here to estimate the potential travel on their weekend breaks (Sabri, recreational value of the Study Site. 1987); and Because the Study Site is not yet operational visitor numbers will continue to increase, as a forest recreational site, the visitor num- but only up to the year 2020, after which bers to the Kuala Selangor Nature Park, they would remain constant so as to ensure located some 15km away, were used a proxy against congestibility. to estimate the potential recreational benefits that may be derived from it. The Kuala The estimate of recreational benefits was Selangor Nature Park which comprises a part derived using the results from Sabri's (1987) of the mangrove coast and an artificial lake, recreational model, based on the travel cost was established in 1987. The overnight visitor method for average Malaysian visitors to numbers here have increased from less than forest recreational areas. Because no entrance 50 a month to well over 300 in most months of fee is charged the entire area under the the year in 1991 (Kuala Selangor Nature Park, demand curve represents the consumer's record book). The day visitor numbers are not surplus, and hence the value placed by the strictly recorded, but are likely to double the visitor on the area. Sabri (1987) estimated the total visitor count if included. It is envisaged consumer surplus per visit to each forest that the Study Site would draw similar reserve (within the 80 km catchment) to range visitation numbers. Certain assumptions were from M$ 6 - M$ 12, giving a mean of c. M$ 9 made here: per visit. The potential number of visitors to the forest recreational areas in the Study Site, * that the Kuala Selangor Nature Park and based on an extrapolation of visitors to the the Study Site will not be seen as compet- Kuala Selangor Nature Park, and the dis- ing/substitution sites, but as complemen- counted cash flow is provided in Annex 2 tary reinforcing sites. The rationale for this (Table 4). Multiplying this by the total visits to is firstly that they offer different experi- the site, the NPV of recreational value was ences to the recreationist, and secondly, if estimated as M$ 4.1X106at a 8% discount rate, they are packaged together, the visitors are or M$ 28.2X106 at a 2% discount rate. Ex- likely to visit both the sites. This potential pressed as recreational benefits per hectare of recreational area falls within the 80km the Study Site, they give a potential value of catchment area, which has been shown to M$ 57 and M$ 387, respectively. Environmental Economics Series 23 An Environmental and Economic Assessment of Forest Management Options Table 10 Discounted Value for Rattan and Bamboo (MS/HA) Unsustainable Sustainable Scenario A: Scenario B1: Scenario B2: Scenario B3: Rattan: NPV/ha (8%) (M$/ha) 0% Damage 44 (4) 221 (18) 243 (19) 267 (21) 20% Damage 35 (3) 177 (14) 194 (16) 214 (17) 50% Damage 22 (2) 110 (9) 121 (10) 134 (11) NPV/ha (2%) (M$/ha) 0% Damage 152 762 838 921 20% Damage 122 609 670 419 50% Damage 76 381 419 461 Bamboo: NPV/ha (8%) (M$/ha) 0% Damage 196 (16) 196 (16) 98 (8) 98 (8) 20% Damage 157 (13) 157 (13) 78 (6) 78 (6) 50% Damage 98 (8) 98 (8) 49 (4) 49 (4) NPV/ha (2%) (M$/ha) 0% Damage 675 675 337 337 20% Damage 540 540 270 270 50% Damage 337 337 169 169 Notes: 1. The value in brackets denotes the annual value (M$/ha) for rattan and bamboo respectively as derives from Table 8 and 9, but are adjusted to varying intensities of damage and shifts between the manage- ment options. The same base values were used for the 2% discount rate. 2. The adjusted annual value of rattan derived in Table 8 (c. M$18/ha) was derived for the sustainable regime harvest (B1) at 0% damage. The values for the remaining options are derived as a percentage of losses commensurable to those of timber harvests. Moving to more sustainable logging methods, as for options of B2 and B3, was assumed to increase the potential harvest of rattan by a further 10%. 3. The annual value of bamboo derived in Table 9 (c. M$16/ha) would hold true at current levels of disturbance, using the excavator + canal logging method method. The values for the remaining options are derived as a percentage oflosses commensurable to those of timber harvests. In the case of bamboo, the shift to better harvesting conditions B2 and B3 would reduce the available bamboo because it thrives in disturbed conditions. Again this expression on a per hectare basis is made here between the recreational value of to allow for a comparison of different benefits the Site under a sustainable and unsustainable from the forest, and for subsequent aggrega- management regime, although presumably tion to derive the TEV. No distinction was the aesthetic value under the latter operation would be less. l The kuda-kuda method is not included here as an option because although it is an environmentally benign method of logging, the risks to the loggers are too high. In fact, currently this method is not being used anywhere. 2 Because of the widespread nature of the intervention mechanisms on domestic rice production the value of the dry season crop was calculated using the import price of rice. I Characteristics of water abstracted: coloration = 100 hazen units (standart < 5 units); natural turbidity unit = 53 (good areas have ntu of 5-10). For rational of this see Kumari (1994). Wandering ranges of animals are often much larger than the core ranges; hence an assumption of 50% here is quite conservative. 24 Environment Department Papers 5 Total Economic Valuation Under Alternative Forest Management Options Table 11 provides a summary of the 'total harvest options. The method of logging used economic value' of forest conservation benefits under scenario B1 is similar to A, but B2 and that can be gained under the unsustainable B3 represent increasingly benign methods of (A) and sustainable (B) management options; logging. At the 20% damage leveL the TEV for and for the latter option under increasingly A is higher than that for option B1, but at the sustainable conditions (B1,B2 and B3), at a 8% 50% damage level this result is reversed. Both discount rate. The results of each forest the social and global benefits streams increase management option are expressed for the over time, while the private benefits diminish individual components, estimated for the two with this shift. The reduction in private levels of damage. For each option the aggre- benefits corresponds to the reduced volume of gate results are presented in terms of private, timber extracted, in moving from the social and global benefits; the former two unsustained harvests to sustained harvest accrue to the nation, but the social benefits are (Figure 2). more widely distributed. The private benefits are those derived from timber. The social However, as discussed in Chapter 4, The Value benefits include the hydrological benefits of Timber Benefits, the damage levels must be (agricultural and domestic water abstraction), placed in the proper context i.e. against the harvest of fish, and the potential benefits from method of logging adopted under each non-timber forest products and recreation. management option. Logging, using the most The global benefits accrue to the world destructive combination of traxcavators and community, and include those from the canals, as is the case for option A and B1, is carbon capital of the forests and that from the likely to incur damages close to the 50% increased probability of survival of the levels; whilst the shift to more environmen- Sumatran rhinoceros, a highly endangered tally be-nign methods (i.e. B2 and B3) should species. reduce the damage closer to the 20% levels. A comparison of these cross-damage options These results should not be seen as fine-tuned shows the TEV for the Study Site to increase numbers, but more to indicate orders of from M$ 745X106 to M$ 774X106 going from A magnitude which would enable an identifica- to B1. In shifting from B1 to B2 option it tion of the key sensitivity parameters relating increases further to M$ 874X106, but for to overall option results. More refined analy- option B3 gets reduced to M$ 863X106. The ses can then be focused on these parameters aggregate TEV of these most plausible dam- and their valuation. age options are shown in Figure 3 (recreation, domestic water and fish benefits which are The base scenario (A) represents the current equal for each of the options are not included unsustainable practice, where the harvest rate in this figure). The results suggest that the is high and the logging method environmen- higher damage incurred under option A and tally destructive. The hypothetical manage- B1 could reduce the aggregate (TEV) dis- ment options B1, B2 and B3 all represent counted benefits sufficiently to encourage environmentally less disruptive, sustainable more sound logging methods to be adopted. Environmental Economics Series 25 Table 11 Total Economic Valuation of Forest Conservation Benefits at the Study Site (M$/ha, 8% discount rate) Unsustainable A. Sustainable B1: Sustainable B2: Sustainable B3: Good/Service 20% Damage 50%/0 Damage 20% Damage 50% Damage 200/o Damage 50% Damage 200/o Damage 50% Damage 0 0 C ~ 1. Timber 3448 2149 2360 1453 1750 1085 1276 804 2. Hydrological 319 319 319 319 730 730 999 999 o) 3. Endangered Spp 378 447 436 484 469 504 494 519 4. Carbon Stock 8011 7080 8677 8049 8677 8049 8677 8049 5. Rattan 35 22 177 110 194 121 214 134 6. Bamboo 157 98 157 98 78 49 78 49 G 6 7. Recreation 57 57 57 57 57 57 57 57 Co 8. Domestic Water 30 30 30 30 30 30 30 30 c 9. Fish 29 29 29 29 29 29 29 29 C TEV/ha SS (M$/ha) 12464 10231 12242 10629 12014 10654 11854 10670 Total Social Benefits 627 555 769 643 1118 1016 1407 1298 o) Total Global 8389 7527 9113 8533 9146 8553 9171 8568 Total Private 3448 2149 2360 1453 1750 1085 1276 804 Social % 5.03 5.42 6.28 6.05 9.31 9.54 11.87 12.16 Global % 67.31 73.57 74.44 80.28 76.13 80.28 77.37 80.30 ¢c Private % 27.66 21.00 19.28 13.67 14.57 10.18 10.76 7.54 Total Social for SS (M$) 45,655,632 40,412,880 55,995,504 46,820,688 81,408,288 73,981,056 102,452,112 94,515,168 c Total Global for SS (M$) 610,856,088 548,111,007 663,578,424 621,373,671 665,948,274 622,803,351 667,789,764 623,895,036 w Total Private for SS (M$) 251,069,568 156,481,584 171,845,760 105,801,648 127,428,000 79,005,360 92,913,216 58,544,064 Grand Total for SS (M$) 907,581,288 745,005,471 891,419,688 773,996,007 874,784,562 775,789,767 863,155,092 776,954,268 o Notes: 1. For details on the valuation of the individual components, refer to text. 2. Total Social Benefits: (2+5+6+7+8+10), Total Global Benefits: (3+4), and Total private Benefits: (1). < ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ci Total Economic Valuation Under Alternative Forest Management Options Figure 3 TEV of Management Options (M$, 8% discount rate) 12-, ---------- ~ ~ ~ ~ . . .....-... -- - .... . -,,---- I - - -- -- -- A B1 B2 B3 Mafagement Options Timber E Agro-hydrological Endangered Species 1 Carbon Stock E Rattan Bamboo In the management context, however, it is not are estimated as M$ 398/ha, M$ 1,782/ha and the absolute values under each management M$ 1,620/ha, respectively. option that are important, but the incremental changes in shifting from one management There are trade-offs between the different option to the next. The rest of the analysis and variables in making this shift towards discussion will focus on these most plausible sustainability. For example, financial losses options for each management alternative (i.e. are incurred for the timber and bamboo the 50% forest damage for options A and B1, products, whilst all of the other variables and 20% damage for options B2 and B3), show a positive financial effect. The losses in expressed in incremental terms. timber can be attributed to the reduced stumpage values as logging costs increase due Incremental Changes Between to the adoption of increasingly environmen- Alternative Management Options tally friendly methods of logging. Bamboo thrives better in more ecologically disturbed Table 12 shows the value for the goods and conditions, and hence the shift to services as estimated for the base case (A), sustainability would also result in reduced together with the incremental shifts in these bamboo growth. values to the increasingly sustainable sce- narios from this base position. The data source The components which 'drive' or dominate and methodology used for the valuation of the TEV are the timber and carbon stock each of the variables is given as notes in the which comprise c. 20% and c. 70% of the TEV, Table 12 (see also Chapter 4). The net positive respectively. The shifts to increasingly sustain- increments in shifting from A to B1, B2 and B3 able regimes cause financial losses in timber Environmental Economics Series 27 An Environmental and Economic Assessment of Forest Management Options Table 12 Summary of Results for the Study Site (1990 prices, 8%1o discount rate) (Most plausible damage level used for each option, see text). Good/ Base Option Change from Base Option to Sustainable Option Service (Unsustainable, A) Bi B2 B3 (M$/ha) % of TEV (MS/ha) (M$/ha) (M$/ha) Timber 2149 21.3 -696 -399 -873 Agro-hydrological 319 3.1 0 411 680 Endangered species 454 4.4 35 20 44 Carbon stock 7080 69.2 969 1597 1597 Rattan 22 0.2 88 172 192 Bamboo 98 1.0 0 -20 -20 Recreation 57 0.6 0 0 0 Domestic Water 30 0.3 0 0 0 Fish 29 0.3 0 0 0 TEV 10238 100.0 396 1782 1620 Notes: On the source of data, assumptions and methodology used to establish the value for each variable. 1. Management Options: The base options (A) represents the current unsustainable practice where the harvest rate is high and the logging method environmentally destructive. Management options B1, B2 and B3 all represent sustainable harvest options. The method of logging for B1 is similar to A, but B2 and B3 represent increasingly benign methods of logging. 2. Timber: The physical stock information is derived from the National Forest Inventory, specifically for peat swamp forests. The level of overcut for the unsustainable option (A) is based on information for the state of Selangor, whilst the sustainable harvests (for B1, B2 and B3) are based on the recommended cuts for the Study Site itself. To derive the economic value for the timber harvest for each option, national stumpage values were used with adjustments made for increasing logging costs as one shifts to increas- ingly sustainable options (from B1 to B3). This was calculated as a net present value because use was made of the stumpage value which deducts for logging costs. 3. Agro-hydrological Service: The physical information for this is based on land satellite photographs taken over the Study Site in 1987 and 1990, verified against field checks. The total extent of canals and the rate of increase in these waterways was established from these photographs. The loss of water through seepage was established from detailed hydrological studies conducted in the Study Site itself, and this allowed the total water loss from the peat forests to be estimated. The production loss method, based on information on value of the padi crop from the adjacent agricultural area was used to estimate the value of the agro-hydrological service at the study site. This was calculated as a present value. harvesting, whilst the forest's carbon stock this shift the private losses, estimated at function value increases substantially, by M$399/ha, are more than made up for by the almost 13 % from the base case. The agro- increase in net social benefits of M$563/ha hydrological service and the conservation of (M$411 + M$172 - M$20); whilst the global the endangered species components constitute community accrues incremental benefits of up between 3-4% each of the TEV, but register to M$1,619/ha (M$1,597 + M$22). The subse- further increases as the shifts towards B2 and quent shift to B3 (from A) more than doubles B3 options take place, the former showing the losses to the private logger (M$ 873/ha) fairly substantial increases. whilst still increasing the social (M$289) and global (M$24) benefits, the latter only margin- The highest overall benefits are incurred in the ally. The private losses in shifting from the shift from A to B2 (Table 12). On the basis of unsustainable to the sustainable options are 28 Environment Department Papers Total Economic Valuation Under Alternative Forest Management Options 4. Endangered species: The utilization of the north eastern corner of the Study Site by the endangered Sumatran rhino has been documented using census and ecological techniques which provide the necessary information on their range movements and local population numbers. The conservation value of the Study Site was estinmated using the national WTP for the conservation of the local population of rhinos at the Study Site as a percentage of the total rhino population in Peninsular Malaysia. Economic value was based on the proxy contingent valuation estimate derived from international studies, but adjusted for the Malaysian population and GNP. This value does not exclude costs, and hence represents present values. 5. Carbon stock: The physical carbon stock for the Study Site was derived using information based on the forest inventory together with carbon biomass data for Peninsular Malaysia. The carbon flux was estimated for each logging regime (A, B1, B2 and B3). To assign the economic value, the global damage cost estimate of $14/tC was used. 6&7. Rattan and Bamboo: The physical stock calculation was based on the rattan and bamboo inventory for Selangor State; this was adjusted for the peat forest habitat. This information was synthesized with that on the biology and ecology of the relevant species to establish the potential annual sustainable harvest which could be derived from the Study Site. The economic value of rattan was based on market price but adjusted for distortions due to the bans and tariffs on the export of raw rattan. For bamboo the domestic price was used. Here to the discounted values represent present values. 8. Recreation: The nearby (15km away) Kuala Selangor Nature Park was used as a surrogate to derive the recreational value for the Study Site. The visitor numbers at this Park together with the estimate of recreational value of M$(/capita (based on TCM) for visitation to forest recreational areas in Peninsular Malaysia was used to derive the total recreational value at the Study Site. The data did not allow for differentiation between the alternative management options. 9. Domestic Water: The value of this service is based on the total water abstracted from the swamp forests multiplied by the incremental treatment costs due to the turbidity and colouration of water abstracted from the forests. This information was obtained from the Water Supply Department. Again the data did not allow for differentiation between alternative management options. 10. Fish: Fish harvest information was obtained from the fishermen at the Study Site. The number of fish traps along the waterways was enumerated and the fish catch estimated. The economic value was based on the market price of fish. Here too no distinction was made between the management options. The discounted values are present values. 11. Present Value/Net Present Value: Some of the discounted values represent PVs and others NPVs. This is not strictly satisfactory, but in view of the data constraints it ws difficult to attain a uniformity. compensated for by the increase in social and which is likely to be much larger than the global benefits, especially the latter, which surrogate 'effect on production' approach more than compensates for the loss from used here. In fact the agro-hydrological value timber and bamboo. The increase in social here was estimated conservatively as 10% of benefits with the shift towards sustainable the full agricultural value (Chapter 4, Value of forest management suggests that the local Hydrological Benefits). A higher proportion community could benefit substantially. The could potentially raise the percentage of the divergence. between these private and social service substantially (see Table 13). Thus it benefits suggest that incentive mechanisms would appear that the TEV shows net positive should be devised to internalize these exter- gains even at the local level when trade-offs nalities into the decision making process. are considered between the private and social These social benefits, especially the hydrologi- benefits. cal benefits, are not only important in sustain- ing the forests but also in sustaining the The argument here is that if the shift is made agricultural community around it, the value of from the current unsustainable practice Environmental Economics Series 29 An Environmental and Economic Assessment of Forest Management Options Table 13 Confidence Level for the TEV Components of the Recommended Management Option (M$) Good/ Recommended Unit/Range Confidence Precautionary Service Option Value Level Principle under a (B2) Strong Sustainability (M$/ha) Approach Timber 1750 M$135/cu.m H H Agro-hydrological 730 M$67-665/ha H H* Endangered species 474 M$3/capita M H Carbon stock 8677 M$14-54/ tC H M Rattan 194 M$9-18/ha M L Bamboo 78 M$16/ha M L Recreation 57 M$6-12/visitor L L Domestic water 30 M$0.40/cu.m. M H Fish 29 M$1/kg L M Notes: 1. Unit Value: This data represents the unit value (drawn from an estimated range) used to derive the total value for each variable. In the case of the carbon value a lower value of M$14/tC was used and for recreation the median value of M$9/visitor. A higher value of M$18/ha was used for rattan, to correct for the distorting effects of bans and tariffs. 2. Confidence Level: This represents our judgement of the confidence which can be placed on the variables in this study, low (L), medium (M) and high (H). The level of confidence is based on the following criteria: source of the data, its reliability, the valuation methodology used and the soundness of the assumptions made (see Table 12). 3. Precautionary Principle under a Strong Sustainability Approach: This scoring represents an appreciation of the degree of risk aversion which must be exercised if the Strong Sustainability position is to be attained, and critical natural capital retained in order to ensure the sustainable flow of locally and globally appropriable goods and services. Scoring is from low (L), medium (M) and high (H). For H* scoring, see text. (option A) to the recommended sustainable to the conservation benefits received further option B2, the compensation payments which into the future. The beneficial effects of the need to flow from the global community to sustainability criterion or constraint with Malaysia would be in the range of M$ 411- respect to the continued harvest or flow of 1619/ha. The former value represents the services is made more explicit when a lower financial losses which would be incurred by discount rate of 2% was used. At this lower the nation (timber plus bamboo losses), whilst discount rate (2%), the optimum shift is from the latter value represents the sum of the the current unsustainable scenario (A) to global benefits (carbon sequestration and scenario B3. conservation of the endangered rhino species). Thus it would appear that the minimum that The salient conclusion which can be drawn should be transferred to the nation, if the from Table 12 is that there are very positive sustainable option B2 is to be adopted (rather gains to be made in the total economic value than A), would be equivalent to the loss of that can be accrued from the forests if one financial benefits. adopts more sustainable management options. But the consistent message coming out of this Discounting at the conventional rate of 8% TEV audit is clear: the largest portion of the does not perhaps give sufficient prominence benefits accrue to the global community. 30 Environment Department Papers Total Economic Valuation Under Alternative Forest Management Options Therefore unless transfer mechanisms are the global warming phenomena (and hence forthcoming from the countries of the North, the carbon stock function of forests), the very the incentive for Malaysia to adopt the more rigorous carbon stock estimation undertaken sustainable form (especially the B2 scenario) in this study coupled with the conservative of forest management may not be powerful damage avoided cost estimates used, a high enough to overcome entrenched national level of confidence level is placed on the value 'special interests'. in Table 13. However, before any recommendation for this On the other hand, the low confidence placed shift towards the more sustainable manage- on potential recreational value at the Study ment mode and negotiations for transfer Site is due to the fact that the visitor numbers mechanisms can be advocated and pushed to are extrapolated from a nearby Nature Park; the decision and policy makers of Malaysia, it although the recreational value itself is based is imperative upon us to establish just how on a fairly intensive travel cost study which robust this TEV audit, and its individual has been undertaken specifically for forest estimates, are. Table 13 represents an effort in recreational areas in Selangor state. The notes this direction, where two indicators, namely in Table 13 (and details in Chapter 4) provide the confidence level and the precautionary the basis for the scoring the confidence level (risk aversion) principle, are used to establish for the remaining variables. the robustness of this TEV, and to provide the necessary impetus towards objective decision The Precautionary Principle making. We have set out the types of benefits and values that can be derived from forests, and have made some progress in valuing these The confidence level scoring represents our empirically and scoring their confidence level, judgement of the confidence which can be but we do not want to give the impression placed on the estimate of the variables in this that we are moving in an arena of 'comfort- study and is based on the following criteria: able certainty' with regard to the forest source of data, its reliability, the valuation resource and its management. A range of methodology used and the soundness of the uncertainties; biologicaL ecological, and assumptions made. Timber, for example, has a economic still surround forest management. high confidence scoring because of the exist- The precise dynamics of the tropical forests is ence of fairly well defined market prices, and still not well understood. We know less about the fact that the physical stock was based on the workings of this forest ecosystem than we inventories specifically undertaken for peat do about any other biome on earth (Myers, swamp forests. Similarly, the hydrological 1983). The interactive processes in the tropical value has a high confidence level because of forests are complex and poorly understood; the reliability of the data on hydrological there are multiple potential synergisms disturbance which together with detailed available given the number of environmental hydrological studies at the Study Site allowed assaults on the biosphere. Given this complex- us to estimate the disruption to the service ity, economic assessments and projections will quite accurately. The conversion of this necessarily be somewhat speculative. This, physical phenomena to economic value is however, should not be construed as a criti- based on the production loss (from the cism of all that has been done, but of the need adjacent padi fields) where a very conserva- to recognize its practical hmitations. tive assumption of 10% crop loss was made for each year that the critical 'live storage' The bottom line is that unless the 'health and limit of water in the swamps was exceeded. integrity' of the ecosystem remains intact, the The continued degradation of the forest could, sustainable flow of its goods and services may however, lead to a complete loss of the agro- be jeopardized (Turner, 1994). This coupled hydrological benefit i.e. it could proximate to with the fact that we may be fast approaching the maximum of its range value at M$665/ha. the limits of the ecosystem tolerance to Although there is much scientific and eco- external stress and shock suggests that a nomic uncertainty surrounding the issue of precautionary approach should be adopted. Environmental Economics Series 31 An Environmental and Economic Assessment of Forest Management Options In essence, the precautionary principle asserts where the scoring may not be quite so dis- that there is a premium on a cautious and crete. This would hold true in the case of the conservative approach to human interventions agro-hydrological function, where a precau- in environmental sectors that are (i) unusually tion approximating to high starred (HI) may short on scientific understanding; and (ii) be more appropriate, especially if the forest unusually susceptible to significant injury, continues to be degraded through indiscrimi- especially irreversible injury (O'Riordan, nate logging practices (and the higher range 1992). estimate becomes pertinent) (Table 13 and Table 12). In this context, a second scoring criterion was included in the analysis in Table 13: one based Hence final decision making should seek to on the precautionary principle under a Strong draw a balance between the two aspects of Sustainability approach. This scoring reflects confidence and precaution. This should not be an appreciation of the degree of risk aversion seen as undermining the importance of the which must be exercised if the Strong empirical results, but rather as strengthening Sustainability position is to be attained, and any decision by incorporating the 'Strong the need to retain critical natural capital stock Sustainability' requirement. Inherent in the in order to ensure the sustainable flow of particular management option selected, and locally and globally appropriable goods and the confidence and precautionary level services. Thus the precautionary rating goes scorings, is the interactive nature of the beyond the measurable or empirical analysis multiplicity of benefits from the forests. to include a reaction to uncertainty i.e. the adoption of a risk averse approach. What is most important is that the variables which drive the TEV should have a high That is to say that although a variable may confidence level before they can be translated have a lower level of confidence, the impor- or adopted into policy or management deci- tance of that service at local/global levels may sions. In this context timber and carbon which make it imperative for a higher level of take up the lion's share of the TEV both score caution to prevail during developmental well with respect to the two ratings assessed decision making. For example, let's consider here'. A final caveat concerns the partial the case of the endangered species. The nature of our TEV analysis. We have not confidence which can be placed on the esti- overtly included potential forest conservation mate here is moderate, since the value was option value or any non-use values. based on international (not Malaysian) studies for other endangered species; but on the other Significance of Results at the hand the irreversible consequences of any National and Global Level decreased probability of survival of the species if the forest is not set aside would The 'incremental change method' as applied to necessitate a higher level of precaution to the Study Site in the previous section of this prevail on the issue (Table 13). This type of chapter provides a powerful indicator for reasoning also holds true at the local level. identifying the practical limits to changes or Take the case of the domestic water service shifts in any course of action; and also identi- which has moderate level of confidence fies the trade-offs which have to be made by (although the quantity of water abstracted the major actors involved. One of the interest- from the swamp forests is well defined, the ing facets of the approach used here is that it treatment costs incurred are less sturdy). demonstrates that 'sustainable forest manage- Nevertheless, the fact that at the present time ment' is not a 'fixed' state but a potential the 45,000 residents of the adjacent agricul- continuum reflecting weak sustainability tural scheme have no alternative means of through to strong sustainability regimes, water available to them should again mean where the latter approximates to the natural that the precautionary principle must apply. state. The exact trade-off position adopted or Although the low, medium and high scoring accepted by a country would depend on its have been used here, there may be cases own developmental constraints, and the 32 Environment Department Papers Total Economic Valuation Under Alternative Forest Management Options willingness of the world community to effect and global levels. Such a summary if refined the necessary transfers. further could be used to make comparisons between these management options at differ- This detailed case study was based on the best ent sites, from whatever scenario represents available empirical data and was underpinned the baseline position. by consistent, practicable and conservative assumptions whenever a reasonable degree of The empirical quantification and verification uncertainty was present. In other words, the of the sustainability arguments for this case case study is, in a microcosm, a powerful test study in Malaysia provides a convincing of the sustainability arguments that are being platform from which to argue for the much advocated through national and international needed, and long overdue, changes to be agendas. effected in current forest management and policy in Peninsular Malaysia. Scaling from What is the significance of the results dis- the Study Site up to the Malaysian level is cussed in the previous section for manage- likely to pose problems, not least because ment and policy? Any action taken must be some of these environmental values are site- mobilized at two levels: national and global. specific. Nevertheless, 4.75 million ha of the forests have been set aside in Peninsular The National Strategy: Implications for Malaysia as production forests and there is a Malaysian Forest Policy and Manage- need for the true economic value of the forests ment to be understood, which, as shown in Table 11 and 12, is much higher than that of timber What do these incremental differences mean alone. Any course of action or management in the context of, first, the Study Site and the practice should reflect this total value. surrounding community, and, second, at the national level? It is true to say that an economic analysis that accounts for non-timber as well as timber The increase in social benefits with the shift values is the conceptually superior framework towards sustainable forest management (SFM) for evaluating forest management; and by suggests that the local community could corollary a policy framework that addresses benefit substantially. The divergence between both these facets of forest management will be these private and social benefits suggest that optimal. Malaysia must now strive for one these externalities should be quantified and further step: to enforce or mobilize the exem- incentive mechanisms devised to internalize plary policy and legislation that exists, but is them into the decision making process. These not fully enforced. Peninsular Malaysia, in social benefits, especially the hydrological particular, has often been cited to have one of benefits, are not only important in sustaining the best management practices for timber the forests but also in sustaining the agricul- (Poore et. al., 1989). It is now well poised to tural community around it, the value of which make the leap into multi-use management, is likely to be much larger than the surrogate and to serve as a model to be replicated 'effect on production' approach used here. elsewhere in the developing world. Although the comparisons thus far have been In this context, the multi-functional role of made from the baseline option (A) to B1, B2 forests has been officially recognized and is and B3; the comparisons could be made legislated through the auspices of the National between any two potential management Forestry Act (1984), which has been endorsed options. These shifts between the B options and accepted by all of the Peninsular Malay- can be related to the weak and strong sian states. A comprehensive identification of sustainability criteria, where the latter re- functions as required under Section 10(1) of quires a more binding condition in relation to the Act could (and should) lead to an equally the maintenance of the natural state. Table 12 comprehensive identification of the forest's provides a summary matrix of the incremental TEV. Malaysian forest policy and manage- changes between options at the private, social ment should capitalise on this legal platform Environmental Economics Series 33 An Environmental and Economic Assessment of Forest Management Options as provided by the National Forestry Act, and Both the international conventions of Global efforts should be directed to overcome the Warming and Biodiversity have as their current paucity of information on the eco- trading basis the incremental cost principle nomic valuation of environment-related Uordan, 1993; King, 1993). This principle services. This Act is potentially the most forms the basis of operation of the Global important vehicle for the practical enforce- Environment Facility (GEF): its application, ment of multiple use and management of however, has proven to be difficult (Jordan, forests in Malaysia, and Kumari (1994) 1993). Currently, much effort is being put into provides a detailed critique into this perspec- coming up with acceptable ways of determin- tive. It recommended here that the National ing these incremental costs, in order to Forestry Act (1984) be effectively enforced so operationalise this incremental principle for as to promote multi-use management in line the financing of projects. In this context, the with sustainability criteria. case study illustrated here represents a preliminary effort, not so much in the The Global Strategy: Implications for biodiversity context alone, but in the wider Transfer Mechanisms context of forest goods and services. The 'incremental cost method' derived here for a The global public good nature of conservation range of management options provides an benefits for Malaysia suggests that some form important input to operational decision of resource transfer mechanisms at the inter- making for the GEF and general transfer national level is called for. The forests provide mechanism. The results derived here provide the benefits of carbon sequestration and an insight into the magnitude of transfer biodiversity conservation, and the empirical mechanisms for the negotiation of increasingly evidence from this study provides convincing sustainable forest management, which have economic rationale for favouring the more positive effects, especially in the context of sustainable forest management approaches. global warming. This method has the poten- Carbon savings related to improved forest tial for being extended to other areas and management represent a low cost way to represents a replicable method. achieving carbon sequestration goals, but unless these non-market values are made It is beyond the scope of the work here to go 'cashable', local/national asset owners and into the details of the appropriation methods users are unlikely to change their behaviour. or tools, but some of the key mechanisms This positive economic case, already constitut- required to 'capture' these global values ing a large percentage of the TEV, would be include international offsets, both public and magnified if the full biodiversity impacts private; property rights attenuation, debt for could be measured and valued. nature swaps and global transfers through the auspices of the Global Environmental Facility (GEF). Although there is much scientific and economic uncertainty surrounding the issue of the global warming phenomena, the very rigorous carbon stock estimation conducted in this study coupled with the conservative damage avoided cost estimates used, is the rationale for the high confidence level scoring. 34 Environment Department Papers References Chan, H.T. (1989) A Forestry Action Plan for the North Selangor Peat Swamp Forest. AWB/WWF-Malay- sia, Kuala Lumpur. Chin, S.C. (1989) Managing Malaysia's Forests for Sustained Production. Wallacaena, Vol. 55 & 56: 1-9. Coulter, J.K. (1950) Peat Formations in Malaya. Malayan Agricultural Journal, Vol. 33: 63-81. Davies, J. and A.R. Abdullah(1989) Freshwater Fish Survey of the North Selangor Peat Swamp. Asian Wetland Bureau Publication No. 46. AWB/WWF-Malaysia, Kuala Lumpur. de Beer, J.H. and M.J. McDermott (1989) The Economic Value of Non-timber Forest Products in Southeast Asia. Netherlands Committee for IUCN, Amsterdam. DOKS (1992) Development Briefing for Kuala Selangor District Office. District office Kuala Selangor, Kuala Selangor. EPU (1993) Malaysian National Conservation Strategy: Towards Sustainable Development. Volume 4: Natural Resource Accounting. Economic Planing Unit, Prime Minister's Department, Kuala Lumpur. FFD (1987) National Forest Inventory II, Peninsular Malaysia 1981-1982. Forest Management Unit, Federal Forest Department, Kuala Lumpur. FFD (1988a) Laporan Inventory Sumber Rotan and Buluh Negeri Selangor Darul Ehsan (Report for the Inventory of Rattan and Bamboo in Selangor Darul Ehsan State). Forest Management Unit, Federal Forest Department, Kuala Lumpur. FFD (1988b) Laporan Inventory Sumber Rotan and Buluh Negeri Johor Darul Ta'zim (Report for the In- ventory of Rattan and Bamboo in Johor Darul Ta'zim State). Forest Management Unit, Federal Forest Department, Kuala Lumpur. IBRD (1978) Malaysia: Appraisal of the Northwest Selangor Integrated Agricultural Development Project. Report No. 1757b-MA. World Bank, Washington, D.C. JICA (1987) Feasibility Study on Tanjung Karang Irrigation Development and Management Project. Japan International Cooperation Agency-Government of Malaysia, Kuala Lumpur. Jordan, A. (1993) The International Organisational Machinery for Sustainable Development: Rio and the Road Beyond. CSERGE Working Paper GEC 93-11. CSERGE, University College London and Univer- sity of East Anglia. Environmental Economics Series 35 An Environmental and Economic Assessment of Forest Management Options King, K. (1993) Incremental Cost of Action to Prevent the Loss of Biodiversity. In draft, Global Environ- ment Facility. World Bank, Washington D.C. Kumari, K. (1994) Sustainable Forest Management in Peninsular Malaysia: Towards a Total Economic Valuation Approach. Ph.D. thesis. University of East Anglia, Norwich, United Kingdom. Lanly, J.P. (1982) Tropical Forest Resources. FAO Forestry Paper 30, Rome. Liew, T.C. and C.C. Ong (1986) Logging Damage in the Mixed Dipterocarp Forests of Sarawak. Paper presented at the 9th Malaysian Forest Conference. Kuching 13-20th October, 1986. Low, K.S. and G. Balamurugan (1989) A Preliminary Hydrological Investigation of the North Selangor Peat Swamp Forest. AWB/WWF-Malaysia, Kuala Lumpur. Myers, N. (1983) A Wealth of Wild Species. Westview Press, Boulder, Colorado. Ng, K.L., J.B. Tay, K.P. Lim, and C.M. Yang (1992) The Conservation of the Fish and Other Aquatic Fauna of the North Selangor Peat Swamp Forest and Adjacent Areas. AWB Publication No.81. AWB, Kuala Lumpur. Noor Azlin, Y. (1990) Utilization of Wetland Plant Species by Local Conumunities - Results of an Interview Survey of Conrmunities Near Wetland Areas in Peninsular Malaysia. AWB Report No. 67b. AWB/ WWF-Malaysia, Kuala Lumpur. Norton, B.G. and R.E. Ulanowicz (1992) Scale and Biodiversity Policy: A Hierarchical Approach. Ambio Vol. 21: 244-249. Nykvist, N., H. Grip, A. Malmer and K.W. Fui (1994) Nutrient Loss in Forest Plantations in Sabab, Malay- sia. Ambio Vol. 23(3):210-215. O'Riordan, T. (1992) The Precautionary Principle in Environmental Management. CSERGE Working Pa- per 92-03. Centre for Social and Economic Research on the Global Environrment, University of East Anglia and University College London, United Kingdom. Pearce, D. (1990) An Ecological Approach to Saving Tropical Forest. LEEC Paper 90-06, London. Pearce, D. (1993) Economic Values and the Natural World. Earthscan, London. Pons, L.J., C. Prentice and S. Aikanathan (1988) A Preliminary Assessment of Two Peat Swamps in Selangor State, Peninsular Malaysia, in Relation to Their Optimal Use. Asian Wetland Bureau, Publication No. 30. Asian Wetland Bureau, Kuala Lumpur. Poore, M.E.D., P. Burgess, J. Palmer, S. Reitbergen, and T. Synnott (1990) No Timber Without Trees: Sustainability in the Tropical Forest. Earthscan, London. Prentice, C. (1990) Environmental Action Plan for the Northern Selangor Peat Swamp. Asian Wetland Bureau/World Wide Fund for Malaysia, Kuala Lumpur. Sabri, W. (1987) Forest Recreation Use Patterns, User Behaviour and Recreational Value in Malaysia. Ph.D. Thesis, University of Wales, Bangor. 36 Environment Department Papers Said, I.M. and Mohd. Shahwahid (1992) The Socio-Economic Value of Wetland Plant Species and its Rel- evance to Wetland Conservation: A Case Study of Peninsular Malaysia. AWB/WWF-Malaysia, Kuala Lumpur. Shahwahid, Mohd. (1990) A Preliminary Economic Valuation of Wetland Plant Species in Peninsular Ma- laysia. AWB/WWF-Malaysia, Kuala Lumpur. Shahwahid, Mohd. (1992) Wetland Species and Perception Towards Development and Conservation in South-east Pahang Swamp Forest. AWB/WWF-Malaysia, Kuala Lumpur. Shahwahid, Mohd. and Mustapha, Nik (1991) Economic Valuation of Wetland Plant, Animal and Fish Species of Tasek Bera and Residents' Perceptions on Development and Conservation. Draft Report submitted to Asian Wetland Bureau, Kuala Lumpur. Strickland, D.L. (1967) Ecology of the Rhinoceroses in Malaysia. Malayan Nature lournal Vol. 20: 1-17. Turner, R.K. (1993) Sustainability, Principles and Practice. In Turner, R.K. (ed) Sustainable Environmental Economics and Management. Principles and Practice. Chapter 1. Belhaven, London. van Strien, N.J. (1974) The Sumatran or Two-homed Asiatic Rhinoceros Dicerrorhinus Sumatrensis (Fischer). Mededelingen Lanbouwhogeschool, Wageningen, Nederland. Veitch, M.D. (1986) National Parameters for Project Appraisal in Malaysia. Vol. 1 Report for the Govern- ment of Malaysia, Kuala Lumpur. World Bank (1991) Malaysia: Forestry Sub-sector Review. Report No. 9775-MA. World Bank, Washington D.C.. Zuber, Mohd. (1983) A Review of the Status and Approximate Range of Sumatran Rhinoceros Population in Sungai Dusun Game Reserve and Surrounding Areas. Tournal of Wildlife and Parks, Vol. 2:1-29. Environmental Economics Series 37 Annex 1: Logging Methods at the Study Site: Implications on the Peat Swamp Habitat General this system were selected for their immediate strength and not their longevity. This high Logging in peat swamp forests poses special labor, low capital system although very problems because of the water logged nature environmentally sound, entails high risks to of the soil which cannot withstand the high the loggers. This led then, over the years, to pressure exerted by logging equipment used repeated attempts to find a method of log in dryland forests. The logging operation is extraction which would obviate most, if not divided into two phases, namely, extraction all, of the difficulties of the kuda-kuda and transportation. The extraction involves method. the felling of trees and their transfer to a common hauling point, and the method to Winch achieve this include the kuda-kuda (timber sledges), the winch and the traxcavator. The Winches represent a semi-mechanical method transportation of logs requires the transfer of of felling trees. For this extraction method a logs from the hauling point to the nearest road long metal chain is strapped around the tree system from which they could then be taken to be felled, and the tree is brought to the to the sawmills. Transportation could be via ground by way of an instant snap. The logs kuda-kuda, tramlines or canals dug out in the are assembled at loading platforms and then peat forests. The methods used for each phase, loaded onto log wagons by winch machine and in particular their combination, has and taken out of the area by tramlines (Yap, important implications for the state of the 1966). Tramlines are wooden tracks used to forests following the logging operation. transport logs out of the area; and these tracks are normally lifted after use, and laid down in The evolution of these logging methods will the new logging areas. be described, with particular emphasis on their effects on the peat swamp habitat both Damage to the forest is thus relatively during and after logging. localized and drainage patterns are not significantly affected. This method and its Kuda-kuda System combination with tramlines was indeed used to log a large part of the peat forests in The first system of logging to be used in the southern Selangor. Although the combination swamp forests was the 'kuda-kuda'. This of winch and tramline is not used in the SS, it traditional method of log extraction involves was used in the southern peat swamps where the extensive use of manpower to load logs on the conditions are fairly similar, and was timber sledges (the kuda-kuda) and to drag shown to inpose much less damage to the these sledges along special pathways hydrology of the swamps than the (panglongs) constructed with poles. In this construction of canals. Thus, subsequently system the logs were then dragged to the there are less regeneration problems and tracks by teams of men. The materials used in silvicultural costs. Environmental Economics Series 39 An Environmental and Economic Assessment of Forest Management Options Table 1 Summary of the Intensity Effects of the Different Logging MethodsUsed in the Peat Swamp Forest Logging Logging Silvi- Timber Hydrology Others Overall method: costs: cultural stand & habitat adverse status: costs: damage: modification: effects: Kuda-kuda L/M L L L L S Winch + tramline M/H L/M M L L S + canal L/M M/H M M/H M/H U Excavator + tramline M/H M/H M/H M/H M/H S/U + canal L/M H H H H U Notes: 1. The effect of the logging methods are graded as low (L), medium (M) and high (H). 2. The overall status gives some qualitative indication as to whether the overall habitat will function is a unsustainable (U), sustainable (S). Excavator method of logging is used, then logging costs to the private logger will increase, but the In recent years traxcavators, the peat swamp external costs will be less (in terms of the equivalent of a bulldozer, have been reduced loss of benefits provided by other developed by a local contractor specially to goods and services which are co-products of suit the peat environment. In essence they these swamps). represent the bulldozers of the hill forests and in effect are almost as damaging to the Effects of the Logging Methods environment, if not more so. The excavators are heavy machines which drag logs and It has been shown that in the context of the topple vegetation along its path, without peat swamps, sustainability of the overall sinking into the peat. It does, however, system is highly dependent on the logging compress that peat along its path, thereby method, which has the effect of not only retarding subsequent regeneration along its altering the habitat structure, but also the rate pathways. The ecological effects of the and type of regenerating species. This in turn traxcavator on peat swamp forests (and its has implications on the silvicultural subsequent sustainability) are not very clear, treatement required in the forest system. This but should be studied in order to generate linkage between logging methods and macro- guidelines for its use. habitat is unique in the case of peat swamps, because of the sensitive hydrological balance The logs brought to the hauling point by the which has to maintained. The different excavator will subsequently be transported logging methods will induce varying out of the forests either by tramline or canal. intensities of disturbance on the habitat (Table Currently both these transport modes are 1). The combination of the amount of timber used in the Study Site, but with tramlines logged (actual annual cut, AAC) and the slowly being phased out in preference of the logging method used will be critical for the canals. The latter is preferred because they are determination of the overall state of the faster and cheaper to the private contractor, habitat. although the environmental damage is much greater. If an environmentally more benign 40 Environment Department Papers Annex 1 For the analysis here, three combinations of the bias had to be taken into account. The logging methods were assessed: excavator + values used in the analysis will draw largely canal (currently the most popular) (Scenario A from two sources: EPU's (1993) natural and Scenario B1), excavator + tramline (Sce- resource accounting for timber in Malaysia nario B2); and winch + tramline (Scenario B3). and the World Bank Forestry Sector Review The value of timber from the peat swamps is for Malaysia (World Bank, 1991). very much dependent on which harvest method is used. To assign a value to each of The excavator + canal combination represents the logging methods, the stumpage value was the cheapest logging method, and will be used. assigned the higher estimate of stumpage value of M$ 184/cu.m (World Bank, 1991). The stumpage value or resource rent is the The excavator and tramline combination is a term forest economists give to the net price of slightly more expensive logging method, and timber, which represents the difference was assigned the EPU (1993) estimation of between the price of logs paid by a mill or stumpage value of M$ 135/cu.m. Scenario B3 exporter and the cost of harvesting logs and which would damage the peat swamp habitat transporting them to the point of sale (i.e. log the least has the highest logging costs. Accord- price - logging cost). At any one point in time, ing to the World Bank report, helicopter the log price is fixed by both national and logging which is supposed to be a more international demand and supply factors. The environmentally friendly method was esti- logging costs, however, are determined by the mated to give a stumpage value of only c. logging method used; the higher the costs the M$65/cu.m due to the higher costs of the lower the stumpage value. Thus, at any one sophisticated equipment. It is assumed here time, different stumpage values can be used that Scenario B3 would have a stumpage as proxies to reflect the variation in logging value which is the mean of Scenario B2 and methods. Because stumpage values in P.M. this helicopter logging method, giving a value are strongly influenced by export restrictions, of M$ 100/cu.m. Environmental Economics Series 41 I Annex 2 Table 1: Discounted Cash Flow of Timber Benefits under Alternative Management Scenarios Table 2: Discounted Cash Flow for the Agro-Hydrological Value (M$/HA) Table 3: Benefits from Domestic Water Abstracted from SS (NPV M$) Table 4: Potential Visitation and Recreational Value (M$) Environmental Economics Series 43 An Environmental and Economic Assessment of Forest Management Options j ~ ~ ~ ~ ~ C0N O) C C C O VC ao~oo~ 0 … OC~N~CCC)Cl0CVO N CVONCCVO,000 0000Z C0O)~Vv~C 0:- - NO ---- - --- -CCO -0 0 C-NO-C- 00 05 coo-CooNo~~~~~- - - -O - . .CCC.. .0 N N VNCO0 0 T 0 00 0 … N N CC) CO.O N CC * 530 ~~ ~ ~ IReC) QJ w0 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~ RK------' U, ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~R ... 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F.r ,h y- 8.8t. -, n5f07d f711 th. -.p7 o 32 80 80 8 a. th. Im ot 7t Ir-_.g.th. q-h Y70Wqk. 83 80 80 80 .A- . ---d .0b. 12% 0488. Wtd 0g-ftyd 4 g 54 80 80 80 ¶0% t y rop.p 2% - n . 80 80 80 so 5 80o 80 8o 57 80 80 8 80 80 80 80 89 80 80 80 80 80 80 80 Environmental Economics Series 47 An Environmental and Economic Assessment of Forest Management Options Table 3 Benefits from Domestic Water Abstracted from SS (NPV M$) YEAR Annuai vlurne Incremental Cost YEAR Annuai volume Incremeental Coat Treated (S Treated (MS) (gallons) (galions) 1 21900DDD00 49773 B1 2547000O00 847045 2 2825000000 59727 62 25908000000 857000 3 3066000000 69682 83 29346DOD0 666955 4 3504000000 79638 64 2978400000 876909 5 3042DOOOD 8i9591 65 30222000000 88e884 8 438000SDOO 99545 68 306800000000 96818 7 4818000000 109500 67 3109800000 7D0773 8 5256000000 119455 SS 31535000000 716727 9 58940000C0 129409 89 31974000000 728882 10 S1320D0000 139364 70 32412000000 738636 11 8570000DD0 149318 71 32550000000 746591 12 7008000DDO 159273 72 33288000000 756545 13 7446000000 log22 73 337260000 78665O 14 7884000000 179182 74 34164000000 776455 15 8322DODOD 189138 75 34602DOD00D 788409 16 8760D00000 199D91 78 35040000000 798384 17 9198000000 209045 77 35478000OOO S0318 18 9858000000 219000 78 359180D00 816273 19 10074000000 223955 79 363540000D0 S526Z7 20 10512000000 238909 80 36792000000 836152 21 10950000000 248864 81 37230000000 846136 22 11388000000 288818 82 3786800000 858091 23 118200oo0oo 2S8773 83 3810B 00DOO 886045 24 12284000000 278727 U4 38544000000 876000 25 127020OOD0 288682 8S 38982000000 885955 23 131400D000 29863 86 39420000000 895909 27 13578000000 30S591 87 3985800000 905S84 25 1401800X000 315545 a8 40298000000 915518 29 14454000000 328500 89 40734000D00 925773 30 14892DO0000 338455 90 41172000000 935727 31 15330000000 348409 91 41B10X0000 945882 32 157650D0000 35S364 92 42048000000 955535 33 18208000000 388318 93 42486000000 985591 34 16644000000 378273 94 42924000000 975545 35 17082000000 388237 95 4338200000 985500 36 17520000000 398182 98 43800000000 995455 37 17958000000 408138 97 44238000000 1005409 38 18396000000 418091 98 44878000000 1015384 39 188340000C0 428045 99 45114000000 1025318 40 19272D00XC 435000 100 45552DO0000 1035273 41 19710000000 447955 42 20148000000 457909 Notes: 43 20586000000 46784 1. Domnstic water abstracted is 6 mtillion gallons/day, 44 21024000C0 477818 and the incr rmental treasrnnt cost M80.05cu.mn (lcurmn 220gal). 45 21462000000 487773 2. Donestic tster absraction is projected to increase 46 219000xo000 497727 at 2% per year to meet the growing needs of 47 22338000000 507682 the residents. 48 2277600XC00 517836 49 232140000D0 527591 SUMMARY OF NPV FOR DOMESTIC WATER BENEFITS AT THE SS (MS) 50 23652D00XC 537545 51 24090000000 547500 Total SS NPVfha 52 2452500O00 55745S 53 24966000000 567409 NPV 2% 16728070 230 54 25404000000 577364 NPV 4% 8o25333 94 5S VS84200000 587318 NPV 6% 3535205 49 58 22so0000000 597273 NPV S% 2170910 30 57 28718O00000 6072Z7 NPV 10% 1492351 20 58 27158000000 817182 NPV 13% 971851 13 59 27594000000 527136 80 2 28D20D0000 637091 81 254700X000 647045 82 24908000000 657O00 48 Environment Department Papers Annex 2 Table 4 Potential Visitation and Recreational Value (M$) YEAR NO. OF RECREATIONAL YEAR NO. OF RECREATnONAL VISITORS VALUE M$9/TRIP VISITORS VALUE @M$9/TRIP 1 1281 11529 57 108171 973539 2 4335 39015 58 108171 973539 3 7389 68501 59 108171 973539 4 10443 93987 s0 108171 973539 5 13497 121473 e1 108171 973539 6 16551 148959 82 108171 973539 7 19605 176445 83 108171 973539 8 22859 203931 64 108171 973539 9 25713 231417 85 108171 973539 10 28787 258903 66 108171 973539 11 31821 286389 67 108171 973539 12 34875 313875 68 108171 973539 13 37929 341361 89 108171 973539 14 40983 368847 70 108171 973539 15 44037 398333 71 108171 973539 16 47091 423819 72 108171 973539 17 50145 451305 73 108171 973539 18 53199 478791 74 108171 973539 19 56253 506277 75 108171 973539 20 59307 533763 76 108171 973539 21 62361 561249 77 108171 973539 22 65415 588735 78 108171 973539 23 68469 616221 79 108171 973539 24 71523 643707 80 108171 973539 25 74577 671193 81 108171 973539 26 77631 698679 82 108171 973539 27 80685 726165 83 108171 973539 28 83739 753651 84 108171 973539 29 86793 781137 85 108171 973539 30 89847 808623 86 108171 973539 31 92901 836109 87 108171 973539 32 95955 863595 88 108171 973539 33 99009 891081 89 108171 973539 34 102063 918567 90 108171 973539 35 105117 946053 91 108171 973539 36 108171 973539 92 108171 973539 37 108171 973539 93 108171 973539 38 108171 973539 94 108171 973539 39 108171 973539 95 108171 973539 40 108171 973539 96 108171 973539 41 108171. 973539 97 108171 973539 42 108171 973539 98 108171 973539 43 108171 973539 99 108171 973539 44 108171 973539 100 108171 973539 45 108171 973539 48 108171 973539 Notes: 1. Recreational demand projected from 47 108171 973539 Kuaia Selangor Nature Park, upto 48 108171 973539 year 37, then assumed to level off. 49 108171 973539 2. Consumer surplus @MS9/visitor. 50 108171 973539 51 108171 973539 SUMMARY OF NPV OF RECREATIONAL VALUE (MS) 52 108171 973539 NPV 8% 4142799 53 108171 973539 NPV 2% 28213029 54 108171 973539 55 108171 973539 Per Hectare 56 108171 973539 NPV 8% 57 NPV 2% 387 Environmental Economics Series 49 Environment Deportment The World Bank 181 8 H Street, N.W. - Washington, D.C. 204338 202 473 3641 202477 0565 FAX. Printed on 100% post-consumer recycled paper