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Opportunity Cost


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Estimating The Break-Even Price for Forest Protection in Central Kalimantan (2012)
23 January 2012
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Abstract: This paper estimates the break-even price in Central Kalimantan province, Indonesia and evaluates the effectiveness of a REDD? mechanism in this area. On the basis of data collected through a field survey, we found that the break-even price is $15:45 per ton of carbon or $4:21 per ton of carbon dioxide. The figure can be even lower when we take the peat thickness of the area into account. Our analysis shows that the current level of carbon price can provide adequate compensation for Indonesian farmers. Abatement Cost Curve Relating Past Greenhouse Gas Emissions to The Economic Gains They Allowed (2011)
16 June 2011
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Abatement curves summarize the costs that are involved in reduction of pollution, in this case net greenhouse gas emissions, based on the volume of various types of emissions and the expected cost per unit emission reduction. Such representations support policy development, identifying an initial focus on the low-cost high-volume emission categories. The report describes and compares four approaches for such analysis in tropical forest margins in the context of Reducing Emissions from Deforestation and (forest) degradation. The four methods, of increasing complexity and costs of data collection are appropriate in different steps along the pathway to negotiated agreements that can meet ‘Free and Prior Informed Consent’ standards, while reducing overall transaction costs by early warnings for cases that are unlikely to lead to mutually beneficial agreements. How REDD Will Impoverish the Developing World and Reduce Biodiversity - An Indonesian Case Study - A World Growth Report (2011)
15 April 2011
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The conclusion in this report is that the pilot program is likely to retard economic growth. The Indonesian Government’s own analysis shows that initially REDD will cause the Central Kalimantan economy to slump. Aid money will be required to prop up the economy while new industries are established. That will not work. Foreign aid or government money never effectively substituted for the economic benefits of private enterprise. Estimating Opportunity Costs of REDD+ - A Training Manual (2011)
15 March 2011
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    The manual shares hands-on experiences from field programs and presents the essential practical and theoretical steps, methods and tools to estimate the opportunity costs of REDD+ at the national level. The manual addresses the calculation of costs and benefits of the various land use alternatives in relation to their carbon stocks. As required data are generally not readily available, the manual also includes information on data collection, analysis and evaluation techniques. Although sections of the manual are relevant for subnational or project analysis, it is not intended to calculate compensation for farmers orlandowners at a given site. The Economic Benefit of Palm Oil to Indonesia
15 February 2011
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This report has been prepared as an independent assessment of the economic benefits of the palm oil industry to inform policy makers and officials. It examines recent industry performance and considers the prospects for future growth. Key components include: • Current trends and future projections for global oil demand; • The contribution of agriculture and palm oil to the Indonesian economy; • Palm oil’s contribution to rural development; and • Key challenges and opportunities for the Indonesian palm oil industry. Estimating The Opportunity Cost of REDD+ - A Training Manual (2010)
15 December 2010
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The manual offers hands-on experiences from field programs and embraces the essential practical and theoretical steps, methods and tools to estimate the opportunity costs of REDD+. It addresses the calculation of costs and benefits of the various land use alternatives in relation to their carbon stocks. As such data are generally not readily available, this approach also includes information on data collection, analysis and evaluation techniques. Risks and Opportunities of REDD+ Implementation for Environmental Integrity and Socio-Economic Compatibility (2010)
15 August 2010
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Abstract: REDD+ (Reducing emissions from deforestation and forest degradation and the enhancement of carbon stocks) emerges as promising incentive mechanism for tropical forest protection. While REDD+ is expected to yield poverty reduction and biodiversity co-benefits besides emission reductions, its international incentive design options pose several risks to socio-economic compatibility and environmental integrity. We use an expert survey – ranging from international policy makers to local REDD+ project stakeholders - to rate the perceived significance and likelihood of these risks for national REDD+ implementation. Additionally, the survey asks for the perceived effectiveness of different policy options to minimize these risks. We investigate the risk perception according to regional, topical or stakeholder groupings using cluster and regression analysis. The results shed light on the most importantly perceived risks to national REDD+ implementation among stakeholder groups and display their views on appropriate policy measures to mitigate these risks. Understanding their perceptions will not only help improving national REDD+ implementation, but also provide insights for the international policy process. FCPF - Estimating The Cost of REDD at The Country Level (2009)
15 April 2009
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This paper aims to do two things. First, it tries to clarify some very important conceptual issues. What exactly are we asking when we ask what the ‘cost’ of REDD is? What kinds of costs should be included? Second, it tries to highlight some of the issues involved in properly estimating the costs of REDD. Such estimates would help them to assess issues such as (i) how many emission reductions they might potentially be able to ‘sell’ to a REDD mechanism at given prices; (ii) how much the country would benefit from such sales; (iii) how they might be able to actually reduce deforestation so as to generate these emissions reductions; (iv) how the costs and benefits of REDD would be distributed among different groups within the country; (v) what the budgetary implications would be for government agencies. REDD in The Red - Palm Oil Could Undermine Carbon Payment Schemes (2008)
17 December 2008
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Oil palm agriculture has become a major driver of tropical deforestation over the last few decades. Here, the authors model and compare the profitability of converting forest to oil palm versus conserving it for an REDD project. The authors show that converting a hectare of forest for palm oil production will be more profitable (yielding net present values of $3,835–$9,630) to land owners than preserving it for carbon credits ($614–$994), which are currently restricted to voluntary carbon markets. Giving REDD credits price parity with carbon credits traded in compliance markets would boost the profitability of avoided deforestation (up to $6,605). Unless post-2012 global climate policies legitimize the trading of carbon credits from avoided deforestation, REDD will not be able to compete with oil palm agriculture or other similarly profitable human activities as an economically attractive land-use option, in which case REDD will not be able to fulfill its primary function of avoiding deforestation. Economic Benefits of Standing Forests in highland areas of Borneo: Quantification and Policy Impacts (2008)
02 October 2008
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There exist thousands of valuation studies for environmental goods and services, but the degree to which these have influenced policy is uncertain, especially in developing countries. Here, the authors demonstrate that a rapid assessment of the benefits of standing forests in the highlands of Borneo is feasible and can provide useful and timely information for conservation policy decisions. Estimating Opportunity Costs of Avoided Deforestation (REDD): Application of a Flexible Stepwise Approach to The Indonesian Pulp Sector (2008)
15 June 2008
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Developing countries are expected to contribute to climate change mitigation efforts by reducing deforestation, with fi nancial compensations for associated economic losses. These losses are due to foregone revenues and limited economic development, all of these labeled “opportunity costs”. Their accurate estimation is strategic for at least two reasons: to determine fair compensations, and to prioritize low cost strategies to reduce emissions. However, numerous interpretations of the opportunity cost concept coexist in the literature and in infl uential reports (e.g. Stern review), with differing estimated values for similar cases. This paper presents a framework to better identify relevant values to the calculations: profi ts / total national economic value, conservation site / downstream industries. When applied to the pulp sector in Indonesia, the framework yields contrasted opportunity costs. This contrast is due to several factors, including the heterogeneity of the pulp industry, or the availability of non-forested lands to displace activities. These values range from zero to one thousand dollars per hectare per year. To use such a framework would help gain credibility and achieve fairness in negotiations between host countries and other stakeholders, in particular those who fund activities to reduce deforestation. The Cost of Avoiding Deforestation - Update of the Report Prepared for The Stern Review of The Economics of Climate Change (2008)
31 May 2008
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This report updates the estimates of opportunity costs produced for the Stern Review in October 2006 to take account of recent upward trends in commodity prices. The objective of the original report was to support the work of the Stern Review on avoided deforestation by producing a global estimate of the cost of cutting the rate of deforestation in half within a decade. This work would include confirming or otherwise the costs of avoided deforestation per hectare by country available so far and providing further country numbers where possible. Carbon Finance for Reduced Emissions from Deforestation & Degradation at the Forest Frontier. Financial Analysis of Alternative Land Uses in the Amazon, Congo and Papua, Indonesia. (2007)
03 December 2007
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This paper assesses whether conservation through carbon finance can compete with land uses currently driving large-scale deforestation at the forest frontier. Focusing on the rainforest regions of the Brazilian Amazon, Papua, Indonesia, and the Democratic Republic of Congo, the authors have sought to develop a generalized financial model of a range of land uses and carbon market scenarios. The focus of this study is on whether carbon investors may compete effectively with the current large-scale actors in deforestation, such as commercial agribusiness ventures. Ultimately, if the price of a forest for carbon conservation is greater than the soil expectation value for other uses, then forest conservation management will be attractive to investors over other land uses. Economic Costs and Benefits of Allocating Forest Land for Industrial Tree Plantation Development in Indonesia (2005)
15 July 2005
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This paper examines the total economic costs and benefits of five large pulp plantation projects in Sumatra, Indonesia. Four of the five plantation projects generate economic costs above their economic benefits. The estimated economic costs represent over 30 times the actual financial payments the Government receives from each company. The allocation of over 1.4 million hectares of forestland for conversion into tree plantations generates net loses of over US$3 billion for the country. This analysis clearly demonstrates that the Government of Indonesia should not allocate any more forestland for conversion into HTI pulp plantations.

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Documents by Subject


Payment Distribution
Deforestation and Degradation
Forest Management in Indonesia
Land Tenure
Carbon Accounting
Indonesia Actions
Governance Assesstment
Financing Options
Opportunity Cost
Regulation on REDD in Indonesia
Carbon Market
REDD Demonstration Sites
Indigenous People
UNFCCC Policy on Forest Emission
Remote Survey

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Payment Distribution
Deforestation and Degradation
Forest Management in Indonesia
Land Tenure
Carbon Accounting
Indonesia Actions
Governance Assesstment
Financing Options
Opportunity Cost
Regulation on REDD in Indonesia
Carbon Market
REDD Demonstration Sites
Indigenous People
UNFCCC Policy on Forest Emission
Remote Survey