Market-based Instruments and Forest Management

INTRODUCTION

Tropical deforestation became global issues in the early 1980s to be argued in the North for taking global action against its effect (Smith-hall et al., 2012). According to Wunder, S. (2000), the broad version of deforestation highlight not only forest conversion (the elimination of trees and shifts to other land uses), but also different types of degradation that reduce forest quality (density and structure, ecological services, biomass stocks, species diversity, gene pools) and not surprisingly, biologist, ecologists, and conservationists particularly favor this type of definition. According to Wilson, A.M., et al., (2004), deforestations and forest degradations are caused due to market failure which is one of the many contributing factors. Along with the emergence of an international forests regime, current global negotiations are focusing on how to develop, finance and implement REDD+ activities for addressing the problem of global climate change caused due to deforestations.

Forest-related instruments are developed which ranges from the protection of biodiversity to climate change negotiation, to the expansion of global trade (Mc. Dermott L.C., 2007). Especially, to promote sustainable management of forests and to manage the ecosystem services in sustainable basis, the concept of market-based instruments (i.e. PES mechanism, payment of carbon credit through REDD+, Forest Certification Schemes etc.) have been introduced for valuing the forest environmental goods and services. PES and REDD+ are important in reducing the drivers of deforestation and forest degradation as they offer opportunities for immediate financial benefits at the local level. Thus Market Based Instruments are defined as Market Based Instruments are the instruments that use market forces to achieve environmental policy objectives and specifically involves right over public goods rather than private goods-rights to pollute, rights to develop, rights to conservation, and so forth (Wislon, A.M., et al., 2004). The purpose of this essay is to analyze the in-efficiency (inadequacy) of Market-based instruments for the sustainable management of the forests and ecosystem services.

MARKET-BASED INSTRUMENTS, THEIR APPLICATION AND DRAWBACKS

Payment for Environmental Services (PES) is a voluntary transaction in which a well defined environmental service is bought from a provider and only if the provider continuously secures the provision of the service (Wunder, S. 2007). Payment for Environmental Services (PES) is not the solution for all problems but it has a high potential for raising the viability of sustainable forest management and conservation and delivering pro-poor benefits (Richards, M. et al., 2007). The most rigorous set of enabling conditions for SFM include the legal framework, national data reporting, the availability of quality forest inventory data, management planning, effective stakeholder investment and regular monitoring and reporting (MacDicken, K.G. et al., 2015). Despite having high potentiality, PES program usually lacks clear and explicit frameworks for monitoring and evaluating their own access(Ferraro et al., 2006). As per the definition of PES, it being a voluntary process, can create doubt in its sustainability, so what if service provider feels himself at a point of time less paid or missing up the better alternative opportunity and hence termination in providing the service in a continuous basis.

If this will be the case, rather than ensuring sustainable forest management, deforestation is likely to happen in future. In order to favor specific socially or economically valuable species or group of species for improved production of goods and services, SFM process need a range of actions for safeguarding and maintaining the forest ecosystem and its function. This feature of SFM indicates its multifunctionality nature. Market-based instruments are thought to address this multifunctionality by assigning a value to different forest-related products, thus contributing to the achievement of diverse societal goals by addressing market failure. But this is only in theory, in reality, the nature of these market-based instruments harbors a number of limitations that may limit their potential for furthering SFM. (Wilson et al., 2004). According to Wunder, S. (2007), environmental services; carbon sequestration and storage, biodiversity protection, watershed protection, and protection of landscape beauty have been sold in the market till now. And for this different market-based instruments are applied to have some economic value for the seller to sell and buyer to purchase. PES mechanism for carbon sequestration and storage i.e. Carbon PES (also called REDD mechanism) is found to be most successful among the market-based instruments and this is because of the international commitment to climate change mitigation. As a market incentive for improved forest policies and governance, REDD+ has major potential for SFM and conservation.

But, since REDD+ is a donor-funded project which requires a variety of funding sources for carrying out its different phases, Springate-Baginski, O. et al., (2010) point out the difficulties in establishing market-based finance in short period for investment in enabling out-put based REDD deal. Springate-Baginski, O. et al., (2010) also points out challenges of securing co-benefits (biodiversity conservation, poverty reduction) in REDD+ because while doing so, there is fear of affecting indigenous and forest-dependent communities and high biodiversity or low carbon areas. Along with the combination of methodological and scientific concerns issues like equity and ethical concerns related to additionality, leakage, impermanence, weak governance etc. prohibit the forest carbon from entering into the regulatory markets (Richards, M. et al., 2007). OECD (2013) defines the terms and points out the issues related to additionality, leakage, permanence as follows; PES programs only pay for the ecosystem services that are added to the baseline i.e. additionality. When the provision of use of ecosystem services at one place increases pressure due to conversion in another place then leakage occurs and this leakage problem is happened to occur both at national and international level. Permanence refers to the ecosystem services to be available for a long time but this is threatened by activities like a forest fire, hurricanes, invasion of alien species. Regular monitoring, reporting and verification systems are required for these activities. These complex procedures are frequent issues to occur when attempting to assign a market value for ecosystem services. Hence, in reality, require high budget which seems unfeasible for the developing countries to incur costs and hence, hinders in avoiding deforestations and finally attaining sustainable forest management aim.

Richards, M. et al (2007) describes the problem with watershed PES mechanisms as; the beneficiaries (from downstream and poor) unwilling to pay for a 'free good' or their basic right to water, hydrological impacts for forest being site specific it is hard to prove additionality and hence doubtful in sustainability, legal arrangements etc. These unreliable measurements and monitoring of the hydrological impacts of land use change, weak governance, ineffective and equitable public enforcement regimes for watershed management made it difficult both for the service providers and service buyers. In order to assure that forest product come from sustainable managed forest (is not from an illegal source), they are required to be certified or PES mechanism ''eco-labelling is to be followed fulfilling an agreed upon set of environmental, social and/or economic standards (Richards, M. et al., 2007). But, this certification process is costly and requires fulfilling certain standards procedures and requirements along with policy and regulatory constraints and a large number of community forests are not interested to adopt forest certification process (Molner, A. et al., 2004). The 'green premium' is rarely paid by consumers resulting in weak incentives for certified SFM (Richards, M. et al., 2007). The above statements imply that certification process best fits in the circumstances of developed countries in comparison to developed countries (for example; Sweden and Poland have 6 million hectors of their forest area certified)(Karsenty, A., 2000), and there is a doubt for the forest certification schemes to be the best policy tool for promoting sustainable forest management (Haener, M.K. et al, 1998). Most of the forest product users in the tropical countries are pro-poor, unknown about the concept of certified and uncertified products and hence, sustainability cannot be gained until the issues of pro-poor are addressed through governance and policy while applying PES like instruments in these areas.

CONCLUSION

Sustainable management of forest resources and ecosystem services are of great importance to people as it is thought to combat global climate change. And people value to these natural resources only when they find economic value to these resources. Great effort has been done to avoid deforestation by introducing the market-based instruments so that the natural resources can be assigned some economic value for the marketing process. Yet, there is much to do. Market-based instruments should have clear concept and definitions and it should not create ambiguity. It should be so designed that it is accepted socially by a different class of people and economically feasible for different category of seller and buyer. It should have multifunctional characteristics addressing different mix policies, governance issues, property rights and based on the feasibility study. And it may work best only when funding mechanism and source is stable.

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