This piece is part of a series of assessment submissions from Warwick Economics’ Introduction to Environmental Economics module for first-year students.
Executive Summary
Time is running out for orangutans. In 2016 the International Union for Conservation of Nature classed the species as critically endangered (Ancrenaz et al., 2016), one slip away from extinction. In the war of survival, orangutans are forced to fight on many fronts: habitat loss, poaching and illegal trade being just a few conflicts they must survive (Wich, 2016, p.1). Yet perhaps the greatest battle they face comes through huge international demands for palm oil. Unsustainable palm oil production has been a growing cause of habitat destruction in Borneo and Sumatra (Nantha & Tisdell, 2009, p.487).
Efforts of some countries to source palm oil from sustainable origins have proved insufficient to combat soaring international demand. Current programmes including the introduction of Best Management Practices and the Roundtable for Sustainable Palm Oil are a huge step forward, yet for the orangutan change is time critical, and these approaches fail to show evidence of the drastic change required as orangutan populations continue to fall (Laurance, 2010, p.378).
This brief will put forward a comprehensive argument in favour of the movement of palm oil plantations away from forested areas. This can be achieved through effective price-based solutions, mainly the extension of carbon payments, taxes on ecosystems and premiums for avoiding deforestation.
Importance of the Problem
The orangutan palm-oil debate stems from an issue of opportunity cost. The conservation of orangutans has an extremely high opportunity cost given the alternative land use of palm oil cultivation. A comparison of these land uses is required to truly understand the problem.
Use of Land for Palm Oil
Palm oil is one of the world’s fastest growing markets, with an average annual growth rate of 8% for the period 1974 – 2007. It is the world’s leading vegetable oil accounting for almost 30% of the global market. Carter et al. (2007, p.310) put reason to this: it is cheaper to produce than alternatives and as such commands a lower market price. Borneo and Sumatra, Orangutan habitats, provide the perfect conditions for palm oil production given the low start-up costs, cheap labour and cheap materials. Furthermore, the use of cleared forestland is particularly favoured due the co-benefit of selling timber to cover start-up costs for plantations (Nantha and Tisdell, 2009, p.493). The high yields produced by oil palm monocultures make it highly profitable for owners and favoured by governments for its provision of labour and support of the national economy. Nantha and Tisdell (2009, p.490) estimate that net profit per hectare (pre-tax) could average between 500 and 800 US dollars annually. High yields further contribute to its low price to international consumers and as such palm oil demand is very high.
However, the movement of land use from biodiverse forestland to oil palm monocultures has seen orangutan habitats reduced in area by around 50% in the last century (Meijaard et al., 2012, p.34).
Use of Land for Orangutan Conservation
The use of land for orangutan conservation is a lot harder to attach value to; it is dependent on the valuation given to the presence of orangutans. This value is composed of both use and non-use value provided by the species. The majority of literature supports the bulk of orangutans use value deriving from tourism. However, there has been argument that many benefits from tourism are in fact a by-product of conservation failures (Rijksen and Meijaard, 1999, p.163-171). This belief stems from the many instances where tourists visit orangutans whilst in rescue centres as opposed to in their natural habitats. This brings into question the use value of orangutans through tourism, and as such we look beyond this to value their worth.
Orangutans provide existence and bequest value where value is gained by knowledge that a species exists and will be conserved for future generations (Nantha and Tisdell, 2009, p.491). However, more recently there has been a suggestion that orangutans’ ecological value is much greater than expected. Wich et al. (2011, p. 62-63) suggests that the value orangutans provide to the upkeep of forest health and vitality is underestimated. He points to the ecosystem services they provide including carbon storage, upkeep of water quality but ranging further to the prevention of floods and providing food security. The paper goes on to suggest that the combined value of these environmental services is far greater than the environmental services produced by all land uses following deforestation: most importantly oil palm. This eludes to an area where orangutan conservation provides greater value than palm oil.
However, the rapid land use change towards palm oil plantation shows a failing in appreciation of this value. This is a direct result of failure to internalise the value of orangutan conservation into the costs of setting up plantations involving habitat destruction. Without incorporating this price into oil palm plantations, the opportunity cost of orangutan conservation appears extremely large. As a result, the market underprovides orangutan conservation; a problem to which this brief offers a solution.
Policy Options
The orangutan-palm oil conflict has brought with it many potential solutions, however each option – aside from this brief’s recommendation – appears to have a fundamental flaw which would make it impossible to implement successfully and sustainably:
- Price-Based Solutions
Price based solutions include the use of taxes, exemptions and subsidies in order to promote the movement of palm oil plantations away from areas with high biodiversity. This is the recommendation of this brief and as such will be covered in detail in the next section.
- Place-Based Solutions
Place based solutions focus on protecting specific ‘places’. As a proposal they include marking protected areas, defining where land use change may take place, and introducing moratoria on agricultural concessions: a temporary prohibition of governments leasing lands for agriculture (Busch et al., 2015, p.1331). Busch et al. (2015, p.1331) suggest that although these policies allow targeting of areas where there will be the greatest impact on conservation, they do not adequately target the root cause of the problem. There would remain a high opportunity cost of orangutan conservation, and so such policies would only last successfully as long as the ban was in place. There also remains an issue with regard to where and how large an area to preserve for conservation, with areas not being selected inadvertently appearing as ‘recommended’ sites for land use change.
- Roundtable for Sustainable Palm Oil
The Roundtable for Sustainable Palm Oil (RSPO) was set up in 2004 to promote the sustainable production of palm oil. However, since its inception it has faced several criticisms. Laurance et al. (2009, p. 378) suggest that the RSPO is largely dominated by industry and has trouble with noncompliance amongst its members. However, they also suggest that perhaps its biggest issue is its weak market demand. China and India, the world’s largest consumers of palm oil, have shown a lack of interest in supporting RSPO certified palm oil, favouring cheaper uncertified oil. This reflects the voluntary nature of joining the scheme and the power of the market given the low opportunity cost of orangutan conservation. As such in the period since this programme was introduced orangutan numbers have continued to fall.
- Increasing yields
Another suggestion to increase the sustainability of palm oil production is to use advances in biotechnology to develop oil palm which grows with a higher yield per hectare. This aims to produce the demanded level of palm oil whilst requiring less space, and hence less deforestation (Basiron, 2007, p.289). Whilst in theory this could work, in practice it does not tackle the root issue of opportunity cost. There is little investment or desire for this solution from palm oil plantations as they face demand high enough to allow for increases in both yield and plantation area. For such a growing population this is not a sustainable solution.
Policy Recommendations
This brief recommends a critical realignment of opportunity costs in order to move palm oil plantations away from forested areas. Tisdell and Nantha (2008, p.5) point to the importance of governments incentivising the use of grasslands, whilst disincentivising the exploitation of forestland. The use of price-based policy to implement this change is key. Busch (2015, p.1331) outlines the strength of price-based policies as their ability to internalise the public costs of deforestation; including the value orangutans provide in all areas of the economy. Tisdell and Nantha (2008, p.5) go on to support the use of environmental policies promoting the upkeep of forestland through monetary incentives, to shift the pressure of exploitation from forests to otherwise-unoccupied areas of land. The suggested price-based policy change is three-fold:
Starting with an extension of the current REDD scheme providing monetary incentives for not removing carbon storage through deforestation. This system aims to internalise the cost of carbon emissions, and in doing so make non-forested areas more attractive in relative terms. However, there is evidence of the REDD scheme not going far enough. McCarthy et al. (2012, p.538) suggest that REDD payments prove too difficult to access for many local plantation owners to show willing towards such an idea. As such it is clear that the payments need to be more readily accessible in order to successfully internalise public costs.
As well as the cost of carbon emissions, the value of forestland as habitat for orangutans, which provide value through means other than environmental mechanisms, must be incorporated into plantation owners’ evaluation of land uses. Therefore, this brief also proposes the introduction of non-deforestation premiums, of an initially high value, to encourage movement to non-forested areas, and provide the equivalent to the start-up benefit gained through the sale of timber.
Finally, there is a need for a negative payment mechanism whereby the cost of developing forested land is increased, not just the cost of non-forested land decreasing. The introduction of an ecosystem tax would prove suitable as a charge dependent on the level of biodiversity in the proposed area. This tax should cover both the use and non-use value of orangutans and as such should be a radical realignment of private and public benefits and costs of palm oil production. Whilst it is not within the scope of this brief, the value of other organisms inhabiting these habitats should also be considered, and there remains potential for these to be included in the tax.
Policy Implementation
Implementation of the proposed policy is fundamental to its success. Given the critical need for action, successful, appropriate implementation is required from day one. Nantha et al. (2008, p.5) makes clear that without adequately reducing palm oil production prices in alternative areas land use conversion will continue as it does today.
The inability of failure in this project lends itself to the need for flexibility as to the monetary incentives originally required to drive real change. Only by doing this can success be considered. Funding for such a policy should be sought internationally, as this is a global problem driven by global demand. A small tax on palm oil products would prove invaluable as a fund for ensuring palm oil production is sustainable.
Enforcement is perhaps one of the greatest issues for this brief in terms of implementation. Authors are clear: until there is stronger governance there will be no real change (Nantha et al., 2007, p.13). Governments must sit up and listen and accept that short term economic gains through palm oil are far less important than long term economic stability provided by the ecological value of orangutans.
Conclusion
The clock is running down.
Orangutans stand in a war they cannot win alone.
And yet there is hope, solutions are available. The implementation of this brief, with a serious desire to succeed could be the lifeline orangutans need.
It now rests on us all to appreciate their value and incorporate this into the decisions we make as consumers, producers, governments and bodies.
Without this, mankind’s inability to act is on the verge of assigning one of our closest living relatives to the past.
Bibliography
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