Economic valuation of energy-wood plantations in Northern-Madagascar 7 th International Scientific Conference on Energy and Climate Change 2014 Kostis Palamas building, 10/10/2014

Contents 1. Introduction 2. Cost-benefit analysis 3. Results 4. Discussion 5. Conclusions 6. References 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 2

1. Introduction Increased pressure on natural resources and increasing demand for energy in developing countries In Madagascar: 85% of energy resources from fuel-wood and charcoal Demand exceeds natural growth Non-sustainable, illegal use of natural forests leads to degradation, segmentation and finally deforestation 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 3

1. Introduction Gesellschaft für Internationale Zusammenarbeit (GIZ) and Malagasy “Ministère de l’Energie et des Mines” (MEM) started the project nowadays know as “Charbon vert” – “green charcoal” in 1996 Approach: Afforesting degraded land with fast growing eucalyptus and ameliorated charcoal production Local farmers included: gaining tenure rights, capacity building, gender issues 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 4 Picture 1: Eucalyptus trees 1 Picture 2: Timber 2 Picture 3: Charcoal pile 3 Picture 4: Workshop meeting 4

1. Introduction Region:DIANA (Northern Madagascar) Afforested degraded land:6700ha Involved people:2600 households Precipitation:1200mm/year in average Antsiranana (Diego) 5 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 5 Map 1 6 Map 2 7

2. Cost-benefit analysis Pro’s Results are straight forward and easy to understand Potentially discovers unknown variables Con’s Indirect benefits may be difficult to monetize Variables might be biased Important variables might be undetected 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 6 Tool for making resource management decisions, project comparison, project valuation

2. Cost-benefit analysis Used approaches 8 :- Market price-based - Cost-based Market price-based:Values for costs and benefits are raised and used Cost-based:Avoided cost method calculated for CO₂ emission 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 7

2. Cost-benefit analysis Divided into four Scenarios: Scenario 1:“Economic viability of the whole project” All costs and benefits are analyzed Scenario 2:“Economic viability for the farmers” Particular costs carried from the farmers and benefits 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 8

2. Cost-benefit analysis Scenario 3:“Economic viability for the farmers pt. 2” With particular costs under different pricing conditions for the products Scenario 4:“With project” versus “without project” Assessing the avoided cost towards the data from Scenario 1 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 9

3. Results – Input data Input data: Own editing 9 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 10 Costs Year Planting Harvest Total Benefits Year Charcoal Pole wood Total Cash flow Year Net Benefit Costs Cost segmentation Planting QuantityCost (Ariary)Charbon VertFarmer Technical supportlump sum/ha %0% Maintenance lump sum/ha %0% Plant productionlump sum/ha %0% Site preparationlump sum/ha %2% Plantingn200%100% Transportn/ha %0% Diverse material neededlump sum/ha %15% Conversion of raw material Charcoal productionbag(12kg)2500%100% Charcoal transportbag(12kg)4920%100% Pole wood productionn1000%100% Pole wood transportn3000%100% Annual Fixed Costs Diverselump sum/ha %100%

3. Results Scenario 1:Total net present value(NPV)(i=8%)= € Total NPV (i=10%) = € Internal rate of Return (IRR) = 13% Scenario 2:Total NPV (i=8%) = € Total NPV (i=10%) = € IRR = 53% 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 11

3. Results Scenario 3:Total NPV (i=8%) = € Total NPV (i=10%) = € IRR =45% Scenario 4: Total NPV (i=8%) = € Total NPV (i=10%) = € IRR =37% Average trading price: 2/ /2014 = 5,89€/tCO₂ 10 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 12

3. Results 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 13 Data overview: Own development

3. Results GDP per capita (GDPPC) for Madagascar 2013: 354€ 11 Average annual surplus; Scenario 2: 90€ (per capita: farmer) Average annual surplus; Scenario 3: 58€ (per capita: farmer) 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 14

4. Discussion 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar NPV(i=8%) = € NPV(i=8%) = € 4,4 NPV(i=10%) = € NPV(i=10%) = € 6,4 Significant improvement 15

4. Discussion Adding avoided cost:creates strong argument for the project! Annual farmer surplus:25% of GDPPC for Scenario 2 16% of GDPPC for Scenario 3 decent extra income to farmers! 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 16

5. Conclusions Pro’s Project is recommendable from economic point of view Con’s Eucalyptus plantations may have negative environmental effects 12 Potential yield decrease would lead to limited profitability 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 17

5. Conclusions Reduced pressure on unique biodiversity 13 Valuable under given aspects ! Further monitoring necessary Given conditions have to be analyzed carefully from case to case 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 18

6. References 1. Picture 1: Internet: ucalyptus.JPG/220px-A_SSO_of_Eucalyptus.JPG 2. Picture 2: ESMAP, Sustainable Production of Commercial Woodfuel: Lessons and Guidance from Two Strategies; page 15, Picture 3: Internet: G/600px-Meule_casamancaise.jpeg.JPG 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 19

6. References 4. Picture 4: ESMAP, Sustainable Production of Commercial Woodfuel: Lessons and Guidance from Two Strategies; page 15, Rainfall/ Precipitation in Antsiranana, Madagascar, Internet: 6. Map 1: Internet: 7. Map 2: Internet: content/uploads/2014/02/Madagascar-Diana-and-Sava-edt.jpg 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 20

6. References 8. Pascual, U. et al.: The economics of valuing ecosystem services and biodiversity, The Economics of Ecosystems and Biodiversity (TEEB), Lopez, P. et al.: Le reboisement villageois individuel, Average trading price: 2/ /2014 per tCO 2, Internet: International Monetary Fund, World Economic Outlook Database, /10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 21

6. References 12. Poore, M., Fries, C.: The ecological effects of eucalyptus, FAO Paper, Rejmánek, M., Richardson, D.: Encyclopedia of Biological Invasions, /10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 22

Thank you for the attention! 10/10/2014 Gauger, Gernot Economic valuation of energy-wood plantations in Northern-Madagascar 23