carbon offsets as an economic alternative to large-scale logging: a case study in guyana

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Ecological Economics 5

ANALYSIS

Carbon offsets as an economic alternative to large-scale logging:

a case study in Guyana

Tracey Osbornea,*, Clyde Kikerb

aEnergy and Resources Group, University of California Berkeley, 310 Barrows Hall, Berkeley CA 94720, USAbFood and Resource Economics Department, University of Florida, PO Box 110240, Gainesville, FL 32611, USA

Received 8 July 2002; received in revised form 14 June 2004; accepted 18 June 2004

Available online 2 February 2005

Abstract

The objective of this study is to analyze the economic viability of carbon-offset projects that avoid logging in Guyana’s

forests. The results of this case study illustrate the cost effectiveness of alternative land-use options that reduce deforestation and

associated greenhouse gas (GHG) emissions. This analysis demonstrates that using Guyana’s rainforests for climate change

mitigation can generate equivalent revenue to that of conventional large-scale logging without detrimental environmental

impacts. At a 12% discount rate, the break-even price for carbon is estimated to be about US$ 0.20/tC. This estimate falls

toward the low range of carbon prices for existing carbon offset projects that avoid deforestation.

D 2004 Elsevier B.V. All rights reserved.

Keywords: Carbon offsets; Deforestation; Climate change mitigation; Land use change and forestry; Guyana

1. Introduction

Since the early international attention to global

warming beginning with the World Climate Confer-

ence in 1979 to the more concerted efforts and

ongoing negotiations of the Kyoto Protocol, the

accumulation of carbon dioxide (CO2) in the atmos-

phere continues to be an important concern for

international institutions and national governments.

0921-8009/$ - see front matter D 2004 Elsevier B.V. All rights reserved.

doi:10.1016/j.ecolecon.2004.06.003

* Corresponding author. Tel.: +1 510 704 8303; fax: +1 510 642

1085.

E-mail address: [email protected] (T. Osborne).

Deforestation and other land-use changes are recog-

nized as a major source of rising atmospheric CO2,

responsible for 20–25% of global anthropogenic

greenhouse gas (GHG) emissions (Schimel et al.,

1996). Therefore, avoiding deforestation holds sig-

nificant promise as a potential means for diminishing

this source of CO2 emissions. The issue is especially

relevant for Guyana, a nation whose forests cover

over 75% of its total land area and represent one of the

most intact tracts of old-growth tropical rainforests in

the world. The country’s financial distress has left few

alternatives to large-scale logging to supplement

national income. The timber industry, dominated by

foreign-owned companies, ranks among the leading

2 (2005) 481–496

T. Osborne, C. Kiker / Ecological Economics 52 (2005) 481–496482

threats to Guyana’s forests and is largely responsible

for the destruction of approximately 49,000 ha

annually (FAO, 2001). The nation has been forced

to sacrifice its forests to generate much-needed

foreign exchange, service a sizable external debt,

and alleviate poverty. While logging does provide

income for the country as a whole (about US$ 36

million annually1), it also destroys large areas of old-

growth forest, threatens the survival of endangered

species, and impacts the traditional livelihood of

indigenous and forest communities. Guyana’s

National Forest Policy articulates forest management

goals that include protecting rainforests, providing

income to stakeholders, and ensuring ecosystem

services. However, the country’s decision to pursue

large-scale logging demonstrates the priority the

government places on achieving its financial objec-

tives, even at the expense of other goals identified in

the Forest Policy. Due to binding financial constraints,

the government of Guyana is unlikely to consider

alternative forest activities unless they generate

revenue comparable to the amount gained from

logging. Forest-based climate change mitigation or

carbon-offset projects could offer such an option. The

objective of this paper is to determine the economic

feasibility of davoided deforestationT2, a designated

dland use, land-use change, and forestryT (LULUCF)activity under the Kyoto Protocol. Carbon offsets that

avoid logging or deforestation have the potential to

not only generate revenue competitive with large-

scale commercial logging but also to meet other

development and environmental goals articulated in

Guyana’s National Forest Policy.

Several studies have performed economic analyses

of avoided deforestation in individual host countries

(Kremen et al., 2000; Pereira et al., 1997; Makundi

and Okitingati, 1995; Ismail, 1995; Wangwacharakul

and Bowonwiwat, 1995). However, many of these

analyses fail to consider the opportunity costs of land

on a national basis (Brown et al., 2000b). When

including opportunity costs, one study’s results show

1 Logging’s contribution to GDP is 5%, and Guyana’s GDP in

2000 was US$ 710 million (World Bank, 2002).2 Throughout this paper, we often use the term davoideddeforestationT to refer to avoided logging in the case of Guyana

due to the fact that davoided deforestationT is a specific term used in

the Kyoto Protocol.

that carbon offset projects that avoid logging in

Madagascar are not economically viable at the

national scale (Kremen et al., 2000). Avoided defor-

estation can yield a range of economic outcomes, and

therefore, more specific country studies are needed to

determine the economic viability of these projects

within a particular resource outlay and within partic-

ular geographical, cultural, and socioeconomic con-

texts.

This paper analyzes the economic feasibility of

avoided deforestation for Guyana by first determin-

ing the opportunity costs of the deferred land use,

which are the revenues from large-scale logging. The

break-even price for carbon is defined as the

minimum price that will enable Guyana to generate

revenue equivalent to that of large-scale logging. The

price is determined by dividing the opportunity costs

by the carbon benefit of avoided deforestation, which

is equivalent to expected carbon emissions from

logging.

2. Avoided deforestation in the climate change

agreement

The Kyoto Protocol requires industrialized coun-

tries to reduce their GHG emissions to about 5%

below 1990 levels by the end of the first commitment

period (2008–2012). The clean development mecha-

nism (CDM) is a dflexibility mechanismT of the

Kyoto Protocol, which allows industrialized countries

to offset a portion of their emissions in developing

countries through energy and LULUCF-based proj-

ects. Avoided deforestation is one type of LULUCF

project that serves to reduce carbon emissions by

conserving existing carbon stocks (Brown et al.,

2000b). In July 2001, rules to implement the Kyoto

Protocol in the first commitment period were

accepted by 178 countries in Bonn, Germany. The

parties agreed that only afforestation and reforestation

LULUCF projects would be eligible under the CDM

for the first commitment period. Although avoided

deforestation will not initially be included in the

CDM, it may be reconsidered for future periods. In

this paper, we argue that avoided deforestation should

be reconsidered as a necessary and viable strategy to

mitigate climate change in the CDM. Indeed, as

Smith and Scherr (2002) have demonstrated, primary

T. Osborne, C. Kiker / Ecological Economics 52 (2005) 481–496 483

forest conservation and extension produce the great-

est carbon benefit compared to other LULUCF

projects. These benefits, combined with the other

social and economic advantages of rainforest con-

servation, make the case for avoided deforestation

even more compelling.

In the meantime, an emerging carbon market

through national and regional trading regimes,

bilateral agreements, and carbon funds can provide

opportunities for forest conservation in developing

countries. The World Bank-initiated BioCarbon fund,

for example, provides financing for LULUCF proj-

ects in developing countries and transition economies

to sequester and conserve carbon on agricultural and

forest lands. The BioCarbon fund supports two

project windows: one will be strictly Kyoto com-

pliant, while the other much smaller window will

offer greater project flexibility to broaden experience

and learning through a wider array of LULUCF

projects, including avoided deforestation. The fund

pays approximately US$ 3–4 per ton of CO2 [US$

11–14.67/tC] (Carbon Finance, 2004). These emerg-

ing carbon markets have provided important oppor-

tunities for CO2 abatement even in the absence of a

ratified Kyoto Protocol. However, in order for

developing countries to benefit from these types of

projects in any meaningful way, avoided deforesta-

tion must be part of a more coordinated and interna-

tional effort, such as the CDM under the Kyoto

Protocol.

3 In 2000, Guyana’s per capita GDP was US$910 (World Bank,

2002, Bureau of Statistics, 1998).4 See Fig. 1.

3. Area description

3.1. Background

Guyana, located east of Venezuela on the Atlantic

coast of South America, has a land area of approx-

imately 21.5 million ha, with 16.1 million ha or 75%

under forest cover (Colchester, 1997). The area is part

of the northern Amazon region known as the Guiana

shield, one of the most intact stretches of old-growth

forest left on earth (Sizer, 1996; Bryant et al., 1997).

Species classified as endangered by the World

Conservation Union, such as the giant river otter

(Pteronura brasiliensis), are found in relatively large

numbers in the region when compared to neighboring

countries that have altered their natural habitats

(ECTF, 1993). The intact nature of the forest is due

in part to low human population density in the interior.

Ninety percent of Guyana’s population of approx-

imately 780,000 (Bureau of Statistics, 1998) lives

along the coastal belt, leaving 10% to the vast forest

interior.

Although rates of deforestation in the country have

previously been low due to binding macroeconomic

concerns, such as the servicing of a large US$1.5

billion external debt and employment provision to

alleviate poverty3, Guyana has increasingly turned to

its valuable forests over the past decade to generate

much needed foreign exchange. Forestry represents

about 5% of Guyana’s GDP, mostly from timber

production (Guyana Forestry Commission, 1998).

Timber production in the forest sector has steadily

increased since 1991 when Barama Company Ltd.

(Fig. 1), a jointly owned Malaysian and Korean

company, bought the country’s largest concession in

the North West District4 (Guyana Forestry Commis-

sion, 1998). With the expectation of acquiring a

contract similar to Barama’s, complete with generous

tax breaks, other foreign logging companies have

shown interest in gaining concessions in Guyana’s

forests. Between 1995 and 1997, the government

extended state forestlands by approximately 50%

(from 9.1 million to 13.6 million ha) in anticipation

of increased logging through concessions (Colchester,

1997). A total of 48% of current forestlands have

already been leased as timber concessions (Guyana

Forestry Commission, 1998). The government of

Guyana continues to encourage foreign logging

companies to lease concessions within the country,

as industrial forestry is a sector the government is

planning to further develop.

3.2. Guyana’s National Forest Policy

Guyana’s National Forest Policy states clear devel-

opment goals for the forest sector. Influenced by the

Rio Earth Summit of 1992, the policy’s broad

objectives are defined as forest protection, utilization

of a wide range of forest resources, and fair economic

returns to all stakeholders (Guyana Forestry Commis-

Fig. 1. Barama concession of 1.65 million ha in the North West

District of Guyana.

6 Before depreciation, Barama shows a profit of US$ 6.7 million

(Barama).7 Guyanese workers employed at Barama earn an average of US$

60/month (ECTF, 1993).

5 As of 1998 Barama spent over US$ 85 million in capital

investment (Barama).


sion, 1997). These goals cannot be fully realized

through commercial logging alone. Large-scale log-

ging utilizes one resource—timber, excluding a range

of lower-impact, income-generating forest activities,

such as ecotourism or the harvest of nontimber forest

products (NTFPs), from simultaneously occurring.

Additionally, Barama’s record on meeting Guyana’s

environmental criteria as expressed in the National

Forest Policy has been inadequate. Although Barama is

practicing selective logging and harvesting relatively

few trees per hectare (ECTF, 1997), there are many

destructive impacts to the forest ecosystem. In addition

to the leveling of trees for logging road construction

and residual damage to nearby trees, other environ-

mental impacts include increased fire susceptibility, the

erosion, compaction and sedimentation of soils, desic-

cation and inhibited regeneration of seedlings, loss of

biodiversity, destruction to wildlife habitat, weakening

of the genetic pool of commercial species through

prime tree selection, and water contamination and

eutrophication (ECTF, 1993).

Economic returns to stakeholders are mixed. Gov-

ernment revenue from Barama has been traditionally

low (see Table 1) and, in 1997, represented only 1% of

timber export value (Osborne, 1999). The generous

contract awarded to Barama, which included tax breaks

and low royalties and fees (Sizer, 1996), is largely

responsible for low government returns. In addition,

tax exemptions given to foreign logging companies

create market distortions unfair to Guyanese loggers,

placing local producers at an economic disadvantage.

Despite generous tax breaks and large capital invest-

ment5, Barama claims to be losing money. In 1997,

the company showed a US$ 2 million loss after

depreciation6. Losses were attributed to the low

market price of plywood and the depression of Asian

economies. For indigenous and forest communities of

Guyana, many of whom lack legal title to land, large-

scale logging can make traditional livelihoods, rights,

and access to land more precarious (Colchester, 1997).

The only national stakeholders who appear to be

reaping relatively fair monetary returns are the 950

Guyanese workers paid average wages equal to about

twice the national minimum wage7 (ECTF, 1993).

Although large-scale logging fails to meet the three

main criteria of the National Forest Policy, the

government of Guyana continues to pursue develop-

ment through logging. Ultimately, it appears that

financial constraints coupled with limited access to

markets and/or low market value for alternatives to

logging (i.e., the sale of NTFPs and forest protection)

have shaped the government’s development priorities

for Guyana’s forests.

3.3. Biomass damage and carbon emissions from

large-scale logging in Guyana

Carbon from the forest is released in a number of

different ways. With regards to timber extraction, the

process of carbon emission occurs primarily through

decay and oxidation of biomass and, to a lesser degree,

through the burning of fossil fuels used to run logging

and wood processing equipment. Biomass is destroyed

Table 1

Monetary gain to Guyana from the Barama concession in 1997

Total benefits Value � Total costs Value = Net benefits

Royalties, taxes, fees $ 243,000

Employment $ 684,000

School, medical center $ 240,000

Freight services and fees $ 840,000

Infrastructure, goods, servicesa $ 360,000

Totals $ 2,367,000 Opportunity costsb $ 900,675 $ 1,466,325

Total/ha/yr $ 1.54 $ 0.59 $ 0.95

All values are in 1997 US$. Source: Barama; ECTF, 1993.a To account for the fact that the road and restoration benefits do not occur every year, we use one-half of the original figure for infrastructure

improvements. We then take 20% of the adjusted infrastructure improvement figure and 20% of the original figures for goods, services, and

freight fees to account for operating costs of Guyanese businesses and the fact that the majority of the purchased goods were manufactured

outside of the country. The 20% represents the approximate return to Guyanese resources used in these goods and services.b We assume 12% of concession would be harvested for NTFPs in the absence of logging (estimate based on personal communication with

biologist Tinde van Andel, who conducted extensive research on NTFPs in the North West District of Guyana). Value of NTFPs is estimated to

be US$4.8/ha based on a figure for the Brazilian Amazon (Schwartzman, 1989). Total loggable area of concession is 1,536,000 ha.


from the extracted trees8 in the form of crowns, tops,

branches, stumps, and roots left on the forest floor, as

well as logging waste produced at the mill. Even-

tually, wood products will also emit carbon at the end

of their use. Biomass is also destroyed from mortal

damage to unharvested residual trees9, large areas of

vegetation cleared to build logging roads10, and

through soil disturbance in log skidding11. Logging-

induced carbon emissions contribute to increased

atmospheric CO2 concentrations unless carbon is

sequestered in regrowth. Therefore, real opportunity

exists for offsetting carbon emissions through avoided

deforestation. The amount of carbon that would have

been emitted through the process of logging can be

sold as carbon emission reduction credits if the forest

remains intact and the carbon is stored.

The low-documented deforestation rates of 0.3%

per year (FAO, 2001) mask the full extent of current

8 Current harvest is approximately 14 m3/ha or about four to five

trees per hectare, which is around 10% of the basal area (ECTF,

1997).9 Mortal residual damage destroys an additional 11 m3 of

commercial volume for trees 20 cm in diameter (dbh) and greater

(ECTF, 1996).10 Extensive logging road networks also destroy biomass and thus

release carbon. Roads built in the Barama concession from 1993 to

1998 totaled 965.5 km, with widths of 40 and 60 m (ECTF, 1996).11 Although carbon is released due to soil disturbance, this analysis

does not include soil carbon calculations.

forest damage and timber extraction that accompanies

large-scale logging in Guyana. In fact, more than 1.5

million ha or 9.3% of Guyana’s forest have already

been selectively logged, which causes severe biomass

damage and carbon emission despite leaving the forest

seemingly intact (ter Steege, 1996). The harvest

process alone can destroy or damage up to 40% of

living biomass (Nepstad et al., 1999). Furthermore,

selective logging can cause residual damage to nearby

trees, which can range in severity depending on logging

intensity. Such damage can be significantly lowered by

implementing reduced impact logging techniques,

which include preparation of a harvest plan, directional

felling, and vine cutting to prevent noncommercial

trees from being pulled down (Johns et al., 1996).

Although Barama uses many of these techniques, a

considerable amount of biomass is likely to be

destroyed (BCL, 1992; Osborne, 1999). According to

a study conducted in the eastern Amazon, as many as

13 trees can be severely damaged (including decapi-

tated crowns and snapped or pushed over boles) for

every tree harvested evenwhen reduced impact logging

techniques are used (Johns et al., 1996).

Trees uprooted in the construction of logging roads

also result in biomass destruction and create large gaps

in the forest. Unlike the openings created by tree felling

in plots that will be officially closed after logging, gaps

created by road networks may never close. The

combination of the wide span of main roads, soil

compaction caused by heavy machinery, and the

13 Although the range of carbon benefit estimated in conservation

projects is quite wide [1.1–68.7 tC/ha (Brown et al., 2000b)],

estimates of this analysis are comparable to other carbon benefit

estimates used in existing avoided deforestation projects. For

example, the Rio Bravo Conservation and Management Area

Carbon Sequestration Pilot Project in Belize uses an average carbon

benefit estimate of 31 tC/ha over the 40-year life of the project

(Brown et al., 2000b). The Ecoland conservation project in Costa

Rica estimates carbon benefit in the project to be approximately

39.8 tC/ha (Brown et al., 2000b).14 Biomass estimates used for this study are similar to other


nutrient poor soils typical of tropical forests together

create challenges for vegetation recovery on roads.

Vegetation regrowth is further hindered by the ongoing

use of roads by logging companies, as well as those

who have new access to forests, such as subsistence

farmers, small-scale gold miners and timber harvesters,

and charcoal producers (Fisher, 1999; ECTF, 1994).

As forests are cleared for timber and roads, the

microclimate becomes drier, making ecosystems more

susceptible to forest fires, another source of carbon

emission (Brown et al., 1998). In addition to localized

desiccation, climate change is likely to cause in drier

and drought-like conditions throughout much of the

Amazon Basin (Mata et al., 2001). Furthermore,

global warming may operate synergistically with

deforestation to increase the forest’s susceptibility to

tropical fires (Myers, 1993; Mata et al., 2001).

Although spontaneous fires in tropical forests are

not a typical phenomenon, they are becoming more

common and can have devastating consequences, as

evidenced by the 1997 fires in the northern Brazilian

Amazon that penetrated the southern interior of

Guyana. Because fuel loads in logged forests can be

as much as three times those of unlogged forests

(Holdsworth and Uhl, 1997), keeping forests intact

can help reduce the incidence of forest fires and other

impacts of deforestation, including biodiversity loss

and carbon emissions.

3.4. The data

Carbon benefit is calculated as the difference

between the baseline (logging) and mitigation (avoided

logging) scenarios. The baseline estimates are based on

mortal biomass damage from the extracted tree,

residual damage, the construction of logging roads,

and fossil fuel use when extracting 14 m3/ha of timber

within Barama’s logging concession. By using carbon

estimates for biomass extracted or mortally damaged in

a carbon flux model that simulates logging-induced

necromass decay and forest recovery (see Appendix C

for model assumptions), we have estimated the

aboveground and total (above and belowground)12

carbon balance over the 50-year concession. Below-

ground biomass estimates for the Guiana shield on

12 Aboveground refers to all trees, understory, dead wood (coarse

litter), and fine litter. Belowground refers to root structures.

infertile ultisol/oxisol soils, such as those found in the

Barama concession, are about 20% of total living

biomass (Brouwer, 1996). The model also accounts

for the decay of wood products over time. The

mitigation scenario—the without logging case—is

also simulated by the model. The estimated carbon

benefit is 34.76 tC/ha for aboveground carbon and

42.37 tC/ha for total carbon13 (see Table A3-2 of

Appendix C). These figures are somewhat conserva-

tive because they do not include soil carbon losses or

the probability of carbon emissions due to fire

damage. Dividing the revenues from logging by the

above calculated carbon benefit yields the break-even

price or the price of carbon necessary for generating

revenues equivalent to logging.

Themain source of the financial data for this analysis

is Barama’s 1997 account balance of the value of goods

and services paid to Guyana in that year. Barama is an

appropriate case because it is the single largest

contributor to Guyana’s GDP from forestry (Guyana

Forestry Commission, 1998). Consequently, the com-

pany exemplifies the kind of operation that the govern-

ment of Guyana has been trying to attract. The Barama

logging concession is 1,650,100 ha or 10%of Guyana’s

forest area. The potential logging area is about

1,536,000 ha after subtracting physically unloggable

areas and land occupied by indigenous Amerindian

communities. The forest is characterized as mixed

lowland moist tropical rainforest and receives annual

rainfall of over 2500 mm (ECTF, 1998). Aboveground

and total biomass in the Barama concession are

estimated to be 372 and 465 t/ha, respectively14

(see Appendix A). Barama is the country’s only

producer of plywood, harvests 14 m3/ha of commer-

published biomass estimates for the Guiana shield region. The

average total biomass for an unlogged forest in the Guiana shield

derived from a number of studies is 452 t/ha, ranging from 301 to

542 t/ha. (Osborne, 1999; Brouwer, 1996; Brown, 1997).


cial timber, and selectively logs on a sustained

yield program with a 25-year cutting cycle (BCL,

1992; ECTF, 1993, 1995). Barama’s 25-year con-

tract is automatically renewable for an additional 25

years.

15 Improvements include the paving of a road in front of Barama’s

main office and the rehabilitation of a historic house in the capital in

1997.16 The unemployment rate in Guyana is about 12% (1992 estimate

in United Nations Statistics Division, 2002).17 Only opportunity costs for NTFPs are included in this analysis

because, although the potential for ecotourism exists, the curren

market is negligible.

4. Methodological framework

4.1. Setting the price for carbon

If carbon offset projects are to be economically

competitive with logging, they must generate monetary

net benefits equal to or greater than those of large-scale

logging. The break-even price is determined by first

calculating the net monetary benefits from logging,

captured by a partial benefit–cost analysis. The present

value of logging benefits is then divided by the average

carbon benefit from avoided logging [i.e., the average

estimated carbon emission over the length of the

concession (50 years)] to derive the break-even price

expressed in present value. Selling carbon at the break-

even price will ensure that Guyana will at least cover

the opportunity costs of forgone logging.

4.2. The benefit–cost framework

A benefit–cost framework is used to identify total

and net financial benefits to Guyana gained from the

Barama logging concession. The benefit–cost analysis

is partial in the sense that it includes only those items

that have a well-defined market value. The method

does not attempt to make a full-fledged economic

analysis. Our approach includes all the monetary

benefits from logging to Guyana, as well as the

opportunity costs, which in this case comprises forgone

revenue from NTFPs. However, this analysis excludes

the considerable environmental costs. Despite its

limitations, the monetary benefit–cost framework is

appropriate because, due to debt burdens and financial

stress, development choices made by Guyana (as well

as many other developing countries) indicate that the

country makes decisions driven by monetary rather

than broader economic and environmental benefits and

costs. Although the country is concerned with human

development, forest protection, and the maintenance of

biodiversity, Guyana’s priorities are determined by

immediate basic societal needs and macroeconomic

obligations. Both require foreign exchange and, to date,

timber extraction has offered the greatest financial

returns from the forest.

4.3. Benefits and costs of logging

Total monetary benefits from Barama include royal-

ties, taxes, and fees paid to the government of Guyana

and employment for Guyanese workers in the logging

concession and plywood factory, as well as stevedores

contracted to load and unload cargo on ships at port.

Other benefits captured by Guyana include facilities

such as a school and medical center paid for by Barama

and freight services and fees paid to Guyanese compa-

nies. The local purchase of foodstuff and spare parts for

equipment, maintenance, and travel services, as well as

one-time infrastructure improvements15, are further

additions to the Guyanese economy.

Employment is seen as a gain for Guyana because of

thegreatlyunderemployedorunemployedworkforce16.

Employment is typically seen as an opportunity

cost in this sort of analysis, but in Guyana’s case,

labor in rural areas is greatly underutilized and,

therefore, represents a net benefit. Additionally,

while Barama incurs costs for fuels and other

supplies, these are primarily imported and again do

not represent an opportunity cost to the country.

The costs associated with logging are mainly the

opportunity costs of forgone investment in NTFPs.

Environmental costs, not being monetary, do not

appear in this analysis. Nevertheless, they do

impact future NTFPs and ecotourism activities17.

5. Results

5.1. Results of the benefit–cost analysis

Results of the monetary benefit–cost analysis for

logging, shown in Table 1, illustrate that total benefits

t

Table 2

Net present value of benefits from the Barama logging concession

under various real discount rate scenarios

3% 8% 12% 15%

25 years

Royalties and fees (US$ M) $ 4.23 $ 2.59 $ 1.91 $ 1.57

Total benefits (US$ M) $ 41.22 $ 25.27 $ 18.56 $ 15.30

Net benefits (US$ M) $ 25.53 $ 15.65 $ 11.50 $ 9.48

Total benefits/ha (US$) $ 26.83 $ 16.45 $ 12.09 $ 9.96

Net benefits/ha (US$) $ 16.62 $ 10.19 $ 7.49 $ 6.17

50 years

Royalties and fees (US$ M) $ 6.25 $ 2.97 $ 2.02 $ 1.62

Total benefits (US$ M) $ 60.90 $ 28.96 $ 19.66 $ 15.77

Net benefits (US$ M) $ 37.73 $ 17.94 $ 12.18 $ 9.77

Total benefits/ha (US$) $ 39.65 $ 18.85 $ 12.80 $ 10.26

Net benefits/ha (US$) $ 24.56 $ 11.68 $ 7.93 $ 6.36

18 Break-even prices that consider total logging benefits only are

also included because NTFP markets are not highly developed in

Guyana, and due to physical or political economic constraints

Guyana may not choose to fully engage in NTFP activities.


to Guyana in 1997 from the Barama timber concession

equal US$ 2.37 million, and net benefits after

subtracting opportunity costs of forgone NTFPs are

about US$ 1.47 million. Royalties, acreage fees, and

the levy tax paid to the government equal US$ 243,000

or about 10% of total benefits to the country. The

second greatest contribution to Guyana from the

concession, following freight services and fees, is in

the form of employment, totaling almost US$ 684,000

annually or 29% of total benefits. Per hectare total and

net benefits accrued to Guyana from the Barama

concession amount to US$ 1.54/ha and US$ 0.95/ha,

respectively.

5.2. Present value of discounted net benefits

Over the life of the Barama concession (either 25

or 50 years), the monetary benefits from logging are

expected to generate considerable gains for Guyana.

The discount rates used in this study reflect the range

of interest rates at which developing countries

typically borrow money from multilateral institutions

(Gittinger, 1982; IMF, 2001). When discounting

future revenue by the range of discount rates, the

present value of net benefits over 25 years ranges

from about US$ 9.5 million to US$ 25.5 million.

Using a discount rate of 12%, total benefits per

hectare from logging amount to US$12, while per

hectare net benefits are approximately US$7.50.

Additionally, Barama pays US$ 1.9 million in

royalties, taxes, and fees to the government spread

out over the life of the concession. Table 2 illustrates

net present value of benefits under various discount

rate scenarios. Because Barama has an option to

renew the concession for an additional 25 years, we

also calculate net present value over a 50-year

timeframe. Net benefits discounted 12% over 50

years are approximately US$ 12.2 million, and per

hectare net benefits are almost US$ 8.

5.3. The break-even price of carbon

We estimated break-even prices for carbon offset

projects that avert large-scale logging by dividing total

and net per hectare benefits to Guyana by the carbon

benefit of avoided logging. The carbon benefit is

equivalent to the amount of carbon emissions gen-

erated from logging over the 50-year duration of the

concession. Break-even prices are influenced by

decisions to use emissions from aboveground carbon

versus total carbon, as well as by the choice of

discount rate. The carbon flux simulation model

generates an estimate of 34.67 tC/ha from above-

ground sources and 42.37 tC/ha from both above and

belowground sources (see Table A3-2 in Appendix

C). If we only consider aboveground carbon, Guyana

would have to receive between US$ 0.18 and US$

0.71 per ton of stored carbon (depending on the

country’s real discount rate) to capture the opportunity

costs of forgone logging. If, however, we consider

total carbon, break-even prices for Guyana range from

US$ 0.15 to US$ 0.58 per ton of stored carbon. Table

3 illustrates the possible break-even prices under

various real discount rate scenarios. The break-even

prices are derived from net benefits as well as total

benefits, the latter of which ignores opportunity costs

of forgone NTFPs (ie., ignores benefits that could be

obtained from NTFPs in the absence of large-scale

logging).18

Costs for avoided deforestation pilot projects have

ranged fromUS$ 0.10 to US$ 15/tCworldwide (Brown

et al., 2000b) and from US$ 1–US$ 6 in Latin America

,

19 Carbon benefit from avoided deforestation can be assumed to be

permanent on a time basis, similar to fossil fuel substitution. Even i

an avoided logging project is cancelled midway and logging occurs

the carbon benefit accrued over the years are similar to the gains in

delaying the combustion of oil for that amount of time (Fearnside e

al., 2000).

Table 3

Break-even prices in US$/tC under various discount rate scenarios

(based on present value of benefits under the 50-year logging

schedule)

Average carbon emissions Discount rates

3% 8% 12% 15%

Aboveground carbon [34.67 tC/ha]

Considering net benefits 0.71 0.34 0.23 0.18

Considering total benefits 1.14 0.54 0.37 0.30

Total carbon [42.37 tC/ha]

Considering net benefits 0.58 0.28 0.19 0.15

Considering total benefits 0.94 0.44 0.30 0.24

Note: This table shows the break-even prices assuming a company

can claim all the credits at the moment the project is started. If you

account for the time when credits are available based on the time

value of money, the break-even prices increase and range from US$

1.40 to $4.77. At a 12% discount rate, the break-even prices range

from $2.25 (total carbon, considering net benefits) to $4.40 (above

carbon, considering total benefits).


(Brown et al., 1996). Carbon prices of the BioCarbon

fund tend toward the high end of existing project costs,

ranging between US$11 and $15 per ton of carbon

(Carbon Finance, 2004). In the first commitment

period, some avoided deforestation projects are likely

to be implemented through this fund.

A portion of the carbon revenue for existing

projects is devoted to project implementation, mon-

itoring, and verification, much of which tends to be

performed by organizations in industrialized coun-

tries. Experience from the Prototype Carbon fund has

demonstrated that these average project costs amount

to approximately US$ 100,000 per project (Carbon

Finance, 2004). If Guyana builds the necessary

capacity to implement climate change mitigation

projects, the country could gain a greater share of

total revenue and enjoy additional employment

benefits. Without a robust market for carbon, how-

ever, Guyana may not set aside resources necessary

for building this capacity.

The break-even price represents the minimum price

that Guyana could reasonably accept if the country was

to sell carbon as part of an avoided deforestation

project. If developing countries like Guyana are able to

sell carbon at higher market prices that exceed

opportunity costs, the total revenue derived from

carbon could be even greater. A carbon-offset project

that avoided logging from a 50-year concession similar

to that of Barama could offset a maximum of 65 million

tC19 and generate US$ 65 million in present value

(almost twice the annual contribution of all logging to

Guyana’s GDP). This figure is calculated using a low

carbon price of $1/tC. Using the low-end BioCarbon

fund price of $11/tC, the annual benefit for this project

would exceed $700 million, which is approximately

equivalent to the country’s GDP in 2002.

6. Discussion

6.1. Avoided deforestation: meeting the goals of

Guyana’s National Forest Policy

Avoided deforestation is consistent with the

forest sector development goals identified in Guya-

na’s National Forest Policy and may more success-

fully meet the Policy’s three main goals (i.e., forest

protection, utilization of a broad range of forest

resources, and fair economic returns to all stake-

holders) than current logging. For example, avoided

deforestation projects allow for NTFP harvesting,

ecotourism, and the development of research sta-

tions within project areas, meeting the diversity

criteria. There are numerous examples of such

multicomponent projects. In Ecuador, a conservation

project protects and manages 2000 ha for ecotour-

ism and research. Another example is the Noel

Kempff Mercado Climate Action Project in Bolivia

that aims to protect an existing park from defor-

estation and reforest contiguous degraded areas.

This project also contains provisions for the devel-

opment of a market for sustainable NTFPs (USIJI,

1998; UNFCCC, 1999).

Avoided deforestation projects have the potential to

meet the environmental criteria identified in Guyana’s

National Forestry Policy in a multitude of ways.

Biodiversity and wildlife habitats are conserved, soil

is protected from erosion, and hydrologic and nutrient

cycles are maintained. This analysis has also shown

f

,

t

20 Negative leakage describes the unanticipated reduction of GHG

benefits (Schwarze et al., 2002).


that avoided deforestation can generate income equal

to or greater than that of large-scale logging through

the sale of carbon offsets at very competitive prices.

However, income distribution may be different from

that of logging.

Approximately 84% of Guyana’s forested land area

is under state ownership. Therefore, the majority of

revenues to Guyana derived from avoided deforesta-

tion will most likely be captured by the state. The

reverse is true for large-scale logging where a

substantial part of the revenue to the country goes

toward local employment. Greater employment

opportunities may be produced through avoided

deforestation projects if the state rechannels revenues

toward creating employment opportunities for local

people, such as monitoring of projects, harvesting/

processing of NTFPs, and ecotourism.

NTFPs harvested in Guyana include palm heart,

mangrove bark, and nibbi. Nibbi (Heteropsis flex-

uosa), a rattan-like liana, is harvested in various

areas throughout the country and used to make

furniture and small artisan work for domestic sale

and export. Nibbi grows primarily in mature forests

and is found on about 35% of the trees in Guyana

(Hoffman, 1997). Of the four main tree species that

Barama harvests [baromalli (Catostemma sp.), haiar-

iballi (Alexa sp.), black kakaralli (Eschweilera sp.),

and crabwood (Carapa guianensis)], nibbi uses three

as a host. Logging not only reduces the habitat but

also the prevalence and, therefore, market for nibbi.

Other not yet exploited NTFPs may also exist in

Guyana’s forests. According to the Edinburgh Centre

for Tropical Forests, the North West District, where

the Barama concession is located bis likely to be a

rich storehouse of [NTFPs], particularly used for

medicinal and subsistence activities by Amerindian

and other people living in remote communitiesQ(ECTF, 1993).

Ecotourism represents another productive activity

that can occur along with avoided deforestation.

Tourism in Guyana currently consists primarily of

foreign nationals returning to visit family and

friends. However, the expanse of uninterrupted

forests, the wealth of biodiversity, and the numerous

waterfalls including Kaieteur Falls, the largest

single-drop fall in the world, provide an ideal

setting for attracting ecotourists. The country’s

ecotourism potential has already been recognized

by Caribbean World magazine, which awarded

Guyana the bBest Eco-Region AwardQ (Bureau of

Statistics, 1998).

6.2. Addressing leakage

The Intergovernmental Panel on Climate Change

(IPCC) defines leakage as bthe unanticipated

decrease or increase in GHG benefits outside of

the project’s accounting boundary as a result of

project activitiesQ (Brown et al., 2000b). Proposals

must demonstrate that avoided logging within the

project area will not cause logging to merely shift to

other areas, allowing carbon to be released else-

where. In such cases, no carbon would in fact be

stored. Negative leakage20 can manifest as either

dactivity shifting,T which refers to deforestation that

moves to an area just outside the project boundary, or

dmarket effects,T referring to deforestation that moves

to another region or country to meet market demand.

In many cases, leakage can be prevented if demand

for the resource responsible for land-use change is

addressed within the project design (Brown et al.,

2000a). To prevent leakage, avoided deforestation

projects have utilized various strategies. One success-

ful strategy employed in the Noel Kempff Climate

Action Project in Bolivia and the Ecoland project in

Costa Rica is the use of leakage contracts (Schwarze

et al., 2002). Timber concessionaires, bought out by

project implementers, agree to sign legally binding

contracts assuring that the money earned from the

concession sale will not be used to purchase further

concessions. In addition, loggers receive training on

sustainable forestry practices for application within

their remaining concessions (Brown et al., 2000a).

Another strategy used to reduce leakage in avoided

deforestation projects is the implementation of a

multicomponent project (Brown et al., 2000a,b;

Schwarze et al., 2002). Multicomponent projects can

prevent leakage by incorporating activities that

address the demand responsible for land-use change

within the project (Brown et al., 1997, Chomitz,

2000). The Protected Area Project in Costa Rica and

the Rio Bravo Conservation and Management Area


Carbon Sequestration Pilot Project in Belize are two

examples of existing multicomponent projects that

include forest protection. An avoided logging project

in Guyana, such as the one described in this paper,

could include a sustainable afforestation/reforestation

component that would compensate for the reduced

supply of timber. Growing native species for plywood

on degraded land has the potential to replace timber

that would have been supplied through logging

existing forests, thereby reducing the possibility of

leakage.21

7. Conclusion

Considering the multiple challenges of poverty,

debt, and environmental degradation plaguing

developing countries like Guyana, innovative alter-

natives, such as avoided deforestation projects, are

imperative for attaining sustainable development

goals. This analysis of the economic viability of

an avoided deforestation project demonstrates the

cost effectiveness—and indeed, potential profitabil-

ity—of an alternative land-use option that can

reduce deforestation and the threat of global

warming. Through the use of a partial benefit–cost

analysis and a carbon flux simulation model, this

study illustrates that conserving Guyana’s rain-

forests as a climate change mitigation activity is

capable of generating revenue at least equal to that

of large-scale commercial logging. Using a 12%

discount rate, the break-even price for carbon is

determined to be US$ 0.23/tC when accounting

only for aboveground carbon and US$ 0.19/tC

when considering total carbon over 50 years. Both

of these estimates fall toward the low range of

carbon prices for existing avoided deforestation

projects. On a global scale, these projects could

reduce a portion of the anthropogenic CO2 emis-

sions linked with deforestation and climate change.

21 Plantation or leakage contract provisions can substantially

increase the overall cost of the project. The establishment of a

saw log plantation, for example, may increase costs by as much as

US$ 14/tC [estimate for Brazilian case (Fearnside, 1995)]. In

addition, plantations grown for timber require a significant amount

of time to mature.

Although land-use change and forestry projects in

developing countries can play a significant role in

climate change mitigation, they are not a panacea.

The true bsustainableQ solution to climate change will

ultimately come from decreases in both the energy

production and consumption patterns of industrialized

countries responsible for the lion’s share of GHG

emissions. However, as part of an international effort

to address global climate change, avoided deforesta-

tion projects can offer an incentive for rainforest

conservation in developing countries, as well as

economic benefits that may be competitive with

current land use options. Because conserving forests

significantly reduces GHG emissions associated with

global climate change while also providing other

environmental and socioeconomic cobenefits, includ-

ing avoided deforestation in the Kyoto Protocol’s

CDM is strongly recommended for the second

commitment period.

Acknowledgements

The authors are grateful to many individuals and

organizations in Guyana that provided invaluable

assistance and information. Among them are the

Guyana Forestry Commission, Barama Company

Ltd., Edinburgh Centre for Tropical Forests, and the

University of Guyana. Financial support of the

research was provided by the University of Flori-

da’s Tropical Conservation and Development Pro-

gram. We are also grateful to Paige Brown, Sapana

Doshi, Cathleen Fogel, Matthias Fripp, Willy

Makundi, Richard Norgaard, and Sergio Pacca

who gave helpful comments on earlier drafts of

this manuscript. Views expressed in this paper are

solely those of the authors.

Appendix A. Calculating biomass of unlogged

forest

The method used to calculate biomass for an

unlogged forest is taken from a FAO primer on

biomass estimation in tropical forests (Brown, 1997).

Using tree list data of the Barama concession

[collected by Edinburgh Centre for Tropical Forests

Table A1-1

Aboveground and total (above and belowground) biomass (tB/ha)

estimated in the northwest forests of Guyana

Biomass components Biomass estimate (tB/ha)

Trees z10 cm 292.09

Trees b10 cm 35.05

Understory 11.15

Coarse litter 18.59

Fine litter 14.87

Total aboveground 371.75

Roots/belowground 92.94

Above and belowground 464.69

Results are similar to those found in other published studies for the

northern Amazonian forests on nutrient-poor ultisol/oxisol soils.

Table A2-1

Biomass and carbon lost (t/ha) over time when harvesting 14 m3 of

commercial volume

Biomass and carbon lost Aboveground

biomass (tB)

Total

biomass (tB)

Total biomass 372 465

Biomass lost

from extracted trees

12.89 16.11

Residual damage 12.05 15.34

Infrastructure 16.48 20.60

Total biomass removed 41.42 52.05

Aboveground carbon Total carbon

Biomass carbon removed 20.71 26.02

Fuel carbon released 2.37 2.37

Total carbon lost 21.20 26.51

! Carbon is calculated as 50% of biomass (Brown, 1997).

! Biomass from extracted trees includes the bole and crown for

aboveground biomass, as well as biomass stored in wood products

(total biomass is aboveground plus roots).

! When 14 m3/ha of commercial volume is extracted in the Barama

concession, approximately an additional 11 m3 of commercial

volume for trees 20-cm dbh and greater are also mortally damaged

for a total of 25 m3 (ECTF, 1996).

! Roads built in the Barama concession from 1993 to July 1998

totaled 963.5 km. Infrastructure (main, secondary, and feeder roads

and log market area) in the Barama concession has destroyed an

average of 4.43% of the forest biomass per area logged between 1993

and July 1998 (derived in Osborne, 1999 from ECTF, 1996 data).

! In 1997, Barama used 3.12 million gallons of fossil fuel (in

logging, plywood production, and marine transport) associated with

the logging of 17,400 ha (BCL 1992; ECTF 1997). This amounts to

179.31 gallons of fuel per hectare logged or carbon emissions of

2.37 t/ha. [1 gallon of fuel=6lbC, 1 kg=0.4536 lb, 1 t=1000 kg].


(ECTF)], tree biomass (for trees z10 cm) is

calculated based on diameter class and basal area.

To calculate average basal area of each diameter

class, total basal area is divided by the number of

trees in each diameter class. We then estimate the

diameter at breast height (dbh) from average basal

area in each diameter class using the following

equation:

Dbh ¼ 2

ffiffiffiffiffiffiffiffiffiffiffiABA

j

r

ABA is the average basal area in each class.

Biomass based on average basal area is determined

using the following formula:

B ¼ e�2:134þ2:53 LN dbhÞð �½

B is the biomass based on average basal area (kg); dbh

the average diameter at breast height (1.3 m above the

ground) in each diameter class (cm).

To determine total (above and belowground)

biomass, trees smaller than 10-cm dbh, understory,

dead wood, and roots are included. The biomass of

these components is calculated based on proportions

associated with similar forest types and regions.

! Biomass of trees less than 10-cm diameter are

approximately 12% of the larger trees in Ama-

zonian forests (Laurance et al., 1997).

! Biomass of understory shrubs, vines, and herba-

ceous plants in a mature old growth forest is

about 3% of total aboveground biomass (Brown,

1997).

! Coarse forest floor litter or dead wood is approx-

imately 5% of total aboveground biomass (Brown,

1997).

! Fine litter in mature forests is approximately

5% or less of aboveground biomass and tends

to be higher for moist areas (Brown, 1997).

This study uses a conservative 4% of above-

ground biomass.

! Belowground estimates for the Guiana shield on

infertile ultisol/oxisol soils of the northern Amazon

are about 20% of total living biomass (Brouwer,

1996).

Appendix B. Biomass damage from logging


Appendix C. The simulation model of carbon flux

after logging

Using carbon estimates derived in the Osborne

(1999) study for logged and unlogged forests within

the Barama concession and published information on

decay rates and carbon accumulation before and after

logging, we have developed a model to determine the

carbon benefit of avoided logging. The model

simulates the cutting cycle of the Barama logging

concession over 50 years with 25-year rotations. The

model also takes into account that numerous blocks

are cut and then left untouched until the next rotation.

The Barama concession consists of thousands of

blocks, but within the model they have been reduced

to five. The actual size of the concession’s blocks is

100 ha, whereas in the model, block size is 1 ha.

The model tracks net carbon in the forest system

with logging (baseline scenario) and without logging

(mitigation scenario). It also accounts for the amount

of carbon released into the atmosphere and remaining

in the forest, annual carbon benefit, and cumulative

carbon benefit.

Assumptions of the carbon flux simulation model

are as follows:

(1) Aboveground carbon in unlogged forest is

186tC (derived in Osborne, 1999).

(2) Total living carbon (above and belowground

carbon in unlogged forest is 232tC (Osborne,

1999).

Table A3-1

Model equations

I Carbon flux without logging (tC)

II Forest stand with logging (tC)

III Carbon released (tC)

IV Remaining carbon (tC)

V Carbon flux with logging (tC)

VI Cumulative carbon benefit (tC)

VII Annual carbon benefit (tC)

U—carbon in unlogged forest (tC).

CD—carbon removed or damaged (tC).

Ddw—decay rate of dead wood (%C decay/year).

Peu—proportion of end use (% of harvest put into end use).

Dwp—decay rate of wood products (%).

t0—initial value (acts as a counter).

t+1—new value (acts as a counter).

(3) Aboveground carbon mortally damaged when

14 m3 of commercial volume is extracted is

about 21 tC (derived in Osborne, 1999).

(4) Total carbon mortally damaged when 14 m3 of

commercial volume is extracted is about 26 tC

(Osborne, 1999).

(5) Five 1-ha blocks are cut consecutively every 10

years, and once a block is cut, it will be left

untouched until the next 25-year rotation. The

first three blocks will be cut twice. The last two

will be cut once.

(6) Mature unlogged forests accumulate 1tC/ha/

year in aboveground carbon (Lugo and Brown,

1992).

(7) Mature unlogged forests accumulate 1.25tC/ha/

year in total living carbon [assuming that roots

are 20% of total living biomass (Brouwer,

1996).]

(8) Logged forests experience stimulated growth of

3 years then return to original growth (Silva et

al., 1995).

(9) Stimulated carbon accumulation in a logged

forest is 2tC/ha/year for aboveground carbon

(Lugo and Brown, 1992) and 2.5tC/ha/year for

total living carbon, assuming that roots are 20%

of total living biomass (Brouwer, 1996).

(10) Vegetation will not recover on roads within the

50 years of the concession. Regrowth is

adjusted to account for lack of growth over

roads (proportional to total carbon loss minus

roads).

Cfnl=U+1

Sl=U�CD

CR=(CD * Ddw)*(1�Peu)+(CD * Dpw * Peu)

RC=CD�CR at t0 RC=RCt0�(CRt+1�CRt0) at t+1

Cfl=Sl+RC

CNL=Cfnl�Cfl

ANL=CNLt+1�CNLt0

Table A3-2

Results of the carbon flux model illustrate forgone carbon emissions from biomass decomposition and fossil fuel combustion, which is

equivalent to the carbon benefit over the length of a 50-year avoided deforestation project

Model concession blocks Aboveground Total (above and belowground)

Carbon benefit (tC) Carbon benefit (tC)

Block 1 47.12 58.86

Block 2 45.68 57.78

Block 3 28.55 35.84

Block 4 18.74 23.54

Block 5 9.58 12.13

Biomass carbon benefit for five blocks over 50 years 149.67 188.14

Biomass carbon benefit per hectare (tC/ha) 29.93 37.63

Fuel carbon benefit per hectare (tC/ha) * 4.74 4.74

Total carbon benefit per hectare over 50 years (tC/ha) 34.67 42.37

* Total fuel carbon is 4.74 tC/ha (or 2d 2.37tC/ha) because each hectare is logged twice over the 50-year concession.


(11) Decay rate of dead wood in forests is 5%/year

with a half-life of about 20 years (Delany et al.,

1998).

(12) Decay of wood panels is 2% in temperate

regions and 4% in tropical regions (Winjum et

al., 1998). Barama exports 76% of plywood to

temperate regions (Barama). Therefore, the

model uses a decay rate of 2.48%/year to

account for different decay rates of regions of

export. The decay rates are not on a half-life

basis.

(13) Wood products represent 19% of wood lost

from aboveground carbon (derived in Osborne,

1999).

(14) Wood products represent 15% of wood lost

from total living carbon (derived in Osborne,

1999).

(15) The forest will not burn within the 50-year

period.

(16) Belowground mortality and decay occurs

simultaneously with that of aboveground

carbon.

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