Does Oil Wealth Help Conserve Forests? Macroeconomic impacts on tropical forests and their utilisation

1 October 2003 10:00 - 11:30 GMT+00
Public event

Speaker:

Sven Wunder, Economist, PhD, DSc, CIFOR, Indonesia

Description

How does an oil boom affect the forest cover of tropical oil exporting-countries? Are they more or less likely than non-oil countries to experience forest loss? What macro-economic linkages and policies are decisive? This presentation summarises the results of research on eight tropical developing countries, with detailed studies of long-run land-use changes in Cameroon, Ecuador, Gabon, Papua New Guinea and Venezuela, as well as summary studies of Indonesia, Mexico and Nigeria. This country-comparative approach reveals that the direct oil impacts on forests are unquestionably subordinate, compared to oil's powerful derived, macroeconomic impact. In most cases, oil wealth indirectly but significantly helps to protect forests. Oil rents cause a 'Dutch Disease', decreasing the price-competitiveness of agriculture and logging. This strongly diminishes pressures for deforestation and forest degradation. Gabon is a showcase of large forests protected by 'blind' conservation impacts from oil wealth.

However, the study also demonstrates that domestic policy responses to oil wealth are vital determinants. When governments use most oil wealth for urban spending sprees, this reinforces the core effect by pulling more labour out of land-using and forest-degrading activities. Conversely, when oil revenues are used to finance large road-construction programs, frontier colonisation projects or resettlement of people into forests, the forest-protective effect of oil wealth can be reversed. Repeated currency devaluation and import protection of heavily land-using domestic sectors also contribute to increased pressures on forests.

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1. Dr Sven Wunder gave a presentation based upon his recent publication: Oil wealth and the fate of the forest. In the foreword to his book, Kristalina Georgieva, Director (Environment Department) of the World Bank gave three reasons why this publication would attract interest: (i) it presented evidence that oil wealth is likely to help protect tropical forests; (ii) however, the type and quality of macro-economic growth is of crucial importance for the future of forests; (iii) the study makes suggestions of what forest-friendly safeguards can realistically be introduced in the design of macro-economic policies and by extension the programmatic lending polices and macro-economic adjustment programmes of the World Bank and other donors.

2. Sven Wunder began by outlining some of the basic concepts underpinning the study. These include the FAO definition of deforestation as the removal of tree-canopy cover to below 10%, and forest degradation as all other significant changes in forest structure.

3. The first cross-country hypothesis tested was that tropical countries specializing in oil and mineral exports tend to deforest less than other tropical countries. The hypothesis was supported by examining the forest resource assessments of the FAO, which suggested that between 1990 and 2000, 23 oil and mineral exporting countries held an increasing share of the world's remaining tropical forests. It was therefore inferred that oil exporting countries might tell us something more generally about how trade and macroeconomics link to land-use and forests.

4. The second inter-temporal hypothesis examined the changing rate of deforestation between periods of oil boom and bust, with a focus on long-run land-use changes and links to the macro-economy. A conceptual framework that looked at five different levels of analysis was outlined, which led to the identification of some policies that reinforce the protection of forests and others that go against conservation (e.g. oil money spent on rural roads and colonization programmes).

5. A main focus of the study was a comparison of the macro-economic cycles with deforestation trends in five case-study countries. The results were rather mixed. Whilst Gabon most closely followed the hypothesis, the results from Ecuador were contrary. A less clear situation was found in Venezuela, Cameroon and Papua New Guinea.

6. The Cameroon case study appeared to show a shifting balance between cash and food crop production, first during the oil boom (from food to cash crops), then with the onset of the crisis in the late 1980s a reverse to food crops. In terms of deforestation rates, these appeared to show a tripling in deforestation between the boom period (0.3 - 0.6%) and the crisis period (1.3 - 2.7%).

7. A number of policies appear to protect forests, including: (i) minimal investment in the rural road network; (ii) high Government spending in the urban service sectors; (iii) minimizing fuel subsidies; (iv) maintaining high exchange rates and (v) high rates of taxation of the forest sector.

8. In terms of how the case study countries responded to their oil wealth some common elements were identified (e.g. heavy urban spending bias), but there was a vast variation in policies as oil wealth brought freedom in economic policy making.

9. The main policy conclusions of the study were that policies that favour agriculture tend to encourage deforestation. Unfortunately, many 'good' development policies are 'bad' for forest preservation, whilst some 'bad' development policies protect forests. Successful conservation outcomes tend to result from 'blind' strategies, where there are unintentional side-effects on forests from macro policies. One general conclusion was that extra-sectoral policies appear to be much more important for forests than forest sector policies.

10. The presentation concluded with a number of possible 'win-win' options: (i) remove subsidies with 'perverse' forest impacts (fuel, some agricultural inputs); (ii) engage in forest sector reform to capture timber rents; (iii) liberalise imports for land-extensive home market sectors (food crops, cattle, timber); (iv) careful adjustment policies can stabilize urban economic growth and off-farm labour absorption; (v) develop environmental service payments; (vi) other transfers of capital (e.g. debt relief, remittances, FDI) can have forest-protecting effects similar to oil wealth.

11. Comments during the discussion period focused on a range of issues: " The main hypothesis that oil wealth can benefit forest conservation was strongly challenged, based on experience in Nigeria. Urban development did not appear to lessen deforestation pressures as urban populations retained close ties with rural areas. In addition, corruption levels associated with oil wealth appeared to have fuelled illegal activity within the forest sector (an impact seen in other countries). " The Gabonese case-study was also questioned, quoting timber production levels in that country being at an all time high. The funding of the Transgabonese railway through oil revenue had opened up significant areas to commercial logging. " Environmental service payments appear to remain at the pilot project level and have yet to be mainstreamed in tropical countries. " National deforestation rates continue to be imprecise, with significant inconsistencies in definition between the major studies.