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Economic valuation of energy-wood plantations in Northern-Madagascar

This study assesses the economic value of energy-wood plantations in Northern Madagascar and their potential benefits for local farmers. The results show positive net present values and annual surpluses, highlighting the economic viability of the project. The implementation of these plantations can reduce pressure on natural resources and provide additional income for farmers. However, potential negative environmental effects should be taken into account.

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Economic valuation of energy-wood plantations in Northern-Madagascar

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

  2. Contents • Introduction • Cost-benefit analysis • Results • Discussion • Conclusions • References Economic valuation of energy-wood plantations in Northern-Madagascar

  3. 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 Economic valuation of energy-wood plantations in Northern-Madagascar

  4. 1. Introduction Picture 1: Eucalyptus trees1 Picture 3: Charcoal pile3 Picture 4: Workshop meeting4 Picture 2: Timber2 • 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 Economic valuation of energy-wood plantations in Northern-Madagascar

  5. 1. Introduction • Region: DIANA (Northern Madagascar) • Afforested degraded land: 6700ha • Involved people: 2600 households • Precipitation: 1200mm/year in average Antsiranana (Diego)5 Map 27 Map 16 Economic valuation of energy-wood plantations in Northern-Madagascar

  6. 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 • Tool for making resource management decisions, • project comparison, project valuation Economic valuation of energy-wood plantations in Northern-Madagascar

  7. 2. Cost-benefit analysis • Used approaches8: - 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 Economic valuation of energy-wood plantations in Northern-Madagascar

  8. 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 Economic valuation of energy-wood plantations in Northern-Madagascar

  9. 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 Economic valuation of energy-wood plantations in Northern-Madagascar

  10. 3. Results – Input data Input data: Own editing9 Economic valuation of energy-wood plantations in Northern-Madagascar

  11. 3. Results Scenario 1: Total net present value(NPV)(i=8%)= 845.887€ Total NPV (i=10%) = 450.430€ Internal rate of Return (IRR) = 13% Scenario 2: Total NPV (i=8%) = 1.923.470€ Total NPV (i=10%) = 1.497.083€ IRR = 53% Economic valuation of energy-wood plantations in Northern-Madagascar

  12. 3. Results Scenario 3: Total NPV (i=8%) = 1.379.285€ Total NPV (i=10%) = 1.066.302€ IRR = 45% Scenario 4: Total NPV (i=8%) = 3.700.925€ Total NPV (i=10%) = 2.862.156€ IRR = 37% • Average trading price: 2/2014-10/2014 = 5,89€/tCO₂10 Economic valuation of energy-wood plantations in Northern-Madagascar

  13. 3. Results Data overview: Own development Economic valuation of energy-wood plantations in Northern-Madagascar

  14. 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) Economic valuation of energy-wood plantations in Northern-Madagascar

  15. 4. Discussion NPV(i=8%) = 3.700.925€ 4,4 NPV(i=8%) = 845.887€ ! Significant improvement NPV(i=10%) = 2.862.156€ 6,4 NPV(i=10%) = 450.430€ Economic valuation of energy-wood plantations in Northern-Madagascar

  16. 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! Economic valuation of energy-wood plantations in Northern-Madagascar

  17. 5. Conclusions Pro’s Con’s Eucalyptus plantations may have negative environmental effects12 Potential yield decrease would lead to limited profitability • Project is recommendable from economic point of view Economic valuation of energy-wood plantations in Northern-Madagascar

  18. 5. Conclusions • Reduced pressure on unique biodiversity13 Valuable under given aspects ! Further monitoring necessary Given conditions have to be analyzed carefully from case to case Economic valuation of energy-wood plantations in Northern-Madagascar

  19. 6. References • Picture 1: Internet: http://upload.wikimedia.org/wikipedia/commons/thumb/6/67/A_SSO_of_E ucalyptus.JPG/220px-A_SSO_of_Eucalyptus.JPG • Picture 2: ESMAP, Sustainable Production of Commercial Woodfuel: Lessons and Guidance from Two Strategies; page 15, 2010 • Picture 3: Internet: https://energypedia.info/images/thumb/7/7c/Meule_casamancaise.jpeg.JP G/600px-Meule_casamancaise.jpeg.JPG Economic valuation of energy-wood plantations in Northern-Madagascar

  20. 6. References • Picture 4: ESMAP, Sustainable Production of Commercial Woodfuel: Lessons and Guidance from Two Strategies; page 15, 2010 • Rainfall/ Precipitation in Antsiranana, Madagascar, Internet: http://www.antsiranana.climatemps.com/precipitation.php • Map 1: Internet: http://media.maps.com/magellan/Images/madagascarrah.gif • Map 2: Internet: http://holyford.org/wp- content/uploads/2014/02/Madagascar-Diana-and-Sava-edt.jpg Economic valuation of energy-wood plantations in Northern-Madagascar

  21. 6. References • Pascual, U. et al.: The economics of valuing ecosystem services and biodiversity, The Economics of Ecosystems and Biodiversity(TEEB), 2010 • Lopez, P. et al.: Le reboisementvillageoisindividuel, 2007 • Average trading price: 2/2014-10/2014 per tCO2, Internet: http://de.investing.com/commodities/carbon-emissions-historical-data • International Monetary Fund, World Economic Outlook Database, 2014 Economic valuation of energy-wood plantations in Northern-Madagascar

  22. 6. References • Poore, M., Fries, C.: The ecological effects of eucalyptus, FAO Paper, 1985 • Rejmánek, M., Richardson, D.: Encyclopedia of Biological Invasions, 2011 Economic valuation of energy-wood plantations in Northern-Madagascar

  23. Thank you for the attention! Economic valuation of energy-wood plantations in Northern-Madagascar

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