Forest degradation economic growth in Nepal 2003-2010

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An empirical analysis of the relation between households’ livelihoods,

their use and collection of forest products and forest degradation.

August 2016

Jean-Marie BALAND, François LIBOIS, Dilip MOOKHERJEE

Debates on the relation between economic growth and environmental degradation do

exist since old times. On top of a deep understanding of the context in which the

question emerges, a proper answer this critical question requires a deep understanding

of the direct effects of growth on natural resources as well as the feedback responses

by affected population. This paper investigates how the huge reduction of poverty that

Nepal experienced over the last decade has affected Himalayan forests. It then

analyses how households, the primary collectors of forest products have reacted to the

change in their ecological, institutional and economic environment. Based on the

Nepalese experience, the policy brief draws conclusions and suggests

recommendations which could guide action in other context as well.

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Deforestation in South Asia, Sub-Saharan Africa and Latin America poses serious developmental and ecological problems. On top of the well-known global consequences in terms of climate change, deforestation also has serious negative effects at the local level. Large sections of neighbouring populations in developing countries rely on forests for household timber, fuel, fodder or other non-timber forests products such as medicinal plants, fruits and mushrooms. Neighbouring populations often spend a large amount of time collecting these products. The ecological problems of deforestation and forest degradation pertain to increased soil erosion, water salinity, siltation in rivers, and increased likelihood of landslides and floods which affect large non-neighbouring populations adversely.

This policy brief mostly focuses on firewood collection. Indeed, wood fuel extraction is the main driver of biomass removal in most of South and East Asian countries as well as in Sub-Saharan Africa (FAOstat 2014). This group of countries includes some of the main producers of wood such as India, China, Democratic Republic of Congo, Ethiopia or Nigeria. Industrial roundwood production is sizeable only in a very limited set of developing countries among which Brazil, Gabon, China, Indonesia and Malaysia. If firewood collection matters for forests, it also matters for households. Traditional use of biomass is the main source of energy for cooking and heating in these countries (IEA – World Energy Outlook 2015). It is therefore crucial to understand the relation between poverty, household demand for fuel and forest degradation.

The policy debate on the relation between income and environmental impact is often guided by three competing hypothesis. The “Poverty-Environment Hypothesis” (PEH) assumes that poor households have the largest impact on their immediate environment. In terms of fuel use, it means that low income households use very inefficient fuel sources. As their income goes up, they progressively switch from crop residuals, cow dung to firewood and finally to cleaner source of fuel such as electricity or biogas. The “Rich polluter” hypothesis stems that pollution increases with income because rich households consume more energy-intense goods such as hot meals, larger houses or warm water. The “Environmental Kuznets Curve” is an intermediary view. It postulates that poor people and low income countries have a small impact on their environment. In the process of development, they go through a phase where the environmental impact raises, before going down again as the demand for environmental amenities increases.

Whether one of these hypotheses reflects the reality of the relation between income and firewood collection (and therefore forest degradation) is crucial for policy makers in Nepal and more generally in developing countries. If the PEH (or the EKC in its downward sloping part) are observed, the prospects for Himalayan forest are positive if development occurs sufficiently fast. If another relation is observed, economic development of Nepal may actually further reduce forest cover and increase local, regional and global externalities associated with deforestation.

This policy brief focuses on Nepal and examines the relationship between household poverty, demand for fuel and forest degradation. Nepal is a landlocked country between India and China populated by more than 28 million inhabitants, 80% of them living in rural area. Nepal remains one of the poorest countries in the world and is one of the four “low income countries” of Asia. Thus, despite a large reduction of poverty over the last 20 years, 48% of the population was still living with less than $3.10 a day (2011 PPP) in 2010. Forests currently cover 45% of the total area of Nepal. This has increased over the last 15 years following decades of decline. This recovery is a source of hope, not only in the perspective of climate change but also because forests in Nepal prevent erosion in the Himalaya which reduces siltation in the Gangatic plains. It also acts as buffer during heavy rainfall. These factors do moderate floods downstream in India and Bangladesh. Forests also constitute an important income source for nearby populations.

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We first show that, in the Hills and Mountains of Nepal, there is a positive relation between household income and household firewood collection. This correlation clearly departs from the PEH. It might be consistent with an EKC but most of Nepali rural households are still on the upward part of the curve, which means that further growth of income in Nepal will increase firewood collections. This relation between income and firewood collection is however a very bad predictor of the Nepalese reality. Between 2003 and 2010, the average household income has increased by 60% while firewood collection went down.

The study then addresses the lack of consistence between the simple positive correlation between firewood collection and income. It shows that the pure - positive - income effect is dominated by the change of occupational patterns associated with the Nepalese economic growth. In other words, if sources of income had not changed, firewood collections would have increased over the last decade. However, economic development in the rural area of Nepal is associated to a switch from livestock rearing and farming to non-farm business activities or occupations requiring more education. This structural change directly increases the opportunity cost of time for households which lowers firewood collection, an activity which represents, on average, a workload of more than 300 hours of work per household. Consequently, growth per se should not be the sole focus of the analysis. What matters even more is the nature of the growth process.

In the second part of the analysis, we show that larger firewood collection at the village level significantly decreases the forest cover. This confirms that firewood collection in the rural Hills and Mountains of Nepal is indeed an important factor of forest degradation. The reduction in household firewood collections appears therefore as good news for Himalayan forests. This enthusiasm is however counterbalanced by the increase in the number of households which almost perfectly compensate the reduction at the household level, leaving aggregate collection at the village level practically unchanged. In conclusion, the analysis depicts a contrasted prospect for Himalayan forests. The current harvest of firewood is roughly on par with forest regeneration. This is sustainable only if timber felling for other purposes – extension of agricultural fields or timber trade – is negligible and if population growth in rural areas does not exceed the reduction of household collections.

The positive relation between income and firewood collection for most rural households in Nepal implies that the reduction of poverty per se is not sufficient to reduce forest degradation. It is the nature of economic growth, by orienting household economic activities from agriculture towards more market based outside opportunities, which reduces the pressure on forest. This shift is however not sufficient to restore Himalayan forests. The increase in the number of rural households (and in the total rural population) compensates the reduction due to the nature of economic growth. One way-out is to accelerate the transition towards alternative fuels, as explored in Baland et al. (2007), eventually by subsidizing them. Another way is to associate agricultural activities with the production of substitutes to fuelwood, as Nepal is currently doing by promoting the adoption of small household level biogas plants. A third option is to accelerate the demographic transition so that population growth does not fully compensate the reduction of collection per capita. Last, institutional changes in the management and property regime of forests can help village communities to set access rules and implement management practices which both increase the biomass yield of forests and its value for users. Baland et al. (2010) and Somanathan (2009) shows that the creation of such groups in the Indian Himalaya does improve forest conditions in the long run. A similar analysis is currently undertaken in Nepal, which has one of the largest decentralization programs of forest management in the world. Even if regularly depicted as a success story, the program fares better in more remote regions and has a hard time reducing high value tree felling in area with better market access.

EVIDENCE AND ANALYSIS

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The analysis relies on a combination between two rounds of representative household surveys in rural Nepal, remote sensing information on forest cover and other environmental factors in Nepal as well as administrative records on nation-wide programs. This rich combination of data has several benefits. First, we can match individual behaviour to differences in economic status and to changes in their immediate environment. Second, by integrating the diffusion of new institutions – community forest user groups – and new technologies such as biogas, we can isolate the effect of growth and individual behaviour as such on changes in forest cover, net of climatic conditions, altitude, rainfall or governmental projects. Third, the analysis suggests that institutional change and technology improvements do seem to play an additional role in forest preservation and are subject of follow-up study.

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Baland, J.-M., Libois, Fr. and Mookherjee, D. (forthcoming). Forest degradation and economic growth in Nepal 2003-2010. Journal of the Association of Environment and Resource Economics

Selected references :

Baland, J.-M., Bardhan, P., Das, S., and Mookherjee, D. (2010). Forests to thepeople: Decentralization and forest degradation in the Indian Himalayas. World Development, 38(11):1642 – 1656.

Baland, J.-M., Bardhan, P., Das, S., Mookherjee, D., and Sarkar, R. (2010). The environmental impact of poverty: Evidence from firewood collection in rural Nepal. Economic Development and Cultural Change, 59(1):23–61.

Baland, J.-M., Das, S., and Mookerjee, D. (2014). Environment and Development Economics: Essays in Honour of Sir Partha Dasgupta, chapter Forest Degradation in the Himalayas: Determinant and Policy Options, pages 202–240. Oxford University Press.

Démurger, S. and Fournier, M. (2011). Poverty and firewood consumption: A case study of rural households in northern China. China Economic Review, 22(4):512–523.

Libois, Fr. (2016) Success and failure of communities managing natural resources : static and dynamic inefficiencies. Working paper series, 1601, University of Namur

Somanathan, E., Prabhakar, R., and Mehta, B. S. (2009). Decentralization for cost-effective conservation. Proceedings of the National Academy of Sciences of the United States of America, 106(11):4143–4147.

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PROJECT NAME NOPOOR – Enhancing Knowledge for Renewed Policies against Poverty

COORDINATOR Institut de Recherche pour le Développement, Paris, France

CONSORTIUM CDD The Ghana Center for Democratic Development – Accra, Ghana

CDE Centre for Development Economics – Delhi, India

CNRS (India Unit) Centre de Sciences Humaines – New Delhi, India

CRES Consortium pour la Recherche Èconomique et Sociale – Dakar, Senegal GIGA German Institute of Global and Area Studies – Hamburg, Germany GRADE Grupo de Análisis para el Desarrollo – Lima, Peru

IfW Kiel Institute for the World Economy – Kiel, Germany IRD Institut de Recherche pour le Développement – Paris, France

ITESM Instituto Tecnológico y de Estudios Superiores de Monterrey – Monterrey, Mexico LISER Luxemburg Institute of Socio-Economic Research – Esch-sur-Alzette, Luxemburg OIKODROM - The Vienna Institute for Urban Sustainability – Vienna, Austria

UA-CEE Université d’Antananarivo – Antananarivo, Madagascar UAM Universidad Autónoma de Madrid – Madrid, Spain UCHILE Universidad de Chile – Santiago de Chile, Chile

UCT–SALDRU University of Cape Town – Cape Town, South Africa UFRJ Universidade Federal do Rio de Janeiro – Rio de Janeiro, Brazil UNAMUR Université de Namur – Namur, Belgium

UOXF-CSAE University of Oxford, Centre for the Study of African Economies – Oxford, United Kingdom

VASS Vietnamese Academy of Social Sciences – Hanoi, Vietnam

FUNDING SCHEME FP7 Framework Programme for Research of the European Union –SSH.2011.4.1-1:

Tackling poverty in a development context, Collaborative project/Specific International Cooperation Action. Grant Agreement No. 290752

DURATION April 2012 – September 2017 (66 months)

BUDGET EU contribution: 8 000 000 €

WEBSITE http://www.nopoor.eu/

FOR MORE INFORMATION

Xavier Oudin, Scientific coordinator, IRD-DIAL, Paris, France, oudin@dial.prd.fr

Delia Visan, Manager, IRD-DIAL, Paris, France delia.visan@ird.fr

Tel: +33 1 53 24 14 66 Contact email address: info@nopoor.eu

EDITORIAL TEAM Edgar Aragon, Laura Valadez (ITESM)

Anne-Sophie Robilliard (IRD-DIAL)

The views expressed in this paper are those of the authors and do not necessarily represent the views of the European Commission.