The Oil Palm

The ‘High Carbon Stock’ Debate: Costs and Benefits

The newly released draft report from the Sustainable Palm Oil Manifesto High Carbon Stock Study (HCSS) group has received a small amount of press attention since it was released in mid-August.

The draft report is a culmination of months of work by a dedicated group of researchers from a diverse range of backgrounds. Notably it is being led by Jonathon Porritt, former leader of Friends of the Earth in the UK.

The study has been presented as something of a foil to an attempt by a coordinated effort by large Indonesian companies, Greenpeace and TFT to unilaterally define what ‘High Carbon Stock’ (HCS) is and what it should mean for oil palm plantations and palm oil purchasers around the world.

Indeed, the study’s release prompted Greenpeace director John Sauven to state that HCSS “is trying to undermine the High Carbon Stock Approach … The SPOM group have proposed their own, weaker definitions that would open the door to extensive deforestation by stealth. This underhand tactic cannot be allowed to succeed.”

The High Carbon Stock Approach is of course NGO-driven. Greenpeace appears to be saying it’s our way or the highway.

One of the major flaws in Greenpeace’s criticism, is that that HCSS actually attempts to balance socio-economic concerns with environmental concerns, which has been notably absent from the model developed by Greenpeace.

The HCSS states it “aims specifically to address how to reliably estimate GHG emissions caused by oil palm development, and how to combine these with socio-economic consideration and other factors when making land use decisions.”

But an interesting point that is brought up by this last statement is that ultimately land-use decisions – on a large scale – are dependent on the government.

More recently, the interaction between governments, environmentalists and the private sector has become more apparent. Two Indonesian officials recently declared the Indonesian Government’s doubts about recent ‘no deforestation’ pledges taken by Indonesian companies on the grounds that they impacted local communities.

Marcus Colchester of the Forest People’s Program recently made very interesting points about the incentives and the actors around high carbon stock. Colchester states on the one hand that a new system proposed would dissuade companies from cutting by using higher conservation values, but this method would also provide these companies with an incentive to hand these areas to local communities – who are quite likely to use this land for agriculture. Similarly, if the policies are implemented at government level, these lands are also likely to be given to communities.

This means that if environmentalists want to conserve these areas, they will need to offer locals a strong incentive to protect them instead of develop them. This, of course, presents a range of new problems.

The opportunity cost for a smallholder or community of smallholders on forested land that can potentially be planted with oil palm is massive. Estimates of the net present value of smallholder oil palm plantations in Sumatra are in excess of USD7000 per hectare according to at least one estimate.

So the question for governments – and the private sector – is whether they can afford this cost. For the private sector, can this cost be absorbed and have the operation remain profitable? For governments, is there a dividend apart from the environmental one? If governments decide to impose costs on the private sector, companies can simply withdraw their capital, meaning foregone revenue and investment. These costs, then, can only be imposed if there’s another source of revenue for the government – will this be aid money from nations such as Norway?

What HCS underlines is that for many Western environmentalists there is a fanciful notion that not developing land for agriculture somehow has no costs attached to it, or is a ‘pain-free’ route. This notion has turned out to be wrong, time and again.

When governments and NGOs originally pushed the idea for REDD, the system underpinning it was one in which wealthy countries would financially compensate poor countries for foregone opportunities by not converting forests. But under HCS, this system – and any compensation — doesn’t exist, meaning poor countries, and the communities within them are being asked to hold themselves back, while getting nothing in return. It’s no surprise, then, that some officials in developing countries have objected to it so strongly.

Certainly, there are no costs for the Western environmentalists. But for governments and people in developing countries, it’s a completely different story.

Despite these comments from various campaigners, there are still some findings in the draft report that the industry needs to take seriously that have been raised by the Malaysian Palm Oil Council.

First is that the conversion threshold throughout the study is not entirely consistent. The measurements used for carbon biomass throughout the study vary, depending on both the number and the measure used. Moreover, the practicalities of measuring of root biomass are not taken into account.

Second, the draft report indicates that any planting on peatlands is forbidden. However, this doesn’t take into account the possibility of planting on degraded peatland and there is potentially a net benefit. This leads to a bigger question: if there is degraded peat, how much should the negative impact of simply leaving it – potentially leading to further negative environmental impacts – be taken into account? The practical costs of peatland restoration are something that should be taken into account. This can be said of environmental remediation more broadly.

Third, there is something close to a prescription for planting to take place almost entirely on grassland and scrubland, but the fact of the matter is that these land classifications are generally absent from tropical developing countries.

Finally, the submission raises the possibility of perverse outcomes. One of the main problems in placing restrictions on how oil palm – and oil palm only – may be planted is that it simply leaves the door open for other crops that for whatever reason environmentalists don’t see as being as controversial. This will mean that the land in question will still suffer precisely the carbon loss that environmental campaigners are trying to avoid. This also leads the possibility that these alternative land crops – such as, for example, banana plantations – will not provide benefits to local communities in the same way. This may be because the type of crop requires volumes, transport infrastructure or agricultural extension services that aren’t available to local smallholders.

A simple thought experiment in this case illustrates this: if the world banned palm oil tomorrow, what would happen? Farmers and companies would plant something else. And it would in all likelihood provide lower social and economic benefits to the communities and countries in which it is planted.

This is ultimately the danger of the HCS study and others like it: that environmental concerns and subsequent measures neither solve the environmental problem, nor provide a social and economic benefit.