0136-B2

1 Resilient sustainable livelihood system vs. carbon for Kyoto: Can we make both ends meet? A microanalysis for India ¹

Haripriya Gundimeda ²

Abstract

The rural poor and landless require resilient, sustainable livelihood systems that are flexible in the short term due to dependence on multiple products. The Kyoto Protocol requires that Clean Development Mechanism (CDM) projects result in long-term benefits related to the mitigation of climate change. This long-term requirement to keep carbon in storage may conflict with the short-term needs of the poor. The objective of this paper is to examine the potential implications of Land-use change and Forestry (LUCF) projects for rural livelihoods and discuss mechanisms to prevent LUCF projects affecting rural livelihoods.

1. Introduction

The paper considers the implications of Landuse change and forestry projects (LUCF)³ in India as an option for clean development mechanism (CDM) of the Kyoto Protocol (KP). LUCF projects can offer substantial benefits in addition to GHG emission reduction (Gundimeda, 2000). Carbon sequestration project depends on the availability of land, land tenure, current vegetation status and opportunity cost of land. In particular the paper considers only the implications of carbon sequestration through forest expansion. Only the forested land or the land that has not been put to use (wasteland or degraded land) can be available for forest expansion (Haripriya, 2001). In India these lands are generally categorised as common property resources (CPRs) or open access resources. Jodha (1986) identifies CPRs as "the resources accessible to the whole community of a village and to which no individual has exclusive property rights. The CPRs that fall under this category include community forests and pastures, wastelands, common dumping and threshing grounds, watershed drainage and village ponds, rivers, rivulets as well as their banks and beds. In India, many rural households are extremely vulnerable to unanticipated hardship caused by unemployment, crop failure etc and in times of crisis the CPRs can provide valuable subsistence inputs and income-generating opportunities. If access to these lands is restricted, there may be direct conflict between local interests and any proposal to conserve trees for carbon. To be benefited from, CDM, the rural poor require resilient, sustainable livelihood systems, which are flexible in the short term. However, the KP requires that CDM should result in long-term carbon benefits. This long-term requirement to keep carbon in storage may conflict with the short-term needs of the poor. The focus of the paper is to examine the potential implications of the carbon expansion projects to the rural livelihoods and discuss mechanism through which these projects would not affect the rural livelihood.

2. Importance and Status of CPRs

For CPRs to be eligible under CDM they should address the main concerns of additionality, leakage and permanence (Brown et al., 2000). Additionality, means that the project must demonstrate that the activities leading to carbon benefits are additional to a 'business-as-usual' (technological, financial and institutional) scenario. Leakage implies projects must demonstrate that anticipated carbon benefits do not suffer an unexpected loss due to displacement of activities in the project area to areas outside the project that result in carbon emissions. A unique feature of these LUCF projects is the possibility of reversal of carbon benefits either due to natural disturbances or due to lack of reliable guarantees. This feature is named in the KP as `Permanence'. To qualify for CDM the project should demonstrate that the feature of permanence or strategies has been identified. A description of importance of CPRs and their conditions is given below to examine if CPRs are eligible under CDM. Several studies have shown that CPRs are critical to sustainable livelihood strategies of the poor in India. Jodha (1992, 1985) sketched a broad picture of contributions made by various CPRs in India; ranging from direct visible contributions in terms of supplying food, fodder, fuel, timber etc. to less valuable gains implied by sustainability of farming systems, renewable resource supply, etc. From Jodhas' various studies, the following implications can be drawn: 1) CPRs contribute between 12 - 25% of the poor household income; 2) the poorer the households, the more important the contribution of CPRs and 3) CPRs contribute to rural equity because they are accessed more by the poor than by the rich. Chen's (1991) case study of a Gujarat village shows conflicts over CPR's increases in times of crisis. Beck (1994) in a similar study notes that CPR constituted between 19 and 29% of household income of very poor villagers and notes that conflict over CPRs is central to poor household's experience of poverty.

The National Sample Survey Organisation (NSSO) in its 54^th round (1998) has estimated CPR land per household at the state level. The estimates indicate that CPR land constitutes 15% of the total geographical area in India. The NSSO data also reports that around 45% of all rural households collect fuelwood and 45% report some collection in the form of fodder, katha, Lac, etc. Only 1% of the people who collect fuelwood reported sale of fuelwood. The average quantity of fuelwood collected varies from state to state with all India average of 500 kg (NSSO, 1999). However, the average value of the products is not very high because complete quantification made by CPRs is not easy or due to underreporting. Moreover, the importance of CPRs is not only economic but also central to many cultural and social activities of rural poor. Despite the contribution made by CPRs to the rural poor, these resources have remained one of the most neglected areas in development planning in India. Further, a number of welfare and development interventions have had severe negative side affects on CPRs. In the last five years itself, around 833,000 ha (around 2%) of the CPR land has been lost (NSSO, 1997). Jodha identifies the primary factors behind the degradation of CPRs as undeclared regressive state policies, encouraging privatisation and neglect of CPRs. Increasing the productivity of CPRs would require huge investments, to which the key obstacles being absence of fiscal tradition to patronise such community resources, long gestation period and complex transaction costs associated with resource allocation to CPRs and invisibility of gains (Jodha, 1992).

It is clear that the government does not have access to the necessary resources to improve the state of CPRs unless financed by some external source. Hence, the additionality component of the KP is satisfied. Leakage prevention cannot be guaranteed but can be prevented if the projects are carefully designed taking into account the demand for products or resources contributing to the land-use change. The issue of permanence can also be addressed through strategies such as establishment of contingency carbon credits, insurance, and mixed portfolio of projects (Brown et al., 2000). However, LUCF carbon-offset projects cannot be a permanent solution, but rather as a means to postpone emissions and buy time to implement policies and measures requiring longer lead times. Hence, the CPR lands are eligible for the CDM projects.

The arguments above favour revegetating CPR lands under CDM. On the positive side, this would result in accrual of benefits to whole villages as well as to the individual. On the other side, sequestration of carbon and burning of carbon are contradictory, which need to be considered. Secondly, if growing trees for carbon becomes profitable, there may be tendency to grab the CPR land by influential villagers. Such phenomena have been reported by some of the earlier studies on CPRs. The impact on rural people also depends on the kind of institutional arrangement. For instance, restricting the rural people involvement raises the basic equity issue. Higher returns for investors or governments would result in the loss of low productivity options for many. In such cases the contributions of CPRs in terms of sustainable supplies of biomass and stability of farming systems may be permanently lost, and thus accentuate poverty and hunger once CPRs are converted to fields growing carbon. This would also result in increased scarcity and stress for those depending on CPRs in terms of longer time and distance involved in collecting the same or lesser quantities of CPR products and the loss in sustained grazing. Such micro level issues are likely to be overlooked in the design of CDM projects, as the investors may not be completely aware of the institutional dynamics of CPRs. Interventions need to be fairly location-specific and much smaller in scale, but this may push up the transaction cost making then unattractive for the investor (Gundimeda and Yan, 2002). Consequently, relevant and potentially effective initiatives may not prove attractive to the donors due to the `economies of scale' argument for not handling small- scale interventions. When considering the usage of CPRs for CDM, incorporation of "CPR perspective" is inevitable.

On the contrary, if the CPR lands are not used for CDM projects, despite the inferior options available from CPRs, the rural poor continue to depend on them. Though there are other ways of coping strategies adopted by poor (like ready acceptance of inferior options, illegal loping of trees etc), the dominant response of the rural people would be to grab CPR areas and over-exploit their production potential. This would result in further environmental degradation at the village level and rapid decline of whatever cushion rural people have. Finally this would induce increased marginalisation and pauperisation of the poor. The cost of abolishing CPRs, in terms of foregone opportunities for gains to the poor, would be too high to be compensated by other means.

In the simplest case assuming the system is well designed and local people continue to have right over the CPR lands based on some well-defined rules. Though they can get products like nuts, fruits etc but the basic commodity, which they cannot get is fuelwood, if the investor's interest of growing carbon has to be maximised. In such cases the success of CDM depends on the magnitude and responsiveness of rural communities to fuelwood use and also availability of other substitution possibilities. In the Indian context, it is especially important, as still 78% of the rural people and 30% of the urban population is dependent on fuelwood. Where the people are heavily dependent on fuelwood, in such places carbon sequestration cannot be achieved in isolation without fuelwood/integrated landuse management or energy substitution policies. This involves designing project component to address the unsustainability of both the supply and demand sides of fuelwood through management of community forests and promotion of other substitution possibilities to displace the use of fuelwood. For this one should have an idea of the preferences of people and their reflection in terms of the energy demand. An advantage of integrating fuelwood use with carbon sequestration is that the use of such biofuels alleviates the critical issue of maintaining the biotic stocks over a long time and also lessens the conflicts. Of course, how to design such successful livelihood interaction is an issue, which would be discussed later.

3. How responsive are rural people to fuelwood demand?

In this section we analysed the responsiveness of fuel demand in rural areas using the data collected by NSSO on the extent of CPR use and consumption of important commodities in India. The data comprises information collected from around 69,206 rural households and 46,148 urban households, covering the entire country (26 states and 6 union territories) during 1993-94. In the first step we grouped the households in different regions in India into different homogeneous groups using the method of K-means clustering. Based on this, we identified four clusters. In the next step, we estimated the fuel demand for different clusters using the household data. Without going into the technical details, the model can be briefly discussed as follows. In the first step a household allocates budget on fuel and non-fuel commodities and in the second stage he allocates expenditure on different categories of fuel. For the first stage an Engel model (relation between consumption and income) is used to analyse the allocation of total expenditure on fuel and non-fuel. In the second stage a linearised version of the almost ideal demand systems (LA-AIDS) suggested by Deaton and Muellbauer (1980) is used (see Gundimeda and Köhlin, 2002). We considered the following commodity groups for rural areas: dung, fuelwood, kerosene, and electricity. The household characteristics include total household expenditure, household size, expecting economies of scale in fuel consumption, caste, occupation, as proxies for both taste, life-style and opportunity cost of time, ownership of land as resource characteristic. SAS was used to estimate the demand systems for the different clusters.

4. Discussion of results and Conclusion

Table 1 presents the matrix of uncompensated own-price and cross-price elasticities. All estimated own-price elasticities are negative as expected. The results indicate that in almost all clusters people are highly responsive to the prices of fuelwood and electricity. However, the cross-price effects are not very promising as they are very low. This sensitivity of fuelwood demand to price hikes is interesting since it implies that a scarcity of fuelwood supplies could very well have serious welfare implications when alternate fuels are not available. In India, the immediate substitute higher up the ladder is kerosene, which is not easily available in the market The rural poor view LPG as an extremely luxurious fuel given the high initial costs and difficulty in accessing. Further, given the fact that rural areas do not have uninterrupted power supply, most of the rural poor use kerosene for lighting. Electricity is mainly used in India for lighting and not for cooking. In view of this the only affordable and readily available alternatives available to the rural people in India are fuelwood and dung. Using CPR lands without consideration of the rural scenario would not only result in conflicts but also extreme hardships for poor. With no access to CPRs and hence no income opportunities, this would force the rural poor to migrate to nearby towns and seek employment. For those landless households who do not migrate it becomes a question of survival. Further, this would place such CDM projects under high participant as well as project risk and at the end the project may not yield beneficial results (see Gundimeda and Yan, 2002 for discussion). This would also push up the transaction costs making the projects unattractive. In such cases design of proper incentive contract would result in win-win-win situation for the investor, host country and the environment. One such incentive contract would be the management of the CPR lands by the user groups.

Table 1. Own Price and Cross Price elasticities for all Clusters

But the scenario where there exists a regulated access to CPRs, with carbon as but one of the commodity, would result in increase in net income for everyone in the village. Here by meaning strict common property regime it means regulation of access, equitable distribution of produce, monitoring the behaviour and sanctioning the violators of the commonly agreed restrictions. However, instead of regulated access if the alternative sources of fuel are made available to the rural people, landless households who are critically dependent on fuelwood from the common lands have to spend more money for buying LPG/kerosene, and hence would experience reduction in their net income levels (violating the issue of equity in the KP). The only solution to this problem seems to be management of CPRs by user groups for carbon as well as fuelwood. There is also a vast literature on the conditions for sustaining the user groups. Based on an extensive review of studies Agarwal (2001) summarised the list of critical enabling conditions for sustainability on the commons although in a different context. They have been classified under four heads: 1) Resource system characteristics; 2) Group characteristics: 3) Institutional arrangements and external environment. The success of cdm on CPRs depends on how one can satisfy these criteria.

References

Agarwal, A. (2001), `Common Property Institutions and Sustainable Governance of Resources', World Development 29(10), pp. 1649-1672.

Brown, S., et al. (2000), `Issues and Challenges for forest-based carbon-offset projects: a case study of the Noel Kempff climate action project in Bolivia', Mitigation and Adaptation Strategies for Global Change 5:99-121.

Chen, M. (1991). Coping with Seasonality and Drought, New Delhi: Sage.

Deaton, A. and Muellbauer, J. (1980), `An almost ideal demand system', American Economic Review, 70:312-26.

Gundimeda, H. and Kohlin, G. (2002), `How can fuel demand elasticities help energy policy and the environment', Department of Economics Working Paper, University of Gothenburg, Sweden.

Gundimeda, H. and Yan, G. (2002), `Prototype carbon fund: is it the only way to make cdm work?,' Asia Research Centre Working Paper, London School of Economics and Political Science, London

Haripriya, G. (2001), `Managing forests to sequester carbon', Journal of environmental planning and management, 44(5), 701-720.

Jodha, N.S. (1986). `Common property resources and rural poor in dry regions of India', Economic and Political weekly, 31(27), 1169-1181.

Jodha, N. S. (1992), `Common property resources: A missing dimension of development strategies (discussion paper no. 169)', Washington DC: The World Bank.

NSSO (1999), Common property resources in India, Report No. 410, New Delhi: National Sample Survey Organisation (NSSO).

¹ Abridged version. More details and results can be made available on request.

² Asia Research Centre, London School of Economics and Political Science, Houghton Street, London WC 2A 2AE, UK. [email protected].

³ Carbon sequestration, expansion and substitution