The Financial and Political Opportunity Costs of Orangutan Conservation in the Face of Oil-Palm Expansion

Hemanath Swarna Nantha

No 168377, Economics, Ecology and Environment Working Papers from University of Queensland, School of Economics

Abstract: This paper examines the opportunity costs of conserving the forest habitats of the endangered orangutan (Pongo pygmaeus spp.) of Indonesia and Malaysia in the face of a highly profitable alternative land use, the conversion of these habitats for the production of palm oil. It shows that one component of the financial opportunity cost of conserving orangutan habitat, the business opportunity cost (profits foregone), was high in both Malaysia and Indonesia in the case of oil-palm development. It is argued that this would be difficult to offset under the payments-for-ecosystem-services (PES) approach. However, the government opportunity cost of conservation in Indonesia, such as the land-tax revenue foregone by local governments by conserving rather than leasing out orangutan habitats for agricultural use, are sometimes lower than the business opportunity cost of conservation. It is suggested that targeting government opportunity costs to conserve unleased forests could potentially offer lower-cost opportunities for conserving orangutan habitats. If, however, political and institutional realities are taken into account, there might exist another type of opportunity cost of conservation— a political one— that could impede the success of the PES approach. Some oil-palm companies in Borneo offer financial inducements in the form of kickbacks and other types of political donations to government officials to obtain land for growing oil palm. This ‘government decisionmaker’s opportunity cost’ has not been addressed in the PES literature, which typically compares potential ecosystem payments with the commercial profits that would have to be sacrificed as a result of conserving forests. The impact of this political opportunity cost on oil-palm expansion is discussed. It is suggested that solutions to this conservation problem cannot be restricted to the monetary valuation method but must also involve alternative political economic interventions.

Keywords: Crop Production/Industries; Environmental Economics and Policy; Land Economics/Use (search for similar items in EconPapers)
Pages: 47
Date: 2014-05
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uqseee:168377

DOI: 10.22004/ag.econ.168377

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