Forest conservation versus conversion under uncertain market and environmental forest benefits in Ethiopia: The case of Sheka forest

Previous studies of costs and benefits of forest conservation haven't considered the irreversible nature of forest clearing and the uncertainty associated with forest preservation benefits. The present study adapted a dynamic optimization framework to analyze optimal land use decisions. Results show that ignoring negative climate change effects on tea production and forest carbon storage values leads to excessive deforestation and lower optimal forest stock levels. The analyses also suggest that optimal forest stock is inversely related with the discount rate and at discount rates higher than 5%, complete deforestation becomes the optimal land use choice. This points to the need to critically reassess discount rates currently applied to approval of projects in Ethiopia, which are generally higher than 5% and which do not distinguish projects with long-term environmental costs and benefits from others. It is therefore also necessary to introduce incentive mechanisms such as rewarding reductions in emissions from deforestation and forest degradation to prevent further clearing of forests.