This report describes the development of two important models for analyzing the impacts of REDD
policy in Nepal: A dynamic land use model and a Computable General Equilibrium Model (CGE). The
dynamic land use model provides projections of distribution of land use change and forest
management change. The CGE model provides projections of the demand for wood and agricultural
products as well as the resulting demand for land. The models are designed to estimate the effects of
REDD policy spatially within Nepal and to illustrate how the resulting financial flows and land use
changes will interact within the economy. Both models are developed with Nepal specific most
recent available data.
The dynamic land use model is a dynamic optimization approach that models land use in three
categories namely forests, crops, and livestock. Payments are made directly within the model for
carbon and the model re-allocates land among uses and regions to optimally store carbon and
produce crop, livestock, and forest outputs. The CGE model is a standard approach that relies on a
recently developed social accounting matrix for the country of Nepal.
The dynamic land use model suggests that forestland is increasing modestly in the baseline case, by
around 2000 hectares per year over the next 60 years. The change is not the same in all regions. The
Mid-hill region experiences more afforestation over the next 60 years, while Terai and Churia
experience modest deforestation of around 1800 hectares per year in total as land converts to
croplands. Some of the increase in croplands in Terai and Churia is derived from pastureland, albeit a
small amount.
When carbon prices are added to the dynamic land use model, the model suggests that for around
$10 per ton CO2, deforestation will largely be stopped. Interestingly, deforestation continues to
occur in Churia in all of the scenarios examined, suggesting the relatively high value of crop
production there. The largest changes in land-use occur in the least productive area, the Mid-Hill
region.
The CGE model is stimulated with a REDD policy that induces 2617 additional hectares each year to
be maintained in agricultural production for a payment of 2761 million Nepalese Rupees each year.
Under this policy, the effects are initially positive for Nepal, but over time, the removal of land from
agricultural production reduces rate of growth in overall economic activity in Nepal although the
overall such effects are small.