Topic 1: Benefit Cost Analysis (BCA) and Natural Resources Accounting in National Forest Policy

Benefit cost analysis (BCA) is a standard tool for evaluating the economic analysis or trade-off analysis investment of development projects. The application of BCA requires understanding of a few rules and a theoretical framework. The theory of BCA must be understood along with the assumptions before the analysis can be presented to policy makers. It should also be noted that there are many techniques for assessing and evaluating policies and projects that impact the forest environment. Other methods include environmental impact assessment, scenario analysis, social impact analysis, risk-effectiveness analysis, and cost-effectiveness analysis. BCA is a useful tool for policy makers who make decisions on the competing uses of forestland. The basic structure of BCA is outlined and discussed is this topic. Participants are encouraged to refer to standard textbooks on BCA for a comprehensive and complete understanding on BCA.

Another important application of economic valuation is the measurement of forest ecosystem services in natural resource accounting. Environmental and natural resource accounting has evolved since the 1970s through efforts by individuals and organizations in some countries. In the 1980s, The United Nations Statistics Division, EUROSTAT, OECD, The World Bank, national statistical offices, and other organizations standardized the framework and methodologies for environmental and natural resource accounting. The United Nations Statistical Division published “The System of Environmental-Economic Accounting 2012—Experimental Ecosystem Accounting” (SEEA Experimental Ecosystem Accounting) in 2014. The document presents initial efforts to define a measurement framework for integrating biophysical data and tracking changes in ecosystems and linking those changes to economic and other human activity. It applies the accounting concepts and rules to the emerging field of ecosystem assessment and measurement in response to a wide range of demands. FAO published a manual in 2004 for environmental and economic accounts for forestry: a tool for cross-sectoral policy analysis.

Measuring and valuing the benefits of ecosystem services provided by forest and changes in those benefits is often suggested as a way to increase the recognition of these benefits and improve the integration of the forest sector into broader national policies and programmes. In this regard, the UN has recently produced a System of Environmental and Economic Accounts (SEEA) to measure natural resource assets. At the national level, net domestic product (NDP) is gross domestic product (GDP) after deducting the allowance for man-made capital. At the sectoral level, the increase in the aggregate value added from forestry and wood-based industries is often seen as a major contributor to NDP. Integrating depletion of forest resources into SEEA requires economic valuation of various forest ecosystem services. A number of countries are using this concept, but the data required to calculate resource accounting is often complicated and difficult to collect.