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.
Read and understand the following slide presentations.
Benefit Cost Analysis
[SUFES_05_Module VI_Slides _1.1 Benefit Cost Analysis.pdf to be embedded here.]
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Forest Resource Accounting
[SUFES_05_Module VI_Slides _1.2 Forest Resource Accounting.pdf to be embedded here.]
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Read the following articles:
Anup, K. C., Koirala, I., & Adhikari, N. (2015). Cost-Benefit Analysis of a Community Forest in Nepal. Journal of Sustainable Forestry, 34,3:199-213.
Commonwealth of Australia. (2006). Handbook of Cost Benefit Analysis. Department of Finance and Administration, Australia.
James, D., & Predo, C. (2015). Principles and practice of cost–beneﬁt analysis. In D. James & H.A. Francisco (Eds.), Cost-beneﬁt studies of natural resource management in Southeast Asia (pp. 11-46). Singapore: Springer.
Lange, G.M. (2004). Manual for environmental and economic accounts for forestry: a tool for cross-sectoral policy analysis. Working Paper. Rome, Italy: FAO. Retrieved from http://www.fao.org/docrep/007/j1972e/J1972E00.htm#TOC
Tiwari, D.N. (2000). Sustainability criteria and cost–benefit analysis: an analytical framework for environmental–economic decision making at the project level. Environment and Development Economics, 5, 259-288.
United Nation. (2014). System of environmental-economic accounting 2012: Experimental accounting system. New York: United Nation.
Roongtawanreongsri, S., Sawangchote, P., Bumrungsri, S., & Suksaroj, C. (2015). Economic Beneﬁt of Management Options for a Suburban Forest (Kho Hong Hill) in South Thailand. In D. James & H.A. Francisco (Eds.), Cost-beneﬁt studies of natural resource management in Southeast Asia (pp. 11-46). Singapore: Springer.
Boardman, A., Greenberg, D., Vining, A., & Weimer, A. (2010). Cost-benefit analysis: concepts and practice (4th Edn.) New Jersey: Prentice Hall. ISBN-13: 978-0137002696
Cornelis, G., & Kooten, v. (2004). Land and forest economics. Cheltenham: Edward Elgar. ISBN: 978 1 84376 881 4
Gittinger, J. P. (1982). Economic analysis of agricultural projects. Baltimore: Johns Hopkins. ISBN: 9780801829130.
Hanley, N., & Spash, C. L. (1993). Cost-benefit analysis and the environment. Hants: Edward Elgar. ISBN: 1 85278 455 5
James, D., & Francisco, H.A. (Eds.) (2015). Cost-beneﬁt studies of natural resource management in Southeast Asia. Singapore: Springer. ISBN 978-981-287-392-7
Please answer the following self-reflection questions. After formulating your answers, you may post them online at the Knowledge Café for this course as a way to share your ideas and glean knowledge from other students’ responses.
SrQ#1.1: How do you relate economic valuation of forest ecosystem services in benefit cost analysis? Elaborate your answer.
SrQ#1.2: What are major problems faced by the government when integrating forest ecosystem services in calculating net national product based on System of Environmental and Economic Accounting (SEEA) framework?