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Valuing forest ecosystem services A training manual for planners and project developers FORESTRY WORKING PAPER 11 Valuing forest ecosystem services A training manual for planners and project developers By Mauro Masiero, Davide Pettenella, Marco Boscolo, Sepul Kanti Barua, Illias Animon and Rao Matta FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS Rome, 2019 Required citation: Masiero, M., Pettenella, D., Boscolo, M., Barua, S.K, Animon, I. & Matta, J.R. 2019. Valuing forest ecosystem services: a training manual for planners and project developers. Forestry Working Paper No. 11. Rome, FAO. 216 pp. Licence: CC BY-NC-SA 3.0 IGO. The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by FAO in preference to others of a similar nature that are not mentioned. The views expressed in this information product are those of the author(s) and do not necessarily reflect the views or policies of FAO. ISBN 978-92-5-131215-5 © FAO, 2019 Some rights reserved. This work is made available under the Creative Commons Attribution- NonCommercial-ShareAlike 3.0 IGO licence (CC BY-NC-SA 3.0 IGO; https://creativecommons.org/ licenses/by-nc-sa/3.0/igo/legalcode/legalcode). Under the terms of this licence, this work may be copied, redistributed and adapted for non- commercial purposes, provided that the work is appropriately cited. In any use of this work, there should be no suggestion that FAO endorses any specific organization, products or services. The use of the FAO logo is not permitted. If the work is adapted, then it must be licensed under the same or equivalent Creative Commons licence. If a translation of this work is created, it must include the following disclaimer along with the required citation: “This translation was not created by the Food and Agriculture Organization of the United Nations (FAO). FAO is not responsible for the content or accuracy of this translation. The original [Language] edition shall be the authoritative edition. Disputes arising under the licence that cannot be settled amicably will be resolved by mediation and arbitration as described in Article 8 of the licence except as otherwise provided herein. The applicable mediation rules will be the mediation rules of the World Intellectual Property Organization http://www.wipo.int/amc/en/mediation/rules and any arbitration will be conducted in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). Third-party materials. Users wishing to reuse material from this work that is attributed to a third party, such as tables, figures or images, are responsible for determining whether permission is needed for that reuse and for obtaining permission from the copyright holder. The risk of claims resulting from infringement of any third-party-owned component in the work rests solely with the user. Sales, rights and licensing. FAO information products are available on the FAO website (www.fao.org/publications) and can be purchased through [email protected]. Requests for commercial use should be submitted via: www.fao.org/contact-us/licence-request. Queries regarding rights and licensing should be submitted to: [email protected]. Cover photo: Boalia River ecosystem, Hathazari, Chittagong, Bangladesh © Sepul Kanti Barua iii Contents Preface ............................................................................................................................ xi Acknowledgements ...................................................................................................... xii Abbreviations and acronyms ...................................................................................... xiii Executive summary....................................................................................................... xv Module 1 | INTRODUCTION ........................................................................................... 1 1.1 The training manual: an overview ......................................................................... 1 Challenges and rationale for this module ............................................................................2 Aims and focus of the manual ...............................................................................................5 Intended audience and users .................................................................................................6 Outline and structure of the manual ....................................................................................6 Limitations ...............................................................................................................................7 1.2 Framing the valuation of ecosystem services and decision making: hypothetical examples in Bangladesh ................................................................... 7 Scenario 1: cost–benefit analysis of a large coastal afforestation programme .................7 Scenario 2: national incentive scheme for tree planting .....................................................8 Scenario 3: setting the entrance fee for a park ....................................................................8 Scenario 4: assessing trade-offs between urban development and green-area conservation .....................................................................................9 Scenario 5: analysing the environmental externalities of a power plant and their costs .............................................................................................................9 Module 2 | ECOSYSTEM SERVICES: CONCEPTS AND FRAMEWORKS ....................... 11 2.1 Defining ecosystem services ................................................................................. 11 How ecosystem services are classified ................................................................................. 14 2.2 Conceptual foundation for the economic valuation of ecosystem services ..... 17 Types of value ........................................................................................................................ 17 Valuation ...............................................................................................................................18 Total economic value ............................................................................................................20 2.3 Forest resources and forest-based ecosystem services in Bangladesh ............. 24 Reflection points ...................................................................................................................26 iv Module 3 | THE BASICS OF COST–BENEFIT ANALYSIS ................................................ 29 3.1 Time value of money ............................................................................................. 30 Compounding and discounting ...........................................................................................30 3.2 Financial and economic analyses ......................................................................... 32 Steps in cost–benefit analysis ..............................................................................................35 3.3 Profitability indicators .......................................................................................... 37 Net present value ..................................................................................................................38 Internal rate of return ..........................................................................................................39 Benefit/cost ratio .................................................................................................................. 41 Normalization .......................................................................................................................43 3.4 Choosing the discount rate ................................................................................... 44 3.5 Sensitivity analysis: dealing with uncertainty .................................................... 45 Assessing risk exposure: the payback period......................................................................46 3.6 Tools and resources for cost–benefit analysis .................................................... 48 Reflection points ...................................................................................................................49 Module 4 | METHODS FOR VALUING ECOSYSTEM SERVICES .................................... 51 4.1 Market-value approaches ..................................................................................... 52 Methods using benefits as proxies ......................................................................................52 Methods adopting costs as a proxy ..................................................................................... 61 4.2 Demand-curve approaches ................................................................................... 62 Direct methods ......................................................................................................................69
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