Valuing Forest Ecosystem Services a Training Manual for Planners and Project Developers
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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. 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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