The development and application of economic valuation techniques and their use in environmental policy - A survey

This paper is concerned with the issue of how to introduce monetary valuation into public decision-making. This issue is closely related to introducing rational procedures into public decision-making (Pearce, 2001). All public decision-making involves choice. To economists, rational choice means making the 'best' use of available resources, i.e. choose that option that has the lowest opportunity cost or the lowest value to be sacrificed. Costs and benefits of any project should therefore be weighed as well as compared to cost and benefits of alternative projects. This implies that all impacts of these projects need to be expressed in the same unit to make comparison possible. Money seems to be the most obvious numéraire. We discuss some of the most popular economic valuation techniques and their potential role in public decision-making. Due to the high cost and time that is needed to perform original valuation studies and the limited knowledge of decision-makers with these techniques, we recommend that the Flemish Administration primarily invests in performing high-quality transfer studies.Valuation, Cost-benefit Analysis, Travel Cost Method, Contingent Valuation Method

Cost- benefit analysis of the location of new forest land

In this paper we show how cost-benefit analysis can be used as a decision support mechanism for the location of new (urban) forest land, starting from the multifunctional role of these new forests. We start with a simple presentation of the cost-benefit analysis (CBA) technique. Key features of this evaluation technique are that (i) all - both positive and negative - impacts for all relevant parties (i.e. not only the project promoter) are taken into account and (ii) evaluation occurs on the basis of monetary values. Next, we give an overview of all relevant costs and benefits of afforestation projects for the whole society. On the cost side, we distinguish costs directly related to the afforestation project itself, such as tree planting and forest management on the one hand and opportunity costs on the other hand. On the benefit side we make a distinction between use and non-use values. Use values include timber production, hunting, recreation and ecosystem values. Non-use and option values capture forest benefits that are independent from the actual use made of the forest area. As valuation of recreation and non-use/option values is not straightforward, we discuss their valuation methods in more detail. For valuing recreation the travel cost method (TCM) is the most widely used technique. TCM seeks how the visit frequency responds to changes in the price of a visit. Non-use values can only be valued using the contingent valuation method (CVM). CVM uses survey questions to elicit people's preferences for public goods by finding out what they would be willing to pay for specified changes in them. Finally, we apply the CBA to a real life policy problem. The Flemish government has agreed on a 10.000 ha forest expansion in Flanders, focusing on the multifunction role of forests. In our case study we give an example for the Ghent region (East Flanders). We investigate the net benefits per hectare of combinations of potential forests that meet the surface restriction of 540 ha. We show the importance of including recreation benefits in the evaluation of afforestation projects and more specifically the role of alternative forests (substitutes) in the valuation of one specific forest. We find that this substitution effect is significant in the decision on the location of new forests and leads to a wide variation in the net benefits per hectare of different combinations.Environmental economics; Cost-benefit analysis; Valuation; Land use change; Forestry

Auctioning Conservation Contracts: An Application to the Flemish Afforestation Policy

This paper studies the possibility of using auctions as a policy instrument in conservation programs. In particular, it provides insight into the main concerns that need to be dealt with when implementing conservation auctions. To show the cost saving potential of this policy instrument, we also calculate the social welfare improvement that can be obtained for an afforestation project in Flanders. Creation-Date: 2006-03Auctions; Conservation contracts; Afforestation

Policy options for afferorestation in Flanders

This paper analyses current and alternative afforestation policy instruments in Flanders. First we select forest sites that maximize net social benefits given a constraint on the total area of new forests and then we select policy instruments that yield this optimal combination of sites. For each policy option, we calculate the associated costs for landowners and government as well as net social benefits for society. Our empirical illustration shows that the welfare gain is considerable if the afforestation subsidy is conditioned on an objective criterion rather than a case-by-case approach. Our results also show that it is worthwhile to consider alternative policy instruments, such as auctions, not previously used in Belgian legislation.Afforestation / policy instruments / optimal location

Policy design and the optimal location of forests in Flanders

This paper analyses the current Flemish afforestation policy and shows that this policy is likely to be non-optimal and can be improved. An important step in improving the afforestation policy in Flanders is the selection of the optimal location of a cluster of new forests as a whole. The analysis of the optimal location can provide the regulator with objective criteria, which can be used to develop optimal regulations. It is also worthwhile to consider alternative policies, such as auctions for afforestations projects. To this effect, we investigate several policy options and test these in a real-life example for the creation of new forests in East Flanders.Afforestation / policy instruments / optimal location

Policy options for afforestation in Flanders.

This paper analyses current and alternative afforestation policy instruments in Flanders. First we select forest sites that maximize net social benefits given a constraint on the total area of new forests and then we select policy instruments that yield this optimal combination of sites. For each policy option, we calculate the associated costs for landowners and government as well as net social benefits for society. Our empirical illustration shows that the welfare gain is considerable if the afforestation subsidy is conditioned on an objective criterion rather than a case-by-case approach. Our results also show that it is worthwhile to consider alternative policy instruments, such as auctions, not previously used in Belgian legislation.Afforestation; Policy instruments; Optimal location;

Optimal location of new forests in a suburban region

This paper looks at the optimal location of new forests in a suburban region under area constraints. The GIS-based methodology takes into account use benefits such as timber, hunting, carbon sequestration and recreation, non-use benefits (both bequest and existence values), opportunity costs of converting agricultural land, as well as planting and management costs of the new forest. The recreation benefits of new forest sites are estimated using function transfer techniques. We show that the net social benefit of the total afforestation project may vary up to a factor 6, depending on the forest sites that are selected. We show that the recreation value of a forest site varies considerably with the available substitutes.Benefit transfer, travel cost analysis, cost-benefit analysis, forest recreation, Geographical Information Systems (GIS)

Optimal Location of New Forests in a Suburban Area

In this paper we develop a methodology to select a combination of forest sites that maximizes net social benefits taking into account restrictions on the total surface/size of new forest land. We use GIS technology to estimate for each site the major cost and benefit elements including lost agricultural output, timber and hunting values, carbon sequestration, non-use and recreation benefits. Special emphasis is placed on the recreational value of a potential site as this raises two issues. First, the recreation benefits of a base site estimated via the travel cost method need to be transferred to all potential sites. Second, the recreation benefit of each potential site depends on the existing sites and on the other sites that are in the selection. We show that the same ‘amount’ of afforestation (i.e. the same total surface divided into multiple sites at varying locations) creates a wide range of potential net social benefits due to the role of a varying set of recreation substitutes.We show that the net social benefit of new forest combinations respecting the area constraints may differ up to a factor 21. The substitution effect between forests, both new and existing, turned out to be the dominant factor in the benefit estimation. Compared to the existing literature, our paper improves the methodology by working with realistically feasible sites rather than grid sites, by including the complex recreation substitution effects between potential sites and by including all costs and benefits of afforestation bringing the analysis closer to a real cost benefit analysis.

Optimal location of new forests in a suburban region.

This paper looks at the optimal location of new forests in a suburban region under area constraints. The GIS-based methodology takes into account use benefits such as timber, hunting, carbon sequestration and recreation, non-use benefits (both bequest and existence values), opportunity costs of converting agricultural land, as well as planting and management costs of the new forest. The recreation benefits of new forest sites are estimated using function transfer techniques. We show that the net social benefit of the total afforestation project may vary up to a factor 6, depending on the forest sites that are selected. We show that the recreation value of a forest site varies considerably with the available substitutes.Benefit transfer; Travel cost analysis; Cost-benefit analysis; Forest recreation; Geographical Information Systems (GIS);

Optimal location of new forests in a suburban area

This paper looks for the optimal location of new forests in a suburban area under area constraints. The GIS-based methodology takes into account timber, hunting, carbon sequestration, non-use and recreation benefits and opportunity costs of converting agricultural land, as well as planting and management costs of the new forest. The recreation benefits of new forest sites are estimated using function transfer techniques. We show that the net social benefit of new forest combinations respecting the area constraints may differ up to a factor 21. The substitution effect between forests, both new and existing, turned out to be the dominant factor in the benefit estimation.Benefit transfer, travel cost analysis, cost-benefit analysis, forest recreation, Geographical Information Systems (GIS)