evaluation methods cost-benefit analysis and · outline multi-criteria analysis, cost benefit...
TRANSCRIPT
FFEM Component 2 Methods and tools for socio-economic assessment of goods and services
provided by Mediterranean forest ecosystems
Evaluation methods
Cost-benefit analysis and
multi-criteria analysis
issues and implementation
Regional workshop
Tunis, 2-5 June 2014
Fabrice GOURIVEAU
Nicolas ROBERT
Outline
Multi-criteria analysis, Cost benefit analysis and other methods
• Goals and main differences
Multi-criteria analysis
• Principle & sort example
Cost Benefit analysis
• Principle
• Example
2
Evaluation of decisions
3
Labour
Material
Energy
Capital
Product 1
Product 2
Transformation system
Externality 1
Externality 2
T/€
Q/€
Q/€
Q/€,O
Q/€
Q/€
Q
Q?
€?
€?
Evaluation methods
Tools to support decisions
• Monetary only
Cost-Effectiveness Analysis (CEA)
Cost-Benefit Analysis (CBA)
• Indicator-based
Multi-Criteria Analysis (MCA)
Life Cycle Analysis (LCA)
4
Initial state
x0,y0,z0
Objective state 1 x1,y1,z1
Objective state 2 x2,y2,z2
C B
C
B–C with B=(Vx2–Vx1)+(Vy2–Vy1)+(Vz2–Vz1)
C
Project/product level
(B,C) with B=(x2–x1)+(y2–y1)+(z2–z1)
y x
z
Multi-criteria analysis
Objective: to structure a complex decision problem
to compare different management alternatives
When to use it?
• multi-objective or multiple criteria
• heterogeneous sets of criteria
• conflicting objectives
Expected results:
• rational, transparent, and comprehensive analysis
• qualitative and quantitative data at different scales
5
MCA: steps
Step 1: Aim of the MCA, key players
Step 2: Identify alternatives
Step 3: Identify criteria / consequences of each alternative
Step 4: Estimate performance of each alternative against the criteria?
Step 5: Weight criteria / relative importance
Step 6: Weight combinations of criteria overall scores
Step 7: Compare alternatives, prepare recommendations
6
Alternative 1
Person 1 Person 2 Person 3
Score Weight Score Weight Score Weight
Criterion A +1 1 0 1 +1 1
Criterion B 0 1 +1 1 -1 0
Criterion C -1 1 0 2 +1 1
Total score 0 0.25 1
MCA: Strengths and weaknesses
Strengths
• Includes impacts on non-monetary values
• Facilitates stakeholder involvement
• More transparent appraisal and decision-making process
• Can lead to a list of optimum choices
Weaknesses
• No built-in standard value (project specific values)
• Limited comparisons between studies
• Requires well developed participation processes
• Strongly depends on stakeholders’ willingness to participate
7
Cost benefit analysis
Objective:
• assess the relative desirability of competing alternatives
Extension of private CBA
When to use it?
• Analyze alternative policies / practices
• All variations in the provision of goods and (dis-)services
can be estimated in monetary terms
Expected results:
• Estimates of the net present value; cost/benefits ratios;
internal rate of returns; payback periods
8
Cost benefit analysis
9
Direct costs and benefits
Adjustment for imperfect
competition and other distortions
Assessment of environmental
impacts
Private CBA
Social CBA(without environmental
impacts)
Social CBA(with environmental
impacts)
Incl. transfer payments
Excl. transfer payments
Society
CBA Scope
10
Labour
Material
Energy
Capital
Product 1
Product 2
Transformation system
Externality 1
Externality 2
Transformation system Transformation
system Transformation system
Profit
Benefits
Incentives
CBA: Stages
Step 1: Event, project or policy definition
• Stakes and possible problems
• Drivers of change and levers / actors (who can decide/act?)
• Scenarios: base case & alternatives, time horizon
Step 2: Identification of relevant project impacts
• Resources used /
• Potential impacts on market and economic parameters and on
surrounding environment
NB: marginal effects / additionnality principle
Step 3: Physical quantification of relevant impacts
• What changes, which quantities/quality and when?
11
CBA: Stages
Step 4: Monetary valuation of relevant impacts
• Marginal values of the changes
Step 5: Discounting of costs and benefits
• social discount rate:
Social time preference rate
• r = ng + p,
• p: rate of pure inter-temporal preference (utility discount rate),
• n elasticity of marginal utility of consumption
• g: growth rate of per capita real consumption
• Opportunity cost of capital
12
0
2 000
4 000
6 000
8 000
10 000
0 5 10 15 20 25 30 35 40
EU
RO
Year
r=1%
r=3%
r=5%
r=10%
CBA: Stages
Step 6: Calculating the CBA performance indicators
Step 7: Performing sensitivity analysis
Make recommendations
based on indicators and the sensitivity analysis
13
T
tt
tT
tt
tT
tt
t
d
C
d
B
d
SSNPV
000 111)(
0
10
T
tt
t
IRR
SIRR
T
tt
tT
tt
t
d
C
d
BBCR
00 11
0
11 00
T
tt
tT
tt
tPayBack
d
C
d
BTT
CBA: Strengths and weaknesses
Strengths
• Based on well-understood theoretical foundations
• Built-in standard for value (monetary terms)
• Limited to beneficiaries which actually value the impact
• Common methodology: transferability to other studies
• Adapted to benefit transfer
Weaknesses
• Limited only to impacts measurable in monetary terms
• Strong influence of the selected CBA parameters
(e.g., discount rate, project duration, costs and benefits considered)
14
FFEM Component 2 Methods and tools for socio-economic assessment of goods and services
provided by Mediterranean forest ecosystems
Putting
Cost-benefit analysis
into practice
Regional workshop
Tunis, 2-5 June 2014
Fabrice GOURIVEAU
Nicolas ROBERT
Examples
Example 1: Social benefits of an afforestation project
Study using the results of a choice experiment valuation
Example 2: Costs and benefits of the natura 2000 network
Effect of an EU level policy
16
Example 1:
Social benefits of an afforestation project
Step 1: Event, project or policy definition
• Afforestation on abandoned agricultural land
• Land owners / Managers
• Financed by beneficiaries
Step 2: Identification of relevant project impacts
• Positive impacts (benefits):
• Increased forest area
• Increased carbon sequestration,
• Increased diversity of plant species
• recreation access
• Negative impacts (costs):
• Initial investment
• Increased maintenance costs
17
(Mavsar, 2012)
Example 1:
Social benefits of an afforestation project
Step 3: Physical quantification of relevant impacts
Step 4: Monetary valuation of relevant impacts
18
Benefit Alternative 1 Alternative 2 Alternative 3
Forest area + 5%
(140,000 ha)
+ 15%
(420,000 ha)
+ 25%
(700,000 ha)
Number of additional
plant species +40 +90 +140
Recreation access No Yes Yes
Quantity of additionaly
sequestrated CO2 +9,320 t CO2 +18,640 t CO2 +27,960 t CO2
Benefit Unit Marginal Value
(€/year/person)
Forest area Ha 9.58
Plant Species 0.65
Recreation having access 38.60
CO2 t CO2 0.0053
Example 1:
Social benefits of an afforestation project
Step 5: Discounting of costs and benefits
19
Year Cost (in €)
Net present value of
cost (in €)
Benefit (in €)
Net present value of
benefit (in €)
Net present value (in €)
0 10688.8 10688.8 0.0 0.0 -10688.8 1 0.0 0.0 0.0 0.0 -10688.8 2 0.0 0.0 0.0 0.0 -10688.8 3 0.0 0.0 0.0 0.0 -10688.8 4 0.0 0.0 0.0 0.0 -10688.8 5 534.4 461.0 0.0 0.0 -11149.8 6 0.0 0.0 0.0 0.0 -11149.8 7 0.0 0.0 0.0 0.0 -11149.8 8 0.0 0.0 0.0 0.0 -11149.8 9 0.0 0.0 0.0 0.0 -11149.8
10 534.4 397.7 0.0 0.0 -11547.4
----- ------------------ ------------------ ---------------- ------------------ ------------------
42 0.0 0.0 17597.6 5085.0 106046.8 43 0.0 0.0 17597.6 4936.9 110983.7 44 0.0 0.0 17597.6 4793.1 115776.8 45 534.4 141.3 17597.6 4653.5 120289.0
Example 1:
Social benefits of an afforestation project
Step 6: Calculating the CBA performance indicators
Step 7: Performing sensitivity analysis
20
Indicator Alternative 1 Alternative 2 Alternative 3
Discount rate=3%
NPV 184,323 152,116 120,289
B/C ratio 15.0 12.6 10.1
IRR 7.69% 6.88% 5.88%
Discount rate=1%
NPV 372,281 309,206 246,874
B/C ratio 26.7 22.4 18.1
IRR 10.23% 9.45% 8.52%
Discount rate=5%
NPV 91,119 74,236 57,550
B/C ratio 8.3 7.0 5.6
IRR 5.04% 4.15% 3.02%
Recommendations?
Example 2:
Social benefits of an afforestation project
Step 1: Event, project or policy definition
• Afforestation on abandoned agricultural land
• Land owners / Managers
• Financed by beneficiaries
Step 2: Identification of relevant project impacts
• Positive impacts (benefits):
• Increased forest area
• Increased carbon sequestration,
• Increased diversity of plant species
• recreation access
• Negative impacts (costs):
• Initial investment
• Increased maintenance costs
21