A Guide o Valuing Naural esources Wealh Policy and Economics Team Environmen Deparmen, World Bank For quesions: Giovanni ua, grua@worldbank.org Conens: Basic framework Sub-soil asses Fores (imber asses) Fores (non-imber fores asses) Cropland Pasure land Proeced areas Key: Main Variables Parameers Derived daa Primary daa 1
Valuing Naural esources Wealh A Basic Framework There are essenially hree seps involved: 1. Esimaion of curren : hese are obained by muliplying he quaniy of he resource produced or exraced by he uni ren. Uni ren is he difference beween he price of he resource and he cos of making i available. Uni are ofen compued as he produc of price and a renal rae. In he case of agriculural land, are calculaed as he value of producion minus he cos of agriculural inpus. 2. Forecas of fuure : o projec over he fuure, assumpions on he growh rae of are needed. Fuure are calculaed as he produc of curren by a (usually consan) growh facor: = * ( + g) 1 * 3. Esimaion of wealh: wealh is esimaed as he presen value of fuure over he lifeime of he resource. For any given discoun rae r and resource lifeime T, we have ha wealh a ime *, W * is: W * = * + T 1 = * ( 1+ r) * The calculaions rely on a series of key parameers: Growh rae of : he esimaion of fuure requires specific assumpions regarding he evoluion of demand and supply over ime. The calculaions here assume consan growh raes in he case of sub-soil asses and agriculural land. For imber are assumed o say consan. Time o exhausion of he resource: he life span of a resource depends on several facors, including he oal sock available, he rae of exracion of he resource and general marke condiions. Discoun rae: he Social ae of eurn on Invesmen (SI) is used. SI is he discoun rae ha a governmen would choose in allocaing resources across generaions. The SI in general differs from counry o counry. In indusrialized economies i ranges beween 2% and 4%. For simpliciy, a consan 4% rae was assumed for all counries. 2
Figure 1: General Framework for he Esimaion of Naural esources Wealh Wealh Discoun rae Growh rae of ren Fuure Curren Time o exhausion Producion volume Uni ren 3
Sub-soil asses The calculaions ake place separaely for he following asses: oil, naural gas, hard coal, sof coal, bauxie, copper, gold, iron ore, lead, nickel, phosphae rock, silver, in, zinc). Highlighs: Price of he resource is calculaed as world average price enal rae calculaion uses daa on exracion coss for a seleced subse of counries. Each one of he remaining counries is hen assimilaed o a represenaive counry for which cos daa is available Growh rae of is assumed consan and depends on he discoun rae r, which is 4%, and he cos curve curvaure ε, assumed o be 1.15 The life-ime of he resource is assumed o be 20 years; Figure 2: Subsoil wealh esimaion - Flowchar Wealh Discoun rae: 4% Growh rae of ren g = 1 + ε r ( 1)( 1 + r) T Fuure Curren Time o exhausion: 20 years Producion level (m) Uni ren ($) Price ($) enal rae ($) Price ($) Cos ($) 4
Table 1. Sub-soil wealh Variables used and Sources Code Iem Use Coverage Sources Formula PO Producion level To calculae All counries IEA, BP, None (m) UNMBS, PI Price of resource ($) To calculae COS Cos of exracion ($) To calculae T enal rae To calculae UN Uni ren ($) To calculae * ens ($) To predic fuure TG Assumed To predic growh rae of fuure Global USGS IEA, BP, UNMBS, USGS None Seleced counries Secor None repors Seleced counries Calculaed T = (PI cos)/pi Seleced counries Calculaed UN = PI * T All counries Calculaed * = PO * UN Global Lieraure TG = 1+ ε r ( 1)( 1+ r) T ε = 1.15 is he elasiciy of exracion cos o he level of exracion. ef. Vincen (1996) Fuure To esimae All counries Calculaed ( ) (Consan $) wealh = * * + g r Discoun rae To esimae Global Lieraure None wealh WEA Wealh ($) All counries Calculaed * + T 1 WEA = = * ( 1+ DCT ) eferences: Vincen, J. (1996) esource Depleion and Economic Susainabiliy in Malaysia, Developmen Discussion Paper No. 542. Harvard Insiue for Inernaional Developmen. * 5
Fores (Timber asses) The calculaions combines roundwood and fuelwood. Highlighs: Price of sanding imber is esimaed as a weighed average (weighed by producion volumes) of he expor uni value of roundwood and a world average price of fuelwood Since producion coss are no available for all counries, renal raes are esimaed using available sudies and consulaion wih World Bank expers Growh rae of is assumed o be zero. Calculaing he life-ime of he resource is very imporan since foress may be (i) managed susainably hus producing forever or (ii) unsusainably hus deermining a shorer life span. Time o exhausion is he raion beween fores volume available for producion and ne depleion Fores volume available for producion is esimaed using daa on fores cover accessible for imber exracion (i.e. wihin 50km of infrasrucure) and he fores specific volume per hecare. Ne depleion is he difference beween producion and he fores specific annual incremen. 6
Figure 3: Timber wealh esimaion - Flowchar Wealh Discoun rae: 4% Time o exhausion Fuure Growh rae of ren: 0% Curren Ne depleion (cm) Fores volume (cm) Sumpage value ($) Producion (cm) Incremen (cm) Volume per hecare (cm/ha) Accessib. fores cover (ha) Average price ($) enal rae ($) oundwood price ($) Fuelwood price ($) Fores cover (ha) Percen of fores accessible 7
Table 2. Timber wealh Variables used and Sources Code Iem Use Coverage Sources Formula WP oundwood To calculae All counries FAO None price ($) average price of FWP Fuelwood price ($) imber To calculae average price of imber PI Timber price To calculae sumpage value T enal rae To calculae sumpage value STP Sumpage value To calculae curren PO Producion level To calculae (cm) curren and ne depleion INC Incremen (cm) To calculae ne NDP FOC ACC Ne depleion (cm) Fores cover (ha) Percen of fores accessible depleion To calculae ime o exhausion To calculae accessible fores To calculae accessible fores FOA Accessible fores cover To calculae Fores volume VHA Volume per To calculae hecare of fores fores volume (cm/ha) FOV Fores Volume To calculae ime o exhausion Seleced counries Secor repors None All counries Calculaed PI = WP*a + FWP*(1-a) a = share of roundwood in oal imber producion Fores ypes Secor None repors All counries Calculaed STP = PI*T All counries FAO None Fores ypes Secor None repors All counries Calculaed NDP = PO INC All counries FAO None All counries Secor repors None All counries Calculaed FOA = FOC * ACC All counries Secor repors None All counries Calculaed FOV = FOA * VHA T Time o To calculae All counries Calculaed T = MIN(25, FOV/NDP) exhausion wealh * ens ($) To predic All counries Calculaed * = PO * UN fuure DCT Discoun rae To calculae Global Lieraure None wealh WEA Wealh ($) All counries Calculaed * + T 1 WEA = = * ( 1+ DCT ) * 8
Fores (non-imber fores asses) Timber revenues are no he only conribuion foress make. Non-imber fores benefis such as minor fores producs, huning, recreaion, waershed proecion, opions and exisence values are significan benefis no explicily accouned for. This leads o fores resources being undervalued. A review of non-imber fores benefis in developed and developing counries reveals ha reurns per hecare per year from such benefis vary from $190 per hecare in developed counries o $145 per hecare in developing counries (based on Lampiei and Dixon, 1995 and Croioru e al, 2003 and adjused o 2000 prices). Assuming ha only one-enh of he fores area in each counry is accessible, his per hecare value is muliplied by one-enh of he fores area in each counry. Non-imber fores resources are hen valued as he ne presen value of benefis over a ime horizon of 25 years Figure 4: Non-imber fores wealh esimaion - Flowchar Wealh Discoun rae: 4% Growh rae of ren: 0% Fuure Curren Time o exhausion: 0 Value of NTFB: Developed counries: 190 $/ha Developing counries: 145 $/ha Fores area accessible for NTFP Fores Area (ha) Accessible area: 10% 9
Cropland Counry level daa on agriculural land prices are no widely published and available daa is subjec o disorions. We have herefore chosen o esimae land values based on he presen discouned value of land, assuming ha he producs of he land are sold a world prices. Highlighs: Cropland for all counries are esimaed using nine represenaive crops: maize, rice, whea, bananas, grapes, apples, oranges, soybeans, coffee. The annual economic reurn o land is measured as a percenage of each crop s producion revenue, oherwise known as he renal rae. enal raes are obained from a series of secor sudies. The annual reurn in 2000 is projeced o he year 2020 based on growh in producion of 0.97 percen and 1.94 percen for developed and developing counries respecively (osengran and ohers 1995). 10
Figure 5: Cropland wealh esimaion - Flowchar Wealh Discoun rae: 4% Growh rae of rens: Dev ed Dev ing 2000-0.97% 1.94% 2020 Afer 2020 0.00% 0.00% Fuure Curren Time o exhausion: 0 oos, pulses and oher crops Cereals: Maize ice Whea Fruis and vegeables: Apples Bananas Grapes Oranges Oil crops: Soybe ans Beverages: Coffee This procedure is repeaed for each crop caegory Weighed crop caegory ren ($) Crop caegory area (ha) Single crop ren ($) This procedure is repeaed for each of he nine crops Single crop area (ha) Crop yield (m/ha) eurn o land ($/ha) Value of yield ($/m) enal rae 11
Table 3. Cropland Variables used and Sources Code Iem Use Coverage Sources Formula YIE Crop yield To calculae All counries FAO None (m/ha) reurn o land PI Value of yield To calculae Global Various None ($/m) reurn o land soruces T enal rae To calculae Seleced counries Secor None reurn o land repors ET eurn o land To calculae All counries Calculaed ET = YIE*PI*T crop CA Crop area To calculae All counries FAO None crop CE Crop ren ($) To calculae All counries Calculaed CE = CA*ET caegory ren CCA Crop caegory To calculae All counries FAO None area (ha) caegory ren CC Crop caegory ren To calculae All counries Calculaed * ens ($) To predic fuure TG Assumed growh rae of To predic fuure All counries Global Calculaed Lieraure 2000-2020 Afer 2020 Fuure To esimae (Consan $) wealh = DCT Discoun rae To calculae Global Lieraure None wealh WEA Wealh ($) All counries Calculaed CC CE i * CCA i = ( ) = CC n n i Dev ed Dev ing 0.97% 1.94% 0.00% 0.00% All counries Calculaed * ( ) WEA = 1 * + g * + T 1 = * ( 1+ DCT ) * 12
Pasure land Highlighs: Pasure land for all counries are esimaed using four represenaive producs: beef, lamb, milk and wool. The annual economic reurn o land is measured as a percenage of each crop s producion revenue, oherwise known as he renal rae. enal raes are assumed o be a fixed proporion of he value of oupu. The renal rae is assumed o be 45 percen. The annual reurn in 2000 is projeced o he year 2020 based on growh in producion of 0.89 percen and 2.95 percen for developed and developing counries respecively (osengran and ohers 1995). Figure 6: Pasure land wealh esimaion - Flowchar Wealh Discoun rae: 4% Growh rae of rens: Dev ed Dev ing 2000-0.89% 2.95% 2020 Afer 2020 0.00% 0.00% Fuure Curren Time o exhausion: 0 Beef Lamb Milk Wool This procedure is done for every pasure land produc Producion volume (m) eurn o pasure land ($) Uni value ($/m) enal rae 13
Table 4. Pasure land wealh Variables used and Sources Code Iem Use Coverage Sources Formula VOL Producion To calculae All counries FAO None volume (m) reurn o land PI Uni value of To calculae Global Various None producs ($/m) reurn o land soruces T enal rae To calculae Global Assumed None reurn o land ET eurn o land To calculae All counries Calculaed ET = YIE*PI*T crop * ens ($) To predic fuure All counries Calculaed TG Assumed growh rae of To predic fuure Global Lieraure 2000-2020 Afer 2020 Fuure To esimae (Consan $) wealh = DCT Discoun rae To calculae Global Lieraure None wealh WEA Wealh ($) All counries Calculaed = ET n n Dev ed Dev ing 0.89% 2.95% 0.00% 0.00% All counries Calculaed * ( ) WEA = 1 * + g * + T 1 = * ( 1+ DCT ) * 14
Proeced areas Proeced areas provide a number of benefis ha range from exisence values o recreaional values. They can be a significan source of income from a hriving ouris indusry. These values are revealed by a high willingness-o-pay for such benefis. The esablishmen and good mainenance of proeced areas preserves an asse for he fuure and herefore proeced areas form an imporan pary of he naural capial esimaes. Proeced areas (IUCN caegories I-VI) are valued a he lower of per-hecare reurns o pasure land and cropland a quasi opporuniy cos. These reurns are capialized over a 25-year ime horizon, using a 4 percen discoun rae. Limiing he value of proeced areas o he opporuniy cos of preservaion probably capures he minimum value, bu no he complee value, of proeced areas. Daa on proeced areas is aken from he World Daabase of Proeced Areas which is compiled by UNEP-WCMC. Given he frequen revisions o he daabase, he daa used is for 2003. In he cases of missing daa on area proeced, his was assumed o be zero. Figure 7: Proeced areas wealh esimaion - Flowchar Wealh Discoun rae: 4% Growh rae of ren: 0% Fuure Curren Time o exhausion: 0 Area proeced (ha) Quasiopporuniy cos of PAs ($/ha) eurn o crop land ($/ha) eurn o pasure land ($/ha) 15
eferences Dixon, J., K. Hamilon, and A. Kune. 1997 Measuring he Wealh of Naions, Expanding he Measure of Wealh: Indicaors of Environmenally Susainable Developmen. Environmenally Susainable Developmen Sudies and Monographs, Series 17. Washingon, DC: World Bank. Lampiei, J., and J. Dixon. 1995. To See he Fores for he Trees: A Guide o Non- Timber Fores Benefis. Environmen Deparmen Papers 13. World Bank, Washingon DC. Pearce, D. W., and D. Ulph. 1999. A Social Discoun ae for he Unied Kingdom. In Environmenal Economics: Essays in Ecological Economics and Susainable Developmen, ed. D.W. Pearce, 268 285. Chelenham: Edward Elgar Publishing. osengran, M. W., M. Agcaoili-Sombilla, and N.D. Perez. 1995. Global Food Projecions o 2020: Implicaions for Invesmen. Food, Agriculure, and he Environmen Discussion Paper 5, Inernaional Food Policy esearch Insiue, Washingon DC. Vincen, J. 1996. esource Depleion and Economic Susainabiliy in Malaysia, Developmen Discussion Paper 542, Harvard Insiue for Inernaional Developmen, Cambridge MA. 16