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The Economics of FLR: Cost-Benefit Framework for Analyzing Forest Landscape Restoration Decisions

Forest Landscape Restoration (FLR) activities are often misunderstood as involving high up-front costs and low rates of return and these ideas persist because few evaluations of restoration activities include a comprehensive and objective accounting of restoration’s ecological and economic impacts.

Accounting for the impacts of restoration activities provides an opportunity to determine if their current designs warrant investments by governments, investors, and stakeholders, and when they do not preliminary analysis offers an opportunity to adjust restoration models so that investors see restoration as an investible opportunity.

To address this gap in knowledge this IUCN report presents a cost-benefit framework for accounting for the ecosystem service and economic impacts of FLR activities in a way that allows the results to be structured to inform multiple types of restoration decision-making that can help decision makers understand the trade-offs of different restoration scenarios.

The results can be used to set prices for payment for ecosystem services, identify sources of restoration finance, identify low-cost/high-benefit pathways towards carbon sequestration, and identify priority landscapes for restoration based on return-on-investment analysis.

Cost-Benefit Analysis for restoration decision making

Restoration decision-making is not based on the Total Economic Value of a landscape, but rather on restoration’s ability to change that value. When identifying areas of restoration potential it is important to know how much the value of ecosystem goods and services would change if the landscape were restored. This allows you to assess the desirability and tradeoffs of different restoration options for the same landscape.

The results from analysis using the framework presented in this report can be used to identify landscapes that would better meet strategic local and national priorities if some restoration activities were to take place. When ecological goals are prioritized over economic ones, the framework can still be used to identify landscapes that produce the desired ecological outcomes for the least cost.

Still, it is important to recognize that each landscape is composed of a number of land uses that work together to create ecosystem goods and services that people rely on.

While landscapes can be targeted for possessing particular land uses, unless restoration targets the entire landscape the benefits of an individual intervention may not be realized.

Steps in the cost-benefit analysis

There are nine steps in the application of the cost-benefit analysis:

  1. Specify the set of restoration transitions: Define which degraded land uses will be restored and the activities that will be used to restore them
  2. Define the stakeholders who will be impacted by restoration: Define the groups of people who will be impacted by the restoration transitions
  3. Catalogue the impacts and define how they will be measured: Which impacts matter most to the stakeholders who will be impacted by restoration and what units of measurement are most useful for measuring them?
  4. Predict the impacts quantitatively over the time horizon of the project: Use ecosystem service models, household surveys, stakeholder engagement, and other estimation methods to quantify the expected impacts of restoration activities
  5. Monetize all of the impacts: Use appropriate direct and indirect methods to value the estimated impacts
  6. Discount benefits and costs to obtain present values: Select appropriate discount rates to make streams of future benefits and costs comparable at the present moment
  7. Calculate the Net Present Value of each alternative: Subtract the discounted stream of implementation, transaction, and opportunity costs from the discounted stream of benefits
  8. Perform sensitivity analysis: The results of the CBA depend on assumptions and the sensitivity of the results to changes in the underlying assumptions should be evaluated
  9. Make policy recommendations: From a Pareto-efficiency perspective the restoration activities with the largest NPV should be recommended

Using the framework

The framework presented in this report is useful for prioritizing investments in restoration across a variety of criteria including NPV, ROI, and multi-criteria decision-making.

This information is useful for policy makers, restoration professionals, and natural resource managers who are interested in understanding more about the economic opportunities and trade-offs of restoring deforested and degraded landscapes.

The information provided by the framework can help these professionals to use the limited funds available for restoration as efficiently and effectively as possible.