Putting a Price Tag on Conservation: Cost Benefit ...

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J. Lat. Amer. Stud. , – #  Cambridge University Press DOI : .\SX Printed in the United Kingdom

Putting a Price Tag on Conservation : Cost Benefit Analysis of Venezuela’s National Parks PABLO G U T M A N* Abstract. The article discusses the use of cost-benefit analysis to assess conservation efforts, and applies this technique to Venezuela’s National Parks Systems to assess how much Venezuela should spend in managing its National Parks. As with any major environmental decision, this calls for more than economic criteria. Social values, science and politics all affect environmental decisions, and economics should be but one factor considered. Nonetheless, costbenefit analysis provides a valuable tool and a framework for improved understanding of the tradeoffs among different factors.

. Venezuela’s environmental wealth Comprising  thousand square kilometres and a population of some  million, Venezuela is a medium-sized, sparsely populated country. Located in tropical South America, the country has a varied natural landscape encompassing Caribbean reefs, high mountain peaks, tropical forests and savannahs. Venezuela is also one of the world’s ten richest countries in terms of biological diversity. Amounting to less than n per cent of world territory, it contains populations of  per cent of the world’s birds, ten per cent of known plants and seven per cent of mammals (see table ). Venezuela ranks high in biodiversity and in opportunities to conserve it. Southern Venezuela contains the largest tract of undisturbed Latin American tropical forest, most of it in National Parks (NPs) and other protected areas, including the largest Amazonian National Park, ParimaTapirapeco! , which covers some n million hectares. Southern Venezuela represents one of the world’s five major tropical wilderness areas and – thanks to limited human pressure – the only one in Latin America with good prospects of remaining so in the current century." Pablo Gutman is Senior Policy Adviser in the Macroeconomics for Sustainable Development Program Office of the World Wide Fund for Nature, Washington, DC. * Part of the information for this article was gathered during  and , while the author worked as a consultant to the World Bank and FAO. As usual, the analysis and conclusions are the sole responsibility of the author. Helpful comments and suggestions from Carolyn Shaw Bell, Uwe Latacz-Lohmann and two anonymous reviewers are gratefully acknowledged. " See J. McNeely et al., Conserving the World Biological Diversity (Washington, DC, ).

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Table . Some Figures on Biodiversity in Venezuela

Species

% of world population Venezuela Number World In found in position in endemic in Number number Venezuela Venezuela the world Venezuela endangered

Mammals , Birds , Reptiles , Amphibians , Fish , Angiosperm ? Plants ,

 ,   , , ,

n n n n n ? 

th th th th ? th th

    

    

,



Source : Reproduced from Bioma () Table . The angiosperms figure from J. McNeely et al., Conserving the World Biological Diversity (Washington, DC, ) table .

In order to manage its biodiversity wealth and protect its natural resources Venezuela has put more than  per cent of its territory under different forms of protection. At the protected areas’ core are Venezuela’s  National Parks and over  Natural Monuments. Whereas the goal of the International Union for the Conservation of Nature (IUCN) is to ensure that some  per cent of the world’s land surface is converted to National Parks, Venezuela has already committed  per cent of its territory to these (see Map ).# However, many protected areas actually have very little on-site protection, and overall the Venezuelan conservation agency – INPARQUES – fails to achieve a sustainable management of most NPs, several of which are threatened by illegal mining, logging and ranching.$ While the reasons for these environmental management failure are manifold, budgetary constrains have repeatedly been blamed, and in fact resources and manpower for environmental management have dwindled since the early s due to the country economic problems. While National Parks in Venezuela and elsewhere are usually cherished by society, they rarely make it to the priority list of the Finance Ministry nor, for that matter, are they contributed to by citizens. This is increasingly so when budgets are shrinking and conservation has to fight for resources against other pressing concerns like health, education, public services and the like. # Figures as of early . Natural monuments are small NPs designated to protect a particularly valuable natural site. In addition to national parks and monuments, protected areas include protected forests, watershed protection areas, buffer zones and others. $ See World Bank, Environmental Issues in Venezuela (Washington, DC, ).



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Putting a Price Tag on Conservation

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Caribbean Sea

Caracas Guarico Dam

.

oR

noc

Ori

Guri Dam

Caroni R.

COLOMBIA

Canaima

National Parks Capital city

BRAZIL

Rivers Indegenous areas Parima-Tapirapeco

Map .

A major problem for conservationists seeking larger budget allocations is their inability to make a persuasive financial argument. Important as they are, conservation benefits are seldom measured or valued in monetary terms. Some environmentalists would argue that such an exercise is impossible because nature is priceless, while their opponents counter that anything that does not command a price is valueless. While environmental management decisions should always consider social, political and interdisciplinary concerns, they can certainly benefit from economic insights. Since the s significant efforts have been devoted to the economic analysis of conservation.% Although few would % Useful studies of this question are Jeffrey A. McNeely, Economics and Biological Diversity : Developing Economic Incentives to Conserve Biological Resources (Gland, ) ; J. A. Dixon and P. B. Sherman, Economics of Protected Areas (Washington, DC, ) ; M. M. Hufschmidt et al., Environment, Natural Systems, and Development (Baltimore, ) ; J. T. Winpenny, Values for the Environment : A Guide to Economic Appraisal (London, ) ; J. A. Dixon et al., Economic Analysis of Environmental Impacts (London,



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claim that economic valuation has actually assessed all costs and benefits of a complex conservation project, progress has been made in two areas : (a) identifying and analysing the range of cost and benefits involved ; and, (b) estimating which of these are more amenable to economic valuation. This article first reviews the economic valuation toolbox for conservation activities. The approach is that of an enlarged cost-benefit analysis (CBA), where benefits are interpreted in a Total Economic Value (TEV) framework. It then applies these techniques to the valuation of Venezuela’s National Parks (in the early s). The exercise does not pretend to assess all National Parks’ TEV and costs, but rather to explore what can be learnt from a partial CBA of the limited information available. The article concludes that even partial cost-benefit analysis can yield valuable insights regarding protected areas costs, benefits and tradeoffs. . Costs and benefits of conservation Economic valuation is framed, theoretically in welfare economics and practically, as Cost-Benefit Analysis (CBA). The range of costs and benefits considered can vary widely. At one extreme a narrow private sector CBA (sometimes called a financial estimate) would use market prices and look only for costs supported by a small predefined group of stakeholders, usually the owners of the assets, or the project’s developers, and the benefits accruing to them. On the other extreme, the so-called national, social or economic CBA would aim to assess all costs supported and benefits accruing to society at large, regardless of how they are distributed. Moreover this economic CBA would use accounting (or shadow) prices to correct or complement market prices if they are lacking or do not reflect true economic scarcity.& Moving from financial estimates to economic CBA is more easily said than done. When markets are lacking, or they fail to perform as economists would like them to, economic costs and benefits, but particularly the latter can be difficult to estimate.' Unfortunately, both lack of markets and market failures are common in conservation projects in general and in NPs’ projects particular, as they entail putting aside large tracts of wilderness in order to provide a variety of services to society at present and in the long distant future. ) ; M. Munasinghe and J. McNeely (eds.), Protected Area Economic Policy : Linking Conservation and Sustainable Development (Washington, DC, ). & See I. M. D. Little and J. A. Mirrilees, Project Appraisal and Planning for Developing Countries (New York, ), for a classic presentation of economic CBA. ' Market failures can arise from incomplete markets, externalities, non-exclusion, nonrivalry, non-convexity and asymmetric information, see N. Hanley, J. F. Shogren and B. White, Environmental Economics in Theory and Practice (Basingstoke, ).



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Table  (adapted from Dixon and Sherman) presents a list of the costs and benefits accruing to society through NPs.( Not all of them are easy to measure, let alone to express in monetary terms, and in only few cases do markets prices exist. Table  lists some of the valuation techniques available and signals the degree of difficulty involved in the estimation. On the costs side, conservation activities are quite similar to any medium to large development project, entailing direct, indirect and opportunity costs. Direct costs are all the investment and operation costs of the activity during its life span. Indirect costs take into account costs imposed on third parties due to the activity’s negative externalities. Opportunity costs are the benefits foregone by committing resources to conservation rather than using the resources for other purposes. The potential benefits that society gets from protected areas are presented in Table  following the total economic value approach (TEV) as proposed by Pearce.) In brief, TEV underlines the fact that marketable products can be but a small part of the benefits that society derives from an environmental asset. Although there is some difference between authors, TEV is usually spelled out as : TEV l UVjNUV And is further broken down as follows UV l DUVjIUVjOV and NUV l EVjBVjQOV where, TEV : UV : NUV : DUV : IUV : OV : EV : BV : QOV :

total economic value Use value non use value direct use value indirect use value option value existence value bequest value quasi-option values.

( Adapted from Dixon and Sherman, Economics of Protected Area. R. S. Groot, ‘ Functions and Values of Protected Areas : A Comprehensive Framework for Assessing the Benefits of Protected Areas to Human Society ’, in Munasinghe and McNeely (eds.), Protected Area Economics and Policy, offers a similar, but more detailed, list of protected area benefits. ) D. W. Pearce and R. K. Turner, Economics of Natural Resources and the Environment (Baltimore, ) and D. W. Pearce and J. J. Warford, World Without End. Economics, Environment, and Sustainable Development (New York, ) provide a more detailed discussion of TEV components.



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Table . Possible Costs and Benefits of National Parks Valuation Technique

Costs\Benefits COSTS . Direct Costs . Indirect Costs . Opportunity Costs BENEFITS USE VALUES . Marketable productions . Non market productions . Recreation\tourism . Watershed Protection – Erosion Control – Regulation of stream flow – Local flood reduction . Ecological processes’ protection – Fixing and cycling of nutrients – Soil formation – Pollution dispersion and absorption – Global life support . Greenhouse gasses sequestration . Biodiversity protection – Gene resources protection – Species protection – Ecosystem diversity – Protecting evolutionary processes . Education . Research . Option Value NON-USE VALUES – Bequest – Spiritual – Cultural\Historical – Existence value – Intrinsically – Quasi-option value

Estimation Difficulty

Market prices (MP) Shadow Prices (SP) MP\SP\Shadow Projects (SPJ) MP\SP\SPJ

S S-D S-D

MP\SP Shadow Prices (SP) Replacement costs (RC) Travel costs (TC) Contingent valuation (CV) Productivity Changes (PCH) Preventive Expenditure (PE) Replacement Cost (RC) Shadow Project (SPJ) CV\PCH\PE\SPJ

S S\D

D\E

RC\PE\PCH\SPJ CV\SPJ

S\D E

SPJ SPJ CV CV

S\D D\E D\E

S\D S\D

S\D S\D S\D S\D E E

Estimation Difficulty : S : simple\D : difficult\E : Extremely Difficult. Source : Adapted from J. A. Dixon and P. B. Sherman, Economics of Protected Areas (Washington, DC, ).



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Where they exist, valuation techniques would use market prices since market prices are supposed to convey the consumers’ valuation of the benefits accruing to them. Even then market prices can fail to acknowledge full values, due to the presence of externalities, subsidies, non-marginal changes, poorly defined property rights, etc. If this is the case, then shadow prices (theoretical market equilibrium prices) or a proxy can substitute for market prices. In fact, for most NPs benefits there will be neither market nor prices available, and alternative valuation techniques would be required. There is by no means unanimity among practitioners regarding the number, merits and even names of these alternative valuation techniques.* Some economists will only endorse techniques that purport directly to measure consumer benefits. These are usually called revealed preference approaches (encompassing among others, hedonic property and wages valuation and travel costs methods) and stated preference approaches (encompassing among others contingent valuation and choice modelling). Other practitioners are willing to resort to indirect techniques that, for lack of benefits information, value incurred or avoided costs, through, among other methods, productivity changes, forgone earnings, preventive expenditures, replacement costs, opportunity costs and shadow projects. Briefly, among the benefits valuation approaches, $ A property value approach (PV) tries to isolate the environmental component in the market price of an asset. For instance, US Census information on home values has been used to estimate how much homebuyers are willing to pay for cleaner air. $ Travel cost approaches (TC) use visitors ’ expenditures to elicit a demand curve for a natural site like a NP, or recreational area. $ Contingent valuation techniques (CV) derive valuation estimates by asking people about their willingness to pay for conservation services (or their willingness to accept a compensation for the loss of them). Among the cost valuation approaches, $ Productivity change approaches (PC) try to identify the environmental component of the production of marketable products, e.g. crops, urban water supply, and hydroelectricity. $ Preventive expenditure (PE) looks at expenses undertaken to avoid environmentally-related damages (e.g. the flood prevention benefits of

* For a discussion of valuation techniques see Dixon and Sherman, Economics of Protected Areas ; Dixon et al., Economic Analysis of Environmental Impacts ; J. Krutilla and A. Fisher, The Economics of Natural Environments : Studies in the Valuation of Commodity and Amenity Resources (Baltimore, ) ; Munasinghe and McNeely (eds.), Protected Area Economic Policy ; and Winpenny, Values for the Environment.



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forest could be gauged from the costs of alternative man made flood protection infrastructure). $ Replacement cost (RC) looks at the cost of replacing the services provided by the ecosystem, or the cost of replacing assets that could be damaged by a deteriorating environment. $ A Shadow Project (SPJ) enables a more complete version of RC by pricing a full project that could substitute for the environmental services being assessed. Each valuation technique has advantages and disadvantages and entails different assumptions. Demand side approaches keep closer to economic theory, where consumers’ willingness to pay for a good is taken as the true measure of its value. But actual estimates are fraught with assumptions and uncertainties. Cost side approaches may rely on more accessible information, but they can easily under or overestimate true values. For instance, current preventive expenditures may be based on limited or misleading information ; replacement costs make sense only if we are sure that the endangered assets will actually be replaced if damaged. Also cost approaches will always fail to acknowledge irreplaceable environmental benefits or existence values. Even with all the valuation methods at hand several environmental benefits like biodiversity conservation, native population habitat, ecological processes’ protection, research, option and quasi-option values still elude economic assessment. Therefore cost benefit analyses of complex conservation projects usually end up including only the benefits that are more amenable to measurement. . The CBA of Venezuela’s National Parks Using the conceptual framework discussed above, the rest of this article assesses Venezuela’s National Parks, based on information collected during several visits to the country in  and . Usually CBA of National Parks has relied on : a) valuing the NP marketable products and services, b) surveys of the NP visitors to support travel cost exercises, and c) population polls for contingent valuation estimates."! Yet no such approach was feasible in Venezuela. The country lacks inventories of the NPs’ products and services, let alone estimates of how much of them might be available on a sustainable basis. Similarly information on NPs users was limited and there was neither time nor resources to undertake surveys on the scale that would be required to value the totality of the "! For instance, R. Kramer et al., ‘ Valuing a Protected Tropical Forest : A Case Study in Madagascar ’, in Munasinghe and McNeely (eds.), Protected Area Economics and Policy, used all three approaches to estimate the potential benefits of a new National Park in Madagascar.



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country’s national parks system. But it is precisely this paucity of information that makes Venezuela’s NPs interesting, since room still exists for a meaningful discussion of NPs benefits. A detailed discussion of table  with local staff from Venezuela’s Ministry of the Environment and the NP agency (INPARQUES) was carried out, looking for important sources of benefits and whatever information on them was available. During this exercise, it was quickly acknowledged that many of Venezuela’s larger NPs are located in the upper basins of important water developments for urban supply irrigation and hydropower. This is not unusual. Due to their limited accessibility, highlands in many countries are better preserved than lowlands and therefore tend to be overrepresented among National Parks. Furthermore, in Venezuela several NPs were specifically created in order to protect valuable water resources. Because watershed protection services were a major source of Venezuelan NPs’ benefits, the focus here is on their assessment, using information available at the ministry of environment, the ministry of agriculture, electric utilities and water companies. Existing data allowed quite a detailed analysis of watershed protection benefits. Other benefits could only be estimated very roughly. Throughout the following sections, prices quoted are Venezuela’s end of  market prices expressed in US dollars."" Regarding the CBA time span, the analysis takes  as year one with all past costs and benefits considered as sunk, and estimates value figures for a -year horizon."# While present value (PV) figures have been estimated at six per cent, eight per cent, ten per cent and twelve per cent discount rates (see annex for detailed calculations), most of the discussion refers to an  per cent discount rate. .. The benefits Very detailed ecological and engineering information was available for the first group of benefits – watershed protection – regarding the interplay of watershed management and hydropower generation for the Caronı! river basin. For other watershed protection services, namely urban supply and irrigation, the information was scarcer. In the latter case the basic figures "" Due to the many uncertainties already involved in the exercise no attempt was made to correct market prices with shadow prices or border prices (world market prices plus transport costs to the country border). "# The sustainability of natural resources’ conservation would prescribe an infinite time horizon. This article uses a -year time horizon because : a) an important chunk of benefits accrues between the th and th year of the assessment ; b) costs and benefits beyond that time horizon make little difference when expressed in present value terms ; ) although the concept of perpetual streams of costs and benefits is theoretically straightforward, this was difficult to argue in several discussions with government staff at the time of collecting the information for this article.



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resulted from an overlay analysis (a pre-geographical information system exercise) bringing together : (a) the site of the water infrastructure and irrigated lands, (b) the basins’ limits, (c) NPs’ limits ; and, (d) Iso-rain contours. Damage figures and replacement costs were best estimates of technical staff at Venezuela’s Ministry of Environment (MARNR) and Ministry of Agriculture (MAC)."$ Only very rough benefit estimates were possible for tourism and mangrove-related benefits. Finally the case of carbon sequestration benefits raises a particular question since these benefits would accrue not to Venezuela but to the world at large how should they be factored into Venezuela’s conservation decisions ? To allow different answers to this question, NPs benefits are considered with and without carbon sequestration. Last but not least, a large group of non-quantifiable conservation benefits merit discussion, and without attempting money valuations, the biodiversity conservation benefits and the role of NPs as habitat for many indigenous groups are considered. For each topic discussed, basic assumptions and yearly benefits calculation and presented below. Detailed present value (PV) calculations are contained in the annex. ... Watershed protection benefits Soil and vegetation conservation in protected areas plays an important role in regulating surface run-off and sub-soil absorption. In most cases, deforestation will not change rainfall volume or patterns, but can significantly impair the productive use of the water."% Deforestation increases erosion and seasonal stream variations, reduces ground water recharge and increases risks of flooding. As stated in table , several methods can be used to assess the economic benefits of NPs’ watershed protection. A replacement cost approach was preferred because of the availability of detailed water cost information, and on the other hand because pervasive under-pricing of water and other public services in Venezuela render water tariffs useless for valuation purposes. It should be borne in mind that a replacement cost approach assumes that : (a) you do want to replace the lost asset or the stream of "$ All figures are based on point or range estimates, with no claim about the shape of the underlying functional relation, since for urban and irrigation water uses there was not enough information to study this. For the Caronı! Hydroelectric basin, where detailed ecological and engineering information is available, most dose-response functions (the relation between human action and environmental change) were neither linear nor continuous. They displayed a threshold behaviour (they change in steps). "% Only when deforestation occurs over large areas dominated by continental rain patterns would it reduce evaporation and result in reduced precipitation, as is reported for the Amazon basin. See E. Salati et al., ‘ Origem e distribuic: a4 o das chuvas na Amazonia ’, Interciencia, vol. , part , , pp. –.



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services it provided, and (b) the replacement value is the cost of the most efficient feasible alternative now available, which may or may not be the same that was previously in place. Hydroelectric production : The Caronı! river basin (, km#) contains  per cent of Venezuela’s present and planned hydropower development, which in  supplied  per cent of the country’s power. In terms of energy production, Guri, the largest dam in the Caronı! basin, ranks second in the world to Brazil’s Itaypu! . Power capacity was on the order of  millions kW by , with construction of a second stage of n millions kW well advanced. A third stage of development would further push energy capacity to a grand total of n million kW. From the very beginning of the hydroelectric works EDELCA (Electrificacio! n del Caronı! ), the utility company, was aware of the importance of conserving the vegetation cover of the river basin in order to protect the Guri reservoir from silting up. With silting, energy capacity will fall and the useful life of a multibillion-dollar investment threatened. EDELCA successfully lobbied to extend the protected areas already existing in the Caronı! basin and to impose a legal ban on commercial agriculture. Currently EDELCA operates and pays for a sophisticated watershed surveillance programme for the Caronı! river basin. This includes hydrological data gathering, aerial surveillance, fire control systems in critical areas (some n million hectares) and support for local Indian communities. EDELCA’s interest in conservation would appear to be well grounded. According to detailed studies conducted at IVIC, Venezuela’s Science Institute,"& if unchecked deforestation occurred in the fragile Caronı! basin, the power capacity of the hydroelectric system would be reduced between ten and fifteen per cent by the dam’s midlife. Rabinovich’s mathematical modelling shows that the impact of uncontrolled deforestation on the power system is non-linear, of a threshold type. Several levels of possible agriculture encroachment on the basin were studied, ranging from low to high, with the latter resulting in the collapse of the power system. Here the ten to fifteen per cent impact corresponding to lower levels of basin disruption not because low disruption is more realistic in the long run, but only because low figures are less controversial. Detailed information provided by EDELCA on past and future investment plans helps gauge the cost of replacing such energy losses."' "& See J. Rabinovich, El modelo Guri : anaT lisis de un potencial conflicto en el uso de recursos naturales en una cuenca tropical (Caracas, ). "' See A. Lezama, ‘ Hidroenergia y Areas Protegidas en la Cuenca del Rio Caronı! ’, IV World Congress on National Parks and Protected Areas, Caracas, February, .



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Table . Hydroelectric Production Benefits .  capacity n Million kW (MkW) . Possible energy losses due to Low  % High  % deforestation at dams’ mid life (year ) n MkW n MkW . Marginal investment cost per kW $, ( US dollars) . Total investment costs to replace energy Low l $,M High l $,M losses (Row  times row ) (Millions of  US dollars) . Investment costs per year throughout Low l $nM High l $nM years – (row  divided by ) (Millions of  US dollars) . Annual conservation benefits throughout Low l $nM High l $nM years – (one third of row ) Source : Own calculations.

The hydroelectric system has an expected lifespan of  years and, in the moderate deforestation scenario, damages are expected to occur at midlife. Therefore replacement investment for the current installed capacity –n million kW – would have to be in place by year , and according to engineering information would have to be built between year  and year . It is assumed that the investment is evenly distributed over that five year period, at the marginal investment cost of US$, per kW ( prices). Then NPs make up only one third of the Caronı! basin ; therefore only one third of the avoided replacement costs can be counted as benefits from conservation in NPs. All this information is summarised in table . Based on table  figures and the calculations in annex Table A. (columns  and ), conservation in Canaima National Park is saving Venezuela present value replacement costs of  million to  million dollars."( Urban water supply : The National Parks in Venezuela’s central coastal region and Andean region are especially important for urban water supply. According to available estimates (Ministerio del Ambiente y los Recursos Naturales Renovables)") the contribution of Venezuela’s National Parks to the urban water supply was approximately  m$ per second in . This figure corresponds to water supplies originated in  of the  existing National Parks, serving large urban areas. The total "( At an  per cent discount rate, see annex table A. columns  and . Marginal investment costs are based in EDELCA’s figures for the third stage expansion plans. When the third stage is completed benefits of watershed protection would increase significantly. ") Ministerio del Ambiente y los Recursos Naturales Renovables, ActualizacioT n de Plan de Aprovechamiento de los recursos hıT dricos (Caracas, ).



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could be significantly larger, if smaller withdrawals were taken into account. Because rainfalls in Venezuela are highly seasonal and torrential episodes are frequent vegetation cover becomes a critical factor to protect soils and regulate water run-off. Deforestation alters regional drainage patterns and riverbeds, diverting streams from existing river-intakes, and demanding new and costly infrastructure. Increased erosion also reduces the life of reservoirs, makes additional water treatment necessary and creates greater sludge disposal problems. Both reservoirs and direct riverintakes are vulnerable as increasing erosion reduces the capacity of reservoirs and the levels and quality of river water. According to estimates made at Venezuela’s MARNR and at the former Institute of Water Works (INOS), water availability for urban consumption could diminish by n per cent to  per cent annually if the combined pressure of deforestation and erosion levels currently observed in non-protected areas occurred in NPs basins. Failure to protect these watersheds could therefore result in Venezuela’s having to invest in the replacement of water supply losses. Costs of urban water supply vary widely according to location, and can be very high. For metropolitan Caracas, which accounts for one quarter of the country’s urban water consumption, the investment costs of increasing water supply by one cubic metre per second was one hundred million dollars in  (according to the Water Resources Department of the Ministry of Environment, MARNR). Metropolitan Caracas accounted for  per cent of Venezuela’s total population in the early s. Therefore, in order to use a moderate country-wide cost figure, costs elsewhere were set at zero, to came up with a weighted average marginal cost of US$  million per cubic metre per second for new urban water investment ( prices). It is assumed that damages (either low or high) are evenly distributed (and replaced) over the thirty year period."* Table  presents the benefits calculation. On the basis of these assumptions the conservation of the upper basins in the national parks would save replacement investments for urban water, with a present value between US$  million and US$  million.#! This is a very conservative estimate. Urban water consumption will increase over time, and part of that growth will be met by water from NPs, so that the benefits of conservation will grow through time. "* At an  per cent discount rate. See annex table A. columns  and . #! In fact, for each water supply system, environment deterioration would need to reach a threshold in order to trigger damages. There is no information to model this schedule for each water system, but then, since the number of water systems is in the hundreds, an even distribution of damage for the aggregate countrywide seems a reasonable assumption.



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Pablo Gutman

Table . Urban Water Supply benefits . Current urban water supply from NPs (in cubic metres per second (CM\S)) . Possible annual water losses throughout the -year project : horizon . Marginal investment cost per cubic meter (Millions of  US dollars) . Total annual investment costs (years –) to replace water losses (Row  times row ) (Millions of  US dollars)

 CM\S Low n % n CM\S

High  % n CM\S $M

Low l $nM High l $nM

Source : Own calculation.

Table . Protection of Agricultural Lands. Benefits to Private Irrigation . Total irrigated land,  in hectares , ha. . Of which three quarters served by , ha. private water works . Of which  % are served by NPs’ , ha. water supply . Total irrigation investment costs on $nM land served by NPs’ water supply ($, for  years) (Millions of  US dollars) . Possible overall losses due to Low  % deforestation in NPs. In  Millions of $nM US dollars . Possible annual losses (years –) due $nM to deforestation in NPs. (Millions of  US dollars). Row  divided by  years

High  % $nM $nM

Source : Own calculation. See discussion and references in the text.

Protection of agricultural lands : According to  figures Venezuela had n million hectares in rain-fed agriculture, n million hectares in irrigated agriculture (three-quarters served by private water works), n million hectares in improved pastures and n million hectare in native pastures.#" National Parks render valuable services to agriculture, either irrigated or rain fed, in terms of soil and vegetation protection. In both cases, up-stream conservation reduces down-stream erosion, flooding, and water supply fluctuation throughout the year. While specific data to estimate the impact of the national parks on rainfed agriculture is lacking, rough calculations (based on information provided by the Water Resources Department of the Ministry of Environment, MARNR) indicate that some  per cent of the total n million hectares of irrigated agriculture in Venezuela depends on surface or ground water which originates in national parks. Conservation in national parks is estimated to contribute ten per cent to  per cent of the #" World Bank, Venezuela Irrigation Subsector Review (Washington, DC, ).



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water supply over the life span of the irrigation works ( years for private wells and surface derivations and  years for public reservoirs), with investment costs from US$, per hectare for private groundwater irrigation to US$ , per hectare for more expensive public projects.## Tables  and  present the benefit to private and public irrigated fields resulting form conservation at NPs. They range from US$  million to US$  million over a -year period.#$ As in the case of urban water, these figures would increase if the irrigated area increases and demands more water from NPs. ... Tourism and recreation in National Parks Venezuela’s National Parks are a principal destination of tourism and recreation. Weekend visitors to coastal and marine National Parks, easily accessible from the Caracas metropolitan area, number in the millions every year. A special case is El Avila National Park, overlooking Caracas, Venezuela’s capital city, which is a preferred destination for trekkers and nature watchers the year round. In other cases, visits to National Parks offer pleasant detours for vacationers heading elsewhere. For instance, a high percentage of Margarita Island’s tourists (one million a year) and of visitors to the Andean States (hundreds of thousands each year) make a point of visiting the Laguna de la Restinga in Margarita and Sierra Nevada and Tama Parks in the Andes. Island National Parks and most National Parks south of the Orinoco attract high expenditure by local and foreign tourists. Canaima and Los Roques, for instance, are the destination of major international tours that bypass urban Venezuela in search of unique wilderness. Some half a million international tourists visited Venezuela in , staying an average period of seven days and spending an average of US$ per day, according to figures from the national tourism office (COPOTURISMO). Information from travel agencies suggests that one third of the international tourists devoted at least one day to visit a National Park. This represents expenditures of more than  million dollars a year by some , international tourists. These tourism expenditures reflect neither the tourism benefits of NPs nor money spent in NPs. Most of the expenditure is on travel end lodging outside the Parks boundary. Detailed surveys of travel expenses could allow for the construction of a tourist demand curve for NPs, but unfortunately there is no information to do so. Nevertheless, a low benefit value can be inferred from a marketable production approach. INPARQUES’  expansion plan estimated earnings from entrance fees ## Figures provided by staff of MARNR and the Ministry of Agriculture, MAC. #$ At an eight per cent discount rate, see annex table A. columns , , , and .



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Pablo Gutman

Table . Protection of Agricultural Lands. Benefits to Public Irrigation . Total irrigated land,  in hectares (ha.) . Of which one quarter are served by public water works . Of which  % are served by NPs’ water supply . Total investment costs on land served by NPs’ water supply ($, per hectare for  years) (Millions of n US dollars) . Possible overall losses due to deforestation in NPs (Millions of  US dollars) . Possible annual losses (years –) due to deforestation in NPs (Millions of  US dollars). Row S divided by  years

, ha. , ha. , ha. $nM Low  % High  % $.M $nM Low l $nM High l $.M


and leasing of NPs sites for tourist related services and conclude that US$  million a year would result from a five-year investment plan to improve visitors ’ facilities and entrance controls. Thirty years of such annual earnings would have a present value of about US$  million.#% ... Maintaining mangroves ecosystems Several of Venezuela’s coastal NPs protect most of the country’s mangrove ecosystems. Members of the FAO\World Bank Cooperative Program have estimated that there are approximately , hectares of mangrove within Venezuela’s marine parks.#& Although their status as part of National Parks precludes most in situ extractive activities such as logging, they provide important non extractive in situ services and many extractive and non extractive ex-situ services such as tourism, coastal erosion protection, and breeding and feeding grounds for many marine species important to off-shore commercial capture.#' Because mangrove ecosystems are very fragile and highly vulnerable to urban and commercial pressures, severe degradation can be expected if they are not properly protected. This is particularly the case in central and western Venezuela, where mangrove areas are close to large urban centres and tourism developments. Considering urbanisation growth rates in Venezuela’s central coastal areas during the s and s, NPs’ staff estimated that as much as half the mangrove areas could be lost in a  year period if they were not protected as national parks (over a -year horizon the other half would still be protected by its remoteness). #% At an eight per cent discount rate, see annex table A. column  for tourism present value calculation. #& F. Vita and R. Dubois, personal communication, . #' See F. Spaninks and P. van Beukering, Economic Valuation and Mangrove Ecosystems : Potential and Limitations (London, ) for a detailed discussion of mangrove benefits.



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Table . Mangrove Protection Benefits . Approximate total country mangrove area , ha. as of  in hectares (ha.) . Of which \ could be lost in  years if not , ha. protected . Annual average mangrove losses (year –)  ha. in the absence of conversation . Annual loss of producer surplus for  ha. $nM At US-$\ha. (in Million of  US dollars) . Total loss of producer surplus in any of L l n * nM the years – (in Millions of  US dollars) . After year , since there is by assumption L l  * nM l $nM no more mangrove deforestation, annual losses stabilise at year  level (in Millions of  US dollars) Source : Own calculation.

There is no Venezuelan study on the economic value of mangrove ecosystems used on a sustainable base, but some studies for the Caribbean and Central America are available. These studies have estimated mangroves’ harvest market values, net of all costs, therefore a producer surplus – ranging from  to , dollars per hectare per year.#( Since logging activities are forbidden in NPs, half the lower figure –  dollars per hectare per year – is a possible measure of producer surplus losses due to the loss of one hectare of Venezuela’s mangrove. Resulting benefit figures are calculated in table . The corresponding present value figure of potential losses over a  year period is  million US dollars.#) ... Carbon sequestration Forests that are central to land, water and biodiversity conservation cover more than  per cent of Venezuela’s NPs. More recently concerns about global warming from the emission of carbon dioxide and other greenhouse gasses have added a new dimension to forests ’ conservation benefits. Forests are greenhouse gas trapping systems, capturing atmospheric carbon as trees grow, and storing it in the trees ’ biomass and in the soils. Conserving National Parks’ forests can be thought of as : a) reducing #( See L. Hamilton and S. Snedaker, Handbook for Mangrove Area Management (Gland, ) and S. Gammage, Estimating the Total Economic Value of a Mangrove Ecosystem in El Salvador (London, ). Estimates for South East Asian mangroves tend to be much higher, probably because they are subject to more intensive use. See Spannik and Beukering, Economic Valuation ; T. Franks et al., ‘ The Wise Use of Mangrove Systems : The Social and Environmental Value of Water ’, in M. Ka et al. (eds.), Water : Economics, Management and Demand (London, ). #) At an  per cent discount rate. For the calculation of the present value figures see annex table A. column .



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Pablo Gutman

global environmental damages ; or, b) reducing either world or Venezuela’s needs for compensatory reforestation, or other CO # abatement policy. There are over  million hectares of forest in Venezuela’s NPs. The lowest countrywide estimate of deforestation rates put it around n per cent per annum. At least half that deforestation rate could be expected in NPs, were they not protected from encroachment. This figure is consistent with the watershed damages previously estimated.#* That would represent , ha. in the initial year, falling thereafter as the forest dwindles. The -year accumulated deforestation would be near n million hectares.$! With average CO release # conservatively estimated at  metric tons per hectare, that makes n million tons of CO a year and over  million tons of CO for a -year # # period.$" What should be the value assigned to the damages caused by the release of this amount of greenhouse gasses ? Or similarly : what should be the value assigned to preventing the release of these gasses ?$# Reforestation costs are lower and are used here in order to be consistent with the other estimates. Information gathered at Venezuela’s forest agency (SERFOVEN) put the  cost per hectare of commercial tree planting at , US dollars, but only around  US dollars per hectare for conservation tree planting. Assuming a year to year ‘ replacement tree planting ’, the yearly benefits are presented in table . When these figures are fed into a PV estimate (see annex table A.. column ) avoided #* Deforestation figures of n per cent per annum are mentioned by World Resources Institute (New York, –). Local sources give estimates  to  times higher, see Ministerio del Ambiente y los Recursos Naturales Renovables, Informe Nacional de Venezuela a la Conferencia de las Naciones Unidas sobre Medio Ambiente y Desarrollo, (Caracas, ). As in all other cases the lower value – the WRI figures – is used here, in order to underline the conservative character of these benefit estimates. $! This is a geometric series with r l n, and the exact -year deforestation figure is ,, ha. Since the year to year deforestation change is very small, to simplify benefits calculation the annual figure used is the -year average, ,n hectares per year. $" Fifty tons of CO per hectare (a figure provided by Venezuela’s forest agency # SERFOVEN) is a low estimate for rain forest, considering that several studies give figures  to  higher for Brazilian rain forests (see several of these estimates in R. Schneider, The Potential for Trade with the Amazon in Greenhouse Gas Reduction (Washington, DC, ). However, since Venezuela’s NPs encompass forest of varied density the figure of fifty tons of CO per hectare was retained. # $# Figures vary widely, from W. Nordhaus, Managing the Global Commons. The Economics of Climate Change (Cambridge, MA, ) at the low end to W. Cline, The Economics of Global Warming (Washington DC, ) at the higher. S. Fankhauser, Evaluating the Social Costs of Greenhouse Gas Emissions (London, ) estimate of  US dollars per ton of CO has been extensively used and would result in a value of , US dollars $ per hectare of forest conserved as a carbon sequestration device. This  US dollars figure purports to measure the present value of the future damages from a ton of carbon throughout its active lifetime in a scenario of doubling CO concentrations over # pre-industrial level (usually referred to as iCO scenario). #



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Table . Carbon Sequestration Benefits . Total  years estimated deforestation, in hectares (ha.) . Annual average deforestation, in hectares (ha.) . Per hectare cost of conversation tree planting (in  US dollars) . Annual cost of replacing the lost forest, year – (Millions of  US dollars)

,, ha. ,n ha. $ $nM


investment costs over a -year period would be approximately  million US dollars (at an  per cent discount rate). To whom and how would these carbon sequestration benefits accrue ? One possible answer (if estimates of potential global warming damages prove right) could be to the world at large. But what about Venezuela ? Some authors argue that carbon sequestration benefits could help save tropical forests, prompting international transfers from the north to the south in the form of joint implementation projects or direct conservation subsidies.$$ It is difficult to see how this would happen in the framework of the Convention on Climate Change.$% Although the  Kyoto Protocol firmly endorses joint implementation projects, it actually encourages tree planting, not the protection of pre-existing forest. The reason is straightforward. What the Convention on Climatic Change has agreed so far is to reduce baseline emissions of developed countries. The conservation of developing countries ’ pre-existing forest does not help achieve this goal, but tree planting in developing countries could do it if it is part of a joint implementation project. In fact, the existence of joint implementation opportunities, coupled with the fact that developing countries have not committed themselves yet to any CO emission limits, # could further imperil developing countries forests by encouraging deforestation of natural forest, this time not for ranching or agriculture but rather for tree planting projects. The somewhat paradoxical conclusion is that the Convention on Climate Change may need the $$ See D. W. Pearce, ‘ An Economic Approach to Saving the Tropical Forests ’, in D. Helm (ed.), Economic Policy Toward the Environment (Oxford, ) ; also R. Schneider, ‘ The Potential for Trade with the Amazon in Greenhouse Gas Reduction ’, Dissemination Note No. , World Bank, Washington, DC. $% The Convention on Climate Change, that seeks to control worldwide emissions of greenhouse gases, was first presented at the Rio  United Nations Conference on Sustainable Development, but it is better known for its  Kyoto Protocol. The Kyoto Protocol spelled out targets for industrial countries’ emissions reduction and proposed an elaborated system of compensations (country ‘ a ’ could buy emission rights from country ‘ b ’, or jointly implement emission reduction projects with country ‘ c ’). By the end of  the CCC was still waiting for the required number of country ratifications to enter into force.



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Pablo Gutman

commitment by developing countries in order to cap their emissions before conservation of existing tropical forests can qualify as an instrument of greenhouse gasses emission control. ... Limits to NPs benefit assessment : the Indian population Thus far table  has been used to assess, in a CBA framework, the benefits that NPs provides to different society’s groups (farmers, water users, energy users, tourists, the world’s population at large). Yet there are cases where such an approach is clearly inadequate. Consider in map  the many Indian tribes that live in or close to NPs and protected areas south of the Orinoco River (like the Pemons in Canaima NP, and the Yanomamis in Parima-Tapirapeco NP). These are communities that hold to ancestral practices wherein the integrity and sustainability of their natural habitats is central. Assigning market prices to Indian assets and activities will simply miss the point. Indian rights and their contribution to conservation in NPs are better served when considered not on economic terms, or at least not mainly in economic terms, but as part of the broader cultural, social, and legal dimension of NPs’ management. ... Limits to NPs benefits assessment : non quantifiable benefits Several of the NPs benefits listed in table  cannot be included in this benefit estimate because valuation methods are still in dispute. Consider the case of biodiversity protection. Biological diversity benefits refer to all current and potential services provided by a rich living environment, including a variety of species, gene pools, habitats and ecosystems. As well as providing society with new natural resources, drugs and chemicals, biodiversity is basic to evolution. It is also part of most biochemical cycles which govern physical, chemical, and biological processes on earth, including climate, nutrients cycles, pollution dilution, etc. Naturally rich biodiversity occurs in different world locations but particularly in tropical countries where it can be preserved in national parks and other protected areas. Venezuela appears to be a good candidate : with less than n per cent of the world’s land, it ranks among the first ten megadiversity countries. Research and education opportunities in Venezuela’s NPs are also of world interest. For instance, significant contributions to the world’s knowledge of tropical soils have come from IVIC’s Rio Negro research station. Yet existing CBA methods cannot calculate a dollar figure for these NPs services. Alternatively, if the growing world concern for biodiversity is well grounded, a costeffectiveness approach (one looking to the least cost way to achieve a certain goal) would suggest that Venezuela wilderness ranks high among the areas to invest in.



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Table . Present Value of Several Benefit Estimates (Millions of  US dollars)

Discount Rate

Low benefits without carbon sequestration ()

Low benefits with carbon sequestration ()

High benefits without carbon sequestration ()

High benefits with carbon sequestration ()

% n n n n % n n n n  % n n n n  % n n n n Based on Annex Table A. as follows : Row () adds up the corresponding PV figures of A. columns jjjjj Row () adds op the corresponding PV figures of A. columns jjjjjj Row () adds up the corresponding PV figures of A. columns jjjjj Row () adds up the corresponding PV figures of A. columns jjjjjj

... A Summary of benefits’ present value The previous sections have put forward estimates for only a few of the eleven sources of benefits listed in table . Figures for benefits from watershed protection, which are high, are strong ; all other figures are merely indicative. Actual benefits from tourism were not available ; the figure proposed is simply the national parks agency forecast of estimated income from tourist fees and related services. No local estimates of mangroves benefits are available and estimates in this article are based on findings from neighbouring countries. At least four of the other seven non-accounted sources of potential benefits – biodiversity, ecological processes, education and research – could be significant. Valuing NPs’ forest as a source of carbon sequestration is a case apart. Standard calculations yield high values, but they are quite speculative. With all these caveats, yearly benefit figures have been used to estimate their present values (in annex, table A..). Table  presents aggregate present value benefits figures for several rates of discount and benefit aggregation alternatives. As might be expected, benefits fall sharply as the discount rate rises because high hydroelectric benefits accrue at the end of the period.$& Overall these figures, even the ones labelled high, are conservative estimates because : $ Watershed protection services (for hydroelectricity, urban water and irrigation) provide the largest benefits, but values are based in the $& Since the focus of the paper is on the flow of benefits and costs over a  year period, no initial or residual values are considered.



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Pablo Gutman

$

initial year figures. Since the demand for most of these services will grow throughout the project’s -year life, benefits should grow as well. No benefit estimates are available for more than half NPs services.

.. The costs ... Direct and indirect costs Direct costs usually include initial investment costs plus annual operation costs. But, when performing a forward-looking cost benefit analysis of an already existing activity its past costs and benefits are not considered, in economic terms they are sunk. Such principle of economic analysis seems particularly appropriate in this case, since National Parks ’ major initial costs were probably not financial but political : the country’s commitment of natural resources to conservation and direct investment was small, with little salvage value. Hence National Parks ’ direct costs consist of the annual budget for INPARQUES, the agency in charge of NPs, which in the early s averaged  million US dollars per year and was falling. The agency payroll accounted for half this sum, the rest went to pay current costs, maintenance, and small investment projects. Indirect cost associated with protected areas arise from : a) costs of population relocation,$' and b) losses suffered by neighbouring populations which had formal or informal access to the area’s natural resources (such as peasants, small farmers, ranchers).$( To the extent that indirect costs of the first type have already occurred they are sunk costs. Indirect costs of the second type, on the other hand, can persist for a long time, and worldwide they are a common source of friction between NPs’ rangers and local farmers. Although no firm figures are available, these costs are probably low in Venezuela, since most rural areas are sparsely populated and in more populated ones NPs offer many trade-offs such as new jobs in tourism and better local infrastructure to substitute for the lost access to natural resources. ... Opportunity costs National Park advocates have a hard time with opportunity costs. Since the piece of land in question has been legally designated a NP, why should $' Forced relocation costs are part of direct costs, to the extent that they are paid for by the project. But in many cases compensation fall far short of costs inflicted on the population evicted. See P. Gutman, ‘ Involuntary Resettlement in Hydropower Projects ’, Annual Review of Energy and the Environment, vol. , , pp. –. $( The rights of non-owners are usually overlooked in relocation and compensation schemes. See P. Gutman, ‘ Involuntary Resettlement ’.



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

we be looking around for other potential uses ? Yet the reality of alternative uses can be grasped when the very need to spend money to protect NPs from encroachment is considered. In most cost benefit analyses, opportunity costs are already accounted for as part of direct costs, since they are embedded in resources’ market price. This is not the case for NPs, where nature, their main resource, usually will have a zero price, either because it was already a government property or accrued to government through donations. Coming up with a figure for Venezuelan NPs’ opportunity costs is not easy. Many coastal and Andean NPs are subject to urban, tourism or infrastructure pressures that are site-specific and not amenable to average estimates. Besides, some of these real state demands, like tourism developments, are not real opportunity costs, in that they are more a result of the NP than an alternative to it. Then the opportunity costs of banning rural production and mining deserve further consideration. Lost rural production : To be consistent with benefit estimates the initial figure here should be the deforestation that would occur in NPs lands were they not protected. This was estimated at an average ,n hectares per year during the -year period (see section .). The average market price of forest plots across ten Venezuelan regions in  was , US dollars per hectare.$) A quarter of this value ($) is used here to account for the fact that most of NPs ’ lands are in remote areas with limited access, and most of the potential logging would actually end up as a forest fire.$* This land price figure restated in  prices was used to estimate the annual producer’s surplus (annual rent) for several discount rates that, and the results were used to estimate NPs’ opportunity costs as presented in table . Estimated annual opportunity costs apply only to the fraction of NPs area that would be deforested for rural production if not protected, and are only an indication of order of magnitudes. However, they seem appropriate for Venezuela’s rural sector, where population is low, production moderate, NPs have poor agricultural soils and there still is a significant supply of public land outside NPs for wouldbe farmers. Lost mining output : Foreclosing oil or mining developments in NPs land can involve high opportunity costs. Because oil production is Venezuela’s main economic activity, governments have usually avoided establishing NPs in or near prospective oil fields, and when this has $) Buroz Castillo, personal communication, based in the update of Venezuela’s hydroelectric inventory. This is a simple average of ten region figures. $* If the forest is burned, not logged this figure ($ per ha.) may be high, since it is above Venezuela’s average price for low quality land (class IV) and is five to seven times the price of agricultural land in Brazil Amazonian States. See R. Schneider, The Potential for Trade with the Amazon in Greenhouse Gas Reduction (Washington, DC, ).



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

Pablo Gutman

Table . Opportunity Costs of Lost Rural Production . Annual average deforestation, in hectares (ha.), in the absence of conservation . Average market price of forest land near NPs (in  US dollars) . Annual rent per ha. (n  US dollars) a l Q b\jb : where ‘‘ a ’’ is annual rent ; ‘‘ Q ’’ is land price (from row ) ; and ‘‘ b ’’ is the discount rate . Annual rent forgone on , n ha. (in Millions of  US dollars). Row  times row  . Total rent forgone in year n (Frn) (where n is any year from  through )

,n ha.

$n For For For For For For For For For For For For

b l % b l % b l  % b l  % b l % b l % b l  % b l  % b l % b l % b l  % b l  %

$n\ha\year $n\ha\year $n\ha\year $n\ha\year $nM per year $nM per year $nM per year $nM per year Frn l n.nM Frn l n.nM Frn l n.nM Frn l n.nM


Table . Present Value of Several Costs Estimates (US$ million, yenta values, December  prices, based on table ) Discount rate % %  %  %

Direct costs

Opportunity costs

Direct plus opportunity costs ()

n n n n

n n n n

  n n

Source : Based on annex table A..

happened the government has accommodate the oil industry demands, allowing drilling in protected areas or accepting land exchange deals in order to free some portion of protected areas to oil development. NPs relation with mining has been much more conflictive, particularly with gold mining where a protracted conflict came to a head in . In the absence of available data, the paper calculations ignore the opportunity costs of barring mining in NPs, on the assumption (up to now well founded) that Venezuela has always searched for agreement between conservation and large economic development interests and, when pressed, has usually sacrificed the former to the latter. Table  summarises the present value of NPs costs, for a range of interest rates (detailed calculation are left to annex table A.).



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

Table . How Much Should INPARQUES Budget Grow Over Current Levels ? Considering only NPs If rate desired internal benefits without carbon rate of return is sequestration and direct costs % %  %  %

 %  %  %  %

Considerting NPs benefits including carbon sequestration and direct costs  %  %  %  %

Source : Own calculation based on tables  and .

. Conclusions Venezuela’s National Parks are poorly managed, a predicament shared by many NPs systems around the world. In order to secure the benefits of conservation a significant upgrade in NPs management, and therefore in NPs budget, is required. How much then should Venezuela spend in this effort, over and above the current levels of budgeting of INPARQUES, the NPs agency ? Since many NP benefits cannot be assessed in economic terms, the present CBA does not claim to have a definitive answer to this question. Nonetheless the paper’s estimates do answer a related, but more narrowly economic, question : if only known economic costs and benefits of NPs are considered, what would be the maximum National Parks ’ budget consistent with an acceptable rate of return ? In order to address this question, CB analysis should offer a choice among alternatives, not a one-shot prescription. Accordingly table  offers several answers, for different rates of discount and different ways of adding and comparing NPs’ benefits and costs. As for NPs benefits, high benefits without and with carbon sequestration (table , columns  and ) are used, in order to account for the hypothetical character of the latter. Regarding costs, direct and indirect costs, but not opportunity costs, should enter the comparison, since the latter are fixed costs, not related to the level of NPs’ management effort.%! If a thirty year annual rate of return of eight per cent is considered acceptable, the historical INPARQUES budget ( million US dollars at  prices) could be increased, by between  per cent and  per cent. %! Opportunity cost, when they are not part of direct costs, behave like long-term fixed costs. They should be factored into decisions about entering or exiting the activity, but not into decisions about the level of activity. Regarding the former, a comparison of tables  and  show that the present value of estimated NPs benefits surpasses estimate direct plus opportunity cost in all cases except for low benefits without carbon sequestration.



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

Pablo Gutman

This range depends on the extent to which carbon sequestration benefits are considered. Rates of return below eight per cent justify larger conservation budgets and the opposite would occur with higher rates of return. While these figures may not satisfy all parties they surely provide a good ground to open a review of Venezuela’s NPs budget. Any attempt to calculate an appropriate level of expenditure for environmental management cannot be successful if confined to economics alone. Social values, science and politics all affect environmental decisions and economics should be one of many voices to be heard. Nonetheless if the economist is to be heard at all, the results of this partial cost-benefit analysis are striking and they fully confirm the value of such exercise. Not only does CBA provides a tool to study what costs and benefits consist of, but a better framework with which to understand tradeoffs and decide about alternatives.



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

Annex A.. Summary of Benefits of National Parks (Yearly values, millions of US dollars, prices) Benefits

First- Last US$ Millons Per Year Year Low High

Hydroelectric (avoided replacement costs) Urban water (avoided replacement costs) Irrigation private (avoided replacement costs) Irrigation public (avoided replacement costs) Tourism (marketable products) Coastal ecosystems (productivity losses) Carbon sequestration (avoided replacement costs)

       

       

n n n n

n n n n  Yn l n (n) . n

Source : Last rows of tables  through . Tourism figure from section n..

A.. Present Value of Benefits (Millions of US dollars, prices)

Year

Hydro Hydro Urban Urban Irrigation Irrigation Irrigation Irrigation power power Water Water Private Private Public Public Mangrove Carbon Low High Low High Low High Low High Protection Tourism Sequestration () () () () () () () () () () ()

                             

                        n n n n n 

At At At At

                        n n n n n 

n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n

 % n n n % n n n  % n n n  % n n n

n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n

n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n

n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n

n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n

n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n

Present Values (millions of  US dollars) n n n n n n n n n n n n n n n n n n n n

n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n

                              n n n n

Figures are from table A.. Present values calculated in Excel.



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n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n



Pablo Gutman

A.. Present Value of Costs (Millions of US dollars, prices) Year

Direct Costs

                              At At At At

% %  %  %

Opportunity Costs of Lost Rural Production at  % at  % at  % at  % discount discount discount discount

 n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n  n n n Present Value (millions of  US dollars) n n n n n n n

n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n

n

Direct cost figures from section n.. Opportunity costs from table . Present value calculated in Excel.



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