Agriculture Reference
In-Depth Information
where: B
t
= benefit at time
t
, C
t
= cost at time
t
, r = discount rate, t = time (years)
where observation is noted, and T = life span of investment (years).
In order for the land use system to be acceptable, the NPV must be greater than
zero (i.e., positive). With mutually exclusive land use systems, the one with the
highest NPV should be preferred.
In private/financial terms,
B
and
C
were calculated from all quantifiable on-site
outputs and inputs valued at market prices. Private benefits were estimated by mul-
tiplying the farm gate price with marketable outputs of the system resulting from
SCUAF simulation. This measure of financial profitability ignores risks and other
market imperfections such as externalities and public goods, including carbon
sequestration and emission.
The BCA was extended to incorporate the social benefits from carbon sequestra-
tion. Carbon sequestration benefits were derived by quantifying the value of carbon
sequestration from soil and biomass accumulation over a given rotation interval.
Thus, social NPV of the tree-based systems was calculated by adjusting the private
NPV as follows:
(
)
BCG
r
−+
n
=
∑
t
t
t
NPV
=
social
(
)
t
1
+
t
0
where
G
t
is the imputed value of carbon sequestration function of each land use
system at time
t
. All other variables are defined as above.
Ideally, social NPV should reflect the economic value of alternative systems to
society. For this study however, the social profitability of each system incorporated
only the imputed value of carbon sequestration, while the other benefits and costs
were still evaluated at market prices.
The net carbon sequestration potential for each land use system was quantified
following the modeling procedure outlined above. Nordhaus (1993) as cited by
Tomich et al. (1997) estimated the marginal cost of carbon emissions to be between
US$5 and US$20 per ton of carbon (tC). The monetary value of carbon sequestered
for each system was calculated using the intermediate price
2
level of US$10 tC
−1
or
PhP 510 tC
−1
.
The annualized net benefit (ANB) indicates how much the NPV translates into
yearly income over the lifespan of the investment (T). The annualized net benefit was
computed as:
T
r (NPV) (
+
+−
1
r
)
ANB
=
(
1
r
)
T
1
2
Exchange rate: US$1 = PhP 51, June 2001.
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