Abstract
Discounted cash flow analysis is one of the standard methods used to value urban forests and trees. It involves calculating today’s value for all benefits and costs attributed to an investment; that is discounting all cash flows to today’s value using an appropriate interest rate. This requires each benefit and cost be stated in terms of its cash flow. Urban tree benefits are complex. Little notice is given to the components of these benefits. Total urban tree benefits are a summation of partial benefits, including property value increase, storm water reduction, air quality improvement, carbon sequestration, natural gas savings, and electricity savings. We discuss the nature of these partial benefits, especially the geographical, temporal, diameter size, and rate of growth differences. These differences are even reflected in nursery stock valuation. Net present value analysis is used to illustrate the impact of these differences on financial return. An understanding of these components will prove valuable to those attempting to estimate urban forest and tree benefits.
Highlights
Trees produce benefits that differ by location and beneficiaries (Nowak et al, 2002)
Physical benefits can be measured in terms of the opportunity cost of a commodity not purchased and intangible benefits must be valued on the basis of some indirect method (McPherson, 1999)
The discussion on economic components will center on urban forest benefits, but applies to costs
Summary
Trees produce benefits that differ by location and beneficiaries (Nowak et al, 2002). All forests provide natural benefits to the species of plants and animals located within and to the wider environment (Nowak et al, 2005). Physical benefits can be measured in terms of the opportunity cost of a commodity not purchased and intangible benefits must be valued on the basis of some indirect method (McPherson, 1999). Two examples are the Urban Forest Effects Model— UFORE (USDA Forest Service, 2012) and the National Tree Benefit Calculator (NTBC) (Casey Trees and Davey Tree Expert Company, 2012) These models are designed to deal with the immense variety in urban tree location, species, and conditions. We show how these patterns generally differ to illustrate the necessity to carefully consider how benefit flow pattern will impact individual tree and urban forest financial analyses
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