Economics Valuation of Flood Mitigation Services Provided by Tropical Forests in Malaysia

Abstract

Forests are provider of many ecosystem services which benefits a wide group of people. But the lack of markets to capture payments for these services meant that forest owners chose to convert their assets to provide marketable goods for a smaller group. Payment for ecosystem services (PES) schemes was developed specifically to ensure that forest owners can receive payments in return for providing ecosystem services. One such service provided by forests is flood mitigation and valuing this service has always been challenging due to the lack of suitable data. This study has the unique opportunity to fill in this knowledge gap by using a 20-year flood data from Malaysia. The purpose of this study is thus to measure the economic benefits derived from flood mitigation services by increasing forest cover by 10%. The conceptual approach is the Freeman three-stage framework and the main techniques employed are regression analysis and benefits transfer. In the first stage, it was found that the 10% increase in forest cover leads to a reduction in number of days flooded by 1.552 days for every flood in West Coast Malaysia. In the second stage, we found that one lesser day of flood decreases the number of evacuees by about 10.4% and number of deaths by about 3.62%. These two results are combined to show that a 10% increase in forest cover reduces the number of evacuees and deaths by 16.1% and 5.61% respectively. Valuation of these benefits is undertaken in the third stage using benefits transfer where it was calculated that the flood mitigation benefits provided by 10% increase forest cover is about 3.5 million ringgit over 20 years on West Coast Malaysia. This figure not only provide a good starting point for implementing a PES scheme but is also useful for conducting a cost-benefit analysis of different flood mitigation policies. However, it should be highlighted that this value is an understatement of the actual benefits as there are many other prominent averted damages not included.