Cost-benefit analysis of road construction

considering deforestation, Brazil

David Schley

Will Diaz

Cost-benefit analysis

CBA has two purposes:

To determine if it is a sound investment/decision (justification/feasibility),

To provide a basis for comparing projects. It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.

Reconstruction

In 2005 the Brazilian Government announced intentions to reconstruct roads

Growth Acceleration Plan (PAC)

This route once connected the capital cities of Porto Velho and Manaus

Problem:

Construction and Paving in Brazilian Amazon

Regional Development/ Environmental degradation

Currently requires extensive paving, bridges and reconstruction of an entire 406 km section, which has been virtually impassable since 1986.

Scenarios

The Conservation Strategy Fund – CSF, a non-governmental organization, conducted a pre-feasibility study of BR-319 reconstruction using costbenefit analysis – CBA1

Two Scenarios

A “conventional” one, reflecting the approach commonly used in such projects

An “integrated” scenario, where some costs related to deforestation were also considered.

Conventional Scenario

Local and regional benefits associated with cargo and passenger transportation savings

Road construction and maintenance costs

Indicated that the project is not economically feasible

Causing net losses of about R$316 million (US$150 million)

Adding Basic implementation and maintenance = 2.5 times higher net loss

Integrated Scenario

Deforestation costs are taken into consideration

700% higher estimated net loss (reaching 1.05 billion USD)

• 6.5 cents benefit to the dollar

Additional deforestation induced by the project:

• 4.613.400 ha for 25 year period

Predicted lose of the value for the forest:

1. Option value (pharmaceutical bio-prospection)

2. Existence value (willingness to pay for biodiversity conservation)

3. Indirect use (carbon storage)

The real cost of the project is highlighted by providing a CBA approach that considers the economic value for the construction of BR-319

This provides an alternative source of information on the project for:

o Public authorities

o Decision makers

o General public

Benefits of CBA

Example 1

• This study, done by the CSF, directly influenced the decision of the Brazilian Senate

• Former Minister of Environment, Senator Marina Silva demanded an evaluation of the project by the Brazilian Court Audit

• This study remains to be a resource for those advocating against the reconstruction of the road, as it allows an important source of information on the cost of this argument.

Example 2

• The National Public Prosecutor’s Office, an independent public entity that aim to represent and defend public interest, invited the CSF to present the results of their study during a public hearing event.

• After that, the Nation Public Prosecutor's Office issued a recommendation report to the federal environmental agency, IBAMA, stating flaws in the environmental licensing process.

• IBAMA has to define whether the project is considered to be environmentally viable under Brazilian legislation.