Arboriculture & Urban Forestry 33(1): January 2007 Arboriculture & Urban Forestry 2007. 33(1):1–11. 1 Benefit-Based Tree Valuation E. Gregory McPherson Abstract. Benefit-based tree valuation provides alternative estimates of the fair and reasonable value of trees while illustrating the relative contribution of different benefit types. This study compared estimates of tree value obtained using cost- and benefit-based approaches. The cost-based approach used the Council of Landscape and Tree Appraisers trunk formula method, and the benefit-based approach calculated the net present value (NPV, total future benefits minus costs discounted to the present) of future benefits and costs using tree growth data and numerical models. In a hypothetical example, the value of a 40 year old green ash (Fraxinus pennsylvanica) was $5,807 using the cost-based approach and either $3,102 (for a tree growing in Fort Collins, CO, U.S.) or $5,022 (for a tree growing in Boulder, CO) using the benefit-based approach. This example, however, did not consider planting and management costs. In a multitree example, 15 years after planting five pistache (Pistacia chinensis) street trees in Davis, California, the trunk formula (cost-based) value was $8,756, whereas the benefit-based value NPV of benefits was negative at discount rates ranging from 0% to 10%. Negative NPVs occurred because future sidewalk repair costs were projected to be in excess of benefits, a relationship not fully captured in the cost-based approach to valuation. Removing and replacing the five pistache street trees was not cost-effective at 7% and 10% discount rates, primarily because high future sidewalk repair costs associated with retaining the trees were heavily discounted. Planting the five pistache trees in their current location was not an economically sound decision, but planting the same trees in a nearby shrub bed would have saved an estimated $1,102 (10%) to $12,460 (0%) over 40 years. These examples illustrate the use of the benefit-based approach as a decision support tool for design and management. Key Words. Tree appraisal; tree benefits; tree value; trunk formula method. Establishing the value of trees is fundamental to arboriculture and urban forestry. Without an estimate of tree value, there is little to motivate investment in tree management. Without investment in tree management, the health and functionality of trees deteriorates. When trees are viewed more as liabili- ties than assets, they are removed and too often not replaced. As tree canopy cover diminishes, our communities become less livable. The value of a tree, defined as its monetary worth, is based on people’s perception of the tree (Cullen 2000). Tyrvainen (2001) reviewed different approaches to determine the value of urban forest benefits. Hedonic pricing relies on differences in housing prices to reflect the value of nearby greenspace. Contingent valuation is based on surveys that ask what people are willing to pay for greenspace. Average willingness to pay is multiplied by the total number of consumers to estimate greenspace value. The travel-cost method uses the costs of travel as a proxy for the price that people are willing to pay for recreational benefits of greenspace. Each of these meth- ods has advantages and limitations. However, these ap- proaches do not isolate the benefits of individual trees within forest stands. Arborists use several methods to develop a fair and rea- sonable estimate of the value of individual trees (Council of Tree & Landscape Appraisers 2000, Watson 2002, Cullen 2005). The cost approach is widely used today and assumes that value equals the cost of production (Cullen 2002). The market approach determines tree value based on the exchange of real property, often using historical sales prices of compa- rable assets. The income approach measures value as the future use of a tree such as in fruit or nut production. In the absence of products, the income approach could be based on the present value of future benefits the tree is likely to pro- duce (Council of Tree & Landscape Appraisers 2000). It is this last approach, henceforth called the benefit-based ap- proach, that is the subject of this article. Until recently, it was difficult to estimate the future stream of benefits that a tree might provide. The growth rates of urban trees were not well documented, their benefits were known in only general terms, and reasonable ways of deter- mining the value of their services were largely theoretical. Recent advances in each of these three areas make it possible to develop reasonable estimates of the benefits trees do and will produce (McPherson et al. 2005b). This article presents ©2007 International Society of Arboriculture
January 2007
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