Economic and Ecological Benefit-Cost Analysis of the Impact of Oil Palm Expansion in the Tesso Nilo National Park Area, Pelalawan

Abstract

Oil palm expansion inside Tesso Nilo National Park (TNTN), Pelalawan Regency, generates short-term financial gains for its actors, while the loss of carbon stocks and forest ecosystem services is rarely accounted for in conventional economic calculations. This study estimates the economic benefits and ecological losses of oil palm expansion in TNTN and analyzes their benefit-cost ratio (BCR). A descriptive-quantitative approach with an ex-post Benefit-Cost Analysis (BCA) under a with-without principle was applied from a regional social perspective, using secondary data, an expansion area of ​​40,000 hectares, a 25-year horizon, and a base discount rate of 8% tested at 4% and 12%. Ecological losses comprise carbon stock loss valued by the social cost of carbon (US$185 per tCO2). The results show a net economic benefit of IDR 6.70 trillion, an ecological loss of IDR 57.82 trillion, a BCR of 0.24, and a social NPV of −IDR 51.12 trillion, indicating that oil palm expansion in TNTN is net-negative for the region. This conclusion holds in all sensitivity tests using the social cost of carbon, including a lower carbon baseline of plantation forest (BCR 0.61). The BCR exceeds 1 only if the carbon price falls below US$21.4 per tCO2, for example at market carbon prices of US$5–10 (BCR 1.29–1.48). These findings highlight the need for economic valuation to support law enforcement, restoration, and conservation area management policies.