Carbon Reduction Cost-Benefit Analysis: Assess Benefits to Farms, Government, and Society Separately

Cost-benefit analysis of carbon reduction should distinguish benefits to farms, government finances, and society as a whole. A reduction in one party’s burden does not, by itself, mean total resource costs have fallen. Chapter 19 of Technology and Solutions for Demonstrating Carbon Reduction proposes assessing project viability by separating calculations for each perspective and then examining the conditions for shared benefits.

Define the Concept and Scope of Application First

In cost tables for each perspective, distinguish transferred payments from the resources actually used. If government support and the farm’s payment for the same service are both counted as social costs, the result will be distorted. Benefits, too, should distinguish actual transaction revenue from the assessed environmental benefit. Comparison alternatives must use the same period and boundaries. Do not calculate fiscal savings without confirming whether the budget for another program can actually be replaced. The existence of an emissions reduction and a determination that a particular expenditure can be reduced must be recorded separately.

The effects of emissions reductions on farm income and government finances need separate calculations. Even a technology with proven effects can leave a farm with additional costs, and a project with substantial public benefits can increase the government’s net spending. Being transparent about this difference makes it possible to explain the purpose of support and how burdens are shared.

Introducing low-methane feed and additives can bring additional purchase costs, labor for feeding and recordkeeping, and management costs. But additional expenditure and net cost are not the same. We need to calculate productivity changes, costs saved, and contractual payments together to determine whether the farm’s net benefit is positive or negative.

Compare farm profits and losses and government spending before and after support separately, but do not simply add them and call the sum a net social benefit. A subsidy is government spending and farm income—a transfer—and society as a whole assesses the resources actually used and the benefits obtained. The climate value of physical reductions and revenue from credit sales are not the same item either.

Assess the benefits of adaptation investments separately from the effects of low-methane feed. Adaptation measures may reduce harm even when reduction effects are small, but their benefits also depend on whether facilities actually work, exposure to disasters, and the comparison baseline. Even if support is provided through an integrated program, distinguish each measure’s contribution in budgeting and performance evaluation.

The value of expanding subsidies also extends beyond farms’ profit-and-loss statements. If support leads to additional reductions, the climate benefits do not accrue only to participating farms. When assessing these benefits, we should consider both damage avoided over the long term and the actual resources used to achieve reductions. The IPCC assessed that, in most of the literature it reviewed, the global economic and social benefits of limiting warming to 2° C exceed mitigation costs, while also explaining that cost-benefit analysis has limits in capturing all avoided damages. This is not evidence of the return on an individual subsidy program or of fiscal savings for Korea.

For a project evaluation, first estimate the additional net reductions compared with what would have happened without increased support. If these are assigned a monetary value, the evidence must fit the target gas, timing of emissions, geographic scope of the resulting damages, evaluation period, and discount rate. We should not mechanically multiply a methane value converted using GWP100 by a social cost of CO2 from a different source. Distinguish global climate benefits, domestic benefits, and actual reductions in government spending; do not count the same avoided damage repeatedly as both lower recovery costs and another climate-benefit item. If suitable evidence is lacking, present the additional reductions and costs, but leave avoided damages unquantified.

Conditions and Limits in Field Application

Suppose the government pays a farm’s verification costs on its behalf. The farm’s cash burden falls, but if the same service was delivered, the total resources used by society do not automatically decrease. Assess the additional effects resulting from increased participation separately from the cost of support. Do not count both the subsidy and the service purchased with that money as costs.

In fiscal tables, separate confirmed expenditure from conditional avoided expenditure. Do not add avoided reductions in other sectors and avoided international credit purchases to the same one ton. Social effects such as bargaining power and industrial competitiveness are not government cash revenue and should be analyzed separately.

Set the evaluation period to match the facility’s useful life and the duration of the project, and present support payments, operating costs, replacement costs, and conditional benefits by year. For comparisons across multiple years, apply a consistent price basis and an appropriate discount rate, and examine residual value and discontinuation risk. Presenting long-term benefits alone does not prove fiscal savings. The UK Green Book is a reference for these evaluation principles; for Korean programs, the applicable Korean evaluation guidelines take precedence.

Evidence Needed for Investment Review

Institutions and investors need to confirm which benefits have actually been realized. An assessed value of environmental benefits, a transaction price, and government spending actually avoided are different concepts. The existence of reductions alone does not justify calculating savings in another budget; confirm which expenditures can be replaced and under what system conditions.

The four conditions are criteria for checking whether benefits have been realized. Do not determine that there is a net loss solely because some conditions are missing; calculate how each condition affects costs, reduction volumes, and risks for different farm groups.

Whether reductions create shared benefits for farms and the country should be determined from evidence. A project has value if it can secure both farms’ sustained participation and public benefits, but that value does not necessarily appear as net fiscal savings for the government.

We assess a farm’s net benefit through additional costs and actual benefits, and the government’s fiscal effect through spending and actual avoided expenditure. A social evaluation considers resource costs and environmental benefits without double-counting transfer payments. Verification of the estimates and institutional recognition provide evidence needed for this judgment; they do not guarantee that all three perspectives will show a surplus at once.

Criteria to Keep in View

Shared benefits are not created by adding one number across multiple perspectives. Calculate separately who bears the costs and who receives the effects, and examine how conditions change. The results and assumptions for each perspective must be disclosed to assess the basis for support levels and project expansion.

About the Author

Bongjun Lee graduated from the Graduate School of Management of Technology (MOT) at Sogang University. He spent seven years at Infitron Co., Ltd. and 20 years at Honeywell, working for a total of 27 years in gas measurement in service engineering, technical sales, and channel management. He is now the founder of AI Safety Korea Co., Ltd., where he is researching livestock methane monitoring and measurement, reporting, and verification (MRV) systems using sensors, AI, and data analytics.