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1 Cost Benefit Analysis Template Section A Vote Responsible Minister Initiative title Descriptive Information 1 Cost Benefit Analysis Template: October 2015 Business, Science and Innovation Minister Joyce Science and Innovation: Infrastructure Part II Nationally-Significant Collections & Databases Funding Sought ($m) 2015/ / / / /20 & outyears TOTAL Operating Capital Problem Definition This should be read in conjunction with the summary Infrastructure CBA document which provides the generic problem definition for infrastructure investments. Initiative Description The NSC&Ds were originally identified and funded on the basis that: they are critical for New Zealand science to deliver public benefit the benefits accrue to many, varied users and third party beneficiaries while the costs of provision belong to the CRI There are currently 26 NSC&D s held by CRIs. They cover a wide variety of topics taxonomic collections, genetic material, environmental, geological and fossil records. Core Funding is expected to be used in the following ways for NSC&Ds: Data collection, maintenance and enhancement of collections, databases and their infrastructure and networks; Provide for basic and applied research that assists in the maintenance and enhancement of collections, databases and their infrastructure and networks; Moving to on-line access, if applicable and not already done; and Increasing the awareness and use of the collections and databases. Funding for NSC&Ds has been provided in some form since the formation of CRIs and the assignment of NSC&Ds to CRIs as custodians. Funding for NSC&D s has not changed since 2009 (and in some instances earlier). The amount of core funding mapped to NSC&Ds in 2011 was $17.5m per annum. Since 2011, CRI s have reprioritised their core funding and increased allocation of core funding to NSC&Ds by $2.4m to a total of $19.9m for the 2015/16 financial year. However, CRIs report that the current total spend on databases and collections is now $23.3m per annum.

2 Alternative Options Considered - This initiative is one in a package of science budget proposals. Empirical scientific investigation is the only plausible process to both increase the global scientific knowledge base and increase relevant human capital as directed by the NSSI. - The balance of new funding across the range of science funding mechanisms has been arrived at based on the NSSI priorities, evidence of funding mechanism performance, and the current demand for funding. This has led to a focus in this science budget package on public R&D, since current levels of demand for public co-funding of business R&D can be covered within current appropriations. - We are mainly proposing to deliver funding through existing mechanisms, since these provide considerable scale efficiencies and institutional capital and are understood and trusted by the science sector. Creating new mechanisms which duplicate or replace existing ones would be less efficient and effective and incur considerable set-up costs. - Alternative (non-science based) approaches to improving economic, environmental and health outcomes are dealt with by applying the appropriate discount rate in the cost benefit analysis. The preliminary findings of the CRI Core funding review are that the CRIs have been effective guardians of New Zealand s research databases and collections, and there is a good case for maintaining the current arrangements: All the CRIs have strong policies around management maintenance and access to their databases and collections which ensures their effective management. The majority of significant databases are subject to regular external review involving users and stakeholders; The amount of data or number of specimens held within significant databases and collections has continued to grow. This has been enhanced in some cases since the introduction of Core Funding; Data has been made more open and accessible; and Use of the databases has increased. Cost Benefit Analysis Template: October

3 Section B Impact Analysis Impact Analysis This initiative will have a range of medium to long-term impacts as these databases and collections provide a resource scientific information knowledge which will be used by future researchers to conduct R&D. Some underpin New Zealand s biosecurity (e.g. International Collection of Micro-organisms from Plants), some underpin the development of economically significant plant varietals (Margot Forde Germplasm Centre) and others are geospatial datasets relevant to natural hazards. - Medium to long-term of R&D supported by this infrastructure will include: 1. Economic returns through productivity gains from innovative products, services and processes. 2. Improvements in environmental condition and management. 3. Reduction in biosecurity risks 4. Increased resilience to natural hazards. - Various international and domestic studies have attempted to quantify returns to public investment in scientific research. These generally find a high rates of return (> 20%) to investment covering a wide range and emerging after a substantial lag of R&D and implementation. - We could not find literature which specifically attempts to value returns to scientific research infrastructure. It is probably not valid to apply a standard returns to R&D to this investment because: o This investment will primarily support existing databases. It is not clear how future benefit streams should be allocated between historic investment versus ongoing maintenance cost. o It is not known at what rate the knowledge in these databases depreciates over time. o The wide variety of database topics and wide range of potential future uses of the infrastructure create a huge variety of potential pathways to impact and there is currently no estimate of the proportion of economic, monetizable benefits versus other benefits. Impact Summary Table (with illustrative fictional example using the CBAx tool and database for NPVs) Impacts - Identify and list $m present value, for monetised impacts Estimated impact on key outcomes Economic returns through productivity gains from innovative products, services and processes. Improvements in environmental condition and management. Option/scenario Rate your level of confidence in the assumptions and evidence as high (green) if based on significant research and evaluations that is applicable, medium (amber) if based on reasonable evidence and data, or low (red) if there is little relevant evidence. Colour the rating box for each impact. 3 Cost Benefit Analysis Template: October 2015 Assumptions and evidence (quantify if possible, and use ranges where appropriate) The OECD estimates as much as 40% of New Zealand s productivity gap is the result of low investment in knowledge-based capital, including research-led innovation. Increasing this capital base will lift productivity. Economic returns are likely to accrue in particular to primary industry such as through development of new cultivars. Environmental outcomes will benefit to the extent that research informs the better conservation and resource management techniques and decision-making. There is some literature which attempts to quantify these impacts, but these are highly context specific and therefore problematic to transfer to New Zealand. Certainty 1

4 Reduction in biosecurity risks Increased resilience to natural hazards. Cost of the Initiative Fiscal operating and capital (26) costs of the initiative 2 Government Benefits/(Costs) Total Quantified Government Impact Wider Societal Benefits/(Costs) Total Quantified Wider Societal Impact Net Present Value of Total Quantified Societal Impacts (26) Collections of plants, plant pathogens and genetic material are critical in providing New Zealand with the capability to detect and respond effectively and rapidly to biosecurity threats, such as PSA, which could threaten primary production and significant export industries. These databases act as insurance against potential future threats which cannot be predicted. Natural hazard knowledge and resilience is likely to emerge from work by GNS Science, NIWA and Landcare using the databases. The behaviour of natural hazards and their intersection with the built and rural environment is necessary to develop hazard scenario analysis leading to cost-effective mitigation options. 2 This present value of the initiative costs, including both operating and where relevant capital spending, should be included for all initiatives. Other fiscal flow-on costs and benefits that are not included in the initiative costs are to be set out in a separate row. Cost Benefit Analysis Template: October

5 Section C Conclusions Conclusions Continued support for Nationally-Significant Databases and Collections maintains insurance against future biosecurity and natural hazard whose unmitigated impacts are in the order of billions of dollars. The likely benefits of the $2m annual investment will exceed the costs even if the reduction in damage costs from future events is only a few percent. The actual risk reduction is likely to be substantially greater than this, so the benefits of the investment are likely to exceed the cost by many times. Summary of monetised results [only fill this out if you have monetised costs and benefits] Fill this table out with the NPV, benefit cost ratio and return on investment for your initiative. These can all be calculated with the information you included in the summary table above, and is available in the CBAx Output Summary (NB totals can vary due to rounding). We ask you to present all these measures, because they each provide a different perspective on the costs and benefits of an initiative. Use ranges for values where appropriate Supporting Evidence 3 Net Present Value (NPV) - The NPV is the sum of the discounted benefits, less the sum of the discounted costs (relative to the counterfactual). This gives a dollar value representing the marginal impact on the collective living standards of all New Zealanders of the initiative, in today s dollar terms. 4 Benefit Cost Ratio (BCR) - The BCR is the ratio of total discounted benefits to the total discounted costs. A proposal with a BCR greater than 1.0 has a positive impact, because the benefits exceed the costs. The BCR is the same as the Return on Investment Societal Total, unless there are negative impacts in addition to the fiscal cost of the initiative. All negative impacts are included in the denominator for the BCR measure. For example, the BCR measure would reduce if the private cost to people of attending was monetised for the illustrative example and therefore included in the denominator for the BCR calculation. 5 Return on Investment (ROI) - Societal Total - Calculate the ROI by dividing the discounted net change in wider societal impact, including benefits to government, by the discounted cost of the initiative. This can be interpreted as the impact on New Zealanders per dollar the government spends on the initiative, as an example for every $1 the government spends on this programme, New Zealanders receive benefits of $3. 6 Return on Investment (ROI) Government Calculate the ROI by dividing the discounted net change in impact for the government by the discounted cost of the initiative. This measures the discounted net marginal (fiscal) benefits to the government. 5 Cost Benefit Analysis Template: October 2015 Discount Rate 8% real (default) 4% real (sensitivity) Net Present Value (NPV) 3 (26) - Benefit Cost Ratio (BCR) Return on Investment (ROI) Societal Total Return on Investment (ROI) Government 6 - -