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Protected Areas – Economic ValuesProtected Areas – Economic ValuesHow an economist thinks about the How an economist thinks about the

value of protected areasvalue of protected areas

Vic AdamowiczVic Adamowicz

Department of Rural EconomyDepartment of Rural Economy

University of AlbertaUniversity of Alberta

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OutlineOutline

Introduction – Definitions and ConceptsIntroduction – Definitions and ConceptsA case study using opportunity cost A case study using opportunity cost

analysisanalysisA case study examining benefits and costs A case study examining benefits and costs

of a protected area expansionof a protected area expansionAn example of another use of economic An example of another use of economic

value estimates for protected areasvalue estimates for protected areasConclusionsConclusions

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Economic ValuesEconomic Values Economic value is based on individual preferences (what Economic value is based on individual preferences (what

people want)people want) Values express tradeoffs – how much of one thing to Values express tradeoffs – how much of one thing to

give up for anothergive up for another Values – expressed in monetary terms – are the amount Values – expressed in monetary terms – are the amount

of money an individual would give up to obtain of money an individual would give up to obtain something, something, Or accept in compensation to give something up. Or accept in compensation to give something up.

Values apply to things that can be purchased (ipods, Values apply to things that can be purchased (ipods, coffee) as well as things that cannot.coffee) as well as things that cannot.

Prices (or expenditures) often do not reflect valuePrices (or expenditures) often do not reflect value Coffee costs me $2, but I would be willing to pay $5 on most Coffee costs me $2, but I would be willing to pay $5 on most

mornings. mornings. If coffee was unavailable – I would save $2, but would lose $5 in If coffee was unavailable – I would save $2, but would lose $5 in

overall value (net of $3.)overall value (net of $3.) Value is based on demand (preferences)Value is based on demand (preferences)

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Goods and ValuesGoods and Values

Types of goodsTypes of goodsPrivate goods (rival, excludable)Private goods (rival, excludable)Public goods (non-rival, non-excludable)Public goods (non-rival, non-excludable)

Who benefits from an “improvement”?Who benefits from an “improvement”?From a pure public good – everyoneFrom a pure public good – everyone

Total value is the sum of benefitsTotal value is the sum of benefits

From a pure private good – specific individuals / From a pure private good – specific individuals / groups in societygroups in society

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What’s the value of a Protected What’s the value of a Protected Area?Area?

First – what “change” is being evaluated?First – what “change” is being evaluated? With – without principleWith – without principle Protected area versus “no protected area”?Protected area versus “no protected area”?

Generate changes in Generate changes in Market values – limited (perhaps NTFPs)Market values – limited (perhaps NTFPs) Non-market valuesNon-market values

Use values – recreation, traditional useUse values – recreation, traditional use Passive use values – “just knowing it’s there”Passive use values – “just knowing it’s there”

Environmental goods and servicesEnvironmental goods and services Generate changes in market and nonmarket valuesGenerate changes in market and nonmarket values

Carbon (market); water (non-market?)Carbon (market); water (non-market?) Valuation of “endpoints” Valuation of “endpoints”

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How to Value Goods?How to Value Goods?

Examine tradeoffs that people make in markets Examine tradeoffs that people make in markets Not very helpful for public goods / passive use values.Not very helpful for public goods / passive use values.

Examine outcomes from referenda Examine outcomes from referenda How much is a community willing to tax itself to How much is a community willing to tax itself to

realize a public goods goal?realize a public goods goal?

Highly structured surveys that act as referendaHighly structured surveys that act as referenda Would an individual vote to approve taxing Would an individual vote to approve taxing

themselves to obtain the benefits of a protected area?themselves to obtain the benefits of a protected area?

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National Survey Results from April 2006National Survey Results from April 2006

Percent Stating that governments should “do Percent Stating that governments should “do a lot more” abouta lot more” aboutReducing air and water pollutionReducing air and water pollution 70%70%Maintaining parks and wildlifeMaintaining parks and wildlife

43%43%Protect species at riskProtect species at risk 50%50% Improve roads and highwaysImprove roads and highways 60%60%Encourage economic growthEncourage economic growth 52%52% Improve health careImprove health care 73%73% Improve educationImprove education 60%60%Reduce taxesReduce taxes 52%52%

Source: Olar et al 2007.

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Benefits continuedBenefits continued

Incorporating uncertainty, irreversibilityIncorporating uncertainty, irreversibilityChanges over timeChanges over time

Environmental values may be increasing over Environmental values may be increasing over timetime

• ScarcityScarcity• Technology can reduce scarcity for material goods, Technology can reduce scarcity for material goods,

but not for unique natural environments but not for unique natural environments • But, some important caveats….But, some important caveats….

Environmental values tend to increase Environmental values tend to increase with increasing incomeswith increasing incomes

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Pergams and Zaradic (2008)Pergams and Zaradic (2008)

Source: Pergams and Zaradic (2008) PNAS. Page 2296

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What about costs?What about costs? Opportunity cost Opportunity cost

Impacts on the forestry sectorImpacts on the forestry sector Sequencing, location, etc.Sequencing, location, etc.

Impacts on energyImpacts on energy Delay, avoidanceDelay, avoidance

Other users / rights holdersOther users / rights holders Analyzing the opportunity costs of attaining Analyzing the opportunity costs of attaining

environmental objectives can be useful!environmental objectives can be useful! Implicit “cost-effective” land use strategyImplicit “cost-effective” land use strategy Implicit “cost-effective” protected areas / floating Implicit “cost-effective” protected areas / floating

reserve strategy?reserve strategy? But analyzing costs alone is only part of the But analyzing costs alone is only part of the

picturepicture

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Setting ObjectivesSetting Objectives

Costs

Benefits

Stringency of Target

$

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Example 1 – Opportunity Cost Example 1 – Opportunity Cost ApproachApproach

Biodiversity Conservation in the Boreal Biodiversity Conservation in the Boreal ForestForestWhat are the tradeoffs (economic impact of What are the tradeoffs (economic impact of

alternate biodiversity objectives)?alternate biodiversity objectives)?What would the least cost approach to a What would the least cost approach to a

particular biodiversity objective be?particular biodiversity objective be?Least cost protected area strategy?Least cost protected area strategy?

What mechanisms can be used to achieve the What mechanisms can be used to achieve the objectives at least cost? objectives at least cost? Direct regulation? Tradable development rights?Direct regulation? Tradable development rights?

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SFMN Bioregional Assessment ProjectSFMN Bioregional Assessment ProjectBoreal Ecology and Economics Synthesis Boreal Ecology and Economics Synthesis

Team (BEEST)Team (BEEST)

Investigators:Investigators: Vic AdamowiczVic Adamowicz Fiona SchmiegelowFiona Schmiegelow Steve CummingSteve Cumming Marian Weber Marian Weber Grant HauerGrant Hauer Lee FooteLee Foote Stan BoutinStan Boutin Fred BunnellFred Bunnell Werner KurzWerner Kurz Chokri DridiChokri Dridi

Research Associates:Research Associates: Pierre VernierPierre Vernier Xianli WangXianli Wang

Students and Support:Students and Support: Michael HabteyonasMichael Habteyonas Robert JagodzinskiRobert Jagodzinski

Partners Partners Alberta Sustainable Resource Alberta Sustainable Resource

DevelopmentDevelopment Alberta EnergyAlberta Energy Alberta EnvironmentAlberta Environment B.C. Ministry of ForestsB.C. Ministry of Forests Ducks UnlimitedDucks Unlimited Alberta-Pacific Forest IndustriesAlberta-Pacific Forest Industries Canadian Forest Products (BC)Canadian Forest Products (BC) Weyerhaeuser CompanyWeyerhaeuser Company Millar WesternMillar Western

Funded by the Sustainable Forest Funded by the Sustainable Forest Management NetworkManagement Network

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““Production Possibility Frontiers”Production Possibility Frontiers”

“Profit”

Biodiversity “targets”

Max. profit

Plan A

Plan B

Plan C

Current Mgmt?

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Model Optimization StructureModel Optimization Structure

Max NPV Max NPV (Forest Sector)(Forest Sector)s.t.s.t.1.1. Initial Area by Forest Type/Age/LocationInitial Area by Forest Type/Age/Location2.2. Forest DynamicsForest Dynamics3.3. Demand/Capacity/AACDemand/Capacity/AAC4.4. Old Mesic Forest >= Target (50-100yrs, Old Mesic Forest >= Target (50-100yrs,

periods 5-10)periods 5-10)

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Source: Hauer et al 2007.

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Source: Hauer et al 2007.

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Source: Hauer et al 2007.

Biodiversity – Forest Product TradeoffsBiodiversity – Forest Product Tradeoffs

1919Source: Hauer et al 2007.

Percent old forest – with noconstraints

Percent old forest – with 44%constraint

2020Source: Hauer et al 2007.

Bird count of Canada Warbler with no constraints

Bird count of Canada Warbler with 44% constraint

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SummarySummary

Opportunity cost analysis provides insights Opportunity cost analysis provides insights into “least cost” (or cost effective) into “least cost” (or cost effective) approaches to achieving ecological approaches to achieving ecological objectives, butobjectives, butWhere should we be on the cost curve? Where should we be on the cost curve? Who decides? Who decides?

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What about benefits?What about benefits?

Market benefits – recreation, tourismMarket benefits – recreation, tourismPassive Use BenefitsPassive Use Benefits

Stylized referendumStylized referendum Implicit value of decisionImplicit value of decision

ChallengesChallenges

$

Biod

V

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Example 2 Protected Areas Example 2 Protected Areas Planning in OntarioPlanning in Ontario

Sverrisson, Boxall and AdamowiczSverrisson, Boxall and Adamowicz

Protected area in a region - how much is Protected area in a region - how much is enough?enough?Costs of program (land values)Costs of program (land values)Benefits of programBenefits of program

Structured survey of Ontario residents to identify Structured survey of Ontario residents to identify how much they would be willing to invest.how much they would be willing to invest.

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The Mixedwood PlainsThe Mixedwood Plains

Various natural habitatsVarious natural habitats

Diverse concentration of Diverse concentration of animal and plant speciesanimal and plant species

Increased human Increased human pressures on biodiversitypressures on biodiversity

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Institutional FrameworkInstitutional Framework

Ontario Parks (OP) invests public funds to Ontario Parks (OP) invests public funds to acquire protected areasacquire protected areas

Three main methods of acquiring Three main methods of acquiring properties:properties:Direct purchaseDirect purchaseDonationsDonationsConservation easementsConservation easements

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Estimated Cost Curve for Expanding Estimated Cost Curve for Expanding Protected Areas in Ecodistrict 6E-12Protected Areas in Ecodistrict 6E-12

Figure 1. Present value of the cost curves for expanding protected areas in 6E-12: Discounted over 20 years

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Valuation ScenariosValuation Scenarios

Binary choice “referendum” (contingent valuation)Binary choice “referendum” (contingent valuation) Each respondent votes 8 times between the current Each respondent votes 8 times between the current

situation and a proposed programsituation and a proposed program Attributes and levels describing the proposed Attributes and levels describing the proposed

programs :programs : Protected area targets:Protected area targets:

1% - 5% - 12%1% - 5% - 12% Year when protected area target is reached:Year when protected area target is reached:

2016 - 20262016 - 2026 Price of the proposed programPrice of the proposed program

$20 - $60 - $175 - $325$20 - $60 - $175 - $325

All combinations of attribute levels resulted in 24 different All combinations of attribute levels resulted in 24 different votesvotes

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Valuation SurveysValuation Surveys

Lots of concern about: Lots of concern about: ““hypothetical bias”hypothetical bias” ““strategic behaviour”strategic behaviour” Information provisionInformation provision

Research effort devoted to developing and Research effort devoted to developing and testing survey research methods that testing survey research methods that approximate “actual” choice behaviourapproximate “actual” choice behaviour

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DataData

Internet panel provided by Ipsos ReidInternet panel provided by Ipsos ReidSample representative of the public of Sample representative of the public of

OntarioOntario1,629 participants1,629 participants8 votes per respondent => 13,032 8 votes per respondent => 13,032

observationsobservationsA variety of validity tests and analysesA variety of validity tests and analyses

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Sample Valuation ScenarioSample Valuation Scenario

Protected area targets

0.6% (630 km2) of the Mixedwood Plains protected

12% (12,600 km2 approx.) of the Mixedwood Plains protected

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WTP for the Mixedwood PlainsWTP for the Mixedwood Plains

Figure 1. Benefits from expanding protected areas in ecodistrict 6E-12

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Costs and BenefitsCosts and BenefitsFigure 1. Present value of costs and benefits from expanding protected areas in ecodistrict 6E-12: Costs discounted over 20 years

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Ontario Parks Progam: SummaryOntario Parks Progam: Summary

Benefits are greater than costs for Benefits are greater than costs for expanding the protected area network to a expanding the protected area network to a certain extentcertain extent

Maximum net benefits depend on the Maximum net benefits depend on the costs of acquiring additional areascosts of acquiring additional areas

Does not take into account other benefitsDoes not take into account other benefits or costsor costs

Does not address mechanisms for Does not address mechanisms for achieving the targetsachieving the targets

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What did we learn?What did we learn?

Cost curves – costs of achieving various Cost curves – costs of achieving various targetstargetsAffected by current policy, conservation Affected by current policy, conservation

mechanismmechanismBenefit curves – challenging but importantBenefit curves – challenging but important

Public values?Public values?Expert groups / decision makers?Expert groups / decision makers?

There are other criteria!There are other criteria!

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Another use for the estimation of the value Another use for the estimation of the value of “protected areas” Natural Resource of “protected areas” Natural Resource

Damage AssessmentDamage Assessment

British Columbia (B.C.) versus Canadian Forest British Columbia (B.C.) versus Canadian Forest Products Ltd (Canfor) Products Ltd (Canfor)

1992 – fire burns a large area of public forest 1992 – fire burns a large area of public forest (1500 Ha), including some environmentally (1500 Ha), including some environmentally sensitive areas (225 Ha)sensitive areas (225 Ha)

Initially, trial judge awarded damages for the Initially, trial judge awarded damages for the costs of fighting the fire and re-forestation, but costs of fighting the fire and re-forestation, but dismissed the claim that additional compensable dismissed the claim that additional compensable losses occurred related to environmental losses occurred related to environmental damage. (Elgie and Lintner, 2005)damage. (Elgie and Lintner, 2005)

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Decision on Environmental ValuesDecision on Environmental Values

Canada’s Supreme Court did not allow Canada’s Supreme Court did not allow B.C.’s claim for environmental damage, B.C.’s claim for environmental damage, because B.C. attempted to use the timber because B.C. attempted to use the timber value as a proxy for the environmental value as a proxy for the environmental damage (Elgie and Lintner, 2005)damage (Elgie and Lintner, 2005)

The Supreme Court rejected this approach The Supreme Court rejected this approach to evaluating the environmental losses, to evaluating the environmental losses, and in doing so discussed more and in doing so discussed more appropriateappropriate measures of damages. measures of damages.

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Valuation and Damage Valuation and Damage AssessmentAssessment

Supreme Court Statements about damage Supreme Court Statements about damage assessment (Elgie and Lintner, 2005)assessment (Elgie and Lintner, 2005) Typically, the minimum amount is the commercial Typically, the minimum amount is the commercial

value arising from the resourcevalue arising from the resource Loss is compensable using non-market valuation Loss is compensable using non-market valuation

techniquestechniques Government can recover losses as a Government can recover losses as a parens patriae parens patriae Recognized “use value”, “passive use value’” and Recognized “use value”, “passive use value’” and

“inherent value”“inherent value” No requirement for specific status (e.g. U.S. No requirement for specific status (e.g. U.S.

CERCLA) to implement damage assessmentCERCLA) to implement damage assessment

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ConclusionsConclusions Values associated with protected areas (or Values associated with protected areas (or

achieving ecological goals) are complex, but achieving ecological goals) are complex, but many are measurable.many are measurable.

Identifying the objectives is critical but difficult.Identifying the objectives is critical but difficult. The use of information tools to analyze the The use of information tools to analyze the

tradeoffs is essentialtradeoffs is essential Setting objectivesSetting objectives Science information criticalScience information critical Valuation techniques – lots of work to doValuation techniques – lots of work to do Benefits and costs aren’t the only criteriaBenefits and costs aren’t the only criteria Mechanisms are required to achieve the outcomesMechanisms are required to achieve the outcomes Capacity? Capacity?

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ReferencesReferences Elgie, S. A. G. and A. M. Lintner. 2005. The Supreme Court’s Canfor Elgie, S. A. G. and A. M. Lintner. 2005. The Supreme Court’s Canfor

decision: Losing the battle but winning the war for environmental damages. decision: Losing the battle but winning the war for environmental damages. University of British Columbia Law Review 38: 223–62.University of British Columbia Law Review 38: 223–62.

Hauer, G., S. Cumming, F. Schmiegelow, W. Adamowicz, M. Weber, and R. Hauer, G., S. Cumming, F. Schmiegelow, W. Adamowicz, M. Weber, and R. Jagodzinski. 2007. Tradeoffs between forestry resource and conservation values Jagodzinski. 2007. Tradeoffs between forestry resource and conservation values under alternate forest policy regimes: A spatial analysis of the western Canadian under alternate forest policy regimes: A spatial analysis of the western Canadian boreal plains. University of Alberta Working Paper. Department of Rural Economy. boreal plains. University of Alberta Working Paper. Department of Rural Economy. Edmonton.Edmonton.

Olar M., Adamowicz W., Boxall P. , West G.E., Lessard F., and Cantin G. 2007. Olar M., Adamowicz W., Boxall P. , West G.E., Lessard F., and Cantin G. 2007. EEstimation of the Economic Benefits of Marine Mammal Recovery in the St. Lawrence stimation of the Economic Benefits of Marine Mammal Recovery in the St. Lawrence Estuary. Department of Fisheries and Oceans.Estuary. Department of Fisheries and Oceans.

Olewiler, N. 2007. Securing natural capital and ecological goods and services in Olewiler, N. 2007. Securing natural capital and ecological goods and services in Canada. Canada. In; A Canadian Priorities Agenda: Policy Choices to Improve Economic and In; A Canadian Priorities Agenda: Policy Choices to Improve Economic and Social Well-Being Co-edited by Jeremy Leonard, Christopher Ragan and France St-Social Well-Being Co-edited by Jeremy Leonard, Christopher Ragan and France St-Hilaire Institute for Research on Public Policy. Montreal. Hilaire Institute for Research on Public Policy. Montreal.

SverrissonSverrisson, D., P. Boxall and W. Adamowicz. 2007. , D., P. Boxall and W. Adamowicz. 2007. Estimation of the Passive Use Estimation of the Passive Use Values Associated with Future Expansion of Provincial Parks and Protected Areas in Values Associated with Future Expansion of Provincial Parks and Protected Areas in Southern Ontario. Department of Rural Economy, University of Alberta, Edmonton. Southern Ontario. Department of Rural Economy, University of Alberta, Edmonton.