(adopted from rogers, 1995). intro to the $ valuation of natural capital afs for 460/560 some slides...
TRANSCRIPT
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(Adopted from Rogers, 1995)
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Intro to the $ Valuation of Natural Capital
AFS FOR 460/560 Some slides borrowed from Ralf Eriksson, Åbo Akademi University, Sweden
Graphic: Economist.com
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Key Concepts• Dimensions of value:
– Types
– Total Economic Value (TEV)
• Valuation Methods
• Benefit/Cost analysis
• Discounting
• Examples:
– Exxon Valdez
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Value: the quality (positive or negative) that renders something desirable or valuable;
Category Tree• attribute
• quality
• worth
• $ value
– market value; market price
– book value
– gross domestic product- GDP; gross national product; GNP; national income
– monetary value; price; cost
• unimportance; importance
• par value; face value; nominal value
• price; cost; toll
• Invaluableness; preciousness; pricelessness; valuableness; worthless
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Economic Meanings of the word “Value”
• Market & Non-market value
– Use-value – consumptive/non
– Non-use value
• Existence value
• Bequest value
• Present value
• Option value
• Quasi-option value
• Intrinsic
Bali
N. American Grizzly
Olympic National Park
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Total Economic Value (TEV)
Source: Bateman (1999)
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=X 16 to 54 (1012)/yr
(Costanza et al., 1997. Nature, Vol. 387)
the entire biosphere
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USE Values NON-USE Values
Cultural
Religious
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Empirical Methods:
1. Conventional market approaches
2. Implicit market approaches
3. Constructed market approaches
Economic Methods for Valuing TEV
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1) Conventional market approaches
• Private = Products; CRP; hunting…
– $ from marketing, Gov. check, saved money from hunting on own land… minus all costs
• Public = reduced sedimentation
– Reduced cost of siltation clean up = e.g. field erosion levels are 5 tons per acre – the buffers prevent at least 3T/ac from entering stream – siltation costs are $150/ton – for 100 acres = about $45,000
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Conventional market approaches: Opportunity cost approach
• the value of using a resource is measured by examining the values of alternative uses
• e.g. the value of a forest as a natural park rather than harvesting the timber is measured by using the foregone income from selling timber
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Conventional market approaches Defensive & preventive expenditures
• In Midwest US value of reduced water quality could be estimated by how much Nitrate Treatment facilities cost:
$ multi-million in Des Moines, IA alone….≈ $2 - 5 Million/yr operating costs
@ $25.00 * 200,000 = $ 5,000,000
Maybe both?
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2) Implicit market techniques• Hedonic pricing method
– House price = f (rooms, access, … environment)
• Travel cost method– the value of a recreational site is measured by the travel costs of
people (which is then interpreted as the willingness to pay)
Source: Saskatchewan Dutch Elm Disease Association
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Constructed market Contingent Valuation method• people are asked how much they are willing to pay for an
environmental good
• quite a used method (hundreds of scientific articles)
• The fundamental approach to direct benefit assessment is to construct a hypothetical situation and ask the respondent to quantify WTP for a specified environmental good:
– The Village of Lake Wobegon is considering the acquisition 100 acres of undeveloped land to expand the village park. How much would you [a resident] be WTP in a property tax surcharge to maintain 100 acres of open space?
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Discounting
What is Discounting?The valuation in present day $ of the future C’s and B’s arising from a project.
Consequences of Discounting
Progressively reduces the PV of future C’s and B’s . This reduction is intensified as we extend our appraisal further into the future.
Justifications for Discounting1.Positive Time Preference - People prefer benefits now rather than later.
2.The Productivity of Capital - Money makes more money. $1 invested now will be worth $1 plus the rate of interest by the end of the year. This means we value $1 now more than $1 received at the end of the year.
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Problems with B/C analysis:
• Uncertainty with the physical C’s & B’s
• Accuracy and acceptability of monetary valuations
• Distribution of C’s & B’s among the population
• Discounting the future
• Limited value scope
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Discounting in General
In what other ways do we discount?
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AF System
BENEFITS COSTS
INTERNAL EXTERNAL INTERNAL EXTERNAL
TimberGrants/Subsidies
Commercial Recreation
Sporting Venison
Supply security Employment/Rural Support Reducing
Agricultural Surpluses Import Savings
Land Labour Capital Expertise
Grants/Subsidies Alternative output
(Opportunity Costs)
Recreation/educationAmenity
Wildlife habitatEcology valueBiodiversitySoil StabilityHydrological
regulationstorage
Carbon sinks/macroclimate regulationMicroclimate regulation
Berries/Game etcFuel
Shelter
Market priced items in an internal account
Recreation lossAmenity lossHabitat loss
Ecological lossBiodiversity lossSoil degradation
Hydrological:Water trapsAcidification
External impacts priced by reference to markets
Non market external impacts. Pricing via monetary evaluation methods
where feasibleKey to boxes:
Value Analysis radiata pine plantations on a farm
raising milk cows
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Non-market Valuation & Policy
Methodology:
• Survey Based, Contingent Valuation – WTP, WTA
• NOAA Rules
Source: Government of Alaska
Gulf of Alaska, 1989
Exxon Valdez
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Total Economic Value (TEV) of Prince William Sound, Alaska, 1992
Source: Bateman (1999)
1999
Value of lost oil:About $8 million
$2.8 Billion in lost passive values(Carson et al., 1992)
$19MMLost tourism, 1989
(McDowell Grp, 1990)
$360MMAwarded
To Fish ind. & NA
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Art by Jerome Lawrence, 2006
All photos from http://www.montpellier.inra.fr/safe/english/agroforestry.php#
The Look of Agroforestry: A Temperate View
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Wild cherry trees and Rapeseed (Brassica napus), in spring (Hérault, France)
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Lavender and walnut trees at the beginning of summer (Drôme, France)
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Young walnut trees in wheat (Hérault, France)
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Market gardening under peach orchards (Pyrénées-Orientales, France)
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Fruit trees in lavender (Alpes de haute-Provence)
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Olive and vine system (Hérault, France)
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Dual purpose walnut trees intercropped with maize (Isère, France)
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Truffle oaks in viticulture plots (Côtes du Rhône, France)
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Potato cultivation in a poplar plot which has been planted at a density used in forestry
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Triticale in a plot of four year old walnut trees
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The harvest of a plot of five year old hybrid walnut trees planted at 13 x 4 m (Hérault, France)
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Walnut trees and intercropped sunflower (Drôme, France)
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Alfalfa intercrops between lines of walnut fruit trees (Drôme, France)
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Just so you know…
WTP can =
….
CV and other methods can get a bit hairy…
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“I believe there is only one conflict, and that is between short-term and long-term thinking. In the long term, the economy and the environment are the same thing. If it is unenvironmental it is uneconomic. That is a rule of nature.”
– Mollie Beattie (1947 – 1996), former director of US Fish & Wildlife Service