economic approaches to incorporating biodiversity & ecosystem services values: monetary...

1 Webinar series. Module 4. 7th June 2013

NBSAP Capacity building Seminars Webinar # 2: Economic approaches to incorporating values

Module #3

Monetary assessments Leonardo Mazza Environmental Economics Programme, IEEP Patrick ten Brink Senior Fellow and Head of Brussels Office, IEEP

7 June 2013

Webinar series. Module 3. 7th June 2013

I. Why monetary valuation of BD & ESS II. Economic approaches to demonstrate the values:

A. Direct valuation methods B. Revealed preference methods C. Contingent valuation method D. Choice modelling method E. Deliberative monetary valuation F. Benefits/Value transfer

III. Choosing the approach IV. Commitments relating to valuation in NBSAPs V. Summary and conclusions

Presentation’s structure

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In some cases, physical data on the state, functions and services from nature is enough to demonstrate the values of biodiversity & ecosystems

Where community or citizen preferences are clear & heard, this can also be sufficient to safeguard or invest in biodiversity

Approaches have proved insufficient to halt biodiversity loss. In practice:

• Policy-makers have attributed a too low or no value to ecosystems/nature • badly informed decisions about whether to conserve or convert

ecosystems • loss of biodiversity, ecosystems & their services; unacceptable trade-offs • significant human, social and economic losses

To get a full picture decision-making needs to be based on a wider picture based on a mix of qualitative, quantitative and monetary approaches and information.

I. Why demonstrate the values of nature in monetary terms?

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Exploring the economic value of ecosystem services is just an additional way of assessing the role and importance of nature.

Monetary analysis: translating qualitative (non numerical data) & quantitative data (numerical data) into monetary units; to help to inform decision making as part of a wider evidence base.

Some dimensions of the anthropocentric/ economic rationale for nature conservation are best expressed in monetary terms

Demonstrations of the values of ecosystems in decision-making:

• Critical for attracting policy interest/attention

• To demonstrate the need for action

• To promote political and public support for action

• To clarify policy response, e.g. policy instrument choice & design


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Monetary estimates have proved to be an important additional evidence base in particular for:

• policy development (e.g. cost-benefit analysis of different policy options) and implementation,

• design and use of policy instruments (e.g. spatial planning and zoning choices also involving establishment of protected areas; payments for ecosystem services schemes),

• land use conversion decisions (e.g. permitting decision and associated consultation process),

• informed investment choices (e.g. for restoration, sustainable management, and new investment for ecosystem based solutions).


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II. Economic approaches to demonstrate the values – monetary valuation

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http://images1.wikia.nocookie.net/__cb20091116115608/eco-eco/images/9/95/1705LD2.jpg


II. Overview of the main monetary valuation approaches & methods

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Revealed preference approaches Stated preference approaches

Direct methods Direct market valuation

Restoration/replacement costs

Avoided costs, production

function based

Contingent valuation

Indirect methods Protection expenditure and

preventative behaviour

Travel costs

Hedonic pricing

Choice modelling / experiment

methods

contingent classification,

comparisons in pairs

Economic values for ecosystem services may be estimated:

• directly for the site and issues in question, or may

• use values already developed in other studies of a similar ecosystem & context in which a valuation has been done. Method known as ‘benefits transfer/value transfer method’.

Approaches & methods involve:

the use of available market prices to observe/calculate values,

the careful use of methods to reveal values,

methods which require values to be stated by those benefitting

=> Each category has its weaknesses & strengths.


observed values in actual markets

Assessment of data from existing markets (i.e. prices, costs, and quantities) = actual preferences and incurred costs by individuals

Two most common techniques:

a) market price based: price of goods

b) cost-based: estimation of the costs incurred if an ecosystem service would have to be recreated by artificial means (regulating

services: e.g. for water purification or water retention)

II.A. Direct valuation methods

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A variety of market valuation approaches (market prices, replacement costs, avoided damages) were used to value a range of direct and indirect values from the That Luang Marsh (outskirts of the City of Vientiane in Lao).

Ecosystem services (including rice cultivation, capture

fisheries, flood protection or wastewater purification) provided by the march estimated at around under $US 5 million annually.

Important evidence as drainage plans were being drawn up; renewed interest in sustainable management of wetlands after study - to achieve a balance between flood protection and delivery of the services from the marsh.

II.A. Example of uses of the direct valuation method

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Source: Gerrard (2004); TEEBcase by P. Gerrad (2010)


Applicable primarily to the goods with already established markets => Useful to estimate many use-values

Most often used approaches to obtain the value of provisioning services, as they are often sold in markets (e.g.

agricultural products)

HOWEVER, if market is distorted prices not a reliable estimate & may need to be adjusted (where possible)

Little help for estimating indirect use values (e.g. climate regulation) and any non-use values (e.g. cultural services)

II.A. Applicability of direct valuation methods

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II.B. Revealed preference methods

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revealed values in actual markets

Directly observing individual’s choices in existing markets related to

ecosystem services being valued.

Economic agents‘reveal’ their preferences through their choices

Techniques:

a) Travel cost Method (TC): Looking at people’s travelling expenses

for going to a site/ecosystem (i.e. direct costs + opportunity costs); for

recreation value, tourism value, value of water

b) Hedonic Pricing (HP) approach: Environmental characteristics

(property features) are reflected in property prices; i.e. positive increase

in prices for being near attractive nature


Combination of travel cost & contingent valuation methods used to estimate value of the Hanauma Bay Nature Preserve (Hawaii). Travel cost method considered three types of expenditures (1) actual costs of transportation; (2) costs related to the travel time; & (3) the local expenditures.

Valuation study was an important input for the subsequent setting of reef damage penalties, as it served as a measure to determine the possible loss from degradation.

Meta-analysis of hedonic pricing studies from the US estimated that an increase in the probability of flood risk of 0.01 in a year is associated to a difference in transaction price of an otherwise similar house of –0.6%.

II.B. Example of uses of the revealed preference method

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Source: TEEBcase by P. v. Beukering and H. Cesar (2010)


Used for recreational services, but also can work for some regulating services (e.g. flood protection)

Requires rather complex statistical analyses (i.e. data + resources)

High data demand, and reliance on assumptions on the relationship of the ESs and the surrogate market

Again, the market imperfections might distort the value estimations

II.B. Applicability of the revealed preference method

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Stated preference approaches; hypothetical market creation:

Simulation of market demand for a ecosystem good/service: surveys on estimating monetary values associated with hypothetical changes in ecosystem service provision

Way of getting people to be explicit about their willingness to pay (e.g. for cleaner

water, species protection) (or willingness to accept compensation (e.g. for the reduction or loss of ESS)

II.C. The contingent valuation method

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Yellowstone national park (US): CVM of park visitors to assess wolf direct use (wildlife viewing) & existence values; wolf reintroduced as valuation revealed increased visitor expenditure would by far outweigh losses in hunter benefits (reduced hunter expenditure due to additional livestock losses)

US government agencies can sue for damage to environmental resources. Estimating damages relying on CVM allows to also recover non-use and existence values. Contingent valuation surveys used for the assessment of the damages from the Exxon Valdez oil spill

II.C. Example of uses of the contingent valuation method

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technique widely used by US government departments when performing CBA of projects impacting on the environment


Also called ‘discrete choice experiments’ - this is still stated preference approach relying on a hypothetical market creation

Alternative to more familiar valuation techniques

People choose from a ‘menu of options’ with differing levels of ecosystem services and differing costs

Respondents indicate their order of preference & values are inferred from trade-offs people make

Today increasingly relies on computer-administered/

web-based surveys

Applicability: This method seems to be ideally suited to inform

the choice & design of multidimensional policies

II.D. The choice modelling method

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Uses formal methods of deliberation to express values

for environmental change in monetary terms

Principle:

• Individuals are provided with detailed info about the issues, discuss & deliberate

• They learn about the issue + are encouraged to understand issue beyond their personal welfare

Deliberative approaches can:

• stimulate citizen involvement

• increase information on ecosystem services

• Process itself results in greater legitimacy/ownership

II.E. Deliberative monetary valuation methods

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Obtaining consistent & precise ecosystem valuation can be expensive and time consuming

the‘value/benefits transfer’ method: approach that minimises the cost and time of valuing of environmental costs and benefits

values of one site are ‘transferred’ to another; e.g. estimating economic values in the study location (e.g. a site in the Netherlands) by using values already developed in other studies (e.g. from a site in the UK).

II.F. Benefits/Value transfer method

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• Benefit transfer needs to take due account of site/country/habitat differences and make appropriate adjustments, where possible (e.g. to take account of differences in income per capita)

• When differences between the study site & the literature site are too great value/benefits transfer is not robust/applicable

• values used for a benefit transfer may change over time (e.g. carbon prices)

• The broader the base of studies from which values can be taken, the more likely it will be a robust technique

II. F. Drawbacks of using the benefits transfer method

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Approach monetary assessments with a sense of proportionality: Rapid assessment upfront to identify real needs, i.e. right focus and level of

detail/ precision/ robustness required

A rapid assessment framework should pursue three objectives: 1) obtain a general view of the full range of services provided by a

site/ecosystem 2) give guidance on how to interpret first-stage results & communicate them 3) help identify which ecosystem services could be selected for further in-

depth analysis and most appropriate the methods in light of constraints

In a nutshell, which approach to choose will depend on: • the scale/ significance of the decision • the type(s) of benefit(s) being measured • the time & resources available (some approaches particularly time & resource

intensive) + Available skills

III. Choosing the approach

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Ultimately, what matters is that the approach chosen is fit for purpose:

• Policy Making, e.g. impact assessment of different policy options – approximate estimates of value of ESS sometimes enough – e.g. if clear that benefits are much larger than costs (or vice versa) => robust order of magnitude can suffice

• Instrument Design – eg PES, REDD+, ETS – greater precision needed to get the design right (e.g. what level of payments, defining additionality & conditionality)

• In compliance checking – as precise an answer as possible is needed as verifiability crucial to functioning (e.g. performance under PES/REDD)

• In project and permit assessment – as precise an answer as possible is needed

III. Choosing the approach

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IV. Valuation in revised NBSAPs: France

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France’s National Strategy for

Biodiversity 2011-2020:

• recognises that links between biodiversity loss & poverty, degradation of health & well-being have been demonstrated

• Highlights benefits from biodiversity;

• Points to the increasing costs resulting from the degradation of the biosphere

• concludes that promoting biodiversity should not be seen as an additional cost but an investment

Strategic goal A: “show that biodiversity provides essential services linking it to health, food, employment, the economy, quality of life, leisure, sports and cultural activities”so “each one (…) is aware of his/her dependence on the services provided by biodiversity & this awareness informs their decisions and behaviour” Relevant targets (a selection): • include biodiversity in economic

decision-making; • turn biodiversity into a driver for

development; • develop & organise mainstreaming

of biodiversity concerns in all education and training courses


IV. Valuation in revised NBSAPs: Switzerland

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2012 Biodiversity Strategy:

A section dedicated to the importance

of biodiversity to society

direct use values as well as options,

heritage & existence values mentioned

“economic values” of BD outlined:

highlights different ecosystem

services; links the provision of these

services to biodiversity;

most important services delivered by

certain types of ecosystems

highlighted

The links between the economy (value

creation) and biodiversity are also

made explicit in a section dedicated to

actions for biodiversity taken to date

in specific sectors.

Relevant targets and commitments

Strategic objective: by 2020, the services provided by ecosystems are identified and quantified in order for them to be “integrated in the measurement of well-being as indicators that complement GDP as well as the impact assessment or regulations”.

As regards actions the Strategy points to a catalogue of 23 ecosystem services that are particularly useful to the Swiss population that has already been prepared.

Action Plan to determine specific measures still under development


Demonstrating values of ecosystems in economic terms => increased awareness & improved evidence for better informed decisions

Which approach/technique is best will depend on the ecosystem services

being valued and the wider context Proportionality of approach used & fitness for purpose considerations

important Valuation best applied for assessing the consequences of changes resulting

from alternative management options; Where no method for monetization exists, important to nevertheless

identify all significant changes in ESS Learning by doing/ from others - key for realising road map and reaching objectives/create solid foundation for improved policy

V. Summary & conclusions

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=> The TEEB initiative’s website has become a key resource on the Economics of ecosystems and biodiversity. Provides information on the main TEEB Study reports, published since 2010

=> The CBD Technical Series no. 28 focuses on the issue of economic Valuation and explores the tools and methodologies

=> Social and Economic Benefits of Protected Areas: an Assessment Guide: aims to do so by synthesising wide-ranging global evidence on benefits provided by PAs and providing concrete, step-wise and practice-oriented guidance on how to identify asses and communicate the various benefits

V. Further reading

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www.ieep.eu @IEEP_eu

IEEP is an independent not for profit institute dedicated to advancing

an environmentally sustainable Europe through policy analysis,

development and dissemination.

Contacts: Leonardo Mazza: [email protected]

Patrick ten Brink: [email protected]

Thank you for your attention!

mailto:[email protected]

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