INVESTING IN NATURAL ASSETS

A business case for the environment in the City of Cape Town

Presentation to Urban Ecology CityLab, UCT 28 July 2010

Why this study?

Influence budget allocations by developing focused economic arguments for investing, maintaining and expanding the City’s natural assets.

Rationale for this study is to develop a financially-motivated business case for investing in natural assets in the City.

Why invest in, maintain and expand natural assets?

Natural assets produce a flow of goods and services that has value for people living in and visiting the City of Cape Town

Degradation of urban natural assets impedes on the ability of the municipality to deliver services in a cost-effective way

What is different from other arguments?

Arguments to preserve the natural environment have traditionally not focused on the financial logic of investing in natural assets.

Overview presentation

• Natural assets and flows: definitions and concepts

• Economic value of natural assets and flows• A business case for the natural environment

1. NATURAL ASSETS AND FLOWS

Distinguishing between:

Money in a bank account (capital) a flow of interest.

Natural capital a flow of EGS

• Natural assets/capital: Stock of natural resources

owned by the City (beaches, rivers, wetlands, parks, reserves, mountain..)

• Ecosystem Goods and Services (EGS):

Flows of benefits derived from these assets.

Ecosystem Goods and Services NATURAL ASSETS

• Renewable resources: forests, plants, animals • Non-renewable resources: minerals, oil • Environmental resources: water, coasts, atmosphere • Land

Ecosystems Goods and Services

Supporting soil formation photosynthesis primary production nutrient cycling water cycling

Provisioning food freshwater fibre fuel genetic resources medicine and pharmaceuticals

Regulating air quality regulation climate regulation water regulation erosion regulation disease regulation pest regulation natural hazards regulation (including fire, flood, storm surge)

Cultural/ Informational

reflection recreation inspiration aesthetic enjoyment cultural diversity educational value

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Ecosystems and human wellbeing

Ecosystems and poverty alleviation

Maintaining and expanding EGS flows can contribute to poverty alleviation by:

-Helping poorer communities meet their basic needs: • Water • Firewood

-Increasing: • secure and sustainable livelihoods, • health conditions • income • property value.

“Nature’s factories” to the benefit of human beings

Natural Assets as Public Goods

Anyone can enjoy. At anytime. NO PRIVATE INCENTIVE TO MAINTAIN AND

INVEST

Lack of management

Urban pressure

Interrupted flow of EGS and loss of value

2. Economic value of EGSWhat is economic value?

Participatory rapid assessment with line function managers and senior staff

City functions related to environmental goods and services in the City: -environmental resources, parks, tourism, heritage, sports and recreation, wastewater, stormwater, solid waste and spatial planningFocus groups: identify and shortly motivate most important linkages between all identified EGS in the City and:•beneficiaries (number and value) development objectives (closest links with natural assets)City’s environmental mandate and ability to influence and ecological and socio-economic risks.

How were values prioritised?

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Prioritised ecosystem services

Higher High Medium LowerNatural hazard regulation Water purification and

waste treatment, assimilation

Climate regulation – local (air quality)

Climate regulation global

Recreation and Tourism Space for biota Small scale urban farming Fresh water provisionAesthetic values and sense of place

Water regulation Building materials provision

Fish and marine resources Provision of inspirational beautyEducational usersCultural and artistic practicesReligious practicesErosion regulationDisease regulationHarvestingMaterials for craft and fashionUse in productions, advertising and publications

Natural hazard regulation (buffering function for flooding, fires, sea level rise/ coastal surge)

Provision of natural characteristics that are conducive to tourism and recreation

The improvement of water quality and the assimilation of waste - ecosystems help filter and decompose organic wastes

Provision of space for globally important biota, and

The aesthetics and sense of place provided by the natural environment

VALUABLE FLOWS TO VARIOUS BENEFICIARIES

Natural/semi natural environment beneficiaries

VALUABLE FLOWS TO VARIOUS BENEFICIARIES

Natural/semi natural environment beneficiaries

TouristsInternational

NationalLocal

Recreation groupsBeach bathers, sailors,

picnic & braai cyclists, hikers

Harvest groupsFishers, wild plants

harvesters, fuelwood gatherers

Informational and cultural groups

Education, Scientific research,

Religious experience

Industry groupsFilm and advertising industry, Shipping,

Tourism

Residential groups

Rich and Poor

Valuable flows

Low Medium High

Tourism 965 1 829 2 948Recreation 408 449 494Natural hazard regulation

5 18 60Film industry 133 265 398Other (est.) 453 1 024 1 950Total 1 963 3 586 5 850

Table 1: The value of ecosystem services to the City of Cape Town: 2008: R million: A partial analysis

Nature’s Value in Tourism and Recreation

Beaches: R70 – R85 m/aNature Reserves: R 68 – R83 m/a

Green open spaces: R270 – R326 m/aTourism: R965 m - R2.95 bn/a

Natural Hazards Regulation

Natural Hazards

FiresFloodingStorm surge & Sea-level rise

Reduced Consequences

Damages Management costs People at risk

Ecosystems: natural barriers and buffers against natural hazards.

• Dune cordons and kelp beds reduce storm surges impact on land.• Natural pervious ground cover absorb rainfall, impervious ground cover increases water runoff and flood risk.

Lack of management: enhanced natural hazards risk and potential damages.

• Invasive alien species enhance fire risk, frequency, intensity, soil’s vulnerability to erosion → enhance potential damages, fire fighting costs, and clean up costs.

Nature’s services in hazard regulation: R5m - R60m/a

The increased risks of storm surges and their associated costs in Cape Town have been assessed recently in terms of:• Loss of real estate value• Damage to infrastructure• Foregone tourism revenue

Natural solutions: natural parts of the coastline which act as buffers are not lost to development

Sea-Level Rise and Storm Surge: Investing in the coast line

Increase buffering: creating kelp beds, rockier beaches and sand dunes that will increase the absorption capacity of the coastline.

Flooding: Investing in rivers and catchments

Informal settlements affectedDamaged structuresPeople directly affectedPeople housed at emergency shelters in community hallsPeople displaced in safety zonesNumber of meals served twice a dayNumber of blankets distributed

70750030 0003000248022 00013 000

Table 2: Impacts of the July 2008 floods in Cape Town

Source: City of Cape Town, media release No 330/2008, 10 July 2008.

Storm water runs off of impervious surfaces and is not absorbed; runoff volume typically increases:•twofold as the percent catchments’ imperviousness increases to 10–20%, •threefold with an impervious surface cover of 35–40%, and •more than fivefold with an impervious surface cover of 75–100% compared to catchments with natural vegetation cover.

Fires: Investing in alien control

R30 million to R40 million in damages attributable to the March 2009 fires in Somerset West (R25 to R30 million in damages for Lourensford wine estate and R5 million to R10 million for Vergelegen wine estate

In January 2000, two wildfires burnt 8 000 ha on the Cape Peninsula resulting in insurance claims of approximately $5.7 million or R73 million

Invasive Alien Plants lead to higher damage costs, higher firefighting costs and avoidable clean-up costs.

Water Purification and Waste Assimilation: Investing in rivers and wetlands

WetlandsWaterpurification function

• processing some of the grey and waste water outfalls• creation of recreational and economic opportunities• contribution to a healthy environment for communities.

Services provided by wetlands save cities significant amounts of infrastructural costs which would weigh on them if the natural ecosystem wasn’t present or became inefficient.

Zandvlei

• Replacement cost of a treatment plant: R180 million estimated.• Replacement cost of a flood storage capacity: R24 million estimated• Costs of constructing an artificial wetland.

Illustrates the magnitude of the “free” services provided.

Within assimilative capacities

Space for Biota: Investing in biodiversity

Cape Floral Kingdom

9000 plant species70% endemic

2002 - 2006: International funding = R225 million

2008 - 2009: Environmental Education Programs = 23 781 learners from 500 schools.

Biodiversity needs to be recognised and valued as a critical ‘umbrella’ service without which most other valuable ecosystems services would be diminished or may even become unavailable.

Aesthetics and Sense of Place: Investing in wellbeing, City brand and property

• Enhanced health and wellbeing (e.g. preference for natural to built environments, restore mental fatigue, attention deficit disorder, lower stress, neighbourhood satisfaction)

• Contribution to the Cape Town brand and an enhanced business environment (desirable living attract key human capital and business, inspiration, creative thinking), as evident by many quality of life awards

• Property value enhancement

Film making: Investing in scenery and aesthetics

Number of productions

Average expenditure per production (Rm 2006)

Total expenditure (Rm 2006)

Long form (features) 30 37.2 1 115.6Local Commercials 142 0.9 162.5Service Commercials 400 1.8 631.8International Commercials 58 2.6 77.9Stills 2 100 0.3 659.8Provincial Total 2 730 2 647.6Cape Town Total 2 027.0

Table 3: Number of productions and expenditure in the Cape Town and Western Cape film industry (2005/2006)

Source: Standish & Boting (2007)

Film and advertising total values associated with natural assets of between R133 million and R398 million

3. MAKING A BUSINESS CASE

Net present value of combined natural assets:

→ R43 billion to R82 billion.

Ratio of environmental expenditure to the value generated EGS

→ R1 spent by municipality on natural assets ≈ R8.30 (range R4.50 - R13.50) of ecosystem goods and services (EGS) generated compared to → R1 spent by municipality overall ≈ R 7.30 added value generated in local economy

Indicator1

Indicator2

Leverage of municipal expenditure on economicvalue of EGS

Leverage of municipal expenditure on the broaderCity economy.>

Between 1.2 and 2 times

Insights into the level of environmental expenditures in relation to the benefits received from the natural environment.

Preference for environmental policies in Cape Town exist, but have not yet translated into rapid bursts of budget changes in the City.

An attention-driven decision-making model

Understanding budget allocations

% change/year % change/year

Number Number

Large numbers of small changes

Smaller numbers of large changes (large increases and large decreases)

Environmental signals in the MunicipalityBased on terms used in media releases, speeches and documents by the City of Cape Town.

Environmental signals in the MunicipalityBased on terms used in media releases, speeches and documents by the City of Cape Town.

Open spaces, wetlands, fynbos

Weaker StrongerEnvironmental signals

Air quality, alien, drought, sense of place.

Weaker Stronger

Environmental signals for natural assets

Environmental signals

Environmental signals related to EGS

Water, River, MountainGarden, Beach

Tourism, fire, waste, stormwater, recreation, conservation.

Environmental signals of citizens

Search term Google score Search term Google scoreCape Town 15.2 Money 1Music 5.55 Coast 0.86Hotel 4.6 Fire 0.74Weather 3.9 Nature 0.64Jobs 3.9 Parks 0.3Water 2.24 Shark 0.24Rugby 2.1 Table Mountain 0.18Stellenbosch 1.88 Nature reserve 0.14Beach 1.44 Kirstenbosch 0.14Tourism 1.42 Conservation 0.1Fish 1.2 Waste 0.08River 1.18 Alien 0.04Mountain 1 Stormwater, Recreation,

Water quality, Biodiversity0

Table 4: Environmental signals based on search volume on the internet in the Western Cape

Note: Search volume relative to the word ‘money’. Analysis done on 27 June 2009.

Natural assets and ecosystem services related to the terms ‘water’, ‘beach’, ‘river’, ‘mountain’ and ‘tourism’ provide the strongest combined environmental signals.

Investing into underlying natural assets can leverage relatively high economic value in the broader City economy (1.2 - 2 times higher than overall municipal expenditure).

Investing and maintaining the City’s natural assets or ‘ecological infrastructure’ yields highly valuable services which provide the backbone for value addition and employment in City’s economy.

CONCLUSION

It is conservatively estimated that the City’s natural assets yield a flow of services valued at R4 billion per annum, within a range of between R2 billion and R6 billion per annum.

As an entity focused on service provision and as an enabler of economic growth and development, the municipality has the mandate and opportunity to invest adequately in natural assets to maintain a healthy flow of services to the benefit of people living in and visiting Cape Town.

Nature provides a free lunch, but only if we control our appetites.

William Ruckelshaus, Business Week, 18 June 1990