GEF/UNDP PIMS 5024: National Biodiversity Planning to Support the Implementation of the CBD 2011-2020 Strategic Plan in Montenegro

Montenegro: the economic value of biodiversity and ecosystem services

Technical Report

Lucy Emerton September 2013

Table of Contents

1 INTRODUCTION: scope and content of the report ......................................................................... 1

Background to the assignment ..................................................................................................................................... 1

Aims and scope of the report ........................................................................................................................................ 1

2 BACKGROUND & CONTEXT: economic valuation and biodiversity planning .................................. 2

Valuation and the CBD .................................................................................................................................................. 2

The status of biodiversity valuation in Montenegro ..................................................................................................... 3

3 IDENTIFYING & ASSESSING ECONOMIC LINKAGES: how economic activities depend and impact on biodiversity and ecosystem services .......................................................................................... 4

Categorising and describing ecosystem services ........................................................................................................... 4

Economic linkages and indicators ................................................................................................................................. 5

Key economic sectors and stakeholders that benefit from ecosystem services .......................................................... 10

Ecosystem service providers and cost-bearers ............................................................................................................ 12

Economic trade-offs in managing and using ecosystem services................................................................................ 12

4 ESTIMATING & DEMONSTRATING BENEFITS AND COSTS: the economic value of biodiversity and ecosystem services ........................................................................................................................ 14

Framing the economic model ...................................................................................................................................... 14

Assumptions and data sources .................................................................................................................................... 16

The baseline economic value of biodiversity and ecosystem services ......................................................................... 19

Economic benefits and costs avoided over the NBSAP period 2011-20 ...................................................................... 19

5 APPLYING BIODIVERSITY VALUATION: potential targets and actions in the revised NBSAP ........ 21

How valuation can assist in meeting the CBD Strategic Goals and Aichi Biodiversity Targets ................................... 21

Economic assessment of biodiversity values (in support of Aichi Targets 1 and 19) ................................................... 22

Formulation of methods and procedures for integrating biodiversity economic values into development planning and appraisal (in support of Aichi Targets 2, 3, 4 and 19) .......................................................................................... 22

Ecosystem capital accounting (in support of Aichi Target 2 and 19) .......................................................................... 23

Strategic communication of biodiversity economic benefits and costs (in support of Aichi Targets 1 and 19, cross-cutting other Targets) ................................................................................................................................................. 23

REFERENCES ....................................................................................................................................... 24

List of Figures

Figure 1: Common International Classification of Ecosystem Services ............................................................. 4

Figure 2: Ecosystem services and economic indicators for Montenegro .......................................................... 6

Figure 3: Ecosystem services which have been valued ................................................................................... 14

Figure 4: Land cover and land use 2006 .......................................................................................................... 15

Figure 5: Contribution of different ecosystem services to 2011 baseline value ............................................ 19

Figure 6: Contribution of different ecosystem services to 2011-2020 value ................................................. 19

Figure 7: Annual values added and costs avoided from NBSAP 2011-2020 (€ million) ................................. 20

Figure 8: Cumulative gains over the baseline to 2020 (€ million) ................................................................... 20

List of Tables

Table 1: Economic linkages and values for key ecosystem services, sectors and stakeholders ..................... 11

Table 2: Assumptions and data sources used in the economic model ........................................................... 16

Table 3: Baseline 2011 economic value of biodiversity and ecosystem services (€ million) ......................... 19

Table 4: Net present value of biodiversity and ecosystem services 2011-2020 (€ million) ........................... 19

List of Acronyms

CBD Convention on Biological Diversity

CICES Common International Classification of Ecosystem Services

COP Conference of the Parties

EPA Environmental Protection Agency

EU European Union

GEF Global Environment Facility

MONSTAT Statistical Office of Montenegro

NBSAP National Biodiversity Strategy and Action Plan

PES Payments for ecosystem services

TEEB The Economics of Ecosystems and Biodiversity

UNDP United Nations Development Programme

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1 INTRODUCTION: scope and content of the report

Background to the assignment

The UNDP/GEF/Government of Montenegro project “National Biodiversity Planning to Support the

implementation of the CBD 2011-2020 Strategic Plan in Montenegro’’ aims to integrate the country’s

obligations under the Convention on Biological Diversity (CBD) into its national development and sectoral

planning frameworks through a renewed and participative biodiversity planning and strategizing process, in

a manner that is in line with the global guidance contained in the CBD’s Strategic Plan for 2011-2020.

The current assignment is being carried out over a period of 25 days between June and October 2013. It

seeks to identify and recommend appropriate economic information, approaches and tools to strengthen

biodiversity planning, implementation and the achievement of national and global targets. In particular, it is

envisaged to contribute to the following project outcome:

Montenegro’s National Biodiversity Strategy and Action Plan (NBSAP) is revised/updated and it

fully integrates new aspects of the CBD strategic plan, such as mainstreaming and anchoring

the implementation of the plan into national development frameworks, valuing ecosystem

services and promoting ecosystem-based adaptation and resilience.

As laid out in the terms of reference, the assignment focuses on three aspects of the economics of

biodiversity:

Assessing and integrating ecosystem services through economic valuation;

Defining mechanisms to mainstream biodiversity into economic growth and development; and

Developing detailed guidance for the implementation of Payments for Ecosystem Services (PES).

Aims and scope of the report

This report deals with the first of the topics listed above: the economic valuation of biodiversity and

ecosystem services. According to the workplan and following the terms of reference for the assignment,

the current document is intended to provide a “technical report on the economic value of biodiversity and

ecosystem services”. Its aim is to identify, describe and assess the economic value of ecosystem services in

Montenegro. The report is one of three being delivered under the assignment. The other two comprise: an

inception report detailing the agreed workplan and reviewing initial findings on biodiversity economics in

Montenegro; and recommendations on economic and financial mechanisms for biodiversity conservation

and mainstreaming, including payments for ecosystem services.

The report contains five chapters:

Chapter 2 describes the role of economic valuation in biodiversity planning, including the current

status of biodiversity valuation in Montenegro;

Chapter 3 identifies and assesses the key economic sectors and stakeholders that depend and

impact on biodiversity and ecosystem services;

Chapter 4 presents a rough estimate of the economic value of biodiversity and ecosystem services;

and

Chapter 5 identifies needs and niches to incorporate economic valuation into the revised NBSAP.

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2 BACKGROUND & CONTEXT: economic valuation and biodiversity planning

Valuation and the CBD

Although not explicitly mentioned in the text of the Convention on Biological Diversity (CBD), the

importance of economic valuation to biodiversity planning has been repeatedly underlined by the

Conference of the Parties (COP) and is reflected in many CBD processes and programmes of work.

A note on the economic valuation of biodiversity was prepared by the Secretariat to the CBD as early as

1996, following up on decisions made at COP2 the previous year. It was subsequently included as an

activity in the Convention's programme of work on incentive measures. In 2000, Decision V/15 on incentive

measures called for the assessment of biodiversity values so as to enable them to be better internalised in

public policy initiatives and private sector decisions.

By the time the “first round” of Biodiversity Country Studies and National Biodiversity Strategies and Action

Plans were formulated in the late 1990s and early 2000s, economic valuation had come to be seen as a key

step in biodiversity planning and implementation (Emerton 2001). Many countries conducted assessments

of the economic value of biodiversity as part of NBSAP preparation, mainly as a means of helping to justify

the importance of conservation, assisting in the development of financing strategies, and as a step in the

process of designing incentives and other policy measures to support implementation.

Since then, valuation has been continued to be emphasised in CBD processes. In 2004, COP7 called for the

exploration and compilation of existing methodologies for valuation. In 2008, the Conference of the Parties

decided to put more emphasis on valuation as an important basis for public-awareness campaigns and

policy action; this was reflected in Decision IX/11, which encouraged Parties and relevant organizations to

intensify valuation efforts. Around this time, a number of documents were developed to provide further

guidance on biodiversity valuation techniques (see, for example, SCBD 2007) and a database of case studies

on valuation and incentive measures was compiled (see http://www.cbd.int/programmes/socio-

eco/incentives/case-studies.aspx).

Consideration of biodiversity values is integral to the vision, mission and goals of the CBD Strategic Plan for

Biodiversity 2011-2020 and the Aichi Biodiversity Targets. Goal A of the Strategic Plan and Aichi Targets 1

and 2 explicitly address the need to improve awareness of biodiversity values, to integrate them into

national and local development and poverty reduction strategies and planning processes, and to

incorporate them into national accounting and reporting systems.

Guidance prepared by the CBD in support of these targets underlines the need for countries to

“appropriately value biodiversity” (SCBD 2012a,b). Further direction on the use of economic (sometimes

also referred to as “monetary”) valuation has been provided in relation to the Aichi targets (Rode et al

2012), and in support of NBSAP preparation (UNEP-WCMC and IEEP 2012). The latter poses economic

valuation as one of the “supporting approaches” for incorporating biodiversity and ecosystem service

values into NBSAPs: as a key part of gathering information, identifying strategies and actions, and

developing implementation and resource mobilisation plans. Economic valuation, it is suggested, can

provide a means of helping to build the evidence base, strengthen political will, facilitate biodiversity

mainstreaming and prepare the ground for sectoral implementation.

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The status of biodiversity valuation in Montenegro

The NBSAP for 2010-15 highlights that there is a critical shortage of information on national biodiversity

values. It notes that “to date, there has not been any significant research of ecosystem services in

Montenegro, of the relation between biodiversity and ecosystem services … or any kind of integrated

approach for determining their values (monetary/economic or non-economic) …” and that the

“contribution of biodiversity to the national economy has never been researched, and the basic

information is either lacking or not publicly available”. The inception report prepared under this assignment

has already reviewed the current national planning and policy context to biodiversity economics tools and

approaches in Montenegro (Emerton 2013). It concludes that little or no information is currently available

on the economic value of biodiversity and ecosystem services or the economic costs of their degradation

and loss in Montenegro. Clearly, the information gap identified in the 2010 NBSAP are yet to be filled.

The inception report finds that economic contribution of biodiversity and ecosystem services and/or the

risks that environmental degradation poses to economic growth and development is mentioned in almost

all of Montenegro’s current national and sectoral development policies, strategies and plans. For example,

the general principles of the National Forest and Forest Land Administration Policy of 2008 include the

“value of resources”: while recognising the complexity of monetary valuation, the policy explicitly

underlines its key role in priority setting, investment planning and benefit-sharing. The Energy Law of 2010

requires the consideration of environmental costs as a component of pricing, as reflected in the principles

laid out in Article 18 for the determination of tariffs. There is also some recognition of the need to factor

these costs and benefits into the calculations that are used to inform policy, planning and reporting. The

2012 document “Ecological State Montenegro +20” mentions a range of “policy and measures to create a

favourable framework”, including the integration of ecosystem values into development policies and

national accounts.

Yet, despite repeated references to the economic value of biodiversity and ecosystem services in

government strategic documents and frameworks for growth, consideration remains largely qualitative. No

sector or agency is engaged in generating quantitative measures or monetary estimates of the economic

contribution of biodiversity to development and poverty reduction outcomes. As yet, neither

environmental nor biodiversity valuation principles and approaches have been operationalized in the

context of national, local or sectoral planning and reporting. The processes and guidelines laid out for

investment appraisal, cost-benefit analysis, environmental impact assessment and strategic environmental

assessment do not require the inclusion of environmental, biodiversity or ecosystem benefits and costs. As

yet there is no regular collection of data, collation of statistics or reporting on biodiversity values, within or

outside the system of national accounts.

Only three documents have been identified which make any attempt to value Montenegro’s biodiversity

and ecosystem services in economic or monetary terms: a study carried out by WWF in 2005 on the value

of the Tara River (Mrdak 2005), a review undertaken by Arcadis Ecolas and IEEP in 2007 on the benefits of

compliance with the EU environmental acquis (Ten Brink et al 2007), and work conducted by UNDP/ISSP in

2011 on the value of protected areas (Emerton et al 2011). One workshop presentation was also located,

titled “putting a price tag on the Multi-Functional Use of Eco-System Services: The case of Morača River and

Skadar Lake in Montenegro” (Arends 2011), but does not appear to have been written up.

The current document makes a first, illustrative, attempt to assess the national value of Montenegro’s

biodiversity and ecosystem services.

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3 IDENTIFYING & ASSESSING ECONOMIC LINKAGES: how economic activities depend and impact on biodiversity and ecosystem services

Categorising and describing ecosystem services

In order to be able to identify and describe the links between biodiversity, ecosystems and the economy, it

is first of all necessary to have a clear idea of the types and levels of ecosystems and ecosystem services

that exist. Unfortunately, no mapping of ecosystem services has been carried out in Montenegro. It has

therefore been necessary to assess ecosystem services as part of the current assignment. It should however

be emphasised that this can only be a very rough and preliminary scoping, based on limited and incomplete

data. It is to be hoped that a more comprehensive and better-informed ecosystem mapping and

assessment exercise will be included as a key action in the NBSAP that is currently under development.

Figure 1: Common International Classification of Ecosystem Services

Source: Adapted from MAES et al 2013, http://cices.eu/wp-content/uploads/2012/07/CICES-V4-3-_-17-01-13.xlsx

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The Common International Classification of Ecosystem Services (CICES) is used to categorise and describe

ecosystem services in Montenegro. The CICES framework is currently being developed under the auspices

of the European Environment Agency, in response to Action 5 of the EU Biodiversity Strategy to 2020

(which requires Member States to “map and assess the state of ecosystems and their services in their

national territory by 2014, assess the economic value of such services, and promote the integration of

these values into accounting and reporting systems at EU and national level by 2020”).

CICES is a hierarchical classification system organised around five levels (Figure 1, Maes et al 2013). At the

highest level are the three sections of provisioning, regulating and maintenance, and cultural services;

below are nested eight divisions representing the main types of output or services; under these are twenty

service groups organised according to biological, physical or cultural types or processes; each of these

group categories is sub-divided into forty eight service classes of biological or material outputs and

biophysical and cultural processes; each class can then be broken down further into individual entities or

class types, which allows for associated ecosystem service outputs to be measured via various indicators.

CICES is considered to be particularly appropriate to the current assignment for three reasons:

First, it has been specifically designed to assist in integrating the economic value of ecosystem services

into accounting and reporting systems, including the valuation of ecosystem services for baseline and

contrasting scenarios. Ecosystem service valuation, including an indicative partial estimate of the

potential economic gains arising from the implementation of the CBD 2011-2020 Strategic Plan in

Montenegro, is the focus of this report;

Second, it forms a component of the analytical framework that is being developed to assist in carrying

out the ecosystem assessments that are called for in the EU Biodiversity Strategy to 2020. This should

ensure that the results of the current assignment are consistent with the analytical frameworks that is

being used by the EU and Member Countries and that will, presumably, be adopted for any future

ecosystem service assessment and valuation work to be rolled out under Montenegro’s NBSAP; and

Third, it cross-references and harmonises with the two other most well-known and commonly-applied

international classification systems for ecosystem services – those laid out in the Millennium

Ecosystem Assessment (MEA 2005) and The Economics of Ecosystems and Biodiversity (TEEB 2008,

2010). It also links to the UN System of Environmental-Economic Accounts, which is currently being

revised to incorporate ecosystem (capital) accounts and is being piloted via an experimental framework

for ecosystem capital accounting in Europe (EEA 2011). CICES can therefore be seen as a methodology

that builds on current international best practice in the analysis and valuation of ecosystem services,

adapted to the specific demands and needs of the CBD Strategic Plan.

Economic linkages and indicators

Applying the CICES classification and framework to Montenegro shows that a large number of sectors and

stakeholders depend, directly or indirectly, on biodiversity and ecosystem services (Figure 2). Although

quantitative information is lacking for several class components (most notably under the regulation,

maintenance and cultural sections), it is possible to identify a wide variety of indicators which provide a

means of measuring ecosystem service outputs in economic terms.

This preliminary scoping makes it clear that maintaining ecosystem capital stocks is essential to ensure the

continued production of the flows of ecosystem services that benefit the Montenegrin economy. There are

few sectors of the economy or members of the population that do not rely on ecosystem services for their

production, consumption, income, employment or wellbeing.

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Figure 2: Ecosystem services and economic indicators for Montenegro

Section, Division, Group

Class Component Economic indicators (class type)

Provisioning

Nutrition

Biomass

Cultivated crops Cereals, vegetables, fruits and nuts consumed in raw and processed/ preserved forms

Around 2,500 ha of gardens, 4,000 ha of arable farms, 2,500 ha of vineyards and 1,500 ha of orchards are cultivated (MONSTAT 2011b), yielding 16,000 tonnes of cereals, 40,000 tonnes of fruit, 260,000 tonnes of vegetables and 40,000 tonnes of grapes a year. 450,000 litres of grape brandy, 6,000 litres of wine and 1,250 tonnes of juices a year are processed from fruits.

Reared animals and their outputs

Meat, dairy products and honey consumed in raw and processed/ preserved forms

More than 32,000 farms breed almost 118,000 livestock units, including cattle, horses, goats, sheep, pigs, poultry, rabbits and beehives (MONSTAT 2011c), yielding around 155 million litres of milk, 68 million eggs, 554 tonnes of honey and 92,000 animals for slaughter a year. 1,400 tonnes of fresh meat, 2,300 of delicatessen and 3,300 tonnes of sausages are processed (MONSTAT 2012a)

Wild plants, algae and their outputs

Wild fruits, vegetables, nuts and mushrooms consumed in raw and processed/ preserved forms

No data are available on number of users or quantity of harvest

Wild animals and their outputs

Freshwater and marine capture fisheries (including crustaceans and molluscs), honey and game meat harvested from the wild, consumed in raw and processed/ preserved forms

Around 800 tonnes of saltwater fish, cephalopods and crustaceans and 600 tonnes of freshwater fish are caught each year

Around 1 million ha of hunting grounds and 6,000 hunters are registered; 500 wild boar, 600 partridges and 200 pheasants a year are hunted (MONSTAT 2012a) Animals from in-situ

aquaculture Freshwater and marine aquaculture

Water

Surface water for drinking

Abstracted surface water from rivers, lakes and other open water bodies used for drinking

Around 2.5 million m3 of water is extracted from surface water sources for public water supply schemes each year

Almost 3 billion m3 of surface water is used by industries each year from private surface water supplies

Just over 5,000 ha of agricultural land is irrigated on 12,500 holdings, 72% of these holdings use surface water sources (MONSTAT 2011b) or an equivalent of 59,000 m3 a year (MONSTAT 2012a)

Around 88.5 million m3 of water is extracted from groundwater sources for public water supply schemes each year

Around 10 million m3 of groundwater is used by industries each year from private surface water supplies

Just over 5,000 ha of agricultural land is irrigated on 12,500 holdings, 28% of these holdings use groundwater sources (MONSTAT 2011b) or an equivalent of 1.7 million m3 a year (MONSTAT 2012a)

Large hydropower facilities with an installed capacity of 650 MW and annual production of around 1,650 GWh utilise between 2.5-4.6 billion m3 of water a year (MSPE 2010c); around 20 GWh a year is generated from small hydropower plants

Ground water for drinking

Abstracted groundwater used for drinking

Materials

Biomass

Fibres and other materials from plants, algae and animals for direct use or processing

Processed and unprocessed extracts/ materials from fibres, wood, timber, flowers, skin, bones, sponges, algae and other plant and animal products

Around 230,000 sheep and goats are kept (MONSTAT 2011c), yielding around 275 tonnes of wool a year.

Almost 200,000 m3 of industrial sawlogs, 7,500 m3 of lumber and 47,500 m3 of pulpwood are harvested per year from around 630,000 ha of state and private forests and farms, producing 66,000 m3 of sawntimber, 2,500 doors, 1,000 closets and 1,176 tonnes of cardboard containers (MONSTAT 2012a)

Materials from plants, Plant, algae and animal material for fodder and More than 43,000 agricultural holdings contain over 210,000 ha of perennial meadows and pasture

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algae and animals for agricultural use

fertilizer in agriculture and aquaculture and just under 1,000 ha of fodder plants, yielding around 250,000 tonnes of fodder crops a year. (MONSTAT 2011b)

Genetic materials from all biota

Genetic material (DNA) from wild plants, algae and animals for biochemical industrial and pharmaceutical processes e.g. medicines, fermentation, detoxification; bio-prospecting activities

No data are available

Water

Surface water for non-drinking purposes

Abstracted surface water from rivers, lakes and other open water bodies used for domestic use (washing, cleaning and other non-drinking use), irrigation, livestock and industrial uses See above

Ground water for non-drinking purposes

Abstracted groundwater used for domestic use (washing, cleaning and other non-drinking use), irrigation, livestock and industrial uses

Energy

Biomass-based energy

Plant-based resources Wood fuel, straw, energy plants, crops and algae for burning and energy production

More than 150,000 m3 of fuelwood is harvested from around 630,000 ha of state and private forests and farms a year

Just over 130,000 families consume an estimated 700,000 m3 of firewood, 950 tonnes of charcoal, 40,000 m3 of wood residues and 750 tonnes of wood briquettes and pellets a year; commercial and institutional use comprises 30,000 m3 of firewood, 100 tonnes of charcoal, 56,000 m3 of wood residues and 65 tonnes of wood briquettes and pellets (MONSTAT 2013)

Animal-based resources Dung, fat, oils, cadavers from land, water and marine animals for burning and energy production

More than 3,500 farms utilise around 40,000 tonnes of solid dung or liquid manure sourced from animals a year, spread over a farm area of around 9,000 ha; (MONSTAT 20011c)

Mechanical energy

Animal-based energy Physical labour and draught power provided by animals

Almost 4,000 horses and 600 donkeys/mules are kept (MONSTAT 2011c)

Regulation and Maintenance

Mediation of waste, toxics and other nuisances

Mediation by biota

Bio-remediation by micro-organisms, algae, plants, and animals

Bio-chemical detoxification/ decomposition/ mineralisation in land/ soil, freshwater and marine systems including sediments; decomposition/ detoxification of waste and toxic materials e.g. waste water cleaning, degrading oil spills by marine bacteria, (phyto)degradation, (rhizo)degradation

In the northern and central regions, about 60 % of the population lacks connection to a central sewage system and in the coastal zone on average 35% of households lack a connection; five rivers situated close to big cities and heavy industries are considered heavily polluted

More than 22 million m3 a year of untreated wastewaters are discharged into the environment from settlements, and 14 million m3 from industries (MONSTAT 2012b)

Filtration/sequestration/storage/accumulation by micro-organisms, algae, plants, and animals

Biological filtration/ sequestration/ storage/ accumulation of pollutants in land/ soil, freshwater and marine biota, adsorption and binding of heavy metals and organic compounds in biota

Mediation by ecosystems

Filtration/sequestration/storage/accumulation by ecosystems

Bio-physicochemical filtration / sequestration/ storage/ accumulation of pollutants in land/ soil, freshwater and marine ecosystems, including sediments; adsorption and binding of heavy metals and organic compounds in ecosystems (combination of biotic and abiotic factors)

Dilution by atmosphere, freshwater and marine ecosystems

Bio-physico-chemical dilution of gases, fluids and solid waste, wastewater in atmosphere, lakes, rivers, sea and sediments

Mediation of smell/noise/visual impacts

Visual screening of transport corridors e.g. by trees; Green infrastructure to reduce noise and smells

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Mediation of flows

Mass flows

Mass stabilisation and control of erosion rates

Erosion / landslide / gravity flow protection; vegetation cover protecting/ stabilising terrestrial, coastal and marine ecosystems, coastal wetlands, dunes; vegetation on slopes also preventing avalanches (snow, rock), erosion protection of coasts and sediments by mangroves, sea grass, macroalgae, etc.

Steep slopes and other areas are highly prone to erosion, and 24,500 ha of farming and urbanized land is at risk of flooding (MED 2007b)

Forested and vegetated slopes in mountainous areas provide important watershed protection functions, and wetlands also play a key role in flood attenuation (MSPE 2010c). More than 50, 000 ha of forest is designated for protection of soil and water (FAO 2010)

Climate change projections suggest that there will be a sharp increase in variability of river flow, characterized by both flooding and hydrological drought (MSPE 2010c); much of Montenegro’s human settlements and infrastructure is situated in high risk areas (WMO and UNDP 2011)

Buffering and attenuation of mass flows

Transport and storage of sediment by rivers, lakes, sea

Liquid flows

Hydrological cycle and water flow maintenance

Capacity of maintaining baseline flows for water supply and discharge; e.g. fostering groundwater; recharge by appropriate land coverage that captures effective rainfall; includes drought and water scarcity aspects.

Flood protection

Flood protection by appropriate land coverage; coastal flood prevention by mangroves, sea grass, macroalgae, etc. (supplementary to coastal protection by wetlands, dunes)

Gaseous / air flows

Storm protection Natural or planted vegetation that serves as shelter belts

Coastal erosion is impacting on pastures and arable land as well as settlements (MSPE 2007)

Coastal forest and wetlands fulfils important shoreline and storm protection role (MSPE 2010c)

Climate change projections suggest that coastal flooding and storm surges will significantly increase (MSPE 2010c); much of Montenegro’s human settlements and infrastructure is situated in high risk areas (WMO 2011)

Ventilation and transpiration

Natural or planted vegetation that enables air ventilation

No data are available

Maintenance of physical, chemical, biological conditions

Lifecycle maintenance, habitat & gene pool protection

Pollination and seed dispersal

Pollination by bees and other insects; seed dispersal by insects, birds and other animals

Around a third of fruit, vegetable and fodder crop production depends partially or wholly on insect pollination (calculated from Gallai and Vaissière 2009)

Maintaining nursery populations/ habitats

Habitats for plant and animal nursery and reproduction e.g. seagrasses, microstructures of rivers etc.

Seagrass Posidonia oceanica and Cymodocea nodosa beds serve as nursery shelter areas for many larvae and juvenile forms of marine fauna (MSPE 2010b)

Pest & disease control

Pest control Pest and disease control including invasive alien species

No data are available

Disease control In cultivated and natural ecosystems and human populations

No data are available

Soil formation & composition

Weathering processes

Maintenance of bio-geochemical conditions of soils including fertility, nutrient storage, or soil structure; includes biological, chemical, physical weathering and pedogenesis

No data are available

Decomposition and fixing processes

Maintenance of bio-geochemical conditions of soils by decomposition/ mineralisation of dead organic material, nitrification, denitrification etc.), N-fixing and other bio-geochemical processes;

Water conditions

Chemical condition of freshwaters

Maintenance / buffering of chemical composition of freshwater column and sediment to ensure favourable living conditions for biota e.g. by denitrification, re-mobilisation/ re-mineralisation of phosphorous, etc.

No data are available

Chemical condition of Maintenance / buffering of chemical composition of

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salt waters seawater column and sediment to ensure favourable living conditions for biota e.g. by denitrification, re-mobilisation/ re-mineralisation of phosphorous, etc.

Atmospheric composition & climate regulation

Global climate regulation by reduction of greenhouse gas concentrations

Global climate regulation by greenhouse gas/ carbon sequestration by terrestrial ecosystems, water columns and sediments and their biota; transport of carbon into oceans etc.

Almost 25 million tonnes carbon stock in above-ground forest biomass, 8.6 million tonnes in below-ground biomass and 5.4 million tonnes in dead wood (FAO 2010)

Micro and regional climate regulation

Modifying temperature, humidity, wind fields; maintenance of rural and urban climate and air quality and regional precipitation/ temperature patterns

No data are available

Cultural

Physical and intellectual interactions

Physical & experiential interactions

Experiential use of plants, animals and land-/seascapes

In-situ plant, animal and bird watching More than 1.3 million foreign tourists a year spend more than 8 million bednights in Montenegro

Coastal resorts account for around 90% of visitors and 95% of bednights (MONSTAT 2012a)

Around 300,000 visits are made to National Parks each year (ISSP 2011, Emerton et al 2011)

Around 350 cruise ships with almost 250,000 passengers and 3,000 foreign leisure vessels with 14,500 passengers visit Montenegrin waters each year for tourism and recreation purposes

Around 1 million ha of hunting grounds and 6,000 hunters are registered; 70 wolves, 1,000 foxes, 2,200 hares, 500 wild boar, 600 patridges and 200 pheasants a year are hunted (MONSTAT 2012a)

More than 1,000 sport fishing permits are issued each year for use in National Parks

Almost 10,000 tourists a year participate in whitewater rafting

Physical use of land-/seascapes

Walking, hiking, climbing, boating, leisure fishing and hunting

Intellectual & representative interactions

Scientific Subject matter for research both on location and via other media

No data are available

Educational Subject matter of education both on location and via other media

Heritage, cultural Historic records, cultural heritage e.g. preserved in water bodies and soils

Entertainment Ex-situ viewing/ experience of natural world through different media

Aesthetic Sense of place, artistic representations of nature

Spiritual, symbolic and other interactions

Spiritual &/or emblematic

Symbolic Emblematic plants and animals

No data are available

Sacred and/or religious Spiritual, ritual identity

Other cultural outputs

Existence Enjoyment provided by wild species, wilderness, ecosystems, land-/ seascapes

Bequest Willingness to preserve plants, animals, ecosystems, land-/ seascapes for the experience and use of future generations; moral/ ethical perspective or belief

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Key economic sectors and stakeholders that benefit from ecosystem services

Applying the CICES framework allows for a comprehensive overview to be made of ecosystem services and

ecosystem service beneficiaries in Montenegro. These economic linkages can now be traced through by

looking in more detail at some of the most important services, sectors and stakeholders. In particular, it is

possible to highlight the contribution of biodiversity and ecosystem services to seven of the key sectors

which are emphasised as particular priorities in current development policy and/or seen as major areas

of opportunity for future economic growth (MOF 2011, 2013): tourism, agriculture, forestry, fisheries,

water, energy and human settlement/infrastructure. These sectors also play a major role in securing the

basic livelihoods and economic wellbeing of much of Montenegro’s population. Chapter 4 will make some

rough estimates of the economic value of these key ecosystem services.

As illustrated in Table 1, the critical point to emphasise is that Montenegro’s ecosystem services both

generate benefits and help to avoid costs and losses. These effects are spread across the economy and

human population. We can also single out the contribution that ecosystem services make to some of the

most pressing concerns and cross-cutting issues in the national and sectoral development agendas,

including poverty reduction, sustainable rural and urban livelihoods, disaster risk reduction and resilience

and adaptation to climate change.

For example, biological resources and ecosystem services directly provide a source of income and

employment. This includes almost 50,000 family farms and 50 agricultural enterprises that together

employ the equivalent of 47,000 full-time workers (MONSTAT 2011e), the 500 or so people that are

employed in forestry and fisheries activities (MONSTAT 2012a), and the estimated 25,000 jobs that are

directly or indirectly generated by the tourism sector (WTTC 2011a). They also provide the inputs that

enable production and consumption in these sectors. This includes both the raw materials for industry and

manufacturing that come from biological resources (for example the approximately 1,400 tonnes of fish

and 0.5 million m3 of wood that are harvested each year) as well as the natural and cultural landscapes

that enable economic activity (for instance those that attract the almost 1.5 million domestic and

international tourists that come to enjoy the country’s rich heritage each year).

Table 1 also illustrates how biodiversity and ecosystem services have an economic impact that extends to a

far broader range of sectors and beneficiaries than just the consumers of biological resources. They protect

the essential life support processes that enable and safeguard human settlement and production. In many

cases, maintaining “natural infrastructure” provides a far cheaper and more cost-effective option than

investing in the physical facilities and engineering works that is required to replicate these services, or to

avoid, mitigate and remediate the effects of their loss. Examples include the 1,300 GWh a year of

hydropower production and more than 100 million m3 of water supply that depends on forest watershed

protection, as well as the 15,500 tonnes of crops that are pollinated by wild insects and 1,400 tonnes of fish

catch that rely on natural habitats for their productivity.

Ecosystems also play a key role in reducing vulnerability to the effects of natural disasters and

strengthening resilience to climate change. Floods and landslides already rank among the major natural

hazards facing Montenegro (RMSI 2008). Almost 25,000 hectares of farmland and settlements are at risk of

flooding, and many low-lying coastal areas regularly face damage from storms and tidal surges (MED

2007a). The climate scenario to 2100 suggests that flood waves will become more common, and affect

progressively larger areas as a result of the increased intensity of rainfall and sea level rise (MSPE 2010c).

11

Table 1: Economic linkages and values for key ecosystem services, sectors and stakeholders

Services Key beneficiary sectors and user groups Major economic values and linkages

Provision of cultivated & wild foods

Agriculture

Farmers, fishers and primary harvesters

Food processing industry

Wholesale and retail traders

Rural and urban consumers

Income from sales of primary products

Income and value-added from processed products and trade

Reduced expenditures from own produced/collected foods

Earnings from employment in food production, processing and trade

Foreign exchange earnings from raw and processed exports

Public revenues from taxes, charges and fees

Provision of wood-based biomass & energy

Forestry, Energy

Private/farm forest owners

State forest enterprises

Forest concessionaires

Sawmilling and wood processing industry

Wood products, pulp and paper manufacturing industry

Woodfuel consumers

Income from sales of timber, lumber, pulp and woodfuel

Income and value-added from processed products and trade

Reduced expenditures from own produced/collected products

Earnings from employment in harvesting, processing and marketing industries

Foreign exchange earnings from raw and processed exports

Public revenues from taxes, charges and fees

Pollination and seed dispersal

Agriculture

Crop farmers

Enhanced income from sustained crop productivity

Reduced expenditures on artificial pollination and seeding

Maintenance of nursery populations/ habitats

Fisheries

Fishers

Enhanced income from sustained catch and productivity

Reduced expenditures on breeding stock

Maintenance of on-farm soil structure & fertility

Agriculture:

Farmers

Enhanced income from sustained crop productivity

Reduced expenditures on artificial fertilisers

Regulation of inland waterflow and quality

Tourism, Agriculture, Forestry, Fisheries, Water, Energy, Human Settlement

Domestic water consumers

Irrigated agricultural producers

Livestock producers

Large/small-scale hydropower facilities

Other industries

Water supply utilities

Electricity utilities

Income from water sales

Income from production using water as an input

Reduced expenditures from using own water sources

Avoided water shortage impacts and costs of alternative supplies

Reduced costs of water treatment, dredging and desilting

Savings on breakages and repairs to equipment and machinery

Prolonging of dam and reservoir lifetime and productive capacity

Control of landslides and floods

Tourism, Agriculture, Forestry, Fisheries, Water, Energy, Human Settlement

Urban and rural dwellers

Farmers and fishers

Urban and rural infrastructure

Avoided damages to houses, fields, infrastructure and other assets and installations

Avoided loss of income from reduced production and output

Avoided costs of displacement of human population

Avoided clean-up and remediation costs

Avoided costs of constructing and maintaining artificial infrastructure to mitigate or protect against hazards and disasters

Protection against coastal erosion, storms and tidal surges

Carbon sequestration

Tourism, Agriculture, Forestry, Fisheries, Water, Energy, Human Settlement

Local, national and global community

Avoided costs of climate change and variability

Mitigation value of carbon sink

Carbon trading-related earnings and revenues

Regulation of microclimate

Tourism, Agriculture, Forestry, Fisheries, Water, Energy, Human Settlement

Urban and rural dwellers

Farmers and fishers

Forestry, tourism, energy and water enterprises

Tourists and recreational visitors

Urban and rural dwellers

Enhanced income from sustained productivity and production opportunities

Avoided loss of income from reduced production and output

Avoided expenditures on mitigating or remediating temperature extremes, including reduced costs of energy

Avoided costs of displacement of human population and production

Wild species of conservation or cultural concern

Tourism, Human Settlement

Tourists and recreational visitors

Tourism service industry

Urban and rural dwellers

Income from tourism activities

Income and value-added from secondary/support industries

Earnings from employment in tourism and secondary/support industries

Visitor utility and enjoyment

Enhanced property values and prices

Enhanced investment in facilities, services and infrastructure

Foreign exchange earnings

Public revenues from taxes, charges and fees

Landscape of conservation, aesthetic or heritage significance

Recreation & tourism

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Ecosystem service providers and cost-bearers

The provision of ecosystem services is not cost-free. Obviously, various groups incur direct expenditures to

manage and conserve biodiversity and ecosystems. These encompass the staffing, equipment and other

physical expenditures that are needed to undertake on-the-ground conservation activities, and to maintain

the institutional structures that are required to coordinate biodiversity management, policy formulation,

law development and enforcement.

The main direct cost-bearers are the government agencies and public enterprises that are charged with

environmental protection and conservation in Montenegro: most notably the Ministry of Sustainable

Development and Tourism, Public Enterprise National Parks of Montenegro, Nature Protection Institute

and Environmental Protection Agency. Some allocations for biodiversity and ecosystem conservation are

also incorporated into the budgets of other public sector agencies, for example the Ministry of Agriculture

and Rural Development and local government authorities. The main sources of funding are the public

budget and self-generated revenues, with limited contributions being made by overseas donors, non-

governmental organisations, the private sector and the general public. A recent report for example found

annual investments in Protected Areas to be approximately €2 million a year, or an average of €1,800/km2;

just under half of this comes from the central budget, with the balance funded through reinvested

revenues (ISSP 2011, Emerton et al 2011).

There are also opportunity costs implied by the maintenance of natural ecosystems to generate services.

Opportunity costs comprise the income, production and other outputs from alternative activities that are

diminished or foregone by choosing to protect and sustainably utilise biodiversity and ecosystems (rather

than to develop, convert or manage them for other purposes). This includes the opportunity costs that are

incurred when achieving trade-offs between different ecosystem services: for example choosing between

food production, timber harvesting, recreation, biodiversity conservation and carbon sequestration.

Although some preliminary efforts have been made to calculate the monetary value of the opportunity

costs that are implied by different ecosystem service trade-offs in other Central and Eastern European

countries (see Ruijs et al 2013), no estimate is available of the opportunity costs of biodiversity

conservation in Montenegro. While, at a macro-level, the government and overall Montenegrin economy

bears the main opportunity costs of development activities foregone, the bulk of the day-to-day costs

associated with choosing between different ecosystem management and service provision options are

incurred to private land and resource users.

Economic trade-offs in managing and using ecosystem services

The key point to note is that costs and benefits of biodiversity conservation and ecosystem service

generation are not distributed equally between different groups and sectors in the Montenegrin economy.

Those that depend and impact most on biodiversity and ecosystem services do not always share in or

contribute towards conservation and management expenditures, and those that bear the direct and

opportunity costs often receive a disproportionately small share of the economic benefits and values

generated.

Many of the economic values associated with Montenegro’s biodiversity and ecosystem services currently

remain “uncaptured”: no mechanisms exist for charging the sectors and stakeholders that benefit from

them, or for ensuring that users share in the costs of their provision. One example is the watershed

protection services generated by natural forests: while these generate considerable economic value-added

and cost savings to domestic and industrial consumers, hydropower facilities and water utility companies,

13

they are effectively provided free to beneficiaries and users. Similar conclusions can be drawn in relation to

the dependence of the tourism sector on natural landscapes and protected areas, or the costs avoided to

urban populations and infrastructure as a result of the flood and landslide protection functions provided by

forests and wetlands.

The net result is that many of the costs of biodiversity and ecosystem conservation continue to be

uncompensated or remain unmet. Both finance and incentives for conservation are weak. The institutions

that are responsible for meeting the direct costs of conservation face critical funding gaps and budget

shortfalls. For example, the income earned from Montenegro’s Protected Areas is equivalent to only

around 15% of projected funding needs, and current budgets are estimated to be less than half of what is

required for effective conservation management (Emerton et al 2011, ISSP 2011). At the same time, the

provision of economically valuable ecosystem services goes largely unrewarded, meaning that land and

resource users have few incentives for biodiversity conservation and sustainable use. While it is possible to

earn considerable income from activities which involve converting, degrading or over-exploiting natural

resources and habitats, there remain few market or business opportunities associated with ecosystem

conservation or sustainable use. This is even though the concepts of “user pays” and “polluter pays” are

both well-established in Montenegro’s national and sectoral development policies, strategies and plans.

This is neither equitable nor efficient. The fundamental need is to look to mechanisms which can better

capture ecosystem values, compensate conservation costs and reward conservation actions. The third

report to be produced under this assignment will review some of the mechanisms and policy instruments

that can be used to address these market and price failures, and can be included in the NBSAP.

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4 ESTIMATING & DEMONSTRATING BENEFITS AND COSTS: the economic value of biodiversity and ecosystem services

Framing the economic model

It is possible to make some estimate of value some of the key ecosystem services, sectors and stakeholders

that have been identified in Chapter 3. It must however be emphasised that the figures presented below

are based on extremely rough and ready calculations and on very limited data.

There remains a critical lack of ecological, biological and other biophysical information, as well as economic

and price data, relating to biodiversity and ecosystem services in Montenegro. Many of these figures have

had to be approximated based on partial data from existing reports, which are often inconsistent between

different sources, and are sometimes of questionable quality. As already mentioned above, no basic

national assessment or mapping of ecosystem services has been carried out. No current or historical data

are available on land use and land cover except at a very aggregated level. Neither has any systematic

definition of future outlooks or scenarios for biodiversity and ecosystem services been developed.

Therefore the figures below, and the assumptions and projections upon which they are based, should be

treated with caution. They must be seen as a broad estimate of the likely magnitude and trends in

ecosystem values. It is to be hoped that a more comprehensive and better-informed programme of

valuation will be included as a key action in the NBSAP that is currently under development. This chapter

provides some preliminary estimates of what can be fleshed out properly once proper ecosystem

assessments are undertaken and outlook scenarios developed.

The valuation exercise focuses on the

economic benefits generated and costs

avoided associated with developing and

implementing the NBSAP, in line with the

CBD Strategic Plan and Aichi Biodiversity

Targets.

In other words, it looks at the value-added

by the revised NBSAP to the Montenegrin

economy to the year 2020, as compared to

a 2011 baseline. This also represents the

economic value that would be foregone by

failing to implement the revised NBSAP.

The study focuses on the priority sectors

and key ecosystem services that have been

identified in Chapter 3. Available data

permits eight of these categories of

ecosystem service to be valued, comprising

eighteen components (Figure 3).

Figure 3: Ecosystem services which have been valued

15

Figure 4: Land cover and land use 2006

From: http://www.eea.europa.eu/data-and-maps/figures/corine-land-cover-2006-by-country-1 accessed 24 August 2013

16

Assumptions and data sources

The main assumptions and data sources used in the economic model are summarised in Table 2, and

explained further in the paragraphs below.

Table 2: Assumptions and data sources used in the economic model

Ecosystem service

Component Indicator Data sources used to estimate values

Assumptions of change 2011-20

Wild foods & fodder

Marine & freshwater fisheries

Value of marine pelagic and non-pelagic, cephalopods, crustaceans and freshwater capture fisheries =

MONSTAT 2012a,b; MONSTAT online records

Production values increase by 2.5% a year, based on projected GDP growth, gains in technology. productivity and market access, expansion of area (MAFWM 2006a,b, 2008a,b; MOF 2011, 2013)

Honey Value of wild harvesting and hive production on public and private lands

MONSTAT 2011a-e; 2012a,b; MONSTAT online records

Natural fodder Value of meadow and pasture production on private land

MONSTAT 2011a-e; 2012a,b; MONSTAT online records

Non-timber forest products

Value of wild berries, herbs and mushrooms collected under licence in protected areas

Emerton et al 2011; ISSP 2011

Harvest rate increases by 2% a year (Emerton et al 2011)

Wood-based biomass & energy

Timber & fibre production

Value of sawlogs, lumber and pulpwood harvested from state and private forests

MONSTAT 2012a,b; MONSTAT online records

Harvest levels increase in line with rising demand from population growth (MFAWM 2008a; MONSTAT 2008) Woodfuel

Value of firewood, charcoal, wood residues, briquettes and pellets

MONSTAT 2013

Pollination & seed dispersal

Insect pollination of crops

Value added to cereals, oil crops, pulses, fruits, vegetables, roots and tubers, stimulant crops, sugar crops, treenuts, fodder crops that are dependent on insect pollination

Gallai and Vaissière 2009

Production values increase by 2.5% a year, based on projected GDP growth, gains in technology. productivity and market access, expansion of area (MFAWM 2006a, 2008b; MOF 2011, 2013)

Maintenance of on-farm soil structure & fertility

On-farm crop productivity

Value-added to crop production in areas prone to excessive, strong or middle erosion.

Dorren et al 2004; MED 2007b Control of

downstream sedimentation & siltation

Off-site damage costs arising from erosion of soil from farms in areas prone to excessive, strong or middle erosion.

Currently assumed to be functioning at 75% of potential service value for “average” mix of ecosystem types and quality, and to reach full service value over model period, also reflecting increased production in dependent sectors (MED 2007a,b, 2011; MAFWM 2006a, 2008b)

Watershed protection

Water retention, regulation and erosion control

Avoided expenditures and damage costs in areas downstream of watershed forest and grasslands

Pagiola 1998; Getzner 2009; Ceroni 2007; Ruijgrok et al 2006

Flood control

Avoided expenditures and damage costs in areas downstream of watershed forests, grasslands and freshwater wetlands

Ceroni 2007; Morris and Camino 2011; Schuyt and Brander 2004

Regulation of water quality

Avoided expenditures on water treatment in areas downstream of grasslands and freshwater wetlands

Morris and Camino 2011; Ruijgrok et al 2006; Schuyt and Brander 2004

Coastal protection

Protection against coastal erosion

Avoided damage costs in coastal strip

Morris and Camino 2011 Protection against

storms and tidal surges

Carbon sequestration

Mitigation of climate variability and change

Avoided damage costs associated with carbon stored in natural forest

Ding; Nunes & Teelucksingh 2011

Landscape & nature-based recreation

Leisure spending

Income to Protected Area authorities and businesses from domestic and international recreational visitors to coastal and nature areas

Emerton et al 2011; ISSP 2011; WTTC 2011a

Tourism numbers increase by 7% a year (MTE 2008; WTTC 2011b)

Visitor consumer surplus

Domestic and international recreational visitors to coastal and nature areas

Dumitras 2008; 2001; Emerton et al 2011; ISSP 2011 Real value increases by

1% a year, reflecting improved biodiversity and ecosystem status (Emerton et al 2011)

Willingness to pay for conservation

Domestic and international recreational visitors to protected areas

Ceroni 2007; Dumitras 2008; 2001; Emerton et al 2011; ISSP 2011; Getzner 2009; Spurgeon & Gallagher 2010

17

The valuation exercise focuses on the services provided by natural ecosystems and indigenous biodiversity

only. It does not, for example, include the provisioning services associated with cultivated crops and

domesticated livestock or with water use (although counts the contribution of ecosystem regulating and

supporting services to these sectors). Future projections of value under the revised NBSAP include only

those land and resource uses which are believed to be sustainable in ecological terms.

Costs and benefits reflect the gross value of production, and relate to the value of biological resources as

raw materials (for example roundlogs and whole fish). The study thus focuses on primary producers and

consumers, not on value-added through processing and the market chain. It is concerned with direct

impacts. Economy-wide multipliers and indirect production, income and employment effects are not

included. Input costs and intermediary consumption have not been netted out of the value estimates, and

figures are not adjusted for the impacts of subsidies and other price distortions.

Land use and land cover

Although a 2006 land cover map for Montenegro is available, showing the forty four Corine land cover

classes (Figure 4), there are no current or historical data on the area under different vegetation classes and

land uses. Basic figures on areas under aggregated land use categories are taken from the Spatial Plan

(MED 2007b). These are further broken down into different types of croplands, grasslands and wetlands

from data presented in the Agricultural Census (MONSTAT 2011a-e), Statistical Yearbook (MONSTAT 2012a)

and Montenegro in Figures (MONSTAT 2012b), while different forest types and management categories

have been obtained from the 2010 Global Forest Resources Assessment (FAO 2010). Municipal-level data

on the area in the coastal strip is taken from the National Report on Current Policy, Procedures, Legal Basis

and Practice of Marine Spatial Planning (UNEP/MAP 2007).

Value of ecosystem services

The question of how to place a monetary value on ecosystem services has long posed something of a

challenge to economists. The easiest and most straightforward way to value goods and services, and the

method used conventionally, is to look at their market price: what they cost to buy or are worth to sell. In

the current study, it has been possible to use market price techniques to value selected provisioning

services (marine and freshwater fisheries, honey, natural fodder, non-timber forest products, timber and

fibre production and woodfuel) and the leisure spending generated by landscape and nature-based

recreation. The main data sources are national and local-level statistics provided by MONSTAT, and sector-

specific studies carried out on protected areas (Emerton et al 2011, ISSP 2011) and tourism (WTTC 2011).

Many ecosystem services however have no market price (or are subject to market prices which are highly

distorted). This is the case for most of the regulating, supporting and cultural services generated by

Montenegro’s biodiversity and ecosystems. For this reason, other valuation techniques must be found.

Over recent decades a suite of methods have been developed with which to calculate ecosystem values

that cannot be estimated accurately via the use of market prices. These are used in the current study, and

include:

Production function approaches: relate changes in the output of a marketed good or service to a

measurable change in the quality of quantity of ecosystem goods and services by establishing a

biophysical or dose-response relationship between ecosystem quality, the provision of particular

services, and related production. In the current study, the value of wild insects for crop pollination and

the maintenance of soil structure and fertility are estimated using effect on production methods;

18

Cost-based approaches: assess the market trade-offs or costs avoided of maintaining ecosystems for

their goods and services. They assess the expenditures that are saved by not having to invest in physical

infrastructure and measures to replace, mitigate or remediate ecosystem service loss, or the physical

damages that are avoided. In the current study, the value of erosion control, watershed protection,

coastal protection and carbon sequestration are estimated using cost-based methods; and

Stated preference approaches: rather than looking at the way in which people reveal their preferences

for ecosystem goods and services through market production and consumption, these valuation

techniques ask consumers to state their preference directly. In the current study, the visitor consumer

surplus and willingness to pay for conservation associated with landscape and nature-based recreation

are estimated using stated preference methods.

Due to the almost complete absence of ecological, biological, hydrological and other information pertaining

to biodiversity and ecosystem services in Montenegro, it has been necessary to apply “benefit-transfer”

techniques to value many of these regulating, supporting and cultural services. This refers to cases where

ecosystem service values are transferred from studies which have been carried out in other countries.

There are many hazards in using such an approach, which are mainly to do with the credibility of applying

data about a particular site or ecosystem to another context which might have very different biological,

ecological and socio-economic characteristics. Where benefit transfer techniques have been used, a

conservative approach has therefore been taken, and efforts have been made to ensure that transferred

values are as appropriate as possible to the situation of Montenegro. The primary source of benefit-

transfer estimates is valuation studies that have been carried out in nearby Central, Southern and Eastern

European countries which share similar economic, institutional and ecological conditions to Montenegro.

All data sources are clearly referenced. Transferred values have been adjusted to bring them to current

Montenegrin price levels, applying a consumer price index (CPI) deflator to account for domestic inflation,

and using appropriate Gross Domestic Product Purchasing Power Parity (GDP PPP) conversion rates to

equalise differences between Montenegro and other countries. The resulting unit values have then been

applied to country-specific data for Montenegro on the relevant area of land, quantity of production or

affected population/sectors.

Assumptions of change

The economic valuation exercise models the costs and benefits that might arise as a result of improved

biodiversity and ecosystem conservation due to NBSAP implementation. It has been necessary to make

certain projections of changes in the quality of key ecosystem services, as well as in other socio-economic

and biophysical variables such as land and resource utilisation, population and demography, demand and

consumption.

The updated NBSAP has not yet been prepared, and national biodiversity targets have not yet been set.

Once these figures are available, they can be reflected in the economic model. The valuation model

therefore keeps the area of land under different ecosystems constant, but assumes a general increase in

the quality (and thus value per unit area) of ecosystem services. Some increase in resource utilisation and

production in key biodiversity-dependent sectors (e.g. fisheries, forestry, agriculture, water, tourism) is

assumed. Assumptions of change are based on the various goals and targets laid out in relevant national

and sectoral development strategies, policies and plans (MAFWM 2006a,b, 2008 a,b; MED 2007a,b, 2011;

MOF 2011, 2013; MTE 2007, 2008). Population projections draw on those suggested by MONSTAT 2008.

Other factors are held constant.

19

The baseline economic value of biodiversity and ecosystem services

The baseline value of selected biodiversity and ecosystem services to the Montenegrin economy is

estimated at €982 million (Table 3). Provisioning services (wild foods and fodder, wood-based biomass and

energy) contribute an estimated €169 million or 17%, regulating and maintenance services (on-farm soil

fertility and pollination, watershed and coastal protection, carbon sequestration) €276 million or 28%, and

cultural services (landscape and nature-based recreation) €537 million or 55% (Figure 5).

Table 3: Baseline 2011 economic value of

biodiversity and ecosystem services (€ million)

Figure 5: Contribution of different ecosystem services to 2011 baseline value

Ecosystem service Baseline value (€ mill)

Wild foods & fodder 114.42

Wood-based biomass & energy 54.39

Pollination & seed dispersal 28.69

Maintenance of on-farm soil structure & fertility 0.41

Watershed protection 47.81

Coastal protection 1.34

Carbon sequestration 197.50

Landscape & nature-based recreation 537.28

Total 981.83

The recorded gross output for the whole Montenegrin economy in 2011 was €5.24 billion (MONSTAT

2012a): the calculated gross value of those ecosystem services which it has been possible to value is

equivalent to almost a fifth of this value. Together they are worth more than two and a quarter times as

much as the recorded output of the agriculture, forestry and fisheries sector of €425 million in 2011.

Economic benefits and costs avoided over the NBSAP period 2011-20

If the revised NBSAP is implemented, the net present value of selected biodiversity and ecosystem services

to the Montenegrin economy over the CBS Strategic Plan period of 2011-20 is estimated to be just under

€7.4 billion (Table 4). Just over half of this value is contributed by landscape and nature-based recreation,

around a quarter comes from the regulating and maintenance services, and 15% from provisioning services

(Figure 6).

Table 4: Net present value of biodiversity and

ecosystem services 2011-2020 (€ million) Figure 6: Contribution of different

ecosystem services to 2011-2020 value

Ecosystem service NPV@ 10% (€ mill)

Wild foods & fodder 771.40

Wood-based biomass & energy 339.67

Pollination & seed dispersal 193.74

Maintenance of on-farm soil structure & fertility 2.91

Watershed protection 334.34

Coastal protection 9.38

Carbon sequestration 1,380.99

Landscape & nature-based recreation 771.40

Total 7,371.83

The bulk of biodiversity and ecosystem service benefits to the economy between 2011-20 (some 77%) arise

from direct value-added to production in the crop, livestock, fisheries and forestry sectors. Just under a

quarter (23%) are associated with damage costs and losses in production avoided to hydropower, water

20

supply, human settlement and infrastructure as a result of the continued protection afforded by ecosystem

services (Figure 7). In total, the cumulative gains to 2020 over and above the baseline – in other words the

amassed incremental benefit of implementing the revised NBSAP as compared to the current situation1 –

will have reached almost €150 million by 2014, €328 million by 2017 and €541 million by 2020 (Figure 8).

Figure 7: Annual values added and costs

avoided from NBSAP 2011-2020 (€ million) Figure 8: Cumulative gains over the baseline to 2020 (€ million)

1 The estimate of cumulative gains or incremental benefit only considers the effects of biodiversity and ecosystem conservation in terms of assumed improvements in the quality and unit value of ecosystem services. It excludes value-added from the increases in agricultural and fisheries production that result from more general changes in productivity, technology and market access.

21

5 APPLYING BIODIVERSITY VALUATION: potential targets and actions in the revised NBSAP

How valuation can assist in meeting the CBD Strategic Goals and Aichi Biodiversity Targets

The almost complete absence of information on, and integration of, the economic value of Montenegro’s

biodiversity has already been noted as a constraint to effective biodiversity planning and implementation.

While the current report represents a first attempt to identify, describe and quantify some of the economic

benefits associated with ecosystem services, it provides no more than a very rough, preliminary set of

indicative estimates that have been generated for illustrative purposes. It is clear that further work on

biodiversity valuation should form a key part of the revised NBSAP that is currently under development.

It is self-evident that information on economic values will be key to achieving Goal A of the Strategic Plan

2011-2020, and to meeting Aichi Targets 1 (awareness of values), 2 (integration of values into local and

national development planning, accounting and reporting) and 19 (knowledge generation, sharing and

application). These Targets explicitly deal with the generation, dissemination and use of information on

biodiversity values.

Valuation also provides an important tool in the identification, design and implementation of the actions

that will be required to meet Aichi Targets 3 (development of positive incentives and elimination of harmful

incentives) and 4 (sustainable production and consumption). Assessment and analysis of the magnitude

and distribution of costs and benefits associated with biodiversity conservation and loss in different sectors,

for different groups and as a result of different investment, production and consumption choices shows

where there are needs and opportunities to better capture, reward and compensate values in support of

biodiversity conservation. It can also help to ensure that the ensuing actions and instruments are equitable,

efficient and cost-effective for those concerned, and will be economically and financially sustainable over

the long-term. This is particularly important given the focus on mainstreaming biodiversity into the actions

and budgets of other sectors and groups: if this is to be accomplished, then clear information must be

provided about the value-added and costs avoided to them of doing so.

Last but not least, an understanding of economic values is integral to Aichi Target 20 (mobilisation of

financial resources), and CBD Strategic Goals B (reducing direct pressures promoting sustainable use), C

(improving the status of biodiversity) and D (enhancing benefits to all). Valuation provides a potentially

powerful tool to help to justify investments and actions in support of biodiversity targets and goals, by

providing a means of articulating the potential gains from undertaking such measures and the economic

costs of failing to act.

We can therefore identify two basic areas where gaps currently exist, and biodiversity economic valuation

might usefully be included in Montenegro’s revised NBSAP: in relation to the generation and dissemination

of information on biodiversity values, and the design and implementation of incentives and financing

mechanisms.

The paragraphs below focus on information generation and use. Specific market, price and policy

instruments that might be used to better capture, reward and compensate biodiversity values (i.e.

incentives and financing mechanisms) form the focus of the third report to be produced under this

assignment, which deals with recommendations on economic and financial mechanisms for biodiversity

conservation and mainstreaming, including payments for ecosystem services.

22

Economic assessment of biodiversity values (in support of Aichi Targets 1 and 19)

The revised NBSAP provides an opportunity to overcome the current gaps in information and data about

the economic value of biodiversity and ecosystem services in Montenegro.

It is assumed that the NBSAP will include efforts to map and assess Montenegro’s ecosystems and their

services, and the development of some kind of outlook scenarios of future trends in biodiversity and

ecosystem status and management. Economic valuation provides an essential follow-on to biophysical

mapping and assessment, and can help to articulate and weigh up the economic consequences of

alternative scenarios. The resulting information provides a key input for communications and awareness-

raising efforts (see below), can serve to develop, test and showcase methodologies for integrating

biodiversity values into national and sectoral development planning (see below), and feeds into the

baselines and monitoring that are required measure the impacts of NBSAP implementation and progress

towards targets.

To 2020, it would be realistic to envisage that a basic assessment and scenario analysis of biodiversity and

ecosystem economic values has been carried out at the national level, and for key sectors that are

identified as priorities in the revised NBSAP. It should be noted that training and capacity-building will likely

also form a key part of the actions required to achieve this target, as will the establishment of funding

windows to enable basic research on the value of biodiversity to be carried out.

Formulation of methods and procedures for integrating biodiversity economic values into development planning and appraisal (in support of Aichi Targets 2, 3, 4 and 19)

The revised NBSAP also allows for the development and application of systematic approaches and

requirements for monetary valuation, to assist in better incorporating biodiversity costs and benefits into

existing national and sectoral planning processes.

Further work is required to establish appropriate approaches and procedures. There are two aspects to

this. One is the formulation of guidance for public and private sector decision-makers on recommended

methods for valuing biodiversity and ecosystem services. This should both serve to ensure that valuation

efforts follow agreed and accepted methods which reflect international best practice, as well as promote

coherence and consistency in the approaches that are followed by different sectors and actors. The second

is to identify and agree where the monetary quantification of such costs and benefits should be a required

part of development planning and appraisal procedures (for example environmental impact assessment,

natural resources damage assessment, spatial planning, cost-benefit analysis and policy appraisal).

To 2020, it would be realistic to expect that a toolkit of nationally-appropriate methodologies for

biodiversity valuation would have been developed and agreed. At the same time, the specific requirements

and procedures for incorporating biodiversity valuation into key development planning, appraisal and

approval processes should have been identified and formally endorsed via appropriate regulations and

guidelines, and would be being applied in relevant processes. The formation of some kind of advisory or

working group, drawing on the expertise of concerned public and private sector agencies, would likely be a

key action for securing the technical and political support that is required to achieve this target. At the

same time, building a cadre of trained experts in valuation – through the development of appropriate

university/tertiary educational curricula and short-term training opportunities – will also be critical.

23

Ecosystem capital accounting (in support of Aichi Target 2 and 19)

The inclusion of ecosystem capital accounting into the revised NBSAP provides an appropriate means of

moving towards the incorporation of biodiversity values into national accounting and reporting systems.

Standards for ecosystem capital accounting are under development by the UN Statistics Division, and are

already being piloted on an experimental basis in the EU. These offer a potentially useful mechanism for

including ecosystem capital in Montenegro’s national accounts alongside GDP. The aim is to account for

and report on the economic value of ecosystems as a key component of natural capital and economic

assets and to incorporate the costs and benefits of changes in ecosystem status and ecosystem service

provision in measures of economic performance, reflecting both physical and monetary units of

measurement.

To 2020, it would be realistic to anticipate that methods, indicators and aggregates which could be

delivered and integrated into enlarged national accounts would have been identified, adopted and rolled

out, and that at least a preliminary version of national-level (and possibly sectoral and/or local-level)

ecosystem capital accounts has been developed and reported for Montenegro. The establishment of a

high-level working group or committee to consider and advise on data needs, sources, accounting and

reporting procedures would likely be an initial action to contribute towards this target. The Ministry of

Finance and Ministry of Economy would likely be lead agencies in undertaking the actions that are required

to achieve this target.

Strategic communication of biodiversity economic benefits and costs (in support of Aichi Targets 1 and 19, cross-cutting other Targets)

The strategic communication of biodiversity economic benefits and costs forms a key part of the

information, communication and awareness efforts that will serve as cross-cutting activities in the revised

NBSAP.

The national/ sectoral assessment(s), methodologies and approaches, valuation aspects of development

planning and appraisal processes and ecosystem capital accounting will all generate new and important

information on biodiversity costs and benefits in Montenegro. A key question is how to share and

communicate these findings and evidence effectively, especially in relation to those values and impacts

which are currently poorly recognised and understood. Making such information accessible, practical and

relevant to priority groups and stakeholders is a fundamental concern. The processes and steps outlined in

The Economics of Ecosystems and Biodiversity (TEEB) initiative, in particular, provide a particularly useful

set of experiences and lessons learned for the strategic communication of biodiversity values via targeted

campaigns for the general public, local and national policy-makers, sectoral planners, business, financial

and economic decision-makers.

To 2020, it would be realistic to expect to have developed and implemented a strategic communications

campaign on biodiversity economic values, targeted at the general public as well as decision-makers in key

public and private biodiversity-dependent and biodiversity-impacting sectors. A national, and possibly

sectoral and business, TEEB study/ies for Montenegro should also be envisaged as a means of contributing

towards generating evidence and communications materials and engaging key decision-makers and opinion

formers from both the public and private sectors.

24

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