Paulo A.L.D. Nunes

Economic Valuation of Ecosystem Services and Biodiversity Conservation: a multidisciplinary approach

Paulo A.L.D. Nunes

University Ca’ Foscari of Venice Fondazione Eni Enrico Mattei

Euro Mediterranean Center for Climate Change

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Contents

Background and motivation Economic thinking and environmental economics Economic valuation perspective

Biodiversity as an environmental resource Economic reasons for economic valuation Integrating ecology and economics

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Contents

Millennium Ecosystem Assessment Ecosystems services approach Biodiversity, ecosystems, ecosystems services and human

well-being are linked

Reflection, and challenges A research agenda for valuing ecosystem services Tasks to mainstream economic valuation in everyday

decisions Economic valuation of ecosystems services as a means for

biodiversity conservation and poverty alleviation

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Just what is economic thinking?

Economics is a social science, human behaviour is at the core of the analysis, we focus on the study of “choices”, individual choices.

Choices are disclosed in the allocation of scarce resources (not just traditional commodities) to meet individual economic needs.

Economics is not simply about profits or money. It applies anywhere constraints are faced, so that choices must be made.

Economists study how incentives affect people’s behavior.

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Environmental and natural resource economics

Environmental and natural resource economics is the application of the principles of economics to the study of how environmental and natural resources are developed and managed.

Environmental resources – resources provided by nature that are indivisible and are affected by the economic system (e.g. biodiversity).

Natural resources – provided by nature that can be divided into increasingly smaller units and serve as inputs to the economic system over time (e.g. forests, oil).

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direct usevalue

recreation benefitse.g. sight-seeing, fishing, swimming

TOTALUSEVALUES

indirectuse value

ecosystem functional benefitse.g. watershed protection, timber production

ECONOMICVALUE

optionvalue

safeguard of use benefitse.g. pharmaceuticals, future visits

NONUSEbequestvalue

legacy benefitse.g. habitat conservation for future generations

VALUES existencevalue

existence/intrinsic benefitse.g. knowledge of continued protection ofwildlife diversity

adapted from Pearce and Moran (1993)

Definition of the total economic value of an environmental resource

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direct usevalue


TOTALUSEVALUES

indirectuse value


ECONOMICVALUE

optionvalue


NONUSEbequestvalue






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direct usevalue


TOTALUSEVALUES

indirectuse value


ECONOMICVALUE

optionvalue


NONUSEbequestvalue






The major contribution of environmental economists has been in the area of the valuation of environmental goods and services, i.e. methods for measuring the demand curves for goods for which there are no markets (nonmarket valuation)

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1. Why perform economic valuation2. Economic valuation perspective

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Why perform economic valuation

Cost-benefit-analysis and environmental policy making Excessive pollution Protection of the natural environment

Legal claims and natural resource damage assessment Exxon Valdez (CERCLA, NOAA)

Environmental accounting (national and firm level) Satellite national accounting system Corporate social responsibility reports

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Economic valuation perspective

(1) Instrumental vs. intrinsic valuation.(2) Monetary vs. physical indicators. (3) Direct vs. indirect values.

Alternative perspectives on valuation

(4) Value of levels vs. changes of levels.(5) Holistic vs. reductionist approaches.

(6) Expert vs. general public assessments.

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All in all…

It is clear that different valuation perspectives can be distinguished based on the above considerations. This means that different angles on the value, and valuation, may in fact be based on different perspectives.

This does not mean that one is right and the other is wrong.

Evidently, it is crucial to know which perspective is being adopted.

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Economic perspective

Instrumental perspective

Provides a monetary indicator

Valuation is operationalized through explicit changes of the environmental status, preferably marginal or small (interpreted as alternative policy scenarios)

Not a value of an ecosystem!

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Biology description of the

system (e.g. indicators) identification of threats

Economics

economic valuation economic policy

theory

Communities

general international legal regime implementation and control at regional and sectorial level

Scenarios formulation

Policy instruments

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Economic Valuation

***

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Biodiversity as an environmental resource

Biodiversity requires our attention for two reasons. First, it provides a wide range of direct and indirect benefits to mankind, which occur on both local and global scales.

Second, many human activities contribute to unprecedented rates of biodiversity loss, which threaten the stability and continuity of ecosystems as well as their provision of goods and services to mankind.

Consequently, in recent years much attention has been directed towards the analysis and valuation of the loss of biodiversity.

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Biodiversity and Human Welfare

HUMAN HUMAN WELFAREWELFARE

BIODIVERSITY BIODIVERSITY RESOURCESRESOURCES

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Complexity of the resource

Levels of biodiversity

Types of diversity Physical expression

Gene Genes, nucleotides, chromosomes, individuals

Species Kingdom, phyla, families, genera, subspecies, species, populations

Ecosystem Bioregions, landscapes, habitats

Functional Keystone process species, ecosystem resilience, and ecological services

Source: Turner et al. (1999).

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Biodiversity

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Human welfare

Species

Ecosystem

2 6

3

1

Classification of biodiversity economic values

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2 => 5 Genetic and speciesdiversity

Inputs to productionprocesses (e.g.pharmaceutical andagriculture industries)

CV: +TC: -HP: +AB: +PF: +Contracts: +

1 => 4 => 5 Natural areas andlandscape diversity

Provision of natural habitat(e.g. protection of wildernessareas and recreationalareas)

CV: +TC: +HP: -AB: -PF: +Tourism revenues: +

1 => 6 Ecosystem functions andecological services flows

Ecological values(e.g. flood control, nutrientremoval, toxic retention andbiodiversity maintenance)

CV: -TC: -HP: +AB: +PF: +

3 Nonuse of biodiversity Existence or moral value(e.g. guarantee that aparticular species is keptfree from extinction)

CV: +TC: -HP: -AB: -PF: -

Biodiversityvalue category

Economic valueinterpretation

Biodiversitybenefits

Degree of applicability of theeconomic valuation methods

Applicability

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Genetic and species diversity

(2=>5)

Bioprospecting From: $ 175,000

To: $ 3.2 million

Market contracts

Single species From: $5To: $126

Contingent valuation

Multiple species

From: $18 To:

$194

Contingent valuation

Life diversity level

Biodiversity value type

Value ranges Method(s) selected

Review of valuation studies:

Unequivocal support for the belief that biodiversity has a significant, positive social value.

Lack of a uniform, clear perspective on biodiversity as a distinct concept from biological resources.

Available results should be regarded as providing, at best, lower bounds to the unknown value of biodiversity changes.

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Millennium Ecosystem Assessment

The Millennium Ecosystem Assessment (MA) was called for by the United Nations Secretary-General Kofi Annan in 2000.

Objective of the MA was to assess the consequences of ecosystem change for human well-being.

The MA has involved the work of more than 1,360 experts worldwide.

Their findings provide a state-of-the-art scientific appraisal of the condition and trends in the world’s ecosystems and the services they provide, as well as the scientific basis for action to conserve and use them sustainably.

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Biodiversity matters and people matter!

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Motivation: stylized fact one

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Motivation: stylized fact two

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Source: MEA (2005), adapted.

MEA: conceptual framework

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Climate change


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Climate change

Forests systemsCoastal and marine systems


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Climate change

Forests systemsCoastal and marine systems


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Marineecosystem goods

and services

Market priced benefits

Un-market priced benefits

Fisheries products CO2 Recreation Nonuse valuesEco-tourism

Provisioning services

Regulatingservices

Culturalservices

Market priceanalysis

Cost Assessments

An illustration:

Contingent valuation methods

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Monetary valuation approaches

Market price valuation mechanisms.These include the value of contracts, as recently signed by the pharmaceutical industry and governmental agencies, and the value of the financial revenues related to the eco-tourism activities focused on the visits to natural areas with high outdoor recreational demand.

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Monetary valuation approaches

Non-market valuation methods.These refer to special tools used by the economist so as to retrieve consumer’s preferences for biodiversity benefits, including

Contingent Valuation Methods (CVMs)

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What are CVMs?

Valuation technique widely applied by environmental economists (Exxon case)

Aims at tracing the latent demand curve for a non market commodity

The main tool is an on-purpose designed questionnaire It is a very flexible development

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Potential of CVM Studies

Interview based Technique Deeply rooted in social studies literature Gathers a great deal of information on attitudes and

preferences Capable of attaching “economic measures” to non use values Flexible to other uses, i.e. management options

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Biodiversity, ecosystems, ecosystems services and human well-being are linked

Ecosystem services: ecosystems provide vital goods and services

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Provision of ecosystem services is not often factored into important decisions that affect ecosystems.

Distortions in decision-making damage the provision of ecosystem services making human society and the environment poorer

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(1) Incentives

(2) Actions

Ecological production functions

(6) Valuation

(3) Non-anthropocentric approaches

Other considerations

Benefitsand costs

Decisions by firms and individuals

Policy decisions

Ecosystems

Ecosystem services

(7) Economicefficiency

(5) Biophysical tradeoffs

(4)

Integrating ecology and economics: a research agenda for valuing ecosystem services

Source: S. Polasky, adapted

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Reflection and challenges:tasks to mainstream economic valuation

1. Improve understanding of the likely consequences of human actions on ecosystems

2. Improve understanding of the impacts of ecosystem change on ecosystem services and biodiversity

3. Improve understanding of the value of these impacts on human welfare

4. Tie understanding of impacts and values to incentives Everyday decisions of individuals, firms and communities Societal policy choices

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Reflection and challenges:tasks to mainstream economic valuation

5. Integration of distributional objectives in the objective function of the policy maker (other considerations)

6. The role of the local communities in the management of the resource

7. The role of the resource in terms of income generation

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Work in progress: BioLAC

Position paper

Methodological paper

Empirical application

papers

Turtles as ecosystem engineers in the LAC

Policy/management insights

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Motivation

Jul 16th 2009From The Economist print edition

Documents

Paulo A.L.D. Nunes