Economic evaluation of biodiversity

Siddhartha Swarup JenaRAD/10-30Ph.D. Mol. Bio & Biotech

Presented by:S S Jena

OutlineOutline

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INTRODUCTION Ecosystem: A dynamic complex of

plant, animal, and micro-organism communities and the non-living environment interacting as a functional unit

Biodiversity: The variability among living organisms

– Within species & populations

– Between species

– Between ecosystems Ecosystem services: The benefits

people obtain from ecosystems

The “goods and services of nature”S S Jena

Contd…

Placing monetary values on ecosystem services is not an end in itself

The aim is to provide information to make better and more informed decisions:

- Better meeting targets and goals

- Avoiding costs and losses

- Maintaining/Increasing revenues

- Finding cost-effective means of

complying with obligations and managing

environmental footprintsS S Jena

Biodiversity and Economics

What are the consequences of losing biodiversity versus conserving biodiversity? (costs and benefits)

What actions can be done, or should be done, to conserve biodiversity? (management & policy)

Documenting the benefits and costs of conserving biodiversity

– Value of “ecosystem services”

– benefits derived from ecosystems &

biodiversity S S Jena

Biodiversity and Economics cont..

Evaluating management & policy options

– Cost-effectiveness analysis

– Cost-benefit analysis – Analysis of incentives and institutions (market failure and policy interventions)

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Biodiversity Management to be Biodiversity Management to be considered considered

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Three Challenges to ValuingEcosystem Services

Challenge 1

Understanding ecological systems and how they contribute to goods and services of value to people

Understanding how changes in ecosystems lead to change in the amount of goods and services produced.

“Ecological production function”S S Jena

Challenge 2

Understanding the contribution of the value of goods and services produced by ecosystems to human well-being

Understanding the distributional consequences: who benefits from ecosystem services?

“Value of ecosystem services”

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Challenge 3

o Integrated analysis: – Combining ecology (& other natural sciences) and economics (& other social sciences) in an integrated assessment – Focusing integrated assessments on management/policy relevant questions

o Integration challenge is made easier when directly focused on a policy/management relevant question

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Steps in a Steps in a corporate ecosystem services corporate ecosystem services

1. Determine scope

2. Identify priority ecosystem services

3. Analyze trends in priority services

4. Identify business risks and opportunities

5. Develop strategies

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BIODIVERSITY VALUESBIODIVERSITY VALUES

Valuing biodiversity is mandatory even though it is really beyond valuation

Three important systems of classification of values of biodiversity have been proposed till date.

The 1st system of biodiversity value classification breaks the value into number of components-

Use or non-use

Direct or indirect use

Consumptive or productive use

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Component valuesComponent values

1. Total environmental value (TEnV): A function of primary value and total economic

value. (UNEP, 1995) Global natural resources are more valuable than

global national products.

2. primary value (PV): The value of the system characteristics upon

which all ecosystem functions depend. Called primary value because the structured

ecosystem produces functions which have secondary value.

Also known as ‘glue’ value.S S Jena

Contd…Contd…

3. Total economic value (TEV): Also called Total value (TV)or simply Value (V). The sum total of all kinds of values attached to

biodiversity minus the primary value

4. Use value (UV): The value arising from an actual use made of a

given component of biodiversity.

5. Direct use value (DUV): Economic values derived from direct use or

interaction with a biological resource or resource system.

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Contd…Contd…

6. Indirect use value (IUV): Economic value derived from the role of

resources and systems in supporting or protecting activities whose outputs have direct value in production or consumption.

7. Consumptive use value (CUV): A type of direct use value which represents the

value placed on a diversity component that is consumed/enjoyed directly, without passing through a market.

8. Non-consumptive use value (NUV): The value which the components/systems of

biodiversity possess in terms of functions or services offered.

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Contd…Contd…

9. Productive use value (PUV): The value given to a component of biodiversity that

is commercially harvested or is a source for a commercially harvestable product.

Such items pass through a market. Ex: Minor forest produce, fruits & seeds, timber,

pharmaceuticals etc. It is included in national economic statements and

budgets.

10. Non-use value (NUV): Value relating to safeguarding the existence of

assets, even though not related to their actual use in a foreseeable period.

Also referred to as Passive use value.S S Jena

Value ecosystem servicesValue ecosystem services

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METHODOLOGIES FOR VALUATION OF BIODIVERSITY

Recent workers providing methods for biodiversity valuation are

i. Dixon and Sherman (1990)

ii. Winpenny (1991)

iii. Pearce and Morgan (1994)

iv. UNEP (1995)

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1. Changes in productivity method

Also known as production function method.

Changes in the supply of biodiversity resources result in changes in the economic value of their production.

Changes in the supply of resources may occur for several reasons like habitat changes, loss of biodiversity components etc.

The production function technique is a natural complement to cost-benefit analysis.

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2. Contingent valuation method

The basis for this method is what people are willing to pay (WTP) for increment in biodiversity quality, or what people are willing to accept (WTA) in compensation for foregoing such benefits.

The procedure involved are Elicit people’s WTP for biodiversity goods or

services. Create a hypothetical market situation Use the respondents reply to place value on

biodiversity items that are not usually marketed The resultant valuation is contingent because the

value depends on every individual’s perception of background factors.

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3. Hedonic pricing method

This method enables explicit valuation of non-marketable services; viz. soil fertility, scenic beauty or air quality of a land etc.

The procedure involved are

Estimate the value of the land

Estimate econometrically the value contributed by the chosen service attributes to the value of the land.

Work back from this hedonic price equation to the actual demand curve.

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4. Travel cost method

This method can be used to find only the recreational value of a landscape.

Procedure followed are

Collect information on the expenditure incurred by visitors to the particular site/landscape

Aggregate the number of visitors by what it costs them to travel to and from the site

Estimate travel costs of visitors from distant places and nearby places.

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Uses of PGR

Food Fodder and forage Timber Rattans and canes Medicinal plants Ornamentals Other uses

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Conclusion

‘The origin of all wealth came from the bosom The origin of all wealth came from the bosom of earthof earth’

which imply the existence of great bondage between Economics and the earth’s resources especially, biodiversity.

(Smith, 1776)

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References

Krishnamurthy, K.V.; An advanced textbook on biodiversity- principles and practice. Oxford & IBH publishing Pvt. Ltd.

www.IUCN/Holcim EVI.ppt www.advocacy.britannica.com Biodiversity Conservation and Ecosystem Services;

Stephen Polasky, University of Minnesota. Third World Congress, Kyoto July 2006

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