9th May, 2012Stockholm

The TEEB Perspective on Valuation

Pavan Sukhdev

McCluskey Fellow 2011, Yale University

Founder & CEO, GIST Advisory

Study Leader, TEEB

Why Valuation, Why TEEB ?

1.In a world driven by economic rationale, the economic invisibility of nature is a problem.

2. Because addressing losses requires knowledge from many disciplines (ecology, economics, policy) to be synthesized, integrated and acted upon.

3. Because different decision-making groups (policy makers, local managers, businesses, citizens) need different types of information and guidance.

4. Because successes need to be understood, broadcast, replicated and scaled.

How Long Has The Problem Been Known ?

“Diamond-Water” Paradox … An Inquiry into the Nature and Causes of the Wealth of Nations

Adam Smith, 1776

“I believe that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things.”

Benjamin Franklin, 1706-1790

Why the Obsession with “Big Global Numbers” …

• Costanza et al, 1997, Nature : Natures services in aggregate worth $18-$61 Trillion per annum, average $ 38Trillion ($24 Trillion oceans, $ 14 Trillion land biomes..)

• Balmford et al, 2002, Science : Marginal benefits of conserving 15% of land ($1.1-$1.3 Trillion) and 30% of oceans ($3.3-$3.9 Trillion) exceed costs of conservation ($ 45 billion) by a factor of 100:1

… when we know decision-making does not take place at a “Global” scale ?

Norms, Regulations& Policies

Markets

EconomicMechanisms

Recognizing Value

DemonstratingValue

CapturingValue

Regional Plans

Legislations

PES

Certification

PA Evaluation

The TEEB Perspective on Valuation

Ch.4Ch.5 Ch.3 Ch.3

Case Study: Integrating ecosystem services into land use plans in Baoxing County, Sichuan, ChinaCase Study: Integrating ecosystem services into land use plans in Baoxing County, Sichuan, China

REGIONAL PLANSREGIONAL PLANS

An ecosystem service mapping and modelling tool (InVEST) used to plan development zones that avoid areas of high ecosystem service provision and conservation importance

Developments were reconsidered by local government officials during the making of the next Baoxing County Land Use Master Plan 2010 where mapping had highlighted that activities were planned in areas of several critical ecosystem services

An ecosystem service mapping and modelling tool (InVEST) used to plan development zones that avoid areas of high ecosystem service provision and conservation importance

Developments were reconsidered by local government officials during the making of the next Baoxing County Land Use Master Plan 2010 where mapping had highlighted that activities were planned in areas of several critical ecosystem services

Case Study: Tubbataha Marine Park, Philippines

UNESCO World Heritage site, contains 396 species of corals & has higher species diversity per square meter than the Great Barrier Reef

Case Study: Tubbataha Marine Park, Philippines

UNESCO World Heritage site, contains 396 species of corals & has higher species diversity per square meter than the Great Barrier Reef

LEGISLATIONLEGISLATION

After 1998 Bleaching incident – Stakeholders meeting held and “No-take” areas agreed. Later, President passed the Tubbataha Reefs Natural Park Act in 2010 (10 mile buffer zone around the no-take marine reserve) thus increasing Park by 200%

•10% annual increase in live coral cover•Fish biomass is four-folds better than the average healthy reef

After 1998 Bleaching incident – Stakeholders meeting held and “No-take” areas agreed. Later, President passed the Tubbataha Reefs Natural Park Act in 2010 (10 mile buffer zone around the no-take marine reserve) thus increasing Park by 200%

•10% annual increase in live coral cover•Fish biomass is four-folds better than the average healthy reef

Case Study: Kampala Wetland

Services provided by the Nakivubo swamp include natural water purification and treatment & supporting small-scale income activities of slum dwellers

Case Study: Kampala Wetland

Services provided by the Nakivubo swamp include natural water purification and treatment & supporting small-scale income activities of slum dwellers

P. A. EVALUATIONP. A. EVALUATION

Ecosystems services provided by the swamp equal USD 1 million -1.75 million / year

If the swamp is converted then additional investment into a sewage treatment plant would be required with running costs of over USD 2 million / year

Ecosystems services provided by the swamp equal USD 1 million -1.75 million / year

If the swamp is converted then additional investment into a sewage treatment plant would be required with running costs of over USD 2 million / year

(Nakivubo designated a part of the city’s greenbelt zone)(Nakivubo designated a part of the city’s greenbelt zone)

Case Study: ‘Satoyama’ Landscapes, Japan

75-100% reduction in pesticides, traditional winter flooding rice farming adopted and White Stork rice and other certified products sold at a “premium”

Case Study: ‘Satoyama’ Landscapes, Japan

75-100% reduction in pesticides, traditional winter flooding rice farming adopted and White Stork rice and other certified products sold at a “premium”

PESPES2003-2007: farmers paid 40,000 JYen per 1,000m2 of rice paddies. Currently granted 7,000 JYen per 1,000m2 by Toyo-oka City.

2003-2007: farmers paid 40,000 JYen per 1,000m2 of rice paddies. Currently granted 7,000 JYen per 1,000m2 by Toyo-oka City.

CERTIFICATIONCERTIFICATIONRice sold at 23 % higher rate for reduced pesticide use and 54 % more for organic farming Rice sold at 23 % higher rate for reduced pesticide use and 54 % more for organic farming

Konotori no Mai / Flying Oriental White Stork

Konotori no Mai / Flying Oriental White Stork

• White Stork habitat increased from 0.7 ha in 2003 to 212.3 ha

• Extinct in 1971, now has over 40 breeding pairs

• 1 billion JPY annually in tourism, & municipal income raised by 1.4 %

• White Stork habitat increased from 0.7 ha in 2003 to 212.3 ha

• Extinct in 1971, now has over 40 breeding pairs

• 1 billion JPY annually in tourism, & municipal income raised by 1.4 %

1. Valuation decision itself has ‘trade-offs’ that need to be recognized ..… “Long-term Concerns” matter

2. Valuation is a human institution.. “Who values?” matters3. Valuation must have a defined purpose….. “Why value?”

matters

4. Valuation has ethical implications.. “Uncertainties & Risks”

5. Discounting implies ethical choices… “Equity” matters

TEEB Perspective : Key Themes…

Trade-offs of Valuation

Biodiversity & ecosystems are multi-dimensional, contested and context specific, but valuation promotes a universal notion of the natural environment.

1. RISK : By placing values on nature we change existing concepts of ownership and property

• Nature risks becoming a commodity that can be traded in markets for dollars or traded-off in policy (“commodity fiction”)

2. RISK : As values have not been previously defined the process of valuation changes how we appreciate nature

• Individual preferences can outweigh consensus building and collective decision making

• Are we constructing markets that are set up to fail?

Long-term Concerns about Valuation

The critique of valuation is both institutional and psychological:

1.Cultural and social anthropology suggests flaws in the structural and institutional outlook of economic valuation.

• Different cultural approaches to human-environment relationships

2.The psychological viewpoint considers that valuation ignores the internal origins of human behaviour.

• Economics inconsistently applies psychological theories to explain behaviour and to champion rational choice

• Economics focuses on the outcome of decisions not the process• Empirical studies of behaviour do not back up economic theories of

preference

Long-term Implications of Valuation

• It has been argued that economics divorces the emotions underlying

choices from the utility of choice outcomes

• Developments in behavioural economics suggests that people’s

judgements and choices are more intuitive than rational

• Theories of choice that ignore emotions such as pain of loss and the regret

of mistakes are unrealistic and may not maximise utility

• Policy and actions are therefore sub-optimal

Long-term Implications of Valuation

• There is on-going debate about attaching new forms of property rights to

nature and culture

• Linked to the expanded use of protected areas has been in the granting of

resource rights to ‘traditional’ indigenous groups and rural populations

• It is often assumed that such groups have inherent knowledge that allows

them to act as ‘stewards of nature’

• Such policies significantly change the relationships within and between

groups over the rights to control, exclude and exploit resources

Long-term Implications of Valuation

• Conversely, ‘traditional’ knowledge can be consider vital to understanding

the value of biodiversity

• Such knowledge of the use and management of resources is necessary to

obtain the value of medicinal plants, crop varieties, forest resources etc.

• Bio prospecting seeks to exploit this knowledge with the ‘promise of selling

biodiversity to protect it’

• Benefits have often not been realised with conflicts flourishing

• Resources and knowledge are appropriated by ‘powerful corporations’

• Biodiversity and knowledge are no longer ‘common heritage’

Long-term Implications of Valuation

The Challenges of Valuation: Ecosystems, Biodiversity & Level of

Analysis

• Economic valuation is a complex, spatial and institutional cross-scale problem

• Values of ecosystem services differ with changing ecological features and

differing beneficiaries

• Local residents and visitors may value a site for its recreational direct use

value at a local scale

• Because of its high biodiversity the same site may have option, bequest and

existence values at a global scale

• Importantly, efforts to conserve ecosystems at the local level (e.g. protected

areas) may lack the scope to control pressures on surrounding land

Complexity & Functional Inter-dependencies Underlying Valuations

• The risk (as observed in the Amazon, 30% PA) is that islands of protected

ecosystems are surrounded by increasingly intensive land use that in turn

threatens the integrity of those protected areas

• Valuation may be limited to valuing resource at one level whilst neglecting

other levels vital to long term sustainability

• The challenge is to create institutions that can integrate the management of

protected and non-protected areas

• Valuation needs to function as part of a larger process that can value flows

and connectivity between ecosystems and informs adaptive management

Complexity & Functional Inter-dependencies Underlying Valuations

• Society is composed of a variety of members having non-identical interests

and values – which valuation method should be used?

• Ashby’s (1952) ‘Law of Requisite Variety’ states that any regulatory system

needs as much variety in the actions it can take as exists in the system it is

regulating

– i.e. complex environmental systems can’t be reduced to simple valuation

questions

• Further, placing values on the environment is a cognitively demanding task –

people adopt simplistic choice heuristics

• Consequently value responses might be hard to interpret

How to Choose how to Value

• Decisions about complex

ecosystems and biodiversity

require methods that capture

this complexity and value

plurality

• Public engagement should be

able to capture the same level

of complexity as the system it

aims to conserve

How to Choose how to Value

• O’Connor and Frame (2008) propose two thresholds beyond which assessing trade-offs or monetary choice is inappropriate

o Either estimation is scientifically difficult; oro The implied trade-off is deemed morally inappropriate

How to Choose how to Value

How to choose how to value

• Clear & Stated Purpose : Different parameters, assumptions, values appropriate for different purposes (eg : GAISP : For green accounting ? For calculating PES rewards ? For setting compensatory payments ?)

• Whose Valuation ? Segments of society will have differing interests and values – which valuation method should be used?

• Not Too Simple ? Ashby’s (1952) ‘Law of Requisite Variety’ states that any regulatory system needs as much variety in the actions it can take as exists in the system it is regulating (i.e. complex environmental systems can’t be reduced to simple valuation questions)

• Not too Complex ? Placing values on the environment is a cognitively demanding task – people adopt simplistic choice heuristics

How to choose how to value

• Clear & Stated Purpose : Different parameters, assumptions, values appropriate for different purposes (eg : GAISP : For green accounting ? For calculating PES rewards ? For setting compensatory payments ?)

• Whose Valuation ? Segments of society will have differing interests and values – which valuation method should be used?

• Not Too Simple ? Ashby’s (1952) ‘Law of Requisite Variety’ states that any regulatory system needs as much variety in the actions it can take as exists in the system it is regulating (i.e. complex environmental systems can’t be reduced to simple valuation questions)

• Not too Complex ? Placing values on the environment is a cognitively demanding task – people adopt simplistic choice heuristics

Eco-Value class

Very Dense Forest

Dense Forest

Open Forest

Class I 10,43,000 9,39,000

7,30,000

Class II 10,43,000 9,39,000

7,30,000

Class III 8,87,000 8,03,000

6,26,000

Class IV 6,26,000 5,63,000

4,38,000

Class V 9,39,000 8,45,000

6,57,000

Class VI 9,91,000 8,97,000

6,99,000

23 (i) for non-forestry use / diversion of forest land, the NPV may be directed to be deposited in the Compensatory Afforestation Fund as per the rates given below:-

(in Rs.) 

23 (i) for non-forestry use / diversion of forest land, the NPV may be directed to be deposited in the Compensatory Afforestation Fund as per the rates given below:-

(in Rs.) 

Example : Valuation of Forest Land for Compensatory Payments, by Central Empowered Committee, Supreme Court of India, 2006

Example : Valuation of Forest Land for Compensatory Payments, Central Empowered Committee, Supreme Court of India, 2006

(iii) “the use of forest land falling in National Parks / Wildlife Sanctuaries will be permissible only in totally unavoidable circumstances for public interest projects and after obtaining permission from the Hon’ble Court. Such permissions may be considered on payment of an amount equal to ten times in the case of National Parks and five times in the case of Sanctuaries respectively of the NPV payable for such areas.”

• The choice of valuation method will define the outcome of the valuation

process:

o Private good elements versus CPR and public good elements of ecosystems

o Simple versus complex systems

o Individual and egoistic versus social side of human behaviour and

rationality

o Instrumental versus communicative type of human interaction

• The how of valuation may be more important than the value we estimate

How to Choose how to Value

Courtesy : Yann-Arthus Bertrand, GoodPlanetCourtesy : Yann-Arthus Bertrand

For Example….

How Certain are we? Is there Scientific Proof ?

Amazon Rainforest“Water Pump”

Evapo-transpiration puts 20 billion tonnes of water into the atmosphere daily, some of which falls as rain in the Rio Plata Basin…

(Global Canopy Programme & Canopy Capital Ltd, 2008)

Valuation as a “Feedback Mechanism”

• Despite the forgoing criticisms of valuation it retains an important role in

calling attention to the value of biodiversity and ecosystem services in the

face of competing forces for resource use

• By applying values to nature, market forces can be confronted and incentives

for beneficial resource use change created

• In the long run, will the environment be internalised into economic thinking?

• Valuation therefore provides feedback in a system where production,

consumption etc. are distanced from the environment

Valuation as a Feedback Mechanism

• However, there may exist a critical time-lag in the valuation feedback

mechanism

• As values are an outcome of existing institutional, cultural and social

constructs then adaptation to environmental change is required

• As ecosystems are degraded and biodiversity lost, attitudes and values

towards nature will change, but the time-lag may be long

• Are there opportunities to ‘tunnel’ through the environmental Kuznets

curve?

• Is there a role of feelings and ethics to shorten this time-lag in the absence of

more objective evidence?

Valuation as a Feedback Mechanism

Checklist : “Is your valuation…..”

• Marginal : Marginal costs, Marginal benefits

• Context- Specific : Was the purpose of valuation defined beforehand ? And was the valuation used for the right policy and human context ?

• Location Specific : Which biomes where, delivering which ecosystem services, to which beneficiary population, where ?

• Scenario Based : What are the policy drivers of change at the margin ?

• Modeled with Care : If actual costs and benefits not available, were benefit transfer and scaling up of values done with care ?

• TEEB is not about “Selling Mother Nature”

• TEEB is not some simple-minded cost-benefit-based stewardship model for the whole Earth

• TEEB is about preventing the economic invisibility of Nature from leading to bad policies & trade-offs

• TEEB is about recognizing, demonstrating, capturing and rewarding the benefits that ecosystems and biodiversity provide to society in general and to poor people in particular

Not the TEEB perspective on Valuation…

Thank Youwww.teebweb.org

www.teeb4me.com