5. Valuing nature and evaluating environmental risk

Authors: Rosimeiry Portela (CI), Paulo A.L.D.Nunes (CIESM), Miroslav Honzák (CI), Claire Brown (UNEP-WCMC), Martin Roberts (University of Cambridge-CPSL) and Thomas Maddox (University of Cambridge-CPSL)

The notion of ecosystems as both life-support systems and providers of ecosystem services and economic benefits to human wellbeing has only received widespread attention in the last 40 years (MA 2005, TEEB  2010).  Numerous studies have now characterized ecosystem services, provided a wide range of estimates of both their monetary and non-monetary values, and documented attempts to create market-based mechanisms in the form of compensation schemes to allow for their sustainable use through economic accounting  (Gomez-Baggethun et al. 2009).  As such, the concept of ecosystem services, originating in academia, has gained traction in the policy and decision-making arenas, and is increasingly being adopted by the private and financial sectors alike (ibid).

Two studies have become important milestones in this field.  The Millennium Ecosystem Assessment (discussed in Chapter 3) fostered widespread use of the ecosystem services concept by policy makers and business (MA 2005).  More recently, The Economics of Ecosystems and Biodiversity (TEEB) has drawn attention to the need to include nature’s values in people’s decisions, by highlighting the global economic benefits of biodiversity, and the cost of its loss (TEEB 2010 and 2011).

The value of ecosystem services is often ignored in decisions on the use of natural resources.  From an economic perspective, this is because markets fail to deal with public goods such as ecosystem services, which are non-excludable and non-rivalrous: freely and simultaneously accessible to all.  Unpriced, but valuable, the consumption of public goods often results in market failure to optimally allocate resources.  The socio-economic benefits associated with the functional properties of healthy ecosystems, which are not fully embedded in the existing market prices, are often ignored by individual private decision makers.  There can, for example, be economic costs of inaction over policies for biodiversity conservation (Chiabai et al.  2011).

The economic valuation of ecosystem services has therefore been proposed as an important step to alleviate well-known shortcomings in managing and protecting the environment, and to identify opportunities to overcome such problems.  Significant methodological progress in the measurement and valuation of ecosystem services has been made recently, particularly towards the total economic valuation of ecosystem services and the role of this in informing economic choices, such as those associated with trade-offs in resource allocation.  The economic value of an ecosystem service can be determined by its use and non-use values.  Use values, normally associated with the private benefits of such services, assess both direct and indirect uses, as well as the option values associated with their future availability. These values vary depending on the beneficiaries. Non-use value methodologies, in turn, are used to assess bequest values (the satisfaction of knowing that future generations will access benefits), as well as altruist and existence values.

The primary valuation of ecosystem services is increasingly helpful in demonstrating the importance of ecosystem services to economies and informing trade-off analyses of alternative development paths, and is therefore a critical tool in preventing the loss and degradation of natural habitats. Valuation is often, however, a costly and time-consuming exercise. When primary research is not possible, value transfer (also called benefit transfer) can be a practical alternative. This is the process of estimating the value of a service by analysing previous studies that valued similar services in similar contexts (Liu et al., EEA 2010, Ghermandi and Nunes 2011).

The growing number of ecosystem valuations, and the establishment of markets for some important services, such as regulation of freshwater flows and climate, is a promising trend towards the goal of achieving reliable ecosystem valuations.  Another important trend is the incorporation of ecosystem services values into national accounting systems, including the recently launched Global Partnership for Wealth Accounting and the Valuation of Ecosystem Services (WAVES) (World Bank 2011).  The initiative aims to implement comprehensive wealth accounting that focuses on the value of natural capital, and integrate ‘green accounting’ in more conventional development planning analysis.  WAVES will rely on the UN System of Integrated Environmental and Economic Accounting (SEEA), a framework to describe the interactions between the economy and the environment.  In national-level ecosystem valuation, the UK is one of the countries leading the way:  In 2011 an environmental white paper was released recognising the importance of valuing the complete range of benefits that ecosystems provide to society. In the same year, the UK National Ecosystem Assessment became the first national audit of a country’s natural resources and the ecosystem goods and services these provide (UK NEA 2011).


Case studies

Forests and the costs of policy inaction

In this paper a bottom-up methodological framework for valuing key ecosystem services is applied to forest biomes worldwide. Using figures of projected change in forest area from 2000 to 2050, predictions are given ranging from a total economic benefit of $2.7 billion to an overall loss of $11.8 billion (2050 figures). Brazil is predicted to experience the greatest overall negative impact, due to the large reduction in forest area expected in the Amazon. Some countries, mostly in developed areas, are expected to gain significantly from the business-as-usual scenario. The above figures are likely to represent underestimates, as the methodology excluded many important ecosystem services, for which only local, site-specific values are currently available. The study represents a valuable attempt to consider both market and non-market valuation of natural resources. (Chiabai et al. 2011)

Scaling up Coastal Recreation Values

A meta-analytical methodology for value transfer is applied to scale up the recreational values of estuarine and coastal ecosystems in various European countries to derive aggregate, total economic values for coastal recreation services, as an example of how primary valuation studies can be used to inform economically efficient and sustainable decision-making. Average values of coastal recreation in 14 European countries were estimated using this methodology. Highest values were seen in Mediterranean countries, indeed a meta-regression shows that the values of coastal recreation are higher in hot climates, however high values for Ireland and Norway indicate that different types of tourism have been captured in the analysis. The methodology has implications for the formulation of policies for managing ecosystem services, and for payments for ecosystem services schemes, however there is a bias in the availability of primary valuation studies towards more developed nations. (Nunes et al. 2010)


Key messages:

  • Market failure: the price signal from current markets does not succeed in capturing the full range of benefits of particular resources, often because they are public goods.  In this context, the functioning of the market will not result in the optimal allocation of resources.
  • Economic valuation can be used to demonstrate the importance of ecosystem services to economies, and support the analysis of trade-offs likely with alternative development paths.
  • Value transfer is a practical alternative to the often costly and time-consuming exercise of primary valuation. It is characterized by transferring the economic values from existing studies to other sites, often to provide estimates at larger spatial scales. It is important to fully consider the local context when doing so, to ensure relevance.
  • There are moves to incorporate the values of natural resources into national accounting systems, including WAVES and SEEA. The UK’s National Ecosystem Assessment is the first national audit of this kind.

 

Key questions:

  1.  Which ecosystem services have the greatest socio-economic significance?
  2. What is the best way for science to advance the agenda in valuing ecosystem services? In what areas would targeted research have the greatest impact on the political agenda?
  3. What policy instruments are of the highest priority for including ecosystem services values in decision making?
  4. What valuation efforts can support or inform the development of policy, and implementation of payments for ecosystem services schemes?
  5. When is value transfer appropriate, and what measures should be taken into account when attempting to borrow values from other studies?
  6. What options are available for valuing ecosystem services where monetary value is not applicable?

 

Key tools:

EVRI (Environmental Valuation Reference Inventory) An information database on benefit transfer to assist analysts in estimating economic values for changes in environmental goods and services or human health.

NV&F (Nature Valuation and Financing Network) Case study database A comprehensive database of ongoing and completed case studies, initiatives and projects linking valuation and financing of ecosystem services to sustainable management.

IBAT (Integrated Biodiversity Assessment Tool) Designed to give companies access to latest information on biodiversity for informing business decisions.

BBOP (Business and Biodiversity offsets Programme) Guidance for businesses on how to best minimise and mitigate their biodiversity impacts.

See Chapter 3 for other relevant tools, including ARIES (ARtificial Intelligence for Ecosystem Assessment); ESR (Ecosystem Services Review); InVEST (Integrated Valuation of Environmental Services and Trade-offs) and BET (Business Ecosystems Training).


Key references:

Chiabai, A., Travisi, C., Ding, H., Markandya, A. and Nunes, P.A.L.D. (2011) Economic Assessment of Forest Ecosystem Services Losses: Cost of Policy Inaction. Journal of Environmental and Resource Economics. 50(3): 405-445.

European Environment Agency (EEA) (2010) Scaling up ecosystem benefits: A contribution to The Economics of Ecosystems and Biodiversity (TEEB) study. Copenhagen: EEA.  Report No. 4/2010.

Ghermandi, A. and Nunes, P.A.L.D. (2011) A Global Map of Costal Recreation Values: Results From a Spatially Explicit Based Meta-Analysis. Ca’ Foscari University of Venice, Working Paper (8) WP/2011.

Gómez-Baggethuna, E., de Grootb, R. Lomasa, P.L. and Montesa, C. (2009) The history of ecosystem services in economic theory and practice: From early notions to markets and payment schemes. Ecological Economics. 69(6): 1209–1218.

Liu, S., Portela, R., Ghermandi, A., Rao, N. and Wang, X. (forthcoming) Environmental Benefit Transfers of Ecosystem Service Valuation. In M. van den Belt and R. Costanza, eds. Estuarine and Coastal Ecosystems Treatise – Volume 12. Amsterdam: Elsevier.

Millennium Ecosystem Assessment (MA) (2005) Ecosystems and Human Well-being: Synthesis. Washington, DC: Island Press.

Nunes, P.A.L.D., Ghermandi, A., Portela, R., Rao, N. and Teelucksingh, S.S. (2010) Recreational, Cultural and Aesthetic Services from Estuarine and Coastal Ecosystems. Fondazione Eni Enrico Mattei, Working Paper (385).

The Economics of Ecosystems and Biodiversity (TEEB) (2010) The Economics of Ecosystems and Biodiversity: Ecological Economics Foundations. P. Kumar, ed. London and Washington, DC: Earthscan.

The Economics of Ecosystems and Biodiversity (TEEB) (2011) The Economics of Ecosystems and Biodiversity in National and International Policy Making.  P. ten Brink, ed.. London and Washington, DC: Earthscan.

UK NEA (2011). UK National Ecosystem Assessment: Synthesis of the key findings. Cambridge, UK: UNEP-WCMC.

World Bank (2012) Wealth Accounting and the Valuation of Ecosystem Services (WAVES[online] Available here at worldbank.org [Accessed 12 June 2012]


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