1. Importance of integrating economic valuation approach in biodiversity inclusive impact assessment
Dr. Vinod. B. Mathur
Professor & Dean
Wildlife Institute of India, Dehradun
Ecological and economic evaluation approaches for mainstreaming biodiversity in EIA; Saudi Arabia; November, 2008

2. Presentation Outline…
Why measure biodiversity values in economic terms?
Valuing biodiversity in economic terms: Global experiences

3. The Context…
Environmental and natural resource degradation can be caused by both ‘too little’ and ‘too much’ economic development.
A ‘trade off’ needs to be made between environmental conservation and developmental imperatives.
This can be achieved by incorporating cost –effective measures to restore, sustain and protect natural systems and maintain environmental quality in all stages of project planning, implementation and operation.

4. Why is biodiversity valuable?
Human well-being is dependent both on strong economy and healthy natural environment.
Biodiversity is a natural capital on which societies depend for economic growth.
Biodiversity is also intrinsic to the values of beauty and tranquility.

5. Why should we value biodiversity?
Historically, biodiversity has been ‘undervalued’ in development processes
Biodiversity is seen as having ‘few’ benefits and its loss is seen as having ‘few’ costs.
We need to understand what and how biodiversity contributes to economic activity and society?
We also need to understand what are the benefits and costs of an intervention that alters the ecosystem (e.g. development project).
more…

6. Why should we value biodiversity?
How are costs and benefits of a change in ecosystem distributed?
Valuation can put biodiversity in the ‘right’ frame and focus.
The approach should therefore be to ‘measure’ biodiversity values; ‘market’ these values.
The biodiversity market will then drive its management towards sustainability.

7. Costs, Benefits & Conservation

8. Costs, Benefits & Conservation

9. Costs, Benefits & Conservation
Key Issues
Who gains and who looses from a project/ activity?
How can we ‘re-distribute’ losses and gains?

10. What does valuation tells us?
It provides a ‘sum-total’ of economic benefits and costs of biodiversity conservation.
At varying time periods as valuation are not static
Under differential management and economic conditions
Under varying landuse and investment options
It indicates the ‘status’ of biodiversity.
Whether is being degraded or lost and at what rate?
It also points to the need for applying better economic policies and instruments for ensuring human well- being.

11. Applications and limitations of biodiversity valuation….
It highlights costs and benefits and the ‘cost bearers’ and ‘beneficiaries’ that in the past have been ignored.
Valuation thus provides a set of tools that enable us to make better and informed decisions.
Unfortunately, valuations generally tend to underestimate biodiversity values at a large scale as interactions are too complex to understand.
more…

12. Applications and limitations of biodiversity valuation….
When benefits relate to attributes such as human life, cultural or religious ethos, valuations raise ethical question especially when they focus on financial or cash benefits at the expense of other types of values that cannot or should not be valued.
Many times, valuation studies are not definitive and transferable between groups and locations. They are often based on the perception of a particular group at one point of time and may not be universally valid.

13. Obstacles in biodiversity valuation
Lack of data/ information on biophysical environment.
Methodological constraints as well as accuracy of evaluation techniques.
Ethical issues relating to valuing environmental impacts in monitoring terms.

14. Key message…
It is relatively easy to spend huge money on valuation and yet get results that may not be useful and precise.
So…… revisit objective of evaluation, look at time, budget and capacity and strengthen the process.

15. Valuing biodiversity in economic terms: Global experiences

16. Moving from theory to practice Case studies:
Yali Hydropower Plant in Vietnam
Mantadia National Park in Madagascar
Kala Oya River Basin, Sri Lanka

17. Economic valuation of environmental impacts
Relies on careful identification and measurement of the biophysical changes produced by a project or alternative project designs.
A variety of tools and techniques are now available to decision makers for economic valuation each having relative strengths and weakness.

18. Linkages between Environmental Impacts and Economic Losses
Ecosystem degradation
Forest lands
Submergence/ Harvesting/ Degradation
Wetlands
Filling/ Dredging
Ground Water
Contamination / Lowered Water table
Pollution
Air
Respiratory illness/ Aesthetic degradation
Water
Toxicity/ Pathogenic organisms
Shortened life of hydroelectric resources
Loss of ecotourism revenues.
Losses due to floods
Reduced fishery production
Cost of alternatives supply
Subsidence of land/ structural damage
Lost man-days, medical expenses
Lowered visibility, devaluation of property
Expenses on alternative supply
Lost man-days, medical expenses.

19. Assessing Environmental and Economic Inputs: A case example
Building a multipurpose dam
Concentrate on the dam, the reservoir, the irrigated land and the production of power.
Cost would be those of construction, operation, maintenance and resettlement of people.

20. Building a multipurpose dam
4. Sediment from eroded soil is deposited in reservoir and reduces storage capacity.
Integrated analyses
3. Upland activities (farming, forestry, agroforestry, roads and settlements) cause soil erosion, silt and chemical pollution of streams. Sediment is stored in delivery system awaiting storm events.
5. Turbidity affects fishery and recreation.
6. Nutrients inflows cause eutrophication and aquatic weed problem.
2. Migrants add to population pressure on marginal and steep sloping.
7. Irrigated agriculture expands; silt in water requires dredging of canals.
1. Valley dwellers displaced to upland or to flood plain below dam.
8. Salinization and waterlogging of soil may occur from improper irrigation.
11. Electric generation capacity reduced through sedimentation. Silt damage to turbine increase O&M.
9. Irrigation return flow to river may carry toxic chemicals and salts which affect downstream fisheries and other water uses.
10. Severe storm result in water release and flood plain damage.
Source: Dixon et al.,1994

21. Case Study I: Yali Hydropower Plant (YHPP), Vietnam
The context
YHPP is located on Sesan River in the West Highlands of Vietnam’s Central Region.
Installed capacity: 720 MW; Energy output: 3600 GWh per annum.
Construction began in 1993, completed in 2000.
Submerged 6000 ha of agriculture/ forest land; relocation of 1149 households with 5384 inhabitants from 26 villages was carried out.
Construction cost: US$ 615 million.
more…

22. Case Study I: Yali Hydropower Plant (YHPP), Vietnam
The context
Lifespan forecasted: 48 years.
Initial EA ignored a wide range of biodiversity values in form of environmental protection and compensation costs and therefore full cost of hydropower production was understated.
The Net Present Value (NPV) and Electricity Price were calculated as US$ 219,520,140 and US cents 5.20/kWh.
A study was carried out by Nguyen Van Hanh et al in 2002 to value environmental costs in economic terms.

23. Objectives To identify and value the environmental costs of YHPP
To determine the full cost of YHPP by incorporating environmental costs into the direct costs of hydropower generation
To make recommendations for the power sector in Vietnam

24. Methodology
Valuation of Biodiversity Values in form of Environmental Protection and Compensation Costs
Meteorology
Hydrology
Water supply
Erosion and Sedimentation
Landuse Changes
Forestry
Watershed Management
Fauna
Water Quality, Aquatic Life & Fisheries Costs
Reservoir-induced seismicity
Public Health and Water-borne Diseases
Compensation and Resettlement

25. Results: Environmental Costs of YHPP
S. N.
Environmental Factor
Standardized Discount Rate 8%
10%
12%
Discounted Environmental Cost USD
% in total 1
Meteorology
1,852 -
1,818
1,786 2
Hydrology
283,846
0.3
269,491
0.5
256,267 3
Water Supply
16,705,411
22.7
11,829,276
19.9
8,633,456
17.4 4
Erosion and Sedimentation
6.422
4,562
3,330 5
Land Use
1,145,151
1.6
827,177
1,5
617,524
1.3 6
Forestry
15,814,862
21.5
12,933,116
21.8
10,889,128
22.1 7
Watershed Management
64,085
55,276
48,200 8
Fauna
215,499
200,060
0.4
186,287 9
Water Quality
5,303
4,495
3,822 -. 10
Reservoir-induced Seism city
51,817
49,197
46,783 11
Public Health
17,116,222
23.3
12,136,208
20.4
8,871,073
17.9 12
Compensation and Resettlement
22,208,617
30.3
21,085,461
35.5
20,050,807
40.4
Total
73,619,087
100.0
59396,137
49,608,465

26. Assumptions of calculations
Net Present Value (NPV) and Electricity Price ‘With’ and ‘Without’ Environmental Costs
Case
Original 1 2
Assumptions of calculations
- Without incorporated YHPP environmental costs.
- Direct cost - based electricity price (original) of 5.2 US cents/kWh.
- Original net present value (NPVd).
- With incorporated YHPP environmental costs;
- Decreased net present value (NPVf).
- Full cost - based electricity price (increased)
NPV (USD)
NPVd = 219,520,140
NPVf= 160,124,000
p (US cents/kWh)
p = 5.20
P=5.20
p' = 5.68

27. Policy Recommendations
Historically, Vietnam like many other countries in the world has heavily subsidized electricity production.
Subsidizing electricity not also poses heavy burden on treasury but also encourages excessive use and increases the environmental damages.
Electricity pricing should be revised not only to eliminate/ reduce direct government subsidies but also to incorporate the environmental costs of electricity production.
….more

28. Policy Recommendations
Environmental costs may not be explicitly recognized but they are still paid in form of damage to human health, ecosystems, relocation of affected people. Most often they are paid by vulnerable groups and future generations.
In the cost of YHPP, the price increase recommended is 5.20 to 5.68 US cent/ kWh, which is about 10% increase. The additional revenue generated should be used for environmental mitigation.
The recommendations on ‘subsidy’ and ‘incorporation of environmental costs’ have implications worldwide.

29. Case Study II: Establishing Mantadia National Park, Madagascar
This case study presents the application of a range of economic valuation techniques viz. Opportunity cost, Contingent valuation and Travel cost method to estimate the benefits and costs associated with the establishment of Mantadia National Park, Madagascar.
The study uses two different valuation techniques to estimate each benefit or cost and compares the estimated results.

30. The Context
Madagascar's high rate of endemism make it one of the ecologically richest countries in the world.
It is also one of the economically poorest countries in the world with a per capita annual income of US $ 190.
This combination of factors has put great stress on Madagascar’s biodiversity, while also making the country a prime target for investment in biodiversity conservation.
The study estimates both the costs to nearby villages of establishing the park and the benefits of developing to foreign visitors of the park as an international tourism destination.

31. Number of Observations Total Annual Value of all Villages ($US)
Results: Value of forest products collected by village method: Opportunity Cost Value: $91/ household year
Forest Products
Number of Observations
Total Annual Value of all Villages ($US)
Mean Annual Value per Household (US$)
Rice
351
44,928
128.0
Fuelwood
316
13,289
42.0
Crayfish 19
220
11.6
Crab
110
402
3.7
Tenreck 21
125
6.0
Frog 11 71
6.5
Source: Kramer et al., 1994

32. Results: Value of forest products collected by villagers
Method:
Contingent valuation
Value:
Average household requires US $ 108 worth of rice per year as compensation to forgo use of the park

33. Results: Summary statistics for international visitors
Method :
Value :
Travel cost
Willingness to pay US $24 per trip/ tourist
Variable
Number of
Range
Mean
Observations
Annual Income 71
$3,040 to-$296,400
$59,156
Education 86
10 to 18 years
15 years
Age 87
16 to 71 years
38.5 years
Number of Days in Madagascar 83
3 to 100 days
26.6 days
Number of Days in Perinet 80
1 to 8 days
2 days
Total Cost of Trip to Madagascar 78
$355 to $6,363
$2,874
Source: Kramer et al., 1993

34. Results: Summary statistics for International Visitors
Method:
Contingent Valuation
Object:
Sighting of lemurs
Value:
Willingness to pay US $65
Current Visitors:
3950 foreign tourist
Total annual willingness to pay:
US $253, 500
Photo © Richard W. Hughes/RWH Publishing & Books

35. Results: Summary Economic Valuation of Mantadia National Park
Method Used
Annual Mean Value Value ($)
Aggregate Present per Household ($)
Opportunity Cost
$91
$566,070
Contingent Valuation
$108
$673,078
Estimates of Welfare Gains to Foreign Tourists from
Establishment of the Park
Annual Mean Value per Trip ($)
Aggregate Present value ($)
Travel Cost
$24
$796,870
$65
$2,160,000

36. Conclusion
The analysis reveals that villagers will require approx. $ 500,000 to $ 750,000 of compensation to forgo the use of park.
International tourists are willing to pay an additional $ 800,000 to $ 2,160,000 to visit the park.
The establishment of park potentially produces many benefits, including local income from tourism, protection of biodiversity, watershed production and climate regulation.
The existence of substantial consumer’s surplus on the part of International visitors can be used to help devise a compensation scheme for local villages, who will be losing part of their economic base.

37. The Context…
Sri Lanka has one of the oldest traditions of irrigation in the world dating back to 500 B.C.
Epic hero King Parakrama Bahu ( ) stated ‘Let not even drop of water that falls on the earth in the form of rain be allowed to reach the sea without being first made useful to man’.
Following the above principle, a system of tanks (water storage reservoir) was established as part of ‘hydraulic civilization’ in Sri Lanka.
From historical times, these tanks have provided ecological, economic and livelihood security to people. They also constitute one of the richest source of wetland biodiversity in the country.

38. The Issue…
Presently, the traditional tank system is under severe and increasing threats. These arise from multiple sources including upstream water allocation decisions which marginalize the tank system in favour of seemingly more productive uses such as ‘modern’ large scale irrigation and hydropower, as well as siltation and sedimentation arising from unsuitable landuse practices in upper catchments.
more…

39. Mahaweli and adjacent river basins
The Issue…
The Kala Oya Basin has been identified by the government as the pilot river basin to plan and implement ‘integrated river basin management’ approaches in Sri Lanka.
Mahaweli and adjacent river basins
more…

40. The Response…
A study was undertaken to assess the livelihood and biodiversity values of traditional tank systems in economic terms in order to demonstrate:
The linkages between downstream wetland values with upstream landuses
Conservation of upper catchment and water allocation to traditional tank systems can yield high and quantifiable economic returns
more…

41. The Kala Oya Basin…
The Kala Oya Basin receives water from Sri Lanka’s longest river, the Mahaweli Ganga and has about 600 small irrigation tanks.
It contains a largely rural population of 400,000 people who cultivate rice combined with fishing.
Poverty levels are high; monthly income <US $15.
more…

42. Valuing Tank Ecosystems…
Tanks yield a range of direct livelihood benefits and also provides a range of environmental services

43. Scenarios for Tank Management…
Scenario 1: Do nothing. Here, sedimentation loads remain the same if not increasing and tank wetlands continue to deteriorate.
Scenario 2: Raise spill. Here, the water body will grow and additional land will be flooded, but sedimentation loads will remain the same, if not increase.
Scenario 3: Raise spill and rehabilitate tank reservation. Here, the water body will grow and additional land will be flooded and future sedimentation loads reduced, thus prolonging the lifespan of the wetlands.
Scenario 4: Remove silt and rehabilitate tank reservation. Here original tank capacity and seasonality is restored and future sedimentation loads will be reduced, thus prolonging the lifespan of the wetlands and restoring its environmental goods and services.

44. Cost-benefit Assessment of Alternative Tank Management Scenarios

45. Cost-benefit Assessment of Alternative Tank Management Scenarios
The extended cost-benefit analysis includes both quantitative and qualitative indicators of costs, benefits and accumulated natural capital associated with each of these four scenarios.
It shows that without rehabilitation of the tank reservation, any solution to loss of water storage would be short-term, and would also yield lower total economic benefits.
In contrast, although costing more, scenarios that involved rehabilitating tank reservations would yield higher net present values, indirect use indices and accumulated natural capital measures.
more…

46. Cost-benefit Assessment of Alternative Tank Management Scenarios
Option 4, desilting tanks and rehabilitating their reservations, clearly yields the highest net benefits, in both livelihood and environmental terms.
Additionally, it also has the likelihood of being the most sustainable and technologically appropriate, because it relies on recurrent works that can be easily carried out using labour-intensive techniques and do not require large mechanical equipment and infrastructure.
more…

47. In Conclusion…
The findings of the Kala Oya study underline the importance of looking at livelihood and environmental values when landuse and water allocation decisions are made.
They also illustrate the linkages between different parts of river basins and show how land and water decisions made in one area can have significant economic, livelihood and environmental impacts on other locations and human populations.
Finally, it shows how economic valuation of biodiversity and livelihood values can help in making more fully-informed management decisions about land and water that can, in the long term, prove to be more desirable and more sustainable, in both socio-economic and environmental terms.

48. Acknowledgements… Case study I:
Yali Hydropower Plant, Vietnam: Nguyen Van Hanh et al 2002
Case study II:
Mantadia National Park, Madagascar: Dixon et al 1995
Case study III:
Kala Oya Basin, Sri Lanka: S. Vidanage et al, 2005 and Lucy Emerton, 2005

49. Thank you…