Presentation on theme: "Danièle Perrot-Maître"— Presentation transcript:
1 Danièle Perrot-Maître Valuing ecosystem services-advantages and disadvantages of existing methodologies and application to PESDanièle Perrot-MaîtreSeminar on environmental services and financing for the protection and sustainable use of ecosystemsGeneva, October 2005
2 Outline of presentation Ecosystem goods and servicesReasons to value ecosystem goods and servicesValuation methods: definition, examples, advantages and disadvantagesApplying valuation to PES designKey messages
3 Ecosystems products and services FoodFuel woodNon-timber forest productsFisheries productsMarine productsWetlands productsMedicinal and biomedical productsForage and agricultural productsWaterReedsBuilding materialFunctions/ServicesHydrological servicesPurification of waterCapture, storage and release of surface and groundwaterMitigation of floods and droughtsBiodiversityMaintenance of biodiversity (plants and animals)ClimatePartial stabilization of climate through carbon sequestrationModeration of temperature extremes and the force of winds and wavesSource: Adapted from Simpson (2001)
4 USE VALUES NON-USE VALUES Direct values Outputs that can be consumed or processed directly, such as timber, fodder, fuel, non-timber forest products, meat, medicines, wild foods, etc.Indirect values Ecological services, such as flood control, regulation of water flows and supplies, nutrient retention, climate regulation, etc.Option values Premium placed on maintaining resources and landscapes for future possible direct and indirect uses, some of which may not be known now.USE VALUESNON-USE VALUESExistence valuesIntrinsic value of resources and landscapes, irrespective of its use such as cultural, aesthetic, bequest significance, etc.
5 Why value?Understand how much an ecosystem contributes to economic activity or society. For example, on average forests benefits in the Med region amount to about 1% of GDP. Indirect use value such as watershed protection contributes about 35% of total estimated value.Understand what are the benefits and costs of an intervention that alters the ecosystem (conservation investment, development project, regulation or incentive) and make ecosystem gods and services comparable with other investmentsHow are costs and benefits of a change in ecosystem distributed?How to make conservation financially sustainable?
6 Stated Preference Methods Cost- Based MethodsRevealed PreferenceMethodsStated Preference MethodsContingent ValuationConjoint AnalysisChoice ExperimentsReplacement CostsCost of providing substitute servicesDamage cost avoidedEffect on ProductionProductivity ApproachSurrogate Market ApproachesTravelCostsHedonic PricingMarket Price MethodMarket Prices
7 Productivity & cost-based approaches Direct valuesGoods and productsIndirect valuesEcosystem servicesOption valuesExistence valuesNature tourismMarket PricesEffect on ProductionReplacement CostsCost of Providing SubstitutesCost of Avoided DamageProductivity & cost-based approachesTravel CostsContingent ValuationSurrogate market & stated preference approaches
9 People’s actual willingness to pay MARKET PRICESE.g. Nam Et & Phou Loei NBCA, Lao PDR:Value of NTFP use for Viengthong District villagesCash income $634,000Plant foods $45,000Wild meats $476,000Fuel and housing $480,000Crop consumption $241,000TOTAL VALUE $1,876,000What it costs to buy or sell a good or productPeople’s actual willingness to pay
10 Advantages and Limitations of the Market Price Method Use if primary resource or ecosystem affected has a commercial market (for ex. benefits of cleanup and closure of commercial fishing on fisheries). Prices, quantities and cost are easy to obtain.The method uses observed data of actual preferencesThe method uses standard, accepted economic techniques (consumer and producer surplus based on supply and demand curves) and is relatively easy to applySeasonal variations and other effects on price have to be consideredUsually the costs of transport to bring goods to the markets not included and benefits may be overstatedMany ecosystem goods and services do not have markets or markets are distorted or not well developed and market prices do not always fully reflect the value of ecosystem services to society (WTP)
11 Market value as an input PRODUCTIVITY METHODFlood attenuation benefits from forests, MadagascarValue of flood damage to paddy productionNPV for forest watershed protectionbenefits: $126,700.Resulted in the establishment ofMantadia NPThe economic contribution of ecosystems to other production and consumption activitiesMarket value as an input
12 Advantages and Limitations of the Productivity Method Methodology straightforward, data requirements are limited and relevant data may be readily available hence methiod relatively inexpensive to applyOnly resources and services that are marketed can be valuedMost difficult aspect is to be able to quantify the biophysical relationship that link changes in supply or quality of ecosystem services with environmental changes or management options. Often use simplified assumptions.If changes in ecosystem affects market price, then the method is more complicated and difficult to applyIf changes are too drastic, users of ecosystem goods and services may switch to other alternatives.
13 People’s implied willingness to pay TRAVEL COSTSHow much people spend to use or benefit from using ecosystems for recreational purposesPeople’s implied willingness to payUSA, Value impacts of improved environmental quality on freshwater recreation in the USCombined benefit of all freshwater-basedrecreation: $37 billion/year
14 Advantages and Limitations of the Travel Cost Method Limited to recreational valuesRequires complex statistical analysis, large and complex data sets, hence expensive and time consumingLikely to estimate value of one factor because difficult to separate out effect of different factors (lansdcape beauty and water)
15 REPLACEMENT COSTSE.g. Ream National Park, Cambodia:Value of mangrove ecological services (flood barriers, upstream erosion control)Storm protection $60,000Silt trapping $220,000TOTAL VALUE $280,000The costs of replacing an environmental good or service A minimum estimate of money saved
16 COSTS OF MITIGATING ECOSYSTEM DEGRADATION The costs of mitigating or averting the effects of the loss of an environmental good or serviceA minimum estimate of money savedE.g. Thua Thien Hue, Vietnam:Value of watershed catchment protection for urban and rural water supplies (Infrastructure to mitigate erosion, seasonal low water supplies and flooding)Investment costs $27 millionRecurrent costs $1.8 millionANNUAL COST $2.88 million
17 DAMAGE COSTS AVOIDEDE.g. Value of Phnom Bokor NP for watershed protection and hydropower generationFailure to invest in watershed managementas a component of dam maintenance could incurNPC of over $2million in terms of powerrevenues foregoneThe costs avoided from the destruction of ecosystem A minimum estimate of money saved
18 Advantages of Cost-Based Methods Particularly useful for valuing ecosystem servicesSimple to apply and analyse (rely on 2dary data on benefits from ecosystem services and cost of alternative). Easier to measure costs of producing benefits than the benefits themselves when goods and services are not marketed.Particularly useful if time and financial resources for the study are elimited or where it is not possible to carry out detailed surveysApproaches are less data and resource intensive whereas data or budget limitations may rule out valuation methods that estimate WTP
19 Limitations of Cost-Based Methods Provide only rough indicator of ecosystem valueReplacement cost: often difficult to find perfect replacements for ecosystems goods and services, hence valuation results tend to undervalue ecosystem valueMitigation expenditures: often people’s perception of the effect of ecosystem loss and what would be required to mitigate these effects do not always match those of experts.Damage cost method: estimated damages avoided remain hypothetical in most cases. Often difficult to relate damages to changes in ecosystems
20 People’s stated willingness to pay CONTINGENT VALUATIONThe amount people would pay/accept under the theoretical condition that biodiversity could be bought and soldPeople’s stated willingness to payE.g. Doi Inthanon and Suthep Pui National Parks, Thailand:Willingness to pay for park entry feesDoi Inthanon 40 Baht per personSuthep Pui 20 Baht per personTOTAL VALUE $1.2 million/year
21 Advantages of CVVery flexible. Can be used to estimate economic value of about anything but best to use it to estimate value of goods and services easily identified and understood by usersCV is the most widely accepted method for estimating TEV including non use, option and bequest values (only method to estimate option or existence values)CV has been widely used and a great deal of research is being conducted to improve the methodology, make results more valid and reliable and understand strengths and limitations
22 Limitations of CVWhether CV really measures WTP still controversial (most people unfamiliar making choices about ecosystem services)Results highly sensitive to design of choice scenarios and how survey conducted (psychological aspects)WTP sensitive to payment vehicle (WTA compensation)Strategic bias to influence outcomeNon response biasMany people including jurists, policy makers, economists and others do not believe the results of CV analysis
23 LESS COMMON METHODS Hedonic Pricing Conjoint Analysis Difference in (property or wage) prices that can be ascribed to the existence or level of nearby environmental goods and services.Hedonic PricingConjoint AnalysisChoice ExperimentsObtains information on preferences between various alternatives of environmental goods and services, at different price or cost.Present a series of alternative resource or use options, each of which are defined by various attributes including price.
24 Application of economic valuation to PES design
25 Watershed services: supply and demand Supply of services:Upstream land uses affect the Quantity, Quality, and Timing of water flowsDemand for services:Possible downstream beneficiaries:Domestic water useIrrigated agricultureHydroelectric powerFisheriesRecreationDownstream ecosystemsSource: World Bank 2003
26 Applying ecosystem valuation to payment for ecosystem service: simple in theory Conservation without paymentConventional resource use:no conservationMinimum payment willing to receive to change damaging behaviour to ecosystemConservation with paymentfor servicePaymentBenefits to producersCosts to offsite populationsMaximum paymentwilling to pay to reduceenvironmental damageSource: Adapted from World Bank 2002
28 In practice not so simple… Complex biophysical linkages (Brand 2003)
29 In practice still not so simple…valuing effects of change in ecosystem conditions on agricultural production
30 Use-and non use- of economic valuation to design payments for ecosystem services Public paymentsCosta Rica: $20-44/ha/yr for forest conservation- based on old subsidy based on opportunity cost of land use changeUSA (Conservation Reserve Program): $50/ha/yr. Opportunity cost and cost of conservation measuresEcuador: municipal water and electrical utility companies each donate 1% of total revenues for watershed protaction (oroginally 5% had been proposed by TNC)Brazil – a water utility in the city of Sao Paulo pays 1% of total revenues ($2,500 per month) for the restoration and conservation of the Corumbatai watershed. Funds are used to establish tree nurseries and for reforestation along riverbanks. Payment is outcoem of political negotiation.
31 Use-and non use- of economic valuation to design payments for ecosystem services Private paymentsFrance: US$320/ha/year for 7 years, equivalent to 75% of farm income Opportunity cost and actual cost of switching agricultural technologyCosta Rica: a hydropower company pays US$10 per ha/year to a local conservation NGO for hydrological services in the Peñas Blancas watershedAustralia: Since 1999, farmers in the Murray Darling watershed pay $AUD 85/ha/yr for forest conservation for 10 years or $AUD 17 per million liters of transpired water. Based on increase in marginal benefits due to reduced soil salinity resulting of 100 ha of reforested area.
33 Applicability and limitations of economic valuation Economic valuation highlights costs and benefits and cost bearers and beneficiaries that in the past have been ignoredBut for policy makers it may not, and probably will not be, the most important factor. Ecosystem valuation only provides a set of tools with which to make better and more informed decisions and is not a stand alone exercise.Valuation is out of necessity partial. Case studies underestimate ecosystem values at larger scale because the larger scale the more difficult it is to replace the ecosystem goods and services and interactions are too complex to understand impacts of alternatives .Some ecosystems will never be measurable or quantifiable because we do not have the necessary scientific, technical or economic data.
34 Applicability and limitations of economic valuation When ecosystem benefits that relate to attributes such as human life, cultural or religious significance, economic valuation raises serious ethical questions. Ecosystem valuation may be dangerous when it focuses only on financial or cash benefits at the expense of other types of values that cannot-or should not-be valued.Results of ecosystem valuation studies are not definitive, and transferable between groups and locations. They are generally based on the perception of a particular group at one point in time and is not universally valid.There is no garantee that the findings of economic valuation will support the wise use and management of ecosystems and their services. In fact the use of valuation studies to identify and promote new ways of capturing ecosystem values through markets or PES, can be a double-edged sword.
35 Key Messages It is easy to spend tons of money on valuation. It is easy to value everything, yet the results of valuation are not always useful or correct.Info on total benefit flows, even if correct, cannot provide guidance on specific conservation decisions which are about making incremental changes in these flows.Value of ecosystems on a large scale, marginal price for an extra unit of water is no longer a reliable guide . Only useful guide as long as resource is not so scarce oWork published in Nature in attempted to calculate the total value of all ecosystems on earth. Used a range of estimates of the value of the value of individual ecosystems and scaled them up according total area coverd by each ecosystem globally. Value ranged from US16-54 trillion a year with central estimate of US$33 trillion (1997 prices)Paper had great impact, yet economists consider it flawed conceptually and methodologicallyUsed benefit transfer approach to generate global estimates. These estimates often unreliable due to wide variation in ecosystem valuesacross diferent sites (especially if dvp levels are different).Study result exceeds sum of total global economic income recorded in 1997 therefore cannot be interpreted as society’s WTP or WTA compensation for loss of these services (without them we would be dead)
36 More key messages1st. step: ask yourself what is the purpose of the analysis, who should take its results into account2nd. step: what is your budget, can it be adjusted, what capacity is available, which time frame?3rd. step: which process? Process may be as important as the result. Consider stakeholders, including policy makers, participation into the study.
37 And more…In designing PES, the most appropriate method to value an ecosystem service is the production function analysis-yet it is rarely doneBe pragmatic, learn and adapt: most payments based on OC to service provided, not on marginal benefit to beneficiary. Payments need not be cast in stone but adapted as more is learned about the system, especially biophysical relationships.Economic valuation will only address equity issue if this is designed into the valuation study from the start. Hence back to step 1!
38 For further information: IUCN economic valuation products ToolkitWorking Papers & Policy BriefsCase Studies
39 For further information Toolkit downloadable from:New revamped website: