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1 Protected Areas – Economic Values How an economist thinks about the value of protected areas Vic Adamowicz Department of Rural Economy University of.

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Presentation on theme: "1 Protected Areas – Economic Values How an economist thinks about the value of protected areas Vic Adamowicz Department of Rural Economy University of."— Presentation transcript:

1 1 Protected Areas – Economic Values How an economist thinks about the value of protected areas Vic Adamowicz Department of Rural Economy University of Alberta

2 2 Outline Introduction – Definitions and Concepts Introduction – Definitions and Concepts A case study using opportunity cost analysis A case study using opportunity cost analysis A case study examining benefits and costs of a protected area expansion A case study examining benefits and costs of a protected area expansion An example of another use of economic value estimates for protected areas An example of another use of economic value estimates for protected areas Conclusions Conclusions

3 3 Economic Values Economic value is based on individual preferences (what people want) Economic value is based on individual preferences (what people want) Values express tradeoffs – how much of one thing to give up for another Values express tradeoffs – how much of one thing to give up for another Values – expressed in monetary terms – are the amount of money an individual would give up to obtain something, Values – expressed in monetary terms – are the amount of money an individual would give up to obtain something, Or accept in compensation to give something up. Or accept in compensation to give something up. Values apply to things that can be purchased (ipods, coffee) as well as things that cannot. Values apply to things that can be purchased (ipods, coffee) as well as things that cannot. Prices (or expenditures) often do not reflect value Prices (or expenditures) often do not reflect value Coffee costs me $2, but I would be willing to pay $5 on most mornings. Coffee costs me $2, but I would be willing to pay $5 on most mornings. If coffee was unavailable – I would save $2, but would lose $5 in overall value (net of $3.) If coffee was unavailable – I would save $2, but would lose $5 in overall value (net of $3.) Value is based on demand (preferences) Value is based on demand (preferences)

4 4 Goods and Values Types of goods Types of goods Private goods (rival, excludable) Private goods (rival, excludable) Public goods (non-rival, non-excludable) Public goods (non-rival, non-excludable) Who benefits from an “improvement”? Who benefits from an “improvement”? From a pure public good – everyone From a pure public good – everyone Total value is the sum of benefits Total value is the sum of benefits From a pure private good – specific individuals / groups in society From a pure private good – specific individuals / groups in society

5 5 What’s the value of a Protected Area? First – what “change” is being evaluated? First – what “change” is being evaluated? With – without principle With – without principle Protected area versus “no protected area”? Protected area versus “no protected area”? Generate changes in Generate changes in Market values – limited (perhaps NTFPs) Market values – limited (perhaps NTFPs) Non-market values Non-market values Use values – recreation, traditional use Use values – recreation, traditional use Passive use values – “just knowing it’s there” Passive use values – “just knowing it’s there” Environmental goods and services Environmental goods and services Generate changes in market and nonmarket values Generate changes in market and nonmarket values Carbon (market); water (non-market?) Carbon (market); water (non-market?) Valuation of “endpoints” Valuation of “endpoints”

6 6 How to Value Goods? Examine tradeoffs that people make in markets Examine tradeoffs that people make in markets Not very helpful for public goods / passive use values. Not very helpful for public goods / passive use values. Examine outcomes from referenda Examine outcomes from referenda How much is a community willing to tax itself to realize a public goods goal? How much is a community willing to tax itself to realize a public goods goal? Highly structured surveys that act as referenda Highly structured surveys that act as referenda Would an individual vote to approve taxing themselves to obtain the benefits of a protected area? Would an individual vote to approve taxing themselves to obtain the benefits of a protected area?

7 7 National Survey Results from April 2006 Percent Stating that governments should “do a lot more” about Percent Stating that governments should “do a lot more” about Reducing air and water pollution70% Reducing air and water pollution70% Maintaining parks and wildlife43% Maintaining parks and wildlife43% Protect species at risk50% Protect species at risk50% Improve roads and highways60% Improve roads and highways60% Encourage economic growth52% Encourage economic growth52% Improve health care73% Improve health care73% Improve education60% Improve education60% Reduce taxes52% Reduce taxes52% Source: Olar et al 2007.

8 8 Benefits continued Incorporating uncertainty, irreversibility Incorporating uncertainty, irreversibility Changes over time Changes over time Environmental values may be increasing over time Environmental values may be increasing over time Scarcity Scarcity Technology can reduce scarcity for material goods, but not for unique natural environments Technology can reduce scarcity for material goods, but not for unique natural environments But, some important caveats…. But, some important caveats…. Environmental values tend to increase with increasing incomes Environmental values tend to increase with increasing incomes

9 9 Pergams and Zaradic (2008) Source: Pergams and Zaradic (2008) PNAS. Page 2296

10 10 What about costs? Opportunity cost Opportunity cost Impacts on the forestry sector Impacts on the forestry sector Sequencing, location, etc. Sequencing, location, etc. Impacts on energy Impacts on energy Delay, avoidance Delay, avoidance Other users / rights holders Other users / rights holders Analyzing the opportunity costs of attaining environmental objectives can be useful! Analyzing the opportunity costs of attaining environmental objectives can be useful! Implicit “cost-effective” land use strategy Implicit “cost-effective” land use strategy Implicit “cost-effective” protected areas / floating reserve strategy? Implicit “cost-effective” protected areas / floating reserve strategy? But analyzing costs alone is only part of the picture But analyzing costs alone is only part of the picture

11 11 Setting Objectives Costs Benefits Stringency of Target $

12 12 Example 1 – Opportunity Cost Approach Biodiversity Conservation in the Boreal Forest Biodiversity Conservation in the Boreal Forest What are the tradeoffs (economic impact of alternate biodiversity objectives)? What are the tradeoffs (economic impact of alternate biodiversity objectives)? What would the least cost approach to a particular biodiversity objective be? What would the least cost approach to a particular biodiversity objective be? Least cost protected area strategy? Least cost protected area strategy? What mechanisms can be used to achieve the objectives at least cost? What mechanisms can be used to achieve the objectives at least cost? Direct regulation? Tradable development rights? Direct regulation? Tradable development rights?

13 13 SFMN Bioregional Assessment Project Boreal Ecology and Economics Synthesis Team (BEEST) Investigators: Vic Adamowicz Vic Adamowicz Fiona Schmiegelow Fiona Schmiegelow Steve Cumming Steve Cumming Marian Weber Marian Weber Grant Hauer Grant Hauer Lee Foote Lee Foote Stan Boutin Stan Boutin Fred Bunnell Fred Bunnell Werner Kurz Werner Kurz Chokri Dridi Chokri Dridi Research Associates: Pierre Vernier Pierre Vernier Xianli Wang Xianli Wang Students and Support: Michael Habteyonas Michael Habteyonas Robert Jagodzinski Robert Jagodzinski Partners Alberta Sustainable Resource Development Alberta Energy Alberta Environment B.C. Ministry of Forests Ducks Unlimited Alberta-Pacific Forest Industries Canadian Forest Products (BC) Weyerhaeuser Company Millar Western Funded by the Sustainable Forest Management Network

14 14 “Production Possibility Frontiers” “Profit” Biodiversity “targets” Max. profit Plan A Plan B Plan C Current Mgmt?

15 15 Model Optimization Structure Max NPV (Forest Sector) s.t. 1. Initial Area by Forest Type/Age/Location 2. Forest Dynamics 3. Demand/Capacity/AAC 4. Old Mesic Forest >= Target (50-100yrs, periods 5-10)

16 16 Source: Hauer et al 2007.

17 17 Source: Hauer et al 2007.

18 18 Source: Hauer et al Biodiversity – Forest Product Tradeoffs

19 19 Source: Hauer et al Percent old forest – with no constraints Percent old forest – with 44% constraint

20 20 Source: Hauer et al Bird count of Canada Warbler with no constraints Bird count of Canada Warbler with 44% constraint

21 21 Summary Opportunity cost analysis provides insights into “least cost” (or cost effective) approaches to achieving ecological objectives, but Opportunity cost analysis provides insights into “least cost” (or cost effective) approaches to achieving ecological objectives, but Where should we be on the cost curve? Where should we be on the cost curve? Who decides? Who decides?

22 22 What about benefits? Market benefits – recreation, tourism Market benefits – recreation, tourism Passive Use Benefits Passive Use Benefits Stylized referendum Stylized referendum Implicit value of decision Implicit value of decision Challenges Challenges $ Biod V

23 23 Example 2 Protected Areas Planning in Ontario Sverrisson, Boxall and Adamowicz Protected area in a region - how much is enough? Protected area in a region - how much is enough? Costs of program (land values) Costs of program (land values) Benefits of program Benefits of program Structured survey of Ontario residents to identify how much they would be willing to invest. Structured survey of Ontario residents to identify how much they would be willing to invest.

24 24 The Mixedwood Plains Various natural habitats Various natural habitats Diverse concentration of animal and plant species Diverse concentration of animal and plant species Increased human pressures on biodiversity Increased human pressures on biodiversity

25 25 Institutional Framework Ontario Parks (OP) invests public funds to acquire protected areas Ontario Parks (OP) invests public funds to acquire protected areas Three main methods of acquiring properties: Three main methods of acquiring properties: Direct purchase Direct purchase Donations Donations Conservation easements Conservation easements

26 26 Estimated Cost Curve for Expanding Protected Areas in Ecodistrict 6E-12

27 27 Valuation Scenarios Binary choice “referendum” (contingent valuation) Binary choice “referendum” (contingent valuation) Each respondent votes 8 times between the current situation and a proposed program Each respondent votes 8 times between the current situation and a proposed program Attributes and levels describing the proposed programs : Attributes and levels describing the proposed programs : Protected area targets: Protected area targets: 1% - 5% - 12% 1% - 5% - 12% Year when protected area target is reached: Year when protected area target is reached: Price of the proposed program Price of the proposed program $20 - $60 - $175 - $325 $20 - $60 - $175 - $325 All combinations of attribute levels resulted in 24 different votes All combinations of attribute levels resulted in 24 different votes

28 28 Valuation Surveys Lots of concern about: Lots of concern about: “hypothetical bias” “hypothetical bias” “strategic behaviour” “strategic behaviour” Information provision Information provision Research effort devoted to developing and testing survey research methods that approximate “actual” choice behaviour Research effort devoted to developing and testing survey research methods that approximate “actual” choice behaviour

29 29 Data Internet panel provided by Ipsos Reid Internet panel provided by Ipsos Reid Sample representative of the public of Ontario Sample representative of the public of Ontario 1,629 participants 1,629 participants 8 votes per respondent => 13,032 observations 8 votes per respondent => 13,032 observations A variety of validity tests and analyses A variety of validity tests and analyses

30 30 Sample Valuation Scenario Protected area targets 0.6% (630 km 2 ) of the Mixedwood Plains protected 12% (12,600 km 2 approx.) of the Mixedwood Plains protected

31 31 WTP for the Mixedwood Plains

32 32 Costs and Benefits

33 33 Ontario Parks Progam: Summary Benefits are greater than costs for expanding the protected area network to a certain extent Benefits are greater than costs for expanding the protected area network to a certain extent Maximum net benefits depend on the costs of acquiring additional areas Maximum net benefits depend on the costs of acquiring additional areas Does not take into account other benefits or costs Does not take into account other benefits or costs Does not address mechanisms for achieving the targets Does not address mechanisms for achieving the targets

34 34 What did we learn? Cost curves – costs of achieving various targets Cost curves – costs of achieving various targets Affected by current policy, conservation mechanism Affected by current policy, conservation mechanism Benefit curves – challenging but important Benefit curves – challenging but important Public values? Public values? Expert groups / decision makers? Expert groups / decision makers? There are other criteria! There are other criteria!

35 35 Another use for the estimation of the value of “protected areas” Natural Resource Damage Assessment British Columbia (B.C.) versus Canadian Forest Products Ltd (Canfor) British Columbia (B.C.) versus Canadian Forest Products Ltd (Canfor) 1992 – fire burns a large area of public forest (1500 Ha), including some environmentally sensitive areas (225 Ha) 1992 – fire burns a large area of public forest (1500 Ha), including some environmentally sensitive areas (225 Ha) Initially, trial judge awarded damages for the costs of fighting the fire and re-forestation, but dismissed the claim that additional compensable losses occurred related to environmental damage. (Elgie and Lintner, 2005) Initially, trial judge awarded damages for the costs of fighting the fire and re-forestation, but dismissed the claim that additional compensable losses occurred related to environmental damage. (Elgie and Lintner, 2005)

36 36 Decision on Environmental Values Canada’s Supreme Court did not allow B.C.’s claim for environmental damage, because B.C. attempted to use the timber value as a proxy for the environmental damage (Elgie and Lintner, 2005) Canada’s Supreme Court did not allow B.C.’s claim for environmental damage, because B.C. attempted to use the timber value as a proxy for the environmental damage (Elgie and Lintner, 2005) The Supreme Court rejected this approach to evaluating the environmental losses, and in doing so discussed more appropriate measures of damages. The Supreme Court rejected this approach to evaluating the environmental losses, and in doing so discussed more appropriate measures of damages.

37 37 Valuation and Damage Assessment Supreme Court Statements about damage assessment (Elgie and Lintner, 2005) Supreme Court Statements about damage assessment (Elgie and Lintner, 2005) Typically, the minimum amount is the commercial value arising from the resource Typically, the minimum amount is the commercial value arising from the resource Loss is compensable using non-market valuation techniques Loss is compensable using non-market valuation techniques Government can recover losses as a parens patriae Government can recover losses as a parens patriae Recognized “use value”, “passive use value’” and “inherent value” Recognized “use value”, “passive use value’” and “inherent value” No requirement for specific status (e.g. U.S. CERCLA) to implement damage assessment No requirement for specific status (e.g. U.S. CERCLA) to implement damage assessment

38 38 Conclusions Values associated with protected areas (or achieving ecological goals) are complex, but many are measurable. Values associated with protected areas (or achieving ecological goals) are complex, but many are measurable. Identifying the objectives is critical but difficult. Identifying the objectives is critical but difficult. The use of information tools to analyze the tradeoffs is essential The use of information tools to analyze the tradeoffs is essential Setting objectives Setting objectives Science information critical Science information critical Valuation techniques – lots of work to do Valuation techniques – lots of work to do Benefits and costs aren’t the only criteria Benefits and costs aren’t the only criteria Mechanisms are required to achieve the outcomes Mechanisms are required to achieve the outcomes Capacity? Capacity?

39 39 References Elgie, S. A. G. and A. M. Lintner The Supreme Court’s Canfor decision: Losing the battle but winning the war for environmental damages. University of British Columbia Law Review 38: 223–62. Elgie, S. A. G. and A. M. Lintner The Supreme Court’s Canfor decision: Losing the battle but winning the war for environmental damages. University of British Columbia Law Review 38: 223–62. Hauer, G., S. Cumming, F. Schmiegelow, W. Adamowicz, M. Weber, and R. Jagodzinski Tradeoffs between forestry resource and conservation values under alternate forest policy regimes: A spatial analysis of the western Canadian boreal plains. University of Alberta Working Paper. Department of Rural Economy. Edmonton. Hauer, G., S. Cumming, F. Schmiegelow, W. Adamowicz, M. Weber, and R. Jagodzinski Tradeoffs between forestry resource and conservation values under alternate forest policy regimes: A spatial analysis of the western Canadian boreal plains. University of Alberta Working Paper. Department of Rural Economy. Edmonton. Olar M., Adamowicz W., Boxall P., West G.E., Lessard F., and Cantin G Estimation of the Economic Benefits of Marine Mammal Recovery in the St. Lawrence Estuary. Department of Fisheries and Oceans. Olar M., Adamowicz W., Boxall P., West G.E., Lessard F., and Cantin G Estimation of the Economic Benefits of Marine Mammal Recovery in the St. Lawrence Estuary. Department of Fisheries and Oceans. Olewiler, N Securing natural capital and ecological goods and services in Canada. In; A Canadian Priorities Agenda: Policy Choices to Improve Economic and Social Well-Being Co-edited by Jeremy Leonard, Christopher Ragan and France St- Hilaire Institute for Research on Public Policy. Montreal. Olewiler, N Securing natural capital and ecological goods and services in Canada. In; A Canadian Priorities Agenda: Policy Choices to Improve Economic and Social Well-Being Co-edited by Jeremy Leonard, Christopher Ragan and France St- Hilaire Institute for Research on Public Policy. Montreal. Sverrisson, D., P. Boxall and W. Adamowicz Estimation of the Passive Use Values Associated with Future Expansion of Provincial Parks and Protected Areas in Southern Ontario. Department of Rural Economy, University of Alberta, Edmonton. Sverrisson, D., P. Boxall and W. Adamowicz Estimation of the Passive Use Values Associated with Future Expansion of Provincial Parks and Protected Areas in Southern Ontario. Department of Rural Economy, University of Alberta, Edmonton.


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