Presentation on theme: "2 April, InVEST Introductory Seminar, Bangkok"— Presentation transcript:
1 2 April, InVEST Introductory Seminar, Bangkok ValuationEmily McKenzie2 April, InVEST Introductory Seminar, Bangkok
2 “Almost all economists are intellectually committed to the idea that things people want can be valued in dollars and cents…Most environmentalists not only disagree with this idea, they find it morally deplorable…Yet, the fact remains that difficult choices must be made.”(Economist, 2002)
3 Moratorium on dredging in RMI Source: McKenzie et al. 2006Damage costs of near-shore dredging in terms of coastal protection losses were estimated at US$52 per m3. This was much higher than the US$36 per m3 off-shore.
4 Outline Concept of valuation Reasons people use valuation Methods that are commonly usedNatCap approach to valuation
5 Valuation Ecosystem services are scarce and valuable Often no markets or prices exist for ecosystem servicesValuation makes value of environment explicitValuation techniques based on human decisionsRequires biophysical modeling
6 Examples Nature supports livelihoods and economies in countless ways. Biosphere worth US$33 trillion/year Costanza et al. 2007Mangroves worth more than shrimp farms Barbier 2007
7 Another ExampleNature supports livelihoods and economies in countless ways.loss of public &private property ($)avoided damage toproperty ($)
8 Why Value ES?To assess the value of the total flow of benefits from ecosystems;To evaluate the net benefits of an intervention that alters ecosystem conditions;To determine how the costs and benefits of ecosystem conservation are distributed; andTo identify beneficiaries to ascertain potential funding sources for conservation.Pagiola, von Ritter & Bishop 2004
9 Financialcosts (in $)Environmental& socialbenefits (in $)benefits(revenues) (in $)Environmental& socialbenefits (in $)Financialcosts (in $)benefits(revenues) (in $)
10 What is valuation? Assessing the economic value of ecosystem services. This can be a $ amount or another type of metricPrice ≠ value
11 Value of ecosystem services In economics, value is defined as welfare (wellbeing).‡ priceValue of ecosystem services depends on human welfare derived from nature.Welfare is traditionally measured in terms of currencyThe substitution between money and the quantity/quality of ecosystem services can be expressed as willingness to pay (WTP) or willingness to accept (WTA) compensationStructuresValuesServicesFunctions
12 Total economic value Total Economic Value Use value Non-use value Directuse valueIndirect use valueOption valueExistence valueExample:TimberRecreationExample:Water purificationCarbon sequestrationExample:Soil fertilityBiodiversityExample:Rare speciesPagiola et al, 2004
13 Use Values in TEVDirect Use Value: Value from direct human use of natural resources.Extractive Use Value e.g. timber, fisheriesNon-Extractive Use Value e.g. recreation, tourism, educationIndirect Use Value: Ecological functions that indirectly provide support and protection.e.g. erosion and flood protection, water purification, carbon sequestrationThe white paper describes the main economic framework used to value ecosystem services: Total Economic Value (TEV), which includes the value of direct and indirect use, non-use values, and option value, or the benefits of preserving future options. Since the value of nature is not easily characterized – or fully captured – in monetary terms, multiple studies of ecosystem service values characterize their value along multiple, including health and nutrition, livelihood benefits, and cultural significance.
14 Non-Use Values in TEVValue based on intangible human benefits or non-use.Existence Value: Value from simply knowing that nature exists e.g. charismatic speciesOption Value: Value from retaining options that may arise in the future e.g. medical discoveriesBequest Value: Value from conserving nature for future generationsThe white paper describes the main economic framework used to value ecosystem services: Total Economic Value (TEV), which includes the value of direct and indirect use, non-use values, and option value, or the benefits of preserving future options. Since the value of nature is not easily characterized – or fully captured – in monetary terms, multiple studies of ecosystem service values characterize their value along multiple, including health and nutrition, livelihood benefits, and cultural significance.
16 Market valuation Valuation using conventional good/service prices In a competitive market, the market price depicts the marginal benefit of a good/serviceNet benefit can be calculated by combining price with quantity and cost estimatesMarket price methodActual prices of goods/servicesAvoided damages methodCosts incurred in the absence of the serviceMarket prices of equivalent non-ecosystem services
17 Non-market valuationRevealed-preference methods: use observed behavior to identify value in a surrogate marketHedonic pricing method (Land market)Influence of environmental/ecosystem attributes on property valueTravel cost method (Tourism market)Costs of recreational visits as proxy of economic use values associated with ecosystems or sites
18 Non-market valuationStated-preference methods: use reported choices to estimate value in a hypothetical marketContingent valuationAsk respondents to express their willingness to pay (WTP) or willingness to accept (WTA) compensation for changes in ecosystem servicesChoice modelingAsk respondents to rank/rate/choose alternative choice sets which have different combination of price attribute and ecosystem attributes
19 Benefits / Value Transfer With resource or time constraints, novel analysis may be impossibleBenefits transfer uses existing studies to inform valuation effortsSpatial variability demands careful application of this approachbiophysical attributes (climate, quality, size…)socio-economic attributes (management, disturbance…)
20 Valuation methods in InVEST Market valuationNon-market valuationBenefitTransferSurrogate marketHypothetical marketDirect & indirect marketRevealed PreferenceStatedPreferenceMarketpriceAvoideddamagesHedonicpricingTravel costContingentValuationChoicemodelingCurrent InVESTSupplemental analysis with InVEST output
22 Net Present Value (NPV) The Net Present Value (NPV) of an ecosystem service is the present value of the expected net benefit flows over time.Number of years present landscape conditions are expected to persist,or total years the serviceis valued for.Discount rate (0%~100%):Weight of present benefits versus future benefitsLarger r more weight on present
23 Limitations Limitations of economic valuation Revealing preferences (partial, indirect, subjective)Aggregating individual preferences (conflicts, relative weight)Addressing uncertainty (in science, in methods)Setting the discount rate (present vs. future)Capturing full value (TEV not often achieved)InVEST provides rapid, conservative valuationBetter used for comparison among scenariosValidated value estimates are more reliable for absolute magnitudeDaily et al. 2000, The Nature of Value and the Value of Nature.
24 Discussion QuestionsWhat are you hoping to achieve / have you achieved using valuation?When do you think monetary values help?What is your biggest concern about valuation?