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Valuation of Ecosystem Services of Rangeland Resources John B. Loomis Department of Agricultural and Resource Economics, Colorado State University, Ft.

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Presentation on theme: "Valuation of Ecosystem Services of Rangeland Resources John B. Loomis Department of Agricultural and Resource Economics, Colorado State University, Ft."— Presentation transcript:

1 Valuation of Ecosystem Services of Rangeland Resources John B. Loomis Department of Agricultural and Resource Economics, Colorado State University, Ft. Collins Thomas C. Brown Rocky Mountain Research Station, U.S. Forest Service Fort Collins, Colorado John C. Bergstrom Department of Agricultural and Applied Economics, University of Georgia, Athens

2 Popular books

3 Our effort covers three facets of ecosystem services: DefinitionDefinition –(rangeland examples to general principles) Economic Valuation to Humans Provision & Revenue Capture

4 Possible Ecosystem Goods and Services from Properly Managed Rangelands Ecosystem goodsEcosystem services Plants (livestock and wildlife forage, fuel) Dispersal of seeds, Maintenance of plant biodiversity, Existence values for rare plants Wildlife & fish (food, related products)Maintenance of fauna biodiversity, fishing, hunting, viewing Existence values for rare fish/wildlife Water flowsMitigation of floods & droughts Soil Conservation (w/proper mgmt) Recreation opportunities (e.g., mtn biking)

5 An Ecosystem Service is A good or service flowing from an ecosystem that is of value to humans and occurs naturally E j = r (N) E j = j th ecosystem service N = natural capital (ecosystem structure) r = ecosystem function or process Example: Instream flow = r (precipitation, terrain, soils, aquifers, biota)

6 Relation of Ecosystem to the Human System

7 Economic Valuation of ecosystem services Economic Valuation to HumansEconomic Valuation to Humans –Ecosystem services have value to humans because they are: SCARCESCARCE PROVIDE UTILITYPROVIDE UTILITY –Valuation Methods start with Utility

8 How Ecosystem Services provide Utility U = utility to humans E 1 = ecosystem goods and services of direct utility (require no other inputs) E 2 = ecosystem goods and services requiring other inputs (labor and capital) for consumption L = labor K = built capital

9 Economic Valuation of Ecosystem Services Definition Economic Valuation to HumansEconomic Valuation to Humans –Valuation Methods Market: prices, chargesMarket: prices, charges Production Function ApproachesProduction Function Approaches –Shadow price of unpriced natural capital in firms/ranchers production function Replacement cost/cost saving:Replacement cost/cost saving: –built alternatives that may be more costly than protecting natural capital non-marketnon-market

10 Examples of ecosystem G&S and substitutes Ecosystem stock Ecosystem service Substitute Renewable raw materials AnimalsHarvestable wild elkDomestic elk Range livestockPasture/Feedlot livestock PlantsWild plantsCultivated plants WatershedSoil water storageWater reservoir Clean waterClean water (via treatment)

11 Total Economic Value of Ecosystem Services: Use & Non Use A, On-site, current use expenditures B, On-site, current use consumers surplus C, Off-site, current use expenditures D, Off-site, current use consumers surplus E, Off-site, future use expenditures F, Off-site, future use consumers surplus G, On-site, future use expenditures H, On-site, future use consumers surplus I, Non-use, existence activity expenditures J, Non-use, existence activity consumers surplus

12 Techniques for Measuring Use Values of Ecosystem Services Recreation Use Values:Recreation Use Values: –Revealed Preference: Travel Cost Method of Estimating Recreation Demand –Maczkos dissertation applied TCM to estimate value of rangeland recreation using NVUM data –Stated Preference Contingent Valuation Method-Simulated Market

13 Shift in Demand Curve w/Improved Ecosystem Services (WQ, Fish) $90 $50 $10 6 Visitor Trips D Low ES D High ES 10$/Trip

14 Techniques for Measuring Other Use Values of Ecosystem Services Residential Amenity Values –House Price Differentials (Hedonic Property Method) Other Ecosystem Service Values –Cost savings, contingent valuation method

15 Techniques for Measuring Total Economic Value & Non Use Values of Ecosystem Services Contingent Valuation Method –Survey of general public regarding whether they would vote to pay higher taxes or fees, or water bill or electric bill for maintaining or improving specific ecosystem services

16 Elements of Contingent Valuation Method (CVM) For Measuring Total Economic Value Describe the Ecosystem Services At Risk –Maps, drawings, graphs, photos WTP Question –Would you Pay $X (per trip, per year) for Improvement $X varies across the sample.

17 Downward Sloping Willingness to Pay Function: Downward Sloping Willingness to Pay Function: Higher the Price, the less likely people will pay

18 Techniques for Measuring Total Economic Value & Non Use Values of Ecosystem Services Contingent Valuation Method Choice Experiment/Conjoint Analysis –Survey asking about multiple attribute trade-offs involving higher levels of higher ecosystem services for tax payment

19 Financing Provision of ecosystem services Positive Net Economic Benefits (B>C) is a necessary condition for economically efficient provisionPositive Net Economic Benefits (B>C) is a necessary condition for economically efficient provision Sufficient Condition is that public and private landowners are able to obtain funds/revenues to protect and continue to provide ecosystem servicesSufficient Condition is that public and private landowners are able to obtain funds/revenues to protect and continue to provide ecosystem services

20 Provision of ecosystem services is enabled by making people pay For ecosystem services that previously were free: –buying conservation easements –buying open space –paying land owners to continue certain management practices –charging for recreation on public land To offset the reduction in ecosystem services they used to affect without payment –pollution taxes –permit trading Markets are one way for people to pay

21 Necessary Conditions of market exchange

22 Examples of ecosystem services by Rivalry & Exclusivity ExclusiveNonexclusive Rival PURE PRIVATE GOODS Renewable goods harvested from contained ecosystems Services the effects of which are contained within a property ownership COMMON PROPERTY Renewable goods harvested from uncontained ecosystems (migratory) Downstream Services realized in the quality of rival goods (downstream water quality, viewscapes on nearyby houses) Natural animal & plant pest control & pollination Non- rival PURE PUBLIC GOODS Temperature maintenance via carbon storage Biodiversity Natural water storage

23 With Common Property & Public Goods Other Payment Mechanisms Besides Markets are Needed

24 Provision and payment mechanisms for ecosystem goods and services Sellers Individuals*Governments Buy ers Individ- uals* Markets for privately-held ecosystem goods (e.g., timber, gems, fee hunting) Private land trust conservation easements (e.g., Nature Conservancy) Private environmental quality incentive payments (e.g., Perrier- Vittel, Trout Unlimited) Consumption-based donations (e.g., green certification, wind power rate premium, organically-grown coffee) Cap and trade markets (e.g., wetland credits, SO 2 credits, carbon seq.) Public goods and services financed by taxes (e.g., national parks, national forests, national wildlife refuges, county or city open space, conservation easements) Fees to government agencies for access to ecosystem goods (e.g., timber harvesting, mineral extraction, grazing) Fees (taxes or charges) for license to discharge (e.g., pollution taxes) Govern -ments Incentives to private parties for provision of ecosystem services (e.g., CRP, Wetlands Reserve Program, Grassland Reserve Program) Federal grants for environmental protection (e.g., U.S. EPA water quality protection grants to local governments) * Firms and NGOs are categorized as individuals.

25 Ecosystem goods and services on public lands

26 Payment options on Public Lands: 1. Government Charges really need to reflect Fair Market Value as required by FLPMA 2. Charge for enhancements to existing ecosystem services (e.g., fuels reduction, watershed protection)

27 Questions?


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