Ecosystem Valuation Social and Environmental Aspects Kathryn Benson CE 397 November 25, 2003

Definition  Value can be thought of a the monetary worth or relative worth, utility, or importance of something Beauty Beauty uniqueness uniqueness irreplacability irreplacability contribution to life support functions or commercial or recreational opportunities contribution to life support functions or commercial or recreational opportunities role in supporting wildlife role in supporting wildlife reducing environmental or human health risks reducing environmental or human health risks providing many other services that benefit humans. providing many other services that benefit humans.  Ecosystem values are measures of how important ecosystem services are to people – what they are worth.  Ecosystem values are measures of how important ecosystem services are to people – what they are worth.

Why are estimates of ecosystem value needed?  To justify and decide how to allocate public spending on conservation, preservation, or restoration initiatives.  To consider the public’s values, and encourage public participation and support for environmental initiatives.  To consider the public’s values, and encourage public participation and support for environmental initiatives.  To compare the benefits of different projects or programs.  To prioritize conservation or restoration projects.

 Economists classify ecosystem values into several types. The two main categories are use values and non- use, or “passive use” values.  Economists classify ecosystem values into several types. The two main categories are use values and non- use, or “passive use” values.  Use values are based on actual use of the environment Hunting, fishing, hiking, etc. Hunting, fishing, hiking, etc.  Non-use values are values that are not associated with actual use, or even an option to use, an ecosystem or its services. Value existence (River preservation) Value existence (River preservation)  Option value is the value that people place on having the option to enjoy in the future  Bequest value is the value that people place on knowing future generations will have the option to enjoy something

$$ Measures of Ecosystem Values  The maximum amount of one thing a person is willing to give up to get more of something else is considered a fair measure of the relative "value" of the two things to that person.  Ecosystem values requires estimating how much purchasing power (dollars) people would be willing to give up to get it (or would need to be paid to give it up), if they were forced to make a choice. This situation may never occur in the “real world”.

Basic Economics  Total Net Economic Benefit - This is the sum of consumer surplus plus producer surplus, less any costs associated with the policy or initiative.

Willingness-to-Pay  Value - what someone is willing to pay  Suppose farmer willing to pay: First unit: $38 First unit: $38 Second unit: $26 Second unit: $26 Third unit: $17 Third unit: $17  At p* = $10 Purchase 4 units for $40 Purchase 4 units for $40 But willing to pay $93 But willing to pay $93 Consumer surplus $53 Consumer surplus $53 WTP = Gross Benefit = 93 CS = Net Benefit = 53 Total cost = 40

Market Prices – Revealed WTP  The values of some ecosystem goods or services can be measured using market prices.  The values of some ecosystem goods or services can be measured using market prices. Products (fish or wood) traded in markets. Products (fish or wood) traded in markets. Values can be estimated by estimating consumer and producer surplus, as with any other market good.Values can be estimated by estimating consumer and producer surplus, as with any other market good. Ecosystem services (clean water) are used as inputs in production. Ecosystem services (clean water) are used as inputs in production. Value may be measured by their contribution to the profits made from the final good.Value may be measured by their contribution to the profits made from the final good.

Market Prices – Revealed WTP  Some ecosystem or environmental services may not be directly bought and sold in markets. However, the prices people are willing to pay in markets for related goods can be used to estimate their values.  Some ecosystem or environmental services may not be directly bought and sold in markets. However, the prices people are willing to pay in markets for related goods can be used to estimate their values. People often pay a higher price for a home with an oceanview, or will take the time to travel to recreational places. People often pay a higher price for a home with an oceanview, or will take the time to travel to recreational places. These kinds of expenditures can be used to place a lower bound on the value of the view or the recreational experience.These kinds of expenditures can be used to place a lower bound on the value of the view or the recreational experience.

Methods using Market Prices Assumes that the value of a site is reflected in how much people are willing to pay to travel to visit the site. Assumes that the value of a site is reflected in how much people are willing to pay to travel to visit the site. Estimates economic values for ecosystem products or services or sites …  Market Price Method – that are bought and sold in commercial markets. Commercial fishery & water pollution Commercial fishery & water pollution  Producticity Method - that contribute to the production of commercially marketed goods. Reservoir holding Drinking water polluted by agricultural runoff Reservoir holding Drinking water polluted by agricultural runoff  Hedonic Pricing Method – that directly affect market prices of some other good. variations in housing prices that reflect the value of local environmental attributes. variations in housing prices that reflect the value of local environmental attributes.  Travel Cost Method - that are used for recreation.

Circumstantial Evidence – Imputed WTP  The value of some ecosystem services can be measured by estimating what people are willing to pay, or the cost of actions they are willing to take, to avoid the adverse effects that would occur if these services were lost, or to replace the lost services.  The value of some ecosystem services can be measured by estimating what people are willing to pay, or the cost of actions they are willing to take, to avoid the adverse effects that would occur if these services were lost, or to replace the lost services. Wetlands often provide protection from floodwaters. Wetlands often provide protection from floodwaters. $$ that people pay to avoid flood damage in areas similar to those protected by the wetlands $$ that people pay to avoid flood damage in areas similar to those protected by the wetlands This can be used to estimate WTP for the flood protection services of the wetland. This can be used to estimate WTP for the flood protection services of the wetland.

Methods using Circumstantial Evidence  Damage Cost avoided, Replacement Cost, and Substitute Cost Methods - Estimate economic values based on costs of avoided damages resulting from lost ecosystem services, costs of replacing ecosystem services, or costs of providing substitute services.  Damage Cost avoided, Replacement Cost, and Substitute Cost Methods - Estimate economic values based on costs of avoided damages resulting from lost ecosystem services, costs of replacing ecosystem services, or costs of providing substitute services. Valuing improved water quality by measuring the cost of controlling effluent emissions Valuing improved water quality by measuring the cost of controlling effluent emissions Valuing erosion protection services of a forest or wetland by measuring the cost of removing eroded sediment Valuing erosion protection services of a forest or wetland by measuring the cost of removing eroded sediment Valuing fish habitats by measuring cost of fish breeding and stocking programs Valuing fish habitats by measuring cost of fish breeding and stocking programs

Surveys – Expressed WTP  Many ecosystem services are not traded in markets, and are not closely related to any marketed goods. Thus, people cannot “reveal” what they are willing to pay for them through their market purchases or actions.  Many ecosystem services are not traded in markets, and are not closely related to any marketed goods. Thus, people cannot “reveal” what they are willing to pay for them through their market purchases or actions. Surveys can be used to ask people directly what they are willing to pay, based on a hypothetical scenario. Surveys can be used to ask people directly what they are willing to pay, based on a hypothetical scenario. Alternatively, people can be asked to make tradeoffs among different alternatives, from which their WTP can be estimated. Alternatively, people can be asked to make tradeoffs among different alternatives, from which their WTP can be estimated.

Methods using Surveys  Both methods estimate economic values for virtually any ecosystem or environmental service.  Contingent Valuation Method - Asks people to directly state their WTP for specific environmental services, based on a hypothetical scenario.  Contingent Choice Method - Based on asking people to make tradeoffs among sets of ecosystem or environmental services or characteristics. Does not directly ask for WTP — this is inferred from tradeoffs that include cost as an attribute. Does not directly ask for WTP — this is inferred from tradeoffs that include cost as an attribute.

Non-dollar Measures of Ecosystem Values  Sometimes it is more useful or practical to make decisions based on ranking or prioritizing the expected benefits of environmental investments.  Sometimes it is more useful or practical to make decisions based on ranking or prioritizing the expected benefits of environmental investments.  Showing that the environmental benefits from spending on one project are greater than the benefits of spending on another project is much easier than estimating the dollar benefits of either project.  Showing that the environmental benefits from spending on one project are greater than the benefits of spending on another project is much easier than estimating the dollar benefits of either project.  It is easier to justify that spending is being managed to “maximize environmental benefits” per dollar spent than to justify any particular level of dollar spending.

Non-Market Goods Most environmental goods, such as clean air and water, and healthy fish and wildlife populations, are not traded in markets. Their economic value - how much people would be willing to pay for them in dollars is not revealed in market prices. The only option for assigning dollar values to them is to rely on non-market valuation methods. Non-Rival Goods One person's consumption of most goods (apples or housing) reduces the amount available for everyone else. Environmental goods are different. Clean water and air, beautiful views, and to some extent outdoor recreation, can be enjoyed by everyone in the same way as radio and television. The economic value of non-rival or public goods is the sum of all people's willingness to pay. Non-exclusive Goods People cannot be excluded from enjoying most environmental goods and the cost of trying to exclude them is prohibitive. Other than increases in onsite hunting and fishing opportunities, which may be a source of economic benefit to farmers, the environmental benefits of most conservation practices are non-exclusive. The free rider problem makes it impractical for farmers to recoup the cost of on-farm conservation investments from those who benefit from off-farm environmental improvements. Inseparable Goods Conservation practices at a given site contribute in many roundabout ways to environmental goods and result in environmental and economic benefits that accrue over great distances in time and space. It may be impossible to separate the economic benefits that result from one conservation practice undertaken at one site from another undertaken at another site. Worse, it may be impossible to separate the aggregate benefits of those practices from those of other environmental investments. Challenges for Ecosystem Valuation

15 Essential Questions  Functions  1. What environmental functions does this site have the capacity to provide?  1. What environmental functions does this site have the capacity to provide?  2. Does the site's landscape context allow it to provide these functions? If so, are there factors that will cause it to function below capacity?  2. Does the site's landscape context allow it to provide these functions? If so, are there factors that will cause it to function below capacity?  3. Are there factors that may cause it to function beyond its sustainable capacity?  3. Are there factors that may cause it to function beyond its sustainable capacity?  Services  4. What services, products, and amenities will these ecosystem functions generate?  4. What services, products, and amenities will these ecosystem functions generate?  5. Over what geographic area will people benefit from these services and products?  Values  6. How scarce are these services, products, and amenities in the region?  6. How scarce are these services, products, and amenities in the region?  7. How many people benefit from them; what is their income, ethnicity, etc.?  7. How many people benefit from them; what is their income, ethnicity, etc.?  8. How much does it cost in money or time for people to enjoy these services?  8. How much does it cost in money or time for people to enjoy these services?

 Values Continued  9. Are there near-perfect natural and man-made substitutes that exist or could be developed?  9. Are there near-perfect natural and man-made substitutes that exist or could be developed?  10. How could the affected population adapt to having fewer of these services?  10. How could the affected population adapt to having fewer of these services?  11. How much would the affected population benefit from having more of these services?  12. Will demographic/land use change increase/decrease preferences or availability for these services?  12. Will demographic/land use change increase/decrease preferences or availability for these services?  Risk  13. How might future development make the services provided here more/less important? More or less vulnerable?  14. How vulnerable are services generated by this site to temporary/permanent disruptions?  14. How vulnerable are services generated by this site to temporary/permanent disruptions?  15. How restorable are these services in this region compared to other regions?  15. How restorable are these services in this region compared to other regions?