1. Shan Ma and Robert Griffin
Ecosystem Service Valuation:
Concepts, Methods and Applications
Shan Ma and Robert Griffin
Natural Capital Project
Stanford University

2. Outline What is ecosystem service valuation?
Why value ecosystem services?
How to value individual ecosystem services
Methods
Examples
How to apply ecosystem service valuation in benefit-cost analysis

3. Outline What is ecosystem service valuation?
Why value ecosystem services?
How to value individual ecosystem services
Methods
Examples
How to apply ecosystem service valuation in benefit-cost analysis

4. What is value / valuation?
The monetary worth of something
Relative worth, utility, or importance …
Valuation
The act or process of valuing
Judgment or appreciation of worth or character

5. (Millennium Ecosystem Assessment)
Ecosystem Services:
benefits people obtain from ecosystems
Provisioning Services
Food
Fresh water
Wood and fiber
Fuel …
Regulating Services
Climate regulation
Flood regulation
Disease regulation
Water regulation …
Cultural
Services
Aesthetic
Spiritual
Educational
Recreational …
Provisioning: products obtained from ecosystem
Regulating: benefit from regulating ecological process
Cultural service: non material benefit from ecosystem
Supporting service: foundation for all other ES
Supporting Services
Nutrient cycling Soil formation Primary production
Water cycling Provision of habitat - …
(Millennium Ecosystem Assessment)

6. Value of ecosystem services
Value of ecosystem services depends on
“human wellbeing” derived from nature
safety
material needs
health
spiritual satisfaction
social relations
Monetary unit is used as a common metric to compare aspects of wellbeing
Widely recognized, comparable to other services
Easily incorporated into decision-making
It’s not all about money, it’s human wellbeing!

7. Categories of ecosystem service value
Total Economic Value
Use value
Non-use value
Direct
use value
Indirect use value
Option value
Existence value
Example:
Timber
Recreation
Example:
Water purification
Carbon sequestration
Example:
Soil fertility
Biodiversity
Example:
Rare species
Pagiola et al, 2004

8. Ecosystem service valuation
Decisions
Actions & Scenarios
Incentives
Institutions
Ecosystems
Biophysical Models
Information
Value
Services
Economic & Cultural Models
Daily et al. 2009

9. Outline What is ecosystem service valuation?
Why value ecosystem services?
How to value individual ecosystem services
Methods
Examples
How to apply ecosystem service valuation in benefit-cost analysis

10. 1. Determine total flow of benefits from ecosystems
Left column: commonly measured economic value
Benefits from forest in Mediterranean Countries
Right column: non-market and other economic value
Mediterranean countries
Millennium Ecosystem Assessment
Pagiola, von Ritter & Bishop 2004

11. 2. Evaluate benefits and costs of ecosystem interventionsVS
Development Cost
Industrial & commercial benefit
Grazing
Development vs conservation
Timber and fuel wood
Pagiola, von Ritter & Bishop 2004

12. 2. Evaluate benefits and costs of Ecosystem interventionsVS
Industrial & commercial benefit
Carbon Sequestration
Development Cost
Watershed protection
Development vs conservation
Grazing
Non-timber forest product
Timber and fuel wood
Recreation
Pagiola, von Ritter & Bishop 2004

13. 3. Determine distribution of benefits
Upstream Watershed
Conservation
Soil erosion control
Climate regulation
Nutrient mitigation
Flood control
Sediment mitigation
Carbon sequestration
Endangered species
Pagiola, von Ritter & Bishop 2004

14. 4. Finance ecosystem conservation
Upstream Watershed
Conservation
Erosion control
Climate regulation
Farmers and Foresters
Water purification
Flood control
Sediment mitigation
Water utility
Hydropower industry
Beverage company
Municipalities
Pagiola, von Ritter & Bishop 2004

15. Outline What is ecosystem service valuation?
Why value ecosystem services?
How to value individual ecosystem services
Methods
Examples
How to apply ecosystem service valuation in benefit-cost analysis

16. Market-based valuation
Valuation Method
Total Economic Value
Use value
Non-use value
Direct
use value
Indirect use value
Option value
Existence value
Example:
Timber
Recreation
Example:
Water purification
Carbon sequestration
Example:
Soil fertility
Biodiversity
Example:
Rare species
Market-based valuation
and
Non-market valuation
Non-market valuation
Pagiola et al, 2004

17. Valuation methods in InVEST
Market-based valuation
Non-market valuation
Benefit
Transfer
Direct & indirect market
Surrogate market
Hypothetical market
Revealed Preference
Stated
Preference
Market
price
Production
function
Avoided
Damages/
Replacement
Cost
Hedonic
pricing
Travel cost
Contingent
Valuation
Choice
modeling
Current InVEST
Supplemental analysis with InVEST output

18. Market price method Actual prices of goods/services InVEST examples:
Timber, Fish, Non-timber forest products, Agricultural products
Hydropower, Wave energy, Wind energy
Carbon sequestration
(permit price)
Recreation (travel cost)
Credit: Oliver Dixon
*models in grey are under development
Credit: ZSM

19. Avoided damages/ Replacement cost
Costs incurred in the absence of the service, measuring prices of equivalent non-ecosystem services
InVEST examples:
Nutrient retention (water treatment)
Sediment retention (dredging)
Carbon sequestration (social cost)
Coastal vulnerability / protection
(property damages from erosion and flooding)
Storm peak mitigation (flooding damage)
Credit: Paul Glazzard

20. Production function
Values of ecosystem products or services that contribute to the production of commercially marketed goods.
InVEST examples:
Crop Pollination
(Index value of wild pollinator
sites derived from index value
of crops )
Credit: Flickr-Dluogs

21. Avoided damages/ replacement cost
Method
ES type
InVEST model
Market price
Provisioning Service
Fish Aquaculture
Managed Timber Production
Wave Energy
Hydropower Production
Wind energy
Agricultural Production
Non-timber Forest Product Production
Recreation (travel cost)
Regulating Service
Carbon Sequestration
Water for Irrigation
Avoided damages/ replacement cost
Nutrient Retention
Sediment Retention
Coastal Vulnerability / Protection
Storm Peak Mitigation
Production function
Pollination (index value)
Currently not valued
Cultural/Supporting /Regulating Services
Biodiversity/Habitat quality and rarity
Habitat risk assessment
Aesthetic view
*models in grey are under development

22. Valuation methods in InVEST
Market-based valuation
Non-market valuation
Benefit
Transfer
Direct & indirect market
Surrogate market
Hypothetical market
Revealed Preference
Stated
Preference
Market
price
Production
function
Avoided
Damages/
Replacement
Cost
Hedonic
pricing
Travel cost
Contingent
Valuation
Choice
modeling
Current InVEST
Supplemental analysis with InVEST output

23. Revealed preference methods
Use observed behavior to deduce ecosystem service value from a surrogate market
Hedonic pricing method (Land market)
Influence of environmental/ecosystem attributes on property value
Travel cost method (Tourism market)
Costs of recreational visits as proxy of economic use values associated with ecosystems or sites

24. Hedonic pricing
Land/property price= function (attribute1, attribute2,…)
Estimate marginal contribution of each attribute to property value
Aesthetic
View
Road
Water
quality
City
Recreation
lot
structure
zoning

25. Hedonic pricing
Land/property price= function (attribute1, attribute2,…)
Estimate marginal contribution of each attribute to property value
Aesthetic
View
Road
Water
quality
City
Recreation
Species habitat
Regulating services…
zoning

26. Potential valuation extension to InVEST
Linking Upstream Land Use to Near Lake Property Values in Michigan, US
Water quality
of inland lakes
Average home value
for Census Blocks
Average
Household income
Distance to roads
Number of bedrooms
Year built
Ownership

27. Potential valuation extension to InVEST
Linking Upstream Land Use to Near Lake Property Values in Michigan, US
Potential outputs:
Total or average property value in a site for current scenarios
Change of value in future scenarios

28. Travel cost
Costs of recreational visits as proxy of economic use values associated with ecosystems or sites
Visitation rate = …
Site
Features
Visitor
Features
Travel
Cost
InVEST Recreation Model
(% visitor- day) ?
InVEST
outputs:
Water quality Aesthetic view …
Visitors’ value of recreation site
(can be compared to conservation cost)

29. Stated-preference methods
Use reported choices to estimate value in a hypothetical market
Contingent valuation
Ask respondents to express their willingness to pay (WTP) or willingness to accept (WTA) compensation for changes in ecosystem services
Choice modeling
Ask respondents to rank/rate/choose alternative choice sets which have different combination of price attribute and ecosystem attributes

30. Stated-preference example
Survey on willingness to pay for ecosystem benefits from land conservation programs
Change in land cover and land use
Change in nutrient & sediment retention
KBS-LTER
InVEST models
Change in carbon sequestration
Change in habitat quality

31. Benefit Transfer
With resource or time constraints, analysis using local data may be impossible
Benefits transfer uses existing studies to estimate value elsewhere
Value transfer
Function transfer
Benefits transfer may not be accurate due to spatial variability
Biophysical attributes (climate, quality, size…)
Socio-economic attributes (management, disturbance…)

32. Pros and cons of economic valuation
Built on economic theory
Yields estimates in common (monetary) metric
Powerful method to communicate value
Cons
Some values are difficult to measure e.g. spiritual value
Valuation can be incomplete, biased and uncertain
InVEST provides rapid and conservative estimates
Best used to compare tradeoffs of alternative scenarios
Validated value estimates better for absolute magnitude

33. Outline What is ecosystem service valuation?
Why value ecosystem services?
How to value individual ecosystem services
Methods
Examples
How to apply ecosystem service valuation in benefit-cost analysis

34. Benefits>Cost, Benefits<Cost
Cost Benefit Analysis
CBA/BCA
Assess the merits of a policy or action
Scenario driven, need a baseline
Who is decision maker?
Standard approach
𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝑠 vs. 𝐶𝑜𝑠𝑡𝑠
Benefits>Cost, Benefits<Cost
Multiple scenarios
𝑁𝐵 2 > 𝑁𝐵 1 > 𝑁𝐵 4 > 𝑁𝐵 3
Applied setting  will want to assess effects of an action
Baseline is typically “no action”
Alternative to cba – MCA (multi criteria assessment) uses efficiency, equity, sustainability, etc. as decision points

35. Cost Benefit Analysis CBA/BCA General considerations Time horizon
Discount rate = time preference
Include direct and indirect benefits/costs
Same units
Relevant stakeholders
Risk and uncertainty
Iterative process/optimization
Scenario design for hypotheses

36. CBA Dow Example Dow Public Scenarios No restoration (status quo)
Net value of management options to Dow and Public
Sea level rise
Storms
Coastal
Development
Scenarios
No restoration (status quo)
No restoration, build levees
Restoration
Opportunistic
Targeted
Dow
Cost Benefit Analysis
Public
Value of avoided Dow damages
Value of avoided damages
Affected Parties
Valuation
Local Forcings
Actions
Action Costs to Dow
Value of co-benefits

37. Cost Benefit Analysis Pros Caution Yes/no answers on net policy effect
Quantitative comparisons
Caution
Full accounting?
Indirect effects
Monetizing biases to financial/easy-to-measure
Distributional effects
Are heterogeneous preferences included?
Winners compensate losers?

38. Thanks!
NatCap:
Steve Polasky
Emily McKenzie
Marc Conte
Erik Nelson

39. 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 service
is valued for.
Discount rate (0%~100%):
Weight of present benefits versus future benefits
Larger r more weight on present

40. Ecosystem Services and human well-being
Choices
Institutions
(Property Rights)
Institutions
(Gov’t, Organizations)
Ecosystems
Providers
(supply)
Beneficiaries
(demand)
Measures of benefits
Monetization
Other values
Resulting Benefits
Services
Nutrition
Crop yields
Water quantity
Shelter
Psychological
Spiritual
Distribution and Change of:
Welfare
Cultural importance
Poverty
Food security
Health/nutrition
Jobs/employment
Vulnerability metrics
InVEST

41. The Natural Capital Approach
Ecosystem structure
Ecological function
Supply
Potential available
Service
Delivered to people
Value
Economic & social impacts
Ecosystem Process
Ecosystem Service
Resulting Benefits
DECISIONS
Social preference
Location + activity of beneficiaries

42. Optimal provision of ES
Optimal provision is achieved by maximizing social welfare (net benefit = total benefit - total cost)
Total Benefit
Price ($/unit)
Maximized Social welfare
Total Cost Q*
Quantity

43. Optimal provision of ES
Marginal benefit= marginal cost
Supply = Demand
Supply
Maximized Social welfare
Price ($/unit)
Demand
Quantity

44. Benefit transfer Patch Size Habitat Type Management Habitat Quality
Supply of
Service 2
Supply of
Service 1
Demand
Service 1
Social
Context
Demand
Service 2
Ideally, there are several components of natural and social systems that should be included in the estimation of ecosystem service value. First, the type of habitat matters. Distinction among habitat types should be as fine as possible. For instance, “wetland” is too vague, since different types of wetlands provide different services. Then, patch size matters. We know that, for both biological and social reasons, one acre of wetland that is the only acre left has a very different value than one acre of the same wetland, of the same quality in the middle of 100,000 acres of wetland. Recent papers support a non-linear relationship between habitat size and ecosystem function as well. The management context is also critical to consider. This includes landscape context (management of parcels nearby) and management of the specific habitat type of interest (is the wetland protected, grazed, managed for flood control, etc?). These three factors (size, type, management) combine with natural habitat heterogeneity (highly invaded habitat, early successional habitat etc) to determine habitat quality. The level of ecosystem function, or service provision, is a function of habitat quality. Ideally, we want to know how much of each different service is provided, or supplied, by each habitat type at each place on the landscape. Then, value is a function of supply, demand and the ‘social landscape’- I may have this totally wrong!!!! I’m thinking of social context as who is there demanding the service and what their ability to pay, or demand the service is. Maybe this is all part of demand??
In the end, this approach would give you the value of each service, and you can add them up to get total service value if desired.
Value of
Service 1
Value of
Service 2
Total Service Value

45. Patch Size Habitat Type Management Habitat Quality Supply of Service 1
Demand
Service 1
Social
Context
Demand
Service 2
Because of the massive lack of studies estimating the provision and value of different services in habitats of different size and management, we are unable to use benefit transfer to make estimates of single service values that are appropriate. To use benefit transfer, we have to ignore the influence of habitat quality, demand and social context, and we cannot appropriately assess how values will change under future management change.
Value of
Service 1
Value of
Service 2
Total Service Value

46. BSR report