Economic Valuation of Ecosystem

Services and
Biodiversity Conservation:
a multidisciplinary approach

Paulo A.L.D. Nunes

University Ca’ Foscari of Venice

Fondazione Eni Enrico Mattei
Euro Mediterranean Center for Climate Change
 Contents

 Background and motivation

 Economic thinking and environmental economics
 Economic valuation perspective

 Biodiversity as an environmental resource

 Economic reasons for economic valuation
 Integrating ecology and economics

2
 Contents

 Millennium Ecosystem Assessment

 Ecosystems services approach
 Biodiversity, ecosystems, ecosystems services and human
well-being are linked

 Reflection, and challenges

 A research agenda for valuing ecosystem services
 Tasks to mainstream economic valuation in everyday
decisions
 Economic valuation of ecosystems services as a means for
biodiversity conservation and poverty alleviation

3
 Just what is economic thinking?

 Economics is a social science, human behaviour is at

the core of the analysis, we focus on the study of
“choices”, individual choices.

 Choices are disclosed in the allocation of scarce

resources (not just traditional commodities) to meet
individual economic needs.

Economics is not simply about profits or money. It

applies anywhere constraints are faced, so that
choices must be made.
Economists study how incentives affect people’s
behavior.

4
 Environmental and natural resource economics

Environmental and natural resource economics is the

application of the principles of economics to the study
of how environmental and natural resources are
developed and managed.

 Environmental resources – resources provided by

nature that are indivisible and are affected by the
economic system (e.g. biodiversity).

 Natural resources – provided by nature that can be

divided into increasingly smaller units and serve as
inputs to the economic system over time
(e.g. forests, oil).

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6
 Definition of the total economic value of an
environmental resource

direct use recreation benefits

value e.g. sight-seeing, fishing, swimming
USE indirect ecosystem functional benefits
TOTAL VALUES use value e.g. watershed protection, timber production
ECONOMIC option safeguard of use benefits
VALUE value e.g. pharmaceuticals, future visits
bequest legacy benefits
NONUSE value e.g. habitat conservation for future generations
VALUES existence existence/intrinsic benefits
value e.g. knowledge of continued protection of
wildlife diversity

adapted from Pearce and Moran (1993)

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 Definition of the total economic value of an
environmental resource

direct use recreation benefits

value e.g. sight-seeing, fishing, swimming
USE indirect ecosystem functional benefits
TOTAL VALUES use value e.g. watershed protection, timber production
ECONOMIC option safeguard of use benefits
VALUE value e.g. pharmaceuticals, future visits
bequest legacy benefits
NONUSE value e.g. habitat conservation for future generations
VALUES existence existence/intrinsic benefits
value e.g. knowledge of continued protection of
wildlife diversity

adapted from Pearce and Moran (1993)

8
 Definition of the total economic value of an
environmental resource

direct use recreation benefits

value
The major contribution e.g. sight-seeing, fishing,
of environmental swimming
economists
USE
has been in indirect
the area ofecosystem functional
the valuation benefits
of environmental
TOTAL VALUES
goods use value i.e.e.g.
and services, watershedfor
methods protection,
measuring timber
theproduction
ECONOMIC demand curves
option safeguard
for goods of usethere
for which benefits
are no
VALUE value
markets (nonmarket e.g. pharmaceuticals, future visits
valuation)
bequest legacy benefits
NONUSE value e.g. habitat conservation for future generations
VALUES existence existence/intrinsic benefits
value e.g. knowledge of continued protection of
wildlife diversity

adapted from Pearce and Moran (1993)

9
1. Why perform economic valuation
2. Economic valuation perspective

10
 Why perform economic valuation

 Cost-benefit-analysis and environmental policy

making
 Excessive pollution
 Protection of the natural environment
 Legal claims and natural resource damage
assessment
 Exxon Valdez (CERCLA, NOAA)
 Environmental accounting (national and firm level)
 Satellite national accounting system
 Corporate social responsibility reports

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 Economic valuation perspective

Alternative perspectives on valuation

(1) Instrumental vs. intrinsic valuation.

(2) Monetary vs. physical indicators.
(3) Direct vs. indirect values.
 Value of levels vs. changes of levels.
 Holistic vs. reductionist approaches.
 Expert vs. general public assessments.

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 All in all…

It is clear that different valuation perspectives can be distinguished

based on the above considerations.
This means that different angles on the value, and valuation,
may in fact be based on different perspectives.

This does not mean that one is right and the other is wrong.

Evidently, it is crucial to know which perspective is being adopted.

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 Economic perspective

 Instrumental perspective

 Provides a monetary indicator

 Valuation is operationalized through explicit changes of

the environmental status, preferably marginal or small
(interpreted as alternative policy scenarios)

Not a value of an ecosystem!

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 Economic valuation perspective

Biology Economics Communities

• description of the • economic valuation • general international
system (e.g. indicators) • economic policy legal regime
• identification of threats theory implementation and
control at regional and
sectorial level

Scenarios Policy
formulation instruments

15
Economic valuation perspective

16
Economic Valuation

***

17
 Biodiversity as an environmental resource

Biodiversity requires our attention for two reasons.

First, it provides a wide range of direct and indirect benefits to
mankind, which occur on both local and global scales.

Second, many human activities contribute to unprecedented

rates of biodiversity loss, which threaten the stability and
continuity of ecosystems as well as their provision of goods and
services to mankind.

Consequently, in recent years much attention has been directed

towards the analysis and valuation of the loss of biodiversity.

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Biodiversity and Human Welfare

HUMAN
WELFARE

BIODIVERSITY
RESOURCES

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 Complexity of the resource

Levels of biodiversity
Types of diversity Physical expression

Gene Genes, nucleotides, chromosomes, individuals

Species Kingdom, phyla, families, genera, subspecies, species, populations

Ecosystem Bioregions, landscapes, habitats

Functional Keystone process species, ecosystem resilience, and ecological

services

Source: Turner et al. (1999).

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Classification of biodiversity economic values

Ecosystem

1 4

2
Biodiversity Species 6

5
3

Human welfare
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 Applicability
Biodiversity Economic value Biodiversity Degree of applicability of the
value category interpretation benefits economic valuation methods

2 => 5 Genetic and species Inputs to production CV: +

diversity processes (e.g. TC: -
pharmaceutical and HP: +
agriculture industries) AB: +
PF: +
Contracts: +
1 => 4 => 5 Natural areas and Provision of natural habitat CV: +
landscape diversity (e.g. protection of wilderness TC: +
areas and recreational HP: -
areas) AB: -
PF: +
Tourism revenues: +
1 => 6 Ecosystem functions and Ecological values CV: -
ecological services flows (e.g. flood control, nutrient TC: -
removal, toxic retention and HP: +
biodiversity maintenance) AB: +
PF: +
3 Nonuse of biodiversity Existence or moral value CV: +
(e.g. guarantee that a TC: -
particular species is kept HP: -
free from extinction) AB: -
PF: -
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 Review of valuation studies:

Life Biodiversity Value ranges Method(s)

diversity level value type selected
Unequivocal support for the belief that biodiversity has a
significant, positive
Genetic social value. From:
and Bioprospecting Market
species diversity $ 175,000 contracts
(2=>5) To:
$ 3.2 million
Lack of a uniform, clear perspective on biodiversity as a
distinct concept from biological resources.
Single species From: $5 Contingent
To: $126 valuation
Available results should be regarded as providing, at best,
lower bounds to the unknown value of biodiversity
Multiple From: $18 Contingent
changes. species To: valuation
$194

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 Millennium Ecosystem Assessment

 The Millennium Ecosystem Assessment (MA) was called for by

the United Nations Secretary-General Kofi Annan in 2000.
 Objective of the MA was to assess the consequences of
ecosystem change for human well-being.
 The MA has involved the work of more than 1,360 experts
worldwide.
 Their findings provide a state-of-the-art scientific appraisal of the
condition and trends in the world’s ecosystems and the services
they provide, as well as the scientific basis for action to conserve
and use them sustainably.

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Biodiversity matters and people matter!

25
Motivation: stylized fact one

26
Motivation: stylized fact two

27
28
MEA: conceptual framework

29
Source: MEA (2005), adapted.
 MEA: conceptual framework

Climate change

30
Source: MEA (2005), adapted.
 MEA: conceptual framework

Climate change

Forests systems
Coastal and marine systems

31
Source: MEA (2005), adapted.
 MEA: conceptual framework

Climate change

Forests systems
Coastal and marine systems

32
Source: MEA (2005), adapted.
33
 An illustration:

Marine
ecosystem goods
and services

Market priced Un-market priced

benefits benefits

Fisheries
Eco-tourism CO2 Recreation Nonuse values
products

Cultural Contingent valuation

Provisioning Market price Regulating Cost
services methods34
services analysis services Assessments
 Monetary valuation approaches

 Market price valuation mechanisms.

These include the value of contracts, as recently signed
by the pharmaceutical industry and governmental
agencies,
and
the value of the financial revenues related to the eco-
tourism activities focused on the visits to natural areas
with high outdoor recreational demand.

35
 Monetary valuation approaches

 Non-market valuation methods.

These refer to special tools used by the economist so as
to retrieve consumer’s preferences for biodiversity
benefits,
including
Contingent Valuation Methods (CVMs)

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 What are CVMs?

 Valuation technique widely applied by environmental

economists (Exxon case)
 Aims at tracing the latent demand curve for a non market
commodity
 The main tool is an on-purpose designed questionnaire
 It is a very flexible development

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 Potential of CVM Studies

 Interview based Technique

 Deeply rooted in social studies literature
 Gathers a great deal of information on attitudes and
preferences
 Capable of attaching “economic measures” to non use values
 Flexible to other uses, i.e. management options

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Biodiversity, ecosystems,
ecosystems services and
human well-being are
linked

Ecosystem services:
ecosystems provide vital
goods and services

39
Provision of ecosystem
services is not often
factored into important
decisions that affect
ecosystems.

Distortions in decision-
making damage the
provision of ecosystem
services making human
society and the
environment poorer

40
 Integrating ecology and economics:
a research agenda for valuing ecosystem services

Policy (1) Incentives

Decisions by firms
decisions and individuals

(3) Non-
anthropocentric (2) Actions
approaches

Other (5) Biophysical

(7) Economic tradeoffs Ecosystems
considerations
efficiency

(4) Ecological
production
functions
Benefits Ecosystem
and costs services
(6) Valuation 41

Source: S. Polasky, adapted

 Reflection and challenges:
tasks to mainstream economic valuation

1. Improve understanding of the likely consequences of human

actions on ecosystems
2. Improve understanding of the impacts of ecosystem change on
ecosystem services and biodiversity
3. Improve understanding of the value of these impacts on human
welfare
4. Tie understanding of impacts and values to incentives
 Everyday decisions of individuals, firms and communities
 Societal policy choices

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 Reflection and challenges:
tasks to mainstream economic valuation

1. Integration of distributional objectives in the objective function of

the policy maker (other considerations)
2. The role of the local communities in the management of the
resource
3. The role of the resource in terms of income generation

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 Work in progress: BioLAC

Position Methodological Empirical

paper paper application
papers

Turtles as ecosystem engineers in the LAC

Policy/management insights

44
 Contact:

pnunes@unive.it

Campo S. Maria Formosa

30122 Venezia - Italy

tel +39 | 041 | 27 11

400
fax +39 | 041 | 27 11
461
web http://www.feem.it
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 Motivation

Jul 16th 2009

From The Economist print edition 46