Economic approaches to incorporating biodiversity & ecosystem services values: Monetary assessments

1Webinar series. Module 4. 7th June 2013
NBSAP Capacity building Seminars
Webinar # 2: Economic approaches to incorporating values
Module #3
Monetary assessments
Leonardo Mazza
Environmental Economics Programme, IEEP
Patrick ten Brink
Senior Fellow and Head of Brussels Office, IEEP
7 June 2013

Webinar series. Module 3. 7th June 2013
I. Why monetary valuation of BD & ESS
II. Economic approaches to demonstrate the values:
A. Direct valuation methods
B. Revealed preference methods
C. Contingent valuation method
D. Choice modelling method
E. Deliberative monetary valuation
F. Benefits/Value transfer
III. Choosing the approach
IV. Commitments relating to valuation in NBSAPs
V. Summary and conclusions
Presentation’s structure
2

 In some cases, physical data on the state, functions and services from nature
is enough to demonstrate the values of biodiversity & ecosystems
 Where community or citizen preferences are clear & heard, this can also be
sufficient to safeguard or invest in biodiversity
 Approaches have proved insufficient to halt biodiversity loss.
 In practice:
• Policy-makers have attributed a too low or no value to ecosystems/nature
• badly informed decisions about whether to conserve or convert
ecosystems
• loss of biodiversity, ecosystems & their services; unacceptable trade-offs
• significant human, social and economic losses
To get a full picture decision-making needs to be based on a wider picture based
on a mix of qualitative, quantitative and monetary approaches and information.
I. Why demonstrate the values of nature in monetary
terms?
3

 Exploring the economic value of ecosystem services is just an additional way
of assessing the role and importance of nature.
 Monetary analysis: translating qualitative (non numerical data) & quantitative
data (numerical data) into monetary units; to help to inform decision making
as part of a wider evidence base.
 Some dimensions of the anthropocentric/ economic rationale for nature
conservation are best expressed in monetary terms
Demonstrations of the values of ecosystems in decision-making:
• Critical for attracting policy interest/attention
• To demonstrate the need for action
• To promote political and public support for action
• To clarify policy response, e.g. policy instrument choice & design
terms?
4

 Monetary estimates have proved to be an important additional evidence
base in particular for:
• policy development (e.g. cost-benefit analysis of different policy
options) and implementation,
• design and use of policy instruments (e.g. spatial planning and zoning
choices also involving establishment of protected areas; payments for
ecosystem services schemes),
• land use conversion decisions (e.g. permitting decision and associated
consultation process),
• informed investment choices (e.g. for restoration, sustainable
management, and new investment for ecosystem based solutions).
terms?
5

II. Economic approaches to demonstrate the
values – monetary valuation
6

II. Overview of the main monetary valuation
approaches & methods
7
Revealed preferenceapproaches Stated preferenceapproaches
Direct methods  Direct market valuation
 Restoration/replacementcosts
 Avoided costs, production
function based
 Contingent valuation
Indirect methods  Protection expenditure and
preventative behaviour
 Travel costs
 Hedonic pricing
 Choice modelling / experiment
methods
 contingent classification,
comparisons in pairs
 Economic values for ecosystem services may be estimated:
• directly for the site and issues in question, or may
• use values already developed in other studies of a similar ecosystem & context in which a
valuation has been done. Method known as ‘benefits transfer/value transfer method’.
Approaches & methods
involve:
 the use of available
market prices to
observe/calculate
values,
 the careful use of
methods to reveal
values,
 methods which
require values to be
stated by those
benefitting
=> Each category has its weaknesses & strengths.

observed values in actual markets
 Assessment of data from existing markets (i.e. prices, costs,
and quantities) = actual preferences and incurred costs by
individuals
Two most common techniques:
a) market price based: price of goods
b) cost-based: estimation of the costs incurred if an ecosystem
service would have to be recreated by artificial means (regulating
services: e.g. for water purification or water retention)
II.A. Direct valuation methods
8

 A variety of market valuation approaches (market
prices, replacement costs, avoided damages) were
used to value a range of direct and indirect values
from the That Luang Marsh (outskirts of the City of
Vientiane in Lao).
 Ecosystem services (including rice cultivation, capture
fisheries, flood protection or wastewater purification)
provided by the march estimated at around under
$US 5 million annually.
 Important evidence as drainage plans were being
drawn up; renewed interest in sustainable
management of wetlands after study - to achieve
a balance between flood protection and delivery
of the services from the marsh.
II.A. Example of uses of the direct valuation method
9
Source: Gerrard (2004); TEEBcase by P. Gerrad (2010)

 Applicable primarily to the goods with already established
markets => Useful to estimate many use-values
 Most often used approaches to obtain the value of
provisioning services, as they are often sold in markets (e.g.
agricultural products)
 HOWEVER, if market is distorted prices not a reliable estimate
& may need to be adjusted (where possible)
 Little help for estimating indirect use values (e.g. climate
regulation) and any non-use values (e.g. cultural services)
II.A. Applicability of direct valuation methods
10

II.B. Revealed preference methods
11
 revealed values in actual markets
 Directly observing individual’s choices in existing markets related to
ecosystem services being valued.
 Economic agents‘reveal’ their preferences through their choices
Techniques:
a) Travel cost Method (TC): Looking at people’s travelling expenses
for going to a site/ecosystem (i.e. direct costs + opportunity costs); for
recreation value, tourism value, value of water
b) Hedonic Pricing (HP) approach: Environmental characteristics
(property features) are reflected in property prices; i.e. positive increase
in prices for being near attractive nature

 Combination of travel cost & contingent
valuation methods used to estimate value of
the Hanauma Bay Nature Preserve (Hawaii).
Travel cost method considered three types of expenditures (1)
actual costs of transportation; (2) costs related to the travel
time; & (3) the local expenditures.
 Valuation study was an important input for the
subsequent setting of reef damage penalties,
as it served as a measure to determine the
possible loss from degradation.
 Meta-analysis of hedonic pricing studies from
the US estimated that an increase in the
probability of flood risk of 0.01 in a year is
associated to a difference in transaction price
of an otherwise similar house of –0.6%.
II.B. Example of uses of the revealed preference method
12
Source: TEEBcase by P. v. Beukering and H. Cesar (2010)

 Used for recreational services, but also can work for some
regulating services (e.g. flood protection)
 Requires rather complex statistical analyses (i.e. data + resources)
 High data demand, and reliance on assumptions on the relationship
of the ESs and the surrogate market
 Again, the market imperfections might distort the value
estimations
II.B. Applicability of the revealed preference method
13

Stated preference approaches; hypothetical
market creation:
 Simulation of market demand for a
ecosystem good/service: surveys on
estimating monetary values associated with
hypothetical changes in ecosystem service
provision
 Way of getting people to be explicit
about their willingness to pay (e.g. for cleaner
water, species protection) (or willingness to accept
compensation (e.g. for the reduction or loss of ESS)
II.C. The contingent valuation method
14

 Yellowstone national park (US): CVM of park visitors
to assess wolf direct use (wildlife viewing) & existence
values; wolf reintroduced as valuation revealed
increased visitor expenditure would by far outweigh
losses in hunter benefits (reduced hunter expenditure
due to additional livestock losses)
 US government agencies can sue for damage to
environmental resources. Estimating damages
relying on CVM allows to also recover non-use and
existence values. Contingent valuation surveys used
for the assessment of the damages from the Exxon
Valdez oil spill
II.C. Example of uses of the contingent valuation method
15
 technique widely used by US government departments when performing
CBA of projects impacting on the environment

Also called ‘discrete choice experiments’ - this is still stated preference approach
relying on a hypothetical market creation
 Alternative to more familiar valuation techniques
 People choose from a ‘menu of options’ with differing levels of ecosystem
services and differing costs
 Respondents indicate their order of preference & values are inferred from
trade-offs people make
 Today increasingly relies on computer-administered/
web-based surveys
Applicability: This method seems to be ideally suited to inform
the choice & design of multidimensional policies
II.D. The choice modelling method
16

 Uses formal methods of deliberation to express values
for environmental change in monetary terms
 Principle:
• Individuals are provided with detailed info about
the issues, discuss & deliberate
• They learn about the issue + are encouraged to
understand issue beyond their personal welfare
 Deliberative approaches can:
• stimulate citizen involvement
• increase information on ecosystem services
• Process itself results in greater
legitimacy/ownership
II.E. Deliberative monetary valuation methods
17

 Obtaining consistent & precise ecosystem valuation can be
expensive and time consuming
 the‘value/benefits transfer’ method: approach that
minimises the cost and time of valuing of environmental
costs and benefits
 values of one site are ‘transferred’ to another; e.g.
estimating economic values in the study location (e.g. a
site in the Netherlands) by using values already developed
in other studies (e.g. from a site in the UK).
II.F. Benefits/Value transfer method
18

• Benefit transfer needs to take due account of
site/country/habitat differences and make appropriate
adjustments, where possible (e.g. to take account of differences
in income per capita)
• When differences between the study site & the literature site
are too great value/benefits transfer is not robust/applicable
• values used for a benefit transfer may change over time (e.g.
carbon prices)
• The broader the base of studies from which values can be
taken, the more likely it will be a robust technique
II. F. Drawbacks of using the benefits transfer method
19

 Approach monetary assessments with a sense of proportionality:
 Rapid assessment upfront to identify real needs, i.e. right focus and level of
detail/ precision/ robustness required
 A rapid assessment framework should pursue three objectives:
1) obtain a general view of the full range of services provided by a
site/ecosystem
2) give guidance on how to interpret first-stage results & communicate them
3) help identify which ecosystem services could be selected for further in-
depth analysis and most appropriate the methods in light of constraints
 In a nutshell, which approach to choose will depend on:
• the scale/ significance of the decision
• the type(s) of benefit(s) being measured
• the time & resources available (some approaches particularly time & resource
intensive) + Available skills
20

 Ultimately, what matters is that the approach chosen is fit for purpose:
• Policy Making, e.g. impact assessment of different policy options –
approximate estimates of value of ESS sometimes enough – e.g. if clear
that benefits are much larger than costs (or vice versa) => robust order of
magnitude can suffice
• Instrument Design – eg PES, REDD+, ETS – greater precision needed to
get the design right (e.g. what level of payments, defining additionality & conditionality)
• In compliance checking – as precise an answer as possible is needed as
verifiability crucial to functioning (e.g. performance under PES/REDD)
• In project and permit assessment – as precise an answer as possible is
needed
21

IV. Valuation in revised NBSAPs: France
22
 France’s National Strategy for
Biodiversity 2011-2020:
• recognises that links between
biodiversity loss & poverty,
degradation of health & well-being
have been demonstrated
• Highlights benefits from
biodiversity;
• Points to the increasing costs
resulting from the degradation of
the biosphere
• concludes that promoting
biodiversity should not be seen as
an additional cost but an investment
 Strategic goal A: “show that
biodiversity provides essential services
linking it to health, food, employment,
the economy, quality of life, leisure,
sports and cultural activities”so “each
one (…) is aware of his/her
dependence on the services provided
by biodiversity & this awareness
informs their decisions and
behaviour”
 Relevant targets (a selection):
• include biodiversity in economic
decision-making;
• turn biodiversity into a driver for
development;
• develop & organise mainstreaming
of biodiversity concerns in all
education and training courses

IV. Valuation in revised NBSAPs: Switzerland
23
2012 Biodiversity Strategy:
 A section dedicated to the importance
of biodiversity to society
 direct use values as well as options,
heritage & existence values mentioned
 “economic values” of BD outlined:
highlights different ecosystem
services; links the provision of these
services to biodiversity;
 most important services delivered by
certain types of ecosystems
highlighted
 The links between the economy (value
creation) and biodiversity are also
made explicit in a section dedicated to
actions for biodiversity taken to date
in specific sectors.
Relevant targets and commitments
Strategic objective: by 2020, the
services provided by ecosystems are
identified and quantified in order for
them to be “integrated in the
measurement of well-being as indicators
that complement GDP as well as the
impact assessment or regulations”.
As regards actions the Strategy points
to a catalogue of 23 ecosystem services
that are particularly useful to the Swiss
population that has already been
prepared.
Action Plan to determine specific
measures still under development

 Demonstrating values of ecosystems in economic terms => increased
awareness & improved evidence for better informed decisions
 Which approach/technique is best will depend on the ecosystem services
being valued and the wider context
 Proportionality of approach used & fitness for purpose considerations
important
 Valuation best applied for assessing the consequences of changes resulting
from alternative management options;
 Where no method for monetization exists, important to nevertheless
identify all significant changes in ESS
 Learning by doing/ from others - key for realising road map and reaching
objectives/create solid foundation for improved policy
V. Summary & conclusions
24

=> The TEEB initiative’s website has
become a key resource on the Economics of
ecosystems and biodiversity. Provides
information on the main TEEB Study
reports, published since 2010
=> The CBD Technical Series no. 28 focuses
on the issue of economic Valuation and
explores the tools and methodologies
=> Social and Economic Benefits of
Protected Areas: an Assessment Guide:
aims to do so by synthesising wide-ranging
global evidence on benefits provided by PAs
and providing concrete, step-wise and
practice-oriented guidance on how to
identify asses and communicate the various
benefits
V. Further reading
25

www.ieep.eu
@IEEP_eu
IEEP is an independent not for profit institute dedicated to advancing
an environmentally sustainable Europe through policy analysis,
development and dissemination.
Contacts: Leonardo Mazza: lmazza@ieep.eu
Patrick ten Brink: ptenbrink@ieep.eu
Thank you for your attention!

Economic approaches to incorporating biodiversity & ecosystem services values: Monetary assessments

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