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Joint Nature Conservation Committee 6. Values and externalities External and non-market effects Externalities – an impact (positive or negative) on anyone not party to a given economic transaction Non-market impacts fall outside market systems. Hence no market price is available 2 Terminology and jargon Fish factory Fish 3 Waste Various dimensions of economic value • Total and Marginal Economic Value • Financial and economic value • Producer and consumer surplus • Use and non-use value • Direct and indirect values • Market and non-market value • Costs and benefits 4 Total versus marginal values • Total Values – Demonstrating value of biodiversity – Revising national income accounts • Marginal Values – Influencing policies and projects – Assessing biodiversity impacts of non-biodiversity investments – Determining liability for biodiversity loss – Setting charges, taxes and fines – Setting priorities for conservation within limited budget 5 Marginal approach often better for influencing policy MPA implementation Benefits of management Net benefits from coastal ecosystem Benefits with MPA Benefits without MPA Cost of MPA Costs of management Time Total Economic Value (TEV) Total Economic Value Use values Direct use Example: -Timber -Tourism -Drinking water Indirect use Example: -Coastal protection -Water purification -Carbon sequestering Non-use values Option value Example: - Genetic materials - Biodiversity - Clean soils Bequest value Existence value Example: - Avoided damage from climate change Example: - Rare species - Indigenous rights Warning for using TEV: • Different management regimes result in different flows of benefits. • If ecosystem are not sustainably managed, future benefits decline. • At large scales, observed prices unlikely to be applicable. 7 • Rare to lose all ecosystem services. Use Value • Direct Use Value: Value from direct human use of natural resources. – Extractive Use Value e.g. timber, fisheries – Non-Extractive Use Value e.g. recreation, tourism, education • Indirect Use Value: Ecological functions that indirectly provide support and protection. – e.g. erosion and flood protection, water purification, carbon sequestration 8 Non-Use Value • Value based on intangible human benefits. – Existence Value: Value from simply knowing that nature exists e.g. charismatic species – Option Value: Value from retaining options that may arise in the future e.g. medical discoveries – Bequest Value: Value from conserving nature for future generations 9 Producer and consumer surplus (1) 2.0 is my ‘benefit’ (consumer surplus) 2.5 is his ‘profit’ (producer surplus) 5.0 willingness to pay 3.0 price 0.5 cost Economic value is: 2.0 + 2.5 = 4.5 10 Producer and consumer surplus (2) $ demand supply CS P* PS Q* 11 quantity Financial and economic value Not directly observable 2.0 is my ‘benefit’ (consumer surplus) 2.5 is his ‘profit’ (producer surplus) 5.0 willingness to pay 3.0 price 0.5 cost Economic value = 4.5 Financial value = 3.0 12 Directly observable Example 1: TEV of world’s ecosystem services • US$33 trillion (US$16-54 trillion a year) • Hugely controversial – Variation in values across different sites – Estimates of average value based on marginal changes – Exceeds total global economic income – Not policy focused Costanza et al. Nature. (1997) 13 Example 1: TEV of world’s ecosystem services (2) Grasslands $ 232/ha/yr Open ocean $ 252/ha/yr Coral reefs $ 675/ha/yr Tropical forests $ 2,007/ha/yr Lakes/rivers $ 8,498/ha/yr Wetlands $ 14,785/ha/yr 14 Example 2: Conservation or Conversion? • TEV of managing ecosystems sustainably often higher than TEV of converted ecosystems. • Benefit-cost ratio of global programme for conservation = 100:1 • Habitat loss costs US$250 billion per year Balmford et al. Science. (2002) 15 Example 2: Conservation or Conversion? (2) 16 Example 3: Economic value of Coral Reefs in Guam Coastal protection 7% Amenity 8% Biodiversity 2% Fishery 3% Recreation 7% Tourism 73% Annual values of coral reefs in Guam amount to US$127 million, equivalent to 7% of GDP. Example 3: Economic value of Coral Reefs in Guam (2) Spatial Distribution of Economic Values economic value Fish Threats map Tourism Protect Amenity Biodiv. overlay Priority intervention areas Assignment • Identify the main economic values of your project. • In doing so, do consider using the following categorisations: – – – – – – 19 Costs & benefits Use & non-use values Direct & indirect values Local & global values Market & non-market values Internal & external effects