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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
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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
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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.
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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
TOTAL
ECONOMIC
VALUE
USE
VALUES
NONUSE
VALUES
direct use
value
indirect
use value
option
value
bequest
value
existence
value
recreation benefits
e.g. sight-seeing, fishing, swimming
ecosystem functional benefits
e.g. watershed protection, timber production
safeguard of use benefits
e.g. pharmaceuticals, future visits
legacy benefits
e.g. habitat conservation for future generations
existence/intrinsic benefits
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
TOTAL
ECONOMIC
VALUE
USE
VALUES
NONUSE
VALUES
direct use
value
indirect
use value
option
value
bequest
value
existence
value
recreation benefits
e.g. sight-seeing, fishing, swimming
ecosystem functional benefits
e.g. watershed protection, timber production
safeguard of use benefits
e.g. pharmaceuticals, future visits
legacy benefits
e.g. habitat conservation for future generations
existence/intrinsic benefits
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,economists
swimming
The major contribution
of environmental
USE
functional
benefits
has
been in indirect
the area ofecosystem
the valuation
of environmental
TOTAL
VALUES
use value i.e.e.g.
watershedfor
protection,
timber
production
goods
and services,
methods
measuring
the
ECONOMIC demand curves
option
safeguard
of usethere
benefits
for goods
for which
are no
VALUE
value
e.g. pharmaceuticals, future visits
markets (nonmarket
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)
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1. Why perform economic valuation
2. Economic valuation perspective
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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.
(4) Value of levels vs. changes of levels.
(5) Holistic vs. reductionist approaches.
(6) 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
system (e.g. indicators)  economic policy
 identification of threats theory
Scenarios
formulation
 general international
legal regime
implementation and
control at regional and
sectorial level
Policy
instruments
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Economic valuation perspective
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Economic Valuation
***
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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
Biodiversity
4
2
Species
3
6
5
Human welfare
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Applicability
Biodiversity
value category
2 => 5
1 => 4 => 5
1 => 6
3
Economic value
interpretation
Genetic and species
diversity
Natural areas and
landscape diversity
Ecosystem functions and
ecological services flows
Nonuse of biodiversity
Biodiversity
benefits
Inputs to production
processes (e.g.
pharmaceutical and
agriculture industries)
Provision of natural habitat
(e.g. protection of wilderness
areas and recreational
areas)
Ecological values
(e.g. flood control, nutrient
removal, toxic retention and
biodiversity maintenance)
Existence or moral value
(e.g. guarantee that a
particular species is kept
free from extinction)
Degree of applicability of the
economic valuation methods
CV: +
TC: HP: +
AB: +
PF: +
Contracts: +
CV: +
TC: +
HP: AB: PF: +
Tourism revenues: +
CV: TC: HP: +
AB: +
PF: +
CV: +
TC: HP: AB: PF: -
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Review of valuation studies:
Life
diversity level
Biodiversity
value type
Value ranges
Method(s)
selected
Unequivocal support for the belief that biodiversity has a
significant,
positive
social value. From:
Genetic
and Bioprospecting
Market
species diversity
(2=>5)
$ 175,000
To:
$ 3.2 million
contracts
From: $5
To: $126
Contingent
valuation
Lack of a uniform, clear perspective on biodiversity as a
distinct concept from biological resources.
Single species
Available results should be regarded as providing, at best,
lower bounds to the unknown value of biodiversity
Multiple
From: $18
Contingent
changes.
species
To: $194
valuation
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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!
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Motivation: stylized fact one
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Motivation: stylized fact two
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MEA: conceptual framework
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Source: MEA (2005), adapted.
MEA: conceptual framework
Climate change
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Source: MEA (2005), adapted.
MEA: conceptual framework
Climate change
Forests systems
Coastal and marine systems
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Source: MEA (2005), adapted.
MEA: conceptual framework
Climate change
Forests systems
Coastal and marine systems
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Source: MEA (2005), adapted.
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An illustration:
Marine
ecosystem goods
and services
Market priced
benefits
Fisheries
products
Provisioning
services
Un-market priced
benefits
Eco-tourism
Market price
analysis
CO2
Regulating
services
Cost
Assessments
Recreation
Cultural
services
Nonuse values
Contingent valuation
methods34
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 ecotourism activities focused on the visits to natural areas
with high outdoor recreational demand.
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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 decisionmaking 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
decisions
(1) Incentives
Decisions by firms
and individuals
(3) Nonanthropocentric
approaches
Other
considerations
(7) Economic
efficiency
(5) Biophysical
tradeoffs
(2) Actions
Ecosystems
(4) Ecological
production
functions
Benefits
and costs
(6) Valuation
Ecosystem
services
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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
5. Integration of distributional objectives in the objective function of
the policy maker (other considerations)
6. The role of the local communities in the management of the
resource
7. The role of the resource in terms of income generation
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Work in progress: BioLAC
Position
Methodological
paper
paper
Empirical
application
papers
Turtles as ecosystem engineers in the LAC
Policy/management insights
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Contact:
[email protected]
Campo S. Maria Formosa
30122 Venezia - Italy
tel
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fax +39 | 041 | 27 11 461
web http://www.feem.it
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Motivation
Jul 16th 2009
From The Economist print edition
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