The role of valuation of ecosystem services for decision making & Methods of Economic Valuation

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The role of valuation of ecosystem services for decision making & Methods of Economic Valuation

  1. 1. The role of valuation of ecosystem services for decision making & Methods of Economic Valuation Eduard Interwies IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 1
  2. 2. Outline Decision making and ecosystem services valuation – general considerations Valuation of Ecosystem Services - Ecosystem Services – concept & classification. - Different methodologies for ES evaluation. Decision making and ES valuation – specific thoughts IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 2
  3. 3. Background Paradigm shift from sectoral to ecosystem-oriented management approaches: Economic perspective: treat, count & invest in water/marine/coastal ecosystems (ES) as elements of development infrastructure - as a stock of facilities, services & equipment needed for economic growth & for society to develop & function So: maintain & improve ES to meet both today’s needs & those of intensifying demands & pressures in the future — just like any other component of infrastructure. IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 3
  4. 4. Background If one does not value ecosystems when taking decisions on allocating land, water & marine resources and investment funds: far-reaching economic costs possible… In the past, ecosystem values – or the benefits of Ecosystem Services (ES) - have been almost ignored in decision-making. Reason: failure of markets that often do not to assign an economic value to the public benefits of ES, but attribute value to the private goods and services, which production may lead to ecosystem damage.  Let s get a better picture of ES values & move towards better decision-making! IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 4
  5. 5. ES & Decision making A variety of socio-economic factors need to be considered when taking policy decisions:  Economic growth needs/related investments;  Livelihood & distributional aspects  Costs and benefits of specific policy decisions  Cost-Benefit/Multi-criteria-analysis etc….  BUT ALSO: how does a decision influence the functioning of ES and the related values…  So, valuation of ES is ―only‖ one part of socio-economic considerations for policy making! Important also for TDASAP process IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 5
  6. 6. Valuation of Ecosystem Services …can help to address: • • human well-being & ES trade-offs between ES, conservation and other priorities • a reduction of uncertainty: decision making is often based on estimates, scenarios & incomplete knowledge; valuation is an additional factor in the attempt to gain the most complete picture • evaluate interactions of ES with other determinants of human well-being IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 6
  7. 7. Valuation of Ecosystem Services Economic valuation of ES assesses both: - the immediate economic gains („benefits―) of ecosystems (raw materials, food, clean water etc.)… ―provisioning services― or ―direct and indirect use values―; - …but also benefits that are difficult to evaluate in monetary terms (landscape beauty, optional use for future generations, existence of biodiversity etc.). ―option values and non-use values― IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 7
  8. 8. Valuation of Ecosystem Services The classification into „provisioning services―, „regulating services― etc. was developed initially in the Millenium Ecosystem Assessment (MA 2005), and slightly adapted/changed in the TEEB Report (De Groot et al. 2009) IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 8
  9. 9. Classification of ES according to the TEEB Report: IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 9
  10. 10. Valuation of Ecosystem Services The classification into use and non-use values stems from the TEV (Total Economic Value) framework: “The concept of the total economic value is a method of creating a single monetary metric that combines all activities within an LME [or river basin] and to express the levels of each activity in units of a common monetary measure, such as US dollars.” (Hoagland et al. 2006) IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 10
  11. 11. Evaluation of Ecosystem Services First Meeting of the Socio-Economiceconomic valuation, Bridgetown, 26-27 Oct2013, Dakar IWC7: pre-workshop on and Trade Working Group (SET WG), 16-18 September 2013 11
  12. 12. Valuation of Ecosystem Services Generally, economic valuation of ES assesses the values derived from the existence and functioning of the relevant ecosystems! Therefore:  To be excluded/not an ES: extraction and mining of mineral resources/oil. As – contrary to the idea of Ecosystem Services - the impact of extraction activities deteriorates the quality of ES and endangers their long-term provision! Of course, such activities have to be considered when performing a socio-economic assessment of an LME/RB IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 12
  13. 13. Methodologies for valuing ES: IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 13
  14. 14. Focus here Methods used in the ES-valuation in the CCLME (ongoing – together with FAO) and GCLME (completed – with UNIDO) Both studies aim at presenting a first rough estimation (“Just do it”!) of the value - for human wellbeing, social welfare and economic growth - of the Ecosystem Services provided by the Canary/Guinea Current Large Marine Ecosystem s marine and coastal ecosystems… Thus: do not what until all information is available (will never be…) but start with what is there, clearly indicating limitations and assumptions as well as main future work needed…get better over time! IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 14
  15. 15. Key Methodologies * Market Prices * Damage Avoided/Replacement Costs * Benefit transfers (also from studies based on the Contingent Valuation Methods/CVM) Of course: if one does a more detailed/specific study for a ―hotspot‖/specific issue, then also other methods become relevant (travel cost, choice experiments etc.) IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 15
  16. 16. Market price method • Applicable to direct use values • The value is an estimate from the price in commercial markets. • Constraints: market imperfections (subsidies, lack of transparency) which distort the market IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 16
  17. 17. Damage cost avoided & replacement cost methods • Applicable to indirect use values (e.g. coastal protection, erosion & pollution control, water retention etc.) • Estimated by calculating the costs that would occur for building necessary infrastructures to replace the service (e.g. treatment plants) or by calculating the estimated damage of a hazardous event (storm). • Main constraint: assumption that cost of avoided damage or substitutes match the original benefit; external circumstances may change the value of the original expected benefit, leading to under- or overestimates. Therefore: use with caution IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 17
  18. 18. Contingent Valuation Method • • Applicable e.g. to Tourism and Non-Use values Important ―for it s own‖, but also in Benefit Transfers, see below • Asking people directly how much they would be willing to pay for specific environmental services. Often the only way to estimate the non-use values. It is also referred to as a ―stated preference method‖ • Various sources of possible bias in the interview techniques. Plus: would people actually pay the amounts stated in the interviews? Nevertheless, it is one of the few ways to assign monetary values to non-use values of ecosystems that do not involve market purchases. IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 18
  19. 19. Benefit Transfer A transfer of valuation results from a specific „study site‖ to a different „policy site― Advantages: • Cost- and labor-efficient (if no resources for various own surveys) • Compensates (partly) fragmentary data availability Constraints: • Great number of uncertainties/inaccuracies: situations are never identical • Dependability on quality of study site work • Unit value estimates can quickly become outdated IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 19
  20. 20. Benefit Transfer Nevertheless: often best/only solution at hand, since lack of data/specific studies, so important for first rough estimations! Steps: Step 1: Identification of existing relevant data of other studies. Step 2: Checking of transferability of this data: - analysis of features and qualities of services. - analysis of the quality of the study to be used. Step 3: Adjusting the data to the policy site: - calibration with existing data of the policy site (i.e. income level etc.). Step 4: Calculation of the values of ES IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 20
  21. 21. Linking results of first ES valuations to decision making Upfront: ―just‖ with an ES valuation study, it is not possible to make detailed decisions how the LME/River Basin needs to be developed/which projects to do, and which not But it is possible to understand: * which ecosystems have been underestimated in the past in regard to their social and economic benefits and * that activities, which at a first glance appear to be economically profitable, provoke not only environmental damage but also cause significant economic loss.  Therefore, a first valuation exercise will help to identify explicit and also hidden trade-offs in the use of ES and other (economic) activities – and thus support decision making! IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 21
  22. 22. Linking results to decision making • Since 1990ies: increasing importance of valuation studies • BUT: progress in practical application/use of results in natural resource use planning & decision making hasbeen slow; • Some possible reasons: • practical integration of such valuation studies is a complex process - combined with a general lack of understanding & knowledge regarding the importance of ES • various methodological issues e.g. for the valuation of (mostly) non-market benefits jeopardize the credibility of/trust in this work! • Studies often being ―desk top‖ – little participation & ownership… IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 22
  23. 23. Linking results to decision making More specific,‖ hot-spot‖ oriented valuation studies will possibly be used more directly? Overall (Berkes et al. (2007)): "Resource management is at a crossroads. Problems are complex, values are in dispute, facts are uncertain, and predictions are possible only in a limited sense. The scientific system that underlies resource management is facing a crisis in legitimacy and power. Top-down resource management does not work for a multitude of reasons, and the era of expert-knows-best decision making is all but over― Possible ways ahead: participation for ―quality & ownership‖; less quantitative, more qualitative results? IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 23
  24. 24. Thank you! Contact: interwies@intersus.eu IWC7: pre-workshop on economic valuation, Bridgetown, 26-27 Oct 2013 24

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