Investing in Natural Assets. A business case for the environment in the City of Cape Town


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Investing in Natural Assets. A business case for the environment in the City of Cape Town

  1. 1. INVESTING IN NATURAL ASSETS A business case for the environment in the City of Cape Town Presentation to Urban Ecology CityLab, UCT 28 July 2010
  2. 2. Why this study? Influence budget allocations by developing focused economic arguments for investing, maintaining and expanding the City’s natural assets. Rationale for this study is to develop a financially-motivated business case for investing in natural assets in the City. Why invest in, maintain and expand natural assets? Natural assets produce a flow of goods and services that has value for people living in and visiting the City of Cape Town Degradation of urban natural assets impedes on the ability of the municipality to deliver services in a cost-effective way What is different from other arguments? Arguments to preserve the natural environment have traditionally not focused on the financial logic of investing in natural assets.
  3. 3. Overview presentation • Natural assets and flows: definitions and concepts • Economic value of natural assets and flows • A business case for the natural environment
  4. 4. 1. NATURAL ASSETS AND FLOWS Distinguishing between: • Natural assets/capital: • Ecosystem Goods and Services Stock of natural resources (EGS): owned by the City (beaches, rivers, Flows of benefits wetlands, parks, reserves, mountain..) derived from these assets. Money in a bank account (capital) a flow of interest. Natural capital a flow of EGS
  5. 5. Ecosystem Goods and Services NATURAL ASSETS • Renewable resources: forests, plants, animals • Non-renewable resources: minerals, oil • Environmental resources: water, coasts, atmosphere • Land Ecosystems Goods and Services Supporting soil formation photosynthesis primary production nutrient cycling water cycling Provisioning Regulating Cultural/ air quality regulation Informational food freshwater climate regulation reflection fibre water regulation recreation fuel erosion regulation inspiration genetic resources disease regulation aesthetic enjoyment medicine and pest regulation cultural diversity pharmaceuticals natural hazards regulation educational value (including fire, flood, storm surge)
  6. 6. Ecosystems and human wellbeing 6
  7. 7. Ecosystems and poverty alleviation Maintaining and expanding EGS flows can contribute to poverty alleviation by: -Helping poorer communities meet their basic needs: • Water • Firewood -Increasing: • secure and sustainable livelihoods, • health conditions • income • property value. “Nature’s factories” to the benefit of human beings
  8. 8. Natural Assets as Public Goods Anyone can enjoy. At anytime. NO PRIVATE INCENTIVE TO MAINTAIN AND INVEST Lack of management Interrupted flow of EGS and loss of Urban pressure value
  9. 9. 2. Economic value of EGS What is economic value?
  10. 10. How were values prioritised? Participatory rapid assessment with line function managers and senior staff City functions related to environmental goods and services in the City: -environmental resources, parks, tourism, heritage, sports and recreation, wastewater, stormwater, solid waste and spatial planning Focus groups: identify and shortly motivate most important linkages between all identified EGS in the City and: •beneficiaries (number and value) development objectives (closest links with natural assets)City’s environmental mandate and ability to influence and ecological and socio-economic risks.
  11. 11. Prioritised ecosystem services Higher High Medium Lower Natural hazard regulation Water purification and Climate regulation – local Climate regulation global waste treatment, (air quality) assimilation Recreation and Tourism Space for biota Small scale urban farming Fresh water provision Aesthetic values and sense Water regulation Building materials of place provision Fish and marine resources Provision of inspirational beauty Natural hazard regulation (buffering function for flooding, fires, sea Educational users level rise/ coastal surge) Cultural and artistic practices Provision of natural characteristics that are conducive to tourism Religious practices and recreation Erosion regulation The improvement of water quality and the assimilation of waste - Disease regulation ecosystems help filter and decompose organic wastes Harvesting Materials for craft and Provision of space for globally important biota, and fashion Use in productions, The aesthetics and sense of place provided by the natural environment advertising and publications 11
  12. 12. VALUABLE FLOWS TO VARIOUS BENEFICIARIES Natural/ semi natural environment beneficiaries
  13. 13. VALUABLE FLOWS TO VARIOUS BENEFICIARIES Tourists Residential International groups National Rich and Poor Local Natural/ semi natural environment Industry groups Recreation groups beneficiaries Film and advertising Beach bathers, sailors, industry, Shipping, picnic & braai Tourism cyclists, hikers Informational and Harvest groups cultural groups Fishers, wild plants Education, harvesters, Scientific research, fuelwood gatherers Religious experience
  14. 14. Valuable flows Table 1: The value of ecosystem services to the City of Cape Town: 2008: R million: A partial analysis Low Medium High Tourism 965 1 829 2 948 Recreation 408 449 494 Natural hazard regulation 5 18 60 Film industry 133 265 398 Other (est.) 453 1 024 1 950 Total 1 963 3 586 5 850
  15. 15. Nature’s Value in Tourism and Recreation Tourism: R965 m - R2.95 bn/a Green open spaces: R270 – R326 m/a Nature Reserves: R 68 – R83 m/a Beaches: R70 – R85 m/a
  16. 16. Natural Hazards Regulation Natural Hazards Reduced Fires Consequences Flooding Damages Storm surge & Management costs Sea-level rise People at risk Ecosystems: natural barriers and buffers against natural hazards. • Dune cordons and kelp beds reduce storm surges impact on land. • Natural pervious ground cover absorb rainfall, impervious ground cover increases water runoff and flood risk. Lack of management: enhanced natural hazards risk and potential damages. • Invasive alien species enhance fire risk, frequency, intensity, soil’s vulnerability to erosion → enhance potential damages, fire fighting costs, and clean up costs. Nature’s services in hazard regulation: R5m - R60m/a
  17. 17. Sea-Level Rise and Storm Surge: Investing in the coast line The increased risks of storm surges and their associated costs in Cape Town have been assessed recently in terms of: • Loss of real estate value • Damage to infrastructure • Foregone tourism revenue Natural solutions: natural parts of the coastline which act as buffers are not lost to development Increase buffering: creating kelp beds, rockier beaches and sand dunes that will increase the absorption capacity of the coastline.
  18. 18. Flooding: Investing in rivers and catchments Table 2: Impacts of the July 2008 floods in Cape Town Informal settlements affected 70 Damaged structures 7500 People directly affected 30 000 People housed at emergency shelters in community halls 3000 People displaced in safety zones 2480 Number of meals served twice a day 22 000 Number of blankets distributed 13 000 Source: City of Cape Town, media release No 330/2008, 10 July 2008. Storm water runs off of impervious surfaces and is not absorbed; runoff volume typically increases: •twofold as the percent catchments’ imperviousness increases to 10– 20%, •threefold with an impervious surface cover of 35–40%, and •more than fivefold with an impervious surface cover of 75–100% compared to catchments with natural vegetation cover.
  19. 19. Fires: Investing in alien control R30 million to R40 million in damages attributable to the March 2009 fires in Somerset West (R25 to R30 million in damages for Lourensford wine estate and R5 million to R10 million for Vergelegen wine estate In January 2000, two wildfires burnt 8 000 ha on the Cape Peninsula resulting in insurance claims of approximately $5.7 million or R73 million Invasive Alien Plants lead to higher damage costs, higher firefighting costs and avoidable clean-up costs.
  20. 20. Water Purification and Waste Assimilation: Investing in rivers and wetlands Within assimilative capacities Wetlands • processing some of the grey and Water waste water outfalls purification • creation of recreational and economic opportunities function • contribution to a healthy environment for communities. Services provided by wetlands save cities significant amounts of infrastructural costs which would weigh on them if the natural ecosystem wasn’t present or became inefficient. Zandvlei • Replacement cost of a treatment plant: R180 million estimated. • Replacement cost of a flood storage capacity: R24 million estimated • Costs of constructing an artificial wetland. Illustrates the magnitude of the “free” services provided.
  21. 21. Space for Biota: Investing in biodiversity Biodiversity needs to be recognised and valued as a critical ‘umbrella’ service without which most other valuable ecosystems services would be diminished or may even become unavailable. Cape Floral Kingdom 9000 plant species 70% endemic 2002 - 2006: International funding = R225 million 2008 - 2009: Environmental Education Programs = 23 781 learners from 500 schools.
  22. 22. Aesthetics and Sense of Place: Investing in wellbeing, City brand and property • Enhanced health and wellbeing (e.g. preference for natural to built environments, restore mental fatigue, attention deficit disorder, lower stress, neighbourhood satisfaction) • Contribution to the Cape Town brand and an enhanced business environment (desirable living attract key human capital and business, inspiration, creative thinking), as evident by many quality of life awards • Property value enhancement
  23. 23. Film making: Investing in scenery and aesthetics Table 3: Number of productions and expenditure in the Cape Town and Western Cape film industry (2005/2006) Average expenditure Total Number of per production (Rm expenditure productions 2006) (Rm 2006) Long form (features) 30 37.2 1 115.6 Local Commercials 142 0.9 162.5 Service Commercials 400 1.8 631.8 International Commercials 58 2.6 77.9 Stills 2 100 0.3 659.8 Provincial Total 2 730 2 647.6 Cape Town Total 2 027.0 Source: Standish & Boting (2007) Film and advertising total values associated with natural assets of between R133 million and R398 million
  24. 24. 3. MAKING A BUSINESS CASE Insights into the level of environmental expenditures in relation to the benefits received from the natural environment. Net present value of combined natural assets: Indicator 1 → R43 billion to R82 billion. Ratio of environmental expenditure to the value generated EGS → R1 spent by municipality on natural assets ≈ R8.30 (range Indicator 2 R4.50 - R13.50) of ecosystem goods and services (EGS) generated compared to → R1 spent by municipality overall ≈ R 7.30 added value generated in local economy Leverage of municipal expenditure on economic value of EGS > Leverage of municipal expenditure on the broader Between 1.2 and 2 times City economy.
  25. 25. Understanding budget allocations An attention-driven decision-making model Number Number % change/year % change/year Large numbers of small changes Smaller numbers of large changes (large increases and large decreases) Preference for environmental policies in Cape Town exist, but have not yet translated into rapid bursts of budget changes in the City.
  26. 26. Environmental signals in the Municipality Based on terms used in media releases, speeches and documents by the City of Cape Town.
  27. 27. Environmental signals in the Municipality Based on terms used in media releases, speeches and documents by the City of Cape Town. Environmental signals for natural assets Water, River, Mountain Open spaces, wetlands, Garden, Beach fynbos Weaker Stronger Environmental signals Environmental signals related to EGS Tourism, fire, waste, Air quality, alien, drought, stormwater, recreation, sense of place. conservation. Weaker Stronger Environmental signals
  28. 28. Environmental signals of citizens Table 4: Environmental signals based on search volume on the internet in the Western Cape Search term Google score Search term Google score Cape Town 15.2 Money 1 Music 5.55 Coast 0.86 Hotel 4.6 Fire 0.74 Weather 3.9 Nature 0.64 Jobs 3.9 Parks 0.3 Water 2.24 Shark 0.24 Rugby 2.1 Table Mountain 0.18 Stellenbosch 1.88 Nature reserve 0.14 Beach 1.44 Kirstenbosch 0.14 Tourism 1.42 Conservation 0.1 Fish 1.2 Waste 0.08 River 1.18 Alien 0.04 Mountain 1 Stormwater, Recreation, 0 Water quality, Biodiversity Note: Search volume relative to the word ‘money’. Analysis done on 27 June 2009. Natural assets and ecosystem services related to the terms ‘water’, ‘beach’, ‘river’, ‘mountain’ and ‘tourism’ provide the strongest combined environmental signals.
  29. 29. CONCLUSION Investing into underlying natural assets can leverage relatively high economic value in the broader City economy (1.2 - 2 times higher than overall municipal expenditure). Investing and maintaining the City’s natural assets or ‘ecological infrastructure’ yields highly valuable services which provide the backbone for value addition and employment in City’s economy. It is conservatively estimated that the City’s natural assets yield a flow of services valued at R4 billion per annum, within a range of between R2 billion and R6 billion per annum. As an entity focused on service provision and as an enabler of economic growth and development, the municipality has the mandate and opportunity to invest adequately in natural assets to maintain a healthy flow of services to the benefit of people living in and visiting Cape Town.
  30. 30. Nature provides a free lunch, but only if we control our appetites. William Ruckelshaus, Business Week, 18 June 1990