Environmental Economics: The nature of value vs. the value of nature

What is “value”?

What is “value”? Webster’s Dictionary Defines Value as: 1 : a fair return or equivalent in goods, services, or money for something exchanged 2 : the monetary worth of something : marketable price 3 : relative worth, utility , or importance <a good value at the price> <the value of base stealing in baseball> <had nothing of value to say> 7 : something (as a principle or quality) intrinsically valuable or desirable <sought material values instead of human values -- W. H. Jones>

Webster’s Dictionary Defines Value as:

1 : a fair return or equivalent in goods, services, or money for something exchanged

2 : the monetary worth of something : marketable price

3 : relative worth, utility , or importance <a good value at the price> <the value of base stealing in baseball> <had nothing of value to say>

7 : something (as a principle or quality) intrinsically valuable or desirable <sought material values instead of human values -- W. H. Jones>

Utility in Value Utility is defined as the level of happiness or satisfaction associated with alternative choices. Economists assume that when individuals are faced with a choice of feasible alternatives, they will always select the alternative that provides the highest level of utility .

Utility is defined as the level of happiness or satisfaction associated with alternative choices.

Economists assume that when individuals are faced with a choice of feasible alternatives, they will always select the alternative that provides the highest level of utility .

What is Environmental Economics? A mechanism using economic theories and empirical analyses that characterizes relationships between the performance of the economy and environmental pollution control; OR It can be defined as the study and in-depth analyses of economic and policy issues relating to economic costs and benefits of environmental pollution control programs, policies, and guidance.

A mechanism using economic theories and empirical analyses that characterizes relationships between the performance of the economy and environmental pollution control;

OR

It can be defined as the study and in-depth analyses of economic and policy issues relating to economic costs and benefits of environmental pollution control programs, policies, and guidance.

Why do we need to consider Environmental Economics? To perform analyses of the economic impacts of environmental pollution control programs. To address the development dimensions of environmental policy – evaluating the social and economic impacts, in particular the impacts on poverty, and designing policies that are both cost-effective and equitable. To examine the environmental implications of development policy – making tradeoffs between poverty reduction and environmental protection.

To perform analyses of the economic impacts of environmental pollution control programs.

To address the development dimensions of environmental policy – evaluating the social and economic impacts, in particular the impacts on poverty, and designing policies that are both cost-effective and equitable.

To examine the environmental implications of development policy – making tradeoffs between poverty reduction and environmental protection.

Concepts of Value Non-Utilitarian Concept (Typically Intangible Values) Utilitarian Concept (Typically Tangible Values)

Non-Utilitarian Concept

(Typically Intangible Values)

Utilitarian Concept

(Typically Tangible Values)

Total Economic Value Total Economic Value (TEV) Concept is attributed to Pearce and Warford 1993, World Without End Theoretical structure for assessing ecosystem value as a whole

Total Economic Value (TEV)

Concept is attributed to Pearce and Warford 1993, World Without End

Theoretical structure for assessing ecosystem value as a whole

TEV CATEGORIES COMMONLY USED VALUATION METHODS USE VALUE NON-USE VALUE TOTAL ECONOMIC VALUE (TEV) Direct use value Consumptive Nonconsumptive Indirect use value Option value Bequest value Quasi-option value Existence Value Changes in productivity Cost-based approaches Hedonic prices Travel costs Contingent valuation Changes in productivity Cost-based approaches Contingent valuation Changes in productivity Cost-based approaches Contingent valuation Contingent valuation

Changes in productivity

Cost-based approaches

Hedonic prices

Travel costs

Contingent valuation

Changes in productivity

Cost-based approaches

Contingent valuation

Changes in productivity

Cost-based approaches

Contingent valuation

Contingent valuation

TEV Categories Direct Use Direct use values are based on consumptive or nonconsumptive uses. Consumptive use is a use that reduces the overall supply of resource, while nonconsumptive use causes no reduction in quantity or supply of that resource

Direct use values are based on consumptive or nonconsumptive uses.

Consumptive use is a use that reduces the overall supply of resource, while nonconsumptive use causes no reduction in quantity or supply of that resource

TEV Categories Indirect Use Indirect use values can be described as support and protection provided to economic activity by regulatory environmental services. Many ecosystem services are used as intermediate inputs for the production of goods, while other services indirectly contribute to consumption of goods. An example of indirect use value of services through intermediate inputs would be pollination in food production, while indirect contribution to consumption would be water purification.

Indirect use values can be described as support and protection provided to economic activity by regulatory environmental services.

Many ecosystem services are used as intermediate inputs for the production of goods, while other services indirectly contribute to consumption of goods.

An example of indirect use value of services through intermediate inputs would be pollination in food production, while indirect contribution to consumption would be water purification.

TEV Categories Option Value A value of information about future returns net of environmental damages conditional on refraining from making an investment that would entail uncertain future environmental damages.

A value of information about future returns net of environmental damages conditional on refraining from making an investment that would entail uncertain future environmental damages.

TEV Categories Existence Value Existence values are non-use values often referred to as conservation values, or passive use values. These are values applied to a resource that individuals do not intend to use, but would feel a “loss” if the resource were to disappear. This could be stated as value ascribed to the knowledge of existence. Studies have linked these applied values to the knowledge of maintaining a resource for one’s descendents and the knowledge of assured survival for a resource like habitats or species

Existence values are non-use values often referred to as conservation values, or passive use values.

These are values applied to a resource that individuals do not intend to use, but would feel a “loss” if the resource were to disappear.

This could be stated as value ascribed to the knowledge of existence.

Studies have linked these applied values to the knowledge of maintaining a resource for one’s descendents and the knowledge of assured survival for a resource like habitats or species

TEV CATEGORIES COMMONLY USED VALUATION METHODS USE VALUE NON-USE VALUE TOTAL ECONOMIC VALUE (TEV) Direct use value Consumptive Nonconsumptive Indirect use value Option value Bequest value Quasi-option value Existence Value Changes in productivity Cost-based approaches Hedonic prices Travel costs Contingent valuation Changes in productivity Cost-based approaches Contingent valuation Changes in productivity Cost-based approaches Contingent valuation Contingent valuation Substitute Cost Method is the focus of this research

Changes in productivity

Cost-based approaches

Hedonic prices

Travel costs

Contingent valuation

Changes in productivity

Cost-based approaches

Contingent valuation

Changes in productivity

Cost-based approaches

Contingent valuation

Contingent valuation

Research

Introduction Development pressures are increasing Stormwater runoff characteristics are changed by development Stormwater runoff models exist Models produce complicated scientific/engineering data A common metric is needed to compare varied elements The common metric is the Ecological Services Value (ESV)

Development pressures are increasing

Stormwater runoff characteristics are changed by development

Stormwater runoff models exist

Models produce complicated scientific/engineering data

A common metric is needed to compare varied elements

The common metric is the Ecological Services Value (ESV)

What is the problem?

Stormwater Runoff Impacts It is often difficult for decision makers and political officials to understand complex scientific and engineering analysis, as it relates to stormwater runoff The desire for economic development and sources of new revenue is creating intense pressure on decision makers to allow development of lands Without a common metric, it is difficult to evaluate environmental impacts

It is often difficult for decision makers and political officials to understand complex scientific and engineering analysis, as it relates to stormwater runoff

The desire for economic development and sources of new revenue is creating intense pressure on decision makers to allow development of lands

Without a common metric, it is difficult to evaluate environmental impacts

Why is it a problem?

Decisions Will Be Made Development decisions are often made without respect to impacts of stormwater runoff Few tools are available to evaluate complex development decisions with well recognized, simplistic terms Without a common metric, decision makers may not consider the impacts of development on stormwater runoff

Development decisions are often made without respect to impacts of stormwater runoff

Few tools are available to evaluate complex development decisions with well recognized, simplistic terms

Without a common metric, decision makers may not consider the impacts of development on stormwater runoff

Why is it important to solve it?

Ecosystem Deterioration Assuming that predevelopment conditions are optimal for downstream areas, if impacts are not mitigated, significant damage can occur in the form of pollution and/or flooding Without the appropriate comparisons, leaders may make poor decisions that could have negative impacts on society

Assuming that predevelopment conditions are optimal for downstream areas, if impacts are not mitigated, significant damage can occur in the form of pollution and/or flooding

Without the appropriate comparisons, leaders may make poor decisions that could have negative impacts on society

Research Question What is the monetary value of the natural services provided by undeveloped lands with respect to stormwater runoff impacts?

What is the monetary value of the natural services provided by undeveloped lands with respect to stormwater runoff impacts?

Hypothesis H 0 = The proposed methodology and tool produces the required inputs for the ESV equation. Where: V ES = Ecological Services Value C C = Capital costs of the construction of the stormwater control C O = Operations and maintenance costs of the stormwater control

H 0 = The proposed methodology and tool produces the required inputs for the ESV equation.

Methodology & Tool Development Research Approach

Research Stormwater Runoff Models With Respect to ESV Equation Needs Identify Model Inputs Write Computer Code to Generate Model Inputs through GIS Test Custom Generated Inputs with Models Write Computer Code to Accept and Extract Model Output to Calculate ESV Write Computer Code to Express ESV Graphically Classify Aerial/Satellite Imagery For Research Area Generate Inputs Using Decision-Tool And Execute Models No Yes Model Execution Complete, ESV Calculator Accepted Model Output, ESV Displayed Graphically for Decision Support

Existing Stormwater Models WinSLAMM Source Loading and Management Model WCS Watershed Characterization System L-THIA Long-Term Hydrologic Impact Assessment WinTR-55

WinSLAMM

Source Loading and Management Model

WCS

Watershed Characterization System

L-THIA

Long-Term Hydrologic Impact Assessment

WinTR-55

Decision Support Tool Development Input Support Manual input Importation of text files Importation of databases Derivative inputs of a GIS Output Graphical representations Reporting functions The Decision Support Tool will be developed in the form of an extension for ESRI’s ArcGIS

Input Support

Manual input

Importation of text files

Importation of databases

Derivative inputs of a GIS

Output

Graphical representations

Reporting functions

Expected Results Existing models are expected to: Determine the characteristics of stormwater runoff Select and determine varied combinations of stormwater controls for the reduction of quantity and the enhancement of quality Calculate the cost and operations of the selected controls The proposed methodology and tool is expected to provide the required inputs necessary for the calculation of the ESV.

Existing models are expected to:

Determine the characteristics of stormwater runoff

Select and determine varied combinations of stormwater controls for the reduction of quantity and the enhancement of quality

Calculate the cost and operations of the selected controls

The proposed methodology and tool is expected to provide the required inputs necessary for the calculation of the ESV.

Manual Calculation Examples Low Density Residential Site High Density Residential Site Commercial Site

Low Density Residential Site

High Density Residential Site

Commercial Site

ESV Calculation Assumptions: Pre-development is the optimal condition Pre-development can be achieved through technology Land cost is not factored

Assumptions:

Pre-development is the optimal condition

Pre-development can be achieved through technology

Land cost is not factored

Low Density Residential Example

Low Density Residential Example Source Area Distribution

ESV for Low Density Residential Calculated cost runoff reduction per cubic foot $1.71 Reduction required from pre-development conditions to base developed conditions 876,298.8 cu ft Site Acreage = 13.86 ESV = $1,498,471.29

Calculated cost runoff reduction per cubic foot

$1.71

Reduction required from pre-development conditions to base developed conditions

876,298.8 cu ft

Site Acreage = 13.86

ESV = $1,498,471.29

High Density Residential Example

High Density Residential Example Source Area Distribution

ESV for High Density Residential Calculated cost runoff reduction per cubic foot $2.15 Reduction required from pre-development conditions to base developed conditions 1,294,188 cu ft Site Acreage = 24.99 ESV = $2,782,504.20

Calculated cost runoff reduction per cubic foot

$2.15

Reduction required from pre-development conditions to base developed conditions

1,294,188 cu ft

Site Acreage = 24.99

ESV = $2,782,504.20

Commercial Example

Commercial Example Source Area Distribution

ESV for Commercial Calculated cost runoff reduction per cubic foot $0.58 Reduction required from pre-development conditions to base developed conditions 8,708,669 cu ft Site Acreage = 65.33 ESV = $4,766,005.00

Calculated cost runoff reduction per cubic foot

$0.58

Reduction required from pre-development conditions to base developed conditions

8,708,669 cu ft

Site Acreage = 65.33

ESV = $4,766,005.00

Practical Example A municipality is presented with the decision to allow a commercial retail development in an undeveloped area. Question: What is the monetary value of the services provided by the existing natural system (i.e. ESV), with respect to stormwater runoff? If the ESV is greater than the costs the interested party is willing to support, the decision makers must determine if the amount of stormwater runoff impact is acceptable, hence informed consent.

A municipality is presented with the decision to allow a commercial retail development in an undeveloped area.

Question:

What is the monetary value of the services provided by the existing natural system (i.e. ESV), with respect to stormwater runoff?

If the ESV is greater than the costs the interested party is willing to support, the decision makers must determine if the amount of stormwater runoff impact is acceptable, hence informed consent.

Conclusions This research will produce a methodology and decision tool: To aid in quantifying the environmental impact and cost associated with land disturbance/development Through the determination of a common metric, aid in understanding relationships between: Economic development perspectives Stormwater pollution control engineering cost implications The value of natural stormwater services provided by the ecosystem Lastly, this research will contribute to the greater body of knowledge on the topics of stormwater runoff impacts, environmental economics, and geographic information sciences.

This research will produce a methodology and decision tool:

To aid in quantifying the environmental impact and cost associated with land disturbance/development

Through the determination of a common metric, aid in understanding relationships between:

Economic development perspectives

Stormwater pollution control engineering cost implications

The value of natural stormwater services provided by the ecosystem

Lastly, this research will contribute to the greater body of knowledge on the topics of stormwater runoff impacts, environmental economics, and geographic information sciences.

SICS Consultants, LLC www.sicsconsultants.com Steve McKinney 256.289.6152 [email_address]

CALL ME!!! Cause baby needs new shoes!!!! Alexander McKinney