These slides cover the purposes for ecosystem service valuation (ESV), methods for valuation, examples of valuation studies, and government regulation and program related to ESV.

1. Ecosystem Service Valuation
Environmental Economics Fall 2013
Maggie Winslow, Ph.D.

2. What are Ecosystem Services?
• Benefits people obtain from ecosystems

3. DIRECT USE VALUES INDIRECT USE VALUES NON-USE VALUES
Provisioning Regulating/Support Cultural
Crops/ Livestock Maintenance of air quality Existence value, Bequest value
Animal skins
Regional/ local/ global climate
regulation
Ethical and spiritual values
Capture fisheries/
Aquaculture
Water purification and waste
treatment
Educational and inspirational
values
Freshwater
Regulation of water timing
and flows
Timber and other wood
fibers/ Biomass
Erosion control and sediment
retention
Biochemicals, natural
medicines, and
pharmaceuticals / Genetic
Resources
Natural hazard mitigation
/Flood control
Ornamental resources Disease mitigation
Cultural Maintenance of soil quality
Recreation and ecotourism Pest mitigation / Pollination
Categorization of Ecosystem Services

4. Classifying Ecosystem Services – Some Fit
Multiple Categories
Stillwater Sciences. 2011. Overview of ecosystem services quantification tools and proposed format for site tool development. Prepared by
Stillwater Sciences, Berkeley, California for Sustainable Conservation, San Francisco, California.

5. Ecosystem Services Can Have Multiple Functions
http://agbiodiversity.com/AgBiodviersityProject/Howbiodiversitysupportsfarmprofits/tabid/133/Default.aspx

6. Carson and Mitchell (1993)

7. WRI Survey: Are Ecosystem Services Being
Addressed in Environmental Decision Making?
A 2010 online survey by WRI of 171 environmental
consultants, government employees, NGOs found:
• 79% of respondents knew about ecosystem services
• 40% have seen ecosystem services addressed in
environmental assessment
– Freshwater is the main service that is addressed
• Main perceived barrier is lack of guidance on
how to address ecosystem services

8. Importance of ES for Decision Makers
• Ecosystems are being degraded at a high rate –
climate change exacerbating this.
• Demand for ecosystem services is increasing
– Population growth
– Improved in living standards
• ES are growing scarcer
• What gets measured gets managed - Our policy
decisions often do not incorporate the value of
ecosystem services
• Ecosystem Service Valuation (ESV)

9. Multiple Purposes for ESV in Relation to
Policy Making
Monitor changes in natural capital and the impact
of this on human welfare ex. Natural Capital Accounting
Natural Resource Damage Assessment
Evaluation of proposed policies/developments
Cost-
Benefit
Analysis
Cost-
Effectivenes
s Analysis
Multi-
criteria
Analysis

10. Cost-Benefit, or Benefit-Cost, Analysis
Given that a policy will require some inputs and
produce some outputs, it will also have costs
and create benefits. Comparing the costs and
benefits in monetary terms is what benefit-
cost analysis amounts to.
Benefit-cost analysis can help determine which
policy/program/project is more efficient than
the other, or alternatively which one is more
cost-effective.

11. Example of ESV and CBA
• UK Cost Benefit Analysis of proposed marine
reserves
– 11 relevant ecosystem services identified
– 7 were valued due to available information
– Benefit transfer method
• NPV of benefits range – US$16.4 to $36.1 billion
• NPV of costs range – US$0.6 and $1.9 billion
• Benefit to cost ratio is ~10:1, not all benefits
even included
Hussain et al., 2010

12. Cost-Effectiveness Analysis
• Goal is already determined. Analysis is used
to find the least expensive means to achieve
this goal.

13. Cost Effectiveness Analysis Example: A Watershed Approach to Improve
Water Quality: Case Study of Clean Water Services’ Tualatin River
Program, Clean Water Services (CWS), Portland OR’s public water
resources utility.
Faced with the need to lower effluent water temperatures
in order to maintain its permits to discharge water into the
Tualatin River, CWS considered two alternatives:
1. Build a new facility - $60
million, annual operating
costs of $2 million
Benefit: it does the job,
no environmental
benefits were identified
2. Ecosystem Restoration and
Maintenance - $5 million
Benefit – it does the job, it saved
money, 1.6 mil trees/shrubs
planted resulting in thermal
credits of 295 mil kilocalories per
day, restored salmon habitat,
upland scrub habitat, carbon
sequestration, increased
biodiversity, recreation
opportunities.

14. Multi-Criteria Analysis
• Monetary information is used as one input in
the decision making process.

15. Historic U.S. Federal Use of ESV
Comprehensive Environmental Responses, Compensation
and Liability Act (CERCLA) (Superfund): 1980 – allowed for
ecosystem damage assessment.
Executive Order 12911 (1981) required cost benefit analysis
be applied to new regulations
1991 EPA convened an Ecosystem Valuation Forum- focused
on how to improve linkages between ecology and economics
ESV used by USFS, mostly in CBA related to forest planning
and water resources

16. Federal Level Progress in ESV
• EPA’s National Center for Environmental Economics (NCEE),
established 2000.
• Government sponsored $4.5 million tools competition
• USDA’s Office of Environmental Markets, which as of January
1, 2011 is part of the Office of the Chief Economist.
• Guidelines for Preparing Economic Analyses published by the
NCEE in 2011

17. PCAST Report 2011
SUSTAINING ENVIRONMENTAL CAPITAL:
PROTECTING SOCIETY AND THE ECONOMY
Executive Office of the President
President’s Council of Advisors on Science and Technology
JULY 2011

18. PCAST Report: Federal agencies
thatimplementbiodiversity and ecosystem
conservation programs should prioritize
expenditures based on cost efficiency.
• Federal agencies collectively currently spend
more than $10 billion annually on ecosystem
restoration activities.
• Much more careful targeting could achieve
greater environmental benefits at the same
cost.

19. PCAST: Federal agencies with responsibilities
relating to ecosystems and their services (e.g.,
EPA, NOAA, DOI, USDA) should be tasked with
improving their capabilities to
– develop valuations for the ecosystem services affected by
their decision-making and
– factor the results into analyses that inform their major
planning and management decisions.
• The Office of Management and Budget
(OMB), OSTP, and CEQ should ensure that the
methodologies are developed collaboratively across
agencies.

20. Example of Federal Requirement for
ESV
• In relation to federal infrastructure
investments: “all types of benefits and
costs, both market and non-market, should be
considered. To the extent that environmental
and other non-market benefits and costs can
be quantified, they shall be given the same
weight as quantifiable market benefits and
costs.”
- Executive Order 12893, 1994

21. California Water Quality Control Board
• Regulate activities in order to: “attain the
highest water quality which is reasonable,
considering all demands being made and to be
made on those waters and the total values
involved, beneficial and detrimental,
economic and social, tangible and intangible.”

22. However…
• There has been little enforcement of these
requirement to consider broader valuation of
ecosystem services.

23. International ESV Initiatives
– TEEB: The Economics of Ecosystems and
Biodiversity series – UNEP, European
Commission
– WAVES: Wealth Accounting and Valuation of
Ecosystem Services – World Bank, UN, many
national governments and NGO
– The Millennium Assessment, UNEP: ~2000
experts, 4 year project to survey the world’s
ecosystems’ health
Private:
– Companies calculating the value of their
impacts on ES – ex. Puma

24. Puma Environmental P&L Statement
2010
• € 94 million of GHG emissions and water consumption
• € 51 million caused by land use change for the production of raw
materials, air pollution and waste along its value chain.
Only € 8 million of the € 145 million total derive from PUMA’s core
operations such as offices, warehouses, stores and logistics while the
remaining € 137 million fall upon PUMA’s supply chain.
These costs, which will not affect PUMA’s net earnings, will serve as an
initial metric for the company when aiming to mitigate the footprint of
PUMA’s operations and all supply chain levels.
http://safe.puma.com/us/en/2011/11/puma-completes-first-environmental-profit-and-loss-
account-which-values-impacts-at-e-145-million/

26. Local/Regional Policy-related Drivers of
Interest in ESV
(Scarlett & Boyd, 2011)
Revenue streams to
support conservation,
restoration and
sustainable practices
Savings for basic
community services such
as clean water,
protection from floods
and fires, erosion and
storm water control, etc.
Opportunities for cost-
effective regulatory
compliance Avoidance or
elimination of costs
associated with the
loss of ecosystems
and their services
Enhancement of the
resiliency of communities
in a changing world

27. Multi-Step Process in Ecosystem Service
Valuation Related to Policy Changes
Economic
Value of
Changes
Impact on
Human
Welfare
Changes in
Ecosystem
Services
Ecosystem
Impacts
Policy
Change

28. An introductory guide to valuing ecosystem services, DEFRA, 2007

29. Methods for Assigning Monetary Value to Ecosystem
Services
Revealed-preference Stated-preference Cost-based
Market methods: Valuations are
directly obtained from what
people must be willing to pay for
the service or good.
Contingent valuation: People
are directly asked their
willingness to pay or accept
compensation for some change
in ecological service.
Replacement costs: The loss of a
natural system service is
evaluated in terms of what it
would cost to replace that
service.
Production approaches: Service
values are assigned from the
impacts of those services on
economic out-puts (e.g.,
increased shrimp yields from
increased area of wetlands).
Conjoint analysis: People are
asked to choose or rank different
service scenarios or ecological
conditions that differ in the mix
of those conditions. Also called
“choice experiments”.
Avoidance or Damage costs: A
service is valued on the basis of
costs avoided, or of the extent to
which it allows the avoidance of
costly averting behaviors,
including mitigation.
Travel cost: Valuations of site-
based amenities are implied by
the costs people incur to enjoy
them
Hedonic methods: The value of
a service is implied by what
people will be willing to pay for
the service through purchases in
related markets, such as housing
markets. (from Farber et al. 2006, pg. 120)

30. Revealed Preference Methods Example: Water Quality
Violations and Avoidance Behavior: Evidence from Bottled
Water Consumption (Zivin et al. 2011)
• Looked at bottled water purchases in locations
that experienced water quality violations.
• They find a 22% increase in bottled water sales
from a microorganism violation, a 26% increase
in response to nitrate violations, and a 17%
increase from an element/chemical violation.
• Get an estimate of about $60 million a year of
avoidance behavior in the U.S.

31. Hedonic Pricing Method Example
• Author(s): Boxall, P. C., W. H. Chan and M. L.
McMillan
• Title: "The Impact of Oil and Natural Gas Facilities
On Rural Residential Property Values: A Spatial
Hedonic Analysis"
• Source of Study: Resource and Energy
Economics, 2005-01-01
• Web Link:
http://www.sciencedirect.com/science/article/B6VFJ
-4FK42HM-
1/2/02a35e67e71d3242e00100177f37becc

32. Summary Boxall et al. 2005
• This study estimated the effect of oil and gas facilities
on rural residential properties near Calgary, Alberta.
• Data were gathered using real estate listing database
for the period January 1994 to March 2001.
• The average reduction in price levels associated with
industry characteristics ranged from (CDN 2001) $
3,487 - $ 20,942.
• The estimated reduction in property value ranged from
4 to 8 percent if property was located within 4 km of
industry facilities.
• This study has helped aid the decision making process
in siting of oil and gas facilities and provided merits for
compensation in lost property value.

34. CV Example – Carson and Mitchell (1993)

35. Benefits or Value Transfer
Use the ecosystem service values from one or a
series of studies to estimate the values in a
similar area or situation.

36. Ex. Measuring Natural Capital: The Value of
New Jersey’s Ecosystem Services and
Natural Capital, 2006
Using the benefits transfer approach:
• Wetlands – $9.4 billion/yr (2004 dollars) for freshwater wetlands and $1.2
billion/yr for saltwater wetlands
• Marine ecosystems – $5.3 billion/yr for estuaries and tidal bays and about
$389 million/yr for other coastal waters, excluding the value of fish and
shellfish
• Forests cover – $2.2 billion/yr, excluding the value of timber
• Urban green space covers – estimated $419 million of ecosystem services
annually, principally aesthetic and recreational amenities.
The total value of these ecosystem services is $19.4 billion/year.
Gund Institute, 2006

37. Ex. Ecosystem service value in dollars per acre per year

38. Databases for Benefit Transfer
• EVRI: Environmental
Valuation Reference
Inventory (Environment
Canada with support
from USEPA and DEFRA)
– Searchable database of
~2400 studies with
summaries included.
• EarthEconomics, non-
profit, Tacoma WA
– Researches Library

40. EVRI Studies

41. Current Web-based Tools
• InVEST: Integrated Valuation of Environmental Services and
Tradeoffs
• ARIES: Artificial Intelligence for Ecosystem Services

42. Current Web-based Tools Cont.
• EarthEconomics:
– ESV: Ecosystem Valuation Toolkit
– SERVES: Simple and Effective Resource for Valuing
Ecosystem Services
• Others
– regionally focused or
– cover just one or two ecosystem services
• Consulting firms have proprietary tools – ex.
EcoMetrix, EcoAim, ESValue

43. Present Situation
• More tools under development
• Existing tools
– Not compatible
– Use different metrics
– Use different valuation techniques and philosophies
• EPA and other agencies are developing guidelines
for ESV
• Some services receive little attention

44. Policy Debate Over Using ESV
• Practical: Is some number better than no
number? How to deal with uncertainty?
– How much accuracy is needed?
– ESV helps inform decisions but does not
make decisions.
• Philosophical: Don’t ecosystems have
untold value?
– But will these be included if no number is
attached?

45. Obstacles and Limitations
• Provisioning and flow of ES cut across policy-
relevant boundaries
• Challenging to conduct ES research that is
applicable in policy contexts.
– Requires integration of multiple disciplines
– Methodology issues can affect credibility of
valuation estimates
• CBA is sometimes precluded by legislative
standards
• Lack of consensus on goals of environmental
regulations

46. Final Thoughts
Ecosystem services are increasingly important
•Due to climate change – more floods, ocean surges,
drought
•Due to fresh water depletion
•Ecosystems being depleted/destroyed
•Population growth
Ecosystem service valuation is a decision support tool.
Mistake to think that ESV tools are just about quantifying and
producing numbers. There is a lot of strategy, framing,
training, tactics that must happen to support the numbers.
Can be useful even if it does not cover all relevant ecosystem
services.

47. Primary References
Bagstad, K.J., Semmens, D., Winthrop, R., Jaworski, D., and Larson, J. (2012). Ecosystem Services Valuation to
Support Decisionmaking on Public Lands — A Case Study of the San Pedro River Watershed , Arizona
Scientific Investigations Report 2012 − 5251. Arizona.
Barbier, E. B. (2011b). Challenges in valuing ecosystem services. World Forum 2011.
Carson, R. T., & Mitchell, R. C. (1993). The Value of Clean Water; The Public’s Willingness to Pay for
Boatable, Fishable, and Swimmable Quality Water. Water Resources Research, 29(7), 2445–2454.
Daily, G. C., Polasky, S., Goldstein, J., Kareiva, P. M., Mooney, H. a, Pejchar, L., Ricketts, T. H., et al. (2009).
Ecosystem services in decision making: time to deliver. Frontiers in Ecology and the Environment, 7(1), 21–
28.
Iovanna, R., & Griffiths, C. (2006). Clean water, ecological benefits, and benefits transfer: A work in progress at
the U.S. EPA. Ecological Economics, 60(2), 473–482. doi:10.1016/j.ecolecon.2006.06.012
Liu, S., Costanza, R., Farber, S., & Troy, A. (2010). Valuing ecosystem services: theory, practice, and the need for
a transdisciplinary synthesis. Annals of the New York Academy of Sciences, 1185, 54–78.
Scarlett, L., & Boyd, J. (2011). Ecosystem Services : Capabilities, (March).
Tallis, H., &Polasky, S. (2009). Mapping and valuing ecosystem services as an approach for conservation and
natural-resource management. Annals of the New York Academy of Sciences, 1162, 265–83.