Economic Valuation of Ecosystem Services and Biodiversity Conservation: a multidisciplinary approach

1. 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

2. 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

3. 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

4. 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.

5. 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).

7. Definition of the total economic value of an environmental resource

8. Definition of the total economic value of an environmental resource

9. Definition of the total economic value of an environmental resource The major contribution of environmental economists has been in the area of the valuation of environmental goods and services, i.e. methods for measuring the demand curves for goods for which there are no markets (nonmarket valuation)

10. Why perform economic valuation • Economic valuation perspective

11. 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

12. Economic valuation perspective Instrumental vs. intrinsic valuation. Monetary vs. physical indicators. Direct vs. indirect values. Alternative perspectives on valuation Value of levels vs. changes of levels. Holistic vs. reductionist approaches. Expert vs. general public assessments.

13. 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.

14. 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!

15. Economic valuation perspective

16. Economic valuation perspective

17. Economic Valuation ***

18. 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.

19. Biodiversity and Human Welfare HUMAN WELFARE SERVICES THREATS BIODIVERSITY RESOURCES ECONOMIC VALUATION

20. Complexity of the resource

21. Classification of biodiversity economic values

22. Applicability

23. Review of valuation studies: Life diversity level Biodiversity value type Value ranges Method(s) selected Genetic and species diversity (2=>5) Bioprospecting From: $ 175,000 To: $ 3.2 million Market contracts Single species From: $5 To: $126 Contingent valuation Multiple species From: $18 To: $194 Contingent valuation Unequivocal support for the belief that biodiversity has a significant, positive social value. Lack of a uniform, clear perspective on biodiversity as a distinct concept from biological resources. Available results should be regarded as providing, at best, lower bounds to the unknown value of biodiversity changes.

24. 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.

25. Biodiversity matters and people matter!

26. Motivation: stylized fact one

27. Motivation: stylized fact two

29. MEA: conceptual framework Source: MEA (2005), adapted.

30. MEA: conceptual framework Climate change Source: MEA (2005), adapted.

31. MEA: conceptual framework Climate change Forests systems Coastal and marine systems Source: MEA (2005), adapted.

32. MEA: conceptual framework Climate change Forests systems Coastal and marine systems Source: MEA (2005), adapted.

34. An illustration: Culturalservices Contingent valuation methods Market priceanalysis Regulating services Cost Assessments Provisioning services

35. 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 eco-tourism activities focused on the visits to natural areas with high outdoor recreational demand.

36. 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)

37. 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

38. 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

39. Biodiversity, ecosystems, ecosystems services and human well-being are linked Ecosystem services: ecosystems provide vital goods and services

40. Provision of ecosystem services is not often factored into important decisions that affect ecosystems. Distortions in decision-making damage the provision of ecosystem services making human society and the environment poorer

41. Integrating ecology and economics: a research agenda for valuing ecosystem services Policy decisions Decisions by firms and individuals (1) Incentives (3) Non-anthropocentric approaches (2) Actions Other considerations Ecosystems (5) Biophysical tradeoffs (7) Economic efficiency (4) Ecological production functions Benefits and costs Ecosystem services (6) Valuation Source: S. Polasky, adapted

42. Reflection and challenges:tasks to mainstream economic valuation • Improve understanding of the likely consequences of human actions on ecosystems • Improve understanding of the impacts of ecosystem change on ecosystem services and biodiversity • Improve understanding of the value of these impacts on human welfare • Tie understanding of impacts and values to incentives • Everyday decisions of individuals, firms and communities • Societal policy choices

43. Reflection and challenges:tasks to mainstream economic valuation Integration of distributional objectives in the objective function of the policy maker (other considerations) The role of the local communities in the management of the resource The role of the resource in terms of income generation

44. Work in progress: BioLAC

45. Contact: pnunes@unive.it Campo S. Maria Formosa 30122 Venezia - Italy tel +39 | 041 | 27 11 400 fax +39 | 041 | 27 11 461 web http://www.feem.it

46. Motivation Jul 16th 2009From The Economist print edition