Valuing the Protection of Ecological Systems and Services

1. Valuing the Protection of Ecological Systems and Services Rob Brenner Director, Office of Policy Analysis and Review Office of Air and Radiation October 27, 2003

2. “Not everything that can be counted counts, and not everything that counts can be counted.” ~ Albert Einstein

3. Outline • OAR mission • OAR Programs and the Environment • Role of Valuation of Ecosystem Benefits in Program Development • Tools and Approaches Used by OAR for Ecosystem Benefit Assessment • Tools and Approaches Needed to Enhance OAR Programs • Beneficial SAB Science Advice

4. OAR Mission • Protect human health and the environment by preventing air pollution and exposure to radiation through effective management of public and private resources • OPAR vision statement : Ensure that OAR policies are: • consistent, • effective in protecting health and the environment, and • economically efficient

5. Role of Ecosystem Benefits in Program and Regulatory Development • CAA & CAAA require EPA to establish air quality standards and programs to protect human health and the environment • Since 1970, EPA has an impressive record of reducing air pollution in the US • NAAQS (standards to control CO, NOx, lead, SO2, ozone, particulates) • Primary standards are health-based • Secondary standards protect the environment • Acid Rain Program – cap and trade program has resulted in reduced SO2 and NOx air emissions that damage lakes, rivers, forests, and ecosystems • Visibility – 1999 Regional Haze Rule to improve air quality and reduce haze in national parks and wilderness areas • Stratospheric Ozone and Climate Protection • Air Toxics • Technology-based standards (MACT) Program, Residual Risk Program

6. Role of Valuation of Ecosystem Benefits in Program Development • Benefit and cost analyses are one tool used to inform policymakers in program and regulatory development • Provides detail of the economic efficiency of alternative approaches • Ecosystem benefits are an important component of the benefits assessment for rulemakings • Approach to ecosystem benefit valuation within OAR regulatory framework: • Qualitative assessments are conducted routinely • Quantitative assessments are undertaken, where possible • e.g., quantify reduction in deposition of specific air pollutants to ecosystems • Monetized valuation of environmental improvements is useful, but feasible in limited instances • Analyses range: • Geographically from local to nationwide and • Temporally • Depict current period conditions and/or conditions anticipated to occur many years in the future depending upon program criteria

7. CAAA Section 812 Study Approach • Step 1 • Broad assessment of ecologically important air pollutants • CAA-regulated pollutants with known interactions with natural systems • e.g., acid deposition, nitrogen deposition, air toxics, ozone • Step 2 • In-depth assessment of selected ecological effect endpoints, esp. economically significant service flows • Quantitative if possible, monetized if possible • e.g., timber yields, crop yields, nitrogen deposition • Step 3 • Wide-ranging evaluation of potentially significant ecological effects at various spatial scales • e.g., cellular, individual, population, local ecosystem, etc. • Mostly qualitative descriptions of both acute and long-term effects

8. New Section 812 Study Plans • Apply same three-step approach to ensure broad coverage of relevant ecological effects of reductions in CAA-regulated pollutants • Pursuant to SAB Council advice, conduct one or more case studies involving in-depth assessment of important ecological service flows, not just economically significant or measurable ones • Current 812 study analytical blueprint focuses on Waquoit Bay nitrogen deposition case study

9. Monetization of Environmental Benefits • OAR has monetized environmental benefits related to several impact areas in economic analyses supporting rulemakings • Visibility in Class I areas and residential areas • Valuation of visibility included in all recent benefits analyses • Currently have only limited coverage of Class I areas • Can only include residential visibility as a sensitivity valuation • Nitrogen deposition reduction in sensitive estuaries • Proposed an avoided cost approach that has been relegated to a sensitivity analysis ~ note OAR has work ongoing in this area • Commercial forestry yields • Used TAMM forest sector model in 812 Prospective Analysis, Tier 2 and NOx SIP Call rulemaking Economic Analyses. • Researching additional species impacts and new economic models based on concerns raised during HD Engine rulemaking Economic Analysis development • Commercial agricultural yields • Used AGSIM agricultural sector model in Nonroad Diesel, HD Engine, Tier 2, and NOx SIP Call rulemaking Economic Analyses as well as 812 Prospective Analysis.

10. Tools and Approaches Used for Ecosystem Valuation • Extensive network of air quality monitors to assess current ambient air conditions and air deposition • Extensive scientific literature on the impacts of air pollution on ecosystems • Scientific review of the impact of air pollution on human health and the environment • e.g. For NAAQS - in depth review of the science to assess human health impacts and environment impacts of relevant air pollutants • Ecosystem Risk Assessments • e.g., Residual risk programs for toxics assess human health and ecosystem risk

11. Tools and Approaches Used for Ecosystem Valuation continued • OAR has extensive air quality modeling capabilities at its disposal • Published economic literature of ecosystem valuation is limited • Revealed preference approaches • Stated preference methods • Benefit Transfer Techniques

12. Tools and Approaches Needed • Monetization of ecosystem benefits resulting from reduced air pollution is the approach that gives ecosystem benefits parity with other types of benefit categories • Monetization of ecosystem benefits is currently quite limited for OAR due to a variety of factors including: • Gaps in understanding of ecological impact of air pollution • Inability to measure marginal improvements in ecosystem services • Gaps in systematically linking ecosystem improvements to economic goods and services • Characterization of ecosystem services sold in markets is most feasible currently • e.g., agricultural markets, forestry, commercial fishing • Significant gaps in knowledge of non-market and non-use ecosystem services • Lack of multimedia modeling necessary to quantify improvements in ecosystem service in a regulatory context • Models must be transferable to different regions of the country to obtain nationwide assessments • Models must be executed in a limited time and resource framework • Minimal economic valuation literature exists currently… Studies are needed! • Ongoing work to update and enhance methods and approaches for ecosystem benefits • (e.g., nitrogen deposition to US water bodies, forestry species and market approaches)

13. Tools and Approaches Needed continued • Although monetization of ecosystem benefits is desired within a benefit/cost framework, quantification of impacts is a reasonable next step • Quantification of air quality changes and air deposition changes are currently available • Quantification of the impact of improvements in air quality and/or air deposition to actual ecosystems is less readily available • e.g., OAR is currently working with OW to better characterize water quality changes associated with reduced nitrogen deposition • Development of multi-attribute ecosystem health indicators and their relation to air pollution would help both in quantification and valuation of air pollution impacts.

14. SAB Guidance • Some argue we should focus on expanding methods and data for economic valuation through benefit-cost or cost-effectiveness analysis • Others argue economic data and methods will never give full and adequate treatment to important ecological service flows so other, non-economic paradigms are needed to characterize the value of ecological effects • OAR interested in both approaches and in obtaining relevant SAB advice • Continue research in both ecological sciences and economics to bridge gaps in economic analyses of ecological effects • Explore other assessment methods to provide information on ecological effects currently assigned an implicit value of $0 • e.g., “Natural Systems Impact Assessment” • Strategies for facilitating communications across disciplines (e.g., getting ecologists and economists to understand each others needs and limitations).