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How to value ecosystem services?

In his famous paper Costanza et al (1997) estimated the annual value of ecosystem services at $33 trillion, double the amount of the world’s gross national product.

Natural Capital Accounting – why GDP is not an accurate measure of our wealth?

Cutting down a forest can initially increase the local GDP. However, it will cause soil erosion and water runoff and soon the local area will not be self-sufficient in terms of food. Thus, to use the metaphor of Alvaro Umana, the former Environmental Minister of Costa Rica, GDP measures the flapping of a bee’s wings, but does not capture the overall direction of the flight. The bee might be flying fast straight at a wall, heading for self-destruction.

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[youtube width=”300″ height=”170″]http://www.youtube.com/watch?v=kUnM05Mpiyw[/youtube]

Economic Valuation

The methods for eliciting the value of ecosystem services can be divided into two categories: economic (also known as dollar based methods) and non-economic valuation. The former include the market price method, productivity method, hedonic price method, travel cost method, damage cost avoided, replacement cost, substitute cost method, contingent valuation method, contingent choice method and benefit transfer method. The latter category includes:

Payment for Ecosystem Services
Payments for ecosystem services are and innovative means of acknowledging the economic worth of ecosystem services. They are a system of payments to individuals who, through abstaining from environmentally harmful practices, contribute to the maintenance and preservation of important ecosystem services. Although sometimes, PES involve a payment from beneficiaries of the service to its maintainers, usually PES schemes are funded by governments and NGOs. Examples of large scale PES programmes include the Conservation Reserve Program in the US and the Gain for Green Program in China. A typical situation in which payments for ecosystem services can be applied is where the downstream population pays the upstream population to not dump their pollution into the river.

  1. Market price method – can be applied to commodities traded on the market, e.g. oil, corn etc.
  2. Productivity method – can be used for ecosystem services that contribute to the production of commodities, e.g. fresh water in an aquaculture pond.
  3. Hedonic price method – can be used for ecosystem services that affect the economic value of other commodities, e.g. a forest which increases the value of properties around it.
  4. Travel cost method – can measure the value of recreational areas by calculating how much people will pay to travel to and visit those sites.
  5. Damage cost avoided, replacement cost and substitute cost methods – can measure the cost of avoided damage to ecosystem services, of replacing or providing substitutes for those services, e.g. the cost of artificial crop pollination in the absence of bees and other pollinating insects.
  6. Contingent valuation method – can be used to elicit the value of any ecosystem service based on asking people to choose between ecosystem services.
  7. Benefit transfer method – estimates the value of ecosystem services based on an already completed valuation in another place.

Valuation methods can also be divided into stated preference (where research participants are asked to value an ecosystem service) and revealed preference (where the preference is discovered, e.g. through measuring how much individuals are willing to pay to travel to a nature park).

Examples of putting prices on ecosystem services:

  • Pollinators in US provide a service worth $190 billion per year for the agricultural sector in the US alone
  • 50% of US 640 billion in pharmaceuticals comes from natural genetic resources

use and non-use value of nature

Ecosystem valuation resources:

An introductory guide to valuing ecosystem services

The economics of ecosystems and biodiversity

Economic Valuation of Nature. The price to pay for conservation?

Seattle’s Forest Ecosystem Values

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