Valuation of Ecosystem Services

1. Valuation of Ecosystem Services Presentation to Models and Modeling for the World Water Assessment Programme Joel D. Scheraga National Program Director U.S. EPA December 11-12, 2000

2. Ecosystem Services Ecosystem services refers to how humans benefit from ecosystems: “…a wide range of conditions and processes through which natural ecosystems, and the species that are part of them, help sustain and fulfill human life” - Daily et al., 1997

3. Ecosystem Services Ecosystem services relevant to freshwater ecosystems include: • recreation (including hunting and fishing) • intrinsic or existence values (value of something irrespective of any human use) • amenity functions • wildlife viewing • maintenance of biodiversity and landscape diversity • water quality protection and regulation of water flows • genetic material and maintenance of a gene pool • amelioration of weather and climate regulation

4. Ecosystem Services Ecosystem services (cont.): • pest control • fisheries • soil retention (erosion control), formation, and maintenance of fertility • storm protection, flood control and regulation of hydrologic cycles • nutrient cycling • cultural (e.g., aesthetic, artistic, spiritual, scientific values) • food and fiber production • medicines and pharmaceuticals

5. Purpose of Ecological Assessment • Evaluate how human activities affect ecosystems • Evaluate which of these changes are important • Provide decision makers with information about tradeoffs involved in their decisions • in ecological terms • in economic terms

6. Example of Difficult Tradeoff for Decision Makers Use of water to sustain ecosystems vs. Use of water for food production

7. Fundamental Problem of Economics • The allocation of scarce physical and human resources among competing and unlimited human wants and desires • Key concept: Scarcity • desired • limited in quantity • Water can be a scarce resource

8. Challenge for Policy Makers • Decide which use of scarce resources (e.g., water) is valued higher • Societal decision • Assessors can inform: Values human place on different resources, e.g., • survival of wildlife • ecosystem functions/services • adequate human nutrition • We can facilitate: Understanding of tradeoffs (nature & magnitude) inherent in any decision • Assessors’ job is not to make policy decisions

9. Need to Focus on Changes in Ecosystems • Humans depend upon ecosystems for their fulfillment and survival. • Without ecosystems, no living things could exist. • Valuation of total systems, however, is generally irrelevant to decision making. • Most decisions neither eliminate nor destroy complete ecosystems.

10. Important Caveat There are aspects of ecosystems that are valuable but may not be amenable to economic analysis Such circumstances may require: • other analysis and communication tools • other decision-making frameworks

11. Measuring the Economic Value of Ecosystem Services • Economic definition of value: the amount of compensation required to make individuals as well off after a change as before the change. • Value to society: determined by the sum of individual values when there is a marginal change in an ecological service (e.g., recreational fishing)

12. Values for Ecological Services: Categories and Examples • Market Use Values: • food, building materials (e.g., gravel), fuel, drinking water supplies, electric power generation, transportation of coal, tourism • Nonmarket Use Values: • recreation, fishing, swimming, boating, hunting, bird-watching, hiking, camping, sight-seeing, transportation and fuel; • flood control, mitigation of drought, stormwater treatment and/or retention, partial stabilization of climate, water purification, cycling of nutrients and minerals, flow of energy • Nonmarket Nonuse Values: • habitat value, scarcity value, option value, existence value, cultural value, historical value, biodiversity, intrinsic value, bequest value, philanthropic value

13. Valuing Changes in Ecological Services • Economists use several methods to measure people’s willingness to accept tradeoffs… • whether they are ecologists, economists, bird watchers, hikers, carpenters, baseball players, ballerinas, musicians, etc. • Prefer methods based on how people behave when faced with real-world tradeoffs • e.g., between ecological services and other goods • revealed preference approaches • When observed behavior does not reveal preferences: • survey techniques • stated-preference approaches

14. Methods for Valuing Changes in Ecological Services Revealed Preference • (Hedonic) Property Value • uses changes in private property values to estimate an implicit price for changes in ecological services • relies on “natural experiments” • Travel-Cost Method • observes recreators’ observed pattern of trips among available sites • accounts for observed variations in site characteristics, including ecological services

15. Methods for Valuing Changes in Ecological Services Stated Preference • Contingent Valuation • involves direct survey of individuals to elicit their “willingness to pay” for different levels of services • Stated Choice • Involves survey in which respondents are asked to express preferences among attributes that include specific ecological services (e.g., fish catch; protecting an endangered species) • Strength: respondents think in terms of tradeoffs • Researchers can identify equivalent tradeoffs by analyzing series of responses

16. Challenges in Translating Ecological Value to Economic Value • Conditions ideal when: • possible to describe or predict the ecological change accurately, • nature of ecological good/service that is lost/gained is understood, and • importance of the change can be quantified (e.g., monetized) or ranked • These ideal conditions seldom are met. • Three major challenges: • uncertainty • irreversibility and cumulative effects • issues of fairness (e.g., intergenerational equity, discounting, and environmental justice)

17. References • Ecological Assessment of Aquatic Resources: Application, Implementation, and Communication, Pellston Workshop, September 16-21, 2000 (forthcoming) • Nature’s Services: Societal Dependence on Natural Ecosystems, Gretchen C. Daily (ed.), Island Press, Washington, DC, 1997. • “Guidelines for Preparing Economic Analyses,” U.S. EPA. June 11, 1999 (draft)

18. Additional Information EPA’s Global Change Research Program: www.epa.gov/globalresearch