Putting Economic Value to Nature Protection Direct and Indirect Costs and Benefits by

1. Putting Economic Value to Nature Protection Direct and Indirect Costs and Benefits by Gernot Bäurle gernotbaeurle@compuserve.com

2. Presentation Outline • What is the economic value of nature? • How to determine the economic value? • How confident can we be about these value estimates? • Costs & benefits of nature protection: spatial & temporal mismatches • How to reconcile these mismatches? • Payment for ecosystem services • Digression: Conservation Finance Alliance • Conclusions

3. Total Economic Value Use Values Direct Use Value benefits from consumption e.g. agricultural products Indirect Use Value benefits from ecosystem functions e.g. hydrological regulation Option Value benefits from availability for possible future use e.g. gene pool Non-use Values Bequest Value legacy benefits e.g. cultural landscape conservation for future generations Existence Value existence benefits e.g. knowledge of existence of wildlife diversity What is the economic value of nature? (OECD 2001, adapted)

4. Market Price Approach by definition, market values tend to reflect actual use and hence ignore non-use values • Observed market price method • Cost-based Methods - replacement cost - opportunity cost Revealed Preference Approach prices revealed in other (surrogate) markets that are affected by the goods/services to be valued • Travel Cost Method • Hedonic Price Method • Averting Behaviour Method Stated Preference Approach willingness to pay (WTP) estimates used when no (surrogate) market exists (construction of a market) • Contingent Valuation (direct elicitation of WTP) • Choice Modelling (indirect elicitation of WTP) - choice experiments - contingent ranking - contingent rating - paired comparison Benefit Transfer values borrowed from existing studies How to determine the economic value? (OECD 2002, adapted)

5. Levels of Confidence in Estimates (OECD 2001, adapted)

6. Costs and Benefits: Place local national global costs benefits (Balmford & Whitten 2003, simplified)

7. Costs and Benefits: Time present future costs benefits Additional problem: How to compare costs and benefits over time?

8. How to reconcile spatial and temporal mismatches?

9. Payment for Ecosystem Services Ecosystem services e.g. erosion control, hydrological regulation Protection/restoration of ecosystem services through sustainable land use • Benefits from ecosystem • services • e.g.: • constant water supply • reduction of floods • reduction of siltation of dams Financial incentive Reducion of costs and risks ecosystem catchment area rural populationlandowners • private sector,communities, e.g.: • industry • hydropower plants • waterworks Transfer payments National economy alternative sources of income, compensation for foregonebenefits • economic benefit, e.g.: • lower maintenance costs • lower water treatment costs

10. Payment for Ecosystem Services: example of a tax/levy/surcharge approach Governance Structure Financing Mechanism Payment Mechanism Bene- ficiary Land user €€ ££ ¥¥ $$ €€ ££ ¥¥ $$ Ecosystem Services (World Bank 2002, adapted) Alternatively a market based approach is possible

11. Conservation Finance Alliance: CF Guide www.guide.conservationfinance.org

12. Conclusions • Economic valuation of nature and nature protection is not an “exact science” • it can be a double edged sword  but it can add depth to decision making when trade-offs are necessary • A mismatch of costs and benefits of nature protection over time and space exist  Payment for ecosystem services can help to even out this mismatch • In the end nature protection is a matter of societal choice and beyond pure economics.