Eduard Interwies

1. The role of valuation of ecosystem services for decision making & Methods of Economic Valuation Eduard Interwies

2. Decisionmakingandecosystemservicesvaluation – generalconsiderations ValuationofEcosystem Services - Ecosystem Services – concept &classification. - Different methodologiesfor ES evaluation. Decisionmakingand ES valuation – specificthoughts Outline 2

3. Paradigm shift from sectoral to ecosystem-oriented management approaches: Economic perspective: treat, count & invest in water/marine/coastal ecosystems (ES) as elements of development infrastructure - as a stock of facilities, services & equipment needed for economic growth & for society to develop & function So: maintain & improve ES to meet both today’s needs & those of intensifying demands & pressures in the future — just like any other component of infrastructure. Background 3

4. If one does not value ecosystems when taking decisions on allocating land, water & marine resources and investment funds: far-reaching economic costspossible… In the past, ecosystem values – or the benefits of Ecosystem Services (ES) - have been almost ignored in decision-making. Reason: failure of markets that often do not to assign an economic value to the public benefits of ES, but attribute value to the private goods and services, which production may lead to ecosystem damage.  Let´s get a better picture of ES values & move towards better decision-making! Background 4

5. A variety of socio-economic factors need to be considered when taking policy decisions: Economic growth needs/related investments; Livelihood & distributional aspects Costs and benefits of specific policy decisions Cost-Benefit/Multi-criteria-analysis etc…. BUT ALSO: how does a decision influence the functioning of ES and the related values…  So, valuation of ES is “only” one part of socio-economic considerations for policy making! Important also for TDA-SAP process ES & Decisionmaking 5

6. ValuationofEcosystem Services …can help to address: human well-being & ES trade-offs between ES, conservation and other priorities a reduction of uncertainty: decision making is often based on estimates, scenarios & incomplete knowledge; valuation is an additional factor in the attempt to gain the most complete picture evaluate interactions of ES with other determinants of human well-being 6

7. Economic valuation of ES assesses both: - the immediate economic gains („benefits“) of ecosystems (raw materials, food, clean water etc.)… “provisioning services“ or “direct and indirect use values“; - …but also benefits that are difficult to evaluate in monetary terms (landscape beauty, optional use for future generations, existence of biodiversity etc.). “option values and non-use values“ ValuationofEcosystem Services 7

8. The classificationinto „provisioningservices“, „regulatingservices“ etc. was developedinitially in theMilleniumEcosystem Assessment (MA 2005), andslightlyadapted/changed in the TEEB Report (De Groot et al. 2009) ValuationofEcosystem Services 8

9. Classification of ES accordingto the TEEB Report: 9

10. The classificationintouseand non-usevaluesstemsfrom the TEV (Total Economic Value) framework: “The concept of the total economic value is a method of creating a single monetary metric that combines all activities within an LME [or river basin] and to express the levels of each activity in units of a common monetary measure, such as US dollars.” (Hoagland et al. 2006) ValuationofEcosystem Services 10

11. Evaluation ofEcosystem Services First Meeting of the Socio-Economic and Trade Working Group (SET WG), 16-18 September 2013, Dakar 11

12. ValuationofEcosystem Services Generally, economicvaluationof ES assessesthevaluesderivedfromtheexistenceandfunctioningofthe relevant ecosystems! Therefore:  Tobeexcluded/not an ES: extractionandminingofmineralresources/oil. As – contrarytotheideaofEcosystem Services - theimpactofextractionactivitiesdeterioratesthequalityof ES andendangerstheirlong-term provision! Ofcourse, such activitieshavetobeconsideredwhenperforming a socio-economicassessmentof an LME/RB 12

13. MethodologiesforvaluingES: 13

14. Methods used in the ES-valuation in the CCLME (ongoing – together with FAO) and GCLME (completed – with UNIDO) Both studies aim at presenting a first rough estimation (“Just do it”!)of the value - for human wellbeing, social welfare and economic growth - of the Ecosystem Services provided by the Canary/Guinea Current Large Marine Ecosystem´s marine and coastal ecosystems… Thus: do not what until all information is available (will never be…) but start with what is there, clearly indicating limitations and assumptions as well as main future work needed…get better over time! Focus here 14

15. Key Methodologies * Market Prices * Damage Avoided/Replacement Costs * Benefit transfers (also from studies based on the Contingent Valuation Methods/CVM) Of course: if one does a more detailed/specific study for a “hotspot”/specific issue, then also other methods become relevant (travel cost, choice experiments etc.) 15

16. Market pricemethod Applicable to direct use values The value is an estimate from the price in commercial markets. Constraints: market imperfections (subsidies, lack of transparency) which distort the market 16

17. Damage cost avoided &replacement cost methods Applicable to indirect use values (e.g. coastal protection, erosion & pollution control, water retention etc.) Estimated by calculating the costs that would occur for building necessary infrastructures to replace the service (e.g. treatment plants) or by calculating the estimated damage of a hazardous event (storm). Main constraint: assumption that cost of avoided damage or substitutes match the original benefit; external circumstances may change the value of the original expected benefit, leading to under- or overestimates. Therefore: use with caution 17

18. ContingentValuationMethod Applicable e.g. to Tourism and Non-Use values Important “for it´s own”, but also in Benefit Transfers, see below Asking people directly how much they would be willing to pay for specific environmental services. Often the only way to estimate the non-use values. It is also referred to as a “stated preference method” Various sources of possible bias in the interview techniques. Plus: would people actually pay the amounts stated in the interviews? Nevertheless, it is one of the few ways to assign monetary values to non-use values of ecosystems that do not involve market purchases. 18

19. BenefitTransfer A transfer of valuation results from a specific „study site” to a different „policy site“ Advantages: Cost- and labor-efficient (if no resources for various own surveys) Compensates (partly) fragmentary data availability Constraints: Great number of uncertainties/inaccuracies: situations are never identical Dependability on quality of study site work Unit value estimates can quickly become outdated 19

20. Benefit Transfer Nevertheless: often best/only solution at hand, since lack of data/specific studies, so important for first rough estimations! Steps: Step 1: Identification of existing relevant data of other studies. Step 2: Checking of transferability of this data: - analysis of features and qualities of services. - analysis of the quality of the study to be used. Step 3: Adjusting the data to the policy site: - calibration with existing data of the policy site (i.e. income level etc.). Step 4: Calculation of the values of ES 20

21. Upfront: “just” with an ES valuation study, it is not possible to make detailed decisions how the LME/River Basin needs to be developed/which projects to do, and which not But it is possible to understand: * which ecosystems have been underestimated in the past in regard to their social and economic benefits and * that activities, which at a first glance appear to be economically profitable, provoke not only environmental damage but also cause significant economic loss.  Therefore, afirst valuation exercise will help to identify explicit and also hidden trade-offs in the use of ES and other (economic) activities – and thus support decision making! Linking results of first ES valuations todecision making 21

22. Since 1990ies: increasing importance of valuation studies BUT: progress in practical application/use of results in natural resource use planning & decision making hasbeen slow; Some possible reasons: practical integration of such valuation studies is a complex process - combined with a general lack of understanding & knowledge regarding the importance of ES various methodological issues e.g. for the valuation of (mostly) non-market benefits jeopardize the credibility of/trust in this work! Studies often being “desk top” – little participation & ownership… Linking results to decision making 22

23. More specific,” hot-spot” oriented valuation studies will possibly be used more directly? Overall (Berkeset al. (2007)): "Resource management is at a crossroads. Problems are complex, values are in dispute, facts are uncertain, and predictions are possible only in a limited sense. The scientific system that underlies resource management is facing a crisis in legitimacy and power. Top-down resource management does not work for a multitude of reasons, and the era of expert-knows-best decision making is all but over“ Possible ways ahead: participation for “quality & ownership”; less quantitative, more qualitative results? Linking results to decision making 23

24. Thank you! Contact: interwies@intersus.eu 24