ECOSYSTEM GOODS SERVICES

1. ECOSYSTEM GOODS SERVICES • The multitude of goods, foods and services provided by intact ecosystems. • Goods are ecosystem products or services that are bought and sold and therefore have a price. • Services are products or services that are not usually bought and sold and do not have a price, but have value nevertheless.

2. Everyone in the world depends on nature and ecosystem services to provide the conditions for a decent, healthy, and secure life

5. Current Status of Ecosystem Services • Food production has been increasing, ahead of population growth, resulting in greater food availability per person. • Increasing productivity of the land (e.g. irrigation agriculture) • Turning wild land into agricultural land • Increasing in fish and shellfish farming

6. Current Status of Ecosystem Services • Regulatory services have been overwhelmingly on the decline. Chief causes: • Changes in land use • Increases in pollution • Loss of biodiversity

7. Current Status of Ecosystem Services • Cultural services have been in decline. • Degradation of natural habitat and conversion to exploitative use. • Overuse of limited nature reserves.

8. MA’s recommendation: What can we do about the progressive loss of ecosystem services? • Properly value all ecosystem services (not just the goods). • Improve policy, planning and management to integrate decision-making between different users and prioritize the protection of ecosystems. • Influence individual behavior by providing information and choice (information about the hidden costs of consumption and choice of selecting sutainably harvested products). • Develop and use environment friendly technology for reducing harmful ecosystem use, repair damaged ecosystems, and reduce greenhouse gas emissions.

9. The value of ecosystem services can be as high or higher than the value to the goods they produce.

10. If we can assign a quantitative monetary value on ecosystem goods and services, we can: • justify the use if public funds for restoration or protection projects; • make objective decision on the most efficient use of limited resources; • through cost-benefit analysis, set priorities for programs, policies or actions. • assign the amount of damages polluters are required to pay.

11. Economic Value Value = maximal amount of other things a person is willing to give up for that item, typically: money. Value ≠ market price. Consumers gain economic value by paying a price below the perceived value.

12. There are three ways to measure economic value • Revealed willingness to pay. • Uses market prices to estimate value. Requires active trading of ecosystem products (e.g. clean water) or of products whose value depends on the existence of ecosystem services (e.g. real estate). • Estimated willingness to pay • Uses circumstantial evidence to estimate how much people are willing to pay, e.g. to avoid flood damage by preserving a wetland. • Expressed willingness to pay • Uses surveys to ask people what they would be willing to pay, based on a hypothetical scenario.

13. Revealed willingness to pay. • There are four specific methods: • Market price method • Estimates economic value based on the price of marketable goods. • Productivity method • Estimates economic value based on the cost of producing marketable goods. • Hedonic price method • Estimates economic value based on effects on • the price of other marketable goods. • Travel cost method • Estimates economic value of a site based on how much • people are willing to pay to travel to visit the site.

14. Example of the “market price method”: A chemical spill caused the closure of a commercial fishing area and agency staff want to evaluate the benefits of cleanup.

15. consumer surplus actual price of an item Consumer Demand Function Unit Price ($) Demand

16. consumer surplus ($25,000) After the spill 10,000 lbs of fish sold for $5 per lb consumer surplus ($9,000) Unit Price ($) 6,000 lbs of fish sold for $7 per lb Unit Price ($) Demand Demand Loss to the consumer: Before the spill Loss of consumer surplus due to the spill: 25,000 – 9,000 = $ 16,000 Decreased supply sets a higher price point

17. Before the spill Fishermen got $ 1 per lbs of fish they sold (10,000 lbs) and spent $ 0.5 per lbs catching it. Their surplus was: 10,000 – 5,000 = $ 5,000 After the spill Fishermen got $ 1.2 per lbs of fish sold (6,000) and spent $ 0.6 per lbs catching it. Their surplus was 7,200 – 3,600 = $ 3,600 Loss to the producer: Loss of producer surplus due to the spill: 5,000 – 3,600 = $ 1,400 Total economic loss: 16,000 + 1,400 = $17,400

18. Both supplier and consumer loose due to the spill, equivalent to $17,400. What clean-up cost would be perceived as making economic sense?

19. Example of the “hedonic method”: The Peconic estuary near NY is known for its high environmental quality. As more people move into it, some of that quality is lost.

20. A hedonic valuation study was conducted to assess the effect that adjacent land use had on property prices: Open Space  + 12.8% per-acre Farmland - 13.3% per-acre Major Roads - 16.2% per-acre Zoning + 16.7% per-acre Wetlands + 0.3% per acre For example, the value of preserving a 10 acre parcel of open space, surrounded by 15 “average” properties, is $410,907.

21. Example of the “travel cost method”: During the 1970’s, Hells Canyon on the Snake river that separates Idaho and Oregon was considered the best site for building a hydropower plant. The next best site cost $80,000 more to develop.

22. Environmental economists applied the travel cost method: A low-cost/low precision travel-cost survey estimate the recreational value of Hells Canyon at $900,000. Though deemed inaccurate, the estimate still suggested that the recreational value of Hells Canyon exceeded savings from developing this site rather than the next best site. Congress voted to prohibit further development of Hells Canyon.

23. Estimated willingness to pay • Uses circumstantial evidence to estimate how much people are willing to pay, e.g. to avoid flood damage by preserving a wetland. • There are three related methods: • damage cost avoided method • replacement cost method • substitute cost method

24. The Catskills: Water source for New York City. Once the quality of water was so highly valued that it was bottled and sold.

25. Catskill watershed became too polluted for human consumption. • The estimated price of the filtration plant: • cost of the plant: $6 to $8 billion • operation costs: $300 million per year • The estimated price of watershed restoration: • $1billion

26. Expressed willingness to pay • Uses surveys to ask people what they would be willing to pay, based on a hypothetical scenario. • There are two methods: • contingent valuation method • Estimates economic value based on asking people how much they would pay for specific environmental services, based on a hypothetical • scenario. • contingent choice method • Estimates economic value based on asking people to choose between scenarios associated with monetary tradeoffs.

27. Example of the “contingent valuation method”: In 1989 the Exxon Valdez spilled 11 million gallons of crude into Prince William Sound, Alaska. Approximately 100,000 birds were killed. At its peak the cleanup effort included 10,000 workers, about 1,000 boats and roughly 100 airplanes and helicopters.

28. Exxon Valdez Oil Spill in Price William Sound Exxon was fined $150 million, the largest fine ever imposed for an environmental crime. The court forgave $125 million of that fine in recognition of Exxon’s cooperation in cleaning up the spill and paying certain private claims. Of the remaining $25 million, $12 million went to the North American Wetlands Conservation Fund and $13 million went to the national Victims of Crime Fund. In phase two of the trial, the jury also awarded compensatory damages of $286.8 million to commercial fishermen. The other major plaintiff, the Alaska Native class, settled for $20 million just prior to going to trial. $5 billion were awarded in punitive damages, the largest ever in a pollution case and the second largest in a civil case in the United States. A lower court reduced damages to 2.5 billion

29. Amount “no” “not sure” “yes” $ 10 30% 3% 67% $ 30 39% 9% 52% $ 60 44% 6% 51% $120 59% 7% 34% Application of the Contingent Valuation Method for determining non-use value After respondents were briefed on the oil spill and reassured that any answer they give is defendable, the questionnaire asked if they would be willing to pay a one-time tax of a specified amount ($10 - $120) to prevent another Exxon Valdez type oil spill. The possible answers were “no”, “not sure” and “yes”. The exact amounts ($10, 30, 60 and 120) were randomly assigned to respondents.

30. The median willingness to pay was estimated at $30 per household [$26 – $35]. In 2000, the U.S. 93 Mio English-speaking households (= the population that participated in the survey). Thus, the no-use value of Prince William Sound was estimated to be $2.8 Billion. This was taken to be a measure of how people value the mere existence of an unspoiled price William Sound.

31. Exxon Valdez Oil Spill in Price William Sound Last Chapter In 2008, the supreme court reduced the damage to 500 Million. CNN news headline from February 1, 2008: Oil giant makes corporate history by booking $11.7 billion in quarterly profit; earns $1,300 a second in 2007. This means, in 2008, Exxon earned $500 Million in 3.6 days.

32. Summary • Humans depend on healthy ecosystems to provide food, shelter, income, clean water and air. • Where ecosystems break down, humans suffer. • The value of functional ecosystems are not always evident until they break down. • Multiple economic methods are available to put a value on ecosystem services. This can be used as a method to prevent damage. • We should not forget that ecosystems and the species that live in them have unquantifiable intrinsic value.