The Valuation of Ecosystem Goods and Services Matthew A. Wilson Gund Institute for Ecological Economics & School of Business Administration Email: Wilson@bsad.uvm.edu

List of Ecosystem Goods and Services ECOSYSTEM SERVICES ECOSYSTEM FUNCTIONS Gas regulation Regulation of atmospheric chemical composition. Climate regulation Regulation of global temperature, precipitation, and other biologically mediated climatic processes at global, regional, or local levels. Disturbance regulation Capacitance, damping and integrity of ecosystem response to environmental fluctuations such as sea level rise. Water regulation Regulation of hydrological flows. Water supply Storage and retention of water. Erosion control and sediment retention Retention of soil within an ecosystem. Soil formation Soil formation processes. Nutrient cycling Storage, internal cycling, processing, and acquisition of nutrients. Waste treatment Recovery of mobile nutrients and removal or breakdown of excess or xenic nutrients and compounds. Pollination Movement of floral gametes. Biological control Trophic-dynamic regulations of populations. As this table shows, ecosystem goods and services occur at multiple scales, from climate regulation and carbon sequestration at the global scale, to flood protection, water supply, and nutrient cycling at the local and regional scales. They also span a range of direct connections to human welfare, with those like climate regulation and soil formation being less directly connected, and food production, recreational opportunities, and aesthetics being more directly connected. Because they span such a wide range temporally, spatially and culturally, ecologists, social scientists and environmental managers are increasingly interested in assessing the values associated with these goods and services. Refugia Habitat for resident and transient populations. Food production That portion of gross primary production extractable as food. Raw materials That portion of gross primary production extractable as raw materials. Genetic resources Sources of unique biological materials and products. Recreation Providing opportunities for recreational activities. Cultural Providing opportunities for non-commercial uses. Adapted from Costanza et. Al. (1997) “The Value of the World’s Ecosystem Services and Natural Capital” Nature, vol. 387 pp.253-260

Techniques for Valuing Ecosystem Services Avoided Cost (AC): services allow society to avoid costs that would have been incurred in the absence of those services; flood control (barrier islands) avoids property damages, and waste treatment by wetlands avoids incurred health costs. Replacement Cost (RC): services could be replaced with man-made systems; natural waste treatment can be replaced with costly treatment systems. Factor Income (FI): services provide for the enhancement of incomes; water quality improvements increase commercial fisheries harvest and thus, incomes of fishermen. Travel Cost (TC): service demand may require travel, whose costs can reflect the implied value of the service; recreation areas attract distant visitors whose value placed on that area must be at least what they were willing to pay to travel to it. Hedonic Pricing (HP): service demand may be reflected in the prices people will pay for associated goods: For example, housing prices along the shore of pristine freshwater lakes tend to exceed the prices of inland homes. Contingent Valuation (CV): service demand may be elicited by posing hypothetical scenarios that involve some valuation of alternatives; people would be willing to pay for increased water quality in freshwater lakes and streams. Marginal Product Estimation (MP): Service demand is generated in a dynamic modeling environment using production function (i.e., Cobb-Douglas) to estimate value of output in response to corresponding material input. Group Valuation (GV): This approach is based on principles of deliberative democracy and the assumption that public decision making should result, not from the aggregation of separately measured individual preferences, but from public debate. Avoided Cost (AC): this methodology estimates the value of services that allow society to avoid costs that would have been incurred in the absence of those services; For example, the flood control properties of barrier islands help inland communities avoid property damages, thereby providing a market proxy for the value of naturally functioning systems Replacement Cost (RC): This method is used to estimate the potential market value of services that could be replaced with man-made systems if a technological alternative were feasible; natural waste treatment can be replaced with waste treatment systems thereby providing a market-based estimate of value. Factor Income (FI):This market based method estimates the value of ecosystem services that directly provide for the enhancement of individual incomes; For example, water quality improvements can increase the productivity of a lobster nursery habitat thereby increasing the yield of lobster harvest and the individual incomes of the lobstermen. Travel Cost (TC): Since access to some ecosystem services may require travel, these market costs can reflect the implied value of the service to the user; For example, popular recreation areas such as the grand canyon tend to attract distant visitors whose value placed on that area can be estimated to be at least what they were willing to pay to travel to it. Hedonic Pricing (HP): This method is used to take a market good such as a house which has a bundle of attributes associated with it (including environmental attributes) and estimate marginal ecosystem service demand from the price that people will pay for the house: For example, housing prices along the shore of pristine freshwater lakes tend to exceed the prices of inland homes. Using the Hedonic technique, the marginal value of distance from shoreline can therefore be disaggregated from the overall market price of the house. Contingent Valuation (CV): Contingent Valution and its associated survey-based techniques directly estimate ecosystem service demand by posing hypothetical scenarios that involve some valuation of alternatives; For example, using a random survey of the general population of a community with several nearby lakes, it would be possible to ask residents what they are willing to pay for increased water quality in the freshwater lakes, thereby generating a direct estimate of value. Marginal Product Estimation (MP): Here, service demand is generated in a dynamic modeling environment using production function (i.e., Cobb-Douglas) to estimate value of output in response to corresponding material input. Jon Erickson will talk at greater length about this method later. Group Valuation (GV): This newly evolving approach is based on principles of deliberative democracy and the assumption that public decision making should result, not from the aggregation of separately measured individual preferences, but from public debate. In conventional ecosystem service valuation, social context tends to be relegated to a mathematical vector embedded within the assumed sovereign preference structures of individuals. Consumers of ecosystem services may include concerns for other people, for future generations, for distributional justice and for the intrinsic value of nature when they are asked to ‘put a price’ on the environment, but these motivational concerns are axiomatically taken to exist within the locus of the individual. In this manner, any ‘commodity’—public or private—is deemed valuable to the extent it contributes to the goal of an individual’s satisfaction as revealed through ‘purchasing’ behavior. One solution to this problem would be to adopt an explicit social welfare function that encompassed the goals of economic efficiency and distributional equity. Since the work of Arrow (1951), however, social choice theorists have discovered deep problems with the notion that social decisions can (or should) seek to maximize some index defined in terms of the utility achieved by each member of society. Alternatively, authors such as Rawls (1971) have argued that social rationality should be understood in terms of procedural norms in which notions of unforced dialoge between free and equal moral persons plays a central role. As the Nobel Laureate Sen noted in a 1995 article: Many of the more exacting problems of the contemporary world-- ranging from famine prevention to environmental preservation--actually call for value formation through public discussion (p. 18; italics added). The reasoning behind the deliberative approach to valuation is straightforward. There is a need to design and implement a methodology of valuation that is as participatory and democratic as possible within the parameters established by the full range and depth of scientific information on ecosystem functioning. For example, the goal of a group CV exercise would be to derive a group-based value for the ecological good or service in question. The valuation exercise itself would be conducted in a manner similar to a conventional CV survey – using hypothetical scenarios and realistic payment vehicles – but not through private questioning. Instead the group CV treats deliberation as a mechanism for value elicitation. Because the allocation of ecosystem goods and services affects other people, raises normative and ethical questions, and directly affects social well being, we contend that discursive groups may provide a more appropriate forum for fair and equitable environmental valuation The key message here is not that discourse-based methods are necessarily going to be better than conventional valuation methods or that they should replace them, rather we see the approach as a complimentary one.