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

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 Presentation Outline

What is the economic value of nature? 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 (OECD 2001, adapted)

How to determine the economic value? 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 (OECD 2002, adapted)

Levels of Confidence in Estimates (OECD 2001, adapted) ValueConfidence direct use values e.g. for agricultural products high indirect use values e.g. for ecosystem services low – medium existence/option values e.g. for a landscape very low – medium

Costs and Benefits: Place localnationalglobal costs benefits (Balmford & Whitten 2003, simplified)

Costs and Benefits: Time presentfuture costs benefits Additional problem: How to compare costs and benefits over time?

How to reconcile spatial and temporal mismatches?

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

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

Conservation Finance Alliance: CF Guide

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. Conclusions