The Value of Ecosystem Services: Principles for Valuing Fish Habitat Daniel D. Huppert School of Marine Affairs University of Washington

Ecosystem Services (and Goods) Habitats support: 1. Animals used for food, recreation, education, spiritual renewal 2. Water supply and water quality 3. Flood control and transportation 4. Housing and nice views (sometimes) 5. Protection from various hazards 6. Disease organisms and predators

These services satisfy human needs and preferences, hence they have positive economic “value”. A thing has economic value if people are willing to sacrifice other valued things to obtain it. Value is relative, there is no absolute economic value.

Four dimensions of Value Total value of a given quantity versus marginal value of having another unit (market price) Gross value versus value net of costs Market versus non-market value Direct value in consumption versus indirect value through enhanced production

Marginal versus Total Value Marginal value as demand price Market price where quantity demanded = quantity supplied Total value of supply is area under the demand curve. quantity P Supply Demand

Example: Alaska Salmon Marginal Value is highly variable Price of salmon has declined recently Hence, value of enhancing habitat for commercial salmon is way down.

Total verus Marginal Value When the price is depressed due to unusually high supply (e.g., salmon) 1. The total value of salmon sold is greater than when supply is small and price is high. 2. But, the value of additional habitat is low because the marginal value of salmon is low.

Gross Value vs. Net Value If fish habitat generates $1 mil. of gross value per year, we subtract the cost of maintaining habitat & catching fish to get the net value created. Costs include project expenditures and foregone value of next best use for the habitat (agriculture, logging, harbor, hydroelectricty…whatever)

Market versus non-market Markets don’t exist for many habitats or components of habitats. Examples: shorebird habitat on a mudflat; fish rearing habitat in a wetland; winter habitat for humpback whales in Hawiian waters. Value for these things must be inferred from specialized data.

Categories of Non-Market Recreational value associated with fishing, hunting, birding, etc. People are willing to pay for opportunities to participate in these activities. Existence (or passive use) value of species or habitats that are prized for their own sake (whales, Artic National Wildlife Refuge).

Direct valuevs indirect value Direct value is market or non-market value of final good to consumers. Many natural resources and habitats are indirectly valuable, primarily for their contribution to production of final goods or services. Value of fish habitat is indirect. Value of farmland is indirect, depending upon yield/acre & prices.

Habitats with Mixed Uses Mudflat has indirect value as habitat for crabs and oysters and shorebirds. Converted mudflat has value as boat harbor. Filled land may be valuable for homes. Dredged channels have value as transportation corridors. Mudflat may have direct value as surroundings for long-term residents.

Measurement For small changes in market goods (e.g. commercial salmon) use market price times  quantity for gross value. Subtract enhancement and operating costs for net value. For change in non-market good, choose a study method appropriate to the type of good (see next chart).

Valuation Methods

Cautions None of the valuation methods deal with equity and fairness (neither does ecology). Most ecosystem valuations rely heavily on understanding of ecosystem functioning. Ecosystem values will vary widely across time and space. There are no fixed points of reference.

Mistakes to Avoid “Economic impact” concerns changes in local incomes & employment, but says little about economic value. Ratio of GNP to energy use does not indicate the value of energy & energy content is not proportional to value. Risky projects need to be assessed for expected values & variances.

Mistakes to Avoid Double-counting: the indirect value of inputs are included in price of final goods and services. So, don’t add value of fish habitat to value of fishing vessels to crew wages to market value of salmon. Value of “inputs” are in market value. Non-use values are additional to use values for the same good.

Conclusions Habitat values are ubiquitous and multi-dimensional Careful accounting is required to avoid mis-applications. Substantial data collection and analysis is required.