2. Economic Valuation of Ecosystem Services and Biodiversity Conservation: a multidisciplinary approach Paulo A.L.D. Nunes University Ca Foscari of Venice Fondazione Eni Enrico Mattei Euro Mediterranean Center for Climate Change

3. 2 Contents Background and motivation Economic thinking and environmental economics Economic valuation perspective Biodiversity as an environmental resource Economic reasons for economic valuation Integrating ecology and economics

4. 3 Contents Millennium Ecosystem Assessment Ecosystems services approach Biodiversity, ecosystems, ecosystems services and human well-being are linked Reflection, and challenges A research agenda for valuing ecosystem services Tasks to mainstream economic valuation in everyday decisions Economic valuation of ecosystems services as a means for biodiversity conservation and poverty alleviation

5. 4 Just what is economic thinking? Economics is a social science, human behaviour is at the core of the analysis, we focus on the study of choices, individual choices. Choices are disclosed in the allocation of scarce resources (not just traditional commodities) to meet individual economic needs. Economics is not simply about profits or money. It applies anywhere constraints are faced, so that choices must be made. Economists study how incentives affect peoples behavior.

6. 5 Environmental and natural resource economics Environmental and natural resource economics is the application of the principles of economics to the study of how environmental and natural resources are developed and managed. Environmental resources – resources provided by nature that are indivisible and are affected by the economic system (e.g. biodiversity). Natural resources – provided by nature that can be divided into increasingly smaller units and serve as inputs to the economic system over time (e.g. forests, oil).

7. 6

8. 7 Definition of the total economic value of an environmental resource

9. 8

10. 9 The major contribution of environmental economists has been in the area of the valuation of environmental goods and services, i.e. methods for measuring the demand curves for goods for which there are no markets (nonmarket valuation)

11. 10 1.Why perform economic valuation 2.Economic valuation perspective

12. 11 Why perform economic valuation Cost-benefit-analysis and environmental policy making Excessive pollution Protection of the natural environment Legal claims and natural resource damage assessment Exxon Valdez (CERCLA, NOAA) Environmental accounting (national and firm level) Satellite national accounting system Corporate social responsibility reports

13. 12 Economic valuation perspective (1) Instrumental vs. intrinsic valuation. (2) Monetary vs. physical indicators. (3) Direct vs. indirect values. Alternative perspectives on valuation (4) Value of levels vs. changes of levels. (5) Holistic vs. reductionist approaches. (6) Expert vs. general public assessments.

14. 13 All in all… It is clear that different valuation perspectives can be distinguished based on the above considerations. This means that different angles on the value, and valuation, may in fact be based on different perspectives. This does not mean that one is right and the other is wrong. Evidently, it is crucial to know which perspective is being adopted.

15. 14 Economic perspective Instrumental perspective Provides a monetary indicator Valuation is operationalized through explicit changes of the environmental status, preferably marginal or small (interpreted as alternative policy scenarios) Not a value of an ecosystem!

16. 15 Economic valuation perspective

17. 16 Economic valuation perspective

18. 17 Economic Valuation ***

19. 18 Biodiversity as an environmental resource Biodiversity requires our attention for two reasons. First, it provides a wide range of direct and indirect benefits to mankind, which occur on both local and global scales. Second, many human activities contribute to unprecedented rates of biodiversity loss, which threaten the stability and continuity of ecosystems as well as their provision of goods and services to mankind. Consequently, in recent years much attention has been directed towards the analysis and valuation of the loss of biodiversity.

20. 19 Biodiversity and Human Welfare HUMAN WELFARE BIODIVERSITY RESOURCES

21. 20 Complexity of the resource

22. 21 Classification of biodiversity economic values

23. 22 Applicability

24. 23 Genetic and species diversity (2=>5) BioprospectingFrom: $ 175,000 To: $ 3.2 million Market contracts Single speciesFrom: $5 To: $126 Contingent valuation Multiple species From: $18 To: $194 Contingent valuation Life diversity level Biodiversity value type Value rangesMethod(s) selected Review of valuation studies: Unequivocal support for the belief that biodiversity has a significant, positive social value. Lack of a uniform, clear perspective on biodiversity as a distinct concept from biological resources. Available results should be regarded as providing, at best, lower bounds to the unknown value of biodiversity changes.

25. 24 Millennium Ecosystem Assessment The Millennium Ecosystem Assessment (MA) was called for by the United Nations Secretary-General Kofi Annan in 2000. Objective of the MA was to assess the consequences of ecosystem change for human well-being. The MA has involved the work of more than 1,360 experts worldwide. Their findings provide a state-of-the-art scientific appraisal of the condition and trends in the worlds ecosystems and the services they provide, as well as the scientific basis for action to conserve and use them sustainably.

26. 25 Biodiversity matters and people matter!

27. 26 Motivation: stylized fact one

28. 27 Motivation: stylized fact two

29. 28

30. 29 Source: MEA (2005), adapted. MEA: conceptual framework

31. 30 Source: MEA (2005), adapted. Climate change MEA: conceptual framework

32. 31 Source: MEA (2005), adapted. Climate change Forests systems Coastal and marine systems MEA: conceptual framework

33. 32 Source: MEA (2005), adapted. Climate change Forests systems Coastal and marine systems MEA: conceptual framework

34. 33

35. 34 Marine ecosystem goods and services Market priced benefits Fisheries products Eco-tourism Un-market priced benefits CO2RecreationNonuse values Provisioning services Regulating services Cultural services Market price analysis Cost Assessments An illustration: Contingent valuation methods

36. 35 Monetary valuation approaches Market price valuation mechanisms. These include the value of contracts, as recently signed by the pharmaceutical industry and governmental agencies, and the value of the financial revenues related to the eco- tourism activities focused on the visits to natural areas with high outdoor recreational demand.

37. 36 Monetary valuation approaches Non-market valuation methods. These refer to special tools used by the economist so as to retrieve consumers preferences for biodiversity benefits, including Contingent Valuation Methods (CVMs)

38. 37 What are CVMs? Valuation technique widely applied by environmental economists (Exxon case) Aims at tracing the latent demand curve for a non market commodity The main tool is an on-purpose designed questionnaire It is a very flexible development

39. 38 Potential of CVM Studies Interview based Technique Deeply rooted in social studies literature Gathers a great deal of information on attitudes and preferences Capable of attaching economic measures to non use values Flexible to other uses, i.e. management options

40. 39 Biodiversity, ecosystems, ecosystems services and human well-being are linked Ecosystem services: ecosystems provide vital goods and services

41. 40 Provision of ecosystem services is not often factored into important decisions that affect ecosystems. Distortions in decision- making damage the provision of ecosystem services making human society and the environment poorer

42. 41 (1) Incentives (2) Actions Ecological production functions (6) Valuation (3) Non- anthropocentric approaches Other considerations Benefits and costs Decisions by firms and individuals Policy decisions Ecosystems Ecosystem services (7) Economic efficiency (5) Biophysical tradeoffs (4) Integrating ecology and economics: a research agenda for valuing ecosystem services Source: S. Polasky, adapted

43. 42 Reflection and challenges: tasks to mainstream economic valuation 1.Improve understanding of the likely consequences of human actions on ecosystems 2.Improve understanding of the impacts of ecosystem change on ecosystem services and biodiversity 3.Improve understanding of the value of these impacts on human welfare 4.Tie understanding of impacts and values to incentives Everyday decisions of individuals, firms and communities Societal policy choices

44. 43 Reflection and challenges: tasks to mainstream economic valuation 5.Integration of distributional objectives in the objective function of the policy maker (other considerations) 6.The role of the local communities in the management of the resource 7.The role of the resource in terms of income generation

45. 44 Work in progress: BioLAC Position paper Methodological paper Empirical application papers Turtles as ecosystem engineers in the LAC Policy/management insights

46. 45 Campo S. Maria Formosa 30122 Venezia - Italy tel+39 | 041 | 27 11 400 fax+39 | 041 | 27 11 461 webhttp://www.feem.it Contact: pnunes@unive.it

47. 46 Motivation Jul 16th 2009 From The Economist print edition