Valuation of Ecosystem Services Valuation of Ecosystem Services of Rangeland Resourcesof Rangeland Resources
John B. LoomisDepartment of Agricultural and Resource Economics,
Colorado State University, Ft. Collins
Thomas C. BrownRocky Mountain Research Station, U.S. Forest Service
Fort Collins, Colorado
John C. BergstromDepartment of Agricultural and Applied Economics,
University of Georgia, Athens
Popular books
1997
2000
2002
2003
Our effort covers three facets of ecosystem services:
• Definition Definition – (rangeland examples to general principles)
• Economic Valuation to Humans • Provision & Revenue Capture
Possible Ecosystem Goods and Services from Possible Ecosystem Goods and Services from Properly Managed RangelandsProperly Managed Rangelands
Ecosystem goods Ecosystem services
Plants
(livestock and wildlife forage, fuel)
Dispersal of seeds,
Maintenance of plant biodiversity,
Existence values for rare plants
Wildlife & fish (food, related products)
Maintenance of fauna biodiversity, fishing, hunting, viewing
Existence values for rare fish/wildlife
Water flows Mitigation of floods & droughts
Soil Conservation (w/proper mgmt)
Recreation opportunities (e.g., mtn biking)
An Ecosystem Service isAn Ecosystem Service is
A good or service flowing from an ecosystem that is of value to humans and occurs naturally
Ej = r (N)Ej = jth ecosystem serviceN = natural capital (ecosystem structure)r = ecosystem function or process
Example:
Instream flow = r (precipitation, terrain, soils, aquifers, biota)
Relation of Ecosystem to the Human SystemRelation of Ecosystem to the Human System
Ecosystem good or service
Ecosystem (structure &
function) Natural Capital
Human system (social and economic
structure and function)
Ecosystem value
Feedbacks (ecosystem protection)
Feedbacks (depletions, contaminations)
Economic Valuation of Economic Valuation of ecosystem servicesecosystem services
• Economic Valuation to Humans Economic Valuation to Humans – Ecosystem services have value to Ecosystem services have value to
humans because they are:humans because they are:• SCARCESCARCE• PROVIDE UTILITYPROVIDE UTILITY
– Valuation Methods start with UtilityValuation Methods start with Utility
How Ecosystem Services provide UtilityHow Ecosystem Services provide Utility
, ,iU u 1 2E ,Q E L K
•U = utility to humans•E1 = ecosystem goods and services of direct utility (require no other inputs) •E2 = ecosystem goods and services requiring other inputs (labor and capital) for consumption•L = labor•K = built capital
Economic Valuation of Ecosystem Services
• Definition • Economic Valuation to Humans Economic Valuation to Humans
– Valuation MethodsValuation Methods• Market: prices, chargesMarket: prices, charges• Production Function ApproachesProduction Function Approaches
– Shadow price of unpriced natural capital in firms/ranchers production function Shadow price of unpriced natural capital in firms/ranchers production function
• Replacement cost/cost saving: Replacement cost/cost saving: – built alternatives that may be more costly than protecting natural capitalbuilt alternatives that may be more costly than protecting natural capital
• non-marketnon-market
Examples of ecosystem G&S and substitutes
Ecosystem stock Ecosystem stock Ecosystem serviceEcosystem service SubstituteSubstituteRenewable raw materials
Animals Harvestable wild elk Domestic elk
Range livestock Pasture/Feedlot livestock
Plants Wild plants Cultivated plants
Watershed Soil water storage Water reservoir
Clean water Clean water (via treatment)
Total Economic Value of Ecosystem Services:
Use & Non Use A, On-site, current use expenditures
B, On-site, current use consumer’s surplus
C, Off-site, current use expenditures
D, Off-site, current use consumer’s surplus
E, Off-site, future use expenditures
F, Off-site, future use consumer’s surplus
G, On-site, future use expenditures
H, On-site, future use consumer’s surplus
I, Non-use, existence activity expenditures
J, Non-use, existence activity consumer’s surplus
Techniques for Measuring Techniques for Measuring Use Values of Ecosystem ServicesUse Values of Ecosystem Services• Recreation Use Values:Recreation Use Values:
– Revealed Preference: Travel Cost Method of Estimating Recreation Demand
– Maczko’s dissertation applied TCM to estimate value of rangeland recreation using NVUM data
– Stated Preference Contingent Valuation Method-Simulated Market
Shift in Demand Curve w/Improved Shift in Demand Curve w/Improved Ecosystem Services (WQ, Fish)Ecosystem Services (WQ, Fish)
$90
$50
$10
6
Visitor Trips
D Low ES
D High ES
10
$/Trip$/Trip
Techniques for Measuring Techniques for Measuring Other Use Values of Other Use Values of
Ecosystem ServicesEcosystem Services
Residential Amenity Values– House Price Differentials (Hedonic Property Method)
• Other Ecosystem Service Values– Cost savings, contingent valuation method
Techniques for Measuring Total Techniques for Measuring Total Economic Value & Non Use Economic Value & Non Use
Values of Ecosystem ServicesValues of Ecosystem Services
• Contingent Valuation Method– Survey of general public regarding whether
they would vote to pay higher taxes or fees, or water bill or electric bill for maintaining or improving specific ecosystem services
Elements of Contingent Valuation Method Elements of Contingent Valuation Method (CVM)(CVM) For Measuring Total Economic ValueFor Measuring Total Economic Value
• Describe the Ecosystem Services At Risk– Maps, drawings, graphs, photos
• WTP Question– Would you Pay $X (per trip, per year) for
Improvement• $X varies across the sample.
Downward Sloping Willingness to Pay Function: Downward Sloping Willingness to Pay Function: Higher the Price, the less likely people will pay
Logit Function
0
0.2
0.4
0.6
0.8
1
Price (WTP) $
Pro
b(Y
es)
Techniques for Measuring Total Techniques for Measuring Total Economic Value & Non Use Economic Value & Non Use
Values of Ecosystem ServicesValues of Ecosystem Services
• Contingent Valuation Method
• Choice Experiment/Conjoint Analysis
– Survey asking about multiple attribute trade-offs involving higher levels of higher ecosystem services for tax payment
Financing Provision ofecosystem services
• Positive Net Economic Benefits Positive Net Economic Benefits (B>C) is a (B>C) is a necessary condition for economically efficient necessary condition for economically efficient provision provision
• Sufficient Condition is that public and private Sufficient Condition is that public and private landowners are able to obtain funds/revenues to landowners are able to obtain funds/revenues to protect and continue to provide ecosystem servicesprotect and continue to provide ecosystem services
Provision of ecosystem services is enabled by making people pay
• For ecosystem services that previously were free:– buying conservation easements– buying open space– paying land owners to continue certain management practices– charging for recreation on public land
• To offset the reduction in ecosystem services they used to affect without payment – pollution taxes– permit trading
• Markets are one way for people to pay
Necessary Conditions of market exchange
Conditions that allow exchange Scarcity Non-attenuated property rights Clear definition and precise measurement Consistent and reliable enforcement Excludability Transferability Low transaction costs Ready market information Inexpensive measurement, monitoring, and enforcement Conditions that lead to a competitive market solution Many buyers and sellers Lack of third-party environmental effects Rivalness Ample identical units Perfect information Conditions that further improve the likelihood of exchange Perceived fairness of transactions Institutions aiding exchange (e.g., customs, brokers, banks)
Examples of ecosystem services by Rivalry & Exclusivity
Exclusive Nonexclusive
Rival
•PURE PRIVATE GOODS
•Renewable goods harvested from contained ecosystems
•Services the effects of which are contained within a property ownership
•COMMON PROPERTY
•Renewable goods harvested from uncontained ecosystems (migratory)
• Downstream Services realized in the quality of rival goods (downstream water quality, viewscapes on nearyby houses)
• Natural animal & plant pest control & pollination
Non-
rival
•PURE PUBLIC GOODS
• Temperature maintenance via carbon storage
• Biodiversity
•Natural water storage
With Common Property & Public Goods Other Payment Mechanisms Besides
Markets are Needed
Provision and payment mechanisms for ecosystem goods and services
Sellers
Individuals* Governments
Buyers
Individ-uals*
Markets for privately-held ecosystem goods (e.g., timber, gems, fee hunting) Private land trust conservation easements (e.g., Nature Conservancy) Private environmental quality incentive payments (e.g., Perrier-Vittel, Trout Unlimited) Consumption-based donations (e.g., green certification, wind power rate premium, organically-grown coffee) Cap and trade markets (e.g., wetland credits, SO2 credits, carbon seq.)
Public goods and services financed by taxes (e.g., national parks, national forests, national wildlife refuges, county or city open space, conservation easements) Fees to government agencies for access to ecosystem goods (e.g., timber harvesting, mineral extraction, grazing) Fees (taxes or charges) for license to discharge (e.g., pollution taxes)
Govern-ments
Incentives to private parties for provision of ecosystem services (e.g., CRP, Wetlands Reserve Program, Grassland Reserve Program)
Federal grants for environmental protection (e.g., U.S. EPA water quality protection grants to local governments)
* Firms and NGOs are categorized as individuals.
Ecosystem goods and services on public lands
A fee commonly is charged A fee commonly is not charged
Mineral and fossil fuel extraction Watershed protection
Wood products (timber harvest, fuel wood gathering, Christmas tree cutting)
Wildfire suppression
Livestock grazing Wildlife and fish habitat protection
Easements and rights of way (e.g., roads, dams, power lines)
Biodiversity of plants and animals
Developed recreation use (e.g., campgrounds)
Carbon sequestration
Access to national parks and monuments Dispersed recreation on national forests
Payment options on Public Lands:1. Government Charges really need to reflect Fair Market Value as required by FLPMA2. Charge for enhancements to existing ecosystem services(e.g., fuels reduction, watershed protection)
Questions?
