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Incorporating Ecosystem Services
into the Genuine Progress Indicator
(GPI)
Elliott Campbell, PhD
Maryland Department of Natural Resources
Outline
I. What is the GPI and why is it useful?
II. How are ecosystem services currently used in the GPI?
III. What are the implications of
– ES as a cost vs. benefit
– Inclusive vs. exclusive valuation
– ES Valuation Methodology
IV. Recommendations for future work
It’s All Greek: Ecology and Economy
“Eco” is based on Greek word Oikos for Home
Ecology
Study of the Home
Economy
Study of Managing the Home
Economy
Economy
Gross Domestic/State Product
Current Definition of Prosperity? The GDP/GSP
• “total monetary value of all final goods and services produced domestically”
• Does NOT include externalities
• Does NOT include social contributions
• Does NOT address social equity
• ‘Enjoys’ disasters
• Encourages defensive spendingGDP muscles through: Economy brushes off storms and expands by 3.8 percent in 3Q, beating estimates.(Reuters, October 28, 2005)
Cleaning up the spill will likely be enough to slightly offset the negative impact of all this on GDP, J.P. Morgan said. (W.S.J., June 15, 2010)
“GDP…measures everything except that which makes life worthwhile.”
- Robert F. KennedyMarch 18, 1968
"The welfare of a nation can scarcely be inferred from
a measurement of national income""The welfare of a nation can scarcely be inferred from a measurement of national income“
- Simon Kuznets, Father of the GDP, 1934
Scale of Indicators of Prosperity
Gross Domestic Product (GDP)
Genuine Progress
Indicator (GPI)
Happy Planet Index (HPI)
Gross National Happiness
(GNH)
Globally
used,
Kuznets
Talberth (2000s)
Maryland (2010-
now)
New
Economics
Foundation
(UK)
Bhutan
GNH-USA
Economic Well-Being Happiness
Data/Objective Polling/Subjective
Genuine Progress Indicator (GPI)
Better Metric of Prosperity
• Quantifies & Values Impacts of Economic Activity on Experienced Welfare on a National/State Scale; Based on Academic Studies or Government research
• Modifies GDP by Including “triple bottom line”
• Income Inequality
• Non-market social benefits
• Negative environmental & social externalities
• Part of “Beyond GDP” and “New Economy” Movements
Includes 26 Indicators
Search: “Maryland GPI”
http://www.dnr.maryland.gov/mdgpi
2008
Recession
2013
Where are Ecosystem Services in the GPI?
• Cost of Net Wetlands Change
• Cost of Net Forest Land Change
• Cost of Net Farmland Change
Tracks annual value lost from baseline conditions
Value gained from the work of the environment is not included
Wetlands
Cost of wetland change over time (in billions of dollars)
Change in wetland acreage over time
Uses ES value of wetlands from Costanza, 2004- Value increases with scarcity, starting at
$1973 acre-1 year-1 in 1960, averages ~$3400 acre-1 year-1 over the 53 years
Non-Market Valuation, positive value not included in GPI calculation
0.00
0.05
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0.25
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0.35
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0.45
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11 730,000
740,000
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Forests
Cost of net forest change, in billions of dollars Change in MD forest Acreage, in thousands
Of acres
Value of $318 acre-1 year-1, calculated from literature review,
Non-market value, positive value not included in GPI calculation
Farmland
Cost of net farmland change, in billions of dollars Change in MD farmland acreage, in
Thousands of acres
Value per acre of $1,131 per year based on average productivity of farmland in Maryland
Market Value, including value as a positive would double count welfare contribution
• Quantify each ecosystem service in terms of biophysical flow on a consistent baseline (i.e. joules of solar energy) using environmental accounting (i.e. emergy accounting)
• Relate biophysical flow to currency by observing instances where people have exhibited monetary preference for the work of the environment (i.e. market payments, cost of regulatory programs, costs avoided), termed “eco-price”
• Quantify ES in both biophysical and monetary, differentiation between expressed preference and public value, terms allow for flexibility of the model
Environmental Accounting for ES Valuation
What is Emergy?
• Yes, I spelled it right
• Created by renowned ecologist H.T. Odum
• Method for accounting for the difference in ability to do work
– i.e. a joule of electricity can do more work than a joule of sunlight
• Part of systems ecology, a function of the larger system of which the process is a part.
Renewable
Energy
Ecosystem
Services
Human Feedback
Example: A Food Chain
Ecological Food Chain
Ecological/Industrial“Food” Chain
100 sej
10J
Transformity = 10 sej/J
Eco-Price
Ratio of emergy (the energy of one form necessary to make something) of a environmental good or service or analog to a monetary investment in said service
Examples
– The emergy of one ton of carbon divided by the trading price per ton in the Regional Greenhouse Gas Initiative (RGGI) marketplace
– The emergy of runoff from a taxed land area divided by the tax charged through the Stormwater Fee law
– Emergy of nutrients avoided through BMP implementation divided by the cost of establishment
Avoids biases of stated preference and hedonic pricing, acknowledges that society values ES different ways, end-use is not constant
Money (Benefit)
Emergy (Ecosystem Service)
ES Values Considered
$12,033
$1,084$502
$2,500
$334$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
Cecil Co. Study EarthEconomics
Eco-priceValue
Public Value(emdollar)
Current GPIValue
ES Value per Acre of Forest Land Over 1 Year
$43,685
$2,658 $2,500
$10,717
$3,412
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
Cecil Co.Study
EarthEconomics
Eco-priceValue
Public Value(emdollar)
Current GPIValue
ES Value per Acre of Wetland Over 1 Year
The Cecil County study (Weber 2007), Earth Economics and current GPI value used are all
Literature reviews of ES values. The Eco-Price and Public values are from Campbell, 2014,
Calculated using environmental accounting
What is the appropriate value framework for ES to be
included in the GPI?
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Bill
ion
$ y
r-1
GPI GPI + EScurrent GPI+EScecilCo. GSP GPI+ESpublicValue
ES as a Cost vs. Benefit
If losing natural lands decreases experienced welfare, then the existence of natural lands must increase experienced welfare!
So if the same values currently in the model are applied…
Average difference of Including ES as a benefit is 4.5 billion per year
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Bill
ion
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$ y
r-1
ES Cost ES Benefit GSP
Environmental Accounting for ES Valuation
0
50
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Comparison Using Environmental Accounting ES Values
GPI GPI+ES GPI+ESpublic GSP
Average difference of Including ES as a benefit is 3.9 billion per year
Adjustment for Scarcity
0.0
1.0
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Bill
ion
$ y
r-1
Ecosystem Service Value
Not Scarcity Adjusted Scarcity Adjusted
ES Framework Considerations
– Intermediate ES vs. Final ES vs. Benefits
– Temporal and spatial provision
– Value vs. price
– Adjust for Scarcity?
– Market vs. Non-market
– Avoiding double counting
GPI Ecosystem Service Recommendations
• Only final Ecosystem Services should be included in the GPI (following Boyd and Banzhaf 2007)– Final ecosystem services are components of nature,
directly enjoyed, consumed, or used to yield human well-being. – Boyd and Banzhaf, 2007
• Ecosystem services should be on the time scale (1 year) and spatial scale of the GPI being calculated, as much as possible (following Fisher et al. 2009)
• The GPI calculation relies on market based contributions to welfare
• As such, to most accurately reflect the equation WTP for final ecosystem services should be used, estimated through proxy markets, non-market valuation methods or the eco-price, mindful of social equity and iterated upon over time
• Given the context of the GPI, an attempt to better estimate experienced well-being, ES should be treated as a positive in the equation
• If reasonable ES values are considered general trend of the GPI and relationship to GDP/GSP is unchanged
GPI Ecosystem Service Recommendations
