Introduction to Audit of Environment & Sustainable ... Sh Dhaval PPT.pdf · Introduction to Audit of Environment & Sustainable Development Issues. ... Introduction to Audit of Environment

ECONOMIC

VALUATION OF

FORESTS

Dhaval Negandhi

Indian Institute of Forest Management

[email protected]

9/19/2014

Introduction to Audit of Environment & Sustainable Development Issues

Acknowledgements

Dr. Madhu Verma, Professor, IIFM

Ministry of Environment, Forests &

Climate Change, Govt. of India

National Tiger Conservation Authority

The Economics of Ecosystem and

Biodiversity (TEEB)

9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Presentation Structure

Introduction to Ecosystem Services

Need for Valuation

Valuation Frameworks

Total Economic Value Framework

Methods for estimating TEV

Challenges and Criticisms

Payment for Ecosystem Services

Application: NPV of forest diversion9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Benjamin Franklin (1706-1790)

“I believe that a great part of the

miseries of mankind are

brought upon them by false

estimates they have made of

the value of things”


Lets define the terms

Biodiversity is the variability among living organisms; diversity within species, between species and of ecosystems

Ecosystem refers to dynamic complex of living and non-living components interacting as a functional unit

Ecosystem services are the benefits that people obtain from ecosystems – the goods and services of nature


The limitation of GDP

GDP no longer a gold standard for

measuring a country’s progress

Lumps together costs with benefits

Fails to account for sustainability

Equity concerns

Valuation of natural capital and ecosystem

services offers an opportunity to replace /

complement GDP.


We depend on nature !

fodder production tourist attraction

pollination

carbon sequestrationflood protection

water purification

slope stability

biodiversity

recreation

beauty

fibre production

food production

stabilising micro-climate

recreation

shelter for life stockgame reserve

© MA9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Millennium Ecosystem Assessment

© MA9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Provisioning Services

Freshwater

Raw materials

Genetic resources

Medicinal resources

Ornamental

resources

Goods produced or provided by forests

©UNEP/GRID-Arendal


Regulating Services

Air purification

Water flow

regulation

Maintenance of soil

fertility

Erosion regulation

Pollination

Natural processes regulated by forests

Climate regulation

Global

Micro-climate

Moderation of extreme events

Water purification

Waste assimilation


Cultural Services

Recreation

Spiritual & religious

experiences

Inspiration

Cognitive

development

Cultural and social benefits from forests

©UNEP/GRID-Arendal


Supporting Services

Nutrient cycling

Primary production

Water cycling

Maintenance of

biodiversity

Functions that maintain all other services

©UNEP/GRID-Arendal9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Ecosystem services approach

Biophysical structure or

process

Function

Service

Benefit (Value)

© Raffaelli, D. & C. Frid (eds.): Ecosystem Ecology: a new synthesis. BES Ecological Reviews Series, CUP, Cambridge9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Invisibilities of forest benefits

Value is not fully reflected in markets, price

signals and policies

Decision-making thus ignores biodiversity

and ecosystem services from forests

Lack of incentives for sustainable use

Growing recognition of the need to develop

natural capital accounts and integrated

environmental and economic accounts


How can valuation help?

Recognize the ‘value’ of ecosystem services

from forest

Identify costs of unsustainable use

Improve decision-making by making trade-

offs explicit

Provide a basis for policy formulation

Set incentives for sustainable use


Monetizing nature?

Market and non-

market valuation

Quantitative and

qualitative

Environmental and

social values

Market-centric view

A price tag on nature

Commoditization

About private profits

Valuation Monetization


Conceptualization

Valuation Frameworks

Ecological

Key Biodiversity

Areas

Critical Natural Capital

Socio-ecological

Millennium Ecosystem Assessment

Develop-mental

Sustainable Livelihoods Approach

Economic

Total Economic

Value

© TEEB9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Total Economic Value


Valuation Methods

Direct Market Valuation Approaches

Use data from actual markets

Revealed Preference Approaches

Use preferences revealed through choices

Stated Preference Approaches

Simulated market


Direct Market Valuation

Market prices: traded in markets

Cost-based approaches: man-made infrastructure or cost of damage

Avoided, Replacement, & Mitigation Cost

Production functions: ecosystem services as inputs to production

Typically used for provisioning goods, regulating

services, and potentially supporting services


Limitations

Lack of markets for most ecosystem

services

Distorted markets even when present

Replacement cost can overestimate the

value

Understanding and information limited for

production function


Revealed Preferences Approach

Travel cost method: among of time and

money spent in travelling

Hedonic pricing: quality or quantity of

ecosystem services reflected in local

property prices

Travel cost typically used for cultural services.

Hedonic pricing can be used for a variety of services including regulating & cultural.


Limitations

Market imperfections & policy failures

Large, good quality data sets required

Expensive and time consuming

Cannot estimate non-use values

Sensitivity to assumptions


Stated Preferences Approach

Contingent Valuation

A policy scenario versus Business-As-Usual

Choice Modeling

Comparison of attributes

Group Valuation

Links valuation with deliberative methods

Can be used for use as well as non-use values by

eliciting Willingness to Pay or Willingness to

Accept9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Limitations

Sometimes the only way to capture non-use

values

Hypothetical nature of markets

Divergence between WTP and WTA

Insensitivity to scale and scope

Different values comparable to a common

metric?

Goods are complex


Choosing the method

Use values Non-use values

Direct Indirect BequestExistenceOption

Market

Production Function

Revealed Preference

Stated Preference

Confidence?

Co

nfid

ence?

Value?

Valu

e?

© TEEB


Benefits Transfer Approach

Takes an existing value at the study site and

applies it to a new site

New valuation studies are time consuming

and expensive

Various categories of Benefit Transfer

Unit BT

Adjusted Unit BT

Value Function Transfer

Meta-Analytic Transfer9/19/2014Introduction to Audit of Environment & Sustainable Development Issues

Challenges in valuation (I/II)

Aggregation

Summing values of different ecosystem services

Double counting: jointly provided, mutually exclusive, interacting or integral

Part-Whole Bias

Spatial Scale

Differing spatial scale of ecosystem services

Demand arises at different scales – use and non-use values

GIS can help in this regard


Challenges in valuation (II/II)

Variations in context and characteristics

Characteristics of site, beneficiaries, and context

Non-constant marginal values

Diminishing / increasing returns to scale

Non-linear, step-changes and thresholds

Distance Decay

Equity Weighting


Criticisms of valuation

The process of valuation

Assumptions

Does the process change our perceptions?

How process affects outcomes?

Valuation and time lags

Drawing the boundary (value Mother,

God?)

How to chose how to value?


Forest Accounts

Source: Expert Group on Green National Accounts


Payments for Ecosystem Services

PES can be defined as a voluntary

transaction where a well-defined ecosystem

service (ESS) is ‘bought’ by at least one

ESS buyer from at least one ESS provide, if

– and only if – the ESS provided secures

ESS provision.

Adapted from Wunder, 2005


Conceptualizing PES (I/II)

© Pagiola 2004


Conceptualizing PES (II/II)

© Pagiola 2004


Net Present Value

of Forest Diversion

in India

Economic valuation in practice


What is NPV and why is it

charged?

Diversion leads to loss of an array of ecosystem services

Not immediately accounted for by CA

Plantations replaces limited ESs lost by diversion of natural forests

Benefits from CA increase slowly

NPV to account for this loss of services

Should be charged for appropriate length of diversion activity


Methodology

Classification

14 Forest Type Groups based on Champion & Seth Classification

4 Forest Canopy Cover Density Classes

Rates suggested for 14 x 4 matrix

Rotation period

Based on weighted average rotation period for each unit of classification


Departure from earlier

methodology

The methodology recognizes the fact that few classification units may have dominant ecosystem

services in terms of their economic value which may be very different from other classification units in

which some other ecosystem services may dominate. The methodology is thus designed to objectively

estimate the economic value of ecosystem services originating from different classification units by

appropriately considering the specific factors rather than using a blanket value across the country.


Timber Bamboo

The value relates to

potential timber

production and not that of

standing timber.

Estimates based on

growing stock data from

FSI

Market price discounted

for getting an in-situ value

Estimates based on

biomass data from FSI

Cost-adjusted price of

bamboo

Fodder NWFPs

Problem: under-reporting

Based on livestock number

dependent on forests and

standard fodder

requirements

Cost-adjusted market price


Estimated from potential

production of 12 major

NTFPs based on forest

inventory data


Fuelwood Bioprospecting


Estimates from FSI study

on fuelwood consumption

from forests

Adjusted for under-

reporting


Based on GIST estimates

Estimated state-wise based

on total number of species

Estimated for FTGs based

on forest area in different

states

Carbon sequestration Carbon storage

Based on growing stock

figures from FSI

IPCC default factors

Social cost of carbon

estimates for India

Based on recent FSI study

on carbon stocks

Social cost of carbon

estimates for India

Pollination & Seed

DispersalSoil conservation

Only estimated for forests;

not for agricultural lands

Estimates based on

replacement cost of natural

forest regeneration

Adjusted for survival % in

plantations

Estimated based on

average soil weight per ha

Assuming it would take

100 years to erode soil

when forests are cleared

Estimation of N, P and K

in eroded soil

Replacement cost of

nutrients

Water recharge Water purification

Based on simple water

balance equation

Relationship based on

canopy cover and surface

run-off

Estimated based on

economic value of water

Based on Benefits Transfer

Estimates from 8 studies

across the globe adjusted

based on GDP per capita

Total Economic Value

Discount rate: 4%

TEV Scenarios

Complete

summation of

values of

ecosystem services

Relevant

summation of

values of

ecosystem services

considering trade-

offs

Forest Type Group

specific rotation

period

Scenario 1Scenario 2

(recommended)

A blanket rotation

period of 60 yearsScenario 3 Scenario 4


Add-on Factors

Hill talukas – 20% premium

Forested wetlands – 20% premium

Protected areas

10 times in National Parks and 5 times in

Sanctuaries

5 times in Eco-sensitive zones around National

Parks and 3 times around Sanctuaries


References


“Not all things that can be counted count, and not all the things that

count can be counted”

Albert Einstein

Thank You


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Introduction to Audit of Environment & Sustainable ... Sh Dhaval PPT.pdf · Introduction to Audit of Environment & Sustainable Development Issues. ... Introduction to Audit of Environment