Module 5: valuing ecosystem impacts

Module 5:

valuing ecosystem impacts

Economic Analysisof Invasive Species

Economic Analysis of Invasive Species2

what this module covers

1. commonly-used ecosystem valuation techniques

2. their application to invasive species

3. the limitations of economic valuation

about invasive species

about invasive species Module 1Module 1

understanding the economic causes of invasions

understanding the economic causes of invasions Module 2Module 2

impacts of invasive species and ways to address them

impacts of invasive species and ways to address them Module 3Module 3

defining invasive-relatedcosts & benefits

defining invasive-relatedcosts & benefits Module 4Module 4

valuing ecosystem impacts

valuing ecosystem impacts Module 5Module 5

informing actionsto address invasives

informing actionsto address invasives Module 6Module 6


market prices

looks at the market price of ecosystem goods and services

how much they cost to buy or what they

are worth to sell

how much they cost to buy or what they

are worth to sell


market prices

are particularly useful for valuing the resources and products that are harvested directly from ecosystems

direct on-site impacts on marketed goods:

• when invasive species replace other species which yield marketed products or resources (for example crops, livestock products, timber or fish)

• when invasive species themselves yield marketed products or resources (for example crops, biofuels, livestock products, timber or fish)


market prices

• 10 wetlands on Zambezi River (Angola, Zambia, Botswana, Namibia, Zimbabwe, Malawi, Mozambique)

• carried out inventory of economically valuable wetland products

• local market survey conducted to find out prices for different products

• user survey identified levels and quantities of use

• crops, livestock, fish, tourism, fuel, handicrafts, construction materials, medicines, wild foods worth $145 million/yr or $48/ha

local use of wetland resources in Southern Africa

(Seyam et al 2001)


going beyond market prices

• the reason why policy, market and price distortions and failures result in invasions is because prices and markets send the wrong signals to producers and consumers about the “real” costs and benefits of their actions

• many ecosystem goods and services do not have markets

• many ecosystem goods and services are subject to markets which are highly distorted or irregular

• in such cases, alternative valuation techniques must be applied which do not rely on uncorrected market prices


marketprices

marketprices

travelcosts

travelcosts

contingent valuation


hedonicpricing

hedonicpricing

effect on production


mitigative & avertive

expenditures


expenditures

damagecosts avoided

damagecosts avoided

replacementcosts

replacementcosts

marketprices

marketprices

surrogate market

approaches

surrogate market

approaches

production function

approaches

production function

approachescost-based approaches

cost-based approaches

stated preference methods


revealed preference methodsrevealed preference methods

summary of valuation methods



relate changes in the output of a marketed goodor service to a measurable change in the

quality of quantity of ecosystem goods and services

the value of ecosystem services

as inputs to production


as inputs to production



can be used to look at the changes in output that occur when invasive species impact on the provision of particular goods and services which

are required for offsite or downstream production

When invasive species:

• replace other species which yield marketed products or resources which are used as inputs for other production processes, such as natural pesticides or pollinators, or raw materials

• interfere with natural habitat for species which are commercially important offsite such as bird and fisheries breeding and habitat

• introduce human, plant or animal diseases and pests

• interfere with or choke water supplies which are required for downstream irrigation, fisheries, hydropower or urban water supplies

• lead to changes in soil fertility, or soil erosion



11 determine the contribution of ecosystem goods and services to the related source of production

determine the contribution of ecosystem goods and services to the related source of production

22 specify the relationship between changes in the quality or quantity of a particular ecosystem good or service and output

specify the relationship between changes in the quality or quantity of a particular ecosystem good or service and output

33 relate a specified change in the provision of the ecosystem good or service to a physical change in the output or availability of the related product

relate a specified change in the provision of the ecosystem good or service to a physical change in the output or availability of the related product

44 estimate the market value of the change in production estimate the market value of the change in production



• looks at 100 food crops which depend on insects for pollination

• used dependence ratios quantifying impact lack of insect pollinators on crop value

• constructed bioeconomic models using reduction in yield, quantity produced and consumed, dependence ratio, retail price

• total economic value of insect pollination €153 billion or 9.4% of total production value

global agricultural costs of pollinator decline

(Gallai et al 2007)


travel costs

look at the ways in which the value of ecosystem goods and services are reflected indirectly in people’s expenditures on

travel

the value of ecosystems as

recreational or leisure destinations

the value of ecosystems as

recreational or leisure destinations


travel costs

can be used to look at the changes in tourism and recreational earnings which occur when invasive

species make a site less or more attractive to visitors

When :

• the habitats being invaded are used for recreational purposes such as hiking, camping, fishing, boating or are considered to have particular landscape beauty, which is compromised by the presence of invasive species


travel costs

11 ascertain the total area from which recreational visitors come to visit an ecosystem, and divide this into zones within which travel costs are approximately equal

ascertain the total area from which recreational visitors come to visit an ecosystem, and divide this into zones within which travel costs are approximately equal

22 within each zone, sample visitors to collect information about costs incurred in visiting the ecosystem, motives for the trip, frequency of visits, site attributes and socio-economic variables such as the visitor’s place of origin, income, age, education, etc

within each zone, sample visitors to collect information about costs incurred in visiting the ecosystem, motives for the trip, frequency of visits, site attributes and socio-economic variables such as the visitor’s place of origin, income, age, education, etc

33 obtain the visitation rates for each zone, and use this information to estimate the total number of visitor days per head of the local population

obtain the visitation rates for each zone, and use this information to estimate the total number of visitor days per head of the local population

44 estimate travel costs, including both direct expenses (such as fuel and fares, food, equipment, accommodation) and time spent on the trip

estimate travel costs, including both direct expenses (such as fuel and fares, food, equipment, accommodation) and time spent on the trip

55 carry out a statistical regression to test the relationship between visitation rates and other explanatory factors such as travel cost and socio-economic variables

carry out a statistical regression to test the relationship between visitation rates and other explanatory factors such as travel cost and socio-economic variables

66 construct a demand curve relating number of visits to travel cost, model visitation rates at different prices, and calculate visitor consumer surplus

construct a demand curve relating number of visits to travel cost, model visitation rates at different prices, and calculate visitor consumer surplus


travel costs

• Conservation Research Program (CRP) aims to mitigate environmental effects of agriculture

• study to ascertain the impacts of improved environmental quality on freshwater recreation, fishing, hunting and wildlife

• sample of 15,000 respondents from 4 states asking about number of visits, travel costs

• combined benefit of CRP actions found to be $35 million/yr or $2.57/ha

freshwater recreation in the USA

(Feather et al 1999)


hedonic pricing

look at the ways in which the value of ecosystem goods and services are reflected indirectly in the prices of property

the value of ecosystems for

quality of life

the value of ecosystems for

quality of life


hedonic pricing

can be used to look at the changes in property prices which might occur due to

changes in the landscape wrought by invasives

When:

• the habitats being invaded have particular landscape beauty, and are associated with premium property prices

• the invasions leads to difficulties accessing residential areas, or interferes with the provision of utilities such as water supplies


hedonic pricing

11 decide on the indicator to be used to measure the quality or quantity of an ecosystem good or service associated with a particular property

decide on the indicator to be used to measure the quality or quantity of an ecosystem good or service associated with a particular property

22 specify the functional relationship between property prices and all of the relevant attributes that are associated with them, including ecosystem goods and services

specify the functional relationship between property prices and all of the relevant attributes that are associated with them, including ecosystem goods and services

33 collect data on property prices in different situations and areas which have varying quality and quantity of ecosystem goods and services

collect data on property prices in different situations and areas which have varying quality and quantity of ecosystem goods and services

44 use multiple regression analysis to obtain a correlation between property prices and the ecosystem good or service

use multiple regression analysis to obtain a correlation between property prices and the ecosystem good or service

55 derive a demand curve for the ecosystem good or service derive a demand curve for the ecosystem good or service


hedonic pricing

• valued wetland amenities in Portland Oregon metropolitan region

• data set of 15,000 home sales

• information gathered about property price and its structural, neighbourhood and environmental characteristics as well as socio-economic characteristics of buyer

• wetlands classified, and distance from property computed

• found wetland proximity exerted significant influence on property values

urban wetlands in the USA

(Mahan 1997)


replacement costs

look at the market trade-offs of maintaining ecosystems for their goods and services via what it would cost to replace degraded or lost ecosystem services by alternative means

the value of ecosystem services in terms of costs saved



replacement costs

can be used to look at the changes in output that occur when invasive species impact on the provision of particular

goods and services which can be replaced by alternative sources


• replace other species which yield marketed products or resources, and these species or products have to be sourced from elsewhere or replaced by other products

• compromise water quality and supplies, requiring alternative sources of water supply or purification

• lead to changes in soil fertility, necessitating the application of artificial fertilisers

• destroy insects which provided pollination services, which have to be replaced artificially

• degrade ecosystems which provided soil erosion control services, which have to be replaced by artificial soil erosion control structures


replacement costs

11 ascertain the benefits that are associated with a given ecosystem good or service, how it is used and by whom, and the magnitude and extent of these benefits

ascertain the benefits that are associated with a given ecosystem good or service, how it is used and by whom, and the magnitude and extent of these benefits

22 identify the most likely alternative source of product, infrastructure or technology that would provide an equivalent level of benefits to an equivalent population

identify the most likely alternative source of product, infrastructure or technology that would provide an equivalent level of benefits to an equivalent population

33 calculate the costs of introducing and distributing, or installing and running, the replacement to the ecosystem good or service

calculate the costs of introducing and distributing, or installing and running, the replacement to the ecosystem good or service


replacement costs

• Nakivubo swamp in central Kampala

• receives and treats most of city’s industrial and residential wastewater

• looked at costs of replacing wetland functions with on-site treatment plants and new sewerage system

• found annual wetland water treatment service value of $2 million/yr

wetland water quality in Uganda

(Emerton et al 1999)


mitigative & avertive expenditure

look at the market trade-offs of maintaining ecosystems for their goods and services via what it would cost to

undertake the actions required to mitigate or offset the negative effects of ecosystem service degradation or loss





can be used to look at the cost of responding to or remediating the ecosystem damage or change that has been caused by invasives

When:

• the invasive species replace important food species, requiring drought or famine relief to maintain local nutrition and food security

• the invaded ecosystem provided flood attenuation services, which require the introduction of measures to mitigate or avert the effects of flooding on downstream settlements

• the invasive species act as pests or diseases on plants, animals or humans, requiring vaccination or disease control measures to be set in place

• the invaded ecosystem provided soil erosion control services, necessitating the installation of silt trapping and sediment removal structures downstream



11 identify the negative effects or hazards that would arise from the loss of a particular ecosystem good or service

identify the negative effects or hazards that would arise from the loss of a particular ecosystem good or service

22 locate the area and population who would be affected by the loss of the ecosystem good and service, and determine a cut-off point beyond which the effect will not be analysed

locate the area and population who would be affected by the loss of the ecosystem good and service, and determine a cut-off point beyond which the effect will not be analysed

33 obtain information on people’s responses, and measures taken to mitigate or avert the negative effects of the loss of the ecosystem good or service

obtain information on people’s responses, and measures taken to mitigate or avert the negative effects of the loss of the ecosystem good or service

44 cost the mitigative or avertive expenditures cost the mitigative or avertive expenditures



• Muthurajawela Swamp in densely-populated urban area on coast

• water storage capacity prevents local flooding

• looked at costs of mitigating effects of floods through drainage and pumping

• found annual wetland value of $5 million/yr or $1,750/ha

wetland flood control in Sri Lanka

(Emerton and Kekulandala 2002)


damage costs avoided

look at the market trade-offs of maintaining ecosystems for their goods and services via the costs and losses of the damages

arising when ecosystem services are degraded or lost





can be used to look at looking at the cost caused to infrastructure and production when invasives interfere with the goods and services provided by a particular ecosystem

When:

• the invaded ecosystem provided flood control services, and the consequent increase in the incidence and severity of flooding leads to damages to houses, roads and agricultural production

• the invaded ecosystem provided water purification services, and the consequent decline in water quality leads to human health impacts

• the invasive species act as pests or diseases on plants, animals or humans, leading to increased medical expenditures and losses in productivity



11 identify the protective services of the ecosystem, in terms of the degree of protection afforded and the on and off-site damages that would occur as a result of loss of this protection

identify the protective services of the ecosystem, in terms of the degree of protection afforded and the on and off-site damages that would occur as a result of loss of this protection

22 for the specific change in ecosystem service provision that is being considered, locate the infrastructure, output or human population that would be affected by this damage, and determine a cut-off point beyond which effects will not be analysed

for the specific change in ecosystem service provision that is being considered, locate the infrastructure, output or human population that would be affected by this damage, and determine a cut-off point beyond which effects will not be analysed

33 obtain information on the likelihood and frequency of damaging events occurring under different scenarios of ecosystem loss, the spread of their impacts and the magnitude of damage caused

obtain information on the likelihood and frequency of damaging events occurring under different scenarios of ecosystem loss, the spread of their impacts and the magnitude of damage caused

44 cost these damages, and ascribing the contribution of the ecosystem service towards minimising or avoiding them

cost these damages, and ascribing the contribution of the ecosystem service towards minimising or avoiding them



• invasion causes fire risks, and increases likelihood of fire damage on Cape Peninsula

• damage also results in soil loss, erosion and likelihood of flooding

• looked at costs of fire and flood damage, insurance claims, cleanup costs

• costs per fire/flooding event of $150,000 (cleanup), $150,000 (flood damage), $5.7 million (insurance claims), costs of fire fighting ($0.5 million)

invasive alien plants in South Africa

(van Wilgen et al 2001)



ask consumers to state their preference directly, rather than looking at the way in which people reveal their preferences for ecosystem goods and services through market production and

consumption


as perceived by individuals


as perceived by individuals



can be used to look at the non-market values that people place on ecosystems that run the risk of invasion, and assessing people’s

perceptions of option values for particular sites, species or products


• replaces species, or interferes with an ecosystem, which are objects of national heritage, special scientific interest, or international significance

• replaces species, or interferes with an ecosystem, which may have future use values such as for hunting, leisure, as a gene pool

• replaces species, or interferes with an ecosystem, which people wish to conserve for future generations



11 ask respondents their WTP or WTA for a particular ecosystem good or service

ask respondents their WTP or WTA for a particular ecosystem good or service

22 draw up a frequency distribution relating the size of different WTP/WTA statements to the number of people making them

draw up a frequency distribution relating the size of different WTP/WTA statements to the number of people making them

33 cross-tabulate WTP/WTA responses with respondents’ socio-economic characteristics and other relevant factors

cross-tabulate WTP/WTA responses with respondents’ socio-economic characteristics and other relevant factors

44 use multivariate statistical techniques to correlate responses with respondent’s socio-economic attributes

use multivariate statistical techniques to correlate responses with respondent’s socio-economic attributes

55 gross up sample results to obtain the value likely to be placed on the ecosystem good or service by the whole population, or the entire group of users

gross up sample results to obtain the value likely to be placed on the ecosystem good or service by the whole population, or the entire group of users



• most contingent valuation studies are conducted via interviews or postal surveys with individuals, but sometimes interviews are conducted with groups.

• the two main variants of contingent valuation are:

– dichotomous choice surveys, which present an upper and lower estimate between which respondents have to choose

– open-ended surveys, which let respondents determine their own bids

• more sophisticated techniques are also sometimes used, such as engaging in trade-off games or using take-it-or-leave it experiments

• the Delphi technique uses expert opinion rather than approaching consumers directly



• focused on water catchment protection services of RutengNational Park, Flores

• looked at local farmer WTP for drought mitigation services inrelation to rice irrigation water

• asked whether would pay a set annual fee, followed up by questions about lower and higher fees

• found mean annual stated WTP of$2-3/hhold, equivalent to 10% of annual agricultural costs, 75% of irrigation fees, 3% of food expenditures

watershed drought mitigation in Indonesia

(Pattanayak and Kramer 2001)


market pricesmarket prices

surrogate market approachessurrogate market approaches

travel coststravel costs

contingent valuationcontingent valuation

hedonic pricinghedonic pricing

production function approachesproduction function approaches

cost-based approachescost-based approaches

mitigative & avertive expendituresmitigative & avertive expenditures

damage costs avoideddamage costs avoided

replacement costsreplacement costs

stated preference approachesstated preference approaches

on-site marketed direct values

on-site and off-site marketed production values

on-site recreation and leisure activities

on-site property prices

on-site and off-site (unmarketed) indirect values

on-site and off-site option and existence values

applicability and relevance


limits to valuation

• generates useful and convincing information for decision-makers and decision-making, and highlights costs and benefits that are usually ignored, but is …

– a means to an end, not an end in itself: aim is to enable better and more informed decisions

– is inexact: based on available knowledge and data at a particular time

– not a stand-alone exercise: requires a multidisciplinary team, not just economists

– partial: can never fully value ecosystem services

– not universal: certain costs and benefits cannot and should not be valued

– not easily transferable: most findings are specific to area, stakeholder group, socio-economic and natural conditions

– often biased: studies and their findings are heavily influenced by the purposes for which they are carried out


thank youthank you


marketprices

marketprices

travelcosts

travelcosts



hedonicpricing

hedonicpricing




expenditures


expenditures

damagecosts avoided

damagecosts avoided

replacementcosts

replacementcosts

marketprices

marketprices

surrogate market

approaches

surrogate market

approaches

production function

approaches

production function

approachescost-based approaches

cost-based approaches



revealed preference methodsrevealed preference methods

summary of valuation methods

Documents

Module 5: valuing ecosystem impacts