Valuation of Biodiversity Valuation of Biodiversity and Biodiversity Resources and and Biodiversity Resources and

FunctionsFunctions

International Review Meeting for Country Projects onIntegrated Assessment of Trade-related Polices and Biological Diversity

in the Agricultural SectorGeneva, 26 – 28 November 2007

Markus LehmannSecretariat of the Convention on Biological Diversity

Montreal, Canada

Valuation UNEP Review Meeting -- November 2007 – 2

Outline

1. Basic concepts of economic valuation

2. Overview of valuation tools

3. Application in assessments

Valuation WG-L&R-3 -- February 2007 – 3

1. Basic concepts• Economic value is based on individuals’

preferences, which are reflected in their willingness-to-pay

willingness-to-pay = the sacrifice that individuals are willing to make in order to secure a certain good or serviceNB: not necessarily in monetary terms

• This feature applies generally, including for marketed goods and services

• The concept is hence:• anthropogenic (value is assigned by humans)• subjective (value is assigned by individuals – and

aggregated over all individuals who assign value)

Valuation WG-L&R-3 -- February 2007 – 4

1. Basic concepts

Why undertaking economic valuation?Missing markets for many environmental assets including components of biodiversity

• Many components bear characteristics of public goods: nobody can be excluded from their use

• No or weak incentives for individual conservation/sustainable use efforts

• No price signal that indicates scarcity of biodiversity

Economic valuation shall elicit “hidden” biodiversity values for better decision-making

Valuation WG-L&R-3 -- February 2007 – 5

1. Basic concepts• NB: Economic value commercial value:

individuals may assign value for different reasons or motives, and not only for the immediate benefits of commercial exploitations of resources

• Different motives for valuing environmental assets are reflected in the “total economic value” concept

• NB: total economic value global value

Valuation WG-L&R-3 -- February 2007 – 6

1. Basic conceptsTOTAL ECONOMIC VALUE (TEV)

TEV CATEGORIES

Direct use valueConsumptive,

non-consumptive

Indirect use value Option value Existence valueBequest value

(for future generations)

USE VALUE NON-USE VALUE

Hunting

Fishing

Timber harvesting

Harvesting of non-timber forest products

Harvesting of biomass

Recreation

Genetic resources

Old-growth forest (irreversibilities!)

Charismatic mega-fauna (whales, great apes, etc.) and their habitats

EXAMPLESfor Biodiversity

COMMONLY USED

VALUATION METHODS

Change in productivity, cost-based approaches, hedonic prices, travel cost, stated preference

methods

Change in productivity, cost-based approaches,

stated preference methods

Change in productivity, cost-based approaches,

stated preference methods

Stated preference methods

Watershed protection

(erosion control, local flood reduction, regulation of streamflows, storm protection)

Ecological processes

(fixing and cycling of nutrients, soil formation, circulation and cleansing of air and water, climate regulation, carbon fixing, global life support)

Valuation WG-L&R-3 -- February 2007 – 7

1. Basic conceptsEconomic valuation shall elicit “hidden” biodiversity values for better decision-making…

• Stand-alone (awareness-raising)

• Integration into economic decision-making tools• Cost-benefit-analysis (CBA)

• Cost-effectiveness-analysis (CEA)

• Integration/interaction with other

assessment tools

• …

Valuation WG-L&R-3 -- February 2007 – 8

2. Valuation toolsTypes of valuation tools

1. Revealed-preference methodsindividuals reveal their willingness-to-pay in actual behavior (e.g., in “surrogate” markets)

2. Stated-preference methodsindividuals state their willingness-to-pay in hypothetical behavior, by responding to questionnaires

3. Benefit (functions) transfertransfer results of one or several studies to a comparable site

Valuation WG-L&R-3 -- February 2007 – 9

2. Valuation tools1. Revealed-preference methods

• Changes in productivitytrace impact of ecosystem change on produced goods

• Travel cost methodderive willingness-to-pay from actual data on travel expenditures

• Hedonic analysisidentify implicit price (‘shadow price’) of environmental attributes of marketed goods (in particular real estate)

• Cost-based approachesreplacement/restoration cost as a lower bound for the value

Valuation WG-L&R-3 -- February 2007 – 10

2. Valuation tools Change in productivity

• Two steps:1. quantifying the biophysical relationships by tracing through and

quantifying a chain of causality2. undertake the actual valuation

• If surrogate goods are marketed, 1. may well be more challenging than 2.• Example: coffee cultivation and pollination by wild bees (Ricketts 2004)

• Broadly applicable for use values whenever surrogate produced goods can be identified

• See cases III, IV, and X in Technical Series No. 28

Valuation WG-L&R-3 -- February 2007 – 11

2. Valuation tools Travel cost method

• Used for site-seeing/recreation benefits (tourism, protected areas)• See cases I, VII, VIII, XIII

Cost-based approaches• Not a valuation technique per se• Can be used to identify least-cost alternative• Catskills case as an example• See cases III, IV

Valuation WG-L&R-3 -- February 2007 – 12

2. Valuation tools

2. Stated preference methods• Contingent valuation, contingent choice• Broadly applicable, can cover non-use values• Challenges:

• Sample representativeness• Communicating complex issues• Avoid various biases in responses

• The role of questionnaire design including pre-testing

• NOAA Guidance• See examples II, VI, VII, VIII, IX, X

Valuation WG-L&R-3 -- February 2007 – 13

2. Valuation tools General assessment

• Valuation tools can generally provide useful and reliable information when applied carefully and according to best practice

• Choice of tools is situation-dependent (which types of values are deemed to be relevant?)

• Tools can be combined among each other• Capturing different types of value• Sensitivity analysis

• Tools can be combined with deliberative/ participatory approaches

• Sensitivity analysis• Distributional impacts• Non-economic considerations, sensitivities

Valuation WG-L&R-3 -- February 2007 – 14

2. Valuation tools General assessment (cont.)

• Application is costly and requires considerable technical expertise

• Application of stated-preference techniques is also particularly time-consuming

• Tradeoff between cost and reliability• Revealed preference methods inherently more reliable,

but:• Tradeoff between reliability and applicability

(capturing non-use values!)

Apply a cost-benefit criterion to the valuation itself, including to the choice of the valuation tool(s)

…and what does all this mean for your studies?

Valuation WG-L&R-3 -- February 2007 – 15

3. Valuation and assessmentsTo use or not to use?Case-specific considerations

• Capacity preconditions• Existing valuation work on the topic

(ecosystem) under consideration – as a starting point• In the country?• In the sub-region?

• Existing data• Study design, in particular choice of

assessment method• E.g.: use of CBA

Valuation WG-L&R-3 -- February 2007 – 16

3. Valuation and assessments

And which tools to use in your cases?• Be guided by the critical ecosystem services –

focus on the most important ones• Surveys might be needed to identify those on the

community level, and to gather data for their valuation

• Direct and indirect use values seem to be more relevant, and option value in the PNG case

• Consider using:• Change-in-productivity• Cost-based approaches• Elements of benefits transfer if time constraints are

severe

Valuation WG-L&R-3 -- February 2007 – 17

3. Valuation and assessments

• Consider cases III and IV for inspiration:• Case IV is very close to the Madagascar topic• Case III analyses TEV of forests – of relevance to

most other cases• Cases identify important ecosystem services• Cases use different valuation tools simultaneously• Case IV uses participatory mechanisms (focus group

discussions) to gain information and data on ecosystem services from communities

Valuation WG-L&R-3 -- February 2007 – 18

Thank you