INVESTING IN NATURAL ASSETS
A business case for the environment in the City of Cape Town
Presentation to Urban Ecology CityLab, UCT 28 July 2010
Why this study?
Influence budget allocations by developing focused economic arguments for investing, maintaining and expanding the City’s natural assets.
Rationale for this study is to develop a financially-motivated business case for investing in natural assets in the City.
Why invest in, maintain and expand natural assets?
Natural assets produce a flow of goods and services that has value for people living in and visiting the City of Cape Town
Degradation of urban natural assets impedes on the ability of the municipality to deliver services in a cost-effective way
What is different from other arguments?
Arguments to preserve the natural environment have traditionally not focused on the financial logic of investing in natural assets.
Overview presentation
• Natural assets and flows: definitions and concepts
• Economic value of natural assets and flows• A business case for the natural environment
1. NATURAL ASSETS AND FLOWS
Distinguishing between:
Money in a bank account (capital) a flow of interest.
Natural capital a flow of EGS
• Natural assets/capital: Stock of natural resources
owned by the City (beaches, rivers, wetlands, parks, reserves, mountain..)
• Ecosystem Goods and Services (EGS):
Flows of benefits derived from these assets.
Ecosystem Goods and Services NATURAL ASSETS
• Renewable resources: forests, plants, animals • Non-renewable resources: minerals, oil • Environmental resources: water, coasts, atmosphere • Land
Ecosystems Goods and Services
Supporting soil formation photosynthesis primary production nutrient cycling water cycling
Provisioning food freshwater fibre fuel genetic resources medicine and pharmaceuticals
Regulating air quality regulation climate regulation water regulation erosion regulation disease regulation pest regulation natural hazards regulation (including fire, flood, storm surge)
Cultural/ Informational
reflection recreation inspiration aesthetic enjoyment cultural diversity educational value
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Ecosystems and human wellbeing
Ecosystems and poverty alleviation
Maintaining and expanding EGS flows can contribute to poverty alleviation by:
-Helping poorer communities meet their basic needs: • Water • Firewood
-Increasing: • secure and sustainable livelihoods, • health conditions • income • property value.
“Nature’s factories” to the benefit of human beings
Natural Assets as Public Goods
Anyone can enjoy. At anytime. NO PRIVATE INCENTIVE TO MAINTAIN AND
INVEST
Lack of management
Urban pressure
Interrupted flow of EGS and loss of value
2. Economic value of EGSWhat is economic value?
Participatory rapid assessment with line function managers and senior staff
City functions related to environmental goods and services in the City: -environmental resources, parks, tourism, heritage, sports and recreation, wastewater, stormwater, solid waste and spatial planningFocus groups: identify and shortly motivate most important linkages between all identified EGS in the City and:•beneficiaries (number and value) development objectives (closest links with natural assets)City’s environmental mandate and ability to influence and ecological and socio-economic risks.
How were values prioritised?
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Prioritised ecosystem services
Higher High Medium LowerNatural hazard regulation Water purification and
waste treatment, assimilation
Climate regulation – local (air quality)
Climate regulation global
Recreation and Tourism Space for biota Small scale urban farming Fresh water provisionAesthetic values and sense of place
Water regulation Building materials provision
Fish and marine resources Provision of inspirational beautyEducational usersCultural and artistic practicesReligious practicesErosion regulationDisease regulationHarvestingMaterials for craft and fashionUse in productions, advertising and publications
Natural hazard regulation (buffering function for flooding, fires, sea level rise/ coastal surge)
Provision of natural characteristics that are conducive to tourism and recreation
The improvement of water quality and the assimilation of waste - ecosystems help filter and decompose organic wastes
Provision of space for globally important biota, and
The aesthetics and sense of place provided by the natural environment
VALUABLE FLOWS TO VARIOUS BENEFICIARIES
Natural/semi natural environment beneficiaries
VALUABLE FLOWS TO VARIOUS BENEFICIARIES
Natural/semi natural environment beneficiaries
TouristsInternational
NationalLocal
Recreation groupsBeach bathers, sailors,
picnic & braai cyclists, hikers
Harvest groupsFishers, wild plants
harvesters, fuelwood gatherers
Informational and cultural groups
Education, Scientific research,
Religious experience
Industry groupsFilm and advertising industry, Shipping,
Tourism
Residential groups
Rich and Poor
Valuable flows
Low Medium High
Tourism 965 1 829 2 948Recreation 408 449 494Natural hazard regulation
5 18 60Film industry 133 265 398Other (est.) 453 1 024 1 950Total 1 963 3 586 5 850
Table 1: The value of ecosystem services to the City of Cape Town: 2008: R million: A partial analysis
Nature’s Value in Tourism and Recreation
Beaches: R70 – R85 m/aNature Reserves: R 68 – R83 m/a
Green open spaces: R270 – R326 m/aTourism: R965 m - R2.95 bn/a
Natural Hazards Regulation
Natural Hazards
FiresFloodingStorm surge & Sea-level rise
Reduced Consequences
Damages Management costs People at risk
Ecosystems: natural barriers and buffers against natural hazards.
• Dune cordons and kelp beds reduce storm surges impact on land.• Natural pervious ground cover absorb rainfall, impervious ground cover increases water runoff and flood risk.
Lack of management: enhanced natural hazards risk and potential damages.
• Invasive alien species enhance fire risk, frequency, intensity, soil’s vulnerability to erosion → enhance potential damages, fire fighting costs, and clean up costs.
Nature’s services in hazard regulation: R5m - R60m/a
The increased risks of storm surges and their associated costs in Cape Town have been assessed recently in terms of:• Loss of real estate value• Damage to infrastructure• Foregone tourism revenue
Natural solutions: natural parts of the coastline which act as buffers are not lost to development
Sea-Level Rise and Storm Surge: Investing in the coast line
Increase buffering: creating kelp beds, rockier beaches and sand dunes that will increase the absorption capacity of the coastline.
Flooding: Investing in rivers and catchments
Informal settlements affectedDamaged structuresPeople directly affectedPeople housed at emergency shelters in community hallsPeople displaced in safety zonesNumber of meals served twice a dayNumber of blankets distributed
70750030 0003000248022 00013 000
Table 2: Impacts of the July 2008 floods in Cape Town
Source: City of Cape Town, media release No 330/2008, 10 July 2008.
Storm water runs off of impervious surfaces and is not absorbed; runoff volume typically increases:•twofold as the percent catchments’ imperviousness increases to 10–20%, •threefold with an impervious surface cover of 35–40%, and •more than fivefold with an impervious surface cover of 75–100% compared to catchments with natural vegetation cover.
Fires: Investing in alien control
R30 million to R40 million in damages attributable to the March 2009 fires in Somerset West (R25 to R30 million in damages for Lourensford wine estate and R5 million to R10 million for Vergelegen wine estate
In January 2000, two wildfires burnt 8 000 ha on the Cape Peninsula resulting in insurance claims of approximately $5.7 million or R73 million
Invasive Alien Plants lead to higher damage costs, higher firefighting costs and avoidable clean-up costs.
Water Purification and Waste Assimilation: Investing in rivers and wetlands
WetlandsWaterpurification function
• processing some of the grey and waste water outfalls• creation of recreational and economic opportunities• contribution to a healthy environment for communities.
Services provided by wetlands save cities significant amounts of infrastructural costs which would weigh on them if the natural ecosystem wasn’t present or became inefficient.
Zandvlei
• Replacement cost of a treatment plant: R180 million estimated.• Replacement cost of a flood storage capacity: R24 million estimated• Costs of constructing an artificial wetland.
Illustrates the magnitude of the “free” services provided.
Within assimilative capacities
Space for Biota: Investing in biodiversity
Cape Floral Kingdom
9000 plant species70% endemic
2002 - 2006: International funding = R225 million
2008 - 2009: Environmental Education Programs = 23 781 learners from 500 schools.
Biodiversity needs to be recognised and valued as a critical ‘umbrella’ service without which most other valuable ecosystems services would be diminished or may even become unavailable.
Aesthetics and Sense of Place: Investing in wellbeing, City brand and property
• Enhanced health and wellbeing (e.g. preference for natural to built environments, restore mental fatigue, attention deficit disorder, lower stress, neighbourhood satisfaction)
• Contribution to the Cape Town brand and an enhanced business environment (desirable living attract key human capital and business, inspiration, creative thinking), as evident by many quality of life awards
• Property value enhancement
Film making: Investing in scenery and aesthetics
Number of productions
Average expenditure per production (Rm 2006)
Total expenditure (Rm 2006)
Long form (features) 30 37.2 1 115.6Local Commercials 142 0.9 162.5Service Commercials 400 1.8 631.8International Commercials 58 2.6 77.9Stills 2 100 0.3 659.8Provincial Total 2 730 2 647.6Cape Town Total 2 027.0
Table 3: Number of productions and expenditure in the Cape Town and Western Cape film industry (2005/2006)
Source: Standish & Boting (2007)
Film and advertising total values associated with natural assets of between R133 million and R398 million
3. MAKING A BUSINESS CASE
Net present value of combined natural assets:
→ R43 billion to R82 billion.
Ratio of environmental expenditure to the value generated EGS
→ R1 spent by municipality on natural assets ≈ R8.30 (range R4.50 - R13.50) of ecosystem goods and services (EGS) generated compared to → R1 spent by municipality overall ≈ R 7.30 added value generated in local economy
Indicator1
Indicator2
Leverage of municipal expenditure on economicvalue of EGS
Leverage of municipal expenditure on the broaderCity economy.>
Between 1.2 and 2 times
Insights into the level of environmental expenditures in relation to the benefits received from the natural environment.
Preference for environmental policies in Cape Town exist, but have not yet translated into rapid bursts of budget changes in the City.
An attention-driven decision-making model
Understanding budget allocations
% change/year % change/year
Number Number
Large numbers of small changes
Smaller numbers of large changes (large increases and large decreases)
Environmental signals in the MunicipalityBased on terms used in media releases, speeches and documents by the City of Cape Town.
Environmental signals in the MunicipalityBased on terms used in media releases, speeches and documents by the City of Cape Town.
Open spaces, wetlands, fynbos
Weaker StrongerEnvironmental signals
Air quality, alien, drought, sense of place.
Weaker Stronger
Environmental signals for natural assets
Environmental signals
Environmental signals related to EGS
Water, River, MountainGarden, Beach
Tourism, fire, waste, stormwater, recreation, conservation.
Environmental signals of citizens
Search term Google score Search term Google scoreCape Town 15.2 Money 1Music 5.55 Coast 0.86Hotel 4.6 Fire 0.74Weather 3.9 Nature 0.64Jobs 3.9 Parks 0.3Water 2.24 Shark 0.24Rugby 2.1 Table Mountain 0.18Stellenbosch 1.88 Nature reserve 0.14Beach 1.44 Kirstenbosch 0.14Tourism 1.42 Conservation 0.1Fish 1.2 Waste 0.08River 1.18 Alien 0.04Mountain 1 Stormwater, Recreation,
Water quality, Biodiversity0
Table 4: Environmental signals based on search volume on the internet in the Western Cape
Note: Search volume relative to the word ‘money’. Analysis done on 27 June 2009.
Natural assets and ecosystem services related to the terms ‘water’, ‘beach’, ‘river’, ‘mountain’ and ‘tourism’ provide the strongest combined environmental signals.
Investing into underlying natural assets can leverage relatively high economic value in the broader City economy (1.2 - 2 times higher than overall municipal expenditure).
Investing and maintaining the City’s natural assets or ‘ecological infrastructure’ yields highly valuable services which provide the backbone for value addition and employment in City’s economy.
CONCLUSION
It is conservatively estimated that the City’s natural assets yield a flow of services valued at R4 billion per annum, within a range of between R2 billion and R6 billion per annum.
As an entity focused on service provision and as an enabler of economic growth and development, the municipality has the mandate and opportunity to invest adequately in natural assets to maintain a healthy flow of services to the benefit of people living in and visiting Cape Town.
Nature provides a free lunch, but only if we control our appetites.
William Ruckelshaus, Business Week, 18 June 1990