Transcript Presentation 6 - Values and externalities

Joint Nature Conservation Committee
6. Values and externalities
External and non-market effects
Externalities – an impact
(positive or negative) on
anyone not party to a
given economic
transaction
Non-market impacts fall outside market
systems. Hence no
market price is available
2
Terminology and jargon
Fish factory
Fish
3
Waste
Various dimensions of economic value
• Total and Marginal Economic Value
• Financial and economic value
• Producer and consumer surplus
• Use and non-use value
• Direct and indirect values
• Market and non-market value
• Costs and benefits
4
Total versus marginal values
• Total Values
– Demonstrating value of biodiversity
– Revising national income accounts
• Marginal Values
– Influencing policies and projects
– Assessing biodiversity impacts of non-biodiversity
investments
– Determining liability for biodiversity loss
– Setting charges, taxes and fines
– Setting priorities for conservation within limited budget
5
Marginal approach often better for influencing policy
MPA implementation
Benefits of
management
Net benefits
from coastal
ecosystem
Benefits
with MPA
Benefits
without MPA
Cost of MPA
Costs of
management
Time
Total Economic Value (TEV)
Total Economic Value
Use values
Direct use
Example:
-Timber
-Tourism
-Drinking water
Indirect use
Example:
-Coastal protection
-Water purification
-Carbon sequestering
Non-use values
Option value
Example:
- Genetic materials
- Biodiversity
- Clean soils
Bequest value
Existence value
Example:
- Avoided
damage from
climate change
Example:
- Rare species
- Indigenous rights
Warning for using TEV:
• Different management regimes result in different flows of benefits.
• If ecosystem are not sustainably managed, future benefits decline.
• At large scales, observed prices unlikely to be applicable.
7
• Rare to lose all ecosystem services.
Use Value
• Direct Use Value: Value from direct
human use of natural resources.
– Extractive Use Value e.g. timber,
fisheries
– Non-Extractive Use Value e.g.
recreation, tourism, education
• Indirect Use Value: Ecological
functions that indirectly provide
support and protection.
– e.g. erosion and flood protection,
water purification, carbon
sequestration
8
Non-Use Value
• Value based on intangible
human benefits.
– Existence Value: Value from
simply knowing that nature
exists e.g. charismatic species
– Option Value: Value from
retaining options that may
arise in the future e.g. medical
discoveries
– Bequest Value: Value from
conserving nature for future
generations
9
Producer and consumer surplus (1)
2.0 is my ‘benefit’
(consumer surplus)
2.5 is his ‘profit’
(producer surplus)
5.0
willingness to pay
3.0
price
0.5 cost
Economic value is: 2.0 + 2.5 = 4.5
10
Producer and consumer surplus (2)
$
demand
supply
CS
P*
PS
Q*
11
quantity
Financial and economic value
Not directly
observable
2.0 is my ‘benefit’
(consumer surplus)
2.5 is his ‘profit’
(producer surplus)
5.0
willingness to pay
3.0
price
0.5 cost
Economic value = 4.5
Financial value = 3.0
12
Directly
observable
Example 1: TEV of world’s ecosystem services
• US$33 trillion (US$16-54
trillion a year)
• Hugely controversial
– Variation in values across
different sites
– Estimates of average
value based on marginal
changes
– Exceeds total global
economic income
– Not policy focused
Costanza et al. Nature. (1997)
13
Example 1: TEV of world’s ecosystem services (2)
Grasslands
$
232/ha/yr
Open ocean
$ 252/ha/yr
Coral reefs
$ 675/ha/yr
Tropical forests $ 2,007/ha/yr
Lakes/rivers
$ 8,498/ha/yr
Wetlands
$ 14,785/ha/yr
14
Example 2: Conservation or Conversion?
• TEV of managing
ecosystems sustainably
often higher than TEV of
converted ecosystems.
• Benefit-cost ratio of global
programme for
conservation = 100:1
• Habitat loss costs US$250
billion per year
Balmford et al. Science. (2002)
15
Example 2: Conservation or Conversion? (2)
16
Example 3: Economic value of Coral Reefs in Guam
Coastal
protection
7%
Amenity
8%
Biodiversity
2%
Fishery
3%
Recreation
7%
Tourism
73%
Annual values of coral reefs in Guam amount to US$127
million, equivalent to 7% of GDP.
Example 3: Economic value of Coral Reefs in Guam (2)
Spatial Distribution of Economic Values
 economic
value
Fish
Threats
map
Tourism
Protect
Amenity
Biodiv.
overlay
Priority
intervention
areas
Assignment
• Identify the main economic
values of your project.
• In doing so, do consider using
the following categorisations:
–
–
–
–
–
–
19
Costs & benefits
Use & non-use values
Direct & indirect values
Local & global values
Market & non-market values
Internal & external effects