Opinion: The Value of Ecosystem Services Valuations

Tundi Agardy

It’s a fact that human life relies on the natural world but figuring out how to measure this dependency is difficult. Tundi Agardy, a marine conservation expert and the director of Forest Trends’ Marine Ecosystem Services Program, discusses her views on the benefits and dangers of ecosystem services valuations.

22 January 2014 | Nothing focuses the capitalist mind like high worth. If natural ecosystems can be demonstrated to have high value in the goods and services they provide, then – or so the thought goes – governments whose responsibility it is to ensure they are protected will be compelled to meet their obligations, while the private sector will see real benefit in investing. At the same time, in reaction to regulatory disincentive (a logical extension of government acting on its responsibilities) or in reaction to financial incentive (a logical extension of capturing private sector interest), communities and property rights owners will be stronger stewards, acting as individuals and as societies in ways so as to avoid undermining the golden goose.

We have seen this work in practice, and only a fool would argue that stressing the value of nature is a waste of breath. But what roles does economic valuation play in this? Is economic analysis always necessary to achieve conservation or sustainable use? And do economic analyses always lead to the expected, desirable outcomes?

You will already guess that the answers to these questions, at least in my mind, are not simple. Perhaps they are to an economist (which I am not), but as a conservation practitioner I have been surprised far too many times to think we have this one figured out.

The Basic Idea

An ecosystem services perspective provides us a way of looking at the collective value of nature. Admittedly the term has been slow to gain traction in our everyday language, but the concept is getting better acceptance as people toy with ways to articulate it. We now hear phrases like ‘nature’s benefits,’ ‘natural capital,’ ‘human dependence on nature,’ as well as terms borrowed from economics like ‘intrinsic value.’

Though the idea of environmental services was introduced in the 1970s, it really didn’t get widespread international attention until the Millennium Ecosystem Assessment, published in 2005. Today a concerted international effort to understand ecosystem services and incorporate that understanding into decision-making (the IPBES-Intergovernmental Platform on Biodiversity and Ecosystem Services) is underway, but, honestly, we’re kidding ourselves if we think the world gets it. It is only in the telling of stories of loss (nature transformed, lost opportunities, costs of degradation) that the ecosystem services idea has real resonance.

How Much for this Ecosystem Service?

Loss is difficult to quantify. Loss goes beyond costs – it affects the human spirit, and society’s resilience. Nonetheless, we’ve seen how tragic catastrophic events periodically rekindle interest in what, exactly, nature does for us – and how imperative it is to protect these services for our well-being. Whether it is the Asian tsunami of 2004, Hurricane Katrina in 2005, or the more recent Hurricane Sandy (2012) and Typhoon Haiyan (2013), there are consistent expressions of ‘what if’ – “What if mangrove and reef off Aceh had been protected, would the loss of human life in the tsumani been less?” “What if we hadn’t messed with nature by removing oxbows, rechannelizing the Mississippi, stressing the coastal wetlands – would Katrina have caused so much damage?” “What if oyster reefs and salt marshes had been spared the ravages of development, would lower Manhattan and New Jersey shore communities been better protected from Sandy?”

Asking such hypotheticals won’t bring lost lives or property back, but it has spurred greater interest in understanding the roles of nature (ecosystem services) in minimizing risk.

So we have a sudden preponderance of studies quantifying the economic values of nature, including shoreline defense. The numbers can be huge, especially when derived from studies of loss of nature and how it affects wealthy communities or places where land value is extremely high. These data from localized studies are then extrapolated to other parts of the world, in a process known as “benefits transfer.” This has been done for hurricane damage and nature’s role in minimizing it, and also for other services with direct market value, such as support to fisheries and ecotourism.

In the coastal domain where I work, there are numbers one can grab from economic studies for any service one can think of, and with a few calculations and lots of caveats, one can present an estimate of the value of ecosystem services for any place in the world.

I have been guilty of this myself. But as is obvious, I am not comfortable with it. Value is not easily transferable – it is context specific. Not every society has a fisheries or ocean-going culture, so the potential value of fisheries offshore may never be captured. Is it fair to say that nature provides X amount of economic value in supporting fisheries when those fish will never be caught? Likewise with the more intangible values like aesthetic value – not all societies look similarly on nature. Is it fair to say something holds aesthetic value worth Y if the local communities don’t see it that way (literally)?

Since I am not an economist or social scientist, I don’t know how these sciences deal with such differences in perception, but I do believe that value is in the eye of the beholder.

Then there is the thorny problem of discounting. The value of something today is not carried forward into tomorrow – markets fluctuate, goods and services can become more rare (rendering them more valuable), substitutions can be found (rendering them less valuable), and the value in terms relative to the economy overall generally diminishes over time. Economists and planners have argued over what is a reasonable discounting rate, especially in settings where economic value drives environmental decision-making. And it is an important argument indeed – the loss of something with a discounting rate of 15% can be more easily rationalized than the loss of something that would have retained its value over time. Yet disappearing and compromised nature all around the world would suggest that these ecosystem services are indeed priceless, and we sacrifice them at our (and our grandchildren’s) peril.

So what role does economic valuation have in preventing this foolish destruction of nature at our own peril?

Positive Outcomes of ‘Good’ Valuation

Currently there are 934 marine ecosystem services valuations listed on the Marine Ecosystem Services Partnership (MESP) database, a virtual center of information based out of Duke University. The database links the economic value of ecosystems to their ecological value and then to the case study location. The library is constantly updated so the number of valuations listed is always growing.

But the fast growing number of valuation studies doesn’t necessarily mean the information is being put to good use, for management of natural systems or for society. There are good (helpful) studies, and then there are, well – less valuable ones. I risk revealing my true nature as an ecologist and not an economist when I speak to ‘good’ versus ‘not-so-good’ valuation. But bear with me.

Valuations, if done well and robustly, can influence policy at the local, regional, national, and international level in very positive ways. These include spurring planning and the development of policies to safeguard ecosystem services of value, determinations of risk, compensation for damage to natural capital, and a greater rationale for more holistic and effective ecosystem-based management, each discussed in detail below, in the context of the coastal systems.

Appraising the economic value of ecosystem services coming out of coastal and marine ecosystems has guided conservation planning in many parts of the world. For instance, protected areas are established in places with real or prospective value in supporting biodiversity (a non-market value) or in supporting ecotourism (a related market value).

The design of these protected areas in terms of boundaries and the way activities are managed can maximize economic rents or preserve economic values. And when coupled to innovative financing schemes that allow stewards of the resource to “sell” the services to those that benefit most from them (as in PES – Payments for Ecosystem Services, or what we would prefer to call INC – Investments in Natural Capital), crucial funds flows can be created for conservation and management.

In San Andres, Colombia, Forest Trends has worked with CORALINA to undertake economic studies of ecosystem services, focusing the attention of resort owners on the inherent value of sandy beaches for their business and promoting their investment in reef management specifically aimed at continued natural production and stabilization of those beaches.

Investing in Natural Capital

Calculating the economic value of nature can clearly attract investors, for both protection of nature and for restoration of nature (something that is inherently very expensive, and often beyond the budgets of government agencies charged with managing coastal and marine areas). But it has significance for financiers as well – determining values and appraising how well management protects those values can guide responsible investing, whether through trading firms or via development banks. And at the macroeconomic level, including ecosystem services values into national accounting can positively affect ratings, which in turn affects access to financial capital needed for sustainable development and further nature protection.

On the other end of the spectrum, determinations of economic value of services allows agencies to determine more precise compensation in the wake of damages, as occurs with ship groundings on reefs or oil spills. Having the baseline values determined avoids or reduces the guesswork and litigation that usually occurs following a catastrophic accident.

Injecting determinations of economic value into existing planning frameworks can also guide evaluation of trade-offs and steer decision-making toward greater rationality with longer time frames in mind.

In Belize, for instance, the Natural Capital project has applied Marine InVEST models to a host of scenarios for development, allowing the Coastal Zone Management Authority and Institute to assess the possible consequences of planning.

Similarly, economic values can find their way into Strategic Environmental Assessment (for example, Proecoserve.)

Working with our partners, we at Forest Trends are beginning to develop a comprehensive picture of nature’s benefits and how they flow to beneficiaries across the large and complex landscape/seascape of Marismas Nacionales, Mexico.

Examples abound at all levels of geographic scale and complexity, and many of these projects can rightfully claim that they have catalyzed the push toward more Ecosystem-based Management or EBM. And without EBM and its effective integration of watershed management, marine management, and land use management, our conservation investments are often wasted.

Economic valuation of nature’s services allows a more accurate appraisal of the awareness, attitudes, and motivations of the public. That, in and of itself, has immense value.

But – valuations can have unintended consequences.

Valuation Gone ‘Bad’

Putting a price tag on nature is unappealing to many, and can have unexpected negative consequences, catalyzing a backlash against even the very idea of ecosystem services. Fundamental to the backlash is the philosophical argument that nature has value in its own right, not only (and perhaps not primarily) in its support of human life and well-being.

But attaching economic value to nature does necessarily preclude a nature-centric (as opposed to human-centric) ideology. What is, in my mind, a more legitimate concern, is how the valuation information is used, and misused.

One pitfall can result from identifying a single service of high worth, and having all management attention and investment then focused on maximizing that commodity.

Take blue carbon, for example. As scientists have begun to quantify the amount of carbon sequestration being performed by coastal habitats like mangroves, salt marshes, and seagrass meadows, interest in capturing those values has led to methods for generating carbon credits (through VCS, possibly, or in the voluntary markets, or through REDD+ schemes).

Coastal managers and private landowners could be tempted to take steps to maximize carbon fixing, at the expense of other ecosystem services. Taken to its extreme conclusion, seagrass and salt marsh, along with beaches and salinas, might be converted to mangrove ‘plantations’ in order to generate, and sell, the maximum amount of blue carbon. These mangrove plantations could be maintained in isolation, without connection to other marine habitats or upstream watersheds, with no other production functions like shoreline stabilization, fish nurseries, water filtration, or biodiversity support, occurring.

Equality for All

At Forest Trends we’ve been trying to promote a much more holistic view of ecosystem services, even in cases where there is money to be made from commodifying a single service.

In the Abu Dhabi Blue Carbon Demonstration Project, we appraised all ecosystem services coming out of known Blue Carbon habitats (mangrove, seagrass, salt marsh, but also coastal sabkha and cyanobacterial mats), to stress the comprehensive value of functional natural habitats.

While we did estimate the potential collective value of these ecosystems for their services as part of blue carbon co-benefits, we cautioned against the maximization of any one service at the expense of the others. Other groups are looking at ‘bundled services’ too, undaunted by the complexities.

Nonetheless, the danger of having valuation lead to unsustainable and inequitable use remains. With human nature, the default trajectory is down the simplest path, especially one that may end in profit. And when part of the calculus for making decisions about access to space or resources, or in resolving conflicting uses, profitable activities often trump non-use values.

Flagging areas as particularly valuable in ecosystem services can lead to inequity, denial of access, privatization, and – in the worst case – land grabs. Short planning horizons and unrealistic discounting can bias all development decisions in the direction of ecosystem harm and ecosystem services loss, even when economic value for one or more services is found to be high.

Making a Difference

Will the valuation have a meaningful impact in terms of policy change for the ecosystem it is appraising? The question of influence is another large one when discussing valuation. And a report from the NGO WRI (World Resources Institute) found that coastal economic valuations over the Caribbean region helped raise awareness of the importance of coastal ecosystems but did little in influencing policy change. More than 200 such valuations that measure the monetary value of marine ecosystem goods and services exist on the Caribbean, according to WRI’s paper. But their study only identifies 13 that have had a positive influence on conservation or management based legislation.

The report identified that valuation led to the Belizean government banning bottom trawling and the creation of St. Maarten’s first national marine park.

Report authors collected research from existing literature on valuation and marine policy as well as from interviews from those involved-marine park managers, conservation advocates and economists. Their questions and data drew heavily from the creation of Bonaire National Marine Park, which is one of the best known cases of valuation impacting policy in the Caribbean.

One of the report authors, Richard Waite, notes that in the year since this paper was published, they have made adjustments to their results. They have discovered other influential valuations raising the number to 16.

No one officially tracks influence in a public way, Waite says, so there are probably a decent number of cases we don’t know about.

What’s more, policymakers weren’t a group interviewed for the paper. Speaking with them now, WRI found that policymakers largely want more valuation-a significant find for the future of such assessments.

The report also notes that the type of valuation plays a big role in delivering change on a large scale. Absolute accuracy from the valuation isn’t always critical depending on the context. Valuation should be conducted depending on the policy in question. Sometimes a ballpark figure is needed and other times-when related to taxes and fees-more precise data is required.

Outside of the actual data the valuation provides, governance and stakeholder engagement is a key factor that can’t be neglected if planning to catalyze change.

Is it Worth the Effort?

Even when such pitfalls are avoided, we might ask ourselves “Is it possible, or even desirable, to attach economic value to things like cultural or spiritual services? Do we ultimately undermine their value when we try to do this? Does putting a price tag on nature diminish our sense of wonder?”

With a utilitarian, capitalistic mindset, we may ignore the things that matter most to long term human well-being. And, paradoxically, we may become even less inclined to fight for nature and her services.

Economic valuation of nature’s services is part and parcel of better understanding and appreciating nature’s role in sustaining us – physically, mentally and spiritually. We can use economic valuation to improve our planning, our management, and to drive investment. However, it cannot be the lone driver for decision-making, and we must be aware of potential pitfalls, and consciously work to avoid them.

A Way Forward?

Perhaps the safest path is to adopt a broader view of what should be part and parcel of economic valuation. As recently described by Blake Ratner and Edward Allison in a policy review paper, economics is not just about wealth – healthy economies may have less to do with a wealthy generation, and more to do with reciprocity and cooperation to solidify rights and enhance resilience.

Nature’s role in providing the basis for social systems that maximize such resilience is obvious, — and priceless.