Economic Valuation of Ecosystem

Services

Provisions of Ecosystem Services

 Ecosystem Services Valuation Techniques

 What are ecosystem services ?

 What is economic valuation?
 Why economic valuation of services is
important?
 Methods of economic valuation of ecosystem
services
 What are ecosystem services
 Ecosystem is defined at the most basic level as a natural unit of
living things (animals, plants and micro-organisms) and their
physical environment.
 Ecosystem services are defined as services provided by the
natural environment that benefit people.
What are ecosystem services
What are ecosystem services
What are ecosystem services
What are ecosystem services
What are ecosystem services
 Provision of Ecosystem Services
 Many ecosystem services and some ecosystem
goods are commonly received for free
◦ water users downstream of a forested area
◦ agricultural wastes drain
 Sustainable supply of ecosystem services may need
to turn those who benefit without ownership to
buyer
 Formal arrangement, like purchase, is needed to
make this happen
◦ Environmental laws
 Provision of Ecosystem Services
 Positive externality
◦ Provider of good or service
 Individual or public from own the land from where
the goods and services originates
◦ Recipients
 Those who benefits need to pay for the desired
management change to protect the good or service
 Provision of Ecosystem Services
 Negative externality
◦ access to the environment as a sink for waste
products
◦ Entities causing negative externalities should pay
◦ Mechanisms include
 Cap-and-trade scheme
 A direct pollution tax
 Other charge
◦ The payment is to internalize externalities
 Provision of Ecosystem Services
 GHG emissions is a good example of negative
externalities
 Reducing GHG is experiencing low level of
international co‐operation since emission
reductions is a (global) public good
Provision of Ecosystem Services
 Characteristics of private and public
goods: Excludable Non‐excludable

Rival Pure private Open‐access

good resource
Ice cream Ocean fishery

Non‐rival Congestible Pure public

resource good
Wilderness area
 Provision of Ecosystem Services
Excludable
Rival Nonrenewable ecosystem goods extracted from contained
(i.e., controlled-access) deposits (e.g., fossil fuels, metals,
minerals)
• Renewable ecosystem goods harvested from contained
ecosystems (e.g., water, fish, wildlife, trees, fuel wood, edible
plants, medicinal plants)
• Consumptive recreation opportunities (e.g., hunting,
fishing) on contained properties
• Non-consumptive recreation opportunities (e.g., hiking,
viewing) on congested, contained properties
• Ecosystem services the effects of which are contained within
a property ownership (e.g. maintenance of soil fertility)
 Provision of Ecosystem Services
Non-excludable
Rival Renewable ecosystem goods harvested from uncontained (i.e.,
open access) ecosystems (e.g., water, fish, wildlife, trees, fuel
wood, edible plants, medicinal plants)
• Consumptive recreation opportunities (e.g., hunting,
fishing) on uncontained properties
• Non-consumptive recreation opportunities (e.g., hiking,
viewing) on congested, uncontained properties
• Ecosystem services the effects of which are not contained
within a property ownership but are realized in the quality of
rival goods (e.g., erosion control, natural water storage, waste
assimilation)
• Natural animal and plant pest control and pollination
services
 Provision of Ecosystem Services
Excludable
Non-rival Non-consumptive recreation opportunities
(e.g., hiking, viewing) on uncongested contained properties
 Provision of Ecosystem Services
Non-Excludable
Non-rival Non-consumptive rival opportunities (e.g., hiking, viewing)
uncongested, uncontained properties
•Temperature maintenance via carbon storage
•UV protection
• Ambient air purification
•Natural water storage as it lowers the probability of floods and
droughts
Provision of Ecosystem Services
 Free market provision and financing of
goods and services is best suited to rival,
exclusive goods and services
Provision of Ecosystem Services
 Conditions or mechanisms for marketing
of ecosystem goods and services
◦ Conditions for provider-recipients
agreements
◦ Condition for exchanges
Provision of Ecosystem Services
 Condition for exchange
◦ Scarcity of the good or service
 If a good or service is not scarce there is no
incentive for anyone to pay
◦ Establishment property rights
◦ Clear definition and precise measurement
◦ Excludability
◦ Transferability
Provision of Ecosystem Services
 Conditions that allow exchange
◦ Enforcement of exchange agreements
◦ Consistent and reliable enforcement
◦ Low transaction costs
◦ Ready market information
◦ Inexpensive measurement, monitoring, and
enforcement
Provision of Ecosystem Services
 Conditions that lead to a competitive
market solution
◦ Many buyers and sellers
◦ Lack of third-party environmental effects
◦ Rivalness
◦ Ample identical units
◦ Perfect information
Provision of Ecosystem Services
 Conditions that further improve the
likelihood of exchange
◦ Perceived fairness of transactions
◦ Institutions aiding exchange (e.g., customs,
brokers, banks)
 Provision of Ecosystem Services
Seller Individual Government
Buyer

Individual • Markets for • Publicgoods and

privately held services
ecosystem • Goods and services
• For rival, exclusive financed by taxes
ecosystem goods

Government Incentives to private Governments may pay

parties for provision (or subsidize) other
of ecosystem governments to help
services provide and protect
ecosystem goods and
services