E3S Web of Conferences 464, 18002 (2023) https://doi.org/10.
1051/e3sconf/202346418002
2nd ICDMM 2023
Economic value of ecosystem services
Ravi1, Elsa Eka Putri2, Jayaprakash3, and Masyhuri Hamidi4
1Environmental Officer, Karnataka State Pollution Control Board (KSPCB), GoK, Karnataka, India
2Department of Civil Engineering, Universitas Andalas, Indonesia
3Department of Civil Engineering, Mangalore Institute of Technology & Engineering, Moodabidri, Affiliated to VTU& Approved by
AICTE, India
4Department of Management, Universitas Andalas, Indonesia
Abstract. Ecosystem services are fundamental life-supporting services, which are essential for existence
of life on this earth. Even though these services are complex and interdependent on each other, it is always
considered as Free Services. Human beings are considered these services as “take it for granted, seemingly
infinite and free” - like air purification, water cleaning, maintaining quantity of Nitrogen, Oxygen, Carbon,
Sulphur, Water Cycle, balancing ambient temperature and providing fertility to soil for producing food.
However, humans are less aware of the other ecosystems services provided by nature: viz pollination,
dispersal of seeds, climate stabilization, flood protection, erosion prevention, decomposition, detoxification,
maintenance of biodiversity, control of agricultural pests, and carbon sequestration etc.
1 Introduction the economic value of Environment, to make our life on
this planet sustainable. Hence, it is necessary that we must
The urban sprawl, destruction of wetlands, deforestation, conscious of ecosystem services and include them in
soil erosion, pollution of air and water, runoff of every decision [5].
pesticides from agricultural field, organic chemicals,
herbicides, fungides and fertilizers, untreated disposal of
1.1 Ecosystem services
solid waste, bio-medical waste, e- waste, hazardous waste
and animal waste, over-harvesting of fish, and The Ecosystem services are dynamic interaction of plant,
introduction of exotic species is disrupting nature’s animal and micro-organism and their non-living
ecosystem services [1]. The main focus on short-term environment, interacting each other as a single functional
gains at the expense of long-term needs, is resulting in unit [5]. The Ecosystems are inevitably interconnected or
exploitation of natural resources, creating problems not overlapping and hence, the scale of analysis depends on
only to the present generation, but also for the future the inter relationships. The People attain wide range of
generations- Sustainable Development. social, economic, cultural, spiritual and health benefits
Further, Economic System is based on supply of from natural ecosystem and these benefits are often ‘un-
natural resources for human consumption. Economic priced’ and therefore risk of deterioration of these services
development without concern for environment attributes are being ignored in decision making [6].
significant costs [2]. In India, traditionally environmental Further, ignoring these benefits of overall
resources are conserved, preserved and protected in the Environmental Quality in turn leads to serious human and
name of God, indirectly propagating its significance for economic costs, that are now being felt. The Economic
our survival. However, in the recent past, as the valuation indicates the value of ecosystem services and
technological/scientific innovations have changed the biodiversity. The economic valuation also explains un-
mindset of people and now it has become inevitable to use priced flow of public goods and services in the form of
an economic model to describe our natural systems, as we economic model. This Helps in tracking changes in
consider all the natural resources as “goods/products,” ecosystems, such as degradation and its impact on human
and the processes that replenish and purify them as activities and well-being and extends the scope of
“services,” and the system that provides these as “Natural information for analysis of impacts on the environment
Capital” [3-4] and ultimately on societies. The valuation also gives
The Economic Value of Environment can be used in Information on ecosystem services and the trade-offs/co-
quantifying the economic value of these natural resources benefits involved. Knowing the economic value of
and if any destruction, due to anthropogenic activities, the ecosystem services ensures that we can maintain a
costs of environmental destruction will be huge and healthy and resilient natural environment for future
cannot be compensated [3]. It is necessary to understand
© The Authors, published by EDP Sciences. This is an open access article distributed under the terms of the Creative Commons Attribution
License 4.0 (https://creativecommons.org/licenses/by/4.0/).
E3S Web of Conferences 464, 18002 (2023) https://doi.org/10.1051/e3sconf/202346418002
2nd ICDMM 2023
generations. The Loss of biodiversity is strongly linked to concern for preserving it for future generations to have
reduced ecosystem services. the opportunity to use or visit.
4. The Altruistic value is the value that an individual
2 Total economic value places on an ecosystem good or service solely because
they know that others enjoy it. Example: The
Since the natural resources do not have direct market, Bannerughatta National Park could be a place of
determination of monetary values for ecosystem service is altruistic value, just because we knew that it is a
neither a straight-forward nor precise process. Further favorite spot of many other people, and they wanted to
there are markets and non-market values associated with make sure that, it is existed for many other people to
the ecosystem services. As they provide the different get pleasure from it.
services, no single monetary valuation method to value
these invaluable services are adopted. The economic
valuation is carried out considering the Total Economic
3 Finding valuation technique
Value of nature [7]. There are market and non-market values associated with
Further, the valuation of environmental service is ecosystem services. A market value is the price that a
mainly depending on the monetary value placed by consumer would pay for a good or service that is being
individuals on different services of nature. The maximum bought or sold as a commodity [3]. A non-market value is
amount of money an individual is willing to pay for one that cannot be traded directly in markets and there are
obtaining a benefit or avoiding a loss in most situations not market prices to evaluate. The valuation techniques
reflects the preferences for such a benefit or loss. The are based on direct valuation methods and indirect
Total economic value encompasses both use value and valuation methods.
non-use value (Figure 1). Use values, are those derived
from the benefits people gain from using the
environmental resource [6]. These are classified into 3.1 Direct valuation method
direct and indirect use values. The Direct use values are
The ecosystem services that are directly derived by the
through direct consumption of the resource. Ex: fuel wood
human beings are valued, by
or honey [8]. Indirect use values refer to ecological
1. Market-Based Approaches: This approach is used to
benefits generated by the environment. Ex: recreation and
estimate the economic value of products or services
flood control function by forest.
of ecosystem, presuming that these goods & services
are bought and sold in the commercial market. This
method is also used to value changes of ecosystem in
either quantity or quality of a good or service.
Example: The values of the goods (such as fishes)
and services (such as swimming) will be calculated
based on the actual Market rates. This method is used
to calculate the direct ecosystem services such as fish
products, water used for irrigation, bathing and
washing and soil excavated from lake, firewood from
forest etc.
2. Revealed Preference Method: Resources not traded
in the markets are related in consumption to goods
Fig. 1. Source: Valuing Ecosystem Services: The Case of Multi-
that are traded in markets. The model of optimizing
Functional Wetlands [5]
behavior of an economic agent (individual or firm)
The Non-use values include option value, existence that relates the agent's choices to the relevant prices
value, bequest value, and altruistic value. and constraints, including the level of ecological
1. The Option value refers to the value that people place services being provided. For example: Decision on
on having the option to use the resources derived from which of two houses to be purchased might reveal
ecosystem in future. For example, Himalayan information about how they value air quality or a
Mountains - we may place a high value, even though scenic view, if the two houses vary with
we are not able to see it often, we would like to see environmentally-related attribute.
later. 3. Observable Market Interactions Methods: Market
2. The Existence value refers to the value of knowing interaction method means people value different
that something merely exists even though there is no environmental attributes, that they would be willing
desire to see it, just knowing that it is there is to give up for enjoyment, or to ensure they are
important. Example: value placed on Tiger in our available for future generations. There are conflicting
forest. Even though we never go to forest to see the uses of environment, which give rise to a trade-off
tigers, but would like to know that they exist there. between market outcomes and non-market outcomes.
3. The Bequest value is the value of preserving the Valuing outcomes can be useful to inform decisions
resource for next generations. Example: rainforest. about these trade-offs. For example, operation of an
We may not visit the rainforest and preserve, but have industry may pollute a river by discharging the
2
E3S Web of Conferences 464, 18002 (2023) https://doi.org/10.1051/e3sconf/202346418002
2nd ICDMM 2023
untreated effluent, because it bears no cost from 4 Case study of ecosystem services
doing so (a negative externality) and this could affect provided by nature
drinking water quality of river (a decrease in non-
market values) and production of fishes (a decrease
in market values). 4.1 Economic value of ecosystem services
provided by lakes
3.2 Indirect valuation method Table 1. The provisional and regulatory services
provided by the lakes
The indirect valuation method is used to value the non-
marketed goods, by observing their behavior in relative Services provided
Comments & Example
markets. Non-market value is that, which cannot be traded Lakes
directly in the market and there are no defined market Provisioning Service
prices [3]. Within the non-market values, there are use and Food Fish
non-use values. The Use values include activities that are
not sold or traded in the markets, but are taken directly Water storage, provision for drinking &
Freshwater
from the ecosystem services. The Non-use values include irrigation
option value, existence value and bequest value.
Fiber & Fuel Production of fodder, fuel woods, etc.
The Shadow Pricing: The Shadow pricing or social Biochemical
opportunity cost method, is used to assign the value to Extraction from biota
commodity that is not easily quantifiable, as those products
having the market price, but needs to assign the value. Genetic Medicines, ornamental plants, genes
These prices may be different for different time periods
Materials resistance to plant pathogens, etc.
and geographically separated.
The Travel cost method: This method is a Reveal Regulating Service
Preference Method used to value the ecosystem service Regulating greenhouse gases, Micro
that cannot be obtained through the direct market Climate
Climatic temperature, precipitation, etc.
prices. Use of ecosystem services may require travel.
Therefore, this is employed to estimate the economic Hydrological Groundwater recharge
values that are used for recreation. The Cost that Pollution Retention, recovery and removal of excess
visitors are willing to pay to travel for gaining
environmental benefits (Eco-tourism), which is the control nutrients & pollutants
reflection of implied value of the service provided by Erosion Retention of soils & prevention of structural
natural resource. The cost and time that people incur
Protection change
during a recreational trip will be used to infer the value.
Natural hazard Flood control & storm protection
The Hedonic pricing method: This method identifies
the price, according to concept and the price is Cultural Service
determined both by internal characteristics of goods
Spiritual &
sold and external factors affecting it. This pricing Religious significance & well-being
method is used to estimate the economic values of Inspiration
ecosystem that directly affect the market prices. It is Opportunities for tourism & recreational
used to estimate the economic benefits or costs Recreational
associated with the environmental quality such as activities
Water and air pollution, Environmental amenities such Aesthetic Appreciation of natural features
as aesthetic views of recreational site.
Education Opportunities for education & training
The contingent valuation method (CVM): This method
is a Stated Preference Method, used to estimate Supporting Service
economic values for all types of environmental Biodiversity Habitats for resident species
services. It can be used to estimate both direct use and
Sediment retention & accumulation of
indirect uses. It is the most widely used method for Soil formation
estimating non-use values. The contingent valuation organic matter
method involves directly asking people, in a survey, Nutrient Storage, recycling, processing and
how much they would be willing to pay for specific
environmental services. In some cases, people are Cycling acquisition of nutrients
asked for the amount of compensation they would be Pollination Support for pollinators
willing to accept to give up specific environmental
Source: Economic Valuation of HDMC Lakes, EMPRI [2]
services. It is called “contingent” valuation, because
people are asked to state their willingness to pay,
contingent on a specific hypothetical scenario and
description of the environmental service.
3
E3S Web of Conferences 464, 18002 (2023) https://doi.org/10.1051/e3sconf/202346418002
2nd ICDMM 2023
Table 2. Total economic value of ecosystem services Table 4. The economic value of forest ecosystem
provided by 19 lakes of Hubli-Dharwad municipal
Sl Economic Value in
corporation No
Ecosystem Services
Trillion US Dollars
1 Soil Formation 17.1
Economic
Sl Different Eco System Services 2 Recreation 3.0
Value in
No Provided by the Lakes 3 Nutrient Recycling 2.3
Million Rs/ A
4 Water Regulation & Supply 2.3
1 Drinking Water for Animals 6.86 Climate Regulation
2 Bathing Water 5.75 5 (Maintaining Temperature 1.8
& Precipitation)
3 Water used for Washing 0.57 6 Flood & Storm Protection 1.1
7 Habitat 1.4
4 Yield of Local fish 11.45
Food & Raw Material
8 0.8
5 Natural Recreation 13.58 Production
9 Genetic Resources 0.8
6 Raw Materials Provided 7.22 10 Atmospheric Air Balance 0.7
7 Air quality Regulated 13.06 11 Pollination 0.4
12 All Other Services 1.9
Micro-climate Value for Total Value of Forest Ecosystem
8 14935.07 33.3 Trillion US $
Temperature Regulation Services
Source: World Research Institute, 1998-99
9 Groundwater Recharge 47.74
10 Education Purposes 0.10
5 Conclusion
Recreational Travel Cost (Only
11 113.64 Valuation of Ecosystem services is a process of
from 4 Lakes)
expressing a value for ecosystem goods for scientific
12 Recreational Activities 19.33 observation and measurement. By quantifying the
13 Existence Values 4594.09 contributions of ecosystem services to human welfare, as
well as changes in environmental quality, ecosystem
14 Bequest Value 3.86 valuation has become a valuable tool in determining
Total Economic Value of Lakes 19772.33 environmental policy. Accounting for the Value of
Ecosystem Services” that “Environmental systems
Source: Economic Valuation of HDMC Lakes, EMPRI, 2013-14
provide material and experiential benefits that contribute
directly to human well-being, and it is meaningful and
4.2 Economic value of forest ecosystem important to quantify these benefits in understandable
terms. There are several methods for valuating
Table 3. The Goods and services provided by Forest ecosystems. Each one has strengths and weaknesses, and
ecosystem Services certain methods are most appropriate for specific
Sl situations depending on the type of information that is
Goods Services desired. There are revealed preference approaches and
No
Remove air pollutants, Sequest stated preference approaches. Economic Ecosystem
1 Timber
CO2 and releases O2 valuation is a critical factor in ensuring that ecosystems
Nutrient recycling, maintain bio- will be maintained in a sustainable manner.
2 Fuel Wood
geo- Chemical cycles
Maintain array of water shed The authors gratefully acknowledge the support provided by
functions (infiltration, water Universitas Andalas.
Drinking &
3 purification, flood control, flow
Irrigation Water
control, soil stabilization, ground
water recharge etc) References
Maintain bio diversity. Rain water
4 Fodder
control 1. Alig, Ralph J., Darius M. Adams, Bruce A.
Non-Timber forest McCarl.“Ecological and Economic impacts of forest
Moderate whether extremes and its
5 Products (Bamboos, policies: interactions across forestry and agriculture.”
impact
leaves etc) Ecological Economics 63-78 (1998)
Produce soil, maintain micro 2. Economic Valuation of Hubli- Dharwad Lakes,
Food (honey, fruit,
6 climatic conditions and
edible plants,
temperature.
Environmental Management and Policy Research
Provide direct and indirect Institute (EMPRI).
7 3. Howarth, Richard B. and Stephen Farber.
employment
8 Genetic Resources Provide human & wild life habitat “Accounting for the value of ecosystem services.”
Provide facility for aesthetic Ecological Economics 421-429 (2002).
9
enjoyment and recreation
Source: World Research Institute, 1998-99
4
E3S Web of Conferences 464, 18002 (2023) https://doi.org/10.1051/e3sconf/202346418002
2nd ICDMM 2023
4. Kahn, James R. The Economic Approach to 6. Robert J. SmithView. 8, (1971)
Environmental and Natural Resources. The Dryden 7. Uma Shankar, S. D. Lama and K. S. Bawa. 13 (1),
Press. Orlando, pp.88-106 (1998) (2001)
5. R. Kerry Turner, Stavros Georgiou, Brendan Fisher 8. W Rebecca, O Kayser, H Hagels, KH Zessin, M
Valuing Ecosystem Services the Case of Multi- Madundo, N Gamba. An International Journal of Plant
functional Wetlands, London: Earth scan (2008) Chemical, 14, (2003)
