Theoretical Discussion on Economic Valuation of Greenness: From Ecosystem Services to Green Infrastructures

ENTI 2010, 9th international conference of Territorial Intelligence, "Ecological and Social Innovation" Strasbourg, 18th November 2010

Presented byAllyson Marek

Researcher

Supervised byGuénaël Devillet

Jean-Marie Halleux

SEGEFA - ULg

P r e s e n t a ti o n o f 2 r e s e a r c h p r o j e c t s o n e c o n o m i c v a l u a ti o n

1st PART : VOTES project

Economic valuation on « natural greenness » : Ecosystem ServicesFundamental researchSTATUS: State of the Art

2nd PART : VALUE project

Economic valuation on « artificial resources » : Green InvestmentFundamental and Applied researchSTATUS: Investment in Verviers

CONTENT

Biodiversity is defined as “the variability among living organisms from all sources; this includes diversity within species, between species and of ecosystems”. It provides a large range of economic/social benefits to human.

Both quantitative and qualitative attributes of biodiversity are important when considering the links between nature, economic activity and human well-being.One way to link nature and the economy are often described using the concept of ecosystem services.

In fact, Ecosystem Services (= ES) are the direct and indirect contributions of ecosystems to human well-being (Synonymous with ecosystem goods and services ) (TEEB 2010, ESA 2000)

From Biodiversity To Ecosystem Services

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The Millennium Ecosystem Assessment defined 4 categories of ES that contribute to human well-being, each underpinned by biodiversity (MA 2005; TEEB 2010)

Categories of ES (1/3) (MA 2005; TEEB 2010)

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Categories of ES (2/3)

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Categories of ES (3/3)

E c o s y s t e m s e r v i c e s a r e :

• components of nature, directly enjoyed, consumed or which yield human well-being (Salles 2010, Chen et al. 2009). • capital assets which are valuable for their flow of vital services and in terms of the conservation of options (Daily et al. 2003).• provide humans with services that would be very difficult to duplicate (ESA 2000)

HOWEVER • ES are poorly understood and scarcely monitored (Daily et al. 2003). • The risks of ecosystem catastrophes are unknown and poorly quantified.• Major ecosystem degradation tends to occur as a syndrome of simultaneous failure in multiple services (Carpenter et al. 2006). • ES have been degraded to such an extent that they are nearing critical thresholds.

THE Problem Of Ecosystem Services (1/2)

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THE PROBLEM

E c o s y s t e m S e r v i c e s a r e :• considered as free, open access and pure public services (ESA 2000, En Chee Yung 2004).• discounted by decision-makers when they have to choose between conservation or conversion (Pearce 2007, Turner & Daily 2008).• excluded from economic priorities (TEEB 2008).

Little incentive exists for beneficiaries to manage ES sustainability

THE Problem Of Ecosystem Services (2/2)

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As ES are faced with all the problems of non-market valuation (Hanley 2010)

A SOLUTIONEconomic valuation

Different approaches to valuation are based on qualitatively different assumptions. 3 stages: social, biophysical, and economic valuation; this presentation focuses on ECONOMIC VALUATION (Votes project, Cowling et al. 2008, de Groot 2006, Pritchard et al. 2000).

« Putting a price tag on nature is seen by many as risky at best, but ecosystem capital is becoming even scarcer, so it is now critical to understand both how to value ecosystems and the limitations of such valuations (Daily et al. 2003) ».

The evolution of the human economy has passed from an era in which human-made capital was the limiting factor in economic development to the current era in which remaining natural capital has become the limiting factor (Costanza 2000).

A Solution for Ecosystem Services?

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I t a l l o w s :

• promoting a better understanding and valuation of biodiversity• an estimation of the cost of ES degradation• helping institutions to provide incentives for conservation

To e s t a b l i s h s o u n d p o l i c i e s ,

• ES need to be characterised, • ES sources and consumers need to be cataloged to document services flows (Daily et al. 2003). •interactions between these functions quantified

Economic Valuation: Why?

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Economic Valuation: How?

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T w o p o s s i b i l i ti e s t o e v a l u a t e e c o s y s t e m s e r v i c e s

(1) Market (direct) prices: it means that ES have explicit prices or are traded in an open market.

Market prices can be used in some cases but in most of them, we need to use arange of « indirect valuation methods » due to the problem of « missing markets ». e.g. : what is the price of a spiritual experience of a natural spot??

(2) Non-market (indirect) valuation is represented by several techniques of indirect economic valuation

This is not a problem as techniques are emerging since 1970s …… while it is innovating to apply these techniques to ES considering spatialheterogeneity.

This is the aim of the VOTES project which is the origin and motivation of this research.

Economic Valuation: How? – Indirect valuation methods (1/3)

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• C o n ti n g e n t Va l u a ti o n is a “stated preference” technique based on a hypothetical market in which people have to manifest their demand function for ES.It uses monetary value goods which have no exchange value.

• H e d o n i c P r i c i n g relies on the proposition that the value an individual places on a service is based on the attribute it possesses.

• C h o i c e M o d e l l i n g is also a stated preference technique based on a choice of different scenarios according to people’s preferences

• R e p l a c e m e n t / r e s t o r a ti o n c o s t assesses the value of an ecosystem service by how much it costs to replace/restore it after it has been damaged.

• T r a v e l C o s t evaluates individual preferences for non-market goods where consumption is commensurate with the costs of travel.

Economic Valuation: How? – Indirect Valuation Methods (2/3)

• A v o i d e d c o s t is applied when services allow society to avoid costs that wouldhave been incurred in the absence of those services.

• F a c t o r I n c o m e is applied when ecosystem services enhance incomes.

An example is natural water quality improvements, which increase commercial fisheries catch and thereby the incomes of fishermen.

• P r o d u c ti o n F u n c ti o n A n a l y s i s is based on estimating the contribution an ES makes to the production of some marketed service.

• G r o u p v a l u a ti o n is based on principles of deliberative democracy and the assumption that public decision-making should result, not from the aggregation of separately measured individual preferences, but from open public debate.

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Economic Valuation: How? – Indirect Valuation Method (3/3)

Indirect techniques

Heal (2000) De Groot (2006) Yung (2004)

Contingent valuation Contingent valuation Contingent valuation

Hedonic pricing Hedonic pricing Hedonic pricing

Replacement cost Replacement cost Replacement cost

Travel cost Travel cost Travel cost

Avoided cost

Factor income

Production function

Group valuation

According to the authors, different techniques might be taken into account:

At the same time, s o m e t e c h n i q u e s a r e m o r e a p p r o p r i a t e t o c e r t a i n E S .

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P a r ti c i p a ti o n is fully integrated in the economic valuation techniques.Methods are often based on Willingness To Pay (WTP)

=establish the maximum amount of money that people would be willing to pay for improvements in the quality/quantity of ES provided by biodiversity (Martin-Lopez 2007).

HOWEVER

Reliance on i n d i v i d u a l p r e f e r e n c e s to construct social values has serious p i tf a l l s :

Variation in WTP based on type and population size of species, use vs. non-use, but also response rate, survey mode, valuation method (Hanley 2010)

Prices reflect the distribution of income (Heal 2000)

Issues with people’s preferences (1/2)

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Issues with people’s preferences (2/2)

Self-interest motivation

Assumption of fixed and given tastes and preferencesBUT preferences do change over longer time frames (entire industry (advertising) devoted to changing them and sustainability is an inherently long-run problem.

T H E N value cannot completely originate from preferences (Costanza 2000)

Finally, if individual values are accurately measured, how to aggregate these into a social value? (Daily et al 2003)

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Spatial heterogeneity

A s p a ti a l e c o n o m i c v a l u a ti o n of ES provides vital information for regional ecosystem management and sustainable development.

B U T little attention has been focused on the spatial visualization and mapping results for direct use value of ES

H E N C E this situation hindered the efforts of the local government and stakeholders to protect their resources and environment with limited funds and powers due to lack of space dimension about on where it is more urgent to focus. (Chen et al. 2009)

Putting theory into practice will require locally based information(Daily et al. 2003)

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Being positive…

We CAN!• estimate the value in € for changes in ecosystem services.• measure WTP of people on different ecosystem services.• measure economic value by looking at the production of marketed good.• link biodiversity and subjective well-being measures of happiness (Hanley 2010).

E S v a l u a ti o n C A N :

• inspire the local government and stakeholders to be more concerned about the limited resources and biodiversity loss.• help achieve a more effective, integrated management of resources and ecosystems (Chen et al. 2009).

E S m a p p i n g C A N :

• identify areas suitable for further exploitation and others which should be conserved.

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Being negative… failures (1/3)

We CANNOT…

1 s t l i m i t a ti o n - e c o n o m i c s (Daily et al. 2003)

ES valuation involves some of the oldest problems in economics:

• revealing and aggregating preferences

• addressing uncertainty

• incomplete image of the full social costs of production

• demand and supply curves should approach « infinity »

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Being negative… failures (2/3)

2 n d l i m i t a ti o n – W T P & p e o p l e p r e f e r e n c e s (Turner & Daily 2008, Costanza et al. 1997)

«Willingness To Pay » estimations have been criticized:

• surveyed WTP are higher than money actually spent for biodiversity• non-use valuation remains problematic

As well as people preferences:

• global community doesn’t care about biodiversity loss• individuals are ill-informed

The outcome of economic valuation studies is therefore only as good as the values of the people being assessed.

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Being negative… failures (3/3)

3 r d l i m i t a ti o n – c o m p l e x i t y(Turner & Daily 2008, Costanza et al. 1997)

Values emerge from the interaction of systems:

• underlying ES tend to be highly interdependent, complex and dynamic.• running counter to the view that estimations are based on a static snapshot.• challenging the belief in commensurability.

Nonlinearities and dynamic behaviour of ES stressing the role of adaptive institutions.

VALUATION is a way of organising information to help guide decisionsBUT

is NOT a solution or an end in itself!!!!!

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Description of Verviers case study (1/2)

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L o c a l i s a ti o nin the Province of Liege / at the southern border of the Herve County / Wallonia. In Verviers H i s t o r yVerviers was an important commercial and industrial centre. Wealth generated by the wool industry (19th century). Decline of the wool industry during the 20th century.

S o c i o - e c o n o m i c d a t a Population 54 000

Area 3 300 ha.

Population density 1648.40 h/km²

Number of foreign-born people

5 746

Average annual wage 11 524 €

Urbanisation rate 45,69 %

Description of Verviers case study (2/2)

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C u r r e n t S i t u a ti o n VS F u t u r e s i t u a ti o n

Description of the Contingent Valuation question

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M e a s u r e : willingness-to-pay (upper and lower bound)

P a y m e n t v e h i c l e : local tax to develop and maintain the GI.

S u r v e y m e t h o d : face-to-face interviews

Te s ti n g o f q u e s ti o n n a i r e : focus group sessions (businesses/residents) and pre-face-to-face interviews

D e s i g n o f v a l u a ti o n s c e n a r i o : hypothetical scenario asking for the WTP of a resident in the sampling area to develop and maintain a greenway project along the River Vesdre.

V i s u a l i s a ti o n a n d c o m m u n i c a ti o n o f v a l u a ti o n s c e n a r i o : use of drawn images

Vegetal development 1 (low-maintenance)

-development of a natural vegetal cover -maintenance is low and focuses on the management of invasive plant species

Description of the Choice Modelling question (1/2)

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S e l e c ti o n o f a tt r i b u t e s a n d t h e i r l e v e l

Attribute Description LevelsDegree of transparency and luminosity

Structure and composition of vegetation. Low (abundant vegetation)Medium (less abundant vegetation) High (no vegetation)

Structure of green space

Different types of green spaces to develop with the creation of the cycling/walking path.

Barren Unstructured (natural )Structured

Safety and security of the GI

Help to guarantee the security of the path Low (nothing) Medium (Lighting and closing time) High (CCTV, lighting, closing time)

Maintenance of the GI

Measures to help guarantee the cleanliness of the site.

LowMedium frequency of bin collection, cleaning High up, and management

Cost Costs of the creation and maintenance cycle/pedestrian path per person and per year .

Low (< 25€ / year) Medium (25€/year) High ( >25€ / year, up to 200€/year)

Same basis as Contingent Valuation, but different scenarios based on chosen attributes (from residents/business focus group)

Description of the Choice Modelling question (2/2)

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S c e n a r i o B u i l d i n g

Same basis as Contingent Valuation, but different scenarios based on chosen attributes (from residents/business focus group)

Barren path scenariono vegetation on the river bank and along the path.

Vegetal development 2 (high-maintenance)-structured/ controlled vegetation. -embellish the paths with flowering plants in tubs

Description of the sample for both method

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M e t h o d o f c o m p i l a ti o n Based on land registry

Ta r g e t p o p u l a ti o nInhabitants of the Pré-Javais district

S a m p l e f r a m e p o p u l a ti o nHousing unit located no further than 150 m away from the River Vesdre on the selected part of the river

S a m p l eRandomly selected (representative) sample of the population living in the district and field experience.

Results expected

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A i mestimate the economic valuation of environmental services with the help of two different stated preferences methods:contingent valuation method (CV) and choice modelling method (CM).

T h e t w o t e c h n i q u e s w i l l y i e l d c o m p l e m e n t a r y r e s u l t s

CVM : results will prove the effects of proximity/distance on WTP

CVM : identification of WTP and correlations with socio-economic determinants such as education, wage, age, nationality, etc…

CVM and CM : importance of the visual support and communication of valuation scenarios for both techniques.

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Thank you for your att enti on

Questi ons?

C o n t a c t : A l l y s o n . M a r e k @ u l g . a c . b e