VALUING THE GOODS AND SERVICES OF THE BIOSPHERE How much would you be willing to pay to save the snow leopard from extinction?

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1 Universität Potsdam Institut für Geoökologie Seminar Dynamiek der Biosphäre Dozent: Prof. Dr. Wolfgang Cramer & Dipl. Umweltwiss. Tim Ebrecht By: Chantal Goetheer VALUING THE GOODS AND SERVICES OF THE BIOSPHERE How much would you be willing to pay to save the snow leopard from extinction? Structure 1. Introduction 2. Valuing or not? 3. Ecosystem goods and services 4. Origin of exploiting the environment 5. What are tradeoffs? 6. Methods of valuing the biosphere 7. Valuing studies 8. Ecosystem design: an ecology for the future Introduction The natural capital stocks that build our biosphere provide ecological goods and services. Human existence depends on these services and goods. Manufactured and human capital require natural capital for their construction. We can t do without nature. Humans use ecosystem goods and services gladly and abundantly but the costs of using them are often not fully incorporated in market prices and therefore are given too little weight in policy decisions (Constanza e.a., 1997). As a result a lot of services and goods are degrading or diminishing. In the last fifty years humans have altered the earth s ecosystems rapidly, mostly because of the growing world population accompanied by a growing demand for food, fresh water, fuel and timber. These changes include changes in the water, nitrogen, carbon and phosphor cycle. Necessarily changes in ecosystems affect the species living in that ecosystem and changes in species affect ecosystem processes. In this way some of the goods and services provided by the biosphere may come into danger and might even disappear. According to the Millenium Ecosystem Assessment 60% of the ecosystems examined were degraded or used in an unsustainable manner. E.g. 35% of the mangrove area was lost, these mangrove areas among other services provided protection against erosion of the coastal lines. The burdens are often not borne by the ones who benefit. Major trade-offs are currently occurring to other groups or future generations (MEA, 2005). A common thought for example is that someone s environmentally sound actions are made undone by everyone s environmentally unsound actions, so why bother? That is if people are thinking about their actions with respect to the environment at all. The biggest problem is that the biosphere has no voice of it s own to demand compensation for the damages done to it, with the result that people use it s goods and services against prices that only reflect the extraction, processing and transportation costs, but not the damage done to the services and other connected services. It s important to realise that ecosystems are not apart from everything else, they are interconnected and have to be sustained for future generations. The big question is then: How can this problem be solved? Valuing or not? Some economists say that by assigning a value to the services and goods of the biosphere, a voice is given to the biosphere which says: you have to pay this much as a compensation for damaging me. This voice is still lacking today.

2 Others say it would be unwise or it s impossible to value intangibles such as ecosystem services. And still others say we should not need a value being placed on the ecosystem services in order to protect them. They say we should protect ecosystems for moral and aesthetic reasons (Beder, 1996). Both arguments not to value ecosystems are sound, but both ignore important aspects of our society. We already are valuing ecosystems everyday, only implicit. We have to value ecosystems explicitly. Only then a strong voice is given to the environment that cannot easily be ignored in decision making. Morally there are also obligations that no one should go hungry, that everyone has access to a certain standard of living, these obligations do not always go hand in hand with protecting ecosystems (Constanza e.a., 1997). Sometimes we have to make a choice between human needs and ecosystem needs. But the best is to strike a balance between both needs and valuation can help us with that. Ecosystem goods and services Ecosystem goods and services can be flows of material, energy and information that are either consumed directly or are transformed by human activity and add to human welfare. An ecosystem always provides more than just one good or service. A main division and under division of services and goods is as following: Ecosystem s Provisioning Regulation of e.g. Information Carying Local and Settlement Oxygen global climate Cultivation of Scientific Ecosystem Chemical lands information: services and composition Nutrient cycle Recreational goods atmosphere/ air Water cycling for drinking and industry Energy/ fuels quality Local and global energy balance Purification of water Genetic material medicines fibers Cultural Spiritual religious values Aesthetic values Genetic resources Educational values Soil formation Primary production Protection against UVradiation Protection against flooding/ erosion/ storms Historical information Sink for waste and other rest products Sense of place Many of these services and goods listed above are either not incorporated in markets or are only incorporated as far as it concerns the costs of extraction, processing and transportation (Constanza et al. 1997). Origin of exploiting the environment The definition of welfare of a country is defined as a continuing economic growth, which is reflected in the GNP. Policy decisions are mainly based on economic and converging social problems. However in order to accomplish this continuing economic growth the output of the

3 economic system needs to keep on growing. It s of course possible to realise this growth because of increased output in the service sector, but in general the increase is accomplished as well through an increase in industry output. Some of this increased output comes from increased efficiency in the production process, an other part comes from an increased input in the form of raw materials, in other words an increase in the use of the goods and services from the biosphere. And with increasing production output, the amount of waste is increasing as well, putting more stress on the environment. From 1970 the realisation grew that the continuing growth was accompanied by a continuing pressure on the environment. The Club of Rome wrote the report Limits to growth which brought a notion that ecosystem services and goods were scarce and used to easily. Social costs or environmental costs were not included in the markets (Stengel and Wüstner, 1997). The problem with ecosystem services is that they are common pools. This means that the property rights are not well defined and guaranteed. Because no one has the property rights everyone can use the common pool freely and no one has to pay a high price for damaging or exhausting the common pool to the owner since nature has no voice to demand compensation. Ecosystem services can be divided between renewables and non-renewables, but both are scarce goods. Therefore there is a rivalry for using the common pool, there is a competition between people wanting to use the service and there s a competition between the possibilities of use of one service or good (Stephan and Ahlheim, 1996). What are tradeoffs? Tradeoffs occur when the price paid is not sufficient to compensate for future loss of welfare because of degradation of the service or good. The principle of the polluter pays is not being put into force anymore. The connection gets broken between the person using a service or good and the damage that is inflicted on the ecosystem service or on another ecosystem. Because of this lack of compensation others can not use the service or good in the same way. The problem is then that negative effects are not directly noticed and cannot be brought back to one person. Tradeoffs often occur to social weaker groups, other regions and future generations (Stephan and Ahlheim, 1996). Net benefits gained from using ecosystem services are often considerable lower when the tradeoffs are taken into account. When the price of using ecosystem services and goods is set high enough with help of valuation, tradeoffs can be partly avoided. Methods of valuing the biosphere How can we value ecosystem service and goods so their prices can be incorporated in markets and tradeoffs can be avoided to a certain point? Total economic value of environment = direct value + indirect value + optional value + existence value Indirect value = value because it s part of other services/ ecosystems Optional value = possible future use, insurance fee for future existence Existence value = only the presence of the good not the possibility of using it Of course it s extremely difficult to determine the indirect value, optional value and especially the existence value. 1. One way of valuing is trough contingent valuation. Contingent valuation is the hypothetical willingness to pay or willingness to accept researched trough inquiries.

4 The biggest problem with contingent valuation is that everyone places a different value on the subject and meanwhile the lack information to be able to value it properly and future generations are not represented in this valuation method. A biased outcome can occur because the answer is influenced by the income of the person and his norms, by strategic choices, it could also be influenced by the interviewer and because it s just hypothetically and the person want to get rid of these annoying questions. 2. A second way of valuing could be to try and value preventive actions, the so called avoidance costs or recovery costs. To estimate what the changes in productivity cost and what the costs are of sustaining or rebuilding the service. The problem here is that only the direct value and maybe the indirect value is measured. An extension of this method is to estimate what it would cost to replace the natural ecosystem service with a technological solution. 3. An other way of valuing is to determine the dose (cause) effect (damage) relations. This means to connect the extent of damage with an amount of output and than to value this output reduction. The benefit of this system is that it does not rely on individual preferences. It incorporates quit well all the aspects of the economic value, but the damage still has to be connected with an amount of output change, which is very difficult. Opportunity costs are incorporated here. 4. The safe minimum standard makes the uncertainty and irreversibility of consequences explicit. A minimum standard is set for which the ing of the ecosystem is assumed, this also takes the future generations into account. It doesn t directly involve assigning a monetary value to the ecosystem and has to be set by governments. Delayed effects and effects occurring over a distant in space and time make it even more difficult to value. Changes take place gradually until a certain threshold is passed, than changes occur non linear and are irreversible (Meyerhoff, J., 1999). Tradeoffs easily occur. Right now environmental taxes and subsidies are used often to try and somehow place a value on ecosystems. In the US often property rights are assigned after which trade can occur and a value is being set, the same now is tried with emission rights in the EU. The principle of emission rights is also based on the willingness to pay for rights to emit CO 2. Valuation studies The MEA of 2005 has valued the contribution of several ecosystem services to the global economic activity: Ecosystem service Value for 2000 Food production $ 981 billion Timber $ 400 billion Marine fisheries $ 80 billion Marine aquacultures $ 57 billion Recreational hunting and fishing $ 50 billion total $ 1208 billion A lot of industrial products and commodities are heavily relying on ecosystems such as water as input in the process of making them (MEA, 2005). In a study of Constanza et al 17 important ecosystem services and 16 biomes with help from outcomes of valuation studies were examined. Service per area biomes were multiplied with

5 the total biome surface area. They valued the ecosystem services at a minmum of 33 trillion US$ per year. And even then only renewable services were taken into account. Bedsides about many services too little is known to be able to place a proper value on it. Constanza et al assumed that there would be no irreversible and positive feedbackloops because of human influence on ecosystems. Although this is a rough estimate and should be seen as a minimum still even this amount is not by far accounted for in markets and goes outside markets. Other studies only took into account the value of ecosystems which has a directly impact market value. These valuations lay between 3.4 and 17.6 trillion US$ per year (Constanza et al., 1997). In the future the value of ecosystem services and goods will probably rise with an increase in understanding of ecosystem dynamics and interdependence and when services and goods will become more scarce in the future. Ecosystem design: an ecology for the future Human activities needs to be incorporated as integral components of the earth s ecosystems. The central question here is which services are to expensive to replace, or which services/ ecosystems need to be protected to sustain other important services? Understanding about these ecosystem dynamics is still small and even when we understand decisions made are often taken for other interests. Public awareness is an ever important part of real changes in the management and policy. But we are caught in the web of present society. The economic system largely decides what we do, it s difficult to think outside the lines set by our society, to see human activity as a part of the earth ecosystem and not as standing somewhere above allowing humans to do everything they want. In the meantime designing ecosystems might be a solution to not just restoration, but to creating a well ing community of organisms that optimises the ecological services available from coupled nature-human ecosystems. Ecosystem design is about manipulation of slightly altered systems as well as creating entirely new systems when we ran out of alternatives or systems designed to mitigate unfavourable conditions by blending technological inventions with new mixtures of native species that specially favour specific ecosystem s (Palmer et al. 2004). However the Biosphere II project showed that we don t understand all the processes of ecosystems and their reactions, not even roughly. Still we don t have a choice but to value our environment. If we don t, the dynamics of our biosphere will slowly dissolve and break down, leaving us helpless and fallen down from our pedestal. There are and will always be tensions between human needs and ecological needs. We just need to find a balance between them and we need to realise we can t do without the things the biosphere provides us. So back to the beginning the worth of the biosphere. It s infinite. Sources Beder, S., Valuing the environment. In: Engineering World, December 1996, pp Meyerhoff, J., Ökonomische Bewertung ökologischer Leistungen. Chapters 4-6. Cited on Available on the World Wide Web: < elise.bafg.de/servlet/is/3192/gesamtinhalt.pdf?command=downloadcontent&filename=gesamtinhalt.p df > Constanza, R. et al, The value of the world s ecosystem services and natural capital. In: Nature, vol Mai 1997, pp

6 MEA, Millenium Ecosystem Assessment. Summary for decision makers. Cited on Available on the World Wide Web: < > Palmer, M. Et al Ecology for a Crowded Planet. In: Science, vol 304, 28 May 2004, pp Stengel, M. and Wüstner, K., Umweltökonomie. Eine interdisziplinäre Einführung. München: Vahlen. P Stephan, G. And Ahlheim, M., Ökonomische Ökologie. Berlin: Springer. P