Concept of Total Economic

Valuation (TEV) in forestry

One week online training course on ECOSYSTEM APPROACH TO FOREST MANAGEMENT

(EAFM), Central Academy for State Forest Service Ministry of Environment, Forest and Climate

Change, Government of India P.O. New Forest, Dehradun – 248006.

23rd November 2020

Saudamini Das,

NABARD Chair Professor,

Institute of Economic Growth,

Delhi 110007

Outline

I. 1. Concept of Ecosystem Services & Total Economic Value

II. II. TEV in Ecosystem approach to Forest Management

III. III. Why TEV, not Timber

IV.IV. Measurement of TEV

V. V. Practical valuation studies

“A paradigm shift from timber centric management to focus on conservation and ecological security.

According to the ecosystem approach, forest ecosystems should be managed to ensure that their intrinsic values and their tangible benefits are shared in a fair and equitable manner.”

What are Ecosystem Services & why

valuation?

Ecosystem

-- a natural system consisting of plants, animals, microorganisms (biotic factors) in an area functioning together with all the non-living physical (abiotic) factors of the environment.

-- the conditions and the processes through which natural ecosystem and the species that make them up, sustain and fulfill human life (MEA, 2003).

Ecosystem services (ESS)

-- the benefits that an ecosystem provides to mankind . They consists of Ecosystem goods (such as food) and services(such as waste assimilation) represent the benefits the human population derives, directly or indirectly, from ecosystem functions

ESS Valuation

-- helps in explicitly accounting for the Ecosystems in land use planning

Ecosystem Services

Grouping of ESS

Use based Grouping (Krutila, 1967; TEEB, 2010)

Functional Grouping (Lobo, 2001; de Groot et al.

2002; MEA, 2005)

Use based categorization of ESS

Functional Grouping of ESS

Firewood

Charcoal

Construction material

(timber, poles, Nipa

singles)

Mangrove propagulas

Fodder

Green maneuver

Cellulose for paper

Food, beverages and

drugs (sugar, alcohol,

medicines)

Tannies and dyes

Finfish

Crustaceans (Prawns,

shrimps, mangrove crabs).

Malluses (cryster, mussels,

cockles)

Honey

Birds

Mammals

Reptiles

Water transport

Services of Mangrove Ecosystem

1. Provisioning

2. Supporting

Ground water

discharge,

Prevention of soil salinity,

Sediment/Toxicant

retention,

Nutrient retention,

Nursery ground for fish

fry,

Biomass export,

Water transport,

3. Regulating

Flood control,

Storm protection/wind break,

Shoreline stabilization and

erosion control,

Micro climatic stabilization,

4. CulturalBiological diversity,

Unique to culture/heritage,

Recreation/Tourism.

Source: Das (2009)

TEV: Definition

TEV = Use Value + Option Value + Bequest Value + Existence Value

= Use Value + Non-Use Value

= Use Value + Non-use Value – (Negative Externalities ?)

TEV: Why go for TEV based Management

TEV

Components

Category Type of Outputs Value (US $)

per year

%

Direct Use

Values

WFPs Timber 435,030,000 42,0

Firewood 14,785,000

NWFPs Resin 1,898,000 8,0

Mushrooms 11,482,000

Medicinal and aromatic

plants

8,642,000

Truffles 495

Styrax (Liquidambar oil) 56,000

Sticks and twigs 22,000

Bay leaves 9,253,000

Carob (fruit) 6,000

Chestnuts 262,000

Pine kernels 7,172,000

Snow drop, Cyclamen

and other bulbous plants

1,087,000

Thymus -Oreganium 13,237,000

Other NWFPs 32,927,000

Grazing Grazing 225,000,000 21,0

Hunting Hunting 35,948,500 3,4

Recreation Recreation 2,000,000 0,2

Indirect Use

Values

Carbon storage 158,400,000 14,8

Option Value Pharmaceuticals 112,500,000 10,5

Non Use Values Existence value (to

conserve

biodiversity)

1,380,000 0,1

Positive TEV Components 1,071,087,995 100.0

Negative

Externalities

Erosion -125,000,000 72,0

Risk of damage by

forest fires

- 8,607,537 5,0

Illicit fuelwood - 40,000,000 23,0

Negative TEV Components -173,607,537 100.0

NET TOTAL ECONOMIC VALUE OF TURKISH

FORESTS

897,480,458

Example from India: Himachal Pradesh

Contribution of Forests to the GSDP (Verma, 2000)

Total GSDP Rs.9258 crores

Forestry & Logging Rs.487 crores

Forestry as % of GSDP 5.26%

TEV of forests of HP ( as per current estimate) Rs.106664 Crores

. Corrected GSDP Rs.115434 crores

Forestry as % of corrected GSDP 92.4%

Valuation Approach

Valuation methods

Preferences

Revealed

preference

s

Stated

preferences

Market

based

Surrogate

market based

Market price

Productivity Change

(change in Consumer &

Producer surplus ),

Replacement

cost/saving, Avoided

damage etc

Hedonic pricing, Travel

Cost, Defensive

Expenditure,

Non-market based Choice experiment

Contingent valuationBenefit transfer with adjustment for

ecosystem health, preferences, etc

Ecosystem services & Valuation

Methods

Direct Use Values

• Market price

• Production function

• Travel cost

• Hedonic prices

• Stated preferences

Indirect use values

• Productivity change,

• Replacement cost/saving,

• Defensive expenditure,

• Avoided damage etc

Non-use values

• Stated Preferences (Contingent valuation, Choice modeling)

Policy on mangrove plantation

Impact on ecosystem: Mangroves

Change in ecological service: Fish catch

Identify the economic outcome: Cost

Choose the appropriate valuation method: Production function

Measure the total or marginal values: Change in profit (CS+PS)

Value changes using suitable indicator: Price of fish or cost of

fishing effort

Market based method (Productivity

change)

X is a marketed good

SS of X depend on environment

X’’

Examples

Replacement cost: Catskills (Land-Water supply)

Catskill/Delaware watershed

• New York City water requirement =

1.3 billion gallons per day

• Options:-- Preserve the water shade and use the water

filtration service of nature

OR

-- Construct water filtration plant

• Cost of filtration plant = $6-$8 billion for construction +

$200-$300 million operation and maintenance

• Cost of water shade protection program

including water quality monitoring = $1.3 billion

Value of water filtration services = cost of filtration plants- Cost of Protection

Valuation of Cultural Services

Does local/regional cultural centers have potential to act as engine

of growth?

Literature is thin, traditional travel cost method is not quite

appropriate,

Religious tourism is different from recreational tourism

Redefined travel cost estimates

Travel cost method

Non-market (Surrogate market) valuation method

Three Models: Individual, Zonal (both singe site

models) and Random Utility (multiple site model)

• Models ‘number of trips’

Tr = f(TCr, TCs,Y, Z), Tr is number of trips to site r per

year, TC is travel cost, s substitute sites, Y income & Z

demographic variables influencing trip.

• Data: usually interview visitors

Site

‘r’

Site

‘’s’’

Recreational value = consumer surplus

CS = Maximum willingness to pay

Valuation of cultural sites of KSL

Patal Bhubaneswar, Hat Kalika & Gwalek Kedar

Use modified travel cost method

Survey visitors and local households who visit these places

Measure the consumer surplus (the maximum willingness to pay to visit these places)

Patal Bhubaneswar VisitorsVariables Variable definition Mean

Total Trips No. of trips in 5 years 2.09

Travel Cost Total travel costs for current trip 8,789

Alternative Site TC Travel costs to alternative site 2,811

HH Income >300k 1 if annual hh income > INR 300k 0.48

Male 1 if respondent is male 0.65

Respondent’s Age Respondent’s age in years 38

Urban 1 if visitors is from urban area 0.73

Group Size No. of people visiting together 6.5

Recreational Propose 1 if the visitor is traveling for recreation 0.12

Agriculture 1 if visitor’s occupation is agriculture 0.13

Business 1 if visitor’s occupation is business 0.14

Government Employee 1 if visitor is government employee 0.23

NGO/Private 1 if visitor works for NGO/Private 0.21

Housewife 1 if visitor is a housewife 0.20

Other 1 if visitor’s occupation is ‘other’ 0.08

Less than 12 grade 1 if visitor has < 12 years of schooling 0.36

Bachelor 1 if visitor has bachelor degree 0.35

MA/PhD 1 if visitor has MA/PhD degree 0.29

Site Quality - Average 1 if site quality is average 0.04

Site Quality – Good 1 if site quality is good 0.36

Site Quality - Very Good 1 if site quality is very good 0.60

Hat Kalika and Gwalek Kedar Visitors

Variables Definition

Mean value -

Hat Kalika

visitors

Mean value –

Gwalek Kedar

visitors

Total Trips No. of trips in 5 years 15.15 21.88

Travel Cost

Travel costs for the last trip

(INR) 284 354

Alternative Site TC

Travel costs to alternative site

(INR) 163 786

HH income >50k

1 if monthly household income >

INR 50k 0.25 0.74

Male 1 if respondent is male 0.30 0.60

Respondent's age Respondent’s age in years 45 45

Household size No of member in household 5.36 7.0

Dalit

1 if respondent is classified as

lower caste 0.39 0.17

Education more than

grade 6

1 if respondent has information

education 0.48 0.29

Per person per trip use value of cultural

services at KSL area in INR (USD)

1. Patal BhuwaneshwarMeasure of

cultural value

(a) Full sample13,710

(211)

(b) Day visitors4199

(65)

2. Hat-Kalika visitors1184

(17)

3. Gwalek Kedar visitors2132

(33)

• Excludes revenue generated for the hotel owners or other service

providers (producers surplus) or other non-use values of the sites

Total cultural values of landscape

i. Total cultural (use) value for

three sites Rs.187.5 million

(US$ 2.9 million)

ii. Total cultural (use) value of

KSL area (for local residents

only) Rs.1.47 billion

(US$ 22.6 million)

Importance to local population

• Visitation rates of households: 77% (Hat-Kalika), 25%

(Chandak) and 40% (Gwallek)

• Per capita Income: USD 1703 (India) & USD 766 (Nepal)

• Cultural values as % of per capita income of the area:

-- Patal Bhubaneswar = 13% India, 28% in Nepal

-- Hat-Kalika = 6.1% in India

-- Gwallek kedar = 21% in Nepal

Policy implication

Cultural places in KSL provide high religious/amenity values to

people and are important for their wellbeing.

Have potential to work as drivers of eco-development of area.

Every cultural site has carrying capacity and study didn’t look

into management aspect

Cultural tourism potential need to be sustainably harnessed.

Cultural sites need to be included in landscape management.

Mangrove and storm protection:

Averted damage (Das, 2007)

Mangrove

District Boundary

River

LEGENDS Casurina Dense

Casurina Open

Mangrove

Mix Jungle(Kaju)

District Boundary

River

LEGENDS

Mangrove Forest cover before 1950

(30,766 hectares)

Mangrove Forest cover in 1999

(17,900 hectares)

29 Oct-3gmt

Overview of deaths

Area No of

Village

Total

Death

Mean

death

Entire District 1180 456 0.39

Villages with no or little

mangrove (M ≤ 0.5)

722 391 0.54

Villages with high

mangrove protection

(M > 0.5)

458 65 0.14

Villages inside

mangrove habitat

96 107 1.11

Villages outside

mangrove habitat

1084 349 0.32

Methodology: AD

Cyclone Damage Function (Bad output)

Di = f (Pi, Vi, Wi, Si)

Di is the damage suffered in the ith village

(human mortality, house damage and livestock loss)

Pi is property at risk

Vi is the approximate measure of wind velocity

Wi is the severity of flooding due to storm surge

Si is the group of socio-economic factors

influencing the damage occurrences

Di = f(pop99, Vmax (if dcypath<=15), velocitypow (or velocityexp) if dcypath>15, surge,

dcoast, topodumy, mhabitat, mangrove, casuarinadumy, dmajriver, dminriver, droad, roadumy, pop99, literate, schedulecaste, cultivators, aglabour, hhworker, otworker,

margworker, nonworker, tahasil)

Confounding effect of mangrove

with effect of distance from coast

●

●Village A

Village B

Mangrov

e

Sea

---- with effect of Mangrove Habitat

A● C●

• Exclude village A, include village C

• Test that protection at B is due to vegetation, not

habitat

B●

Sea

Mangrove habitat

Mangrov

e

Deaths Averted by Mangroves

,

Actual death (865 villages) 392

Predicted deaths if there were no

mangroves

603

Predicted deaths if current

mangroves were at 1950 level

31

Averted deaths under assumption 1

(603 – 392) = 211

211 (54%)

Averted deaths under assumption 2

(392 – 31) = 361

361 (92%)

Average house damage per village

0

10

20

30

40

50

60

70

80

118* 132* 148* 166* 181* 193.5*

Cyclone Impact

% o

f h

ou

se

s f

ully

da

ma

ge

d

No_mangrove

villages

Mangrove

villages

Wind protection to properties by mangroves

Storm Protection Value of Mangroves

during super cyclone

Area /

Mangrove unit

Value of 1km

width

Value of 1

hectare

Village Rs3,928/ Rs217/

Entire study

area

Rs33,39,166/

(USD 68, 586)

Rs1,82,080/

(USD 4335)

Should we preserve mangroves to adapt

to climate change?

Economic cost & benefit (1999 prices)

• Opportunity cost of conserving mangroves: -

- Market value of land in coastal Kendrapada: Rs 1, 72, 970 \ ha

- Annual return from land (8%): Rs 13, 837 \ ha \ yr

- (12%): Rs 20, 756 \ ha \ yr

• Benefit from retaining mangroves: -

- Storm protection value (only for 3 damages): Rs 1, 82, 080 \ ha

- Annual Probability of VSCS and SC: 0.15 \ yr

- Annual Storm Protection Value (3 damages): Rs 27, 312 \ ha \ yr

Mangrove Plantation & Fishery

Change in Mangrove cover in India

-200

-100

0

100

200

300

400

500

600

700

Change in mangrove area (1987 - 2011)

Source: Forest Survey of India

Total mangrove cover in Gujarat (sq

km)

0

200

400

600

800

1000

1200

1400

1600

1800

Year_1939 year_1990 Year_2013

854.93 876.36

1693.88

Source: 1939 – www.lib.utexas.edu/maps/ams/india/nf-45-14.jpg ; 1990 – Landsat Satellite (Landsat TM data

(Oct-Nov); 2013 – LISS-3 data from Satellite RESOURCESAT – 2 (Mar-April)

0

200

400

600

800

1000

1200

Year_1939

year_1990

Year_2013

District-wise change in mangrove cover

Type of creeks Average number

of species

caught

Average weight of

species caught (kg)

Creeks with no mangrove 3.2 (0.63) 4.81 (1.62)

Creeks with natural

mangroves

2.88 (0.7) 6.16 (1.86)

Creeks having enriched

plantations

3 (0.00) 6.97 (1.67)

Creeks with few year old

planted mangroves

2.5 (0.5) 3.69 (0.87)

Average daily fish catch of Pagediya

fishermen

Independent variables Estimated Coefficient Independent variables Estimated Coefficient

Natural mangrove creek 4.237*** (7.96) Whether educated -0.180* (1.77)

Enriched plantation creek 3.932*** (7.24) Number of male members 0.079 (1.57)

Planted mangrove creef 0.948*** (2.71) Number of female members 0.025 (0.48)

Medium polluted creek -3.008*** (8.85) Number of children -0.070** (2.16)

Highly polluted creek -4.069*** (7.25)

Has other subsidiary

occupation 0.143 (1.42)

Fishing experience (years) -0.009 (1.34) Ancestors fishermen -0.353 (0.88)

Carry bike in boat -0.304 (0.74) Carry food stock in boat 0.153 (0.90)

Carry blanket in boat 0.164 (0.36) Carry ropes in boat -0.129 (0.54)

Constant 6.087*** (8.85)

Joint significance test of mangrove coefficients being different

than zero chi2( 2) = 1322.89***

Number of observations 1029

Number of groups 57

Observations per group 15 to 20

Wald chi 2 (16) 1950.69 (P=0.00)

Concluding Observations on Mangrove

Fishery Link

Coastal mixed fishery: planted mangrove effect

nearly 1/4th of natural mangrove effect.

Commercial off shore fishery: planted mangrove

effect visible at state level catch, not at landing

centre level

Yearly contribution of planted mangroves to Gujarat

fishery: INR 3.64 billion (US$575.6 million)

15% of the annual earning of the state can be

attributed to planted mangroves

Area

(million ha)

Tourism NTFPs

($/ha/y

ear)

Carbon

($/ha/ye

ar)

Watershe

d

protectio

n

Option

value

($/ha/ye

ar)

Existenc

e value

Tropical

evergreen

9.7 330 100 6.4

Tropical

deciduous

16.1 56

Temperate

coniferous

16.9 103

Temperate

deciduous

8.8 330 20

Total area 51.5

Total value

($

million/year)

32.1 n/a 3788.3 2.3 331.7 60.2

Estimated values of elements of total economic

value (TEV) of Mexican forests

Type of value Methods

Carbon

sequestration

International offsets, public and

private

Option value of

pharmaceutic

als

Contracts, public and private,

domestic and foreign institutions

Tourism Differential entrance fees for

international & national visitors

Infrastructural investment

Community training

Existence

value

Property right attenuation

Land purchase

Debt-for-Nature Swaps

Global transfers (GEF, NGOs)

Thank You