VALUING ECOSYSTEM SERVICES: ADVANTAGES & DISADVANTAGES OF EXISTING METHODOLOGIES AND APPLICATION TO PES

VALUING ECOSYSTEM SERVICES:

ADVANTAGES & DISADVANTAGES OF EXISTING METHODOLOGIES

AND APPLICATION TO PES

Sumber: Danièle Perrot-Maître. 2005.Seminar on environmental services and financing for the protection and sustainable use of ecosystems

Geneva, 10-11 October 2005

Ecosystems products and servicesProducts

FoodFuel wood

Non-timber forest products Fisheries products Marine products

Wetlands productsMedicinal and biomedical products

Forage and agricultural productsWater Reeds

Building material

Functions/Services

Hydrological services• Purification of water• Capture, storage and release of surface and

groundwater• Mitigation of floods and droughts

Biodiversity• Maintenance of biodiversity (plants and

animals)

Climate• Partial stabilization of climate through carbon

sequestration• Moderation of temperature extremes and the

force of winds and waves

Source: Adapted from Simpson (2001)



Existence valuesIntrinsic value of resources and landscapes,

irrespective of its use such as cultural, aesthetic, bequest significance, etc.

Direct valuesOutputs that can be consumed or processed directly,

such as timber, fodder, fuel, non-timber forest products, meat, medicines, wild foods, etc.

Indirect valuesEcological services, such as flood control, regulation of water flows and supplies, nutrient retention, climate

regulation, etc.

Option valuesPremium placed on maintaining resources and

landscapes for future possible direct and indirect uses, some of which may not be known now.

USE VALUES

NON-USE VALUES



Why value?

1. Understand how much an ecosystem contributes to economic activity or society. For example, on average forests benefits in the Med region amount to about 1% of GDP. Indirect use value such as

watershed protection contributes about 35% of total estimated value.

2. Understand what are the benefits and costs of an intervention that alters the ecosystem (conservation investment, development

project, regulation or incentive) and make ecosystem gods and services comparable with other investments

3. How are costs and benefits of a change in ecosystem distributed?

4. How to make conservation financially sustainable?



Surrogate Market

Approaches

TravelCosts

HedonicPricing

Effect on Production

Productivity Approach

Replacement Costs

Cost of providing substitute services

Damage cost avoided

Market Price Method

MarketPrices

Contingent Valuation

Conjoint Analysis

Choice Experiments

Cost-Based

Methods

RevealedPreferenceMethods

Stated Preference Methods



Market PricesDirect valuesGoods and products

Indirect valuesEcosystem services

Option values

Existence values

Direct valuesNature tourism


Replacement Costs

Cost of Providing Substitutes

Cost of Avoided Damage

Productivity &cost-based approaches

Travel Costs


Surrogate market & stated preference approaches

Surrogate Market

Approaches

TravelCosts

HedonicPricing


Production Function

ApproachesReplacemen

t Costs

Cost pf providing substitute ServicesDamage

Cost Avoided

Market Prices

MarketPrices


Conjoint Analysis

Choice Experiments

Cost-Based

Methods

RevealedPreferenceMethods

Stated Preference Methods



MARKET PRICES

What it costs to buy or sell a good

or productPeople’s actual

willingness to pay

E.g. Nam Et & Phou Loei NBCA, Lao PDR:Value of NTFP use for Viengthong District villages

Cash income $634,000 Plant foods $45,000 Wild meats $476,000 Fuel and housing $480,000 Crop consumption $241,000 TOTAL VALUE $1,876,000



Advantages and Limitations of the Market Price Method

+Use if primary resource or ecosystem affected has a commercial market (for ex. benefits of cleanup and closure of commercial fishing on fisheries). Prices, quantities

and cost are easy to obtain.

+The method uses observed data of actual preferences

+The method uses standard, accepted economic techniques (consumer and producer surplus based on supply and demand curves) and is relatively easy to apply

–Seasonal variations and other effects on price have to be considered–Usually the costs of transport to bring goods to the markets not included and

benefits may be overstated –Many ecosystem goods and services do not have markets or markets are distorted

or not well developed and market prices do not always fully reflect the value of ecosystem services to society (WTP)



METODE PRODUKTIVITAS

The economic contribution of

ecosystems to other production and

consumption activities

Market value as an input

Flood attenuation benefits from forests, Madagascar

Value of flood damage to paddy production

NPV for forest watershed protection benefits: $126,700.

Resulted in the establishment ofMantadia NP



+Methodology straightforward, data requirements are limited and relevant data may be readily available hence methiod relatively

inexpensive to apply–Only resources and services that are marketed can be valued–Most difficult aspect is to be able to quantify the biophysical

relationship that link changes in supply or quality of ecosystem services with environmental changes or management options. Often

use simplified assumptions.–If changes in ecosystem affects market price, then the method is

more complicated and difficult to apply–If changes are too drastic, users of ecosystem goods and services may

switch to other alternatives.



KEUNGGULAN & KELEMAHAN METODE PRODUKTIVITAS

TRAVEL COSTS

How much people spend to use or

benefit from using ecosystems for

recreational purposes

People’s impliedwillingness to pay

USA, Value impacts of improved environmental quality on freshwater recreation in the US

Combined benefit of all freshwater-basedrecreation: $37 billion/year



Advantages and Limitations of the Travel Cost Method

+Limited to recreational values

–Requires complex statistical analysis, large and complex data sets, hence expensive and time

consuming

–Likely to estimate value of one factor because difficult to separate out effect of different factors

(lansdcape beauty and water)



REPLACEMENT COSTS

The costs of replacing an

environmental good or service

A minimum estimate of money

saved

E.g. Ream National Park, Cambodia:

Value of mangrove ecological services (flood barriers,

upstream erosion control)

Storm protection $60,000 Silt trapping $220,000

TOTAL VALUE $280,000



BIAYA MITIGASI KERUSAKAN EKOSISTEM

The costs of mitigating or averting the effects

of the loss of an environmental good or

service

A minimum estimate of money saved

E.g. Thua Thien Hue, Vietnam:Value of watershed catchment

protection for urban and rural water supplies (Infrastructure to mitigate

erosion, seasonal low water supplies and flooding)

Investment costs $27 million Recurrent costs $1.8 million ANNUAL COST $2.88 million



DAMAGE COSTS AVOIDED

The costs avoided from the

destruction of ecosystem

A minimum estimate of money

saved



Failure to invest in watershed management as a component of

dam maintenance could incur NPC of over $2million in terms of

power revenues foregone

E.g. Value of Phnom Bokor NP for watershed protection and

hydropower generation

Keunggulan Cost-Based Methods

1. Particularly useful for valuing ecosystem services2. Simple to apply and analyse (rely on 2dary data on

benefits from ecosystem services and cost of alternative). Easier to measure costs of producing

benefits than the benefits themselves when goods and services are not marketed.

3. Particularly useful if time and financial resources for the study are elimited or where it is not possible to carry out

detailed surveys4. Approaches are less data and resource intensive whereas

data or budget limitations may rule out valuation methods that estimate WTP



KETERBATASAN Cost-Based Methods–Provide only rough indicator of ecosystem value

–Replacement cost: often difficult to find perfect replacements for ecosystems goods and services, hence valuation results tend to

undervalue ecosystem value

–Mitigation expenditures: often people’s perception of the effect of ecosystem loss and what would be required to mitigate these effects

do not always match those of experts.

–Damage cost method: estimated damages avoided remain hypothetical in most cases. Often difficult to relate damages to

changes in ecosystems



CONTINGENT VALUATION (CV)

Sejumlah orang akan membayar/menerim

a (secara teoritis) bahwa biodiversitas

dapat dibeli atau dijual

People’s stated willingness to pay

E.g. Doi Inthanon and Suthep Pui National Parks, Thailand:Willingness to pay for park entry fees

Doi Inthanon 40 Baht per person Suthep Pui 20 Baht per person TOTAL VALUE $1.2 million/year



Keunggulan Metode CV1. Very flexible. Can be used to estimate economic value of

about anything but best to use it to estimate value of goods and services easily identified and understood by

users2. CV is the most widely accepted method for estimating

TEV including non use, option and bequest values (only method to estimate option or existence values)

3. CV has been widely used and a great deal of research is being conducted to improve the methodology, make

results more valid and reliable and understand strengths and limitations



Keterbatasan Metode CV1. Whether CV really measures WTP still controversial (most people

unfamiliar making choices about ecosystem services)

2. Results highly sensitive to design of choice scenarios and how survey conducted (psychological aspects)

3. WTP sensitive to payment vehicle (WTA compensation)

4. Strategic bias to influence outcome

5. Non response bias

6. Many people including jurists, policy makers, economists and others do not believe the results of CV analysis



METODE YANG KURANG POPULER

HedonicPricing

Conjoint Analysis

Choice Experiments

Difference in (property or wage) prices that can be ascribed to the existence or level of nearby

environmental goods and services.

Obtains information on preferences between various alternatives of environmental goods and services, at

different price or cost.

Present a series of alternative resource or use options, each of which are defined by various attributes

including price.



APPLICATION OF

ECONOMIC VALUATION

TO PES DESIGN

Watershed services: supply and demandSupply of services:Upstream land uses affect the Quantity, Quality, and Timing of water flows

Demand for services:Possible downstream

beneficiaries:• Domestic water use• Irrigated agriculture• Hydroelectric power• Fisheries• Recreation• Downstream

ecosystems

Source: World Bank 2003

Jasa lingkungan Hidrologi DAS



Applying ecosystem valuation to payment for ecosystem service: simple in theory

Benefits to producers

Costs to offsite populations

Conventional resource use:

no conservation

Conservation with payment

for service

Payment

Conservation without

paymentMinimum payment willing to receive to change damaging behaviour to ecosystem

Maximum paymentwilling to pay to reduceenvironmental damage

Source: Adapted from World Bank 2002Sumber: Danièle Perrot-Maître. 2005.

Seminar on environmental services and financing for the protection and sustainable use of ecosystemsGeneva, 10-11 October 2005

Dalam Praktek … tidak sederhana…



In practice not so simple…Komplek Keterkaitan Biofisik (Brand 2003)



In practice still not so simple…valuing effects of change in ecosystem conditions on agricultural production

Impact on ecological function & service

Physical impact of change in functions

Socio-economic effects of physical impact

Overall impact of Socio-economic effects

Intervention

Reduction in water: floods & drought

Increased erosion

Increase in crop damage (in kg)

Decrease in crop yield (in US$)

Increase use fertiliser & pesticides (in kg)

Increase productioncosts (in US$)

Increase in crop production (in kg)

Increase in crop yield (in US$)

Reduction of forest cover

Reduced pest-control &

pollination

DeforestationChange in Economic Value of Agriculture

(in US$)

Impact on ecological function & service

Physical impact of change in functions

Socio-economic effects of physical impact

Overall impact of Socio-economic effects

Intervention

Reduction in water: floods & drought

Increased erosion

Increase in crop damage (in kg)

Decrease in crop yield (in US$)

Increase use fertiliser & pesticides (in kg)

Increase productioncosts (in US$)

Increase in crop production (in kg)

Increase in crop yield (in US$)

Reduction of forest cover

Reduced pest-control &

pollination

DeforestationChange in Economic Value of Agriculture

(in US$)



Further reading

• USAID PES Sourcebookhttp://www.oired.vt.edu/sanremcrsp/menu_research/PES.Sourcebook.Contents.php

• World Bank - Introduction to PES http://siteresources.worldbank.org/EXTEEI/Resources/IntroToPES.pdf?&resourceurlname=IntroToPES.pdf

• CIFOR – PEShttp://www.cifor.cgiar.org/pes/_ref/home/index.htm

• Rewarding Upland Poor for Environmental Services http://www.worldagroforestrycentre.org/sea/Networks/RUPES/index.asp

• The Katoomba Group (Regional Network for China and East-Asia)http://www.katoombagroup.org/

• Ecosystem Marketplacehttp://www.ecosystemmarketplace.com/ SUMBER: ftp://ftp.cgiar.org/cifor/USAID/Topic%205-2.ppt

http://www.oired.vt.edu/sanremcrsp/menu_research/PES.Sourcebook.Contents.php

http://www.oired.vt.edu/sanremcrsp/menu_research/PES.Sourcebook.Contents.php

http://siteresources.worldbank.org/EXTEEI/Resources/IntroToPES.pdf?&resourceurlname=IntroToPES.pdf

http://siteresources.worldbank.org/EXTEEI/Resources/IntroToPES.pdf?&resourceurlname=IntroToPES.pdf

http://www.cifor.cgiar.org/pes/_ref/home/index.htm

http://www.worldagroforestrycentre.org/sea/Networks/RUPES/index.asp

http://www.worldagroforestrycentre.org/sea/Networks/RUPES/index.asp

http://www.katoombagroup.org/

http://www.ecosystemmarketplace.com/

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VALUING ECOSYSTEM SERVICES: ADVANTAGES & DISADVANTAGES OF EXISTING METHODOLOGIES AND APPLICATION TO PES