the economist‘s toolbox

The Economist‘s Toolbox

Hannes Etter, ELD Secretariat

Week 4 March, 26 2014

1. The Total Economic Value (TEV) framework

2. Non demand based methods: The case of bush encroachment in Namibia

Market price & Replacement cost method

3. Demand-based methods: Flamingo's value in Kenya

Travel cost method

4. Benefit transfer: The value of the Catalan coast, Spain

5. Conclusion

Today‘s presentation:

• Market price method:• estimates the economic value of ecosystem services bought and sold in markets

people's actual willingness to pay• Advantages: relatively easy to apply, well-defined, and accepted• Shortcomings: missing or distorted markets, insufficient records

• Replacement-costs:• Costs related to (technical) replacement of lost ecosystem services • Advantages: relatively easy to apply, capture the use-value• Shortfalls: artificial replacement may not be able to fully compensate for the loss

of the original ecosystem services, full replacement cost data may not be available

Non-demand based methods: Market price & Replacement cost

• Problem-statement:• Increased encroachment of acacia

mellifera • Reduction of key ecosystem services of

the natural savanna ecosystem• Objective:

• Create a public subsidy scheme which co-funds bush removal to support farmers in increasing land productivity

• Approach: • Calculate the economic benefits from

restoring ecosystem services to identify the justified subsidy level

Non-demand based methods: The Namibian Example

• Included ecosystem services:• Livestock production: Market price

Increased carrying capacity through bush cutting, measured by meat-price• Water provision: Replacement costs

Higher groundwater abstraction yields after increased infiltration capacity, measured in reduced infrastructure costs• Energy production: Market price

Utilization of cut wood to produce electricity, measured in electricity prices

• Result: Restored ecosystem services value can contribute 42% of the required clearing costs per ha

Non-demand based methods : The Namibian Example

• Recreational service of an ecosystem is reflected in the accepted travel costs of visitors• Travelling time and transportation costs represent a site’s access costs• Revealed preference method based on use-value• Zonal travel costs approach: Based on

geographical units (concentric circles or divisions)

• Individual travel costs approach: Based on individual characteristics

• Advantages: relatively easy to apply, possibility of large size samples, • Shortfalls: limited to cultural ecosystem services, methodological limitations (multi-

purpose trips, substitutes)

Demand based methods: Travel-costs method

Demand based methods: Flamingo's value in Kenya• Objective: Estimate the recreational value of preserving the

current flamingo population in the Lake Nakuru National Park (LNNP), Kenya

• Approach: Zonal travel costs for non-residents; Individual travel costs for residents, travel costs are used as proxy for recreational activity value

Non-residents Residents

1. Calculate recreational value of visitors stay based on trip costs to Kenya

2. Calculate value of visitor‘s stay in LNNP from portion of time spend in Kenya

1. Calculate value of visitor‘s stay in LNNP based on travel costs there

3. Calculate recreational value of flamingo viewing from portion of time spend in LNNP

2. Calculate recreational value of flamingo viewing from portion of time spend in LNNP

• Non residents: Zonal travel costs• Value based on the flight costs from each zone

• Residents: Individual travel costs• Value based on travel costs of round trip, income, age,

education, travel costs to substitute site, appeal of flamingo viewing, and site environmental quality

• Results: Economic potential of Lake Nakuru National Park was far greater than realized earnings for non-residents, residents were more sensitive to increased fees Increase of entrance fees for non-residents by 310% to raise funds and preserve environmental quality

Demand based methods: Flamingo's value in Kenya

• “Benefit transfer uses economic information[…] to make inferences about the economic value of ecosystem services at another place and time” (Wilson & Hoehn, 2006)

• Four step approach:1. Identify existing case studies2. Assess transferability (ecosystem services, stakeholders, institutions)3. Screen and select case studies based on their quality4. Adjust to local circumstances

• Advantages: Easy to conceptualize, first screening option• Shortfalls: Relies on quality of other studies, adjustment increases error-

risk, actuality of primary data

Benefit transfer

• Objective: Provide a rationale to strengthen the coastal management strategy through monetary arguments

• Approach: Spatial value transfer based on land/marine cover per comarca (= adm. units with coherent natural & socio-economic characteristics)

Benefit transfer: The value of the Catalan coast, Spain

• Development of GIS land/marine cover map• Matching of land/marine cover with the

identified set of ecosystem services based on literature matching the local circumstances

• Calculate inflation / exchange rates

• Results: ecosystem services constitute 2.8% of the study areas' GDP: ~3.2 mil USD/yr on 931,460 ha

• Sustainable management is required to maintain this value flow

Benefit transfer: The value of the Catalan coast, Spain

• Development of GIS land/marine cover map• Matching of land/marine cover with the

identified set of ecosystem services based on literature matching the local circumstances

• Calculate inflation / exchange rates

• Results: ecosystem services constitute 2.8% of the study areas' GDP: ~3.2 mil USD/yr on 931,460 ha

• Sustainable management is required to maintain this value flow

Benefit transfer: The value of the Catalan coast, Spain

• Valuation of ecosystem services must be based on a case by case basis!• A wide range of methods is available to researchers, each geared to certain services

and approaches• Questions to be addressed before selecting a method:

• What is the objective of my research?• Which ecosystem services do I want/need to value?• How much resources (money/time) are available to me?• What kind of data is available and what further data is required?

“It is wiser to find out than to suppose” (Mark Twain)

Conclusion

• Namibia:ETTER, H. (2012): The economics of bush encroachment. Applying the TEEB-approach to Namibia’s savanna. Ministry of Environment and Tourism. Windhoek, Namibia

• Kenya:NAVRUD, S. & MUNGATANA, E.D. (1994): Environmental valuation in developing countries: The recreational value of wildlife viewing. Ecological Economics. 11:135-151

• Spain:BRENNER, J et al. (2010): An assessment of the non-market value of the ecosystem servicesprovided by the Catalan coastal zone, Spain. Ocean & Coastal Management. 53:27-38

Case Studies

Benefit transfer: The value of the Catalan coast, Spain