Capturing the Value of Ecosystem Services

Despite their obvious importance to human well-being, people tend to think of ecosystems as being economically productive in narrow terms, often assigning value only to the production of conventional commodities or to real estate development. Provision of ecosystem services is only rarely considered in cost-benefit analyses, preparation of environmental impact statements, or other assessments of alternative paths of development. There is no shortage of markets for ecosystem goods (such as clean water and watermelons), but the services underpinning these goods (such as water purification and bee pollination) often have no monetary value. This is in part because ecosystem services are

Convert to pasture Maximize timber yield Maximize biodiversity and Diverse portfolio, selective recreation logging

Convert to pasture Maximize timber yield Maximize biodiversity and Diverse portfolio, selective recreation logging

Management regime

■ Livestock production ■ Timber production ■ Carbon sequestration

■ Hydropower ■ Recreation ■ Preservation of biodiversity

Figure 2 Tradeoffs associated with alternative management objectives for a hypothetical forest ecosystem.

generally public goods, free to any user, and therefore difficult to value. Because people mostly do not pay for them, it can be difficult to discern what the supply, demand, and willingness to pay for services actually are. As a result, there are no direct price mechanisms to signal the scarcity or degradation of these public goods before they fail.

While for some goods and services price reflects value or importance, when ecosystem services are assigned monetary value they tend to be priced much lower than their importance suggests. This is true in part because when supply is much larger than demand, prices are low, no matter how necessary the good. The pricing of diamonds and water is illustrative. Lost in the desert, a traveler would happily trade all the diamonds in the world for a single cup of water; back in the marketplace, our traveler would find that diamonds are many, many times more costly than water. Water is inexpensive or free because, like many ecosystem goods and services, it tends to be far more abundant than the volume demanded by people; when ecosystems are functioning well, even more is available.

Ecosystem services are also often undervalued because prices are based on current supplies and demands, so the amount we are willing to pay for continued nutrient retention in a wetland may be low today even if we can predict that nutrient-laden runoff from increased agriculture will threaten a downstream fishery tomorrow. Further, prices are based on marginal utility - for example, the amount someone would be willing to pay for the carbon stored in one more tree in a forest. If that forest is clear-cut, we lose all of the carbon storage and, since the loss of each tree changes the value of the next, we cannot account for the whole loss using the price of the first tree.

Precise valuation of ecosystem services is often not required to provide appropriate economic incentives for protecting the ecosystems that supply them. Incentives need only make it more economically appealing to a landowner to maintain hedgerows as habitat for native pollinators than to cultivate every last square meter of a field, for instance, or make it pay to preserve a wetland rather than filling it to build houses. A farm, as illustrated below, might generate enough income from nonagricul-tural commodities to alter its land management regime (Table 2). Incentives to protect and maintain ecosystems can be provided by the government, privately through markets, or through hybrid institutions such as cap-and-trade systems supported by government policy.

A variety of tools for valuing ecosystem services and creating incentives for their conservation are currently being developed, including capital markets such as the Chicago Climate Exchange, wetland mitigation banks, and outright payments, often involving private-public partnerships, for services, as is occurring in Australia, Costa Rica, and Mexico. These market-based approaches provide a much better indication of value than early, more theoretical attempts to quantify the value of ecosystem services. While valuation is not necessarily a solution or end in itself, it is a powerful way of organizing information and an important tool in the much larger process of decision making.

Table 2 A hypothetical farm business in 15 years

Commodity

Share of farm business (%)

Wheat

40

Wool

15

Water filtration

15

Timber

10

Carbon sequestration

7.5

Salinity mitigation

7.5

Biodiversity

5

In this model, traditional agricultural commodities account for 55% of revenues, as opposed to 100% today. Nonagricultural income is supplied by a mature market for ecosystem goods and services.

In this model, traditional agricultural commodities account for 55% of revenues, as opposed to 100% today. Nonagricultural income is supplied by a mature market for ecosystem goods and services.

Project Earth Conservation

Project Earth Conservation

Get All The Support And Guidance You Need To Be A Success At Helping Save The Earth. This Book Is One Of The Most Valuable Resources In The World When It Comes To How To Recycle to Create a Better Future for Our Children.

Get My Free Ebook


Post a comment