Transcript Valuing Biodiversity - Environmental studies

Ecosystem Valuation
ES 100: November 17th, 2006
“We have estimated the current economic value of 17 ecosystem services for 16
biomes, based on published studies and a few original calculations. For the entire
biosphere, the value (most of which is outside the market) is estimated to be in the
range of US $16-54 trillion per year, with an average of US $33 trillion per year…
Global gross national product total is around US $18 trillion per year.”
~Costanza, et al, “The Value of the World’s Ecosystem Services and Natural Capital”
Nature, May 1997
Economy vs. Ecology?
• Both words have the same Greek root,
“oikos”
• Economics: focus is humans
• Ecology: focus is all living things
Environmental Economics:
Externalities
• Externalities: costs or benefits that are (imposed
and) not paid for by the consumer or producer.
– Positive externality: beneficial external cost
• Apple orchard and apiary
– Negative externality: harmful external cost
• Pollution
• Biodiversity Loss
• Neg. Externalities can be ‘internalized’ by making
buyer/seller pay costs
– Regulation (Taxes, Fees, Tradable pollution permits, permits….)
Market vs. Non-Market Goods
Market goods: things that are bought and sold. Value
is net benefit (producer + consumer surplus)
Non-market goods: things that are not bought or sold
Wetland Ecosystem Services
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•
•
•
•
•
•
Food/Jobs
Important Habitat for Species
Clean water/Nutrient storage
Flood control
Erosion control
Carbon storage
Tourism
Which are market/non-market goods?
How Non-Market Goods are Valued
• Revealed Preferences: visitation rates for
eutrophic vs. mesotrophic lake
• Contingent Valuation: ask people (surveys)
• Cost of Substitutes
Species
Grizzly Bear
Bald Eagle
Blue whale
Bighorn sheep
Bottlenose dolphins
Endemic shiners (fish)
Whooping Crane
U.S.
$ per person per year
18.5
12.4
9.3
8.3
7.0
4.3
1.2
Each has its own advantages and disadvantages!!
….but, future costs & benefits are
not always known…
Expected Costs and Benefits
Expected Value of Betting Red
on Roulette
Outcome
#1 Red
#2 Black
#3 Green
Probability
18/38
18/38
2/38
Value
$1
-$1
-$1
EV=p1V1 +p2V2+…pnVn
EV=(18/38)($1)+(18/38)(-$1)+(2/38)(-$1)= - $0.05
This is NOT a good bet!
• Calculate Expected Costs/Benefits
– Separate possible outcomes (‘states of the world’)
– Assign probabilities to each possible outcome
– Compute the Expected Value by
EV=p1V1 +p2V2+…pnVn
p1+p2+… pn=1
Key:
EV = Expected Value
p1= probability of outcome #1
V1= value of outcome #1
p2= probability of outcome #2
V2= value of outcome #2
pn= probability of outcome #n
Vn= value of outcome #n
Expected Value of Invasive
Species Eradication Policy
De gree of Invasion
Low
Med
High
Probabi l i ty
85%
10%
5%
C ost of Pol icy (m ill ion s/year)
0
10
80
Avoided damage cost s from invader: $3 mill/yr (this is the ‘benefit ’ of adopting the
policy)
•Could compare to costs of damage done by invasive
•Adopt policy if cost from damage > cost to eradicate
•Could compare net benefit of Policy 1 to Policy 2
•Select policy with largest net benefit
Human Perceptions & C-B Analysis
The Future is Uncertain: Discounting
Why are future costs and benefits devalued?
_____________________________
_____________________________
_____________________________
**Humans like benefits now, costs later
Discounting the Future
Present Value of $100
Present Value ($)
120
100
80
60
r =.10
40
20
0
0
50
100
150
Years in Future
Future Benefits are devalued:
$100 received in 50 years isn’t worth as much as $100 now
Future Costs are devalued:
To avoid $100 in costs 50 years from now isn’t worth paying $100 now
Discounting Formula:
Present Value of $100
Vn
Vp 
n
1  r 
Present Value ($)
120
100
80
r =.10
60
r = .05
40
20
0
0
50
100
150
Years in Future
Key:
n = year (n=0 is the present, n=1 is next year…)
Vp = Present value ($)
Vn = Value in year ‘n’ ($)
r = discount rate (fraction)
Discounting vs. Sustainability
• “Sustainable” practices usually have high initial
costs, and a long stream of benefits.
• Does discounting favor sustainable, or unsustainable
practices?
• How does this apply to (other) environmental
problems?
Net Present Value: Discounting a
Stream of Payments (Cost/Benefits)
Evaluating the benefit of removing invasive Melaleuca:
You are hired to determine how much money is reasonable to spend
on a policy to eradicate Melaleuca from the Florida Everglades.
You believe that the annual cost of this invasive species is $100
million per year.
Evaluating the Cost of Melaleuca
Eradication
You are in charge of managing invasive Melaleuca in
the Florida Everglades. You are evaluating the following
two methods of management:
Physical removal: Cost = $1 million/year, forever
Massive poisoning: Cost = $10 billion (one-time cost)
Which technology should you use, from an economic
standpoint? (assume costs incorporate all externalities)
Economy vs. Ecology? Disproportionalities
Globally, the 20% of the world's people in the highest-income
countries account for 86% of total private consumption
expenditures – the poorest 20% a minuscule 1.3%.
More specifically, the richest fifth:
• Consume 45% of all meat and fish, the poorest fifth 5%.
• Consume 58% of total energy, the poorest fifth less than 4%.
• Consume 84% of all paper, the poorest fifth 1.1%.
• Own 87% of the world's vehicle fleet, the poorest fifth less than
1%.
— Human Development Report 1998 Overview, United Nations Development
Programme (UNDP)
Valuing Biodiversity: Key Points
• Environmental Economics: Deals with Externalities
• Cost/Benefit analysis in decision making
– Market vs. non-market goods
– Valuation methods: revealed preferences, contingent
valuation, cost of substitutes
– Calculating C/B under uncertainty: Expected Value
• Environment vs. Economy?
– Sustainability
– Discounting the Future: Net Present Value
– Disproportionalities