HÍ: Nature based Tourism 27 February 2003

The Economic Importance of Nature.

Agriculture, natural resources and societal change

Stefán Gíslason, MSc Environmental Management & Policy “If you don’t know the value of a 700 years old tree, then ask how much it would cost to make a new one” Amory Lovins, Hunter Lovins, Paul Hawken (Úr:

Natural Capitalism: The Next Industrial Revolution)

Prologus on Local Agenda 21

 Local Agenda 21 is a plan for sustainable development of individual communities in the 21 st century, with three basic demensions, i.e. an ecological, an economic and a social one.

 According to Chapter 28 of Agenda 21, adopted by 179 nations at the 1992 Rio conference on environment and development, all local authorities should create a Local Agenda 21 plan in co-operation with the local citizens.

From Rio to Reykjavík

1992 The Rio Summit 1996 “most local authorities in each country should have…” 1996-1997 Nordic Project / Egilsstadir Conference March 1998 Contract of ME and NALA

Oct 1998

Launch of the 18 months project Jan 2001 - 31 municipalities, 109,000 inhabitants A new 5 years contract = Extension of national co-ordination to the end of 2005

A couple of facts Iceland:



Number of municipalities: 105



Number of inhabitants: 288.201

Status of implementation

Number of municipalities working with LA21 32% Some activities: 39 Never: 83 68% Feb. 2002

Status of implementation

Number of inihabitants involved Some activities 259.383

91% Never 26.892

9% Feb. 2002

Contents



What is the value of Nature?



How to evaluate it?

» Methods for monetary evaluation » Foreign cases » Suggestions for use in Iceland

What is the value of Nature?

The value of an environmental asset is not simply equal to the income or revenue originated from it But other values tend to be “forgotten” in any economic valuation, partly because they are not that easily calculated These values, however, have to be taken into account in decision making in line with sustainable development But what kind of values are we referring to?

And how can we assess them?

Total Economic Value (TEV) Use Values

+

Non Use Values

Direct Use Value Indirect Use Value Option Value Vicarious Value Bequest Value Existence Value

•Income from tourists •Grassing •Lake catch •Liechens (Cetraria islandica) • Etc.

• The value for tourists (“consumers’ surplus”) •Flood prevention •Climate impact •Etc.

Direct and indirect use value in the future, (e.g. through Ecosytem Services and biodiversity) Value in the form of welfare created by indirect use, such as via books, films, etc.

Value of the area for future generations Value from knowledge of continued existence

Methods for monetary evaluation

Direct Valuation Approach Experiments

(A small-scale experimnet conducted)

Questionnarires (Surveys)

(Assessing the Willingness to pay or accept)

Indirect Valuation Approach Surrogate Market Approach Conventional Market Approach

Experiments

(A small-scale experimnet conducted, (part of the area))

Examples:



Recreation site:

The same type of recreation site created to find out about the number of visitors and their willingness to pay an entrance fee 

Improved water quality in a city:

Water quality standards and property taxes raised in some cities and not in others to “see how many people found it worthwhile to move into cities with improved water qualities and higher taxes”

Not easily applied to the Icelandic highlands

Methods for monetary evaluation

Direct Valuation Approach Experiments

(A small-scale experimnet conducted)

Questionnarires (Surveys)

(Assessing the Willingness to pay or accept)

Indirect Valuation Approach Surrogate Market Approach Conventional Market Approach

Questionnaires (surveys)

( Assessing peoples’ willingness to pay or to accept)

People are asked directly how they would rank certain values (goods) or • how much money they are willing to pay for a certain change or to prevent such a change (WTP)) and/or • how much money they are willing to accept to forego a change or tolerate a change (WTA)

Contingent Ranking Method (CRM) Contingent Valuation Method (CVM)

Makes it possible to compare to real market goods (rarely used) “The only means available for valuing Non use values”

Appropriate for evaluation of the values of highlands

Methods for monetary evaluation

Direct Valuation Approach Experiments

(A small-scale experimnet conducted)

Questionnarires (Surveys)

(Assessing the Willingness to pay or accept)

Indirect Valuation Approach Surrogate Market Approach Conventional Market Approach

Surrogate Market Approach

“Looking at markets for private goods and services which are related to the environmental commodities of concern”

Household Production Functions (HPF)

Averting Behaviour Technique Looking at changes in expenditures on goods, substituting or complenting the environmental resource Travel Cost Method Looking at direct expenditures of visitors, such as: •transport •fuel •time?

Hedonic Pricing

Hedonic Property Pricing Hedonic Wage Risk Estimate How do changes affect the property market in the area?

Looking at the effects of risks on salaries (e.g. divers, helicopter pilots)

Possibly applicable in the highlands

Travel Cost Method Example:



Monteverde Cloud Rainforest (Costa Rica)

Began with the “collection of address information of domestic visitors” to the reserve. Visitors were “then zoned according to their canton (state) of origin and an average visitation rate for each zone calculated”, (no.of visits/no.of inhabitants). “Next, zonal average visit cost” was estimated, “based on a standard cost per kilometre, () out of pocket costs, a fraction of fixed costs (ie wear and tear) and a value of travel time”. A minimum estimate of the expenditures of foreign tourists was added. Finnally a certain growth rate was used as a proxy to increasing visitor value due to higher demand in line with increasing rarity of rainforests. The result was $1.250 per hectare, or roughly 12 fold the maximum current price of land outside the reserve.

Tobias, D & R. Mendelsohn, 1991

Hedonic Pricing Scope of usage (v/Property Pricing):



USA

Widely used for evaluation of air pollution, noice, national parks, etc. 

Example: What is the value of silence?

Comparison has been made of the price of two identical houses close to a railway and further away in order to assess the monetary value of “silence”

Methods for monetary evaluation

Direct Valuation Approach Experiments

(A small-scale experimnet conducted)

Questionnarires (Surveys)

(Assessing the Willingness to pay or accept)

Indirect Valuation Approach Surrogate Market Approach Conventional Market Approach

Conventional Market Approach

Used to value environmental ‘damage’, where the damage is reflected in measurable “changes in the quantity or price of marketed inputs or outputs”.

Based on market prices. Can be based on ‘shadow prices’ if the market price does not reflect the rarity of the commodity, or on an estimated price if no market is present.

Dose-Response Technique Replacement Cost Approach Opportunity Cost Approach

“Aims to establish a relationship between environmental damage (Response) and some cause of the damage such as pollution (Dose)”

Not applicable in the highlands

“Looks at the cost of replacing or restoring a damaged asset to its original state and uses this cost as a measure of the benefit of restoration”. The ‘Shadow Project Approach’ argues that this cost is the minimum valuation of the damage done.

Indirect evaluation. “The benefits of the activity causing environmental degradation are estimated to set a bencmark for what the environmental benefits would have to be” for the activity not to be worthwile.

Applicable in the highlands

Summary and conclusions

 The economic value of an environmental asset is not simply equal to the income or revenue originated from it in the foreseeable future  Several known methods can be used for monetary evaluation of these values, but none of these is simple to use  The monetary value of nature has to be taken into account in decision making processes, not only the part of the values that are reflected in the economic balance sheet  No evaluation is absolutely correct, but any valuation is better than no valuation at all

References

Australian Department of the Environment:

Techniques to Value Environmental Resources: an Introductory Handbook,

http://www.ea.gov.au/pcd/economics/value/ Sigríður Ágústa Ásgrímsdóttir: Verðmætamat á náttúru, minjum og útivist á fyrirhuguðum virkjanasvæðum í Skagafirði. Háskóli Íslands, ritgerð til meistaraprófs í hagfræði, 1998.

Stefán Gíslason: Landbúnaður, náttúruverðmæti og samfélagsþróun. Ráðunautafundur, Bændasamtök Íslands, Bændahöllinni, Reykjavík 2.-5. feb. 1999 Turner, R. Kerry; David Pearce og Ian Bateman. Environmental Economics. An Elementary Introduction. Harvester, Wheatsheaf. London, 1994 United Nations Environment Programme (UNEP):

Economic Values and the Environment in the Developing World,

http://www.unep.org/unep/products/eeu/ecoserie/ecos14/ecos14.htm