Putting Economic Value to
Nature Protection
Direct and Indirect
Costs and Benefits
by
Gernot Bäurle
gernotbaeurle@compuserve.com
Presentation Outline
• What is the economic value of nature?
• How to determine the economic value?
• How confident can we be about these value estimates?
• Costs & benefits of nature protection: spatial & temporal
mismatches
• How to reconcile these mismatches?
• Payment for ecosystem services
• Digression: Conservation Finance Alliance
• Conclusions
What is the economic value of nature?
Use
Values
Total
Economic
Value
Direct
Use Value
benefits from consumption
Indirect
Use Value
benefits from ecosystem
functions
Option
Value
benefits from availability for
possible future use
Bequest
Value
legacy benefits
Existence
Value
existence benefits
Non-use
Values
(OECD 2001, adapted)
e.g. agricultural products
e.g. hydrological regulation
e.g. gene pool
e.g. cultural landscape
conservation for future generations
e.g. knowledge of existence of
wildlife diversity
How to determine the economic value?
Market Price
Approach
by definition, market values tend to
reflect actual use and hence ignore
non-use values
• Observed market price
method
• Cost-based Methods
- replacement cost
- opportunity cost
Revealed
Preference
Approach
prices revealed in other (surrogate)
markets that are affected by the
goods/services to be valued
• Travel Cost Method
• Hedonic Price Method
• Averting Behaviour Method
Stated
Preference
Approach
willingness to pay (WTP) estimates
used when no (surrogate) market
exists (construction of a market)
• Contingent Valuation
Benefit Transfer
values borrowed from existing
studies
(direct elicitation of WTP)
• Choice Modelling
(indirect elicitation of WTP)
- choice experiments
- contingent ranking
- contingent rating
- paired comparison
(OECD 2002, adapted)
Levels of Confidence in Estimates
Value
Confidence
direct use values
high
e.g. for agricultural products
indirect use values
low – medium
e.g. for ecosystem services
existence/option values very low – medium
e.g. for a landscape
(OECD 2001, adapted)
Costs and Benefits: Place
local
national
costs
benefits
(Balmford & Whitten 2003, simplified)
global
Costs and Benefits: Time
present
future
costs
benefits
Additional problem: How to compare costs and benefits over time?
How to reconcile
spatial and temporal
mismatches?
Payment for Ecosystem Services
e.g. erosion control,
hydrological regulation
through sustainable land use
ecosystem
catchment area
Financial incentive
rural population
landowners
alternative sources of income,
compensation for foregone
benefits
National economy
Transfer payments
e.g.:
•constant water supply
•reduction of floods
•reduction of siltation of dams
Reducion of costs and
risks
Ecosystem services
Protection/restoration
of ecosystem services
Benefits from ecosystem
services
private sector,
communities, e.g.:
•industry
•hydropower plants
•waterworks
economic benefit, e.g.:
•lower maintenance costs
•lower water treatment costs
Payment for Ecosystem Services:
example of a tax/levy/surcharge approach
Governance Structure
Beneficiary
€€ ££
¥¥ $$
Financing
Mechanism
Payment
Mechanism
Ecosystem Services
(World Bank 2002, adapted)
Alternatively a market based approach is possible
€€ ££
¥¥ $$
Land
user
Conservation Finance Alliance: CF Guide
www.guide.conservationfinance.org
Conclusions
• Economic valuation of nature and nature protection is
not an “exact science”
• it can be a double edged sword
 but it can add depth to decision making when trade-offs
are necessary
• A mismatch of costs and benefits of nature protection over
time and space exist
 Payment for ecosystem services can help to even out this
mismatch
In the end nature protection is a matter of societal choice and
beyond pure economics.