Ecosystem Services Valuation 

The actions that humans take which influence ecosystems do not result solely from concern about human well-being but also from considerations of the value of ecosystems.  The value of ecosystems may be comprehended and expressed differently depending upon cultural conceptions, philosophical views and professional disciplines.  
Ecosystems provide society with environmental assets that, similar to other capital assets, provide a flow of goods and services over time. If ecosystem services are sustainably utilised, the capital can be kept intact.  However, it is becoming increasingly apparent that humans are using the natural environment in an unsustainable manner.  Ecosystems are coming under increasing anthropogenic pressures, which is eroding society’s natural capital.
The underlying case for ecosystem services valuation is that it contributes towards better decision-making and ensures that policy appraisals take account of the costs and benefits to the environment and society’s natural capital.  Ecosystem services valuation can assist with: deciding whether a policy intervention that alters an ecosystem condition will deliver net benefits to society; providing evidence as to which decisions offer ‘value for money’ and prioritising funding; choosing between competing ecosystem uses; assessing who is liable for environmental damages; and communicating the value of the environment.  Ecosystem valuation may offer novel insights for policy development by revealing how future conservation policies could effectively deliver environmental priorities.
Utilitarian (anthropocentric) models value ecosystems services in terms of the utilities human society derive from their direct or indirect use (use value).  Humans also value ecosystems that are not being utilised (non-use values).  Numerous methodologies which attempt to ascertain benefits derived from ecosystem services have been formulated using a utilitarian approach.
Non-utilitarian values arise from ethical, philosophical and cultural foundations.  Perceptions of non-utilitarian values may differ significantly between these entities.  Values are commonly expressed as ecological, socio-cultural, and intrinsic and may complement or counter-balance utilitarian value considerations.
Although various value concepts may lack a basis for comparison, some valuation approaches corresponding to them can overlap and interact.  For example, human preference values, to some extent, can be measured in economic terms, whereas ecological, socio-cultural, and intrinsic value models consist of separate metrics and should be used in decision-making processes in their own right. 
Effective ecosystem valuation tools may help create markets for services, as sound valuations provide evidence that informs the development of economic mechanisms and policy instruments.  The choice of valuation method used is determined by the characteristics of each valuation case and the data which is available.

Ecosystem Valuation Methods

The key challenges in valuing ecosystem services is assessing how ecosystems interfuse to provide services and how to deal with the issue of irreversibility and the high levels of uncertainty surrounding ecosystem functioning.  While valuation should be deemed as an important tool, it should be regarded as only one of the facets in the decision making process.

Revealed preference methods

The revealed preference method provides an indirect estimate of the value of non-market goods by using evidence on how individuals respond to real choices.  Revealed preference methods include:
  • Market pricing approach captures the market value of goods and services being traded.  It is important to recognise that prices may need to be adjusted to account for market distortions, such as subsidies.  Prices can act as proxies for direct and indirect use values but do not capture non-use values.  Market price can also be used as a minimum expression of an individual’s willingness to pay for a particular service.
  • Production function examines the relationship between an ecosystem service and the production of a market good.  Value is inferred by considering changes in a production process that would result from an environmental change. This approach can capture indirect use value.
  • Hedonic pricing presupposes that environmental characteristics are reflected in property pricing.  The environmental components value is captured by modelling the impact on property prices. Hedonic pricing can be used to measure direct and indirect use value.
  • Averting behaviour focuses on the price paid by individuals to mitigate against detrimental environmental impacts (i.e. cost of water filtration could be used as a proxy for the value of water pollution).
  • Travel cost method is a survey-based technique that uses the costs incurred by individuals travelling to a recreation site as a proxy for a sites recreational value. Whilst this method captures the use value some visitors may hold non-use values, which cannot be ascertained using this technique.
  • Random utility models test the potential effects of altering environmental characteristics at a particular site. Only direct use value can be captured using these models.

Stated Preference methods

Stated preference technique involves asking people hypothetical questions to ascertain how individuals respond to a range of choices.  This method establishes the extent of collective willingness to pay for particular benefits, or willingness to accept compensation in exchange for bearing a loss. Stated preference contrasts with revealed preference, which deduces people’s willingness to pay from observations of responses to real choices.
  • Contingent valuation adopts a survey-style approach which constructs hypothetical markets via a questionnaire.  A participant’s response reveals their willingness to pay for a particular environmental change.  In theory this method can capture all elements of total economic value, but in practice it is hard to assess the complexities of various use and non-use values.
  • Choice modelling is a survey-style approach that focuses on individual attributes of a particular ecosystem.  Participants are presented with combinations of attributes and asked to decide upon their preferred combination or rank the alternative combinations.  Each combination of attributes has a price associated with it and therefore the respondents reveal their willingness to pay or willingness to accept each attribute.   This method is able to ascertain all elements of total economic value.

Cost based approaches

These consider costs related to the provision of environmental goods and services.   Cost-based approaches infer a value of a natural resource based upon how much it would costs to restore or replace it.
  • Opportunity cost assesses the value relinquished in order to protect, enhance or create an environmental asset (i.e. loss of revenue caused by protecting a forest from clearance for agricultural production)
  • Cost of alternatives or substitute goods considers the cost of providing an alternative or substitute good that possesses similar function of a particular environmental good (i.e. cost of building man-made flood defences could be used as a proxy for the value of wetlands providing natural flood prevention).  As some ecosystems provide a range of services it is important to recognise that some valuations will only provide a minimum estimated value.
  • Replacement cost method (shadow project costs) gauges the cost of restoring or replacing a damaged environmental asset to its original state.  This method uses the replacement cost as a measure of the value of restoration and is commonly applied as estimates for such costs are easily obtainable.

Methods for Obtaining Non-economic Values

People also value biodiversity through non-use (or passive-use) benefits.  An example of this may be the well-being an individual gains from the knowledge that the environment is being preserved for future generations to enjoy.  There are a number of methods to determine non-economic values of ecosystems. 
  • Focus groups determine the position participants hold on particular issues and create discourse on a specific topic area.  Theoretically, focus groups can capture any value but are most often employed to assist participants select between conflicting objectives or decide upon particular outcomes.  Focus groups can contribute to economic valuation research as they can be used to contextualise work and identify potential questions.
  • Citizens' Juries obtain public opinion on a single issue, alternative scenarios, or sets of societal choices that are provided by experts and stakeholders.  Via a discussion process decisions can be made based upon social equity and sustainability by assessing the views expressed by a jury who represent a cross-section of the community.  The process aims to capture societal values, as opposed to individual values, which are expressed qualitatively.  
    Citizens’ juries are able to capture all values via a process of deliberation which builds up an indication of informed preferences through dialogue between the public, experts and politicians.  Citizens’ juries can be particularly effective and they can result in the emergence of a range of values and a consensus report.
  • Health-based valuation determines factors related to the quality and length of human life and assesses how individuals value the health benefits that are realised from health interventions that improve environmental quality.  This method also has the potential to ascertain how society’s values can change as the quantity or quality of ecosystem services decline.  Value is based on the idea that healthy years are more valuable than unhealthy years.  
    Techniques used to measure this include: quality-adjusted life years, which combines the degree of improvement or deterioration in human health and life expectancy and the time over which this occurs; disability-adjusted life years, which estimate the total loss of healthy life from premature death, disability or impairment; and healthy-years equivalent, which assess the health profile of life under varying health states, which may show temporal change.
  • Q-methodology is used to identify ways in which humans perceive environmental issues.  Although it can potentially determine any type of value it does not quantify values, instead it encapsulates societies comprehension of environmental issues and potential solutions.  By analysing perceptions of different societal groups it can be possible to identify key dimensions that represent the response of a particular individual in relation to wider society and can indicate areas of commonality and conflict.   
  • Delphi surveys and systematic reviews summarise evidence and expert opinion, but employ different methods.  Delphi surveys mainly rely on expert opinion, whereas systematic reviews focus upon objective data.  Whilst they are not valuation methods in their own right they can ascertain what information is available for certain goods.  These methods can also be used to create iterative cycles for capturing values by asking increasingly refined questions to experts about the results obtained from all individuals included in the survey.