The valuation of ecosystem services: a key tool in the fight against climate change
In the past, the natural environment has not typically been a key public policy consideration.
However, with increased public pressure on politicians to address climate change and limit the impact of the human population on the natural environment, policymakers are seeking new tools to support the development of policy to support the environment.
Ecosystem services valuation is one such tool; it seeks to put an economic value on natural resources, to allow policy to be evaluated by monetising the benefits of the environment in a way that is broadly equivalent to the economic costs/benefits used to inform policy-making.
In other words, shedding light on the economic impact of inaction, or of one policy instrument against another, should make it easier to make the case for intervention one way or the other.
Here, Dora Fazekas explains how the economic valuation of ecosystem services is a fundamental policy assessment tool. She starts by explaining some of the key terms used in this field then describes why ecosystem services are so important and how their value can be measured.
What are “ecosystem services and “nature-based solutions”?
While sustainability and biodiversity are now both established and widely-used terms, it is increasingly common to see the terms “ecosystem services” and “nature-based solutions” being used.
Ecosystem services include all services and goods provided by nature such as food, biodiversity, socio-cultural and recreational values.
There are four main types of service that the ecosystem provides:
- Provisioning: providing space for urban agriculture
- Regulating: retaining storm water, improving air quality
- Cultural: providing space for recreation
- Habitat and support for wildlife
In environmental research and management ecosystem-related approaches include:
- “Ecosystem-based adaptation and mitigation” – the use of biodiversity and ecosystem services as part of an overall adaptation strategy to help people adapt to the adverse effects of climate change
- “Ecological engineering” – the design of sustainable ecosystems that integrate human society with its natural environment for the benefit of both
- “Green and blue infrastructure” – all natural and semi-natural landscape elements; green relates to land and plants, while blue is linked to water
- “Natural Capital” – all stocks of natural assets including geology, soil, air, water and all living things. It is from this natural capital that humans derive a wide range of ‘ecosystem services’
Nature-based solutions are solutions to societal challenges that are inspired and supported by nature. These solutions are designed to support nature with innovative solutions which support economic growth, create jobs and enhance our well-being.
Examples of nature-based solutions include:
Green roofs and effective urban green space
These can reduce heat stress and urban heat island effects (a phenomenon whereby heat accumulates in urban spaces as opposed to rural areas, due to human activity).
- reduce energy demand for cooling
- act as carbon sinks to mitigate climate change
- improve human health by improving air quality
- provide public spaces for recreational activities
Effective flood risk management
This can reduce the risk of flooding, enhance rainfall penetration into soil and reduce the speed and extent of water runoff. It may provide long-term improvements in water quality and improves wildlife habitats and carbon sequestration.
Why are ecosystem services and nature-based solutions so important?
As there is a high level of crossover between climate change, biodiversity, human health and well-being, applying nature-based solutions in an urban context may provide benefits to the environment and the population.
Nature-based solutions can slow the pace of climate change itself, protect coastal habitats and endangered species, while also helping humans adapt to the new environment.
The restoration and protection of ecosystem services is an important issue. Problems that are solved by technological intervention (for example, dredging of rivers to create shipping lanes) can be highly effective in the short term but damaging to nature in the long-term and counter-productive to the services that society derives from them (dredging, resulting in lack of flooding to adjacent fields, could have a negative long-term impact on the land that may be important for food production).
Why is measurement useful for policy assessments?
The valuation and quantification of nature-based solutions and ecosystem services mean attributing a monetary value to these services.
This facilitates the comprehensive assessment of project costs and benefits, which can lead to more optimal policy decisions. Economic valuations can also be used to make it easier to compare trade-offs between one natural resource and another.
Impact assessments can focus on direct benefits, such as air quality, waste or water management and co-benefits such as biodiversity, cultural diversity, health and well-being.
Areas where such quantification may be useful include: climate change adaptation planning, enhancing sustainable urbanisation, restoring degraded ecosystems, improving risk management and climate resilience, which then lead to environmental, social and economic benefits.
Institutions for whom such quantification may be useful include natural resource planners, decision-makers and implementation agencies.
How can the value of ecosystem services be measured?
Some of these services have never been measured before but since 2012 the European Commission has invested in new tools to develop ecosystem services management. An example can be found here.
Nature-based solutions and ecosystem services are complex, with embedded uncertainty and risks. There are considerable challenges in setting targets, standards and solutions, but impact assessments can be a valuable tool to account for future environmental changes. Transparency and stakeholder participation is vital for such assessments.
House prices already take into account the value of ecosystem services (see revealed preference method below). The same house closer to a park would command a higher price.
We are currently developing our capacity to measure the economic value of other ecosystem services.
What are the main types of economic values of environmental services?
- Direct use value: such as drinking water
- Indirect use value: enjoying their positive externalities, such as decreased flood risk
- Option value: value attributed to being able to use a service in the future
- Non-use value: the utility of knowing something exists (a species in danger), that someone benefits (e.g. animals have a right to exist) or knowing that future improvements affect our descendants.
What are the most commonly used methods for the economic assessment of environmental goods?
- Revealed preference method: values are based on actual market transaction and price data (housing prices)
- Stated preference method: values are based on surveys (e.g. if a new public transport service was introduced in the neighbourhood, how much would the respondents pay for using it?)
- Benefit transfer method: values from other studies are used. More on this is available here.
We can produce the following indicators
- Energy and carbon savings from reduced energy consumption in buildings as a nature-based contribution to climate resilience
- Monetary values: value of carbon sequestration by trees
- Number of jobs created
- Gross value added
- Indirect economic benefits (changes to property values and tax income for local governments)
- New businesses attracted and additional business rates
- Number of subsidies or tax reductions applied to (private) nature-based solutions
- Estimation of avoided damages and costs
- Health impact indicators such as air pollution reduction and avoided premature deaths
- Resource efficiency in the urban system (CO2 emissions per capita, CO2 emissions for transportation per capita)
Why all this is important
There is a clear move towards including ecosystem services in policy-making and spatial planning as the momentum to address the causes of climate change increases.
Putting an economic value on natural resources should encourage action to be taken, but time is running out.
The practice of ecosystem services valuation requires multidisciplinary, evidence-based strategies, adapted to local conditions. Cambridge Econometrics is perfectly placed to offer this approach. Here’s a recent example of our work, where we analysed the economic benefits of nature-based solutions for the RSPB.