Evaluation methodologies and TEV
Although ecosystem services are vital to mankind, they have always been poorly considered in economic terms. Since many of these services have always been available, without any market and for free, their real value was not understood by society for a long time. Over the centuries, humanity has failed to manager natural capital in a sustainable manner, overexploiting ecosystems, thus reducing their resilience and diminishing their ability to provide benefits to mankind. Since the 1970s we have in fact been overshooting, i.e. consuming resources faster than the planet can replenish them. In fact, the Global Footprint Network reports that nowadays we would need 1.6 Earths to maintain the world's current population and its rising standard of living. Therefore, it is crucial to recognise the importance of the role ecosystems play in maintaining life on the planet by including their value in private transactions. However, quantifying the value of ecosystem services is complex and differs from classical economic models.
How can we overcome this problem and succeed in giving a tangible value to natural capital?
In order to obtain a correct valuation of environmental resources and the services they provide, making tangible the enormous contribution they make to society, we first need to better define the concept of “value”. Economic theory has therefore developed the concept of Total Economic Value (TEV), given by the totality of goods and services that a given ecosystem can generate to benefit humanity. TEV consists of two main categories: use value and non-use value. The use value essentially depends on the possibility of obtaining a personal benefit through a physical interaction with the good.
The use value includes:
The non-use value relates to the altruistic component of human behaviour and includes:
The total economic value of an ecosystem will thus be the sum of all its components. As can be guessed, the assessment of economic value becomes more complex as one moves from use to non-use values. An interesting example is the estimation of the recreational ecosystem services of Natura 2000 sites in
Italy.
TEV estimation methods
Over the years, many evaluation methodologies have been developed and refined to obtain a monetary valuation of TEV (Figure 1). From an operational point of view, the identification of the most suitable method depends on the type of service being valued, the purpose of the evaluation and the qualitative-
quantitative availability of data and information.
Figure 1: Overview of the main criteria and methods for estimating the economic value of Ecosystem Services.
Source: modified from Mavsar & Varela, 2014
Generally, two different approaches can be identified:
The first approach includes methods based on the analysis of reference market values. In this case, it is possible to use the monetary value of the same or similar goods or services. This is the case for certain provisioning services such as cultivated crops and timber. For example, the value of mushrooms in a forest, which are harvested and consumed directly by residents, can be quantified with their market value, i.e. the amount that residents would have to spend to purchase them. If there is no direct market to refer to, some methods can be used based on the revenues that the producer of the services receives or the costs that he has to incur to secure these services. For example, the phyto-purification performed by a hedge in the proximity of a cultivated field can be quantified by considering the cost of achieving a similar result through a water purification plant.
The second approach brings together methods based on hypothetical markets, where it is simulated what consumer behaviour would be when the availability and price of the good changes. These methods are applied in the case of no real reference market. Depending on whether the good’s value is directly asked to the users or is inferred from their actual behaviour, one distinguishes between expressed preference methods (direct methods) and revealed preference methods (indirect methods). Direct methods aim at collecting preferences directly – in terms of willingness to pay for a given service – by means of interviews and questionnaires. An example is the contingent valuation method which, through the use of questionnaires, is based on the simulation of a hypothetical market where stakeholders are asked how much they would be willing to pay to continue to use the good or, alternatively, how much they would be willing to accept to forego it.
An example of an indirect method is the travel cost method, which is widely used to estimate the value of recreational and tourist services offered by protected natural areas from the costs incurred by visitors to reach and stay there.
These approaches are valuable tools in the hands of policy makers who can use them within decision-making processes and thus ensure the conservation of natural resources, human well-being and economic prosperity. Used in a proper way, they can guide actions aimed at maintaining and enhancing natural assets so as to ensure their ability to provide services essential to mankind.
Bibliography:
Amato, G., 2020. Valutare l’inestimabile: quanto vale la Natura? In: Quaderni di economia sociale 2020, pp. 50-53.
Masiero, M., Leonardi, A., Polato, R., Amato, G., 2017. Pagamenti per Servizi Ecosistemici. Guida tecnica per la definizione di meccanismi innovativi per la valorizzazione dei servizi idrici e la governance ambientale. Etifor Srl e Università di Padova.