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Total Economic Value

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Introduction: from Ecosystem Assessment to Economic Valuation

The valuation of an ecosystem poses several difficulties. When the notion of value refers to the integrity of the ecosystem it is basically related to the well functioning of the system, i.e. its components are working properly and playing the appropriate role and dynamics.

Coastal areas and wetlands represent very complex ecosystems. Environmental and anthropogenic systems reciprocal interrelations induce a variety of processes that require management and governance capacities: pressures on the system need to be identified and their impact evaluated together with the effects of the management policies in place or planned. Valuation of the multiple functions of these mixed, complex systems assumes a vital role in understanding processes and steering actions, contributing to their sustainable future.

In the Millennium Ecosystem Assessment (2005) Ecosystem and Human Well-Being: Wetlands and Water synthesis, World Resources Institute, Washington D.C. economic valuation is stated as a powerful tool for placing ecosystems on the agenda of conservation and development decision-makers. In fact the three main domains are recognized as critical to choose and implement successful policies: the biophysical information about the ecosystem status and process, the socioeconomic information about the context in which and for which the decision will be made and the information about the values, norms and interests of key stakeholders shaping and affected by decisions. Within the MEA the Total Economic Value (TEV)is confirmed as the most widely used framework to identify and quantify the contribution of ecosystem services to human well being.

When the notion of value is connected to the notion of TEV it refers to the social context overlapping the ecosystem, taking into account the relations between the socio-economic system and the natural systems, with all the involved complex dynamics and feedbacks. Assessing the TEV could be a useful tool for policymakers: determining the total flux of benefits that ecosystems generate and assessing the effects of specific projects or policies, can support a better management of the territory.

Total Economic Value: an assessment procedure proposal

TEV is composed by use values, option values and non-use components. There is not in the literature a single standard categorization nor terminology. Often Total Value is reported as the sum of use value and non-use values or passive values[1] [2].

Use values can be direct when goods and services are exchanged on the market that thus reveals their value. Use values are indirect refer to the life support services role of the natural environment, which are ‘indirectly used’. In the MEA report specifically compiled for wetlands, direct use values correspond to the MEA’s definition of provisioning and cultural services. Indirect use values correspond to MEA’s notion of regulating and supporting services. Provisioning, regulating and cultural services may all form part of the option values.

Option values reflect the value people place on a future ability to use the environment and thus the potential future benefits of goods and services. Quasi-option value reflect the willingness to avoid irreversible commitment to development now, given the expectation of future growth in knowledge relevant to the implications of development.There is no full agreement about considering option and quasi-option values among use or non-use values.

Non-use values include: existence values, where the benefit results from knowledge that goods and service exist and will continue to exist, independently of any actual or prospective use by the individual; and bequest value, where the benefit is in ensuring that future generations will be able to inherit the same goods and services of the present generation.

The MEA lists as commonly used valuation tools: replacement costs, effects on production, damage cost avoided, mitigative or avertive expenditures, hedonic pricing, travel costs, contingent valuation.

One of the possible procedures that could be used to assess TEV imply few simple steps as reported in Figure 1. The procedure has been though for georefereced enviornmental accounts[3] [4] : environmental accounts represent an intermediate tool that could be used for multiple purposes and georefereced data allow to value the spatial biophysical characteristics of local contexts.


Figure 1 General procedure.jpg


When the purpose of valuation is clearly set, the first step of the procedure require the choice of the appropriate analysis tool. The choice of functions [5] varies according to the kind of resources and land cover that has to be assessed. Of the same resource/land, functions range and distribution can also vary over time. The second step of the procedure allows the choice of functions. Each function has to be assessed first in physical and then in monetary terms. Valuation in physical terms may require quantification per ton of selected resources or zoning per hectare of certain areas: this approach may vary according to functions. Valuation in monetary terms might involve the application of different valuation methods: from the easiest market price value to a complex stated preferences approach. The choice of methods depends on the resource/land and on the functions themselves. Both valuation steps must be very flexible in order to allow the most appropriate choice for each specific case.

We also need to consider that over time more sources may become available and better estimates could be calculated because improved valuation methods are developed and implemented. This implies that the same function calculated with the same general action can produce different results. Identifying the specific step where enhancements occur can facilitate calculation and do not compromise the complete procedure. The extreme flexibility of the adopted procedure will not create confusion because through meta-data analysis it is possible to track the processing behind each step and correctly interpret data and compare results over time.


References

  1. Perman R.,Common M.,Mcgilvray J.,Ma Y.(2003) Natural Resource and Environmental Economics, Pearson Education Limited
  2. Tietemberg T., (1996) Environmental and Natural Resource Economics, Harper Collins College Publishers
  3. La Notte A., Turvani M. (2007) ‘Geo-referenced Environmental Accounting for Multi-functionality.Valuation and Land Accounting: the case of S.Erasmo island in the Lagoon of Venice’ in Proceedings of the 3rd International Conference ‘Environmental Accounting –Sustainable Development Indicators’ 23-25 May 2007, Prague Czech Republic.J.E.Purkyně in Ǔstì nad Labem
  4. La Notte A., (2006) ‘The role of Geographic Information Systems in physical and monetary valuation procedures. The Total Economic Value of forests in Cansiglio (Italy) by using georeferenced environmental accounts’, in Proceedings de: The Ninth Biennial Conference of the International Society for Ecological Economics on “Ecological sustainability and human well-being”, (CD-rom)
  5. De Groot R.S., Wilson M.A., Boumans R.M.J. (2002) ‘A typology for the classification, description, and valuation of ecosystem functions, goods, and services’ in Ecological Economics , n.41.

See also