Ecosystem Services - Economics

Economics

There are questions regarding the environmental and economic values of ecosystem services. Some people may be unaware of the environment in general and humanity's interrelatedness with the natural environment, which may cause misconceptions. Although environmental awareness is rapidly improving in our contemporary world, ecosystem capital and its flow are still poorly understood, threats continue to impose, and we suffer from the so-called ‘tragedy of the commons’. Many efforts to inform decision-makers of current versus future costs and benefits now involve organizing and translating scientific knowledge to economics, which articulate the consequences of our choices in comparable units of impact on human well-being. An especially challenging aspect of this process is that interpreting ecological information collected from one spatial-temporal scale does not necessarily mean it can be applied at another; understanding the dynamics of ecological processes relative to ecosystem services is essential in aiding economic decisions. Weighting factors such as a service’s irreplaceability or bundled services can also allocate economic value such that goal attainment becomes more efficient.

The economic valuation of ecosystem services also involves social communication and information, areas that remain particularly challenging and are the focus of many researchers. In general, the idea is that although individuals make decisions for any variety of reasons, trends reveal the aggregative preferences of a society, from which the economic value of services can be inferred and assigned. The six major methods for valuing ecosystem services in monetary terms are:

Avoided cost

Services allow society to avoid costs that would have been incurred in the absence of those services (e.g. waste treatment by wetland habitats avoids health costs)

Replacement cost

Services could be replaced with man-made systems (e.g. restoration of the Catskill Watershed cost less than the construction of a water purification plant)

Factor income

Services provide for the enhancement of incomes (e.g. improved water quality increases the commercial take of a fishery and improves the income of fishers)

Travel cost

Service demand may require travel, whose costs can reflect the implied value of the service (e.g. value of ecotourism experience is at least what a visitor is willing to pay to get there)

Hedonic pricing

Service demand may be reflected in the prices people will pay for associated goods (e.g. coastal housing prices exceed that of inland homes)

Contingent valuation

Service demand may be elicited by posing hypothetical scenarios that involve some valuation of alternatives (e.g. visitors willing to pay for increased access to national parks)

A peer-reviewed study published in 1997 estimated the value of the world's ecosystem services and natural capital to be between US$16–54 trillion per year, with an average of US$33 trillion per year. However, Salles (2011) indicates 'The total value of biodiversity is infinite, so having debate about what is the total value of nature is actually pointless because we can't live without it'