Quaker Eco-Bulletin
Information and Action Addressing Public Policy 
for an Ecologically Sustainable World

Volume 2, Number 6       November/December 2002
Economic Valuation of Ecosystem Services
by Judy Lumb

What Are Ecosystem Services?
Ecosystem services are those fundamental life-supporting services that we take for granted — seemingly infinite and free — like purifying the air we breathe, purifying the water we drink, and providing fertile soil to produce the food we eat. We are even less aware of the other services that ecosystems provide: pollination, dispersal of seeds, climate stabilization, flood protection, erosion prevention, decomposition, detoxification, maintenance of biodiversity, control of agricultural pests, and carbon sequestration, to name a few.
Human activity is disrupting ecosystem services. The growth in population and increasing per capita consumption exacerbates the problem, as does the predominant focus on short-term gains at the expense of long-term needs. Urban sprawl, destruction of wetlands, deforestation, soil erosion, industrial pollution of air and water, agricultural runoff of pesticides and fertilizers, sewage and animal waste, over-harvesting of fish, and introduction of exotic species are only a few of the disruptions to ecosystem services.
Our economic system is based upon exploitation of natural resources for human consumption. It totally disregards one of its significant costs — the disruption of natural ecosystem services. Using an economic model to describe our natural systems, we might consider such God-given gifts as air and water as “products,” the processes that replenish and purify them as “services,” and the system that provides these as “natural capital.” This model can be useful in quantifying the costs of environmental destruction in terms that our policy-makers can understand – dollar amounts! But without some means of assessing the value of these services, they cannot be included in our economic calculations. To make our life on this planet sustainable, we must become conscious of ecosystem services and factor them into every decision.

Externalities versus Natural Capital
There are two different approaches to address the role of ecosystem services in the economy: those of environmental economics and ecological economics.
Environmental economists, like other mainstream economists, regard ecosystem services as “externalities” to free market economics, or as production costs for which someone other than the producer pays.  They attempt to develop ways of incorporating dollar values for ecosystem services into the current economic systems.  
Quaker economist Jack Powelson expresses this view.  “Pure air, for example, is the common property of many. A company that fouls the air without paying for it receives a stolen profit, stolen from the people who suffer. ... Logging companies using federally built roads take advantage of external costs. Environmentalists should lobby to internalize the externalities by requiring firms to pay the costs of pollution. Loggers should pay for the logging roads. If everyone paid all costs (and passed them on in the price to the consumer), environmental degradation would sink to restorable levels.” (Powelson, 2002)
Ecological economists maintain that fundamental change is needed so that ecosystem services are viewed as part of the economic system, which is in turn understood to be a sub-system of the ecological system in which it operates. Quaker economist Kenneth Boulding helped originate this approach with his 1966 article, “The Coming Economy of Spaceship Earth.”
Ecological economics advocate Paul Hawken says “Capitalism, as practiced, is a financially profitable, non-sustainable aberration in human development. What might be called ‘industrial capitalism’ does not fully conform to its own accounting principles. It liquidates its capital and calls it income. It neglects to assign any value to the largest stocks of capital it employs – the natural resources and living systems, as well as the social and cultural systems that are the basis of human capital.” (Hawken, et al, 1999)
These two approaches are not mutually exclusive. Insofar as it is possible to assign dollar amounts to ecosystem services and bring them into the current economic system, it is an improvement over the past complete disregard of ecosystem services. However, dollar amounts can never express the entire cost of environmental destruction. Our air and water are truly priceless – without them we cannot exist.

Why Should Friends Be Concerned?
“As Friends, we recognize the intrinsic value of the natural world as God’s creation, beyond its use by humankind.  We are part of an intricate web connecting all of Earth’s communities of life. Failure to recognize our interdependence with and responsibility to all life results in activities and institutions that are impairing Earth’s ecosystems and their ability to support life. We are called to promote policies, laws, and institutions that respond to these problems.” (from the Quaker Eco-Witness Guidance Policy)
Friends have a history of fairness in business — they initiated the fixed price system. Instead of bargaining over each transaction, which resulted in different people paying different prices for the same goods and services, Friends set a fixed price that was fair to both the merchant and their customers. Now we are beginning to realize that we have not been paying the full cost of our human activities.
This issue also invokes Friends’ testimonies of peace, simplicity and sustainability because conflicts over resource availability can lead to war. Paying attention to our use and abuse of ecosystem services can lead us to a more simplified lifestyle in current time and sustainability for the future.

Valuation Methods
One way to determine dollar values is by a person’s willingness to pay, that is, how much one would be willing to give up to obtain particular goods or services or to avoid damage. What is actually paid in market prices, the prices of ecosystem products such as fish or wood that are traded in markets, can be calculated directly.
Willingness to pay can also be measured indirectly by the cost of actions people are willing to take. For example, the cost of travel and the value of travel time to a recreation site can be used as measures of the value of that recreation site to those who visit it.
It is also possible to conduct surveys to ask individuals or groups what they are willing to pay given a hypothetical scenario. Dollar values can be assigned indirectly by asking people to choose among scenarios involving different ecosystem services or development projects. These and other methods of assigning dollar values are listed in Table 1.
Dollar-based value systems are limited because not all ecosystem service characteristics can be expressed in dollar values. There are no substitutes for air, water and soil — we are wholly dependent on their healthy functioning. They are as valuable as life itself.
These methods estimate the value of ecosystems from the human point of view. The intrinsic, innate value of each component of an ecosystem that has no relationship to human needs and activities is completely neglected and cannot be given a dollar value. For example, endangered species cannot be saved on economic grounds.
Developing methods for the valuation of ecosystem services is merely one step toward a basic change in our economic system so that it provides for the ecological sustainability of human activities, along with an equitable global distribution of resources between humans and nature, between humans in current time, and between this generation and future generations.

Public Decision-making
Ecosystem valuation is currently being used for cost-benefit analysis and environmental impact statements, both for public spending for infrastructure and for regulating private sector development. Public officials and managers must consider public values, encourage public participation, compare benefits of different projects, prioritize conservation projects, maximize environmental benefits, and assess the true costs of developmental projects.
For the solution of any problem, or evaluation of any proposed project, possible alternatives must be identified. Often the only alternatives studied are human interventions. The preservation of the natural ecosystem is never even considered. The natural ecosystem services are the most efficient and should be given first priority!

Global Assessment of Ecosystem Services
In order to demonstrate the magnitude of ecosystem services, a team of researchers from Brazil, Sweden, the Netherlands and the United States made an estimate of the value of global ecosystem services (see pie chart on page 1). They divided the earth’s surface into different environmental types (biomes) — ocean, forest, wetland, etc. They compiled the values for ecosystem services estimated in published studies for each biome and multiplied times the area of that biome on earth. The total value of ecosystem services added up to a minimum of US$16 trillion and a maximum of US$54 trillion, with an average of US$33 trillion. They used an estimate of the gross global product (global GNP) at the same time of US$18 trillion for comparison. (Costanza, et al., 1997)
There has been considerable debate over this study. Some feel the estimates of ecosystem services are too large; others feel they are too small — that it is inappropriate to set a dollar value, for ecosystem services are infinitely valuable. There are concerns that such data can be misused to justify developmental projects that destroy ecosystem services. Despite the limitations of the study, it has called attention to the fact that ecosystem services have economic value that must be incorporated into our economic systems.

New York City’s Water Supply
Several years ago New York City was faced with deteriorating water quality in their water supply in the Catskills because the natural ecological water purification system was being overwhelmed with sewage and agricultural runoff. The natural hardwood and evergreen forests filter the water and hold the soil from erosion. But when the land is cleared for agriculture or human habitation, those ecosystem services are destroyed and pollution is generated. The city administration investigated the cost of replacing this natural system with an artificial filtration plant. The large estimated cost of $ 6-8 billion with an annual operating cost of $300 million made them take a look at the natural alternatives. In contrast, the cost of restoring the integrity of nature’s purification services was $1-1.5 million. They issued bonds and used the money to purchase land, to compensate property owners for development restrictions on their land, and to subsidize the improvement of septic systems. Clearly, restoration and preservation of the watershed was the best economic option in this case.

Australia’s Privatization of Wildlife Preservation
Earth Sanctuaries, Ltd. (ESL) was listed on the Australian Stock Exchange in May, 2000. This conservation company buys land and restores its natural vegetation and wildlife. Income is earned through ecotourism in their wildlife sanctuaries and consulting to private land owners. Crucial in the public offering was the change in Australia’s accounting law so that Earth Sanctuaries could list rare native animals as assets.
The number of each rare, vulnerable, and endangered species in the ESL sanctuaries was determined. Since there is no liquid market in wildlife in Australia, values were assigned based upon sanctuary costs for re-establishing populations and for translocation ($1,375 for rare animals, $2,750 for vulnerable animals, and $5,500 for endangered animals). ESL’s 2001 Annual Report showed assets exceeding $5 billion in rare, vulnerable and endangered wildlife.

Management of Marine Protected Areas in East Africa

Economic valuation has been used extensively in the management of marine protected areas in East Africa. The establishment and financing of marine protected areas was justified by using market prices to demonstrate their economic value. Incentives for marine conservation ensure that the affected populations are the ones who benefit. A 1999 study of Kisite Marine National Park and Mpunguti Marine National Reserve showed a total economic benefit of KSh 145 million/year (approximately US$1.7 million).

Costa Rica Carbon Sequestration
The government of Costa Rica has been paying landowners since 1997 for ecosystem services, such as, carbon sequestration, protection of watersheds, biodiversity and scenic beauty. The payments (approximately US$50/hectare/year) are financed partly by a tax on fossil fuels. Under the terms of the Kyoto agreement, Costa Rica has sold carbon sequestration credits to European countries. Calculation of the amount of carbon sequestered is a complicated process, but with current land data available it is possible to make an estimate.

Belize PACT    
In Belize some ecosystem services are being paid for by an exit tax of US$7.50 per person collected from non-resident visitors. These funds, as well as a portion of the entrance fees collected at protected areas, go into the Protected Areas Conservation Trust (PACT), which is used to support the management of Belize’s protected areas. Belize has 40% of her land mass under some form of protection, as well as nine marine reserves. According to their 2001 Annual Report, PACT collected US$700,000 last year. The government does not have the financial resources to manage these areas, so most of Belize’s protected areas are co-managed by non-governmental organizations, many of which are composed of residents of adjacent communities. PACT funds are distributed in the form of grants to these organizations to facilitate the sustainable management of Belize’s natural resources and preservation of her ecosystem services.

What Friends Can Do
It is most important to raise consciousness of the general public and of public officials and managers of the value of ecosystem services. Here are some ways that individual Friends might choose.
1)    Educate ourselves about ecosystem services.
2)    Monitor local news for issues that impact ecosystem services to point out areas of public concern when ecosystem services are destroyed or disregarded.
3)    Speak truth to power — communicate with local officials and congressional representatives about the implications of their decisions on ecosystem services.
4)      Hold agencies to the environmental and public input requirements of the laws.
5)       Make certain that preservation of ecosystem services is among the options presented.
6)    Write letters to the editor to educate the public about ecosystem services.

For More Information
Balmford,  A., et al, 2002. ”Economic Reasons for Conserving Wild Nature.” Science 297: 950
Boulding, K. “The Coming Economy of Spaceship Earth” in  Environmental Quality in a Growing Economy. Resources for the Future Inc, and Johns Hopkins University Press, 1966
Kenneth Boulding Papers, especially “Earth as a Spaceship” http://csf.colorado.edu/boulding
Costanza, R. et al, 1997. “The Value of the World’s Ecosystem Services and Natural Capital.” Nature 387:253-260
Daily, G.C. and Heal, G. 1998. “Economic Returns from the Biosphere.” Nature 391: 629
Daily, G.C., et al, 2000. “The Value of Nature and the Nature of Value.” Science 289: 395
Emerton, L. 1999. “Economic Tools for the Management of Marine Protected Areas in Eastern Africa.” IUCN Eastern Africa Programme, Nairobi, Kenya
Emerton, L. and Tessema, Y. 2001. “Marine Protected Areas: the Case of Kisite Marine National Park and Mpunguti Marine National Reserve, Kenya.” IUCN Eastern Africa Programme, Nairobi, Kenya
Hawken, P. et al, 1999. Natural Capitalism: Creating the Next Industrial Revolution. http://www.natcap.org
Heal, G. 2000. Nature and the Marketplace. Island Press: Washington, D.C.
King, D.M. and Mazzotta, M., Ecosystem Valuation. www.ecosystemvaluation.org
Motu Research Trust: Costa Rica http://www.motu.org.nz
Powelson, Jack, 2002. The Classical Liberal Quaker Letter # 44 http://spot.colorado.edu/~powelsoj
Proceedings - Discussion of Costanza, et al., 1997 study. http://csf.colorado.edu/isee/ecovalue/proceedings/0017.htm
Resources for the Future, http://www.rff.org
Redefining Progress, http://www.rprogress.org
World Resources Institute, www.wri.org