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Download Economic Benefits of Preserving Healthy Ecosystems Steve Colt Institute of Social and Economic Research University of Alaska Anchorage Stampede Summit

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  • Economic Benefits of Preserving Healthy Ecosystems Steve Colt Institute of Social and Economic Research University of Alaska Anchorage Stampede Summit 2 1 April 2005
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  • 2 Preview: What on Earth is Value? Price is not a four-letter word The great divide. Between price and cost Public lands are the answer But what was the question? Wild values: measuring ecosystem services Sleeping with porcupines Using the numbers
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  • 3 What on Earth is Value ? Value is subjective There is no accounting for taste Value is determined partly by: Circumstances (water in the desert) Skills and interests (piano, to Beethoven) Income Markets reveal value Economists try to measure value
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  • 4 Price: Value in the Marketplace Prices are determined by the interaction of buyers and sellers Buyers compare Their Subjective Value to the price Sellers compare their incremental cost to the price
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  • 5 Forest buys but Siggy does not.. Juan values the good more than Tupak (we dont know why!) price quantity
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  • 6 Abe has a lower production cost than Cecil (we dont know why!) Dee produces but Efrin does not price quantity
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  • 7 the price is determined by the Twin Scissors of buyers and sellers
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  • 8 Price is not a four-letter word! When markets work: Price = Cost Value exceeds cost to everyone who decides to buy Thats good for society we produce as much, but not more, than people want. (xmas comparison) Price signals what must be given up to get something
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  • 9 How Markets Work for Conservation: Prices send signals High price encourages conservation High price encourages substitution High price encourages innovation What happened to the impending copper crisis?
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  • 10 Example: Market for Carbon Emissions EU Market for Carbon Dioxide emission rights opened January 2005 The market price of one ton of CO2 is 10 Euro = $14 This equates to 14 cents per gallon of fuel. Is this really going to wreck the economy?
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  • 11 The Great Divide between price and cost When I drove to Denali today, I emitted 200 kg of carbon dioxide into the atmosphere. Who bears this cost? Everyone! This is a negative spillover or a negative externality The cost of driving (to society!) exceeds the price of driving (to me!)
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  • 12 Your examples, please: Glitter Gulch each new development gets all the benefits and spreads the cost of sprawl among all others. Dog poop why pick up my dogs when I am headed down the trail?
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  • 13 When markets fail: Social cost (of climate change) (of congestion) exceeds private cost to the driver Market for driving generates too much driving There is no market for carbon emissions! Private benefit of overfishing exceeds private cost, but total benefit is far less than total cost
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  • 14 The Tragedy of the Commons The pursuit of freedom in a Commons brings ruin to all (Garrett Hardin) Big negative externality like depletion of a fishery
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  • 15 Public Lands are the Answer but what was the question? Why have collective ownership of healthy ecosystems? (Think about this for a few moments)
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  • 16 Why Collective Ownership? Healthy ecosystems provide ecosystem services Clean air, Clean water, Climate Recreation, hunting, fishing My consumption does not reduce your consumption (within limits) It is hard to exclude people from consuming, so private owners cannot charge (Scenic views!) The services are often global-scale
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  • 17 Types of Global Ecosystem Services Biodiversity Climate Air Open ocean fish stocks Scientific laboratory These are all direct USE values for both current and future generations
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  • 18 In addition, Existence Value: I value the knowledge that Blue Whales exist American households valued the knowledge that Prince William Sound would not suffer another spill at: $31 per household (median) = $2.8 billion total (for U.S.) You cant sell existence value! Only a few will privately produce it
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  • 19 Hence, Ecosystem services are often not bought and sold in private markets Environmental goods and services must often be provided through collective social processes (politics!) We use Politics to translate individual preferences into collective action
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  • 20 Wild Values: Measuring the value of ecosystem services The issue of valuation is inseparable from the choices and decisions we have to make about ecological systems (Costanza et al 1997) (Remember value is subjective)
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  • 21 What are we Measuring? Use Values Fishing, hunting, recreation subsistence ecosystem services (life support) Non-use Values Existence, passive use, Includes aesthetics, cultural heritage
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  • 22 How do we do it? Actual market prices Replacement cost Market prices of related goods Hedonic methods Observation of behavior Travel Cost Ask people Contingent Valuation
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  • 23 Using Market Prices: Example Replacement Cost of Subsistence 53.5 million lbs harvested 100+ % of protein needs in rural Alaska Replacement cost = ?? $4 per lb Replacement value = 53.5 x 4 = $214 million Source: ADFG 1998 Subsistence Update
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  • 24 Example: Using Market Prices Value of Worldwide Ecosystem Services Nutrient Cycling $17 trillion / yr Waste treatment $2.3 trillion / yr Water regulation & supply $2.9 trillion / yr Gas regulation $1.3 trillion / yr Recreation $0.8 trillion /yr Cultural benefits $3.0 trillion / yr TOTAL = $33 trillion /yr Compare to gross world product of $18 trillion / yr
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  • 25 Example: Hedonics Land Values in Mat Su Valley Berman (1987) regression equation Value of parcels declines with distance from Anchorage Value of parcels declines with number of close neighbors Value of parcels increases with proximity to public open space
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  • 26 Example: Observed Behavior Value of Alaska Fish Example of TC Data: I live at the fishing site, TC=0, make 6 trips Brother lives ten miles away, TC = 10, make 3 trips Cousin lives 20 miles away, TC = 20, makes zero trips Draw Graph, infer value
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  • 27 Example: Observed Behavior Value of Alaska Big Game ADF&G used survey data to estimate TC models for hunting trips Net values estimated by species and by resident / nonresident status Total net value of hunted species in year 2000 = $23.5 million
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  • 28 Example: Observed Behavior Value of Alaska Fish ISER Results (1993): People Actually paid: $550 million People were willing to pay an additional $186 million to fish $186 million is the net economic value of the sport fishery
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  • 29 Contingent Valuation: ask people Tentatively endorsed by NOAA Panel Quality depends on execution In-person interviews Yes-no choices Clear description of scenario Used by most federal and many state agencies (Carson 1999) The ONLY way to measure existence value
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  • 30 Sleeping with Porcupines: Using the Numbers Problems: Whose values count? (Willingness to Pay always depends on income) Reducing complex choices to one dimension ($) A Trojan Horse? (Weeden 1987) However, no measurement = a value of zero (?)
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  • 31 Valuation is one, useful, tool We can find ways to use the sharp-edged techniques of economic valuation without cutting our jugulars (Bob Weeden 1987)
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  • 32 Playing the Economic Significance Game 84,000 Alaska jobs depend on healthy ecosystems $2.6 billion of personal income
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  • 33 Recreation visits to AK National Parks Source: avg annual growth = 7.6%
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  • 34 Case Study: Seward Economy (ISER 2001) Seward wage and salary employment grew at 3.7% per yr between 1980 and 2000, vs. 2.6% for entire State. Kenai Fjords Park visits:
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  • 35 Denali NP Money Generation (2001): 218,085 visitor days in 2001 $22 million total spending 445 direct average annual jobs But this is just time IN the park Source: Michigan State U,
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  • 36 Why do People Visit Alaska Why do People Live in Alaska?
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  • 37 MGM Appears Conservative: Source: ISER ANILCA and Seward economy $23 million
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  • 38 Dont be Bamboozled: Total dollars or economic activity numbers should be treated as meaningless until you know what they mean. New income? Tax revenue? New payroll? New jobs in one place may mean lost jobs somewhere else. Ask about displacement!
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  • 39 Economic Value in the Long Run Ecosystem services They aint making any more of them Wilderness it will grow increasingly scarce Existence value it will grow with population, income, and education
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  • 40 The Alaska Challenge: Our healthy ecosystems are increasingly scarce from a national and global perspective However, they are still viewed as relatively abundant by most