Valuation of Services from Natural Valuation of Services from Natural Systems in Estimating Benefits & Costs Systems in Estimating Benefits & Costs

of Changes in the ADHS: of Changes in the ADHS: The Role of USGS DataThe Role of USGS Data

Greg BischakGreg BischakSenior EconomistSenior Economist

Appalachian Regional CommissionAppalachian Regional CommissionGeohazardsGeohazards in Transportation in the in Transportation in the

Appalachian RegionAppalachian RegionAugust 1, 2007August 1, 2007Asheville, NCAsheville, NC

Overview of PresentationOverview of PresentationOverview of Appalachian Development Highway Overview of Appalachian Development Highway System;System;Evaluating Proposed Changes in Appalachian Evaluating Proposed Changes in Appalachian Development Highways;Development Highways;Evaluation Issues of EIS Methods and Limitation Evaluation Issues of EIS Methods and Limitation of Physical Impact Measures;of Physical Impact Measures;Advances in NonAdvances in Non--Market Economic Valuation Market Economic Valuation Applications to Services from Natural Systems;Applications to Services from Natural Systems;Role in Valuing Information from Natural Role in Valuing Information from Natural Sciences.Sciences.

Appalachian Development Highway SystemAppalachian Development Highway System

From its inception, the ADHS highway system has been From its inception, the ADHS highway system has been designed to be an instrument of economic development:designed to be an instrument of economic development:

linking key centers in the region to national and international linking key centers in the region to national and international markets markets improving regional traffic efficiency by connecting to the improving regional traffic efficiency by connecting to the interstate system interstate system facilitating access to jobs and public services, and facilitating access to jobs and public services, and opening up remote areas within Appalachia for development and opening up remote areas within Appalachia for development and job creation. job creation.

Completion of the ADHS will Completion of the ADHS will permit:permit:the nation to realize the efficiencies of linking the network tothe nation to realize the efficiencies of linking the network to the the interstate and other transportation modes; interstate and other transportation modes; And enable the Region to further develop its assets, and ensure And enable the Region to further develop its assets, and ensure that traffic does not simply bypass the Region.that traffic does not simply bypass the Region.

ADHS—Adequate or Complete

ADHS—To be Completed

Interstate System

Appalachian Development Highway SystemAppalachian Development Highway System

•ADHS 3,090 miles authorized, 85% built or under construction.

•Links region to interstate and key ports for global trade.

Evaluating Proposed Changes in Evaluating Proposed Changes in Appalachian Development HighwaysAppalachian Development Highways

UnbuiltUnbuilt sections of ADHS are among the sections of ADHS are among the most costly, often in the most rugged terrain. most costly, often in the most rugged terrain. Environmental concerns and historical sites Environmental concerns and historical sites have also led to proposed realignments.have also led to proposed realignments.Traffic changes and economic issues have Traffic changes and economic issues have contributed to proposed realignments.contributed to proposed realignments.Such proposed changes raise geological & Such proposed changes raise geological & related economic and environmental issues.related economic and environmental issues.

Evaluation Issues of EIS MethodsEvaluation Issues of EIS Methods

Environmental Impact Statements of Environmental Impact Statements of changes are based on mixed changes are based on mixed methodologies from physical & social methodologies from physical & social sciences.sciences.

Incommensurate methods;Incommensurate methods;Lack any valuation of services from natural Lack any valuation of services from natural systems;systems;Economic valuation mostly restricted to Economic valuation mostly restricted to compensation of affected parties and cost compensation of affected parties and cost changes.changes.

Advances in NonAdvances in Non--Market Economic Market Economic Valuation TechniquesValuation Techniques

Recent advances in economic analysis of Recent advances in economic analysis of the valuation of services from natural the valuation of services from natural systems could improve assessments.systems could improve assessments.

Review these techniques and potential Review these techniques and potential applications.applications.

Examine current case of ADHS corridors.Examine current case of ADHS corridors.

Limitation of Physical MeasuresLimitation of Physical Measures

Impacts as measured by areas, ecosystems and Impacts as measured by areas, ecosystems and numbers of species affected are difficult to numbers of species affected are difficult to compare.compare.Often do not measure many impacts due to Often do not measure many impacts due to changes in complex changes in complex servicesservices provided by provided by ecosystems to both humans and other species.ecosystems to both humans and other species.Lack of market price for these services leads to Lack of market price for these services leads to no valuation in the assessment.no valuation in the assessment.Lack of valuation of information used in studies.Lack of valuation of information used in studies.

Ecosystem Analyses Often Focus Ecosystem Analyses Often Focus Only on Ecosystem Structure and Only on Ecosystem Structure and

FunctionFunction

Source: John Hoehn, derived from Valuing Ecosystem Services, NRC, 2005

Effective Ecosystem ManagementEffective Ecosystem ManagementRequires Knowledge of EcolRequires Knowledge of Ecol--Econ Econ

SystemSystem

Source: John Hoehn, derived from Valuing Ecosystem Services, NRC, 2005

Benefits People Obtain from EcosystemsBenefits People Obtain from Ecosystems

Source: Millennium Assessment www.MAweb.org

Types of Ecosystem ServicesTypes of Ecosystem Services

ProvisioningProvisioning: : Food, Food, Water, Water, Fuel,Fuel,Genetic and medicinal Genetic and medicinal resources,resources,Fiber and materials.Fiber and materials.

Supporting ServicesSupporting Services

Soil formation Soil formation /retention;/retention;Nutrient cycles, Nutrient cycles, Precipitation/water Precipitation/water cycle;cycle;Transpiration cycles; Transpiration cycles; Habitat formation & Habitat formation & stability.stability.

Natural regulating servicesNatural regulating services

Water quality, flood & Water quality, flood & erosion control, erosion control,

Biological Biological propagation/control, propagation/control,

Climate/gas regulation, Climate/gas regulation,

Disturbance mitigation/ Disturbance mitigation/ resilience. resilience.

Cultural servicesCultural servicesRecreational uses.Recreational uses.Aesthetic & spiritual Aesthetic & spiritual value of nature. value of nature. Scientific & Scientific & educational value of educational value of natural resources;natural resources;Intrinsic value of Intrinsic value of natural systems and natural systems and ecology.ecology.

Worldwide Industries Based on Provisioning Worldwide Industries Based on Provisioning Services are Economically SignificantServices are Economically Significant

Market value of provisioning ecosystemMarket value of provisioning ecosystem--service industries (2004)service industries (2004)

Food production: $980 billion per yearFood production: $980 billion per yearTimber industry: $400 billion per yearTimber industry: $400 billion per yearMarine fisheries: $80 billion per yearMarine fisheries: $80 billion per yearMarine aquaculture: $57 billion per yearMarine aquaculture: $57 billion per yearRecreational hunting and fishing: >$75 billion Recreational hunting and fishing: >$75 billion per year in the United States aloneper year in the United States alone

Source: Millennium Assessment www.MAweb.org

Policy Focus & Tools for AssessmentPolicy Focus & Tools for Assessment

Quantify risks arising from natural hazards Quantify risks arising from natural hazards & human impacts on ecological systems. & human impacts on ecological systems.

National Research Council,National Research Council, Valuing Ecosystem Valuing Ecosystem Services: Toward Better Environmental DecisionServices: Toward Better Environmental Decision--Making, 2005.Making, 2005.

Millennium Ecosystem Assessment , 2005.Millennium Ecosystem Assessment , 2005.

World Resources InstituteWorld Resources Institute

Examine nonExamine non--market and alternative market and alternative measures of the value of measures of the value of ecoservicesecoservices..

Scope & Limits of Economic Scope & Limits of Economic Valuation MethodsValuation Methods

Methods to compare the benefits of Methods to compare the benefits of natural systems with costs and savings of natural systems with costs and savings of various human activities.various human activities.

Challenge is to identify values for tangible Challenge is to identify values for tangible & intangible goods & services provided by & intangible goods & services provided by natural systems.natural systems.

HumanHuman--centered approaches to valuation.centered approaches to valuation.

Valuation & QuantificationValuation & QuantificationValuation doesnValuation doesn’’t necessarily imply t necessarily imply quantification or monetization:quantification or monetization:

Endangered Species ActEndangered Species ActIntrinsic values of species & natural systems.Intrinsic values of species & natural systems.

Economic valuation may include both market Economic valuation may include both market and nonand non--market valuation estimates:market valuation estimates:

Both are usually expressed monetarily;Both are usually expressed monetarily;Future value of benefits (discount rate +/Future value of benefits (discount rate +/--).).

Constraints: critical natural thresholds, Constraints: critical natural thresholds, considerations of justice, and uncertainties.considerations of justice, and uncertainties.

NonNon--Market Valuation MethodsMarket Valuation MethodsConsumer behavior studies:Consumer behavior studies:

How much people would spend to avoid How much people would spend to avoid impacts, improve quality or travel somewhere.impacts, improve quality or travel somewhere.

Production studies:Production studies:How changes in How changes in ecoservicesecoservices affect outputs.affect outputs.

Behavioral studies:Behavioral studies:How a given change affects peopleHow a given change affects people’’s behavior.s behavior.

Surveys of peopleSurveys of people’’s preferences.s preferences.Replacement costs for services/restoration.Replacement costs for services/restoration.Benefit transfers between winners/losers.Benefit transfers between winners/losers.

Methods for Valuing Ecosystem ServicesMethods for Valuing Ecosystem ServicesMethodMethod TypeType ApplicationsApplications Services ValuedServices Valued

Market pricesMarket prices Market useMarket use Goods & services that Goods & services that are exchanged and are exchanged and priced by marketspriced by markets

Construction Construction services; research; services; research; water supply; water supply; transporttransport

Travel demand Travel demand (travel cost)(travel cost)

UseUse Activities that involve Activities that involve travel, such as tourism travel, such as tourism and recreationand recreation

Site visits, fish catch, Site visits, fish catch, boating, rafting, rock boating, rafting, rock climbingclimbing

Property valueProperty value(economists often call (economists often call hedonic pricing)hedonic pricing)

UseUse Effects of local amenities Effects of local amenities and hazards on and hazards on residential property residential property valuesvalues

Proximity to an Proximity to an ecosystem; water ecosystem; water clarity; aesthetics; clarity; aesthetics; storm/flood protectionstorm/flood protection

Production functionProduction function( $s = f{x( $s = f{x11,,……,,xxnn} )} )Input/output relationInput/output relation

UseUse Fishing and food Fishing and food harvesting; hydrological harvesting; hydrological functions; preyfunctions; prey--predator predator populationspopulations

Fishery values; water Fishery values; water quality; invasive quality; invasive species; storm/flood species; storm/flood protectionprotection

Stated preferenceStated preference(contingent, conjoint)(contingent, conjoint)

Use; Use; NonNon--useuse

Recreation; water quality; Recreation; water quality; human health; access; human health; access; aesthetics; existence aesthetics; existence

Fishery values; Fishery values; recreation; water recreation; water quality; existence; etcquality; existence; etc

Source: Valuing Ecosystem Services, National Research Council, 2005

Data Needed for ValuationData Needed for Valuation

Travel demand methodTravel demand methodMinimumMinimum

Visit counts for recreation Visit counts for recreation over time, activities, and over time, activities, and sitessitesVisit counts over different Visit counts over different ecosystem quality levels if ecosystem quality levels if quality is to be valuedquality is to be valued

TypicalTypicalMail or telephone survey of Mail or telephone survey of visitors and nonvisitors and non--visitorsvisitorsVisit counts for individuals Visit counts for individuals over time, site, and qualityover time, site, and qualityDemographic dataDemographic data

Stated preference Stated preference MinimumMinimum

Small focus group of usersSmall focus group of usersQuestions to elicit Questions to elicit behavior and values in behavior and values in terms of realistic choicesterms of realistic choices

TypicalTypicalStatistically representative Statistically representative mail or telephone survey mail or telephone survey with sample drawn from with sample drawn from relevant populationrelevant populationDemographic dataDemographic data

Source: John Hoehn, derived from Valuing Ecosystem Services, NRC, 2005

Benefit Transfer: Use Benefit Transfer: Use ExistingExisting Value Value Estimates to Value New PoliciesEstimates to Value New Policies

1.1. Adjust existing values to fit the new settingAdjust existing values to fit the new settingdemographic differences among users?demographic differences among users?ecosystem differences?ecosystem differences?availability of substitutes?availability of substitutes?differences in activities?differences in activities?

2.2. Estimate the change in use due to the change Estimate the change in use due to the change in ecosystem and management costs.in ecosystem and management costs.

3.3. Value of management change = (transferred Value of management change = (transferred value) x (change in use).value) x (change in use).

Source: John Hoehn, derived from Valuing Ecosystem Services, NRC, 2005

Values from Existing StudiesValues from Existing StudiesMean User Day Values by Recreation Activity TypeMean User Day Values by Recreation Activity Type

Activity TypeActivity Type Mean $Mean $

SwimmingSwimming $21 per person day$21 per person dayCamping; wildlife viewing; Camping; wildlife viewing; motorized boatingmotorized boating 30 to 35 per person day30 to 35 per person dayPicnicking; Sightseeing, fishing, Picnicking; Sightseeing, fishing, hikinghiking 35 to 37 per person day35 to 37 per person day

BikingBiking 45 per person day45 per person day

Rock climbingRock climbing 52 per person day52 per person day

Boating, nonBoating, non--motorizedmotorized 62 per person day62 per person day

Source: Rosenberger and Loomis, 2001Source: Rosenberger and Loomis, 2001

Examples of Key ApplicationsExamples of Key ApplicationsWatershed conversation, floodplains and Watershed conversation, floodplains and wetlands valuation studies;wetlands valuation studies;

NYC Watershed Catskills, Lower Mississippi NYC Watershed Catskills, Lower Mississippi Floodplain (risk reduction of potential losses); Floodplain (risk reduction of potential losses);

Columbia River Basin multiple services;Columbia River Basin multiple services;drinking water, fishing, navigation, flood control;drinking water, fishing, navigation, flood control;

Recreational valuation studies (numerous);Recreational valuation studies (numerous);Restoration of lost Restoration of lost EcoservicesEcoservices;;

Everglades, Fox River WI.Everglades, Fox River WI.

Potential ApplicationsPotential ApplicationsImpacts of LargeImpacts of Large--scale highway changes:scale highway changes:

Watershed and flood control impacts;Watershed and flood control impacts;Recreational impacts;Recreational impacts;EcoEco--services, particularly habitat impacts;services, particularly habitat impacts;Overall economic development impacts;Overall economic development impacts;

Value of information from physical Value of information from physical sciences can be measured by potential sciences can be measured by potential savings and risk reduction.savings and risk reduction.

Prorated basis across sciences, including Prorated basis across sciences, including economic analysis.economic analysis.

Greg BischakGreg BischakSenior EconomistSenior Economist

Appalachian Regional CommissionAppalachian Regional Commissiongbischak@arc.govgbischak@arc.gov

www.arc.govwww.arc.gov