Economic Valuation of Wetland Ecosystem Goods and Services

Abstract

The degradation of wetland resources including waterbodies, marshy coastal cropland, mangroves and salt marshes due to a variety of human activities within and outside the wetlands is a major environmental concern in India. Despite their importance, these ecosystems are under severe threat of degradation due to both natural and anthropogenic factors primarily due to the lack of awareness of the link between human support systems and natural ecosystems. Unless our natural capital is systematically accounted for, coupled with the knowledge of its total economic value, the probability of unsustainable exploitation leading to loss of human well-being would be significantly high. This necessitates a thorough understanding on the tools and techniques used in economic valuation and the ecosystem goods and services of a wetland ecosystem. The present chapter provides comprehensive information on the typology of various tools used in economic valuation of wetland resources. A synthesis of available information from published literature is also included, which provides a snapshot of monetary values of this natural resource.

Appendices

Appendices

1.1 Appendix A.14.1: Valuation Methodologies within TEV Framework

Valuation technique	Applicability to Indian wetland ecosystems	Examples of wetland ecosystem application	Limitations
Revealed preference techniques
Hedonic pricing method (HPM): The value of an environmental amenity (such as a view) is obtained from readily available property or labour markets. The basic assumption is that the observed property value (or wage) reflects a stream of benefits (or working conditions) and that it is possible to isolate the value of the relevant environmental amenity or attribute	Hedonic pricing has potential for valuing certain wetland functions (e.g. aesthetic beauty, landscapes and open spaces from sandy beaches) in terms of their impact on land values, assuming that they are fully reflected in land prices	Landry and Hindsley (2011) conducted a study to explore the influence of beach quality on coastal property values. It was estimated that property values within 300 m of HTL are positively impacted by the width of the beach and dune field	Application of this approach to value wetland services requires these values to be reflected in proxy markets. The approach may be limited by unstable real estate markets, choices constrained by income and unequal distribution of information about environmental conditions
Travel cost approach (TC): The travel cost approach derives willingness to pay for environmental benefits at a specific location by using information on the amount of money and time that people spend to visit the location	Widely used to estimate the value of recreational, religious and cultural sites in coastal and wetland areas. It could also be used to estimate willingness to pay for ecotourism	Raybould et al. (2011) estimated the value of recreational benefits (AU$365 million to AU$1.7 billion) to Gold Coast residents depending on their travel costs including time and fuel costs	The approach is data intensive; it is restrictive on the assumptions about consumer behaviour (e.g. multifunctional trips); its results are highly sensitive to statistical methods used to specify the demand relationship
Random utility method (RUM): This is an extension of the travel cost method and is used to test the effect of changing the quality or quantity of an environmental characteristic at a particular site	The travel cost RUM analyses a person’s discrete choice of one recreation site over other sites. The site choice is assumed to depend on the features of the site and to reveal the person’s preferences for those features	Parsons et al. (2000) estimated a (TC) random utility model of recreation demand. The model evaluates the loss in mean welfare value per trip per person if select beaches were too close to its residents	The random utility model is an extremely complicated and expensive (in terms of man-hours required) approach to value ecosystem service benefits
Stated preference techniques
Contingent valuation method (CVM): constructs a hypothetical market to elicit respondents’ willingness to pay for a particular environmental service. It can be used to estimate use and more importantly non-use values	It is the only method that can measure existence values and provide a true measure of total economic value. Most regulating and cultural services of wetland ecosystems are estimated using CVM. E.g. protection from extreme weather events by estuaries and recreational benefits from coral reefs	Bann (1999) estimated the willingness to pay values (US$7512/Ha) of protecting mangroves for its nursery and biodiversity services in Malaysia	The results of this approach are sensitive to numerous sources of bias in survey design and implementation
Choice experiments: estimate implicit values of different use and non-use environmental services. Since it is based on the trade-off between options with different specified characteristics, it is best suited to better-informed policy decisions	CE method, just like the CVM, attempts to measure all use and non-use values including biodiversity and cultural values of wetland ecosystems	Birol and Cox (2007) used the choice experiment approach to investigate whether the communities living around the Severn wetland derived positive economic values if the wetlands were sustainably managed	Some of the critical issues for choice experiments are the technical and behavioural uncertainties in monetizing the actual value of responses taken on a particular good or service. It may cause biases in responses or decision-making
Market-based techniques
Production function approach (PFA): estimates the value of a non-marketed resource or ecological function in terms of changes in economic activity by modelling the physical contribution of the resource or function to economic output	Widely used to estimate the impact of wetlands and reef destruction, deforestation, water pollution, etc. on productive activities such as fishing, hunting and farming	The study utilized the production function method to value the mangrove forests to a local community. The method was particularly used for the value of fisheries (~US$50) supported by local mangroves in the Gulf of Thailand region (Sathirathai and Barbier 2001)	Requires explicit modelling of the ‘dose-response’ relationship between the resources and some economic output. Application of the approach is most straightforward in the case of single-use systems but becomes more complicated with multiple-use systems. Problems may arise from multi-specification of the ecological-economic relationship or double counting
Replacement cost (RPC): this method uses cost of artificial substitutes for environmental goods or services	RPC: useful in estimating indirect use benefits when ecological data are not available for estimating damage functions with first-best methods	McAllister (1991) estimated the value of coastal protection provided by the coral reefs in the Philippines using the replacement cost method. The study estimated US$22 billion, based on construction costs of concrete tetrapod breakwaters to replace 22,000 km2 of reef protection	RPC: difficult to ensure that net benefits of the replacement do not exceed those of the original function. May overstate willingness to pay if only physical indicators of benefits are available
Market prices (MP): are those that capture the value of goods and services that are traded in the open market. Market prices can act as proxies for direct and indirect use values	Market prices reflect the private willingness to pay for several use values. For example, the value of fish nurseries provided by mangroves is measured by the market price of all fish harvested from that area	Emerton and Kekulandala (2003) used market price to value the economic benefits associated with fishing, agriculture and handicraft production activities in Muthurajawela wetland. The market value of firewood obtained from Muthurajawela was INR 7.96 million/year	Market imperfections and/or policy failures may distort market prices, which will therefore fail to reflect the economic value of goods or services to society as a whole. Seasonal variations and other effects on prices need to be considered when market prices are used in economic analysis
Benefit transfer
Benefit transfer (Rosenberger and Loomis 2003): the process by which the economic value of an environmental good or service generated in one context – the ‘study site’ – is applied to another context known as benefit transfer or value transfer. In principle, a value from any economic valuation methodology may be used as long as the contexts of both sites are the same	This technique is used when primary valuation studies are not feasible in terms of timelines and budgets. Also policy and conservation schemes predominantly use macro-level monetary estimates, and benefit transfer offers an effective solution to include environmental values to the appraisal process	Gujarat Ecology Commission (Dixit et al. 2010) estimated the values of coastal protection (INR 2.89 million/km2/year) and biodiversity maintenance (INR 0.32 million/ km2/year) of coral systems in the Gulf of Kachchh region in India using benefit transfer methodology	One of the critical issues with the use of benefit transfer is the validity and accuracy of secondary data

1.2 Appendix A.14.2: Online Databases on Valuation

Institute	Particulars
Marine Ecosystem Services Partnership (MESP)	MESP is a virtual centre for information and communication on the human uses of marine ecosystems around the world, including an extensive database of marine and coastal valuation studies with nearly 2000 value estimates
Harte Research Institute – Texas A&M University-Corpus Christi	The two main goals of the GecoServ database are to allow for the distribution and sharing of information about ES valuation studies and to identify current gaps in the ES literature. The studies summarized here are for habitats that are relevant to the Gulf of Mexico region even though they may have been conducted elsewhere
National Ocean Economics Program (NOEP)	NOEP provides economic and socio-economic information on changes and trends along the US coast and will soon expand its scope internationally. NOEP includes databases on market and non-market values of coastal and marine resources
Environmental Valuation Reference Inventory (EVRI)	EVRI is a searchable storehouse of more than 2000 empirical studies on the economic value of environmental benefits and human health effects. It has been developed as a tool to help policy analysts use the benefit transfer approach
The Economics of Ecosystems and Biodiversity (TEEB)	Ecosystem Service Valuation Database (ESVD), initially developed for TEEB initiative, contains more than 1300 data points from more than 300 case studies on both marine and terrestrial ecosystem services
Lincoln University, New Zealand	This database provides users with a large (850+) bibliography of valuation studies. The economic value of many of these studies is also analysed and reported. These values have been standardized temporally and spatially so the application of the values is adequately robust
Beijer Institute of Ecological Economics	The Valuation Study Database for Environmental Change in Sweden (ValueBaseSWE) was developed at the Beijer Institute of Ecological Economics within a project funded by the Swedish Environmental Protection Agency. The database is the result of a survey of empirical economic valuation studies on environmental change in Sweden