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Ecosystem Value Assessment

One illustration of the economic analysis that can be conducted on a natural ecosystem to determine its value as an economic asset which merits inclusion in a country’s net wealth and annual productivity is exemplified through an assessment of coral reefs.

Coral reef services worldwide have an average annual value estimated at US$172 billion according to Pavan Sukhdev, Managing Director of the Global Markets Division of Deutsche Bank, AG, and Director of the Cambridge, England based project entitled The Economics of Ecosystems & Biodiversity Report. The United Nations Environment Programme has concluded that coral reef protection costs only 0.2% of the value that the reefs generate, which makes coral reef conservation a prudent economic investment.

A single hectare of coral reef provides annual services valued at US$130,000 and, in some cases, as high as US$1.2 million. The major component values of coral reef services per hectare have been reported as follows:

  • Food, raw materials, ornamental resources: average $1,100 (up to $6,000);
  • Climate regulation, moderation of extreme events, waste treatment/water purification, biological control: average $26,000 (up to $35,000);
  • Cultural services (e.g. tourism, recreation): average $88,700 (up to $1.1 million); and
  • Maintenance of genetic diversity: average $13,500 (up to $57,000).

Another illustration concerns a cost-benefit analysis of Indonesian forest use. In 2000, the Scientific Director of the degrading Gunung Leuser National Park in Sumatra commissioned an ecosystem valuation study to compare the impact of different ecosystem management strategies on the province’s potential for economic development through 2030. The study concluded that conservation and selective forest use would provide the highest, long term rate of return (US$9.1-9.5 billion, using a 4 % discount rate) while continued deforestation would degrade ecosystem services and generate a lower economic return for the province (US$7 billion). Over a period of 30 years, the monetary difference between deforestation and conservation/sustainable use was projected at US$2.1-2.5 billion, while the human impact and sociological difference between these two strategies was measured by assessing the local communities’ 41% share of the ecosystem services in question, which include agricultural production, water quality and supply, flood control, nutrient cycling, medicinal resources, tourism and non-timber forest products.

One important reason for everyone to become aware to some extent of financial evaluations concerning natural resources is to facilitate decision-making in environmental management as well as the preparation of private and public sector budgets concerning the revenue sources and expenses associated with essential goods and services provided by nature. These financial evaluations include assessing the value of the goods and services derived from natural resource components, calculating the overall cost to repair or replace indispensable natural resources and calculating the cost of inaction when faced with degrading natural resources.

Lack of awareness of this type of readily available financial data by public sector officials can no longer be justified; however, easy internet access to this information by the general public shifts the burden of responsibility for community decision-making from government officials to individual citizens whose economic welfare is at stake. The general public can then decide to either preserve natural ecosystems and continue to receive their goods and services at a fraction of their replacement cost or artificially replace the natural ecosystem goods and services in favour of industrial development or projects of limited scope and duration that frequently offer limited public benefits when weighed against the long term public losses.

Becoming well informed improves our ability to choose the best path forward toward long term economic growth, employment sustainability and social well-being.