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Ecosystem Services Valuation in the Lower Mekong Basin and Developing the ESV Estimator
Author: Shannon Dugan  |  Posted on 30 November 2015  |   Comments

An Interview with Dr. Alex Smajgl and Dr. John Ward of the Mekong Region Futures Institute

Rivers help to purify water. Mangroves protect against coastal erosion and storm surge. Forests sequester carbon from the atmosphere and provide a rich variety of edible and medicinal plants. These are just a few examples of the many types of “services” that ecosystems – whether in urban areas such as Bangkok or rural villages in the Lower Mekong Basin – provide to communities on a regular basis. Moreover, many ecosystems have spiritual and cultural significance for local populations. In both urban and rural Thailand, many trees can be found wrapped in colorful swaths of cloth. These are believed to be spirit trees that should not be cut down.

These critical services ecosystems deliver are often overlooked in decision-making regarding development projects linked to economic growth, such as infrastructure construction. The impacts of degradation on these ecosystems are considered “externalities”, since their natural benefits were never accounted for in the economic analysis of anticipated costs and benefits. Recognition of this significant oversight led to the emergence of ecosystem service valuation (ESV) methods, which aim to assign monetary values to ecosystem services that can more easily be integrated into cost-benefit analyses of potential large scale projects and other economic development initiatives. Such an improved understanding of trade-offs provides a more comprehensive picture of the financial value of the environment.

Since it can be costly and time-consuming to conduct a full ecosystem services valuation assessment, USAID Mekong Adaptation and Resilience to Climate Change and the Mekong Region Futures Institute developed a free, web-based Ecosystem Value Estimator for decision makers to gain a rapid estimate of the financial value of a given ecosystem and better understand the tradeoffs of proposed land use change and the existing ecosystem functioning of an area. Being able to provide easily and quickly accessible information is critical for supporting more informed decision-making in a region that is rapidly developing.  

Shannon Dugan, the USAID Mekong ARCC Deputy Chief of Party, spoke with Dr. Alex Smajgl, who worked to create the online Ecosystem Service Valuation estimator, and Dr. John Ward, a natural resources economist, to find out more about what ecosystem service valuation means for the Lower Mekong Basin and how the ESV Estimator is fulfilling a need for decision makers.

Shannon: What is ecosystem service valuation and why is it important for the Lower Mekong Basin?

John: Societies of the Lower Mekong Basin are predominantly ecosystem dependent. But, despite this reliance on natural systems by tens of millions of people in the LMB, economic development is often given precedence over conservation. Large scale projects such as hydropower or commercial production are easily framed in terms of economic gains. For decision makers, the default position is to conduct a cost benefit analysis without consideration of the values of ecosystem services.

The types of services that ecosystems provide are inter-related. For example, provisioning services encompass the products that communities obtain from an ecosystem such as raw materials, food, or water. The production of these materials, in turn, is dependent on critical supporting services such as nutrient cycling, local climate regulation, water purification, etc. When considering ecosystem values, we must also put a proxy value on these supporting services to fully recognize the total value of the system; this does not always happen in valuation assessment that is often most focused on provisioning services. Ultimately, however, a value catalyzes discussion and can particularly give the affected side equity in a debate.

Shannon: Could you describe general approaches to valuation and some of the strengths and weaknesses of different methods?

John: Total Economic Value or, TEV is conceptual and is understood to be inclusive of both use values (direct use, such as cutting a tree down for building or indirect use, such as air purifying benefits of trees) and non-use values (options for future use and existence — simply valued because it exists). Valuing ecosystems is difficult because it’s a convergence of many components interacting. We have to use non-market principles because some goods and services that are in demand cannot be expressed in a market. We’re putting a proxy value on something that does not exist. There are a number of ways to go about valuing ecosystem services:

  1. Cost avoidance—how much will we have to spend to avoid a particular cost or outcome?
  2. Human capital—what are the human prices on a system?
  3. Revealed preferences—expenditures by an individual which express their preferences on something that does not currently have a price. For example, people spend more money to live on a lake. Or valuing through the travel cost method, such as costs associated with visiting a national park.
  4. Stated preferences—a hypothetical proposition usually through a survey asking what something is worth to an individual. For example, how much would you pay to keep this forested area?

Shannon: How can ESV be used?

John: A value gives you something that can be compared in merit to something else. How can one compare the spiritual value of a site with the economic value of logging? Non-market valuation, or ecosystem service valuation, gives a comparable metric: dollars. Given such a point of comparison, one can make a comparable case since most decisions are made on financial economic values. It gives those affected, interested parties more equity in a negotiation.

Shannon: Describe what the ESV estimator does and its intended objective?

Alex: The ESV estimator summarizes the results of all economic valuation studies that have been conducted in the LMB since 2000. It allows decision makers to get a very first estimation on what might be economically at stake by considering all sorts of financial benefits generated by the ecosystems. 

The user enters the number of hectares of five prominent ecosystems of the LMB (evergreen forest, deciduous forest, wetlands, mangroves, coast/islands with coral reefs) and the tool generates an estimated range of values of the ecosystem based on the results of a large amount of empirical research conducted in the LMB. The tool further breaks down the value of provisioning and regulatory services that the ecosystem provides based on the available data. The user does have to be aware that the range could be misguiding, because the user’s contextual situation could be different from the studies that have been done in the past. However, the value is something to put on the table, which is important because on the economic growth side of the decision, considerations will concern jobs at stake, tax revenues, royalties, or any other number of economic arguments. The user has to have a pragmatic argument to help present the tradeoffs.

Shannon: How can the range of values gleaned from the estimator assist in decision making of policy makers or others, especially when considering the often conflicting dynamics surrounding development and environmental conservation?

Alex: The values from the ESV estimator can inform three types of situations:

1.  When a foreign investor approaches one ministry and articulates an opportunity with incentives (e.g. jobs, royalties received, tax revenue) but should actually be involving multiple ministries, for example, Ministries of Planning, Mines, Agriculture or Forestry, in the discussion. What the investor does not present are the tradeoffs; the current benefits the country will actually lose. This tool empowers environmental ministries by providing a dollar figure showing what will be lost. This will benefit the decision making process by enhancing consideration of a wider range of consequences.

2. Ministries or NGOs with a stake in the environment often write large reports and make assessments. This tool can offer up simple economic estimates.  Currently, indicators that are used to assess the environmental outcomes of specific activities focus on land use change—for example the number of hectares a forest or wetland gains or loses given a certain activity.  This tool can add an economic dimension to such assessments.

3. The intention of the Estimator is not only to demonstrate what you could lose, but also to show what you could gain by rehabilitating wetlands or investing in reforestation. For example, the tool could provide an initial estimate of what rehabilitation might cost and what the resulting future benefits could be. Though it is not a full economic valuation, the Estimator provides a starting point for understanding economic trade-offs and enables users to make more sustainable development decisions.

Shannon: You've worked in SE Asia for many years and are familiar with the government planning and budgetary processes. What further analysis would you recommend that countries in the LMB take in order to consider ecosystem values in their planning processes?

Alex: I will make a couple of points on this. First, countries should conduct more comprehensive economic valuations. This tool has gaps, for example, it cannot distinguish between different types of wetlands because not enough past research has been done differentiating values among the various types of these ecosystems. Also, ecosystems are very complex. If there are 500 ha of wetlands as one contiguous ecosystem, the ecological, physical, and biological functions are very different than if that 500ha is fragmented and split into five parts but in the same basin. The benefits from having one whole contiguous area might be much larger than the same area in hectares that is non-contiguous. This exemplifies the complexity of valuing ecosystems based simply on number of hectares.

Users of this tool, however, will recognize there is something valuable at stake and that there may be reason to go a little deeper in their analysis. So if asked what LMB countries should do, ideally they should really understand the complexity of ecosystems, spatially map out their locations, and evaluate more comprehensively the interactions between ecosystems and social dimensions.

At the end of the day, decisions trigger actions that likely can’t be stopped in the future. They have political and social repercussions. Perhaps, if a decision maker had known in advance, they might have made a different decision. This tool and better understanding of the values of ecosystems generally, can help more informed decision-making. But it is important to remember that complexity means putting many pieces of the puzzle together, and that doesn’t happen overnight.

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