The concept of the environmental value and the necessity of accounting for it in the economic process goes way back in history to the work of Charles Darwin, who proposed that the human beings are part of the economic system and that the economic system was not built only to serve the human needs. However, this concept was not formulated into a workable idea except after the work of Boulding in his revolutionary paper “The Economics of the Coming Spaceship Earth”. By proposing that Earth has finite resources that will be annihilated if humans did not rationalize their consumption, he changed the mindset of economists from thinking only about maximizing profits to taking into account the environmental losses caused by economic behavior.
The work that Boulding initiated was put into action by another controversial paper in 1997 by Dr. Robert Costanza and his colleagues “The value of the world's ecosystem services and natural capital”. In this article, Costanza managed to come up with a system to calculate an approximate monetary value for the services provided by natural resources per annum on Earth. Such system was refined over the years by the work of many researchers who utilized the huge technological leaps in satellites and computing softwares.
Within the following sections, we will go through some of the most famous work done in the field of ecosystem valuation, as well as discussing some of the controversies in these calculations. Also, we will discuss an actual case study of ecosystem valuation (The High Dam of Aswan in Egypt). Since this project is relatively old, it will give us a clear idea of the advantages and short comings of the ecosystem valuation based on actual events over several decades not only speculations or assumptions.
The concept of Ecosystems Services Valuation has its origins rooted back to in the work of Boulding and Schumacher during the 60’s and 70’s of the 20th century. Boulding, for example, based his ideas on the assumption that we can think of the world economy or "econosphere" as a subset of the "world set," which is the set of all objects of possible discourse in the world. We then think of the state of the econosphere at any one moment as being the total capital stock, that is, the set of all objects, people, organizations, and so on, which are interesting from the point of view of the system of exchange. This total stock of capital is clearly an open system in the sense that it has inputs and outputs, inputs being production which adds to the capital stock, outputs being consumption which subtracts from it. From a material point of view, we see objects passing from the noneconomic into the economic set in the process of production, and we similarly see products passing out of the economic set as their value becomes zero. Thus we see the econosphere as a material process involving the discovery and mining of fossil fuels, ores, etc., and at the other end a process by which the effluents of the system are passed out into noneconomic reservoirs -- for instance, the atmosphere and the oceans – which are not appropriated and do not enter into the exchange system (Boulding 1966). Therefore, Boulding criticized the traditional methods of environmental valuation where the sustainable and unsustainable energy assets were both calculated on the basis of consumption not accounting for the effect of pollution or depreciation of unsustainable resources.
It is possible then to conceive the definition of the environmental resources as a stock of resources that provides a flow of services essential for economic survival (indeed the survival of all human life). The greater part of these ecosystem services are unpriced - the provision of clean water, climate regulation, soil formation, wild life habitat, etc.
The debate surrounding the value of ecosystem services was brought sharply into focus by the publication in 1997 of a controversial paper, which attempted to place a value on the world's total ecosystem services. Dr. Robert Costanza and his co-authors suggested that because ecosystem services are not fully 'captured' in commercial markets or adequately quantified in terms comparable with economic services and manufactured capital, they are often given too little weight in policy decisions. This neglect may ultimately compromise the sustainability of humans in the biosphere. Costanza estimated that, for the entire biosphere, the value (most of which is outside the market) is in the range of US$16-54 trillion (1012) per year, with an average of US$33 trillion per year (Costanza, et al. 1997).
Over the years, novel methods of calculations were introduced leading to new values of the estimates. At the global scale, Costanza estimated for the first time the value of the earth's ecosystems using a 1° × 1° spatial resolution (~111-km × 111-km at the Equator) land cover map (Matthews 1983). Li and Fang refined the global estimate using GlobCover, a satellite-based land cover map at 300-m × 300-m resolution (Bicheron, et al. 2008) (Li and Fang 2014). As a result of the new land cover data and an updated database of per unit ESV (de Groot, et al. 2012), global flow of terrestrial ESV was revised up from US$ 17.0 trillion/year (Costanza, et al. 1997) to US$37.2 trillion/year (Li and Fang 2014), both in 2007 Int$/year.
By 2017, studies like that done by Xiao-Peng Song were showing that, using different global land cover datasets, the mean of terrestrial ecosystem service value was estimated to be 48.6 trillion $/year with a standard deviation of 8.5 Int$/year (Table 2). The largest estimate of 56.5 trillion $/year was derived using GLC2000, whereas the smallest estimate of 35.0 trillion Int$/year was reached using FROM GLC (X.-P. Song 2017).
Various methods have been used to estimate both the market and non-market components of the value of ecosystem services. For example, calculations sometimes are based, either directly or indirectly, on attempts to estimate the 'willingness-to-pay' of individuals for ecosystem services. For example, if ecological services provided a $50 increment to the timber productivity of a forest, then the beneficiaries of this service should be willing to pay up to $50 for it. In addition to timber production, if the forest offered non-marketed, aesthetic, existence, and conservation values of $70, those receiving this nonmarket benefit should be willing to pay up to $70 for it. The total value of ecological services would be $ 120, but the contribution to the money economy of ecological services would be $50, the amount that actually passes through markets.
On 24 March 1989, the Exxon Valdez ran aground in Prince William Sound of the coast of Alaska. The vessel lost 10.8 million gallons of crude oil, and more than 1,000 miles of shoreline were contaminated. Major cleanup operations were conducted between 1989 and 1992. Oil spills, in particular, Exxon Valdez, have played another key role in the development of environmental policy, and consequently that of sustainable development. The Love Canal incident in 1978 was instrumental in changing US policy towards environmental disasters. One of the outcomes of new legislation was the recognition of a public right to environmental quality and that compensation could be claimed for damage to environmental quality. Importantly, this right exists even in the absence of any property right. The State of Alaska sued Exxon for damages to the environment, initially claiming $2.1bn. The claim was eventually settled out of court and damages of $900m paid by Exxon. The tool used to provide the basis of the claim was the controversial contingent valuation (CV) technique which is the determination of the WTP value of the ecosystem that the society determined for the preservation of their beaches and local fisheries clean.
There are a lot of uncertainties as to the estimation of the value of ESV. A complete understanding of ESV uncertainty requires to incorporate other important uncertainty sources—uncertainties contained in the ESVD (de Groot, et al. 2012) and uncertainties associated with benefit transfer. A crude comparison of the uncertainty range of land cover area estimates and the uncertainty range of per unit ESVs suggested that the uncertainties contributed by global land cover data were considerably smaller than those from the ESVD. The uncertainties of global land cover data are rooted in the product generation chain, from land cover definition, satellite sensor characteristics (spatial, temporal and spectral resolutions) to classification methods (Fritz, et al. 2011); (Jung, et al. 2006); (Schepaschenko, et al. 2015); (Song, et al. 2014). The uncertainties also differ in different biomes across the globe.
Representing ecosystem services in monetary units is a useful way of raising public awareness of natural resource scarcity. Estimates of ecosystem service value are often derived using land cover maps generated from Earth observation data. However, not only the total ESV estimate varies considerably according to the input land cover data, uncertainties also exhibit substantial variation across different biomes. Although many global land cover maps have been generated at different times since the 1990s, large discrepancies among those datasets prevent a direct map comparison approach for quantifying land cover change and ESV change. Except for forest and water, the dynamics of which have been characterized using globally available, high-resolution, time-series satellite data (Hansen, et al. 2013); (Pekel, et al. 2016), global change estimates for other critical biomes have not been reliably derived.
The high dam is a 111 m high rock building laid on a huge clay core and curtain. The reservoir formed behind the dam has a total storage capacity of 171.9 billion cubic meters and covers approximately 3000 square meters, a quarter of which lies in the neighboring country of Sudan. The aim of the project was mainly to store the flood water behind the dam reducing the effects of annual flooding and using it as strategic reservoir in times of drought (which happened during the Eighties - (Robinson, et al. 2008)) and increasing the country energy supply through the hydro-electric turbines that are rotated by the water flow through the body of the dam (White 1988). When the project was proposed, the following issues were raised as expected environmental effects:
After multiple surveys and careful considerations to the ecosystem services bound to be affected by this project, the government decided that the project benefits were higher than the environmental impact. They went ahead to proceed with construction of the dam while taking the following measures:
However, the ESV techniques used in this project failed to predict many other effects that were either caused directly by the dam and overlooked in the initial studies, or even caused by the same measures that were taken to reduce the ecological effects of the dam such as:
In summary, even though ESV in this case managed to anticipate the short term effects of the dam project and provide effective counter-measures for them, it has failed to predict the long term effects such as the pollution and the psychological effects on the affected people. This was caused by the lack of technology and knowledge to predict these effects in the first place.
As we have presented, the ecosystem valuation is still a work in progress. It keeps getting refined and recalculated as time passes and technology advances. So far, all its short comings has been caused by the lack of adequate technology to assess the actual effects of projects and actions on the environment, especially on the long run. Even though, it is still an effective tool to make initial assessments of economic decisions and as time passes the calculations keeps getting more accurate and hence improving the ability of individuals and governments of reaching the right decision.
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