Valuing Ecosystem Goods and Services

Although the importance of ecosystem goods and services is recognized, quantifying these has been at times challenging and controversial. Some quantification has taken the form of economic valuation, using accepted methods. Where markets exist, valuation in monetary terms is fairly straightforward, even if it does not necessarily capture all the value. For example, fish markets capture the value of fish as food, but not their value in food webs per se.

Methods used by environmental and ecological economists include:

• Avoided cost: the cost that an individual or society avoids paying because of the natural service. For example, fringing mangroves and other coastal wetlands can buffer coastlines from storm damage. In 2005, Hurricanes Katrina and Rita inflicted damage along the U.S. Gulf of Mexico coast that ran into tens of billions of dollars; much of that could have been avoided, had wetlands been left intact.

• Replacement cost: the cost that individuals or society would have to pay if the natural service did not exist. An example is the use of cypress wetlands in the Southeastern United States to 'polish' treated wastewater, stripping out nutrients that otherwise would have to be treated with expensive tertiary wastewater treatment.

• Travel cost: some ecosystem goods and services require travel to appreciate, implying the costs willingly borne by people to 'utilize' the good or service. This approach is a common method to assess the minimum value of parks, recreational areas and activities.

• Factor income: the degree to which a service enhances incomes. For example, improvements in water quality may enhance the tourism sector.

• Hedonic pricing: a de facto analysis of goods associated with ecosystem services. Real estate prices near a lake or a beach typically are much greater than a few miles inland, reflecting the appeal of the water or shoreline to humans.

• Contingent valuation: a survey-based method to evaluate individuals' willingness to pay for increased flow of a service, or willingness to accept the costs of maintaining a service, through the posing of hypothetical scenarios. An example would be the willingness not to develop near a sensitive wetland area.

• Option and insurance values: although these may be more difficult to compute, these are values of ecosystem services that provide options in the face of uncertainty. An example is the potential for new uses to be found through 'prospecting' for pharmaceuticals in corals, or maintenance of intact riparian zones along a floodplain (rather than building thereon). A variant on option value is 'bequest value,' that is, the value that is to be left to future generations.

A landmark study of the total value of Earth's ecosystem goods and services (see Further Reading), conducted as a valuation exercise in the mid-1990s, arrived at an estimated worth of $33.3 trillion, nearly double the global Gross Domestic Product (GDP). Controversy ensued, as economists faulted the methods used, and ecologists argued that monetary valuation did not truly capture ecosystem value. Nevertheless, this and other case studies have brought to light that ecosystems, even disturbed ones, provide value to society.

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