Valuation of Biodiversity Benefits (OECD)

Why value biodiversity?There are three main reasons for undertaking economic valuation of biodiversity andbiological resources: to facilitate cost-benefit analysis, for integration with the system of nationalaccounts, i.e., “green” accounting, and for the proper pricing of biological resources (Pearce, Chapter2). Cost-benefit analysis (CBA) of specific investments and policies, that properly incorporateenvironmental costs and benefits, are essential to enable policy makers to choose the investment orpolicy option that maximises total net benefits to society. Environmental accounting adjusts thestandard gross domestic product (GDP) measure to take into account any depreciation in theenvironmental base of the economy. Finally, in the absence of markets for all of the benefits providedby biodiversity the valuation of changes in the level or quality of these services is small and may evenbe zero. Therefore the proper valuation of the loss due to marginal changes in biological resources orbiological diversity is essential in order to level the playing field between conservation and economicdevelopment.The role of environmental economics in biodiversity policyDixon and Pagiola (Chapter 3) poses two questions that are at the core of biodiversity policymaking: “What role can economics play in understanding this dilemma and illuminating the trade-offsinherent in biodiversity conservation decisions, and what are the policies that are likely to help resolvethis conflict?”Valuing biodiversityPearce convincingly argues that demonstrating the value of biodiversity is a fundamentalstep in conservation, because “the pressures to reduce biodiversity are so large that the chances that wewill introduce incentives (for conservation) without demonstrating the economic value of biodiversityare much less than if we do engage in valuation.” Environmental valuation techniques can be used toplace a value on changes in biodiversity, in order to level the playing field for conservation in policymaking that would otherwise be dominated by the financial benefits of land use conversion. In thisway valuation techniques (and other non-monetary approaches, see Chapters 6 and 7) illuminate thetrade-offs inherent in biodiversity conservation decisions. Furthermore, Pearce suggests that “We learnso much from the process of valuation, especially if we adopted stated preference techniques. Welearn what people care about, what their motives are for conservation, what their reactions would be todifferent management objectives.” The process itself, which can be supplemented by expert opinionand information, may be a critical requirement for successful conservation.“One of the difficult issues in placing an economic value on biodiversity is determiningexactly what the object of value is” (Pearce, Chapter 2). Pearce makes a clear distinction betweenbiological resources and biological diversity: “A biological resource is simply a given example of agene, species, or ecosystem. Biological diversity refers to the variability of biological resources.” Hecontends that many valuation studies do not make this distinction and value biological resources notbiological diversity. The consequence is that many programmes to support biodiversity may not beoptimal. For example, programmes to save single species, such as the spotted owl or the tiger, may inbiodiversity terms be sub-optimal, if these species have a close genetic relative that is not endangered.In addition, Pearce states that to be relevant to policy making economic valuation of biodiversityshould measure marginal or discrete changes in the availability of biodiversity. Land use development,increased tourism, increased pollution, etc. affect the future flow of services from an ecosystem and itis these changes that should be valued.Table 1.1 shows the extinction probabilities of crane species. Conservation policies based onthis data alone would probably support the protection of the Siberian and whooping crane habitats, as12