Valuation of Biodiversity Benefits (OECD)

with the highest (net) economic value. Since the services rendered by most biological resources haveno markets, demonstration alone may show that the uncaptured market value of conservation is higherthan the value of the land use that involves loss of biological resources. A relevant context for‘demonstration only’ would, for example, be a land use planning regulation that automaticallyallocated land to its highest economic value. Even then, the example is fairy fanciful because land useplanning does not work this way. Few, if any attempts are made to value conservation services ineconomic terms in planning applications.Hence the second capture phase is needed. In this stage mechanisms are devised wherebysome or all of the demonstrated economic value can be turned into real resource flows which benefitthe agents who would otherwise adopt a land use that threatens biodiversity. Any number of suchcapture mechanisms exist, ranging from entry pricing, to donations, to debt-for-nature swaps, carbonoffsets, and so on [OECD (1996)].Many people think that we either should not place monetary values on biological resourcesand diversity, or that that we need not do so. Arguments against valuation are addressed in Pearce(1999) and are not discussed further here. More recently, Heal (1999) has suggested that:“Valuation is neither necessary nor sufficient for conservation. We conserve much that we donot value, and do not conserve much that we value,” and“Incentives are critical for conservation: valuation is not necessary for establishing the correctincentives.”The second statement is technically correct. Incentives are critical and we could introduceincentives without going through the valuation stage of the demonstration-capture paradigm. Thestatement echoes the Baumol-Oates least-cost theorem for pollution charges, where we do not need toknow the value of pollution to adopt cost-minimising incentives [Baumol and Oates (1988)].Unfortunately, the pressures to reduce biodiversity are so large that the chances that we will introduceincentives without demonstrating the economic value of biodiversity are much less than if we doengage in valuation. One reason for this is that valuation does not just tell us the economic value of aresource, it also tells us something about the demand curve for biological resources, i.e. how peoplewill respond to prices charged for the use of those resources. This principle is no different forbiodiversity than it is for, say, water, another resource where, until recently, scarcity value was notrecognised.Heal’s first statement also requires qualification. The factors giving rise to biodiversity lossare dominated by land use change. Thus whether biodiversity gets conserved or not depends verymuch on the competing values for land (or water, or coastal resources etc). Swanson (1994) has arguedconvincingly that it is the opportunity cost of conservation that drives the decisions relating tobiodiversity. Homo sapiens continues to compete for land with the panda, the elephant, naturalwetlands, and so on. In principle, we can of course simply say that the value of land in conservationexceeds the opportunity cost of conservation, and that is how protected area status has largely comeabout. No one sought to ascribe economic values to the conserved land in order to do this. But it isprecisely because of this process of declaring value by diktat that protected areas are under threat. Putanother way, simply declaring an area is protected does not guarantee it will be protected. Few‘protected areas’ in the developing world are protected in any true sense of the word, and the story isalso not a good one in many rich countries, as the fate of Britain’s Special Sites of Scientific Interesttestifies. The issue is whether by demonstrating the economic value of conservation, we can do anybetter than the diktat approach. I suggest that, while valuation also can offer no guarantee ofprotection, it is preferable to not valuing the resource, and that the combination of valuation andincentives (capture) is better than no-valuation and no incentives.29