Valuation of ecosystem services

What are ecosystem services or benefits of nature?

Humans use a wide range of services and raw materials produced by ecosystems. These benefits are commonly known as 'ecosystem services' or nature benefits and include both products (e.g. drinking water) and processes (e.g. waste decomposition) (Jacobs et al. 2010). Along with the growth of the population, the demand for raw materials and services provided by ecosystems also grows. Many have long believed that ecosystem services are free, invulnerable and inexhaustible. But today the impact of human use and abuse is becoming more and more evident: e.g. air and water quality are threatened, oceans are overfished, pests and diseases are expanding beyond their historical limits, deforestation threatens natural protection against erosion, etc.

There is a growing awareness that the services provided by ecosystems are finite and under threat, and that short-term and long-term human interests should be investigated. The concept of considering nature and landscapes as producers of ecosystem services allows us to appreciate the benefits of nature and landscape and provides a framework to bring together and integrate the different social, economic and environmental aspects.

In an international context, the concept of ecosystem services receives a lot of attention. The United Nations released the Millennium Ecosystem Assessment (MEA, 2005) in 2005. In it, more than 1360 scientists and experts worldwide examined the current state of the biodiversity and natural resources available to humans. They categorized the services that natural resources provide us into productive, regulating, cultural and support services. They concluded that worldwide 15 of the 24 ecosystem services studied are deteriorating because they are not used sustainably. This conclusion of the academic world has also made more and more politicians and policymakers realize the importance of the ecosystem services concept. For example, the "United Nations conference on sustainable development (RIO+20)" refers to the protection of areas where biodiversity and ecosystem services are important.

In the EU Biodiversity Strategy, the Commission underlines the importance of ecosystem services and states that it wants to invest in identifying and valuing ecosystem services and their underlying processes (the MAES project; MAES 2013). The TEEB initiative (The Economics of Ecosystems and Biodiversity, TEEB 2010) provides a framework to identify the economic benefits of biodiversity or the increasing costs of biodiversity loss. In addition to the services listed in MEA, the researchers also introduced the term habitat services to underline the importance of ecosystems as a habitat for migratory species (e.g. nursery function) and as a protector of genetic diversity.

A worldwide Intergovernmental Panel for Biodiversity and Ecosystem Services (IPBES) was recently established in analogy to the IPCC. Between 2015 and 2021, a large number of assessments have been made on the state of ecosystem services in the world, with a great deal of attention also being paid to the social benefits that green space generates. Within IPBES, the term ecosystem services has been expanded and one speaks of "Nature's contributions to people (NCP)" (instrumental value) (Nai Pascual et al. 2017). IPBES also expands the value system with the intrinsic value of nature (non anthropocentric valuation) and the relational value between nature and people. The relational value is defined as the values that contribute to desired relationships between people and groups and between people and nature.

What is the economic value of an ecosystem?

When we think of the value of something, we often think of its usefulness or importance to us. In other words, the value indicates how badly someone wants something. In economic terms, value means "how much of something else we are willing to give up for it". This value is determined by individual preferences. Because value in itself is an elusive concept, people have been looking for ways to make this value measurable from an early age. For example, value used to be expressed in quantities of tangible goods such as grain or metal. Today, value is classically expressed in monetary terms. The money an individual is willing to pay for something tells us something about what that person is willing to give up on other goods and services to get that one good or service. We call this willingness to pay. So money is just a unit of measurement.

It is very often assumed that the market price equals the value of a good or service. This is not the case. For ecosystem services, the value is rarely equal to the price we pay, because most ecosystem services cannot be found on a market and are therefore "free". That is not to say that their value is "0" or that we cannot determine this value. There are various methods for this, which are briefly explained in this manual. Even the ecosystem services that are sold do not necessarily have the right price because the market does not work perfectly (e.g. subsidies, environmental costs that are not passed on, monopolies).

The purpose of an economic valuation of an ecosystem is to determine its total economic value, or in other words, to determine the total contribution of ecosystems to human prosperity and well-being. An ecosystem can be viewed in a broader sense than nature reserves. Agricultural areas or urban green areas also provide ecosystem services.

The figure below provides an overview of the various aspects of economic value in an ecosystem. The total economic value consists of two major parts: the use value and the non-use value.

Figure 1: total economic value of ecosystems and possible valuation methods

Source: based on Hanley et al, 1997

The use value:

• a direct use value: we derive goods and services directly from the ecosystem, such as wood, recreation, experience of the ecosystem.
• an indirect use value: we derive services that have an indirect effect on our prosperity and lead to cost savings for society as a whole, such as water purification, flood protection, ...

The non-use value includes:

• a transfer value: the availability of green space is important for current and future generations
• an existence value: we attach importance to the fact that there is room for plants and animals and to the presence of these plants and animals themselves.
• an option value: we value the fact that an area gives us the opportunity to use a good or service in the future (without actually using it). In the literature, this value is sometimes included in the use value.

In addition to the economic value, an intrinsic value is also attributed to green space. This is the value that something has, regardless of its context, its environment or its position in a larger whole. Nature has a value in itself without it having to have a value for humans. Intrinsic value is not to be confused with existence value (the value we place on the existence of plants and animals).

Why determine the economic value of an ecosystem?

Ecosystems provide a range of services that contribute to our prosperity. Many sectors such as agriculture, fishing, energy and industry (pharmaceutical industry, tourism, ...) depend on biodiversity and ecosystem services. The economic value of our ecosystems with their rich biodiversity is therefore great. Despite its importance to society and our economy and the existence of a great deal of legislation (just think of the habitats and birds directive and the Flemish nature decree), global biodiversity is still declining. Nature objectives are often not achieved, although the number of realizations in the field is increasing. The benefits of ecosystems are ignored in many decisions. The main reasons for this are:

• Ecosystems have many benefits and are widespread. Not all benefits are immediately visible locally. An example is the regulating function for water retention. The consequences of hardening are mainly felt downstream.
• There is a tension between private benefits and social benefits. E.g. revenues from housing construction that involves deforestation compared to the benefits that a forest can produce as a green lung, climate regulation, recreation, etc.
• Very few ecosystem services are traded on the market and have a direct financial impact on the decision maker.
• Costs for the conservation and restoration of ecosystems must be paid immediately and often have to be done locally, while many benefits are supra-local and only become apparent in the future. An example is the construction of buffer strips on agricultural land to ensure that waterways are not polluted.

Economic valuation can help in several areas:

• Making the value of ecosystems and changes visible and communicating about this helps to gain public support and participation for environmental and nature initiatives.
• Administrators make choices about the allocation of budgets day in, day out. These choices are implicitly or explicitly based on social values. They are increasingly confronted with questions about the justification for their choices for nature conservation and restoration projects and the social welfare this creates.
• Providing insight into the various consequences of nature projects contributes to better decision-making, with a greater focus on win-win situations between various economic, environmental and social objectives.
• The value of changes to green space can be included in decision support instruments such as
  • cost-effectiveness analyzes to prioritize conservation and restoration projects or to demonstrate how much projects yield per € spent;
  • social cost-benefit analyzes to compare different projects or policy programmes;
  • multi-criteria analyses.