IEA Training Manual - Module 5

5.3.1 Frameworks for Environmental Valuation

Many externalities cannot be directly quantified, because they are based on willingness to pay among those who benefit from a particular ecosystem service. This is best presented in the context of a broader conceptual framework, which include environmental externalities. The broader framework can be called “total value,” or Total Economic Value” (TEV) (Pearce 1993; Bateman and others 2003). Pearce breaks TEV down into use and non-use values, in the following categories:

Use value:

  • Direct use value: The value of the use of the resource, for whatever purpose. Agricultural land can produce crops, but it also can provide biomass for energy generation, perhaps forage for animals, and so on. Some of these values will be difficult to quantify.
  • Indirect use value: These correspond to “ecological functions” (e.g., protecting watersheds from siltation, maintaining biodiversity). Carbon sequestration was an indirect use value, until there developed a market for it—at which point sequestration became a direct value.
  • Option values: These also are direct values, even though they do not require that there be specific use at the time of valuation. Option values are those for which individuals are willing to pay to maintain availability of something for future use, even though the individual has not and may never see or use it. Old growth forests in British Columbia as valued by a New York taxi driver might be an example.

Non-use values:

  • Existence value: This is an indirect value, in contrast to the categories listed above. It is the result of people’s willingness to pay for something with no expectation that they themselves will benefit from it. People contribute to organizations to save the Amazonian rain forest or gorillas in Africa, because they feel that these natural wonders should not be destroyed.

Figure 19: Environmental value
(Bateman and others 2003)

The sum of these categories equals the TEV. However, these are the “economic” values, necessarily an anthropocentric calculation. There is a category of non-economic values as well, often called intrinsic values. These values do not depend on human willingness to pay for them, but are intrinsic to the animal, ecosystem or other part of nature.

A slightly more detailed breakdown of total economic value is given by Bateman and others (2003). They add the concept of bequest value, which modifies the value of an environmental good to include the value to those alive now of leaving the good for future generations. This then shows up as both a use value, and as a non-use value, on the basis that future generations will get both kinds of use from the asset. The diagram below shows the various components of environmental value (Figure 19).

Figure 20: Methodology for valuing the
impact of ecosystem change used in
the Millennium Ecosystem Assessment
– the example of deforestation (MA 2005)

The Millennium Ecosystem Assessment (MA) considered valuation a “tool that enhances the ability of decision-makers to evaluate trade-offs between alternative ecosystem management regimes and courses of social action that alter the use of ecosystems and the multiple services they provide (MA 2005).”

The MA’s conceptual valuation methodology was based on the TEV framework described earlier, but also placed significant emphasis and research on intrinsic aspects of ecosystem value, particularly in relation to socio-cultural values. Their methodology, involves “estimating the change in the physical flow of benefits (quantifying biophysical relations) and tracing through and quantifying a chain of causality between changes in ecosystem condition and human welfare” (Figure 20). The MA authors recognize that a common problem in this methodology is that “data is only available on some of the links of the chain and in incompatible units.”

See Exercise 5.3.1

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Module 5 - Integrated analysis of environmental trends and policies
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