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The “Value” of Valuing Ecosystem Services

Mar 21, 2011
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Ecosystem services are the benefits from preserving areas of natural habitat. While a lot of research has tried to measure the economic value of these services, there is a different question: once we have measured the value, how much should be preserved?

The “Value” of Valuing Ecosystem Services

David Simpson
March 21, 2011

Ecosystem services is a concept that’s getting more and more attention in both ecology and economics. It may be less familiar to lay readers, however. Most of us have probably encountered standard definitions of an ecosystem—an assemblage of living organisms and the environment that sustains them—and economics, the study of how society produces and allocates goods and services. Ecosystem services is a concept at the intersection of these disciplines: the consideration of the largely indirect benefits realized from preserving areas of natural habitat and the interacting organisms and systems that occupy them.

The study of ecosystem services is relatively young and, to date, much emphasis has been placed on the value of natural ecosystems to the performance of decidedly unnatural, manmade systems. For example, the water purification function of natural ecosystems may be particularly useful because clean water is most needed when humans band together in unnaturally dense cities.

Much of the interest motivating current research is based on the belief that natural areas are more valuable to society if preserved to provide ecosystem services than if they are converted to more intensive uses. Measuring this value has proven difficult, however. The issue is not whether the other forms of life with which humanity shares the planet are essential to our well-being and survival. They are.

The problem stems from the fact that it is very difficult to disentangle the complex interactions among natural and human systems in order to register the incremental contributions of the former to the latter. It is the incremental, or marginal, contributions of preserved areas of natural habitat that determine economic value.

How can these estimates of value, when and if they can be derived, be used? The conservation community’s interest in ecosystem services arises from the hope that demonstration of the value of ecosystem services will motivate more conservation of habitat. Clearly, if an area of natural habitat is more valuable when it is preserved for the provision of ecosystem services than it would be if converted to other uses, it should be preserved. But this raises a follow-up question: How much land should be preserved?

The fact that natural habitat has worth because it provides services on which modern society depends is contingent on a prosperous society to appreciate those benefits. The argument that natural ecosystems augment the productivity or enhance the appeal of more intensively managed landscapes cannot be used to motivate the wholesale replacement of such landscapes by natural ones. There must be some intensively managed landscapes to receive the ecosystem services if those services are to be valuable.

Let’s consider a specific example. A recent paper by Robert Costanza and coauthors estimated the value of coastal wetlands for hurricane protection. Coastal wetlands are valuable because they absorb storm surges and buffer powerful winds; one hectare of coastal wetland might shelter many hectares of urban land behind it, the structures built there, and the people that occupy them. Costanza and his coauthors found that the value of a hectare of coastal wetland could be as high as $50,000 per hectare year (a figure that might translate into a capitalized value of a million dollars per hectare) if it protects a large number of people in a prosperous city.

Moreover, if the wetlands providing an ecosystem service (such as hurricane protection) are extremely valuable, it might imply that we don’t need to retain very much land for such purposes. Could we then motivate significantly more conservation by demonstrating that wetlands are not very effective in quelling hurricanes? There are also limits on the amount of land that would be preserved in this case. If preserved wetlands are not very effective, it might prove more cost-effective simply to build to the water’s edge, but invest more money in making structures wind- and flood-resistant. There are artificial substitutes for many of the services of natural ecosystems. If natural ecosystems are not very effective providers of such services, it may be more cost-effective to rely on substitutes.

Of course, as the recent events in Japan illustrate so tragically, nature is capable of generating forces that can sweep aside or overcome any man-made barrier or reinforcements. This fact suggests three possibilities. The first is simply that natural protection against unlikely but devastating events may be more valuable, and should be retained in greater quantities, than it might appear based on a consideration of the usual range of threats. Perhaps we should be concentrating more on “worst-case scenarios” and less on “business as usual.”

A second possibility is that even extensive natural barriers would be inadequate protection against extreme forces. Recall again that economic value is determined on the margin: it is related to the extra protection afforded by natural ecosystems. That marginal value could be small because natural ecosystems are large enough that the incremental protection they afford is negligible, or the marginal value could be small because they cannot stand up to the force they are retained to resist. A third possibility is that natural systems should be retained not because they provide protection to near-by structures, but because it does not make sense to put structures in harm’s way in the first place.

Let’s briefly consider another example. Another ecosystem service that is often mentioned is the ability of natural habitats such as wetlands and streamside forests to intercept and neutralize agricultural pollution. I considered this service in a recent paper. If wetlands and riparian buffers are, indeed, effective in neutralizing agricultural pollution, then a little land devoted to these purposes would go a long way, and there would be little reason to set aside lots of land.

As the result of a recent presidential executive order, a renewed effort is underway to reduce loadings of reactive nitrogen to Chesapeake Bay. Fertilizer and livestock wastes are among the leading sources of nitrogen in the Chesapeake Bay watershed. Using figures from the scientific literature on the effectiveness of retained areas of streamside habitat in capturing agricultural runoff, I estimated that devoting as little as 2 percent of land in the watershed to retaining nitrogen would be sufficient to meet aggressive water quality goals.

Conversely, if it were the case—typically it is not, but suppose for the sake of argument that it were—that preserved wetlands and riparian buffers were not effective in neutralizing agricultural pollution, it might be more cost-effective simply to plant from fencerow to fencerow but use less fertilizers and pesticides that run off and pollute water.

Suppose, however—and not implausibly—that the services of natural ecosystems are, in some times and places, of high-enough value that we should preserve more natural habitat than we would otherwise. The question I have asked is “Does that mean we should preserve a lot more?”

The arguments I’ve run through above suggest a couple of interesting possibilities. First, regardless of how effective natural ecosystems are in providing services, such as storm protection or water purification, appeals to such services may not justify a great deal of habitat preservation. And second, we may, on occasion, arrive at the ostensibly counterintuitive result that the more valuable a little habitat is in providing certain ecosystem services, the less habitat in total should be preserved for such purposes.

By “more valuable,” I mean that, starting from the current situation, preserving one more acre would have a large benefit. If the marginal benefit decreases rapidly, less habitat should be preserved than if the marginal benefit of the first acre of preservation is low, but the marginal benefit decreases more slowly.

You may have noticed the appearance of a few qualifiers above, like “certain ecosystem services.” They beg three questions. First, what happens if you “stack ecosystem services?” The same natural system may purify water, moderate storms, provide habitat for pollinators and pest controllers. Shouldn’t the value of such services be added up in deciding what it is worth to preserve the “marginal hectare” of habitat? Yes, they should. The question, though, is whether many services have the similar property that a little habitat is sufficient to provide a lot of services, and so little more is really needed.

The second question is “Aren’t I leaving a lot out?” Again, yes I am. Ecosystem services may include relatively tangible benefits such as the contribution of natural systems to flood control and water purification, but they also include intangible things, such as the continuity of a creation that we feel an ethical responsibility to preserve. To me, these intangible values are far more important than the tangible ones.

And third, what would we do with better information regarding values and what would such information imply for land use? While many harbor hope that relying on tangible ecosystem services will motivate significantly more conservation than now occurs, it may be wise to remember that less tangible considerations may provide even stronger motivations for conservation.

David Simpson is an economist at the Enivronmental Protection Agency's National Center for Environmental Economics. The views expressed do not necessarily represent those of U.S. Environmental Protection Agency or other federal entities. No EPA endorsement should be inferred.


Further Readings:

Robert Costanza, Octavio Pérez-Maqueo, M. Luisa Martinez, Paul Sutton, Sharolyn J. Anderson, and Kenneth Mulder. 2008. The Value of Coastal Wetlands for Hurricane Protection.. Ambio37(4): 241–248.

Simpson, David R. 2011. Allocating Land for an Ecosystem Service: A Simple Model of Nutrient Retention with an Application to the Chesapeake Bay Watershed. Canadian Journal of Agricultural Economics. In press.