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Lecture 22: How to design dollar value to ecosystem, Natural Capital is…
Lecture 22: How to design dollar value to ecosystem
Introduction to Ecosystem Valuation/ Ecological Econmics
Purpose:
Assign monetary value to ecosystems to balance human and ecological needs, address sustainability, and inform policy decisions.
Core Challenge:
Traditional market systems fail to value non-excludable (public) and non-rival (shared) goods (e.g., clean air, biodiversity).
Key Concept
: Ecosystems provide direct values (goods like timber) and indirect values (services like flood control or carbon sequestration).
Methods for Valuing Ecosystems
Direct Market Valuation
Market Price
Definition: Uses actual prices of goods/products derived from ecosystems (e.g., fish, timber).
Example: Value of seafood from Hong Kong’s marine ecosystems ($476,000 annually).
Limitation: Only applies to traded goods; ignores non-market services.
Productivity Method
Definition: Values ecosystems as inputs to production (e.g., wetlands supporting fisheries).
Example: Mai Po wetlands’ flood attenuation benefits ($800,000 annually).
Limitation: Requires clear links between ecosystems and production.
Surrogate Market Approaches
Hedonic Pricing
Definition: Links ecosystem quality to property/wage prices (e.g., homes near parks command higher prices).
Example: Hong Kong Wetland Park increased nearby property values by HK$113 million.
Limitation: Requires robust real estate data.
Travel Cost Method (TCM)
Definition: Estimates willingness to pay based on costs incurred to visit ecosystems (e.g., park visits).
Example: Victoria Harbour’s recreational value inferred from travel expenses.
Limitations:
Excludes non-visitors’ values.
Assumes travel costs reflect true demand.
Stated Preference Methods
Choice Experiments
Definition: Respondents rank ecosystem service alternatives with varying attributes (e.g., biodiversity vs. cost).
Example: Public preferences for invasive species control in forests.
Strength: Captures trade-offs between multiple ecosystem attributes.
Contingent Valuation (CV)
Definition: Surveys to estimate willingness to pay (WTP) for hypothetical ecosystem services.
Example: HK Wetland Park’s existence value = HK$1.03 billion via CV.
Limitations
Hypothetical bias (people overstate WTP).
Complex survey design.
Cost-Based Approaches
Replacement Cost Method
Definition: Cost of human-made substitutes for ecosystem services (e.g., sewage plants replacing wetlands).
Example: HK saved HK$4 billion by using wetlands instead of sewage infrastructure.
Damage Cost Avoided
Definition: Cost savings from ecosystem-protected disasters (e.g., flood control by mangroves).
Example: HK Country Parks prevent HK$200 million in fire damage annually.
Case Studies in Ecosystem Valuation
Non-Market Complexity
: Many services (e.g., cultural, spiritual values) resist monetization.
Data Gaps:
Requires interdisciplinary data (ecology, economics)
Ethical Concerns
: Critics argue ecosystems have intrinsic value beyond economics.
Case Studies in Ecosystem Valuation
Hong Kong Wetland Park:
Combined multiple methods (CV, TCM, Hedonic Pricing) to calculate total value = HK$1.6 billion.
Justified conservation over commercial development.
Invasive Species Management:
Economic benefits of controlling invasive species (e.g., feral herbivores) via travel cost and contingent valuation methods.
Importance of Valuation for Sustainability
Policy Tools: Informs cost-benefit analysis for conservation projects (e.g., blue carbon credits).
Global Context: Balances "empty world" (unlimited resources) vs. "full world" (finite ecosystems) economics.
Hong Kong’s Example: 40% protected ecosystems contribute to economy via tourism, health, and disaster resilience.
Natural Capital is one of the major limiting factors of current world
Natural Capital
Resources and services provided by ecosystems (e.g., forests, oceans, biodiversity).
Manmade Capital
Human-built systems (e.g., factories, cities, infrastructure)
Empty World
Historically, when human economies were small relative to nature.
Natural Capital dominates
Full World
Today, economies have grown to occupy most of Earth’s carrying capacity.
Natural Capital becomes the limiting factor:
Resource extraction surpasses regeneration (e.g., overfishing, deforestation).
Waste (e.g., CO₂, plastic) exceeds ecosystem absorption capacity.
Manmade Capital dominates