Copyright 2010 Research Institute for Humanity and Nature. All Rights Reserved. The Futurability of...

Copyright 2010 Research Institute for Humanity and Nature. All Rights Reserved.

The Futurability of Biodiversity Chapter 10

How can we conserve biodiversity?- Economic aspects -

Which choice is more beneficial?

Harvesting treesfor trading, sale

Conserving the forest to obtain subsidies

How can we conserve biodiversity?


In review

Biodiversity enriches human life economically, culturally and psychologically. To conserve biodiversity, however, human activities are often restricted.


Today’s Topics

1. Social decision making: conservation or development? 1. Social decision making: conservation or development?

How can we demonstrate the environmental values of natural resources?How can we demonstrate the environmental values of natural resources?

2. Economic incentives2. Economic incentives

Other than legal institutions, what conservation measures are there? 　

Other than legal institutions, what conservation measures are there? 　


How can we demonstrate the environmental values of natural resources?

1) Ski resort development / conservation

- Travel Cost Method

2) Amenity Values capitalized in land

- Hedonic Price Method

3) How to estimate Existence Value

- Contingent Valuation Method

4) Social cost-benefit analysis

1. Social decision making: conservation or development?


1. Social decision making 1) Ski resort development / conservation

In the 1950s, the Walt Disney Company planned to develop the area into a ski resort, and federal approval was granted in 1969.

Mineral King Valley – State of California, USA

Photo: Brian Michelesen http://www.flickr.com/photos/brian-m/168647177/


Sierra Club petition

Sierra ClubOldest, largest and most influential grassroots organization protecting natural environment in USA (established 1892).

Plaintiff: Sierra Club (public welfare representative)

Litigation content: Legality of the rights of National Park conversion

Federal Court Judgment Appeal dismissed in 1972.

…Development action does not encroach on the activities of Sierra Club or its members.

Public consensus regarding the choice of development or conservation has turned into a point of dispute.

- Mineral King Valley argument -



The legal status of trees ...The viewpoint of a legal expert

Christopher Stone (University of Southern California)

The legal rights of nature or natural beings areindependently recognized under the law.

‘Should trees have legal standing?’


Please!

Don’t destroy our habitat!

(Chistopher 1972)



The valuation method for the monetary benefit: Travel Cost Method

Economists’ viewpoints

If the ski resort development project increases the happiness of the society as a whole (social welfare), such development is considered good.

But…What is meant by the happiness of a society as a whole?What is the relationship between individual happiness and social welfare? …cannot be objectively estimated.

At least insofar as that part of the benefits which is accrued from the development of the ski resort project and which can be monetarily estimated (social happiness monetarily measured) is less than the development cost, then such development project is deemed not desirable.

… People who travel (go skiing) gain pleasure which exceeds .the cost.


Travel Cost Method (TCM)


The relationship between the number of ski trips and the cost of travel for Mr. Yamada from his home

Let the actual cost be 5,000 yen. Then…

…for example, if it costs 4,000 yen per trip, 4 times; if 6,000 yen, 3 times; if 8,000 yen, 2 times and if 10,000 yen, one time.

1st trip: His willingness to pay (WTP) for a new experience is 10,000 yen.The balance is 5,000 yen after paying the travel cost. This amount, called net benefit, is the monetary equivalence of his happiness.

2nd trip: his WTP is 8,000 yen. So, the balance is 3,000 yen.

3rd trip: his WTP is 6,000 yen. The balance is 1,000 yen.

4th trip: his WTP is 4,000 yen. He will not go skiing, because of the negative net benefit.


Aggregate the net benefits across all visitors.…The recreational value of the ski resort estimated by TCM


Recreation Demand CurveThe relationships between the number of ski trips and the cost of travel are depicted graphically below.

A+B: WTP (Benefit)The maximum amounts willingly paid for the trips

A

Recreation Demand Curve 　

Number of trips1 3

6000

10000

B

Tra

vel c

ost

B: The total cost of traveling

A=(A+B)-B: Net benefit Happiness measured in terms of money



Results:The cost was estimated to be at least US$61,000,000 and the benefit of the development was at most US$27,000,000.

Number of Visitors

Travel cost

Number of visitors

Travel cost

Benefits of Mineral King ski resort development

Impact on the other ski resort — in case of decrease in the number of visitors

(+)

Economists’ studies: Cicchetti, Fisher, and Smith (1976)

The development was unlikely to be desirable for the society.

(-)


It was incorporated into a national park, and ski resort development in the area is permanently and legally disallowed.


What has become of Mineral King Valley?


1. Social decision making 2) Amenity values capitalized in land

When the green in your town may be lost… June 9, 2007 The Asahi Shimbun, morning editionConservation of the opposite bank of ‘the forest of Fuchi’ “Overall considerations” by Takashi Watanabe (Mayor of Higashi-Murayama city)

Conservation should be justified if cost of development is proven to be more expensive than its benefit.

In response to the public movement concerning the conservation of secondary forest located on the opposite bank of ‘the forest of Fuchi’, which is commonly known as ‘Totoro forest’, the mayor of Higashi-Murayama city, Takashi Watanabe, has on June 8th indicated that priority would be given to list Kitayama Park as a public area under the town planning project.

At the same time, the mayor recognized that the protection and promotion of green/satoyama was an important issue. He further pointed out that the director, Toshio Yasuda of ‘Fuchi Green Preservation Liaison Council’ (headed by Hayao Miyazaki) had, on May 18th, requested that the secondary forest be transformed into a public domain. The mayor conceded he would take all of this into consideration before putting his plan into action.


Can the valuation of the forest be estimated by TCM?

Most visitors are neighbors who can travel to the forest at very little cost.

TCM can only assess a small fraction of the forest’s value.

For the valuation of the forests near residential areas and other ingredients of those living environments…

Hedonic approachValuation method which focuses on real-estate values (land prices, etc.)



Hedonic approach

Transportation & Communication access Noise

Drinking water quality

Presence or absence of greenery

Natural disasters

Exposure to sun

Land value is affected by various environmental factors.

Environmental value indicators = Changing land value caused by changing environmental conditions …Environmental value can be quantified.



100,000 yen – 70,000 yen = 30,000 yen, which is the environmental value of the nearby forest

Example: values of two land parcels whose environmental conditions are the same except for a forest existing or not nearby.

In the case of the forest of Fuchi, we can predict how much the total land value of the ambient area will decrease by losing the forest. The reduction is estimated by the living environmental value of the forest.


Residence ALand value

100,000 yen/m2

10 minutes

5 minutes

Residence BLand value

70,000 yen/m2

10 minutes

5 minutes


Higashi-Murayama City disclosed that they would present a supplementary budget proposal of about 73.7 million yen to the city assembly, which includes the cost for acquiring the secondary forest which animated movie director Hayao Miyazaki and others appealed to conserve. Out of the amount, 25 million yen would be applied from the donations to ‘Fuchi Green Preservation Liaison Council’ whose chairman is Mr. Miyazaki. After the resolution was passed, the forest was expected to turn into a public area within the next month.

What has become of the forest of Fuchi?


October 9, 2007 The Chunichi Web

Higashi-Murayama City tendered a 73.7 million yen budget acquisition offer . ‘Totoro forest ‘ to be turned into public land from next month


1. Social decision making 3) How to estimate Existence Value

Capturing an environmental value for people who enjoy the environment without visiting or living nearby.

Tropical rain forests in Southeast Asia – treasure-house of natural life

There are people who do not live in the nearby areas nor visit there. However, they feel a sense of grief if the nature is destroyed.… it is necessary to take into account such a feeling as a cost of environmental destruction when assessing environmental value.

Hypothetical Valuation Method(Contingent Valuation Method)


1) Provision of information for understanding the hypothetical environmental change and its various pervasive effects through markets and other channels

2) Questionnaire technique for getting accurate and honest answers

3) Statistical method for estimating the sum of WTP/WTA in the society based on the data

People are directly asked about their WTP or WTA, namely, the monetary value/loss of their pleasure or grief due to environmental change.

Hypothetical valuation method (CVM)

1. Social decision making 3) How to estimate Existence Value

(Example) Do you agree with the spending of one million yen for conserving the forest?...Yes/No

Creeping in forest deterioration

Plantation forest which has not been looked after well tends to lose undergrowth and develop soil erosion. This in turn leads to drought, flood and landslides. Furthermore, in such a forest, the branches or roots of trees do not grow well in comparison with their height, so they become vulnerable to disasters or pests. If we leave the forest as it is, it may not play its important roles well, such as regulation of natural disasters, protection of watershed, prevention of global warming, etc. Moreover, the landscape of the discarded satoyama or bamboo grove will become worsened. It will also make it difficult for people to enter the area, denying them the opportunity to interact with the natural environment.

Cumulative ratio of those who answered “yes”

100%

Actual value

Estimated value

0 1 2 3 4 5 6 7 8million yen


　　　　　

Use value

Existence value

Value elicited when the environmental service is enjoyed with other goods in an activity

Value derived from only the knowledge of the existence of environmental properties/services.

Column 1: Dichotomy of environmental values

(Example) scenic beauty … scenery + ecotourism

Use value can be measured based on behavioral data from each individual.

(Example) Rural nature full of organisms… People feel nostalgic about their birthplace.… People feel sadness and longing over the changing environment of their hometown due to development.

Existence value cannot be measured based on behavioral data, so it is measured by CVM or conjoint method which is based on self-reported data (questionnaire) of the respondents. (Problem) The ability to derive accurate valuations and incentives for truth-telling.


1. Social decision making 4) Social cost-benefit analysis

Economic wealth

Environmental richness

（＋）（－）

A

B

C

Cost-Benefit Analysis (CBA)When a society has to decide on the most desirable option, the monetary cost and benefit arising from the options should be compared.

Why can the decision be made based on monetary terms?

(Reason 1) Need for a unified indicator.

- How is the desirability of A and B in the figure determined with multiple indicators or criteria?

(Reason 2)Economics elaborates a theory on how changes in land use can be measured in monetary terms.

- Implementation of an option for which the net benefit is positive improves the society in the sense of Parato efficiency (See Column 2).

Multiple evaluation

Unification


Cf. Pareto Efficiency - A situation that has been Parato-improved as much as possible- One of the social goals

Pareto improvement

- If it makes at least one individual better off without making any other individual worse off- The value criteria that CBA relies on

Cf. Another important and complementary goal: equity

- No one envies any other.

Column 2: Pareto improvement


Summary 1. Social decision making: conservation or development?

Cost-benefit analysis suggests desirable social decision

making between conservation and development of an

environmental asset or a natural area.

If the net benefit of an option is proven positive by CBA, then

its implementation potentially Parato-improves the society.

Although it is generally difficult to estimate the benefits from

an environmental asset, there are some useful valuation

methods such as the TCM and hedonic approach for specific

use values and the CVM for all kinds of values, including the

existence value.


What are the measures of conservation other than legal institutions? 　

1) What are economic incentives?

2) Conditions for economic incentives

2. Economic incentives


However, the political process is not always reliable.

Political process vs. economic incentives

Value assessment (CBA) is reflected in political decisions.

(1) Political decisions are one-off incidents. They are capricious by nature.

2. Economic incentives 1) What are economic incentives?

If the government is legitimate and can enforce its laws, a solution to an environmental conservation / development issue is simply to make a proper political decision which follows as a result of appropriate CBA, taking into account several tangible and intangible benefits of the environmental asset under consideration.

(2) Government’s errors / presence of corruption may prevent the right decision.

(3) There may be too many people and phenomena, like global warming and desertification, for one government to control.

(4) Government may not recognize the problem (e.g., a creeping environmental problem) or may intentionally ignore it.


Penetration of the poor into vacant, logged-over forested land

Oil palm plantation development

Examples where the political process fails

Column 3: Creeping environmental problems

(Moran et al. 2002)


- We should not only estimate values derived from conservation of biodiversity or the environment, but also establish a system in which conservation activities actually produce benefits in the form of monetary revenues.

An alternative to political decision: Economic incentives

- If conservation of biodiversity potentially Parato-improves the society, there should be mechanisms in which environmental conservation is economically beneficial and thus promoted.


Harvesting treesfor trading

Conserving the forest to obtain subsidies

…something which makes people voluntarily take a certain action, for example, an action to conserve the environment.



Seva Mandir, NGO in India, – From the 1980s, afforestation of deforested land begins. …failure

(Planting efforts are frustrated by the villagers’ domestic stock.

…Young trees eaten up by pastured goats.)– Why? How to resolve the problem?

…Trees are state-owned. No incentive for villagers to protect the forest.– Seva Mandir encourages the state government to impose a duty on the

villagers to protect the forest and at the same time giving them the right to use the forest on a long-term basis (state forest co-management proposal).

…State government: agrees on a trial basis– Result: great success– From 1990s the measure spreads through the whole of India.

The implemented area is more than 150 million hectares.

Successful example: co-management of state forest in India

(State of the World 1994-95 ）


Conditions for economic incentives in conservation of biodiversity

1) A mechanism whereby benefits will accrue to those who conserve biodiversity and vice-versa is established.

2) Ownership of, or rights to utilize, the targeted areas are clearly indicated.

3) Social environment or natural environment is stabilized.

2. Economic incentives 2) Conditions for economic incentives


Let’s think about dynamite fishing preventive measures

Problem concerning biodiversity:The detonation of dynamite leads to the destruction of coral reefs.

1) Make sightseeing / diving activities into an additional source of revenue for the fishermen.

2) Accord exclusive fishing rights in the fishing zones concerned to the fishermen.

3) Ensure that these sources of revenue and fishing rights continue to be given to the fishermen.




(Case 1)Villager A: To enable sustainable use of resources, uses a part of them and

conserves the rest.Villager B: Uses up the rest of resources (unsustainable use)Villager A: Attempts to use up resources before others can, using them all… disastrous use of resources Cf. G. Hardin ‘The Tragedy of the Commons’

Why is it necessary to clarify the rights of ownerships / right of utilization?

Example: the use of common resources… two typical cases

(Case 2)Villager A: To enable sustainable use of resources, uses a part of them and

conserves the rest.Villager B: With the assent of A, uses a part of the resources and

conserves the rest.… sustainable use of resources is possible.

… because behaviors of the others affect one’s behavior.

(Hardin 1968)


Can privatization be a solution strategy?

Successful case: Privatization of forest in Japan after the Meiji Restoration (about 150 years ago).… Forest resource that used to be common lands were equally distributed among the people in the village.

Failures: Privatization of forest resources in India or Kenya…Unequal distribution of forest resources. The poor sectors were allocated only a small portion of forest resources.…Poor sectors grabbed forest resources from privately- or publicly-owned areas much more aggressively than before privatization.…Resources in the publicly-owned areas were exhausted, and the problem of poverty became more serious.

It is necessary to pay attention to equal distribution.



Anticipated future uncertaintiesEconomy: If depressions occur, the return may reach zero.Politics: Instability may lead to confiscation of resources or loss of business management rights. If biodiversity in the country is vulnerable to destruction, resources may be ruined.

Present value of future benefit = future benefit x discount factor

When future value appears smaller, exploitation of present value will be prioritized. …Encouraging unsustainable use of resources

Why it is necessary to stabilize the social or natural environment?

…The higher the degree of uncertainty, the lower the estimation of the value of future benefit.



Column 4: Environment and economy - Without global environmental conservation, sustainable growth is

not possible.- Without economic growth, it is not possible to stabilize global

population.- Without stabilizing global population, it is not possible to conserve

the global environment.

Economy

Environment

Production

Capital accumulation

ConsumptionRecycle

Waste disposalNatural resource flow

Waste disposal sink

Natural purification

Natural resources / environmental services Supplies


In cases where environmental conservation In cases where

environmental conservation does not depend on political

process, it is necessary to establish some economic

incentives whereby environmental conservation efforts are

considered beneficial to the conservationist concerned.

For economic incentives to be in place, it is necessary to

define clearly the extent of private ownerships or right of

resource use as well as to stabilize the social or natural

environment.

Summary 2. Economic incentives


Summary of today’s topics

11.. Where problems are within governmental control, the economic Where problems are within governmental control, the economic

value of the environment can be assessed by CBM, and value of the environment can be assessed by CBM, and

compensation or fee collection arrangements are included in compensation or fee collection arrangements are included in

the implementation process. the implementation process.

22. For creeping environmental problems (beyond governmental . For creeping environmental problems (beyond governmental

control), it is necessary to establish a mechanism to enable control), it is necessary to establish a mechanism to enable

users of environmental resources to realize that conservation users of environmental resources to realize that conservation

would bring them greater benefits (the use of economic would bring them greater benefits (the use of economic

incentives / market creation).incentives / market creation).

How can we conserve biodiversity ?- Economic aspects -


Exercises

1. About the standard value of social desirability

a) Let’s discuss the needs of the criterion for a unified value.

b) Let’s investigate the various definitions of “sustainable development” and think about their merits and demerits.

Let’s do the exercises below:


Exercises

Let’s do the exercises below:

2. In a case where one wishes to halt the expansion of oil palm plantations to protect the tropical rain forests, the following three strategies are mentioned. Let’s discuss their feasibility of implementation and their efficiency.

a) Consider the protocol of a global convention (agreement) on the restriction of agricultural land development.

b) Impose an environmental tax on those importing countries / consumers who are not liable to bear the environmental cost of destruction.

c) Establish a market cover with economic incentives. What are the targeted sales?


Glossary

The enjoyment forgone as the result of making a choice.

(Opportunity) cost(Opportunity) cost

The enjoyment gained as a result of making a choice.

BenefitBenefit

A stimulus which causes a certain action (e.g., biodiversity conservation) because

of resulting financial punishment or reward).

Economic incentivesEconomic incentives

Coefficient factor used when converting the value of future transaction into present

value. It is normally below 1.

Discount factorDiscount factor

Cost and benefit evaluated in monetary terms. The aggregate of the evaluation from the society at large is reflected positively or negatively.

Cost and benefit analysis (CBA)Cost and benefit analysis (CBA)


References & Cited Website

Christopher, D. S. (1972)Should trees have standing? - Towards legal rights for natural objects. Southern California Law Review 45:450-501

Cicchetti, C. J., Fisher A. C. and Smith V. K. (1976) An econometric evaluation of a generalized consumer surplus measure: The Mineral King Controversy. Econometrica 44:1259-1276

Hardin, G. (1968)The tragedy of the commons. Science 162: 1243-1248

Lester, R. B. (ed.) (1994)State of the World 1994-1995. Worldwatch Institute

Moran, F. E., Brondízio, S. E. and McCracken (2002)Trajectories of Land Use. Soils, Succession and Crop Choice. In Wood, C.H. and Porro, P. (eds.) Deforestation and Land Use in the Amazon. University Press of Florida

Flickrhttp://www.flickr.com/photos/

Christopher, D. S. (1972)Should trees have standing? - Towards legal rights for natural objects. Southern California Law Review 45:450-501

Cicchetti, C. J., Fisher A. C. and Smith V. K. (1976) An econometric evaluation of a generalized consumer surplus measure: The Mineral King Controversy. Econometrica 44:1259-1276

Hardin, G. (1968)The tragedy of the commons. Science 162: 1243-1248

Lester, R. B. (ed.) (1994)State of the World 1994-1995. Worldwatch Institute

Moran, F. E., Brondízio, S. E. and McCracken (2002)Trajectories of Land Use. Soils, Succession and Crop Choice. In Wood, C.H. and Porro, P. (eds.) Deforestation and Land Use in the Amazon. University Press of Florida

Flickrhttp://www.flickr.com/photos/


Authors & Credits

The Futurability of Biodiversity Chapter 10

How can we conserve biodiversity ? - Economic aspects -

Authors Ken’ichi AkaoAyumi OnumaHiroshi HasegawaWataru FujitaMasahiro IchikawaShoko SakaiAya HatadaChoy yee keongStewart WachsMartin Piddington

Application software Microsoft PowerPoint®

Illustration & design Be4°TECH Koubou Yecoruka

Photos Biodiversity PhotosBrian MichelesenMasahiro AibaMasahiro IchikawaTohru Nakashizuka

Copyright 2010 Research Institute for Humanity and Nature. All Rights Reserved. The Futurability of...

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