Methodological issues

Including NRM and environmental impacts within ACIAR impact assessments

www.TheCIE.com.au

David Pearce

WorldFish NRM Workshop, Penang

September 2012

Themes

� Concerned with incorporating NRM/environment within extended BCA framework, as used for ACIAR IAS

� MDB Plan major influence on thinking

� Maintain consistency with surplus measures ■ But not precluding other measures

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3

4

Channels of impact

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R&D OUTCOMES (Assuming adoption etc)

ENVIRONMENT FARM

(Or processor etc)

OTHER USERS INCREASE PRODUCTIVITY, REDUCE COSTS etc

NON MARKET

MARKET OUTCOMES MARKET

ECONOMIC SURPLUS

ECONOMIC SURPLUS

BENEFIT COST ANALYSIS

Valuation methods

Market models

Environmental effects

Mediated through farm behaviour

Environmental benefits

Feed back to farm

Ecosystem services

Agricultural ecosystem inputs and outputs

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1

Ecosystem service inputs

• Biological pest control

• Pollination

• Water (quantity and quality)

• Soil structure and fertility

• Nutrients

Agricultural systems

Ecosystem dis-services

• Loss of biodiversity and habitat

• Chemical contamination

• Pesticides poisoning

• Greenhouse gas emissions

• Salinity

• Watershed effects

Ecosystem services

• Mitigation of greenhouse gases

• Carbon sequestration

• Landscape management

INPUTS

OUT PUTS

Final ecosystem services

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Final ecosystem servicea Principal related goods

a As noted previously, other inputs (for example manufactured capital) may in some occasions be required to combine with final ecosystem services in the production of goods. Relating the final ecosystem services to the MA (2005) nomenclature

b ‘Provisioning’ services.

c ‘Regulating’.

d Cultural services. ‘Supporting’ services relate to primary ecological services.

Source: I. J. Bateman et al, Economic Analysis for Ecosystem Service Assessments, Springer Press, p.185

Generation and maintenance of meaningful places; socially valued landscapes and waterscapesd

Recreation and tourism, physical and mental health, ecological knowledge, etc

Production of crops, plants, livestock, fish, etc (wild and domesticated) b

Food, fibre, energy, genetic resources, industrial inputs, fertiliser, avoidance of climate stress, recreation and tourism, physical and mental health, ecological knowledge, etc

Production of trees, standing vegetation and peatb Timber, avoidance of climate stress, energy, noise regulation, recreation and tourism, etc

Production of wild species diversity including microbesb,c Natural medicine, disease and pest control, genetic resources, wild food, bio-prospecting, recreation and tourism, physical health, ecological knowledge, etc

Production of water quantityb,c Potable water, industrial use of water, flood protection, energy, recreation and tourism, physical health, ecological knowledge, etc

Regulation of the climatec Avoidance of climate stress, physical and mental health, ecological knowledge, etc

Regulation of hazards; related vegetation and other habitatsc

Coastal protection, erosion protection, flood protection, avoidance of climate stress, physical and mental health, ecological knowledge, etc

Breakdown and detoxification of wastec Pollution control, waste removal, waste degradation, physical and mental health, ecological knowledge, etc

Purification processesc Clean air, clean water, clean soils, physical health, ecological knowledge, etc

Total economic value (TEV) and its components

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TOTAL ECONOMIC VALUE

Use values Option values Non-use value

Direct use Indirect use Future direct and indirect use

New info from avoiding irreversible loss

Bequest value

Existence value

Overview of the sort of estimation that may be required

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MARKETED

NON-MARKETED

ON-FARM OFF-FARM

• Can use conventional surplus techniques

• Likely to be rare for most environmental effects

• Use production function type approach

• Need to understand the production relationship between environmental ‘good’ and farm output

• Observe outcomes where markets exist for environmental ‘goods’

• Likely to increasingly be the case for carbon sequestration

• Revealed preference techniques where environmental goods can be linked to other marketed goods (e.g. travel cost method, hedonic pricing)

• Stated preference techniques in cases where no market information is available (e.g. contingent valuation, choice modelling)

Geographic scope of effects

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Within farming system

Globally

Broadly within regional economy

Nationally

Within neaby farming systems

Change in Ecosystem service

Carbon storage

Biodiversity

Soil quality

Salinity

Air quality

X

X X

X X X

X X

X X

X X

Local Global

Water quality

Valuation techniques

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Valuation where direct market transactions cannot be observed (or may be highly distorted)

Valuation where direct market transactions cannot be observed (or may be highly distorted)

Stated preference technique

Direct questioning of values

Includes ‘non-use’ values

Travel costs

Hedonic pricing

Production function

Contingent valuation

Choice modelling

Contingent behaviour

Revealed preference technique

Non-market environmental characteristics implicit in market transaction‘Use’ values

From ecosystem processes to human values

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• Biophysical structures andprocesses

• Ecosystem functions

• Provisioning

• Regulating

• Habitat

• Cultural

• Values derived fromecosystem services

(Alone or in combinationwith other inputs)

Other human generated inputs (for example labour, produced capital) and institutions

ECOSYSTEMS ECOSYSTEMS SERVICES HUMAN WELLBEING

Non-use

Use

How R&D may impact ecosystem services

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• Biophysical structures and processes

• Ecosystem functions

• Provisioning

• Regulating

• Habitat

• Cultural

• Values derived from ecosystem services

(Alone or in combination with other inputs)

Other human generated inputs (for example labour, produced capital) and institutions

ECOSYSTEMS ECOSYSTEMS SERVICES HUMAN WELLBEING

Non-use

Use

1 3 6

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Categories of R&D impact for ecosystem services

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1. Direct impact on

ecosystems 2. Change in

knowledge of link between ecosystem and service

3. Change in volume ecosystem services

4. Improved productivity in use of ecosystem services as a productive input

7. Changes in policy related to ecosystems

5. Increased understanding of the relationship between ecosystem services and human wellbeing

6. Direct increase in human wellbeing

Ecosystems Ecosystem services Human wellbeing

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Output related Input related Knowledge or policy

Impact 1.

Impact of changes induced by R&D on underlying ecosystems themselves.

Decrease in emissions of various kinds (smoke, chemicals, processing effluent) may directly impact functioning of ecosystems.

Reduced withdrawal of resources from ecosystems (water, for example) will affect ecosystem function.

Impact 2.

Change in knowledge about the relationship between underlying ecology and potential ecosystem services

The relationship between ecosystems and potential ecosystem services is complex. R&D may improve basic scientific understanding of these relationships.

Impact 3.

Change in the ‘volume’ or ‘quality’ of ecosystem services.

Increase in the volume of the ecosystem service (such as increased carbon sequestration) may result from production changes related to R&D.

Impact 4.

Improved productivity in the combination of capital and other inputs with ecosystem services

Increased production efficiency in the use of ecosystem services may result in releasing environmental resources for other uses

Impact 5.

Increased understanding of the relationship between ecosystem services and human wellbeing.

The link between ecosystem services and human wellbeing is an issue of ongoing scientific exploration.

Impact 6.

Direct increases in human well being

Reduced emissions of various kinds may directly improve human well being (reduced smoke for example).

Impact 7.

Changes in policy broadly relating to ecosystems.

Institutional structures and policies have a direct influence on the full ecosystem service chain.

Frequency of impact categories for ACIAR projects

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11%

3%

24%

41%

0%2%

20%

1. Impact onunderlyingecosystem

2. Change inknowledge:ecology toecosystem

service

3. Change involume of

ecosystemservice

4. Improvedproductivity in

use ofecosystem

services

5. Increasedunderstanding:

ecosystemservice towellbeing

6. Directincrease in well

being

7. Changes inpolicy

Based on desktop analysis of 356 ACIAR projects considered to have some NRM impactShares apply to 260 of these projects where extended BCA was considered necessary

Testing which ecosystem services to use

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Ecosystem services

Contribute to goods which people value

Four tests to identify values and avoid double counting

Provisioning services

• Production of crops, plants, livestock, fish, etc

• Production of trees, vegetation, peat

• Production of water quantity

• Production of wild species diversity

Regulating services

• Climate regulation

• Hazard regulation

• Breakdown of waste

• Purification processes

Cultural services

• Generation of meaningful places

• Socially valued landscapes and waterscapes

• Food and fibre, recreation, inputs

• Water for household and industrial use

• Medicine, disease and pest control

• Avoid climate stress

• Coastal protection, erosion protection, flood prevention

• Pollution control, waste removal, clean air and soils

• Recreation, tourism, physical and mental health

1. Would beneficiary in principle be willing to pay for an increase in the service rather than go without?

2. Are the outputs of the ecosystem service prior to any combination with human labour, capital or technology?

3. Would the beneficiary be willing to pay for an increase in the service assuming all other ecosystem services and outputs were held constant?

4. Only benefits of final services (satisfying 1 to 3) should be counted an aggregated

A structure for identifying ecosystem service value

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UTILITY FUNCTION PRODUCTION FUNCTION

Ui (X, Y(X, Z))

Ecological outcome (X) both

directly and indirectly valued

Ecological outcome indirectly valued through a function

Pi (H, X, Y(X, Z))

Human m ade inputs

h = {X, Y, Z } is a set of biophysical outcomes that may serve as ecosystem services if they satisfy four tests:

Test 1: ‘It is valuable ?’ Is the beneficiary willing to pay for an increase in ‘h’ rather than go without? Is:

dU dh

> 0 dP dh

> 0

Test 2: Is h the output of an ecological system prior to any combination with human labour, capital or technology? An output that combines biophysical outcomes with other factors of production isnot an ecosystem service.

Test 3: Is the bene ficiary wil ling to pay for increases in h assuming that all other ecosystem outputs areheld constant? For example:

OR

dU dX

> 0 for Y fixed and Z fixed AND dP dX

> 0 for Y fixed and Z fixed

dU dZ

= 0 Y fixed and X fixed AND dP dZ

= 0 for Y fixed and X fixed

BUT

Z is not a final ecosystem servic e

SO

Test 4: Are the ecosystem services to be counted and aggregated across beneficiaries all final services?

Levels of benefit transfer

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How many differences between situations are controlled for:

1. No differences Single point (average) estimate

For example, $X per person transferred to new situation

2 Single value difference

Marginal value which varies in one dimension

For example, site size, $X/ha/person transferred to new situation

3. Multi-value difference

A value function with argument based on a number of situation characteristics

For example, Value = f (char1, char2, …) transferred to create new values with arguments from new situation

4. Pooled information ‘Meta analysis’ to provide statistical value function

Values transferred according to different characteristics

Environmental values from forestry research

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Type of value Existence value Indirect use value

Detail Water regulation Carbon sequestration Biodiversity

Values adopted $30/ha (range $20 – $40

37 – 97 t/ha $5/t CO2

$30 – $50/ha (range $25 – $75)

Valuation approach Benefit transfer from other studies

Quantity basal on biophysical studies

Benefit transfer from other studies

Price derived from market transactions

and damage estimate

Information collection and analysis: proposed steps

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Understand biophysical impacts (the marginal impacts related to the successful adoption of the R&D, either on-farm or off-farm)

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Identify changes in potential ecosystem services (marketed on non-marketed, on farm or off farm?)

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Consider institutions and markets

Look for environmental payments

Look for related markets

Collect data on ecosystem values suitable for benefit transfer (meta-analysis where available, otherwise most suitable similar situation)

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Apply values to biophysical impact from the R&D Assess magnitude of impact (relative to other economic impacts)

Decide on additional analysis (magnitude of effect, prospects for success non market studies)

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Complete BCA 7

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David PearceExecutive Director

+61 2 6245 7800dpearce@TheCIE.com.au

www.TheCIE.com.au