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Bioeconomics - Lecture 4

This document discusses the economics of ecological and natural resources. It notes that ecosystem goods and services are difficult to value monetarily since they are not traded in markets and lack prices. Recent advances allow such goods and services to be assigned economic values, which is important for policymaking and cost-benefit analyses of projects. The Exxon Valdez oil spill is presented as an example to demonstrate how different wildlife species affected were assigned monetary values based on rehabilitation costs to estimate the total economic impact of the spill. Finally, the document outlines different approaches and methods that can be used to evaluate the total economic value of nature, including use values and non-use intrinsic values.

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kt30041998
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14 views

Bioeconomics - Lecture 4

This document discusses the economics of ecological and natural resources. It notes that ecosystem goods and services are difficult to value monetarily since they are not traded in markets and lack prices. Recent advances allow such goods and services to be assigned economic values, which is important for policymaking and cost-benefit analyses of projects. The Exxon Valdez oil spill is presented as an example to demonstrate how different wildlife species affected were assigned monetary values based on rehabilitation costs to estimate the total economic impact of the spill. Finally, the document outlines different approaches and methods that can be used to evaluate the total economic value of nature, including use values and non-use intrinsic values.

Uploaded by

kt30041998
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Bioeconomics

(Economy- Environment System)


16B1NBT631

Lecture-4
Economics of Ecological and Natural Resources
• As we have already discussed that the Environmental Economics is of two
types viz. Ecological Economics & Natural Resource Economics.
• One of the major concern / problem, faced by researchers at large is
impeding progress in attempts to incorporate ecological functions into
economic models, i.e. how to value goods and services, provided by
ecosystem into monetary terms.
• The problem arises because one of the parameter in economic models is
‘PRICE’, and since ecosystem goods and services are not traded in markets,
they have NO PRICE.

• Recent methodological advances have been made that allow such goods to
be valued
Environmental Evaluation
• The proper valuation of non-market environmental commodities has significant policy
implications.
• In past, such commodities have been assigned ZERO or NO VALUE, due to difficulties
involved in assigning economic value.
• Failure to account for values of some environmental resources has resulted in decisions
that have had negative implications for the environment and the society.
• Environmental evaluation is also important in the event of natural disaster, either man-
made or naturally occurring
• The value of ecosystem services and biodiversity is a reflection of what we, as a society,
are willing to trade off to conserve these natural resources.
Environmental Evaluation Contd.

• Economic valuation of ecosystem services and biodiversity can make explicit to society
in general and policy making in particular that biodiversity and ecosystem services are
scarce and that their depreciation or degradation has associated costs to society.
• Based on the costing / pricing methods (that we are going to see now), government
decide overall cost of the project based on COST-BENEFIT ANALYSIS
(Eg. From India – Ayushman Bharat Scheme; National Mission for Clean Ganga
Environmental Evaluation- Example from United States
Exxon Valdez Oil Spill 1989
• The Exxon Valdez oil spill occurred when an oil tanker crashed onto the shore of Prince
William Sound in Alaska on March 24, 1989. Oil Tanker was owned by Exxon Shipping
Company
• It contaminated 1,300 miles of coastline with 250,000 barrels or 11 million gallons of oil.
• Direct contact with the oil slick killed at least 140 bald eagles, 302 harbor seals, 2,800 sea
otters, and 250,00 seabirds within a few days.
• Wildlife value is measured by the cost to obtain or rehabilitate them.
o Zoos pay as much as $50,000 dollars to capture an otter. The cost of losing 2,800 of these endangered
species is $140 million. Exxon paid between $40,000-$90,000 to rehabilitate them, confirming the
otter's value.
o Harbor seals go for $20,000, so losing 302 costs $604,000.
o Most seabirds cost $300 each, so losing 250,000 costs $75 million.
o Eagles cost $22,000 to rehabilitate, so 140 are worth $3 million.
Total cost for just these four species in the first week was $218.6 million.
Why is valuation of environmental resources / natural
resources done?
• Missing markets
• Imperfect markets and market failures
• For some biodiversity goods and services, it is essential to understand
and appreciate its alternatives and alternative uses
• Uncertainty involving demand and supply of natural resources,
especially in the future
• Government may like to use the valuation rather than restricted,
administered or operating market prices for designing
biodiversity/ecosystem conservation programmes;
• In order to arrive at natural resource accounting, for methods such as
Net Present Value methods, valuation is a must.
Approaches for evaluation of Nature’s value
Types of valuation methods
Types of valuation methods

Concept of Option Value:


• Option value is defined as the amount of money, an individual is willing to pay at
the current time, to ensure that the resources are available in future, should they
decide to use it
• To the extent that option value is the expected value of future use of the resources,
it may also be classified as a form of use value
Quasi-option value:
• it is the difference between the net benefits of making an optimal decision and one
that is not optimal because it ignores the gains that may be made by delaying a
decision and learning during the period of delay.
Methods of estimating TEV (Total Economic Value)
Use Value / Instrumental Value Non-use value / Intrinsic value /
Passive Value
• The use value can be easily measured by • Non-use values cannot be estimated from
estimating the value of equipment/ cost of market price as this is the value which is
service or cost of capital infrastructure not estimated from any direct cost
analysis.
• Studies have shown that non-use value
can be a significant proportion /
component of total economic value

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