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«The Economic and Social Aspects of Biodiversity Benefits and Costs of Biodiversity in Ireland REPORT PREPARED BY: CRAIG BULLOCK, OPTIMIZE CONSULTANTS ...»

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Often policies have other benefits or objectives too such as landscape, recreation or social benefits/ transfers to target groups (e.g. foresters or farmers). In this respect, it is useful to weigh the benefits associated with biodiversity specifically, although this is inevitably an approximation.

Marginal benefits and costs are of more interest to decision and policy making than gross values in that they account for existing levels of stock and use. They also allow policy makers to trade-off the benefits of protection against the costs.

However, for policy purposes it is insufficient to stop at an estimate of marginal benefits or costs.

Of equal interest is the question of who realises these benefits and costs. Biodiversity provides numerous benefits that cannot be confined to agriculture, forestry, marine or water alone. If a water authority acts to clean a polluted river, the cost is a public one. The restored ecosystem services provide benefits to agriculture, forestry and human health. The beneficiaries therefore include the productive sector, specific sectors such as tourism, or private individuals involved in recreation. The result is a mix of public and private benefits. Consequently, it is important that estimates avoid double-counting.

Another relevant consideration is that of external costs (or benefits). If an individual or company pollutes the river, external costs are passed onto other sectors. As in the example above, the benefits and costs may affect a small number of identifiable individuals or the wider community.

External costs affecting biodiversity are a mirror reflection of the benefits of lost ecosystem services. Once again, they can be compared with specific mitigation policies or policies that aim to restore biodiversity.

11.1.2 B e n e f i t s an d c o s t s A comprehensive cost benefit analysis (CBA) of biodiversity policy is not practical as there is no single dedicated policy to protect biodiversity. Ireland does have a National Biodiversity Plan which requires government departments and agencies to consider and minimise impacts on biodiversity.

However, outside of the National Parks and Wildlife Service there are few policies which directly aim to protect or enhance biodiversity. Therefore, there is little point in estimating a net present value (NPV) of biodiversity policy.

Nevertheless, the merit of a CBA framework is that it attempts - as far as is possible - to quantify benefits and costs across different sectors using a common medium, namely money. Although monetary values are used as a yard-stick, CBA is founded within a welfare economic framework in that it addresses benefits and costs from the perspective of society’s wellbeing. The methodology must therefore account, not just for financial costs and benefits, but rather the full set of economic and social factors. The distribution of economic and social benefits and costs varies for particular topics, for instance between the public and private sectors, and between users, indirect users and non-users.

Adopting a CBA framework requires us to consider various issues such as the treatment of economic values, non-market benefits, future streams of benefits and costs, uncertainty and equity and efficiency.

1. As CBA must estimate true economic values, it is necessary to correct for market distortions. These include transfer payments such as subsidies, a typical and complex ingredient of state support to primary productive sectors such as agriculture, forestry and fishing. Product prices are therefore artificial and may little reflect true resource costs.

2. Non-market benefits and cost. The benefits (and costs) of biodiversity are not priced by the market. To a large extent this is due to a market failure in that, typically, there are no identifiable individuals with property rights to these ecosystem services. As a result, ecosystem services cannot be traded or priced within a market. The situation can be aggravated by an information failure in that the contribution of ecosystem services is little understood. Many ecosystem services therefore supply public goods for which no prices exist to indicate abundance or scarcity.

N o n - m ark e t Va l u a t i o n m e t h o d s As many of the benefits of ecosystem services are non-market, a first step is to identify, as far as possible, what the services are and who is affected. This also requires that account is taken of external costs and benefits. It then becomes necessary to input prices to ecosystem services. One method is to relate these services to a market good, such as food products, by establishing the contribution of ecosystem services along with other inputs. The lack of scientific knowledge of many ecosystem services makes this a challenging task. Alternatively, it is often possible to examine the implications of the loss of ecosystem services and to partially quantify the benefits in terms of the costs avoided.

In cases where benefits are realised by the public, in one form or another, it may be possible to use non-market valuation techniques. These include revealed preference methods such as travel cost estimation. Travel cost methods use journey and journey time costs to quantify the benefits of sites with high biodiversity in terms of the amount people are prepared to pay to visit them. Hedonic pricing is an alternative that can be used where biodiversity benefits are captured by particular markets, such as within house prices. More typically, these benefits are realised at a higher level as environmental benefits such as views of attractive natural landscapes, or factors such as clean air, low noise, etc. It would be difficult to attribute a contribution to biodiversity.

A further option is to use stated preference methods such as contingent valuation or discrete choice estimation. These methods use data from public surveys to determine people’s willingness to pay for public goods, such as biodiversity benefits. Respondents state their willingness-to-pay directly as a hypothetical payment which represents income or utility foregone. Asking the public about biodiversity directly can be difficult given people’s limited understanding of the concept, although there have been studies (e.g. Christie et al, 2005) that have attempted this through the use of presentations and discussion of biodiversity attributes (species, habitats, processes, etc). Most studies examine the marginal value that people attach to environmental assets such as valued landscapes or wildlife, specifically their willingness-to-pay for policies that protect or enhance these assets. Compared to travel cost or hedonic pricing, stated preference is better able to estimate total utility including non-use values. The survey method makes it easier to represent issues of biodiversity, but it is still difficult to attribute a figure to the contribution of biodiversity.

Whichever method is used, it is important to identify the relevant population. For example, perceived benefits (and costs) typically decline with distance from valued sites or lower familiarity.

Values should also be lower where there are substitute sites and species (a question of relevance to species redundancy in ecosystem services).

A practical problem with all non-market valuation techniques is that they are time-consuming and costly. Furthermore, although a well-prepared study can provide a reliable indication of true economic benefits and costs, it must be acknowledged that these values have not always been appreciated by policy makers. Non-market valuation methods are being taken seriously in many countries, but few such studies have yet been undertaken in Ireland. As a consequence, it may be necessary to borrow results from abroad, a process called benefit transfer. This is only a second best option in that it can be difficult to know how transferable these studies are to similar environmental characteristics found in Ireland. It is important to calibrate such studies given information on the number of Irish beneficiaries and any known fundamental difference in people’s preferences.

T h e s u b t l e t y o f b i o d i ve rs i t y lo s s One example of the international variations in preferences that upset attempts at benefit transfer is that, until recently, many people believed Ireland to be “green and clean” (an image commonly promoted by the tourism and food industries). Environmental policies were low on the priority list.

Myth or not, this complacency has been blown out of the water by the pressures placed on the environment by recent high rates of economic growth and development. One characteristic of biodiversity loss is that it has been gradual and largely unnoticed. We often only get an inkling of the problem when we draw comparisons with the natural world of our childhood.

The benefits of biodiversity are realised as a flow over time. Typically, CBA discounts future benefits on the basis that people attach a higher value to the near future. These discounted benefits then get compared with policies or investments that may involve an upfront cost. This comparison can disadvantage future generations. In some respects, we have a window on to these future costs in that we are already having to pay for past neglect by meeting the costs of the deficiencies in environmental infrastructure. It is generally accepted that further significant costs will follow due to inadequacies in our approach to planning. Nevertheless, progress is being made. Government has accepted a National Strategy for Sustainable Development and investment is being made to improve the infrastructure to supply clean drinking water. Other policies entail benefits and costs that are multi-year.

E ff i c i e n c y an d e q u i t y Finally, there are issues of efficiency and equity. Biodiversity benefits and costs are not evenly spread. There are plenty of examples of environmental disasters impacting most heavily on the poorest in society. It is therefore important to correctly identify the population of users and nonusers, as well as the creators and recipients of external benefits and costs.

Where necessary, the benefits and costs received by particular social classes can be allocated a higher weighting in a CBA or, otherwise, distinguished to ensure that they are given adequate consideration. For example, it has been argued that some use values, such as those for outdoor recreation, are held most strongly by the better off. On the other hand, it is worth noting that some of these activities are income elastic, i.e. greater participation will follow as income growth continues over time.


11.2.1 A gri c u l t u re Without ecosystem services, agriculture would be unable to function, at least outside of a laboratory. However, a characteristic of modern agriculture is that it is able to substitute many ecosystem services through artificial means, for instance by the mechanical management of soil structure or through the application of inputs such as fertilizers and pesticides. Typically these methods contribute to high productivity, but at the risk of the loss of future sustainability of production from impacts such as the accumulation of chemical residue, loss of natural nitrogen, or soil erosion. Short-term high productivity also occurs at the expense of external costs in terms of the impact that chemical inputs have on the environment and on human health.

Consequently, the value of biodiversity can be looked upon as the baseline (often critical) contribution to largely artificial systems of agriculture output, the value of which is inflated by EU transfer payments to the sector, but simultaneously undermined by external costs and a long-term lack of sustainability.

Alternatively, the value of biodiversity can be realised in terms of its capacity to support sustainable farming systems. Under such systems, the volume of output could be less, but the contribution of biodiversity and value of output can be greater. Agricultural policy is beginning to acknowledge the value of long-term sustainability through measures to reduce the external costs of agriculture, through payments for agri-environmental measures and through support to organic farming.

The Rural Environmental Protection Scheme (REPS) provides an example of the value that society places on one aspect of sustainability. Its budget is upwards of 280 million per year. In itself, the budget is a poor indicator of the social value of biodiversity in that it partly represents a rechannelling of transfer payments to small and marginal farms. However, the budget can be justified in terms of its public benefit to the environment. According to O’leary et al. (2005) these benefits are worth 150 million per year as realised in terms of landscape, habitats and visible water quality alone. The researchers accept that there are other benefits that would be both additional and sizeable. These include ecosystem and health benefits, as well as the public perception of the social benefits.

The benefits of REPS were considered in the chapter on Human Welfare. There are other biodiversity benefits which provide a direct contribution to agriculture. To illustrate the benefits, the sub-chapter on Agriculture used three examples of ecosystem services, namely pollination, soil nutrient recycling and pest control.

P ollination The obvious benefits of pollination in Ireland are more modest than for some other countries. Irish farming is principally grassland based.We only have a relatively small area of crops such as oilseed rape, fruit and vegetables needing pollination. The value of these crops was estimated at around 14 million per year, although it has the potential to expand considerably if oilseed production increases in response to expected growth in biofuel demand. In addition, the value would be greater were it not for the pollination role of domesticated bees. The vulnerability of both wild and domesticated bees to disease or parasites has recently been highlighted by some serious crop losses in the United States.

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