For many, it is considered unethical to question the worth of biodiversity. The sense of moral obligation, unalienable right, or spiritual and religious support is often considered sufficient rationale for requiring responsible stewardship on the part of humankind. Yet, these views can come into conflict with one’s ability to earn a living or to have access to basic needs, such as food or shelter, resulting in the contemplation of necessary trade-offs. As a result, the value of biodiversity is now increasingly expanding to include a number of ecological and commercial arguments that are directly or indirectly beneficial to humans.
While economists might see the beauty and majesty of biodiversity, they also view ecosystems and the diverse organisms within as increasingly valuable and scarce resources. Oftentimes, in determining the best use of scarce resources, a cost-benefit analysis is the tool that helps to identify, quantify, and compare various aspects of biodiversity. An economic valuation can determine how specific changes to biodiversity may affect human well-being, although it also depends on the understandings and predictions of biologists, geologists, and ecologists as to how and what ecosystem changes may occur; otherwise there might be little basis for evaluating an effect on humans.
Changes large enough to warrant a full economic analysis are typically related to policy or regulatory proposals; for example, the Endangered Species Act or the Convention on Biological Diversity. In the case of the Endangered Species Act, one might compare the value of taking action to protect an endangered species with doing nothing. An example of this is the gray wolf. By 1930 the gray wolf was virtually extinct in the continental United States due to eradication by western ranchers concerned about wolves killing livestock. Consequently, populations of elk, deer, moose, and caribou soared without their natural predator. In 1995, Alaskan gray wolves were reintroduced to Yellowstone National Park, part of their traditional habitat. Similar programs have been undertaken throughout the Great Lakes and Southwest, bringing the gray wolf population in the continental United States to over 5,000.
These programs appear successful, but were they really worth it? Using three general categories of value: direct use, indirect use, and non-use, one can compare the costs and benefits of reintroducing the gray wolf, among other things.
Current and future benefits derived are the direct use value. In the case of an endangered species, like the gray wolf, this would include the costs associated with the reintroduction programs, the conservation of habitat, and the livestock killed on nearby ranches by wolves. Benefits would be attributed to any increase in tourism revenues from interest in the wolves and perhaps reduced costs associated with maintaining large elk herds and/or offsetting damages from excessively sized herds. To estimate a monetary value of these costs, one would typically use wolf recovery program costs, including livestock lost, other damages, and program costs necessary to prevent damage. However, simply calculating a direct use value is an incomplete analysis since it does not include any additional commercial, environmental, cultural, or aesthetic benefits people can derive. An example of this would be the usefulness of medicinal plants.
Indirect use value is derived from goods and/or services that are not directly consumed or sold, yet beneficial. Many of our most basic ecosystem services are indirect use value, including carbon sequestration by forests and other vegetation and the filtration capabilities of watersheds. In the example of the gray wolf, it assists in a form of ecosystem stability which, by keeping other animal populations under control, indirectly supports human life and enhances direct use values. Without the gray wolf, the population of various herbivores could become too large causing a strain on plant populations and creating the potential for increased erosion. These indirect use values can be difficult to quantify since there is no market for the interconnected services. Think of pollinators, how much are their services worth? It is thought that the wealth of genetic and species diversity remains relatively untapped so the potential value is considered vast.
One method used to quantify indirect use value is known as replacement cost, or the cost of replacing an ecosystem service with technology. An excellent example of this was illustrated when New York City considered building a water treatment plant to filter water from the Hudson River. The city was previously dependent on the Catskill Mountain watershed to act as a filter cleaning rain water and runoff before it reached ground water supplies and eventually the Hudson River. In taking into consideration replacement cost, it was determined that it would cost $6 billion to construct a water filtration plant and an additional $300 million each year in operating costs to do what the watershed has consistently done for very little cost. For that reason, the city instead decided to spend $250 million to help conserve the watershed. While quantifying indirect use values would be simple if replacement cost could be used to monetize the worth of a watershed, ecosystem or species; but, even this does not take into account the non-use value of biodiversity.
Quantifying the value of biodiversity becomes incredibly complicated when non-use values are included; so named because it is the value people derive without actually using biodiversity. Each individual has a different non-use value, which can include option, bequest, and existence values. Having the opportunity to travel to see an endangered species or a new ecosystem is an option value because an individual values the opportunity, whether they actually take it or not. The irreversibility of biodiversity loss is one reason many individuals have a high option value for biodiversity. Bequest value is an individual’s value of passing intact ecosystems on to future generations. Existence value is an individual’s moral conviction that the environment has its own intrinsic value; thus, while one may never see a coral reef, they think it is important that coral reefs exist.
Each individual has a different non-use value for all aspects of biodiversity, thus it is very difficult to create a single representative value for non-use variables. Economists often rely on the stated and revealed preferences of what people, generally survey participates, are willing to pay to preserve biodiversity or how much biodiversity loss they are willing to accept. By asking how much an individual is willing to pay to conserve and/or by examining the actual contribution to conservation efforts, economists can begin to construct a representation of non-use values. However, a problem with this method is, in a survey, participants tend to have a hypothetical bias or will overstate how much they would be willing to pay because they are not actually being asked to pay anything.
If preserving biodiversity had no cost, all would be preserved since biodiversity can be important for a variety of reasons, including ethical, esthetic, spiritual, ecological, and commercial. However, since many of the offerings biodiversity provides are public goods that are freely available, they are often undervalued—especially within the marketplace—when changes to the ecosystem are being considered. Therefore, while economic valuation can be highly uncertain, putting a price on an otherwise priceless good is one way to start appreciating its value by further illustrating the benefits of preservation.
Updated by Skyler Treat & Dawn Anderson
The Value of Biodiversity
This study for Chicago Wilderness explains the different types of use values for biodiversity and addresses some of the challenges of assessing biodiversity’s value.
Environment in Focus: Environmental and Ecological Economics
This article from Earth Portal examines the classical basis of environmental economic thought. The page also has links to a variety of topics in environmental economics.
The Economic Value of Biodiversity: A scoping paper
This extensive paper published by the government of Australia explains economic biodiversity valuation in depth.
The Valuation of Ecosystem Services
This piece discusses the methods and drawbacks of various management decisions of ecosystem services. It includes a discussion of applicable values of ecosystem services.
Biodiversity Banking: A Primer
This article on the economics of biodiversity conservation, sponsored by Ecosystem Marketplace, provides an extensive overview and case studies of the field.
Data & Maps
Natural Capital Project Toolbox
The Natural Capital Project is developing modeling and mapping tools to better estimate the costs and benefits of biodiversity and ecosystem services.
What Price Biodiversity?
This academic article from the Center for International Environmental Law discusses the incentive behind conservation and the effect of taxes and several pieces of legislation on land conservation.
R. David Simpson from Resources for the Future makes the argument for ?marginal conservation? which he believes is a more sound argument for conservation than that of bio-prospectors.
Misleading Quantifications: The Contingent Valuation of Environmental Quality
Robert Niewijk, an attorney, outlines the problems associated with using Contingent Valuation for determining non-use value in this article published by the Cato Institute.
For the Classroom
The Importance of Biodiversity: An Exercise
This exercise asks students to research and consider the implications of species loss using a framework of economic biodiversity valuation.
Ecosystem Services—Water Purification
This lesson from Science NetLinks shows students how ecosystems provide essential services by using water purification as an example. [Grades 6-8]
EconEdLink: There is Something in the Water
Students will analyze and debate the tradeoffs and discuss the economic factors involved in making decisions about draining wetlands versus protecting them to retain their value as a natural resource. [Grades 6-8]
?New York City Depends on Natural Water Filtration,? The Rand Institute, 2007.
Greig-Gran, M. ?Is tacking deforestation a cost-effective mitigation approach?? International Institute for Economic Development, 2006.