The economic value of biodiversity: a scoping paper

Professor Jeff Bennett
Asia Pacific School of Economics and Government
The Australian National University, October 2003

7. Application

It is not the goal of this section to provide a comprehensive review of the biodiversity valuation studies that have been carried out4. That would be a task beyond the scope of the current exercise. Rather what is provided is an overview of the types of studies done and the techniques used in them.

Market based techniques to estimate the value of biodiversity5 have rarely been applied simply because the public good nature of the benefits have precluded the operation of markets in most instances. Furthermore, the need for biodiversity to be valued for the development of public policy is less in cases where private market forces have operated successfully to secure biodiversity protection. An exception to this is the case of biodiversity prospecting. Here, market forces have operated to secure supply but a policy interest remains because of the potential for initiatives such as the development of secure tradeable rights to biodiversity through the Biological Diversity or through the World Trade Organisation Trade Related Aspects of Intellectual Property (TRIPS) agreement to stimulate more market activity.

More studies have used the revealed preference techniques. The majority of these have used the replacement cost/averting behaviour approach whilst a smaller number have applied the production function and hedonic pricing methods. Many of these applications have centred on the valuation of biodiversity at the ecosystem function level and have largely been focused on soil and water aspects. This is because these two resources are the most closely linked to marketed goods and services including agricultural production. The travel cost method has been much more widely applied with studies having been carried out all around the world in both developed and developing countries.

Stated preference techniques have also seen wide application. The studies that have used this approach have mostly used the contingent valuation method and have generally considered the value of biodiversity at the single species, multiple species and habitat levels. A smaller number of choice modelling studies have been performed but with a similar focus.

The studies across all the techniques have been mostly concentrated on species and habitat protection. Interestingly, whilst most studies claim to yield values for biodiversity, there is little recognition of the complex relationship that exists between biodiversity and the scale of the biological resource. Hence, the values reported cannot – in most cases – claim to be estimates of biodiversity per se but rather they are values of the species/ecosystem under examination. Very few studies for instance, have specifically targeted the value of ecosystem resilience as the specific result of biodiversity protection. In other words, peoples’ attitude to risk has not been a feature of the studies.

Amongst the studies there is also a predominance of US applications. Perhaps this is not surprising given the large amount of basic research in this area that has been performed in the US. However, it does highlight the potential for differences in results and methodological processes between US and other developed countries’ analyses and especially between the developed and the developing world where much of the world’s endangered biodiversity is located.

Australian studies that can be loosely linked to biodiversity value estimation have mostly been stated preference applications and then mostly contingent valuation method applications with some examples of choice modelling. Perhaps surprisingly, there have been very few revealed preference studies – apart from travel cost applications that have often been only marginally interested in biodiversity aspects of the recreational experience – or market based valuations.

Furthermore, the policy significance of valuation studies is mixed. In the US, valuation of biodiversity damage caused by hazardous substance pollution is a legislative requirement under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or ‘Superfund Act’. However since the litigation concerning the oil spill resulting from the grounding of the Exxon Valdez, the US Federal Government and the various State Governments have been less enthusiastic to use stated preference techniques to estimate environmental costs. European Union legislation requires a full benefit cost assessment of sites protected for biodiversity conservation under the Natura 2000 programme. In addition, the United Kingdom Government requires the estimation of biodiversity benefits resulting from countryside protection actions.

The Australian situation is more ad hoc with few biodiversity valuation studies having been specifically commissioned for policy purposes. The area remains highly controversial in Australia – much more so than appears to be the case in the US and in Europe. It is difficult to judge the extent of the policy significance achieved by the studies that have been commissioned. Some major policy decisions – Coronation Hill, Fraser Island and NSW rivers environmental flows have been supported by stated preference studies. However, there is little doubt that these studies were not pivotal.

4. Nunes and van den Bergh (2001) provide a useful survey of biodiversity valuation studies internationally.
5. Throughout this section, ‘value’ is used to refer to the technically correct ‘marginal value’.