an introductory guide to valuing ecosystem services

1 4/12/07 16:18 Page 1. communisis The leading print partner C M. Y K. PMS. PMS. PMS. JOB LOCATION: PRINERGY 1. DISCLAIMER. An introductory guide to valuing APPROVER. The accuracy and the content of this file is the responsibility of the Approver. Please authorise ecosystem services approval only if you wish to proceed to print. Communisis PMS cannot accept liability for errors once the file has been printed. PRINTER. This colour bar is produced manually all end users must check final separations to verify colours before printing. 4/12/07 16:18 Page 2. Co Fore Exec Intro Chap The C. Chap Policy Chap The . Chap Valua Chap Key C. Department for Environment, Food and Rural Affairs Chap Nobel House Case 17 Smith Square London SW1P 3JR Chap Website: Next Crown Copyright 2007 Anne Copyright in the typographical arrangement and design rests with the Crown. Furth This publication (excluding the logo) may be reproduced free of charge in any format or medium provided that it is reproduced accurately and not used in a misleading context.

2 The material must be Glos acknowledged as Crown copyright with the title and source of the publication specified. Further copies of this publication are available from: Defra Publications Admail 6000. London AKN. SW1A 2XX. Tel: 08459 556000 Many like t This document is also available on the Defra website. Depa also l Published by the Department for Environment, Food and Rural Affairs. Grou Printed in the UK on material that contains a minimum of 100% recycled fibre for uncoated paper the R. and 75% recycled fibre for coated paper. and a Product code PB12852. 4/12/07 16:18 Page 1. Contents Foreword 2. Executive Summary 3. Introduction 7. Chapter 1: The Case for the Valuation of ecosystem services 10. Chapter 2: Policy Appraisal and the Environment The Wider Context 14. Chapter 3: The Impact Pathway' Approach to the Valuation of ecosystem services 21. Chapter 4: Valuation of ecosystem services 29.

3 Chapter 5: Key Challenges and Opportunities 41. Chapter 6: Case Study 49. Chapter 7: Next Steps 58. Annex 1: Valuation Methods 60. Further References 62. edium ust be Glossary 63. AKNOWLEDGEMENTS. Many people provided valuable comments in the drafting of this introductory guide . In particular, we would like to thank the steering group which comprised officials from Defra, Department for Transport, Department for Communities and Local Government, HM Treasury and the Environment Agency. We would also like to thank members of the Working Group on Economics and Funding of the England Biodiversity Group whose members come from Defra, Natural England, the Joint Nature Conservation Committee, paper the Royal Society for the Protection of Birds and the Forestry Commission for their support, comments and advice. 1. 5/12/07 09:37 Page 4. Foreword Ex Our natural environment is vital to our health and prosperity.

4 Over recent years, much progress has i been made towards getting a better understanding of the role of the natural environment in contributing to our economic performance as a country and as individuals. Environmental assets . like other assets provide benefits that enhance economic performance, offer new opportunities for investment and employment, and improve living standards and quality of life. And like other assets enhancing or diminishing the condition of environmental assets increases or reduces the stream of benefits we can derive from them in the future. ii Despite these advances, many indicators suggest we are using the natural environment in a non- sustainable way, that is, in a way that diminishes their condition. This partly reflects the choices we make as a society. But it also reflects the fact that we are not always good enough at informing those choices.

5 In particular, the benefits the natural environment provides are not yet valued properly in iii policy and project appraisal across government. The new cross-government natural environment Public Service Agreement (PSA), Secure a Healthy Natural Environment for Today and the Future, explicitly calls for the value of the services provided by the natural environment to be reflected in decision-making. This introductory guide looks at how the framework for the valuation of the natural environment could be improved by offering a comprehensive and systematic means to ensuring that ecosystems and the services they provide are taken into account in policy appraisal. It builds on traditional iv valuation approaches by explicitly considering the environment as a whole bringing together land, water, air, soil and biodiversity and recognising that their linkages provide a wide variety of services and benefits that are not specific to any one part.

6 The approach stresses that changing any one part of our environment can have consequences, both positive and negative, and often unintended for the ecosystem as a whole. This guide is a first step towards Defra's aim to embed impacts on the natural environment in decision-making. It is purposely introductory ', recognising that further testing and development is v needed to operationalise this approach in policy appraisal across government. Comments on this guide are very welcome and should be sent to vi Richard Price Chief Economist, Defra December 2007. 2. 4/12/07 16:18 Page 3. Executive Summary ss has i The aim of this guide is to provide an introduction to the valuation of ecosystem services . ent in It builds on previous approaches to valuing the environment but takes a more systematic sets approach to the assessment of impacts on the natural environment. The central theme of this es for work is to ensure that the true value of ecosystems and the services provided are taken into assets account in policy decision-making.

7 Am of ii ecosystem services are defined as services provided by the natural environment that benefit people. While there is no single, agreed method of categorising all ecosystem services , the non- Millennium ecosystem Assessment framework is widely accepted and is seen as a useful es we starting point. those erly in iii ecosystem services provide outputs or outcomes that directly and indirectly affect human nment wellbeing, and these considerations can link well to taking an economic approach. The d the underlying case for the valuation of ecosystem services is that it will contribute towards better to be decision-making, by ensuring that policy appraisals fully take into account the costs and benefits to the natural environment and by highlighting much more clearly the implications nment for human wellbeing, while providing policy development with new insights.

8 Stems tional iv Some of these ecosystem services are well known including food, fibre and fuel provision and land, the cultural services that provide benefits to people through recreation and appreciation of rvices nature. Other services provided by ecosystems are not so well known. These include the e part regulation of the climate, the purification of air and water, flood protection, soil formation ed for and nutrient cycling. These services are not generally considered within policy appraisal at present and represent an area where a greater and more systematic focus would be very useful. ent in ent is v The appraisal of new policies, programmes and projects all require environmental impacts to be taken into account. The approach to the valuation of ecosystem services presented in this k. guide is not intended to be an additional step within the appraisal process but, instead, a common methodology that can be used in order to consider the impact of our actions on the environment.

9 The environmental impacts currently taken into account in policy appraisal can generally fit well within this broad framework. vi This broader framework allows a shift in emphasis from a focus mainly on valuing environmental damage to highlighting the value of changes in the services provided by the natural environment. ecosystem services contribute to economic welfare in two ways . through contributions to the generation of income and wellbeing and through the prevention of damages that inflict costs on society. Both types of benefits should be accounted for in policy appraisal. With a broader focus on valuing the benefits provided by ecosystems , policy options that enhance the natural environment are also more likely to be considered that demonstrate that investing in natural capital can make economic sense. 3. 4/12/07 16:18 Page 4. An introductory guide to valuing ecosystem services vii This introductory guide provides a practical introduction to the key steps to be undertaken in xiii valuing ecosystem services in a policy appraisal context.

10 The guide takes an impact pathway approach to valuing ecosystem services . An overview of the impact pathway approach is presented below: Overview of impact pathway of policy change xiv Changes in Impacts on Economic value of Policy Impacts on ecosystem human changes in change ecosystem services welfare ecosystem services viii In summary, the key steps are: xv 1 Establish the environmental baseline. 2 Identify and provide qualitative assessment of the potential impacts of policy options on ecosystem services . 3 Quantify the impacts of policy options on specific ecosystem services . 4 Assess the effects on human welfare. 5 Value the changes in ecosystem services . xvi ix Following these steps can help to ensure a more systematic approach to accounting for impacts on ecosystems . Even an initial screening within a policy appraisal of what ecosystem services are affected, how potentially significant these impacts could be and developing an understanding of the key uncertainties and gaps in evidence can be useful first steps towards integrating these considerations into policy appraisal.