The Benefits of Ecosystem Services,

Environmental Economics and Eco-Compensation Schemes

Christian Susan UNIDO Water Management Unit

Provisioning Services

Ecosystem Services

• food (including seafood and game), fibre, crops• fresh water• genetic resources, bio-chemicals• natural medicines• energy (hydropower, biomass)

Regulating Services

• climate regulation, carbon sequestration• air quality regulation• water regulation and purification• erosion regulation• disease regulation • hazard regulation• pollination, pest regulation

Cultural Services

Ecosystem Services

• spiritual enrichment• cognitive development• reflection• recreation, amenity and aesthetic experiences

Supporting Services

• soil formation• photosynthesis• primary production• nutrient cycling• water cycling • provision of habitat• soil formation and retention

Sustainable Development

ECONOMIC

SOCIALENVIRON MENTAL

• inter-generational equity• popular participation

• valuation

• internalization• int

ra-g

ener

atio

nal

•equ

ity

• em

ploy

men

t

• efficiency• growth• stability

• biodiversity/resilience• natural resources• pollution

• poverty• consultation/empowerment• culture/heritage

Quantification of Total Economic Value

Quantification of WTP/WTA through markets

Quantification of Total Economic Value

• market price determined by supply and demand• direct use value and to certain degree the indirect use value• private goods

Quantification of WTP/WTA where markets fail

• most ecosystem services have public goods character• no markets exists, not traded in markets • “market failure”• environmental valuation techniques to derive option and non-use value

Environmental Valuation Methodologies

Quantification of Total Economic Value

Environmental Valuation Methodologies

Quantification of Total Economic Value

Environmental Valuation Methodologies

Quantification of Total Economic Value

• economic development => environmental damages, reduction of natural capital stock

• sustainable development: minimize detrimental environmental impacts, offset residual damage by eco-compensation

Eco-compensation

Eco-compensation, offsets, no net loss, net gain

No net loss

• countries with abundant natural resources, natural capital stock still +/- intact, application of no net-loss => sustainable development

Net gain

• countries, where natural capital drastically reduced, application of net-gain principle => ‘re-balance’ accounts, sustainable development, net gain principle legally binding and transparent rules

• economic development => environmental damages, reduction of natural capital stock

• sustainable development: minimize detrimental environmental impacts, offset residual damage by eco-compensation

Eco-compensation

Eco-compensation, offsets, no net loss, net gain

No net loss

• countries with abundant natural resources, natural capital stock still +/- intact, application of no net-loss => sustainable development

Net gain

• countries, where natural capital drastically reduced, application of net-gain principle => ‘re-balance’ accounts, sustainable development, net gain principle legally binding and transparent rules

• environmental proxy, value of habitats in non monetary units

• “currency” used: habitat hectarehabitat area [ha] x habitat score = habitat hectare

• habitat score: comparing habitat and landscape component with a benchmark

• benchmark: average characteristics of mature and apparently long undisturbed biodiversity and native vegetation

• benchmarks for each Ecological Vegetation class (EVC)

Habitat Hectare Assessment

max habitat score = 1 or 100%

• forests = complex ecosystems, socially and economically valued goods and environmental services • age + species composition = crucial determinants of habitat quality

• to assure no net-loss to overall habitat quality, eco-compensation has to maintain species composition

• afforestation with fast growing coniferous species can restore the commercial timber value but not the habitat quality

• afforestation with coniferous species in Great Britain, increase in forest area, loss in biodiversity and negative impact on real estate prices (revealed preference, Hedonic pricing)

!!! crucial to assure no net-loss of overall habitat quality: use the species felled for reforestation/afforestation!!!

species composition to assure no net loss

Eco-compensation, offsets, no net loss, net gain

age of forest t

habitat score

hs (t)

tbtatx

hs (tb)

hs (ta)

hs (tx)

age of forest t

habitat score

hs (t)

tbtatx

hs (ta)

hs (tx)

hs (tb)=1

age of forest t

habitat score

hs (t)

tbtatx

hs (tb)

hs (ta)

hs (tx)

age of forest t

habitat score

hs (t)

tbtatx

hs (tb)

hs (ta)

hs (tx)

age of forest t

habitat score

hs (t)

tbtatx

hs (ta)

hs (tx)

hs (tb)=1

• forests take several decades to centuries to develop their full range of habitat functions

• value of habitat (habitat score) increases over time

Eco-compensation ratio to assure no net loss

Eco-compensation, offsets, no net loss, net gain

• equivalence:

0,8 ha*0,5 habitat score=0,4 habitat hectares=0,4 ha*1,0 habitat score

• habitat score/value increase over time

!!! time plays a crucial role in order to assure no net-loss in habitat value !!!

• if a party causing destruction of forest habitat is committed to take care of reforestation/afforestation until habitat score of area cleared can be achieved => compensation ratio of 1:1 guarantees no net-loss

• if a party causing destruction of forest habitat is only committed to take care of reforestation/afforestation for a shorter period => compensation ratio has to be increased to guarantee no net-loss

• if habitat score after 20 years (t20) is 0,2; to compensate for a habitat destroyed (1ha) with a habitat score of 0,8 => compensation ratio of 4:1 required for equivalence => 4 ha need to afforested and looked after for 20 years

Eco-compensation ratio to assure no net loss

Eco-compensation, offsets, no net loss, net gain

• BTC/SCP pipelines 248 km length, average width of 53 m on Georgian territory

• route characterized by very diverse ecological conditions and abundant biodiversity

• ESIA accepted on conditional basis only; impacts on forest ecosystems have to be evaluated and off-set by adequate eco-compensation measures

• Goal: restore the equivalent forest habitat, no net loss

• 141,8 ha forest affected, total value 80,51 habitat hectares

• eco-compensation ratio for 20,30,40 years care taking period calculated

• compensation ratio between 1:2,5 up to 1:6,8

Baku-Tbilisi-Ceyhan (BTC) Pipeline

Eco-compensation, practical application

• logical extension of polluter pays principle

• healthy ecosystems have become scarce

• inclusion in regulatory framework = pre-requisite for sustainable development

• EU Natura 2000 areas, Austria, Australia

• obligation for developers to internalize cost of externalities in Cost-Benefit Analysis, reflection of true costs

• precondition for future generations to benefit from extremely valuable ecosystem services

Eco-compensation, policy application

gracias, thank you !!!