Framework for valuing ecosystem services in the Himalayas - An ICIMOD technical report

This has been a generic first attempt that can be fine-tuned and customised for each type of ecosystem and each kind of service value. Ecosystem services are defined by the Millennium Ecosystem Assessment as ‘the benefits people obtain from ecosystems'.

Mountains occupy 24% of the global land surface area and are home to 12% of the world’s population. Mountains have an ecological, aesthetic, and socioeconomic significance, not only for those living in the mountain areas, but also for people living beyond them. However, the importance of ecosystem services arising from mountains is not properly recognised. The HKH region is endowed with a rich variety of gene pools and species, and ecosystems of global importance. It is a storehouse of biological diversity and a priority region in many global conservation agendas. The region has many unique ecosystems that play a critical role in protecting the environment and in providing livelihoods for much of Asia and beyond.

The ecosystems of the HKH, like many other ecosystems worldwide, are being degraded by anthropogenic factors. The extensive modification of vital ecosystems in HKH may affect their natural processes and reduce their capacity to provide services in future. However,  with the exception of a few empirical studies, there have been no serious efforts to assess the value of the ecosystem services of the HKH region.

This document goes on to discuss the importance of economic valuation, the background approach to be followed while conducting an economic valuation, and the methodological approaches to economic valuation of ecosystems and the framework to be applied for valuation of HKH ecosystems.

The document goes on to discuss the following points:

Importance of economic valuation

Approaches to economic valuation of services and payment mechanisms in mountain areas are needed to comprehend and realise the benefits. However, as yet these have only been developed to a very limited extent. Recently there have been some developments in applying economic thinking to the use of biodiversity and ecosystem services.

The two critical points that need to be realised are:

• Prosperity and poverty reduction depends on maintaining the flow of benefits from ecosystems
• Successful environmental protection needs to be grounded in sound economics, including explicit recognition, efficient allocation, and fair distribution of the costs and benefits of conservation and sustainable use of natural resources 

There is also a compelling cost-benefit case for public investment in ecological infrastructure (especially restoring and conserving forests, river basins, wetlands, and others), particularly because of its significant potential as a means of adaptation to climate change. Another dimension is that payments for ecosystem services, or PES, are generating considerable attention because they have the potential to create new funding opportunities for biodiversity protection and other ecosystem services that contribute to human wellbeing.

While awareness of the value of mountain ecosystems is increasing, there is a need to develop sound methodologies for valuing them in order to realising the benefits. There are various reasons why it is important to value ecosystem services, and different ways in which economic valuation helps in improving ecosystem management. Economic valuation is a pre-requisite for developing programmes on payments for ecosystem services (PES). The major reasons for economic valuation include:

• Raising awareness
• Creating a market for ecosystems
• Improving management mechanisms
• Providing a framework for decisionmaking
• Extending justice and equality

The need for economic-ecological integration for economic valuation

Economic valuation of an ecosystem requires a clear understanding of both the ecological and economic aspects and of how these are interrelated. An ecological perspective encompasses how the ecosystem structure, function, and processes interact and how this relates to the production system of goods and services. An economic perspective is needed in order to estimate the value of ecosystem functions and the tangible and intangible goods and services associated with them. Since ecological interpretation of ecosystem functions and services forms the basis for economic analysis, it is first necessary to understand the characteristics of an ecosystem and its underlying linkages and dependencies

Valuing of ecosystem services

To place an economic value on ecosystem service benefits (or costs), it is first necessary to define what goods or services are being valued. There are two different approaches for assigning value, anthropocentric and ecocentric or biocentric. In the last few decades, economists and natural scientists have attempted to develop a common interdisciplinary approach to valuing ecosystem services, the most well-known of which has been the Millennium Ecosystem Assessment (MA).

Methodological Approaches to economic valuation of ecosystems

Many approaches have been used to define and describe ecosystems and estimate their economic value. Estimating direct use values is relatively straightforward and relies on existing market prices. It is more challenging, however, to assign a monetary figure to indirect use values (e.g., regulating and supporting services such as climate regulation, water purification, flood moderation, disease regulation, watershed protection, and nutrient cycling) and non-use values (e.g., the value of maintaining the ecosystems for future generations, and the value of the continued existence of the ecosystem) that are not market-traded commodities. Over the last several decades, economists have developed methodologies to evaluate the intangible benefits of ecosystem services that do not have explicit market values.

Application of Economic Tools in the Valuation of Himalayan Ecosystem Services

Economic tools have been used extensively in recent years and there is a growing literature on their application. The document presents some of the economic tools suitable for use in valuations of mountain ecosystem services, together with their data requirements and limitations.

Process of Economic Valuation

The document infroms that the process of economic valuation begins with a scoping exercise in which the goods and services to be evaluated from a particular ecosystem or landscape are identified; this is followed by application of appropriate methods and techniques for capturing their use and non-use values. The process of valuation ends with a policy appraisal, understanding the drivers of change, and identifying the course of action to arrest the degradation and improve the health of the ecosystem.

Limitations of economic valuation

The document ends by warning that economic valuation cannot value everything; not all benefits provided by ecosystems are fully translatable into economic terms. The damage suffered by ecosystems can be non-linear and the impact of changes in ecosystems can be much higher or irreversible above certain thresholds.

A copy of the report can be accessed from this link