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Economics of Ecosystem Services

About the project

The project addresses the question: What is the best use of land?

The simplicity of this question is not matched by its answer, which turns out to be surprisingly
complex.

This complexity ultimately derives from the fact that we do not live in a world of either infinite resources or unbounded opportunities; if we did then decisions could be made without consideration of either direct costs, or the opportunity costs of foregone alternatives.

However, in a world of scarce resources and limited opportunities such decisions are very unlikely to be optimal.

Of course the very notion of optimality requires that we have some objective that we are trying to
optimise. Typically this objective would be taken as attempting to use those scarce resources in the
best way possible. But how might we identify the best use for resources?

The project developed The Integrated Model: a programmed system that links a series of modules together to assess both the drivers and consequences of land-use change (for instance, the agricultural production module links changes in drivers, such as government policy, prices, costs, soils, climate, etc., to changes in farm outputs).

This enables decisions to be both robust and efficient, by avoiding appraising pre-determined
options, instead, allowing the characteristics and corresponding values of the real-world to
determine the best use of scarce resources.

 

Landuse

The research linked policy, market forces, spatial variation in the physical environment, and climate change, to land-use. It will allow policy-makers to examine the impact of a variety of changes in land-use policy while accounting for the ongoing effects of the other drivers listed above. The analysis linked changes in land-use to their impacts upon:

  • Food production and its value
  • Farm income
  • Water quality
  • Multi-purpose woodland
  • Greenhouse gas balance
  • Recreation
  • Habitat and biodiversity

The research aimed to provide the UK policy community with a sophisticated and policy-relevant analysis concerning the diversity of effects arising from land-use change.

 

Forestry Case Study

The case study examines the potential for establishing new forests in England, Scotland and Wales.

This analysis, which was prompted by government announcements of the intention to expand forestry in all three countries, assesses land use at a maximum 2 km resolution for the entirety of Great Britain during the period 2014 to 2063.

It considers the impact of any land use change on all of the various systems: agriculture, timber, water
quality, greenhouse gases, recreation and biodiversity.

Key outputs of this analysis include three scenarios:

Investigation of a ‘Business As Usual’ baseline in which no new afforestation policies are implemented. This assessment provides a counterfactual for the other policy change analyses. Furthermore, it reveals the impact of forecast climate change on all the aforementioned systems during the appraisal period.

Investigation of a ‘Market Value’ driven planting policy in which TIM is employed to consider all feasible locations for afforestation, selecting those which maximise the net value of market-priced agricultural and forestry outputs alone, while ignoring potential societal benefits. This simulates the consequences of announcing a general, untargeted planting policy and results in forestry being confined to remote upland areas of marginal agricultural value.

Such locations are far from human populations, which limits the recreational values new forests might generate. Planting under this scheme also occurs on organic soils, which become degraded and emit large volumes of greenhouse gases. This approach to decision making ends with negative overall value to society. Hence, it is not only poor value for money for the taxpayer, but actually results in net losses for society.

Investigation of a targeted ‘Social Value’ driven planting policy in which TIM selects planting locations that take into account the full sweep of benefits and impacts generated by afforestation.

The targeting process accounts for both market-priced goods (including timber and the costs of displaced agriculture) and those non-market goods for which we can estimate robust economic values (e.g. greenhouse gas emissions and storage, and recreation).

This results in woodlands being located away from vulnerable organic soils and close to areas that yield higher recreational values. Analysis of the impacts on non-market goods which could not be given robust economic values (e.g. biodiversity and water quality) shows that water quality and woodland bird species richness are also enhanced when the value of all goods and services are considered in choosing planting locations.

 

Outputs

Read the Work Package Report 3: Economic value of ecosystem services on the UK NEA website

 

Contact: Silvia Ferrini