SUMMARY – Reviving Melanesia’s Ocean Economy: The Case for Action │ page 1

EMBARGOED 18 OCTOBER 2016, Time 00:01 CEST

METHODOLOGY

INT

REVIVING MELANESIA'S OCEAN ECONOMY:The case for action

BCG ECONOMIC VALUATION:METHODOLOGY AND SOURCES

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Front cover A child from Tavewa Island, Fiji, holds a recently caught fish. Depleted coastal fisheries could seriously constrain opportunities for Melanesia's children. © Shiri Ram / WWF

TheBostonConsultingGroup(BCG)isaglobalmanagementconsultingfirmandtheworld’sleadingadvisoronbusinessstrategy.Wepartnerwithclientsfromtheprivate,public,andnot-for-profitsectorsinallregionstoidentifytheirhighest-valueopportunities,addresstheirmostcriticalchallenges,andtransformtheirenterprises.Ourcustomizedapproachcombinesdeepinsightintothedynamicsofcompaniesandmarketswithclosecollaborationatalllevelsoftheclientorganization.Thisensuresthatourclientsachievesustainablecompetitiveadvantage,buildmorecapableorganizations,andsecurelastingresults.Foundedin1963,BCGisaprivatecompanywith85officesin48countries.Formoreinformation,pleasevisitbcg.com

WWFisoneoftheworld’slargestandmostexperiencedindependentconservationorganizations,withover5millionsupportersandaglobalnetworkactiveinmorethan100countries.

WWF’smissionistostopthedegradationoftheplanet’snaturalenvironmentandtobuildafutureinwhichhumansliveinharmonywithnature,byconservingtheworld’sbiologicaldiversity,ensuringthattheuseofrenewablenaturalresourcesissustainable,andpromotingthereductionofpollutionandwastefulconsumption.

ISBN978-2-940529-50-6

Citationofthismethodologydocument:WWF.2016.BCGEconomicValuation:MethodologyandSources.RevivingMelanesia’sOceanEconomy:Thecaseforaction.WWFInternational,Gland,Switzerland.26pp.

TheBostonConsultingGroup:MartySmits,TazChaudhry,JamieKo,DouglasBeal,CamilleAstier

Leadauthorsofthemainreport:ProfessorOveHoegh-GuldbergandDrTyroneRidgway,GlobalChangeInstitute,TheUniversityofQueensland,St.Lucia4072,Australia

Editors-in-chief:JohnTanzerandKesaiaTabunakawai

Managingeditor:PaulGamblin

Contributingeditors:SianOwen,AimeeGonzales,SallyBailey,JackieThomas,SeemaDeo

Design/layout:StefaneMauris Additionaldata:WethanktheMarineandCoastalBiodiversityManagementinPacificIslandCountriesproject(MACBIO)forkindlysharingtheirpre-publicationmarineecosystemservicevaluationreportsforFiji,SolomonIslandsandVanuatu.

AWWFInternationalproduction

Thedesignationofgeographicalentitiesinthisreport,andthepresentationofthematerial,donotimplytheexpressionofanyopinionwhatsoeveronthepartofWWFconcerningthelegalstatusofanycountry,territory,orarea,orofitsauthorities,orconcerningthedelimitationofitsfrontiersorboundaries.

PublishedinOctober2016byWWF–WorldWideFundForNature(FormerlyWorldWildlifeFund),Gland,Switzerland.Anyreproductioninfullorinpartmustmentionthetitle,theleadauthor,andcredittheabove-mentionedpublisherasthecopyrightowner.

©Text2016WWF.Allrightsreserved

Thisreportisavailableat:ocean.panda.org

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Contents

Oceanannualincomeandasset-valuationmethodology&sources.................................................... 4Terminology ................................................................................................................................................................. 5TotalMelanesianregion“sharedwealthfund”byassetcategories..................................................... 6AnnualValueGeneratedfromMelanesia’sOceanEconomy.................................................................14Oceanrelatedactivitiesgroupinto4primarycategories ......................................................................16Directoutputoftheocean................................................................................................................................17Directservicesenabledbyoftheocean.....................................................................................................19Adjacentbenefitsoftheocean .......................................................................................................................23

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Oceanannualincomeandasset-valuationmethodology&sources

ThismethodologydocumentproducedbytheBostonConsultingGroup(BCG)providessupplementalinformationtothediscussionsofeconomicvalueinpart1ofthereportRevivingtheMelanesianOceanEconomy:Thecaseforaction,andillustratedbyFigure1ofthesamereport(seepp.16-17).Theassumptions,analysisanddatasourcesthatinformtheMelanesianregion’sannualcontribution(‘grossmarineproduct’)andasset-valuation(“sharedwealthfund”)areoutlinedinthismethodologydocument.BCG’sintentwastotriangulateacrossandrefineexistingprimaryresearchinordertodeterminethevaluesataregionalscale,basedonthemethodologyusedintheglobalreport,RevivingtheOceanEconomy:Thecaseforaction–2015,publishedbyWWFInternational.Thefullreportcanbefoundatocean.panda.org.TheanalysesarepartlybasedoninformationthathasnotbeengeneratedbyBCGandhasnot,therefore,beenfullyverified.Theinformation,opinionsandanalysescontainedhereinarebasedonsourcesbelievedtobereliableandcomprehensivebutnorepresentation,expressedorimplied,ismadeastotheaccuracy,completenessorcorrectnessoftheoriginalmethodsusedtogathertheprimarydata.Furthermore,theanalysesandconclusionscontainedinthisdocumentarebasedonvariousassumptionsthatBCGhasdevelopedregardingeconomicgrowth,andthecurrentandfuturestateoftheocean(baseduponfactorsandeventsthataresubjecttouncertainty).Ofcourse,futureresultsornetpresentvalues(NPV)derivedfromforecastresultscouldthusbemateriallydifferent.

Wewelcomeconstructivecommentsandcontributions(e.g.publishedregionaleconomicvaluationpapers)tohelpimprovetheeconomicanalysisfurther.Wecanalsosharethespreadsheetwhichcontainsourcalculations,uponrequest.

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Terminology

Whatisthe“grossmarineproduct”andhowdoesitrelatetogrossdomesticproduct?Followingthesameapproachastheglobalreport,thisregionalreportintroducesthemeasurement“grossmarineproduct”(GMP)toallowcomparisontothenationaleconomiesintheMelanesiaregion.Asgrossdomesticproduct(GDP)measuresthetotaldollarvalueofgoodsandservicesproducedbyacountryinayear,GMPisthevalueoftheannualeconomicoutputoftheoceanintheMelanesianregion.BCG’seconomicanalysisoffersaconservativeestimateofUS$5.4billionforMelanesia’sGMP.TheGDPofacountrycomprisesofthesumofvalueaddedbyeachindustry,wherebyoutputisadjustedforintermediateinputsfromotherindustries.GMPdirectlycalculatestheoutputofmarinerelatedindustries.Whatisanocean“sharedwealthfund”?Theocean“sharedwealthfund”leveragestheanalogymadeintheRevivingtheOceanEconomy:Thecaseforaction–2015report.The“sharedwealthfund”isanattempttocalculatethetotalassetbaseoftheoceaninMelanesia,from whichannualeconomicproduction(i.e.theGMP)isdrawn.ForthemarineassetsofMelanesia,thishasbeenconservativelyestimatedatUS$548billion.

Whatisthedifferencebetweentheocean“sharedwealthfund"andthe"grossmarineproduct"?

Theocean“sharedwealthfund"istheoverallassetvalueoftheoceanintheMelanesianregion,basedonmarketvalueofassets(formarinefisheries)oronnetpresentvalue(NPV)ofasset'scashflows(forallotherelementsofocean“sharedwealthfund”),whereastheGMPistheoutputofeconomicactivitiesgeneratedbytheseassetseveryyear.

IUCNMACBIOReports

WethanktheMarineandCoastalBiodiversityManagementinPacificIslandCountriesproject(MACBIO)forsharingtheirpre-publicationmarineecosystemservicevaluationreportsforFiji,SolomonIslandsandVanuatu.TheIUCNMACBIOstudyillustratesthewayecosystemservicesbenefitpeoplebyquantifyinganddescribingdatausingthe‘TheEconomicsofEcosystemsandBiodiversity’(TEEB)approach.Thestudycontainsseveralusefuldatasourcesandinputswhichprovedavaluablesourceofreferencefortheanalysis.TherewereseveralassetcategoriesinthisreportthatheavilydrawreferencetoorwerebasedontheMACBIOstudy.Thesecategoriesare:

1. Carbonsequestration:carbonsequestrationratesandsocialcostofcarbonwasalignedwithMACBIOapproach

2. Coastalprotection:coastalprotectionvaluewasbasedonstudiesconductedfortheMACBIOstudy.

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TotalMelanesianregion“sharedwealthfund”byassetcategoriesValuedatUS$548.0billion

Six primary 'value-generating' asset categories

Marine Fisheries

Mangroves

Coral Reefs

Seagrass

Productive Coastline

Carbon Absorption

Asset (US$ billion)

Primary Assets of the

Melanesia ocean region

Adjacent Assets

124.1

109.6

145.7

151.4

14.3

2.9

“Shared Wealth Fund” asset base

~548.0

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ThetotalassetvalueofUS$548billionisanaggregateofthemostreadilymeasuredoceanassetswithinMelanesia.FourofthesixassetsaremarineecosystemsthatgenerateservicesthatcanbeconsumeddirectlyfromtheoceanandarevaluedatUS$530.8 billion.Theremainingtwoareadjacentassets,whichprovidefunctionalbenefitsthatareutilizedindirectly.TheyarevaluedatUS$17.2billionandincludeproductivecoastlines(focusedontourism)andcarbonabsorption.Alloftheseassetsaredependentontheecologicalfunctionandwellbeingoftheoceantogeneratevalue.Thecalculationsforarrivingatthesesumsareavailableuponrequest.Theseassetcategoriesarenotacollectivelyexhaustivelist,butaimtotacklemaincomponentswhereprimaryanalysisexists(e.g.therewasinsufficientdataontidalsaltmarshes).Methodology:Inordertovalueeachassetclasstwodifferentmethodswereutilized:

1. MarketBased:Derivedassetvaluelookingatquantityofaresourcepricedatitscurrentmarketvalue.

2. ValueBased:Impliedassetvalueascertainedbyidentifyingannualvaluegeneration

oftheasset,andconductingaNPVoffutureyears.Forseveraloftheassetcategories,ahybridormodifiedversionofthetwoabovemethodswasemployedtobetterestimateandtriangulatetotalassetvalue.• NetPresentValueCalculations ForallcalculationsutilizingtheNPVmethod,certainassumptionswereestablishedtoensureconsistencyandaccuracy.InordertoappropriatelycalculatetheNPVofourassetclasses,weneededtodetermineanappropriateregionalrisk-freerateandregionalriskpremiumtoutilize.WeleveragedWorldBankdata:risk-freetreasurybillrate(lendingrateminusriskpremiumonlending)andriskpremiumonlending.Basedonthesedata,wecalculatedthearithmeticmeanacrosstheMelanesiancountriesforwhich201datawereavailable(Fiji,PapuaNewGuineaandSolomonIslands)todeterminetheregionalriskfreerate(1.8percent)andregionalriskpremium(6.9percent)forourNPVcalculations.(Source:http://data.worldbank.org/indicator/)Definitions:Anetpresentvaluerequiresspecificationofthenumberoffutureyearsbeingconsidered(e.g.10years,50years,infinity)andadiscountrate,whichisthesumoftheriskfreerateandriskpremiumtorepresentthefactthatsocietyplacesagreatervalueoncurrentbenefitsthanfuturebenefits.Arisk-freeinterestrateisthetheoreticalrateofreturnofaninvestmentwithnoriskoffinancialloss.Oneinterpretationisthattherisk-freeraterepresentstheinterestthataninvestorwouldexpectfromanabsolutelyrisk-freeinvestmentoveragivenperiodoftime.

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Ariskpremiumisthereturninexcessoftherisk-freerateofreturnaninvestmentisexpectedtoyield;anasset'sriskpremiumisaformofcompensationforinvestorswhotoleratetheextrarisk,comparedtothatofarisk-freeasset,inagiveninvestment.Foreachassetcategory,completemethodologyandsourcesareprovided:• MarineFisheries

TypeofValuation:MarketBasedCalculation:Totalproductivefishbiomass(intons)multipliedbyanimpliedmarketportsidepricefor1tonoffishmultipliedbytheMelanesiancountries’totalexclusiveeconomiczone(EEZ)shareoftotalglobaloceanareaConsiderations:Thisvaluationbuildsonthemethodologyappliedintheglobalreport.Itdoesnottakeintoaccountsupplyanddemandelasticity,recognizingthatthelargerthesupplybecomes,lowerpricesareexpected.Additionally,thisfiguredoesnotdistinguishbetweenreadilycatchableandcommonfishvarieties,andthosefishcategoriesthatmaynotbeinhighmarketdemand,orthataretoodifficulttofeasiblycatch(e.g.deep-seavarieties).Duetolackofreadilyavailablequantitativeregionaldata(e.g.lackofcatchtimeseriesdata,exceptfortuna),wewereunabletomakeadjustmentstoaccountforregionspecificinformation(e.g.impactofclimatechangeonfishdistribution).Shouldmoregranulardataorregion-specificdatabecomeavailable,amoreprecisevaluationcouldbeperformed.

• MangrovesTypeofValuation:ValueBased(usingsomemarketassumptions–i.e.quantityofresource)Calculation:NPVofallfuturemangrovevaluesbasedonthefollowingassumptions:A. TotalMangroves:571,869hectares

B. DegradationofMangrovesat-0.4percentyearly

Primary Sources: • Total Fish:

Wilson RW, Millero FJ, Taylor JR, Walsh PJ, Christensen V, Jennings S and Grosell M (2009)"Contribution of Fish to the Marine Inorganic Carbon Cycle" Science, 323 (5912) 359-362.

• Market Value of fish:

OECD-FAO Agricultural Outlook (Fisheries) 2015-2024: http://stats.oecd.org/

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C. ValuederivedfromMangroves=4,185USDperhectare(appliedforeachyear,notadjustedforforecastedinflationaswewantNPVincurrentdollars)

D. Discountrate:Averageregionalrisk-freerate

E. Noriskpremium–decisionmadenottoapplyriskpremiumtonaturalassets(only

onassetsdirectlyconnectedtoindustrial/marketoutput)

• CoralReefsTypeofValuation:ValueBased(usingsomemarketassumptions–i.e.quantityofresource)Calculation:NPVofallfuturecoralreefvaluesrelatedtocoastalprotection,tourism/recreationandbiodiversityvaluesbasedonthefollowingassumptions:A. TotalCoral:7,051,587hectaresB. Degradationofcoralat-2.5percentyearlyC. Valuederivedfromcoral=US$849perhectare(appliedforeachyear,notadjusted

forforecastedinflationaswewantNPVincurrentdollars)Note:Valuederivedtakingintoaccountonlyrelevantbenefits(coastal,tourism/recreation,andbiodiversity)toavoiddoublecountingwithother“sharedwealthfund”assets

Primary Sources: • Total Mangroves:

SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters (2011) Hamilton, S. E., Casey, D. (2016), Creation of a high spatio-temporal resolution global database of continuous mangrove forest cover for the 21st century (CGMFC-21). Global Ecology and Biogeography, 25: 729–738. doi: 10.1111/geb.12449

• Value generation: Brander, Luke M., et al.. "Ecosystem Service Values for Mangroves in Southeast Asia: A Meta-analysis and Value Transfer Application." Ecosystem Services 1.1 (2012): 62-69.

• Asset degradation: SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters (2011)

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• Totalvalueofbenefitsfromcoralreefsintheworld:US$29,081millionperyearonaglobalcoralareaof284,000km2,thusatotalbenefitvalueofUS$1,050perhectare.

• Relevantbenefitsvalue:81percentoftotalbenefitvalue,henceavalueofcoralreefbenefitsofUS$849perhectare.

D. Discountrate:Averageregionalrisk-freerateE. Noriskpremium–decisionmadenottoapplyriskpremiumtonaturalassets

(followingthemethodologyappliedinglobalreport:riskpremiumappliedonlyonassetsdirectlyconnectedtoindustrial/marketoutput)

• SeagrassTypeofValuation:Valuebased(usingsomemarketassumptions–i.e.quantityofresource)Calculation:NPVofallfutureseagrassvaluesbasedonthefollowingassumptions:A. Totalseagrass:113,417hectaresB. Degradationofseagrass:-0.21percentto-0.55percentyearly(variesacross

countries)C. ValuederivedfromSeaGrass=US$26,479perhectare(appliedforeachyear,not

adjustedforforecastedinflationaswewantNPVincurrentdollars)

Primary Sources: • Total Coral Reefs:

SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters

• Value generation: Cesar, Herman; Burke, Lauretta; Pet-Soede, Lida. "The Economics of Worldwide Coral Reef Degradation" Published by: Cesar Environmental Economics Consulting (CEEC) WWF – Netherlands NOTE: Identifying the correct value estimation for 1 hectare of coral reef proved challenging as many widely varying values are reported. We selected Cesar et al as the most applicable source for this calculation as it provided a breakdown of direct benefits. We only included values for coastal, tourism / recreation, and biodiversity value to avoid double-counting with other “shared wealth fund” assets (e.g. fisheries)

• Asset degradation: SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters (2011)

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D. Discountrate:AverageregionalriskfreerateE. Noriskpremium–decisionmadenottoapplyriskpremiumtonaturalassets(only

onassetsdirectlyconnectedtoindustrial/marketoutput)Consideration:Benefitsfromprovisioningservicesfromseagrasshavebeenexcludedinordertoavoiddoublecounting(e.g.withmarinefisheries).

• Productive/DestinationCoastlines

Note:ProductivecoastlineassetvalueiscalculatedastheNPVofcoastaltourismactivity.Coastaltourismincludesconsumptiveandnon-consumptiveactivitiesincoastalzones.Consumptiveactivitiesincludefishing,shellfishing,etc.,whereasnon-consumptiveactivitiesincludeswimming,diving,boating,surfing,wind-surfing,jetskiing,birdwatchingandsnorkelling.

TypeofValuation:ValueBasedCalculation:NPVofallfuturecoastalproduction(tourism-based)valuesbasedonthefollowingassumptions:A. Totalvalueproducedannually:US$10.4billion(takenfromyearlycalculation)

B. Perpetualgrowthrate:1percent(basedonglobalreportmethodology)

Primary Sources: • Total Sea Grass:

SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters; MACBIO Economic Assessment and Valuation of Marine Ecosystem Services: Vanuatu

• Value generation: • De Groot, Rudolf et al. "Global estimates of the value of ecosystems and their services

in monetary units" (2012) 55 • Costanza, Robert et al. "Changes in the global value of ecosystem services". Global

Environmental Change 26 (2014) 152-158

• Note: Seagrass seems to have attracted relatively little research attention in terms of economic valuation studies. Whilst there are recent valuation studies, none provided a breakdown of direct benefits that would prevent double counting, particularly on carbon sequestration.

• Asset degradation: • SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change –

Country Chapters (2011)

• Asset degradation: SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters

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Note:BCG’sanalysisconcludesthatonly27percentofpotentialcoastlinesareutilizedbyhumandevelopment.Itislikelythiswillcontinuetoriseinthecomingdecades,howeverthisalsomaydiminishvalueofthisandotherconnectedassets–thusaconservativeperpetualgrowthof1percentwasused)

C. Discountrate:Averageregionalrisk-freerate+averageregionalriskpremium

D. Riskpremium–decisionmadetoapplyriskpremiumtoallassetsderivingvalue

fromindustrial/marketbasedsources,basedonthemethodologyappliedintheglobalreport.

Consideration:Potentialdoublecountingmightexistbetweenproductivecoastlineassetvalueandmangroves/coralreefsassetvaluesbutitcannotbeavoidedduetolackofdatawhichprovidesbreakdownofbenefitsinsomeecosystemslikemangrovesandseagrassand/orthelackofvaluationstudiesoncoastalprotectionperse.

Primary Sources: • Coastal tourism value

Coastal Value annual assessment – see below sections for methodology. Secondary Sources: • World Wildlife Fund. Marine Problems: Tourism and Coastal development

http://wwf.panda.org/about_our_earth/blue_planet/problems/tourism/ • http://www.prb.org/Publications/Reports/2003/RippleEffectsPopulationandCoastalRegions.aspx • http://worldoceanreview.com/en/wor-1/coasts/living-in-coastal-areas/ • http://www.oceansatlas.org/servlet/CDSServlet?status=ND0xODc3JjY9ZW4mMzM9KiYzNz1rb3

M~ • http://www.rockefeller.edu/labheads/cohenje/PDFs/256Cohensmall.htm • UNWTO. Tourism Highlights. 2014 Edition • World Wildlife Fund – Blue Plan: Coasts

http://wwf.panda.org/about_our_earth/blue_planet/coasts/ • Sustainable Development of Tourism – UN World Tourism Organization. Coast Project.

http://sdt.unwto.org/en/content/coast-project • World Ocean Review. Coasts

http://worldoceanreview.com/en/wor-1/coasts/living-in-coastal-areas/2/ • Intergovernmental panel on Climate Change. "Increasing human utilization of the coastal zone"

http://www.ipcc.ch/publications_and_data/ar4/wg2/en/ch6s6-2-2.html • NOAA – State of the Coast

http://stateofthecoast.noaa.gov/population/welcome.html • UN Atlas of the Oceans

http://www.oceansatlas.org/servlet/CDSServlet?status=ND0xODc3JjY9ZW4mMzM9KiYzNz1rb3M~

• Estimates of Coastal Populations http://www.rockefeller.edu/labheads/cohenje/PDFs/256Cohensmall.htm

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• CarbonAbsorption

Carbonsequestrationrateswereappliedtoareaofnaturalassetsthatsequestercarbon(mangroves,seagrass)andthetotalweightofcarbonmultipliedbythecostofcarbonTypeofValuation:ValueandmarketbasedPrimaryCalculation:NPVoffutureexpectedcarbonsequestrationfrommangrovesandseagrass,multipliedbymarketpriceofcarbonA.Totalcarbonsequesteredannually:4,113,246tCO2(takenfromyearlycalculation)B.Growthperyear:-0.2percentto-0.6percent(variesbasedonassettype:seagrassvsmangrovesandcountry)C.Socialcostofcarbon:US$61D.Discountrate:averageregionalriskfreerate+AverageregionalriskpremiumE.Riskpremium–decisionmadetoapplyriskpremiumtoallassetsderivingvaluefromindustrial/marketbasedsources,basedonthemethodologyappliedintheglobalreport.

Primary Sources: • Area of asset (mangroves, sea grass)

SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters; MACBIO Economic Assessment and Valuation of Marine Ecosystem Services: Vanuatu

• Asset degradation rate (mangroves, sea grass) SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters

• Carbon sequestration rate

Murray BC, Jenkins WA, Sifleet S, Pendleton L, Baldera A (2010) Payments for blue carbon: potential for protecting threatened coastal habitats. Policy Brief, Nicholas Institute for Environmental Policy Solutions, Duke University. 12pp (Cited in MACBIO Economic Assessment and Valuation of Marine Ecosystem Services: Fiji)

• Social cost of carbon US EPA (2015) (Cited in MACBIO Economic Assessment and Valuation of Marine Ecosystem Services: Fiji) Note from the MACBIO report: The social cost of carbon (SCC) is an estimate of economic damage associated with a marginal increase in carbon dioxide emissions (US$/tCO2/year) and also represents the value of damage avoided for a small emission reduction (i.e. the benefit of a CO2 reduction) (US EPA 2015). We use the SCC value of the US EPA (2015) of US$61/tCO2/year (reflecting a 2.5 per cent social discount rate)

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AnnualValueGeneratedfromMelanesia’sOceanEconomy(GrossMarineProduct)

TheanalysisinFigure1ofthereportdemonstratestheannualeconomicvalueofocean-relatedactivitiesinMelanesia.Iftheoceaneconomywereitsowneconomy,itwouldbethethirdlargesteconomyintheregion,broadlyequivalenttothecombinedGDPsofFijiandSolomonIslands.

Wedeterminedtheannualeconomicvaluerangeusingbothatop-downandbottom-upanalysis.Ourtop-downanalysis(~US$4.8billion)wasconductedbysurveyingavailablepublicinformationfortheMelanesiannationsregardingtheannualeconomicvalueoftheoceantolocaleconomies.Ourbottom-upanalysis(~US$5.4billion)wasconductedbycategorizingandevaluatingtheannualeconomicvalueforocean-relatedgoodsandservicesinMelanesia.Top-downestimateWeconductedresearchonthefiveMelanesiancountriesandterritorytosourceforliteratureoneconomicvalueoftheocean.OurprimarysourceofreferencewastheIUCNEconomicValueofthePacificOceantothePacificIslandCountriesandTerritories2010report.• AlldatapointsusedfromthereportwereinUSdollars.• Thecategoriesofeconomicoutputusedfromthereportweretourismexpenditure,

offshorefishing(locally-based),offshorefishing(foreign-based),andfishingaccessfees,coastalcommercialfishing,mariculture,coastalsubsistencefishing,coralreefs,andmangroves.Aseachcategory’sdatawasforadifferentyear,theproportionoftheregion’sGDPwascalculatedbasedontheyearofthedata,andthepercentofGDPwasthenappliedtothelatestavailable2015nominalGDPnumbers.Where2015GDPdatawasnotavailable,anextrapolationbasedrecentcompoundannualgrowthrate(CAGR)andonlatestavailabledatawasdone.

• BelowisasummaryoftheGDPcategoriesthathelpustoarriveatthetotalannualeconomicvalueoftheMelanesiaoceanregion

Category Year %ofGDPTourism 2008 5Offshorefishing(locallybased) 2007 2Offshorefishing(foreignbased) 2007 3Accessfees 2007 0.1Coastalcommercial 2007 0.4Mariculture 2007 0.1Coastalsubsistence 2007 1TotalEconomicValuation(TEV)ofcoralreefs 2008 2TEVofmangroves 2008 1Totaltop-downGMP 14%

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Primary Sources: • Ocean economic valuation

IUCN Economic value of the Pacific Ocean to the Pacific Island Countries and Territories (2010)

• GDP of countries IMF World Economic Outlook (2015) New Caledonia: Economist Intelligence Unit (2015)

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Oceanrelatedactivitiesgroupinto4primarycategoriesAlldirectlydependentontheocean’secologicalfunctionsandwell-being

4categoriesofannualoceanactivities

CategoryTotalvalue(US$billion)

A)Directoutputoftheocean• Activitiesrelatedtothecontentsoftheocean

3.04

B)Servicesenabledbytheocean• Activitiesoccurringin/ontheocean 0.94

C)Adjacentbenefitsoftheocean• Quantifiablebenefitsenabledbytheocean

1.39

D)Otherintangiblebenefitsoftheocean• Allundefinableactivitiesattributedtothe

presenceoftheoceann/a

Totalvalue:~US$5.4billion

Theabovetabledemonstratesaclassificationofservicesthatrelyontheocean.Asonemovesdownthetable,thecorrelationtotheoceanbecomeslessdirect,movingfromdirectoutput,toservicesenabledbytheocean,adjacentbenefitsoftheocean,andotherintangiblebenefitsoftheocean.Categoriesincludethefollowingservices:A)fishingrelatedactivities,marinerenewableenergy,B)education&training,research&development,oceansurvey,cruiseindustry,marinetourism,security&control,C)directimpactofcoastaltourism,carbonsequestration,coastalprotection,andmarinebiotechnology,D)spiritual&culturalbenefits,climatechangebenefits,andoverallutility.Thelattercategory–intangiblebenefits–islikelytoincludehighlyvaluablebenefits,butwefounditdifficulttoascribeadollarvalue.BottomupestimateWeconductedacomplementary"bottom-up"analysistoestimatetheannualeconomicvaluegeneratedbymarinerelatedindustries.Marineindustrieswerebrokendownintofourprimarycategories,eachwithrespectiveservicesallocatedwithin.Thelistbelowisnotexhaustiveandonlytakesintoaccounttheprimaryactivitiesrelatedtotheocean.Thisanalysisisdecidedlyconservativeinitsapproach,andonlyvalueswhatwearecapableofassessingandquantifying.Thus,thetrueyearlyeconomicvalueoftheoceanintangibleandintangibletermsmaybemuchhigher.

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Onceallprimaryindustrieswereidentified,andplacedintothecategorizationframework,wecalculatedtheannualeconomicvaluegeneratedforeachsub-category.Datafortheregional/countryvalueforeachoftheindustriesisnotfullyavailableforsomeactivities,withsomedataestimatedfromthepast,orextrapolatedfromaglobalnumberusedintheglobalreport.Multiplepubliclyavailablesourceswereleveragedandusedfortriangulationtoarriveatafairandestimatedamountforeachrespectiveindustry.Forcertainindustrieswherepastinformationwasavailable,butnotmostrecentdata,historicalcompoundannualgrowthrate(CAGR)wascalculatedandusedtoestimatecurrenteconomicvalue.Additionally,oil&gasproductionrevenueandexpendituresarenotincludedinthisoverallanalysis.Thecontributionofyearlyoffshoreproduction,inconjunctionwithpotentialoffshorereservesandannualoil&gasexpendituressuchasoilrigs,liquidnaturalgascontainers,etc.,wouldinflatethetruevalueofanindustrythatwouldremainoperationalwithorwithouttheocean.Inaddition,shippingandmaritimetransportandinfrastructure,althoughdependentonthesurfaceoftheoceanlikepassageofships,isnotdependentontheecologicalfunctionandwell-beingoftheocean.Hencethesehavebeenexcludedintheanalysisaswell.TheexerciseaimsatsizingthevalueoftheoutputgeneratedbytheoceanintheMelanesiaregion,butdoesnottackletheshareofvaluecapturedlocallyversusexternally.Pleaseseebelowforthemethodologyleveragedtoarriveatmarketestimate(forsourceinformationpleaseseeprimarysourcecitation):

Directoutputoftheocean

Marinefisheries(Commercial)Comprisesmarinefisheries(offshore),marinefisheries(coastal),andaccessfeesMethodology• Weightoffishmultipliedbypriceoffishfortotalvalueofmarinefisheries,access

feesadded.• Weightoffishobtainedbyextrapolatingtotalregionalfishcatchin2010byapplying

historical2006-2009CAGR,2010dataexcludedforaconservativeestimateduetoaone-offspikeinPapuaNewGuinea(4percentforoffshore,4percentforcoastal)

• 2015priceoffishobtainedfromtheOECDFAOOutlookdatabase,WorldFishpriceused

• 2007/2014accessfeesuseddirectly

Primary Sources: • Marine fisheries (offshore) and marine fisheries (coastal) fish weight

UBC Sea Around Us database (Industrial, Artisanal) http://www.seaaroundus.org/data/#/eez • Price of fish:

OECD-FAO Agricultural Outlook (Fisheries) 2015-2024: http://stats.oecd.org/

• Access fees IUCN Economic value of the Pacific Ocean to the Pacific Island Countries and Territories 2010 Gillett, Robert. Fisheries in the Economies of the Pacific Island Countries and Territories. Asian Development Bank, 2009. Gillett, Robert, Fisheries in the Economies of the Pacific Island Countries and Territories, Pacific Community SPC, 2016 Personal communications with R. Gillett and Maurice Brownjohn, March- April 2016

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Marinefisheries(subsistence&recreational)

Comprisesmarinefisheries(subsistence)andmarinefisheries(recreational)Methodology• Weightoffishmultipliedbypriceoffishfortotalvalueofmarinefisheries• Weightoffishobtainedbyextrapolatingtotalregionfishcatchin2010byapplying

historical2006-2010CAGRexcludingSolomonIslands(1percent).SolomonIslandswasexcludedinthecalculationofCAGRduetoaone-offsignificantdip

• 2015priceoffishobtainedfromOECDFAOOutlookdatabase,WorldFishfromcapturefisheriesused.

Mariculture/aquaculture

Methodology• Weightoffishmultipliedbypriceoffishfortotalvalueofaquaculture• Weightoffishobtainedbyextrapolatingtotalregionfishcatchin2013byapplying

historical2009-2013CAGRexcludingSolomonIslands(16percent).SolomonIslandswasexcludedinthecalculationofCAGRforaconservativeestimateduetoasignificantlylargeincreasein2011to2012whichcouldpotentiallyskewgrowthrates

• 2015priceoffishobtainedfromOECDFAOOutlookdatabase,WorldFishfromaquaculturepriceused

Primary Sources: • Marine fisheries (subsistence) and marine fisheries (recreational) fish weight

UBC Sea Around Us database (Industrial, Artisanal) http://www.seaaroundus.org/data/#/eez

• Price of fish: OECD-FAO Agricultural Outlook (Fisheries) 2015-2024 http://stats.oecd.org/

Primary Sources: • Aquaculture fish weight

FAO aquaculture data http://www.fao.org/fishery/statistics/global-aquaculture-production/en

• Price of fish: OECD-FAO Agricultural Outlook (Fisheries) 2015-2024 http://stats.oecd.org/

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Marinerenewableenergy

Methodology• ScaleddownglobalmarinerenewableenergynumbertotheMelanesianregion

basedontop-downMelanesiaGMPestimateasapercentageofglobalGMP(0.2percent)

• Globalmarinerenewableenergyvaluewasbasedon2014expendituresonmarinerenewableenergy(e.g.tidalandwave)excludingoffshorewindexpendituresduetotheirdependenceonwind,andtheirlackofdependenceontheoceantoremainoperational.

Directservicesenabledbyoftheocean

Marinetourism

Methodology• Totalmarineandcoastaltourismwascalculatedbyapplyingpercentageoftourism

attributabletomarineecosystemstototaltourismreceipts• Totaltourismreceiptscompriseinternationaltourismreceiptsanddomestictourism

spending• Wherelatesttourismreceiptnumberswerenotavailable,historicalCAGRforeach

countrywasappliedtothelatestavailabledatapoint• Percentoftourismattributabletomarineecosystemsbasedondifferentstudies

doneforeachcountry• Marineandcoastaltourismsplitisbasedontheaverageof:

o Globalmarine&coastaltourismproportion(marinetourism–27percent,coastaltourism–73percent)

o MarinetourismvaluetriangulatedwithscaleddownglobalmarinetourismnumbertotheMelanesianregionbasedontop-downMelanesianGMPestimateasapercentageofglobalGMP(0.2percent)

Primary Sources: • Borderless. "Wave & tidal energy spend to hit US$1.2bn by 2015."

http://borderless.net/content/wave-and-tidal-energy-spend-hit-us12bn-2015

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CruiseindustryWeemployedtwomethodologiestodeterminethisvalueforMelanesia.ThefirstmethodologyyieldedavalueofUS$497million,whilethesecondprovidedavalueofUS$500million.ForthefinalGMPcalculation,weusedthesecondmethodologyforwhichthedatawasmorerecent.

Methodology#1• Cruiseindustryvaluecalculatedbymultiplyingnumberofcruisepassengerarrivals

byaveragepriceofcruiseperpassengerandanadjustmentfactorfordouble-counting(cruisesthatgotomultipledestinationsintheSouthPacific)

• Forcountrieswithoutcruisepassengerarrivals,percentofpassengerarrivalsbycruiseorthenumberofcruiseshiparrivalsmultipliedbyaveragenumberofpassengersonacruiseshipwasused

• Adjustmentfactorfordoublecountingwasassumedtobeaconservative50percent-onaverage,eachcruisepassengervisitstwoMelanesiancountriesonacruisetrip

Methodology#2• Forallthecountrieswecalculatedtheaveragecapacityofpassengerspercallbased

onthenumberofcallspershipcategory(e.g.largecontemporaryvs.mid-sizeetc.)andtheaveragecapacitiesforeachshiptypebasedonnumberofcruisesinMelanesiain2015.

• ThenumberofpassengerdayspercallinVanuatuis2,082percall.Inordertocalculatethenumberofpassengerdayspercallfortheremaining4countries,weusedtheaveragecapacitypercallasaratiotocalculatetheaveragenumberofpassengernightsspentpercall.

Primary Sources: • International tourism receipts

World Bank http://data.worldbank.org/indicator/ST.INT.RCPT.CD

• Domestic tourism spending WTTC http://www.wttc.org/datagateway/ New Caledonia: data not available, extrapolated a domestic tourism spending based on rest of Melanesian countries’ domestic tourism spending to international tourism receipts ratio

• Per cent tourism attributable to marine ecosystems Fiji: 2013: Economic Valuation of Tourism and Fisheries in the Vatu-i-Ra Seascape New Caledonia: Laurans et al 2013 Economic valuation of ecosystem services from coral reefs in the South Pacific (marine ecosystem related tourism value provided, per cent calculated by applying value to 2009 international tourism receipts and domestic tourism receipts) Papua New Guinea: State of the Coral Reefs of Papua New Guinea 2001 Solomon Islands: MACBIO Economic Assessment and Valuation of Marine Ecosystem Services: Solomon Islands Vanuatu: Papua New Guinea used as proxy

21

• Then,todeterminetheaveragerevenuesperpassengerdayforeachcountry,welookedatthepriceperdayofdifferentcruisesacrosstheMelanesianregion,forthreecabintypes:interior,outside,andbalcony(assumingeachcruiseshiphadanapproximate~25percent/11percent/64percentsplitbetweeneachtype).Wetooktheaveragepricepercountry,perday,perpassenger,foreachroomtypetoultimatelydeterminethetotalrevenues.

• Weaddedanadditional15percentmarkuptothisfinalnumber(10percentforonboardspendingand5percentforexpensivesuiterentalswhichweren'tincludedintheoverallanalysis),andtheJanuary2016AU$toUS$exchangerateof0.69.

Education&training

Methodology• Scaleddownglobaleducation&trainingnumbertoMelanesiabasedontop-down• GMPestimateasapercentageofglobalGMP(0.2percent)• Globaleducation&trainingvaluebasedonannualexpendituresderivedfrom

"Marineindustriesglobalmarketanalysisreportandgrownathistoric5yearCAGRrateof3percent.DatafoundinEurosandconvertedtoUS$at2014exchangerate

Primary Sources: • Cruise passengers

Fiji: Fiji Bureau of Statistics http://www.statsfiji.gov.fj/index.php/migration-a-tourism/10-migration-statistics/migration-a-tourism/115-visitor-arrivals-statistics New Caledonia: http://www.cybercruises.com/crlidrtogrnemar05.htm Papua New Guinea: http://www.businessadvantagepng.com/papua-new-guinea-buoyed-cruise-boom/, http://data.worldbank.org/indicator/ST.INT.ARVL Solomon Islands: http://www.radionz.co.nz/international/pacific-news/263962/cruise-ships-a-ray-of-light-for-solomon-islands Vanuatu: Assessment of the Economic Impact of Cruise Ships to Vanuatu Report http://www.ifc.org/wps/wcm/connect/545bc20045521e26a65aaec66d9c728b/Assessment+of+the+Economic+Impact+of+Cruise+Ships+to+Vanuatu+REPORT.pdf?MOD=AJPERES

• Average cruise prices http://www.mynrma.com.au/travel/cruises/south-pacific.htm

Primary Sources: • Marine Industries Global Market Analysis. Vol. 1. Douglas-Westwood Limited, Mar. 2005.

http://oar.marine.ie/bitstream/10793/559/1/Foresightper cent20Seriesper cent201per cent20Marineper cent20Industriesper cent20Globalper cent20Marketper cent20Analysis.pdf

Primary Sources: • Pacific Cruise Market Research and Intelligence Project (Final Report, March 2015) • Assessment of the Economic Impact of Cruise Ships to Vanuatu, August 2014 • Average cruise prices per destination from:

http://www.mynrma.com.au/travel/cruises/south-pacific.htm • Cabin-type breakdown: http://www.cruisecritic.com/

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Research&development

Methodology• BasedonthelatestavailableOECDOverseasDevelopmentAid(ODA)valuesdirected

intofishing-relatedcategories:fishingpolicyandadministrativemanagement,fishingdevelopment,fisheryeducation/training,fisheryresearch,fisheryservices

Oceansurvey

Methodology• ScaleddownglobaloceansurveynumbertotheMelanesianregionbasedontop-downMelanesianGMPestimateasapercentageofglobalGMP(0.2percent)

• GlobaloceansurveyvaluebasedonannualexpendituresderivedfromMarineindustriesglobalmarketanalysisreportandgrownathistoric5yearCAGRrateof3percent.DatafoundinEurosandconvertedtoUS$at2014exchangerate

Security&control

Methodology• Scaleddownglobalsecurity&controlnumbertoMelanesiabasedonMelanesia’s

GMPestimateasapercentageofglobalGMP(0.2percent)• Globalsecurity&controlvaluebasedonannualexpendituresderivedfromtotal

expendituresonmaritimerelatedsecurityfor2014.

http://www.esd.ornl.gov/benefits_conference/nature_paper.pdf

Primary Sources: • Marine Industries Global Market Analysis. Vol. 1. Douglas-Westwood Limited, Mar. 2005.

http://oar.marine.ie/bitstream/10793/559/1/Foresightper cent20Seriesper cent201per cent20Marineper cent20Industriesper cent20Globalper cent20Marketper cent20Analysis.pdf

• The Maritime Executive. "Growth forecasted for Maritime Security Market." http://www.maritime-executive.com/article/Growth-Forecasted-for-Maritime-Security-Market-2014-10-14

Primary Sources: • Marine Industries Global Market Analysis. Vol. 1. Douglas-Westwood Limited, Mar. 2005.

http://oar.marine.ie/bitstream/10793/559/1/Foresightper cent20Seriesper cent201per cent20Marineper cent20Industriesper cent20Globalper cent20Marketper cent20Analysis.pdf

Primary Sources: • OECD ODA database

https://stats.oecd.org/qwids/

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Adjacentbenefitsoftheocean

Coastaltourism

Methodology• Totalmarineandcoastaltourismcalculatedbyapplyingpercentageoftourism

attributabletomarineecosystemstototaltourismreceipts• Totaltourismreceiptscompriseinternationaltourismreceiptsanddomestictourism

spending• Wherelatesttourismreceiptnumberswerenotavailable,historicalCAGRforeach

countrywasappliedtothelatestavailabledatapoint• Percentoftourismattributabletomarineecosystemsbasedondifferentstudies

doneforeachMelanesiancountry• Marineandcoastaltourismsplitisbasedontheaverageof:

o Globalmarine&coastaltourismproportion(marinetourism–27percent,coastaltourism–73percent)

o MarinetourismvaluetriangulatedwithscaleddownglobalmarinetourismnumbertotheMelanesianregionbasedontop-downMelanesianGMPestimateasapercentageofglobalGMP(0.2percent)

Primary Sources: • International tourism receipts

World Bank http://data.worldbank.org/indicator/ST.INT.RCPT.CD

• Domestic tourism spending WTTC http://www.wttc.org/datagateway/ New Caledonia: data not available, extrapolated a domestic tourism spending based on rest of South Pacific countries’ domestic tourism spending to international tourism receipts ratio

• Per cent tourism attributable to marine ecosystems Fiji: 2013: Economic Valuation of Tourism and Fisheries in the Vatu-i-Ra Seascape New Caledonia: Laurans et al 2013 Economic valuation of ES from coral reefs in the South Pacific (marine ecosystem related tourism value provided, per cent calculated by applying value to 2009 international tourism receipts and domestic tourism receipts) Papua New Guinea: State of the Coral Reefs of Papua New Guinea 2001

Solomon Islands: MACBIO Economic Assessment and Valuation of Marine Ecosystem Services: Solomon Islands Vanuatu: Papua New Guinea used as proxy

24

CarbonsequestrationComprisescarbonsequestrationofmangrovesandseagrass

Methodology• Carbonsequestrationvaluecalculatedbymultiplyingrateofcarbonsequestration

foreachassettypebyareaofassettypeandcostofcarbon• Carbonsequestrationratesusedare:Mangroves–6.32tCO2/ha/year;Seagrass–4.4

tCO2/ha/year• Costofcarbonusedissocialcostofcarbon,US$61/tCO2

Coastalprotection

Methodology• Coastalprotectionvaluestakenfromvaluationsdonebystudycommissionedby

MACBIOteam• Approachusedisannualizedavoideddamagecostduetopresenceofcoralreefs

basedonfollowingformula:ADt=Pt*(1-CPIR)*(A*C*DF),where:o ADt=avoidedflooddamageinyeart,thankstothepresenceofcoralreefso Pt=probabilityofstormsurgeinyearto CPIR=coastalprotectionindexofcoralreefs(normalizedtovaluesbetween0

and1bydividedthesumofthefiveindexesoffactorsnon-relatedtoreefsbythemaximumtotalscore,i.e.35)

o A=assetsatrisk(e.g.numbersofhouses)o C=constructioncosts(e.g.costperhouse)o DF=damagefactor(flooddamageasapercentofconstructioncost)

• AboveapproachwasdonecomprehensivelyforFiji,NewCaledonia,SolomonIslands,andVanuatu,butnotforPapuaNewGuinea

Primary Sources: • Carbon sequestration rate

Murray BC, Jenkins WA, Sifleet S, Pendleton L, Baldera A (2010) Payments for blue carbon: potential for protecting threatened coastal habitats. Policy Brief, Nicholas Institute for Environmental Policy Solutions, Duke University. 12pp (Cited in MACBIO Economic Assessment and Valuation of Marine Ecosystem Services: Fiji)

• Area of assets (mangroves, seagrass): SPC Vulnerability of Tropical Pacific Fisheries & Aquaculture due to Climate Change – Country Chapters Vanuatu seagrass: MACBIO Economic Assessment and Valuation of Marine Ecosystem Services: Vanuatu

• Cost of carbon US EPA (2015) (referenced in MACBIO Economic Assessment and Valuation of Marine Ecosystem Services reports)

Primary Sources: • Pascal N (2015) Economic valuation of marine and coastal ecosystem services:

ecosystem service of coastal protection — Fiji, Kiribati, Tonga, Vanuatu and the Solomon Islands. Report to the MACBIO Project. GIZ/IUCN/SPREP, Suva.

• Pascal, N., 2010. Ecosystèmes coralliens de Nouvelle-Calédonie, valeur économique des services écosystémiques Partie I: Valeur financière. IFRECOR (Initiative Française pour les Récifs Coralliens) Nouvelle-Calédonie, Nouméa, Avril 2010, 155 pp. + 12 planches.

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Marinebiotechnology

Methodology• Marinebiotechnologymarketestimatedbyscalingdownglobalmarketformarine

biotechnologytotheMelanesianregionbasedontop-downMelanesianGMPestimateasapercentageofglobalGMP(0.2percent)

• Globalmarketformarinebiotechnologywasprovidedfor2018,andadjustedtogetto2015basedongrowthrateprovided(4percent)

Primary Sources: • Global marine biotechnology market

Global Industry Analysts Inc. (2013). Marine Biotechnology: A Global Strategic Business Report., http://www.strategyr.com/marine_biotechnology_market_report.asp

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60%

US$548 BN

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By 2030, 60% more fish will be required for domestic food consumption than in 2010.

Coastal areas in the Melanesian region are experiencing rates of sea level rise three to four times the global average. The economic output of

the ocean in Melanesia makes it the third largest economy in this region.

The overall value of ocean assets in Melanesia is more than US$548 billion.

Melanesia’s ocean in numbers

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