The Economic Valuation of Biological DiversityThe Economic Valuation of Biological Diversity X...

Tropical Ecology SupportProgram (TÖB)

The Economic Valuationof Biological Diversity

Tropical Ecology SupportProgram (TÖB)

The Economic Valuationof Biological Diversity

Dr. Thomas Plän

Eschborn, 1999

TÖB Publication No.: TÖB P-3e

Published by: Deutsche Gesellschaft fürTechnische Zusammenarbeit (GTZ) GmbHPostfach 5180D-65726 Eschborn

Responsible: Tropenökologisches Begleitprogramm (TÖB)Dr. Claus Bätke

Author: Dr. Thomas Plän, inf – Informationsmanagement,Biotechnologie / Biodiversitätsnutzung,Lessingstr. 3a, D-93049 Regensburg, GermanyTel.: +49-941-299054, Fax: +49-941-25627,email: [email protected]

Edited by: Michaela Hammer

Nominal fee: DM 5,-

ISBN:

Produced by: TZ-Verlagsgesellschaft mbH, D-64380 Roßdorf

© 1999 All rights reserved

Foreword

For the majority of the world's population, tropical ecosystems are a vital life-sustaining force. However, the progressive destruction and depletion of naturalresources in developing countries are jeopardising efforts aimed at achievingsustainable development and effective poverty reduction.

The Flanking Program for Tropical Ecology is a supraregional service projectbeing run by the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ)GmbH on behalf of the Federal German Ministry for Economic Cooperationand Development (BMZ), its mandate being to help collect and processexperience in this sector, thus improving the information status.

On request, the program flanks specific projects with studies focusing onissues relevant to tropical ecology. By so doing, it is aiming to further developconcepts and approaches geared to protecting, conserving and ensuring thesustainable use of tropical ecosystems. At the same time, this research workprovides the basis for designing innovative instruments that will facilitate moreecologically-sound development cooperation in future.

By applying scientific results at grass-roots extension level, the program assistsother projects in the implementation of international agreements, in particularAgenda 21 and the Biodiversity Convention, to which the BMZ attaches greatimportance.

A key element of the program concept centres on a joint approach whichprovides German and local scientists with a forum for discussion. TheFlanking Program for Tropical Ecology is thus making a valuable contributionto the practice-oriented upgrading of counterpart experts and the consolidationof tropical-ecology expertise in partner countries.

This series of publications has been produced in a generally comprehensibleform with the specific aim of presenting its results and recommendations to allorganisations and institutions active in development cooperation, and also to allthose members of the general public who are interested in environmental anddevelopment-policy issues.

Dr. H. P. SchipulleHead of the Environmental Policy,Protection of Natural Resources and

Forestry Division

Dr. C. van TuyllHead of the Rural Development Division

Federal German Ministry for EconomicCooperation and Development (BMZ)

Deutsche Gesellschaft für TechnischeZusammenarbeit (GTZ) mbH

Contents

I

Table of Contents

TABLE OF CONTENTS .....................................................................I

LIST OF FIGURES..........................................................................IV

LIST OF TABLES...........................................................................IV

GLOSSARY ...................................................................................V

SUMMARY...................................................................................IX

1 INTRODUCTION ......................................................................1

1.1 Description of the development cooperation project and

purpose of the project ................................................................. 1

1.2 Analysis of problems .................................................................. 2

1.3 Objectives................................................................................... 3

2 RESULTS AND ANALYSIS........................................................7

2.1 Decrease in biodiversity as a consequence of the lack of

markets and of market failure ..................................................... 7

2.2 Classification of the types of values of biological diversity ...... 11

2.3 Examples of evaluating biological diversity ............................. 22

2.3.1 Use value of genes and biochemicals ............................ 22

2.3.2 Use value of species...................................................... 28

2.3.3 Use value of ecosystems and landscapes....................... 30

3 RECOMMENDATIONS............................................................35

3.1 Valuation methods and techniques............................................ 35

3.1.1 Determining direct and passive use values on

simulated markets ......................................................... 38

3.1.2 Indirectly determining direct use values........................ 43

3.1.3 Determining indirect use values.................................... 45

The Economic Valuation of Biological Diversity

II

3.2 The cost aspect of the conservation and destruction of

biological diversity and the cost-benefit analysis procedure ..... 48

3.2.1 Opportunity costs: restoration costs, sustainability

costs, lost use values..................................................... 48

3.2.2 Cost-benefit analysis..................................................... 52

3.3 Organisation of markets with appropriate prices....................... 53

3.3.1 Monetisation and cost-benefit analyses......................... 54

3.3.2 Dismantling failed interventions ................................... 55

3.3.3 Creation of private property rights and integrated

biodiversity management.............................................. 56

3.3.4 Creation of market-based regulatory instruments.......... 58

3.3.5 Creation of global markets............................................ 61

3.4 Recommendations for development cooperation ...................... 65

3.4.1 Project-oriented cost-benefit analyses using the

available valuation instruments..................................... 66

3.4.2 Training and capacity-building to inventor and

monitor biodiversity ..................................................... 66

3.4.3 Creation and/or strengthening of institutional

prerequisites for the development and

implementation of national biodiversity strategies ........ 67

3.4.4 Training and capacity-building to conduct cost-

benefit analyses and valuation techniques..................... 67

3.4.5 Supporting research capacities in developing

countries at the frontier between ecology and

economics 68

3.4.6 Identification of interventions failures .......................... 70

3.4.7 Creation of incentive instruments ................................. 71

3.4.8 Participation of local communities in biodiversity

yields ............................................................................ 71

Contents

III

3.4.9 Assistance in the creation of property rights ................. 72

3.4.10 Cooperation in establishing global environmental

markets through bilateral and multilateral

agreements.................................................................... 73

4 BIBLIOGRAPHY ....................................................................75

4.1 Cited references........................................................................ 75

4.2 Other references ....................................................................... 83


IV

List of figures

Fig. 1: Total economic value of a biological asset 13

Fig. 2: Classification of resources 17

Fig. 3: Classification of economic values and attributable valuation

methods (methods in angled brackets are less suitable ones) 37

Fig. 4: Comparison of the resulting costs and use of protected areas 52

List of tables

Table 1: Use values of genes and biochemicals 28

Table 2: Use values of species 30

Table 3: Use values of ecosystems 33

Glossary

V

Glossary

Allocation

mechanism

Mechanism for the allocation of productive factors or

resources to certain goals

Assimilation Admission and processing of a substrate

Bequest value Value of keeping a resource intact for future

generations

Biodiversity or

biological diversity

General term for the number, variety and diversity of

living organisms in a certain environment or unit of

space, divisible into the order and integration levels

genes, species and ecosystems

Biological resource General term for genetic resources, organisms or

parts of organisms, populations or any other

biological component of ecosystems of actual or

potential use or value for mankind

Bioprospecting Exploration of biodiversity in search of commercially

exploitable genetic and biochemical resources

Biotic Of or relating to organisms or life processes

Cost-benefit analysis

(CBA)

Collection and evaluation of relevant actions or

measures and their alternatives in monetary terms

Direct use value Value of biological resources or resource systems by

consumption or production or by their direct

interaction with market subjects

Discounting Preference of a currently available private use, which


VI

involves social destruction, over a private use in the

future, which also involves social preservation

Ecosystem Fundamental functional ecological unit which

includes organisms and environment, divisible into

energy flows, food chains, diversity samples,

biogeochemical food cycles, development and

evolution, cybernetics

Emission rights Pollution licence entitling the holder to a certain level

of emissions

Existence value Intrinsic value of a resource

Global environmental

markets (GEMs)

Global markets which have either been enforced by

international sets of rules or have resulted from

voluntary agreements

Gross national

product (GNP)

Total value of the goods and services produced by

firms owned by a country

Gross primary

production

Entire photosynthesis, including organic material

used during respiration

Habitat Place in which an organism lives

Indirect use value Value of biological resources or achievement for

directly used resources or ecosystems

Market analysis Analysis of the procurements and sales prospects of

an enterprise or an industry and the market influences

affecting it at a certain time

Glossary

VII

Natural capital The natural wealth of biological resources

Net primary

production

Quantity of organic material stored in green plants

minus that used in respiration

Opportunity costs Costs of alternatives that are not used

Option value Use reserved for a later time

Passive use value Measurement of the significance of resources or

similar factors for us, our descendants or other

species

Population Total individuals belonging to a certain species in a

certain area

Preference Ranking of demand for certain goods by individuals

Productivity Accumulation of one organic substance per unit of

time

Quasi-option value Value of delaying an irreversible decision to wait for

additional information to help in the decision-making

process

Surrogate market

concept

Evaluation of markets for private goods and services

related to the relevant resources and products

Screening Purposeful search for certain substances or effects

Travel cost approach Market approach based on the expenditure required

for a particular journey corresponding to or

characteristic of products or resources, etc.


VIII

Total economic value

(TEV)

Sum or aggregation of direct value, indirect value,

option/quasi-option value and passive use value of a

resource or a resource system

Transferable

development rights

(TDRs)

International trade development rights to enable

adequate protection of global biodiversity values, in

particular in tropical countries

Willingness to pay Survey to obtain a value, e.g. for biological diversity

Summary

IX

Summary

Biological diversity is decreasing at all levels of integration at an alarming

rate. The market prices of biological resources do not reflect their true

values because of a lack of internalisation of external costs and benefits.

This omission is an indication of market failure, based in particular on the

difference between private and social/ecological benefits, on the lack of

markets and on failed interventions.

This paper is based on the hypothesis that the failure to allocate economic

values to the respective components of biological diversity is one of the

causes of this decrease in diversity. Conversely, the allocation of the

appropriate economic values to these components should be able to halt

this trend and to reverse it.

After an introductory chapter, the chapter on "Results and Analysis"

highlights the loss of biodiversity under the aspect of the lack of markets

and of market failure. It is postulated that a market-oriented strategy to

valuate the components of biological diversity would help to stop this

decline. Types of values of biological diversity are therefore subdivided

into different use-dependent and use-independent categories. The

social/ecological value of biological resources or services is made up of

four categories of use values: the direct use value, indirect use value,

option/quasi-option use value and passive use value. These are added

together to give the so-called total economic value (TEV). However, there

is a certain amount of overlap between these types of values, which means

that there is a danger of values attributes being counted more than once in

different value categories. The more aspects of use value that can be

determined and compiled to form the TEV, the closer the TEV will come to

the "real" value of a biological asset. However, if this TEV fails to be


X

reflected by market prices, it remains a theoretical concept. Because of the

benefits of biological diversity and the lack of information available about

these benefits as a result of market failure, there is an urgent need for

economic valuation studies to be carried out.

The results of several studies carried out to assess genes and biochemicals,

species, ecosystems and landscapes in terms of the use values of the

respective components of biological diversity are highlighted.

The third chapter discusses application relevance and recommendations for

action and presents the relevant assessment methods. These methods

primarily suggest how markets would need to be reformed in order to

correct the present imbalance between prices and values and/or, where this

is not possible, provide decision-making aids indicating the political

measures that need to be taken to correct market signals.

The contingent valuation method (CVM) and related methods of analysis

are of particular importance in this context, because they allow combined

valuations of the direct use value, the option/quasi-option use value and the

passive use value of the components of biological diversity. Moreover,

these methods are the only useful ones to determine passive or non-use

values. Alternative indirect techniques by which to determine direct use

values are also presented.

Methods to determine preferences such as the CVM are not suitable to

determine the indirect use values (e.g. ecological regulatory functions) of

nature as a production factor, since these values support economic activities

or even enable such activities to be carried out regardless of preferences. In

order to determine indirect use values, methods such as productivity

change, maintenance or optimisation work effort, the restoration cost

approach and the production-function approach are currently being applied.

Summary

XI

The latter approach is designed to determine the physical effects that

changes of ecological functions have on economic activities.

In order to be able to be compared with use values and benefits, the costs

associated with the conservation, sustainable use and restoration of

biological diversity need to be determined. On the basis of the results of

this analysis, the alternative that is not chosen generates opportunity costs.

Finally, cost-benefit analyses (CBAs) allow relevant activities and their

alternatives to be identified and valuated in monetary terms. The relevant

cost and benefit variables have to established to allow an accurate direct

comparison of the possible alternatives to be made.

By applying valuation methods, it was able to be shown that the economic

benefits of conserving biological diversity are limited at a local level, are

somewhat higher at a regional and national level and become substantial at

a global level. In contrast, the costs frequently show the opposite trend:

They are significant at a local level and low at a regional and national level.

In order to allow effective conservation of biodiversity, the imbalance on

each of these levels needs to be corrected.

In this context, four measures are discussed which should lead to an

effective translation of the evaluation approaches into the creation of

markets. They concern the following:

The removal of damaging distortions of market mechanisms (deregulation)

by dismantling failed interventions. In order to establish prices that reflect

social costs, it is important to abolish all supportive measures that

artificially reduce the private costs of activities detrimental to biodiversity.

The creation of markets by privatisation and integrated biodiversity

management based on the efficiency criterion, i.e. those who control assets


XII

should also be those who profit from the benefits of these assets. This could

be attained by establishing property rights to those biological resources to

which vested titles do not yet exist and/or by transferring vested titles from

the State to landowners (including those not yet entitled to land tenure due

to pending reforms).

The introduction of control instruments, in particular market-induced

instruments, in addition to regulatory ones. While the latter imply direct

control (reduction/limitation) of unwanted actions in conjunction with

legislative or politically agreed standards, market economy-based

intervention instruments (MEIs) create economic incentives. Strictly

speaking, MEIs include all political measures explicitly related to private

benefits and costs by which the comparative social benefits and costs can

be incorporated into market prices. These instruments can be subdivided

into five categories: duties/taxes/fees, subsidies, pledge systems, tradable

rights and compensatory incentives.

The creation of global environmental markets (GEMs). These markets can

be enforced by international law or can be created on the basis of voluntary

agreements. A common feature of both approaches are bilateral or

multilateral transfer payments. The particular practical relevance of

approaches used to valuate conservation, sustainable use and restoration

costs for transfer payments (e.g. transferable development rights, TDRs)

lies in the fact that these payments can be related to the amount of money

required in national and international budgets to be spent inter alia on

conservation. In this respect, it is not sufficient to provide donor countries

with financial compensation. The transfer payments must also reach those

individuals and communities immediately involved in using and preserving

the components of biological diversity in question.

Summary

XIII

After describing application-relevant methods and mechanisms, ten

specific recommendations are made for development cooperation (DC):

• the establishment of project-oriented cost-benefit analyses applying the

available valuation methodology for the DC projects themselves,

• training and capacity-building to inventory and monitor biodiversity in

the partner countries,

• the creation and enforcement of institutional frameworks for the

development and implementation of national biodiversity strategies,

• training and capacity-building within the partner countries to carry out

cost-benefit analyses and valuation techniques,

• the support of research capacities in developing countries at the frontier

between ecology and economics,

• the identification of failed interventions and consultation concerning

their dismantling,

• consultation on the establishment of economic incentives, especially

market-based ones,

• the development of strategies for the participation of local communities

in biodiversity yields,

• assistance in the creation of vested titles/property rights and

• cooperation in creating GEMs on the basis of bilateral and multilateral

agreements.

Introduction

1

1 Introduction

1.1 Description of the development cooperation project

and purpose of the project

In December 1994, with the financial support of the German Forum on

Environment and Development, the present author submitted a carefully

considered preliminary study on "Economic concepts in the valuation of

biological diversity". This study contained a short presentation and

evaluation of economic valuation concepts of biological diversity.

After discussions had been held with those involved in the Deutsche

Gesellschaft für technische Zusammenarbeit (GTZ) GmbH's Tropical

Ecology Support Programme (TÖB), this preliminary study was developed

into a final study to be translated into English and laid out in accordance

with the guidelines for TÖB research projects. Above all, it was to be

revised to enable it to be used for practical purposes: How are valuation

studies on biological diversity carried out and what methods are available

to obtain adequate payment for the determined values?

First of all, the German version of the study was therefore revised to meet

comprehensibility criteria. In order to enable it to be put to practical use, it

was also supplemented by a description of the methods used to valuate

biological diversity, procedures used for cost-benefit analyses (CBAs),

recommendations regarding the organisation of markets with appropriate

prices and supplementary recommendations for development cooperation

(DC). Finally, the revised text was translated into English.


2

1.2 Analysis of problems

Biological diversity or biodiversity is the umbrella term for the number,

variety and diversity of living organisms in a certain environment and unit

of space. It is subdivided into the following order and integration levels:

• genes (and their derivatives),

• species and

• ecosystems.

On all three of these levels of integration and on a global scale, biological

diversity is decreasing at an alarming rate. This paper is based on the

hypothesis that the failure to allocate economic values to the respective

components of biological diversity is one of the causes of this decrease in

diversity. Conversely, the allocation of the appropriate economic values to

the components in question should be able to halt and even reverse this

trend.

If market prices reflected the actual value of biological resources (including

resource systems) and of their services (especially ecological ones), i.e. if

external costs were internalised and the costs of the respective resources

thus corresponded to all the values attributable to them, and if not only

their private value but also their social (and ecological) value became

apparent on the market to a sufficient degree, this notion should support

conservation and the sustainable use of biological diversity. In addition, the

socio-economic benefits of biological resources need to be determined as

comprehensively as possible and translated into marks or dollars. Even if

complete monetisation of the components of biological diversity cannot be

achieved (e.g. because access to certain goods and resources is impossible

Introduction

3

to monitor and control), it might nevertheless be possible to arrive at an

approximate value for these components.

1.3 Objectives

This study is concerned with existing valuations of the components of

biological diversity, i.e. those to which market prices have been assigned,

either as raw materials or as refined products. In addition, the various

methods of direct and indirect valuation that are used to try to capture the

"real" value of biological resources over and above their actual market

prices are listed and classified.

Which methods are available to determine the direct and indirect use values

of biological resources? To what extent do biological resources contribute

directly or indirectly to the economic prosperity and the socio-economic

development of political economies? Or, put differently, what is the "real"

value that authors attach to commercially used and usable biological

resources? And how do they estimate the indirect value of biological

resources, most obvious in functions such as flood protection,

photosynthesis, climate stabilisation and soil protection?

Many different approaches exist. One common procedure is the calculation

of those costs that are incurred by restoration ecology. Another procedure

is based on the market prices of biological resources using the theoretical

concept of maximum sustainable harvests. A further approach addresses

ecological and economic productivity. In this study, an attempt is made to

categorise the various approaches and to evaluate their respective deficits,

without overlooking the pitfalls of an exclusively economically oriented

valuation approach.


4

On the basis of the deficits that are identified, hypotheses of quality goals,

values and costs of biological diversity are derived. Scientific, political and

economic aspects are considered in order to establish which economic

and/or monetary preconditions need to be fulfilled in order to enable

biodiversity to be conserved and restored.

Using cost-benefit analyses, the social conservation, sustainable use and

restoration of biological diversity in monetary terms and their related costs

and benefits can be compared with the private and social values of

competitive benefits and costs. The following three steps are presented:

• the consequences of these competitive scenarios are identified,

• these scenarios are quantified in terms of their respective economic

benefits and costs and

• cost-benefit analyses are summarised and compared.

However, even if this comparison favours the conservation alternative, this

does not yet result in a conservation effect. This can only happen if the

actual use value and its cost advantages become visible on the market in

market prices. This can be accomplished as follows:

• by creating markets for the components of biological diversity,

• by using free market instruments to correct the existing price

imbalances,

by using regulatory interventions to impose balancing effects that even a

functioning market could not achieve.

This also raises the question of financing instruments that could generate

the crucial incentive for the conservation, sustainable use or restoration of

Introduction

5

biological diversity at a national and international level. The concluding

discussion concerns how financial instruments that already exist or that are

in preparation should be considered and how they should be developed or

modified.

This paper is organised as follows:

Following this introductory chapter, the second chapter on "Results and

Analysis" highlights the loss of biodiversity under the aspect of the lack of

markets and of market failure. It is postulated that a market-oriented

valuation of the components of biological diversity would help to counter

this loss. To this end, types of values of the components of biological

diversity are then subdivided into different use-dependent and use-

independent categories. Finally, actual and target values of genes, species

and ecosystems are presented and illustrated using examples.

In the third chapter on "Recommendations", methods are presented to

valuate biological diversity for the different use values. The second section

of this chapter deals with the cost aspect of conservation and presents the

instrument of cost-benefit analysis. In the third section, measures are

discussed which should lead to an effective translation of the evaluation

approaches into the creation of markets. These measures are developed into

recommendations for DC.

Results and Analysis

7

2 Results and Analysis

2.1 Decrease in biodiversity as a consequence of the lack

of markets and of market failure

The notion that economic well-being may not be impaired and that it may

even be enhanced if the profits obtained by depleting natural capital are

reinvested in reproducible capital is not particularly new in the literature on

theoretical economics. It has been suggested that reinvestment of the profits

derived from the intertemporal efficient use of exhaustible natural

resources in reproducible and hence non-exhaustible capital will ensure a

constant stream of consumption over time (e.g. Hartwick 1977; Solow

1974, 1986).

In the context of ecological crisis, however, the increasing rate of loss of

biological resources has led to a fundamental reappraisal of the role of the

living environment in the economy in recent years. Biodiversity is now

increasingly regarded as a form of natural capital that supports economic

activities. In Art. 2 of the Convention on Biological Diversity (CBD),

biological diversity is therefore defined as "variability among living

organisms from all sources including, inter alia, terrestrial, marine and

other aquatic ecosystems and the ecological complexes of which they are

part". This definition "includes variety within species, between species and

of ecosystems". In the same passage, biological resources are characterised

as including "genetic resources, organisms or parts thereof, populations or

any other biotic component of ecosystems with actual or potential use or

value for humanity".

In order for biological diversity and resources to be able to contribute to

general prosperity, their economic yields have to become comparable to


8

and higher than competitive sources. In other words, if the yields from

investments that reduce the natural capital are higher than those that sustain

it, the consumption of natural capital is economically justified (Barbier et

al. 1994, pp. 53f.).

This economic justification, however, is currently disappearing. Market

prices of biological resources do not reflect the true value of these

resources because they do not include external costs and benefits. The

failure to include such external effects in the price is an indication of

market failure.

This market failure can have different causes:

• Difference between private and social benefits: Where components of

biological diversity are traded on markets, their market prices usually

reflect only the private benefits and not the social (and ecological)

benefits that are attributable to them in different degrees from the local

to the global level. The assignment of market prices to marketed

components of biological diversity thus does not mean that these prices

reflect their actual economic values. Partially reliable methods to

establish the social value of the components of biological diversity are

lacking. Above all, there are no mechanisms that permit the integration

of such valuation results into market prices.

• Lack of property rights to components of biological diversity or the

discounting problem, i.e. preference of a currently available private use,

which involves social destruction, over a private use in the future, which

also involves social preservation, makes it more difficult to find a

solution to this problem.


9

• Lack of markets: The problem is not only that only certain attributes of

the biological components that are traded on markets are included in

market prices, but that most biological resources and ecological services

are not traded on markets at all, while there are markets for alternative

uses. The market does not take into account anthropogenic influences on

biological diversity or the effects of biological diversity on humans.

Local and/or global markets for the relevant components of biological

diversity in which the market subjects could convert their value

conceptions of biological/ecological goods and services into purchases

and sales by aid of the price mechanism are lacking.

• Interventions failures: Additional market failures as a consequence of

politic failure, e.g. by disincentives (e.g. subsidies, direct income

transfers, tax exemptions), making existing markets inefficient and

favouring the depreciation or destruction of biological resources (clear-

cutting, cultivation of certain species, nutrient supplies detrimental to

the ecosystem).

Despite these limitations, the ability of the market to bring private and

social benefits closer together and to contribute to a reduction of the threat

to biological diversity should not be underestimated. "Finally, the quality of

an allocation mechanism (= mechanism for the allocation of productive

factors or resources to certain goals) may not exclusively be judged on the

basis of a comparison of its results with ideal results, which are ultimately

not attainable by any allocation mechanism (the so-called Nirvana

approach). (...) Since in reality only incompletely functioning allocation

mechanisms are available, it is worth asking what the market may

contribute in pragmatic terms to taking care of natural resources" (Endres

and Querner 1993, p. 139). By setting prices that reflect the real economic


10

value, the social interest in the conservation of biological resources

becomes translatable into an individual interest.

Overcoming this market failure therefore implies the following:

• the inclusion of the social values and costs of biological diversity in

market prices,

• the creation of markets for the value-oriented mobilisation of demand

for and supply of biological resources and

• the abolition of price-distorting political and economic interventions.

The benefit that a certain component of biological diversity gives its

consumers governs the purchase decision (e.g. pharmacologically

exploitable resource, resource that can be exploited in tourism) and thus

also the price. This benefit corresponds to the value that a potential

consumer attaches to the respective component. One of the most important

tasks of the monetisation of biological diversity is therefore to reflect this

benefit and/or value in the market price. The appropriate methodology will

be dealt with in a later section.

According to Hampicke (1991, pp. 104f.), regarding biological diversity in

economic and monetary terms obviously does not mean dealing with the

monetary value of a species or nature on its own ("this kind of monetisation

approach would not be allowed"). The question is actually how much it

would cost to stop destruction of these resources and/or to re-establish their

maximum possible functional capacity. "It cannot be agreed that this goes

beyond the borders of what is admissible in monetary analyses. The

criticism not infrequently expressed by the public that this kind of

monetisation can only be based on misunderstandings could be avoided if

people listened more carefully to what most economists really said." "If a


11

level of nature conservation is postulated that makes nature almost

inviolable, then in economic terms this means that it is not possible to fall

below this minimum level of species conservation even against paying

demand - in purely mathematical terms, the price of this is infinitely high.

It would only be at our disposal if the costs of nature conservation were

unreasonably high, which might be interpreted as meaning that they are so

high they cannot be expressed in monetary terms – e.g. if human lives have

to be sacrificed. Then a decision must be made between two non-

monetisable alternatives, a decision nobody would be envied for having to

make."

2.2 Classification of the types of values of biological

diversity

The demand for biological goods results from the different value

preferences of market subjects. Use values are relative and linked to market

subjects and their preferences, i.e. all decisions on political allocation result

in opportunity costs (i.e. the costs of alternatives that are not used). In cost-

benefit analyses (see Sect. 3.2.2), the alternatives can then be weighed up

against each other. The social value of biological resources or services is

thus composed of four categories of use value:

Use-dependent values

1. The direct value of biological resources or resource systems is derived

from their direct use (by consumption or production) or from their direct

interaction with market subjects. Some biological resources are traded on

markets, and their direct use values (e.g. agriculturally useful plants and

animals, wood, medicinal plants, wildlife watching) are included in their

market prices. Expenditure on the use of ecosystems for tourism, hunting


12

or fishing also reflects their direct market values. As already mentioned,

these market prices are incomplete, because they do not take account of

certain social value attributes.

2. The indirect value of biological resources or services results from the

value that these have for directly used resources or ecosystems. Many

biological resources derive their value from their indirect economic

importance for directly used resources. Indirect values result from (a)

their benefit for other directly used species and/or their genes (indirect

biocoenotic value), (b) their importance for ecological services, e.g.

protection from erosion, assimilation of biological waste materials,

microclimatic stabilisation, water retention, carbon storage (indirect

ecosystem value), and (c) their importance for future evolution (indirect

evolutionary value).

3. The option use value describes a use reserved for a later time. The option

to use biological resources at a later date is kept open by value

assignment. The quasi-option value refers to the delay of an irreversible

decision to wait for additional information to help in the decision-

making process. Because future information connected with the resource

in question may be valuable, this resource remains untouched for the

time being. Due to gaps in our knowledge, it can be difficult to assess

risks and uncertainties when carrying out an evaluation; together with

the partially irreversible consequences of the alternative use of the

components of biological diversity, this means that the concept of the

quasi-option value is becoming increasingly important.

Use-independent values

4. The passive use value of biological diversity results from the importance

attributed to it for us, our descendants or other species. It can be


13

subdivided into its bequest value (the value of keeping a resource intact

for future generations) and its existence value (the value conferred by

ensuring the survival of a resource). The non-use or passive use value of

biological resources is nearly completely determined by ethical

considerations and is of importance where individuals who do not intend

to use components of biological diversity would nevertheless feel a loss

if these disappeared (Brown 1990; Randall 1991).

The direct value, indirect value, option/quasi-option value and passive use

value of resources or resource systems add up to give their total economic

value (TEV, Fig. 1).

TEV = F (DUV, IUV, OV, QOV, BV, EV)

TEV = UV + NUV = (DUV + IUV + OV + QOV) + (BV + EV)

TEV: Total economic value

UV: Use value

NUV: Non-use value

DUV: Direct use value

IUV: Indirect use value

OP: Option value

QOV: Quasi-option value

BV: Bequest value

EV: Existence value

There is some overlap between the different types of values, which means

that there is a risk of the same value attributes being counted more than

Fig. 1: Total economic value of a biological asset


14

once in different value categories. This is particularly true of option,

bequest and existence values. However, there are different concepts in

economics of how the valuations of environmental changes should be

aggregated in order to arrive at an overall economic evaluation.

ad 1.Many biological resources are traded directly on local or international

markets. This suggests that some direct use values of biological

resources will be reflected in the prices of marketed goods and

services. However, because subjects (individuals, public and private

institutions, companies) can more readily perceive the economic value

of marketed products and services of biological resources than the

value of non-commercial and direct subsistence uses, the result may

be a bias towards the development of the commercial use and an

exploitation of biological resources. This may mean not only that

commercial fishery, forestry and agricultural operations, for example,

may be preferred to subsistence operations or to a philosophy of

nature conservation involving doing nothing, but also that many

natural ecosystems and habitats may also be converted to other

monetisable direct uses (Perrings 1995, p. 866).

The user value, for instance, is a typical non-monetised direct use

value, corresponding to the individual personal benefit of biological

diversity, e.g. by observing or photographing nature or being

stimulated to carry out artistic activities. Where this direct use value is

commercialised (e.g. by charging fees for wildlife watching), it

becomes a serious alternative to other price-related direct uses (e.g.

hunting).

However, the explicit view of the direct use value shows that a value-

related consideration of non-monetised direct alternative uses is


15

necessary in order to give them a fair chance on the market. (On the

creation of markets by monetisation, see Sect. 3.3).

ad 2.The indirect use value of a particular component of biological

diversity is not usually taken into account by market prices. Its

expression in monetary terms becomes more realistic the more

indirect the particular use is. While an indirect biocoenotic use of soil

micro-organisms (e.g. Leguminosae are associated with nitrogen-

fixing bacteria) for the direct use of legumes is relatively easy to

derive, the central ecological role that elephants play in the

diversification of African savannas and forests, the spreading of seeds,

the prevention of scrubland, the expansion of grassland and the

reduction in numbers of the tsetse fly is considerably more difficult to

quantify, and indirect ecological use values, in particular, do not

readily lend themselves to direct economic assessment. Determining

these use values by value preferences becomes increasingly difficult

and ultimately impossible due to the complexity of the object and of

system properties that are emerging in the light of present ecological

knowledge.

ad 3.Difficult theoretical calculations in decision-making suggest that

decisions with irreversible results should be examined particularly

carefully in terms of possible consequences; moreover, in situations in

which there is both an irreversible and a reversible alternative, the

reversible one should be chosen. While the basic idea of the option

value is to maintain access options on components of biological

diversity that are not used at present, the idea of the quasi-option value

is to use expenditure on biodiversity conservation to diminish

uncertainty and/or to avoid irreversible decisions (Hampicke 1991,

pp. 87f.). The difficult methodical question here is how much society


16

should pay for the conservation of components of biological diversity

that might one day become useful.

ad 4.The bequest value is often included in the existence value, and the

user value is sometimes added to these two values, reflecting the

personal benefits of biological diversity. Since there is some overlap

between these value types, these value components should be

determined as a holistic non-use or passive use value.

The more aspects of use value that can be determined and integrated into

the TEV, the closer it comes to representing the "real" value of biological

goods or services. In particular, due to the aspects of passive use and option

value, the TEV is subject to group- and culture-dependent differences.

Above all, however, the TEV remains a theoretical variable unless it is

reflected by market prices.

In addition to the relativity of values and prices on the user level, further

limitations result from the usability of the respective resources. The use

value includes the following:

a) the extent to which biological resources can be used for different

purposes (transformability),

b) the extent to which they are replaceable by other resources

(substitutability) and

c) whether the use of biological resources by a market subject impairs the

use of these or other resources by other market subjects (rival usability,

sustainability criterion).


17

However, market prices are not only based on demand and the value

preferences of market subjects it indicates. The market prices of biological

resources are also determined by

d) supply and by exclusivity of their usability, i.e. by (actual and

intellectual) property rights and their effectiveness. Purely public goods

(e.g. air, water) or a jointly usable resources pool (e.g. the welfare effects

of the forest) can in fact be attributed with values, but because they are

not scarce, they remain outside the market.

Figure 2 shows the relation between the sustainability criterion (c) and the

supply aspect (d).

Others cannot be excluded

from the use of resources

Others can be excluded

from the use of resources

Use of resources by A does not

influence consumption by

others

Purely public goods

Resources under

Jointly usable resource pool

(e.g. national) sovereignty

Use of resources by A does

influence consumption by

others

Private goods

ad a-c)The values of competitively usable resources have to be determined

in separate valuation steps and be evaluated comparatively in cost-

benefit analyses (see Sect. 3.2.2). Their results differ particularly due

to the conflict between interests of private and social use. It is the

dominance of private use interests in the market that frequently

Fig. 2: Classification of resources


18

constitutes a threat to biological diversity. Markets and market prices

exist for purely privately used goods, but not for purely public goods.

ad d) When the Convention on Biological Diversity (CBD) came into

force, exclusive national rights of use and property were created for

the large majority of biological resources.

Use rights to biological resources that are privately owned are purely

exclusive. However, there is still some controversy over a whole range

of biological resources and their services as to whether the use rights

should be exclusively private or national. Vogel (1994) correctly

acknowledges that it is only through consistent privatisation of

biological resources that an interest in sustainability can become

generally accepted against alternative uses.

Before the CBD came into effect, those of the earth's biological

resources that are now subject to national sovereignty were treated as

the common heritage of mankind and thus as non-exclusively usable,

freely accessible resources. Now that the CBD has come into force,

the number of non-exclusive biological resources has decreased

considerably. Resources that are still non-exclusively usable include

marine biology resources outside national sovereignty zones.

Ecological services of biological diversity are usually also non-

exclusively usable (e.g. the production of oxygen by green plants).

A gradual transition is taking place between exclusively privately

usable biological resources and (the few) completely non-exclusively

usable resources freely accessible to the public. The items "resources

under national sovereignty" and "jointly usable resource pool" in

Fig. 2 are the quasi-exclusive and/or quasi-non-exclusive links

between these extremes. In determining use values, it is important to


19

make value preferences much more visible in markets by means of

property interests.

Regardless of whether a local, national or global perspective is taken,

normative valuation approaches have to be integrated into the TEV of

biological resources in order to take proper account of rights of access and

property, unless the goods concerned are public ones.

At the beginning of this paper, the hierarchical division of biological

resources into the levels of genes, species and ecosystems was presented.

TEVs can be determined on each of these three levels (and on further

intermediate levels). However, the TEV of a gene or a biochemical will

obviously not be suitable to show the TEV of its host species, and the TEV

of a species (or a biocoenosis) is not sufficient to illustrate the value of the

respective ecosystem. To use an analogy, the total value of a screw cannot

be used deduce the value of an engine, the value of an engine cannot be

used to determine the value of an aeroplane and the value of an aeroplane

does not indicate the value of an airport. The significance of economic

valuation depends on the integration level on which it was carried out.

In this respect, it is not surprising that particular attention is paid to the

application of economic valuation approaches at the level of the ecosystem

(Barbier et al. 1994). If cost-benefit analyses (see Sect. 3.2.2) of an

ecosystem's TEV result in the conservation option, this also includes a

number of components of biological diversity on the lower integration

levels for which individual TEVs do not need to be determined (and which

would presumably not be technically feasible). If cost-benefit analyses of

an ecosystem result in the options sustainable use, restoration or alternative

use, then supplementing the TEV on lower hierarchical levels may become


20

necessary in order to arrive at evaluations or specific management

recommendations for specific populations or genetic resources.

Economic valuations of biological resources of the lower levels can of

course lead to effects that make a TEV on a higher integration level

superfluous. In addition, depending on the economic question concerned,

dealing with objects on a lower level of the hierarchy can lead to

synergistic results that are relevant for higher levels as well. For instance,

screening all the higher plants of an ecosystem for pharmacological

ingredients may have a direct ecosystem-sustaining effect, while interest in

one specific gene will only generate marginal conservation effects, if any.

Furthermore, the notion of a so-called primary value has also been

introduced; this is added to the TEV (i.e. the secondary value) to give the

total environmental value (TV). It represents properties of an ecosystem or

biosphere that are highly relevant in economic terms, but that cannot be

captured by value preferences. Whether it will be possible to express it in

economic terms at all is contentious (see Perrings 1995, pp. 842f.). There is

no clear-cut distinction between this and the indirect use value, and it is

therefore not discussed separately here. The properties of its system should

be integrated in the indirect use value.

The central importance of these values for monetisation approaches,

however, is undisputed. Immler (1993) states that "the productive natural

capital is the key category in a holistic ecological/economic valuation". In

answer to the objection that economics does not offer the tools for

operationalising pricing, he rightly points out that "any approximation to

this admittedly difficult unit is better and more reasonable than an

operational term which is certainly wrong" and that "the lack of industrial

understanding of the category 'natural capital' is not the consequence of a


21

nature that cannot be understood, but of an economics that does not want to

know anything about it".

One method of approximation is the production-function approach. The

transformation of ecological value units into economic ones could be

successful on the basis of productivity, both an ecological and an economic

concept. Ecological productivity (net and gross primary production) has a

theoretically assignable (potential) maximum, which could be defined as

the productivity of the primary ecosystems ("world-wide wilderness

productivity") and/or by the theoretical productivity of ecosystems after the

sudden end of human influences ("potential natural productivity").

Cultivated ecological systems may obviously show the same net

productivity (agricultural areas including external fertiliser supply) but a

smaller gross productivity than autochthonous ecosystems. (Due to the

ecological degradation phenomena such as nutrient washing and soil

erosion that accompany the creation of cultivated ecological systems,

however, their net primary production also diminishes over time; 20% of

cultivable soil has been lost over the past 30 years world-wide). Even back

in 1986, humans consumed 40% of the global terrestrial net primary

production (Vitousek et al. 1986).

However, even if ecosystems were ranked by determining their TEVs, this

would not correspond to ecologically specified rankings (e.g. on the basis

of productivity criteria). This is partially because of the inclusion of non-

use values (whereby a mountainous region that is not particularly

productive, but attractive might gain a higher monetary value than a highly

productive grassland, for example). However, it is primarily due to the fact

that there are at present still no methods or scientific information to

approximate the actual indirect use value. For instance, we need to

understand the role of species in mediating the key structuring processes in


22

ecosystems over a range of environmental conditions. This requires

ecological and economic production functions to be specified (Perrings

1995, p. 889).

It also requires not just snapshots of the value of ecosystem function, but

also time series that show how the value of such functions is changing. Not

only the ecological aspect, but also the evolutionary component is not taken

into consideration sufficiently in economic valuation approaches of

biological diversity, although awareness of the value of the genetic

resources of plants and their relatives in the wild has risen in economic

terms as well, implicitly acknowledging its importance (see e.g. Mooney

and Fowler 1991). However, it is only by regarding natural ecosystems in

economic terms as durable in situ production, experimentation and storage

sites of biodiversity evolution that conservationists' expectations linked to

bioprospecting strategies can have a chance of being realised.

2.3 Examples of evaluating biological diversity

This section deals with estimates of the value of genes, species and

ecosystems arrived at using the valuation methods described previously and

methodologically illustrated in Sect. 3.1 (see Perrings 1995, pp. 844 ff.).

2.3.1 Use value of genes and biochemicals

Whereas the utilisation of genes (animal and plant breeding) or natural

products used to be linked to the cultivation of the respective species, new

biotechnologies now permit genes and biochemicals to be utilised

independently of their parent species, e.g. in cell cultures or transgenic

organisms. This makes the examples discussed in this section different

from product examples such as ivory or timber, whose use remains bound

to the species producing them. However, the borders between the two types


23

are transient, and it may be more profitable not to make use of these

biotechnological options and to obtain certain natural products from

complete (cultivated or wild living) individuals of the species of origin.

The direct use value of genetic diversity results from delivering the raw

material with desirable properties for the pharmaceutical, agricultural and

food production industry. Modern biotechnology and genetic engineering

(with the potential for intra- and inter-species gene transfer they offer)

allow the use potential of genetic resources to be extended and therefore

lead economically to an increase and/or a supplementary effect to the direct

use value of genetic resources and their derivatives (natural products).

The size of the market for biotechnologically manufactured products

world-wide is now more than US $250 billion per year, and private

biotechnological research and development (R&D) investments in the

countries of the Organisation for Economic Cooperation and Development

(OECD) amount to approximately US $9 billion per year. The annual

growth rates vary between 8% (biotechnological processes) and 20%-35%

(gene technology processes). For example, the United States' proceeds of

sale in 1992 amounted to approximately US $5 billion, i.e. a 35% increase

compared to the previous year (Burrill and Lee 1992; cited in Downes

1993). For the year 2000, a tenfold increase is expected (Industrial

Biotechnology Association 1992; cited in Downes 1993).

Like the existing and potential market prices specified in the following

examples, these are usually distorted by transfer components, and

corrections therefore have to be made for economic cost calculations (cf.

Hampicke 1991, pp. 180f.). Above all, however, the obtained or attainable

price for the respective biological resources is not determined ecologically,

but solely on the basis of market criteria.


24

Nevertheless, conservation effects on biological resources can arise from

the presence or development of a market (although the opposite can also

occur). Thus bioprospecting projects are associated with the idea that the

identification (via bioassays) and development of useful biochemicals and

genes might result in a market that exerts conservation effects on concrete

resources in situ with optional conservation effects on other resources in

the same habitat that are not yet commercially exploited. According to

Sánchez and Juma (1994), the exchange of genetic resources and

technologies between the North and the South should increase to about

10% of the respective world trade volume.

Some authors have published papers about the commercial value of genetic

resources. However, some of these data are questionable, because indirect

or passive use values were hardly integrated into these valuations and

TEVs are also lacking. As far as direct use options are concerned,

pharmacological or agricultural uses of genes and biochemicals have been

dealt with more intensely, whereas enzyme use or the genetic resources of

ornamental plants, for example, have been largely neglected.

A study by Sedjo et al. (1994) addresses prospecting strategies for genetic

resources by comparing them with a lottery. Neither the prize nor the

possible number of main winners among whom the prize is finally divided

is known, and it is not clear whether numbers are drawn for which no

tickets have been submitted. This comparison highlights the unknown

spatial distribution of organisms and the uncertainty about whether the

relevant gene or biomolecule might also be found in other organisms. Due

to genetic engineering, the market for genetic resources is developing into

new segments, and it is not known how scarce most biological resources

actually are; the willingness of industry to pay high prices for biomolecules

is thus relatively small. The study by Sedjo and colleagues concludes that,


25

under optimal conditions, a maximum economic yield of US $10,000 per

species might result. With respect to endangered habitats in which the

relevant species exist, a maximum of $20 per hectare might be paid.

On the basis of respective contracts, prospecting companies have so far

been willing to pay approximately $50-200 per unprocessed in situ sample

(Laird 1993). However, it would be too simplistic to infer the market value

of the genetic material from these amounts, because it is primarily the

labour-intensive collection that is paid for and not the material itself.

Pharmacologically useful biomolecules

According to a study by the OECD (1987), about 25% of all medicaments

in the OECD countries are of plant origin; if we include those countries that

are not industrially developed, the overall world-wide proportion increases

to 75%. In the OECD member countries, plant-based medicaments

amounting to more than DM 100 billion were sold in 1985. Two fifths of

all modern U.S. pharmaceutical products contain one or more ingredients

of natural origin (Oldfield 1984).

The commercial value of medicines derived from species living in the wild

is estimated at more than US $40 billion p.a. world-wide, and the figure for

the United States in 1980 was US $8112 billion. The present share of the

genetic material used for pharmaceutical products originating from the

South amounts to about US $4.7 billion. The present hectare yields of

medicinal plants from the tropical rain forest are estimated to range from

$262 to $1000 (Pearce and Moran 1994).

Assuming a rate of extinction of 10%, an estimated 2067 plant species will

have become extinct by the year 2000, 16 of them of special


26

pharmaceutical interest; Farnsworth and Soejarto (1985) have estimated

this to entail an economic loss of US $3.25 billion ($16×203 million).

By means of bioprospecting, i.e. screening biological diversity in search of

commercially exploitable genetic and biochemical resources, the value of

the germ plasm for medicinal purposes from the South, which currently

amounts to approximately US $4.7 billion, might rise over the next

10 years to US $47 billion. For Costa Rica, Aylward (1993) estimated the

value of "pharmaceutical prospecting" at $4.81 million per successfully

prospected product. However, these figures have to be related to capital

outlays of over US $200 million for the development of a single successful

pharmaceutical ready for the market (Krattiger and Lesser 1994).

Mendelsohn and Balick (1995) are sceptical regarding the future economic

importance of bioprospecting. They estimate the entire social value of non-

discovered tropical pharmaceuticals at only approximately US $150 billion

or US $48 per hectare, and the market value for private enterprises at US

$3 billion or US $1 per hectare.

A rough estimation of the pharmaceutical value of extinct plant species on

behalf of UNEP came to the conclusion that the average "pharmaceutical"

loss for each of these species amounts to approximately $80,000 (UNEP

1993). This figure is problematic, however, because some "best-sellers"

that have earned the companies that sell them millions (e.g. aspirin, taxol)

are included in this estimate.

Genetic resources of plants

The complexity of modern and traditional breeding practices means that

only a very general approximation of the actual monetary value is possible,

and even then only for the most common grain varieties. This uncertainty


27

in putting a number on the existing market value is reflected in estimations

concerning the contribution of the genetic resources of the South to the

valuation of food production in the North. For wheat and corn, the figures

are estimated at US $75 million p.a. for Australia, US $500 million p.a. for

the United States and US $2.7 billion p.a. for all the OECD countries

together (Mooney and Fowler 1991). According to Woodruff and Gall

(1992), about half of the increase in agricultural productivity in this century

can be directly attributed to artificial selection, recombination and intra-

species gene transfer.

Calculations by the U.S. seed industry show that a genetic trait of a plant in

the Third World that can be used for breeding purposes may contribute

over $2 billion annually to the yields of U.S. wheat, rice and corn

producers. The U.S. Department of Agriculture estimates that genetic plant

material has led to an average increase in productivity of about 1% a year,

with an initial monetary value far exceeding US $1.billion.

Bioprospecting as a source of new cultivated plants and of raw materials to

breed improved plant varieties and as a supplier of natural pesticides and

renewable resources such as fibres and botanical chemicals has great

potential (Plotkin 1992).

At the beginning of the next millennium, the world-wide biotechnology

food sector will increase to US $20 billion (a sixfold increase).


28

Components used Evaluation methodapplied

Estimatedvalue (US $)

Source

Plants Market analysis:estimations of

proceeds of sale

2,580,000 Farnsworth andSoejarto 1985

Plants Market analysis 474,000 Principe 1989Trees Market analysis 7,500 McAllister 1991Plants Evaluation of the

number of lives saved23,700,000 Principe 1989

Species from Cameroon Costs of renewingpatents

15-150 Ruitenbeek1989

Species from Costa Rica Market analysis,estimated licence fees

253 HarvardBusiness School

Plants of the rain forest Market analysis andevaluation of human

lives saved

585-1,050,000 Pearce andPuroshothaman

1992Pharmaceutical bioprospecting for acommercially successful plantproduct

Market analysis: netreturns on

bioprospecting

4.81 million Aylward 1993

Living organisms Market analysis:returns on purchase +

licence fees

52-46,000 Reid et al. 1993

2.3.2 Use value of species

In contrast to Sect. 2.3.1., the components of biological diversity dealt with

in this section are used as total organisms.

Use of plants

Of the approximately 250,000 higher plant species that have been described

world-wide, about one third probably has edible components, i.e. around

80,000 species. About 15,000 species (including spice plants, herbs, etc.)

Table 1: Use values of genes and biochemicals


29

are actually used for human nutrition (Heywood 1994, personal

communication). Supraregionally or world-wide, about 150 species are

cultivated for human nutrition. However, only five varieties of grain

(wheat, corn, rice, barley and millet) account for 50% of vegetable nutrition

in humans, and 20 species supply 90% of the world-wide demand (Myers

1989).

The quantity of renewable resources currently used and processed world-

wide amounts to approximately 2 billion tons of timber, 2 billion tons of

grain (including the food supply) and 2 billion tons of other products such

as sugar-cane, carrots, oil and leguminous plants. The global timber trade is

worth approximately $80 billion annually.

According to Peters et al. (1989), the present net value of sustainably used

biological raw materials (rubber, fruits, wood) from the rain forest in Peru

amounts to $6330 per hectare, i.e. more than sixfold the value of utilisable

wood ($490/ha). In the German chemical industry, about 2 million tons of

renewable resources are utilised at present (i.e. 10% of the entire

consumption of raw materials).

Use of game animals

Prescott-Allen and Prescott-Allen (1986) estimate the monetary

contributions of wild and semi-wild animals and plants as accounting for

approximately 4% of the gross national product (GNP) in the United States

and Canada. Barnes and Pearce (1991) have shown that the direct use value

of certain forms of wildlife management is financially more productive

than the transformation of game reserves into pasture areas (cf. Table 2).


30

Components of biodiversityused

Evaluationmethod applied

Estimatedvalue (US $)

Source

Wildlife watching value of elephants,Kenya

CVM; travel costmethod

25million/year

Brown and Henry 1989

Ivory exports before the export ban,Africa

35-35million/year

Barbier et al. 1990

Use of wild buffaloes, Zimbabwe 3.5-4.5/ha Child 1990Export of non-coniferous woodproducts, entire tropics

11 billion/year Barbier et al. 1994

Harvest of wood fruits and latex,Peru

6330/ha Peters et al. 1989

Fish and firewood from wetlands,Nigeria

38-59/ha Barbier et al. 1991

Improvement of the survivalprobability of the Northern spottedowl

CRM 21/person andyear

Brown et al. 1994

CVM, contingent valuation method; CRM, contingent ranking method.

2.3.3 Use value of ecosystems and landscapes

Ecological resources and services that can be derived from the production,

carrier and information functions of ecosystems produce economic yields

in the form of direct use values. Direct use values include timber and non-

wood products, medicinal plants, plant genes, hunting and fishery,

recreation and tourism, education and human living areas, since all these

products and services are the result of a direct use of forests. Direct use

presupposes access to forest resources, among other things.

In contrast, indirect use does not require access to forest resources. The

most important indirect use values of biological diversity include the

regulatory functions of ecosystems. Each ecosystem is composed of a

Table 2: Use values of species


31

whole range of physical, biological and chemical components. Interaction

between these components results in specific types of ecosystem functions

or characteristics such as the nutrient cycle, biological productivity, water

regime and sedimentation. These regulatory ecological functions are

fundamental to numerous secondary ecological functions and services,

which again are of fundamental importance in human life and societies

(e.g. erosion protection, water retention, detoxification, assimilation of

biological waste, climatic stabilisation, carbon storage).

As far as the role of individual species in the mediation of such regulatory

functions is understood, it is principally possible to establish the indirect

use value of such species. Indeed, the relationship between individual

organisms and ecosystem functioning is of central importance in the

concept of indirect use valuation.

Immler (1989) assumes that roughly a third of GNP (based on the German

GNP) would be necessary to re-establish the disturbed non-human natural

services and processes.

Most studies assessing the economic value of forests only take account of

partial values and not the TEV (for a relevant review, see Perrings 1995,

pp. 886f.). Indirect and non-use values are usually completely neglected,

and direct use values are also frequently only incompletely considered.

The first attempt to estimate the TEV of tropical forest habitats was

undertaken by Castro (1994). Castro calculated an average net actual value

of $1278-$2871 per hectare for Costa Rica's game wilderness. Multiplied

by the total area of 1.3 million hectares, this gave a present total value of

$1.7-$3.7 billion, of which, according to this study, 34% benefits Costa

Rica and 66% the world community.


32

Kaosard et al. (1994) evaluated not the total, but almost the total economic

value of the Khao Yai Park in Thailand (not including non-use values for

people who do not live in Thailand and estimations of carbon storage). The

comparative evaluation with agriculturally managed areas arrived at a

figure of $250 per hectare (see Table 3).

Barbier et al. (1991) showed that the direct use of the Hadejia Jama'are

floodplain in Nigeria for fishery, the production of firewood and migration

agriculture results in economic yields that are higher than alternative

irrigation projects upstream.


33

Components used Evaluation methodapplied

Estimated value(US $)

Source

Nature tourism, Cameroon: 19/ha Ruitenbeek 1989Sustaining soil fertility byforests and inundationcontrol, Cameroon

Productivity change 8/ha and 23/ha Ruitenbeek 1989

Khao Yai Park, Thailand CVM, travel costmethod

80 million/year,400/ha/year

Kaosard et al.1994

Ecotourism, Costa Rica Travel cost method 1250/ha Tobias andMendelsohn 1991

Importance of wetlands forcrab production, ArabianSea

Production-functionapproach

Ellis and Fisher1987

Valuation of reserves,Madagascar

Production-functionapproach, CVM, travel

cost method

566,070-2,160,000 Munasinghe 1993;Kramer et al. 1993

Carbon storage by forests,Brazil

1300/ha/year Pearce 1990

Importance of mangrovesfor agriculture, fishery,Indonesia

536 million Ruitenbeek 1992

Water retention by forests,USA

232-388/acre Bowes andKrutilla 1989

Forest in Peru, Rio Nanay Productivity method(comparisons of

income)

6300/ha for non-timber products

vs. 1000 for clear-cutting

Peters et al. 1989

Primeval forest, Costa Rica TEV 102-214/ha/year,1278-2871/ha,

133-278million/year, 1.7-

3.7 billion

Castro 1994

Table 3: Use values of ecosystems

Recommendations

35

3 Recommendations

3.1 Valuation methods and techniques

Because of the benefits of biological diversity and the lack of information

about these benefits due to market failure, there is an urgent need for

economic valuation studies to be carried out. In the following, relevant

valuation methods are thus presented. Arguments in favour of their

application include the following:

• they give valuable information on how markets need to be reformed in

order to correct the present bias and/or, where this is not possible,

• they provide decision-making aids indicating political measures that

should be taken to correct market signals.

When applying these valuation methods, however, it is important to

remember what is actually being measured by the valuation technique, e.g.

direct use benefits, net benefits including use and non-use benefits, etc.,

and the reliability of the different data and methodologies in assessing these

different benefits yields (Perrings 1995, p. 878).

As Fig. 3 shows, the use value categories "direct use values", "indirect use

values", "option/quasi-option values" and "non-use values", which together

give the TEV, allow the application of various valuation methods. In the

following, these methods are presented and the range of effects to be

valued is considered.

Not all of these methods are able to completely determine biodiversity-

related costs and benefits. Each of them, however, is useful in the correct


36

context. Roughly speaking, we can differentiate between monetisation

methods as follows (see OECD 1996, p. 74):

• on the basis of actual market prices (market analyses),

• on the basis of simulated market prices (contingent valuation and

ranking; individual choice model),

• on the basis of surrogate market prices (e.g. the travel cost approach and

hedonic price approach) and

• on the basis of the production-function approach (e.g. value of changes

of productivity, avoided damage costs).

Since, in the context of this study, we are interested in the external use

values of biological diversity that are not reflected by actual market prices,

the subsequent discussion is limited to valuation approaches for simulated

markets (Sect. 3.1), surrogate markets (Sect. 3.2) and the production-

function approach (Sect. 3.3). The common instrument of market analysis

is therefore not discussed here.

The presently available set of valuation methods show very large

differences not only in valuation methodology, but also in their

conceptional treatment of the problem. For instance, there is still no

consensus on how to determine the existence value (Perrings 1995, p. 891).

These methods presuppose acceptance by those with political

responsibility. They have to guarantee that the monetisation requirements

that are identified become economically effective by income transmissions,

taxes, etc.

Recommendations

37

<Replacement costapproach etc.>

'Public' prices

Hedonic prices

Contingent valuationmethod

Travel costmethod

Market analysis

METHODS:

Direct use values

<Replacement costapproach>

<Transplantationcosts>

Value of productivitychanges

Prophylacticexpenses

Avoideddamage costs

METHODS:

Indirect use values(functional values)


Restrictedinformation value

'Individual choice'model

METHODS:

Option valuesQuasi-option values

Use values


METHODS:

Existence valuesBequest values

Non-use values

Figure 3 highlights the particular importance of the contingent valuation

method (CVM); this method allows statements to be made about all use

value categories with the exception of the indirect use value. Indeed, it is

the only useful method to identify non-use values. This is because passive

or non-use values of the components of biological diversity are not related

to any activity or even the purchase of market goods and thus cannot be

determined using indirect valuation methods (Stephan and Ahlheim 1996,

p. 153).

Fig. 3: Classification of economic values and attributable valuation

methods (methods in angled brackets are less suitable ones)


38

3.1.1 Determining direct and passive use values on simulated markets

Sociological interviewing methods are the most practicable approaches to

determine the economic value of the components of biological diversity. In

principle, these methods can be differentiated according to two interview

objectives:

• to attribute a value to the components of biological diversity concerned

(contingent valuation method, CVM) on the basis of analyses of

willingness to pay (WTP) and willingness to accept (WTA) or

• to rank values (contingent ranking method, CRM).

The best way to apply the direct valuation method is to determine the

WTP/WTA of one environment-related use for the person being

interviewed or the one that corresponds to his or her personal opinion and

knowledge, e.g. recreation options. WTP analyses on the basis of losses of

environmental/biological diversity are more problematic. Moreover, we

still have some way to go before the psychological and cognitive processes

that influence the formulation of answers can be definitively assessed.

Even if the direct valuation method is not exact enough for carrying out

cost-benefit analyses or for legislative purposes, provided that specific

questions are asked, its results may nevertheless be used as a

supplementary public opinion poll to establish earmarking priorities

concerning the use and conservation of biodiversity, particularly because it

is the only method that is able to translate non-use values into market prices

(Blamey and Common 1993).

The main problem of this method is undoubtedly related to the possible

disparity between the data obtained from interviewees concerning their

WTP and the amounts that they are actually willing to pay if the need arises

(Ruck 1990, p. 330). In Australia, for instance, CVMs and related methods

Recommendations

39

are not generally recognised as accepted methods, since the values that are

determined are seen as improbably high (Blamey 1996).

Contingent valuation method (CVM)

In a direct analysis of WTP or willingness to renounce, value preferences

are determined on the basis of interviews. This method is referred to as the

CVM, not least because of the hypothetical nature of the situation

("simulated market situation"). It is applied to determine direct use, non-use

or passive use (existence and bequest values) and option/quasi-option use

values, but not indirect use values. Thus CVM (and the analogous CRM)

differ from all other important economic valuation methods, which can

only be used to determine one type of use value.

According to Pearce and Moran (1994), the CVM is the most important

method for the economic valuation of biodiversity, largely because it is the

only one that directly reflects the non-use-orientated (bequest and

existence) values of biodiversity. In addition to information retrieval and

information exchange during the interview process, verbatim minutes and

tape recordings allow the interviewer to analyse the biodiversity-related

knowledge and understanding of the interviewee ("think-aloud analysis").

Interest in this method has greatly increased over the last 10 years:

• because it is the only procedure that can be used to evaluate non-use-

values,

• because well-conceived and correctly conducted interviews might be as

valid as valuations of direct use values obtained by other methods and

• because the conception, analysis and interpretation of stated preferences

have also improved, e.g. the "scientific sampling" and "benefit


40

estimation" theories have improved the computerised data

administration and analysis of public opinion polls and their validity.

The first stage of a CVM involves providing interviewees with background

information about the relevant biological resources. They are given further

information about the quality, quantity and the time-scale of changes.

In the second stage, a payment instrument is selected. This involves asking

interviewees whether they would be willing to pay into a hypothetical fund

or whether they would prefer a tax or a price increase. At this stage, it is

very important for the interviewer to propose a reliable payment instrument

and to be able to depict a plausible and acceptable scenario for the

interviewee.

In the third stage, a method has to be selected that allows the WTP or

willingness to renounce to be determined as accurately as possible. In an

open-ended approach, interviewees have to state the maximum amount that

they would be ready to pay or renounce. If a "dichotomous choice"

approach is used, the interviewee is confronted with a concrete amount that

is varied within a group of interviewees to come as close as possible to the

"real" value (see Perrings 1995, pp. 845f.; Hampicke 1991, pp. 118ff.;

Pearce and Moran 1994, pp. 58ff.).

Valuation of the direct value assigned to a product or service on the basis

of the interview requires verification of the reliability and validity, and

answers need to be examined to identify any possible falsifications.

In order to obtain exact and reliable answers regarding the WTP,

standardised guidelines can be used, such as those developed by the U.S.

National Oceanic and Atmospheric Administration Committee (NOAA;

Arrow 1993):

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41

1. Sample type and size - probability sampling is essential. The choice of sample

specific designs and size is a difficult technical question that requires the guidance

of a professional sampling statistician.

2. Minimize non-responses - high non-response rates would make CV (contingent

valuation) survey results unreliable.

3. Personal interview - it is improbable that reliable value estimates can be elicited

with mail surveys. Face-to-face interviews are usually preferable, although

telephone interviews have some advantages in terms of costs and centralized

supervision.

4. Pretesting for interviewer effects - an important respect in which CV surveys differ

from actual referendum is the presence of an interviewer (except in the case of mail

survey). It is possible that interviewers contribute to 'social desirability' bias, since

preserving the environment is widely viewed as something positive. In order to test

this possibility, major CV studies should incorporate experiments that assess

interviewer effects.

5. Reporting - every report of a CV study should make clear the definition of the

population sampled, the sampling frame used, the sample size, the overall sample

non-response rate and its components (e.g., refusals), and item non-responses on all

important questions. The report should also reproduce the exact wording and

sequence of the questionnaire and of other communications to respondents (e.g.,

advance letters). All data from the study should be archived and made available to

interested parties.

6. Careful pretesting of a CV questionnaire - respondents in a CV survey are

ordinarily presented with a good deal of new and often technical information, well

beyond what is typical in most surveys. This requires very careful pilot work and

pre-testing, plus evidence from the final survey that respondents understood and

accepted the description of the good or service offered and the questioning

reasonably well.

7. Conservative design - when aspects of the survey design and the analysis of the

responses are ambiguous, the option that tends to underestimate the willingness-to-

pay is generally preferred. A conservative design increases the reliability of the


42

estimate by eliminating extreme responses that can enlarge estimated values wildly

and implausibly.

8. Elicitation format - the willingness-to-pay format should be used instead of

compensation required because the former is the conservative choice.

9. Referendum format - the valuation question should be posed as a vote on a

referendum.

10. Accurate description of the program or policy - adequate information must be

provided to respondents about the environmental program that is offered.

11. Pretesting of photographs - the effects of photographs on subjects must be carefully

explored.

12. Reminder of substitute commodities - respondents must be reminded of substitute

commodities. This reminder should be introduced forcefully and directly prior to the

main valuation to assure that the respondents have the alternatives clearly in mind.

13. Temporal averaging - time-dependent measurement noise should be reduced by

averaging across independently drawn samples taken at different points in time. A

clear and substantial time trend in the responses would cast doubt on the reliability

of the value information obtained from a CV survey.

14. 'No-answer' option - a 'no-answer' option should be explicitly allowed in the

addition to the 'yes' or 'no' options on the main valuation (referendum) question.

Respondents who choose the 'no-answer' option should be asked to explain their

choice.

15. Yes/no follow-ups - yes and no responses should be followed-up by the open-ended

question: 'Why did you vote yes/no?'

16. Cross-tabulations - the survey should include a variety of other questions that help

interpret the responses to the primary valuation question. The final report should

include summaries of willingness-to-pay broken down by these categories (e.g.,

income, education, attitudes towards biodiversity).

17. Checks on understanding and acceptance - the survey instrument should not be so

complex that it poses tasks that are beyond the ability or interest level of many

participants.

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43

Contingent ranking method (CRM)

The CRM is the stepsister of the CVM. The different feature in this

interview situation is that respondents are confronted with a set of options

that they are asked to rank according to their valuation scale. For each of

the options, the interviewer designates a set of characteristics and describes

how the options differ. The resulting costs should be delineated for each

option.

Asking questions about relative valuations and specifically costed

alternatives facilitates the choice for the interviewee; conversely, however,

it becomes more difficult to determine the actual monetary limit.

Further methodological progress

The "stated preference" method (SPM; Adamowicz 1994; Louviere 1994)

promises further improvements in the direct valuation process. Application

of the SPM (which was originally developed for the marketing and

transportation business) allows consumer responses to be made to a larger

range of subject characteristics than is normally possible using direct

valuation analysis.

3.1.2 Indirectly determining direct use values

The indirect or surrogate market valuation methods are all based on the fact

that the commodities "nature" or "biological resources" are consumed

together with complementary private goods with well-known or easily

determinable prices. These indirect approaches are techniques that derive

preferences from actual market-based observations. Preferences for a

biodiversity commodity can be assumed if an individual buys a product that

is somehow related to the biodiversity commodity in question. The relevant

techniques are as follows:


44

• the travel cost method,

• the "hedonic price" approach,

• the avertive behaviour approach and

• the dose-response method.

Surrogate market techniques focus on markets for private commodities and

services that are related to biological (or environmental) resources or

products. The products or services sold on these surrogate markets

correspond to the products/resources in question, because individuals

reveal their preferences for a biodiversity commodity by purchasing a

related object or service. "Strongly simplified: If a bird watcher spends DM

1000 on a telescope, then he is obviously willing to pay at least DM 1000

to watch birds" (Hampicke 1991, p. 115).

However, the potential of surrogate market approaches is limited for

several reasons:

• No hypothetical conclusions can be drawn. If the natural commodity is

no longer available, there will be no expenditure on the surrogate object

(in the case described above, the telescope) either.

• The method only measures the intensity of a personal interest ("user

value"), and not the interest in conserving biological diversity

("existence value").

• The relationship between private expenditure and the conservation goal

is frequently weak (e.g. telescopes may also serve other purposes).

• Experiencing nature is often non-specific; many people experience

biological diversity even in an ecologically worthless spruce forest.

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45

Analogous limitations need to be addressed in the travel cost method. The

relationship between travel expenses and the valuation of the components

of biodiversity at the journey's destination is questionable if this journey is

undertaken for other reasons as well. Nevertheless, this method can lead to

valuable explanations about the WTP for experiencing nature, especially if

expensive and very specific destinations (e.g. a national park) have been

chosen. Past applications refer to large game parks in Africa (Brown and

Henry 1989) and tropical forest reserves in Costa Rica (Tobias and

Mendelsohn 1991), for example. In the latter study, it was shown that the

WTP of native and foreign visitors (primarily from the United States)

corresponding to a hectare of tropical forest exceeds the purchase price by

two powers of ten. In economic terms, the only possible conclusion is that

the area of the reserve should be increased. With respect to the travel cost

method, Ruck (1990, p. 261) states that, in the case of Kenya and Tanzania,

the abolition of national parks as tourist attractions would also lead to

substantial losses in seaside tourism, whereas in countries such as Sri

Lanka, India or the Ivory Coast, where tourism is largely beach or congress

tourism and national parks do not play a central role, there would be less or

no effects on the cost-benefit analyses of the tourism industry.

The dose-response approach is designed to determine relationships between

damage and its causes (e.g. pollution load); a certain load level is related to

the output change, which in turn leads to value changes on the market. This

approach, however, is only applicable to environmental changes and is

therefore not suitable for the economics of use-independent values.

3.1.3 Determining indirect use values

The methods presented in Sects. 3.1.1 and 3.1.2 to determine preferences

are not suitable to determine the direct or indirect use values (ecological


46

regulatory functions) of nature as production factors, since they support

economic activities regardless of preferences. In order to determine indirect

use values, other methods therefore have to be applied. However, such

methods currently still suffer from our lack of knowledge about the

functional importance of biological diversity and the ecological services

linked to them.

Indirect productivity measurements

The productivity change method can be used to determine the direct and

indirect use values of ecosystems within market prices. For instance, the

value of the ecological function of a forest in the catchment area of a

hydroelectric power plant can be measured by the net value of the

difference in water power production because of sedimentation in the

presence or absence (clearing) of forest or with a smaller (reduction) forest

stand.

A related productivity method measures the expenditure of work by a

market subject (individual, enterprise) to maintain or optimise ecological

effects (e.g. a farmer building terraces to prevent soil erosion). The

observed protective or preventive expenditure provides a measure of the

subject's valuation of the relevant ecological services (Perrings 1995,

p. 856).

The replacement cost approach focuses on the costs of replacing (e.g.

reintroduction) or restoring (e.g. reforestation) components of biological

diversity.

Avoidance and repair costs are difficult to determine, since neither

sophisticated techniques nor reliable cost levels are available for the

avoidance or repair of environmental damage. We cannot use the costs of

Recommendations

47

reducing the percentage of sulphur dioxide and nitrogen oxide in the air to

approximately zero to conclude that the value of clean air corresponds to

the level of avoidance costs. An estimation of forest degradation by acid

rain or the loss of fishery resources by water pollution on the basis of

avoidance costs, for example, will be misleading unless those concerned

are willing to bear these costs. The final report by the German Ministry of

the Environment's research programme on the "Costs of Environmental

Pollution/Benefit of Environmental Protection" puts the relevant avoidance

costs at DM 130 million p.a. (Wicke 1986).

Production-function approach

The production-function approach determines the physical effects of

changes of ecological functions on economic activities. The consequences

of these changes become visible in the change in economic yield of these

economic activities. Thus a relation between economic and ecological

productivity is produced.

In order to translate ecological into economic productivity, it is clearly

necessary to understand how regulatory ecological functions support

economic activities, and this is still the limiting factor. This becomes even

more difficult where the causes (e.g. the functional role of individual

species) of ecological functions have to be understood in greater detail. It is

highly desirable both from an economic and an ecological point of view to

promote this understanding.

Our lack of understanding of the ecological causes of economic

productivity should not prevent production-function valuations from being

carried out using existing knowledge. On the basis of different assumptions

about causal links between ecological and economic factors, Ruitenbeek


48

(1992), for instance, has carried out valuations in different scenarios. The

results of these valuation approaches are given in Sect. 2.3.

The marketable yield Q is formally represented as being dependent on a set

of factors: Q = F(Xi ... Xk, S). [In the study by Ellis and Fisher (1987) on

the effect of wetlands on the crab harvest, QS is the area of the wetlands in

question.]

3.2 The cost aspect of the conservation and destruction of

biological diversity and the cost-benefit analysis

procedure

The preceding sections have dealt with the type and range of economic use

values of biological resources and the methods used to determine them.

This section discusses the costs associated with the conservation,

sustainable use and restoration of biological diversity in order to balance

these costs with their social and economic benefits. If biological resources

for conservation, sustainable use or restoration can be treated as scarce

resources and valued accordingly, they can be balanced against alternative

uses. The forgone opportunities are referred to as opportunity costs. On the

basis of cost-benefit analyses (see below), the relevant activities and their

alternatives can ultimately be determined and evaluated in monetary terms.

3.2.1 Opportunity costs: restoration costs, sustainability costs, lost use

values

How much does it cost not to destroy nature? Since the pioneering work by

Krutilla and Fisher (1975), this question has been addressed by a number of

studies. Approaches such as that used by Bishop (1980) to estimate

conservation costs for individual species are still rare; other studies deal

Recommendations

49

with the opportunity costs of area requirements for nature conservation.

The starting point of this kind of research was the work carried out by

Goldstein (1971), who compared two alternative uses of areas in the

Midwest of the United States. Retaining the area as an adventure range for

WTP bird hunters instead of intensifying its agricultural uses proved to be

economically more favourable.

Some studies, such as the ones by Turner et al. (1983) and Krutilla and

Fisher (1975), have established that maintaining a natural condition does

not cause economic costs, because large investment planning has proved to

be unprofitable. A study by Willis et al. (1988) elucidates the difference

between land use costs if distorted prices support a use that destroys nature

while lower opportunity costs are arrived at by correct calculations.

The TEV approach should be used as the basis on which to calculate

opportunity costs. Use-dependent and use-independent values have to be

taken into account, and market price-based and market price-independent

methods should be examined to valuate them. In 1989, the U.S. Court of

Appeals ruled that the procedural guidelines of the U.S. Ministry of the

Interior for the monetary valuation of environmental damage should be

revised (Marggraf and Streb 1997, p. 17). However, this court decision has

not yet been implemented, although a second ruling that environmental

damage should be valuated on the basis of the sum of restoration costs and

forgone use options has now been put into practice.

At this point, it would seem appropriate to step aside for a moment and

consider the actual and potential market values of the (minimum) goals and

costs of biodiversity. What are the ecological and biodiversity standards

that should be aimed at from a scientific point of view? And how can they


50

be translated into global and national economic units to make their

economic superiority visible?

"The progressive destruction of nature in many developing countries calls

for an answer to the question of the number, size and geographical location

of national parks that might be regarded as economically optimal within a

given time frame for a country or for human civilisation" (Ruck 1990,

p. 365), where "national park" is used as a synonym for protected,

sustainably used or restored ecosystems/biodiversity. Ruck (pp. 365ff.)

presents ways to arrive at economic responses to this question.

"Market prices for products and factors partly reflect material scarcity and

thus opportunity costs, but they are usually distorted by transfer

components, and corrections therefore need to be made for calculations of

economic costs. A distinction should always be made between dynamic and

static sets of costs, and each has to be incorporated in the other" (Hampicke

1991, p. 180). Funds for the conservation of biological diversity should

always be spent according to defined priorities and as efficiently as

possible: certain goals can either be attained at minimum costs, or the

degree to which a given goal is realised should be maximised at a given

cost. The practical cost categories for the conservation of biological

diversity can be divided into investment, work and land use costs, and each

poses specific problems. A number of studies that have been undertaken

world-wide concerning conflicts of various sizes show that opportunity

costs for the conservation of biological diversity are often far lower than

expected. In those federal states that belonged to West Germany before

German reunification, for example, DM 1 billion would be sufficient to

implement a thorough nature protection programme.

Recommendations

51

Wells (1992) compared the costs and benefits of protected areas at the

local, regional and global level, qualitatively estimating the distribution of

costs and benefits on these different levels. His estimation of the benefit of

protected areas was based on the work of Dixon and Sherman (1990; cited

in Wells 1992). It was shown that the economic benefits of protected areas

are limited at a local level, are somewhat higher at regional and national

levels and become substantial at a global level. The related costs follow the

opposite trend: They are significant at a local level, moderate at a regional

and national level and small at a global level (e.g. contributions to

multilateral financing mechanisms, cf. Fig. 4).

Wells (1992) concluded that to ensure that biodiversity is effectively

protected, this imbalance needs to be corrected by:

• North-South money transfers and

• an increase in profits at both a local and a regional and national level,

e.g. by the expansion of sustainable use strategies.

In order for local communities to actually profit from sustainable uses,

however, further socio-economic and legal conditions have to be fulfilled

on a national and regional level. These concern aspects such as land tenure

rights, property rights to biological diversity and the promotion of rural

development.


52

Potentially significant benefits Potentially significant costsLOCAL LEVEL

Consumption benefit Indirect costs (e.g. damage by grazing)Recreation/tourism Opportunity costs (e.g. by restriction of

use)Future values

REGIONAL/NATIONAL LEVEL

Recreation/tourism Direct costs (establishment of protectedareas)

Water drainage areas Opportunity costsFuture values

GLOBAL LEVEL

Biological diversity (Minimum costs)Non-consumption useEcological processesEnvironmental education and researchFuture values

3.2.2 Cost-benefit analysis

Cost-benefit analyses (CBAs) allow biodiversity-relevant activities and

their alternatives to be evaluated and expressed in monetary terms. In order

to be able to compare the costs and benefits of alternative uses, the

following procedure should be followed:

1. All the consequences of a relevant action should be identified (e.g. use,

alternative use, change in the status quo of biodiversity).

2. The present private benefits PV[B(DEV)] and costs PV[C(DEV)]

associated with the individual action taken should be determined and the

difference between them calculated: PV[B(DEV)] - PV[C(DEV)].

3. Depending on the relevant integration level, the present local, national,

global or total (TEVtot = TEVg + TEVn + TEVl) social benefit

Fig. 4: Comparison of the resulting costs and use of protected areas

Recommendations

53

PV[TEV(SUB)] of the alternative use (e.g. conservation, sustainable

use) should be calculated; its social costs PV[C(SUB)] are then

subtracted.

4. If the difference PV[TEV(SUB) - C(SUB)] is larger than the difference

PV[B(DEV) - C(DEV)], then the social use alternative is the

economically relevant one. It will also be politically relevant whether

the private user is able to participate in the social global, national and/or

local yields.

If the costs and benefits of an action are to be calculated without

considering an alternative scenario, step 2 should be omitted. The action

concerned will then be economically reasonable if the valued benefit

exceeds the respective costs. Since the cost-benefit analysis requires

national and international costs and benefits to be identified and quantified

as comprehensively as possible, it also includes individual cost and benefit

aspects (e.g. external effects), even if these are not economically apparent.

3.3 Organisation of markets with appropriate prices

In the preceding sections, the causes of market failure were explained in

terms of the valuation or rather the lack of valuation of biological diversity.

In addition, techniques were described with which the actual value of the

components of biological diversity can be determined (TEVs at a local,

national and global level, etc.). The critical question is now how these

theoretical insights and methods can have a practical impact on markets

and prices and how the external costs and benefits of biological resources

can become visible on the markets and in market prices.


54

3.3.1 Monetisation and cost-benefit analyses

In order for market prices to approximate the "real" value of the

components of biological diversity and/or for efficient market price-

relevant decisions to be made, it is first necessary to gather all the available

information about the value of biodiversity commodities. The first step

from theory to practice therefore has to be to apply the valuation techniques

described in Sect. 3.1 and the cost-benefit analyses presented in Sect. 3.2.

Barbier et al. (1994) draw some important conclusions from the

investigation of Mantadia National Park for the practical relevance of cost-

benefit analyses (Munasinghe 1993):

• Firstly, valuation techniques have to be adapted to the local situation; in

the specific case concerned, the currency "rice" was used to value the

economic advantages of forests.

• Secondly, by carefully selecting and applying valuation techniques in

relevant situations, useful indications can be obtained of the values that

would be impaired by the selected land use alternative. It is important to

realise what is actually measured by the particular valuation method

used, e.g. direct use effects, net proceeds from direct and indirect use

effects, etc., and to have a clear idea of the reliability of data and

methods for the evaluation of the respective advantages.

• Thirdly, it also needs to be clarified what was not measured by the study

in question, on which level of the hierarchy the study was conducted

and whether the TEV or only elements thereof were determined.

Only with such specifically adapted instruments and the initial knowledge

they provide about the "real" economic value of the biological resources

and their use can the following central issue be addressed: What are the

Recommendations

55

mechanisms that transform the socio-economic values that have been

determined into monetary reality on the market?

Four such mechanisms will be discussed below:

1. the removal of damaging distortions of market mechanisms

(deregulation) by dismantling failed interventions (Sect. 3.3.2),

2. the creation of markets by privatisation and integrated biodiversity

management (Sect. 3.3.3),

3. market-induced control systems (Sect. 3.3.4.) and

4. the creation of global biodiversity markets (Sect. 3.3.5).

3.3.2 Dismantling failed interventions

Governments generally tend to intervene in markets. This may be done

with the best intentions. However, even though some interventions may use

price corrections to adjust external effects that are damaging to

biodiversity, many interventions run counter to the goals of protection

biodiversity, even if they serve other important purposes. Well-known

examples of such intervention prices are deforestation subsidies, water

prices that are too low, subsidisation of agriculture, etc. Such measures are

referred to as perverse incentives, i.e. incentives that lead to a decrease in

biological diversity, and are the result of policy failure. The most perverse

incentives are those that have been created to promote goals that destroy

biodiversity (OECD 1996, p. 70).

An important step towards achieving prices that reflect social costs is

therefore to abolish any supportive measures that artificially reduce the

private costs of actions that are detrimental to biodiversity. The OECD

(1998) has very recently undertaken a study of this problem, which will be


56

referred to later. One way of correcting the price distortions caused by price

controls or national monopolies is to take internationally valid competitive

market prices as "shadow" prices (Ruck 1990, p. 220).

3.3.3 Creation of private property rights and integrated biodiversity

management

In an ideal free market, the market develops on its own such that private

use interests work to support social interests and correcting measures are

kept to a minimum. In order to at least come close to this ideal, private

users have be able to profit from the national or global yields of the

conservation and/or sustainable use of biodiversity. This could be achieved

by creating vested titles to those biological resources to which vested titles

do not yet exist and/or by transferring property rights from the State to

landowners (including those who should be entitled to such rights due to

pending land reforms).

This approach would be the logical consequence of the "national

sovereignty regime" over genetic resources that was created by the CBD to

replace the former "free access regime" to shift it at the local level. It would

meet the efficiency criterion that those who control net assets should also

be those who profit from the utilisable effects of these net assets. If a local

community cannot draw net use from its investment (the sustainable use of

ecosystems/components of biodiversity), it will not have an interest in

maintaining its investment (Pearce and Moran 1994, p. 144).

Persson (1994) was able to show that the transferral of vested titles to

squatters causes them to stop clearing, in particular if discounting is lower

than the future value of the forest. These property rights could further be

licensed, e.g. as bioprospecting ratios, visitor ratios, harvest ratios,

emission rights, development rights, etc.

Recommendations

57

With respect to genes, species and ecosystems as levels in the biodiversity

hierarchy, property rights will probably refer to the ecosystem level. It

would be advisable for transferred vested titles not to be restricted to single

uses, but to be open for the whole range of use options, e.g. tourism,

bioprospecting, hunting, renewable resources, etc. For a comprehensive

bioprospecting strategy could ensure conservation effects for the specific

resource in situ; moreover, it may also generate conservation effects for

other resources in the same habitat that are not yet being sought or

commercially exploited.

This presupposes that a bioprospecting strategy will be open in terms of the

species, genes and biomolecules it is looking for. A broader screening

policy for commercially useful resources means that the quasi-option value

of the resources that are not yet being screened for can create preservation

effects for the whole ecosystem more effectively. If prospecting is more

specific (species xy, effect ab), a holistic protective effect becomes less

likely, particularly if shortages or losses may result from subsequent

exploitation of the resources being sought. The status of the components of

biodiversity concerned should therefore be monitored by means of pre- and

post-prospecting programmes.

Bioprospecting opens up new sources of income for developing countries.

Instead of having to ask for new technologies and transfer payments from

the North, these countries may be able to offer "genetic technology" in the

form of raw materials, plant-based medicines, etc. (Krattiger and Lesser

1994). For a more lasting success in bioprospecting strategies, it would also

be helpful to transfer an increasing amount of relevant biotechnological

know-how ("capacity-building") to the area from which bioresources

originate to enable further processed resources to be marketed not only

globally, but also regionally.


58

The same is true of ecotourism; multiple attractions can increase the

duration of usability, but here, too, monitoring programmes should be

implemented to register any side-effects, and benefits were to be shared

with the local communities concerned.

3.3.4 Creation of market-based regulatory instruments

Many regulatory instruments are available to bridge the gap between TEVs

and current market prices on the national market. The main distinction is

between regulatory and market-based instruments. While regulatory

instruments imply the direct control (reduction/limitation) of unwanted

actions in conjunction with legislative or politically agreed standards,

market-based instruments create economic incentives. "It is no accident

that 'command and control' concepts have dominated environmental policy

so far world-wide. The reasons for this are the sectoral organisation and

splintering of national competences, the minor political importance of

national environmental institutions and, last but not least, the insufficient

integration of environmental policy into public discussion in many

countries" (Paulus 1995).

Economic incentive systems can be subdivided into four categories:

1. Positive incentives: any monetary (direct payment, cost-sharing, tax

advantages) or non-monetary inducement (such as awards in recognition

of outstanding performance) that motivates individuals or groups

(governments, international organisations, local communities) to

conserve biological diversity.

2. Disincentives: any mechanism that internalises the costs of use and/or

damage of biological resources in order to discourage activities that

deplete biological diversity.

Recommendations

59

3. Indirect incentives: any mechanism that creates or improves upon

markets and price signals for biological resources, encouraging the

conservation and sustainable use of biological diversity.

4. Perverse incentives: an incentive that induces behaviour leading to a

reduction in biological diversity. Perverse incentives are the result of

failed government intervention. Most perverse incentives are designed to

achieve other policy objectives and their "perversity" is thus an external

factor or an unanticipated side-effect of the policy (OECD 1996, p. 70).

If the results of economic valuations of biological resources do not lead to

reformed or newly created markets, the economic value of biological

resources can only be asserted by intervention. The notion that the market

is basically flexible enough, with only occasional State subsidies required,

is only a qualitative one. "By no means can it be concluded that economic

adjustment processes and government incentives are implemented in time

and to a sufficient extent to avoid the catastrophic consequences of

resource shortages" (Endres and Querner 1993; on market failure, see

pp. 124ff.).

However, despite the shortcomings of the market mechanism outlined

above in reflecting the TEV of the relevant components of biological

diversity, the capacity of the market to contribute to solving the problem of

the destruction of biodiversity should not be underestimated. As only

incomplete allocation mechanisms currently exist, it is not certain how the

market can contribute to the conservation of natural resources in pragmatic

terms (Endres and Querner 1993, p. 139).

In order to optimise the quality of an allocation mechanism, free market

economy intervention instruments (MEIs) should be used. Examples of

such mechanisms include environment-related fees, a price strategy with


60

resources and inputs, duties and taxes, subsidies, environmental funds,

tradable rights and licences, flexible levies, pledge systems, etc. (Paulus

1995).

Strictly speaking, MEIs include all political measures explicitly related to

private costs and benefits by which the comparative social costs and

benefits can be incorporated into market prices. These MEIs can be

subdivided into five categories:

1. charges, taxes, fees or additional prices to be paid for the social costs

arising from damage,

2. subsidies to assist individuals in altering activities or conforming to

environmental standards,

3. deposit/refund or fee/rebate systems in which a surcharge is levied on the

price of products leading to resource depletion which is then refunded if

the product is recycled or if the depleted resource is restored,

4. tradable permits by which rights to exploit resources can be exchanged

and

5. compensatory incentives to create markets or financial inducements for

certain individuals or groups who bear a disproportionate share of the

risks or costs of the conservation of biological resources (Barbier et al.

1994, p. 180).

MEIs, however, entail a considerable amount of administrative and/or

monitoring expenditure. It is therefore important to examine carefully, as

Paulus (1995) does, the institutional conditions and to integrate measures

into existing structures wherever possible. The following criteria need to be

taken into account when selecting measures: ecological effectiveness,

Recommendations

61

economic efficiency, administrative management, public costs and yields,

distribution effects and interspersing ability.

No single MEI instrument will be sufficient to counter specific threats to

biological diversity, and a range of MEIs will be necessary to address the

complex problems of the social costs of conservation, sustainable use and

restoration of biological diversity.

In principle, the groups that damage biological resources should bear the

damage prevention costs and/or the social costs connected with the

damage. Otherwise, those who use biological resources would have to bear

the entire costs of using resources, including the costs of control and

prevention. Conversely, the incremental costs connected with the

mobilisation of non-marketed uses should be offset by the utilisation of

positive incentive systems. The latter could be implemented using market-

based control instruments, as clearly shown by Lippke (1996, p. 253).

3.3.5 Creation of global markets

As mentioned several times in the preceding sections, many conservation

and/or sustainable use approaches produce global benefits. The

conservation of biological diversity in a tropical rain forest may benefit

individuals and groups in other countries, e.g. because they profit from its

renewable resources, because its biogeochemical cycles have global

benefits or because they want it to exist for its own sake.

However, if the country that owns the resources cannot derive monetary

benefit from these global external use values due to a lack of appropriate

markets, it will have no or little incentive to conserve the biological

resources in question.


62

It is therefore necessary to create global markets (GEMs). These markets

can be enforced by international law or may result from voluntary

agreements. Examples of the latter include debt-for-nature swaps or

benefit-sharing agreements, as concluded by Merck & Co., Shaman

Pharmaceuticals, Biotics Ltd. and others with the owners of bioresources.

Regulation-induced markets have gained attention in the context of the

Climate Convention, e.g. the intergovernmental agreement on CO2

reduction between Norway, Poland and Mexico concluded via the Global

Environmental Facility (GEF) or the afforestation agreements entered into

by various U.S. energy companies.

Both approaches - regulation-induced and voluntary agreements - have a

common feature: bilateral or multilateral transfer payments. Indeed, in the

foreseeable future, well-organised and specific financial transfer services

will be indispensable. The particular practical relevance of monetisation

approaches for the conservation, sustainable use and restoration costs of

biological diversity lies in the fact that these approaches will form the basis

of assessment for the budgets of national and international measures for the

protection of biological diversity. This is especially relevant for the

implementation of the CBD with regard to international financing

instruments such as the GEF and biodiversity portfolios of the World Bank,

the Development Bank of the United Nations and continental development

banks. The concept of "incremental costs" in the realisation of the CBD and

the conservation of biological diversity may be helpful in this respect.

Exactly what is covered by the term "full incremental costs" in accordance

with Art. 20 of the CBD is still the subject of detailed discussion. A

definition of the scope of this term, however, is urgently needed, since it

determines which elements of biodiversity-relevant projects may be

Recommendations

63

covered as "incremental costs" by the financial mechanisms of the

CBD/GEF.

For a definition of incremental costs, the (then still interim) secretariat of

the CBD listed several items to justify transfer payments in the light of the

CBD; however, these also suggest that a complicated bureaucracy will need

to be established (UNEP/CBD/IC/2/17 of 25 April 1994). It might be more

appropriate to restrict net incremental costs to the CBD aims of

conservation and sustainable use (global externalities of biodiversity loss),

because to achieve the third aim, the sharing of benefits and not

incremental costs would have to be refunded, but yields would have to be

divided. According to Glowka et al. (1994), incremental costs could be

defined in a simplified form as those costs that are necessary to conserve,

use sustainably or restore the components of biodiversity defined by quality

goals (if necessary, minus the immediate yields from the direct sustainable

use of biodiversity and benefit-sharing), whereby the extent of the specific

financial expenditure should be based on non-use-related monetary values.

The International Conservation Financing Project of the World Resources

Institute has attempted to calculate the annual funds necessary for the

conservation of biological resources and estimates a total of $20-50 million

per year (Reid and Miller 1989). The conservation for 20 years of 2000

animal species with 500 individuals each costs approximately $25 billion

alone, as much as the first landing by man on the moon. The traditional

conservation of tropical rain forests is estimated to cost $170 million per

year for at least 5 years.

In order to develop a ranking order for transfer payments, a cost-efficiency

index for biodiversity projects has been developed (see the Second Global

Biodiversity Forum, Nassau 1994):


64

• a suitable indicator of the benefits of biodiversity or of biological

significance: data at a national level on species diversity and endemism

(per km2) may be used to represent the benefits gained by the

conservation activity concerned;

• cost of intervention: represented by the amount of investment (per km2)

in conservation measures at a national level;

• probability of success (willingness to conserve): the percentage of land

area defined as protected area is used to assess the probability of

success;

• degree of threat: deforestation rates and population growth are used to

approximate the level of threat.

It should be remembered that it is not sufficient to guarantee the return of

profit shares to the countries owning the resources. Instead, financial

compensation for the use or exploitation of biological diversity must

benefit those groups (e.g. local communities, conservation organisations,

national park administrations) that directly protect and sustainably use

biodiversity. However, this presupposes a whole range of institutional,

organisational and legal conditions, including procedures to ensure the

predictability and reliability of the distribution of transfer funds as

equivalents for economic values.

A number of financing instruments (e.g. an international rain forest fund,

resource franchise agreements) are being discussed to ascertain strategic

international payments. Because of their free market nature, transferable

development rights (TDRs) appear to be particularly promising to allow

adequate conservation of global biodiversity values in tropical countries.

Recommendations

65

The first step towards establishing TDRs for the conservation of biological

diversity would be to differentiate between conservation and development

areas. Individuals owning land in the conservation areas would also receive

TDRs, but would not be allowed to implement these rights within the

conservation areas. Instead, they could sell these vested titles in

development areas in which there is assumed to be a high demand for

limited development rights. Full compensation should thus result for the

owners of the conservation areas by the sales of development rights.

Such a market for TDRs could develop internationally. Tropical countries

could exclude areas of authentic ecosystems from alternative use and offer

TDRs locally and internationally at prices that cover their opportunity costs

(current net value of the forgone development alternative; for further

discussion, see Panayotou 1994). To a certain extent, a TDR system

already exists in the form of the debt-for-nature swaps. The essential

element of these agreements is the transfer of development rights for

conservation areas to international non-governmental organisations

(NGOs) in exchange for assuming part of the national debts of the

countries concerned. However, the extent of these rights is usually not

correlated with the opportunity costs.

3.4 Recommendations for development cooperation

The example of valuation techniques highlights the fundamental dilemma

of environmental economics, i.e. the need to proceed from generalisations

to formulate operational recommendations for action. The economic

analyses in many case studies are fairly convincing, but their scientific

theory is often still not translated into practice. Development co-operation

is required in order to develop operational concepts and to implement them

in pilot projects. The key concepts in this context are the acquisition of


66

knowledge about specific costs and benefits, training and capacity-

building.

3.4.1 Project-oriented cost-benefit analyses using the available

valuation instruments

The most obvious measure might be to introduce biodiversity valuation

techniques and comprehensive cost-benefit analyses in project planning

and to create project-oriented cost-benefit analyses (as a continuation of

project environmental-impact assessments, EIAs) as a basis on which to

determine project-related TEVs. This would require the development of

appropriate training programmes and guidelines for those responsible for

the projects in Germany and in the partner country, which should initially

be conducted in a pilot phase for selected projects. When developing such

programmes and guidelines, care should be taken to ensure that the

necessary standardisation still allows sufficient scope for the individual

project conditions and the practical adaptation of the relevant procedures

(e.g. CVM).

3.4.2 Training and capacity-building to inventor and monitor

biodiversity

In order to carry out economic valuations of the components of biological

diversity under reasonable conditions, the component to be valuated must

be adequately characterised, i.e. inventories of the components of

biological diversity concerned should be made on the relevant hierarchy

and integration levels (e.g. genes, species, ecosystems); in the follow-up,

these inventories also need to be reviewed using monitoring and

assessment programmes. There is now an extensive body of literature (e.g.

Stork and Samways 1995; Guarino et al. 1995) on the implementation of

Recommendations

67

such programmes, and this issue will not be addressed in detail here.

Particular attention should be paid to rapid biodiversity assessment

techniques (discussed in the literature) and to close cooperation between

experts and parataxonomists, as has been documented particularly clearly

for the Instituto de la Biodiversidad (INBio) in Costa Rica. DC is required

to support and to participate in biodiversity inventories in the partner

countries by means of suitable training courses and infrastructure measures.

3.4.3 Creation and/or strengthening of institutional prerequisites for

the development and implementation of national biodiversity

strategies

In this context, it is necessary to support the national and regional

authorities responsible for the conservation and sustainable use of

biological diversity in diverse areas, to help integrate biodiversity

conservation strategies in the planning of land use and to support

cooperation among the organisations involved (government authorities,

local authorities, environmental and development organisations, social

movements, development cooperation institutions). DC can contribute to

this process, e.g. by providing consultancy services. A possible form of

support is to ensure that yields from the use of genetic resources are

proportionately supplied to protected areas. At the same time, legislation

must be examined and amended to ensure its compatibility with

conservation and development goals.

3.4.4 Training and capacity-building to conduct cost-benefit analyses

and valuation techniques

Not only should project planning be carried out in donor countries (cf.

Sect. 3.4.1), but the know-how for the application of valuation techniques


68

and the implementation of cost-benefit analyses should also be transferred

to the recipient countries by means of DC in association with the capacities

to be built and developed in order to catalogue biodiversity. DC should

organise project-related (advanced) training courses and consult the

relevant institutions of the partner country. At the same time, legislation

should be examined and amended in the light of the relevant methods and

techniques, as done for the relevant American DOI guidelines, for example.

3.4.5 Supporting research capacities in developing countries at the

frontier between ecology and economics

Due to the rising demand for genetic resources, resulting in increased

bioprospecting activity in tropical forests, for example, national inventory

programmes on biological diversity and ecosystem research need to be

supported in order to set up sustainable utilisation strategies. An

international fund should provide support in capacity-building to inventory

biological diversity, to document and analyse samples and to exchange

information. Free access to information and the participation of local

communities need to be ensured. Experience at institutions such as the

Costa Rican Instituto de la Biodiversidad (INBio) suggest that we should

be thinking about models for other countries above and beyond this Costa

Rican approach.

The research and technology capacity of developing countries can be

supported by private initiatives; however, due to the size of these tasks, this

alone will not be sufficient and supplementary efforts will be necessary. In

close cooperation with partner institutions in the tropical countries, foreign

research institutions should contribute to the complex field of basic

research in the rain forests. In this context, it should be ensured that

research results are accessible to all those involved, that emphasis is placed

Recommendations

69

on building national research capacities and that research results are put

into practice by means of environmental education.

One extremely important area in which DC is required is undoubtedly the

establishment and promotion of modern biodiversity research in partner

countries, in particular the creation of a sound modern taxonomy, as this

forms the basis of all other fields of biodiversity research. "Taxonomy is

fundamental in providing the units and the pattern to humankind's notion of

species diversity" (Bisby 1995). As Hubert Markl puts it, "It has to be

clearly stated: Without the active contribution of lively and productive

biotaxonomic research - above all organism inventories of the tropics and

subtropics and the seas of all latitudes - it will be impossible to gain the

ecological insights that are necessary for the global management of the

biosphere (a profitable form of management to our benefit, e.g. self-

restraint in relation to natural communities) in such a way that mankind and

nature will be able to live together on a long-term basis, something our

future depends on. (...) As an infrastructure-related task of biodiversity

research, however, this reflects only part of the particular scientific value of

biotaxonomic research. Is it not the sophisticated differentiation of life

forms that forms the indispensable prerequisite for our astonishment and

enthusiasm for all kinds of organisms more than anything else: their

marvellous ability to adapt to their environment, their skilful methods of

conquering ecological niches, their inexhaustible wealth of original

solutions for all of life's problems from the procurement of food in

competition with their own and other species, the avoidance of enemies, the

fight against parasites and, finally, the development of supra-organismal

social systems whose abilities to learn and adapt seem to know no limits

even in animals, let alone in humans? We would not be able to carry out

research on any of this without the clear distinctions identified by


70

taxonomic research that provide the basis for our comparative analyses"

(Markl 1995).

Important tasks for the future include developing a modern taxonomy as an

integral science combining both classical and molecular methods (see

Bisby 1995) and training methodically (classical/molecular) holistic

taxonomists who also have a particular expertise in data processing using

information technology. It should be added that taxonomy will also become

increasingly significant as an infrastructure for biotechnology. In the

context of bioprospecting, biodiversity conservationists have pinned their

hopes on strategies of participative use for biotechnologically exploitable

natural substances for the in situ preservation of biological diversity. DC

should therefore also take account of research into chemical ecology and

natural products, including the industrial, sociological and economic

aspects of biodiversity. Where possible, appropriate DC projects should be

integrated into international scientific biodiversity initiatives such as

DIVERSITAS, BioNET International or Species 2000.

A further key area of biodiversity research for DC is the area of

biodiversity economics. In recent years, not least as a result of discussions

on the CBD, this subdiscipline of environmental economics has undergone

rapid development, and there have been a number of publications focusing

on valuation studies of biological resources. Interdisciplinary coordinated

research efforts are still largely lacking, however.

3.4.6 Identification of interventions failures

In order to come closer to the goal of having prices that reflect social costs,

it is necessary both to eliminate subsidies that artificially lower private

costs and to implement suitable economic instruments or other regulatory

measures to ensure that harmful external effects are taken into account in

Recommendations

71

price setting. As part of DC, consultancy services are required in this

context to support the dismantling of misdirected economic instruments on

the basis of TEVs and cost-benefit analyses; in addition, approval for

biodiversity project funding needs to be linked to the removal of any

disincentives counterproductive to the aim of the project.

3.4.7 Creation of incentive instruments

Consumption and non-consumption values of biological diversity are only

partially reflected in market prices. An overall economic calculation should

also consider ecological follow-up costs. Subsidising non-sustainable uses

sends the wrong politico-economic signals and frequently causes the

exploitation of natural resources. Within the framework of project

cooperation, DC should therefore recommend that more attention be paid to

economic incentives for the conservation of biological diversity together

with the abolition of subsidies for ecologically harmful land uses.

By means of consultancy services, national governments and authorities

should be encouraged to use and test economic instruments able to generate

market prices that approximate previously determined TEVs.

3.4.8 Participation of local communities in biodiversity yields

Successful work on a project requires the appropriate participation of local

communities in decision-making processes and the identification of

problems in project planning, implementation, and monitoring and

evaluation. Decision-making processes concerning the organisation of the

project should be made as transparent as possible and should include

objection options for the local communities concerned.


72

The effectiveness of economic incentives for local communities has not

been sufficiently considered so far. Bioprospecting and the gathering of

biological resources by national organisations offer the opportunity for fair

and equitable participation by local communities, and benefit-sharing

arrangements should be made at the beginning of a project. Private

initiatives that take account of such participation should be supported by

government authorities.

3.4.9 Assistance in the creation of property rights

The property rights of local communities need to be strengthened and

secured. This includes examining land tenure structures and strengthening

the rights of indigenous peoples and traditional communities to their

cultural identity and the collective intellectual property of their traditional

knowledge.

While industrial innovations and newly developed products enjoy the

protection of legally enforced intellectual property rights at an international

level, e.g. patent rights (recently internationally strengthened by the GATT

agreement), the collective intellectual property of traditional local

communities and indigenous peoples is not internationally recognised. If

the wealth of experience and valuable knowledge of this part of humanity

is to be used in a fair and equitable way for the management and

sustainable use of biological resources, these rights need to be

strengthened.

Action particularly needs to be taken in the following areas:

• in the evaluation of land tenure systems to support sustainable

management practices and the transfer of vested titles to biological

diversity (keyword: privatisation),

Recommendations

73

• in the establishment of legal instruments to protect the collective

intellectual property of indigenous peoples and traditional local

communities and

• in the examination of the influence that international rules such as the

GATT and TRIPS agreements (strengthening of patent rights) might

have on the availability of environmentally acceptable technologies in

developing countries and the socio-economic and ecological effects that

they may have on the lives of small farmers and indigenous peoples.

3.4.10 Cooperation in establishing global environmental markets

through bilateral and multilateral agreements

As in the implementation of the Climate Convention (with the goal of a

reduction in the emission of CO2), where both bilateral and multilateral

conventions and agreements under public and private law have been made,

similar agreements should be made with the specific goal of biodiversity

conservation. As example that might be mentioned here is the U.S. Forest

for the Future Initiative. The participation and motivation of the private

sector should also be sought in such bilateral or multilateral agreements on

biodiversity.

Bibliography

75

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