Ecosystem Service Values

Believe it or not, the phrase “Ecosystem Service Value” (ESV), although extensively used and repeated both in the title and body of reviewed works, is not a defined term in any of the frameworks.

We define Ecosystem Service Value as:

the quantifiable benefit, either monetary or non-monetary, that humans derive from the natural functions and processes of ecosystems. This value encompasses a wide range of services, including but not limited to, the provision of resources, regulation of environmental factors, support for biological diversity, cultural or recreational as well as aesthetic and spiritual benefits.

The concept of ESV is commonly used to facilitate informed decision-making in areas such as land use, conservation, and sustainable management as well as for cost benefit analysis.

Ecosystem Service Values and TEV have been used in seminal works like Costanza and de Groot’s “The value of the world's ecosystem services and natural capital” and subsequent “Changes in the global value of ecosystem services”; OECD’s “Biodiversity: Finance and the Economic and Business Case for Action”; and Brander’s “The Total Economic Value of U.S. Coral Reefs” to estimate and express the value, in dollars, of ecosystems and the services they provide.

Databases like Environmental Valuation Reference Inventory (EVRI) from Environment Canada and BlueValue from Texas A&M contain thousands (5,000+) of environmental and health valuation studies that provide estimated monetary values of ecosystems and specific ESVs. FEMA Ecosystem Value Updates 2022 utilizes studies like those found in EVRI and BlueValue to extract the ESV of specific projects and ecosystems.

The Ecosystem Services Valuation Database (ESVD) takes it a step further and provides uniform “value records” of primary ecosystem value studies. The ESVD currently contains 9,500 value records from over 1100 studies distributed across all biomes, ecosystem services and geographic regions.

Both FEMA ESV and ESVD break down ESV by space (ac or ha) and time (year) and express the resulting ESV in dollars and of course provide details on each study and the valuation method utilized.

Common Valuation Methods:

• Contingent Valuation

• Hedonic Pricing

• Market Price

• Meta-Analysis

• Production Function Approach

• Replacement Cost

• Social Cost of Carbon

• Travel Cost

• Unit Value Transfer

• Value Transfer (Benefits Transfer)

• Total Economic Value

Additional Methods in ESVD:

• Damage Cost Avoided

• Defensive Expenditure

• Group Valuation (Participatory Valuation)

• Input-Output Modelling

• Net Factor Income (Residual Value)

• Opportunity Cost

• Public Pricing

• Restoration Cost

Note: Most methods from both lists are also utilized in SEEA EA and TEEB frameworks.

Stocks & Flows

Many ESV studies provide a lump sum "stock" value of particular polygons or ecosystems. This typically involves estimating the number of years of value and then discounting to a NPV. However, other ESV studies provide annual values (temporal) by ecosystem extent (spatial).

Aligning with common practices in investment real estate valuation, RealValue uses ESV in $ per acre per year ($/ac/yr). When combined with financial annual income from an asset, we call the total annual value the "flow" value. With the underlying real asset value being the "stock" value.

Note: as we are in the US we use acres however, this can easily be converted to hectares.

The Foundation of RealValue

For RealValue we utilize a broad yet select set ESV data, based on our customized adjustments, reconciliations, and formula, to calculate value transfer estimates and meta-analytic values that can be applied to any Ecological Polygon to provide an estimate the holistic value in dollars.

RealValue is expressed in $/yr for a given polygon and the relation to Real Asset Value is expressed as a Natural Capitalization Rate: FLOWS/STOCKS = Natural Cap Rate. Ecosystem extent (size) and estimated ecosystem condition (SEEA ECT) are also key components of RealValue.