Environmental economic methods can be used to quantify and communicate the scale of economic impacts from changes in marine ecosystems. Such information can be included in marine spatial planning (MSP) and environmental impact assessments (EIA). In this chapter, environmental impact assessment, economic impact assessment and risk analysis are introduced.

The Marine Spatial Planning toolkit Section 6.1 specifically addresses the analysis of sector impacts in the context of marine spatial planning.

3.1 Environmental Impact Assessment (EIA)

Environmental Impact Assessment (EIA) is a procedure for ensuring the incorporation of environmental, and where required, social and economic information in sound and well-balanced decision making. EIA is not principally an environmental economic method but may include economic information and is therefore outlined briefly here. EIA is conducted to assess the impacts of planned activities in advance so that measures can be taken to avoid damage to the environment. EIA is sometimes also referred to as Environmental and Social Impact Assessment (ESIA), Integrated Environmental Assessment (IEA) or, particularly in cases where social and economic impacts are also relevant and included in the assessment, Sustainability Impact Assessment (SIA). One of the strengths of EIA as a framework is that it is often anchored in the national legislation and planning processes.

The EIA process involves the following steps:

1Analysing the likely impact of a decision;

2Organising public participation and consultation;

3Developing and comparing alternative options;

4Reporting the impacts, alternatives and comments from the general public;

5Taking the report into account when making the final decision; 

6Informing the public about that decision.

Useful resources on conducting EIA are available from:

The International Finance Corporation (IFC)

The Netherlands Commission for Environmental Assessment

Conducting EIA involves different forms of stakeholder engagement at various steps in the process. See the
toolkit on stakeholder engagement for guidance on this in an LME context.

While EIA is used for assessing environmental impacts of individual development projects, e.g. a seawall, wind farm or port, Strategic Environmental Assessment (SEA) is used at a higher level, for assessing environmental impacts of plans, programmes or policies, e.g. a conservation strategy or a marine spatial plan. The key steps of EIA and SEA are similar but the actual tasks and stakeholders involved can be quite different. Table 4 illustrates the main differences between EIA and SEA.

Table 4: Differences between Environmental Impact Assessment (EIA) and Strategic Environmental Assessment (SEA)

 Source: Netherlands Commission for Environmental Assessment

3.2 Economic impact assessment

Economic impact assessments involve the analysis of direct, indirect and induced economic effects (employment, income, expenditure) resulting from the implementation of a specific project, investment or development. An economic impact assessment measures three types of impact:

1Direct – the direct employment and expenditure that is required to implement the project. For example, a new hotel development would involve employment of construction workers and hotel staff,

2Indirect – the indirect employment and expenditure resulting from project implementation. For example, the hotel construction and operation purchases inputs and services from other sectors (building materials, food, entertainment etc.) that in turn may employ more workers and increase expenditure. These are supply chain linkage effects, and

3Induced – the induced employment and expenditure resulting from higher incomes generated by the project. For example, construction workers and hotel staff spend their incomes on more housing, transportation and food.

The indirect and induced effects (also termed secondary impacts) result in a “multiplier effect” in the sense that the total economic impact of a project may be larger than its direct impacts. A key component of economic impact assessment is the use of “multiplier effects” to measure (indirect and induced) secondary impacts. In other words, a project or development can results in a larger change in economic activity due to knock-on effects in other sectors. Multiplier coefficients or input-output analysis can be used to quantify the scale of multiplier effects in a local or national economy. Multiplier effects can be included as project benefits in economic impact assessment but it is necessary to assess their application cautiously for several reasons:

1The use of multiplier effects generally relies on the implicit assumption that there are unused or underused resources that will become employed. If this is not the case, their use in a new development may simply result in transfers from one sector to another or displacement effects if resources are simply being drawn away from another use. For example, increased spending in one tourist resort due to a new hotel development may displace spending in an existing resort.

2Some of the indirect and induced effects of a development may fall outside of the locality (or even country) in which the development takes place. This is referred to as ‘leakage’. For example, construction workers and materials may be brought in from other places. Or businesses may be owned by non-residents or international corporations, meaning that any profits from increased business does not accrue to members of the local community.

3Some indirect and induced effects on demand for goods and services may push up prices and result in local residents and consumers paying more for them.

In addition to carefully considering the use of multiplier effects, economic impact assessments need address other important points to produce credible information:

1Include full costs of project implementation including opportunity costs and environmental costs. Economic impact assessments tend to focus only on positive economic impacts.

2Include a counterfactual that describes what would have happened without the specific project under evaluation. This is to avoid the inclusion of changes that were occurring anyway and to measure only additional impacts.

3Report the durability or persistence of impacts. Persistence can be expressed in terms of number of years over which impacts occur.

4Assess the extent to which a project displaces other economic activity or employment opportunities.

A useful resource on conducting economic impact assessment in the LME/MPA/ICM context is the Australian socio-economic impact assessment toolkit: ►A guide to assessing the socio-economic impacts of Marine Protected Areas.

Example Box 3: Employment gains and losses in the Great Barrier Reef Catchment

Being the largest coral reef ecosystem and one of the seven natural wonders of the world, the Great Barrier Reef is truly famous around the globe. This unique marine ecosystem has also drawn the attention of economists, who have estimated the contribution of the Great Barrier Reef Marine Park to the economy of Australia for the period 2004 and 2013. The latest studies estimate the added value of the Great Barrier Reef at AU$5.7 billion, which is predominantly based on tourism benefits (Deloitte Access Economics 2013).

What distinguishes these studies from most other economic valuation studies on marine protected areas around the world is the fact that effort has been put into estimating the employment benefits generated through marine ecosystem services. As shown in Table 5 the direct and indirect employment resulting from the Great Barrier Reef services is estimated at 47,615 and 21,364 respectively.

This economic benefit is particularly interesting in the context of recent plans to expand the port at Abbot Point in northern Australia for the export of coal. This plan is mainly promoted under the premise of boosting the economy and the creation of jobs. The plan involves dredging three million cubic meters of sand and mud to be dumped elsewhere, inside the marine park. Various experts claim this could have a disastrous impact on the reef. As a result, the jobs created through the port expansion may well be lost as a result of the decline of the ecosystem services provided by the Great Barrier Reef.

Table 5: Employment generated through ecosystem services of the Great Barrier Reef

Source: Deloitte Access Economics 2013

3.3 Risk analysis

Risk can be defined broadly as the effect of uncertainty on the objectives of a project, investment or policy. Analysis of risk involves identifying and assessing potential outcomes given that multiple factors that combine to determine the outcomes of projects, investments and policies are variable, often outside the control of decision makers, or not know with certainty. Sources of uncertainty that are relevant to the LME/MPA/ICM context include:

•Events that may or may not occur within a given time period (e.g. storms, floods, oil spills),

•Variability in relevant environmental and economic parameters over time (e.g. sea temperature, precipitation, prices, exchange rates, wages), and

•Current lack of knowledge or understanding of how complex systems function (e.g. fishery spillovers from MPAs, ecosystem responses to climate change ).

Risk assessment includes three main considerations:

1The likelihood of different outcomes. Likelihood can be expressed as probabilities that take a value between 0 and 1, with 0 indicating no chance of a particular outcome and 1 indicating a certain occurrence. Often probabilities are based on historical data but it is necessary that they also reflect existing trends and expected future changes (e.g. increasing storm frequency due to climate change). In the absence of perfect data, models or knowledge, the uncertainties underlying risks are typically estimated based on broad assumptions to ensure that a lack of complete knowledge does not result in an underestimation of true risks. It is advisable to overestimate risks and cover worst-case scenarios given that some negative impacts may be irreversible 3;

2Consequences of different outcomes. This involves the assessment of environmental and economic impacts (see chapters 3.1 and 3.2);

3Welfare impacts of different outcomes. This involves quantifying the monetary value of negative and positive impacts to allow them to be directly compared and included in decision support tools (see chapter 4 on valuation methods and chapter 7 on economic appraisal frameworks).

3.4 Links

Potentially useful resources for identifying, quantifying and mitigating risks to marine ecosystems are:

•The International Council for the Exploration of the Seas (ICES) handbook on Marine and coastal ecosystem-based risk management https://www.iwlearn.net/documents/28686

•The Environment Defence Fund (EDF) Comprehensive Assessment of Risk to Ecosystems (CARE) model. The CARE model uses local and expert knowledge to assess the risk to different components of a spatially explicit site from all the potential drivers of change facing that site. Such an analysis can help to direct limited management resources and inform spatially explicit management siting decisions. ►http://fishe.edf.org/care-model

Example: Reefs at Risk

An example of a global risk assessment for a marine ecosystem is provided by the World Resources Institute (WRI) reefs at risk revisited project. The study developed a detailed spatial assessment of the status of and threats to the world’s coral reefs. This information is intended to raise awareness about the location and severity of threats to coral reefs. The results can also be used to identify opportunities for changes in policy and practices protect coral reefs and the benefits they provide to future generations.

The combined impacts of local and global threats are expected to increase over time and lead to more than 90 percent of reef being threatened by 2030.

Figure 7: Percentage of reefs at risk by region – present, 2030 and 2050 (Burke et al. 2011).