1.Introduction

The Environmental Economics for Marine Ecosystem Management Toolkit (in further text: Toolkit) has been developed within the GEF Large Marine Ecosystems Learning Exchange and Resource Network (GEF LME:LEARN) project. GEF LME:LEARN is a GEF-UNDP-IOC/UNESCO project designed to improve global ecosystem-based governance of Large Marine Ecosystems (LMEs) and their coasts by generating knowledge, building capacity, harnessing public and private partners and supporting south-to-south learning and north-to-south learning. A key element of this improved governance is mainstreaming cooperation between LME, Marine Protected Area (MPA), and Integrated Coastal Management (ICM) projects in overlapping areas, both for GEF projects and for non-GEF projects. This full-scale project plans to achieve a multiplier effect using demonstrations of learning tools and toolboxes, to aid practitioners and other key stakeholders, in conducting and learning from GEF projects.

In pursuit of its global and regional objectives, GEF LME:LEARN seeks to strengthen global governance of large marine ecosystems and their coasts through enhanced sharing and application of LME/ICM/MPA knowledge and information tools.

1.1 Purpose of this toolkit

The purpose of this toolkit is to show how environmental economic methods can be used to produce information to support decision-making in the context of LME, MPA, ICM, Marine Spatial Planning (MSP) and climate change adaptation. Specifically, it is designed to help a broad audience of practitioners, managers, government officials, private sector managers, NGOs, and statisticians to understand the available environmental economic tools and how the information generated can be used to inform the decisions that they make.

The broad objective of this toolkit is to provide an understanding of how environmental economic methods can be used to support decision-making in the context of LME/MPA/ICM. To this end, the Toolkit provides:

1A brief introduction to key environmental economic principles that are relevant to LME/MPA/ICM,

2Non-technical explanations of environmental economic methods and their applicability to different decision contexts,

3An explanation of the strengths and weaknesses of environmental economic methods and potential uncertainties,

4Links to available resources for each environmental economic method,

5Illustrative applications of the use of economic methods for different scales and decision-making contexts for LME/MPA/ICM.

1.2 Why use environmental economic methods

Environmental economic methods broadly involve identifying and quantifying the economic value of environmental resources and impacts, and incorporating this information into decision-making and the design of financing mechanisms and policy instruments.

Economic value is simply a means to describe how important the things we use are to us, including our use of the natural world or “natural capital”. Estimating an economic value for environmental resources begins with an understanding of the many different goods and services that the environment can provide (for short, these are termed “ecosystem services”) and the contribution these goods and services make to the wellbeing of the people that benefit from them (see Figure 1). The concept of ecosystem services provides a framework for identifying and quantifying the variety of benefits that we obtain from the environment (see Definition Box 1)

THE CONTRIBUTION OF NATURAL CAPITAL

Figure 1: The contribution of natural capital and ecosystem services to human well-being

In the case of ecosystem services from the marine environment, there are often no prices that reflect their value, since the services that are provided are not traded in markets (e.g. climate regulation, coastal protection, biodiversity). As a result we tend not to take the value of ecosystem services into consideration when we make decisions that affect the marine and coastal environment. When we investigate the consequences of environmental change (e.g. climate change, development, marine accidents) we need to fully understand the effects on ecosystem services and human wellbeing. Economic valuation tries to measure the importance of environmental change, usually in monetary terms, in order to communicate the scale of impacts to human wellbeing. Such information can be used to raise awareness of the economic importance of marine ecosystems, set fees for the use of marine ecosystem services, or determine compensation payments for environmental damage.

In the context of development planning or investment in environmental management, economic appraisal methods can be used to explicitly examine trade-offs between the costs and benefits of alternative options. Often, decisions regarding economic development affect the functioning or quality of ecosystems. Although such decisions are intended to enhance development, they can also reduce the supply of ecosystem services that are critical to human well-being and sustainable development. If, for example, we choose to clear a mangrove for aquaculture development, then a trade-off is made between the ecosystem services provided by the mangrove that we will forgo and the benefits that will accrue under the new development. Economic appraisal methods make that trade-off explicit and allow the alternatives to be directly compared to reveal clearly to decision makers what will be lost or gained by making a decision.

Example Box 1: Using economic values to make explicit trade-offs between resource uses

This example uses data from Southern Thailand to illustrate how information on economic values can be used to make explicit trade-offs between alternative land uses (see Figure 2). In this case, the choice is between maintaining mangroves or conversion to aquaculture shrimp ponds. From the perspective of the private landowner (Panel A), conversion to shrimp ponds makes good sense since the profits from shrimp ponds greatly exceed the profits that can be made from harvestable mangrove forest products. This difference in profitability is much less, however, if the subsidies to shrimp farming are removed (Panel B). From a societal perspective (Panel C), the conversion to shrimp ponds is not a good investment for two reasons: 1. There are high public costs of restoring degraded land after it has been used for shrimp farming; 2. There are high public benefits from maintaining mangroves that support local fisheries and provide protection to coastal communities from storm damage.

Net benefits of shrimp farms and mangroves in Southern Thailand. Values are 1996 US$ net present values over 9 years (1996-2004) using a 10% discount rate

Figure 2. Net benefits of shrimp farms and mangroves in Southern Thailand. Values are 1996 US$ net present values over 9 years (1996-2004) using a 10% discount rate. Data from Barbier (2007).

Under pressure to respond to immediate problems, but hampered by a lack of high quality information and analysis, decision makers often have to make quick decisions without full knowledge of the long term implications of their decisions. Having access to reliable information that describes the costs, values, and risks of environmental change facilitates more objective, more transparent and better informed decision-making. Such information should reduce the pressure on decision makers by giving them a fuller and more balanced understanding of the economic gains from environmentally sustainable policies, projects and decisions, and the potential losses from unsustainable ones.

Environmental economic methods do not provide the ‘correct’ answer to questions on marine environmental conservation and management, but are intended to provide information to facilitate more objective decision-making. They provide a means of measuring the implications of decisions on environmental management, not just to the immediate stakeholders, but also to people impacted by environmental change further afield and to future generations.

Environmental economic methods do not stand alone but are often used in combination with other (usually biophysical) methods for assessing environmental change and the provision of ecosystem services. The added value of using economic methods is that the consequences of environmental change are expressed in terms of human welfare and measured in common units (i.e. money) that can be directly compared to other costs and benefits that decision-makers need to consider.1

There are many contexts in which environmental economic methods may be useful, including to:

Raise awareness of the value of the marine environment. Estimates of the economic value of an LME or MPA can highlight its importance to the public and to policy makers (see example of the Sargasso Sea ecosystem in Box 1);

Design effective policy instruments for environmental management. Resource use and polluting activities within an LME can be managed using economic instruments such as taxes, transferable quotas, certification and labelling, and trade restrictions;

Design mechanisms for sustainable financing, including setting appropriate fees for use of ecosystem services. This is relevant to LMEs and MPAs to sustain financing after initial project funding ends;

Compare costs and benefits of alternative uses of the environment. This may be done, for example, in the context of Marine Spatial Planning to evaluate the net benefits from alternative activities;

Reveal the distribution of costs and benefits of management decisions among different stakeholders. Transparently measuring who incurs the costs and who receives the benefits of LME management provides key information for decision makers;

Calculate values for ecosystem services and natural capital for input into green accounts. Information on the value of ecosystem services can also be used in Transboundary Diagnostic Assessments (TDAs) of LMEs to indicate their socio-economic importance;

Calculate the value of environmental damages to set compensation. Information on the full economic costs of marine accidents (e.g. oil spills, ship groundings) can be used to determine the level of compensation that needs to be paid.

Specifically, in the context of LME management, economic methods can be used to measure socio-economic indicators and evaluate management options within the Socio-Economics Module of the 5-module Strategic Approach to LME management. The Strategic Approach toolkit Section 2.4 provides detail on the parameters and indicators that are used within this module.

Example Box: Ecosystem services provided by the Sargasso Sea

The Sargasso Sea lies in an area beyond national jurisdiction, except for the territory of Bermuda and the Bermudian Exclusive Economic Zone. Ocean currents, global biochemical cycles, and wide-ranging ecological processes result in the Sargasso Sea delivering ecosystem services well beyond its own boundaries.

The ecosystem services provided by the Sargasso Sea vary widely in terms of type and beneficiary. Some of its services may be harvested directly (e.g., fish). Other ecosystem elements, such as Sargassum – a floating sea plant – supports part of the life cycle of organisms that ultimately benefit people far from the region. For example, eels that spawn in the Sargasso Sea are later harvested in North America and Europe. The Sargasso Sea also provides important habitat for whales and turtles that return to near shore, continental waters where they support local tourism industries. The Sargasso Sea also generates non-use and regulating services that benefit people globally.

A recent study provides the best available information about the potential economic magnitude or nature of the Sargasso Sea’s ecosystem services (Pendleton et al. 2014). The study concludes that economic impacts and benefits directly or potentially linked to the Sargasso Sea may total between tens to hundreds of million dollars a year. The findings show the ecological health of the Sargasso Sea is not only in the interest of the inhabitants of Bermuda. Better management, including marine protection of the Sargasso Sea would benefit people and businesses around the globe, in particular, in North America (whale watching), Europe (eel fisheries), and elsewhere in the Americas (commercial fishing).

Ecosystem services benefiting people in various locations

Figure 3. Ecosystem services benefiting people in various locations

Definition Box 1: Ecosystem Services

A number of different definitions of ecosystem services have been developed through different initiatives. These include:

Ecosystem services are the benefits that ecosystems provide for people (Millennium Ecosystem Assessment – MA, 2005).

Ecosystem services are the direct and indirect contributions of ecosystems to human well-being (TEEB, 2010)

Ecosystem services refer to those contributions of the natural world that are used to produce goods which people value (UK National Ecosystem Assessment – UKNEA, 2011).

Ecosystem services are the contributions that ecosystems make to human well-being (CICES, 2012).

Similarly there are a number of different classification systems for ecosystem services including those developed by the Millennium Ecosystem Assessment, The Economics of Ecosystems and Biodiversity, and the Common International Classification of Ecosystem Services. All classifications make a distinction between “provisioning”, “regulating” and “cultural” services. The Millennium Ecosystem Assessment classification also includes the category “supporting” services.

Provisioning services are the “products obtained from ecosystems”. Examples include food, timber and fuel.

Regulating services are the “benefits obtained from the regulation of ecosystem processes”. Examples include water flow regulation, carbon sequestration and protection from storms.

Cultural services are the “non-material benefits people obtain from ecosystems through spiritual enrichment, cognitive development, reflection, recreation, and aesthetic experiences”.

Supporting services “are necessary for the production of all other ecosystem services”. Examples include nutrient cycling, soil formation and primary production.

The distinction between supporting services and other ecosystem services is the difference between “intermediate” and “final” ecosystem services. Final ecosystem services are the last item in the chain of natural processes that provide inputs to the generation of products (goods and services) that are used by humans. Some final ecosystem services are used as inputs in the production of manufactured products (e.g. mangrove trees used to make charcoal) whereas others are consumed directly (e.g. a beach used for recreation). Intermediate ecosystem services are natural processes that contribute to final ecosystem services, but do not directly input into the production of goods and services consumed by humans (UKNEA, 2011)

The International Platform on Biodiversity and Ecosystem Services (IPBES) also use the term “nature’s contribution to people” which refers to “all the benefits that humanity obtains from nature. Ecosystem goods and services considered separately or in bundles, are included in this category. Within other knowledge systems, nature’s gifts and similar concepts refer to the benefits of nature from which people derive a good quality of life. Aspects of nature that can be negative to people, such as pests, pathogens or predators, are also included in this broad category” (Diaz et al., 2015). This concept attempts to integrate various knowledge systems and emphasises that the value of nature’s contributions to people can be positive or negative.

1.3 Who should use this toolkit

The toolkit has been designed to help anyone involved in management of LME/MPA/ICM to understand and use environmental economic methods to support their work. Potential users include:

Senior / middle level managers. Environmental economic analysis is potentially a useful source of information for appraisal of alternative management measures or for demonstrating the benefits of improved management,

Policy makers in sector ministries (e.g. environment, fisheries, transportation, energy). Information from environmental economic analysis may be used in policy appraisal, damage assessment, budget decisions and the design of policy instruments to finance and manage LMEs,

Private sector. There is an increasing interest in understanding the importance of environmental resources from the perspective of private enterprises, either as inputs into production or as outputs (external costs and benefits) to society. Environmental economic methods are potentially useful as a source of information for full cost accounting, Triple Bottom Line analysis, and calculating environmental profit and loss,

NGOs. Information on the economic value of the marine environment can be used to communicate the importance of good management to society. The use of economic language can be more effective in communicating this message to some stakeholders and decision makers, and

Statisticians and accountants. Several international initiatives are underway to incorporate environmental resources into national accounts and reporting systems (e.g. the Convention on Biological Diversity Aichi Target 2). Environmental economic methods provide a consistent and structured approach to deliver this type of information.

1.4 How to use this toolkit

The aim is to provide a practical handbook to guide the use of environmental economic methods in the context of LME/MPA/ICM. To be able to use the toolkit, a basic understanding and experience of applied environmental economics is useful but not necessary. For users that are unfamiliar with environmental economics or need a refresher, a brief introduction to relevant basic principles is provided in Chapter 2.

Each section of the Toolkit describes a distinct method that is potentially relevant to LME/MPA/ICM management. Users can go directly to the sections that are relevant to their needs. Links between methods are highlighted so that users can navigate between sections to suit their purposes. The Toolkit provides an introduction to each method, guidance on what information it can be used to produce, and its strengths and limitations. It does not provide step-by-step technical instructions on how to conduct each method since many of the methods require separate dedicated manuals to themselves. Throughout the Toolkit, references are made to other useful resources and guidance, including the other GEF LME:LEARN Toolkits. This Toolkit can and should be used alongside these other resources.

1.5 Quick overview of the tools and when to use them

To give an overview of the contents of this toolkit, here we provide a brief overview of the environmental economics methods that are covered and indicate when to use them.

Because environmental economic analysis is undertaken for a variety of purposes in a variety of contexts, it is not possible to present a uniform framework for the use of environmental economic methods. In other words, each new assessment may require a slightly different approach from other applications. The selection of appropriate tools will largely depend on the policy application to which the analysis contributes. This toolkit provides guidance on what each method can be used for and its strengths and limitations.

Figure 4 represents the common links between policy applications and environmental economic methods; and links between methods in the case that output from one method is used as input into another. For example, it shows that economic appraisal frameworks (e.g. cost-benefit analysis) are predominantly used for evaluating policy and investment options; that economic valuation of marine ecosystem services can be used for awareness raising, designing sustainable financing mechanisms, designing other policy instruments, and for setting compensation for damage to marine ecosystems; and that economic valuation is also used as an input into natural capital accounting and economic appraisal.

Policy applications and environmental economic methods

Figure 4: Policy applications and environmental economic methods

The ordering of methods, from top to bottom in the Figure 4 (and in the chapters of this toolkit), broadly follows the steps in an assessment along the “impact pathway” from environmental change, identification of impacts, risk analysis, valuation, design of policy instruments, appraisal and decision support.

It should also be noted that economic assessment is just one element in a decision process, along with a number of other steps that require expertise beyond the economic domain. A general description of a decision process that involves impacts on the environment includes the following steps: problem identification, identification of impacts, bio-physical assessment, valuation, determination of policy or investment options, policy evaluation and decision support. These steps might require inputs from many other fields of expertise (e.g. climate scientists, marine biologists, coastal geographers, hydrologists, ecologists, policy analysts, and experts in decision support). Although the emphasis of this toolkit is on environmental economic methods, these other crucial elements in the assessment process should not be ignored and many are supported by other GEF LME:LEARN toolkits, which are referenced where appropriate.