Monetizing the intangible

By Chloe L’Ecuyer-Sauvageau,

There was an event on September 25, Why Forests Matter, organized by the Nature Conservancy of Canada; six panelists presented their view on aspects of forest conservancy. Their presentations touched on the issues of intrinsic beauty, ecosystem services, precautionary principle, and ways to preserve the forests. Their rationale for conservation was related in part to its intrinsic beauty, but mainly for preserving habitat, carbon sequestration, health impacts, etc. One of the issues raised was: what is the monetary value of forests? And why is this important to know? The following TED talk by Pavan Sukhdev (2011) provides insight on the matter.

Monetizing ecosystem services is a way to address externalities, and as mentioned by Pavan Sukhdev in the video, “you cannot manage what you can’t measure”.

In the practice of Environmental Impact Assessment (EIA), monetization can be very important, especially as part of defining the alternatives to the project and when identifying the valued ecosystem components (VEC).

Project Alternatives

Defining project alternatives is important to come up with a project proposal that will be economically viable and environmentally sound. Typically, alternatives to a proposed project are based on the location of the project, its design and/or its mere existence.  For example, a government wants to generate more low-carbon energy (purpose) for its growing population (need of the project). The government could decide to do an EIA for a new hydroelectric dam, but before choosing this option, alternatives such as wind or solar powered energy could be looked at. The government should also look at the status quo, where no project would take place. The reason why monetizing impacts is important in this case, is that in order to decide what options are suitable, we need to determine which is the most cost-effective and, to appropriately do that, we need to include externalities so that all costs (environmental and social) are represented and taken into account in the decision.

Valued Ecosystem Components

VEC are aspects of the human and biophysical environment that are considered to be important and, as a result, they require detailed consideration in EIAs (Noble, 2010). Identifying VEC is of critical importance, but it is as important to define VEC objectives and indicators, because these will be used to collect information for the baseline, to predict impacts, to perform accurate monitoring and to manage and mitigate impacts. VEC indicators need to be measurable, so that we can differentiate between natural changes and impacts caused by a project. It is possible to use qualitative indicators but usually quantitative measures speak more effectively to decision makers. This is why it may be useful to use dollar value.

Monetization of the intangible, such as ecosystem services and externalities in general is by no means easy, but to effectively understand issues monetization can be a very powerful tool. This is why we should keep doing research on the subject and improve our techniques to fairly represent the intangible.


References

Noble (2010). Introduction to Environmental Impact Assessment – A Guide to Principles and Practice. Oxford University Press, Second Edition, Canada, 2010, page 89.

Why Forests Matter [http://www.natureconservancy.ca/en/what-you-can-do/other-ways-to-help/promotions/why-forests-matter-quebec.html]

P. Sukhdev, Put a value on nature! TEDGlobal 2011, 16 minutes:31 seconds, Filmed July 2011, http://www.ted.com/talks/pavan_sukhdev_what_s_the_price_of_nature.

Alexander, C., and DePratto, B. (2014). The Value of Urban Forests in Cities Across Canada. Special Report, TD Economics. http://www.td.com/document/PDF/economics/special/UrbanForestsInCanadianCities.pdf

  • This is the article that one of the speakers, Karen Clarke-Whistler, referred to during her presentation.

 

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