Evaluating Restoration Alternatives

Natural resource managers are often faced with difficult choices regarding riparian corridors. They must learn to evaluate the tradeoffs between restoration options, current land use practices, and further development. When making choices between such alternatives, they explicitly or implicitly impart value to the options and then select the most valuable based on a pre-determined evaluative framework. The framework used to evaluate the alternatives will influence which of the alternatives is chosen. In 2004, the most common method used by planners to compare options is benefit cost analysis (see below). BCA is based on individual preferences, which are the basis of economic value. Another way to analyze alternatives is to consider both individual and collective (societal) preferences, as in the multi-goal analysis. Multi-goal analyses consider multiple criteria, including costs, environmental and societal goals, and economic impact.

Comparing Costs to Benefits

When looking at restoration alternatives, the traditional approach has been to assign a monetary value to benefits from a proposed project and directly compare them with projected costs. The affordable alternative that has the highest benefit to cost ratio is usually the one selected. Benefits are not easily quantified when considering natural systems and many people object to assigning a monetary value to nature. In reality, however, human society puts a monetary value on nature daily – every land use decision made involves some assumption about value. In order better perform analyses that involve decisions about natural lands, economists have developed methods to approximate the value of nature to individuals.

When attributing costs to an alternative, it is important to account for its full economic cost. The full economic cost, or "opportunity cost," includes explicit costs (those that involve the payout of money) and implicit costs (those that do not). Explicit costs include both the direct costs of the alternative and all the indirect costs associated with it. Consider, for example, the construction of a new suburban community. The direct costs are the costs of the new homes, streets, and other necessary infrastructure. Indirect costs include the cost of the upgrades to pre-existing infrastructure that are needed to accommodate the added demands of the new community. Implicit costs are other non-monetary things you give up in building the suburban community, like the ability to build a shopping mall in the same location or the loss of the goods and services provided by the ecosystem in that location. While a decision-maker evaluating the benefits and costs of proposed alternatives will probably not be able to assign actual dollar amounts to all indirect and implicit costs, they are nonetheless important costs to consider.

Explicit Costs

Direct costs

Direct costs are costs directly associated with the implementation of an alternative. To calculate direct costs, one simply adds all known market costs of an alternative. For example, in a restoration project, the direct costs include the cost of plan development, site preparation, and plant procurement and installation.

Indirect costs

Indirect costs of preserving or restoring riparian ecosystems are the increased costs associated with an increase in visitors to an area if the public is allowed. Roads may need to be upgraded, rest areas installed, parking lots constructed, or other services provided to support an increase in recreational and tourist visitors. In urban settings, there may be costs associated with riparian restoration or preservation in the form of patrol and enforcement or trash removal. By carefully analyzing the indirect costs that arise from each alternative, coastal managers will be able to assess more accurately the impacts of each choice.

Indirect costs of riparian habitat loss include the replacement costs of the services formerly provided by riparian ecosystems. For example, constructed wetlands, wastewater treatment plants, and chemical water purifiers must be built to replace naturally functioning riparian systems. These projects incur a societal cost to which increasingly creative solutions are developed. In the late 1990s, the City of New York bought and protected most of the watershed that supplies its drinking water for $1.5 billion instead of building a water treatment plant for $6–8 billion (World Resources Institute 2003). In addition to being less expensive, the protected watershed option now allows residents of New York to enjoy other ecosystem services.

Implicit Costs

The implicit costs of a restoration project include the value of the non-cash costs of construction. For projects that require heavy equipment, the social costs of associated noise and the hazards of moving this equipment through residential neighborhoods are implicit costs of the project. These are very real costs, but assigning a monetary value to them can be difficult or impossible.

Pursuing the development of commerce, industry and agriculture usually results in some decline in ecosystem services. Likewise, restoring or preserving habitat limits the ability of a landowner to generate income using the property. If riparian buffer zones are 30 meters from the stream edge, that is 30 meters by the length of the stream or river on each side that is not available for a human dwelling or to produce marketable timber, produce, or beef. These, too, are implicit project costs.

Benefits

Some benefit values can be obtained from the market. Increases in tourist revenue can be estimated based on current trends, as can revenue from supporting industry. The difficulty occurs when one attempts to assign value to ecosystems. Since many of nature's goods and services are public goods – that is, available for consumption by all (like clean water) – their benefits (and costs) fall outside of the market. Thus, assigning values to ecosystem benefits cannot be easily accomplished.

Contingent valuation and the travel cost method are two methods that economists use to estimate the value of ecosystems. Contingent valuation is a survey-based approach to valuation of non-market goods and services. Questionnaires are developed to ask individuals how much they are willing to pay for different levels of habitat preservation and restoration. Questionnaire responses are averaged to estimate monetary values. This method has been criticized for being very hypothetical and static, but it is currently the only method for estimating values for some types of ecosystem services (Commission on Geosciences, Environment and Resources 1992; Goulder and Kennedy 1997). The travel cost method is used to estimate the recreational value of an ecosystem. The basic premise of this method is that the time and travel expenses that people incur to visit a site can be used to estimate the "value" of access to the site. This estimate is calculated as a function of the travel time and distance, not the sum of the expenses. Monetary values can be readily obtained or calculated for this metric.

Hedonic pricing can be used to estimate the economic benefit of environmental quality and environmental amenities as measured by changes in property values (King and Mazzotta undated). This method is most often used to value the environmental amenities that increase property values. The cost avoided, cost of replacement, and cost of providing substitute services methods are all based on the premise that ecosystem services are worth at least as much as people pay to replace them, substitute for them, or pay to avoid damages due to their loss. These methods are most often used in situations where people face paying for damage avoidance or ecosystem services substitution or replacement (King and Mazzotta undated).

When measuring the value of ecosystem services, many types of uses contribute to overall value. The economic value of goods and services provided by an ecosystem is based on peoples' preferences for use or nonuse of the ecosystem (see table below). Use values include direct use, indirect use, option use, and bequest values and nonuse values, which include bequest and existence values (Rhode Island Coastal Resources Management Council et al. 2003).

The most visible service provided by riparian habitat – the sustenance of biological diversity – has both direct and indirect use values. Direct use values are consumptive, like fishing and hunting, or non-consumptive, like hiking. Consumptive direct use values can be obtained from the marketplace while non-consumptive direct values must be approximated. Some methods used are: contingent valuation, the travel cost method, and the substitute cost method. Indirect values of wildlife are the value of plants and animals that support directly used animals and plants. Insects, bacteria, and forage plants are examples of organisms with indirect use values. The value of these creatures is already included in the value of the organisms directly used, so no calculation is necessary to determine value. However, this may lead to an undervaluation of the ecosystem. The production of insects, which support bird life for bird watching, incurs a replacement cost – the cost of providing different insects for the birds – or a substitution cost – the cost of providing an alternative food for the birds – that is separate from the cost of providing different birds or an alternative hobby for birdwatchers.

Option value is the amount that people are willing to pay to ensure that an environmental amenity will continue to be available at a specified price. It can be thought of as a risk premium that some are willing to pay. Option value can be approximated using contingent valuation and by performing an empirical analysis of risk aversion. Option value could also be measured by hedonic pricing, when real estate is located next to land held as a preserve. Bequest value is the value of preserving an area for future generations. The discount rate, r, which is used in calculating the current worth of future economic decisions, takes future value into account. If the future is highly valued, r is low, close to zero, while if the future is not valued much at all, r is closer to one.

Existence value is the worth to individuals to know that a given ecosystem exists apart from any use they may have for it. Existence value includes the importance of biodiversity and ecosystem services. Hedonic pricing can be used to estimate the value of biodiversity as it impacts property values. Hedonic pricing can also be used to estimate the benefit of environmental quality, like clean air (King and Mazzotta undated). Examples of the existence value of ecosystem services are pest control, flood control, soil fertilization, and water filtration. The value of these services can be measured by the value of the enhancement, the expenditures that farmers are able to avoid, the cost of replacement of ecosystem services, and the cost of providing substitute services, and will vary between location, crops, and farming methods (King and Mazzotta undated).

Limitations of Benefit-Cost Analysis

Although benefit-cost analysis (BCA) is widely used, there are some problems associated with it. First, the benefits and costs are usually not allocated equally. BCA does not identify which population segments receive the benefits from or bear the costs of a proposed project because benefits are compared to costs in the aggregate (Dorfman 1996). For example, when a chemical plant is located in a neighborhood with low property values, the nearby residents bear the costs of any air pollution or groundwater contamination caused by the factory, while stockholders who live out of the area reap the benefits. Secondly, BCA attempts to reduce all comparisons to a single dimension with a single metric – dollars. Especially in the case of ecosystem services, a monetary value can be difficult to estimate accurately. Attempts to reduce the complexity of ecosystems into one dimension can result in a gross misjudgment of the true value of the ecosystem or services in question. Thirdly, BCA can conceal the degree of uncertainty or inaccuracy in estimates. This problem can be alleviated to the extent that the authors of a BCA are explicit with the precision of their figures and with the assumptions they use to assign monetary value.

In cases involving ecosystems in particular, the traditional BCA approach can be misleading. Bulte and Van Kooten (2000) used BCA to evaluate case studies of Minke Whale harvest and rain forest preservation. In both cases, whale population and rainforest area decreased using changing values for both the initial conditions and the economic discount rate. In most instances, the biological investments (setting whaling limits or preserving rainforest) were inferior to other investments. Only when resources were depleted almost to an ecological point of no return did value increase to a point where preservation was more attractive than other investments. In spite of these limitations, BCA is a useful when evaluating choices where the value of all significant inputs and outputs can be expressed in monetary terms. Users of BCA should be aware of its limitations and be explicit about uncertainties and value judgments.

Multi-Goal Analysis

In restoration projects, the value of many goals such as restored ecosystem function, increased biodiversity, and improved habitat for endangered species, cannot be accurately measured in monetary terms. When three or more goals are relevant (including cost constraints), multi-goal analysis is an appropriate method for choosing among alternative actions (Weimer and Vining 1999). Multi-goal analysis consists of deciding upon appropriate goals and clarifying the tradeoffs between them (for example, the trade-off between efficiency and equitable distribution of resources), specifying the alternative projects, developing criteria by which to evaluate alternatives, predicting and assigning value to the impacts of the alternatives on the criteria, and finally, comparing the alternatives.

The multi-goal analysis can be cumbersome to develop and use, especially when there are multiple alternatives. The creation of a matrix will greatly simplify the task (view matrix as PDF). Criteria are chosen that can be operationalized, for example, if one of the goals is to improve salmonid habitat, then one of the criteria by which the alternatives can be evaluated is the projected number of spawning salmon or steelhead expected as a result of each alternative. This is a number that can be compared with other numbers, rather than a criterion such as "healthier salmon populations," which cannot be easily measured or estimated. Although easily measured criteria may be more appealing, they should not be overemphasized. Ranges are acceptable values, as are categories. For example, when evaluating an alternative with regard to the criterion "change in population," the categories "large increase, increase, no change, decrease, and large decrease" could be assigned. Together with the other criteria, this type of information gives a decision-maker holistic and easily compared information upon which to base a decision.

When multi-goal matrices are evaluated, all options should be given equal consideration. It is important that the decision-makers not look for a perfect alternative – all may involve some compromise – and that they avoid having favorites. If future conditions are uncertain, the multi-goal matrix could be developed for several possible future scenarios. If one alternative is consistently preferred in all of the scenarios, it is chosen, but if none dominate, then a decision is made based on avoiding the worst outcomes in all scenarios, or the most desirable outcome for the expected future scenario.

Another method for evaluating multi-goal matrices is to set a go/no-go rule for every criterion and evaluate each alternative – including the do nothing or status quo alternative – with respect to the rule (Weimer and Vining 1999). A threshold level for each criterion is set and alternatives that don't pass a criterion are eliminated. If after completing such an evaluation, only a single alternative remains, it is the logical choice. If two or more alternatives remain, then the analyst refocuses the evaluation on those alternatives. If no alternatives remain, new criteria by which to evaluate the alternatives are developed, or the thresholds for the criteria are reset to allow at least one alternative to pass.

References

Bulte, E., and G.C. Van Kooten. 2000. Economic science, endangered species, and biodiversity loss. Conservation Biology 14(1):113-119.

Commission on Geosciences Environment and Resources. 1992. A National Restoration Strategy: Basic Elements and Related Recommendations. In Restoration of Aquatic Ecosystems: Science, Technology, and Public Policy. Washington, DC: National Academy Press. pp. 350-376. View on-line source.

Dorfman, R. 1996. Why benefit-cost analysis is widely disregarded and what to do about it. Interfaces 26(September - October):1-6.

Goulder, L.H., and D. Kennedy. 1997. Valuing Ecosystem Services: Philosophical Bases and Empirical Methods. In Nature's Services: Societal Dependence on Natural Ecosystems. Corvelo, CA: Island Press. pp. 23-47.

King, D.M., and M. Mazzotta. Undated. Ecosystem Valuation: Damage Cost Avoided, Replacement Cost and Substitute Cost Methods [Web page] [cited 2003]. View on-line source.

Rhode Island Coastal Resources Management Council, Narragansett Bay Estuary Program, Save The Bay, and National Oceanic and Atmospheric Administration Coastal Services Center. 2003. Rhode Island Habitat Restoration Portal: Cost Analysis [Web page] [cited 2003]. View on-line source.

Weimer, D.L., and A.R. Vining. 1999. Policy Analysis: Concepts and Practice. Upper Saddle River, NJ: Prentice Hall.

World Resources Institute. 1999. Valuing Ecosystem Services [Web page] [cited January 9, 2004]. View on-line source.

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