VALUING MARINE ECOSYSTEM SERVICES PREVENTIVE MEASURES

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1 VALUING MARINE ECOSYSTEM SERVICES LOSS FROM OIL SPILLS FOR USE IN CBA OF PREVENTIVE MEASURES Ståle Navrud, Henrik Lindhjem, Kristin Magnussen and Sofie Skjeflo School of Economics and Business, Norwegian University of Life Sciences and Menon Centre for Environmental and Resource Economics (MERE) Seminar, Oslo, 21. March 2017

2 . Ecosystem services (ES) ES defintion 2006 Millennium Ecosystem Assessment (MA) define ecosystem services as the benefits people obtain from ecosystems ES Valuation in CBA General CBA Manual (DFØ: Veileder i Samfunnsøkonomisk Analyse) Sector specific CBA Manuals (e.g. Veidirektoratet, Kystverket, Jernbaneverket, Miljødirektoratet, NVE) Norwegian ES Committee (NOU 2013:10: Naturens goder: om verdien av øksystemtjenester) Need for monetary (and non-monetary) valuation methods and new studies to better integrate ES impacts in CBA

3 NOU 2013: 10 - Norwegian ES Classification

4 Classification of Marine and Costal Ecosystem Services Supporting services Biodiversity Chemosynthetic primary production Habitat Nutrient cycling Resilience and resistance Water circulation and exchange Provisioning services Carbon sequestration and storage Chemical compounds Construction and shipping space Finfish, shellfish, and marine mammals Minerals, and hydrocarbons Waste disposal sites Regulating services Biological control Gas and climate regulation Waste absorption and detoxification Cultural services Educational and scientific Aesthetic and recreational (Use value) Existence and bequest (Non-use value) (Modified from Armstrong 2012)

5 Which welfare loss are we valuing? Ecosystem services (ES) Temporay loss of ecosystem services Redused damage costs with active restoration Loss of : Use Value (Recreational Use) + Non-use values (Existence & Bequest) ES kloss = Area of interim welfare loss /damage costs (without restoration) Ecosystem services flow with seasonal variations Oil Spill Full recovery Active Restoration Full recovery Natural restoration Time (years) Total Economic Value (TEV) of a small increase in quality or quanity of ES is: individuals willingness-to-pay (WTP) to get the change and still have the same utility (i.e. level of wellbeeing).

6 Environmental Valuation Techniques (Primary Valuation Studies) Indirect Direct Revealed Preferences (RP) Household Production Function (HPF) Approach: - Travel Cost (TC) - Averting Costs (AC) Hedonic Price (HP) analysis Market prices Replacement Costs (RC) Stated Preferences (SP) Choice Experiments Contingent Valuation (CV)

7 Value Transfer (VT) Techniques (Benefit transfer) Defintion VT Transfer economic values (e.g. recreational value per activity day, percentage change in property prices per decibel noise; or Willingness-topay (WTP ) per household) from existing valuation studies (i.e. Study site) to site of decision making e.g. CBA (i.e. Policy site) Spatial and temporal transfer (i.e. from older studies in other locations) VT techniques Unit Value transfer (with or without (income) adjustments) Value function transfer Meta Analysis Delphi Method

8 Use of Contingent Valuation results in CBA Background: A sector-specific CBA manuals being revised to include more non-market unit values for ecosystem services (ES) Project funded by the Norwegian Coastal Administration NCA (Kystverket) (Expert workshop, Focus Groups, 1-to-1 interviews, Soft Launch Internet survey, Pilot study(n=2525 hh), Main Survey (n=5575 hh); many revisions of internet survey in all stages The aim was to provide originalunit estimates of WTP/household) for small, medium, large, and very large ES loss from an oil spill in different regions of Norway; for NCA s CBA Manual for preventive measures; to be used for many years Assess reduced accidents risk from preventive measures and model avoided ES loss (Combine reduced probability of ES loss, Unit value for relevant ES loss size, and number of households in the region affected; in order to calculate total economic benefits) Combine with costs of preventive measure (investment and operating costs, and potential external costs of measure on ES) to calculate Net Present Value of the preventive measure in a CBA

9 Main Challenge in Contingent Valuation of Ecosystem Services (ES) loss Construct a ES loss/damage scenario which is scientifically correct and understandable to the public Damage Function Approach: Oil spill Environmental ES loss impact

10 Damage Table in Pilot Survey

11 5 regional case studies/oil spill sites in Final survey Case North: Tromsø Case Mid: Rørvik Case West: Fedje Case East: Hvaler (Outer Oslo Fjord) Case South: Kristiansand

12 Case: Outer Oslofjord

13 Examples of bird/animal life in the Oslo Fjord

14 Examples of coastal landscapes and recreational activities in the Oslo Fjord

15 With (right) and Without (left) Oil Spill in the Oslo Fjord

16 Examples of ecosystem service damages from previous oil spills in Norway

17 Damage Table - Outer Oslo Fjord Final survey

18 Damage map in Final Survey Outer Oslofjord Spill

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21 Screen shot (Final survey) CV scenario: «Small loss» Outer Oslo Fjord

22 Willingness- to-pay question Payment Card

23 Screen shot (Final survey) CV scenario «Medium loss» Outer Oslo Fjord

24 III After WTP stated for 4 damage levels Results for each respondent presented. Asked whether they would keep or change amounts.

25 Results from Final Survey

26 Number of Respondents and Response rates Region Østlandet Vestlandet Sør-Norge Midt-Norge Nord-Norge Total Utsendinger Kontakt Frafall: Ufullstendig utfylling Svarprosent 46 % 44% 45% 50% 45% 46% Intervju Responsen i en undersøkelse rettet mot et aksesspanel vil avvike fra andre undersøkelsedesign, ettersom respondentene er forhåndsrekrutterte til å delta. Undersøkelsen ble sendt ut til respondenter. Utvalget «oversamples» i utgangspunktet ikke ut over forventet innkomst: Selv om dette vil kunne gi raskere gjennomføring, vil personer som er lett tilgjengelige kunne bli overrepresenterte i utvalget (Tabell 3). Spørreskjemaet ble åpnet av respondenter (57%). Blant disse har 947 ikke returnert fullstendig besvarelse. De respondentene, som har besvart undersøkelsen, utgjør 85% av de kontaktede og 54% av de utsendte skjemaene. Kontaktrate og respons er den samme på tvers av utvalgsområdene. Ettersom undersøkelsen stenges når ønsket antall respondenter er oppnådd, har de sist ankomne respondentene ikke hatt anledning til å delta, og responsen underestimeres i så fall eventuelt i forhold til totalt antall utsendte skjemaer.

27 Percentage Positive WTP, Real zeros and don t knows, and Protest answers 100% 90% 80% 70% 60% 50% 40% Protestsvar Reelle 0-svarere og vet ikke Betalingsvillighet større enn 0 30% 20% 10% 0% Liten skade Middels skade Stor skade Svært stor skade Damage level: Small Medium Large Very Large

28 Why did people state Zero WTP? Husstanden min har ikke råd til å betale for dette Skattenivået er allerede høyt nok 11% 8% 9% 17% Hva jeg sier vil ikke påvirke om tiltakene gjennomføres eller ikke Jeg ville betalt for tiltak i andre kystområder Jeg føler det ikke er riktig å veie miljøet i penger Jeg mener andre samfunnsoppgaver bør prioriteres først Jeg vil ikke betale før jeg vet hva det koster Dagens beredskap er bra nok 25% 7% 4% 4% 0% 7% 1% 0% 2% 1% 2% 1% Det var for vanskelig å komme fram til et beløp Jeg tror ikke det vil skje oljeutslipp i dette kystområdet Jeg stoler ikke på at pengene vil gå til det riktige formålet Jeg mener at penger kan omfordeles eller brukes mer effektivt En engangsskatt er urealistisk og/eller ikke tilstrekkelig Det er rederiene og skipsnæringen som bør betale Andre grunner Usikker/Vet ikke

29 Kroner Mean WTP/household (one-time amount) to avoid different levels of damage/es loss; for te 5 different regions * Protest-0/vet ikke og BV > 5% av husholdningsinntekt tatt ut

30 WTP/Household (One-time aount) when converted into 2 Regions (Northern Norway and The rest of Norway) Liten skade Middels skade Stor skade Svært stor skade Nord-Norge N=664 [624, 807] [876, 1022] [1437, 1647] [2095, 2352] Resten av Norge N=3132 [621, 730] [821, 939] [1160, 1294] [1648, 1842]

31 Calculating total economic benefits Number of affected households (N) is important for aggregate use and non-use values, of ES Total WTP = Mean WTP/household x N How to determine N? - Local, regional, national or global good (e.g. local/regional recreational area vs. national park vs. world heritage site) Most coastal regions are only of regional values

32 Multipied with the number of affected households in region * each county, provides unit prices (Kalkulasjonspriser) for each county (with coastline) that the preventive measures are implemented in. (in Mill NOK) Tiltaksfylke Liten skade Middels skade Stor skade Svært stor skade Østfold Akershus Oslo Buskerud Vestfold Telemark Aust-Agder Vest-Agder Rogaland Hordaland Sogn og Fjordane Møre og Romsdal Sør-Trøndelag Nord-Trøndelag Nordland Troms Finnmark * No. of «affected households» based on dispersion of oil in different regions and respondents answers,

33 Damge/ES loss matrix for finding the ES loss category (small, medium, large or very large) for different volumes of marine diesel, crude oil and bunkers oil; and then the correct unit prices for affected counties. Utslippstype Volum (tonn) Liten Miljøsårbarhet Spredningsradius Moderat Høy Svært høy (buffersone)* (km) Marin diesel Råolje Bunkers Noter: Fargekodene tilsvarer liten (lys gul), middels (mørkere gul), stor (brun/oranjse) og svært stor (rød) miljøskade *Se forklaring i teksten i avsnittet «miljøsårbarhet vurderes innen en spredningsradius

34 Steps in calculating economic benefits of preventive measures

35 POLICY USE: 1) Raise awareness of economic benefits of ES 2) CBA of preventive measures (NCA) CBA of LOVE oil exploration and extraction 3) Environmental accounting (Firm national) 4) Environmental charges 5) Natural Resource Damage Assessments (NDRA) compensation payments oil spills

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37 Policy use of ES damage cost estimates Cost-benefit analysis (CBA) of projects to improve shipping lanes and other measures to prevent accidents and oil spills; conducted for the Norwegian Coastal Administration Input (unit values) to their CBA manual Other potential uses: Environmental costing to get marginal damage costs of pollution and optimal levels of pollution and optimal taxes Green national accounting ( Green GDP (Gross Domestic Product), i.e. GDP corrected for changes in environmental quality and natural resources Compensation payments after oil spills (Natural Resource Damage Asssessment; NRDA) Optimal management of natural resources (input to bioeconomic modelling)

38 Mean WTP /household/year (for 10 years) for different regions and damage levels (in NOK; 1 NOK = 0.10 PPP-US$) WTP Eastern Norway, spill in Oslofjord 1700 Western Norway, spill north Western Norway, spill south Small loss Medium loss Large loss Very large loss Northern Norway, spill in Lofoten Level of ecosystem service loss

39 Temporal stability Is WTP stable over seasons? YES

40 For the same respondents only (i.e the respondent surveyed both winter and summer)

41 What explains WTP to avoid Small (S), Medium(M), Large (L), Extra Large (XL) loss in ecosystem services from oil spill (Preminary results from final survey) (1) lwtp_s (2) lwtp_m (3) lwtp_l (4) lwtp_xl [1 Log distance from coast, km (-1.86) Have experienced oil spills ** (2.78) *** (4.13) *** (4.33) ** (-2.79) * (2.00) *** (4.90) *** (5.46) Recr. Use of coastal area affected last 12 months Log Household gross incomee Age (years) (0.28) (-1.07) * (-2.04) ** (-2.63) ** * (2.72) (2.15) *** *** (5.08) (5.12) *** *** (6.52) (5.65) (-1.53) * Age squared (0.29) (1.57) (1.85) * (2.15) Female * (2.40) University education (-0.29) Northern Norway (0.32) (0.15) (1.61) Log of minutes used to complete internet survey Respondents used mobile phone/ipad to answer survey Intercept (1.88) (1.74) (-0.38) (1.29) (0.69) (0.80) ** (3.00) (-0.10) * (2.11) (0.87) (-1.98) (-0.08) ** (3.23) (0.05) ** (2.62) (0.27) (1.23) (1.01) (1.30) (0.63) N t statistics * p < 0.05, ** p < 0.01, *** p < 0.001

42 Reasons for positive WTP Non use value Use value Other reasons e.g. I felt I had to pay, I pay for all good (environmental) purposes, I pay out of sympathy with those affected

43 Mean WTP/household/year (for 10 years) to avoid different damage levels in Vestfjorden/Lofoten for households in Northern Norway and a national sample WTP Northern Norway, spill in Lofoten National, spill in Lofoten 900 Small loss Medium loss Large loss Very large loss Level of ecosystem service loss

44 Total Economic Value (TEV) of a small increase in quality or quanity of ES is individuals willingness-to-pay (WTP) to get the change and still have the same utility (i.e. level of wellbeeing): TEV is motivated by: 1) Use Value - Direct Use Value, i.e. i) Consumptive use (e.g. recreational fishing (Cultural service) and commercial fishing (Provisioning Service), and ii) non-consumptive use (e.g. whale watching, nature photography) - Indirect Use Value (e.g. carbon sequestration (Regulatory services) - Option value (i.e. pay to have an option/posibility for use in the future) 2) Non-Use Value - Existence and Bequest values (i.e. preserving the existence of the resource for current and future generations)

45 Contingent Valuation Pilot Survey Internet Panel Survey (by professional survey firm Norstat) Net sample: respondents for Eastern Norway og 402 for two Western Norway (South and North) sites for Northern Norway (Lofoten Islands oil spill) in a National survey (Lofoten Islands oil spill). Response rate: 17,2-20,7%. Low, but average response rate in internet panel surveys; ok for a pilot. Representative sample with regards to sosio-demographics

46 VELFERDSTAP (PÅ SKALA 0-100) AV ULIKE SKADESTØRRELSER Hvis du vurderer skadestørrelsene opp mot hverandre, omtrent hvor stort tap av livskvalitet ville du og din husstand oppleve hvis hver av disse skadene faktisk inntraff? Marker tapet av livskvalitet ved å dra pilen til et tall mellom 0 og 100, hvor 0 er intet tap og 100 er svært stort tap Liten skade Middels skade Stor skade Svært stor skade

47 Damage map Final Survey Northern Norway - Tromsø Oil spill

48 Damage table Final Survey Northern Norway - Tromsø Oil spill

49 Payment Card (Pilot study)

50 Contingent Valuation (CV) Describe change in quantity/quality of environmental good (Scientifically correct, but understandable to the public; and accepted by all stakeholders) Describe program providing the change (Here: Oil spill prevention measures) Realistic and neutral payment vehicle (Here: additional income tax earmarked for these measures ) Willingness-to-pay (WTP) question - open-ended (Payment card) What is the most your household is willing to pay annually as an additional tax? - closed-ended (dichotomous choice) If the program costs X $ annually as additional tax, would your household support the program (vary X over the sample)

51 Kan vi tro på resultatene? Undersøkelsen er konservativt utformet tror våre enhetspriser representerer minsteanslag på velferdstap Folk har fått anledning til å vurdere beløp to ganger (revidere hvis for høyt) Webundersøkelser gir ikke «press» om å «ta i» i svarene Svarene gir konservative anslag på betalingsvillighet, som er godt innenfor anslag fra andre studier BV varierer med div. variable som forventet (eks. inntekt, bruk, tidligere erfaring med utslipp)

52 Hvordan bruke kalkulasjonsprisene?

53 Oljedriftsmodellering MIRA-metodikk For 5 utslippscase, 4 skadenivåer Spørreundersøkelsen gir kroneverdier for å unngå hver av de fire skadenivåene for fem regioner Skade på natur Utslippshendelse Kalkulasjonspriser for fem miljøskadenivåer i alle tiltaksfylker

54 Steps in calculating economic benefits of preventive measures

55 Miljøskadematrise for vurdering av miljøskade og valg av riktig kalkulasjonspris Utslippstype Volum (tonn) Liten Miljøsårbarhet Spredningsradius Moderat Høy Svært høy (buffersone)* (km) Marin diesel Råolje Bunkers Noter: Fargekodene tilsvarer liten (lys gul), middels (mørkere gul), stor (brun/oranjse) og svært stor (rød) miljøskade *Se forklaring i teksten i avsnittet «miljøsårbarhet vurderes innen en spredningsradius (buffersone)» nedenfor.

56 Eks: Bruk av prisene Farledstiltak (utdyping, bedret merking) i Raftsundet i Nordland Trinn 1: Risikoanalysen beregner grunnstøtingsfrekvens før og etter tiltak basert på faktisk trafikk Trinn 2 & 3: Bunkerskapasitet og potensielt utslippsvolum beregnes Trinn 4: Endring i frekvens for grunnstøt med utslipp (kollisjoner har nesten 0 i sannsynlighet) Trinn 5: Klassifisere miljøskade for ulike utslippstyper og nivåer og vurdere miljøsårbarhet i området (skadematrisen)

57 Bruk av prisene (2) Trinn 6: Summere frekvenser for ulike skadenivåer og Skadenivå Frekvens utslipp: Liten Middels 0, Stor 0, Svært stor 0, , Trinn 7: Beregne årlig velferdstap som unngås: Sum av frekvens per år for skade i X kalkulasjonspris per skade i for Nordland tiltaksfylke = 2,7 mill. kr per år Tiltaksfylke Skadenivå Nordland Pris per skade Endringsfrekvens per år Verdi av risikoreduksjon per år Liten Middels , Stor , Svært stor Trinn 8: Neddiskontert nytte = 53 millioner

58 Oslo Fjord oil spill site (Case: Eastern Norway) Damage map Pilot survey - Outer Oslo Fjord Spill