A Review of Valuation of Ecosystem Services for effective Cost Benefit Analysis (CBA)

Abstract:

Decision makers are often faced with the task of effective allocation of resources. Cost Benefit Analysis (CBA) is one of the traditional economic analysis techniques that aids the appraisal of investment by drawing on the principles of welfare economics and public finance. However, valuation of benefits during the CBA procedure becomes difficult when such benefits are saddled with uncertainty, as is the case of ecosystem services. The valuation of ecosystem services is sometimes complex and highly subjective. Some of the challenges faced in ecosystem services valuation include the equation of societal welfare to individual welfare, issues on equity in the distribution of benefits and limited coverage such that only a portion of the impacts of such benefits can be effectively studied. Previous CBA studies have attempted to monetize environmental benefits using eco-design optimization approaches, Environmental Priority Strategies (EPS) that enable trade-offs in environmental impacts and economic costs to be carried out in the same unit as well as simplex algorithms for systematic integration of environmental impacts and economic factors. Due to uncertainty in the valuation process, it is advisable for monetization to be a means of defining priorities rather than to be used as absolute values. Although, this research work is still on-going, gleaning from a rich review of literature, improved valuation of ecosystem services can be achieved by developing approaches that consider ecological, socio-cultural and economic values of a service for a wide range of beneficiaries, as well as disaggregation of beneficiaries to reflect diverging opinions within a given society. There is also a need for compilation of datasets that encourage the identification of common boundaries for social and environmental systems.

Key Words: Ecosystem Services Valuation, Cost Benefit Analysis, Uncertainty.