Taking into account opportunity costs when assessing costs ...

[Pages:198]ENV.F.1/ETU/2009/0094r

Taking into account opportunity costs when assessing costs of biodiversity and ecosystem action

Final report

Timo Kaphengst, Samuela Bassi, McKenna Davis, Sarah Gardner, Sophie Herbert, Leonardo Mazza, Mav Pieterse, Matt Rayment

March 2011

Ecologic Institute, Berlin ecologic.eu

About the Ecologic Institute

The Ecologic Institute is a private not-for-profit think tank for applied environmental research, policy analysis and consultancy with offices in Berlin, Brussels, Vienna, and Washington DC. An independent, non-partisan body, the Ecologic Institute is dedicated to bringing fresh ideas to environmental policies and sustainable development. The Ecologic Institute's work programme focuses on obtaining practical results. It covers the entire spectrum of environmental issues, including the integration of environmental concerns into other policy fields. Founded in 1995, the Ecologic Institute is a partner in the network of Institutes for European Environmental Policy. The Ecologic Institute acts in the public interest; donations are tax-deductible.

Acknowledgments

This report draws on the expertise and contributions of a number of people. In particular, we would like to thank the following: Manuel Lago (Ecologic Institute), Sandra Naumann (Ecologic Institute), Andrew J Mc Conville (IEEP), Marianne Kettunen (IEEP), Sonja Gantioler (IEEP) and Indrani Lutchman (IEEP). We would also like to thank the various consultees in academia, NGOs and the public sector who provided information, evidence and advice to the study.

Executive Summary

Given the challenges associated with halting the loss of biodiversity and the breath of sectors relevant to achieving this goal, an increase in financial resources is crucial to enabling the successful protection of biodiversity and ecosystems. Within Europe, however, a gap exists between the quantity of funds designated by the EU for conservation purposes and the achievement of the subsequent targeted actions, largely as a result of limited data on the costs of conservation. Making the implicit costs of conservation explicit via the identification and inclusion of opportunity costs in estimates could help address this incoherence. This cost category reflects the foregone economic benefits from alternative activities or uses of a resource on a particular site.

Producing an accurate estimate of opportunity costs and the total cost of biodiversity and ecosystem related action within the EU has the potential to reduce the careless use of often undervalued natural resources by providing a stronger evidence base on the real costs and benefits of biodiversity, thereby enabling more informed decision-making and increased efficiency in distributing of available financial resources. Existing estimates on these costs have mostly been made at a regional level and have usually not addressed the total costs of action at an EU level. Moreover, there is a great variability in the cost types and categories used in the studies, hampering the comparability of the results. This project aims to address this inadequacy and adopt a comprehensive approach to produce a first broad estimate of the total economic costs of EU biodiversity and ecosystem policy.

To this aim, this report focuses on ten policy areas comprising the core aspects of biodiversity and ecosystem conservation within the EU, namely: Natura 2000, national (terrestrial) protected areas, species conservation, conservation and restoration of high nature value farmland, conservation and restoration of forest areas, wider environmental policy measures positively affecting biodiversity, EU strategy to combat invasive alien species and EU research on biodiversity. Additionally, the report looks at the opportunity costs arising from foregone development opportunities, a cross-cutting and multi-sectoral cost category.

These areas are explored in an extensive literature review, utilizing existing reports, studies and research activities on associated costs. After identifying the various cost types and methodologies applied to calculate these costs, a synthesis and overall estimation of opportunity costs involved in biodiversity and ecosystem policies within the EU is presented. Finally, given the policy areas found to be lacking data, recommendations for a future methodology for estimating opportunity costs in biodiversity policies are presented alongside a typology of biodiversity costs.

Overview of costs incurred in selected areas of EU biodiversity policy

Data availability between the selected areas of EU biodiversity policy varied greatly. While concrete measures of costs could be identified for Natura 2000, agri-environmental measures and forest conservation (to some extent), data and figures were limited or very general for the marine environment and species programmes. For some Member States, especially the UK, detailed cost estimates were available across a variety of areas of biodiversity action. However, throughout these estimates, opportunity costs were found to be rarely reported as such. While they were perhaps reflected in financial transactions (e.g. through compensation payments, management agreements including payment for income foregone, or land purchases), they were generally left out of overall cost estimates. This holds particularly true in cases without compensation payments. The results of the

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assessment including the significance of opportunity costs and the extent to which quantified estimates could be made are summarized below.

Executive Summary Table 1: Synthesis of costs incurred in EU biodiversity policy

Policy A. Natura 2000 Network

Estimated Annual Costs (m)

5,772

Estimated Opportunity Costs (m)

2,069

Share

of

opportunity costs

over total (%)

35.8

B. National Protected Areas

1,280

459

35.9

C. High Natural Value Farming

4,370

3,390

71.7

D. High Natural Value / Semi-natural

4,500+

4,500

n/a

Forestry

E. Species Conservation

2,841

1,697

59.7

F. Marine Protected Areas

235

n/a

n/a

G. Biodiversity Research

648

n/a

n/a

H. Invasive Alien Species

193

Negative

n/a

I. Correction for Overlaps between

-47221

-3696

-

above Estimates

J. Total

10,617

8,419

n/a

Note: n/a = information not available

These estimates are illustrative and aim to demonstrate the broad scale of costs of conserving biodiversity and the significance of opportunity costs within these, acknowledging the high variance between Member States and even regions. The combined cost of these different policy actions is roughly estimated at 10.6 billion per year. Within this, opportunity costs amount to approximately 8.4 billion.

The overall costs of biodiversity conservation could be grouped into the following categories:

Those resulting from restrictions in land management (8.4 billion/year) Those resulting from the use of scarce financial and human resources that could be used for other purposes or developments (2.3 billion/year) The unquantifiable costs of conserving biodiversity in the EU, including:

o Loss of output as a result of foregone development opportunities o Lost opportunity to a range of sectors, such as fisheries and natural resource-

based industries.

In addition, biodiversity conservation may give rise to ,,opportunity benefits by reducing the extent to which damage or over-exploitation of natural resources would result in reduced

1 Based on following adjustments: N2K cost includes 2025m for agricultural land (assumed to be HNV) and 78m marine protected areas; national protected areas costs include estimated 35% HNV agriculture and 33% HNV forest; 50% of species costs estimated to overlap with other habitats; 50% of biodiversity research is assumed to be species related. Double counting of opportunity costs is estimated to be proportionate to that of overall costs.

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output/income. Examples include long-term effects of fisheries conservation and control of invasive alien species. These benefits may exceed the opportunity costs of the policy, such that the ,,net opportunity cost of conserving biodiversity may be significantly smaller or even negative in the long-term.

Recommendations for estimating opportunity costs in biodiversity policies

Given the wide discrepancies in cost types and categories used in existing estimates of the costs of biodiversity action, a general cost typology was developed to enable the comparison of results from cost assessments based on different methodologies. The typology aims to deliver a clear categorisation of costs that could also serve as a model for an even broader application of the method beyond the project scope, and to allow for the integration of all relevant data from existing cost estimates.

Within this typology (see Executive Summary Table 2 below), financial costs are defined as real payments and expenditures for biodiversity actions (e.g. compensatory payments and management costs) that also include payments/expenditures for activities that are only indirectly associated with the action, but also have to be taken into account (e.g. administrative and transaction costs). In addition, opportunity costs that are internalised in existing expenditures, such as compensation payments and land purchases, belong to this category of costs.

Wider economic costs, on the other hand, include opportunity costs that have not been reflected in payments and therefore remain uncompensated. These include losses from foregone development opportunities, income foregone because of restrictions on the extraction of natural resources, and losses of socio-economic opportunities such as cohesion or job creation.

Executive Summary Table 2: A cost typology for biodiversity action

Cost

Types of Costs

category

Examples

Financial Costs

Costs of resources expended:

Costs of capital, labour, materials, energy

Capital costs and recurrent management costs

Administrative and transaction costs involving financial outlay

Labour and materials for fences around nature reserves

Salaries and equipment of biodiversity researchers

Materials, labour and equipment for construction of visitor centres

Costs of developing and administering species action plans

Costs that reflect opportunity costs:

Payments to compensate for income foregone

Compensation payments for foregone development/ exploitation rights

Land purchase (reflecting income from land in alternative use)

Agri-environment payments to compensate for loss of cereals output from leaving fallow land for nesting birds

Compensation payments to fishermen for establishment of marine nature reserve

Cost of purchase of farmland to establish new wetland reserve

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Wider Economic Costs

Uncompensated opportunity costs: Lost income from foregone development Loss of socio-economic opportunities Output restrictions on exploitation of natural resources

Loss of income from prevented

commercial

and

industrial

development

Foregone opportunities for job creation and cohesion

Loss of output of fisheries, wood, minerals, energy etc.

While this cost typology is foreseen to aid in the calculation of biodiversity actions across different policy areas, it must also be acknowledged that the cross-cutting nature of biodiversity conservation and the range of sectors involved evoke clear limitations for a comprehensive methodology. That being said, however, several considerations can help to ensure a maximization of coherency and usefulness in estimating costs. It is, for example, crucial to have explicit definitions that clarify the calculation methods utilised, actions and measures included, and extrapolations (if any) conducted to arrive at the given cost estimates. The degree to which the highlighted measures explicitly address biodiversity also warrants attention. Finally, opportunity costs for which no compensation is paid or for which estimates have not yet been established should also be acknowledged when discussing opportunity costs and creating cost assessment methodologies.

This report has been a first attempt to provide a comprehensive overview on costs for biodiversity and ecosystem actions in the European Union, a topic which had not been previously explored, and has lent significant contributions to the understanding of opportunity costs within the context of biodiversity policies. However, the definition of opportunity costs as a distinct consideration within cost calculations as well as their inclusion within EU and national biodiversity cost estimates warrant further development.

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Table of Contents

1 Objectives and Approach................................................................ 1

1.1 Background ................................................................................................ 1 1.2 Objectives and scope of the study........................................................... 3 1.3 Definition of biodiversity and ecosystem actions .................................. 4 1.4 Methodological approach ......................................................................... 7

2 Overview of Costs Incurred in selected categories of the EU Biodiversity Action Plan (BAP) ..................................................... 11

2.1 Foregone development opportunities.................................................... 12 2.2 Natura 2000 (Category A) ........................................................................ 22 2.3 National (terrestrial) protected areas (Category B)............................... 29 2.4 Species conservation (Category C)........................................................ 39 2.5 Conservation and restoration of High Nature Value Farmland

(Category D) ....................................................................................... 48 2.6 Conservation and restoration of forest areas (Category D) ................. 56 2.7 Conservation and restoration of biodiversity in the marine

environment (Category E)................................................................. 65 2.8 Wider environmental policy measures positively affecting biodiversity

(Category F) ....................................................................................... 72 2.9 EU Strategy to combat Invasive Alien Species (Category F) ............... 88 2.10 EU Research on biodiversity ................................................................ 100

3 Analysis and conclusions........................................................... 105

3.1 Estimating overall costs and opportunity costs of biodiversity action at EU level ........................................................................................ 105

3.1.1 Brief summary on available cost estimates ................................... 105 3.1.2 Synthesis of cost incurred in EU biodiversity policies .................... 106

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3.2 Recommendations for a future methodology for estimating opportunity costs in biodiversity policies..................................... 109

3.2.1 Analysing cost types and their relevance for biodiversity actions .. 109 3.2.2 Calculating costs of biodiversity action across different policy areas

....................................................................................... 111 3.3 Conclusions ........................................................................................... 113

4 References ................................................................................... 116 Annex A. Sources of synthesis: Literature review ......................... 126

Natura 2000 ..................................................................................................... 126 Species specific measures............................................................................ 136 Agri-environmental measures and HNV farmland....................................... 143 Forest conservation and forest management.............................................. 155 The marine environment................................................................................ 165 The UK Biodiversity Action Plan................................................................... 172 Research and education ................................................................................ 179

Annex B. Methodology of cost calculation for agri-environment payments...................................................................................... 182

Annex C. Costs of Rural Development Programmes ......................... 1

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