Economic Valuation of FES and approaches to payments for FES in Germany

Economic Valuation of FES and approaches to payments for FES in Germany Thünen-Institute for International Forestry and Forest Economics, Hamburg

Overview 1. Preliminary consideration: What are economic values? 2. What do we know about economic values of FES in Germany? 3. Approaches to Payments for FES: Some examples under German conditions Page 2

1. Preliminary consideration: What are economic values? Theoretical background: Environmental Economics & Welfare Theory Two fundamental methodological norms: Individualism/Self-determination Individualism: values are determined by individual utility only Self-determination: preferences are expressed by the individuals Measurement concept: individual Willingness to Pay (WTP) Maximal amount (of money, time or other goods) an individual is willing to give up in order to obtain a defined quantity & quality of a good/service ultimately rooted in individual utility / individual demand usually expressed in monetary terms ( cardinal indicator for ordinal utility) Practical application primarily: policy advice (adjustment of policies, financial support, etc.) further implication: upper bounds for market prices/pes ( WTP prices!) Page 4

Overview 1. Preliminary consideration: What are economic values? 2. What do we know about economic values of FES in Germany? a. Data sources b. Aggregate values of different FES in Germany c. Ongoing project "ReWaLe" 3. Approaches to Payments for FES: Some examples under German conditions Page 5

2. WTP for FES in Germany: a. data sources 1) Market goods (e.g. timber, game meat) Regularly updated official price reports & statistics but: usually report prices; welfare measures (WTP) are rarely deduced 2) Non market goods (most FES) Many specific studies worldwide (primarily in USA, UK, Scandinavia) In Germany : several studies exist but less extensive coverage Systematic reseach only since ~1990ies Today: about ~100 studies on FES available (mostly local case studies, methodological analyses; varying quality) Page 6

2. WTP for FES in Germany: a. data sources (non market goods) Data Base on FES valuation in the German speaking area Main idea: supplementing other international data bases (like EVRI) Developed & maintained by Thünen Institute & TU Berlin (regular updates) Methods covered: CVM, TCM, CE, BT Data Base (Excel) and explanatory report downloadable under https://www.thuenen.de/en/ wf/figures-facts/ environmental-valuation/ data-base-forest-services/ Page 7 Source: Elsasser, Meyerhoff, Weller 2016

2. WTP for FES in Germany: b. aggregate values of different FES Results from the German TEEB study Umsetzung Realisation d. of Biodiversitätsstrategie Strategy (hier: (here: in Wäldern) in Biodiversity 2200 forests) Erholungsleistung Recreation (Betretensrecht) (access rights) 1928 Senkenleistung Carbon Sequestration (ZB (WTP für for Emissionsreduktionen) emission reduction) 267 Wildbret (Primärwert Game Meat (primary value von of Schalenwild) hoofed game) 199 Holzproduktion Timber Production (production (Produktionswert value according nach FGR) to national forestry accounting) 3542 0 500 1000 1500 2000 2500 3000 3500 4000 Million Euro /year Page 8 Source: Naturkapital Deutschland TEEB.DE, p. 152-179

2. WTP for FES in Germany: b. values of FES: State of knowledge Most available non market studies focus on Cultural services of biodiversity & nature protection Recreation/tourism (everyday and holiday) Little knowledge about spatial distribution & trade-offs Further ecosystem services of forests (potable water supply; local protection against flooding, landslides, climatic extremes; tourism; landscape aesthetics; recreational hunting) Information even more fragmentary Mostly local case studies Page 9

2. WTP for FES in Germany c. ongoing project "ReWaLe" (2016-18) ReWaLe = "Regionalisation of values of FES in Germany" Goals Analysis of economic values of FES, regarding spatial variability trade-offs between services Further development into a spatial model Effects of changes in forest area, composition, management Scenario analyses for spatial optimisation potentials Approach Regression analyses of existing valuation studies with respect to regional explanatory variables Additional primary surveys, where necessary Spatial distribution via benefit function transfer Page 10

3. Approaches to Payments for FES a. Subsidisation (PES in a broader sense) Competences at three governmental levels Generally: Länder programmes Joint programme "GAK" (federal government & Länder) EU (co-financing) Problems Historically oriented at timber production profitability rather than (public) FES Complicated regulations low demand by forest enterprises declining acceptance & implementation by Länder governments Page 12

3. Approaches to Payments for FES b. Legal / institutional adjustment Example: "Eco-Accounts" Possible due to legal reform of compensation rules in Nature Protection and Building codes allow for trading & banking [Fed. Nature Protection Act 16 ff.; Building Act 200a] Basic mechanism Land owner invests in voluntary nature protection measures In return, nature protection agency issues eco-credit vouchers Land owner sells eco-vouchers to third party which is obligated to compensation measures (e.g. due to land development) Page 13 Sources: Naturkapital Deutschland TEEB.DE, S. 72-98; Ulrike Pröbstl

3. Approaches to Payments for FES c. private initiatives Example: "upgrading" Generating additional benefits by upgrading private goods Basic mechanism sale of private goods, which are valorised by bundling them with a public good Examples: Nature Tourism Mobile telephone apps (e.g. video guides for forest excursions) etc Page 14

3. Approaches to Payments for FES c. private initiatives Example: sponsoring basic mechanism company donates for a good cause receives exclusive advertising rights Example: Krombacher Beer Brewery reafforestation after wind throw (city of Brilon) (further projects for wetlands, rain forest protection) Page 15

3. Approaches to Payments for FES c. private initiatives Example: corporate responsability services Basic mechanism Co-financing of FES-related forest management by third parties wishing to compensate for their ES consumption Example: voluntary emission reduction certificates World wide market size: 28 m t CO 2 / 216 m US$ (2012) German example: forest share (afforestation for compensating emissions due to holiday travels) Page 16 Sources: Naturkapital Deutschland TEEB.DE, S. 72-98; Peters-Stanley et al. 2013

3. Approaches to Payments for FES corporate responsability services Example: corporate responsability services cont. Example: Drinking Water Forest Compensation of large-scale consumers water uptake by forest conversion measures We plant drinking water Page 17 Sources: bionade.de; rittweger-team.de

Conclusion: WTP and income potentials Substantial WTP exists for unpriced forest services in Germany under current conditions as well as for potential improvements WTP inform about the utility of forests & FES for society Marketing potentials for forest enterprises (upper price bounds) Preconditions for FES marketability Securing & enforcement of property rights Commitment & dedication PES examples show: Niche markets exist even for public goods of forests Marketing may be beneficial for society and forest owners Page 18

Thank you for your attention! Seite 19 17.9.2016 Tagung Wem gehört der Wald? der August-Bier-Stiftung

Relation between WTP demand curves - prices Relation between WTP and prices for private goods Consumer surplus Market price turnover quantity Page 20

Relation between WTP demand curves - prices WTP for non-market goods (public goods) Consumer surplus quantity price Page 21