Piloting ecosystem services valuation in Uruguay

Traditional economic valuations do not explicitly consider nature’s value, making it invisible and preventing unbiased decision making. When failing to consider ecosystems in the assessment of an activity or project under evaluation, we implicitly assign them a value of zero and therefore we ignore whether and to what degree nature is affected. Negative consequences are generally seen after the fact, and the margin to prevent further deterioration or remediate the damages already caused is usually smaller than if it had been considered from the beginning. Moreover, gross domestic product (GDP), the main economic indicator to measure progress, grows when some ecosystem services (ES) are degraded and artificially replaced (WAVES, 2014). This is usually interpreted as a positive signal, even when it may be compromising future development and prosperity. Diverse methods have been developed so far in order to measure ecosystem services value (United Nations et al., 2021). Some of them involve a price that is directly observable (e.g. land rent) or it is obtained from markets for similar goods and services (e.g. if mushrooms from one forest are commercialized, but those from a similar forest are not, the prices observed in the former can be applied to the latter). In other cases, the price for the ES is embodied in a market transaction (e.g. resource rent, productivity change and hedonic pricing methods) or is based on revealed costs (e.g. averting behavior and travel cost methods) or expected costs (e.g. replacement cost or avoided damage costs methods). A summary of the most relevant literature on this topic can be found in the Ecosystem Services Valuation Database (https://www.esvd.net/). This research shows how some of those approaches can be applied in a sub basin of Santa Lucia river catchment as a case study, and provides a comparison of the results obtained through alternative valuation methodologies. This type of assessments are scarce in the Latin American context. The selected services are soybean, corn and wheat provisioning services, grazed biomass provisioning services for meat and milk production, drinking water supply and water purification (through the retention and breakdown of nutrients made by riparian forests). The methods used to estimate the value of these services are land rent, resource rent, replacement costs and avoided damage costs. The period of analysis is 2014 to 2019. The physical flows of ecosystem services, which is the base for later economic valuation, is obtained from a model developed in SWAT (Soil and Water Assessment Tool) in Borges et al. (unpublished). We focus on the Santa Lucía river basin, which provides drinking water for about 60% of Uruguay’s populations. For this analysis data is mainly obtained from the Agricultural Statistics Office of the Ministry of Livestock, Agriculture and Fisheries (DIEA - MGAP), the national accounts published by the Central Bank (BCU) and the national drinking water supply company (OSE). Estimations suggest that the value of soybean and milk provisioning services are the highest. Additionally, the highest values are obtained by applying the replacement cost method, which may indicate that the methods based on directly observed market values (land rent) and on residual values (resource rent) have a tendency to underestimate ecosystem value and that, artificially substituting the service provided by nature may be very expensive. These results can be used in different ways. On the one hand, the value of the ecosystem services that are not included in the current GDP (for instance, water purification) can be added, in order to better reflect the influence of nature on the economy. On the other hand, the contributions of ecosystems in the supply of goods and services already accounted in the value-added calculations (typically provisioning services), can be distinguished from human contributions. Additionally, ecosystem services values can be used in social cost benefit analysis of multiples measures or projects and in the valuation of environmental assets (as they reflect the value of all the services they provide), among others. References: Borges, M., Hastings, F., Hein, L. and Carriquiry, M. (unpublished) Modelling hydrological ecosystem services and externalities using SWAT and an ecosystem accounting approach. Wageningen University and Resaerch United Nations et al. (2021). System of Environmental-Economic Accounting— Ecosystem Accounting (SEEA EA). White cover publication, pre-edited text subject to official editing. Available at: https://seea.un.org/ecosystem-accounting WAVES (2014) Natural capital accounting (NCA) and payments for ecosystem services - frequently asked questions. World Bank Group.