Researchers have released an interesting valuation study at the Diversitas Conference in Capetown, South Africa. The study aims to put a price tag on coral reefs–something that is much easier said than done. The study found that on average, one hectare (10,000 square meters) of coral reef provided humans with $130,000 annually in services–but this […]
Researchers have released an interesting valuation study at the Diversitas Conference in Capetown, South Africa. The study aims to put a price tag on coral reefs–something that is much easier said than done. The study found that on average, one hectare (10,000 square meters) of coral reef provided humans with $130,000 annually in services–but this amount could rise to as much as $1.2 million depending on the area and use.
Overall more than 80 coral reefs were studied with the following allocations of “services:
- Food, raw materials, ornamental resources: average $1,100 (up to $6,000)
- Climate regulation, moderation of extreme events, waste treatment / water purification, biological control: average $26,000 (up to $35,000)
- Cultural services (eg. recreation / tourism): average $88,700 (up to $1.1 million)
- Maintenance of genetic diversity: average $13,500 (up to $57,000)
Totaled up around the world, the service value was estimated at $172 billion annually. They also calculated the rate or return on investments in ecosystem restoration. By their calculations they found coral reefs to return 7% per annum, where as Mangroves returned 40%.
I applaud their efforts, but as the graph will show, there are some large flaws. Such as the lengthy horizon of 50 years and a discount rate of 1%! I looked around, but was also unable to find any additional information on their analysis like what growth rate was used over the 50 years–a minor detail with a very large effect.
A simple discounted cash flow model, as it looks to have been presented here, is rarely the proper way to value something in the real world–let alone a group of living organisms. That said, it can be done and it is beginning to be explored as an area of academic and business interest.
For an environmental philosophy class my senior year in college I wrote a thesis on environmental economics and used Floridian coral reefs as my subject. The philosophical argument was for people to truly care that coral reefs are preserved, a dollar amount needs to be slapped on it. That and being educated in business courses it was easier to support my argument with numbers! I ended up creating a basket option, and subsequent model, that depended on a variety of “performances” to pay off–such as water temperature, co2 emissions, and coral growth rates. (I actually made it a “synthetic option” because the definition of an option just didn’t jive with the paper–personally I feel we have the obligation.) The point was to show that environmental restoration can present itself as profitable and even as an arbitrage opportunity. It was an interesting project that revealed to me how much we take, without always appreciating… and occasionally giving back to the oceans. At the end of the day I feel this Diversitas Analysis is striving for the same thing and for this I commend them. However, with just a quick look I am sure many will disagree with their logic and math.
For ocean and reef lovers the dollar value embedded in the large blue mass is irrelevant, but maybe with the use of economic analysis, numbers like $172 billion can communicate to the every day onlooker that the oceans do matter.
[flickr : jagendorf]