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    Researchers Find Coral Reefs to be Worth $172 Billion

    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 […]

    blue ocean 360

    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%.

    Rate or Return for environment restoration

    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.

    [Diversitas]

    [flickr : jagendorf]

    2 Comments

    1. October 23, 2009 at 9:08 AM | Permalink

      I’m actually a bit disappointed that a dollar value was assigned to it. And a relatively low one at that. $172 billion? That’s nothing compared to the stimulus packages being discussed currently.

      For some people it might take a staggering dollar value to appreciate coral reefs, but for industries and governments that dollar value can become the decision maker. Look at the Ford Pinto as an example – the insurance company put a dollar value on a human life, and the corporation decided in favor of the insurance payouts rather than a product recall. When that dollar value is so low – less than the gross profits of ExxonMobil last year – I think this valuation can have an opposite effect of what was intended.

    2. Nicholas Sadaka
      October 23, 2009 at 2:12 PM | Permalink

      I have to completely agree with Jim. I find this dollar value to be disappointing and almost offensive. In my own opinion, putting any dollar value on something that is priceless can never truly be accurate. I don’t think people need a dollar amount to appreciate coral reefs, they need enough of an understanding of what a coral reef is to truly understand how priceless it is. The only way to do this with many of our priceless and often endangered regions that hold so much importance to the health of our planet is lots and lots of educating. How about making environmental sciences a course like math or english in schools…one that all kids are required to take throughout their schooling just like a major subject. I mean how much more important can the continuation and health of our planet be? People don’t appreciate what they don’t know about. Knowledge is the key in my humble opinion.

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