Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity – final report ENV.C.5/SER/2006/0114r European Commission, DG ENV

06/11867/SV

Oktober 2007

ECOLAS Lieven De Smet Kris Devoldere Stijn Vermoote

ARCADIS Ecolas Content 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozon e, nitrogen and biodiversity

CONTENT

CONTENT...... I LIST OF ABBREVIATION S ...... III LIST OF FIGURES ...... V LIST OF TABLES ...... VII LIST OF ANNEXES ...... IX EXECUTIVE SUMMARY ...... I 1 INTRODUCTION ...... 1 1.1 Problem definition ...... 1 1.2 Objectives ...... 1 1.3 Workplan ...... 1 2 PRINCIPLES OF ECONOM IC ASSESSMENT OF ECO LOGICAL BENEFITS ...... 3 2.1 Ecosystems are valuable ...... 3 2.2 Need for valuation ...... 5 2.3 Challenges of the economic assessment of ecological benefits ...... 6 2.4 Translating ecosystem functions to the value of ecosystem services: an interdisciplinary proces 7 2.4.1 Linking ecological and economic benefit endpoints ...... 8 2.4.2 Carrying out the ecological benefit assessment ...... 9 2.4.3 Economic assessment of ecological benefits ...... 10 3 ASSESSMENT OF THE US EFULN ESS OF CONCEPTS FOR DISCRIBING AIR POLLU TION DAMAGE ...... 17 3.1 Critical loads and levels ...... 17

3.1.1 SO 2...... 17

3.1.2 NO X ...... 18

3.1.3 NH 3 ...... 18 3.1.4 Ozone ...... 19 3.2 Critical loads and critical load functions ...... 20 3.3 Advantages and disadvantages of critical loads and levels...... 22 3.4 Dynamic mod elling and target load functions ...... 24 3.5 Other concepts ...... 25 4 REVIEW OF THE LATEST FINDINGS ON THE VAL UATION OF ECOSYSTEM BENEFITS OF REDUCED EMISSIONS OF AIR POLLUTANTS ...... 27 4.1 policy relevance ...... 27 4.2 Assessement of Ecosystem Services Affected by air pollution ...... 28 4.3 Review of valuation literature ...... 29 4.3.1 Marine ecosystems ...... 30 4.3.2 Forests ...... 33 4.3.3 Freshwater ...... 34 4.3.4 Heath - and grassland ...... 38 4.3.5 Complex of different ecosystems ...... 38 ARCADIS Ecolas Content 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozon e, nitrogen and biodiversity

4.3 .6 Costs savings ...... 40 4.3.7 Conclusions ...... 40 5 ROAD MAP FOR THE MON ETARY VALUATION OF E COSYSTEM BENEFITS OF AIR POLLUTION ABATEMENT ...... 43 5.1 Guiding principles ...... 43 5.2 Methodology ...... 43 5.3 Actions ...... 45 5.3.1 Exposure assessment: exposure modelling ...... 45 5.3.2 Ecological response assessment: dose-effect modelling an d assessment ...... 46 5.3.3 Economic valuation: Monetary Benefit estimation ...... 48 5.4 Prioritisation of actions ...... 51 LITERATURE ...... 53 ANNEXES ...... 59 ARCADIS Ecolas List of abbreviations 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

LIST OF ABBREVIATION S

CAA – Clean Air Act

CAAA – Clean Air Act Amendments

CAFE – Clean Air for Europe

CBA – cost-benefit analysis

CCE – Coordination Centre for Effects

CDF – cumulative distribution function

CVM – contingent valuation method

EC – European Commission

EUNIS – European Nature Information System

EVRI – Environmental Valuation Reference Inventory

MEA – Millennium Ecosystem Assessment

NEBEI – Network of Experts on Benefits and Economic Instruments

NFCs – National Focal Centres

NRC – National Research Council

TEV – total economic value

TCM – travel cost method

UN – United Nations

UNECE – United Nations Economic Commission for Europe

USEPA – United States Environmental Protection Agency

WTA – willingness to accept

WTP – wi llingness to pay

ARCADIS Ecolas List of figures 06/11867/SV – Valuation of air pollution ecosystem d amage, acid rain, ozone, nitrogen and biodiversity

LIST OF FIGURES

Figure 2.1.1: The capacity of ecosystems to provide services that are valued by humans depends on ecosystem functioning ...... 5

Figure 2.3.1: Main steps and challenges in the economic assessment of ecological benefits ...... 7

Figure 2.4.1: The TEV framework as a tool for supporting environmental decision making on economic grounds ...... 11

Figure 3.2.1: Critical load function for acidification with the 3 basic variables (Figure available from http://www.mnp.nl/cce/methmod/) ...... 21

Figure 3.3.1: Cumulative distribution function of critical loads and different methods of gap closure: (a) deposition gap closure, (b) ecosystem gap closure, and (c) accumulated exceedance (AE) gap closure (Fi gure available from http://www.mnp.nl/cce/methmod/)...... 23

Figure 3.4.1: Dependence of the target load function on the target year (Jenkins et al, 2003) ...... 25

ARCADIS Ecolas List of tables 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

LIST OF TABLES

Table 3-1: Critical levels for SO 2 exposure ...... 18

Table 3-2: Critical levels for NO x exposure ...... 18

Table 3-3: Critical levels for NH 3 exposure ...... 19

Table 3-4: AOT40 based critical levels for ozone exposure ...... 19

Table 3-5: AF st 6 based critical levels for ozone exposure ...... 20

Table 4-1: Key ecosystem services potentially benefiting from reduced air pollution ...... 28

Table 4 -2 Review of valuation literature on the benefits of air pollution abatement to marine ecosystems ...... 32

Table 4-3 Review of valuation literature on the be nefits of air pollution abatement to forest ecosystems 35

Table 4 -4 Review of valuation literature on the benefits of air pollution abatement to freshwater ecosystems ...... 37

Table 4 -5 Review of valuation literature on the benefits of air pollution abatement to a complex of ecosystems ...... 39

Table 5-1 Quantification of a number of forest ecosystem benefits ...... 49

ARCADIS Ecolas List of annexes 06/11867/SV – Valuation of air pollutio n ecosystem damage, acid rain, ozone, nitrogen and biodiversity

LIST OF ANNEXES

Annex 1 Functions, goods and services of natural and semi -natural ecosystems ...... 61

Annex 2 Minutes of the workshop on the valuation of ecosystem benefits of air pollution abatement ..... 65

ARCADIS Ecolas Executive summary 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

EXECUTIVE SUMMARY

Cost and benefits assessment of options to reduce air pollution effects on human health and the environment plays a crucial role in policy making both at the national level as at the European Community and the international level. Currently, ecosystem benefits of policy options to reduce the emissions of various air pollutants h ave so far only been expressed in relation to ecosystem ‘critical loads’ and ‘critical levels’ in the form of increased ‘ecosystem area protected’ or reduced ‘excess pollution burden’. The monetary valuation of ecosystem benefits has up till now not been i ncluded in the assessment of policy options. The European Commission wants future analyses of policy options in the field of air pollution to be more complete on the assessment of ecosystem benefits and would like to have these benefits expressed in moneta ry terms.

The objective of this assignment is to point out the trajectory to be followed in order to enable the monetary assessment of ecosystem benefits of air pollution abatement policies. On the one hand this concerns the methodology to arrive at a Euro pean wide monetary assessment of ecosystem benefits of air pollution abatement . On the other hand this comes down to identifying the actions needed to further develop the methodological framework.

The onset of the trajectory, also referred to as the road map, is presented in the last chapter. The development of the trajectory is underpinned and facilitated by the review of some key issues in the preceding chapters. At first the principles of the monetary assessment of ecosystem benefits are described. In a second step the usefulness of the concepts for describing air pollution ecosystem damage are reviewed. Finally, the existing efforts on the valuation of ecosystem benefits of air pollution abatement are discussed.

The monetary assessment of ecological ben efits facilitates comparisons among policy alternatives and thereby supports decision -making. In practice , however, ecological benefits are difficult to evaluate. It is argued that this requires a truly interdisciplinary process during which ecosystem func tions are translated to the value of ecosystem services, being the benefits people derive from ecosystems . The methods used to address the challen ges associated with the monetary assessment of ecological benefits require the integration of ecology and econ omics.

The concepts of critical loads and levels have been used for the development of air pollution policies in the European Union and in the framework of the Convention of Long -range Transboundary Air Pollution. However these concepts provide no informat ion on the degree of damage to the ecosystem. Consequently they can not serve as a direct input for the monetary assessment of ecosystem benefits. Besides, the effects of a critical loads exceedance or a reduction in deposition so that critical loads are n o longer exceeded are considered to be immediate. As soon as the critical loads are exceeded, ecosystem damage occurs and as soon as the exceedance stops, ecosystems are restored. The concept does not account for the time required for ecosystem damage or r ecovery to occur. In order to overcome this drawback the concept of target load functions, requiring dynamic modelling, is introduced. Finally, the current modelling practise also tends to pass over the more sensitive, and often small, areas.

Ther e have be en some studies on the monetary valuation of ecosystem benefits of air pollution abatement. Most of these were carried out in North -America and Scandinavia. Also in the Netherlands the issue did get quite some attention, efforts were focused on the assessment of the welfare implication of acidification. With the exception of the efforts by the USEPA , in the framework of the evaluation of the Clean Air Act , there have been no coordinated initiatives. The existing valuation studies have only little relevance to a comprehensive European wide assessment. The same goes for the elicitation of provisional monetary benefit estimates. The reasons are manifold:

I ARCADIS Ecolas Executive summary 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

- If already specified, the reduction scenarios used in existing studies do not match with those from future E uropean programmes. The results can therefore, at best, only be used as an indication.

- The number of studies is limited. The coverage of the area, ecosystem types and number of ecosystem services potentially benefiting is limited.

- Very often the studies ha ve been carried out because of the interest in certain monetary valuation methods. The scientific underpinning of the ecological aspects was therefore often of minor importance.

- Many dose-effect relations are quite uncertain, even today.

- Many studies are quite old.

- The studies that used stated preference methods to elicit peoples’ willingness to pay for a given improvement in use values may also have elicited non -use values.

The methodology for the monetary assessment of ecosystem benefits of air pollution abatement can be broken down into three major phases . The first phase (exposure assessment) implies the determination of the relevant abatement scenarios and the resulting changes in ecosystem exposure to air pollution. Doing so involves the identification of those ecosystem areas that are meaningfully affected by the action. The second phase (ecological response assessment) then involves the establishment of the appropriate linkages between the changes in ecosystems exposure to air pollution and the resul ting effects. The third phase (economic valuation) is about determining to what extent the quality and/or quantity of the ecosystem services benefiting from air pollution abatement changes given the effects on ecosystems . The (relevant) changes then need t o be monetised. This can be done by using observed market data, performing a number of well-chosen valuation studies or transferring values from other valuation studies.

In order to arrive at a European wide monetary assessment of the ecosystem benefits of air pollution a number of well-chosen original valuation studies will need to be carried out. The determination of the number, the ecosystem types and services covered, geographical delineation, etc. has to be underpinned by a considered strategy. Given t he obvious resources constraints, this strategy should make optimal use of the possibilities of benefits transfer

As t he monetary valuation of ecosystem benefits of air pollution abatement is complicated b y various problems i t is impossible to attempt to overcome all of them at the same time. The trajectory for the future will therefore be one of stepwise improvements. The challenge of arriving at monetary estimates of ecosystem benefits of air pollution abatement requires on the one hand the well-consider ed deployment of research efforts and resources and on the other hand the s earch for a wide consensus about the methodology among scientists as well as decision makers .

In the light of this, it is advisable to have only a few ecosystem services covered by the assessment in the beginning. The criteria for selecting these service flows are quite straightforward. On the one hand there is the relevance of the change in the ecosystem service flow, and the associated welfare impact, resulting from air pollution a batement. On the other hand there are the feasibility, consensus and uncertainty of assessing the effect.

The different phases, and the components of which they are made up, in the methodology for the monetary assessment of the ecosystem benefits of air p ollution abatement , linking emissions to welfare, need to be geared to one another . This is required to allow a sound and defensible estimation of the welfare change resulting from an action. For this the coordination between the exposure assessment, the ecological response assessment as well as the economic valuation have to be further stimulated.

II ARCADIS Ecolas Introduction 06/11867/ SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

1 INTRODUCTION

1.1 PRO BLEM DEFINITION

In the Commission Staff Working Paper SEC(2005) 1133 on the Thematic Strategy on Air Pollution it was stated that “As there is s till no sound basis at present for further quantification impacts and valuation of impact s on different types of ecosystems, omission of monetised ecosystem benefits outside of agriculture may trigger a significant bias towards underestimation of total ben efits.” (EC, 2005 )

The air pollution damage to ecosystems and the benefits of policy options have so far only been expressed in relation to ecosystem ‘critical loads’ and ‘critical levels’ in the form of increased ‘ecosystem area protected’ or reduced ‘exc ess pollution burden’. Valuation of monetised benefits of ecosystems has so far not been included in the full analysis of policy options, partly due to the lack of methodology to assess the damage and partly due to the lack of monetising factors for the ev aluation.

The inclusion of the impacts on forest, freshwaters and other ecosystems could add significantly to the benefits quantified for emission reductions. Consequently, the future analysis of benefits of various policy options should be more complete a nd include the assessment of ecosystem chan ge and its monetised valuation. (EC, 2005)

1.2 OBJECTIVES

The overall objective of the service contract is to give concrete guidance on how to better include air pollution induced changes in ecosystems to the benefit analysis of different policy options to reduce emissions of air pollutants. More specifically, it is the aim to: • assess the usefulness of concepts for assessing the effects of air pollution on ecosystems, in particular those previously used in the Clean Ai r for Europe (CAFE) programme (such as ‘ecosystem protection area’ and ‘excess pollution burden’) and newly proposed concepts (such as ‘marginal impact coefficient’). These concepts should be evaluated in the light of their usefulness: - In integrated assessment modelling; - For communicating information on ecosystem damage to European stakeholders; - As a basis for economic valuation of ecosystem damage and benefits; - In cost-benefit analysis. • provide a basis to reach consensus amongst stakeholders in the field o n the methodology for valuing ecosystem benefits from reduced emissions of air pollutants. • draft factors or ranges for the provisional valuation of ecosystem benefits. • provide stakeholders with a clear road map on how to proceed in order to arrive at a final list of estimates of ecosy stem benefits from reduced emissions of air pollutants .

1.3 WORKPLAN

The final aim of the project , presented in the last chapter, is the development of a road map to arrive at a European wide monetary assessment of ecosystem benefi ts of air pollution abatement. The objective of this road map is twofold. On the one hand a practical methodological framework is proposed to allow a Europe an wide monetary assessment of ecosystem benefits of air pollution abatement. On the other hand, a n umber of actions are identified and documented . These actions are areas where specific research efforts , refinement of methodology and coordination are required. The methodology and actions constitute the core ingredients of the road map.

1 ARCADIS Ecolas Introduction 06/11867/ SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

The development o f the road map is underpinned and facilitated by the review of some key issues in the preceding chapters. At first the principles of the monetary assessment of ecosystem benefits are described. In a second step the usefulness of the concepts for describing air pollution ecosystem damage are reviewed. Finally, the existing efforts on the valuation of ecosystem benefits of air pollution abatement are discussed.

Input for the development of this report has mainly been gathered in three ways . First of all, the report is based on an extensive literature review. In a second time, a workshop was held to discuss on how to better include changes in ecosystems into the benefit analysis of different policy options for emission reduction. The workshop dealt with the met hodology for the assessment and valuation of related ecosystem benefits. The discussions at the workshop were facilitated by a draft synthesis report, reviewing the latest findings on the methods used for the assessment of the effects of air pollution on ecosystems and their valuation, and a number of presentations by keynote speakers. Finally, experts have been invited to review a draft version of the report. I nformation gathered during these activities has been integrated in this report.

2 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

2 PRINCIPLES OF ECONOMIC ASSESSME NT OF ECOLOGICAL BENEFITS

The economic assessment of ecological benefits is directed at estimating the benefits of an environmental policy to society in monetary terms , when appropriate. The monetary assessment of ecological benefits facilitates comparison s among policy alternatives and thereby support s decision -making. In practice however, ecological benefits are difficult to evaluate. Several factors contribute to this challenge, including limited understanding of the linkages among polici es, stressors, and ecosystem services, linkages within and between ecosystems, and linkages between ecological and economic systems.

This chapter first briefly describes why ecosystems are valuable and therefore need to be taken into account in policy deci sions. In a second time it is argued that th e latter is very unlikely when the value of ecosystems, or rather the changes in their value, is not expressed in monetary terms. There is thus a need for the economic assessment of ecological benefits , although this is not an obvious task. In a final part it is demonstrated that monetary valuation requires a truly interdisciplinary process during which ecosystem functions are translated to the value of ecosystem services.

2.1 ECOSYSTEMS ARE VALUA BLE

Ecosystems contri bute to human welfare. As defined in the Millennium Ecosystem Assessment (MEA) ecosystems constitute a dynamic complex of plant, animal and micro organism communities and the nonliving environment, interacting as a functional unit. Humans, being a componen t of these ecosystems, depend just like all other species on ecosystem properties and on the network of interactions among organisms and within and among ecosystems for their sustenance (Millennium Ecosystem Assessment , 2005 a).

Ecosystems are essential for our continued existence as we derive goods (such as food and timber) from them and they perform fundamental life -support services ( like maintenance of air and water quality, detoxification and decomposition of wastes, maintenance of soil fertility ). Besid es, humans also enjoy ecosystem services that go beyond the provision of basic life support services, such as recreational and aesthetic values. Furthermore, natural ecosystems also have an intrinsic value . The i ntrinsic value, as opposed to utilitarian va lue held by people, concerns the well-being of plants and animals. Farber et al . (2002) state “As humans are only one of many species in an ecosystem, the values they place on ecosystem functions, structures and processes may differ significantly from the values of those ecosystem characteristics to species or the maintenance (health) of the ecosystem itself” (Daily et al., 1997; Farber et al., 2002 and Millennium Ecosystem Assessment , 2005 a).

The MEA defines ecosystem goods and services as the benefits peo ple derive from ecosystems. Although in economics ecosystems ‘goods’ and ‘services’ are often referred to separately, they will be consider ed together as ‘ecosystem services ’ within the framework of this study . The term of ecosystem services is important b ecause it conveys the idea that ecosystems are valuable for society (Millennium Ecosystem Assessment , 2005 a).

The development of the concept of ecosystem services is relatively recent. Early references to the value of ecosystems services date back to the m id-sixties. In more recent years, there have been many more studies on the benefits of ecosystems to society. In spite of this, attempts to measure and value ecosystem services have been and still are complicated by the lack of a systematic framework for t he comprehensive assessment and valuation of ecosystem services (De Groot et al., 2002; NRC, 2004 and Millennium Ecosystem Assessment , 2005 a).

3 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

The focus is here on assessing how (policy) actions affect the quality and/or quantity of services provided by ec osystems. The capacity of ecosystems to provide services that are valued by humans depends on the provisioning of ecosystem functions which on their turn are conditioned by ecosystem functioning which is the interacti on of ecosystem boundary conditions , structure and processes. The process is illustrated in Figure 2.1 .1 (De Groot et al., 2002 and Turner et al., 2005) .

Many of the ecosystem services like the provision of food, timber and potable water, the enjoyment of the scenery etc. are quite obvious. Others are much less obvious and imply a thorough understanding of ecosystems functioning . Knowledge about ecosystem services is still incomplete as their complexity is still little understood in many instances. Resea rchers have tried to catalog ecosystems functions and their corresponding services. De Groot et al. (2002) for example established a general overview of the main ecosystems functions and services that can be attributed to natural and semi -natural ecosystem s and their associated structures and processes. This taxonomy of ecosystem services, which has already been adopted by the MEA, is shown in Annex 1. De Groot et al. opted for a functional grouping of ecosystem ser vices and classified them into four categories: regulation, habita t, production and information functions. It should be stressed that because of the interconnectedness of ecosystem services and the systems that supply them , the classification of services i s often an arbitrary exercise (De Groot et al., 2002; NRC, 2004 and Millennium Ecosystem Assessment , 2005 a).

ECOSYSTEM

Ecosystem functioning

Boundary conditions

Ecosystem Ecosystem structure processes

Ecosystem functions

Regulation Habitat Production Information

Ecosystem goods & services

Intrinsic value HUMAN VALUE SYSTEM

Source : Based on De Groot et al., 2002, Turner et al., 2003, NRC, 2004 and Turner et al., 2005

4 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Figure 2.1.1: The capacity of ecosystems to provide services that are valued by humans depends on ecosystem functioning

Ecosystems and the services they provide are being degraded by a wide variety of human activities. The most e xtreme and often irreversible impact relates to the complete destruction of natural ecosystems by converting them for example to areas for construction, industrial activities or intensive agricultural activities . However, human impacts on ecosystems are fr equently more moderate, not affecting all services to the same extent as for instance in the case of air pollution, recreational use of ecosystems, etc. (Daily et al., 1997) .

The threats to ecosystem services relate to the unsustainable growth in the scale of human activities. The underlying cause is the mismatch between short -term economic incentives and long -term societal welfare. Although ecosystems perform many functions that are high ly valuable to humans, these values often have been ignored. As a result, it occurs that ecosystems are degraded to a larger extent than would be wise from a societal point of view. Alterations in ecosystems can significantly influence human welfare now and in the future and consequently needs to be considered more seriously (Pagiola et al., 2004) .

2.2 NEED FOR VALUATION

As we are concerned with human welfare, the ecological implications from human activities should be accounted for more thoroughly. However, the recognition that ecosystems are valuable alone does not provide us w ith a sound indication of their value. T he assessment of the benefits ecosystems provide is complicated by the fact that many ecosystem services have attributes of public goods. Consequently, these services are freely available for everyone who wants to us e them. In the absence of markets to allocate these services in a welfare maximizing way , there is no readily available indication of how much individuals are willing to pay for the benefits of a particular service. This implies that most services do not carry a price tag as they are either not or only partially captured by the market (Costanza et al., 2002; NRC, 2004 and Millennium Ecosystem Assessment , 2005 a).

Environmental decision making, as is for example the case for Europe’s CAFE programme, often com es down to trading off an improvement in environmental quality against the opportunity costs of forgone benefits. Information about the relative values of the alternatives that are subject to the trade off is a prerequisite for sound and defensible decision-making. As the sources of human impact on natural systems are often economic, the environmental change ideally should be expressed in mone tar y terms too (NRC, 2004) .

This is particularly problematic in the case of ecosystem damage from air pollution. The failure to assign monetary values to the benefits of ecosystem services resulting from a more stringent air pollution policy hampers improved environmental decision -making. The likely ecosystem benefits from reductions in the level of air pollution are th erefore likely to be excluded from the actual cost-benefit computations when reviewing current or assessing new policies. The development of the Thematic Strategy on Air Pollution under the Sixth Environmental Action Programme, which was underpinned by the assessments carried out under the CAFE programme, for example suffered from this drawback (Holland et al., 2005 and EC, 2005) .

The impact assessment, encompassing a cost-benefit analysis (CBA) , in the framework of the Thematic Strategy was biased by the f act that there is still no sound basis at present for further quantification and valuation of impacts on different types of ecosystems. Omission of monetised ecosystem benefits may therefore lead to the underestimation of total benefits. To overcome the lack of estimates of the impacts on ecosystems, an ‘Extended Cost-Benefit analysis’ has been set up in order to provide more in -depth

5 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity information for effects that we re not effectively quantified through to monetisation (Holland et al., 2005 and EC, 2005) .

A CBA is carried out to ensure the limited resources used to provide services to society are allocated in the most efficient way, so as to maximize total welfare for society. When it comes down to account for policy decision s that impact complex systems like ecosystems which provide, either directly or indirectly, a multitude of valuable services, a more comprehensive approach than an extended cost-benefit analysis is required (NRC, 2004) .

In the context of air pollution policy , this reflect s the fact that th e costs of further reducing the emissions of air pollutants increases over time since the cheapest options for emission reduction tend to be taken first. The implementation of m ore costly abatement options require s stronger arguments (Karlsson et al., 2005 ).

The central question is therefore how to estimate the impact of changes in ecosystem services on the welfare, or utility, of individuals. We actually need to know how valuable ecosystem services are to people. Economic valuation typically addresses this challenge. Via the use of economic valuation techniques one can attribute monetary values to the changes in the level , the quantity and/ or quality of ecosystem services that are not traded in markets. This should ensure that unpriced services receive expl icit treatment in policy making (NRC, 2004 and Millennium Ecosystem Assessment , 2005 a).

In the light of supporting the de velopment of an air pollution policy, the relevant economic valuation approach attempts to estimate the change s in ecosystems benefits resulti ng from a given policy action . To assess whether a policy action is worth while, valuation efforts should focus on assessing the benefits of changes in ecosystem services. The issue here is thus not to assess the total value of an entire ecosystem, but rather to assess the change in ecosystem services and to respectively quantify the resulting change in welfare of the relevant population. Economic valuation is therefore about translating the physical changes in the ecosystem and the resulting change in ecosystem services into a common metric of associated changes in welfare. The valuation exercise is most meaningful when small changes in ecosystem conditions are considered (Bockstael et al., 2000; Tuner et al., 2003 ; NRC, 2004; Pagiola et al., 2004 an d Millennium Ecosystem Assessment, 2005a ).

2.3 CHALLENGES OF THE ECONOMIC ASS ESSMENT OF ECOLOGICA L BENEFITS

The assessment of benefits arising from certain actions or policies is a challenging exercise. The assessment of the benefits from changes in services p rovided by ecosystems requires the explicit integration of ecology and economics. The input of ecology is required to assess how ecosystem structure and processes and the resulting ecosystem functions change under different conditions. Both ecology and economics are needed to comprehend how the effects on ecosystem functions translate into the production of ecosystem services. Finally, the input of economics is required to assess how the change in ecosystem services impacts on human welfare (NRC, 2005; USEPA, 2006 and Farber et al., 2006 ).

Ecological benefits assessment is complicated by several factors . These are illustrated in Figure 2.3 .1. Despite significant advances in the understanding of ecosystem services and the natural processes that underlie them, the knowledge of these complex systems remains incomplete. As a result, some ecosystem services may simply be not recognised. The same goes for the actual estimation of the benefits of the proposed policies to hum an welfare. The valuation exercise is complicated because on the one hand the effects on ecosystem services can not always be clearly described and quantified and on the other hand , the data and methods for the actual valuation are often limited (USEPA, 20 06) .

6 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Policy action

Change in e cosystem goods & services

Goods & services not Planning and problem formulation identified

Goods and services identified

Identified goods & services not Ecological analysis quantified

Goods & services quantified

Quantified goods & services not Economic analysis monetised Goods and services monetised

Source: Extensively based on Figure 1 in USEPA (2006). Ecological Benefits Assessment Strategic Plan.

Figure 2.3.1: Main steps and challenges in the economic assessment of ecological benefits

2.4 TRANSLATING ECOSYSTE M FUNCTIONS TO THE V ALUE OF ECOSYSTEM SERVICES: AN INTERDISCIPLINARY PROCES 1

The core challenge of the problem of the valuation of ecological benefits lays in translating changes in the structure and function of natu ral ecosystems to benefits enjoyed by people. As stated above, doing so is associated with important knowledge gaps, methodological problems and data constraints. The methods used to address the challenges associated with the economic assessment of ecologi cal benefits require the integration of ecology and economics (NRC, 2004) .

1 (USEPA, 2002)

7 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

The USEPA has been working on ecological benefits assessment for many years now. In key documents like their ‘F ramework for the Economic Assessment of Ecological Benefits ’ and their ‘Ecological Benefits Strategic Plan ’, the USEAP plead for a more thorough integration of and coordination between ecology and economics (USEPA 2002 and 2006) .

2.4.1 Linking ecological and economic benefit endpoints

Ecosystems are valuable to humans. As public policy should aim to maximize human welfare , policy makers need to know how the effects on ecosystems , resulting from proposed policies are valued by the public. Therefore the impact of changes in ecological stressors needs to be translate d into the resulti ng impact on social welfare. Doing so requires linking up ecological and economic benefits endpoints. As defined in the USEPA’s ‘F ramework for the Economic Assessment of Ecological Benefits ’, ecological endpoints are explicit descriptions of the actual env ironmental attribute that is expected to change in response to an action. The changes to ecological assessment endpoints are identified and quantified from analysing both the direct and indirect consequences of the proposed action to t he natural environmen t. Next, the changes in the ecological endpoin ts are used to estimate changes in the economic benefit endpoints. Economic benefit endpoints are generally viewed as the services or uses p rovided by ecological resources that are valued by humans.

The connect ion that has to be made between ecology and economics requires the ecologists to determine what economic benefits endpoints are likely to be affected. By working closely together with economists, ecologists can ensure that ecologically important but less o bvious effects are not overlooked in the economic benefit analysis. As ecologists get to know better the objectives, methods and needs of the economic analysis, they should be able to provide information and data that better suit the needs of the economists. Economic assessment on the other hand also need s to be of greater relevance to ecological resource issues.

In practice the major share of the cooperation and coordination between ecology and economics takes place during what is called the planning and p roblem formulation phase. This phase precede s the actual exec ution of the ecological and economic analyses . The planning and problem formulation process includes the following consecutive steps: • Agreement should be r eached between the assessors, the stakeh olders and the policy makers on the scope of the action under consideration, objectives of the economic benefits analysis, alternative policies to be assessed and the type of assessment that it needed. • Initial coordination between ecologists and economists in defining the problem . Ecologic assessors start by familiarizing themselves with the proposed actions and h ow these may influence ecosystem functioning as ecosystem structures and processes are affected. Economists make up their mind about the most obvi ous economic benefits. • Economist and ecologists work together to link the ecological changes identified with the economic benefit endpoints, being the services ecosystem s provide . During this exercise the initial mismatches between ecological and economic benefit endpoints are mediated. For each economic benefit endpoint the linkages with the relevant ecological changes must be described in sufficient detail in order to allow economists to better understand the issues at stake. • Depending on the available resources the researches may need to prioritise the economic benefit endpoints. T he prioritization criteria of ecologists and economists often differ. By working together it is most probable that the focus of the assessment will be directed to the appropri ate economic benefit endpoints. • Before the actual ecological benefit assessment and the economic benefit assessment are carried out , both assessment teams need to confer on the compati bility of their analyses. In practise this mainly implies that the outpu ts of the ecological risk assessment need to meet the needs of the

8 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

economic analysis. Besides, both analyses should work with the same baseline, policy scenarios, spatial and temporal scales and account for the uncertainties that may exist.

The actual ecol ogical and economic analyses are performed rather independently . However, unexpected data gaps or interim modelling results that come to the fore during the ecological assessment may require additional coordination between ecologists and economists. The same holds for the actual economic analysis as economists may need additional support from the ecological risk assessors in interpreting the data of the ecological assessment.

2.4.2 Carrying out the e cological benefit assessment

Humans are part of ecosystems and all our actions we constantly infl uence ecosystems. The economic analysis of the ecological benefits , necessary to stimulate knowledgeable environmental decision making, has to be underpinned by an assessment of the ecological changes resulting from the policy decision under consideration. The necessary input for an economic analysis is provided by a n e cological benefit assessment . After the ecological benefits endpoints that correspond to the economic benefit endpoints of interest haven been identified, an ecological benefit assessment analyses the impact of cha nges in ecological stressors to these ecological be nefit endpoints (USEPA, 2002) .

As discussed in the previous section , the planning and problem formulation phase provides the foundation for the actua l economic assessment of ecological benefits. Ecologists develop a sort of preliminary conceptual model based on the cascade of ecological effects , both direct and indirect, expected fro m the action . Building on a sound understanding of the processes that occur in the natural system, economists and ecologists work closely together in an iterative process refining the model to ensure comprehensive coverage and appropriate linkages between ecological and economic benefit endpoints.

The actual analysis of the ecological benefits builds on the efforts and arrangements made during the planning and problem formulation phase. The ecologi cal assessment must provide information about the changes in ecologi cal endpoints to enable the economic assessment. The ecologica l analysis consists of an ecological exposure assessment and an ecological response assessment which are carried out consecutively.

An exposure assessment evaluates the potential sources of stress or change, their spatio-temporal distribution and how they overlap with natural ecosystems. The exposure assessment starts by identifying the source of the stressor an d the pathway by which it acts upon an ecological resource. In a next step the stressor needs to be characterize d in terms of its int ensity, duration, frequency, timing and location. By analysing its distribution, transport and degradation or transformation processes , the assessment team gains an indication to what extend the stressor is expected to act upon an ecological resource.

The ecological res ponse assessment attempts to quantify how the ecological endpoints are affected by the exposure to the stressors under consideration. When the stressors are characterised and the receptor s of concern are identified their relationship has to be established for the likely exposure scenarios. It has to be noted that the relationships between stressors a nd receptors are not always straightforward. Stressor -response relations may very well be n on -linear and characterised by thresholds. In order to be useful for the economic benefit assessment, the assessment of ecological benefits needs to provide information about the type and magnitude of the ecological changes. The identification whether the exposure surpasses some threshold level for effects alone is insuffic ient. Where possible, the resulting effects on ecosystems are assessed quantitatively. Furthermore, the response assessment should establish sound linkages between the effects and their respective ecological assessment endpoints.

Finally, the ecological be nefit assessment is concluded by truly integrating the exposure assessment and ecological response assessment in order to provi de an indication of the likely degree of change i n the

9 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity ecological assessment endpoints of concern. As uncertainty analysis is an ongoing preoccupation throughout the assessment, the likelihood of the changes in the ecological assessment endpoints should be clearly indicated and communicated to the economic an alysts as well as the ir spatio-temporal dynamics.

2.4.3 Economic assessment of ec ological benefits 2

The actual economic assessment is concerned with the monetary valuation of the changes in the ecosystems services arising from the policy action under consideration. Therefore , the economic benefit analysis uses information from the ecol ogical benefits assessment. This – of course – requires that the activities and objectives of both ecologists and economists are aligned . As discussed above, the integration and coordination of the whole trajectory for the economic assessment of ecological benefits between ecologists and economists is done during an extensive planning and problem formulation phase. During this preliminary work, the economic benefit endpoints are identified and prioritized in close collaboration with the ecological assessmen t team.

Before the economists can actually estimate the value of the changes in the economic benefit endpoints, they need to d escribe and quantify the changes in the economic benefit endpoints . Using information on the likely changes in the ecological ben efits endpoints, as provided by the ecological assessors, the economists describe the magnitude of the changes in the economic benefit endpoints.

During this step, the economists may also collect other complimentary data in order to underpin the actual va luation exercise. This may be information on the quantity of a good or service produced (e.g. m³ of timber harvested), the number of users of a service (e.g. number of visitors to a forest) or a measure of the magnitude of the resource itself (e.g. acres).

After the changes in th e economic benefit endpoints have been quantified, the se need to be translated into monetary value. Economic value is determined by the maximum amount of something (mostly money) an individual is willing to give up for the change in the economic benefit endpoints an action may engender. This is done by measuring people’s willingness to pay (WTP) for the change in the quality and/or quanti ty of the ecosystem service. An alternative to WTP is willingness to accept (WTA) which is the mi nimum amount of money someone wants to receive to give up a benefit.

As mentioned, the economic concept of value is based on an anthropocentric approach as any valuation exercise is based on people ’s preferences. Consequently, the economic value of nature only reflects the amount of welfare that society derives from nature. The economic valuation of the benefits from an increa se in the quality and/or quantity of ecosystem services therefore is an underestimation of the total benefits that accrue to humans as well as to other species (NRC, 2004 and Ruijgrok et al., 2002 ).

Ecosystems yield a wide range of services that have value to some or all individuals in society. Many of which are either not or only partly captured in markets. In order to account for the change in these services, the approach of ecosystem valuation goes beyond the narrow concept of financial value. After all, the usefulness of economic valuation is associated with its capacity to ensue that ecosystem services that are not or only partially traded in markets , receive explicit treatment in economic assessments (NRC, 2004) .

The total economic value (TEV) framework has become a common concept to account for the multiple values people hold for ecosystems. This framework is used to identify and c ategorize the different ecosystems benefits. It is needed to ensure that all values get due recognition and not only the direct use value s like for example raw material s that are traded in markets (Emerton et al., 2004 and NRC, 2004) .

2 (King et al. , 2007)

10 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Source : Based on De Groot et al., 2002, Ruijgrok et al., 2002 ; Turner et al., 2003, N RC, 2004 and Turner et al., 2005.

Figure 2.4.1: The TEV framework as a tool for supporting environmental decisio n making on economic grounds

11 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

The TEV framework does not require estimating the total value of an ecosystem. It typically is the aggregation of the marginal values of a change . The TEV framework thereby constitutes an ideal tool for supporting the considera tion of ecosystem services in environmental decision making (Emerton et al., 2004 and NRC, 2004) .

In its most aggregate form, the TEV framework distinguishes between use values on the one hand and non -use values on the other. Use values refer to the welfar e people derive from the current or potential use of an environmental resource, while non -use values reflect the ‘loss’ people would feel if a given environmental asset or attribute would disappear r egardless of its functionality (EPA, 2002; NRC, 20 04 and Turner et al., 2005) .

As can be seen from Figure 2.4 .1, use values are generally considered to be either direct or indirect. The direct use values are typically the most obvious to people as these involve some dire ct physical interaction with the goods and/or services of the ecosystem. Depending on whether these direct use values are traded in the market or not, they are labelled either consumptive or non -consumptive. Indirect use values, on the contrary, stem from the benefits society derives from certain ecological services even though these are not directly used by individuals.

Non -use values or passive use values are values that people hold for resource s irrespective of current use of the services provide d by th ose resource s. People simply accord value to the fact that they know an ecosystem exists. Besides existence value, bequest value also contributes to the non -use value of ecosystems. The latter concerns the moral duty to conserve natural ecosystems for the f uture generations. According to our definition option values are regarded as non -use values. However, some do consider option values as use values.

Economists have a number of techniques to assess the value , or change in value , of the services ecosystems p rovide. Depending on the characteristics of the service under consideration, the available data concerning the demand or production of a service and the time and resource constraints , economists need to select the most appropriate valuation approach. Some methods are better suited to measure certain components of TEV than others. Each of these economic valuation techniques has its strengths and weaknesses. Consequently, each service has a limited number of valuation techniques that are eligible to be used (Farber et al., 2002 and USEPA, 2002) .

The valuation techniques can broadly be divided into two groups according to the means by which people’s preferences are revealed. On the one hand, the revealed preference approaches are build on data that can be obser ved from real world functioning. On the other hand, the stated preference approaches elicit people’s preferences directl y by asking them to respond to a hypothetical situation.

Revealed preference approaches

The common feature of revealed preference appro aches is that they are based on observed economic behaviour, from which individual preference s can be derived. There exists a relationship between goods traded for in the market and ecosystem services. This link can be direct in the case of services that a re directly traded in the market. In other instances, the link is less straightforward as many ecosystem services have attributes of public goods, preventing markets from efficiently allocating these services. • Market price method – The market price method estimate s the economic value of ecosystem servi ces that are bought and sold in commercial markets (e.g. fish, timber, plants for pharmaceutical use, etc .). Changes in the quality and/or quantity of these services can be translated into economic value by s tandard economic techniques that make use of market price and quantity data. • Travel cost method – The tra vel cost method (TCM) is used to estimate the value of recreational benefits by ecosystems. The technique is based on the assumption that the recreation al benefits of a site are reflected in people’s willingness to pay to get there. The utility of this method for the

12 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

valuation of benefits other than recreation is limited (USEPA, 2002 and Millennium Ecosystem Assessment , 2005 a). • Hedonic pricing method – Hedonic pricing methods can be applied to estimate the value of environmental services by observing the prices of marketed goods. The method is based on the assumption that environmental characteristics are valued by people and that these are reflected in th e prices of certain goods (USEPA, 2002) . The most common application of this technique rests on the use of residential housing prices. • Cost based approaches – The costs of replacing ecosystem services, avoiding damages due to lost services or providing sub stitute services all give an indication of the magnitude of the benefits provided by ecosystems. However, these approaches are not based on people’s willingness to pay for a particular service and thus do not effectively reflect how society values a particular service. The method may be used as a sort of lower bound estimate. However, economists warn to use cost -based approaches with great caution if they should be used at all. It is not unlikely that costs of enhancing a certain service by artificial means surpasses the actual value of the service, thus potentially leading to over stating the benefits (Farber et al., 2002; NRC, 2004 and Millennium Ecosystem Assessment , 2005 a) . • Production function methods – The production function method, also referred to as ‘factor income method’, assesses the value ecosystem services contribute to marketed goods. It is thus assumed that ecosystem services serve as an input to produce other goods that directly yield utility. Consequently, changes in the quantity and/or quality of ecosystem services may influence the provision, or at least the costs of providing other goods.

Stated preference approaches

Many ecosystem services are not traded in markets and are not closely related to any marketed goods. Consequently, people’s wi llingness to pay is not revealed through their economic behaviour. In these cases stated preference approaches can be used to directly measure people’s willingness to pay by means of surveys. These methods establish a hypothetical market in order to elicit respondent’s willingness to pay for a service. The most know and applied stated preference method is contingent valuation. • Contingent valuation method – The Contingent valuation method (CVM) is a useful technique for various types of problems. It can be a pplied to estimate both use and non -use values. People are asked the question what amount of money they would be willing to pay for e.g. an improvement in the fish quality of a lake through a cut in air pollution. Although CVM is the most widely applied stated preference method, it is also the most controversial of the non -market valuation methods. • Choice modelling techniques - Choice modelling techniques (like contingent ranking, contingent rating, choice experiments and paired comparisons) are similar to contingent valuation, in that they can be used to estimate economic values for virtually any ecosystem service. The difference with CVM is that choice modelling techniques do not ask people to state their willingness to pay directly. Instead, the responden t is asked to choose between alternative situations with specific characteristics, including a price. Values are then computed on the basis of the tradeoffs people make.

Use of methods for different values

Direct, consumptive use values are ecological serv ices that are directly used by society and are marketed like food, fuel, construction materials, drinking water and medicine. Market -based valuation approaches are very useful in assessing the values of the services that are bought and sold through observa ble markets . These methods generally build on estimating demand and supply functions. For some commodities such as timber detailed general and partial equilibrium models have been developed, estimating demand and/or supply responses to changes in various v ariables. An alternative, but usually inferior, approach consists in assessing the costs of providing similar services. This may prove useful when price or quantity information is not readily available.

13 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Direct, non -consumptive use values concern services that are directly observed and used by people, but are not traded in markets like recreational fishing and hunting, animal viewing, hiking and relaxing. The change in the quantity and/or quality of the service flow can, however, be quantified. As these ser vices do not have market prices associated with their use, n on -market valuation techniques need to be used to implicitly measure the price of the se services , e.g. by means of the travel cost or hedonic pricing method. It is hereby assumed that people demon strate the value they place on a service through the choices they make for related goods or services . An alternative is to use stated preference methods for eliciting the value people place on a service.

Indirect, non -consumptive use values are services th at are not direc tly used by people, but do provide an observable benefit to society like flood control, climate control, pollution control and nutrient cycling. These services are not traded through a market. However, community may pay (often through taxes ) for substitute goods that provide similar public services as ecological resource s would provide. Non -market valuation techniques must be used to implicitly estimate the prices for these services. Some methods build on the assumption that people demonstra te the value they place on the services provided by the choices they make for related goods or services that are, either directly or indirectly, traded in the market. In some case also expenditures for substitute goods can be used to estimate the minimum value. As for any service, stated preference methods may be used.

Non -use values are values that people hold for an ecological resource irrespective of the current use of the ecological services it provides like existence value, bequest value and (option va lue). The only way of valuing non -use values is by asking people, either directly or indirectly, what value they place on a certain ecological resource.

Benefits transfer

Carrying out original valuation s tudies is often expensive and time consuming. Howeve r, if a similar study has already been undertaken elsewhere (study site) , estimates may be transferred to the new policy site and used as an indication of the economic welfare people may experience from a certain policy. Environmental benefits transfer or environmental value transfer is often defined as the transposition of monetary environmental values from one site through market -based or non -market -based economic valuation techniques to another site. The attention to benefits transfer has to do with its cost- effectiveness (Brouwer, 1999) .

There exist three broad approaches to transferring benefits from one site to another (Turner et al., 2005) : • Transfer ring average benefit estimates – This can be done as people’s likely willingness to pay for a particular benefit is expected to be similar as in the original study . • Transferring adjusted average benefits – Before the unit values of the existing study are transferred to the new policy site, they are adjusted for any biases in the original study or specific conditions at the new policy site. • Transferring benefit functions – In this approach the entire demand function derived by an original valuation study is transferred to the policy site.

Benefits transfer remains controversial in various policy contexts. Th ere are both political and academic reservations over the desirability and technical feasibility of applying such an approach for demonstrating environmental values in project appraisals. The debate around benefits transfer can be traced back to the econom ic value theory underlying economic valuation and to the fear about the paramount importance of economic efficiency in decision -making. Furthermore it has been remarked that there have been little high quality studies that address particular environmental policy question s. Besides, t he degree to which people value a change in the quality and/or quantity of different services depends on a number of conte xtual factors. These include access by people, demographic factors such as proximity, size and characteristics of the settlements, adjacent land use and scarcity issues at the regional scale and beyond.

14 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Consequently, it has been argued that benefits transfer should only be used when little accuracy is required (Brouwer, 1999 and Turner et al., 2005) .

Difficulties with the economic assessment of ecosystem benefits

Assessing total econom ic value of ecosystems involves several significant problems. Due consideration of these issues is very important and should be accounted for in the uncertainty analysis accompany ing any assessment. Unce rtainty related to the economic assessment mainly relates to the following issues: • Marginality – When supporting decision making on the local level, the valuation of marginal changes is required. However, there is uncertainty concer ning threshold effects and thus the marginality of changes. Small changes in ecosystem services do not influence prices much, but unexpected large impac ts on the quality and/or quantity may complicate their estimation (Turner et al., 2003) . • Double counting – Ecosystem functioni ng is often inherently complex, making it hard to distinguish between individual functions. Consequently, complete separation of indirect uses and non -use benefits is difficult. When valuing the ecological benefits of an action , the assessment approach may value the affected service flows separately as if these service flows are perfectly independent. Adding up t he separate values may then induce double counting. Besides, some ecosystem services may also be incompatible or mutually ex clusive and consequently can not simply be added (Turner et al., 2005) . • Spatio-temporal dimensions – The scales that are appropriate for assessing a certain ecosystem service may not be appropriate for another one . The appropriate s patial scale for assessing a certain change is often determined by the extent of the population that will be affected. The choices concerning these issues thus necessitate a pragmatic approach. For what concerns the temporal dimension, the analysis is mainly constrained by on the one hand a trade off between the present and the future and on the other hand the uncertainty related to people’s future preferences (Turner et al., 2005) . The trade off between the present and the future is inherent to any decision impacting on the environment. When comparing the benefits and costs occurring at different moments in time discounting is n eeded to express all costs and benefits in an equivalent value . Discounting reflects the assumption that costs and benefits accruing in later years are les s valuable to people than those accruing in earlier years. However, doing so is surrounded with controversy as the choice of the discount rate can significantly alter the evaluation of a project . This is especially the case were long -term environmental cha nges such as ecosystem recovery from air pollution is considered. A larger discount rate gives more weight to the benefits received by the current generation to the detriment of future generations. In order to leave more opportunities for future generation s, one has argued for a social discount rate for environmental projects that is lower than the market rate. • Unfamiliarity with the services being valued – Stated preference techniques can be used for the valuation of nearly any ecosystem service. However, the use of this method may not always be the best choice. People are asked what they are willing to pay, either directly or indirectly, but it is questionable whether people actually can understand and value distinct ecosystem services. This issue does not only relate to the fact that people are usually rather unfamiliar with the service under consideration , but also to the fact that it is difficult to represent the change in the quality and/or quantity of an ecosystem service in a clear and meaningful way in a survey (Nunes et al., 2003 and Pearce, 2003) . The problems reviewed thus either lead to the overestimation or the underestimation of ecological benefits. • Overestimating – The issue of overestimating the ecosystem benefits relates to various problems . First, the costs of harvesting and maintaining a resource (e.g. timber ) need to be subtracted from the market price of timber. Second, the management of a resource (e.g. the harvesting of timber ) needs to be sustainable. Third, there is the problem of do uble counting . Fourth, people

15 ARCADIS Ecolas Principles of Economic assessment of ecological benefits 06/11867/SV – Valuation o f air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

may overstate their actual willingness to pay as the do not consider well their resource constraints, etc. • Undervaluation – In the sense that the system is more than the sum of its parts. Turner et al. name d this as the ‘prima ry’ or ‘glue’ value of the overall healthy ecosystem. Besides, many ecosystem services are simply not taken into consideration because the y are either not recognised, quantified or monetised (Pearce, 2003 and Turner et al., 2003) .

16 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

3 ASSESSMENT OF THE USEFULNESS OF CONCEPTS FOR DISCRIBING AIR POLLU TION DAMAGE

In this chapter the concepts for assessing air pollution ecosystem damage are introd uced and discussed. Critical loads/levels are actually the central concepts for indicating potential air pollution eco system damage. Maps of critical loads /levels and their exceedances , comparing critical loads/levels with depositions/concentrations, have been used to show the potential extent of pollution damage and as an aid to developing strategies for reducing polluti on. Decreasing pollutant deposition below the critical load or level is seen as the means for preventing the risk of damage.

The main literature sources consulted for this chapter are: • Bull, K.R. (1995); Critical loads – possibilities and constraints; Wat er, Air and Soil Pollution, 85, pp 201 -212 • CCE (2006); Adaptation of target load functions for RAINS simulations of time delays of recovery caused by European reduction alternatives of acidifying compounds; Report on behalf of DG Environment, Service Contr act n° 070501/2004/380217/MAR/C1 • Jenkins, A., Cosby, B.J., Ferrier, R.C., Larssen, T. and Posch, M. (2003); Assessing emission reduction targets with dynamic models: deriving target load functions for use in integrated assessment; Hydrology and Earth Syste m Sciences, 7(4), pp. 609 -617 • Krupnick, A., Ostro, B. and Bull, K. (2004); Peer review of the methodology of cost-benefit analysis of the clean air for Europe programma; Paper prepared for DG Environment • UNECE (2004); Manual on methodologies and criteria f or modelling and mapping critical loads and levels

Further information on the concepts documented in this chapter can be found on the website of the Coordination Centre for Effects (CCE, www.mnp.nl/cce ). On t his website reports can be downloaded that served as the basis for the Mapping Manual on methodologies and criteria for modelling and mapping critical loads and levels and air pollution effects, risks and trends and more recent material.

3.1 CRITICAL LOADS AND L EVELS

Critical loads and levels are physical indicators that can be defined as ‘ a quantitative estimate of an exposure to one or more pollutants (being either a concentration (critical level) or a deposition (critical load)) below which significant harmful effect s on specified sensitive elements of the environment do not occur according to the present knowledge’.

Critical levels and loads are set for specific species, respectively ecosystems and are based on scientific consensus . In the critical loads and levels a pproach, an ecosystem or species is defined as being ‘protected’ if the acidifying or eutrophying deposition or the ambient air concentration does not exceed the critical load or level for that specific ecosystem or species. ‘Protected’ needs to be interpr eted in this context as a sustainable protection against the effects of air pollution.

3.1.1 SO 2

Critical levels for SO 2 exposure have been adopted already since the early 1990’s and have remained unchanged ever since. Because of the potentially larger impact of SO 2 exposure during winter, critical levels for SO 2 exposure are to be assessed both based on annual mean and half-year mean values.

17 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

The International Cooperative Programme on Modelling and Mapping Critical Loads & Levels and Air Pollution Effects, Risks and Trends (ICP M&M) of the UNECE Convention on Long -range Transboundary

Air Pollution derived the following concentration based critical levels for SO 2 exposure (Table 3-1).

Table 3-1: Critical levels for SO 2 exposure

Critical level Time period µg/m³ Cyanobacterial lichens 10 µg/m³ Annual mean Forest ecosystems, including 20 µg/m³ Annual mean + half -year mean understorey vegetation (October – March) (Semi -)natural vegetation 20 µg/m³ Annual mean + half -year mean (October – March) Agricultural crops 30 µg/m³ Annual mean + half -year mean (October – March)

3.1.2 NO X

Critical levels for NO x are based on the sum of NO and NO 2 concentrations because there is not yet sufficient scientific evidence to define separate critical levels for both individual compounds. The response of vegetation to NO x exposure may vary from toxicity to a fertilizing effect (depending on concentration) but all effects were considered to be adverse effe cts 3 in the determination of the critical levels. Critical levels for NO x were established based on a statistical model whereby protection of 95% of the species at a 95% confidence level was to be reached at concentrations not exceeding the critical level.

The International Cooperative Programme on Modelling and Mapping Critical Loads & Levels and Air Pollution Effects, Risks and Trends (ICP M&M) of the UNECE Convention on Long -range Transboundary

Air Pollution derived the following concentration based critical levels for NO x exposure (Table 3-2).

Table 3-2: Critical levels for NO x exposure

Critical level Time period µg/m³ All vegetation 30 µg/m³ Annual mean All vegeta tion 75 µg/m³ 24 -hour mean

3.1.3 NH 3

The International Cooperative Programme on Modelling and Mapping Critical Loads & Levels and Air Pollution Effects, Risks and Trends (ICP M&M) of the UNECE Convention on Long -range Transboundary

Air Pollution derived the fol lowing concentration based critical levels for NH 3 exposure (Table 3-3).

3 A fertilizing effect will lead to growth stimulation and might create changes in interspecies competition and hence biodiversity changes in (semi-)natural vegetation.

18 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Table 3-3: Critical levels for NH 3 exposure

Critical level Time period µg/m³ All vegetation 8 µg/m³ Annual mean All vegetation 270 µg/m³ 24 -hour mean

3.1.4 Ozone

CONCENTRATION BASED CRITICAL LEVELS

Up till now, the most used concept for expressing vegetation impacts o f ground -level ozone is that of concentration based critical levels, mostly expres sed as the accumulated dose over a threshold of X ppb (AOTx). The AOTx is the sum of the differences between the hourly mean ozone concentration (in ppb) and X ppb for each hour when the concentration exceeds X ppb, accumulated during daylight hours over a certain period of time (usually based on the growing season of the receptor). For numerous plant species, experimental data are available on ozone concentration and plant damage, allowing for the derivation of AOTx critical levels for each species. The selected ozone threshold concentration is the one that leads to the best overall correlation factor between AOTx and observed species damage. For most species investigated, a threshold concentration of 40 ppb gives rise to the best overall correlation factor between AOT40 and reduction of total and above -ground biomass, so AOT40 is generally used as a critical level for ozone exposure.

The International Cooperative Programme on Modelling and Mapping Critical Loads & Levels and Air Pollution Effects, Risks and Trends (ICP M&M) of the UNECE Convention on Long -range Transboundary Air Pollution derived the following concentration based critical levels for ozone exposure (Table 3-4).

The use of AOT40 as an indicator of critical level for ozone exposure has the disadvantage that it is only based on ozone concentration at the top of the vegetation canopy, while the real impacts of ozone are dependent on the quantity of ozone reaching the sites of damage within the leaf. The main a dvantage is that ozone concentration at the top of the vegetation canopy can be easily measured and can also be modelled without having to make important hypothesis.

Table 3-4: AOT40 based critical levels for ozone exposure

Critical level Time period Effect AOT40 (ppm.h) Agricultural crops 3 ppm.h 3 months Yield reduction Horticultural crops 6 ppm.h 3.5 months Yield reduction Forest trees 5 ppm.h Growing season Growth reduction (Semi -) natural vegetati on 3 ppm.h 3 months or growing Growth reduction in perennial season (if shorter) species Growth reduction and/or seed production in annual species

FLUX BASED CRITICAL LEVELS

More recently, an approach that attempts to take into account the exposure of sites within the leaf has been developed: the accumulated stomatal flux of ozone above a flux threshold (AF st Y). The AF st Y is the stomatal flux of ozone based on projected leaf area (nmol/m² PLA /s) and accumulated over a stomatal flux

19 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity threshold of Y (nmol/m²/s ) over an appropriate time window based on the growing season. As for the concentration based critical levels, the value of the stomatal flux threshold Y selected, is again based on the best correlation between AF st Y and observed species damage. AF st Y has up till now only been derived for wheat and potato. For both species a stomatal flux threshold of 6 nmol/m²/s, corresponding to an ozone concentration at the top of the canopy of 22 ppb for wheat and 14 ppb for potato at maximum stomatal conductance, was found to give the best correlation factor between AF st 6 and observed damage. For forest trees (birch and beech) provisional flux based critical l evels have been set, whereby a stomatal flux threshold of 1.6 nmol/m²/s gave rise to the best correlation facto r.

The International Cooperative Programme on Modelling and Mapping Critical Loads & Levels and Air Pollution Effects, Risks and Trends (ICP M&M) of the UNECE Convention on Long -range Transboundary Air Pollution derived the following flux based critical levels for ozone exposure (Table 3-5).

Table 3-5: AF st 6 based critical levels for ozone exposure

Critical level Time period Effect

AF st Y (mmol/m² PLA )

Wheat AF st 6: 1 mm ol/m² PLA 55 days starting 15 Yield reduction days before flowering

Potato AF st 6: 5 mmol/m² PLA 70 days starting at Yield reduction plant emergence

Forest trees (birch and beech) AF st 1.6: 4 mmol/m² PLA Growing season Growth reduction

3.2 CRITICAL LOADS AND C RI TICAL LOAD FUNCTIONS 4

Critical loads are set for both acidifying and eutrophying deposition. Acidifying deposition is mainly caused by SO 2, NO x and NH 3. Eutrophication is caused by an excessive deposition of nutrients and is mainly caused by NO x and NH 3. A minimal level of eutrophying deposition is, however, required for sustaining ecosystems.

As eutrophication is only dependent on the deposition of nitrogen, a unique critical load can be established for each ecosystem type in each location.

First critical loads have been defined for acidity and the primary focus was on sulphur deposition. During the negotiations of the 1994 Oslo Protocol, the sulphur fraction has been used to derive a critical sulphur deposition for the critical load for acidity.

Later on, nitrogen deposition also became part of the picture and the critical load for acidity, solely based on sulphur, had to be extended to a critical load function for sulphur and nitrogen (Figure 3.2 .1). The focus changed from the protection of the most sensitive ecosystem against excessive de position of one pollutant, to the assessment of the accumulated exceedance by more pollutants of all ecosystems.

This trapezoid-shaped critical load function for acidification is defined by 3 basic variables, that are determined for various ecosystems:

• the maximum allowable deposition of S (CL max (S)), which is the highest deposition of S that does not give rise to harmfull effects in the case of zero nitrogen deposition;

• the minimum cri tical load of N (CL min (N)), which ensures sufficient nitrogen is available for plant uptake including nitrogen immobilisation;

4 Hettelingh et al., 2001; UNECE, 2004

20 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

• the maximum harmless acidifying deposition of N (CL max (N)) in the case of zero sulphur deposition.

Besides these 3 basic variables, the critical load of nutrient N (CL nut (N)) is also defined as the load that prevents eutrophication of ecosystems. For most ecosystems the critical load of nutrient N is lower than the maximum harmless acidifying deposition of nitrogen.

Figure 3.2.1: Critical load function for acidification with the 3 basic variables (Figure available from http://www.mnp.nl/cce/methmod/ )

The critical load represents the long term equilibrium situation that provides ecosystem protection and is merely a function of the characteristics of the ecosystem.

Acidic and eutrophying depositi on can be calculated fairly easily from ambient air concentrations of S - and N-compounds. This is generally done on a relatively large scale (50 x 50 km grid). Within such a grid, various ecosystems exist, each characterised by their own critical load. The geographic resolution of critical loads is higher (up to 23,000 points in an EMEP 50x50 km2 grid cell) than the resolution of atmospheric deposition. By sorting these critical loads according to magnitude, taking into account the area of the ecosystem the y represent, a so-called cumulative distribution function (CDF) can be constructed for each grid cell.

The CDF allows the calculation of percentiles that can be directly compared with deposition values , but taking into account the non -uniqueness of critical loads for acidity, the CDF concept has been extended to so-called ecosystem protection isolines. This ecosystem protection isolines determine s, for given depositions of S and N, the ecosystem area protected in a grid cell.

For what concerns the geograph ical mapping of critical loads , t he critical load of a grid cell has in the past been defined as the 5 -percentile value of the cumulative distribution function of that grid cell. This has been done to discard outliers in critical load values and to account for uncertainties in the calculations, but also to ensure sufficient ecosystems are protected as non -exceedance can not be reached everywhere . This implies that grid cells with highly different cumulative distribution functions may have the same grid cell critical load. Today, this 5 -percentile value is hardly used anymore for the calculation of exceedances in integrated assessment modelling.

Today, policies aiming at reducing the effects of air pollution, as for example the CLRTAP and CAFE, use the concep t of ‘area at risk’. This ‘area at risk’ is the cumulative ecosystem area (in ha or km²) in which the critical load or level for a certain pollutant or group of pollutants is exceeded. The effectiveness of a certain policy measure can than be evaluated by the comparison of the ‘area at risk’ for the baseline

21 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity situation and the policy situation. The ‘area at risk’, as expressed in ha or km² of ecosystem area potentially endangered, only provides part of the information. It does not yield information on the spatial distribution, nor on the type of ecosystems that are actually at risk. A full assessment should also take into account these factors, which can be derived from the maps that are the result of the modelleing exercise.

A more recent approach is the ‘av erage accumulated exceedance’, which has specifically been developed for exceedances of critical loads as the result of two pollutants (as is the case for acid deposition). The accumulated exceedance for a region (e.g. a model grid cell) is the total amoun t of acidity deposited in excess of the critical loads in a given year. This accumulated exceedance can be calculated for the total ecosystem area within the region as well as for specific ecosystem types (e.g. forests). In order to minimise the dependence on total ecosystem area within one region (model grid cell), this accumulated exceedance is divided by the total ecosystem area to yield the average accumulated exceedance.

Various approaches (so-called gap closures) can then be taken for the defining sce narios for reducing exceedances of critical loads (Figure 3.3 .1): • In a ‘deposition gap closure’ approach, overall reduction of acidic and eutrophying deposition by a predefined percentage is the goal. Because of the different shapes o f the cumulative distribution functions in each grid cell, such an approach will lead to a different percentage of ecosystem area protected in each grid cell as long as the deposition exceeds the grid cell critical load. This deposition gap closure approac h is difficult to use in a multicomponent reduction scenario. • In an ‘ecosystem area gap closure’ approach, acidic and eutrophying deposition is decreased in such a way that the percentage of ecosystem area for which deposition is allowed to exceed the critical loads (ecosystem area unprotected) is fixed. This leads to ‘allowed’ levels of deposition that are grid cell dependent because of the different shape of the cumulative distribution functions. • In an ‘ average accumulated exceedance gap closure’ approach , the target load is such that the area beneath the cumulative distribution function is reduced by a fixed percentage. This approach is suited for multicomponent reduction scenarios although the definition of exceedance is no longer unique.

3.3 ADVANTAGES AND DISADVANTAGES OF CRI TICAL LOADS AND LEVE LS

The main advantages of the critical load approach are the following: • Critical loads have formed the basis for an ‘effects based’ control of pollutants emissions for many years and has, despite its shortcomings, ga ined wide acceptance at both the scientific and the political level. • The year -long use of the critical load concept has generated significant amounts of data on critical loads for specific ecosystems as well as time series of monitoring data for both depos ition and effects on ecosystems, that can be used for further development of the methodology and valuation of ecosystem damage. • As critical loads for ecosystems are based on monitoring and scientific consensus , the critical load for a certain type of ecosy stem (e.g. forests, heathland, surface water, …) will also depend on e.g. ecosystem location, soil characteristics, … meaning there is no unique critical load for an ecosystem type and variability of ecosystem critical loads can be taken into account. • As c ritical loads are determined on the ecosystem level, both effects via direct and indirect mechanisms can be accounted for. • Critical loads and levels (and their exceedances) can be computed for a single ecosystem type within an EMEP grid cell. Overlaying cr itical loads and levels exceedance map or database with an ecosystem map or database is one of the critical step s in facilitating monetary valuation.

22 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Figure 3.3.1: Cumulative distribution function o f critical loads and d ifferent methods of gap closure: (a) deposition gap closure, (b) ecosystem gap closure, and (c) accumulated exceedance (AE) gap closure (Figure available from http://www.mnp.nl/cce/methm od/ )

The thick dashed line in (a) and (b) depict another CDF, illustrating how different ecosystem protection follows from the same deposition gap closure (a), or how different deposition reductions are required to achieve the same protection level (b).

23 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

The main disadvantages of the critical load approach are the following: • A critical load or level can be seen as a threshold above which environmental damage to an ecosystem can be expected (indicator for ecosystem sensitivity). It provides however no infor mation on the degree of damage to the ecosystem , but has to be seen as a threshold below which sustainable protection against the effects of air pollution is guaranteed . • As a critical load exceedance does not provide information on actual ecosystem damage, critical load exceedance can not by used as a direct input for damage valuation. • The effect of a critical load exceedance or a reduction in deposition so that critical loads are no longer exceeded are considered to be immediate. As soon as the critical load is exceeded, ecosystem damage occurs and as soon as the exceedance stops, ecosystems are restored. This means that the kinetic aspects of chemical and biological processes that eventually lead to ecosystem damage as a result of critical load exceedance or ecosystem recovery as a result of deposition reduction are neglected. This shortfall of the critical load approach may be overcome by the introduction of dynamic modelling.

There are also some shortcomings to the way critical loads and levels have been used for policy development in the EU: • Because of the grid cell approach taken, the critical load of all ecosystems within a grid cell has in the pas t been set at the 5 -percentile value of the cumulative distribution function of ecosystems within each grid cell, meaning that when the critical load within a grid cell would be reached, 5 percent of the ecosystems (the most sensitive ones) would still be threatened. This shortcoming has been overcome by the introduction of the average accumulated exceedance ga p closure approach. • Because the most sensitive areas are often situated on locations where the assumptions used in the models are no longer valid, the real deposition in such sensitive areas may be significantly higher than the modelled deposition, leading to an exceedance even if model results fail to predict one (MacMillan et al, 2001). This shortfall can in practice be overcome by reducing the grid size for region or country specific studies and by combining modelling results with measurements.

The Effec t-based work under the Convention and related research foresees an increased focus on : • Effects of atmospheric pollution on the biodiversity in Natura 2000 areas in particular. The endpoint for aci dification and eutrophication will be extended to include bi odiversity . Biodiversity can be a good indicator for describing the change in the quantity and/or quality of certain ecosystem service flows. • The links and synergies of air pollution with climate change effects. Air pollution problems are, in addition to e missions, to a large extent dependent on weather patterns and climate. Interactions with climate change would add complexity to the effects estimates. As the benefits of combined policies are obvious in terms of achieving combined improvements at l ower cos t, enabling the benefits assessment of air pollution abatement to account for co -benefits and co -damage is valuable. • The effects of enhanced N deposition.

3.4 DYNAMIC MODELLING AN D TARGET LOAD FUNCTI ONS

In order to overcome one of the disadvantages of the critical loads concept, namely the fact that it is a static approach that provides no insight in the time required for ecosystem damage or recovery to occur, the concept of target load function has been introduced. Working with target load functions requires, however, dynamic modelling.

24 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

A target load function for acidification is similar to a critical load function in as much that it is a set of S - and N -deposition values plotted against one another on the x -y plane but with the important difference that the ti me scales of deposition reductions and ecosystem change are included. A target load function also depends on ecosystem characteristics but the introduction of the time scales also makes them dependent on management or policy considerations. The ecosystem c haracteristics remain unchanged but the management/policy considerations may vary and that’s why numerous target load functions can be constructed for a single ecosystem. Management/policy considerations may take into account the time required to introduce emission reductions, the time required for ecosystem recovery and the required degree of ecosystem recovery in order to set the time scale which is needed to determine the target load function.

The time required to reach a predefined ecosystem response sets the so-called target year and the nearer by in the future the target year, the more stringent the required reductions in deposition will have to be (Figure 3.4 .1).

Figure 3.4.1: Dependence of the target load function on the target year (Jenkins et al, 2003)

The fact that existing ecosystem damage is taken into account in setting the target year, makes the valuation of ecosystem damage recovery more str aightforward, provided that valuation data are available.

One of the main disadvantages of the target load function approach is that a political consensus is required on when to reach what level of ecosystem protection.

Uncertainties with respect to the r ole of ammonia and nitrogen immobilisation in soils, which are important for dynamic modelling, remain.

3.5 OTHER CONCEPTS

PRé Consultants BV have introduced the concept of ‘Potential Disappeared Fraction of Species’ (PDF) to quantify the damage of acidificati on and eutrophication to ecosystems. The method is based on a number of target species which are typical and representative for a certain ecosystem. The damage to ecosystem quality is then expressed as the product of PDF with area and time. The methodology has been developed for the Netherlands and is largely based on the combination of a soil model (SMART) and a vegetation response model (MOVE).

25 ARCADIS Ecolas Assessment of the usefu lness of concepts for discribing air pollution damage 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

This methodology offers as an advantage that is a direct measure for a certain type of ecosystem damage (biodive rsity shift or loss). The main drawback is that the methodology has so far only been developed for the Netherlands and that it is uncertain whether sufficient information is available for extrapolation to other countries.

26 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiver sity

4 REVIEW OF THE LATEST FINDINGS ON THE VALUATION OF ECOSYSTEM BENEFITS OF AIR POLLUTION ABATEM ENT

The valuation of ecosystem benefits from reduced air pollution is concerned with translating the resulting benefits to ecosystems into monetary values . When the ecological benefits have been t horoughly assessed the actual valuation exercise involves two more steps. In a first instance , the changes in ecological benefit endpoints need to be translated into the changes in economic benefit endpoints. T he feature of these economic benefit endpoints is that they are valued by people as they are actually ecosystem services. In a second step, the appropriate valuation methods are used in order to translate the changes in benefits endpoints into monetary value (Mac Millan et al., 2001 and USEPA, 2002) .

This chapter present s an overview of the latest finding s on the valuation of ecosystem benefits of reduced air pollution. A first section briefly describes to what extent the valuation of ecosystem benefits from air pollution abatement is considered in poli cy making. Next, an overview is presented of what ecosystem services have been identified in valuation literature as being affected, either positively or negatively by air pollution. Subsequently, the actual valuation of ecosystem benefits is reviewed.

4.1 POLICY RELEVANCE

Action on air quality in Europe goes back to the 1970s. Evidence that ecosystems were suffering from acidification has been a key driving force behind European legislation in the field of trans -boundary air pollution. In the development of th e initial UNECE Protocols on sulphur and nitrogen oxides , health effects were not explicitly considered . Today, however, CBA to support policy making in the field of air pollution builds largely o n valuing heath benefits. Ecosystems benefits on the other h and are solely indicated by documenting the surface receiving acid and nutrient deposition s above critical loads and experiencing excess levels of ozone (EC, 2005 and Holland et al., 1999 and 2005) .

In October 2002, the N etwork of Expe rts on Benefits and Economic Instruments (NEBEI), which aims at further developing the economic work on benefits undertaken by the former Task Force on Economic Aspects of Abatement Strategies and to enable economic considerations to be taken into account in the development a nd review of Protocols to the Convention , held a workshop on the valuation of economic benefits from air pollution abatement. T he main purposes of the workshop were to identify the stat us of valuation of ecosystem benefits in the context of air pollution a nd the degree of credibility of existing benefit estimates and to discuss the remaining research challenges (UNECE, 2003) .

The NEBEI workshop agreed on the important role that monetary valuation of ecosystem benefits can play in supporting the policy makin g process. However, the working group stated that economic valuation should be regarded as a complement to expressing ecological benefits in physical terms and not as a substitute (UNECE, 2003) .

MacMillan et al. (2001) c onducted a scoping study on the valuation of air pollution effects on ecosystems for the Department for Environment, Food and Rural Affairs of the United Kingdom. The aim of the study was to assess the extent to which it is possible to value the benefits to UK ecosystems that would result fr om reductions in air pollution. In the framework of this assignment , several dozens of valuation studies were reviewed , encompassing both terres trial and freshwater ecosystems. These studies were assessed with respect to their applicability to current policy needs. The conclusion was that relatively few of these studies were considered useful because of outdated valuation methodology and/or weak scientific underpinning (MacMillan et al., 2001 and UNECE, 2003) .

In the framework of the CBA for the CAFE progra mme, Holland et al. (2005) drew a very similar conclusion. “ Although the literature in this area is growing , it is not currently adequate for a Europe an

27 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiver sity wide appraisal such as this. Earlier studies tended to take a very simplistic perspective of impacts on ecosystems rendering them unsuitable for use in a policy context. ”

4.2 ASSESSEMENT OF ECOSY STEM SERVICE S AFFECTED BY AIR POLLUTION

The theoretical basis of the economic assessment of ecological benefits is that ecosystems provide serv ices that are valued by humans. The assessment of ecosystem benefits thus requires the identification of the changes in these ecosystem service flows . As already described this implies the close cooperation between ecologists and economists. Economists , in consultation with ecolo gists , determine what ecosystem services people value. Next, ec ologists assess the impact of certain actions on the quantity and quality of these services (USEPA, 2002) .

In this section we look at the potential effe cts from acidification, eutrophication an d ground -level ozone on ecosystem services. Table 4-1 lists a number of key ecosystem services that were identi fied as poten tially benefiting from reductions in the level of air pollution.

Table 4-1: Key ecosystem services potentially benefiting from reduced air pollution

Pressure Ecosystem service provision Reference Acidification Improved commercial freshwater fishing USEPA, 1999 Increased productivity of forests Crocker et al., 1986 and USEPA, 1999 Improvement of watersheds (e.g. water filtration, USEPA, 1999 flood control) Improved drinking water quality MacMillan et al., 2001 Improved recreational amenities in various Crocker et al., 1986; USEPA, ecosystems (e.g. forest aesthetics, n ature study, 1999 ; Ruijgrok et al., 2000 and recreational freshwater fishing) Navrud, 2002 Increased option values , bequest values and USEPA, 1999, N avrud, 2002 and existence values of ecosystems less impacted by Ruijgrok et al., 200 0 acidification Eutrophication Improved commercial fishing USEPA, 1999 Decreased productivity of forests USEPA, 1999 Improvement of watersheds (e.g. water filtration, USEPA, 1999 flood control) Improved recreational amenities in water USEPA, 1999; Soutukorva, 2005 ; ec osystems (e.g. aesthetics, nature study, Sandström, 1996 recreational fishing) Increased option values and existence values of USEPA, 1999 ecosystems less impacted by eutrophication Ground -level Increased commercial timber yields USEPA, 1999 and Karlsson et al., ozone 2005 Increased carbon sequestra tion USEPA, 1999 Increased recreational amenities in terrestrial USEPA, 1999 ecosystems (e.g. forest aesthetics and nature study) Increased option values and existence va lues of USEPA, 1999

28 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiver sity

ecosystems less impacted by ozone

Ruijgrok et al. (2000) carried out a preliminary investigation of ecosystem benefits from acidification abatement. In addition to what is listed in the above table, t hey found the potential benefits of increased bindi ng of heavy metals to the soil to be of major importance for the Netherlands. In this study the authors screened the likely influence of air pollution abatement on a large number of ecosystem functions, distinguishing between forest, heathl and, grassland and pool ecosystems (Ruijgrok et al., 2000) .

While there are many pollutant -ecosyste m interactions , only a handful are sufficiently understood in order to discern what and to what extent servi ce flows are affected. The ability to value natur e’s services is constrained by the complexity of nature itself (Turner et al., 2003) .

Even if ecosystem services are well defined there may be some uncertainty regarding the quantification of the amount of service s provided. The quantification of how ecosy stem services are affected is needed to be able to proceed with the actual valuation.

An important issue to be raised, relates to the impact on bio diversity, or more important, biodiver sity change in the valuation framework. In the Millennium Ecosystem Assessment , biodiversity is referred to as forming the foundation of a vast array of ecosystem services that critically contribute to human well- being. Biodiversity plays an important role in ecosystem functions that provide supporting, provisioning, regulati ng and cultural services. The key message here is that people do not directly derive utility from biodiversity, but from the ecosystem services biodiversity supports. Any measure of biodiversity change can only serve as an indicator or proxy of ecosystem ’s service provision . Consequently, biodiversity itself will not enter into the valuation framework at least not directly . Ecosystem services are biodiversity related. Sometimes the links are very straightforward as is the case where people derive direct uti lity from animals and plants. In other cases the links are much less clear (Millennium Ecosystem Assessment, 2005b and Ketunen, 2006) .

At present there are only few studies that link changes in biodiversity with changes in ecosystem functioning to changes in human well-being , let alone changes resulting from changes in the level of air pollution . Awaiting more research to be carried out, one should be very careful in using biodiversity as being an indicator for assessing ecosystem services provision (Millen nium Ecosystem Assessment, 2005b).

Besides the benefits to various ecosystem services, the abatement of air pollution brings about also benefits in terms of decreased costs of nature management. In case of fr esh water ecosystems that suf fer fr om acidificati on, water managers can lime freshwater ecosystem s in order to reduce acidification damages to fish stocks or heathland suffering from excess nutrient load requires additional turfing . Other costs savings that may exist related to the decreased costs from d rinking water treatment and perhaps even a reduction in travel costs as people may increasingly find attractive recreational opportunities next door (Navrud, 2001; Wamelinck et al., 2003 and Van De Velde et al., 2005) .

4.3 RE VIEW OF VALUATION LI TERATURE

In thi s part the relevant valuation literature is presented . The valuation literature was collected via the consultation of several o nline environmental valuation databases , an extensive internet search and the scanning of bibliographies.5

5 The following databases were consulted : The Environmental Valuation Reference Inventory (EVRI) - http://www.evri.ca/ , ValuebaseSwe - http://www.beijer.kva.se/valuebase.htm , Sportfishing values database -

29 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiver sity

Some valuation studies value a decrease in emissions, positively influencing the provision of ecosystem services; others concern the valuation of the welfare loss associated to an increase in emissions. Although the approaches are contrary, they do yield similar information. Be cause different ecosystem types produce different ecosystem services , the values are presented and discussed per ecosystem type. Marine, forest, freshwater and grass- and heathland ecosystems are distinguished . The presentation of welfare impacts per ecosy stem type is only one way of representing the studies. The services provided by two similar ecosystems , let alone their values, are never identical . Some valuation studies, however, cover a complex of different ecosystem types without discerning their relative contributions. The results of such studies are presented separately.

Next , valuation efforts concerning the estimation of the decreased costs of nature management are also discussed . These benefits of air pollution abatement are no ecosystem benefits, but have to be considered in a cost-benefit analysis.

Finally, a number of conclusions is drawn concerning the usefulness of current valuation literature in air pollution policy making . Besides, several difficulties and prospects with the monetary valuati on of ecosystem bene fits of air pollution abatement are also highlighted.

4.3.1 Marine ecosystems

Marine ecosystems are particularly threatened by eutrophication . The atmospheric deposition of nitrogen compounds boosts the growth of al gae, thereby inducing ecosy stem and biodiversity change . Acidification is not an immediate threat to marine ecosystems as sea water contains a plentiful supply of buffering substances (Elvingson et al, 2004) .

The Baltic Sea - with slow water exchange and built-in natural barriers - is particularly sensitive to eutrophication. In 1988, the Ministers of Environment within the HELCOM agreed on an action programme to reduce by half the loads of nitrogen and phosphorus by the end of 1995. This goal has not been achieved. The failure to sufficiently reduce nutrient loads is partly due to the high costs involved. To find out whether the abatement costs can be motivated from an economic perspective , several, predominantly Swedish, studies haven been carried out to obtain estimates of the bene fits from a reduced nutrient load to the Baltic sea (Soutukorva, 2005) .

Soutukorva applied the travel cost method as this is a useful tool for estimating recreational benefits from improved environmental quality. The purpose wa s to value a reduction of the nutrient concentration in the Stockholm archipelago by 30 percent , which shou ld allow reducing eutrophication significantly . Valuation was achieved by estimating the consumer surplus from a hypothetical 1 -metre improvement of mean sight depth in the archi pelago. Soutukorva (2005) estimated that such a reduction would increase recreational benefits to the people living in the counties of Stockholm and Uppsala, hosting about 20 percent of the Swedish population, by between SEK 85 -273 million per year .

Th e r ecreational benefits of this study are considerably lower than the possibly total benefits th at were estimated by Söderqvist et al. (2000) which amount to SEK 506 -842 million per year . This study used CVM , describing a hypothetical nutrient abatement plan, to value the reduced eutrophication in the Stockholm archipelago to the residents of the counties of Stockholm and Uppsala . T his difference is not surprising, since the study of Souturkorva only aimed at recreational use values where the CVM study by Söde rquvist et al. also included non -use values (Söderqvist et al., 2000 and Soutukorva, 2005) .

http://www.indecon.com/fish/ , Envalue - http://www.environment.nsw.gov.au/envalue/ , Review of Externality data - http://www.red -externalities.net/ and Biodiversity economics - http://biodiversityeconomics.org/ .

30 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiver sity

The figures from Soutukorva are lower than those of Sandström (1996) who focused on the recreational benefits along the entire Swedish coast arsing from a 50 percen t reduction in the nutrient load of the Baltic sea. Sandström (1996) applied the TCM and estimated the benefits to be in the order of SEK 240 - 540 m illion per year . The difference can be explained because Sandström considered both a larger population and a larg er improvement of water quality (Sandström, 1996 and Soutukorva, 2005) .

Gren et al. (1997) summarise the wo rk on the costs and benefits fro m nutrient reductions in the Baltic sea in the framework of the Baltic Drainage Basin Project. The benefit assessment was performed by means of several CVM applications. The results of the Swedish CVM study are presented in Söderqvist (1996). Gren et al. round the estimates by Söderqvist to abo ut SEK 3000 per year per person. For Sweden as a whole the benefits amount ed to SEK 10537 million per year. It was assumed that these benefits would likely equal total economic value minus the benefits from commercial fishing. Based on other valuation efforts in Lithuania and Poland, a basin wide benefit of about SEK 31527 million per year was derived (Gren et al., 1997) .

In his TCM study on the recreational benefits along the entire Swedish coast from nutrient reductions, Sandström (1996) also focused on the Laholm bay in south -western Sweden. He concluded people’s willingness to pay for red uced nutrient load in the bay to be in the order of SEK 12 -32 million per year. Frykblom (1998) also studied eutrophication in the Laholm Bay . Via a CVM study people’s willingness to pay for a 50 percent cut in nutrient emissions was estimate d at SEK 747 SEK per year per person (Sandström, 1996; Frykblom, 1998 and Söderqvist, 2000) .

An important conclusion is that the estimated benefits in all of the above studies are not coupled with specific emission sources, nor does any study relate emissions to the concept of critical loads.

In the framework of the first report to Congress by EPA on t he benefits and costs of the Clean Air Act Amendments (CAAA) of 1990, the benefits of reduced eutrophication to recreational and commercial fishing (by less airborne n itrogen e missions) are estimated for the Chesapeake bay , Long Island Sound and Tampa Bay. Unlike the studies cited above, the approach of the EPA does relate the impacts from eutrophication to the estimated nitrogen load to each estuary. However, the benefit estimates need to be interpret ed very cautiously as they are derived by the displaced costs ap proach. The annual benefits (or actually the avoided costs) for the Chesapeake bay ecosystem range from about $ 349 million to $1, 3 billion. The annual benefits for the Long Island Sound ecosystem range from about $26 to $ 102 million . Finally, the annual benefits for the Tampa Bay ecosystem range from $11 to $68 million (USEPA, 1999) .

31 Recreational benefits Recreational and commercial fishing TEV (probably without commercial fishing) - Recreational benefits Recreational benefits - Benefits valued TEV 725 - 540 842 - - year 32 million 273 - - 68 million 102 million - - 3 billion3 /year 1, million /yearmillion SEK 240 /year million / million million$349 to $ /year $11 SEK 10537 million /year (SEK 3000 /year/person) SEK 31527 million /year SEK 12 /year SEK 506 (SEK 436 SEK 85 /yearmillion (SEK 747 /year/person) $26 Estimate /year/person) reduction 50 % % 50 load reduction Mitigation of acidification the by regulations under the CAAA Reduction % 50 load reduction of nitrogen en phosphorus - % 50 load Eutrophication (30% reduction nutrient concentration) Eutrophication (30% reduction nutrient concentration) reduction % 50 in emissions nutrient - - - 32 iving in

Review of the latest findings on the valuation ofvaluation ofthe findingsofairpollution latestecosystembenefitsonthe abatement Review age basin the counties people living in people l - - ay Sweden -

Spatial horizon Baltic sea the Swedish drain the Balticof sea Baltic sea the entire drainage basin of the Baltic sea Baltic bayLaholm (SW Sweden) Stockholm archipelago people in living the counties Stockholmof and Uppsala Stockholm archipelago people in living Stockholmof and Uppsala BayLaholm in SW Sweden residents of Båstad, Halmstad and Laholm Chesapeake bay IslandLong Sound Tampa B aluationliterature on the benefitsof air pollution abatement marineto ecosystems

Valuation method CVM Aggregation and extrapolation of several CVM studies TCM TCM CVM TCM CVM Displaced costs method Reviewv of 4-2 Table Eutrophication Eutrophication Eutrophication Eutrophication Eutrophication Eutrophication Pressure Eutrophication Eutrophication

Valuation of air pollution ecosystem damage, acid rain,ecosystemnitrogenand ozone, ofairpollution acid biodiversity damage, Valuation – et Gren etGren al., 1997 Sandström, 1996 Söderqvist Soutukorva, 2005 Fyckblom, 1998 USEPA, 1999 ARCADISEcolas 06/11867/SV Reference al., 2000 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

4.3.2 Forests

The understanding of the relationships between the condition of fo rest ecosystems and the impacts of air pollution is still incomplete. The picture of air pollution effects on forests is a rather complex and subject to spatial variation . In many instances , air pollution is just one factor impacting on forest health. The focus of existing valuation efforts in forest ecosystems has mainly been on assessing the effects on trees.

The benefits of air pollution abatement on timber yield and thus on the economic return from forests, seem to be most evident for ground -level ozone (Karlsson et al., 2005) . Besides, soil acidification is also believed to impact on forest ecosystems. On t he one hand this may engender a shortage or imbalance in nutrients and on the other hand this may increase the concentration of metals in groundwater . Finally, air borne emissions of nitrogen generally act as a fertilizer, leading to increased growth (Elvingson et al, 2004) .

A recent study by Karlsson et al. (2005) represents a first attempt to assess the economic impacts of ozone on fores t production in Europe . This was done for the Estate Östads Säteri in south -western Sweden. Harvests were estimated to be reduced by 1,8 percent because of ozone damage . The economic return, defined here as the difference between revenues and costs from harvests, was r educed by 2,6 percent. The greatest uncertainty in the estimates of ozone impacts on forest production is the up -scaling of ozone effects on growth , measured on young tries under experimental conditions , to mature trees under field conditions. The results arrived at for the Estate Östads Säteri are extrapolated to the whole of Sweden and all EU Member States. The authors state that this does not lead to consistent outcomes since the effects of ozone may differ due to different exposure levels. However, doing so provides an idea of the poten tial economic effects of ground -level ozone on forest production on a wider scale. The total loss to Sweden would be in the range of €56 million . For Europe this would result in a total loss of about €316 million (Karlsson et al., 2005) .

In the framework of the first report to Congress by EPA on the benefits and costs of the CAA A 1990 , t he effects on commercial timber growth associated with ozone exposure were assessed. In order to overcome the uncertainties related to the assessment of ozone effects on tree growth based on laboratory or leaf -scale expe riments, the tree productivity model (PnET II) has been used. The effects quantification was then fed into an economic model of the forest sector. The discounted total benefits over the period 1990 -2010 from the CAAA from 1990 are about $1,9 billion for the United States as a whole (USEPA, 1999).

A paper b y Gregory et al. (1996) describes a model to estimate the costs of forest damage due to acidifying pollutants. T he authors t hen assess ed the damage to European forests due to emissions of both SO 2 and NO X from a typical UK coal fired po wer plant (2GW ). The damage function focused on tree growth and was based on observations in the ‘Black Triangle’ of Eastern Germany, Southern P oland and the Czech Republic. However, applying this damage function to the whole of Europe is an oversimplification . The contribution of the SO 2 emitted is e stimated to be in the order of £5 million, equivalent to 0.05 pence/kWh and about £1 million or 0. 01 pence/kWh for emissions of NO X. In order to account for the actual value of the service flow , the harvesting costs need to be subtracted. I t is quite unlikely that this has been accounted for in this study (Gregory et al., 1996) .

During th e mid eighties , there were some attempts in North America to translate the possible effects of acidification on forests into monetary terms. Besides , the fact that these studies are rather old, they immediately start by assuming a reduction in forest production. The stu dy by Crocker et al. (1986) started from a 5 percent decrease in annual forest growth due to acid deposition , as assumed by the United States National Academy of Sciences at that time. If the growth rate of the Canadian forests would decrease on average by 5 percent in regions receiving at least 10 kg/hectare/year of sulphate deposition , this would result in a yearly loss of ab out Cdn $197 million . It is unclear from the article whether the harvesting costs are subtracted or not. If not, the welfare loss wi ll significantly lower.

33 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Galloway et al. (1986) present a similar exercise that was carried out in the framework of the 1985 assessment of the National Acid Precipitation Assessment Programme of the United States. If the average annual growth increments for both hardwoods and softwoods were reduced simultaneously in the Northeast and the Southeast by 10, 15 and 20 percent, t his would equal an annual welfare redu ction in the range of $340 to $510 million (Crocker et al., 1986 and Galloway et al., 1986) .

There are some important conclusions that can be drawn on the (monetary) assessment of the impacts on forest ecosystems. First of all, there is still c onside rable scientific uncertainty surrounding the link between air pollution and timber production. The dose-response relationships are not well-established. To an important extent, this uncertainty is due to fact that t he interrelations with climate change effects as well as other natural stress factors make s it harder to provide evidence. Dose-response relation s of both acidification and ground -level -ozone on forests have to an important extent been assessed under laboratory conditions using young trees. Second, it is also worth noting that the non -timber effects of air pollution on forests are barely addressed. Ozone for example may also have important aesthetic effects on forests . While the effects of air pollution on visibility , and thus on the recreational an d aesthetic experience, attract quite some attention in the United States, this is a non -issue in Euro pe .

4.3.3 Freshwater

The ecological effects of acid rain are most clearly seen, and therefore also believed to be the most important, in the aquatic environments such as streams, lakes and marshes. Lakes and streams become acidic (pH value goes down) when the wa ter itself and its surrounding soil it is unable to provide sufficient buffering of acid precipitation . In areas where the buffering capacity is low, acid rain also releases aluminum from soils into lakes and streams; aluminum being highly toxic to many species of aquatic organisms. Both low pH and increased aluminum levels may be directly toxic to fish. In addition, low pH and increased aluminum levels cause chronic stress that may not kill individual fish, but leads to lower body weight and smaller size a nd makes fish less able to compete for food and habitat. This will induce changes in biodiversity (USEPA, 2007b) .

Freshwater ecosystems are also exposed to eutrophication. However, in many instances air pollution only contributes marginally to the eutrophi cation of freshwaters (Elvingson et al, 2004) .

There have been many valuation studies on the issue of water quality . However, only few of them explicitly focused on the effects from acidification and even much less considered eutrophication. Most studies t hat attempted to estimate the benefits of freshwater recovery of cuts in air pollution focused on the effect s on fish populations (MacMillan et al., 2001) .

Illustrative in this respect is the study by Navrud (2002) who assessed the willingness to pay of th e Norwegian population for increased fish stocks , resulting from reduced exceedance of sulphur critical loads. The approach used in this study goes from emissions to benefits by (1) linking changes in emissions to critical load exceedance, (2) applying dos e-response relationships for exceedance of critical loads and damage to fish and (3) applying economic valuation methods to assess the impact of fish damages on human welfare. The valuation exercise consisted of a national wide contingent valuation study t o estimate the monetary value of the increased number of lakes with undamaged fish stocks from acidification. The estimated yearly benefit to all Norwegian households would be in the range of €80 - 153.6 million (Navrud, 2002).

34 fits Recreational bene Commercial timber Timber and pulpwood (forest production) Timber and pulpwood (forest production) Timber and pulpwood (forest production) Commercial timber Benefits valued Timber

benefits of air pollution ofairpollution benefits abatement (1994) X 510 million /year - 32 million /year - and million£1 2 - €56 million /year €56 million $12 million£5 /year from SO $197Cdn million /year (1981) €316 million€316 /year $340 Estimate /year from NO he estate of he estate of he estate of western Sweden western Sweden western Sweden - - - a damage assessment ozone exposure at t 35

Review of the latest findings on the valuation ofvaluation ofthe findingslatestecosystemonthe Review current ozone exposure at t current ozone exposure at t current No reduction,No but a damage assessment of % 50 load reduction reduction,No but a damage assessment the acidifyingof emissions from a typical coal UK fired power plant (2GW) reduction,No but a damage assessment based a on 5% decrease in tree growth of of No reduction,No but Östads Säteri south in No reduction,No but a damage assessment of Östads Säteri south in Reduction Östads Säteri south in reduction,No but a damage assessment based a on 10, 15 and a 20% decrease in tree growth i in i in tates western onliterature on the benefitsof air pollution abatementforest to ecosystems - EU25 States United Europe Canada S United The estateThe of Östads Säter south Sweden Spatial horizon Sweden Reviewvaluati of Market price approach Market price approach Market price approach Market price approach Market price approach Valuation method Market price approach Market price approach 4-3 Table Ground level ozone Ground level ozone Acidification Acidification Acidification Pressure Ground level ozone Ground level ozone

Valuation of air pollution ecosystem damage, acid rain,ecosystemnitrogenand ozone, ofairpollution acid biodiversity damage, Valuation –

ARCADIS Ecolas 06/11867/SV Reference Karlsson et al., 2005 USEPA, 1999 etGregory al., 1996 etCrocker al., 1986 Callaway et al., 1986 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11 867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Another example in this respect was authored by MacMillan et al. (1994) who assessed the benefits of acid rain abat ement to salmon fishing in the rod and line salmon fishery of Galloway, Scotland. Carrying out a benefit assessment of the recovery of freshwater fisheries presents difficulties since the effects of reduced acid deposition on environmental processes are co mplex and because of the complexity of salmon population dynamics and the unavailability of adequate fishery records. It was estimated that the present market value of the fishery would increase by £0.88 million and by £0.95 million over a 50 -year period as a result of a 60% reduction from 1980 SO 2-levels by 2003 and a 90% reduction from 1980 SO 2- levels by 2008 respectively (MacMillan et al., 1994).

In the framework of the first report to Congress by EPA on the benefits and costs of the CAA A of 1990, the an nual economic impact of acidification of freshwater fisheries was assessed. The study focused on the lakes of the Adirondacks national park . The annual benefits accruing to the New York State residents were calculated to be in the range of $12 -49 million u sing an effects threshold of pH 5.0 and in the range of $82 - 88 million for an effects threshold of pH 5.4. The obvious critique on t he approach of this study is that it assumes a simplistic binary damage response function (fish/no fish) and thus does not allow for intermediary values (USEPA, 1999 and MacMillan et al., 2001) .

The results of the USEPA study are higher than those generated from previous analyses . Callaway et al . (1986) estimated the damage for a reduction of the fishable area in the Adirondac ks by 3,2 percent as well as by 10 percent. The resulting welfare loss was believed to be b etween $0,7 and $10 million on a yearly basis. Mullen and Menz (1985) arrived at an estimated annual we lfare loss of $1,1 million from a 5 percent reduction in fisha ble area (Mullen et al., 1985; Callaway et al., 1986 and MacMillan et al., 2001) .

A more recent study by Bateman et al. (2003) describes the development and execution of a study to value, in monetary terms, preferences regarding schemes to improve the wate r quality of remote mountain lakes in Scotland. The objective of the study was not to provide policy makers with information to support policy making, but has to do with the academic interest in the contingent valuation method. (Bateman et al., 2003)

36 use values) - Recreational fishing Recreational fishing Recreational fishing Increased fresh water fish stocks (this may thus include recreational values, but also non Benefits valued valuesUse recovery of in salmon stocks 12,0 88 million 49 million 153,6 - - - - million /year million $1,1 million$1,1 /year /year (critical pH 5.4) /year (critical pH 5.0) $82 $12 $0,7 million /year million €80 Estimate PV is £0.88 million PV is £0.95 million 980 levels amage n in in n fishable area gation of acidification by the 37

Review of the latest findings on the valuation ofvaluation ofthe findingsofairpollution latestecosystembenefitsonthe abatement Review Miti regulations theunder CAAA reduction,No but a d assessment based a on 3,2 and reductiona 10% in fishable area reduction,No but a damage assessment based a on 5% reductio Reduce the exceedance of CLs according to the commitments the of Second Sulphur Protocol Reduction reduction60% 1 from 2003 by reduction90% 1980from levels 2008 by All – benefits to – Freshwater lakes the in Adirondacks the all New York state residents Freshwater lakes the in Adirondacks Freshwater lakes the in Adirondacks region Norwegian households Spatial horizon waterFresh in Norway Galloway r&l salmon fishery Scotland in

ystem damage, acid rain,nitrogenand ozone, acid ystem biodiversity damage, - TCM TCM Valuation method CVM Market price approach Reviewvaluationof literature on the benefitsof air pollution abatementfreshwater to ecosystems 4-4 ) ) 2 2 le Tab idification by SO by

Pressure Ac (by SO Acidification ( Acidification Acidification Acidification

Valuation of air pollution ecos ofairpollution Valuation –

ARCADIS Ecolas 06/11867/SV Reference Navrud, 2002 MacMillan et al., 1994 USEPA, 1999 Callaway et al., 1986 etMullen al., 1985 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

4.3.4 Heath - and grassland

There is a lack of valuation studies for this sort of ecosystems.

4.3.5 Complex of different ecosystems

The studies discussed here did focus on a vast area, comprising various ec osystems.

The study by Banzhaf et al. (2004) quantifies the change in total economic value (incorporating both use and non -use values) that would result from an improvem ent in the ecological attributes of the Adirondack national park that could be expected to follow f rom forthcoming air policy alternatives. To obtain the estimates a contingent valuation study was carried out. The authors limited the extent of their benefit analysis to adults living in the New York State . T he respondents were confronted with a base case (improvements to 600 lakes of concern, two bird spec ies and one tree species) and a scope case (improvements to 900 lakes, four bird species and three tree species). The mean willingness to pay for the ecological improvements u nder the base ca se range s from $48 to $1 07 per year per household in New York State. For the scope case the men WTP ranges from $54 to $1 59 per year per household. Multiplying these estimates by the number of households in the state yiel ds benefits in the order of about $336 million to $1.1 billion per year. It was argued that the results of this study could be used to guide policymaking to address the ecological effects of acid rain in North America. However, the use of these results to other areas is very limited given t he specific and complex character of the park ecosystem and its boundary conditions (Banzhaf et al., 2004) .

The paper by Ruijgrok et al. (2002) shows that the contingent valuation technique can be used to estimate the non -use value and the recreational per ception value of increased nature quality resulting from air pollution abatement. The paper describes the development of the CVM -survey – considering effects on forests, fens, dunes and heath - and grassland – and the results of about 20 pre -tests. The prel iminary intervi ews revealed an average WTP of €30 per household per year in The Netherlands . Mulitplied by the number of households in The Netherlands a benefit of €207 million per year was arrived at . It is clear that this figure only gives an indication of the expected magnitude of nature benefits resulting from acidification abatement in The Netherlands. The actual CVM has never been carried out. Furthermore it was concluded that t he benefits stemming from other ecosystem services are better estima ted by other valuation methods and that the applicat ion of CVM is not really suited for specifying benefits of different acidification abatement scenarios that vary little in physical effects on ecosystems.

Ruijgrok et al. (2006) drafted a handbook with authorised numbers for the quantification and monetisation of impacts on nature, water, soil and landscape. This study was commanded by the Dutch ministry and is developed to assist in the assessment of the side effects of infrastructure projects on nature and thereby supports sound decision making. The hand book identifies the different ecosystem services that may be affected by infrastructure projects. Each major ecosystem type in the Netherlands is then combined with the relevant ecosystem effects in effect tables. For each intersection between an effect an d an ecosystem type , the tabl e presents the units for quantifying the effect and the monetising factors per unit. The ecosystem effects in this handbook are not specifically focused on those from acidification, eutrophication or ground -level -ozone, but som e do also cover the se effects (Ruijgrok et al., 2006) .

38 to 2.769 important use and the - TEV recreational perception value of nature Benefits valued Non 159 - 107 - s in air pollution. The park has 1100 million1100 - and grassland, dunes, etc. It is - scope case: $54 base case: $48 /year/household €207 million€207 /year /year/household - Estimate $336 /year - ffected. Therefore, the WTP value does encompass est, heath 39

Review of the latest findings on the valuation ofvaluation ofthe findingsofairpollution latestecosystembenefitsonthe abatement Review Completely healthy situation by 2030 Reduction specified,Not policies under consideration at the time of the study, such as Clear Skies benefits –

ial horizon Nature the in Netherlands Spat Adirondacks to all New York State residents CVM Valuation method CVM Reviewvaluationof literature on the benefitsof air pollution abatementa complexto of ecosystems 4-5 hectars, six major river basins, and the largest assemblage of old growth forests east of the Mississippi River. The effects of acidification in and NOx) 2 Table

Pressure Acidification (by SO Acidifications

Valuation of air pollution ecosystem damage, acid rain,ecosystemnitrogenand ozone, ofairpollution acid biodiversity damage, Valuation – * ** The study by Ruijgrok et al., 2002 concerns the quality of nature in the Netherlands. This includes for mention the results are those a pretest. of The actual survey has till up now never been executed. Banzhaf et al., 2004 Ruijgrok et al., 2002 * The study by Banzhaf et al., 2004 covered the improvement of the Adirondack park ecosystem through further reduction ARCADIS Ecolas 06/11867/SV Reference lakes larger than 0.25 the park affect the park’s watersheds and lakes, forests and there is also evidence of bird populations being a more than only the improvement freshwater in ecosystems. ** ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

4.3.6 Costs savings

The abatement of air pollution does not only generate benefits from an increase in the quality and/or quantity of ecosystem services, but also results in costs savings. Because of the negative effects of air pollution on natural and semi natural ecosystems , nature conservation by the authorities implies additional efforts to limit the adverse effects. An effective air pollution a batement policy can lead to atmospheric deposition or concen tration levels that do not give rise to negative effects. Consequently, one can save on nature conservation costs. Such costs saving s have to be accounted for when calculating the benefits of an air pollution abatement policy.

In their study Wamelinck et al. (2003) described and tested a method to calculate the extra nature conservation costs of reducing or undoing the negative consequences of atmospheric deposition on the growth and development of plant species . The report made an estimation of the extra nature conservation costs to undo the negative consequences of atmospheric deposition on dry heathland. The Netherlands have about 28744 hectares of dry heathland in total . The app ropriate manageme nt practice for heathland is turfing. Under normal conditions one would turf each peace of heathland once every 60 years. This corresponds to a yearly cost of about €1.1 million. However, under a situation with excess atmospheric deposition it is needed to turf every peace of heathland every 20 years, whi ch amounts to a yearly cost of €2.5 million. This means that an air pol lution abatement programme could result in a yearly saving of about €1.4 million for nature quality conservation of heathland in The Netherlands. It is the aim to further develop the method in order to arrive at a complete picture of the relation between atmospheric deposition, nature quality and co nservation costs for all major nature types in The Netherlands (Wamelinck et al., 2003) .

Van Der Velde et al. (2005) calculated that drinking water supply production costs avoided by meeting the Gothenburg Protocol , being mainly attributable to the expecte d increase in wellfield life, may amount to €1.3 million annually in The Netherlands. These results apply to the coming 50 years. According to the authors the largest benefits are likely to occur after this 50 year period (Van Der Velde et al., 2005) .

One way of reducing acidification of water bodies, and thereby preventing the impoverishment of biodiversity, is to lime the water bodies at risk. Liming is a practise carried out by the Norwegian environmental authorities as a temporary alleviat ory measure to reduce damages to freshwater ecosystems. In 1995, about NOK 92 million, was spent on liming by the Norwegian authorities (Sandøy et al., 1995) .

Forster (1985) calculated the annual liming costs for eastern Canada to be about $253 million, monitoring costs excluded (Phillips et al., 19 87). Watt (1986) , studying Nova Scotia salmon rivers in Canada, however , concluded that liming was not an economic solution in case of the Nova Scotia salmon rivers because costs far exceeded estimated benefits from salmon enhancement . The total cost estimate for a twenty -year period was estimated at $95 million. Watt therefore pleads for creating a number of de - acidified refugees as to maintain genetic diversity in the wild salmon stocks. This could be done by applying the liming technique to a selected tr ibutary in each river (Watt, 1986) .

4.3.7 Conclusions

The potential ecosystem benefits of air pollution abatement are high. The valuation of ecosystem benefits of air pollution abatement, and consequently also the determination of ranges for the provisional valuation of these ecosystem b enefits i s, however, complicated by various aspects . Accordingly, it is not desirable to base air pollution policy making on the ecosystem benefit estimates from existing valuation studies . At best, some studies can be used to pro vide an indication of the importance of certain effects. Resea rch priorities can be set according to the ecosystem services that seem to yield the highest benefits . The use of these estimates is constrained by several factors. The most important ones are l isted here.

40 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Studies about the valuation of air pollution effects are most common in Scandinavia and North America. Unless the transfer of benefits would be possible to other parts of Europe that suffer deposition or concentration above critical loads or levels, it is impossible to have a monetary assessment of the European wide ecosystem benefits of air pollution abatement. However, the re are several valid reasons why this transfer is not desirable or even not feasible.

The determination of the various bene fits accruing from air pollution abatement for use in a cost-benefit analysis has to be based on the relevant abatement scenario(s). However, it is evident that the existing valuation studies started from different reduction targets and therefore can at be st be used as a sort of indication. Moreover, there are quite some studies that do not start from a s pecific abatement scenario. Several studies immediately start from a given improvement in the quantity and/or quality of spec ified ecosystem service flows. Consequently, the relevance of such stu dies to policy making is quite weak .

Although it is possible to identify a few key ecosystem types in Europe, their composition, functionality and robustness can vary greatly. This reality adds to the need for more and carefully designed valuation studies. The more diverse the ecosystems, and their boundary conditions, the more valuation studies are need ed to make justified estimates about the ecosystem benefits beyond the areas covered by the valuation studies.

A co mparable change in the quality and/or quantity of ecosystem services of two similar, but spatially distinct ecosystems can have quite different welfare implications. These differences relate to the contextual factors of these two ecosystems that can differ largely . Important factors may be the relative scarcity of the environmental resources in a certain are a, the number of people benefiting etc. Although ecosystems my react in the same way, welfare implication s can be very different. This, of course, compl icates monetary valuation. Values can therefore not be transferred easily from one place to the other.

Original valuation studies typically value changes in ecosystem services that have a rather limited spatial extent. They hereby assume that boundary cond itions of ecosystems are kept constant . As the change in ecosystem service provision is spatially limited and only marginally affecting the overall quantity provided, prices will not change much. It is therefore incorrect to extent the value estimates from these studies to a much lager scale, let alone that these extrapolated results then could all be added together. In such case the overall quantity provided may be meaningfully affected, inducing prices to change (Bockstael et al., 2000) .

Another important issue concerns the units in which benefits are expressed. Where monetary benefit estimates are expressed in different currencies and refer to different reference periods and base years these can be easily made comparable. However, benefit estimates ideally also need to be presented per unit of surface area. The use of the same units allows comparing values and facilitates their transfer. However, in order to allow for a qualitative benefits transfer the re sults need to be presented in a comprehensive manne r, encompassing a number of key variables of the system itself and its environment as well as any particularities of the data used and/or people interviewed . Very often, this information is not readily available from the study as published .

The monetisation of changes in the quality and/or quantity of many ecosystem services that are not directly traded in the market is often done by using stated preference methods. For the valuation of non - use values , which are believed to be important, there is even no al ternative to using stated preference approaches. For many themes, the use of these methods for supporting policy making is still controversial. This controversy relates to the typical drawbacks of the stated preference techniques. Apart from these, the pro blem of air pollution adds some additional difficulties. In the light of this study , the change in perception over time has to be pointed at. During the 1980 ’s acidification was a hot item. Today, however, it ha s moved to the background and does not get mu ch media coverage. This implies that the results of stated preference exercises from the 1980’s may not be valid anymore today. Besides, the determination of welfare estimates by means of stated preference approaches is complicated by the

41 ARCADIS Ecolas Review of the latest findings on the valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity transboundary nat ure of the impacts of air pollution. People’s willingness to pay may be distorted as they believe the countries being responsible for the damage should bare the costs .

How does an ecosystem react to the exposure to a certain level of deposition or concentr ation? T he uncertainty that surrounds many dose-effect relationships is another key preoccupation . This uncertainty is carried through to the actual monetary assessment of the ecosystem benefits. In order to arrive at useful ranges for the monetary assessment of ecosystem benefits it is in many instances not sufficient to only provide a good indication of the likel ihood of effects. T here is often a need to really reduce these uncertainties.

An outstanding feature of the screened valuation literature is that it is characterised by academic interest in applying and testing certain valuation techniques. The valuation literature quite often does not addres s the underpinning science in a way that is optimal for underpinning policy making (MacMillan et al., 2001) .

Quite some valuation studies did not assess the benefits of an improvement, but tried to grasp the values people hold for preventing the situation from (further) deterioration . However these insights may be valuable, it is not possible to use them in a Eu rope an wide assessment.

Many of th e valuation studies are quite old. Consequently, the dose-response data and economic valuation methodologies ma y very well be outdated. Besides, as the perception of people today may differ from the one at the time valuat ion studies were carried out, benefit estimates, and especially those that were elicited by stated preference methods, may be biased. The extensive use of these studies is therefore not advisable.

Although monetary benefit estimates of the majority of the valuation studies are not directly useful in a comprehensive Europe an wide ecosystem benefits assessment of air pollution abatement , they can be informative in different ways. The existing studies yield information on the importance of the different ecosys tem service improvements resulting from air pollution abatement. Besides, the studies contain valuable information on the determinants of peoples’ behaviour. In sum, the past valuation efforts contain a wealth of information that may prove very useful for setting up future valuation programs.

As indicated already, the value society attributes to a n increase of biodiversity actually dependents on the associated change in ecosystem service provi ded . Although society does not derive direct utility from an incr ease in biodiversity it can be used as a proxy for ecosystem service provision. Some simple biodiversity indicators are better suited to communicate change s in ecosystem service provision to the public as they can reduce the cognitive load that characterises any valuation exercise by means of stated preference techniques. However, studies based on such biodiversity – ecosystem services linkages have to be carefully designed as the function s of biodiversity are manifold, thus potentially leading to an overes timation of benefits .

42 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

5 ROAD MAP FOR THE MON ETARY VALUATION OF E COSYSTEM BENEFITS OF AIR POLL UTION ABATEMENT

The objective of this chapter is twofold. On the one hand a practical methodology is proposed for the monetary val uation of ecosystem benefits of a ir pollution abatement. It is the aim to draw up a practical methodological framework t hat assure s greater policy relevance of future valuation efforts in the field of air pollution. In the first place the methodology will be designed to allow for a Europe an wide monetary assessment of ecosystem benefits of air pollution abat ement. Second ly, the methodology should also provide a framework for the execution of individual valuation studies. Guidelines are needed to allow results of individual studies to be us ed to support a Europe an wide assessment. On the other hand, a number of actions will be identified and documented , areas where specific research efforts , refinement of methodology and coordination is required . The methodology and actions constitute the co re ingredients of the road map.

A first section highlights a number of key principles concerning the road map. After that, the methodology is presented, describing the different steps. Finally, the implications of the different methodological steps are discussed, leading to the identification of a number of actions to be taken in order to push the develop ment of a practical framework that links emissions to welfare and allows for a European wide monetary assessment of ecological benefits forward . A final section discusses the prioritisation of the different action s.

5.1 GUIDING PRINCIPLES

The monetary valuation of ecosystem benefits of air pollution abatement is complicated by various problems. It is impossible, and therefore not desirable, to attempt to overcom e all of them at the same time. The road map for the future will therefore be one of stepwise improvements. The challenge of arriving at monetary estimates of ecosystem benefits of air pollution abatement requires on the one hand the well-considered deploy ment of research efforts and resources and on the other hand the search for a wide consensus among scientists as well as decision makers about the methodology. The allocation of resources for p eer -reviewing the methodology , the outputs of the different act ions and the actual valuation exercise by independent and knowledgeable persons or organisations is important to build confidence in the overall process and the results.

In case the valuation of ecosystem benefits of air pollution abatement is not a priori ty for policy makers, further research may be promoted in the light of the synergies with climate change research.

5.2 METHODOLOGY

The assessment of ecosystem benefits of air pollution abatement is about the comparison of ecosystem service provision in the bas eline scenario and the different policy scenarios under consideration . Usually, th e determination of thes e scenarios will be done in the framework of a truly integrated policy analysis, as has e.g. been the case in the framework of the CAFE programme , and not especially for assessing ecosystem benefits .

The methodology proposed is not new. The general methodolog ical framework corresponds well with the principles of the economic assessment of ecosystem benefits as described in the second chapter. The methodo logical framework consists of three major phases: exposure assessment , ecological response assessment and economic valuation . The assessment of the ecosystem benefits of air pollution abatement – of course – places special demands on the methodology. Some authors did already propose a general assessment framework for t he valuation of ecosystem b enefits of air pollution abatement

43 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

(MacMillan et al., 2001; Navrud, 2002 and Ruijgrok, 2007). Consequently, t he methodological framework present ed here builds on the ir work . The assessment framework c an be broken down into three major phases , encompassing 8 steps : • Exposure assessment : exposure modelling

The first phase implies the determination of the relevant abatement scenarios and the resulting changes in ecosystem exposure to air pollution. Doing so involves the identification of those ecosystem areas that are meaningfully affected by the action.

1. Develop maps of critical loads and level s exceedances throughout Europe for the relevant scenarios and pollutants . T his builds on the quantification of emissions and pollutant dispersion across Europe.

2. Develop a Europea n ecosystem map distinguishing between ecosystem types.

3. Project maps of critical loads and levels exceedances of step 1 on the eco system map of step 2 . D ete rmine wh at ecosystems (areas and types), being exposed to critical loads and/or levels exceedances, are confronted with changes in critical loads and /or levels when comparing the baseline scenario with each of the policy scenarios. • Ecological response assessment: dose-effect modelling and assessment

The second phase involves the establishment of the appropriate linkages between the changes in ecosystems exposure to air pollution and the resulting effects. The effects characterisation focuses on those effect s that act upon the relevant ecosystem services .

4. Develop a comprehensive overview of those ecosystem services t hat may benefit from reduced acidification, eutrophication and ground -level -ozone for each ecosystem type. Define these ecosystem services in an unequivocal way.

5. Predict the biological and chemical chang es in ecosystems as a response to the changes in air pollution exposure between the baseline scenario and each of the policy scenarios. By definition , effects will only occur in those areas where critical loads or levels have been exceeded. 6

6. Determine what ecosystem services are likely to be affected by the implementation of the policy scenarios under consideration. • Economic valuation: monetary benefit estimation

The third phase is about determining to what extent the quality and/or quantity of the ecosystem services benefiting from air pollution abatement changes. The (relevant) changes then need to be monetised.

7. Determine the likely change s in the quality and/or quantity of ecosystem service provision , comparing ecosystem service provision under the baseline scenario with ecosystem service provision under each of the policy scenarios.

8. Monetise the likely change s in the quality and/or quantity of ecosystem service provision between the baseline scena rio and each of the policy scenarios.

6 Critical loads and levels are physical indicators that can be defined as ‘ a quantitative estimate of an exposure to one or more pollutants (being either a concentration (critical level) or a deposition (critical load)) below which significant harmful effects on specified sensitive elements of the environment do not occur according to the pres ent knowledge .

44 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

The methodology is presented here as a number of subsequent steps in order to go from emissions to a monetised estimate of the welfare implications stemming from effects on ecosystem s. The actual assessment process is, however, more complicated as there is a clear need for the up - and downloading of data and requirements between the different steps. As indicated in the second chapter, translating ecosystem exposure into the corresponding welfare effects require s a close cooperation between ecologists and economists .

5.3 ACTIONS

In this section the steps of th e assessment methodology are discussed in more detail. By evaluating the implications of each step, actions are identified. These actions are aimed at resolving current imperfections, preventing the sound execution of the assessment . Finally, t he execution of the actions should enable the systematic assessment of ecological benefits in monetary terms . The workshop that was organised with in the framework of this contract p rovided many valuable insights for drawing up the different actions. The minutes of the workshop are provided for in Annex 2.

Keeping in mind th e importance of building confidence into the overall assessment framework, the elabora tion of certain crucial actions needs to be peer -reviewed.

In principle all steps of the assessment framework should be geared to one another. Ideally there are no major bottlenecks in carrying out the assessment. The benefits of further improving or refining different steps of the assessment framework crucially depend on the bottlenecks in the assessment framework.

5.3.1 Exposure assessment : exposure modelling

1. The stat us of the development of maps of critical loads and levels exceedances throughout Europe is wel l advanced. In spite of the fact that the critical loads (and level) concept has some weaknesses, it has been widely accepted and used as a quantitative indicator of exposure below which significant harmful effects on specified sensitive elements of the en vironment do not occur according to present knowledge. The diminution of the ecosystem area exposed to critical loads or lev els exceedances has been used to give a simple quantitative indication of t he likely ecosystem benefits with in the framework of the CAFE programme .

As the trajectory for the monetary valuation of ecosystem benefits is one of stepwise, but constant, improvement s, the central question is how to make the current practise as useful as possible to the links further down the chain and thus h ow to better serve the monetary benefits assessment. Currently, work is in progress for making the critical loads and level s modelling more functional to the monetary assessment of ecosystem benefits. Efforts are being put into dynamic modelling which is d esigned to provide information on time horizons of damage or recovery . Dynamic modelling thereby provides valuable information for discounting benefits. Another evolution concerns the increased focus on modelling the effects of atmospheric pollution on biodiversity , particularly in Natura 2000 areas. Linking ecosystem exposure to biodiversity effects may facilitate the benefit assessment process as biodiversity can be used as an indicator of the change in the quantity and/or quality of certain ecosystem ser vice flows . T he development of th ese more direct linkages, however, is complicated by the lack of specific models (Hettelingh, 2007) .

Action 1: Critical ly assess the possibilities of ecosystem exposure modelling to better serve and suit the needs of the next steps in the assessment framework . (E.g. providing deposition maps on a more detailed scale, extending endpoint s for aci dification and eutrophication to include biodiversity , effects of enhanced N deposition, increased focus on the implications of and i nteraction with climate change effects, etc.)

45 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Action 2: Determine research pr iorities on the basis of the results of the critical assessment (action 1) and direc t resource s accordingly.

2. The development of a European ecosystem map is not a controversial tas k. The critical choice to be made concerns the number of ecosystem types to discern. D uring the workshop two classifications were discussed. Ruijgrok et al. a dhere to a limited number of terrestrial ecosystem types in the Dutch national handbook with autho rised numbers for the quantification and monetisation of impacts on nature, water, soil and landscape .7 The work by the Coordination Centre for Effects (CCE) builds on the EU ropean Nature Information System (EUNIS) and discerns 31 different ecosystem types .8 The argument behind the use of more ecosystem types is that each ecosystem type provides a specific spectrum of ecosystem services . In theory, the more detailed the ecosystem map is, the more precise the benefit assessment can be. E.g. when upscaling th e results of a local valuation study by means of benefits transfer, it is more correct to have the results only upscaled for that specific ecosystem type. One can also argue that doing so it is too ambitious as too many valuation studies will be required , each covering specific ecosystem types . Moreover, spatially distinct ecosystems of the same type will quasi never provide identical services. Apart from these considerations it is clear that a European ecosystem map may not be a bottleneck - because of too aggregate d ecosystem types - to the assessment process (Ruijgrok et al., 2006 and Hettelingh, 2007) .

Action 3: D evelop a European ecosystem map. The major issue is to decide which ecosys tem classification and how many ecosystem types to use.

3. The p roject io n of the critical loads and levels maps (and databases) of step 1 on the ecosystem maps (and databases) of step 2 does not pose major problems . The output of this step is an overview of the extent to which the ecosystem areas , being exposed to critical loa ds and/or level s exceedances in the baseline scenario, benefit of a change in critical loads and/or levels in each of the policy scenarios . As ecosystem exposure to deposition s or concentration s below critical loads and/or levels, by definition, does not l ead to harmful effects , only the ecosystem areas being exposed to critical loads and/or levels exceedance are of interest here.

Action 4: Provide an integrated map and database, combining the change of critical loads and levels exceedance and the correspo nding ecosystem types. The organisation providing the critical loads and levels maps and databases may be in the best position to do so.

5.3.2 Ecological response assessment: dose -effect modelling and assessment

4. Different ecosystem types perform different ecosys tem services. Before starting the ecological response assessment it is important to know how ecosystems contribute to welfare. Once this is clear , ecologists can better direct their research efforts as only the ecosystem effects impacting on welfare are to be considered in the assessment .

The concept of ecosystem services, and thus the explicit focus on welfare, is relatively new. Partly because of this, but also because of the state of the science, a generally agreed -upon list doc umenting the ecosystem ser vices prov ided by the different ecosystem types considered currently does not exist. While some services are obvious, others are not. T he MEA, which pleads

7 The nature types considered are deciduous forest, coniferous forest, heathland, grassland, reed and rough growth, mud flats and a number of water ecosystems.

8 The nature types considered cover 5 forest types, 5 grassland types, 7 types of shrubs, 6 wetland types, 3 water ecosystems and 5 rest categories.

46 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

for the deliberate consideration of the welfare effects of decisions affecting ecosystem service pro vision , has adopted a taxonomy of ecosystem services drawn from de Groot et al. (2002), see Annex 1. For the major ecosystem types , service provision has been discussed in greater detail (NRC, 2004 and MEA, 2005 a).

Apart from rec ent developments , there is a need for a more comprehensive and systematic overview of ecosystem service provision per ecosystem type. Besides, a sound understanding of the relationships among different ecosystem services is also important for identifying po tentially overlapping benefits that might eventually lead to double counting . The distinction between end - products and intermediate products of nature is fundamental to welfare accounting as the value of the intermediate products is ca ptured in the value of the end -products (Boyd et al., 2006).

This demand for a more comprehensive overview of ecosystem services is not unique to the concerns in the framework of the assessment of the ecosystem benefits of air pollution abatement. As policy makers are , more th an ever before , concerned with the deliberate evaluation of the welfare implications of their decisions , the interest of drawing up a more comprehensive list of ecosystem services extents well beyond air pollution policy making. Consequently, there is an e normous potential for synergy with other policy fields. In the light of a Europe an wide assessment, the focus on ecosystem service provision is – of course – on those services provided by European ecosystem types.

While reviewing the literature on the valuation of ecosystem benefits of air pollution abatement Table 4-1 has been drawn up, listing the key ecosystem services potentially benefiting from air pollution abatement. This exercise has revealed that , unless the use of the eco system service s approach in assessing ecosystem benefits of air pollution abatement is well established, items on this list do not refer systematically to well-defined ecosystem services, nor have all ecosystem services potentially benefiting from air pollution abatement been identified, let alone that there is a consensus.

Action 5: Develop a comprehensive overview of the ecosystem service s that may benefit from acidification, eutro phication and/ or ground -level -ozone reduction for each ecosystem type . The se ecosystem services have to be defined in an unequivocal way (e.g. by indicating potential overlaps , the way it valuable to people, assessment guidelines, etc. ). The selection of the ecosystem services potentially benefiting from air pollution abatement require s a thorough cooperation with the actions under step s 5 and 6.

Action 6: Have a regular updating of the crucial knowledge on ecosystem service provision in place.

5. The main question is: how do changes in the exceedance of critical loads and levels tra nslate into changes in the ecological benefit endpoints ? In other words: what it is the dose-effect relationship? This amounts to predicting the biological and chemical responses in ecosystems as a response to the ir exposure to air pollution.

While carrying out the literature review on the valuation of ecosystem benefits of air pollution abatement, presented in chapter 4, it became clear that there is still much uncertainty surrounding many dose-effect relationships. The lack of well-established dose-effect relationships was also recognised during the workshop. Some pollutant -ecosystem relationships are better understood than others. There are quite some factors , e.g. climate change, that complicate the understanding of the link between exposure to air p ollution and the actual effects. Ecosystem effects are pervasive and often not directly apparent. Current understanding of the dynamics of ecosystem recovery is therefore often quite limited. Biological recovery processes may be highly non -linear and character ised by thresholds.

47 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

It is probably beyond the scope of a European programme for the monetary valuation of ecosystem benefits of air pollution abatement to actively develop better dose-response relationships. However, the programme should play the role of a catalyst by organising existing information and directing research efforts. It is clear that this process will take time. Meanwhile, the monetary assessment of ecosystem benefits from air pollution abatement is best served with a pragmatic approach. Prior ity should be given to those effects that are well-understood and believed to be important.

Action 7: Determine the appropriate ecological endpoints of the different ecosystem services , provided by each ecosystem type , likely to be affected by acidification, eutrophication or ground -level -ozone . T his requires cooperation with the action s under step 4.

Action 8: Organise existing information concerning dose-effect rel ationships, documenting boundary conditions, spatial coverage and uncertainties.

Action 9: Identify research priorities and define a strategy to direct research efforts of other organisations to reduce uncertainties in dose-effect relationships.

Action 10 : Investigate the possibilities of spatially transferring dose-effe ct relationships . An impo rtant condition is that doing so should not add to existing uncertainty, thereby possibly undermining the fragile consensus for the monetary assessment of ecosystem benefits of air pollution abatement.

6. Relate data about the marginal exposure changes in tho se ecosystem areas that are meaningfully affected by the emissions under each policy sc enario, as determined under step 3, to the corresponding dose-effect relationships , as specified under step 5. The resulting information indicates the relevant changes t o the ecological benefit endpoints. Subsequently, the changes to the ecological benefit endpoints have to be trans lated into the likely impacts to ecosystem service provision . This is important as ma ny scientific indicators of ecosystem change, as determined under step 5, are ill-suited for benefit identification and measurement purposes (MacMillan et al., 2001).

Not all ecosystem services are equally affected by the stress stemming from air pollution. Of interest here is the determination of what ecosystem services are actually affected by the proposed policies .

Action 11 : Determine the relationship between ecological benefit endpoints and ecosystem service provision. Select indicators and/or develop indices for linking ecological benefit endpoints and ecos ystem service flows . This has to be done in close collaboration with the actions under step s 4 and 5.

Action 12 : Indicate which ecosystem services are meaningfully affected by the air pollution abatement scenarios under consideration . This is done by linki ng information about emission reductions (step 3) , dose -effect relationships (step 5) and relationships between ecological benefit endpoints and ecosystem service provision (step 6, action 12) in order to find out about the likely changes in ecosystem serv ice provision.

5.3.3 Economic valuati on: Monetary benefit estimation

The output of s tep 6 (action 12 ) provides a preliminary assessment of the eco system services , with indication of their spatial distribution, that are meaningfully affected by the air pollution abatemen t scenarios under consideration. The challenge of translating the projected changes into a monetary estimate of ecosystem benefits of air pollution abatement is hurdled by various difficulties. The values people hold for the projected changes in ec osystem service provision are multi -dimensional . They vary ac cording to the service s under consideration, the relative change, the ecosystem type s affected and a quasi infinite set of contextual variables . This fact complicates the monetary benefit estimat ion of

48 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity ecosystem benefits of air pollution . Consequently, the actual economic valuation exercise requires a special assessment strategy that recognises the need for the prioritisation of researc h efforts. Little by little changes in ecosystem service provi sion have to be translated into monetary terms.

7. Step 6 is about establishing the relationship between ecological benefit endpoints and ecosystem service provision on the one hand and providing a preliminary assessment of what ecosystem services are likely to be affected on the other hand . Step 7 actually continues the asses sment under step 6 ( action 12 ) aiming at really assessing the change in the quantity and/or quality of the ecosystem service flow s that are judged to be meaningfully affected .

At presen t, ecologists can quantify many of the more readily accepted services . Without minimising the problems with assessing the more obvious ecosystem benefits, the quantification exercise is a different thing altogether for what concerns the less intuitive serv ices (NRC, 2004) .

The quantification of ecosystem services can be done, at least for some ecosystem services, by setting up a similar tool as the Dutch national handbook with authorised numbers for the quantification and monetisation of impacts on nature, water, soil and landscape (Ruijgrok et al., 2006 and Ruijgrok, 2007). Table 5-1 illustrates how a number of obvious ecosystem benefits of air pollution abatement to a forest ecosystem can be quantified. The change in ecosystem ser vice provision is quantified by means of indicators, which – of course – vary in quality. E.g. t he quantification of the increase in recreational value by counti ng the number of visits is less accurate than estimating the change in wood production.

Table 5-1 Quantification of a number of forest ecosystem benefits

Ecosystem services Quantification of benefits

Wood production kg of wood

Food resource (berries, mushrooms, etc.) kg of mushrooms, berries, etc.

Protections against climate change (carbon sequestration) tons of carbon sequestered

Recreational amenities number of visits/year

Source: Based on Ruijgrok et al., 2006

For quite some service flows like e.g. the increase in recreational amenities , the qu antification of the change in ecosystem service provision has to be complemented with more qualitative information . The value , or welfare effect, of a change in the provision of any good or service depends on the interaction between supply and demand, whic h does not solely depend on the quantities supplied and demanded, but also on the quality of the good or service . Indicators for quantifying the change in the ecosystem service flow may therefore need to be complemented with information on the quality of t he service provision. For some e cosystem services qualitative information may even be the most important.

Action 13 : Draw up indicators for expressing the change in the quality and/o r quantity of ecosystem service provision . The quality of the indicators r elates to the ease with which on e can determine the changes in ecosystem service flow s on the one hand and to their suitability for supporting the actual monetary benefit estimation under step 8 on the other hand.

Action 14 : Draw up assessment guidelines f or determining indicator values for expressing the change in the quality and /or the quant ity of ecosystem services.

49 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Action 15 : Determine and describe the c hange in the quality and/or quantity of the ecosystem service flows that are meaningfully affected.

Action 16 : It has been suggested in the workshop to t ake advan tage of the network of the International Cooperative Programme on Modelling and Mapping of critical loads and levels and air pollution effects, risks and trends with in the framework of the Workin g Group of Effects of the Convention on Long -range Transboundary Air Pollution . In practise the National Focal Centres (NFCs) may be attributed a larger role. 9 It may be interesting to find out whether the NFCs could also indicate any parti cularities in ec osystem service provision at particular sites. The services ecosystems provide vary for each ecosystem type and even within the same ecosystem type , there are differentiations according to various factors. The NFCs could perhaps scale the ecosystem service provision at certain sites of interest to allow for an ‘easy’ and less controversial upscaling of benefit estimates.

8. Finally, when the change s in the quantity and/or quality of the ecosystem service flows have been determined, the corresponding welfare ch ange s have to be monetised. The monetary benefit estimation process is generally very complex and associated with significant uncertainties. The actual monetisation of changes in th e quantity and/or quality of ecosystem service provision is the final step of the assessment framework and provides the actual be nefit estimate s to be fed into a CBA , serving as a basis for decision making.

The strategy of arriving at monetary estimates of ecosystem benefits of air pollution abatement adheres on the one hand to s tepwise improvements and on the other hand to the search for a wide consensus among scientists as well as decision makers about the methodology . In the light of these principles is it not desirable t o explicitly use the results of existing studies for reas ons discussed in chapter 4. The knowledge and experience gathered in existing studies can, nevertheless, be very valuable to guide and improve future valuation efforts.

In order to arrive at a ( first) monetary estimate of ecosystem benefits of air pollution abatement , to be used in European air pollution policy making, a number of well-chosen original valuation studies has to be carried out. Critical choices to be made relate to the selection of the ecosystem services to be studied and the determination of the number, scale and location of the original valuation studies .

Several valuation techniques may be used to estimate the benefits associated with the changes to specific ecosystem service flows . Keeping in mind the need for a wide consensus, the selection of the valuation method has to be well-considered. The selection criteria not only concern the attributes of the service flow itself, data availability , strengths and weaknesses of valuation methods , but also acceptance of the methods by decision makers.

The individu al valuation and summation of benefits derived by stated preference methods i s known to lead to an over -estimation of the aggregate d benefits. This needs to be explicitly recognised and addressed in any EU research program . If stated preferenc e methods are used all too easily, ecosystem benefits will be grossly over -estimated.

In current practise, policy studies generally rely on transferring benefits from existing studies to a new situation. In the case of air pollution policy making this is c urrently not desirable. However, once a number of original valuation studies has been carried out, benefits transfer may become a valuable tool. Therefore, the valuation studies to be carried out need to be carefully designed as to allow for the transfer o r upscaling of results to other areas. As a result, valuation stu dies need

9 The NFCs are responsible for co -ordinating national critical lo ads mapping activities and compiling national critical loads datasets a nd maps from data supplied by national experts.

50 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

to follow a particular study design, accounting for some predefined variables and concerns, and need to communicate the results, uncertainties and assumptions via an agreed -on forma t.

Ecosystem benefits of air pollution abatement programmes arise at different moments in time. Consequently, the economic benefit analysis should account for these dynamics. Information on such dynamics should be gathered from dynamic modelling of ecosystem exposure and effects. The values of the projected changes , occurring at different time scales , have to be made comparable by means of discounting .

Step 8 is very critical in the sense that i t provides the actual input for the decision making process. Co nsequently, this s tep also has to deal with uncertai nty associated with the benefit estimate s. The monetary benefit estimation imports uncertainties from exposure modelling and dose-effect modelling , adds its own uncertainties and exports the resulting com posite uncertainties into the decision domain. Uncertainty may be indicated through lower and upper bound estimate, reflecting the uncertainty throughout the whole assessment in an understandable way.

Action 17 : Identify potentially overlapping benefits th at could lead to double counting when assessed independently. Determine a strategy to prevent double counting of benefits (e.g. more careful design of valuation studies, assessing the value of changes to several ecosystem services in one study, etc. ).

Acti on 18 : Document how changes in the quantity and /or quality of ecosystem service provision act upon the interaction between demand and supply. Identify existing market models that allow accounting for the supply and demand relationships and the ir resulting price effects. In case such models are not available for certain services try to describe the likely price effects.

Action 19 : Select valuation methods for translating change s in the quantity and/or quality of ecosystem service flows to the corresponding welfare change s in monetary terms.

Action 20 : Determine the s tudy and reporting design of valuation studies to be carried out as to allow the transfer or upscaling of results to other areas .

Action 21 : Seek for ways to assess, combine and communicate the m ultiple source s of uncertainty . The major aim is to inform decision makers about the uncertainties at hand .

Action 22 : In order to make individual research efforts concerning the valuation of ecosystem benefits of air pollution abatement as relevant to pol icy making as possible, a programme for the European wide assessment of ecosystem benefits should on the one hand draw up key criteria for individual studies and on the other hand provide these individual research efforts with relevant abatement scenarios and critical load s (and level s) data.

5.4 PRIORITISATION OF AC TIONS

Following the principle that the traject ory for the monetary assessment of ecosystem benefits of air pollution will be one of stepwise improvements , not all actions identified can be carried o ut immediately nor is it advisable to do so. Consequently, the prioritisation of actions, and thus the gradual allocation of resources , has to be determined.

In practice this comes down to developing solid fundamentals (steps 1 to 6) in order to facilitate the monetary benefit estimation phase (steps 7 to 8) . With a view to building confidence into the assessment process, peer -reviewing of methodology and outputs of several key actions is important. Concerning the monetary benefit estimation, it is advisabl e to only focus on a limited number of ecosystem services in

51 ARCADIS Ecolas Road map for the monetary valuation of ecosystem benefits of air pollution abatement 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity the beginning. As knowledge and methodology develop and acceptance among scientists, policy makers and the general public grows, more ecosystem services can be added to the benefit estimation pro cess.

The development of steps (5,) 7 and 8 is dependent on the ecosystem services selected to focus on in the beginning. The prioritisation criteria for taking a decision on what ecosystem services should be covered first has to be put forward . Relevant criteria are: • ecological relevance of an endpoint; • susce ptibility of the endpoint to proposed actions; • consensus about dose-effect relationships; • expected magnitude of the change in economic value of one benefit endpoint relative to other endpoints; • uncerta inty associated with the predicted ch ange and value of one benefit endpoint relative to other endpoints; • analytica l feasibility of estimating welfare change s in monetary terms ; • scientific and political consensus about the methodologies for quantifying and monetising the likely benefits.

Changes to endpoints that are better understood and that are more certain are given a higher ranking than changes to endpoints that are less understood and more variable. However, where changes in ecosystem services are expe cted to have an important impact on welfare, their assessment may need to be deliberated even though the uncertainty is more important .

When providing decision makers with a monetary estimate of the ecosystem benefits, i t is advisable to explicitly indicat e what ecosystem services have been left out of the monetary assessment process as it is not feasible to accoun t for changes to all services right from the start. The importance of change s in service provision that are not monetised may be qualitatively de scribed, eventually making use of a simple qualitative rating system , as to promote integrated and welfare maximizing decision making in the absence of a complete monetary assessment.

52 ARCADIS Ecolas Literature 06/11867/SV – Valuation of air pollution ecosystem damage, acid rai n, ozone, nitrogen and biodiversity

LITERATURE

Banzhaf S., D. Burtraw, D. Evans and A. Krupnick (2004). Va luation of Natural Resource Improvements in the Adirondacks. Resources for the Future. http://www.rff.org/Documents/RFF -RPT - Adirondacks.pdf?bcsi_scan_EB654AFDA1401B72=0&bcsi_scan_filename=RFF -RPT -Adirondacks.pdf.

Bateman I.J., P. Cooper, S. Georgiou, S. Na vrud, G.L. Poe, R. Ready, P. Riera, M. Ryan and C.A. Vossler (2003). Scope Sensitivity Tests for Preference Robustness: An Empirical Examination of Economics Expectations Regarding the Economic Valuation of Policies for Reducing Acidity in Remote Mountain Lakes.Bockstael N.E., A.M. Freeman, R.J. Kopp, P.R. Portney, and V K. Smith (2000). On Measuring Economic Values for Nature. Environmental Science Technology, vol. 34 (2000) Nr. 8, 1384 -1389.

BOYD J. and S. Bahnzaf (2006). What Are Ecosystem Services? The Need For Standardised Environmental Accounting Units. Discussion Paper. Internet. www.rff.org .

Brouwer R. (1999). Environmental value transfer: state of the art and future prospects. Ecological Economics. Vol. 32 (2000) 137 -152.

Bull, K.R. (1995). Critical loads – possibilities and constraints. Water, Air and Soil Pollution. Vol. 85 (1995) 201 -212 .

Burtraw D., A. Krupnick, E. Mansur, D. Austin, and D. Farrell. (1997). The Costs and Benefits of Reducing Acid Rain. Resource for the Future. http://www.rff.org/documents/RFF -DP -97 -31 -REV.pdf .

Callaway J.M., R.F. Darwin and R.J. Nesse (1986). Economic valuation of acidic deposition damages: preliminary results fr om the 1985 NAPA assessment. Water, Air and Soil Pollution. Vol. 31 (1986) Nr. 3 -4 1019 -1034.

Coordinatin Centre for Effects (2006). Adaptation of target load functions for RAINS simulations of time delays of recovery caused by European reduction alternati ves of acidifying compounds. Report on behalf of DG Environment, Service Contract n° 070501/2004/380217/MAR/C1.

Coordination Centre for Effects (2007). Website. Internet. www.mnp.nl/cce .

Costanza R. (2002). Introducti on to the special issue on the dynamics and value of ecosystem services: integrating economic and ecological perspectives. Ecological Economics 41 (2002) 367 -373.

Crocker D. and B.A. Forster (1986). Atmospheric deposition and forest decline. Water, Air and Soil Pollution. Vol. 31 (1986) Nr. 3-4 1007 -1017.

Daily, G.C.., S. Alexander, P.R. Ehrlich, L. Goulder, J. Lubchenco, P.A. Matson, H.A. Mooney, S. Posterl, S.H. Schneider, D. Tilman, and G.M. Woodwell (1997). Ecosystem services: Benefits supplied to Huma n Societies by Natural Ecosystems. Ecological society of America, Issues in Ecology, Nr. 2, spring 1997.

De Groot R.S., M.A. Wilson, and R.M.J. Boumans (2002). A typology for the classification, description and valuation of ecosystem functions, goods and services. Ecological Economics 41 (2002) 393 -408.

EC (2005). Impact Assessment of the Thematic Strategy and the CAFE Directive SEC(2005) 1133. Internet. http://ec.euro pa.eu/environment/air/cafe/pdf/ia_report_en050921_final.pdf .

Elvingson P. and C. Ågren (2004). Air and the Environment.

53 ARCADIS Ecolas Literature 06/11867/SV – Valuation of air pollution ecosystem damage, acid rai n, ozone, nitrogen and biodiversity

Emerton L., and E. Bos (2004). Value. Counting ecosystems as an economic part of water infrastructure. IUCN, Gland, Switzerland and Cam bridge, UK.

Farber S.C., R. Costanza, and M.A. Wilson (2002). Economic and ecological concepts for valuing ecosystem services. Ecological Economics 41 (2002) 375 -392.

Frykblom P. (1998). Halved emissions of nutrients, what are the benefits? A contingent va luation method survey applied to Laholm Bay. In: Questions in the contingent valuation method – five essays. PhD Thesis, Swedish University of Agricultural Sciences, Uppsala.

Gregory K., C. Webster and S. Durk (1996). Estimates of damage to forests in Eur ope due to emissions of acidifying pollutants. Energy policy. Vol. 24 (1996) Nr. 7 655 -664.

Gren I. -M., T. Söderqvist and F. Wulff (1997). Nutrient Reductions to the Baltic Sea: Ecology, Costs and Benefits. Journal of Environmental Management. Vol. 51 (199 7) 123 -143.

Hettelingh J. -P., M. Posch and P. A.M. De Smet (2001). Multi -Effect Critical Loads Used in Multi -Pollutant Reduction Agreements in Europe. Water, Air, and Soil Pollution. Vol. 130 (2001) Nr. 1-4 1133 -1138.

Hettelingh J. -P. (2007). Workshop on th e valuation of ecosystem benefits of air pollution abatement. 21 st June 2007. Brussels.

Holland H., A. Hunt, F. Hurley, S. Navrud, and P. Watkiss (2005). Final Methodology Paper (Volume 1) for Service Contract for carrying out cost-benefit analysis of air quality related issues, in particular in the clean air for Europe (CAFÉ) programme. Internet. http://ec.europa.eu/environment/air/cafe/pdf/cba_methodology_vol1.pdf .

Holland M.R., D. Forster and K. King (1999). Cost-Benefit Analysis for the Protocol to Abate Acidification, Eutrophication and Ground Level Ozone in Europe. Internet. http://www.unece.org/ env/tfeaas/4meeting/aea2_final.pdf .

Jenkins, A., Cosby, B.J., Ferrier, R.C., La rssen, T. and Posch, M. (2003). Assessing emission reduction targets with dynamic models: deriving target load functions f or use in integrated assessment. Hydr ology and Earth System Sciences. Vol. 7 (2003) Nr. 4 609 -617 .

Karlsson P.E., H. Pleijel, M. Belhaj, H. Danielsson, B. Dahlin, M. Andersson, M. Hansson, J. Munthe and P. Grennfelt (2005). Economic Assessment of the Negative Impacts of Ozone on Crop Yields and Forest Product ion. A Case Study of the Estate Östads Säteri in Southwestern Sweden. Ambio vol. 34 (2005) Nr. 1 32 -40.

Kettunen M., and P. ten Brink (2006). Value of biodiversity - Documenting EU example where biodiversity loss has led to the loss of ecosystem services. Final report for the European Commission. Institute for European Environmental Policy (IEEP), Brussels, Belgium.

King, D.M., and M. Mazzotta (2007). Ecosystem valuation. Internet. http://www.ecosystemvalua tion.org/ .

Krupnick A., B. Ostro and K. Bull (2004). Peer review of the methodology of cost -benefit analysis of the clean air for Europe programme. Internet. http://ec.e uropa.eu/environment/air/cafe/activities/pdf/krupnick.pdf .

MacMillan D., B. Ferrier, and N. Hanley (2001). Valuation of Air Pollution Effects on Ecosystems: A Scoping Study.

54 ARCADIS Ecolas Literature 06/11867/SV – Valuation of air pollution ecosystem damage, acid rai n, ozone, nitrogen and biodiversity

MacMillan D.C. and R.C. Ferrier (1994). A Bioeconomic Model for Estimating the Be nefit of Acid Rain Abatement to Salmon Fishing: A Case Study in South West Scotland. Journal of Environmental Planning and Management. Vol. 37 (1994) Nr. 2.

MacMillan D.C., N. Hanley and S. Buckland (1996). A Contingent Valuation Study of Uncertain Environ mental gains. Scottish Journal of Political Economy. Vol. 43 (1996) Nr. 5.

Millennium Ecosystem Assessment (2005a). Ecosystems and Human Well-being: Current State and Trends. Washington, DC. Island Press.

Millennium Ecosystem Assessment (2005b). Ecosystems and Human Well-being: Biodiversity Synthesis. World Resources Institute, Washington, DC.

Mullen J.K. and F.C. Menz (1985). The Effects of Acidification Damages in the Economic Value of the Aridondack Fishery to New York Anglers. American Journal of Agricu ltural Economics. Vol. 67 (1985) Nr. 1 112 -119.

Navrud S. (2002). Linking Physical and Economic Indicators of Environmental Damages: Acidic Deposition in Norway. In: Spash C. L and S. McNally (eds.) (2002). Case Studies in Ecological and Environmental Econ omics. Edward Elgar Publishing. Cheltenham, UK and Northampton, USA.

NRC (2004). Valuing Ecosystem Services: Toward Better Environmental Decision -making. Washington, DC. National Academy Press.

Nunes A.D.L. P. and J.C.J.M. van den Bergh (2003). The ecolog ical economics of biodiversity. Edward Elgar Publishing. Cheltenham, UK and Northhampton, USA.

Pagiola S., K. Von Ritter, and J. Bishop (2004). Assessing the Economic Value of Ecosystem Conservation. World Bank, Environment Department Paper Nr. 101, Octobe r 2004.

Pearce D. (2003). Role of benefit estimation in the work of the UNECE/CLRTAP. Introductory not to the workshop on the valuation of ecosystem benefits from air pollution abatement held on the 2 nd and 3rd or October 2002 in Scheveningen. Internet. http://www.unece.org/env/nebei/ws2002/nebei2_pearce.doc .

Pleijel H. (2000). Ground -level -ozone: A problem largely ignored in southern Europe. In: Air pollution and climate series Nr. 1 2.

Ruijgrok E.C.M. (2007). Memo to Mohammed Belhaj on the 11 th of may 2007 concerning the work that has been done in the Netherlands on the determination of ecosystem benefits of acidification abatement.

Ruijgrok E.C.M. (2007). Telephone interview. Friday April 20, 2007.

Ruijgrok E.C M., P.Klop, and T. Botterweg (2002). Reducing acidification: the benefits of increased nature quality – Investigating the possibilities of the Contingent Valuation Method, study executed by ECORYS - NEI and Witteveen+Bos for the Ministry of Housing, Spatial Planning and the Environment of the Netherlands.

Ruijgrok E.C.M., R. Brouwer and H. Verbruggen (2004). Waardering van Natuur, Water en Bodem in Maatschappelijke kosten -batenanalyse; aanvulling op de leidraad OEI. Ministerie van Landbouw, Natuurbeheer en voedselkwaliteit, Ministerie van Verkeer en Waterstaat, Ministerie van Economische Zaken, Den Haag.

Ruijgrok E.C.M. and R. Nieuwkamer (2000). Natuurbaten van verzuringbestrijding (concept 1/0 d.d 25 september 2000. Witteveen+Bos, Den Haag.

55 ARCADIS Ecolas Literature 06/11867/SV – Valuation of air pollution ecosystem damage, acid rai n, ozone, nitrogen and biodiversity

Ruijgrok E.M.C., A.J. Smale, R. Zijlstra, R. Abma, R.F.A. Berkers, A.A. Nemeth, N. Asselman, P.P. De Kluiver, R.S. De Groot, U. Kirchholtes, P.G. Todd, E. Buter, P.J.G.J. Hellegers and F.A. Rosenberg (2006). Kentallen Waardering Natuur, Water, B odem en Landschap Hulpmiddel bij MKBA’s. Internet. http://www.mkbainderegio.nl/docs/Kentallen_waardering_natuur_water_bodem_en_landschap.pdf .

Sandøy S. and A.J. Romundstad (1995). Liming of acidified lakes and rivers in Norway. In: Water, Air and soil pollution. Vol. 85 (1995). Nr. 2 997 -1002.

Seip H.M. and F. Menz (2002). Effects of Acidic Deposition on Natural Ecosystems – A short summary. Presented on the Workshop: Air Pollution as a Climate Forcing held in Honolulu form April 29 - May 3, 2002. Internet. http://www.giss.nasa.gov/meetings/pollution2002/d4_seip.html .

Söderqvist T. and H. Scharin (2000). The regional willingness to pay for a reduced Eutrophication in the Stockholm archipelago. Beijer Discussion paper Nr. 128. Internet. http://www.b eijer.kva.se/publications/pdf -archive/artdisc128.pdf .

Soutukorva A. (2005). The Value of Improved Water Quality: A Random Utility Model of Recreation in the Stockholm Archipelago. Internet. http://www.beijer.kva.se/publications/pdf -archive/artdisc135.pdf .

Standström M. (1996). Recreational benefits from improved water quality: A random utility model of Swedish seaside recreation. Stockholm school of economics. Working paper s eries in economics and finance N. 121. Internet. http://ideas.repec.org/p/hhs/hastef/0121.html .

Truman T.P. and B.A. Forster (1987) Economic impacts of Acid Rain on Forest, Aquatic, and Agricul tural Ecosystems in Canada. American Journal of Agricultural Economics. Vol. 69 (1987) Nr. 5 963 -969.

Turner K., S. Georgiou, D. Burgess, and N. Jackson (2005). Development of economic appraisal methods for flood management and coastal erosion protection: Development of tools for the economic valuation of multi -functional: methods and techniques. Internet. http://www.defra.gov.uk/science/project_data/Docu mentLibrary/FD2014/FD2014_3863_TRP.pdf

Turner K.R., J. Paavola, P. Cooper, S. Farber, V. Jessamy, and S. Georgiou (2003). Valuing nature: lessons learned and future research directions. Ecological Economics. 46 (2003) 493 -510.

UNECE (2003) . Summary report of the workshop on the valuation of ecosystem benefits from air pollution abatement held on the 2 nd and 3 rd o f October 2002 in Scheveningen. Internet. http://www.unece .org/env/documents/2003/eb/wg5/eb.air.wg.5.2003.1.e.pdf .

UNECE (2007). Report of the workshop on air pollution and its relations to climate chagne and sustainable development held from 12 to 14 March 2007 in Gothenburg. Internet. http://www.unece.org/env/w ge/26meeting.htm .

UNECE CRTAP (2004). Mapping Manual 2004 on methodologies and criteria for modelling and mapping critical loads and levels and air pollution effects, risks and trends. Internet. http://www.icpmapping.org/pub/manual_2004/mapman_2004.pdf?bcs i_scan_EB654AFDA1401B72=0&bc si_scan_filename=mapman_2004.pdf.

USEPA (1999). The Benefits and Costs of the Clean Air Act 1990 to 2010. Internet. http://www.epa.gov/air/sect812/prospective1.htm l.

USEPA (2002). A Framework for the Economic Assessment of Ecological Benefits. Internet. http://www.epa.gov/osa/spc/pdfs/feaeb3.pdf .

USEPA (2003). Benefits and Costs of the Clean Air Act 1990 – 2020: Revised Analytical Plan For EPA’s Second Prospective Analysis. Internet. http://www.epa.gov/air/sect812/prospective2.html .

56 ARCADIS Ecolas Literature 06/11867/SV – Valuation of air pollution ecosystem damage, acid rai n, ozone, nitrogen and biodiversity

USEPA (2006). Ecological Benefits Assessment Strategic Plan. Internet. http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE -0485 -01.pdf/$File/EE -0485 - 01. pdf?bcsi_scan_EB654AFDA1401B72=0&bcsi_scan_filename=EE -0485 -01.pdf

USEPA (2007). Assessing the Effects of the Clean Air Act Amendments of 1990 on Ecological Resources: Updated Literature Review and Terrestrial Case Study Approach. Internet. http://www.epa.gov/air/sect812/prospective2.html#mar07 .

USEPA (2007b). Website. Internet. www.usepag.org .

Van Der Velde R.T., P.J. Stuyfzand, E.C.M. Ruijgrok, P. Hiemstra, J.W. Kooiman, G. Mesman, E.S. Noordermeer and P.Beeloo (2005). Benefits of the policy against atmospheric acidification on ground water quality and drinking water supply in the Netherlands. Water21. (December 2005) 48 -50.

Wamelinck G.W.W., M.N . Van Wijk, H.F. Van DOBEN and J.J. De Jong (2003). De natuurbaten van het verzuringsbeleid. Een methode om de natuurbeheerskosten die kunnen worden uitgespaard ten gevolge het bestrijden van atmosferische depositie, in beeld te brengen. Wageningen, Alterr a, Research Insituut voor de Groene Ruimte. Alterra -rapport nr. 713.

Watt W.D. (1986). The Case for Liming Some Nova Scotia Salmon Rivers. Water, air and Soil Pollution. Vol. 31 (1986) 775 -789.

57

ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

ANNEXES

59

ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Annex 1 Funct ions, goods and services of natural and semi -natural ecosystems

Functions Ecosystem processes and Ecosystem goods and services Components

Regulation functions

Gas regulation Role of ecosystems in UV- B protection biochemical cycles Maintenance of air qu ality

Influence on climate

Climate regulation Influence of land cover and Maintenance of a favourable biologically mediated processes climate (temperature, precipitation etc.)

Disturbance prevention Influence of ecosystem structure Storm protection on dampening environme ntal disturbance Flood prevention

Water regulation Role of land cover in regulating Drainage and natural irrigation runoff and river discharge Medium for transport

Water supply Filtering, retention and storage Provision of water for of freshwater consumptive use

Soil retention Role of vegetation root matrix Maintenance of arable land and soil biota in soil retention Prevention of damage from erosion and siltation

Soil formation Weathering of rock, Mainten ance of productivity on accumulation of organic matter arable land

Nutrient regulation Role of biota in storage and Maintenance of healthy soils and recycling of nutrients productive ecosystems

Waste treatment Role of vegetation and biota in Pollution control and removal and or breakdown of detoxification xenic nutrient s and compounds Filtering of dust particles

Abatement of noise pollution

Pollination Role of biota in movement of Pollination of wild plants, species floral gametes and crops

Biological control Population control trou gh Control of pests and diseases trophic-dynamic relations

Habitat functions

61 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Refugium Suitable living space for wild Reduction of herbivory animals and plants

Nursery Suitable reproductive habitat Maintenance of biological and genetic diversity

Mainte nance of commercially harvested species

Production functions

Food Conversion of solar energy into Hunting, gathering of fish, game, edible plants and animals fruits etc.

Small scale subsistence farming and aquaculture

Raw materials Conservation of sol ar energy into Building and manufacturing biomass for human construction and other uses Fuel and energy

Fodder and fertilizer

Genetic resources Genetic material and evolution in Improve crop resistance to wild plants and animals pathogens and pests

Other applications like health care

Medical resources Variety in (bio)chemical Drugs and pharmaceuticals substances in, and other medicinal uses of, natural biota Chemical models and tools

Test and essay organisms

Ornamental resources Variety of biota in natur al Resources for fashion, ecosystems with (potential) handicraft, jewellery, pets, ornamental use worship, decoration and souvenirs

Information functions

Aesthetic information Attractive landscape features Enjoyment of scenery

Recreation Variety in landscapes with Travel to natural ecosystems for (potential) recreational uses eco- tourism, outdoor sports, etc.

Cultural and artistic information Variety in natural features with Use of nature as a motive in cultural and artistic value books, film, paintin g, folklore, etc.

Spiritual and historic information Variety in natural features with Use of nature for historic spiritual and historic value religious or historic purposes

62 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Science and education Variety in nature with scientific Use of natural systems for and educational value education and research

Source: Adapted from De Groot et al. (2002) and NRC (2004).

63

ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Annex 2 Minutes of the workshop on the valuation of ecosystem benefits of air pollution abatement

Date: June 21, 2007 Loca tion: Ellipse Building, Brussels

Present: • André Zuber, DG ENV • Eduard Dame, DG ENV • Patrizia Poggi, DG RTD • Alexandra Vakrou, DG ENV • Jeroen Casaer, DG ENV… • Onno Kuik, IVM • Anil Markandya , University of Bath • Elisabeth Ruijgrok , Witteveen+Bos • Jean -Paul Hettelingh , MNP/CCE • Marjet Visser , MNP/CCE • Sarah Bogaert , Ecolas Arcadis • Stijn Vermoote, Ecolas Arcadis • Lieven De Smet, Ecolas Ar cadi s • Mike Holland , EMRC • Hans Vos , EEA • Anke Luekewille, EEA • Nils Axel Braathen , OECD • Christer Ågren, The Swedish NGO Secretariat on Ac id Rain • Ken Willis, University of Newcastle • Roald Dickens , DEFRA • Jennifer Hodges , Corus Group • Per -Erik Karlsson, IVL • Mohammed Belhaj, IVL • Pete Roberts, Shell • Ernst Fischer, German Chemical Industry Association • Ellen Hutsebaut, Flemish Environmental Adminis tration - Cel Milieueconomie • Bernd Schärer, Umweltbundesamt - Federal Environment Agency

Minutes: Arcadis Ecolas

65 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

1 INTRODUCTION

Air pollution causes significant damage to human health and the environmen t, including ecosystems. In the framework of the CAFE programme, assessment tools have been developed and used to assess the impact of air pollution as well as the effectiveness, costs and benefits of policy options aiming to reduce the emissions of various air pollutants.

Ecosystem benefits of such policy o ptions have so far only been expressed in relation to ecosystem ‘critical loads’ and ‘critical levels’ in the form of increased ‘ecosystem area protected’ or reduced ‘excess pollution burden’. Monetary valuation of ecosystem benefits has so far not been included in the full analysis of policy options. This is partly due to the lack of methodology for assessing related ecosystem benefits and partly due to the lack of factors for their monetary valuation.

The European Commission wants future analyses of policy options in the field of air pollution to be more complete on the assessment of ecosystem benefits and their valuation. The objective of the workshop is therefore to discuss on how to better include changes in ecosystems into the benefit analysis of diffe rent policy options for emission reduction. The workshop deals with the methodology for the assessment and valuation of related ecosystem benefits.

The discussions at the workshop were facilitated by a draft synthesis report, reviewing the latest findings on the methods used for the assessment of the effects of air pollution on ecosystems and their valuation, and a number of presentations by keynote speakers. The aim of the workshop was to discuss and if possible reach consensus on: • The usefulness of the d ifferent concepts for assessing air pollution ecosystem effects (such as ‘ecosystem protection area’ and ‘excess pollution burden’ and newly proposed concepts such as ‘marginal impact coefficient’); • The methodology for the valuation of ecosystem benefits a nd ranges for the provisional valuation of ecosystem benefits; • A clear road map on how to proceed with the assessment and valuation of ecosystem benefits from reduced air pollution in order to arrive at a final list with monetary values of ecosystem benefi ts.

Each structured discussion was chaired by a panel of key experts. Before entering the actual discussion, involving experts from the audience, the key experts briefly expressed their own views.

66 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

2 AGENDA

9:00 – 9:30 Venue and registration

9:30 – 9:45 We lcome and introduction André Zuber (EC, DG ENV)

Effects of air pollution on ecosystems

9:45 – 10:00 Presentation: Key findings of the consultants Mr. Stijn Vermoote (Arcadis Ecolas)

10:00 – 10:15 Presentation: Accounting for dynamics in Mr. Jean -Paul Hettelingh (CCE) ecosystem damage and ecosystem recovery

10:15 – 11:15 Structured discussion on assessment of the effects of air pollution on ecosystems, chaired by a panel of key experts

11:15 – 11:30 Coffee break

Valuation of ecosystem benefits

11:30 – 11:45 Presentation: Key findings of the consultants Mr. Lieven De Smet (Arcadis Ecolas)

11:45 – 12:00 Presentation by a key expert on valuation of Mr. Anil Markandya (Bath University) ecosystem benefits

12:00 – 12:15 Economic valuation in a Swedish CB A on MR. Mohammed Belhaj (IVL) acidification abatement

12:15 – 13:00 Structured discussion on valuation of ecosystem benefits, chaired by a panel of key experts

13:00 – 14:00 Lunch break

Provisional ranges for the valuation of ecosystem damage and ben efits

14:00 - 14:15 Overview of ranges available from the literature Mr. Lieven De Smet (Arcadis Ecolas)

14:15 – 14:30 Presentation by a key expert on the usefulness of Mr. Onno Kuik (IVM) benefits transfer for valuation of ecosystem benefits and related data requirements

14:30 -15:15 Structured discussion on the provisional ranges of ecosystem valuation, chaired by a panel of key experts

15:15 – 15:30 Coffee break

Road map: Use of ecosystem valuation in developing and evaluating air pollution policy

15:30 – 15:45 Presentation of the provisional road map by the Mr. Stijn Vermoote (Arcadis Ecolas) consultants

67 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

15:45 – 16:00 Presentation: Strategic plan for ecological benefits Mr. Lieven De Smet (Arcadis Ecolas) assessment in the US (presentation prepa red by Ms. Linda Chappell (USEPA)

16:00 – 16:15 Experience from the Netherlands and possible way Ms. Elisabeth Ruijgrok forward (Witteveen+bos)

16:15 – 17:15 Structured discussion on the road map, chaired by a panel of key experts

17:15 – 17:30 Closing remarks, feedback and next steps

68 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

3 EFFECTS OF AIR POLLU TION ON ECOSYSTEMS

3.1 KEY FINDINGS ON ECOSYSTEM EXPOSURE TO AI R POLLUTION – STIJN VERMOOTE (ARCA DIS ECOLAS, BELGIUM)

This presentation constituted an introduction to the presentation of Jean -Paul Hettel ingh, discussing both the advantages and shortcomings of the critical loads concept for assessing ecosystem exposure to air pollution. A key advantage of the concept is that it has g ained wide acceptance at both the scientific and the political level . Curr ently there exists a significant amount of data on critical loads for specific ecosystems as well as time series of monitoring data for both deposition and effects on ecosystems . The indicator of ecosystem area exposed and/or the change in the exposure lev els, however, does not establish a direct link with the degree of ecosystem damage . Consequently, critical loads may not directly be applied for the monetary assessment of ecosystem benefits . Finally, a number of key questions for discussion were presented .

3.2 ACCOUNTING FOR DYNAM ICS IN ECOSYSTEM DAM AGE AND RECOVERY – JEAN -PAUL HETTELINGH (COORDINATION CENTRE FOR EFFECTS, THE NET HERLANDS)

To start the cr itical loads concept was reviewed. Critical load s are based on the precautionary principle. It is a measure for sustainability, providing a deposition threshold below which adverse effects do not occur according to current knowledge. 31 types of ecosystems are distinguished for the computation and mapping of critical loads and exceedance, based on the EUNIS clas sification of ecosystems. When a critical load is exceeded, it is not a matter of whether, but rather when damage will occur. Dynamic modelling precisely is designed to provide more knowledge on time horizons of damage or recovery. The endpoint for acidifi cation and eutrophication is currently being extended to include biodiversity and this also for Natura 2000 areas. Natura 2000 sites are outlined within the EMEP grid cells as priority areas for exposure assessment . Besides, the future action in the field will also focus on nitrogen effects (refinement of current knowledge) and the relation with effects of climate change (new focal point). Next, the mapping of exceedance of critical loads in Europe was illustrated and some marginal impact coefficients were indicated as worth exploring.

It was recommended to adopt an integrated approach for monetary valuation, that is not limited to air pollution alone, and that includes assessments of co -benefits and co -damage s. Besides, one should also try to t ake advan tage of the European network working on ecosystem related methods, and databases behind the critical loads . Furthermore, t he suitability of the assessment of biodiversity endpoints for the monetary valuation of ecosystem benefits of air pollution abatement dep ends on the possibility to quantify a suitable indicator (SDI?).

To conclude Jean -Paul Hettelingh attempted to answer a number of key questions for the development of the road map.

3.3 DISCUSSION

André Zuber (EC DG ENV) gave the floor to Christer Agren (Acid Rain) and Per -Erik Karlsson (IVL) to comment on the presentation s.

69 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Christer Agren put forward a few questions concerning the application and usefulness of ecosystem exposure modelling for assessing ecosystem benefits of air pollution abatement in monetary terms. How can the critical loads concept be applied in CVM based valuation studies, i.e. public understanding and appreciation of the critical loads concept as a policy aim? The critical loads approach is being extended to include biological endpoints, bu t do people really care about the number of (different) species? Can people handle the cognitive load that is related to assessing the value of benefits to biodiversity of air pollution abatement?

Per -Erik Karlsson emphasised that critical loads have been developed as a tool for risk assessment. Critical loads or levels are based on thresholds which reveal to be incorrect as a policy tool for ozone (ground -level ozone is also harmful at low concentrations ; therefore reaching AOT60/40 target levels is incorr ect as a policy aim). Ozone should be reduced as far as possible. Consequently, it would be better to develop dose-response or deposition -response relationships that are not based on the threshold principle. Besides, Per -Erik Karlsson also formulated his o bjections to the “ecosystem services” concept which is a key concept in ecosystem valuation. He remarked this is an anthropogenic concept that does not include the intrinsic value of the different layers or organisms of ecosystems.

In his response to the f irst remark of Per -Erik Karlsson, Jean -Paul Hettelingh admitted that dose- response relationships are often very specific and local. We are thus not close to move ahead on this unless dose-response relationships can be established at a broader scale. Jean -Paul Hettelingh quoted recent commotion on bees dieing in US. According to him this is an effect that can not be appropriately accounted for when only focussing on ecosystem services. According to Elisabeth . Ruijgrok (Witteveen+Bos) this is not necessarily true. The effect of bees dying is reflected in the ecosystem service “biological control” and will also be reflected in the non -use values people attribute to well-functioning ecosystems.

Elisabeth Ruijgrok thinks the critical loads concept is of high value in valuation studies. She proposed to develop dose-response relationships with on the X -axis deposition and on the Y -axis a unit to be chosen related to the service provided . Conventionally biodiversity or soil reaction is on the Y -axis, but it could be better to account directly for the effects on the ecosystem services in physical terms. According to Elisabeth Ruijgrok it is often possible to establish a solid relationship between deposition and ecosystem services. Depositions can be linked to a set of different ecosystem services which need to be specified in detail. This proposal was supported by some other participants because it is understandable, biodiversity for example would be much vaguer for both the public and policy makers. Moreover, t here is still no adequate indicator available to quantify biodiversity, which makes it less interesting to put it on the Y -axis. Alexandra Vakrou (EC, DG ENV) remarked she could not see how you can get directly from change in ecosystem exposure to the correspondin g change in ecosystem service provision . This is even further complicated by the fact that there are many services that are potentially benefiting of air pollution abatement. These services may still be not adequately identified.

Mike Holland (EMRC) remar ked the presentation by Jean -Paul Hettelingh did not cover critical levels of ozone. He is in favour of the proposal to focus on Natura 2000 sites but pointed out not to forget about all the other sensitive sites which are not appointed as Natura 2000 site s. Jean -Paul Hettelingh answered that not all parties (non -EU countries) involved in the Convention on Long Range Transboundary Air Pollution have Natura 2000 areas. These countries, however, have similar areas and these should be covered too. Focusing on Natura 2000 areas and basing maximum acidification and eutrophication limits on these sites will also influence other sites positively. It was objected that when only focussing on Natura 2000 areas the ecosystem service approach may not elicit a correct es timate for recreational values as these sites are often less accessible and/or less well-equipped for recreation.

70 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

In light of developing the right strategy for a European wide assessment of ecosystem benefits of air pollution abatement it is important to h ave a good insight in the characteristics of the Natura 2000 sites. It was believed Natura 2000 areas cover about 20 to 22% of EU ecosystems. When also accounting for equivalent areas in countries that currently do not have Natura 2000 areas about 30% of E U ecosystem area would be covered. Besides, one should also take into account their distribution across counties and ecosystem types. It was indicated that the number of sites differs largely between to Member States (e.g.. many very small ones in Belgium; few large ones in Sweden).

It was summarised by André Zuber that although some drawbacks critical loads have gained broad acceptance in science as a basis for policy. The application of the ecosystem service approach is probably also the right track to fo llow. The remaining question is how to fit biodiversity in this framework.

Mohammed Belhaj (IVL) raised the questions on what exactly biodiversity is. How does biodiversity relate to ecosystem services? What is the best to conserve? Christer Agren adhered to the efforts to have exposure modelling focussing on natura 2000 areas. It can be very useful to know which ecosystems are precisely exposed and to what extent they are. Jean -Paul Hettelingh explained that it is technically feasible to generate exposure maps for specific ecosystem types, but the information needed is very sensitive politically in some countries. You need to know the exact location and the attributes of all areas. The European Commission has this information, but the CCE has not.

Finally the discussion also covered dynamic modelling. Elisabeth Ruijgrok expressed the view that dynamic modelling, which is based on the physico -chemical characteristics of soils, as such is not directly useful for monetary valuation (e.g. economic valuation of a meadow is different from a forest). Therefore, dynamic effects on vegetation should be included too. She proposed to introduce the concept of “succession” of natural ecosystems. Grassland may become forest because of acidification. Currently this is not really accounted for in dynamic modelling. In his reply Jean -Paul Hettelingh indicated that the next research steps on dynamic modelling will take into account vegetation aspects. The model of Harald Sverdrup of the University of Lund will be integrated in the critical loads modelling. Doing so allows accounting for this. We are evolving to models that move little away from soil chemistry.

André Zuber repeated that accumulated effects on ecosystems should ideally also be accounted for in dynamic models. Climate change effects may interfere, exacerbating air pollution effects on ecosystems. It would be good if the link with other effects can also be taken into account. Maybe this is a second -order priority.

Elisabeth Ruijgrok and Nils Axel Braathen (OECD) bot h stressed the importance of dynamic modelling as this includes information on ecosystem recovery and damage over time. Time scales are important for valuation studies because the results will be used to compare costs and benefits that occur at different m oments in time. It is therefore important to allow discounting of benefits. In his reply Jean - Paul Hettelingh, however, stressed that critical loads modelling is based on a precautionary principle. It does not say anything about the real times to recovery of ecosystems. The concept is not primarily designed to allow discounting benefits.

71 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

4 VALUATION OF ECOSYST EM BENEFITS

4.1 KEY FINDINGS ON VALU ATION OF ECOSYSTEM B ENEFITS OF AIR POLLUTION ABATEMENT – LIEVEN DE SMET (ARC ADIS ECOLAS, BELGIUM)

Ecosystems contribute to human welfare via the provision of ecosystem services. The central question for policy making is “how do (policy) actions affect the quality and/or quantity of ecosystem services?”. The resulting change in the quality and/or quantity has to be assessed via: (1) The exposure modelling of ecosystems; (2) Assessing the ecological responses (ecosystem effects) resulting from ecosystem exposure; (3) Translating the ecological responses into the changes in the quantity and/or quality of ecosystem services.

Next these ch anges need to be monetised, using monetary valuation techniques, in order to make the weighing of costs and benefits of policy actions more straightforward. The Total Economic Value Framework can assist in doing so. Currently, only a limited number of ecos ystem services benefiting of air pollution abatement (resulting in less acidification, eutrophication and ground -level -ozone) have been identified in valuation studies. The number of ecosystem benefits that have been monetised so far is even more limited. Besides, air pollution abatement also results in a decreased need of nature conservation management which also has to be accounted for in any cost-benefit analysis. Finally, a number of key questions for discussion were presented.

4.2 ECONOMIC ASSESSMENT OF EC OSYSTEM CONTRIBUTIONS – ANIL MARKANDYA (UNIVERSIT Y OF BATH, THE UNITE D KINGDOM AND FEEM, ITALY)

Mr. Anil Markandya (University of Bath) started by tackling the question “what are ecosystems worth?”. For valuation studies to be policy relevant it is needed to value the change in the ecosystem service flow rather than the absolute ecosystem value itself. Next the Total Economic Value framework and the components of which it is made up were explained. Different environmental values can and/or need to be assessed using different valuation approaches. These approaches can be broken down into market and non -market monetary valuation approaches. There have been already quite some valuation efforts on various issues. The Environmental Valuation Reference Inventory www.evri.ca encompasses data of a wide variety of valuation studies. Most studies in the database applied stated preference methods. These data may be used to (partly) answer policy questions, also in the field of air pollution. To conclude, a number of tho ughts were raised on valuing biodiversity, the state of affairs on the valuation of different environmental resources and the contribution economic valuation of ecosystem services to the policy making process.

4.3 A SWEDISH CBA ON ACI DIFICATION ABATEMENT – MOH AMMED BELHAJ (IVL, SWEDEN)

Mr. Mohammed Belhaj (IVL) presented the methodology used in a Swedish CBA on acidification abatement to estimate the biodiversity benefits of acidification abatement in monetary terms. The abatement initiative corresponds to the 'Climate Protocol, current legislation' scenario as developed by IIASA for the CAFE programme. The biodiversity benefits, or benefits of the preservation of

72 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity ecologically significant species, were assessed using the fish stocks in Swedish lakes as a proxy. Fish populations were chosen since the most reliable (dose-effect) information is available on fish populations and there have been a number of valuation studies assessing people’s willingness-to -pay for the preservation or enhancement of fish stocks in lakes and watercourses. Besides biodiversity benefits, also the benefits of less health damage, less corrosion of materials and reduced base cat -ion depletion were assessed.

4.4 DISCUSSION

Mike Holland stated that in order to arrive at a sound and defensible mo netary estimate of ecosystem benefits resulting from (policy) actions it is important to know where all data gaps are. First, there has to be a detailed vision on where we want to get in the short, mid and long term. Decisions and efforts at all time scales need to be geared as much as possible to the final long term objective.

Anil Markandya claimed that a first effort should be about identifying the things that can be done and accounted for quickly. In order to support policy making in the short term you may need to use existing studies. It was also suggested to look for systematic variations in the existing valuation studies (like those in the EVRI database) to complement the provisional ranges you would possibly derive from these. Ken Willis (University of Newcastle), however, is sceptic about the use of existing values for species like those illustrated in the presentation of Anil Markandya.

Ken Willis also indicated that t he individu al valuation and summation of stated preference benefits is known to lead to an over -estimation of aggregate benefits, and this needs to be explicitly recognised and addressed in any EU research program to reduce air pollution based on stated preference methods. Otherwi se ecosystem benefits will be grossly over -estimated.

Elisabeth Ruijgrok asked whether we can use the results of IVL on the biodiversity benefits of acidification abatement to wetlands. A key issue raised was how to assess the benefits of acidification abatement without also taking into account other effects? It may be difficult to make a distinction between the contributions of the different effects.

Elisabeth Ruijgrok remarked that CVM studies, which make up the lion part of the studies in the EVRI database, are often not supported by policy makers as they are considered not to be "serious" (especially at national level in e.g. the Netherlands and Belgium). Anil Markandya rebutted this as a too general a statement. Especially the last 10 years the quality of the stated preference studies has improved and there s eems to be more acceptance among policy makers. He therefore pleaded to look more carefully at what the existing studies can contribute instead of just saying they can not be used. In addition, understanding and appreciation of these issues by policy maker s is growing, such as in the UK, where CVM studies are extensively used. Elisabeth Ruijgrok recognised that internationally the use of CVM has been much more accepted.

Ken Willis said that CVM often gives a lower value than travel cost methods. Besides, i n recent years Choice Experiments (CEs) are applied more frequently as an alternative to CVM. The methodological underpinning to elicit values by means of CEs is less contested than via CVM. Finally, it is important to always include a sensitivity analysis. Elisabeth Ruijgrok added that, according to her experience, CVM is acceptable when used to estimate the benefits stemming from a limited number of ecosystem services. The majority of the ecosystem services, however, need to be estimated by other valuation methods. Nils Axel Braathen (OECD) rightly remarked that stated preference methods, like CVM, are the only way to assess the non -use values. Elisabeth Ruijgrok emphasised that the use of CVM should be only applied when there are not other options availab le (e.g. to monetise non -use value).

73 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Anil Markandya reported that a new project has been launched to assess the value of a set of Natura 2000 sites, including ecosystem services.

Mike Holland and André Zuber indicated that there has been the intention to i nclude the valuation of ecosystem benefits in the cost-benefit analysis in the framework of the CAFÉ programme. However, it was decided not to do so because of the uncertainties involved with the current state of knowledge on the valuation of ecosystem ben efits of air pollution.

André Zuber questioned whether assessing ecosystem services separately could lead double counting of some effects. Elisabeth Ruijgrok referred to the book “Kentallen Waardering Natuur, Water, Bodem en Landschap Hulpmiddel bij MKBA’s ” developed for the Dutch authorities in order to account for the environmental implications of infrastructure projects in social cost-benefit analysis. This book provides “authorised numbers” to value the ecosystem damage of air pollution. This book adher es to the ecosystem service approach. The framework for estimating the possible damage or benefits is very systematic. Whenever there is a risk of ecosystem benefits/damage overlapping this is indicated in order to prevent double counting.

Stijn Vermoote ( ARCADIS ECOLAS) stated that valuation studies are based on effects on ecosystems resulting from acidification, eutrophication as well as ground -level ozone. These impacts are a result of multiple emissions of SO2, NOX, NH3 and/or NMVOC. It is difficult to link the monetised benefits to the reduction of one particular pollutant only (e.g. acidification results from both SO 2 and NO X, what will be the share of monetised benefit due to SO 2 emissions?). On the other hand, policy goals are often defined at emission sources level and not at an effect level. How can we solve this in e.g. doing CBA analysis on a change in emission limit values? It has been argued that the impact pathway approach offers an answer up to the physical impacts assessment. The valuation step, finding a price tag for a given physical impact, is often the problem. See the EcoSense project (EC DG RTD, 6 th framework) for more information. 10

10 EcoSense was developed to support the assessment of priority impacts resulting from the exposure to airborne pollutants, namely impacts on health, crops, building materials, forests, and ecosystems. http://externe.jrc.es/Method+EcoSense.htm .

74 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

5 PROVISIONAL RANGES F OR THE VALUATION OF ECOSYSTEM DAMAGE AND BENEFITS

5.1 PROVISIONAL RANGES O F ECOSYSTEM BEN EFITS OF AIR POLLUTION ABATEMENT – LIEVEN DE SMET (ARC ADIS ECOLAS, BELGIUM)

A number of estimates of ecosystem benefits of air pollution abatement, stemming from key valuation studies, were presented and discussed. The estimates reviewed cover marine ecosystems, forests, freshwater bodies as well as complexes of several ecosystems. Besides, also studies covering the decreased costs of nature conservation management were reviewed. The usefulness of the monetary benefit estimates stemming from existing valuat ion studies are of limited policy relevance and this for a number of reasons: - If already specified, the reduction scenarios often lack policy relevance. The results can therefore, at best, only be used as an indication; - The number of studies is limited as well as their geographical coverage and the number of ecosystem types and ecosystem services studied; - The scientific underpinning of the ecological effects was often of minor importance; - Many dose-effect relations are still quite uncertain; - Many studies are old; - Known difficulties with stated preference methods.

Finally, a number of key questions for discussion were presented.

5.2 VALUE TRANSFER – ONNO KUIK (IVM, THE NETHERLANDS)

Value transfer may be a useful technique in order to arrive at a European wide as sessment of ecosystem benefits of air pollution abatement. Value transfer is the adaptation of existing information or data to new contexts . The technique is cheaper and faster than an original valuation study, but i ts accuracy is less because of the trans fer error . Consequently, there is a trade -off between costs (and time) and accuracy. There exist two broad categories of value transfer: unit transfer and function transfer.

Average transfer errors for spatial value transfer within and between countries ar e in the range of 25 - 40%. Individual transfers could have errors of more than 100%. Value transfer studies have so far concentrated on the transfer of use values, little is known about the transfer of non -use values. Function transfer is a more comprehensive approach, but it does not seem to perform better than unit transfer. Meta -analysis can provide useful information for adjusting unit values. In order to minimize transfer error it is advisable to only use studies with limited scope in terms of environme ntal goods and similar state -of -the -art methodology.

5.3 DISCUSSION

Background information is crucial when applying value transfer. Even if good background information is available, uncertainty rates can be high and often depended on the specific method used. This led André Zuber to wonder about the applicability of value transfer in policy formulation and the extent to

75 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity which it has already been used in accepted policy making exercises. The valuation of a specific ecosystem benefits differs according to culture , attitudes, level of education level of welfare, etc. of the beneficiaries. The same ecosystem type can have other characteristics from one location to the other. How do we account for this when transferring values? Nils Alex Braathen suggested the collec tion of sufficient background information on various variables may increase the quality of benefit transfer studies. Anil Markandya indicated that adjusting for such differences may become ever less relevant as EU Member States are converging in terms of income, education etc.

Mohammed Belhaj also wondered what the reactions of policy makers are when confronted with benefit estimates stemming from value transfer studies. According to André Zuber the values need to be solid and robust. The methods used in th e CAFÉ programme have been reviewed and revised. It is important to built confidence in the results.

Hans Vos wondered whether there is an indicator for robustness for estimates based on value transfer. In general information on this characteristic is comm unicated by the researcher, but this is not done in a structured and generally agreed way. This could be overcome by offering specific methodological guidelines as was done in ExternE.

Anil Markandya stated that at his institution benefits transfer is appl ied very often. The protocols for carrying out a benefits transfer study are quite demanding. In the case of health, benefits to people are equal in different countries. This is simply a matter of equity. This, however, does not hold for ecosystem benefits .

Given the demanding protocols, value transfer also requires a lot of energy and resources. This has led Elisabeth Ruijgrok to pose the question whether this is not just as much work as carrying out original valuation studies? Why not making CVM cheaper?

Ono Kuik (IVM) pointed out that value transfer is typically used because it is considered to be cheaper than original valuation studies. Another way of reducing costs could be to start with assessing the benefits to the areas that or the most valuable, and where the most important benefits can be expected.

To conclude Elisabeth Ruijgrok tried to place things in their proper perspective. She stressed that, according to her experience, finding a price tag is in many cases not the biggest problem. Very often the quantification of benefits (in physical terms which then can be translated into monetary terms) is the true problem.

76 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

6 ROAD MAP: USE OF ECOSYSTEM VALUATION IN DEVELOPING AND EVALU ATING AIR POLLUTION POLICY

6.1 ROAD MAP FOR THE EUR OPEAN WIDE MONETARY ASSESSM ENT OF ECOSYSTEM BENEFITS O F AIR POLLUTION ABAT EMENT POLICIES – STIJN VERMOOTE (ARCA DIS ECOLAS, BEGLIUM)

The core objective of this renewed effort by the European Commission is to point out the trajectory to be followed in order to enable the monetary assessment of ecosystem benefits of air pollution abatement policies. On the one hand this concerns the methodology to arrive at a European wide monetary assessment of ecosystem benefits of air pollution abatement. On the other hand this comes down to identify ing the actions needed to further develop the methodological framework.

The methodology for the monetary assessment of ecosystem benefits of air pollution abatement can be broken down into three major phases. The first phase (exposure assessment) implies the determination of the relevant abatement scenarios and the resulting changes in ecosystem exposure to air pollution. Doing so involves the identification of those ecosystem areas that are meaningfully affected by the action. The second phase (ecological response assessment) involves the establishment of the appropriate linkages between the changes in ecosystems exposure to air pollution and the resulting effects. The third phase (economic valuation) is about determining to what extent the quality and/or quantity of the ecosystem services benefiting from air pollution abatement changes given the effects on ecosystems. The (relevant) changes then need to be monetised. This can be done by using observed market data, performing a number of well-chosen valuati on studies or transferring values from other valuation studies.

The guiding principles of the trajectory for the future are the adherence to stepwise improvements, a constant search to better gear the different phases in the overall assessment process to o ne another, and a search for consensus about the methodology among scientists as well as decision makers.

In order to arrive at a European wide monetary assessment of the ecosystem benefits of air pollution abatement a number of well-chosen original valuat ion studies will need to be carried out. These need to cover the areas that are meaningfully affected by the action, focussing both on the key ecosystem types affected within these areas and the key ecosystem services benefiting. In a next step the benefits need to be upscaled and transferred.

Finally, a number of key questions for discussion were presented.

6.2 US EPA ECOLOGICAL BE NEFITS ASSESSMENTS S TRATEGIC PLAN (EBASP) & ECOLOGICAL BENEFITS ASSESSMENT IN AIR PROGRAMS – LINDA CHAPPELL (US EPA, THE UNITED STA TES)

Unfortunately Ms. Linda Chappell could not be present at the workshop. Therefore, her presentation was presented by Arcadis Ecolas. The presentation described the Ecological Benefits Assessment Strategic Plan EBASP and one of the most recent and compr ehensive benefits assessments for an EPA air regulation, the Clean Air Interstate Rule (CAIR).

The Office of Water of the US EPA had previously recognized that ecological benefits assessment was inadequate for policy assessments. A multi -office effort was needed to achieve success. The 2006

77 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

EBASP is the result of this effort that brought together ecologists and economists from each program office in EPA as well as the National Center for Environmental Economics (NCEE) and the Office of Research and Developm ent (ORD).

The EBASP has the goal to improve Agency decision -making by enhancing EPA’s ability to identify, quantify, and estimate the value of the ecological benefits of existing and proposed policies. The vision of the EPA is that natural and social sciences provide models, methods and information needed to support economic valuation and benefit assessment. The plan has a focus on institutional and technical considerations occurring most often in national ecological benefits assessments where EPA is requi red by statute to complete benefit-cost analysis. While the focus of the EPA is largely on national assessments, the EBASP -team felt the plan should be applicable to regional, state and local issues as well. The priority actions the team felt were needed t o improve ecological benefits assessment in the Agency are: institutional arrangements like the need for interdisciplinary assessments and changed guidelines for ecological assessments, interdisciplinary research needs to be organized around the framework, and the fostering of partnerships.

The Clean Air Interstate Rule is expected to reduce nitrogen oxides and sulfur dioxide from electric power plants in 22 states in the eastern US. In its regulatory impact analysis only one ecological benefit category – visibility benefits was monetized. All other benefits are human health benefit categories. Even without ecological benefits monetization, the benefits of this rule far outweighed the costs.

While the EPA has much to do to improve ecological benefits asses sment for the Agency, concrete steps are being taken. This year a workshop was held in April on Ecosystem Valuation sponsored by the National Center of Environmental Economics and the Office of Research and Development.

6.3 ECOSYSTEM BENEFITS O F ACIDIFICATION ABATEMENT – ELISABETH RUIJGROK ( WITTEVEEEN+BOS, THE NETHERLANDS)

Ms. Elisabeth Ruijgrok started her presentation with answering the questions: “What are ecosystem benefits?” and “How to determine ecosystem benefits of acidification abatement?”. Answering t he latter question comes down to: (1) Determine how many hectares of nature are affected ; (2) Determine which welfare functions forests, heathlands, meadows and fens perform ; (3) Determine which of these functions are affected by acidification ; (4) Quantify the change in function performance ; (5) Find a price tag for the function .

The calculation of ecosystem benefits can thus be seen as multiplying the number of ha affected with the change in the quantity and/or quality of the ecosystem service provision and with the price pe r unit of change. In the Netherlands they have a book with "authorised numbers" for the quantification and monetisation of ecosystem functions for different ecosystem types.11

11 Ruijgrok E.M.C ., A.J. Smale, R. Zijlstra, R. Abma, R.F.A. Berkers, A.A. Nemeth, N. Asselman, P.P. De Kluiver, R.S. De Groot, U. Kirchholtes, P.G. Todd, E. Buter, P.J.G.J. Hellegers, F.A. Rosenberg (2006). Kentallen Waardering Natuur, Water, Bodem en Landschap Hulpmiddel bij MKBA’s . Internet. http://www.mkbainderegio.nl/docs/Kentallen_waardering_natuur_water_bodem_en_landschap.pdf

78 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

6.4 DISCUSSION

Elisabeth Ruijgrok stressed that in many instances prices (from hedoni c pricing studies, damage costs avoided, CVM, etc.) are available but it is the quantification of the change in the quality and/or quantity of ecosystem services that is often hampering the benefit assessment. There is a need for the physical indicators to link the change in ecosystem exposure to the price tags, which are often available. Efforts should not be directed in the first place to the determination of the price but to the dose-effect relationships that fit with the pre -defined prices.

In the Neth erlands prices have been determined and presented in a handbook. The prices that are in this handbook are all based on previous studies. Anil Markandya raised his concerns about the provision of sufficient background information on the price figures in thi s book and whether this information is sufficiently communicated so it can be taken into account when using these prices. Besides, Mr. Markandya wondered whether these prices are always applicable and thus if it is always appropriate to use them? Prices ma y be right in one place but not in another. Some prices are based on abatement costs, but price tags stemming from such values need to be interpreted very carefully.

André Zuber stated that there should be no problem s with an authorised list of prices as long as the results are transparent, the sources are quoted and the background information on the estimates is well-described.

Per -Erik Karlsson questioned how to assess the effects of ecosystem exposure. The establishment of dose-effect relationships is o ften very difficult: e.g. the relationship between exposure to acidification and tree growth is not straightforward. This problem is even more pronounced when trying to assess the effects on CO 2 fixation per ha in relation to acidification. The latter relationship builds on the former, which is already highly uncertain. Elisabeth Ruijgrok indicated that in her book the dose-effect relationships were based on expert judgement.

According to Eduard Dame (EC DG ENV) the lack of sound scientific underpinning of many dose-effect relationships is partly related to the lack of a demand side for such knowledge. Putting the valuation of ecosystem benefits of air pollution abatement on the agenda may trigger increased research efforts. Elisabeth Ruijgrok suggested that before we rush to have estimates of ecosystem benefits in monetary terms, efforts are needed to establish dose-effect relationships.

When prioritising key research efforts to arrive at a European wide assessment of the ecosystem benefits of air pollution abatement initiatives both physical (ecological) and welfare (economical) effects may be considered. Welfare effects are crucial, but often only the physical effects are directly apparent which than can be used as a proxy. However, doing so may turn out to give a wrong indication.

Unit prices, as those that are determined in the handbook with authorised numbers for the Netherlands, vary from country to country. Nils Axel Braathen wondered what the EU proposes: one European set of prices or different sets of prices over the different countries. “One value for a VOSL or VOLY has been used for the whole of Europe, why not use one price for a fish from Sweden and Greece?”

Currently there are not e nough studies providing policy relevant monetary estimates of ec osystem benefits of air pollution abatement. Consequently a number of original valuation studies will have to be carried out. How to determine the number and the location of original valuation studies to be carried out? Mike Holland replied that answering this question takes some time. The CCE uses 31 ecosystem types in the classification, whereas Elisabeth Ruijgrok only uses 4 -5 types. It is clear we need to prioritise effects, ecosystem types, ecosystem services, etc. Linked to this, there is also a need to establish the methodology for aggregating and transferring the results.

79 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

Jean -Paul Hettelingh proposed to start with a "dry -run" for all ecosystem types separately (e.g. based on Natura 2000 sites) and to have a peer review of the results. André Zuber on ce more stressed the importance of keeping in mind the quality and the credibility of the methods and figures launched. Peer reviewing of results and methods is an important requirement to generate acceptance of the results.

André Zuber said the Commission may launch a number of valuation studies on the ecosystem benefits of air pollution abatement. Today, however, the financial side of the picture still has to be elaborated. According to Anil Markandya there should at least be one study focussing on the l ink between the recreational values of ecosystems and air pollution.

80 ARCADIS Ecolas Annexes 06/11867/SV – Valuation of air pollution ecosystem damage, acid rain, ozone, nitrogen and biodiversity

7 CONCLUSIONS – ANDRÉ ZUBER (EC DG ENV, BELGIUM)

Effects of air pollution on ecosystems:

There exists a solid scientific basis for critical loads modelling. Notwithstanding advancements in this field, dose-effect relations are needed to go from critical loads to the monetary assessment of ecosystem benefits. The assessment of concrete changes to ecosystems resulting from changes in critical loads exceedance is very difficult and uncertain for many effects.

Ground -level ozone was not mentioned that much. New developments in the field of critical loads modelling were discussed. In the coming years the focus of the CCE will be on Natura 2000 areas, biodiversity, relations with climate change ef fects and nitrogen effects.

Valuation of ecosystem benefits:

There exist a lot of valuation studies but only a limited number explicitly focuses on the effects of air pollution. The monetary assessment of ecosystem benefits typically uses the ecosystem ser vice approach, however a comprehensive and agreed on set of ecosystem services benefiting from air pollution abatement is still lacking. Each ecosystem service has a number of valuation methods that are better suited for translating the change in the quality and/or quantity of the ecosystem service flows into monetary terms. Stated preference methods, of which CVM is the most well-know and applied, are not always very popular among policy makers. In recent years the quality of stated preference studies has increased and choice experiments have been advanced as an alternative to CVM.

Provisional ranges for the valuation of ecosystem damage and benefits

The monetary benefit estimates stemming from existing valuation studies are of limited policy relevance and this for a number of reasons. Consequently, it is needed to carry out a number of original valuation studies specifically focussing on the benefits of air pollution abatement.

Value transfer is a technique which adapts existing information or data so that they can be used in new contexts . The main advantage of value transfer is that it is – generally – considered to be cheaper than to carry out original valuation studies. However, transferring benefits always generates some transfer error, thereby increasing uncertainty of the assessment. It was stated the collection of sufficient background information on various variables and the rigours design of original valuation studies may increase the quality of benefit transfer studies.

Road Map:

It has been highlighted that the trajectory to be followed in order to enable a European wide monetary assessment of ecosystem benefits of air pollution abatement requires a stepwise approach and a robust methodology. First, there has to be a detailed vision on where we want to get in the short, mid and long term. Decisions and efforts at all time scales need to be geared as much as possible to the final long term objective.

In order to come up with a monetary assessment of ecosystem benefits a number of well-chosen original valuation studies will need to be carried out. However, as resources (time as well as money) are limited it will be needed to make priorities. It has been argued that not all effects are equally important in terms of welfare. Setting priorities it therefor e a prerequisite.

It was indicated that air pollution ecosystem effects of acidification, eutrophication and ground -level ozone may need to be studied together with climate change in order to be able to make funding possible.

81