Uncertainty in ecosystem services valuation and implications for assessing land use tradeoffs: An agricultural case study in the Minnesota River Basin

http://dx.doi.org/10.1016/j.ecolecon.2012.04.020

Abstract: Ecosystem services analysis can help recognize the full costs and benefits of land management decisions. Quantification and valuation of services can enhance policies and regulations and, if linked with payments or incentives, properly reward private decisions that yield public benefits. However, the field of ecosystem services research is relatively new and quantification and valuation remains highly uncertain. While there is significant uncertainty about the biophysical production of ecosystem services, there is additional uncertainty about the value of services. This paper explores how uncertainty associated with valuation of ecosystem services in agriculture affects the ranking of land use alternatives in terms of social net benefits. We compare the values of four land use scenarios in the Minnesota River Basin, USA, by combining a range of value estimates for these services with varying estimates for returns from agricultural production. Although variations in ecosystem service values are significant, fluctuations in agricultural returns more significantly determine how scenarios rank with regard to delivery of total value. This analysis suggests that addressing uncertainty in ecosystem service valuation is critical to accurately assessing tradeoffs in land use.

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Highlights

► We model the provision and value of ecosystem services in agricultural landscapes
► Restoration of agricultural land increases non-market ecosystem services.
► Valuation uncertainty makes the estimated values of land restoration variable.
► Variability in market returns significantly influences land use scenario ranking.

Fig. 1. Pre-settlement and 2001 LULC in the Minnesota River Basin.

Fig. 2. Change from 2001 scenario in total net present value of alternative scenarios, assuming LOW agricultural returns.Ecosystem services values are: low = SCC of $27 w/2% increase & WTP of $60; medium = SCC of $106 w/2% increase & WTP of $131; high = SCC of $171 w/4% increase & WTP of $154.

Fig. 3. Change from 2001 scenario in total net present value of alternative scenarios, assuming MEDIUM agricultural returns.Ecosystem services values are: low = SCC of $27 w/2% increase & WTP of $60; medium = SCC of $106 w/2% increase & WTP of $131; high = SCC of $171 w/4% increase & WTP of $154.

Fig. 4. Change from 2001 scenario in total net present value of alternative scenarios, assuming HIGH agricultural returns. Same Ecosystem services values as above.

by Kris A. Johnson^a, , Stephen Polasky^{b, c,} , Erik Nelson^d , and Derric Pennington^b,  

^a Institute on the Environment, University of Minnesota Suite 325 1954 Buford Avenue, St. Paul, MN 55108, USA  Tel.: + 1 612 626 2167; fax: + 1 612 626 5555.

^b Department of Applied Economics, University of Minnesota, 1994 Buford Avenue St. Paul, MN 55108, USA 

^c Department of Ecology, Evolution and Behavior, University of Minnesota, 1987 Upper Buford Circle, St. Paul, MN 55108, USA 

^d Natural Capital Project, Woods Institute for the Environment, Stanford University, 371 Serra Mall, Stanford, CA 94305‐5020, USA; Present address: Department of Economics, Bowdoin College, 9700 College Station, Brunswick, ME, 04011‐8497, USA

Ecological Economics via Elsevier Science Direct www.ScienceDirect.com

Volume 79; July, 2012; Pages 71–79

Keywords: Ecosystem services; Uncertainty; Agricultural systems; Valuation; Scenarios