10019983 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY FRAMEWORK FOR THE ECONOMIC ASSESSMENT or ECOLOGICAL BENEFITS DRAFT U.S. EPA Headquarters Library Mail code 3201 1200 Pennsylvania Avenue NW Washington DC 20460 EPA 1007 1998.3 July 1998 ------- ------- FRAMEWORK FOR THE ECONOMIC ASSESSMENT OF ECOLOGICAL BENEFITS DRAFT Prepared for Ecological Benefit Assessment Workgroup Social Sciences Discussion Group Science Policy Council U.S. Environmental Protection Agency Prepared by U.S. EPA Headquarters Library ICF Incorporated Mail code 3201 9300 Lee Highway 12°0 Pennsylvania Avenue NW Fairfax, VA 22031 W^lngton DC 20460 July 1998 ------- ------- NOTICE This is a draft EPA document intended for internal review. It is not to be released outside the Agency and should not be cited or quoted. Questions about or comments on this document should be sent to John D. Harris (5204 G), 703-603-9075, fax 703-603-9104 Keys to using this document: • This document provides a conceptual framework designed to promote increased communication between natural scientists conducting an ecological assessment and policy analysts conducting an economic benefit analysis. The goal is to improve the economic assessment of the ecological benefits of maintaining, protecting or restoring ecological resources. The document establishes an analytical structure, gives relevant information on methodologies, provides references to other sources of information, and notes results from other studies. It is not a "cookbook" that gives detailed instructions on all aspects of conducting an ecological assessment or an economic benefit analysis. • This document is designed as a tool for economists and policy analysts who are charged with evaluating the benefits of actions that affect ecological systems. However, it should be of use to many different audiences, such as ecologists supporting economic analyses, risk assessors or decision makers. • Because economists and policy analysts having some familiarity with economics are the primary audience, terms are used with meanings typical in the economics field, which may vary substantially from meanings used by ecologists or others. A primary example is the title phrase "ecological benefits," which an economist might interpret as relating to the identification and valuation of benefits associated with ecological systems or services. An ecologist might interpret the phrase as relating to something that improves the structure and function of the ecological system. Ultimately, the document will contain a glossary to help minimize misinterpretation of terms. • This document is designed to be used electronically, and, in electronic form, will have hypertext links between sections, a searchable bibliography database, and a searchable database of economic valuation studies. The intent is to make the final version of the document available through the EPA Home Page on the Internet. It can, of course, also be used in hard copy, but this format loses the linking and search features. A WordPerfect hard copy version will be available to download from the EPA Internet site. Draft - July 1998 - Do Not Cite or Quote Page i ------- ------- TABLE OF CONTENTS 1.0 Introduction and Overview 1 1.1 Introduction 1 1.2 Overview of This Document 1 2.0 Interdisciplinary Coordination 4 2.1 Introduction 4 2.2 Identifying Endpoints for the Economic Benefit Analysis and Linkages Between the Ecological Changes and the Economic Benefit Endpoints 5 2.3 Conducting a Qualitative and/or Quantitative Assessment of Effects on the Economic Benefit Endpoints and Selecting Specific Endpoints for a Monetized Analysis of Economic Benefits 10 2.4 Ensuring Analytical and Data Compatibility 12 2.5 Additional Issues 14 3.0 Important Principles of Ecology and Ecological Assessment 17 3.1 Defining an Ecosystem and Other Levels of Ecological Organization 17 3.2 Understanding the Interactive Nature of an Ecosystem 18 3.3 Measuring/Assessing Impacts to Ecological Components 21 4.0 The Ecological Risk Assessment Process 26 4.1 Overview of Ecological Risk Assessment 26 4.2 Phase I: Problem Formulation 30 4.3 Phase II: Analysis Phase 39 4.4 Phase III: Risk Characterization 51 5.0 Background Theory on Valuing Changes to Ecological Resources 55 5.1 Defining the Economic Value of an Ecological Resource 55 5.2 Measuring the Benefits of Improvements to Ecological Resources — The Concept of Willingness-to-Pay 55 5.3 Measuring the Benefits of Improvements to Ecological Resources — Theoretical Basis 57 5.4 Measuring the Benefits of Improvements to Ecological Resources — Estimating Willingness-to-Pay 59 6.0 Economic Assessment of Ecological Benefits 61 6.1 Components of an Economic Assessment of Ecological Benefits 61 6.2 Identifying the Service Flows and Other Values Provided by an Ecological Resource 64 6.2.1 Direct, Market Uses 67 6.2.2 Direct Non-Market Uses 69 6.2.3 Indirect Non-Market Uses 71 6.2.4 Non-Market, Non-Use Values 73 Draft-July 1998- Do Not Cite or Quote Page ii ------- 6.3 Approaches to Measuring Resource Values 75 6.3.1 Market-Price and Supply/Demand Relationships 80 6.3.2 Market-Based Valuation Approaches 83 6.3.3 Travel Cost Methodologies 89 6.3.4 Random Utility Model 93 6.3.5 Hedonic Price and Hedonic Wage Methodologies 96 6.3.6 Contingent Valuation 102 6.3.7 Combining Contingent Valuation with Other Approaches: Contingent Activity 110 6.3.8 Conjoint Analysis and Contingent Ranking 112 6.3.9 Benefits Transfer 117 7.0 Issues Affecting the Economic Valuation of Ecological Benefits 122 7.1 Uncertainty and Variability 122 7.2 Aggregation 123 7.3 Discounting 123 7.4 Distributional and Equity Analyses 124 8.0 References and Data Bases 126 8.1 Ecological References and Further Reading 126 8.2 Economic References and Further Reading 128 8.3 Illustrative Sample of Data Sources 134 8.4 Data Base of Ecological Resource Values 136 8.5 Bibliographic Data Base 137 Draft- July 1998- Do Not Cite or Quote Page Hi ------- 1.0 INTRODUCTION AND OVERVIEW l.l INTRODUCTION The Social Sciences Discussion Group (SSDG), convened under the auspices of the EPA Science Policy Council, is working to improve the Agency's ability to conduct economic analyses. The SSDG identified a need to "improve the Agency's ability to quantify, and, where possible, monetize ecological benefits, including quality of life." A workgroup representing all major EPA programs and environmental media was established to meet that charge. The workgroup began by surveying EPA offices for completed or ongoing analyses of ecological benefits to determine the current state of the practice within EPA. During this exercise, the workgroup identified the need to a common approach for analyzing ecological benefits and a better understanding of both the scientific and economic techniques used in these analyses. This framework document is intended to serve both of these purposes. Representing a joint effort of both ecologists and economists, this framework: • Summarizes the objectives and processes of an ecological assessment; • Discusses the elements of an economic benefit analysis and the techniques used to estimate the economic value of ecological benefits; and • Identifies the major opportunities for improving the economic benefit analysis through increased interdisciplinary coordination. This document is intended to provide general information for EPA staff and others who are interested in the concepts and techniques used to assess and quantify ecological effects and to monetize ecological costs and benefits. The document is not designed to be either a "cookbook" or a "how to" manual — it does not provide detailed, step-by-step guidance on the application of specific techniques. Because this document is a framework for estimating the economic value of ecological benefits, it also does not address other possible effects of an action or other perspectives. Specifically, this document does not discuss non-ecological effects, such as human health impacts or socio-economic effects (e.g., employment, local revenue, growth). 1.2 OVERVIEW OF THIS DOCUMENT This framework document for assessing and economically valuing ecological benefits is intended to serve four general purposes: • Promoting greater coordination between ecologists and economists working on such efforts; DRAFT - July 1998 - Do Not Cite or Quote Page 1 ------- • Providing an understanding of the approaches currently in use; • Suggesting additional sources of information; and • Providing a starting point for those individuals who need to study and economically value the ecological effects of a specific action. Exhibit 1 presents the conceptual framework for assessing the economic value of ecological benefits described in this guidance. This framework is intended to provide a starting point for approaching such analyses; it does not prescribe a particular method of research or interaction. Exhibit 1 Conceptual Framework for the Economic Assessment of Ecological Benefits Identify and Characterize Economic Benefit Endpoints Direct, Market Uses Direct, Non- Market Uses Define the Linkages Between Ecological Changes and Economic Benefit Endpoints Indirect non- Market Uses Ecological Assessments Define Changes to Each Economic Benefit Endpoint Conduct a Qualitative and/or Quantitative Assessment of Effects on Economic Benefit Endpoints Other Scientific Input Select Economic Benefit Endpoints for Monetized Assessment of Changes Ensure Analytical Compatibility Select and Apply Appropriate Technique(s) for Valuing Changes to Selected Benefit Endpoints Present Results of the Qualitative, Quantitative, and Monetized Assessment of the Economic Benefits of Ecological Changes DRAFT - July 1998 - Do Not Cite or Quote Page 2 ------- This conceptual framework consists of three components: • Interdisciplinary Coordination (Section 2): Establish the baseline and scenarios to be examined, establish the connections between the ecological changes and economic benefit endpoints, identify and define the foci of the economic benefit analysis, choose a qualitative, quantitative or monetized assessment of the effects, ensure analytical compatibility between the ecological assessment and the economic analysis, and ensure the smooth transfer of information between the ecological assessment and the economic analysis. • Ecological Assessment and Scientific Input (Sections 3 and 4): Identify and estimate the ecological changes associated with an action. • Economic Benefit Analysis (Sections 5 and 6): Identify and characterize the affected economic benefit endpoints, describe and/or model how the ecological changes affect each economic benefit endpoint, select a qualitative, quantitative or monetized assessment of the economic effects, estimate the changes to the economic benefit endpoints; and select and apply appropriate techniques for estimating the monetary value of the estimated changes to selected economic benefit endpoints. The organization of this document is consistent with these three components. Because the economic assessment of ecological benefits is not a linear process, there are frequent references to other sections of the document and electronic links to those sections where additional information is presented relating to a specific topic or issue. In addition to the main body of the document, which covers the areas described above, there are three supplementary sections: • Issues (Section 7): A discussion of some additional issues relevant to the economic analysis of ecological benefits, including uncertainty, discounting, aggregation, and equity. • Economic Valuation Study Database (Section 8.4): A key-word searchable database containing information on almost 300 economic valuation studies. The information provided includes the resource or economic endpoint valued, the principal investigators, the research methodology, and the resulting value estimate. • Bibliographic Database (Section 8.5): A key-word searchable database containing full bibliographic information for all references mentioned in the document, as well as additional studies, related journal articles, and reports. DRAFT - July 1998 - Do Not Cite or Quote Page 3 ------- 2.0 INTERDISCIPLINARY COORDINATION Interdisciplinary coordination is the fundamental element of the conceptual approach laid out in this document. This section first discusses how coordination between natural scientists (e.g., biologists, ecologists, chemists) and economists can improve the economic assessment of ecological benefits. This section then highlights specific opportunities for coordination and identifies differences in perspective between the disciplines, which must be recognized for successful coordination to occur. 2.1 INTRODUCTION Interdisciplinary coordination refers to the discussion of goals between individuals in different disciplines and the cooperative efforts of these individuals to achieve these goals. Although the level of interaction between the disciplines increases, the distinct frameworks of each discipline are maintained. Interdisciplinary coordination promotes: • Better understanding of the structure and function of ecological resources by economists; • Better understanding of economic benefit analysis by ecologists; • Improved definition of economic benefit endpoints; and • Streamlined data collection. Successful interdisciplinary coordination requires a basic understanding of the objectives and approach of other disciplines. Improving this basic understanding is, in fact, one of the main objectives of this document. The need for coordination between the disciplines is not restricted to a particular activity, but rather, factors into each step of the design and implementation of the ecological assessment and the analysis of economic benefits. There are three specific areas where interdisciplinary coordination is particularly important to improve the economic assessment of ecological benefits: D Identifying the endpoints for the economic benefit analysis and understanding the linkages between the ecological changes and the effects on the economic benefit endpoints; D Conducting a qualitative and/or quantitative assessment of the effects on the economic benefit endpoints and selecting specific endpoints for the monetized assessment of economic benefits; and DRAFT - July 1998 - Do Not Cite or Quote Page 4 ------- CD Ensuring that the ecological assessment and the economic benefit analysis are analytically compatible. The opportunities for, and benefits of, coordination in each of these areas are discussed in the following sections. 2.2 IDENTIFYING ENDPOINTS FOR THE ECONOMIC BENEFIT ANALYSIS AND LINKAGES BETWEEN THE ECOLOGICAL CHANGES AND THE ECONOMIC BENEFIT ENDPOINTS The selection of endpoints determines how the ecological assessment and the economic benefit analysis will evaluate the effects of the action or change under study. The endpoints selected for the ecological assessment may be the same or different from the benefit endpoints examined by the economic benefit analysis. In either case, it is important to understand the linkages between the ecological assessment endpoints and the economic benefit endpoints. The economic benefit analysis is based on the premise that actions affecting the state of an ecological resource, measured in terms of changes to the ecological assessment endpoints, will result in changes to the goods and services provided by that resource (i.e., changes to the economic benefit endpoints). Because of this connection, economists need to work with ecologists and other scientists in determining what economic benefit endpoints are likely to be affected, estimating the magnitude and significance of those effects, and developing belter methods for measuring and modeling the linkages between changes to ecological resources and changes to the economic benefit endpoints. In addition, by working with economists to define the economic benefit endpoints, ecologists can help ensure that significant but less obvious or less direct effects are not overlooked by the economic benefit analysis. Furthermore, as ecologists gain a better understanding of the objectives and process of the economic benefit analysis, they might be able to provide information and data that are better targeted to the needs of the economist. The following two subsections describe two stages of potential improvement in the identification, definition, and measurement of these linkages: • Better identification and definition of the linkages between ecological changes and effects on economic benefit endpoints; and What Is An Endpoint? Endpoints differ by discipline. Economic benefit endpoints are those goods or services, provided or supported by the ecological resource, that are valued by humans either directly or indirectly. Ecological assessment endpoints are the ecological components directly or indirectly affected by the change or action being examined. Changes to the ecological assessment endpoints are used to measure the ecological impact to the ecosystem due to the action under study. Changes in the economic benefit endpoints are used to estimate the economic value of the action under study. DRAFT - July 1998 - Do Not Cite or Quote PageS ------- • Improved measurement and modeling of these linkages in estimating and valuing changes to economic benefit endpoints. Identification and Definition of Linkages The thoroughness of the economic benefit analysis depends on the identification and definition of the linkages between changes to the ecological resource(s) and changes to the economic benefit endpoints. The identification and definition of the linkages between changes to an ecological resource and changes to specific economic benefit endpoints begins with a qualitative understanding of the relationships and interactions that occur within the natural system. Ecologists and other scientists can help the economist to understand these relationships and more completely define the list of economic benefit endpoints likely to be affected by a change. One approach is to work together to extend the conceptual model developed as part of the ecological assessment to identify the economic benefit endpoints that are likely to be affected and the pathways by which these effects will be realized. Exhibit 2 provides an example of how a conceptual model might be expanded to include the affected economic benefit endpoints. Exhibit 2 Expanding a Conceptual Model to Include Linkages to Specific Economic Benefit Endpoints Im proved Local Septic System s I Reduced N utrient Loading I Reduced Eutrophication in Local W aters Improved Aquatic Habitat Im proved W etland Function and Structure I Increased F ish /S h ellfish Populations Im proved W a te r Filtration Improved Storm P ro te c tio n Increased M igratory Bird Visitation Rate Increased Shore Bird Population Increased R ecreational F ish /S h ellfish L a n d in g s I m proved Bird Watching O pportunities I m proved W a te r Q u a 1 ity 1m proved R ecreational Swimming and B oating O pportunities Reduced Property Losses DRAFT - July 1998 - Do Not Cite or Quote Page 6 ------- This simplified example considers only a single change, reduced nitrogen loading from local septic systems, and only some of the potential linkages between the ecological effect of reduced eutrophication and changes experienced by some economic benefit endpoints. A second approach that might be used to more completely identify the affected economic benefit endpoints is a simple table listing the expected ecological changes and the corresponding effect of each change on various economic benefit endpoints. Exhibit 3 illustrates this approach by identifying some possible affected economic benefit endpoints for two ecological changes. Exhibits Hypothetical List Linking Ecological Changes to Potential Economic Effects Ecological Change Reduced turbidity of water body Economic Effects Increased commercial and recreational fish harvests Reduced water treatment costs Improved aesthetic quality of the water Increased wetland acreage Reduced costs of storm damage Improved recovery after storm induced combined sewer overflows Reduced water treatment costs Increased commercial and recreational fishery and shellfish harvest Increased aesthetic value due to increased diversity or abundance of nature Increased property values Several researchers have explored alternative approaches for better identifying and describing the linkages between ecological changes and economic effects. King (1997) used a table format, similar to Exhibit 3, to link specific human uses and values such as hunting, bird watching, property protection, and water-based recreation, to specific wetland functions including providing habitat, floodwater storage, and pollutant uptake. The U.S. Army Corps of Engineers (USAGE) (Cole, et al., 1996) uses similar, although slightly more complex, approaches to identify and describe the links between the ecological effects of a potential USAGE environmental restoration project and the likely impacts on the human uses and services associated with the affected ecological resource(s). For example, one USAGE table on the effects of building barriers and dredging and filling activities identifies the potential ecological changes, such as change in area available for use (in acres or square km) or change in shore DRAFT- July 1998- Do Not Cite or Quote Page? ------- protection capacity (shore miles or acres affected). These changes are linked to those human uses or services that might be impacted either directly or indirectly, such as recreational boating or swimming or protection of property. The USAGE tables also provide possible measures of the ecological change and approaches for measuring and valuing the associated change to the human uses (i.e., the economic change). Measuring and Modeling Linkages Building on a better qualitative understanding of the linkages between ecological changes and effects on economic benefit endpoints, efforts can expand to better measure and model these linkages. This section discusses how economic valuation methods currently use ecological data to estimate the benefits of specific ecological changes, and identifies opportunities for developing better approaches for measuring and incorporating such linkages in economic benefit analyses. Current Practice Economists often use the experience and data from other disciplines in their analyses. In estimating the economic value of ecological benefits, most economic valuation models require some measure of the ecological change (e.g., change in water quality, acres of open space, type offish living in a water body). The "measures" of the ecological change used in economic valuation models vary significantly in level of specificity and complexity. Most often, economic analyses use only a simple measure of the ecological change, such as a subjective ranking of quality or the measured concentration of a pollutant in the air or water. Furthermore, most economic valuation studies examine the economic impact of only one effect (e.g., lost recreational fishing opportunities associated with a change in water quality), rather than considering the full range of possible impacts of an ecological change on multiple economic endpoints. Exhibit 4 presents some examples of recent economic benefit valuation analyses. Future Opportunities Better methods are needed for measuring and modeling the connections between ecological changes and effects on economic benefit endpoints. One goal is to move beyond a relatively linear approach in which the valuation model focuses on a single change and ignores the feedback loops and interactions inherent in the natural system. Developing economic models that link more directly with the ecological assessment model represents one possible opportunity for improving economic benefit analysis. Because of their ability to adjust to different ecological conditions, such "linked" valuation models are likely to be applicable in a wider variety of settings, to be able to be scaled up or down to reflect various levels of ecological change, and to better capture the effects of interactions inherent in the natural system. Many ecological assessment models are now capable of modeling complex interactions and consequences within the natural system: DRAFT - July 1998 - Do Not Cite or Quote Page 8 ------- Coastal Ecological Landscape Spatial Simulation. The first computer model to compile a cellular spatial process ecosystem model. This model is capable of "simulating successional changes from one ecosystem type to another as a response to human impacts and natural variation" (Fitz, H.C., et al, 1993). General Ecosystem Model. A computer model capable of recording ecosystem changes, such as nutrient, light, temperature, and water changes and the effects/responses by macrophyte and algal communities. It is constructed modularly, thus allowing easy shifts in application, such as increasing/decreasing the covered area or changing the community/ecosystem (Fitz, H.C., et al., 1995). Patuxent Landscape Model. A regional computer model designed to "simulate environmental impacts generated from changes in land use patterns and practices in the watershed." It uses software that combines several other software packages and databases, including the GEM, Spatial Modeling Program, and GIS databases to calculate how these changes affect nearby cell areas (i.e., land, air, water) (DeBellevue, E.B., et al, 1993). Exhibit 4 Examples of Recent Economic Benefit Analyses Incorporating Scientific Data (exhibit to be expanded in future draft to include EPA studies as examples) Study Title Description Using Random Utility Models to Estimate the Recreational Value of Estuarine Resources. Estimated a household production function, using a random utility model framework, to test the effects of nonpoint source pollution on recreational fishers site choice. The nonpoint source pollutant (nitrogen and phosphorous) contributions included in the study were estimated from National Oceanic and Atmospheric Administration's National Coastal Pollutant Discharge Inventory (NCPDI). Using the NCPDI, the study also estimated biochemical oxygen demand (BOD). These data were all included in estimation procedures and found to be statistically significant (Kaoru, Y., et al, 1995). Measuring the Benefits of Improvements in Water Quality: The Chesapeake Bay. Contingent valuation data estimated willingness-to-pay to improve the Chesapeake Bay's water quality using econometric choice models. The Bay's water quality was represented by the product of nitrogen and phosphorous readings, because of the collinearity of the two variables, from 1977, because that was the last year when complete data were available. The study concluded that significant willingness-to-pay exists to improve the Bay's water quality. It also indicated that the dollar range ($10-100 million) may ultimately be too low as human-use patterns change to reflect improved water quality variable (Bockstael, N. E., etal, 1989). DRAFT - July 1998 - Do Not Cite or Quote Page 9 ------- Similarly complex economic models, including general equilibrium models which account for feedbacks and interactions through the market system, also exist. In addition, some researchers have recently defined economic valuation models that explicitly link the modeling of ecological changes to the modeling of effects on specific benefit endpoints (see Exhibit 5). Clearly, the capabilities exist for developing more complex and "connected" economic valuation models. Long-term research goals include the development of models that simultaneously (1) account for many different ecological functions, and (2) estimate the effects on many different economic benefit endpoints. Exhibit 5 A Conceptual Model for the Economic Valuation of Ecosystem Damages Resulting from Ozone Exposure A conceptual model that links ecological and economic models is under development to address the complex interactions among ecosystem components and the behavior of economic agents. The conceptual model is applied in a case study to demonstrate the feasibility of application, the possibilities for ecosystem value measurement, and the limitations imposed by the data requirements. The case study examines the impact of changes in ambient ozone concentrations on a southern pine ecosystem. An ecological model, TREGRO, is used to estimate the impact of elevated ozone concentrations on measures of tree growth. These results are combined with other relationships to demonstrate how such ozone impacts might indirectly affect the status of other ecosystem components, specifically the nesting habitat for red-cockaded woodpeckers. Economic benefits are realized through outdoor activities, such as hunting and wildlife watching, provided as services of the southern pine forest ecosystem. The model uses a biodynamic growth equation to capture the relationship between economic activity and the status of the ecosystem. The case study is limited geographically, by the ecosystem components considered, by the stressors applied, and by the techniques to apply the ecological impacts to an expanded domain. In addition, this conceptual framework is augmented by including feedback effects from the economic system to the ecosystem (EPA, 1997). Interdisciplinary research efforts, as discussed in this section, require a better understanding of what researchers in other fields are doing and a willingness to collaborate. By providing information on the process and objectives of the ecological assessment and discussing opportunities for improved cooperation and coordination between scientists and economists, this document hopes to encourage continued discussions and interest in expanding the connections between the ecological assessment and the economic benefit analysis. 2.3 CONDUCTING A QUALITATIVE AND/OR QUANTITATIVE ASSESSMENT OF EFFECTS ON THE ECONOMIC BENEFIT ENDPOINTS AND SELECTING SPECIFIC ENDPOINTS FOR A MONETIZED ANALYSIS OF ECONOMIC BENEFITS In addition to identifying and defining the economic benefit endpoints, economists and ecologists should how the economic benefit analysis will measure and describe the changes to these endpoints. The economist's decisions should be informed by the ecologist. The goal of the DRAFT - July 1998 - Do Not Cite or Quote Page 10 ------- economic benefit analysis is to capture as much of the potential benefits of an action in the monetized assessment of benefits. For many reasons, as discussed below, it may not be possible or practical to estimate the monetary value of changes for all the economic benefit endpoints. Thus, the economist must determine how and at what depth the economic benefit analysis will examine the effects on each of the economic benefit endpoints. In determining whether a qualitative, quantitative, or monetized analysis is appropriate for each economic benefit endpoint, the discussion should center on: Q Time and resource constraints; Q Analytical purpose; Q Data availability; Q Anticipated magnitude of the impact to the benefit endpoint relative to the anticipated impacts on other endpoints; Q Anticipated uncertainty of the impact to the benefit endpoint, relative to uncertainty regarding other endpoints; Q Compatibility with the data and outputs of the ecological assessment; and Q Availability of appropriate measurement techniques. Time and resource constraints generally require that the economic benefit analysis focus on quantifying and monetizing the benefits associated with only a few benefit endpoints. The objective is to select those benefits endpoints that are expected to experience the greatest economic benefits. Effects on other benefit endpoints, which are not monetized, should be assessed quantitatively or qualitatively. Economists should work with ecologists and other scientists to determine which benefit endpoints are likely to experience the greatest change. For example, what economists might consider relatively minor ecological changes could have widespread and/or long-term consequences that result in a significant economic effect. The appropriate type of assessment of the economic benefits is often determined by answering the questions: "Why is the analysis being conducted?" and "What are the questions which the analysis will address?" In some cases, a qualitative or quantitative assessment of the economic value of the ecological benefits, rather than a monetized assessment, may be all that is necessary to support the decision-making process. Often decisions regarding how the effects on specific benefit endpoints are analyzed and described are based on the availability of appropriate data techniques to support a quantitative or monetized assessment of the changes. Some ecological services may be too complex and too poorly understood to quantify or monetize potential changes (e.g., carbon cycle, nitrogen cycle). When appropriate data is not available to support a monetized assessment of the economic benefits, the economic benefit analysis should still include a qualitative or quantitative DRAFT - July 1998 - Do Not Cite or Quote Page 11 ------- assessment of the effect. A thorough economic benefit assessment focuses not just on the effects that can be monetized, but on the full scope of effects. Qualitative, and when possible quantitative, measures of effects on economic benefit endpoints are necessary because they provide a measure of a service's importance and the degree of change, even when a dollar value cannot be assigned to that change. Furthermore, a thorough qualitative and quantitative assessment of the changes can supplement and support the monetize assessment of changes. 2.4 ENSURING ANALYTICAL AND DATA COMPATIBILITY The ecological assessment is often the main source of information for the economist regarding how a specific action or change has affected or is likely to affect an ecological resource. As a result, it is important that the baseline from which the effects are measured and the specifics of the action or change (i.e., the scenario) that is considered are consistent between the ecological assessment and the economic benefit analysis. In defining the scenario(s) to be examined, it is important to specifically define the action or change to be evaluated, the area(s) expected to be affected, the time period under study, and what other factors or actions (e.g., other regulations) might affect the outcome and how they will be accounted for in the ecological assessment and the economic benefit analysis. A common understanding of the baseline from which effects are to be measured and the specifics of the scenario to be analyzed is the first step toward ensuring that: • Outputs from the ecological assessment are compatible with the needs of the economic benefit analysis; and • Findings from the ecological assessment and the conclusions of the economic benefit analysis are analytically consistent. Additional time and effort is often required, however, to determine the best approach for meeting the data needs of the economic benefit analysis. Economists need to understand the data traditionally collected by an ecological assessment and determine how well these data can address the data needs of the economic analysis. Ecologists also need to better understand the data needs of the economic benefit analysis. Economists need to work with ecologists from the initiation of the ecological assessment, if possible, to develop better methods for translating and transferring data from the ecological assessment to the economic benefit analysis. What can be and is measured in the ecological assessment will dictate, in part, what ecological changes and economic effects are captured by the economic benefit analysis. It is important to understand exactly what changes can be identified, how those changes will be described or measured (e.g., at what level of spatial or temporal detail, with what level of certainty), and acknowledge the major limitations or uncertainties associated with those descriptions or measurements. DRAFT - July 1998 - Do Not Cite or Quote Page 12 ------- Spatial and Temporal Distribution of Data. The spatial and temporal distribution of effects is of particular concern in the transfer of information. The magnitude of the economic value of an action affecting an ecological resource may depend on the spatial and temporal distribution of the effects. Therefore, to accurately estimate the potential ecological effects and appropriately value the change to the ecological resource, the ecological assessment and economic benefit analysis must analyze a consistent spatial and temporal distribution of effects. In addition, the ecological assessment and economic analysis should be consistent in accounting for variation in the intensity and frequency of the event under examination and the time path of recovery if the resource is damaged. An ecological assessment might focus its examination of the effects of an action at the point where the exposure and effects are the greatest and determine the acceptability of those point effects (e.g. local or individual organism level effects). The economic benefit analysis, however, should consider the full range of effects and assess the variability of those effects across the whole area and population of concern. It is also important for the economic benefit analysis to consider the potential impacts to populations, ecosystems, or regions, which may have a large spatial scale. In addition, when ecological changes are assessed as if they occurred instantaneously following some action, it is important for the purposes of assessing the economic value of the ecological changes that the effects be assessed across the entire time period under examination. Furthermore, a thorough benefits assessment needs to consider the role of lagged or future effects and determine how best to account for these types of effects. This may include a better characterization of the stream of benefits based on scientific information on changes in environmental conditions over time, and determining an appropriate discounting scheme for comparing changes in future effects against changes in current effects (see Issues section for further discussion on discounting). Data Limitations and Uncertainty. The economic benefits analysis should attempt to account for the uncertainties surrounding the ecological assessment process as well as the imprecision of most economic valuation techniques. The level of uncertainty in the ecological assessment process as well as the economic valuation process is sometimes substantial. Although many economists acknowledge the imprecision of the available economic valuation techniques, they often do not specifically account for this uncertainty in presenting the value estimate. Economists also do not typically account for the uncertainty in the ecological assessment when they develop value estimates. Although the results of an ecological assessment, for example, are often expressed as a probability with associated uncertainties, there is no standardized methodology for utilizing this type of measure in an economic benefit analysis, (see Issues section for further discussion on accounting for DRAFT-July 1998- Do Not Cite or Quote Page 13 ------- variability and uncertainty.) Through improved coordination, economists and scientists can work together to determine how to address the data needs of the economic benefits analysis and to solve issues regarding the analytical compatibility of the ecological assessment and economic benefits analysis. For example, if the baseline from which changes are measured and the scenarios examined are consistent between the ecological assessment and economic benefit analysis, there are likely to be fewer difficulties in ensuring that the data provided by the ecological assessment and the design of the economic analysis are compatible. 2.5 ADDITIONAL ISSUES Economists and ecologists have different views and perspectives that are important to recognize. Closer coordination can be encouraged by understanding how the disciplines differ and acknowledging these differences. This section identifies some of the areas in which economists and scientists may find they have different approaches or interpretations. • Perspective. Economists approach the identification and valuation of changes to ecological resources differently than ecologists and other scientists. For example, human activities and welfare are the focus of economists while ecologists are concerned with complete ecological systems and the interactions between ecological components, which may or may not include effects on humans. Further discussion of this issue can be found in the sections on Important Principles of Ecology and Ecological Assessment and Background on Economic Theory. •• Terminology. Each discipline has its own terminology, including different units of measure. Even common words such as "value," "benefit," and "function" have different meanings across disciplines. To improve interdisciplinary coordination, care needs to be taken to define and use terms consistently. • Scale. Part of interdisciplinary coordination is understanding how a change will be measured. This includes the disciplines agreeing on the units of measurement as well as analytical scope and termination points (e.g., an occurrence with local versus widespread ecological and economic effects). • Focus. The definition of critical endpoints, and the change(s) of interest, likely differ for each discipline. How each discipline proposes to examine the changes may differ (i.e., economics tends to measure change linearly, without system or feedback analyses). These differences are partially a consequence of each discipline's training but may also reflect reality (e.g., an important ecological effect may not be economically measurable). • Metrics. Economists typically want to standardize effects or welfare changes into dollars in order to compare effects that may be dissimilar. It should be recognized DRAFT - July 1998 - Do Not Cite or Quote Page 14 ------- that other metrics may also be appropriate for qualitative and quantitative descriptions of ecological and economic effects. References and Further Reading Aheam, M.C. 1997. "Why Economists Should Talk to Scientists and What They Should Ask: Discussion." Journal of Agricultural and Applied Economics, July, 29(1): 113-116. Bertollo, P. 1998. "Assessing Ecosystem Health in Governed Landscapes: A Framework for Developing Core Indicators." Ecosystem Health 4(1): 33-51. Bockstael, N.E., K.E. McConnell, and I.E. Strand. 1989. "Measuring the Benefits of Improvements in Water Quality: The Chesapeake Bay." Marine Resource Economics 6(1): 1-18. Cole, R.A., et al. 1996. Linkages Between Environmental Outputs and Human Services, IWR Report 96-R-4. Prepared for U.S. Army Corps of Engineers, Evaluation of Environmental Investment Research Program. Daily, G., ed. 1997. Nature's Services: Societal Dependence on Natural Ecosystems. Washington, D.C.: Island Press. DeBellevue, E.B., T. Maxwell, R. Costanza, and M. Jacobsen. 1993. "Development of a Landscape Model for the Patuxent River Watershed." Discussion Paper #10, Maryland International Institute for Ecological Economics, Solomons, MD. Fitz, H.C., R. Costanza, and E. Reyes. 1993. The Everglades Landscape Model (ELM): Summary Report of Task 2, Model Development. Report to the South Florida Water Management District, Everglades Research Division. Fitz, H.C. E.B. DeBellevue, R. Costanza, R. Boumans, T. Maxwell, L. Wainger, and F. Sklar. 1995. "Development of a General Ecosystem Model (GEM) for a Range of Scales and Ecosystems. Ecological Modeling (in press). Kaoru, Y., V. K., and J.L. Liu. 1995. "Using Random Utility Models to Estimate the Recreational Value of Estuarine Resources." American Journal of Agricultural Economics, February, 77: 141-151. King, D.M. 1997. Using Ecosystem Assessment Methods in Natural Resource Damage Assessment, Paper #2. Prepared for U.S. Department of Commerce, NOAA, Damage Assessment and Restoration Program. DRAFT - July 1998- Do Not Cite or Quote Page 15 ------- Milon, J.W., C. Kiker, and D. Lee. 1997. "Ecosystem Management and the Florida Everglades: The Role of Social Scientists." Journal of Agricultural and Applied Economics, July, 29(1): 99- 107. Musser, W.N. 1997. "Why Economists Should Talk to Scientists and What They Should Ask: Discussion." Journal of Agricultural and Applied Economics, July, 29(1): 109-112. Principe, P. 1995. "Ecological Benefits Assessment: A Policy-Oriented Alternative to Regional Ecological Risk Assessment." Human and Ecological Risk Assessment 1(4): 423-435. Scodari, P. 1992. Wetland Protection Benefits. Draft Report. Prepared for the Office of Policy, Planning, and Evaluation, U.S. EPA. Grant No. CR-817553-01. U.S. EPA. 1997. A Conceptual Model for the Economic Valuation of Ecosystem Damages Resulting from Ozone Exposure. Draft Report. Prepared by Science Applications International Corporation, for the Office of Air Quality Planning and Standards, U.S. EPA. DRAFT-July 1998-Do Not Cite or Quote Page 16 ------- 3.0 IMPORTANT PRINCIPLES OF ECOLOGY AND ECOLOGICAL ASSESSMENT This section defines some basic terms and concepts used by ecologists and explains how these concepts can be applied in conducting an ecological assessment. First, this section defines an ecosystem and levels of ecological organization. Secondly, the interactions that occur within ecosystems are described, including the concepts of "food chain," "food web," and "energy flow." Finally, this section briefly introduces the various types of ecological assessments. 3.1 DEFINING AN ECOSYSTEM AND OTHER LEVELS OF ECOLOGICAL ORGANIZATION Ecology is the study of biological systems in which there are interactions between living organisms and their environment — these systems are called ecosystems. The concept of an ecosystem can be applied at any scale ranging, for example, from a small pond to an entire mountain range. Because ecology is concerned not only with organisms but with energy flows and material cycles on land, in water, and in air, ecology is often defined as the "study of the structure and function of nature." There are five primary levels of ecological organization: • Individual, • Population, • Community, • Ecosystem, and • Landscape. A species is a group of individuals that are able to interbreed. In a species, slight biological variations will exist among individuals. A population is a group of organisms of the same species that occupies a particular space over a given interval of time. A community is an organized assemblage or association of populations in a prescribed area or a specific habitat. An ecosystem, as described in more detail below, can be viewed as a biotic (living) community functioning within its abiotic (non-living) environment. A group of ecosystems make up a landscape. A landscape may be composed of several isolated or interactive ecosystems and are usually defined in geographic terms, such as a prairie or mountain. Ecosystems are often defined in terms of their structural and functional components. Structural components are physical elements present in the environment. Examples include soil, nutrients, water, and biological entities such as plants, animals, and microorganisms. Functional components are processes or interactions that support the structural components, such as nutrient cycling or energy flow. An important feature is that the ecosystems function as units with nutrients and energy flowing between the different biotic and abiotic components. DRAFT- July 1998 - Do Not Cite or Quote Page 17 ------- In an ecosystem, community and habitat are bound together by action and reaction: defined by the reciprocal effects of the physical environment on an organism and an organism on the physical environment. Temperature, moisture, light and other kinds of radiation, texture and chemical composition of soil or water, the presence or absence of gases and chemicals, gravity, pressure, and sound can all have profound effects on organisms. Organisms themselves can also affect the physical environment through their reactions, thereby indirectly impacting other organisms. Interactions occur among individuals within a population, between individuals of different populations, and between organisms and their physical surroundings. For example, the social behavior exhibited by different members of a wolf pack is an example of interactions occurring between individuals within a population. Predator-prey interactions between wolves and mice are interactions that occur between members of different populations. An example of interactions between an organism and its physical surroundings would be rising river levels forcing muskrats to abandon burrows and move to higher ground or the use of sunlight by plants as an energy source. As a result of these complex interactions, the consequences on individual plants or animals are usually slight compared with the combined effects on the community or ecosystem level. Therefore, most ecosystems are constantly shining and changing, never existing within definitive boundaries or operating in isolation. 3.2 UNDERSTANDING THE INTERACTIVE NATURE OF AN ECOSYSTEM Ecosystems may be as large as unbroken tracts of forest and grassland or smaller than a pond. The ecosystem is an energy-processing system, receiving abiotic and biotic inputs. The driving force is the energy of the sun. Abiotic inputs include oxygen, carbon dioxide, and nutrients. Nutrients become available via weathering of the Earth's crust and precipitation. Biotic inputs include organic materials, such as living organisms and detritus matter (dead and/or decaying organisms). The ecosystem itself consists of three components: • Producers that derive their energy from the sun (i.e., photosynthetic plants); • Consumers and decomposers that use the energy fixed by the producers and eventually return nutrients to the system; and « Dead organic material and inorganic substrate that act as short-term nutrient pools and support the cycling of nutrients within the system. The most basic functions of the ecosystem are photosynthesis and decomposition. Photosynthesis is the process by which green plants utilize the energy of the sun to convert carbon dioxide and water into carbohydrates. Through photosynthesis, plants are able to capture the sun's energy and drive the majority of metabolic activities in the living world. Decomposers are responsible for the return of nutrients to the ecosystem and the final dissipation of energy. DRAFT-July 1998-Do Not Cite or Quote Page 18 ------- The food chain describes the movement of energy and nutrients from one feeding group of organisms to another in a series that begins with producers and ends with consumers. The food chain is a sequence of organisms, each of which feeds on the preceding group. The trophic structure ("trophic" means "feeding") of a community is based on the food chain (see Exhibit 6). A simple food chain might be: oak leaf & caterpillar & small bird o hawk. One useful approach in defining food chains is to group organisms based on their trophic levels (i.e., their position in the food chain). Exhibit 6 Quaternary consumers (carnivores) Tertiary consumers (carnivores) Secondary consumers (carnivores) Primary consumers (herbivores) Producers Trophic Level Organization The major categories for trophic level organization are producers, primary consumers, and secondary consumers. However, ecosystems are too complex to be characterized by a single, unbranched food chain. Instead, food chains are usually interlinked to form a food web (see Exhibit 7). A food web is a trophic system formed by a series of interconnecting food chains. DRAFT - July 1998 - Do Not Cite or Quote Page 19 ------- Exhibit 7 Terrestrial Food Web Grasses and seeds Bushes with fruit C83006-2 The food web for most communities is very complex, involving hundreds or thousands of organisms. Several primary consumers may feed on the same plant species. For example, several insect species might feed on one tree. On the other hand, one species may feed on several different plants. Also, some species may feed at more than one trophic level. For instances, owls may eat primary consumers, such as field mice, and also prey on higher level organisms like snakes. It is more correct, then, to draw relationships between these trophic levels, not as a simple chain, but as a more elaborate interwoven food web. Two processes occur in an ecosystem through the food web: energy and nutrient cycling. Both energy and nutrients are transferred from plants (producers) to herbivores to carnivores (primary and secondary consumers) and from all preceding levels to the decomposers through the food web. By tracing the energy and nutrient cycles through the individual organisms, the ecologist is able to analyze the changes in an entire ecosystem. DRAFT-July 1998-Do Not Cite or Quote Page 20 ------- Example of Translation and Magnification of the Effects of Pollutant Discharges Through the Food Web The effects of pollutant discharges can influence not only the health, behavior and survival of individuals, but they can also adversely influence the vital interactions and energy flow of the food web. This could lead to an adverse change in the structure or function of the population and community. In the same way that energy flows from one trophic level to the next, certain pollutants can also be transferred and bioaccumulate as they travel up the food web. For instance, pollutants entering rivers, lakes, estuaries and other water bodies can bioaccumulate to very high levels in biotic tissues. These levels may become toxic and adversely affect individuals, populations, communities and whole ecosystems, despite the fact that these pollutants were originally introduced at relatively low levels. For example, mercury is generally present in small amounts in surface waters and is consumed by fish as well as taken up by algae. However, as the algae and fish are consumed by higher organisms, the mercury accumulates in these organism and is not excreted. Therefore, organisms at higher trophic levels may have mercury concentrations in their tissues, which far exceeds the concentration of mercury in the surrounding water. 3.3 MEASURING/ASSESSING IMPACTS TO ECOLOGICAL COMPONENTS Ecological assessment is the process used to evaluate changes to ecological resources resulting from natural or manmade events. Ecological assessments rely on the principles of ecology, discussed above, to identify, describe, and estimate the consequences of a change to any component(s) of an ecosystem. The changes may be biological (e.g., introduction of a predator species), chemical (e.g., presence of a toxic chemical), and physical (e.g., loss of habitat). Each of these factors must be included in assessing the impacts on an ecosystem component. Thus, understanding how various factors of an ecosystem interact is critical to assessing the effect of a change to any component(s) of the ecosystem: The effect(s) of a change must be traced through the food web in order to understand the full magnitude of the change to the ecosystem. There are many types of ecological assessments that provide a basis or support information for an economic benefit analysis. Several assessments, such as a hazard assessment or a habitat assessment, may be included under another more inclusive assessment, such as an ecological risk assessment. Although every type of ecological assessment is not completely unique, each one displays considerable divergence in the way problems are formulated and analyzed. This section briefly describes the different types of ecological assessments that may be performed. Ecological Risk Assessment An ecological risk assessment is a process used to predict and/or evaluate the effects of human activities or a natural phenomena on an ecological resource(s). Ecological effects may be DRAFT - July 1998 - Do Not Cite or Quote Page 21 ------- evaluated both qualitatively or quantitatively in terms of changes to structural components, functional components and levels of organization. EPA recently issued draft final guidelines for conducting an ecological risk assessment (EPA, 1998). At EPA, ecological risk assessments are among the most common type of ecological assessment. Other types of ecological assessments, such as those conducted under the National Environmental Policy Act (NEPA), are usually similar yet not completely the same. In terms of ecological risk assessment, the part of the ecosystem that is affected by the change is called a "receptor(s)" and is usually a structural component. The natural or anthropogenic (i.e., manmade) event causing the change is called a "stressor." The "effects" of the stressor include direct changes to the receptor(s) as well as indirect changes to other structural or functional components that are affected through the interconnections that define the ecosystem (i.e., energy flows through the food web). Assessment endpoints are the ecological components that the assessment examines. Environmental Assessment (EA) An EA is frequently required under NEPA, prior to, and in some cases, in lieu of, the preparation of an Environment Impact Statement. EAs are concise documents prepared on a case-by-case basis by government agencies. They describe the environmental impacts of a proposed government action, provide a listing of agencies or persons consulted, and discuss possible alternative actions. Preparation of an EA requires a scoping effort to identify environmental areas that may be impacted by the proposed action. Contacting and coordinating efforts with appropriate agencies (e.g., the Fish and Wildlife Service for the potential presence of threatened and endangered species, the Army Corps of Engineers for wetlands, etc.) is also necessary when conducting an EA. If significant environmental impacts are identified, the EA must provide a full discussion of the impacts, direct and indirect, including the impacts of alternative actions/uses. There must also be an evaluation of the probable cumulative, long-term environmental effects including any beneficial impacts. Environmental Impact Statement (EIS) An El S is a type of assessment that attempts to reveal the consequences of a proposed action as an aid to governmental decision-making. In the U.S., federal agencies are required by NEPA to prepare an EIS for any "major federal action". Similar requirements exist for some states as well as for a few other nations. An EIS can vary significantly in its scope and content due to the variety of activities that are considered "major federal actions". Also, a large number of personnel are required from diverse disciplines, including ecologists, biologists, social scientists and environmental engineers. An EIS is required to predict any or all future effects on the environment. As a result, an EIS devotes considerably more attention to identifying the full range of affected environmental components, defining the geographic and temporal changes, and identifying secondary and tertiary effects than other types of assessments. DRAFT - July 1998 - Do Not Cite or Quote Page 22 ------- Habitat Assessment Habitat assessments evaluate the suitability of an ecosystem's habitat for a species. This involves predicting biological, physical, and chemical effects that may impair the habitat. Habitat assessments provide a broad context for estimating the effects of pollution and providing a means for resource managers to incorporate these effects into their management models. The most conspicuous example is the U.S. Fish and Wildlife Service's habitat evaluation procedure (HEP). HEP provides a framework for determining habitat quality for specific fish and wildlife species (Scodari, 1992). Attainability analyses performed under the Clean Water Act are also considered habitat assessments. They determine what uses of a water body are attainable (e.g., recreational versus navigational), the extent to which pollution is impacting these uses, and the necessary pollution control measures that are needed. Attainability analyses must consider habitat limitations such as frequency of low tides, water quality, and physical structure of the habitat. Models are commonly used to elaborate habitat assessments. For instance, the Environmental Requirements and Pollution Tolerance System (ERAPT) is a large relational database on habitat requirements of aquatic species in the upper midwestera U.S. that allows inferences to be made about water quality from particular species present. The model is able to make this inference, because some species are more sensitive to changes in water quality and pollution levels than others. Hazard Assessment Hazard assessments determine the existence of a hazard. This type of assessment predicts the effects of chemical, biological, or physical stressors on the environment by extrapolating effects observed in the laboratory and comparing them to those expected in the field. In risk assessments that try to predict future effects, the hazard assessment is a preliminary activity that helps to define assessment endpoints. This is accomplished by determining which environmental components might be potentially exposed to the stressor and how they may be affected. The hazard assessment is also used to determine whether a hazard exists by comparing the magnitudes of expected environmental concentrations to toxicological test endpoints for a contaminant. The hazard assessment is the most commonly used methodology for analyzing the effects of chemicals on the natural environment. Assessments to Support Resource Management Managers offish, game, forest, and land resources conduct ecological assessments to support their decisions. These assessments typically analyze the consequences of human activities (i.e., harvesting) on the health and sustainability of these natural resources. Managers are typically concerned with species-specific and site- or region-specific issues. There are often large bodies of data available. As a result, this type of ecological assessment tends to rely heavily on DRAFT - July 1998 - Do Not Cite or Quote Page 23 ------- statistical and mathematical models. In addition, many resource managers are developing probabilistic model predictions to support their management decisions. Environmental Evaluations of New Chemicals, Biologicals, and Pesticides These evaluations provide information regarding whether a proposed substance or biological organism will adversely affect non-target organisms. Scientific Issue Assessment Scientific issue assessments analyze the potential future ecological effects arising from environmental concerns that have not yet been proven to have an effect on the environment (e.g., global warming). Assessment of Environmental Change These types of assessments are performed because of observed environmental changes. They attempt to explain the nature and extent of the effects by determining the probable or possible causes. For example, it has been observed that there is a hole in the stratospheric ozone layer over Antarctica, reducing the protection provided to the earth's surface from damaging ultraviolet radiation. Scientists are attempting to determine the size and timing of the hole (i.e., does the size fluctuate, remain constant, or consistently increase/decrease). They are also examining possible causes (e.g., atmospheric pollutants or natural cyclic phenomena). CERCLA Risk Assessment This type of assessment is conducted at Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) hazardous waste sites. These assessments determine the probability that adverse ecological effects are occurring due to a release of hazardous wastes from the site. Natural Resource Damage Assessment Natural Resource Damage Assessments (NRDAs) take both an ecological and economic standpoint, because standard methodologies have been promulgated by the Department of the Interior (DOI) and the National Oceanic and Atmospheric Administration (NOAA) to both assess the injury to an ecological resource and evaluate the economic damages. In NRDA, federal or state officials, acting as trustees for natural resources, can seek compensation from responsible parties under the Oil Pollution Act, CERCLA, and other statutes for damages to natural resources (e.g., loss of shellfish beds) caused by releases of oil and other toxic materials. Trustees have used NRDA regulations to seek monetary compensation for natural resource injuries associated with accidental releases, such as the Exxon Valdez oil spill. A NRDA may be conducted at a Superfund site at the discretion of natural resource trustees. An injury assessment, which documents the adverse effects associated with a release, is the basis for the NRDA. An injury DRAFT - July 1998 - Do Not Cite or Quote Page 24 ------- assessment is similar to an ecological risk assessment in that the researcher must document the source of the stressor and the exposure pathways. Section 4 goes into more detail on Ecological Risk Assessments. The purpose of the section is to help the economist better understand the scientific framework for analysis and type of information that may be generated through an ecological assessment. References and Further Reading Scodari, P. 1992. Wetland Protection Benefits. Draft Report. Prepared for U.S. EPA, Office of Policy, Planning, and Evaluation under Grant No. CR-817553-01. October. Suter, G.W. II. 1993. Ecological Risk Assessment. Boca Raton, FL: Lewis Publishers. Suter, G.W. II. 1989. "Ecological Endpoints." in Warren-Hicks, W., B.R. Parkhurst, and S.S. Baker, Jr., eds. Ecological Assessment of Hazardous Waste Sites: A Field and Laboratory Reference Document. EPA Document 600/3-89/013. Corvallis Environmental Research Laboratory, Oregon. U.S. EPA. 1998. Guidelines for Ecological Risk Assessment, EPA Document 630/R-95/002B. Washington, DC. U.S. EPA. 1994. Background for NEPA Reviewers: Grazing on Federal Lands. Prepared by Science Applications International Corporation under EPA Contract No. 68-C8-0066. February. U.S. EPA. 1993. Habitat Evaluation: Guidance for the Review of Environmental Impact Assessment Documents. Prepared by Dynamac Corporation for the Office of Federal Activities under EPA Contract No. 68-CO-0070. January. U.S. EPA. 1992a. Framework for Ecological Risk Assessment Washington, DC: U.S. Environmental Protection Agency, Risk Assessment Forum. EPA/630/R-92/001. February. U.S. EPA, Office of Policy Planning and Evaluation. 1992b. Biological Populations as Indicators of Environmental Change, EPA Document 230-R-92-011. Washington, DC. DRAFT - July 1998 - Do Not Cite or Quote Page 25 ------- 4,0 THE ECOLOGICAL RISK ASSESSMENT PROCESS An ecological risk assessment often provides the basis for the economic analysis of the benefits associated with an action that impacts the environment. As such, it is important to understand the context from which the results of the ecological risk assessment are generated. With this understanding, the analyst can look for opportunities to leverage the data collection and better apply the results, therefore improving the economic benefit assessment. This section provides a basic understanding of the methodology of ecological risk assessment by highlighting the major steps and issues. The reader should refer to the appropriate references for a thorough understanding. 4.1 OVERVIEW OF ECOLOGICAL RISK ASSESSMENT An ecological risk assessment determines the likelihood, potential nature, and magnitude of an adverse ecological effect resulting from exposure to a stressor (EPA, 1998). Some examples of ecological stressors are: Q Physical • Erosion • Heat • Turbidity • Impoundments • Habitat alterations Chemical • Hazardous substances (e.g., pesticides, industrial wastes) • Salinity • Air pollutants (CO, NOX, ozone) Biological Risk assessments may be conducted to determine the risks associated with: A stressor — what are the risks to the ecosystem associated with the air emissions from an incinerator? An effect — what are the risks to an ecosystem resulting from a decline in rainbow trout populations? An ecological component — what are the risks for one fish species versus another from increased siltation? • Disease-causing organisms (Pfiesteria, diatoms) • Genetically-engineered microorganisms • Non-native species (kudzu, zebra mussels) Ecological effects assessments include magnitude, duration, spatial distribution, time to recovery, and other relevant parameters. Ecological risk assessments may be predictive (i.e., they estimate whether changes in the ecological components are likely to occur as a result of an anticipated event or stressor), or they may be retrospective, (i.e., what is the probability that a DRAFT-July 1998-Do Not Cite or Quote Page 26 ------- Stressors in Waquoit Bay, MA Multiple chemical, biological and physical stressors are believed to be affecting Waquoit Bay. Principal stressors include: Chemical Physical Nutrients, such as phosphorus and nitrogen Toxic chemical contaminants Suspended and resuspended sediments with increased water turbidity Physical alteration of habitat Altered water flow in a watershed Biological Finfish harvest pressure Eelgrass wasting disease caused by slime mold past event caused this present problem. A predictive risk assessment may take the form of modeling the effects of a known or anticipated stressor, such as atmospheric nitrogen levels in the Chesapeake Bay. The assessment depends on previously collected data from similar events and applying it to a new situation. In a retrospective ecological risk assessment, an effect may be well defined, such as decreased bird populations, but determining the cause of the decline is the goal of the risk assessment. In this example, it may be a pesticide that is poisoning the bird, or it may be loss of nesting habitat. The risk assessment is estimating the probability that any one stressor or combination of stressors is causing the decline in the bird population.. It is important to note that adverse effects can be expressed quantitatively (e.g., as a probability, such as one in a million) and/or qualitatively (e.g., low, medium, or high). In addition, the uncertainty associated with the probability is typically provided. Ecological risk assessments may be conducted in a tiered or incremental fashion beginning with an assessment of a single stressor on a single receptor and progressing on to an evaluation of numerous effects caused by several stressors at many levels. Steps to an Ecological Risk Assessment An ecological risk assessment starts with planning. During the first stage, assessors and managers determine the need and scope of an ecological risk assessment. It is during this stage that societal and political issues are factored into the formulation of the problem. All key participants should be involved in planning the risk assessment. This may include risk assessors (including scientists), risk managers (e.g., government regulators), economists, and, if appropriate, interested outside parties (e.g., environmental and industry groups, those whose land may be affected by risk assessment decisions, state and/or local government officials, etc.). Collaborative planning can help foster consensus on the goals, scope, and timing of the ecological risk assessment. If the goal is to achieve a regulatory mandate, proper planning will ensure that the outcomes meet the objective and support implementing management decisions. Scientific data gathering and analysis required for the ecological risk assessment occurs once: DRAFT - July 1998 - Do Not Cite or Quote Page 27 ------- Q Objectives of the risk assessment have been defined (including criteria for success); Q Goals for ecological values have been established; Q A range of options have been developed; Q Focus and scope of the assessment have been agreed upon; and Q Resources to conduct the assessment have been provided (EPA, 1998). EPA defines three phases for conducting ecological risk assessments (EPA 1998): Q Phase 1 — Problem Formulation; Q Phase 2 — Analysis (exposure assessment and ecological effects characterization); and Q Phase 3 — Risk Characterization. The overall framework for the ecological risk assessment is presented in Exhibit 8. The scientific conduct required for each of these phases is discussed in the following subsections. DRAFT-July 1998-Do Not Cite or Quote Page 28 ------- Exhibit 8 ECOLOGICAL RISK ASSESSMENT FRAMEWORK Planning (Risk Assessor/ Risk Manager Dialogue) PROBLEM FORMATION Assessment Endppints ANALYSIS Characterization of Exposure Characterization of Ecological Effects /_ RISK CHARACTERIZATION Risk Estimation Risk Description Communicating Results to the Risk Manager I Risk Management DRAFT - July 1998 - Do Not Cite or Quote Page 29 ------- 4.2 PHASE I: PROBLEM FORMULATION Problem formulation is a formal process for generating and evaluating preliminary hypotheses about why ecological effects have occurred, or may occur, from human activities (EPA 1998). It provides a foundation upon which the entire ecological risk assessment depends. Problem formulation involves the development of three products: assessment endpoints, a conceptual model, and an analysis plan. Because problem formulation is inherently interactive and iterative, substantial re-evaluation is expected to occur throughout the risk assessment process. Assessment Endpoints An ecological risk assessment must begin with well-defined assessment endpoints. An assessment endpoint describes both the valued ecological entity (e.g., a species, ecological resource, habitat type, or community) and the function or measure of particular concern (e.g., reproductive success, production per unit area, surface area coverage, or biodiversity) (EPA, 1998). Assessment endpoints are defined by characteristics of the exposed environment are important in the decision-making process. Factors can include ecological and societal relevance, susceptibility to known or potential stressors, ecological or economical value, and ability to be measured. When supporting an ecological benefit analysis, risk assessors should collaborate with ^^^~^~^~"~ economists and policy-makers to help identify the links between the ecological assessment endpoints and the economic benefit endpoints (see section on Interdisciplinary Coordination). For example, when assessing the impact of an insecticide known to kill red-winged blackbirds, the assessment might also examine the secondary impacts on bald-eagles, because of their high societal value. Bald-eagles are impacted, because they eat the poisoned blackbirds. By identifying the link to a highly visible and highly valued ecological resource, such as the bald eagle, the economist will be better able to assign a monetary value to the impact of the lesser known (often lower trophic level) species or a change in the function of the ecosystem, that is otherwise very difficult to value. Example Assessment Endpoint A decline in salmon population would be an appropriate choice as an assessment endpoint for a study measuring the impact of the construction of a hydroelectric dam on a river in the Pacific Northwest. Salmon have ecological relevance, because they are a food source for many aquatic and terrestrial species, and they eat many aquatic invertebrates. Salmon are also sensitive to changes in sedimentation, water temperature, and substrate pebble size. Most importantly, salmon are valued by society as a source of food, a form of recreational fishing, and for their ceremonial and symbolic significance to Native Americans . DRAFT- July 1998- Do Not Cite or Quote Page 30 ------- Assessment Endpoints in Waquoit Bay Risk Assessment During the problem formulation phase, eight assessment endpoints were selected to represent the estuarine and freshwater components of the Bay: • Eelgrass abundance and distribution; • Resident and nursery estuarine finfish diversity and abundance; • Eelgrass-dependent estuarine benthic invertebrate community diversity and abundance; • Trout and alewife migratory fish reproduction; • Riverine benthic invertebrate community structure and function; • Freshwater pond trophic status; • Water-dependent wildlife feeding and nesting habitat; and • Bacterial and contaminant content offish and shellfish. Assessment endpoints may be defined for both structural and functional aspects of an ecological resource. For example, biological endpoints may be any level of organization ranging from a single individual to an entire ecosystem. Most endpoints, however, are defined at the population level or higher. This is true because a population is the lowest level of biological organization that can be meaningfully protected (Suter, 1993). An effect on one or several individuals will not necessarily result in significant population changes. Exceptions to this premise are threatened and endangered species for which each individual is valuable to the survival of the population. Ecological assessment endpoints are not confined to effects on structural aspects of the ecosystem. The endpoint might also be a change in a functional process, such as a decrease in the primary productivity of a forest, a decrease in the oxygen content of a pond, or the loss of nitrification capacity in contaminated soil. Loss of specific habitat, such as a decrease in wetland acreage resulting from the construction of a dam, might be a combined structural and functional endpoint for some ecological risk assessments (Bartell et al., 1992). Assessment Endpoint Selection Assessment endpoints should: Be ecologically relevant (i.e., do not use southern pine as an endpoint for northern forests), Be susceptible to the stressor (i.e., if examining effects of sedimentation, do not use catfish as an indicator organism; use rainbow trout), and Represent societal values (i.e., assess impacts on an endangered bird species rather than a perceived nuisance species). DRAFT - July 1998- Do Not Cite or Quote Page 31 ------- Given the complexity of ecological systems and components, there is no universal list from which to select appropriate assessment endpoints. There are, however, three criteria that an assessment endpoint should satisfy (EPA 1998): ecological relevance, susceptibility to the stressor, and societal relevance. Stakeholder Involvement in Establishing Management Goals Waquoit Bay provides an excellent example of how stakeholder involvement can be instrumental in developing management goals for an ecological risk assessment. It has been generally agreed by all involved parties that the bay is changing — eelgrass is disappearing and is being replace by thick mats of macro algae, fish kills are occurring, and scallops have disappeared. Something must be done to prevent further degradation and restore what has already been damaged. Three steps were used to develop management goals for Waquoit Bay: • A public meeting of all stakeholders; • An evaluation of written goals by organizations having jurisdiction or an interest in the ecology of the watershed; and • A meeting of members of these organizations to review and approve the management goals. The public meeting was advertised in local newspapers. The meeting was designed to determine what the public viewed as valuable in the bay and what the main stressors were on these values. The participants found the bay to be valuable for a number of reasons including open space, scenic views, flyways for waterfowl, shellfishing, navigation, wildlife, and human serenity. Stressors were many. They included physical, chemical, and biological impacts to the bay such as the introduction of non-native species, man- made noise, fertilizers, ignorant tourists, habitat loss, and boat wake disturbance. Numerous governmental (federal, state, and local) and non-governmental organizations were involved in the review and approval of the management goals. The groups involved in developing these goals are considered the risk management team for the watershed and will be principally responsible for implementing the management plan in Waquoit Bay. Ecological Relevance The ecological relevance of an endpoint refers to its importance in relation to other components of a specific community or ecosystem. This includes a decrease in the population of a certain insect species that affects the populations or productivity of another species. For example, the honeybee is ecologically significant in some pasture lands, because it is a pollinator of many plants. Effects on certain species offish may be selected as an assessment endpoint because of the critical role the fish species plays in maintaining the functional integrity of the ecosystem DRAFT - July 1998 - Do Not Cite or Quote Page 32 ------- Example Assessment Endpoint The change in the population of lake trout represents an appropriate assessment endpoint that links a receptor (lake trout in the Great Lakes) to an effect (competition from zebra mussels) resulting from exposure to a stressor (a change in the concentration of polychlorinated biphenyls). The endpoint, change in the lake trout population, is clearly defined, easily measured, and reflects the societal and ecological impacts of changes in pollution levels. It may be quite difficult, however, to identify appropriate assessments eridpoints to evaluate the impacts on some important ecological qualities and functions, such as biodiversity or ecological integrity. (e.g., top consumer in the aquatic food chain). Effects on primary producers, such as green algae in a lake, may be critical to higher trophic levels, such as insect larvae, that feed upon the algae, and fish, that rely on the algae to oxygenate the water. Increased deer populations resulting from lack of predators may cause excessive damage or death to young trees upon which the deer feed. Susceptibility to the Ecological Stressor The assessment endpoint must be based on a link establishing that the ecological component (or receptor) being examined is susceptible to and may be exposed to an ecological stressor. Susceptibility is based on the vulnerability of the ecological component to the stressor and is influenced by many factors including the mode of action of the stressor, the life history of the receptor (for biological receptors), and the life stage of the organism. For example, survival of an endangered species may be at greater risk from the loss of a single individual than would a healthy, numerous species, because the healthy species population could rapidly recover. Some organisms are more sensitive to stress at certain times in their life cycle such as during molting or during seed germination. In conducting an ecological risk assessment, it is desirable to determine effects on sensitive species and effects during sensitive life stages. Susceptibility is based on exposure. Some ecological components may be located close to the stressor, may be exposed for a longer time, or at a greater intensity. The results of exposure may not be immediately evident. Susceptibility may be obvious some time after exposure to the stressor has ceased, as is the case with many birth defects that skip a generation. Susceptibility may be greater for a secondary effect of the stressor. For example, application of a pesticide may kill the target organisms such as mosquitos in a stagnant pond (primary effect) but also cause a decrease in the dragonfly population that feeds upon the mosquitos as a primary food source (the dragonflies may starve or leave the area seeking food elsewhere). Multiple stressors may also increase the susceptibility of the ecological component. A seal with a virus may be weakened and thus become easier prey for a shark.. Because ecosystems contain many variables, both living and non-living, determining all vulnerable receptors and the extent of their exposure may be a difficult task. Relevance to Management Goals (including Economic Relevance) An ecological risk assessment is most useful when the assessment endpoints are related to an ecological component or process that is valued by both the public and decision-makers such as clean air in parklands. In some cases, such an evaluation may be difficult if the ecological DRAFT - July 1998 - Do Not Cite or Quote Page 33 ------- and/or economic significance of the component is not well understood. It may even be disliked by the public. For example, blue-green algae in tidal marshes often have noxious odors but they form the basis for a food web that ultimately supports a sport fish population. An appropriate assessment endpoint for a risk assessment to determine the effects of damming an inlet to the marsh would be to determine the effects on the sport fish population, not the blue-green algae. Ecological risk assessments are most effective when they measure the impacts to those ecological components that are used directly by humans, such as sport fish, groundwater, or timber land. Assessment endpoints might also measure the impacts to those ecological components and processes that indirectly benefit humans, such as water filtration, climate control, or flood protection. What is actually measured may be different from what is important to the economic valuation study, but the relationship between the two elements should be clearly defined. In many cases, the selection of an assessment endpoint is pre-determined by an environmental law, such as the Clean Air Act, or a policy goal, such as pollution prevention via water permitting. Although not a specific criterion for selecting assessment endpoints, it is helpful if changes to the assessment endpoint can be predicted or measured, particularly if a dose-response relationship can be established. If the assessment endpoint cannot be measured directly, appropriate surrogate components or qualitative values will need to be identified as well as methods for extrapolating effects to the assessment endpoints. In many cases, a dose-response relationship may be impossible to quantify although the stressor effect relationship is well established. This is the case when an affected population cannot be tested, such as an endangered species, or a situation where a synergist is involved. In these situations, it may be appropriate to simply indicate that an effect has been observed without indicating the intensity of the stressor. Establishing Susceptibility to the Stressor In Waquoit Bay, submerged aquatic vegetation (e.g., eelgrass) is a sensitive indicator of eutrophication, particularly nitrogen loading. Increased nitrogen concentrations result in increased algal growth. Excessive algal growth can result in direct shading of the plants, preventing photosynthesis. As the eelgrass dies off, the amount of preferred habitat available for juvenile scallops is reduced. The juvenile scallops themselves, however, are not directly affected by the nitrogen concentration in the water. Therefore, an appropriate assessment endpoint for nitrogen loading would be the extent of eelgrass in the Bay rather than the number of scallops. DRAFT-July 1998 - Do Not Cite or Quote Page 34 ------- Linking the Assessment Endpoints to the Management Goal in Waquoit Bay The goal of the Waquoit Bay watershed management plan is to reestablish and maintain water quality and habitat conditions in the Bay to support diverse native fish and shellfish populations as well as reverse degradation of ecological resources in the watershed. One way to help accomplish this is to reestablish viable eelgrass beds and associated aquatic communities in the Bay. Therefore, an assessment endpoint was eelgrass abundance and distribution. Eelgrass is a rooted plant in the shallows of the Bay that decreases erosion and increases sedimentation, which in turn, provides food and habitat for a variety of marine organisms, such as juvenile scallops, invertebrates, and forage fish. Eelgrass is a good assessment endpoint, because its presence is an indicator of good water quality. The disappearance of eelgrass may be because of reduced light due to shading by algal blooms and turbidity from suspended sediments. Stressed eelgrass beds are also more susceptible to disease from slime mold. In addition, its distribution and acreage covered can be measured. Scallop abundance in the Bay is not a good assessment endpoint, because the scallop population is naturally highly variable, therefore, changes in population abundance would not necessarily reflect the effect of a stressor. Conceptual Models Risk assessors explore potential interactions between stressors and the assessment endpoints by developing a conceptual model (EPA, 1998). The conceptual model links the stressor, exposure pathways, ecological receptors, and ecological effects. The complexity of the conceptual model depends on the complexity of the problem (e.g., number and types of stressors, number of assessment endpoints, nature of effects, and characteristics of the ecosystem). Conceptual models include two principal components: risk hypotheses and a conceptual model diagram. Risk hypotheses are statements of assumptions based on available information (EPA, 1998). They describe predicted relationships between stressors, exposure, and assessment endpoint response. Early conceptual models are intended to be broad in scope, identifying as many potential relationships as possible. As more Example of a Risk Hypothesis Bald eagles had been found dead or dying. Analysis of their stomach contents indicates that they had consumed smaller birds. The risk hypothesis may be that the eagles were eating poisoned birds who were easy prey and that the poison was a pesticide that had recently been applied to local fields. Such was the case for the pesticide carbofuran. DRAFT - July 1998 - Do Not Cite or Quote Page 35 ------- information is incorporated, the plausibility of specific hypotheses is determined. The most appropriate risk hypotheses are identified for subsequent evaluation in the analysis phase of the risk assessment. Risk hypotheses do not necessarily involve statistical testing of null and alternative hypotheses or any particular analytical approach. They are intended to put the risk assessment problems in perspective by indicating what is known about the risk and what relationships need to be evaluated. Risk hypothesis may be developed for specific effects, predictions of the effects of a stressor (e.g., what are the range of effects from a chemical), an ecosystem, or ecosystem component, such as a watershed or a deer population. A conceptual model diagram (see Exhibit 9) is a useful way to visually express the relationships described by the risk hypotheses. Conceptual model diagrams can communicate important exposure pathways in a clear and concise way. Risk assessors can use these diagrams, along with the risk hypotheses, to select the pathways that will be evaluated in the analysis phase of the ecological risk assessment. These diagrams and hypotheses also are useful tools to aid communication with economists and policy makers. The number of relationships that can be depicted in one flow diagram depends on the comprehensiveness of each relationship. The more comprehensive the relationship, the fewer relationships that can be shown with clarity in one diagram, thus separate diagrams may be required. There is no set configuration for conceptual model diagrams. DRAFT- July 1998- Do Not Cite or Quote Page 36 ------- Analysis Plan In an analysis plan, risk assessors describe the data and measures that will be used to evaluate the risk hypotheses, i.e., the effects on the assessment endpoints (EPA, 1996). Measures are identified for: exposure, ecosystem and receptor characteristics, and effects. Exposure to stressors may be quantified or estimated (e.g., how much enters the environment and how it is distributed, including its possible degradation or modification). Measures of ecosystem and receptor characteristics identify important life history traits that affect the receptors' potential exposure or the response of assessment endpoints to the stressors (e.g., reproductive cycles, migration patterns, and habitat types). Measures of effects quantify the response of the receptors to the stressors (e.g., survival, growth, reproduction, and community structure) and help link the effects with the assessment endpoints. The analysis plan also specifies how risks will be characterized (e.g., qualitative vs. quantitative). As indicated earlier, there are two aspects of an assessment endpoint: what is the endpoint (eelgrass) and its attributes (extent of habitat). It is the latter aspect that must be measured (quantitatively or qualitatively and directly or indirectly). Eelgrass habitat may be measured by aerial photography, thus effects on the habitat are quantitatively determined. However, for some assessment endpoints such as songbird populations (entity) and their decline (attribute) as a result of pesticide ingestion, it may be difficult to count how many birds are actually affected by the pesticide if they are able to fly away before dying. In many cases, surrogate measures of effects must be used (e.g., toxic effects on other birds in a laboratory setting). Assessment Endpoints and Measures An ecological risk assessment is to be conducted for a pulp mill on a Pacific northwest river. One assessment endpoint may be Coho salmon breeding success and fry survival. Possible measures of the effects of the mill on the fish may include: egg and juvenile response to low dissolved oxygen, response of adults to change in river currents and flow, and adult spawning behavior and egg survival in response to sedimentation and contamination. Measures of the ecosystem and receptor (fish) characteristics include: water temperature and turbidity, abundance and distribution of breeding substrate, food sources for juveniles, variations in populations, reproductive cycles, and laboratory tests for reproduction, growth, and mortality. Measures of exposure may include: contaminant concentrations in water, sediment, and fish, and dissolved oxygen levels in the water. DRAFT - July 1998 - Do Not Cite or Quote Page 37 ------- Exhibit 9 WAQUOIT BAY ESTUARY PARTIAL CONCEPTUAL MODEL Fertilizer Application Septic Systems Sewage Treatment Plants Surface Water and Sediment Nutrients 1 tation I 1 Shad in | Reduced Scallop Population DRAFT - July 1998 - Do Not Cite or Quote Page 38 ------- 4.3 PHASE II: ANALYSIS PHASE The analysis phase consists of the technical evaluation of data to reach conclusions about ecological exposure to the stressor, and the relationship between the stressor and ecological effects (EPA, 1996). During analysis, risk assessors use measures of exposure, effects, and ecosystem and receptor attributes to evaluate questions and issues that were identified in problem formulation. The conceptual model and analysis plan provide the basis for the analysis phase. Based on the conceptual model, the risk assessors should know which stressors and ecological effects are the focus of the investigation. In the analysis plan, the risk assessors identified the information needed to perform the analysis phase. The analysis plan and conceptual model were conducted in Phase I. The analysis phase is composed of two activities: characterization of exposure and characterization of ecological effects (EPA, 1998). These assessments are usually conducted simultaneously and interaction between the scientists conducting them is recommended. Exposure Assessment Characterization of exposure through an exposure assessment identifies the source of the stressor, the distribution of the stressor in the environment, and the contact or co-occurrence of the stressor with ecological receptors. The exposure assessment should identify the source of the stressor and the complete pathway by which it is acting upon the receptor. A complete pathway indicates that a stressor is released from a source, is present at a level that may cause an effect, and that the receptor is present and susceptible in the ecosystem. Exposure analysis may start with the source when it is known, but in cases where the source is unknown, the analysis may attempt to link the contact of the stressor with the receptor (e.g., chemical residues in fish tissues) to a source. Describe the Source of the Stressor As part of describing the source of the stressor, the risk assessors identify where the stressor originates. The source of the stressor can be the place were the stressor is released into the environment (e.g., a smoke stack, a farmer's field) or the action that produces the stressor (e.g., dredging). In some assessments, the original source no longer exists, and the source is defined as the current origin of the stressor. For example, the source of polychlorinated biphenyls (PCBs) may be defined as contaminated sediments, because the industrial plant that produced the contaminants no longer operates and the contaminants have become embedded in the sediments. DRAFT - July 1998 - Do Not Cite or Quote Page 39 ------- Source of Stressors in Waquoit Bay Multiple potential sources were identified for the many Stressors acting upon the Bay. Some of the sources were local, others were regional. Among the sources of the Stressors to the Bay are: • Cranberry cultivation, which releases nitrogen fertilizers, animal wastes, and pesticides; • Local and regional atmospheric deposition of nitrogen and toxic contaminants, including mercury; • Residential development, which results in releases of nutrients from fertilizer and septic systems, habitat loss from housing and road construction, and altered groundwater flow due to increased impervious surfaces and the number of wells; • Industrial discharges to groundwater from a military installation; • Sewage treatment facilities and runoff of nutrients and contaminants entering the surface waters; and • Marine activities that alter habitat, increase contamination, disturb sediments and shorelines, dredging, and increased fish and shellfish harvesting. In addition to establishing the original or current source of the stressor, the stressor itself should be described in terms of its temporal and spatial scale. Several factors that may be considered in describing a stressor include: Intensity - How much of the stressor is in the environment and at what levels or magnitude? It may be necessary to-determine the persistence of the stressor if the concentration is not the same at the source as it is at the receptor. Duration - Is the stressor present for a short time or an extended period of time, and how is the time defined (hours, days, years)? Frequency - Is the stressor occurring as a single event (chemical spill or volcanic eruption), intermittent (pesticide spraying twice a growing season), or continuous (decreasing atmospheric ozone)? Timing - What is the occurrence of the stressor relative to biological cycles (e.g., if it affects reproduction, is it present during the breeding season or is it present when animals are in hibernation)? Location - What is the physical area over which the stressor acts? The stressor may act over a very limited area (application of a pesticide in a specific area), or it may act over a large distance (stratospheric ozone). DRAFT - July 1998 - Do Not Cite or Quote Page 40 ------- Stressor generation may be presented quite simply. For example: Hazardous chemicals (stressors) from an outfall (source) are released for 10 minutes every 24 hours for 250 days of the year with releases, totaling 200,000 tons of hazardous chemicals per year. The temperature of the outfall is 35 °C. This example illustrates hazardous chemicals and temperature as two potential stressors. Many stressors have natural counterparts or multiple sources. The characterization of these other sources can be an important component of the analysis. Whether alternative sources are analyzed in a given assessment, however, depends on the objectives articulated during problem formulation. Nitrogen Loading in the Chesapeake Bay The Chesapeake Bay is eutrophic, causing excess algal growth and declines in fish populations. Several possible sources of excess nutrients have been indicated: • Atmospheric deposition • Run-off from agricultural land • Industrial waste streams Although fertilizer runoff is the most obvious source of the pollution, atmospheric deposition, which may originate many miles from the watershed, has been demonstrated to be a significant loading factor. All or some of these sources may be considered in the ecological risk assessment depending on the management goals. Describe the Distribution of the Stressor in the Environment The spatial and temporal distribution of chemical stressor(s) in the environment are described by evaluating the pathways they stressors take from the source to the receptor (e.g., what is the medium to which the Stressor is released — air, soil, or water— and does it move from one medium to another? For example, if a chemical is released to water, does it vaporize?). For physical stressors that directly alter or eliminate portions of the environment, the assessors describe the temporal and spatial distribution of the changed environment (e.g., how many miles downstream from the dredging is turbidity in the water column evident?). For biological stressors, the distribution may be more complex. These stressors may have the ability to reproduce in suitable environments, and do not need a medium to move from one area to another. Therefore, when identifying the exposure pathways for biological stressors, both active and passive modes of distribution need to be considered. The environmental fate of a Stressor depends on several aspects: Distribution: Once in the environment, where does the stressor go? Stressors may be released or formed from various environmental media. A pollutant released to water may partition to the sediment or remain in the water column. Different physical forms of a stressor may partition to different media. DRAFT - July 1998 - Do Not Cite or Quote Page 41 ------- Examples of Biotic Interaction Metabolism: Several bacteria have been genetically engineered to be particularly useful in degrading petroleum. These organisms are able to use petroleum as a food source and break down the oil to more environmentally benign compounds. In some cases, metabolism of a compound may result in a toxic substance. For example, inorganic mercury compounds may be metabolized by microorganisms to methyl mercury, which is very toxic. Bioaccumulation: Many chemicals that are lipophilic (fat-loving) such as polychlorinated biphenyls (PCBs), dioxins, mercury, and cadmium, are readily absorbed and are retained in fatty tissues. This way, these chemicals can enter the food chain and affect organisms have been directly exposed. Transport: When released or formed, a stressor may be transported from the source. Transport occurs via air, water, soil, or biological carrier. Distribution and transport are closely related, and are frequently modeled to provide an estimation of where a stressor can be found in the environment. The physical and chemical characteristics of both the stressor and the receiving environment determine its transport and distribution. Degradation or Transformation: Degradation may occur via biotic processes (metabolism or Bioaccumulation), or abiotic processes (transformation by exposure to light or water). Degradation implies that a stressor is being physically changed into another simpler entity. Transformation may be a gradual or incomplete process (precipitation of a crystal from a complex solution). Identifying the distribution, transport, degrada- tion, or transformation processes to which a stressor is subject provides an indication of how much the stressor is likely to act upon a potential receptor. It may be possible to show that a stressor is unlikely to affect a receptor given its environmental fate. The formation and subsequent distribution of secondary stressors may be important depend- ing on the objectives of the assessment. For chemicals, the evaluation of secondary stressors usually focuses on metabolites or degradation products. Disturbance of the environment can also lead to secondary stressors. Several methods may be used to understand the distribution and environmental fate of a stressor and characterize the potential exposure of specific receptors to the stressor. Ideally, direct monitoring by collecting and Examples of Secondary Stressors Chemical: Aldicarb is toxic to mammals but not very persistent in the environment. However, it is rapidly degraded to aldicarb sulfone, which is toxic, very persistent, and moves through the soil to the groundwater where it may remain for years. Physical: Dredging of a waterway not only causes loss of habitat for the organisms at the site of the activity, but may result in severe turbidity of the water. DRAFT - July 1998 - Do Not Cite or Quote Page 42 ------- analyzing environmental (including biological) samples is preferred. Monitoring should be conducted so that appropriate spatial and temporal samples are taken. Monitoring will help define the area over which the stressor may be acting and any changes in the level of stressor (including its degradation products) over time. Where monitoring information is lacking or difficult to obtain, models may be used to estimate the exposure to a stressor. Fate and transport models are commonly used to predict the amount that is distributed over a geographic area or the amount of degradation that may be expected over a period of time. These models, preferably based on or verified by actual monitoring data, generally use the physical and chemical properties, as well as the environment of concern to characterize the amount and extent of stressor that may be acting on a receptor. Typically, a combination of monitoring and modeling is used to determine the stressor levels. Describe the Contact or Co-occurrence with the Receptors The exposure assessment must also include an analysis of how the receptors are exposed to the stressor (i.e., a pathway by which the stressor acts upon the receptor must be identified). In many cases, it is not possible to establish direct causality due to the lack of appropriate information. Therefore, it may be necessary to extrapolate or assume that a pathway would be possible. However, if a pathway from source to receptor cannot at least be hypothesized, then it may be assumed that the receptor will not be affected by the stressor. For example, if a toxic chemical released to surface waters from an industrial outfall is converted quickly to non-toxic compounds, fish downstream may not be exposed to the chemical and the pathway is incomplete. If the chemical conversion is dependent on the acidity of the water, however, and the acidity of the outfall is altered so that the chemical is no longer quickly degraded, the downstream fish may be exposed and the pathway is complete. Pathways may also be direct (the links between source of the stressor and receptor are easy to establish) or indirect (the stressor may act upon one receptor that in turn causes effects in a second stressor). The example of the toxic chemical used above is a direct pathway — the stressor causes adverse effects in the receptor. However, in Waquoit Bay there are several indirect pathways. For example, the nitrogen loading to the bay does not immediately affect the scallop population. Rather the effects of the nitrogen loading on scallops is seen as a secondary effect of phytoplankton growth, decline in eelgrass habitat, and finally, a decrease in scallops. Consequently, a comprehensive exposure assessment must include as much information as possible about the source of the stressor, its fate and transport in the environment, receiving media, and availability of the receptor(s), both primary and secondary. Characterizing the ecosystem on which the stressor is expected to have an impact will assist in determining the nature and extent of exposure, and ultimately the adverse effects that may occur. If a chemical affects only hardwood trees, but the surrounding area has only softwood trees, any observed damage to the softwood trees is unlikely to be the result of the chemical. Ecological components may be characterized in many ways, including: habitat, predator/prey or feeding relationships, reproductive cycles, and cyclic/seasonal activities. An important DRAFT - July 1998 - Do Not Cite or Quote ' Page 43 ------- consideration for some ecological stressors is the level of biological organization that is affected, and whether the stressor is acting directly or indirectly upon the receptor. For example, a stressor may cause adverse effects at multiple feeding levels within a community (i.e., multiple trophic levels), and these effects may increase or decrease at higher trophic levels, depending on the nature of the stressor. A classic example of an ecological stressor causing effects at higher trophic levels of the food chain is the bioaccumulation of DDT in birds and mammals. On the other hand, a biological stressor such as the tobacco mosaic virus, may have a profound impact on vegetation in a community, but no immediate impact on insects that are feeding on the affected plants unless their food source is eliminated. In general, an ecological risk assessment will attempt to capture the effects of a stressor at all trophic levels by the assessment of food-web interactions. Other examples of adverse effects on ecological components that may be measured in an assessment are sickness, death, decreases in reproduction rates and productivity in populations, decreases in community biodiversity, and changes in predator-prey relationships. It is also important to know the characteristics of the potential receptors in the exposed area. For example: Q Are they present on a permanent basis (e.g., trees), or are they migratory (e.g., many species of birds)? Q Can and do receptors avoid exposure (i.e., are they capable of movement (e.g., some biota may be able to move from contaminated areas but trees, soil, and water bodies can not))? Q What are population parameters, such as the size and distribution of the receptors? Q Is population is in a growth or decline phase? Q Are stressor effects likely to occur when the population is particularly vulnerable (e.g., during molting or when nesting)? Q What are physical and temporal parameters, such as seasonal and diurnal changes in non-biological receptors (e.g., does the lake freeze in the winter?)? Exposure can be described in several different ways, depending on how the stressor causes adverse effects: Co-occurrence of the stressor with receptors. Co-occurrence is particularly useful for evaluating stressors that can cause effects without actually contacting ecological receptors. For example, whooping cranes prefer sandbars with unobstructed views in rivers for their nesting areas. Thus, manmade obstructions, such as bridges, can interfere with the nesting behavior of whooping cranes without actually contacting the birds. Co- occurrence is evaluated by comparing the distribution of the stressor with the distribution of the ecological receptor. For example, by overlaying two maps, one showing the DRAFT - July 1998 - Do Not Cite or Quote Page 44 ------- placement of bridges, the other areas historically used by nesting whooping cranes, the assessor can evaluate the impact of manmade obstructions on crane nesting patterns. Contact of a stressor with receptors. Most stressors must contact receptors to cause an effect. For example, fish must come in contact with the bacterium Pfiesteria piscicida before they become sick or die. Contact is a function of the amount of a stressor in an environmental medium and the activities or behaviors that bring receptors into contact with the stressor. For chemicals, contact is quantified as the amount ingested, inhaled, or applied to the skin. Chemicals are also absorbed over the gills offish and aquatic invertebrates. Uptake of a stressor into a receptor. Some stressors must not only be contacted, but also internally absorbed. For example a chemical that causes liver tumors in fish must first be absorbed through the gills to reach the liver to cause the effect. Uptake can vary on a situation-specific basis, because it depends on the properties of the stressor (e.g., its chemical form), the properties of the receptor (e.g., its physical characteristics and health), and the location where contact occurs. Uptake is usually assessed by modifying the estimate of contact to account for how much of the stressor is available. Establishing a baseline for the natural state of the individual, population, community, or ecosystem is vital for determining the extent of effects caused by the stressor and ensuring that appropriate endpoints have been identified and characterized. When the analyses and supporting documentation have been completed, the exposure assessment should provide a description of the amount of stressor that is in the environment, how it is able to act on a receptor, and a characterization of the receptor that would or could be affected. Characterizing Exposure Effects An ecological effects characterization describes the relationship between the stressor and the magnitude of the resulting ecological effects. The ecological effects characterization indicates what effect the stressor may have on various receptors and the levels that may elicit different responses (i.e., the stressor-response relationship). Many stressors do not affect all receptors in the same way or at the same levels. In Waquoit Bay, for example, nitrogen loading is a significant stressor. Increased nitrogen levels in the Bay result in excessive phytoplankton growth that has two effects: (1) decreased eelgrass habitat because the phytoplankton shade the eelgrass preventing photosynthesis, and (2) decreased oxygen levels in the water that cause physiological stress, suffocation, and increased predation on the finfish. In this case, there are several ecological effects that can be attributed directly or indirectly to nitrogen loading. The ecological effects characterization involves three steps: determining the stressor-response relationship(s), evaluating causality, and linking the measure of effects to assessment endpoints. DRAFT - July 1998 - Do Not Cite or Quote Page 45 ------- Determine the Stressor-Response Relationship Evaluating ecological risks requires an understanding of the relationship between stressor levels and the resulting ecological effects. Stressor-response analysis (often called dose-response analysis for chemical stressors) is a method typically used. Stressor- response analysis is often used for chemical stressors such as toxic substances. However, the technique may be applied to many stressors and effects, such as increasing levels of microorganisms and disease, increasing water temperature and enzyme inactivation, or habitat loss and reproductive success. This type of analysis is particularly valuable, because it measures the different effects that a stressor may have at many levels. For example, a slight increase in temperature (stressor) in a given stream may lead to a significant decline in the trout population (response), but only a minor one for algae population. If the temperature continues to increase, however, the algae will also eventually experience a decline in population. Therefore, it is important that responses be evaluated. The level of exposure may help determine the critical stressor-response relationship(s). Measuring Stressor-Response Relationships It is difficult to determine whether algae are alive or dead. However, it is relatively easy to measure chlorophyll content both in the laboratory and in the field. Therefore, a change in chlorophyll content is often used to measure algal response to stressors, such as increased temperature, decreased light, or toxic chemicals. Certain types of pesticides are toxic to birds and animals, because they inhibit the enzyme cholinesterase, which is necessary for proper neurologic function. It is possible to establish a dose-response relationship between the amount of pesticide ingested and the effects of cholinesterase inhibition. Relationships may range from changes in blood cholinesterase levels with no obvious nerve effects to relatively mild tremors to convulsions and death. For some chemicals, the effects may be reversible once exposure ceases. Stressor-response analysis often provides a quantitative characterization of the stressor and effect. Examples of quantitative characterization for chemical stressors include acute toxicity values, such as lethal dose or concentration (LD50 or LC50). The values represent the dose or concentration that will kill half of the test organisms in a specified time). Other toxicity values include maximum acceptable toxicant concentration (MATC), or inhibition of photosynthesis. Stressor-response relationships are not always linear (e.g., an increase in stressor will not necessarily result in an equal increase in receptor response). For some stressors, a threshold may exist below which no response is evident. For example, algae may not cause a decrease in productivity until the turbidity of the water column stops the light from penetrating the surface and photosynthesis cannot occur. Some stressors may have disproportionate effects on receptors if the receptors are already subject to another stressor. If deer are starving because of DRAFT - July 1998 - Do Not Cite or Quote Page 46 ------- deep snow hiding their food, the introduction of wolves may reduce the deer population by greater numbers than expected. Stressor-response information is typically obtained from laboratory or field studies. For some stressors, a quantitative characterization may.be difficult to develop. In these cases, a qualitative characterization may be used. For example, the assessor could note that a marsh area was receiving fewer visits from migratory fowl, because of the lack of food source, without attempting to enumerate the number of birds during a particular time period. Evaluate Causality Some ecological risk assessments begin with a known stressor whose ecological effects are well understood. Risk assess- ments, however, are driven by observed adverse ecological effects, such as bird or fish kills. In these instances, risk assessors may identify possible stressors responsible for the ecological effects. Then they attempt to determine which stressor is the actual cause. Without a sound basis for linking cause and effect, the uncertainty associated with the conclusions of the ecological risk assessment is likely to be high. For example, many seal populations have been subjected to epidemics of a distemper- like disease. While several causes (stressors) have been suggested and studied, including pollution-impaired immune systems, warm ocean temperatures, reduced food supply, and pollution-impaired reproductive systems, none have been definitively linked to declining seal populations (EPA, 1992b). Therefore, while the assessment endpoint can be identified for the receptors (i.e., a change in the seal population), the stressors can only be suggested and the possible impacts described without a quantitative analysis. Thus, although it may be possible to put an economic value on the change in the seal population, the change in the value cannot be definitively linked to a specific stressor. Identifying Causes for Declines in Neotropical Migrant Bird Species Populations of neotropical migrant bird species appear to be in decline in many areas of the United States. These birds, such as the Blackbumian warbler, eat insects and live in the interior forest where they breed. They migrate south in the winter, following their food supply. The risk hypothesis is that possible causes of the population decline are forest fragmentation in North America and tropical deforestation in South America. Forest fragmentation results in larger forest boundary areas that are not conducive to breeding for these birds, which are subsequently more vulnerable to predators (including other birds) and parasites. Data (taken from previous studies) were gathered to assess the susceptibility of neotropical migrant species to edge effects, island effects, and the loss of wintering habitat in the tropics. Further monitoring was recommended, including the development of databases to collect additional data on these birds. DRAFT - July 1998 - Do Not Cite or Quote Page 47 ------- The following criteria may be used for evaluating causality (EPA, 1998): G Criteria strongly affirming causality: • Strength of association • Predictive performance • Demonstration of a stressor-response relationship • Consistency of association Q Criteria providing a basis for rejecting causality: Inconsistency in association Temporal incompatibility Factual implausibility Other relevant criteria: • Specificity of association • Theoretical and biological plausibility Establishing Causality for Declines in Fish Populations Declines in fish populations have been reported for many species in waters around the world. Although some declines can be traced to specific causes, in many cases, no particular stressor has been implicated as the sole cause. Among the possible causes offish population declines are: » Pathogens such as the bacteria Pfiesteria piscicida • Declines in food sources (as a result of natural cycles or from manmade disturbances) • Changes in water chemistry (natural or as a result of pollution) • Loss of habitat for shelter or breeding • Physical obstructions (e.g., salmon cannot return upriver because of dams) • Over-fishing • Competition by more successful species (e.g., decline in indigenous fish species in the Great Lakes as a result of the introduction of zebra mussels) Link the Measures of the Effects to the Assessment Endpoints Assessment endpoints express the environmental values of concern for a risk assessment, but cannot always be measured directly. When the measures of effect differ from assessment endpoints, sound and explicit linkages between the two are needed. DRAFT - July 1998 - Do Not Cite or Quote Page 48 ------- The following are examples of extrapolations that risk assessors may use to link measures of effect to assessment endpoints (EPA, 1998): Q Between similar organisms (e.g., bluegill to rainbow trout); Q Between responses (e.g., mortality to growth or reproduction); Q Between different sources of data (e.g., laboratory to field data); Q Between geographic areas (e.g., northeastern U.S. to northwestern U.S.); Q Between spatial scales (e.g., stream to river); and Q Between temporal scales (e.g., data for short-term effects to longer-term effects). During the development of the analysis plan in the problem formulation phase (Phase I), risk assessors identify the extrapolations required between assessment endpoints and measures of effect. Decisions about specific extrapolations are usually based on the scope and nature of the risk assessment and the amount of uncertainty that is acceptable. During the analysis phase, the assessors implement these extrapolations. However, they should reconsider all available data to determine whether the plan should be modified. For example, the exposure characterization may indicate different spatial or temporal scales than originally anticipated. If a stressor persists for an extended time in the environment, it may be necessary to extrapolate short-term responses over a longer exposure period and population-level effects may become more important. The goal of the analysis phase is to provide sufficient information such that it is possible to characterize the ecological impacts from the stressor(s) known to be present in the ecosystem. Based on this information the risk assessors can then determine if the stressor(s) warrants attention and, if so, what can be done to prevent further effects. Characterizing Uncertainty Uncertainty evaluation is an ongoing issue throughout the analysis phase. The purpose of an uncertainty analysis is to formally Uncertainty Factors Uncertainty factors may be quantitative or qualitative depending on their application. In the development of a conceptual model for the risk assessment, there may be uncertainty associated with the assumptions used for the model. Examples may be the use of a well characterized species as a surrogate for a species that is less well defined (e.g., use of coyotes rather than wolves). A pathway may not be clearly defined from the source of the stressor to the stressor. For example, a species of bird may have an impaired reproduction rate. The risk assessment assumes that loss of habitat from timber cutting is the stressor, when it may be that the birds are exhibiting reproductive effects as a result of runoff from the timber cutting exposing contaminated soil. The pathway for the ecological risk assessment therefore is not certain. DRAFT - July 1998 - Do Not Cite or Quote Page 49 ------- recognize the incomplete knowledge that the ecological risk assessment is constructed upon and to explain these implications. Specifically, the uncertainty analysis characterizes both the qualitative and quantitative uncertainties associated with the input values and carries those uncertainties through to the estimated exposure and ecological effects. Any uncertainty analysis connected with an ecological risk assessment should investigate (at a minimum) the uncertainty or potential error associated with any extrapolations that are made during the ecological risk assessment. The uncertainty need not always be expressed mathematically. Instead, a qualitative description may be used, such as indicating that the animal tested may not be the best surrogate for animals actually exposed to a stressor. This frequently occurs in wildlife toxicity testing where the laboratory animal may be more or less sensitive than other species in the wild. Among the extrapolations that may be needed are: Q Extrapolation from one exposure duration to another (e.g., short-term (acute) to long-term(chronic)) (see Uncertainty Factors box); Q Extrapolation from one species to another (e.g, using alewives as a surrogate for rainbow trout); Q Extrapolation from one trophic level to another (e.g., using midges as a surrogate for praying mantis); Q Extrapolation from one response to another (e.g., egg shell thinning as a surrogate for decreased reproductive success); Q Extrapolation from one stressor to another (e.g., use of structure-activity relationships to estimate the toxicity of one chemical based on the toxicity of a structurally similar chemical); Q Extrapolation from laboratory to field (e.g., using effects on laboratory animals or artificial ecosystem as a surrogate for natural populations or whole ecosystems); and Q Extrapolation from one ecosystem to another (e.g., effect on freshwater lake as a surrogate for an estuarine bay). In addition to the uncertainty in extrapolation there are other causes of uncertainty in an ecological risk assessment. These include, but are not limited to: Q Variability in samples of data; Q Inability to obtain appropriate samples (this may be of concern if the organism is endangered or difficult to identify or collect); DRAFT - July 1998 - Do Not Cite or Quote Page 50 ------- Q Lack of knowledge about multiple chemical effects, interactive synergistic effects, and counteractive synergistic effects; and Q Non-linear behavior of complex systems. Because quantitative measures of uncertainty are often difficult (and sometimes impossible) to provide, the assessors should try to characterize uncertainty in a qualitative manner as completely as possible. This ensures that economists, policy makers, and others who use the results of the ecological risk assessment have a sense of the strengths and weaknesses, (see also Interdisciplinary Coordination section.) Methods for analyzing and describing the uncertainty associated with the ecological risk assessment range from simple to complex. When presenting analysis results as a point estimate, classical statistical methods, such as confidence limits and percentiles, can effectively describe the uncertainty associated with these estimates. When a modeling approach is used, sensitivity analyses and Monte Carlo analyses can be used to evaluate how sensitive the model's outputs are to variations in the input values (see also Issues section). Uncertainty propagation can also be analyzed to examine how the uncertainty associated with individual parameters affects the overall uncertainty associated with the conclusions of the risk assessment. 4.4 PHASE III: RISK CHARACTERIZATION Risk characterization is the final phase of ecological risk assessment. The goals of this phase are to (EPA, 1998): • Use the results of the analysis phase to estimate the risk of ecological effects represented by the endpoint identified in the problem formulation phase; • Interpret the risk estimate (including an assessment of the uncertainty associated with the estimate); and • Report the results. Risk Estimation Once the ecological effects of a stressor have been characterized (through the ecological effects characterization performed in Phase II), that information is combined with the exposure assessment to provide an indication of the ecological risks and associated uncertainty. In other words, the risk assessors determine the likelihood of adverse effects resulting from the presence of the defined stressor. This determination may be qualitative or quantitative. Where specific data are lacking, such as in the example of declining seal populations, the assessors may need to exercise professional judgment to determine the most or least likely risks. DRAFT - July 1998 - Do Not Cite or Quote Page 51 ------- Several approaches are available for quantitatively estimating ecological risks: compare single- point estimates, incorporate the entire stressor-response relationship, and decide based on the process models. Compare Single-Point Estimates When sufficient data is available to develop quantitative exposure and effects estimates, the simplest approach for comparing the estimates is to use a ratio of the two numbers. Typically, the ratio (or quotient) is expressed as an exposure concentration divided by an effects concentration. Quotients are commonly used for chemical stressors, where reference or benchmark toxicity values are widely available as measures of effect. In most cases, the quotient method does not explicitly consider uncertainty (e.g., does not address the uncertainty associated with the extrapolation from the tested species to the species or community of concern). The uncertainty associated with the single-point estimates can, however, be addressed by providing a statement of the likelihood that the exposure point estimate exceeds the effects point estimate. Hazard Quotients If the 96-hour LC50 of a chemical in the fathead minnow is 1 mg/L and the concentration of the chemical in the river is 0.001 mg/L, then the ratio of the exposure concentration to the effect concentration (the hazard quotient) is 0.001 or 1/1000. The ratio suggests that the chemical concentration in the river is of relatively low risk to fathead minnows. A stressor with a hazard quotient of less than one is expected to pose little risk to the receptor (assuming the tested organism is at least as sensitive as any indigenous organism). Whereas, a hazard quotient of greater than one is expected to pose a risk to exposed organisms. This approach is used for many regulatory risk assessments. For example, if it has been determined that the salinity in a river to which wastes are discharged exceeds the relevant ambient water quality criteria, then it is assumed that the biological organisms in that river are at risk for adverse effects. For single, large short-term (acute) exceedences, this may result in death. However for lower, longer exceedences (chronic) this may mean stunted growth or other non-lethal effects. The regulatory action associated with this determination is that the discharge of wastes should be reduced so that the level of the stressor is below the ambient water quality criteria. DRAFT - July 1998 - Do Not Cite or Quote Page 52 ------- Estimates Incorporating the Entire Stressor-Response Relationship Stressor-Response Relationships Gypsy moths have been shown to decimate many forests in the northeastern United States. A small number of gypsy moth larvae may cause minor damage to the foliage on some trees. However, a larger infestation may result in stunted tree growth or even tree death if the larvae eat enough leaves where trees cannot sustain their photosynthetic requirements. The level of gypsy moth activity may be directly related to tree damage, up to and including death. In cases where sufficient data are available to indicate a range or distribution of effects, such as a stressor-response curve (where increasing levels of the stressor produce more severe adverse effects), the risk assessment may statistically analyze the effects and compare them to a range of exposures. Monte Carlo simulations or other approaches for incorporating uncertainty may be used to indicate a mean and standard deviation of the data. This approach also provides a spectrum of effects and exposures against which management decisions may be based. For example, when developing ambient water quality standards it is helpful to determine worst-case or statistical confidence limits to be predictive of the most sensitive members of a population. The greater the variability in the exposure or stressor-response relationship, the greater the number of risk estimates. This variability may provide a more realistic approach to risk assessment, as both high-end and low- end exposures may be considered. Risk estimates can also be made for average or healthy populations (e.g., adults) in addition to sensitive populations (e.g., young animals). Estimates Based on Process Models Process models are mathematical expressions that represent our understanding of the mechanistic operation of a system under evaluation. They can be useful tools both in the analysis phase and the risk characterization phase of the ecological risk assessment. A major advantage of using process models for risk estimation is the ability to consider "what if scenarios, and to forecast beyond the limits of the observed data that constrain risk estimation techniques based on empirical data. For example, process models may be used to extrapolate from species-level effects to population and ecosystem levels. These models may also be of use in estimating indirect effects on the assessment endpoints and the probable rate of recovery. A variety of these models are available for both terrestrial and aquatic ecosystems (e.g., RAMAS, Aquatox). Because process models are only as good as their assumptions, they should be treated as hypothetical representations of reality until appropriately tested with empirical data. The methods described above are those most commonly used for quantitatively estimating ecological risks. Slight variations might be employed, such as comparing point estimates of effects with cumulative exposure distributions. Other less commonly used techniques, that are described in the EPA guidelines, involve incorporating variability in the exposure or effects estimates to describe the risks to highly exposed or extremely sensitive receptors. Field DRAFT - July 1998 - Do Not Cite or Quote Page 53 ------- observational studies also can serve as a risk estimation technique, although causal relationships between the stressors and the effects must first be established. While quantitative models are often useful in providing ecologists and economists with numeric estimates of potential effects, it may only be possible to provide a qualitative description. For example, clear cutting a forest may be expressed as the number of trees cut or acres cleared (one assessment endpoint), but it may not be possible to determine the effects in bird populations as a result of this action. Risk Description After the ecological risks have been estimated, risk assessors need to integrate and interpret the available information into conclusions about the risks to the assessment endpoints. Risk descriptions provide technical narrative supporting the risk estimates as well as a framework for interpreting the estimates. Professional judgment is required to assess the various endpoints and identify those which are likely to experience the greatest short-term and long-term effects. In some cases, adjustments may be required if the data indicates that the proposed assessment endpoints are of less concern than others identified during the assessment process. The reliability of the risk assessment must also be discussed. For example, modeling may indicate that one effect is of greater magnitude than another although empirical evidence may suggest otherwise. This problem arises because of the imprecision of the quantity and validity of the input data or parameters of the model. Models may not incorporate all of the influential parameters. Sometimes, other factors affecting the ecosystem may not be immediately evident. The risk assessors must evaluate all effects and determine which options deserve further consideration. It may be necessary to conduct additional monitoring or testing to validate the model and confirm the existing data. Reporting Risks A risk assessment report may be briefer extensive depending on the nature of the assessment. It is important that the information be presented clearly and concisely. The outputs of the ecological risk assessment may become the inputs for future management decisions as well as the economic valuation phase of the benefit assessment. The findings of the risk assessment report should be discussed with economists, policy makers, and other users of the risk assessment. DRAFT-July 1998- Do Not Cite or Quote Page 54 -------An error occurred while trying to OCR this image. -------An error occurred while trying to OCR this image. -------An error occurred while trying to OCR this image. -------An error occurred while trying to OCR this image. -------An error occurred while trying to OCR this image. ------- Hanemann, W.M. 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?" American Economic Review. 81(3): 635-647. Just, R.E., D.L. Hueth, and A. Schmitz. 1982. Applied Welfare Economics and Public Policy. Englewood Cliffs, New Jersey: Prentice-Hall, Loomis, J.B. 1993. Integrated Public Lands Management: Principles and Applications to National Forests, Parks, Wildlife Refuges, and BLM Land. New York, New York: Columbia University Press. Willig, R. 1976. "Consumer Surplus Without Apology." American Economic Review 66(4): 589-597. DRAFT-July 1998 - Do Not Cite or Quote Page 60 -------An error occurred while trying to OCR this image. -------An error occurred while trying to OCR this image. -------An error occurred while trying to OCR this image. ------- 6.2 IDENTIFYING THE SERVICE FLOWS AND OTHER VALUES PROVIDED BY AN ECOLOGICAL RESOURCE There are numerous types of goods and services provided by ecological resources that have economic value to some or all individuals in society (see Background Theory section for a discussion on defining the economic value of ecological resources). This section discusses the various types of goods and services and offers their taxonomy, which may be useful in developing a compre- hensive list of specific economic benefit endpoints for the ecological benefit analysis. The proposed taxonomy for generally characterizing the goods and services provided by ecological resources is presented in Exhibit 12. Direct Use Indirect Use Some of the goods and services provided by ecological resources are obvious because they are directly used or enjoyed by society, such as the fish Exhibit 12 Proposed Taxonomy of Goods and Services Provided by Ecological Resources Good or Service Non-Use Value Use Value Direct, Ivferket Direct, Non-Market Indirect, Non-Nferket Good or Service GoodorService GoodorService DRAFT-July 1998-Do Not Cite or Quote Page 64 ------- provided by a fishery, the timber/lumber provided by a forest, or the swimming and boating opportunities provided by a coastal area. These types of goods and services are defined as direct, market uses, when the good or service is bought and sold through open markets, and direct, non- market uses, when the good or service is not bought and sold through a market. The direct, market uses of an ecological resource are typically the most obvious and most easily valued "uses" of an ecological resource because price and quantity information for each good and service is generally available. The direct, non-market uses of an ecological resource may be readily apparent, such as recreational opportunities, although more difficult to value because it is more difficult to obtain information on the "price" of the service and the number of people enjoying the service (i.e., benefitting from the resource through a specific use), because the goods or services are not sold through markets. Ecological resources will also provide some services and ecological processes that indirectly benefit society. For example, a coastal wetland provides services as a wildlife habitat and fish nursery, as a means for flood control, and as a filtering system for run-off waters. Individuals may value these services even though they are not directly using the resource. Sometimes these types of services can be connected to other activities that humans value and, therefore, valued through that relationship (see Interdisciplinary Coordination section). These types of services, which are not bought and sold through markets, are referred to as indirect, non-market uses. Economists also recognize several different categories of non-use values. As the term implies, non-use values represent the value that an individual places on the ecological resource that does not depend on the individual's current use of the resource. Existence value, for example, refers to the value people place on knowing that a particular resource exists, even if they have no expectation of using the resource. Another example of a non-use value would be bequest value, which refers to the value people place on a maintaining a resource for future generations. The value of a change to a specific ecological resource can be estimated, in part, by measuring the change in the value of the direct, market uses and direct, non-market uses provided by the resource. For example, in estimating the benefits of an action to improve the quality of a wetland area, one might consider that the wetland area serves as a primary breeding area for several species of birds and, therefore, estimate the change in the value of bird watching and recreational fowl hunting to the individuals using the area. To capture the total value or benefits of a change to a specific ecological resource, one also needs to consider the value of its role in supporting the ecosystem and the indirect benefits it provides to mankind. That is, one needs to also identify and evaluate the indirect, non-market uses and non-use values associated with an ecological resource. For example, a partial list of the goods and services society derives from birds might include: • Food source (direct, market use); DRAFT- July 1998- Do Not Cite or Quote Page 65 ------- • Hunting, bird watching, and contributing to the aesthetic environment for hikers, campers, anglers, and other recreationists (direct, non-market use); • Component to an ecosystem that supports or provides other goods and services and contribute to maintaining biodiversity (indirect, non-market use); and • As an endangered species or to maintain the bird species for future generations (non-use value). The following four subsections elaborate on the types of goods and services that might be provided by an ecological resource and describe the various methods available for estimating the economic value of changes to these goods and services to society. DRAFT-July 1998-Do Not Cite or Quote Page 66 ------- 6.2.1 DIRECT, MARKET USES Direct, market uses refer to those goods and services provided by an ecological resource that are directly used by society and are bought and sold through the market system. Direct, market uses primarily refer to those goods produced by an ecological resource that are consumed by humans or serve as inputs in the production of other goods, such as food products, water, fuel sources, and building materials. Prices and quantities produced for these goods and services are directly observable. For example, one benefit of a policy to improve air quality might be measured through the value (i.e., change in welfare) of the increased productivity of commercial crops and timber production. Similarly, the benefit of an action to improve water quality might be measured through the value (i.e., change in welfare) of the increased production of a commercial fishery (i.e., more fish caught and sold). It is important to remember, however, that the change in value of the direct, market uses (e.g., timber, crops, or fish) provided by an ecological resource (e.g., air, water) may represent only a portion of the total value of the change experienced by the ecological resource. Examples of Direct, Market Uses Provided by Ecological Resources G Food Source • Fish (specific species) - commercial fishery • Crops (specific type: corn, beans, apples, etc.) - commercial and home production • Animal (fowl, deer, etc.) - commercial consumption DRAFT- July 1998 - Do Not Cite or Quote Page 67 ------- Q Building Materials • Timber (specific species) • Stone Q Fuel • Timber (specific species) Coal Oil Q Drinking Water Supply • Ground water reservoir • Surface water reservoir Q Medicine Q Chemicals/Minerals Valuing Direct Market Uses There are a number of market-based approaches that may be useful in estimating the value or change in value of a direct market use provided by an ecological resource. In most cases, a market-based approach is used to estimate the demand and supply functions for the good or service. For some market goods, such as commodity crops and timber, detailed general and partial equilibrium models have been developed, which estimate demand and/or supply responses to changes in productivity, prices, and other variables. Impacts or changes to the ecological resource that affect the quantity or quality of the goods and services provided by the resource can be measured by estimating the change in the demand and supply functions resulting from the change and measuring the welfare change or change in willingness-to-pay. For relatively small events affecting the resource that do not affect the population dynamics or the overall level of use of the resource (i.e., that do not change the supply or demand for the good or service provided by the resource), the change in the value of the goods and services provided by the resource can be measured based on the increase (or decrease) in the quantity of the good or service provided and the market price of the good or service. Other market-based valuation approaches, such as examining the cost of alternatives or the spending to provide similar goods or services, may also be useful when price or quantity information is not readily available. These second-best approaches do not directly reflect welfare changes as described in background. Specific revealed preference techniques that value marketrbased goods include: • Market-Price and Supply/Demand Relationships • Market-Based Valuation Approaches DRAFT- July 1998 - Do Not Cite or Quote Page 68 ------- 6.2.2 DIRECT NON-MARKET USES Direct non-market uses of an ecological resource include those goods and services that are directly observed and used by humans, but are not sold or traded through an open, competitive market. Direct, non-market uses include both consumptive uses (e.g., recreational fishing and hunting) as well as non-consumptive uses (e.g., bird watching or boating). Direct, non-market uses are generally considered quasi-public/quasi-private goods because access or use of the resource can be controlled but is often not strictly regulated and the benefit or value to one individual does not affect the benefit or value to others up to a point (i.e., congestion reduces the benefit/value to all users). Examples of Direct, Non-Market Uses Provided by Ecological Resources G Fishing • Recreational Fishing (specific species, area) • Subsistence Fishing (specific species, area) Q Beach Use (sunbathing, swimming, walking) Q Recreational Hunting (specific species) - for sport and/or personal consumption Q Bird Watching (general, specific species) DRAFT- July 1998- Do Not Cite or Quote Page 69 ------- Q Tourism Q Boating Q Hiking/Camping Q Animal Viewing, Photography, Feeding (general, specific species) Q Sightseeing Q Aesthetic Value Valuing Direct, Non-Market Uses These types of services are not bought and sold through observable markets and therefore, do not have market prices associated with their use. For most of these types of goods and services, however, the change in the quantity and/or quality of the service being provided is quantifiable (e.g., increased number offish caught per fishing trip, increased number of beach or boating days, increased chance of viewing wildlife). Because these types of goods and services do not have market prices, non-market valuation techniques must be used to estimate the implicit prices for the goods and services provided by the resource. Some methods rely on the explicit transactions (e.g., entrance or licensing fees, spending to protect a resource) or observed choices that people make (e.g., travel decisions, home location) that are associated with the use of the goods and services provided by the ecological resource. These methods assume that people demonstrate, or reveal, the value they place on a good or service through the choices they make. Other methods rely on the responses of individuals using the resource to proposed choices or questions regarding the value they place on their use of the resource. In some cases, more sophisticated techniques and models, which combine information on engineering and biophysical processes with economic information, are used to estimate ecosystem changes and impacts to specific uses or services. Specific methods that may be useful in valuing direct, non-market uses include: Revealed Preference Methods: • Hedonic Price Methodologies • Travel Cost Methodologies • Random Utility Models Stated Preference Methods: • Contingent Valuation • Contingent Activity and Combining Contingent Valuation with Other Approaches • Conjoint Analysis and Contingent Ranking DRAFT- July 1998 - Do Not Cite or Quote Page 70 ------- 6.2.3 INDIRECT NON-MARKET USES Indirect non-market uses of an ecological resource include those goods and services that provide an observable benefit to mankind but are not directly consumed or used by individuals. Indirect, non-market uses include many ecological processes that indirectly benefit mankind by supporting other ecological resources, maintaining viable ecosystems, and protecting the local environment. Indirect non-market goods and services are usually public in nature because access or use of the ecological resource cannot generally be excluded and any number of individuals can benefit from the use of the ecological resource through these services without reducing the benefits accruing to anyone else. These goods and services are not sold or traded through an open, competitive market, although a community may pay for replacement or substitute goods (often through taxes) that provide the same public services as provided by the ecological resource. Examples of Indirect Non-Market Uses Provided by Ecological Resources Q Flood Control Q Storm Water Treatment Q Ground Water Recharge Q Climate Control Q Pollution Mitigation Q Wave Buffering Q Soil Generation Q Nutrient Cycling Q Habitat Value Q Biodiversity Valuing Indirect Non-Market Uses These types of services are not bought and sold through observable markets and therefore, do not have market prices associated with their use. Because these types of goods and services do not have market prices, non-market valuation techniques must be used to estimate the implicit prices for the goods and services provided by the resource. Some methods rely on the observed choices that people make that are related to the indirect, non-market goods and services provided by the DRAFT- July 1998 - Do Not Cite or Quote Page 71 ------- resource. These methods assume that people demonstrate, or reveal, the value they place on the goods and services provided by ecological resources through the choices they make. In some cases, expenditures for replacement or substitute goods that provide the same public services as the ecological resource may indicate the value of the indirect, non-market services supported by the ecological resource. Other methods rely on the responses of individuals to proposed choices or questions regarding the value they place on the goods and services provided by the resource. Specific techniques that may be useful in estimating the value of the indirect, non-market uses include: Revealed Preference Methods: • Hedonic Price Methodologies • Replacement/Alternative Cost • Avoidance Expenditures Stated Preference Methods: • Contingent Valuation • Contingent Activity and Combining Contingent Valuation with Other Approaches • Conjoint Analysis and Contingent Ranking DRAFT- July 1998 - Do Not Cite or Quote Page 72 ------- 6.2.4 NON-MARKET, NON-USE VALUES Non-market non-use values of an ecological resource include the value that individuals hold for the resource unrelated to their current use of the goods and services provided by the resource. Individuals may value the existence of the ecological resource or the availability of the goods and services provided by the ecological resource although they do not directly consume or use the resource themselves. Non-market non-use values may stem from the desire to ensure the availability of the resource for future generations, benevolence toward relatives and friends, sympathy for people and animals adversely affected by environmental degradation, or a sense of environmental responsibility. Additionally, the specific non-use values associated with a particular ecological resource may not be mutually exclusive: when asked directly, people are unlikely to be able to separately identify the non-use values they hold or distinguish between the value they place on direct or indirect uses and their non-use value(s). Examples of Non-Market Non-Use Values Provided by Ecological Resources Q Scarcity Value Q Option Value Q Existence Value Q Cultural/Historical Value Q Intrinsic Value Q Bequest Value Q Philanthropic Value Valuing Non-Market, Non-Use Values These types of services are not bought and sold through observable markets and, therefore, do not have market prices associated with their use. Because these types of goods and services do not have market prices, non-market valuation techniques must be used to estimate the implicit prices for the goods and services provided by the resource. Furthermore, by definition, the non- use value associated with an ecological resource cannot be estimated based on observed actions or choices made by individuals. Thus, to estimate non-use values economists must rely on DRAFT- July 1998 - Do Not Cite or Quote Page 73 ------- people's responses to proposed choices or questions regarding the value they place on certain ecological resources (known as contingent valuation). Determining the total non-market non-use value associated with a change to an ecological resource is often difficult because the total value depends not only on the value each individual holds, but also on the appropriate number of such individuals to count in the valuation process. Additionally, as discussed in the later technique sections, the use of contingent valuation is very controversial and continues to be refined by economists, sociologists and psychologists. Only one technique is applicable for estimating non-market, non-use values: • Contingent Valuation DRAFT- July 1998 - Do Not Cite or Quote Page 74 ------- 6.3 APPROACHES TO MEASURING RESOURCE VALUES This section introduces the reader to the different types of approaches available to estimate the economic value (i.e., change in social welfare or willingness-to-pay) of a change in the quality and/or quantity of the goods and services provided by an ecological resource. Each valuation method has a different approach to eliciting the value that society places on such changes in the goods and services provided. This section organizes and explains the general types of valuation techniques and discusses, generally, what data might be required to implement each type of approach. A framework for understanding the similarities and differences between the techniques is presented, followed by a brief description of each technique (more detailed descriptions are provided in later sections). Valuation Techniques Valuation techniques can be grouped into four general categories according to the means by which preferences are revealed and the process by which these preferences are translated into monetary values (Mitchell and Carson, 1989; Freeman, 1993). To determine into which category a method falls, it is necessary to ask the following questions: 1. Does the technique use data or observations from people acting in real-world situations (i.e., revealed preferences) or from people responding to hypothetical situations (i.e., stated preferences)? 2. Does the technique yield monetary values directly (i.e., direct estimation of willingness-to-pay) or must monetary values be inferred based on a model of individual behavior (i.e., indirect estimation of willingness-to-pay)? Exhibit 13 illustrates the matrix and the corresponding organization of the valuation techniques available for developing original valuation estimates (Mitchell and Carson, 1989; Freeman, 1993). Benefits transfer analysis, which is not listed in the following table, relies on the results of previous analyses to develop a valuation estimate for a new policy case or study site. Following the table is a discussion of the four categories of approaches and benefits transfer analysis. DRAFT- July 1998 - Do Not Cite or Quote Page 75 ------- Exhibit 13 Categorization of Valuation Techniques Direct Estimation of WTP Indirect Estimation of WTP Revealed Preferences Approach Market Price/Quantity (Estimated Supply/Demand) Market Simulation Models User Fees Replacement Costs Travel Cost Studies Random Utility Model Hedonic Studies Avoidance Expenditures Referendum Voting Stated Preferences Approach Contingent Valuation Studies Contingent Ranking Contingent Activity Contingent Referendum Conjoint Analysis Note: Benefits Transfer Analysis relies on estimates developed using one or more of the techniques listed in this table. Direct Revealed Preference Approaches Direct, revealed preference approaches require data on real-life choices made by individuals regarding their consumption or use of a particular good or service. These approaches assume that an individual who is free to choose the quantity of good or service they desire at a specific price will choose the quantity that maximizes their welfare (or benefits), given the constraints placed upon them by the market (e.g., limited individual income, availability of substitutes and other goods, limited availability of specific goods or services). Thus, these types of approaches can only be applied for goods and services bought and sold through markets. Competitive market prices and production cost information, for example, can be used to estimate supply and demand relationships, that can then be used to estimate the consumer and producer surplus associated with the goods or services provided by a resource. Alternatively, more complex market simulation models might be used to mimic market conditions in an effort to determine the value (or change in value) placed on a good or service. Estimating market relationships for a good or service requires, at a minimum, time series or cross-sectional data on the price of the good or service, the quantity sold and consumed, detailed cost and revenue information for representative producers, as well as data on the environmental change affecting the supply and/or demand for the marketed good or service. In some circumstances, market data may be useful in providing a lower bound estimate of the value of a good or service. User fees, or the amount paid to use the services provided by the resources at that site, indicate a lower bound for the value that individuals place on the use of a DRAFT- July 1998 - Do Not Cite or Quote Page 76 ------- specific site. The replacement cost technique infers the value of goods and services from the cost of replacing the goods and services or of providing alternatives. Indirect Revealed Preference Approaches Indirect revealed preference approaches rely on the relationships between the value placed on a good or service not traded through markets that is affected by environmental quality and the other real-world choices that individuals make. These approaches typically require modeling of these relationships to infer values for the non-marketed good or service. Because of the need to model complex relationships in order to infer values for a specific good or service, these techniques tend to have fairly significant data needs, which may include: price and quantity information for consumption of related market goods and services; use or consumption information for the good or service one wants to value; characteristics of the goods or services as well as substitute goods and services; and characteristics of users. Travel cost studies, for example, have been used to estimate the value of a particular recreational activity, such as fishing, based on the time and expense required to partake in that activity. Similarly, in using the avoidance expenditures approach, the cost of a particular event (or benefits of preventing an event), such as flooding, is estimated based on current expenditures to prevent or reduce the negative impact of the event. Random utility models estimate recreational demand by focusing on an individual's choice among substitute sites for any given recreational trip. Hedonic property and wage models attempt to identify the value of environmental quality implicit in purchasers' willingness-to-pay for property and in the monetary value placed on working conditions, respectively. Referendum voting offers an individual a fixed quantity of a good or service at a fixed price. If the individual accepts the offer, it can be assumed that the person values the resource by at least that amount. Thus, referendum voting data (e.g., approval for new regulation or management scheme) can also be used to indicate the minimum value placed on protecting the resources affected by the outcome of the vote. Direct Stated Preference Approaches Direct, stated preference approaches, or contingent valuation approaches, involve asking a sample group of people directly about the values they place on certain effects or changes. Some direct approaches used to determine an individual's willingness-to-pay for a specific improvement include: • Asking each individual directly how much they would be willing to pay to ensure or prevent a change; • Asking each individual whether they would be willing to pay some specific amount of money to ensure or prevent a change, varying the amount of money across the sample; and DRAFT- July 1998 - Do Not Cite or Quote Page 77 ------- • Conducting a bidding game with each individual to determine the maximum amount each would be willing to pay to ensure or prevent a change. By aggregating over the sample, an analyst can estimate a demand curve for the specific change, which can then be used to estimate total WTP for the change. Both the degree of environmental change and the cost of the change can be varied in a contingent valuation analysis. Contingent valuation analysis requires conducting a survey of a representative sample of individuals affected by the environmental change. Good survey design and implementation are critical to the success of a contingent valuation analysis. Unfortunately, these activities, as well as the analysis of the resulting data, are typically very time and resource intensive. Indirect stated preference approaches Indirect, stated preference approaches are also contingent valuation studies, except that the individuals questioned are not asked directly about the value they place on a specific change. Instead, individuals are asked to make a decision about another situation that depends or otherwise relates to the value they would place on the specific change to be valued. The responses to these questions are then used to draw inferences about the value of changes to the non-market good or service of interest. For example, individuals may be asked: • Contingent Ranking: To rank combinations of varying quantities or qualities of goods, including both market goods, which have prices associated with their use, and non-market goods, for which the analyst wants to estimate the value; or • Contingent Activity: To estimate the change in their current level of activity or use of a specific good or service under alternative scenarios in which the availability and quality of the good or service is varied. Contingent ranking asks individuals to rank combinations of varying quantities and qualities of non-marketed environmental goods and services as well as other marketed goods. In a contingent activity study, individuals are asked hypothetical questions about their level of activity under alternative levels of availability and quality of an environmental good or service. In a contingent referendum study, respondents are asked whether they would vote yes or no for a policy or action that would impose a specific cost on them and provide or ensure a hypothetical quality or quantity of an environmental service. Values for the environmental goods or services are then inferred from the choices made by the individuals. Conjoint analysis uses data gathered from survey respondents concerning the relative importance of various features of a product to determine the willingness-to-pay for a particular feature. For any of these indirect, stated preference approaches, the data requirements and concerns will be the same as those associated with the direct stated preference approaches. DRAFT- July 1998 - Do Not Cite or Quote Page 78 ------- Benefits Transfer Approach Benefits transfer analysis can often be used to estimate the value of a particular change when the resources or time to conduct original research are not available. Benefits transfer is also a desirable approach in cases where good information already exists from previous studies of the good or service in question, particularly when studies exist for similar types of locations and resource users. This approach involves identifying other valuation studies of similar changes at similar sites and using, or transferring, the value from the previous study(ies) to the new site of concern. In some instances, additional data might be used to adjust the value estimate to better suit the new situation or to correct for errors introduced in the original study. More advanced benefits transfer analysis involves transferring a benefit function, demand function, or valuation model to a new study site. Data Sources In addition to selecting a valuation technique, it is also necessary to identify data sources that can be used in the valuation of public goods and services. Some of the data, such as the ecological components affected, will come from the ecological assessment. Other data will also need to be obtained from other sources. The type of data required depends upon which valuation technique is chosen. Data might include market data on the prices of various goods, data on the number of users (e.g., the number of fishermen using a specific fishery), the quantity used (e.g., acres of forests cut down in a given year lumber production), or some measure of the ecological resource itself (e.g., acres of wetlands). The individual valuation technique sections provide a detailed discussion of the types of data required to implement each technique. References and Further Reading Braden, J.B. and C.D. Kolstad, eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Freeman, A.M., III. 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.: Resources for the Future. Mitchell, R.C. and R.T. Carson. 1989. Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington, D.C.: Resources for the Future. DRAFT- July 1998 - Do Not Cite or Quote Page 79 ------- 6.3.1 MARKET-PRICE AND SUPPLY/DEMAND RELATIONSHIPS The "market value" of a good or service that is conveyed through the market system is the price placed on the good or service. The price of a good represents the value of an additional unit of that good, assuming the good is sold through an undistorted, perfectly competitive market (i.e., a market with properly assigned property rights, full information, and no taxes or subsidies). Market prices can be used to value small changes in the quantity of a good or service being provided (i.e., small effects or changes that do not affect the supply of or demand for the product or service). For example, the value of increased commercial fish harvest in a specific bay could be estimated based on the market value of the additional fish caught (i.e., pounds of additional fish caught multiplied by market price per pound offish), assuming that the increased harvest for the area under study will not affect the market price. The value (i.e., cost or benefit) of larger scale changes that are likely to affect the supply or demand for a good or service cannot be correctly valued using market prices. Using market price ignores the change in the extra value provided by the good or service to consumers (e.g., the amount consumers would be willing to pay above the market price, known as consumer surplus). For the same reason, the change in the total consumer expenditures for a good or service (market price times the quantity purchased) is generally not a good indicator of the benefits associated with a change in the use of that good or service. For these cases, other approaches are necessary for estimating the benefits or the change in willingness-to-pay resulting from a change in the goods or services provided by an ecological resource. Estimating Supply and Demand Relationships One approach is to estimate the supply and demand relationships for each service or product before and after the environmental change to estimate the benefits of a specific action. Depending on the good or service considered, the change to the ecological resource will cause a shift in the supply curve or the demand curve. The change in the willingness-to-pay, or benefits, associated with the action can then be estimated based on the change in the area above the supply curve and below the demand curve, (see the Background Theory section for additional discussion on using estimated supply and demand relationships to estimate the benefits of an action.) The demand and supply curves, or functions, are estimated using past data on prices and quantities of the good sold, the cost of production inputs, and information on production relationships (i.e., the quantity of output produced with a given amount of inputs). DRAFT- July 1998 - Do Not Cite or Quote Page 80 ------- Market Simulation Models More recently, economists have developed market simulation models that combine economic, engineering, and biophysical information to estimate changes in market supply and/or demand relationships, and thus, the benefits, of an environmental change. Such models can be used to examine the relationship between changes in environmental quality, such as the amount of acid deposition, and "material damage," including reductions in stocks of physical assets such as buildings, bridges, roads, and art, or changes in biological outputs, such as agriculture and vegetation. Environmental changes that affect the level of output or production will affect the price and quantity of the good on the market that can lead to further changes in output or production. Although simple estimates of changes in supply and demand relationships can be used to estimate the initial change in price and quantity, a more complex market simulation model is needed to estimate further changes that result from market interactions and feedback relationships. Market simulation models are regularly used to estimate the effects of changes in environmental quality on agricultural and timber production. Simulation models have also been used in material damage assessments to identify changes in production and consumption caused by environmental changes, identify the responses of input and output to these changes, and identify the adaptations affected factors can make to minimize losses or maximize gains from changes in opportunities and prices (Adams and Crocker, 1991). Valuing the benefits of a change to an ecological resource based only on a single or a few market goods or services provided by that resource is unlikely to capture the full benefits of the change because many other services provided by the resource that are not sold through markets may also be affected. In the case of an action that improves the quality of a forest, for example, the forest will provide improved habitat for other species of flora and fauna and better scenic views and recreational opportunities, in addition to the increased value of the forest as a supply of timber. Therefore, when using changes to market goods and services to estimate benefits, one should also consider the potential benefits associated with additional services provided by the resource that are not sold through markets. Advantages >• For established markets, price, quantity, and input cost information should be readily available. >• Actual consumer preferences are measured using observed data. DRAFT- July 1998 - Do Not Cite or Quote Page 81 ------- Disadvantages >• Market data may only be available for a limited number of goods and services provided by an ecological resource and may not reflect the value of all productive uses of a resource. >• It may be difficult to correctly estimate demand and/or supply relationships if limited data on prices and quantities is available. >• It may be difficult to separate the supply and demand effects and to isolate the effects of the environmental change. Data Requirements This technique requires time series data on market prices for the resource, the quantity sold and consumed, and detailed cost and revenue information for representative producers, as well as environmental data for both before and after the change. References and Further Reading Adams, R.M. and T.D. Crocker. 1991. "Materials Damages," in Braden, John B. and Charles D. Kolstad, eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Braden, J.B. and C.D. Kolstad, eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Freeman, A.M., III. 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.: Resources for the Future. Hanley, N. and C.L. Spash. 1993. Cost Benefit Analysis and the Environment. Brookfield, Vermont: Edward Elgar Publishing Limited. Just, R.E., D.L. Hueth, and A. Schmitz. 1982. Applied Welfare Economics and Public Policy. Englewood Cliffs, New Jersey: Prentice-Hall. Loomis, J.B. 1993. Integrated Public Lands Management: Principles and Applications to National Forests, Parks, Wildlife Refuges, and BLM Lands, Chapter 6, Applying Economic Efficiency Analysis in Practice: Principles of Benefit-Cost Analysis. New York, New York: Columbia University Press. DRAFT- July 1998- Do Not Cite or Quote Page 82 ------- 6.3.2 MARKET-BASED VALUATION APPROACHES Although the goods and services provided by an ecological resource may not be bought and sold through the market, there may be other market transactions occurring that provide information regarding the value of the environmental good or service under study. When estimating the value of specific goods or services, for example, it may be useful to look at other market transactions, such as fees paid for use of similar services or spending on projects or activities designed to provide similar goods or services. When estimating the value of changes to an ecological resource (or the goods and services it provides) it may be useful to consider the estimated cost of alternative actions undertaken to produce similar results or, alternatively, the level of spending to prevent or reduce the negative impacts resulting from damage to an ecological resource. Although these measures cannot generally be expected to provide an exact measure of the benefits of a change to an ecological resource, they can be useful in developing preliminary or order-of-magnitude estimates. This section describes how the cost of alternatives or replacements, avoidance expenditures, simulated markets, referendums, and user fees might be useful in estimating the benefits of improvements to ecological resources. Alternative/Replacement Costs The cost of providing or replacing the goods or services that an ecological resource could provide can be used to estimate the value of those goods and services and, in some cases, the benefits of an action to protect or restore that ecological resource. This approach is based on the concept of revealed preference: by choosing to undertake an action to provide or replace certain goods and services, society demonstrates (or reveals) that they value the goods and services provided by the ecological resource (and correspondingly value the resource itself) by at least as much as the cost of the project. In other words, it is assumed that if society invests in a project to provide similar services to those provided by an ecological resource, then the value of the services provided can be assumed to be at least as great as the dollar amount spent on the project. Therefore, the cost of the project might also be used to approximate a lower bound for the value of the ecological resource that provides the same services. Specific examples include: • Using the cost of building a retaining wall to estimate the value of wave buffering services provided by a wetland or coastal marsh area; • Using the cost offish breeding and stocking programs to estimate the value offish nursery services provided by estuaries or upland streams; or • Using the cost of constructing and operating a storm water filtration plant to estimate the value of water filtration by wetland areas. In using this approach, however, it is important to keep in mind that because the goods or services replaced probably represent only a portion of the full range of services provided by the DRAFT- July 1998 - Do Not Cite or Quote Page 83 ------- ecological resource, this approach is likely to underestimate the benefits of an action to protect or restore the ecological resource. In addition, this approach should only be applied if the project has been implemented or if society has demonstrated their willingness-to-pay for the project in some other way (e.g., approved spending for the project). Otherwise, there is no indication that the value of the good or service provided by the ecological resource to the affected community is greater than the estimated cost of the project. In a similar context, the cost or estimated value of alternative approaches to achieving an environmental goal (e.g., reduced pollution levels) can be used to estimate the value of changes (most often improvements) to an ecological resource. Under this approach, the estimated benefits of one program designed to protect or improve an ecological resource would be used to estimate the benefits of a different program that is also intended to protect the same resource. For example, the value of reducing NOX emissions, in terms of reduced nitrification of surface water bodies, might be estimated based on the estimated benefits of reducing the flow of nutrients from non-point source run-off to surface water bodies (see also Benefits Transfer). The concept and approach discussed above is different from the restoration/replacement cost approach used commonly in Natural Resource Damage Assessments (NRDA) (and incorporated in damage assessment models developed by the Department of the Interior (DOI) and the National Oceanic and Atmospheric Administration (NOAA)). The NRDA restoration/replacement cost approach uses the cost to restore, rehabilitate, or replace the damaged natural resource, in addition to the value of lost uses during the period when the resource is damaged, to determine how much the polluter should pay in compensation. The problem with using the cost of restoration or replacement as a valuation technique is that there is no direct link between the cost of the restoration activities and the value of the services provided by a natural (ecological) resource that would be lost without restoration. As a result, the estimated cost to restore or replace the natural resource will likely bear little relationship to the true social value or change in the value of the resource. Avoidance Expenditures/Averting Behavior Averting behavior and defensive or avoidance expenditure analyses are more commonly applied in efforts to estimate the benefits of actions that protect or improve human health. However, such approaches also may be applicable in estimating the benefits of actions that improve the state of an ecological resource. This approach is also based on the concept of revealed preference: by choosing to undertake the action, society demonstrates (or reveals) that it values the resource or the improvement of the resource at least as much as the cost of the action designed to protect or improve the resource. Some argue that this approach is inconsistent because few environmental actions and regulations are based solely on benefit-cost comparisons (particularly at the national level). As a result, the cost of a protective action may actually exceed the benefits to society. It is probably more likely, however, that the cost of those actions already taken to protect an ecological resource will underestimate the benefits of a new action to improve or protect the resource. DRAFT- July 1998 - Do Not Cite or Quote Page 84 ------- Using this approach to estimate the benefits of an action that protects an ecological resource, one might look at the expenditures by society to prevent or reduce the negative impacts to the resource as a measure of the value or benefits of that action. For example, the cost of alternative controls to reduce effluent emissions to a water body could be used to estimate the value or benefits of reducing pollutant concentrations in the water body. Bartik (1988) shows formally how changes in defensive expenditures by households to alleviate the negative effects of pollution can be used to estimate the benefits of reducing pollutants. Exhibit 14 presents some of the possible measures for estimating the benefits of reducing pollutant levels using defensive expenditures: Exhibit 14 Estimating the Benefits of Reducing Pollutants Using Defensive Expenditures Pollutant Air Pollution Water Pollution Hazardous Waste Noise Pollution Radon in well water Radon in Soil Underneath House Defensive Expenditure Measures Clean or repaint exterior of house; install air purifiers or new air conditioners; visit the doctor more frequently; move away from pollution source New well; bottled water; water purifiers; move away Similar to both water and air pollution depending upon medium by which hazardous waste affects households Storm windows; thicker walls; move away Filter or aerate water; bottled water; increase house air ventilation; move away Ventilate crawlspace of house; seal foundation of house; use thicker concrete in basement; increase house air ventilation; move away Source: Bartik (1988). Referendum Referendums provide an institutional basis for asking individuals' preferences for certain goods and services and may provide a basis for estimating the value of a particular change. A typical referendum might ask voters if they are willing to pay a specified amount to support a program DRAFT- July 1998 - Do Not Cite or Quote Page 85 ------- that increases the supply of a public good. The decision to vote "yes" is based on the individual voter's assessment of whether the added benefit of the program exceeds the added cost of the payment. Three conditions must exist to use an actual referendum to value a good or service (Mitchell and Carson, 1989): • The same people must vote for different levels of the public good at a fixed tax level or for a fixed level of the good at different tax levels. For example, a situation where a referendum fails and the supporters modify it for the next election; • Different jurisdictions vote on the same level of a good; and • Different jurisdictions vote on different levels of a good. User Fees User fee information, such as entrance fees or other fee receipts, can be used to infer the value individuals place on the use of a specific site, such as a national park. At a minimum, it can be assumed that each visitor values their visit (or use) of the ecological resource by at least as much as they paid as an entrance fee or other charge to use the services provided by the ecological resource. If one assumes that visitors react to increases in entrance fees in the same manner as to increases in travel costs, entrance parameters can be used to trace a demand curve for the site, much in the same way as under a travel cost study where the area under the demand curve is the measure of the value of the ecological resource. In addition, it is possible to use entrance fees or other charges assessed on users as a component of a broader travel cost or random utility model study. Simulated Markets Simulated market studies estimate what a person would pay for a good that is not sold on the market by creating market conditions for that good. Under market conditions, the price that a person will pay for a good or service is the value that the person places on that good or service. Therefore, by mimicking market conditions, one should be able to estimate the value that a person places on public goods and services. This technique can have advantages over other valuation methods, such as contingent valuation and travel cost. Like simulated market studies, these techniques attempt to attach value to public goods; however, they do not simulate market conditions, and therefore certain biases exist that affect their ability to estimate value. There may also be biases associated with simulated market studies, however, due to the potentially limited scope and artificial nature of the study. Additionally, conducting a simulated DRAFT- July 1998 - Do Not Cite or Quote Page 86 ------- market study could be potentially costly. Simulated market studies may be most useful in limited contexts for interpreting the results and biases of contingent valuation, travel cost, and other valuation techniques (Bishop and Heberlein, 1979). Example Simulated Market Study (Bishop and Heberlein, 1979) This study used simulated markets, contingent valuation, and travel cost to estimate the value of goose hunting permits. Goose hunting permits were public goods - hunters wrote in and requested permits for a specific season. Each permit allowed the hunter to take one goose and no fees were charged for the permits. Three samples of hunters were drawn from the total number of hunters who were issued permits. For the simulated market approach, the first sample of hunters received cash offers for their permits by mail; if the hunter accepted the offer, they were to send the permit back, otherwise, the check. The cash offers ranged between $1 and $200. A second sample of hunters received contingent valuation questionnaires in the mail designed to measure the value of the permits. The third sample received travel cost questionnaires designed to estimate a travel cost demand curve. Responses to cash offers yielded a total consumer surplus for the permits of $800,000 total, or $63 per permit. The contingent valuation survey estimated that the average willingness-to-sell was $101 per permit, while the average willingness-to-pay was $21 per permit. The travel cost study estimated costs per permit of $11, $28, or $45 based on the assumptions regarding the value of time (time value equals zero, 1/4 median income rate, and l/2 median income rate, respectively). In theory, the simulated market study approximates the true value of the permit more closely than a contingent valuation study would because real money was used, and people were asked to make a choice similar to the market choices that are made each day. References and Further Reading Adams, R.M. and T.D. Crocker. 1991. "Materials Damages," in Braden, John B. and Charles D. Kolstad, eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Bartik, T.J. 1988. "Evaluating the Benefits of Non-marginal Reductions in Pollution Using Information on Defensive Expenditures." Journal of Environmental Economics and Management, 15: 111-127. Bishop, R.C. and T.A. Heberlein. 1979. "Measuring Values of Extramarket Goods: Are Indirect Measures Biased?" American Journal of Agricultural Economics, December: 926-929. DRAFT- July 1998 - Do Not Cite or Quote Page 87 ------- Braden, J.B. and C.D. Kolstad, eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Freeman, A.M., III. 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.: Resources for the Future. Hanley, N. and C.L. Spash. 1993. Cost Benefit Analysis and the Environment. Brookfield, Vermont: Edward Elgar Publishing Limited. Just, R.E., D.L. Hueth, and A. Schmitz. 1982. Applied Welfare Economics and Public Policy. Englewood Cliffs, New Jersey: Prentice-Hall. Loomis, J.B. 1993. Integrated Public Lands Management: Principles and Applications to National Forests, Parks, Wildlife Refuges, and BLM Lands, Chapter 6, Applying Economic Efficiency Analysis in Practice: Principles of Benefit-Cost Analysis. New York, New York: Columbia University Press. DRAFT- July 1998 - Do Not Cite or Quote Page 88 ------- 6.3.3 TRAVEL COST METHODOLOGIES The travel cost method was developed as a technique to value public recreation sites. This technique incorporates the assumption that individuals visiting a recreational site pay an implicit price for the site's services that includes the cost of travel to the site and the time spent visiting the site. Travel cost models pay special attention to the value of time. To illustrate the concept behind travel cost models, consider, for example, that on a particular day a person chooses to go to work or to a park (or engage in some other activity). The person must first decide whether or not to go to work and, if the person decides to go to the park, he or she must decide how. much time to spend there. The cost of the visit to the park includes the cost of getting to the park, any entry fee that is paid, plus the foregone earnings, or opportunity cost, one could have earned by going to work. If these costs and the number of trips made in one season were assembled for a large population, the unit willingness-to-pay for a certain number of visits could be estimated (Pearce and Turner, 1990). In calculating the average willingness-to-pay for a trip using the travel cost method, it is important to note factors that require careful attention. In determining the number of trips taken by individuals, it is necessary to recognize that some visits may be multi-purpose trips and some trips may be taken by holiday-makers while others may be taken by residents. Furthermore, it may be difficult to accurately calculate distance costs and the value of time associated with visiting the site. These factors may require special attention in order to accurately estimate the value of the resources at the site (Hanley and Spash, 1993). To determine a demand curve for recreation at a specific site, it is necessary to understand that trip costs are like prices. Theory dictates that if prices are lower, people will consume a higher quantity of the good, or, in this case, if trip costs are lower, people will take more trips to the site. By plotting trip cost against the number of trips to the recreation site from different areas, a demand-curve for recreation days can be traced (Loomis, 1993). Typically, travel cost models are used to estimate the demand curve for an individual, although aggregate or market demand for a site might also be modeled. The consumer surplus for an individual visitor is the area under the estimated demand curve but above the trip cost. Because people come from different distances to use the site, consumer surplus is different for each user. People living close to the site "buy" more trips and pay less per trip. Hence, these people receive a much larger consumer surplus than people living farther from the site who "buy" fewer trips and pay more per trip. In other words, people living close to the site are willing to pay more than those living further away to have access to the site or to prevent deterioration of its environmental quality. Total consumer surplus for all individuals is found by adding up all of the trips from all locations and adding up each individual's consumer surplus. The average consumer surplus per trip (or the average demand price) can be used as an estimate of the average willingness-to-pay for a trip (Loomis, 1993). DRAFT- July 1998 - Do Not Cite or Quote Page 89 ------- Shifts in the demand curve due to an improvement in the quality of the site can be used to estimate the change in the value of the site, or the benefit resulting from the improvement.1 Similarly, because environmental quality is expected to influence demand for a site, changes in visitation rates for sites with different levels of environmental quality, holding travel costs constant, can be used to estimate the benefit of changes in environmental quality (Pearce and Turner, 1990). However, the random utility model may be a more appropriate technique when examining the choice between multiple sites. Advantages >• The travel cost method can provide benefit measures for changes in environmental quality from the observed behavior of visitors to recreation sites. > The method can be adapted to many environmental quality issues where changes in quality affect the desirability of a recreation site. >• The method can be implemented using mail, phone, interview surveys, or site registration data. In some cases, data are available from state and federal resource management agencies. Disadvantages > Travel cost studies may over- or underestimate the value of a good or service if they use an inappropriate estimate for the market price of the time that people spend traveling to a recreation site. Economists continue to disagree whether the value of travel time should be based on the person's wage rate, some fraction of their wage rate, or valued at zero (Bishop and Heberlein, 1979). >• The method can provide benefits information only on changes in environmental quality that have a direct effect on the site preferences of recreationists. Quality characteristics that users are indifferent to or unaware of cannot be evaluated. > Exclusion of alternative recreation sites and their characteristics (environmental quality and other site features) from the travel cost model may bias the benefit estimates. >• Environmental quality and other site characteristics may be difficult to describe in quantitative terms. 'Because the travel cost method does not provide for estimation of the theoretically correct measure of WTP for a site or for changes in the environmental quality at a site, such estimates should be used cautiously. Furthermore, because of this potential limitation, one might consider the appropriateness of utilizing a method of exact welfare measurement, where the functional form for the travel cost demand curve is derived from an explicit specification of the individual's utility function (Freeman, 1993). DRAFT- July 1998 - Do Not Cite or Quote Page 90 ------- Data Requirements Travel cost models typically have the following data needs: (1) the county of residence or zip code for users of the recreation site, population size, and summary measures for features of the population in each origin zone; (2) round-trip mileage to the site and to substitute sites; (3) mode of transportation; (4) vehicle operating costs per mile and implicit time cost of travel; and (5) data on on-site characteristics, such as size, number, location, and type of facilities. Typically, this information is collected through surveys using phone, on-site, or mail surveys, or by acquiring site registration data. Example Travel Cost Study (Bockstael et a/., 1989) A travel cost model was used to estimate the value of improved water quality to Maryland beach users on the western shore of the Chesapeake Bay. Water quality was measured as the product of the concentrations of nitrogen and phosphorous in the water at the monitoring site nearest to the beach in question. Data for the model was obtained from a survey of 484 people at 11 public beaches in the study area. The model was used to calculate the willingness to pay for a 20 percent improvement in water quality - that is, a 20 percent reduction on total nitrogen and phosphorus. The average annual aggregate benefits to beach users of water quality improvement were estimated to be $35 million (1984 dollars). The long-run benefits to beach users of water quality improvements may be higher than the estimates reported, however, for several reasons. First, as people learn that the Bay has become cleaner, they will adjust their preferences toward beach recreation. People who do not currently use the Bay beaches will be especially likely to make this change. Additionally, the population and income of the area have grown and are likely to continue growing, increasing the demand for and value of the water quality improvements. Finally, the estimates given ignore households outside the Baltimore-Washington Statistical Metropolitan Sampling Area. References and Further Reading Bishop, R.C. and T.A. Heberlein. 1979. "Measuring Values of Extramarket Goods: Are Indirect Measures Biased?" American Journal of Agricultural Economics, December: 926-929. Bockstael, N.E., K.E. McConnell, and I.E. Strand. 1991. "Recreation." in Braden, J.B. and C.D. Kolstad,eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Bockstael, N.E., K.E. McConnell, and I.E. Strand. 1989. "Measuring the Benefits of Improvements in Water Quality: The Chesapeake Bay." Marine Resource Economics 6(1): 1-18. DRAFT- July 1998 - Do Not Cite or Quote Page 91 ------- Fletcher, J., W. Adamowicz, and T. Graham-Tomasi. 1990. "The Travel Cost Model of Recreation Demand." Leisure Sciences 12: 119-147. Freeman, A.M., III. 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.: Resources for the Future. Hanley, N. and C. Spash. 1993. Cost Benefit Analysis and the Environment. Brookfield, Vermont: Edward Elgar Publishing. Loomis, J.B. 1993. Integrated Public Lands Management: Principles and Applications to National Forests, Parks, Wildlife Refuges, and BLM Lands, Chapter 6, Applying Economic Efficiency Analysis in Practice: Principles of Benefit-Cost Analysis. New York: Columbia University Press. McConnell K. and I. Strand. 1981. "Measuring the Cost of Time in Recreation Demand Analysis." American Journal of Agricultural Economics: 153-156. Pearce, D.W. and R.K. Turner. 1990. Economics of Natural Resources and the Environment. Maryland: The Johns Hopkins University Press. Willis, K. and G. Garrod. 1991. "An Individual Travel Cost Method of Evaluating Forest Recreation." Journal of 'Agricultural Economics 42(1): 33-42. DRAFT- July 1998 - Do Not Cite or Quote Page 92 ------- 6.3.4 RANDOM UTILITY MODEL The random utility model is a popular method to estimate consumers' recreational demand. The random utility model is also known as a "discrete choice model" because it is used to study people's choices between one or more alternatives. The term "random" refers to the fact that the model cannot directly observe people's decision processes. The economist observes the final decision but must assume the decision process is logical and well ordered, with people choosing the alternative providing the greatest possible level of satisfaction. The lack of direct observation is what makes the process "random" to an economist. With respect to valuing changes to ecological resources, the use of random utility models focuses on the choices individuals make among substitute sites for any given recreational trip rather than the number of trips a recreationist takes to a given site in a season, as with the travel cost model. The random utility model is especially suitable when the selection of alternatives or substitutes differ in terms of their quality or other characteristics. The random utility model is particularly appropriate when there are many substitutes available and when the change being valued is a change in a specific quality characteristic of one or more sites, such as catch rates or water quality. The random utility model can also be used to value the benefits of introducing a new site (EPA, 1995). The characteristics of the alternative sites that are used in the estimation of the model are instrumental in explaining how people allocate their trips across sites. Sometimes information on the characteristics of the individuals making the choices are also used in estimating a random utility model. Advantages >• The random utility model can provide benefit measures for changes in environmental quality from the observed behavior of visitors to recreation sites. >• The method can be adapted to many environmental quality issues where changes in quality affect the desirability of a recreation site. > This technique is preferred over the travel cost model for handling the issues of substitute sites and environmental quality considerations. Disadvantages >• An inappropriate estimate for the value of time that people spend traveling to a site can adversely affect the estimated value of the good or service. U S EPA Headquarters Library Mai! code 3201 1200 Pennsylvania Avenue NW Washington DC 20460 DRAFT- July 1998- Do Not Cite or Quote Page 93 ------- >• The method can provide benefits information only on changes in environmental quality that have a direct effect on the site preferences of recreationists. Quality characteristics that users are indifferent to or unaware of cannot be evaluated. >• Specification as with all techniques and estimation procedures can have a significant impact on benefit estimates. >• This technique requires a significant amount of data. >• Benefit estimates may be biased if: (1) known substitute sites are not included in the model or (2) additional substitute sites are included in the model that are unknown to the individuals surveyed. Data Requirements The random utility model has data needs similar to those of the travel cost model, including the cost of travel to the site or information to estimate the cost (i.e., distance traveled, any fees paid, plus the value of the individual's time) and characteristics of the chosen site and alternative sites. In addition, the researcher needs to know what alternative sites are considered by recreationists and may want to collect information on the characteristics of the individuals (e.g., education, income, other sociodemographic information). Additionally, accurate measurement of the characteristics of the alternative sites is necessary. Example Random Utility Study (Englin et at., 1991) This study uses both the random utility model and the travel cost method to estimate the damages to recreational trout fishing in the Upper Northeast due to acidic deposition. Data was collected on freshwater recreational trips made during the summer of 1989 by 5,724 randomly selected individuals in four Northeastern states: Maine, New Hampshire, New York, and Vermont. Changes in acidic deposition were expected to impact fish populations by changing acidic stress levels, thereby changing catch rates of various species. An angler's well-being should change when a change in the catch rate causes him or her to enjoy a site less (more) or results in a decision to change sites and travel farther (closer). The two models are based on the premise that the cost of travel to a site can be used to represent the price of a recreational fishing site. The random utility model provides estimates of changes in the value per choice occasion based on the relevant changes in the quality characteristics of the sites available to anglers. The model estimates that damages from acidic deposition are approximately $0.12 per trip. The travel cost model estimates the marginal willingness to pay for a marginal increase in each attribute. With this technique, the willingness to pay for no damages from acidification was found to be $0.02 per trip. ^^^^^^^^ DRAFT- July 1998 - Do Not Cite or Quote Page 94 ------- References and Further Reading Bockstael, N.E., K.E. McConnell, and I. Strand. 1989. "A Random Utility Model for Sportfishing: Some Preliminary Results for Florida." Marine Resource Economics 6(1989): 245-260. Englin, J.E., T.A. Cameron, R.E. Mendelsohn, G.A. Parsons, and S.A. Shankle. 1991. Valuation of Damages to Recreational Trout Fishing in the Upper Northeast due to Acidic Deposition. Richland, Washington: Pacific Northwest Laboratory. Prepared for National Acidic Precipitation Assessment Program. Hanemann, W.M. 1984 "Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses." American Journal of Agricultural Economics, August, 66: 332-341. Kaoru, Y., V.. K. Smith, and J.L. Liu. 1995 "Using Random Utility Models to Estimate the Recreational Value of Estuarine Resources." American Journal of Agricultural Economics, February, 77: 141-151. Smith, V.K. 1989 "Taking Stock of Progress with Travel Cost Recreation Demand Methods: Theory and Implementation." Marine Resource Economics 6: 279-310. U.S. EPA, Oceans and Coastal Protection Division. 1995. Assessing the Economic Value of Estuary Resources and Resource Services in Comprehensive Conservation and Management Plan (CCMP) Planning and Implementation, A National Estuary Program Environmental Valuation Handbook. Washington, D.C. DRAFT- July 1998 - Do Not Cite or Quote Page 95 ------- 6.3.5 HEDONIC PRICE AND HEDONIC WAGE METHODOLOGIES Hedonic methods typically use residential housing prices or labor wage rates, as well as other data, to measure the value of specific characteristics of a home, property, or job. These analyses identify the indirect linkage between environmental quality and the market price of a good or service, such as a residential property or employment opportunity, and use this linkage to estimate the implicit price, or benefit, of improvements in environmental quality. Under appropriate conditions, this implicit price can be interpreted as an individual's willingness-to-pay for environmental quality. In other situations, however, it is very difficult, if not impossible, to measure the welfare effects of a change to a specific characteristic, such as environmental quality. Nonetheless, the hedonic approach can still be useful for estimating a demand function for an environmental quality characteristic, such as the demand for proximity to a water body or distance from a hazardous waste facility. Hedonic Price The hedonic price, or property valuation, technique uses the assumption that the price of a house is a function of the characteristics of the home such as the quality of the surrounding neighborhood, the location of the home relative to business centers, and environmental characteristics including local air and water quality. The hedonic property model focuses on how changes in environmental quality affect property values by studying data from housing markets in different areas. Studying the relationships between changes in property values and differences in environmental quality can sometimes be used to determine an individual's willingness-to-pay for improved environmental quality (Palmquist, 1991). The graph below illustrates the relationship between environmental quality and property values that might be uncovered by the hedonic property model. It shows that property values rise at a declining rate as the pollution level decreases or environmental quality improves. Figure 1 Graphic Illustration of a Hedonic Price Equation for an Environmental Quality Attribute (Pearce and Turner, 1990) Property A Price, PF I Slope of PP Pollution Level Environmental Quality, E DRAFT- July 1998 - Do Not Cite or Quote Page 96 ------- When a change in environmental quality affects a large population, however, the hedonic property model alone may not be adequate to measure the change in welfare, or willingness-to- pay, and a more complicated analysis is required. In this case, some knowledge of the consumers' preferences and a knowledge or a forecast of the change in the hedonic price equation (represented by PP' in Figure 1) is necessary (Palmquist, 1991). A full discussion of this issue is beyond the scope of this document. In valuing changes in environmental quality, the hedonic approach attempts to do two things: • Identify how much of a property price differential is due to a particular environmental difference between properties; and • Infer how much people are willing to pay for an improvement in the environmental quality they experience (Pearce and Turner, 1990). For example, all other things being equal, one would expect prices of houses in neighborhoods with clean air to be higher than prices for houses in neighborhoods with polluted.air. By comparing the market values of similar houses in areas with different levels of air quality, one may be able to determine that part of the difference in the price of housing in the two areas can serve as a measure of the value of clean air (Tietenberg, 1992). Example Hedonic Pricing Study (Palmquist et«/., 1997) Palmquist, Roka, and Vukina used the hedonic pricing model to analyze the effects of hog operations on nearby houses. The authors examined the amount of hog manure located at varying distances from residential properties. Their purpose was to determine whether the presence of hogs influenced property values. Results from the hedonic model show that the presence of hog operations had a statistically significant negative effect on nearby property values. Changes in house values decreased as much as approximately $5,000 for a home located within Vz mile of a projected hog operation and as little as $1 for homes located 2 miles from the projected site in an area with higher concentrations of hog operations. The results indicated that the strongest negative impacts occurred closest to the hog operation and that effects on property value decreased as distance to the operations increased. Furthermore, in areas of high concentrations of hog operations, growth of hog operations experienced smaller negative effects than those areas with low concentrations of hog operations. DRAFT- July 1998 - Do Not Cite or Quote Page 97 ------- Example Hedonic Pricing Study (Edwards and Anderson, 1984) Edwards and Anderson performed a hedonic price analysis that related the value of a house and its lot to characteristics of the house such as square footage, number of bathrooms, age, size of lot, and the following coastal zone characteristics: distance to a salt pond or ocean, frontage on a salt pond or ocean, and the presence of a view of the pond or ocean from the property. Their purpose was to determine the lost economic value to property owners associated with a zoning restriction in Narragansett Bay, Rhode Island. The results of the study suggest that the saltwater view and proximity to a salt pond are valued attributes of houses in the region. Using the estimated hedonic price equation, an approximate value of a water view was $5,790. It was further estimated that a land use policy restricting residential zoning in the salt pond region to protect groundwater supplies and water quality would result in lost opportunities for water view and water frontage locations valued at approximately $407,200. Opportunity cost, defined as the difference between the marginal implicit price of distance from a salt pond for houses with average attribute levels in the salt pond region versus the northern section of the study region, was estimated to be $509. Hedonic Wage The hedonic wage technique is based on the presumption that, other things being equal, workers will prefer jobs with more pleasant working conditions. As the number of people seeking out the more pleasant jobs increases, the wages offered for such jobs will fall. Conversely, employers will have to raise the wage they offer for jobs with less pleasant working conditions to attract employees to these jobs. Therefore, at an equilibrium, the monetary value of better working conditions will be reflected in the difference in wages between two jobs with different working conditions (Freeman, 1993). Hedonic models are generally used to perform two types of valuations. The first, and more common, usage concerns the value of reducing the risk of death, injury or illness. In labor markets, workers that face higher levels of environmental or other job-related risk are compensated for that risk with higher than average wages. By estimating the dollar amount by which wages are increased to compensate workers for the greater risk, one can value the benefits that would be conferred by a reduction in the risk of death, injury, or illness (Tietenberg, 1992). Hedonic wage studies used to value the risk of illness or mortality may produce inaccurate results, however, if they do not account for the possible self-selection of less risk averse individuals into riskier jobs. Hedonic wage techniques can also be used, however, to value the environmental, social, and cultural amenities that vary across regions. This usage assumes that those cities and regions that are more desirable places to live and work in will attract workers from less desirable regions. As a result, employers in more desirable locations will pay lower wages, on average, than employers DRAFT- July 1998 - Do Not Cite or Quote Page 98 ------- in less desirable locations for a worker with the same training and experience. Hedonic wage models try to measure the differences in wages between regions, or the "compensating wage differential," to estimate the monetary value of differences in amenities (Freeman, 1993). Example Hedonic Wage Study (Bayless, 1982) Bayless used a hedonic wage analysis to relate the wages paid to academic professors and the air quality of the surrounding area. Bayless estimated a hedonic wage equation for salary of professors that incorporated pollution measures, as well as factors of productivity and locational characteristics. Bayless then used the hedonic wage equation to estimate a demand function for clean air, which was then used to estimate the willingness-to-pay for better air quality. This analysis found that the professors would be willing to pay approximately $100 to $400 to move from areas of low air quality to high air quality. Willingness-to-pay values increased as the disparity in air quality between locations increased. Advantages >• The hedonic techniques use market data on property sales prices and labor wages, these data are usually available through several sources and can be related to other secondary data sources to obtain descriptive variables for the analysis. >• The technique is versatile and can be adapted to consider several possible interactions between market goods and environmental quality. >• The hedonic method provides estimates of individuals' preferences for changes in environmental quality, which, under special conditions, can be interpreted as benefit measures. Disadvantages >• The assumptions necessary to interpret the results of the hedonic technique as benefit measures are restrictive and, in many real world settings, implausible. Market equilibrium conditions require full knowledge of environmental effects that may be imperceptible to the physical senses. For example, if there are subtle long-term changes in water quality associated with some housing sites but people are unaware of the causal link of the effects to the housing site, their willingness-to-pay to avoid the effects will not be reflected in housing price differences. >• Benefit estimates from a single product class will likely only capture a part of an individual's preferences for environmental quality. Property value models, for instance, are based on the consequences of individuals' choices of residence and DRAFT- July 1998 - Do Not Cite or Quote Page 99 ------- therefore do not capture willingness-to-pay for improvements in environmental amenities at other points in the area, such as parks and recreational areas. >• The estimating equations used for the hedonic technique may be statistically sensitive to model specification and estimation decisions. Appropriate tests for unbiasedness in housing and wage studies are still being developed. >• Complete data on property or job characteristics may be difficult and expensive to gather, especially environment related characteristics. The omission of relevant characteristics and/or interactive environmental effects may reduce the validity of benefit estimates. Data Requirements Data needs include sales or income, prices, wage data, characteristics of houses sold or jobs, and environmental amenity characteristics for each area of interest. This data can be collected from organizations such as multiple listing agencies, local tax assessors, and federal government agencies. Environmental quality data may be available from state, regional, or federal agencies and databases. Data collection, therefore, can often be time-consuming because of the effort required to gather data from a range of sources. The data sets can be gathered from markets that are separated either spatially or temporally or from a single market, although data from multiple markets tend to capture variation in price schedules, which may yield more accurate results. Additionally, while the data may be available, another problem may be the question of how individuals perceive their environment and whether individuals are aware of the quality of their environment. Most hedonic analysis use objective measures of environmental quality. However, some researchers have used subjective indicators, such as visibility, to determine environmental quality (Palmquist, 1991). References and Further Reading Bartik, TJ. 1988. "Measuring the Benefits of Amenity Improvements in Hedonic Price Motels." Land Economics 64(2): 172-183. Bayless, M. 1982. "Measuring the Benefits of Air Quality Improvements: A Hedonic Salary Approach." Journal of Environmental Economics and Management 9(2): 81-99. Edwards, S.F. and G.D. Anderson. 1984. "Land Use Conflicts in Coastal Zone: An Approach for the Analysis of the Opportunity Costs of Protecting Coastal Resources." Journal of the Northeastern Agricultural Economics Council 13(1): 78-81. Freeman, A. M., III. 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.: Resources for the Future. DRAFT- July 1998 - Do Not Cite or Quote Page 100 ------- Palmquist, R. 1991. "Hedonic Methods." in Braden, John B. and Charles D. Kolstad, eds. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Palmquist, R.B., P.M. Fritz, and T. Vukina. 1997. "Hog Operations, Environmental Effects, and Residential Property Values." Land Economics 73(1): 114-124. Pearce, D.W. and R.K. Turner. 1990. Economics of Natural Resources and the Environment. Maryland: The Johns Hopkins University Press. Tietenberg, T. 1992. Environmental and Natural Resource Economics. HarperCollins Publisher. DRAFT- July 1998 - Do Not Cite or Quote Page 101 ------- 6.3.6 CONTINGENT VALUATION Contingent valuation studies rely on surveys to ascertain respondent preferences for environmental goods and services by determining how much someone is willing to pay for changes in the quantity or quality of the good or service. These methods do not depend on market data; instead they establish a hypothetical market that gives survey respondents the opportunity to purchase the good or service. The dollar value that individual respondents are willing to pay for the good or service, when aggregated, can provide a means to value the good or service "sold" in the hypothetical market (Mitchell and Carson, 1989). Because this method does not rely on market data, it can be applied to a variety of environmental quality issues for which market-based information is not available. Contingent valuation is a technique whereby people are asked what they are willing to pay for a benefit or what they are willing to receive by way of compensation to tolerate the loss of a good or service. The individual responses are aggregated to derive a demand curve for the good or service. A contingent valuation study is conducted either by written survey, interview, or some combination, and it generally consists of four parts: • Background information on the situation and possible changes to be made. • A detailed description of the good(s) or change to the good(s) being valued and the hypothetical method of payment. • Questions to elicit the respondents' willingness-to-pay for the good(s) or the change being valued. • Questions to collect sociodemographic (e.g., age, income); to validate the WTP response (e.g., what are their preferences relevant to the good(s) being valued, why did they give that dollar value); and to model their use of the good(s) (e.g., how frequently they visit the site). The aim of contingent valuation is to elicit valuations, or "bids," that are close to those that would be revealed if an actual market existed. The questioner, questionnaire, and respondent therefore, must represent as real a market as possible. For example, the respondent should be familiar with the good in question, such as improved scenic visibility, and with the hypothetical means of payment, such as a local tax or entry charge. Several individuals and groups have identified specific criteria for conducting reliable contingent valuation studies (Bjornstad and Kahn, 1996; Arrow et al, 1993; and Carson et al, 1996). DRAFT- July 1998 - Do Not Cite or Quote Page 102 ------- Generally, these criteria include (at a minimum): • Interview a large sample of the affected population; • Achieve a high response rate; • Conduct in-person interviews when feasible; • Pre-test the questionnaire for interview effects and other potential biases; • Provide an accurate description of the event, program, or policy choice and the commodity to be valued; and • Remind interviewees of their budget constraints and the availability of comparable goods and services. While these guidelines are useful in assessing the reliability of a contingent valuation study, less restrictive and less costly approaches may be appropriate for informing policy decisions. Advantages X The contingent valuation method can be used to estimate the benefits of a variety of environmental effects for which market or secondary data are not available. X Comparisons of benefit measures from contingent valuation studies with benefit estimates from other direct and indirect market techniques suggest that respondents can generally provide reasonable and consistent values for changes in environmental quality. X Contingent valuation methods are the only methods available for estimating non-use values (e.g., existence values). X The willingness-to-pay estimates from contingent valuation include both the use and nonuse value of the good or service. X Survey-based contingent valuation methods can capture respondents' attitudinal and behavioral information that are not available in other non-survey based valuation techniques. Disadvantages X The contingent valuation method is based on hypothetical situations in which it is difficult to verify whether expressed preferences are consistent with actual or planned DRAFT- July 1998 - Do Not Cite or Quote Page 103 ------- behavior. Attempts to minimize the hypothetical nature of the process may only be partly successful. > Survey participants learn about their preferences for environmental quality during the valuation exercise. Survey design features may have a significant effect on this learning process and lead to responses that may not represent participants' true preferences. Conditional choice settings that are not at least partly familiar to the respondent may lead to uncertain responses. >• Survey research is costly and time-consuming. National benefit estimates require properly designed sampling and enumeration procedures. Respondent refusals to consider environmental tradeoffs, as discussed in the choice exercises can raise questions regarding the validity of the benefit estimates. >- Participants in a contingent valuation study may provide unrealistically high answers if they believe that they will not have to pay for the good or service, but expect that their answer may influence the resulting supply of the good. This could lead to an overestimate of the actual willingness-to-pay. >• If participants believe that they might have to pay for the good or service based on the results of the survey, they might answer in such a way to keep the price low, and thereby cause surveyors to underestimate the value of the good or service (Bishop and Heberlein, 1979). Example Contingent Valuation Study (Whittington etal., 1994) A contingent valuation survey was conducted of randomly selected households in the Greater Houston-Galveston Area to assess residents' willingness-to-pay for improvements in Galveston Bay's environmental quality and ecological health. In total, 234 interviews were completed in a mail/in-person follow-up survey, and 393 interviews in a mail-only survey. The analysis of responses showed that high-income respondents were more likely to vote for the management plan at a given price than low-income respondents; that users of the Bay were more likely to support the plan than passive users; and that people in general were less likely to vote for the management plan as the price of the plan presented as a monthly surcharge on their water bill increased Based on the results of the mail-only contingent valuation survey, after adjusting results to account for differences between the socioeconomic profiles of respondents and the population of the study area, the authors estimated that the average household in the Greater Houston-Galveston Area is willing to pay approximately $7 per month, or about $80 per year, over five years for the management plan described in the questionnaire. DRAFT- July 1998 - Do Not Cite or Quote Page 104 ------- Elicitation Methods There are several elicitation methods that are used in contingent valuation studies to determine an individual's willingness-to-pay. These methods represent different approaches for asking the respondent about their willingness-to-pay. The four methods discussed here include: • Direct, open-ended questioning • Payment card • Referendum/dichotomous choice • Iterative bidding games Each of these approaches is described below. Direct Open-Ended Questioning When using the direct open-ended questioning method, respondents are asked directly, "How much would you be willing to pay for the change in the good or service described?" Although the most obvious approach, it is also one of the most problematic methods. Advantages >• Does not require pre-testing to determine an appropriate range for values as do the payment card and referendum voting methods. Disadvantages >• Difficult for people to respond to an open-ended question because they are usually not accustomed to valuing environmental goods and services and typically do not face this type of question in a market situation. > May result in a high non-response rate and high number of extreme values (e.g., zeros and very large values). Payment Card The payment card method incorporates properties similar to the direct questioning approach but increases the response rates of willingness-to-pay questions. The payment card method asks the DRAFT- July 1998 - Do Not Cite or Quote Page 105 ------- respondent to choose a willingness-to-pay amount from a card with a range of possible willingness-to-pay amounts usually starting from $0. The card sometimes indicates the average amount households of the same income range are willing to pay for other public goods (Mitchell and Carson, 1989). The respondent is then asked, "What amount on this card or any amount in between is the most that you would be willing to pay for the level of good being proposed? Advantages >• Provides more of a context for the respondent to provide a value. >• Easier for respondent to select a value than to respond to an open-ended question. Disadvantages >• Susceptible to biases associated with the ranges shown on card and the benchmark values provided by other households in the same income range. Referendum Voting/Dichotomous Choice Referendum voting/dichotomous choice is a technique where an individual is offered a fixed quantity of a good at a fixed price on a take-it-or-leave-it or yes-no basis. This is currently the favored approach for eliciting willingness-to-pay (WTP) estimates from survey respondents. Referendum voting as an elicitation method for contingent valuation differs from the use of actual referendum data described under Market-Based Valuation Approaches, in that a contingent valuation study referendum vote is a hypothetical scenario. While often referred to interchangeably, referendum style format and dichotomous choice can be distinct approaches. A survey could use a referendum scenario with more than two voting options (see example from contingent referendum section) and dichotomous choice could be used without a referendum scenario. Observing and analyzing the choices that individuals make through these techniques reveals the value of the good as it relates to the offered price (Freeman, 1993). For example, if someone accepts an offer to pay $10 a year in additional property taxes to preserve a wilderness area, it can be assumed that the person values the area by at least $10. If the resource was valued at less than $10, the person would not have accepted the $10 fee in a vote. However, the person may value the resource at more than $10 a year, and unless iterative voting is permitted, it would be impossible to determine the maximum that the voter is willing to pay. For this reason, referendum or dichotomous choice questions are often presented with one or two follow-up questions that present the respondent with a second choice scenario. This two-stage, or double- bounded, approach increases the statistical efficiency of the valuation estimate and reduces the necessary sample size. DRAFT- July 1998 - Do Not Cite or Quote Page 106 ------- Advantages X Voting is a familiar social context, therefore respondents are likely to feel comfortable answering this type of question. >• A vote provides a simple decision problem (either "yes" or "no"). >• If the referendum questions are asked without an implied value judgment, there should be no starting point bias affecting the answers (Freeman, 1993). > Recent analysis has found the referendum question format to be strategic compatible (i.e., respondents are not expected to provide unrealistically high or low values for strategic purposes of supporting or suppressing the proposed (action). Disadvantages >• Referendum voting requires more data and a larger sample size than direct questioning. >• The outcome of referendum voting may be dependent on the distribution of offered bids, particularly the highest offered bid, because some respondents may be yea- saying or agreeing to pay any bid, no matter how high. >• Outcomes of referendum voting may be dependent on the statistical methods used to analyze the responses. Example Contingent Valuation Study (Carson et a/., 1996) A contingent valuation study using the referendum voting elicitation method was conducted by the National Opinion Research Center in 1993 of 1,182 residents in 12 U.S. cities to estimate the willingness-to-pay of individuals for a plan to provide two Coast Guard ships to escort oil tankers through the Prince William Sound to prevent future accidents and injuries due to oil spills. Willingness-to-pay was measured in terms of a one-time addition to Federal income taxes. During personal interviews, respondents were asked if they would be willing to pay a $10, $30, $60, or $120 one-time payment (each respondent was randomly assigned a dollar value). Based on the number of individuals willing to pay each dollar amount, the expected willingness-to-pay per individual was estimate to range from $50.61 to $52.81. DRAFT- July 1998 - Do Not Cite or Quote Page 107 ------- Iterative Bidding Games Generally bidding games are conducted through personal interviews where the interviewer iteratively questions the respondent. Questions are structured to lead to a "yes" or "no" response. For example, to estimate the value of environmental improvements, the interviewer might ask, "Would you continue to use this area if the cost to you was to increase by X dollars?" or "Would you be willing to pay an increase in your monthly electric bill of X dollars for Y reduction in air pollution?" The amount is varied with the same individual and the highest "yes" answer is recorded. Advantages >• Able to get maximum willingness-to-pay from each individual surveyed. > May not require as large a sample as other approaches. Disadvantages >• The outcomes of bidding games have been found to be highly dependent on the starting point, or first offered bid. >- It can be difficult to develop a credible bidding game; the situation presented to survey respondents must be realistic and credible to the participants. Because of these difficulties, few recent contingent valuation surveys use bidding games to elicit values. Data Requirements The primary data for a contingent valuation analysis are acquired from a clearly defined and pretested survey of people who are representative of an affected population. A representative sample of the affected must be identified to allow extrapolation to the full affected population. Some additional research may also be required to determine the extent of the affected population or market for the good or service affected by the proposed action. The survey should generate data on respondents' willingness-to-pay for (or willingness-to-accept) a program or plan that will affect their well-being, as well as sociodemographic information and other data required to test for potential biases. A critical component of the data collection or survey implementation is the transfer of information to respondents about the resource, resource service, or action they are being asked to value. Photographs, verbal descriptions, video, and other multimedia techniques are commonly used to convey this information. In conducting a DRAFT- July 1998 - Do Not Cite or Quote Page 108 ------- contingent valuation survey, the quality of the results depends in large part on the amount of information that is known beforehand about the way people think about the good or service in question. References and Further Reading Arrow, K., R. Solow, P.R. Portney, E.E. Learner, R. Radner, and H. Schuman. 1993. "Report of the NOAA Panel on Contingent Valuation." Federal Register, January, Vol. 58(10): 4601-4614. Bishop, R.C. and T.A. Heberlein. 1979. "Measuring Values of Extramarket Goods: Are Indirect Measures Biased?" American Journal of Agricultural Economics, December: 926-929. Bjornstad, D.J. and J.R. Kahn, eds. 1996. The Contingent Valuation of Environmental Resources: Methodological Issues and Research Needs. Brookfield, Vermont: Edgar Elgar Publishing Ltd. Carson, R.T. et al. 1996. " Was the NOAA Panel Correct About Contingent Valuation? " Washington, D.C.: Resources for the Future. Freeman, A.M., III. 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.: Resources for the Future. Mitchell, R.C. and R.T. Carson. 1989. Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington, D.C.: Resources for the Future. Mitchell, R.C. and R.T. Carson. 1986. The Use of Contingent Valuation Data for Benefit/Cost Analysis in Water Pollution Control. Washington D.C.: Resources for the Future. Mitchell, R.C. and R.T. Carson. 1984. An Experiment in Determining Willingness to Pay for National Water Quality Improvements. Washington D.C.: Resources for the Future. Randall, A., B. Ives, and C. Eastman. 1974. "Bidding Games for Valuation of Aesthetic Environmental Improvements." Journal of Environmental Economics 1: 132-149. Whittington, D., et al. 1994. The Economic Value of Improving the Environmental Quality of Galveston Bay. Galveston National Estuary Program. Publication GBNEP-3B. DRAFT- July 1998 - Do Not Cite or Quote Page 109 ------- 6.3.7 COMBINING CONTINGENT VALUATION WITH OTHER APPROACHES: CONTINGENT ACTIVITY In a contingent activity, or contingent behavior, study individuals are asked how they would change their behavior in response to a change in an environmental amenity. For example, one could use a contingent activity to estimate how a demand function for visits to a recreational site would shift with a change in one of the site's environmental attributes. Assuming that one has already estimated the demand for visits to a site under current conditions, the analyst asks visitors how their visitation behavior would change as a result of a change in an environmental attribute of the site (e.g., change in water quality). This information can then be used to estimate a shift in the demand curve for visits to the site (Freeman, 1993). In essence, a contingent activity approach combines the technique of contingent valuation with other valuation approaches used to model demand for a particular good or service to extend the application of these models to other scenarios. Recently, analysts have explored more advanced approaches for using travel cost data in combination with contingent valuation data to estimate a single joint model of individual's preferences and demand for a particular good or service (Cameron, 1992). Future analysis is expected to also explore the use of travel cost information and contingent valuation responses to estimate a random utility or discrete-choice model. Jointly soliciting contingent valuation responses with other data, such as travel cost data or site-selection data, both (1) expands the ability of the model to account for both current users and non-users in characterizing demand and (2) lends credibility to the contingent valuation information. Advantages >• Can expand the applicability of existing valuation analyses. >• Potentially will allow for more complete characterization of demand by accounting for both current users of the resource and non-users. Disadvantages >" The theoretical models and applied approaches for estimating demand using combined data are technically complex and not thoroughly developed. DRAFT- July 1998 - Do Not Cite or Quote Page 110 ------- Example of Combining Contingent Valuation and Travel Cost Data (Cameron, 1992) In this study, Cameron combines contingent valuation responses and travel cost data on actual behavior collected through a single survey instrument to estimate a joint model of individual's preferences and demand for fishing days. The in-person survey, conducted by the Texas Department of Parks and Wildlife, asked 3,366 respondents: (1) If they would have participated in salt-water fishing if their total annual cost was $X more, where the additional dollar amount was randomly chosen from $50 to $20,000; (2) How much they will spend on their current fishing trip; and (3) How many trips they took over the last year. The estimated model of demand for fishing days was then used to value greater and lesser restrictions on days of access. Specifically, Cameron estimated that a 10 percent reduction in fishing days would result in a $35 loss in welfare, on average. The complete loss of access was estimated to result in a $3,451 loss in welfare, on average. References and Further Reading Cameron, T.A. 1992. "Combining Contingent Valuation and Travel Cost Data for the Valuation of Nonmarket Goods." Land Economics, August, 68(3): 302-17. Freeman, A.M., III. 1993. The Measurement of Environmental and Resource Values: Theory and Methods, Washington, D.C.: Resources for the Future. Mitchell, R.C. and R.T. Carson. 1989. Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington, D.C.: Resources for the Future. DRAFT- July 1998- Do Not Cite or Quote Page 111 ------- 6.3.8 CONJOINT ANALYSIS AND CONTINGENT RANKING This section introduces the reader to conjoint analysis, a technique applied fairly recently to the valuation of environmental quality, and the more familiar approach of contingent ranking, which actually represents one type of conjoint analysis. Conjoint Analysis Conjoint analysis is a technique developed by marketing analysts used to value consumer preferences for specific features of goods or services. First, a composite good is separated into its constituent attributes. Then, individuals are surveyed regarding their relative preferences for alternative bundles of attributes, with multiple attributes varying simultaneously. The information gathered from survey respondents can then be used to calculate the marginal rates of substitution between the constituent attributes. By including price as one of the attributes, it is possible to rescale the utility index in dollars and derive estimates of willingness-to-pay for particular attribute bundles. Conjoint analyses generally fall into one of three types: ranking (same as contingent ranking approach discussed below), paired rating, and discrete choice. In a ranking study, respondents are often given several cards. Each card shows a unique product or program composed of specific attribute levels. Respondents are asked to put these cards in order - from their most preferred to least preferred product or program. Alternatively, with the pairwise rating technique, respondents are shown two different products or programs simultaneously. Respondents are asked which product they prefer, and answer by supplying a rating within some range of number, for example, 1 to 9, where 1 indicates a strong preference for the first program, 9 indicates a strong preference for the second program, and 5 indicates indifference between the two programs. Finally, the discrete choice technique provides respondents with several different products or programs simultaneously and simply asks them to identify the most-preferred alternative in the choice set. Conjoint analysis can be a useful technique in the valuation of improvements to ecological resources, given that several service flows are often affected simultaneously. For example, improved water quality in a lake will improve the quality of several services provided by the lake such as a cleaner drinking water supply, increased fishing and boating usage, and increased biodiversity. Conjoint analysis allows the valuation of these service flows both individually and as a whole. The technique also allows respondents to systematically evaluate trade-offs between multiple environmental attributes or between environmental and non-environmental attributes (Johnson etal, 1995). DRAFT- July 1998 - Do Not Cite or Quote Page 112 ------- Example Conjoint Analysis Study (Mackenzie, 1992) This study develops a conjoint measure approach to evaluate unpriced attributes for recreational waterfowl hunting trips in Delaware. First, focus interviews were conducted with various hunters to identify major attributes of hunting trips that influence trip preferences. Four plausible levels were chosen for each of the following attributes: • Travel time (1, 2, 4, or 8 hours each way) Trip cost per day ($25, $50, $100, or $200) • Type of hunting party (alone, with casual acquaintances, with close friends, or with, family) • Site congestion (none, slight, moderate, heavy) • Hunting success (none, one duck, three ducks, three ducks and one goose) Annual license fee (for state residents: $15, $20, $25, or $30; else: $45, $50, $60, or $80) A mailback survey questionnaire was designed to measure the relative preferences for these attributes by asking respondents to rank trip options providing alternative levels of each of the attributes. For example, respondents may have been asked to choose between (1) a trip with family to a slightly congested site two hours away, costing $100 per day, resulting in three ducks and requiring a $20 license, and (2) a trip with close friends to a heavily congested site one hour away, costing $25 per day, resulting in one duck and requiring a $15 license. The survey was administered in 1989 to 3,351 hunters who purchased Delaware hunting licenses for the 1988-1989 hunting season. The survey generated 1,384 usable responses; of these, 696 respondents had hunted waterfowl at least one day during Delaware's 1988-1989 waterfowl season. A logit model was then used to model these responses, and the marginal value of the various trip attributes could be calculated. The implied value of ducks bagged, for example, was found to be $81.35 per duck. The value of travel time was found to be $37.07 per hour. Advantages X Conjoint analysis allows the valuation of an action as a whole and the various attributes or effects of the action. X Respondents are allowed to systematically evaluate trade-offs among multiple attributes. >• The trade-off process may encourage respondent introspection and facilitates consistency checks on response patterns (Johnson et al, 1995). DRAFT- July 1998 - Do Not Cite or Quote Page 113 ------- >• Respondents are generally more comfortable providing qualitative rankings or ratings of attribute bundles that include prices, rather than dollar valuations of the same bundles without prices. By de-emphasizing price as simply another attribute, the conjoint approach minimizes many of the biases that can arise in open-ended contingent valuation studies where respondents are presented with the unfamiliar and often unrealistic task of putting prices on non-market amenities (Mackenzie, 1992). >• Because the technique has been so widely used in marketing literature, many of the statistical issues in the design and analysis of this type of study have been resolved. Disadvantages >• Respondents may find some trade-offs difficult to evaluate or unfamiliar to them. X A large number of trade-off questions may frustrate respondents. >• Pairwise comparisons impose strict assumptions on preferences. >• Although conjoint analysis has been used widely in the field of market research, its validity and reliability for valuing non-market commodities is largely untested (Johnson *r a/., 1995). >• If the number of attributes or levels of the attributes is increased, the sample size and/or the number of comparisons each respondent makes must be increased. Contingent Ranking Contingent ranking asks respondents to hypothetically rank alternative choices or bundles of goods or services, where the alternatives vary in terms of their characteristics (e.g., representing different qualities or quantities of a good or service and different costs), in order of preference. These rankings can be analyzed to determine each respondent's preferences for the various attributes of the goods or services. If a monetary value can be assigned as one of the attributes, then it is possible to compute the respondent's willingness-to-pay for the environmental quality characteristic of the good or service on the basis of the ranking of the alternatives (Freeman, 1993). One benefit of contingent ranking studies (compared to other contingent methods) is that respondents may be able to give more meaningful answers to questions about their behavior (e.g., they prefer one alternative over another) rather than to direct questions about the value of a good or service or the value of changes in environmental quality. The major challenge with contingent ranking is how to translate the answers into a dollar value. It may be necessary to imply a value from the relative ranking of other goods and services that do have a monetary value, which may lead to greater uncertainty in the actual value that is placed on the good or service of interest. DRAFT- July 1998 - Do Not Cite or Quote Page 114 ------- For example, contingent ranking could be used to value a proposed change in the environmental quality of a recreational site. Respondents would be asked how they rank a set of sites that vary in two or more characteristics, where one characteristic is distance and another is level of environmental quality. Based on the ranking of the sites, the value of changes in environmental quality could be implied based on how distance (and therefore, the cost of travel) is traded off for other characteristics, including environmental quality (Mitchell and Carson, 1989). Advantages >• Respondents may be more comfortable ranking alternative options rather than answering a willingness-to-pay question. Disadvantages >• Contingent ranking requires more sophisticated statistical techniques to estimate WTP. >• The respondents' behavior underlying the results of a contingent ranking study is not well understood. >• Contingent ranking tends to extract preferences in the form of attitudes instead of behavior intentions, and by only providing a limited number of options, it may force respondents to make choices that they would not voluntarily make (Mitchell and Carson, 1989). References and Further Reading Desvousges, W., V.K. Smith, and M.P. McGivney. 1983. A Comparison of Alternative Approaches for Estimating Recreation and Related Benefits of Water Quality Improvement. Prepared for the U. S. Environmental Protection Agency. Report 230-05-83-001. Washington D.C. Freeman, A.M., IIL 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.: Resources for the Future. Johnson, F. R., W.R Desvousges, L.L. Wood, and E.E. Fries. 1995. Conjoint Analysis of Individual and Aggregate Environmental Preferences, Technical Paper No. T-9502. Triangle Economic Research. Mackenzie, J. 1992. "Evaluating Recreation Trip Attributes and Travel Time via Conjoint Analysis." Journal of Leisure Research 24(2): 171-184. National Recreation and Park Association. DRAFT- July 1998 - Do Not Cite or Quote Page 115 ------- Mitchell, R.C. and R.T. Carson. 1989. Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington, D.C.: Resources for the Future. U.S. EPA, RTI. 1983. A Comparison of Alternative Approaches for Estimating Recreation and Related Benefits of Water Quality Improvements, EPA Document 230-05-83-001 Under Cooperative Agreement #68-01-5838. Washington D.C. DRAFT- July 1998 - Do Not Cite or Quote Page 116 ------- 6.3.9 BENEFITS TRANSFER Benefits transfer is often used in benefit-cost analysis when limited resources or time constraints make it difficult to conduct an original valuation study. Benefits transfer involves obtaining an existing estimate of an economic use value (e.g., unit willingness-to-pay per individual) or demand function from a previous study to estimate the value associated with a similar use being provided by a similar ecological resource under another policy case or at a new study site. The benefit estimate from the original valuation study is scaled by the level of change under the new policy case or level of use at the new study site (e.g., number of users) to estimate the benefits of a similar change in the services provided by the ecological resource under study. Benefits transfer is most reliable when (EPA, 1995): • The original policy case or site and the new policy case or study site are very similar; • The environmental change is very similar for the original and new analyses; and • The original valuation study was carefully conducted and used sound valuation techniques. The reliability of the benefits estimate developed using the benefit transfer technique depends primarily on the similarity between the original and the new policy case or study site. With respect to benefits transfer between sites, large differences in quality, location, visitor characteristics, availability of substitutes, or object of valuation between the original and the new site have been found to impact the reliability of the benefit estimates derived through benefit transfer (Kirehhoff era/., 1997). There are three commonly used benefit transfer techniques: • Mean unit value transfer • Adjusted unit value transfer • Benefit/demand function or model transfer When possible, the transfer of demand functions or models is generally preferred to the use of unit value estimates. Both Loomis (1992) and Kirchhoff et al. (1997) conducted empirical analyses that found the transfer of a benefit or demand function was more reliable (e.g., smaller percentage errors) than a unit value transfer approach. Mean Unit Value Transfer Average unit values are generally used in benefits transfer analysis when either the demand function or model used for the original study is unavailable or the input data for a demand function or model is not available for the new policy case or study site. Average unit values are DRAFT- July 1998 - Do Not Cite or Quote Page 117 ------- often used for regulatory analysis because the broad, typically regional or national, scope of the analyses makes it impossible, and often inappropriate, to reestimate a demand function or model developed for a specific location. The mean unit value technique assumes that the use value of a resource change under the original policy case or at the original site can be applied directly to the new policy case or site without adjustment. In this case, the unit value estimates generally apply to a specific use of the resource (e.g., recreational fishing, duck hunting, fresh water swimming) and represent an average or median value developed from a wide range of studies. Adjusted Unit Value Transfer The unit value estimate may be adjusted before it is applied to the new study situation to correct for any bias or inaccuracies associated with the original valuation study or to adjust for differences in the attributes of the policy case or study site that would affect the value estimate. Under the adjusted unit value technique, adjustments are generally made to account for three types of differences between the original and the new policy case or study site (EPA, 1995): Q Differences in attributes of the policy case or site, level of use, or in the socioeconomic characteristics of users affected by the change; Q Differences in the environmental policy, change, or resulting effects; and Q Differences in the availability of substitute goods and services. Additional adjustments may also be made to the nominal value from the original study(ies) to update the value estimate to current year dollars. If the benefits transfer application is using multiple primary valuation studies from different study years, the estimates will need to be converted to the same year dollars to allow comparisons to be made. Benefit/Demand Function or Model Transfer A final option under benefits transfer is to transfer the entire demand function or valuation method estimated by another valuation study to the new policy case or study site. In most circumstances, as with transferring a unit value estimate, the demand function may need to be adjusted to better suit the characteristics of the new policy case or study site. The transferred demand function can then be used to estimate the willingness-to-pay or benefits associated with improving the service provided by the ecological resource. When the demand function is transferred, the benefit estimate captures both changes in the level of use and unit value benefit estimate for the new study site (Loomis, 1992). Recent research suggests that, when conducting a benefits transfer analysis for a new study site, benefit or demand functions that account for a larger number of site characteristics may provide for more accurate benefit transfer analysis (Kirchhoff et al, 1997). Unfortunately, the use of more detailed benefit or demand functions increases the need to collect site-specific data for both the original study site and the new study DRAFT- July 1998 - Do Not Cite or Quote Page 118 ------- site (or policy-specific data in case of a benefits transfer analysis for a new policy case), which increases the time and resource costs of benefits transfer analysis. Models for valuing ecological resources and damages to ecological resources can also be transferred in their entirety. Any valuation model being considered should be evaluated to determine its applicability to the new study situation, much in the same way as a unit value estimate or demand function must be reviewed for appropriateness before it is used to estimate the value of a change in a service under a different policy case or at a different site. Advantages >• Economic benefits can be estimated more quickly than if undertaking an original valuation study. X Benefits transfer is typically less costly than conducting an original valuation study. >• Can be used as a screening technique to determine if a more detailed, original valuation study should be conducted. Disadvantages X It may be difficult or impossible to find high-quality, well-documented original studies from which to obtain unit value estimates that can be appropriately applied to the new study site. The use of lower quality unit value estimates will adversely affect the accuracy and reliability of the benefit transfer analysis. >• Unit value estimates can quickly become dated. DRAFT- July 1998 - Do Not Cite or Quote Page 119 ------- Example Benefits Transfer Study (Bowen et aL, 1993; EPA, 1995) In order to estimate the value of recreational fishing in Massachusetts Bays, Bowen et al. reviewed several studies of different types of marine recreational fishing experiences, largely using the travel cost model. They chose to use estimates reported by Rowe (1985) ranging from $13 to $104 (1981 dollars) per fishing day. They then inflated these estimates to 1989 dollars ($18 to $142) and applied them to the 2.5 million marine recreational fishing trips estimated to have been taken in the Massachusetts Bays region in 1989. This calculation yielded a net benefit value range of all recreational fishing trips in the Massachusetts Bays of $45 to $355 million. This estimate is only reliable as an indication of the order of magnitude of the likely net recreational fishing benefits generated by the Bays, because the data on the number of trips conducted in the Bays system are subject to considerable uncertainty. In addition, an assumption was made that the range of recreational fishing values developed in a variety of different settings for a variety of different species reported by Rowe are applicable to the Bays system. The use of fishing day values from these other studies to value Massachusetts Bays recreation is also subject to criticism because of the use of estimates from a distinctly different geographic region. This document provides information to allow researchers to begin exploring the viability of benefits transfer for their particular study. Specifically, this document includes a valuation database, which presents a selection of resource values reported in the literature, as well as a bibliographic database, to help the reader locate specific articles and reports of interest. References and Further Reading Bingham, T., et al., eds. 1992. Proceedings of the Association of Environmental and Resource Economists (AERE) Conference on Benefits Transfers. Washington D.C. Bowen, R.E., J.H. Archer, D.G. Terkla, and J.C. Myers. 1993. The Massachusetts Bays Management System: A Valuation of Bays Resources and Uses and an Analysis of its Regulatory and Management Structure. Boston, Massachusetts: Massachusetts Bays Program. Boyle, K.J. and J.C. Bergstrom. 1992. "Benefits Transfer Studies: Myths, Pragmatism, and Dealism." Water Resources Research 28: 657-663. Desvousges, W.H., M.C. Naughton, and G.R. Parsons. 1992. "Benefit Transfer: Conceptual Problems in Estimating Water Quality Benefits Using Existing Studies." Water Resources Research 28: 675-683. Downing, M. and T. Ozuna, Jr. 1994. Testing the Reliability of the Benefit Function Transfer Approach. Oak Ridge, Tennessee: Environmental Sciences Division, Oak Ridge Laboratory. DRAFT- July 1998 - Do Not Cite or Quote Page 120 ------- Kirchhoff, S., B.G. Colby, and J.T. LaFrance. 1997. "Evaluating the Performance of Benefit Transfer: An Empirical Inquiry." Journal of 'Environmental Economics and Management 33(1): 75-93. Krupnick, A.J. 1993. "Benefits Transfers and Valuation of Environmental Improvements." Resources. Loomis, J.B. 1992. "The Evolution of a More Rigorous Approach to Benefit Transfer: Benefit Function Transfer." Water Resources Research 28(3): 701-705. Morey, E.R. "What Is Consumer Surplus per Day of Use, When Is it Content Independent of the Number of Days of Use, and What Does it Tell Us about Consumer's Surplus?" Journal of Environmental Economics and Management 26: 257-270. Opaluch J.J. and M.J. Mazzotta. 1992. "Fundamental Issues in Benefit Transfer and Natural Resource Damage Assessment." in Benefits Transfer: Procedures, Problems, and Research Needs. Snowbird, Utah: Workshop Proceedings, Association of Environmental and Resource Economists. Rowe, R.W. 1985. Valuing Marine Recreational Fishing on the Pacific Coast. LaJolla, California: National Marine Fisheries Service, Southwest Fisheries Center. Smith, V.K. 1992. "On Separating Defensible Benefit Transfers from Smoke and Mirrors." Water Resources Research 28: 685-694. U.S. EPA, Oceans and Coastal Protection Division. 1995. Assessing the Economic Value of Estuary Resources and Resource Services in Comprehensive Conservation and Management Plan (CCMP) Planning and Implementation, A National Estuary Program Environmental Valuation Handbook. Washington, D.C. DRAFT- July 1998 - Do Not Cite or Quote Page 121 ------- 7.0 ISSUES AFFECTING THE ECONOMIC VALUATION OF ECOLOGICAL BENEFITS This section identifies and briefly discusses some additional issues that may affect the economic benefit analysis, most of which are not discussed in earlier sections of this document. These issues include: • Uncertainty and Variability; Aggregation; • Discounting; and - • Equity. Discounting, and other issues including baselines, uncertainty, non-monetized effects, equity, and valuing lethal risks, are currently being examined by EPA's Office of Policy, Planing, and Evaluation (OPPE) in support of the preparation of a revised guidance for preparing Economic Impact Analyses and Regulatory Impact Analyses. These guidelines, therefore, should be evaluated in the course of a comprehensive ecological benefits analysis. 7.1 UNCERTAINTY AND VARIABILITY The variability and uncertainty associated with specific estimates is an important consideration in a thorough benefits assessment. Variability and uncertainty are introduced in many ways including estimating emissions changes, modeling the fate and transport of emissions (e.g., air modeling), estimating effects, and valuing the effects (or changes in the effects). Variability and uncertainty arise from the inherent variation of natural processes as well as from limited knowledge about the many relationships between emissions and exposures and effects. Distributional information from both the risk assessment and the economic valuation study should be carried through in the final benefits assessment. There are several treatments of variability and uncertainty available that can be applied in the estimation of benefits. The appropriate approach to characterizing and quantifying the degree of variability and uncertainty associated with a specific estimate will depend on the objectives of the analysis and the needs of the decision-makers. Depending on the particular valuation approach used to develop a benefits estimate, the uncertainty and variability associated with the results of that approach might be addressed by: • Presenting the benefits estimates as ranges based on a plausible set of input values (e.g., risks, values); • Conducting sensitivity analyses to examine the potential variation in the benefits estimates under different assumptions regarding the level of effects; DRAFT- July 1998 - Do Not Cite or Quote Page 122 ------- • Using Monte Carlo analyses or other probabilistic techniques to estimate a probability distribution for the output (e.g., benefits); • Discussing and/or incorporating expert judgement regarding the potential range of effects and/or benefits (e.g., Delphi methods); and/or • Using meta-analysis to combine estimates of inputs (e.g., risks, values) or outputs (e.g., benefits estimates) from multiple studies. Accounting for uncertainty and variability can provide a more complete characterization of the distribution of benefits than point-estimates. Nonetheless, many sources of uncertainty will likely remain unqualified. Thus, qualitative descriptions of the limitations and known omissions, biases, and data gaps are also an important component of a thorough benefits analysis. 7.2 AGGREGATION Numerous issues arise in aggregating individual willingness-to-pay (WTP) estimates to develop a social or national-level benefits estimate. Although many of these issues require additional theoretical deliberation to determine the most appropriate approach, below are three aggregation issues that warrant consideration in the applied context of estimating benefits as described in this document: • How to sum benefits across benefit endpoints; • How to address potential double-counting when using multiple techniques to measure the WTP for changes in related benefit endpoints or overlapping effects; and • How to determine the affected population for calculating social WTP and how to sum WTP over the affected population. 7.3 DISCOUNTING When the benefits of an action accrue over time, such as with lagged and/or cumulative effects, the role and importance of discounting needs to be considered in the context of the benefits assessment. The discount rate used and the time period for comparison can have significant effects on the magnitude of the benefits estimate and the conclusions of the benefits assessment, especially if the benefits and costs occur in different points in time. Discounting can be applied to monetary values as well as quantitative assessments of benefits. Traditionally, present value costs and benefits have been calculated using the shadow price of capital or the consumption rate of interest as the discount rate. These may be appropriate or inappropriate discount rates, depending on the assumptions made regarding the flow of capital DRAFT- July 1998 - Do Not Cite or Quote Page 123 ------- and the value of future consequences (e.g., are future values adjusted upward to reflect increased value due to increased scarcity). Furthermore, a different discount rate (or even no discounting) might be appropriate for intergenerational effects. With respect to the time period of comparison, the analysis might choose to translate future values into present ones - the traditional approach - or alternatively, annualized the costs and benefits or accumulate benefits (and costs) forward to some future time period. 7.4 DISTRIBUTIONAL AND EQUITY ANALYSES Distributional and equity analyses examine the distribution of changes incurred across different sectors of society. Determinations regarding whether a policy or action is "equitable" rely on ethical and moral principles, rather than economic principles. In measuring changes in social welfare, economists most often implicitly assume that the welfare of all individuals is weighted equally. Thus, under certain economic structures, if a positive change, or benefit, experienced by a wealthier individual is determined to be greater in value than the cost, or negative effect, experienced by a poorer person, social welfare is said to be "improved" by the change. However, such a change may not be "equitable" from a moral perspective. Therefore, in conducting an ecological benefit analysis it is important to pay attention to the distribution of costs and benefits (i.e., track who in society is benefitting from the change and who is not). The elements of a distributional or equity analysis include: • Identifying the groups and entities of concern (e.g., race, income) for an equity evaluation; • Ensuring that data are developed for the groups and entities of concern; and • Estimating the distribution of changes across each group and entity of concern. Decision-makers then use the results of the distributional or equity analysis, along with the results of the ecological benefit analysis, socio-economic impact analysis, cost analysis, other analyses and moral, legal, and/or philosophical considerations, to evaluate the proposed policy or action. References and Further Reading U.S. EPA. 1997. Discounting in Environmental Policy Evaluation, Draft Final Report. Prepared by Frank Arnold, Fran Sussman, and Leland Deck for the Office of Policy, Planning, and Evaluation. April 1,1997. U.S. EPA. 1997. Evaluating the Equity of Environmental Policy Options Based on the Distribution of Economic Effects, Draft. Prepared for Office of Policy, Planning, and Evaluation. May 23, 1997. DRAFT-July 1998 - Do Not Cite or Quote Page 124 ------- U.S. EPA. 1997. Technical Assistance on a Review and Evaluation of Procedures Used to Study Issues of Uncertainty in the Conduct of Economic Cost-Benefit Research and Analysis, Draft Report. Prepared by Hagler Bailly Consulting, Incorporated for the Office of Policy, Planning, and Evaluation. May 27, 1997. DRAFT- July 1998 - Do Not Cite or Quote Page 125 ------- 8.0 REFERENCES AND DATA BASES 8.1 ECOLOGICAL REFERENCES AND FURTHER READING Bartell, S.M., R.H. Gardner, and R.V. O'Neill. 1992. Ecological Risk Estimation. Boca Raton, FL: Lewis Publishers. Bingham, G., R. Bishop, M. Brody, D. Bromley, E. Clark, W. Cooper, R. Costanza, T. Hale, G. Hayden, S. Kellert, R. Norgaard, B. Norton, J. Payne, C. Russell, and G. Suter. 1995. "Issues in Ecosystem Valuation: Improving Information for Decision Making." Ecological Economics 14: 73-90. DeBellevue, E.B., T. Maxwell, R. Costanza, and M. Jacobsen. 1993. "Development of a Landscape Model for the Patuxent River Watershed." Discussion Paper #10, Maryland International Institute for Ecological Economics, Solomons, MD. Fitz, H.C., R. Costanza, and E. Reyes. 1993. The Everglades Landscape Model (ELM): Summary Report of Task 2, Model Development. Report to the South Florida Water Management District, Everglades Research Division. Fitz, H.C., E.B. DeBellevue, R. Costanza, R. Boumans, T. Maxwell, L. Wainger, and F. Sklar. 1995. "Development of a General Ecosystem Model (GEM) for a Range of Scales and Ecosystems. Ecological Modeling (in press). Scodari, P. 1992. Wetland Protection Benefits. Draft Report. Prepared for U.S. EPA, Office of Policy, Planning, and Evaluation under Grant No. CR-817553-01. October. Suter, G.W. II. 1993. Ecological Risk Assessment. Boca Raton, FL: Lewis Publishers- Suter, G.W. II. 1989. "Ecological Endpoints." in Warren-Hicks, W., B.R. Parkhurst, and S.S. Baker, Jr., eds. Ecological Assessment of Hazardous Waste Sites: A Field and Laboratory Reference Document. EPA Document 600/3-89/013. Corvallis Environmental Research Laboratory, Oregon. U.S. EPA. 1998. Guidelines for Ecological Risk Assessment. EPA Document 63 0/R-95/002B. Washington, DC. U.S. EPA. 1994. Background'for NEPA Reviewers: Grazing on Federal Lands. Prepared by Science Applications International Corporation under EPA Contract No. 68-C8-0066. February. DRAFT- July 1998 - Do Not Cite or Quote Page 126 ------- U.S. EPA. 1993. Habitat Evaluation: Guidance for the Review of Environmental Impact Assessment Documents. Prepared by Dynamac Corporation for the Office of Federal Activities under EPA Contract No. 68-CO-0070. January. U.S. EPA. 1992a. Framework for Ecological Risk Assessment. Washington, DC: U.S. Environmental Protection Agency, Risk Assessment Forum. EPA/630/R-92/001. February. U.S. EPA, Office of Policy Planning and Evaluation. 1992b. Biological Populations as Indicators of Environmental Change. EPA Document 230-R-92-011. Washington, DC. DRAFT- July 1998- Do Not Cite or Quote Page 127 ------- 8.2 ECONOMIC REFERENCES AND FURTHER READING Adams, R.M. and T.D. Crocker. 1991. "Materials Damages," in Braden, John B. and Charles D. Kolstad, eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Ahearn, M.C. 1997. "Why Economists Should Talk to Scientists and What They Should Ask: Discussion." Journal of Agricultural and Applied Economics, July, 29(1): 113-116. Arrow, K., R. Solow, P.R. Portney, E.E. Learner, R. Radner, and H. Schuman. 1993. "Report of the NOAA Panel on Contingent Valuation." Federal Register, January 15, 58(10): 4601-4614. Bartik, T.J. 1988. "Evaluating the Benefits of Non-marginal Reductions in Pollution Using Information on Defensive Expenditures." Journal of Environmental Economics and Management, 15: 111-127. Bartik, T.J. 1988. "Measuring the Benefits of Amenity Improvements in Hedonic Price Models." Land Economics 64(2): 172-183. Bayless, M. 1982. "Measuring the Benefits of Air Quality Improvements: A Hedonic Salary Approach." Journal of Environmental Economics and Management 9(2): 81 -99. Bertollo, P. 1998. "Assessing Ecosystem Health in Governed Landscapes: A Framework for Developing Core Indicators." Ecosystem Health 4(1): 33-51. Bingham, T., et a/., eds. 1992. Proceedings of the Association of Environmental and Resource Economists (AERE) Conference and Benefits Transfers. Washington, D.C. Bishop, R.C. and T-A. Heberlein. 1979. "Measuring Values of Extramarket Goods: Are Indirect Measures Biased?" American Journal of Agricultural Economics, December: 926-929. Bjornstad, DJ. and J.R. Kahn, eds. 1996. The Contingent Valuation of Environmental Resources: Methodological Issues and Research Needs. Brookfield, Vermont: Edgar Elgar Publishing Ltd. Bockstael, N.E., K.E. McConnell, and I.E. Strand. 1991. "Recreation" in Braden, John B. and Charles D. Kolstad, eds. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Bockstael, N.E., K.E. McConnell, and I. Strand. 1989. "A Random Utility Model for Sportfishing: Some Preliminary Results for Florida." Marine Resource Economics 6: 245-260. DRAFT- July 1998 - Do Not Cite or Quote Page 128 ------- Bockstael, N.E., K.E. McConnell, and I.E. Strand. 1989. "Measuring the Benefits of Improvements in Water Quality: The Chesapeake Bay." Marine Resource Economics 6(1): 1-18. Bowen, R.E., J.H. Archer, D.G. Terkla, and J.C. Myers. 1993. The Massachusetts Bays Management System: A Valuation of Bays Resources and Uses and an Analysis of its Regulatory and Management Structure. Boston, Massachusetts: Massachusetts Bays Program. Boyle, K.J. and J.C. Bergstrom. 1992. "Benefits Transfer Studies: Myths, Pragmatism, and Dealism." Water Resources Research 28: 657-663. Braden, J.B. and C.D. Kolstad, eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. Cameron, T.A. 1992. "Combining Contingent Valuation and Travel Cost Data for the Valuation of Nonmarket Goods." Land Economics, August, 68(3): 302-17. Carson, R.T. et al. 1996. "Was the NOAA Panel Correct About Contingent Valuation? " Washington, D.C.: Resources for the Future. Cole, R.A., et al. 1996. Linkages Between Environmental Outputs and Human Services, IWR Report 96-R-4. Prepared for U.S. Army Corps of Engineers, Evaluation of Environmental Investment Research Program. Daily, G., ed. 1997. Nature's Services: Societal Dependence on Natural Ecosystems. Washington, D.C.: Island Press. Desvousges, W.H., M.C. Naughton, and G.R. Parsons. 1992. "Benefit Transfer: Conceptual Problems in Estimating Water Quality Benefits Using Existing Studies." Water Resources Research 28: 675-683. Desvousges, W., V.K. Smith, and M.P. McGivney. 1983. A Comparison of Alternative Approaches for Estimating Recreation and Related Benefits of Water Quality Improvement. Prepared for the U. S. Environmental Protection Agency. Report 230-05-83-001. Washington D.C. Downing, M. and T. Ozuna, Jr. 1994. Testing the Reliability of the Benefit Function Transfer Approach. Oak Ridge, Tennessee: Environmental Sciences Division, Oak Ridge Laboratory. Edwards, S.F. and G.D. Anderson. 1984. "Land Use Conflicts in Coastal Zone: An Approach for the Analysis of the Opportunity Costs of Protecting Coastal Resources." Journal of the Northeastern Agricultural Economics Council 13(1): 78-81. DRAFT- July 1998 - Do Not Cite or Quote Page 129 ------- Englin, J.E., T.A. Cameron, R.E. Mendelsohn, G.A. Parsons, and S.A. Shankle. 1991. Valuation of Damages to Recreational Trout Fishing in the Upper Northeast due to Acidic Deposition. Richland, Washington: Pacific Northwest Laboratory. Prepared for National Acidic Precipitation Assessment Program. Fletcher, J., W. Adamowicz, and T. Graham-Tomasi. 1990. "The Travel Cost Model of Recreation Demand." Leisure Sciences 12: 119-147. Freeman, A.M., III. 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Washington, D.C.: Resources for the Future. Hanemann, W.M. 1991 "Willingness to Pay and Willingness to Accept: How Much Can They Differ?" American Economic Review 81(3): 635-647. Hanemann, W.M. 1984. "Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses." American Journal of Agricultural Economics, August, 66: 332-341. Haniey, N. and C.L. Spash. 1993. Cost Benefit Analysis and the Environment. Brookfield, Vermont: Edward Elgar Publishing Limited. Johnson, F.R., W.H. Desvousges, L.L. Wood, and E.E. Fries. 1995. Conjoint Analysis of Individual and Aggregate Environmental Preferences, Technical Paper No. T-9502. Triangle Economic Research. Just, R.E., D.L. Hueth, and A. Schmitz. 1982. Applied Welfare Economics and Public Policy. Englewood Cliffs, New Jersey: Prentice-Hall. Kaoru, Y., V.K. Smith, and J.L. Liu. 1995. "Using Random Utility Models to Estimate the Recreational Value of Estuarine Resources." American Journal of Agricultural Economics, February, 77: 141-151. King, D.M. 1997. Using Ecosystem Assessment Methods in Natural Resource Damage Assessment, Paper #2. Prepared for U.S. Department of Commerce, NOAA, Damage Assessment and Restoration Program. Kirchhoff, S., B.G. Colby, and J.T. LaFrance. 1997. "Evaluating the Performance of Benefit Transfer: An Empirical Inquiry." Journal of Environmental Economics and Management 33(1): 75-93. Krupnick, A.J. 1993. "Benefits Transfers and Valuation of Environmental Improvements." Resources. DRAFT- July 1998 - Do Not Cite or Quote Page 130 ------- Loomis, J.B. 1993. Integrated Public Lands Management: Principles and Applications to National Forests, Parks, Wildlife Refuges, and BLMLand. New York, New York: Columbia University Press. Loomis, J.B. 1992. "The Evolution of a More Rigorous Approach to Benefit Transfer: Benefit Function Transfer." Water Resources Research. 28(3): 701-705. Mackenzie, J. 1992. "Evaluating Recreation Trip Attributes and Travel Time via Conjoint Analysis." Journal of'Leisure Research 24(2): 171-184. National Recreation and Park Association. McConnell, K. and I. Strand. 1981. "Measuring the Cost of Time in Recreation Demand Analysis." American Journal of Agricultural Economics: 153-156. Milon, J.W., C. Kiker, and D. Lee. 1997. "Ecosystem Management and the Florida Everglades: The Role of Social Scientists." Journal of Agricultural and Applied Economics, July, 29(1): 99- 107. Mitchell, R.C. and R.T. Carson. 1989. Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington, D.C.: Resources for the Future. Mitchell, R.C. and R.T. Carson. 1986. The Use of Contingent Valuation Data for Benefit/Cost Analysis in Water Pollution Control. Washington, D.C.: Resources for the Future. Mitchell, R.C. and R.T. Carson. 1984. An Experiment in Determining Willingness to Pay for National Water Quality Improvements. Washington, D.C.: Resources for the Future. Morey, E.R. "What Is Consumer Surplus per Day of Use, When Is it Content Independent of the Number of Days of Use, and What Does it Tell Us about Consumer's Surplus?" Journal of Environmental Economics and Management 26: 257-270. Musser, W.N. 1997. "Why Economists Should Talk to Scientists and What They Should Ask: Discussion." Journal of Agricultural and Applied Economics, July, 29(1): 109-112. Opaluch J.J. and MJ. Mazzotta. 1992. "Fundamental Issues in Benefit Transfer and Natural Resource Damage Assessment." in Benefits Transfer: Procedures, Problems, and Research Needs. Snowbird, UT: Workshop Proceedings, Association of Environmental and Resource Economists. Palmquist, R. 1991. "Hedonic Methods." in Braden, John B. and Charles D. Kolstad, eds. 1991. Measuring the Demand for Environmental Quality. North-Holland, Amsterdam: Elsevier Science Publishers. DRAFT- July 1998 - Do Not Cite or Quote Page 131 ------- Palmquist, R.B., P.M. Fritz, and T. Vukina. 1997. "Hog Operations, Environmental Effects, and Residential Property Values." Land Economics 73(1): 114-124. Pearce, D.W. and R.K. Turner. 1990. Economics of Natural Resources and the Environment. Maryland: The Johns Hopkins University Press. Principe, P. 1995. "Ecological Benefits Assessment: A Policy-Oriented Alternative to Regional Ecological Risk Assessment." Human and Ecological Risk Assessment 1(4): 423-435. Randall, A., B. Ives, and C. Eastman. 1974. "Bidding Games for Valuation of Aesthetic Environmental Improvements." Journal of Environmental Economics 1: 132-149. Rowe, R.W. 1985. Valuing Marine Recreational Fishing on the Pacific Coast. LaJolla, California: National Marine Fisheries Service, Southwest Fisheries Center. Scodari, P. 1992. Wetland Protection Benefits. Draft Report. Prepared for the Office of Policy, Planning, and Evaluation, U.S. EPA. Grant No. CR-817553-01. Smith, V.K. 1992. "On Separating Defensible Benefit Transfers from Smoke and Mirrors." Water Resources Research 28: 685-694. Smith, V. K. 1989 "Taking Stock of Progress with Travel Cost Recreation Demand Methods: Theory and Implementation." Marine Resource Economics 6: 279-310. Tietenberg, T. 1992. Environmental and Natural Resource Economics. HarperCollins Publisher. U.S. EPA. 1997. A Conceptual Model for the Economic Valuation of Ecosystem Damages Resulting from Ozone Exposure. Draft Report. Prepared by Science Applications International Corporation, for the Office of Air Quality Planning and Standards, U.S. EPA. U.S. EPA. 1997. Discounting in Environmental Policy Evaluation, Draft Final Report, Prepared by Frank Arnold, Fran Sussman, and Leland Deck for the Office of Policy, Planning, and Evaluation. April 1, 1997. U.S. EPA. 1997. Evaluating the Equity of Environmental Policy Options Based on the Distribution of Economic Effects, Draft. Prepared for Office of Policy, Planning, and Evaluation. May 23, 1997. U.S. EPA. 1997. Technical Assistance on a Review and Evaluation of Procedures Used to Study Issues of Uncertainty in the Conduct of Economic Cost-Benefit Research and Analysis, Draft Report. Prepared by Hagler Bailly Consulting, Incorporated for the Office of Policy, Planning, and Evaluation. May 27, 1997. DRAFT- July 1998 - Do Not Cite or Quote Page 132 ------- U.S. EPA, Oceans and Coastal Protection Division. 1995. Assessing the Economic Value of Estuary Resources and Resource Services in Comprehensive Conservation and Management Plan (CCMP) Planning and Implementation, A National Estuary Program Environmental Valuation Handbook. Washington, D.C. U.S. EPA, RTI. 1983. A Comparison of Alternative Approaches for Estimating Recreation and Related Benefits of Water Quality Improvements, EPA Document 230-05-83-001 Under Cooperative Agreement #68-01-5838. Washington D.C. Whittington, D., et al. 1994. The Economic Value of Improving the Environmental Quality of Galveston Bay. Galveston National Estuary Program. Publication GBNEP-3B. Willig, R. 1976. "Consumer Surplus Without Apology." American Economic Review 66(4): 589-597. Willis, K. and G. Garrod. 1991. "An Individual Travel Cost Method of Evaluating Forest Recreation." Journal of'Agricultural Economics 42(1): 33-42. DRAFT- July 1998 - Do Not Cite or Quote Page 133 ------- 8.3 ILLUSTRATIVE SAMPLE OF DATA SOURCES This section provides an illustrative sample of data sources that might be used to support an economic assessment of ecological benefits. Potential types of data sources include compilations of results from primary analyses, reference publications, data bases, and programs/projects involved with the collection of potential relevant information. Program or Project American Fisheries Society Special Publication 24: 1992 Investigation and Valuation of Fish Kills (and Sourcebook) Benefits Transfer of Outdoor Recreation Demand Studies, 1968-1988. A Bibliography of Contingent Valuation Studies and Papers. Biological Status and Trends Program Current Fishery Statistics Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies, 1983. Economics Valuation of Wetlands. Discussion Paper 065 The Environmental Economics Database (a database of existing natural resource or environmental resource value estimates) Environmental Valuation Reference Inventory (EVRI) EMAP Agricultural Lands Resource Group Forest Inventory Analysis Contact Organization American Fisheries Society Bethesda, Maryland Article by Walsh, R.G., D.M. Johnson, and J.R. McKean. 1992 in Water Resources Research 28(3) Carson, R.T., N. Carson, A. Alberini, N. Flores, and J. Wright. 1993. Natural Resource Damage Assessment, Inc., La Jolla, California. United States Geological Survey/BRD 300 National Center 12201 Sunrise Valley Drive Reston, VA20192 National Marine Fisheries Service, U.S. Department of Commerce, Washington D.C. U.S. Water Resources Council Washington D.C. Prepared for American Petroleum Institute by Anderson, R., and M. Rockel. 1991. U.S. Environmental Protection Agency, Office of Policy, Economic Analysis and Research Branch (has not been updated since 1994) U.S. Environmental Protection Agency Environment Canada U.S. Department of Agriculture http://www.epa.gov/emfjulte/html/datal/agroland/index/ht ml U.S. Department of Agriculture, Forest Service Northeastern Experiment Station 5 Radnor Corporate Center, Suite 200 Radnor, PA DRAFT- July 1998 - Do Not Cite or Quote Page 134 ------- Program or Project Forest Ecosystem Health Project Gap Analysis Program (GAP) Master Environmental Library (MEL) National Environmental Research Parks (NERP) National Environmental Monitoring and Research Initiative Natural Resources Inventory TEMS Database (Terrestrial Ecosystems Monitoring Sites) Contact Organization U.S. Department of Agriculture, Forest Service U.S. Environmental Protection Agency U.S. Geological Survey/BRD National GAP Office 530 Ashbury St. Suite 1 Moscow, ID 83843 U.S. Department of Defense/Defense Modeling and Simulation Office U.S. Department of Energy U.S. Environmental Protection Agency U.S. Department of Agriculture/National Resources Conservation Service (NRCS) United Nations, Global Environmental Monitoring System Program Activity Center DRAFT- July 1998 - Do Not Cite or Quote Page 135 ------- 8.4 DATA BASE OF ECOLOGICAL RESOURCE VALUES This section provides a sample of the information that will be available through the electronic document using a key-word searchable data base. This information is provided to guide the reader to a sample of potentially useful studies and is not intended to provide the analyst with values to be used directly in an economic valuation study. Readers should obtain and thoroughly review any study cited to evaluate the quality of the estimate and the appropriateness of the value to their specific analysis. Example of Valuation Database Entries for keyword "forest": Location Measurement Unit Study Value i, Basis for } Estimate i Walsh, R.G., R.D. Bjonback, R.A. Aiken, and D.H. Rosenthal. 1990. Estimating the Public | Benefits of Protecting Forest Quality. Journal of Environmental Management 30:175-189. i Colorado Willingness-to-pay per resident household per year for forest quality protection programs $14.00 Contingent I Valuation j Dwyer, J.F., G.L. Peterson and A.J. Darragh. 1983. Estimating the Value of Urban Forests Using the Travel Cost Method. Journal of Arboriculture 9(7): 182-185. Chicago WTP by Chicago metropolitan residents $8.68 Travel Cost i Hagen, D., J. Vincent, and P. Welle. 1992. Benefits of Preserving Old-Growth Forests and the ! Spotted Owl. Contemporary Policy Issues 1 0(April): 1 3-25. i Oregon Household WTP for owl protection $36.91 Contingent Valuation DRAFT- July 1998- Do Not Cite or Quote Page 136 ------- 8.5 BIBLIOGRAPHIC DATA BASE This section provides a sample of the information that will be available through the electronic document using a key-word searchable data base. Example of Bibliographic Entries for keyword "forest": 1. Adger, N. and M. Whitby. Accounting for the Impact of Agriculture and Forestry on Environmental Quality European Economic Review 35(2-3):629-641, 1991 2. CAAA Retrospective Study. "Comparison of Morbidity, Visibility, and Forest Valuation Studies to Contingent Valuation Guidelines" Draft, September 30, 1993 3. CAAA Retrospective Study. Approach to Environmental Benefits Assessment to Support Clean Air Act Section 812 Analysis, November 6, 1992 4. Crocker, T.D. On the Value of the Condition of a Forest Stock. Land Economics 61(3):244-254, 1985 5. Dwyer, J.F., G.L. Peterson, and A.J. Darragh. Estimating the Value of Urban Forests Using the Travel Cost Method. Journal of Arboriculture 9(7): 182-185, 1983 6. Dwyer, J.F., H.W. Schroeder, J.J. Louviere, and D.H. Anderson. Urbanities Willingness- to-pay for Trees and Forests in Recreation Areas. Journal of Arboriculture 15(10):247-252, 1989 7. Energy and Resource Consultants, Inc. "The Benefits of Air Pollution Control in California" California Air Resources Board Chapter 8: Forest Benefits, 1986 8. Englin, J.E. and R. Mendelsohn. A Hedonic Travel Cost Analysis for Valuation of Multiple Components of Site Quality: The Recreation Value of Forest Management. Journal of Environmental Economics and Management 21:275-290, 1991 9. Haynes, R.W. Economic Evaluation of Acidic Deposition on Forests. A paper presented at the El-Economic, Policy and Law-Working Group Session at the SAF National Convention held at Rochester, NY on October 16-19, 1988 10. Lockwood, M., J. Loomis, and T. DeLacy. A Contingent Valuation Survey and Benefit Cost Analysis of Forest Preservation in East Gippsland, Australia. Journal of Environmental Management 38(3):233, 1993 U.S. EPA Headquarters Library Mail code 3201 1200 Pennsylvania Avenue NW Washington DC 20460 DRAFT- July 1998 - Do Not Cite or Quote Page 137 ------- 11. Loomis, John B. Integrated Public Lands Management: Principles and Applications to National Forests, Parks, Wildlife Refuges, and ELM Land. Columbia University Press, New York, New York, 1993 DRAFT- July 1998- Do Not Cite or Quote Page 138 ------- ------- ------- |