&EPA
United States
Environmental Protection
Agency
Office of Water
Office of Research and Development
September 2015
EPA-800-R-15-002
National Ecosystem
Services Classification
System (NESCS):
Framework Design and
Policy Application
Final Report
NESCS Four-Group Classification
Environment
Aquatic
estrial
lospheric
A
Ecological End-Products
Water
Flora
Fauna
Other Biotic Natural
Material
Atmospheric Components
Soil
Other Abiotic Natural
Material
Composite End-Products
Other End-Products
\
Flows of \
Final \
Ecosystem )
Services /
T
II
Direct Use / Non-Use
Use
• Extractive/ Consumptive
Uses
• In-Situ (Non-Extractive/
Non-Consumptive) Uses
Non-Use
• Existence
• Bequest
A
Direct User
Industries
Households
Government
NESCS-S
NESCS-D
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ACKNOWLEDGEMENTS
The authors thank Jennifer Richkus, Jennifer Phelan, Robert Truesdale, Mary Barber, David
Bellard, and others from RTI International for providing feedback and research support during
the development of this report. The early leadership of former EPA employee John Powers
proved instrumental in launching this effort. The authors thank Amanda Nahlik, Tony Olsen,
Kevin Summers, Kathryn Saterson, Randy Bruins, Christine Davis, Bryan Hubbell, Julie Hewitt,
Ashley Allen, Todd Doley, Karen Milam, David Simpson, and others at EPA for their discussion
and feedback on earlier versions of this document. In addition, the authors thank V. Kerry
Smith, Neville D. Grossman, and Brendan Fisher for review comments. Finally, the authors
would like to thank participants of the two NESCS Workshops held in 2012 and 2013, as well as
participants of an ACES session in 2014. Any factual or attribution errors are the responsibility
of the authors alone.
ADDITIONAL INFORMATION
This document was developed under U.S. EPA Contract EP-W-11-029 with RTI International
(Paramita Sinha and George Van Houtven), in collaboration with the ORISE Participant Program
between U.S. EPA and U.S. DOE (Charles R. Rhodes), under the direction of Joel Corona and
Dixon Landers, U.S. EPA, Office of Water and Office of Research and Development,
respectively. Peer review for this report was conducted under U.S. EPA Contract EP-C-12-045
with Versar, Inc. (David Bottimore).
This report may not necessarily reflect the views of U.S. EPA and no official endorsement
should be inferred.
To provide feedback on this report or any other aspect of the NESCS approach, please send
comments by email to NESCS@epa.gov.
Small cosmetic and grammar corrections last updated within this report (vl.l): 29 February 2016.
United States Environmental Protection Agency. 2015. National Ecosystem Services
Classification System (NESCS): Framework Design and Policy Application. EPA-800-R-15-002.
United States Environmental Protection Agency, Washington, DC.
EPA-800-R-15-002
September 2015
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CONTENTS
Section Page
Executive Summary ES-1
1 Introduction 1
1.1 Overview 1
1.2 Review of Basic Concepts 3
1.2.1 Classification Systems 3
1.2.2 Ecosystem Services 3
1.2.3 Services in the Market 4
1.2.4 Economic Versus Ecosystem Services 5
1.3 General Approach for NESCS 5
1.4 Summary of Requirements and Key Features of NESCS 7
1.5 Overview of the Report 10
2 Review of Ecosystem Services Classification Literature 11
2.1 Introduction 11
2.2 Daily etal. (1997) 14
2.2.1 Objective 14
2.2.2 Definition and Discussion 14
2.2.3 Limitations 15
2.3 de Groot et al. (2002) 16
2.3.1 Objective 16
2.3.2 Definition and Discussion 16
2.3.3 Limitations 17
2.4 Millennium Ecosystem Assessment (2005) 18
2.4.1 Objective 18
2.4.2 Definition and Discussion 18
in
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2.4.3 Limitations 21
2.5 Boyd and Banzhaf (2007) 21
2.5.1 Objective 21
2.5.2 Definition and Discussion 22
2.5.3 Limitations 23
2.6 Wallace (2007) 23
2.6.1 Objective 23
2.6.2 Definition and Discussion 24
2.6.3 Limitations 25
2.7 Fisher and Turner (2008) 26
2.7.1 Objective 26
2.7.2 Definition and Discussion 26
2.7.3 Limitations 28
2.8 Roy Haines-Young and Marion Potschin (2010a, 2010b, 2013): Common
International Classification for Ecosystem Services (CICES) 29
2.8.1 Objective 29
2.8.2 Definition and Discussion 29
2.8.3 Limitations 32
2.9 Staub etal. (2011): Indicators for Ecosystem Goods and Services 32
2.9.1 Objective 32
2.9.2 Definition and Discussion 32
2.9.3 Limitations 35
2.10 Landers and Nahlik (2013): Final Ecosystem Goods and Services
Classification System (FEGS-CS) 35
2.10.1 Objective 35
2.10.2 Definition and Discussion 36
2.10.3 Limitations 40
2.11 Summary 40
2.12 Key Lessons Learned 44
3 Review of economic classification and accounting systems 47
3.1 Introduction 47
IV
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3.2 What Are the Main Systems of Economic Accounts? 47
3.2.1 National Market-Sector Accounts 47
3.2.2 Non-market Accounts 49
3.3 How Are Classification Systems Used in Economic Accounts? 51
3.3.1 North American Classification Systems 51
3.3.2 UN Classification Systems 52
3.3.3 The Role of NAICS and NAPCS in U.S. Economic Accounts 52
3.3.4 Relationships Between NAPCS and NAICS in Economic
Accounts: Input-Output Framework 56
3.4 Implications of the NAICS and NAPCS Systems for Developing NESCS 61
4 NESCS Conceptual Framework, Classification Structure, and Coding System 65
4.1 Introduction 65
4.2 Conceptual Framework for the NESCS 66
4.2.1 The Conceptual Framework for Economic Goods and Services 67
4.2.2 Expanding the Framework for Economic Goods and Services to
Include Ecosystem Services 70
4.2.3 A "Marginal" Analysis Framework for Applying NESCS 76
4.3 Proposed Classification Structure and Coding System for NESCS 80
4.3.1 Proposed Structure for NESCS-S 83
4.3.2 Proposed Structure for NESCS-D 94
4.3.3 Relationship between NESCS-S and NESCS-D: Incorporating
NESCS Into an Input-Output Framework 99
4.4 Summary of the NESCS Structure 104
5 Application of NESCS TO Policy Analyses 107
5.1 Introduction 107
5.2 Application 1: Policies to Reduce Acid and Nutrient Deposition 110
5.3 Application 2: Wetland Restoration Policies 122
6 Conclusions 137
6.1 Summary of Report 137
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6.2 Key Features of NESCS 138
6.3 Comparison of NESCS with NAICS/NAPCS and FEGS-CS 140
6.4 Other Potential Applications for NESCS 143
6.5 Suggested Next Steps and Future Research 144
7 References 149
Appendices
A Mathematical Representation of the Conceptual Model
B Expanded Conceptual Framework for Ecosystem Services Analysis
VI
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LIST OF FIGURES
Number Page
ES-1. Conceptual Framework Including Flows of Final Ecosystem Services (FFES) as
Inputs to Human Systems ES-4
ES-2. Proposed Four-Group NESCS Structure ES-6
2-1. Simple Conceptual Framework Underlying Most Ecosystem Service Definitions
and Classification Systems 13
2-2. MA Categorization of Ecosystem Services and their Links to Human Weil-
Being 19
2-3. Defining Ecosystem Functions, Services, and Benefits, and the Context for
CICES (Source: Haines-Young and Potschin, 2010a) 30
2-4. System for Dividing the FEGS into the Four Types of Goods and Services
(Source: Staub etal., 2011) 34
2-5. Integration of the Inventory into the MA and CICES Classifications (Source:
Staub etal.,2011) 35
4-1. Conceptual Framework for Classification of Economic Goods and Services 67
4-2. Conceptual Model Distinguishing Between Intermediate and Final Goods and
Services Production 69
4-3. Expanded Conceptual Framework, Including Ecological Production and Flows
of Final Ecosystem Services (FFES) as Inputs to the Economy 71
4-4. Example Illustrating Conceptual Framework 72
4-5. Representation of Multiple Pathways Linking Policy-Related Ecosystem
Impacts (AN) to Changes in Human Well-Being (AW) 78
4-6. NESCS 4-Group Structure 84
4-7. NESCS-S Tree Structure 93
4-8. Valuation Framework (TEV) 96
4-9. Pathway Linking Policy Changes to Human Weil-Being 105
5-1. Potential Multiple Pathways Linking NOXSOX Policy Changes to Welfare
Changes Ill
5-2. Applying the NESCS Framework: Identify Potential Pathways Impacted by
Terrestrial Acidification 112
5-3. Applying Framework: Identify Potential Pathways Impacted by Aquatic
Acidification 113
5-4. Illustration of FFES Pathways Associated with the Groundwater Recharge
Function 126
5-5. Illustration of FFES Pathways Associated with the Open Space Function 127
5-6. Illustration of FFES Pathways Associated with the Water Purification Function 128
5-7. Illustration of FFES Pathways Associated with the Water Storage Function 129
vn
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LIST OF TABLES
Number Page
ES-1. NESCS Example ES-5
ES-2. How to Apply the NESCS Structure to Identify and Represent Unique FFES
Pathways for Policy Analysis ES-9
2-1. Characteristics of Fisher and Turner's (2008) Definition and Comparison with
Other Classification Systems51 27
2-2. Illustrative Example of Relationships Between Some Intermediate Services,
Final Services, and Benefits (Fisher and Turner [2008]) 28
2-3. Hierarchical Structure Proposed for CICES 31
2-4. FEGS-CS Environmental Classification and Coding 37
2-5. FEGS-CS Beneficiary Categorization and Coding 38
2-6. 21 FEGS-CS Categories for Organizing PEGS 39
2-7. Summary of Ecosystem Services Classification Approaches 41
3-1. 2012 2-DigitNAICS Codes and Sectors 53
3-2. Selected NAPCS Canada 2012 3-Digit Codes and Groups 55
3-3. NAICS-NAPCS Comparison 56
3-4. Example of I-O Make Table Relating NAPCSa and NAICS Categories 58
3-5. Example of I-O Use Table Relating NAPCSa and NAICS Categories 60
4-1. NESCS Structure and Coding System 82
4-2. Classification of Environment51 85
4-3. Classification of End-Products3 87
4-4. NESCS-S Detailed Structure: Examples 90
4-5. End-Products in Each Environmental Class 92
4-6. Classification of Direct Use/Non-Use 96
4-7. Classification of Direct Users 97
4-8. An Example of a NESCS Table Relating Use/Non-Use and Users 100
4-9. Example of aNESCS Table Relating NESCS-S andNESCS-D Categories 102
5-1. How to Apply the NESCS Structure to Identify and Represent Unique FFES
Pathways for Policy Analysis 109
5-2. Environmental and End-Product Classes/Subclasses Likely to be Impacted
by Acidification 114
5-3. Tool to Identify Link Direct Uses/Non-Uses to End-Products 116
5-4. Direct Uses/Users Likely to be Impacted by Terrestrial Acidification 117
5-5. Direct Uses/Users Likely to be Impacted by Aquatic Acidification 118
5-6. Tool to Identify Linkages between Direct Uses/Non-Uses and Direct Users 120
5-7. Example of NESCS-S Categories Associated with Five Wetland Functions 123
5-8. Examples of FFES Pathway Categories Associated with the Groundwater
Recharge Function 125
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5-9. Examples of FFES Pathway Categories Associated with the Water Storage
Function 131
5-10. Examples of FFES Pathway Categories Associated with the Water Purification
Function 132
5-11. Examples of FFES Pathway Categories Associated with the Wildlife Habitat
Provision Function 134
5-12. Examples of FFES Pathway Categories Associated with the Open Space
Function 135
6-1. Comparison of NESCS and FEGS-CS 142
IX
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ACRONYMS AND ABBREVIATIONS
BEA Bureau of Economic Analysis
CAA Clean Air Act
CAFO concentrated animal feeding operation
CBA cost-benefit analysis
CEA cost-effectiveness analysis
CICES Common International Classification of Ecosystem Services
CO2 carbon dioxide
COICOP Classification of Individual Consumption by Purpose
CPC Central Products Classification
ECPC Economic Classification Policy Committee
EPA U.S. Environmental Protection Agency
ESI Ecosystem Services Index
F&T Fisher and Turner (2008)
FCA Full Cost Accounting
FEGS Final Ecosystem Goods and Services
FEGS-CS Final Ecosystem Goods and Services Classification System
FFES flows of final ecosystem services
FOEN Federal Office for the Environment
GDP gross domestic product
GIS geographic information system
GNP gross national product
I-O input-output
IPIECA International Petroleum Industry Environmental Conservation Association
ISIC International Standard Industrial Classification
ISIC V4 International Standard Industrial Classification of All Economic Activities
MA Millennium Ecosystem Assessment
NAFTA North American Free Trade Agreement
NAICS North American Industry Classification System
NAPCS North American Product Classification System
NEA National Economic Accounts
NESCS National Ecosystem Services Classification System
NESCS-D National Ecosystem Services Classification System (Demand-Side)
NESCS-S National Ecosystem Services Classification System (Supply-Side)
NESP National Ecosystem Services Partnership
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NIPA National Income and Product Accounts
NOx nitrogen oxides
NRC National Research Council
SAB Science Advisory Board
SEE A System of Integrated Environmental and Economic Accounts
SIC Standard Industrial Classification
SNA System of National Accounts
SOx sulfur oxides
TEV Total Economic Value
UN United Nations
USDA U.S. Department of Agriculture
WAVES Wealth Accounting and the Valuation of Ecosystem Services
WTP willingness to pay
XI
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ABSTRACT
Understanding the ways in which ecosystems provide flows of "services" to humans is
critical for decision making in many contexts; however, the linkages between natural and human
systems are complex and multifaceted. A well-defined framework for classifying ecosystem
services is essential for systematically identifying and tracing these linkages. The purpose of this
report is to describe the National Ecosystem Services Classification System (NESCS), which is
designed to address these needs.
The main objective of NESCS is to provide a framework that will aid in analyzing the
human welfare impacts of policy-induced changes to ecosystems. In particular, it is intended to
support different types of policy impact analyses, such as cost-benefit analysis of environmental
regulations. Measuring the welfare impacts of alternative environmental policy or natural
resource management scenarios typically entails three main steps: identifying, quantifying, and
(as feasible) valuing changes in ecosystems and their contributions to human well-being. NESCS
is primarily designed to support the first step—identifying ecosystem service changes—and thus
provides a foundation for the subsequent steps of quantification and valuation. It is not an
accounting system, but it is designed to support comprehensive and systematic accounting of
changes in ecosystem services. NESCS could also potentially be used to support analysis of
other policies that could result in changes to ecosystems such as housing, transportation, and tax
policies.
The conceptual framework for NESCS was developed by applying the principles
underlying existing classification and accounting systems for economic goods and services, such
as the North American Industry Classification System (NAICS), the North American Product
Classification System (NAPCS), and the National Income and Product Accounts (NIPA). As
others have done using these economic principles (e.g., Boyd and Banzhaf, 2007), NESCS draws
a key distinction between intermediate and final services. For both economic and environmental
accounting, this distinction is essential to avoid double counting services. Consequently, the
NESCS focuses on flows of final ecosystem services (FFES), which it defines as the direct
contributions made by nature to human production processes or to human well-being.
In NESCS, FFES are identified by linking the ecological systems that supply final
ecosystem services with the human systems that demand them. Human systems include both the
market-sector producers who directly use the outputs of nature to produce economic goods and
services, and the non-market-sector households who directly use or appreciate the outputs of
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nature to "produce" human well-being. They can also include public sector entities that directly
use the outputs of nature to produce public goods and services.
To uniquely identify and classify FFES, the NESCS structure consists of four
classification groups:
1. environmental classes, which are spatial units with similar biophysical characteristics,
that are located on or near the Earth's surface, and that contain or produce "end-
products" (e.g., aquatic, terrestrial, atmospheric);
2. classes of ecological end-products, which are the biophysical components of nature
directly used or appreciated by humans;
3. classes of direct human uses (extractive or in situ) or non-use appreciation of end-
products; and
4. classes of direct human users of end-products.
The first two groups represent the "supply-side" components of ecosystem services
production (NESCS-S) and the last two groups represent the "demand-side" (NESCS-D). Each
unique combination of classes (or subclasses) from these four groups defines a distinct FFES
category. As such, each one represents a unique potential pathway for linking changes in
ecosystems to changes in human welfare.
To demonstrate NESCS, we provide two general examples illustrating how the
conceptual framework and classification system can be used to identify pathways linking specific
policy actions to human welfare changes. The first example examines a hypothetical policy to
reduce atmospheric deposition of nitrogen and sulfur. It identifies and describes multiple FFES
pathways that link changes in deposition to uses and users of the impacted forest and aquatic
ecosystems. The second example focuses on a hypothetical policy requiring wetlands restoration.
The example identifies specific ecological end-products that are affected by wetland restoration
and the corresponding FFES that are provided to producers and households.
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EXECUTIVE SUMMARY
ES.l Introduction
Ecosystems provide flows of services to humans and thus contribute to human welfare in
numerous and often complex ways. Identifying and tracing these linkages between natural and
human systems are crucial for supporting decision-making in many contexts. Specifically, these
linkages are important for analyzing the human welfare impacts of changes to ecosystems due to
policy or management actions. A growing literature in ecosystem services research has focused
on defining and grouping these linkages; however, the interdisciplinary nature of the topic and
the complexity of these linkages make classifying ecosystem services a challenging task. Among
other things, it requires a common understanding between natural scientists and social scientists
of ecosystem service concepts and definitions.
The primary objective of this report1 is to provide a classification system, which we refer
to as the National Ecosystem Services Classification System (NESCS) that will aid in analyzing
the human welfare impacts of policy-induced changes to ecosystems. In particular, the goal of
NESCS is to support different types of "marginal" analysis, such as cost-benefit analysis, which
focus on changes from baseline conditions. Measuring the welfare impacts of environmental
policy changes typically entails three main steps: identifying, quantifying, and (as feasible)
valuing changes in ecosystems and their contributions to human welfare. NESCS is primarily
designed to support the first step—identifying ecosystem service changes and thus provides a
foundation for conducting the subsequent steps of quantification and valuation. Although not the
primary focus, NESCS also supports comprehensive and systematic accounting of changes in
ecosystem services. NESCS could also potentially be used to support analysis of other policies
(e.g., housing, transportation, tax policies) that could result in changes to ecosystems.
In designing NESCS, we have adapted concepts, principles, and methods from several
streams of literature. First, we attempt to incorporate broad underlying characteristics and best
practices of classification systems. Second, we draw from previous literature on classification
approaches for ecosystem services. Third, we draw from widely accepted concepts for
classifying and accounting for flows of services in the economic context and adapt them to the
context of ecosystem services.
The primary goal of supporting marginal analysis defines the key requirements for
NESCS. To support marginal analysis, it is important to have a standardized, comprehensive
Key terms used throughout this report are defined in a Glossary at the end of the report.
ES-1
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system that will allow for systematic linkages to be drawn between natural and human systems.
It is important to ensure that the classification system allows all potential impacts from a policy
change to be accounted for. At the same time, it is important to avoid double counting impacts.
NESCS is based on a conceptual framework that provides a way to systematically link ecological
systems that produce ecosystem services and human systems that directly use or appreciate these
services (i.e., market production systems and households). By definition, ecosystem services
only exist when they contribute to human well-being. The NESCS structure defines categories
and numeric codes that are designed to help identify flows of services from ecosystems to human
beings in a comprehensive and mutually exclusive way. This executive summary provides an
overview of the report, describing the key topics addressed in each of the six chapters.
ES.2 Review of Literature on Classifying Ecosystem Services and Implications
for NESCS
Since the publication of the seminal work, Nature's Services (Daily, 1997), a large
literature has evolved proposing alternative definitions and classification approaches for
ecosystem services. Our review of this literature specifically includes studies by de Groot et al.
(2002), the Millennium Ecosystem Assessment (MA) (2005), Wallace (2007), Boyd and Banzhaf
(2007), Fisher and Turner (2008), Haines-Young and Potschin (2010a, 2010b, 2013), Staub et al.
(2011), and Landers and Nahlik (2013). Although the MA (2005) classification—which divides
ecosystem services into provisioning, cultural, regulating, and supporting service categories—
has been most widely cited, other studies in our review propose alternative systems, including
the Common International Classification of Ecosystem Services (CICES; Haines-Young and
Potschin, 2010a, 201 Ob, 2013) and the Final Ecosystem Goods and Services Classification
System (FEGS-CS) (Landers and Nahlik, 2013).
Although the fundamental common purpose of this literature is to identify and describe
the various ways in which ecosystems support human welfare, our review indicates there are
wide differences in policy and management objectives, specific definitions of ecosystems
services, and criteria for grouping services. Although there is general agreement that
(1) ecosystems are natural assets that support human welfare in many ways and (2) this support
of human well-being is fundamental to the concept of "ecosystem services," there is continued
disagreement about where exactly ecosystem services occur along the continuum between
ecosystems and human welfare. In particular, there is disagreement regarding the difference
between ecosystem processes, functions, services, and benefits.
To address the question of where ecosystem services lie along the continuum, Boyd and
Banzhaf (2007) introduce and focus on the concept of final ecosystem services. As they define
ES-2
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them, final ecosystem services occur at the point of hand-off between natural systems
(ecosystems) and human systems (producers and households). In contrast, intermediate
ecosystem services are inputs to the natural processes that ultimately produce final ecosystem
services. For example water purification is important for sustaining fish populations, but fish
contribute directly to commercial fishing. As such, their value is embedded within the value of
final ecosystem services. Distinguishing between final and intermediate ecosystem services is
essential to avoid double counting their values.
Realizing this important distinction, NESCS was designed to specifically focus on and
classify final ecosystem services.
ES.3 Review of Economic Classification and Accounting Systems and Implications
for NESCS
To develop a classification system for ecosystem services, we applied concepts and
methods underlying existing classification and accounting systems for economic goods and
services. In economics literature, in contrast to goods, which can be treated as "stocks," services
are typically viewed as "flows" from the provider to the consumer and are measured over time.
In the United States, the two main classification systems are the North American Industry
Classification System (NAICS) and the North American Product Classification System
(NAPCS). NAICS focuses on how and by whom goods and services are produced; therefore, it
can be interpreted as a "supply-side" system. NAPCS, on the other hand, focuses on how and by
whom goods and services are used. It can be interpreted as a "demand-side" system. Both of
these classification approaches were primarily designed to support the development of National
Income and Product Accounts (NIP A). NIP A are used to (1) trace the flow of intermediate goods
and services between production sectors in the economy, and (2) estimate the value and
composition of final goods and services sold to consumers. This helps avoid double counting
their values which is important to ensure valuations and trade-off analyses are valid.
Important parallels can be drawn between economic and ecosystem services, but there are
also important dissimilarities, reflecting unique characteristics of ecosystem services. First, in
contrast to economic services, ecosystem services are typically non-market in nature—that is,
they are not sold in markets and thus there are fewer observable transactions or prices. Second,
unlike most economic services, ecosystem services often have "non-rival" characteristics. In
other words, enjoyment by one user does not diminish simultaneous enjoyment by other users.
Third, whereas final economic services are only sold to end users (households), final ecosystem
services, which occur at the "point of direct hand-off from natural systems to human systems,
flow both to producers of economic goods and directly to households and to governments.
ES-3
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ES.4 NESCS Conceptual Framework, Classification Structure, and Coding System
NESCS adapts and modifies the economic principles described in ES.3 to reflect unique
characteristics of ecosystem services. Since services are viewed as flows from providers to
consumers, NESCS identifies and distinguishes between the producers (i.e., "supply-side") and
users (i.e., "demand-side") of the service. However, in NESCS, the supply-side refers to the
natural systems that provide ecosystem services and the demand-side refers to the human
systems that directly use or appreciate them. NESCS extends the NAICS/NAPCS framework
noted in Figure ES-1 to trace the flow of ecosystem services from natural systems to human
systems.
NESCS focuses on flows of final ecosystem services (FFES), which it defines as the
direct contributions made by nature to human production processes or to human well-being.2 The
linkage between the ecological systems that supply final ecosystem services with the human
systems (market production sectors and households) that directly use or appreciate these services
identifies FFES.
Figure ES-1. Conceptual Framework Including Flows of Final Ecosystem Services (FFES)
as Inputs to Human Systems
I
1
&
at
8
2
01
If)
Economic Goods & Services
Supply-Side
Economic Goods & Services
Demand-Side
It is important to note that flows of final ecosystem goods are not included or defined in this framework. The
main reason for this exclusion is that the process of transferring physical ecosystem products from nature to
humans, which is necessary to generate flows of goods, typically requires human inputs. For example,
agricultural and forest products that are sold in the market require human inputs to harvest and process. Thus,
these are considered economic goods and not flows of final ecosystem goods in NESCS.
ES-4
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Table ES-1. NESCS Example
Group
Definition
MESCS-S
Environment
Spatial units with similar
biophysical
characteristics, that are
located on or near the
Earth's surface, and that
contain or produce "end-
products"
End-Product
Biophysical components of
nature that are directly used
or appreciated by humans
Direct Use/Non-Use
Different ways in which
end-products are used or
appreciated by humans
Direct User
Entities that directly use or
appreciate the end-products
Hierarchy and Coding System
NESCS Code for FFES* : WW. . YYYY. /ZZZZZZ
Class
Subclass
Detail
W
WW
ww.x
ww.xx
WW.XX.Y
WW.XX. YY
WW.XX. YYYY
WW.XX. YYYY.Z
WW.XX. YYYY.ZZZ
WW.XX. YYYY.ZZZZZZZ
Example 1 : Water in the ocean being used as a medium for freight transportation
NESCS Code for FFES: 15.12.1202.1483111
Class
Subclass
Detail
Aquatic: 1
Open Ocean and Seas: 15
Water: 1
Liquid Water: 12
Direct Use: 1
In-Situ Use: 12
Transportation medium:
1202
Industry: 1
Transportation and
Warehousing: 148
Deep Sea Freight
Transportation: 1483111
Example 2: Water in rivers being extracted for household gardening purposes
NESCS Code for FFES: 11.12.1105.201
Class
Subclass
Detail
Aquatic: 1
Rivers and Streams: 11
Water: 1
Liquid Water: 12
Direct Use: 1
Extractive Use: 11
Support of plant or animal
cultivation: 1105
Households: 2
Households: 201
* Note that this 15-digit code is the most disaggregated level of representation. Different levels of aggregation can
be used depending on the context (See Examples 1 and 2 for different levels of aggregation for users)
The NESCS structure (represented in Table ES-1) consists of four groups:
1. Environment: These are defined as spatial units, with similar biophysical
characteristics, that are located on or near the Earth's surface and that contain or
produce "end-products" covers the earth's natural systems and can be interpreted as
producers of ecological end-products. The categories for this system are obtained
from Landers and Nahlik (2013).
2. End-Products: These are defined as biophysical components of nature that are directly
used or appreciated by humans.3
3. Direct Use/Non-Use: This group defines different ways in which end-products are
directly used or appreciated by humans in a way that is consistent with common
valuation frameworks used by economists, such as the Total Economic Value (TEV)
framework.
This definition is very similar to definition used in Landers and Nahlik (2013) and Boyd and Banzhaf (2007).
ES-5
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4. Direct Users: This group represents the sectors that directly use or appreciate end-
products. We follow established classification structures adopted by the U.S. Census
Bureau and the United Nations.
This four-group classification structure (with examples of classes and subclasses within them)
and the flows between them are represented in Figure ES-2. The first two groups pertain to the
natural systems that "produce" FFES and can be interpreted as the supply-side classification
(NESCS-S). The last two groups pertain to the human systems that appreciate or directly use
FFES and can be interpreted as the demand-side classification (NESCS-D). Within each of
these four groups, NESCS adopts a nested hierarchical structure so that each group can be
represented at multiple levels of aggregation or detail.
Figure ES-2. Four-Group NESCS Structure
Environment
End-Products
Direct Use/Non-Use
Direct User
Aquatic
• Rivers and streams
• Wetlands
• Lakes and ponds
• Near coastal marine
• Open ocean and
seas
• Groundwater
Terrestrial
• Forests
• Agroecosy stems
• Created greenspace
• Grasslands
• Scrubland/shrubland
• Barren/rock and
sand
• Tundra
• Ice and snow
Atmospheric
• Atmosphere
A
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Water
• Snow/ice
• Liquid water
Flora
• Specific classes/species of
flora
Fauna
• Specific classes/species of
fauna
Other Biotic Components
• Specific types of natural
Atmospheric Components
• Air
• Solar light/radiation
Qnil
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• Specific types of soil
Other Abiotic Components
• Specific types of natural
material
Composite End-Products
• Scapes: views, sounds and
scents of land, sea, sky
• Regulation of extreme events
• Presence of environmental
class
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Use
• Extractive Use
- Raw material for transformation
- Fuel/energy
- Industrial processing
- Distribution to other users
- Support of plant or animal
cultivation
- Support of human health and
life or subsistence
- Recreation/tourism
- Cultural/spiritual activities
- Information, science,
education, and research
- Other extractive use
• In-situ Use
- Energy
- Transportation medium
- Support of plant or animal
cultivation
- Waste disposal/assimilation
- Protection or support of human
health and life
- Protection of human property
- Recreation/tourism
- Cultural/spiritual activities
- Aesthetic appreciation
- Information, science,
education, and research
- Other in-situ use
Non-Use
• Existence
• Bequest
• Other Non-Use
r-N
9
Industries
• Agriculture, Forestry,
Fishing and Hunting
• Mining
• Utilities
• Construction
• Manufacturing
• Wholesale Trade
• Retail Trade
• Transportation and
Warehousing
• Information
• Finance and Insurance
• Real Estate Rental and
Leasing
• Professional, Scientific,
and Technical Services
• Management of
Companies and
Enterprises
• Administrative Support and
Waste Management and
Remediation Services
• Educational Services
• Health Care and Social
Assistance
• Arts, Entertainment, and
Recreation
• Accommodation and Food
Services
• Other Services
Households
Government
NESCS-S
NESCS-D
ES-6
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Box ES-1. NESCS Definitions
Flows of Final Ecosystem Services (FFES) are the contributions of nature (1) directly to human production
processes or (2) directly to households and human well-being. FFES occur at the point of hand-off between
natural systems (ecosystems) and human systems (producers and households). They are represented as service
flows between ecological end-products and direct human uses. Note that by definition, ecosystem services only
exist when they contribute to human well-being.
Example: Water directly extracted from freshwater sources to support plant cultivation, food processing,
and human health/well-being (as drinking water)
Intermediate ecosystem services are inputs to the natural processes that ultimately produce FFES.
Example: Wetlands' removal of contaminants from water flowing into aquifers
Intermediate economic goods and services are produced using human inputs (physical capital and labor) and
ecological inputs (FFES) and are sold to other producers. They are the outputs produced by one sector of the
economy, which are then used as production inputs in another sector.
Example: Agricultural crops used as inputs in food processing such as corn used to produce ethanol
Final economic goods and services are produced using human inputs (physical capital and labor), intermediate
economic goods and services (e.g., corn) and ecological inputs (FFES) and are sold to households who use them
as consumption inputs to support their own well-being. They are not used to produce other goods and services for
the market economy.
Example: Food products sold to consumers, such as cornflakes
Each unique combination of individual elements from each of the four groups defines a
separate FFES. In other words, it represents a unique potential pathway through which changes
in ecosystems may affect human welfare. The ability to define different combinations allows the
NESCS structure to be flexible and comprehensive. For example, it recognizes that the same
ecological end-product category may be used in multiple ways (e.g., water can be used to support
human life as drinking water and as an energy source through hydropower production). It also
recognizes that a single use category can be linked to multiple different user categories. For
example, water use to support plant cultivation is relevant for both the agricultural sector and
households (e.g., for lawn watering).
In addition to the flexible classification structure, NESCS provides a coding system that
allows for a numeric representation of the system's structure. The categories in each of the four
groups are assigned numeric codes. Each unique FFES can be easily be referenced and identified
by a detailed NESCS code that could potentially use up to 15 digits. Box ES-1 summarizes the
primary NESCS concepts and definitions introduced in this section.
ES.5 Applying NESCS to Policy Analysis
In Section ES.4, we summarize the NESCS framework, classification structure, and
coding system. In Table ES-2, we summarize how the NESCS can be applied to identify and
reference unique FFES pathways linking changes in policy and/or management action to changes
in ecosystems to changes in human welfare.
ES-7
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To demonstrate how NESCS can be applied to support policy analysis, we provide two
very different hypothetical policy applications. The first examines a policy that reduces
atmospheric deposition of acidifying compounds, such as nitrogen oxides (NOX) and sulfur
oxides (SOX). These changes, which affect the quality of terrestrial and aquatic environments, are
assumed to occur on a national or large regional scale. This first policy application identifies and
describes multiple FFES pathways that link changes in acid and nutrient deposition to specific
uses and users of the affected forest and aquatic ecosystems.
The second application focuses on a hypothetical policy requiring wetland restoration. In
this case, the direct policy impact can be characterized as a change in the quantity of natural
capital in an environmental class—wetlands. These changes are assumed to occur on a local or
small regional scale. The example identifies a range of resulting FFES that are provided to
producers and to households.
ES.6 Conclusions
In summary, Box ES-2 describes the key features of NESCS, including what it does and
does not do. The main objective of NESCS is to support the analysis of various policy changes.
Additional applications of the system will be needed to evaluate and further verify its usefulness
for this purpose and to determine whether and how the system can best be modified to address
future needs. For example, although not specifically intended for other uses, the NESCS
framework and classification structure may prove useful for certain green accounting
applications. Because NESCS draws from macro-accounting structures such as NIP A, it might
prove to be a useful tool for green-gross domestic product accounting. It may also help with
environmental accounting systems being adopted at a more micro-level by private and local
public sector organizations. NESCS could also potentially be used to support analysis of other
policies (e.g., housing, transportation, tax policies) that could result in changes to ecosystems.
Although NESCS provides a detailed structure for classifying FFES, certain questions
and challenges remain for ecosystem service classification. Key among these issues is how to
address ecosystems that are heavily managed by humans. As a simplifying assumption, the
NESCS conceptual framework assumes there is a clear division between natural systems and
human systems. In practice, however, some degree of human management is present in most
ecosystems. Additional investigation and applications will be needed to determine how to best
address these "gray" areas, where separating natural and human systems is inherently more
complicated.
ES-8
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Table ES-2. How to Apply the NESCS Structure to Identify and Represent Unique FFES Pathways for Policy Analysis
How to...
NESCS Tools
W
...describe FFES pathways that may potentially be impacted by a policy change in a
systematic and consistent manner?
...identify unique FFES pathways?
1. Identify the environmental classes/subclasses and corresponding end-product
classes/subclasses that are likely to be impacted based on region-specific scientific
evidence and information.
2. Identify the specific combinations of end-products and direct uses/non-uses that are likely
to be impacted
3. Identify relevant user categories that directly use the end-products that are likely to be
impacted
.reference and illustrate FFES pathways in a readily understandable manner?
1. Diagrammatically
2. Numerically
.provide a structure that can be used to store values obtained from elsewhere?
1. Use tables that link each of the four groups to organize, store, and present values
(monetized or otherwise) that are obtained from other sources
Use NESCS conceptual framework (Figure 4-3) as
guide
• Classification of Environment (Table 4-2)
• Classification of End-Products (Table 4-3)
• End-products in Each Environmental Class
(Table 4-5)
• NESCS Table Linking End-Products and Direct
Uses/Non-Uses (Table 4-9)
• Classification of Direct Use/Non-Use (Table 4-6)
• NESCS Table Linking Direct Uses/Non-Uses with
Users (Table 4-8)
• Classification of Direct User (Table 4-7)
Fill in NESCS conceptual framework with categories
identified (See Figures 5-1 through 5-5 as examples)
Use NESCS 15-digit coding system
(Tables 4-1, 4-2, 4-3, 4-5, 4-6, 4-7, 4-8, and 4-9)
• End-products in Each Environmental Class
(Table 4-5)
• NESCS Table Linking End-Products and Direct
Uses/Non-Uses (Table 4-9)
• NESCS Table Linking Direct Uses/Non-Uses with
Users (Table 4-8)
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Box ES-2. Key Features of the National Ecosystem Services Classification System (NESCS)
NESCS supports policy analysis in the following main ways:
(1) Provides consistency and clarity in defining final ecosystem services: NESCS provides an explicit
conceptual framework for defining flows of final ecosystem services (FFES) from natural systems to human
beings. It does this by clearly distinguishing FFES from (a) the ecological production functions/processes that
produce them; and (b) the goods and services produced by human beings (particularly those requiring natural
inputs, such as crops that require water and soil fertility).
(2) Is designed to avoid double counting of ecosystem services:1 NESCS does this by (a) distinguishing
between intermediate ecological production functions/processes and final ecosystem services; (b) striving to
define mutually exclusive use categories; and (c) distinguishing between direct (e.g., fruit growers) and indirect
users (e.g., households that consume fruit from growers).
(3) Is designed to be flexible and comprehensive: NESCS provides a broad and flexible modular structure
intended to be as comprehensive as possible in capturing potential pathways from ecosystems to human beings
and thus avoid omission of ecosystem service categories (including categories that may become important in
the future).
(4) Helps reference and illustrate ecosystem service pathways: NESCS categories and codes are designed to
help a policy analyst identify and reference flows from ecosystems to human beings in a consistent way. The
NESCS framework can also be used to represent pathways diagrammatically and in a readily understandable
manner.
(5) Provides tools and structure for storing values obtained from elsewhere: NESCS provides a structure and
a set of tools/tables that can be used to organize, store, and present values (monetized or otherwise) that are
obtained from other sources such as the non-market valuation literature.
NESCS can also be characterized in part by what it does not do or include:
(1) Does not conduct valuation of ecosystem services: NESCS does not attempt to conduct quantification or
valuation. The goal is to support identification of pathways between ecological and human systems, which can
then be used as a basis or starting point for quantification or valuation.
(2) Is not a macro-accounting system: NESCS draws from certain elements of macro-accounting structures
such as the North American Industry Classification System (NAICS), the North American Product Classification
System (NAPCS), and the National Income and Product Accounts (NIPA). It might also prove to be a useful tool
for green-gross domestic product accounting, although this is not the fundamental purpose of NESCS.
(3) Does not define or categorize feedbacks from human systems to natural systems: NESCS defines flows
from natural systems to human systems and not feedback effects from human to natural systems. It is important to
note that this is by design and does not limit consideration of these dynamic and feedback effects when
quantifying and valuing ecological benefits. Feedbacks may generate more flows through the NESCS system and
require that more of the existing FFES pathways be considered. However, considering these feedbacks does not
imply that new pathways will need to be defined and classified.
(4) Does not include a separate category for health effects, but defines numerous pathways that include
human health and safety: To be comprehensive, NESCS is designed to account for numerous, complex
connections between the environment and human health. Rather than defining a separate ecosystem service
category that exclusively addresses health effects, it defines a multitude of pathways that include human health or
safety as key components.
There will inevitably be "gray" areas where overlaps may exist; however, NESCS is intended to minimize those overlaps.
ES-10
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SECTION 1
INTRODUCTION
1.1 Overview
There is emerging consensus that understanding how ecosystems contribute to human
welfare is critical to public- and private-sector decision making. People derive benefits from
ecosystems in a myriad of ways or, put in a different way, ecosystems provide flows of
"services" to people in numerous ways. The linkages between natural systems and human
systems are complex so that identifying and tracing pathways between them can be challenging.
These linkages are the main focus of the literature on ecosystem services classification that has
gained momentum since the seminal work of Daily (1997). Classifying ecosystem services is
inherently interdisciplinary and requires a common understanding of concepts and methods
between natural scientists (e.g., ecologists) and social scientists (e.g., economists). A review of
this literature reveals that although there is consensus on the notion that ecosystems are natural
assets that support human welfare, there is disagreement on where ecosystem services occur
along the continuum between ecosystems and human welfare. A consistent definition and
classification system is critical for research and efficient decision making.
The purpose of this report4 is to describe a classification system for ecosystem services—
the National Ecosystem Services Classification System (NESCS)—that is based on a consistent
conceptual framework and definition. The primary goal of NESCS is to support analysis of the
human welfare impacts of environmental and natural resource management policies. It is
important to note that analysis of policies involves evaluations of changes to the system rather
than evaluating the status of the total system. In other words, the goal of NESCS is to support
different types of "marginal" analysis.5 For example, it should be particularly helpful for
conducting cost-benefit analyses (CB A) of environmental and natural resource management
policies. In CBA, the main objective is to measure changes in human welfare by estimating and
comparing the benefits and costs of policies, both measured in monetary terms. The
classification system should also provide a framework for comparing the cost-effectiveness or
distributional impacts of alternative policies. In a cost-effectiveness analysis, alternative policy
outcomes may be evaluated by comparing non-monetary measures of ecosystem service
4 Key terms used throughout this report are defined in a Glossary at the end of the report.
5 Policies that are relevant in this context are typically those that cause changes to ecosystems that are small
relative to the total value of ecosystems (e.g., implementing or changing water quality standards, changing
emissions standards for a source category). The term "scenario analysis" is also used (e.g., National Ecosystem
Services Partnership, 2014) for environmental policy analysis since several alternatives or scenarios are
evaluated during the course of decision making. Although broader in scope, these types of analysis may also be
supported by the NESCS framework.
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improvements, which serve as effectiveness indicators, and monetary measures of costs. In a
distributional analysis, the impacts of ecosystem service improvements (and costs) on different
subpopulations can be evaluated and compared. NESCS could also potentially be used to support
other types of marginal analysis such as analyzing impacts of other policies (e.g., housing,
transportation, tax policies) that could also result in changes to ecosystems. In addition, although
it is not the primary objective of the classification system, we expect that it will provide a useful
framework for conducting environmental or "green" gross domestic product (GDP) accounting,
at both a microeconomic and a macroeconomic level.6
Analyzing the human welfare impacts (benefits) of an environmental policy typically
entails identifying, quantifying, and, in many cases, valuing changes in ecosystems and their
contributions to human welfare (EPA, 2009). The Science Advisory Board (SAB) report stresses
on the importance of this "identification" step in valuation even when data issues limit
monetization of impacts (EPA, 2009). One of the findings of the report is that historically, policy
analysis has tended to focus only on ecosystem services for which economic benefits are easily
measurable but this "can diminish the relevance and impact of a value assessment." The SAB
therefore "advises the [Environmental Protection] Agency to identify the services and
components of likely importance to the public at an early stage of a valuation and then to focus
on characterizing, measuring, and assessing the value of the responses of those services and
components to EPA's actions." The report further highlights the importance of a road map to
guide valuation and recommends that each valuation should begin by "developing a conceptual
model of the relevant ecosystem and the ecosystem services that it generates.
The goal of NESCS is primarily to support the first step in the process of CBA—that is,
identification of policy-induced ecosystem service changes. Specifically, NESCS can be used to
identify and categorize potential pathways through which policy-induced changes7 to ecosystems
ultimately result in human welfare changes. It provides a foundation that policy analysts can then
use to conduct quantifications and valuations of ecosystem service changes in a consistent
manner. In Section 1.2, we provide a brief review of basic terms and concepts. Section 1.3
describes the general approach for NESCS, and Section 1.4 summarizes some of the key
requirements and a few key features of the system. We conclude Section 1 with a brief outline of
the report in Section 1.5.
6 It is important to note that green accounting involves evaluating the total value as opposed to changes to
the system.
7 Although the primary motivation for developing NESCS is to support evaluations of policies that cause changes
to ecosystems, the framework can also be potentially useful for analyzing changes to ecosystems caused due to
other factors such as natural changes that may occur over time.
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1.2 Review of Basic Concepts
Since the focus of this report is to design and develop a classification system for
ecosystem services, we begin by reviewing four important concepts. First, what is meant by a
classification system and what are general principles or desirable characteristics of classification
systems? Second, what does the term ecosystem service mean? Third, how are "services"
generally defined for economic systems—how are services distinct from goods? Fourth, how are
economic services distinct from ecosystem services? An understanding of all four concepts has
important implications for the design of NESCS.
1.2.1 Classification Systems
The literature on taxonomies yields different definitions of and purposes for classification
systems. Although the language varies, a common theme is that the primary purpose for a
classification system is to provide an organized structure, through categories that allow one to
group similar elements together and to separate different elements. Predetermined criteria define
what should be considered similar or different, and these criteria are driven by the specific
purpose for developing the classification system. One frequently cited definition is that a
classification system is "the ordering or arrangement of objects into groups or sets on the basis of
their relationships. These relationships can be based upon observable or inferred properties"
(Sokal, 1974). The United Nations (UN) Department of Economic And Social Affairs (1999)
defines general principles and best practices of classification systems, including:
• categories should be exhaustive and mutually exclusive;
• categories should be comparable to other international standard classifications;
• categories should be stable, meaning that they are not changed too frequently;
• the classification system should be well described and backed up by explanatory notes,
coding indexes, coders, and other descriptors; and
• the classification system should be well balanced, that is., there should not be too many
or too few categories.
1.2.2 Ecosystem Services
As mentioned earlier, a large variety of ecosystem service definitions and classification
approaches have been proposed. These include de Groot et al. (2002), Millennium Ecosystem
Assessment (MA, 2005), Wallace (2007), Boyd and Banzhaf (2007), Fisher and Turner (2008),
Haines-Young and Potschin (2010a, 2010b, 2013), Staub et al. (2011), and Landers and Nahlik
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(2013). Across these studies, there are differences in policy objectives, specific definitions of
ecosystems services, and criteria for grouping services. There is general agreement that human
well-being is supported by the existence, processes, and outputs of ecosystems, and that
ecosystem services arise from this role. However, there is disagreement on the exact definition of
ecosystem services. Specifically, studies disagree on the distinction between intermediate
ecosystem processes/functions, final ecosystem services, and benefits; this lack of clear
distinctions results in various issues and challenges for valuation. One assessment of the
literature concludes that there is "a common lack of clarity in defining and valuing final
ecosystem services, which has contributed to inconsistent valuations that double count some
benefits and omits others" (Johnston and Russell, 2011).
1.2.3 Services in the Market
Given the differences in the definition of services in the context of natural systems, we
explored how well-established economic accounting and classification systems define "services."
We found that even in economic systems, services are difficult to define. For example, the
Economic Classification Policy Committee (ECPC, 1993e) provides examples of alternative
definitions available in the literature and concludes that "[tjhere does not exist an internationally-
agreed official definition of services...." One of the definitions included in ECPC (1993e) and
adopted by the U.S. Census Bureau8 is: "A service is a change in the condition of a person or a
good belonging to some economic entity, brought about as a result of activity of some other
economic entity...." Another definition of services provided on the website for the National
Archives9 is as follows: "A service is the production of an essentially intangible benefit, either in
its own right or as a significant element of a tangible product, which through some form of
exchange, satisfies an identified need. Sometimes services are difficult to identify because they
are closely associated with a good; such as the combination of a diagnosis with the
administration of a medicine." The website also notes that while goods (or "products") are
"something that can be measured and counted, a service is less concrete and is the result of the
application of skills and expertise towards an identified need."
We concluded, from our review of definitions of services in the economic context, that
there is a general understanding and agreement that there are certain features of services that
distinguish them from "goods." Unlike goods, services are typically intangible, non-storable, and
inseparable from provider and consumer. Also, typically in economics, in contrast to goods,
8 http://www.census.gov/epcd/products/products99.htm (accessed May 29, 2015)
9 http://www.archives.gov/preservation/products/definitions/products-services.html (accessed May 29, 2015)
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which can be treated as "stocks" and measured at a specific point in time, services10 are viewed
as "flows" from the provider to the consumer, and are measured over a period of time.11
1.2.4 Economic Versus Ecosystem Services
Since the focus of this report is on services provided by ecosystems/natural systems, it is
important to compare and contrast them with services produced within economic/human
systems. Some of the main differences are the following:
1. Market vs. Non-market nature of services: In contrast to economic services,
ecosystem services are generally non-market in nature. In other words, they are
typically not sold in markets and thus there are fewer observable transactions or
prices.
2. Private vs. Public characteristics: Unlike economic services, ecosystem services often
(although not always12) have "non-rival" characteristics; that is, enjoyment by one
user does not diminish simultaneous enjoyment by other users.
3. Different implications of the concept of "final" services: Final economic services are
sold to the end user—they flow from producers to households—whereas flows of
final ecosystem services occur at the "point of direct hand-off between natural
systems and human systems (including both intermediate and final producers of
economic goods, and households).
1.3 General Approach for NESCS
In designing the NESCS system, we have adapted concepts, principles, and methods from
the different streams of literature described in Section 1.2. First, we attempt to incorporate the
general principles and best practices of classification systems. Second, we draw from widely
accepted concepts for classification and accounting of flows of services in the economic context.
One of the key lessons learned from this literature is that services are defined as a flow rather
than a stock. Third, we draw from previous literature on classification approaches for ecosystem
services to address the question of where ecosystem services lie along the continuum and avoid
double counting their values. Boyd and Banzhaf (2007) introduce and focus on the concept of
Note that flows of ecosystem goods are not included or defined in the NESCS framework. For a detailed
explanation, see Section 4.2.2.
Goods can also be measured as flows, for example as the number of items produced in a year.
Examples of exceptions would be water being drawn for drinking purposes since the water drawn cannot be used
by others. We define categories for "extractive uses" (see Section 4.3.2) to account for these types of services.
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"final" ecosystem services. As they define them, final ecosystem services occur at the point of
hand-off between natural systems (ecosystems) and human systems (producers and households).
Realizing the importance of distinguishing between intermediate and final services and
between stocks and flows, NESCS was designed to specifically focus on and classify flows of
final ecosystem services (FFES).13 NESCS defines FFES as the direct contributions made by
nature to human production processes or to human well-being.
Since services are viewed as flows from a provider to a consumer, in order to identify and
define FFES, we first need to identify producers (or "supply-side") and consumers (or "demand-
side") of the service. The two existing classification systems for economic goods and services in
the United States (North American Industry Classification System, NAICS, and North American
Product Classification System, NAPCS) also distinguish between supply-side and demand-side
systems.14 The NAICS system is designed to classify the production processes for goods and
services based on a supply-side perspective (i.e., who is producing the commodities and how?),
whereas the NAPCS system focuses on the demand-side perspective to classify the goods and
services (i.e., how and by whom are the products being used?). We also make a distinction
between a supply-side grouping and a demand-side grouping and thus include two
complementary components, NESCS-S and NESCS-D when classifying FFES.
It is important to note is that while there are important parallels between NAICS/NAPCS
and NESCS, there are important differences as well. Specifically, while NAICS and NAPCS
provide alternative ways for classifying economic goods and services, NESCS-S and NESCS-D
together constitute the classification system for FFES. They are complementary systems that
need to be used together to identify and classify FFES. NESCS extends the NAICS/NAPCS
framework to trace the flow of ecosystem services from natural systems to human systems.
The NESCS structure consists of four groups: (1) environmental classes that together
cover the earth's surface; (2) classes of ecological end-products, which are the biophysical
components of nature directly used or appreciated by humans; (3) classes of direct human use or
non-use appreciation of end-products; and (4) classes of direct human users of end-products. The
13 It is important to note that flows of final ecosystem goods are not included or defined in this framework. The
main reason for this exclusion is that the process of transferring physical ecosystem products from nature to
humans, which is necessary to generate flows of goods, typically requires human inputs (See Section 4.2.2 for
more details).
14 Both of these classification approaches were primarily designed to support the development of National Income
and Product Accounts (NIPA). The NIPA are used to (1) trace the flow of intermediate goods and services
between production sectors in the economy, and (2) estimate the value and composition of final goods and
services sold to consumers.
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first two groups pertain to the natural systems that "produce" FFES and can be interpreted as the
supply-side classification (NESCS-S). The last two groups pertain to the human systems that
appreciate or directly use FFES, and can be interpreted as the demand-side classification
(NESCS-D). Combinations across these four groups define FFES, and can depict unique
pathways that link changes in ecosystems with human welfare.
Within each of these four groups, NESCS adopts a nested hierarchical structure so that
each group can be represented at multiple levels of aggregation or detail. NESCS provides a
coding system that allows for a numeric representation of the NESCS structure. The categories in
each of the four groups are assigned numeric codes. Each unique FFES can be referenced and
identified by a NESCS code that can potentially be up to 15 digits.
1.4 Summary of Requirements and Key Features of NESCS
In this section we briefly summarize some of the basic requirements for marginal analysis
and the key unique features of NESCS that will allow us to achieve our objectives. In order to
support marginal analysis, it is important to have a standardized, comprehensive system that will
allow for systematic linkages to be drawn between natural and human systems. It is important to
ensure that there are no "leakages." In other words, the classification system should be such that
there are no impacts of changes in policy that remain unaccounted for. At the same time, it is
important to avoid double counting impacts. The following two complementary tools provided
by NESCS help satisfy these requirements and help uniquely identify FFES:
• The first tool is the NESCS structure that defines categories and numeric codes for each
of the four groups. These categories and codes are designed to help identify flows from
ecosystems to human beings in a mutually exclusive way. Specifically, we define the
supply-side and demand-side categories that can help provide linkages to ecological and
valuation models respectively.
• The second tool is the NESCS conceptual framework that provides a way to
systematically link and combine mutually exclusive categories from each of the four
groups. It also provides a simplified framework for considering non-market (specifically
environmental) sectors15 (as represented by NESCS) and market sectors (as represented
by NAICS/NAPCS16) in an integrated manner. This tool can also be used to represent
15 Other sectors involving significant non-market elements include education and public sector services (NRC,
2005). These are not the focus of this report.
16 Note that some inherently non-market activities are included in the NAICS/NAPCS sectors, such as owner-
occupied housing and food consumed on farms (Nordhaus, 2004).
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FFES pathways diagrammatically and in a readily understandable manner. It provides the
linkages between different components of the framework, as between ecological
production systems and market or non-market consumers.
Although it is not our main objective in designing NESCS, we also expect that NESCS
can help to develop and support accounting systems such as green GDP. Therefore, we also
provide a brief overview of the ways in which NESCS can aid these types of accounting systems:
• The NESCS conceptual framework provides a tool that can help differentiate between
"intermediate" and "final" services, to avoid double counting. It can also help trace the
input-output relationships between different sectors.
• The NESCS can help support green accounting in the following ways:
- It strives to provide mutually exclusive and exhaustive categories to help avoid
double counting.
- It defines categories that can be used to present accounting data according to well-
defined criteria.
- It can help trace both sectoral and temporal changes, since it is based on a
consistent and well-defined framework.
- It may help in presenting accounts at different levels of aggregation due to its
hierarchical structure.
- It may help in adding services to accounts at a later time due to its flexible
structure.
Before describing the details of the NESCS framework, classification structure, and coding
system, it is important to draw the reader's attention to a few additional issues and features of the
system. First, it must be emphasized that NESCS does NOT attempt to conduct quantification or
valuation—the goal is to support identification of pathways between ecological and human
systems.
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Second, NESCS defines Rows from natural systems to human systems, and not feedback
effects from human to natural systems.17 It is important to note that this is by design, and does
not limit considering these dynamic and feedback effects when quantifying and valuing
ecological benefits. However, considering these feedbacks is not essential for defining and
classifying flows of ecosystem services from nature to humans. Although consideration of
feedback and dynamic effects can be critical for policy analysis and valuation, they alter how
NESCS is used but not how it is structured. Feedbacks may generate more flows through the
NESCS system, which may require that more of the existing pathways in the system be
considered. However, this does not imply that new pathways will need to be defined and
classified to accommodate feedback effects.
Third, the NESCS framework describes and separates natural and human systems, but
there are many "gray" areas. For example, in managed ecosystems like planted forests and
national parks, determining "final" services is more challenging and requires more careful
thinking since the natural and human systems overlap. It is, however more straightforward to
define what i s not an FFES. In NESCS, anything that is produced using human inputs and sold in
a market18 is not considered an FFES.19
Fourth, an important issue in classifying ecosystem services is the relationship between
ecosystem services and human health. To be comprehensive, a classification system must cover
all of the ways in which ecosystems contribute to human well-being; therefore, it must
incorporate impacts on human health and safety. Ecosystems are vital for sustaining human life;
however, the linkages between the environment and human health are both numerous and
complex, including a wide range of direct and indirect pathways. To be comprehensive, NESCS
is designed to account for these connections. However, rather than defining a separate ecosystem
service category that exclusively addresses health effects, it defines multiple pathways that
include human health or safety as key components. These pathways include, for example, direct
uses and contact with air and water resources, protection against natural hazards, and indirect
benefits from consuming health-enhancing goods and services (e.g., food, medicine, shelter)
produced with ecological inputs.
17 Only natural systems are capable of generating ecosystem services. Human intervention of any kind may change
the profile of services that exist in any place, but the flow of ecosystem services originate through natural
processes, or they would not meet standard definitions of ecosystem services.
18 Not including regulatory-based environmental (i.e., cap-and-trade) markets.
19 For example, agricultural landscapes are produced using human inputs and humans may have aesthetic
appreciation for such landscapes. However, these landscapes are not sold in the market and may be considered to
be externalities that result from agricultural production systems.
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1.5 Overview of the Report
In the remainder of the report, we provide background on the relevant literature, describe
the development and approach of the NESCS system, and provide a few illustrative applications.
In Section 2, we provide a review of the literature on classification approaches to ecosystem
services. We do not attempt to be exhaustive in this review. Rather, we focus on a few key
studies to help provide understanding of some of the main concepts and issues that are relevant
for our design. Section 3 provides a brief overview of economic accounting and classification
systems. This provides important background for our approach, since NESCS draws from the
principles and structure of these systems. In Section 4, we describe the NESCS methodology.
Specifically, we describe our approach in detail, develop the conceptual framework, and describe
the NESCS structure and coding system in detail. Illustrative policy examples are used in Section
5 to demonstrate how NESCS may be applied in practice. Section 6 concludes with a summary
of key design elements and features. It also provides a short comparison with other classification
systems, primarily Landers and Nahlik (2013). It then identifies other potential applications and
next steps for future research.
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SECTION 2
REVIEW OF ECOSYSTEM SERVICES CLASSIFICATION LITERATURE
2.1 Introduction
Since the publication of Nature's Services by Gretchen Daily (1997), a growing body of
literature has emerged on classifying ecosystem services. In this section we summarize the recent
research in this area. All of the studies we review share the same fundamental purpose, which is
to identify and describe the various ways in which ecosystems support human welfare. However,
they also provide different perspectives, using different approaches and terminology to address
this common purpose. The studies selected for review in this section include papers and reports
from both peer-reviewed and gray literature. They specifically include the following studies:
Daily et al. (1997), de Groot et al. (2002), Millennium Ecosystem Assessment (MA) (2005),
Wallace (2007), Boyd and Banzhaf (2007), Fisher and Turner (2008), Haines-Young and
Potschin (2010a, 2010b, 2013), Staub et al. (2011), and Landers andNahlik (2013).20
The selected studies differ in three main respects. First, the structure and level of detail of
the classification systems vary across studies and have generally evolved over time. They range
from a "flat" structure, which mainly provides a list of ecosystem services, to more complex
hierarchies and taxonomies, which provide multi-level embedded groupings of ecosystem
services. Two of the studies—Boyd and Banzhaf (2007) and Fisher and Turner (2008)—define
principles for classifying ecosystem services rather than providing an explicit classification
system. The initially proposed hierarchies use "functional groupings" (i.e., they grouped similar
ecosystem functions under the same category) (de Groot et al., 2002; MA, 2005), whereas later
studies suggest and implement groupings based on benefits to humans (Wallace, 2007; Staub et
al., 2011). Another development in the more recent literature is to use a flexible nested hierarchy
that allows for easy aggregation at different levels and for incorporation of additional services
when they become relevant (Haines-Young and Potschin, 2010a, 201 Ob, 2013; Landers and
Nahlik, 2013).
Second, the studies address different policy analysis objectives. These differing
objectives account for many of the distinct features adopted across classification systems. The
primary objective in the initial studies was to list and describe the ways in which ecosystems
support human welfare (Daily et al., 1997; de Groot et al., 2002) and to expand on this list to
make it exhaustive (MA, 2005). The analytical objectives in the more recent studies include
20 Examples of other studies include Costanza et al. (1997), National Research Council (2005), Turner et al. (1994),
Hawkins (2003), and Hein et al. (2006). The last two approaches categorize ecosystem services into those that
have use values and those that have non-use values.
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support for natural resource management decision making, green accounting, and cost-benefit
analysis. For natural resource management decisions, a well-defined and internally consistent
classification system is essential for making meaningful comparisons between different courses
of action (Wallace, 2007). For example, it is difficult to make a well-informed choice between
alternative water quality protection approaches if one of them is evaluated in terms of sediment
retention (a process) and the other in terms of changes in water clarity (the outcome of a
process).
From an ecosystem services perspective, one of the key differences between cost-benefit
analysis and green accounting is that cost-benefit analysis typically requires value estimates for
changes in ecosystem services due to a policy, program, or management action (Fisher and
Turner, 2008), whereas green accounting focuses more on the level of ecosystem service flows
provided by natural systems during a given time period. For example, the objective of green
GDP accounting is to provide an annual monetary measure indicative of national welfare that
includes contributions from natural systems.
Third, and perhaps most importantly, the studies differ in how they define the concept of
ecosystem services. Generally speaking, the different classification systems are consistent with
the conceptual framework shown in Figure 2-1. In particular, there is general agreement that
ecosystems provide benefits to humans in various ways, including (1) through the outputs of
their own processes and functions (e.g., climate regulation), and (2) by supporting human
activities (e.g., food production) that then provide benefits. A main area of disagreement,
however, is where "ecosystem services" occur along the continuum between ecosystems and
human welfare. In particular, the classification approaches differ in whether natural processes or
functions should themselves be considered services and whether services and benefits should be
treated as synonymous. They also differ in whether ecosystem services should include items that
involve input from humans (e.g., food production that requires human labor inputs) or whether
these services must inherently be delivered from natural processes or components prior to human
involvement (e.g., unmanaged pollination). Therefore, even though a consensus has emerged in
the literature about the importance of differentiating "final" ecosystem services from the
"intermediate" processes that contribute to them, there is less agreement about what constitutes a
final service.
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Figure 2-1. Simple Conceptual Framework Underlying Most Ecosystem Service
Definitions and Classification Systems
Ecological
Processes & '
^Functions /
.X
Ecosystems "•
Benefits to
Humans
Human
"" Welfare
Despite these differences, the literature has converged on several key points, including
the following:
1. There is a general recognition that humans benefit from ecosystem services through
both market and non-market activities.
2. For accounting or valuation purposes, it is important not to count both intermediate
and final services (or intermediate process and final outcome), to avoid double
counting values.
3. Overlapping categories of ecosystem services must be treated with caution to avoid or
minimize double counting.
4. What may be an intermediate service for one category of benefit may be a final
service for a different category.
5. Values for ecosystem services may be location specific, time specific, and consumer
specific.
Given these areas of agreement, the evolution in the literature has involved attempts to
rigorously define ecosystem services in a way that:
• is consistent and meaningful across different type of services;
• is measurable and operational;
• helps to avoid double counting services; and
• corresponds to the context and objectives of the study.
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The earlier studies (e.g., Daily et al., 1997; MA, 2005) were mainly devoted to
developing an inventory of ecosystem services without specific attention to avoiding overlaps.21
The later studies (e.g., Wallace, 2007; Boyd and Banzhaf, 2007; Fisher and Turner, 2008)
critique different aspects of the earlier definitions and suggest alternative ways to address them
to meet the four main goals above. In particular, Haines-Young and Potschin (2010a, 201 Ob,
2013) and Landers and Nahlik (2013) define specific pathways through which ecosystems
provide services to human beings, and Staub et al. (2011) provide a way to implement the
definitions with data relevant to the Swiss economy.
In the following sections, we describe how the ecosystem services term has been defined
in each of the studies. We then describe the associated classification system (or some key
examples if a complete classification is not presented), as well as the main advantages,
shortcomings, and criticisms of each approach.
2.2 Daily et al. (1997)
2.2.1 Objective
One of the seminal papers in the ecosystem services literature, the main objective of
Daily et al. (1997) was to identify and describe the main connections between ecosystems and
human well-being.22
2.2.2 Definition and Discussion
The paper defines ecosystem services as "a wide range of conditions and processes
through which natural ecosystems, and the species that are a part of them, help sustain and fulfill
human life. They maintain biodiversity and the production of ecosystem goods, such as seafood,
forage timber, biomass fuels, natural fiber, and many pharmaceuticals, industrial products, and
their precursors" (p. 2). Some examples of such services are:
• purification of air and water;
• mitigation of droughts and floods;
• generation and preservation of soils and renewal of their fertility;
• detoxification and decomposition of wastes;
21 MA (2005) recognizes that some of their categories overlap (see Section 2.4).
22 Additional and more detailed discussions of the issues raised in this paper are provided in the book Nature's
Services (Daily, 1997)
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• pollination of crops and natural vegetation;
• dispersal of seeds;
• cycling and movement of nutrients;
• control of the vast majority of potential agricultural pests;
• maintenance of biodiversity;
• protection of coastal shores from erosion by waves;
• protection from the sun's harmful ultraviolet rays;
• partial stabilization of climate;
• moderation of weather extremes and their impacts; and
• provision of aesthetic beauty and intellectual stimulation that lift the human spirit.
This approach highlights the fact that natural ecosystems provide market goods as well as
non-market services.
Daily et al. (1997) also emphasize the importance of the spatial nature of ecosystem
services. They point out that the "[f]low of ecosystem goods and services in a region is
determined by type, spatial layout, extent and proximity of ecosystems supplying them" (p. 6).
This spatial dimension has important implications for valuation of ecosystem services. For
example, the value of the flood prevention services offered by a wetland depends critically on its
location within a floodplain in relation to vulnerable populations and ecosystems.
2.2.3 Limitations
While recognizing that the objective of Daily et al. was to link ecology and human well-
being (as opposed to generating an accounting system), Boyd and Banzhaf (2007) point out the
problems that can arise when using this definition of ecosystem services in an accounting
framework. These problems occur because some of the described services may be better
characterized as ecosystem processes or functions than as final ecosystem services. For example,
even though water purification is embodied in the production of clean water, the service itself is
clean water. As a result, double counting ecosystem services may occur if no distinction is made
between the intermediate processes and the final service. In addition, if the aim is to provide a
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measurement of ecosystem services, problems can arise in applying this framework because the
measurement of processes is typically more difficult than the measurement of outcomes of
processes. Boyd and Banzhaf also draw a distinction between "benefits" and "services" provided
by ecosystems, and argue that some of the items defined by Daily et al. as ecosystem services are
in fact benefits. For example, they argue that flood control is a benefit to which natural assets
(e.g., wetlands) contribute, not a service.
2.3 de Groot et al. (2002)
2.3.1 Objective
The 2002 study by de Groot et al. notes that although a substantial amount of research
has been done on the value of ecosystem services, the resulting data are not necessarily defined
at compatible scales of analysis and are classified differently. The goal of this de Groot et al.
study is to support comparative ecological economic analyses. To support this, the authors
present a "conceptual framework and typology for describing, classifying and valuing ecosystem
functions, goods and services" (p. 393).
2.3.2 Definition and Discussion
The authors emphasize the importance of translating complex ecological structures and
processes to a limited number of ecosystem functions. They define ecosystem functions as "the
capacity of natural processes and components to provide goods and services that satisfy human
needs, directly or indirectly." Ecosystem functions thus are antecedents to ecosystem goods and
services.
The paper groups 23 ecosystem functions and their associated ecosystem goods and
services into four broad categories:
1. Regulation Functions—includes the biogeochemical cycles (nutrient, carbon, water,
etc.), that support and maintain life. Ecosystem services derived from this function
category also include clean air, water, soil, and disturbance prevention. Eleven
separate ecosystem functions are described as falling under regulation functions.
2. Habitat Functions—habitat for wild plants and animals is necessary for the services
the plants and animals provide through production and information functions
described below. Two distinct ecosystem functions are described—refugium and
nursery function—to illustrate the importance of different habitat requirements across
life histories.
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3. Production Functions—food, medicine, and materials produced by ecosystems.
Excluded from this category are nonrenewable resources, such as gold or oil. Also
included in this category are genetic resources that can replenish domesticated
species.
4. Information Functions—recreation, aesthetic, cultural, spiritual, scientific, and
educational services.
By their definition, while regulation functions provide some ecosystem services, most are
generated through the production and information functions, with regulation and habitat
functions providing the necessary inputs for production and information functions.
To link ecosystem functions, goods, and services to values, the authors describe three
separate categories of value. Ecological value is included in their framework to place a
"sustainable use" limit on the consumption of ecosystem goods and services. Socio-cultural
value corresponds well to equity considerations, such as environmental justice, when assessing
ecosystem service values. Finally, the category of economic value is where actual money values
may be assigned to the ecosystem goods and services provided by ecosystem functions.
2.3.3 Limitations
Wallace (2007) criticizes de Groot et al. for combining "processes (means) for achieving
services and the services themselves (ends) within the same classification category" (p. 236), and
for the risks of double counting benefits. Similarly, Wainger and Mazzotta (2011) note that
valuing functions and processes may lead to double counting. They also recommend exclusion of
basic ecological functions and processes such as nutrient cycling, for which people do not have
well-established preferences.
The study by de Groot et al. has also been criticized for their use of the term "ecosystem
functions" as the subset of ecosystem processes that provide ecosystem services. Wallace (2007)
finds the use of the term to be redundant to ecosystem process, and advocates not using
ecosystem function for greater parsimony of terms and for clarity. Similarly, Haines-Young and
Potschin (2010a, 201 Ob, 2013) recommend dropping the term ecosystem function, which is often
used more generally than de Groot et al.'s definition, and instead using the term "capability."
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2.4 Millennium Ecosystem Assessment (2005)
2.4.1 Objective
The goal of the Millennium Ecosystem Assessment report (MA, 2005) was to "establish
the scientific basis for actions needed to enhance the contribution of ecosystems to human well-
being without undermining their long-term productivity" (p. ii) Thus the objective of their
conceptual framework is to assess the consequences of changes in ecosystems for human well-
being.
2.4.2 Definition and Discussion
The MA report defines ecosystem services in the following way: "Ecosystem services are
the benefits people obtain from ecosystems. These include provisioning services such as food
and water; regulating services such as flood and disease control; cultural services such as
spiritual, recreational, and cultural benefits; and supporting services, such as nutrient cycling,
that maintain the conditions for life on Earth" (p. 39).
The MA report also refers to other types of categorizations of ecosystem services that
have been proposed in the literature:
• functional groupings, such as regulation, carrier, habitat, production, and information
services (de Groot et al., 2002);
• organizational groupings, such as services that are associated with certain species, that
regulate some exogenous input, or that are related to the organization of biotic entities
(Norberg, 1999); and
• descriptive groupings, such as renewable resource goods, nonrenewable resource goods,
physical structure services, biotic services, biogeochemical services, information
services, and social and cultural services (Moberg and Folke, 1999).
The MA report opts for a functional groupings approach and uses categories of
provisioning, regulating, cultural, and supporting services. The first three categories directly
affect people and supporting services, and the supporting services are needed to maintain the
other services. These categories, along with the impact they have on human well-being, are
displayed in Figure 2-2. The figure depicts supporting services that differ from provisioning,
regulating, and cultural services. Their impacts on people are either indirect or occur over a long
time, whereas changes in the other categories have relatively direct and short-term impacts on
people. Thus, supporting services do not contribute directly to welfare. For example, although
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humans do not directly use soil formation and retention services, changes in these services do
indirectly affect people through their impact on the provisioning service of food production.
Some other examples of supporting services are primary production, production of atmospheric
oxygen, nutrient cycling, water cycling, and provisioning of habitat.
Figure 2-2. MA Categorization of Ecosystem Services and their Links to Human Weil-
Being
Determinants and
Ecosystem Services Constituents of Well-being
SUPPORTING
SERVICES
Services
necessary for the
production of all
other ecosystem
services
• Soil formation
• Nutrient cycling
• Primary
production
Provisioning
Services
Products obtained
from ecosystems
• Food
• Fresh water
• Fuelwood
• Fiber
• Biochemicals
• Genetic reiources
Regulating
Services
Benefits obtained
from regulation of
ecosystem processes
• Climate regulation
• Disease regulation
• Water regulation
• Water purification
Cultural Services
Nonmatertal benefits
obtained from
ecosystems
• Spiritual and religious
• Recreation and
ecotourism
• Aesthetic
• Inspirational
• Educational
• Sense of place
• Cultural heritage
Security
• Ability to live in an
environmentally clean and
safe shelter
• Ability to reduce vulnerability
to ecological shocks and
stress
Basic Material for
a Good Life
• Ability to access resources
to earn income and gain a
livelihood
Health
• Ability to be adequately
nourished
• Ability to be free from
avoidable disease
• Ability to have adequate and
clean drinking water
• Ability to have clean air
• Ability to have energy to keep
warm and cool
Good Social Relations
• Opportunity to express
aesthetic and recreational
values associated with
ecosystems
• Opportunity to express cultural
and spiritual values associated
with ecosystems
• Opportunity to observe, study,
and learn about ecosystems
FREEDOMS
AND
CHOICE
Source: MA, 2005.
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The MA report recognizes that there are overlaps between these categories of ecosystem
services; however, its developers argue that "the purpose is not to establish a taxonomy but
rather to ensure that the analysis addresses the entire range of services" (MA, 2003, p. 38). For
example, erosion control can be categorized as both a supporting and a regulating service,
"depending on the time scale and immediacy of their impact on people" (p. 40).
The MA report also describes what they would consider to be reasonable indicators or
measures of the condition of services for three of the defined categories. For provisioning
services, flow measures alone (e.g., biophysical production measured in terms of kilograms of
crop produced per hectare) may not provide an accurate reflection of these services. Potential
mismeasurement occurs because a given flow may or may not be sustainable over the long term.
For example, overharvesting of fisheries leads to the degradation of the long run productive
potential of the resource, even though harvest may have temporarily increased. Thus, the
provisioning of ecological goods such as food, fuel wood, or fiber, depends both on the flow and
the "stock" of the good.
In the case of regulating services, the level of "production" is usually not relevant. In this
case, the condition of the service depends more on whether the ecosystem's capability to regulate
a particular service has been enhanced or diminished. For example, if forest clearance in a region
has resulted in decreased precipitation, which has had harmful consequences for people, then the
condition of that regulatory service has been degraded.
Cultural services are inherently more difficult to measure; therefore more research is
needed to develop appropriate measurement approaches. Some cultural services (such as
recreational fishing or hunting) are linked to a provisioning service (food provision), which can
serve as a proxy measure of the cultural service. However, no such proxy exists for most cases.
The MA also draws attention to the fact that assessing the condition of cultural services depends
heavily on either direct or indirect human use of the service. This connection occurs because the
services are tightly bound to human values and behavior, as well as to human institutions and
patterns of social, economic, and political organization. For example, the condition of a
regulating service such as water quality might be high even if humans are not using the clean
water produced, but an ecosystem provides cultural services only if there are people who value
the cultural heritage associated with it. Thus, perceptions of cultural services are more likely to
differ among individuals and communities than, for example, perceptions of the importance of
food production.
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For supporting services, the MA report concludes that a normative scale for assessing the
condition of these services is not always practical, since the link to human benefits is indirect.
2.4.3 Limitations
Boyd and Banzhaf (2007) argue that although the MA report does attempt to motivate
measurement (and is successful for provisioning services), problems arise in the case of the non-
marketed components. Similar to the Daily et al. classification, many of the regulating services
correspond to better to functions and processes than to services (e.g., pest regulation, disease
regulation, hazard reduction, pollination, and climate regulation). Also, they argue that cultural
services, including spiritual and religious values, aesthetic values, and recreation and ecotourism,
should be characterized as benefits rather than as services.
Haines-Young and Potschin (2010a, 201 Ob, 2013) also note that there is a distinction
between benefits and services for two reasons. First, most services have multiple benefits. For
example, food provides health, pleasure, and sometimes even cultural identity. Second, similar to
criticism by Boyd and Banzhaf (2007), they note that benefits have a human component to them.
Wallace (2007) offers a similar criticism of the MA framework and other classification systems
for mixing ecosystem processes (means) with ecosystems services (ends). According to this
critique, most of the services under the regulating and supporting categories are processes rather
than services. This critique also implies that regulating and supporting services are not at the
same level23 as, say provisioning services, and therefore cannot be compared easily with each
other and traded off in a decision system.
2.5 Boyd and Banzhaf (2007)
2.5.1 Objective
Boyd and Banzhaf (2007) highlight the importance of standardized ecosystem units in the
development of national-scale environmental accounting systems. Their objective is to develop
an ecosystem services framework that is "potentially consistent with national income accounting
and hence abroad 'green GDP'" (p. 617).24
23 The meaning of this term will be explained further in a later section.
24 Boyd and Banzhaf also indicate that along with definition of quantities, accounting frameworks require
aggregation and weighting. They suggest that estimates of willingness to pay (WTP) from non-market valuation
studies can be used for weighting. To ensure that WTP-based weights are spatially explicit, meta-analysis of
existing values can be used to calibrate benefit transfers. This would involve using WTP indicators (where WTP
are functions of landscape indicators) along with site-specific GIS measures of ecosystem scarcity, substitutes,
and complements. However, they note that such information is not readily available.
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2.5.2 Definition and Discussion
Boyd and Banzhaf s definition is as follows: "Final ecosystem services are components
of nature, directly enjoyed, consumed, or used to yield human well-being" (p. 619). One
important implication of this definition is that ecosystem services are not benefits, nor are they
always the final product consumed. For example, it is more appropriate to consider recreation as
a benefit rather than an ecosystem service, since it is produced using both ecological services and
conventional goods and services. Recreational angling (or fish caught) is a function of ecosystem
services like fish population, as well as human inputs such as travel and fishing equipment.
This definition makes a distinction between intermediate and final products to avoid the
problem of double counting. For example, different ecosystem components contribute to clean
drinking water (which is consumed directly by households), but according to this framework, it
is the clean water, rather than the ecosystem structures or processes producing the clean water,
that should be included in an ecosystem service account. Also, an ecosystem component may be
a final service in one context and an intermediate service in another. For example, whereas clean
water is a final ecosystem service for drinking water benefits, it is an intermediate component for
sustaining fish populations, which are one of the final ecosystem services needed to support
recreational fishing benefits.
According to this framework, services are ecological things or characteristics, not
functions or processes. "Ecosystem processes and functions are the biological, chemical, and
physical interactions between ecosystem components. Functions and processes are not end-
products; they are intermediate to the production of final ecosystem services" (p. 620). For
example, nutrient cycling is an ecological function, not a final service.25 Pollination is a process,
while delivery of pollen is the service. One of their observations is that narrowing the range of
things to be counted (by monitoring the end-products rather than complex ecological processes)
helps establish priorities for limited data-collection budgets.
Similar to national accounts, which are more of a proxy for components of welfare rather
than for welfare itself, Boyd and Banzhaf state that an ecosystem measure should be thought of
as "a measure of nature's value, not the value itself (p. 617). Thus, this framework views
ecosystem services as a welfare indicator. They point out that in a welfare accounting framework
like green GDP, it is critical to distinguish between prices and quantities. To consistently
measure changes in welfare over time, one must hold prices of goods and services fixed and
An analogous example for marketed goods and services would be that of a manufacturing process. The value of
this is not included in GDP, as its value is embodied in the value of its end-products.
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measure changes in the quantities of these goods and services. Applying this principle to green
GDP accounting requires that ecosystem services be measured as quantities. In contrast, they
argue that in a cost-benefit framework the separation of prices and quantities is less important,
since it is the measure of "total benefits" (i.e., the product of price and quantity) that matters.
Although Boyd and Banzhaf do not attempt to provide a complete inventory of services,
they outline a procedure for developing such an inventory. The first step would be to inventory
sources of well-being related to nature (e.g., aesthetic enjoyment, various forms of recreation,
maintenance of human health, physical damage avoidance, and subsistence or foraged
consumption of food and fiber). Once these sources are identified, final ecosystem services can
be identified as the ecological end-products that can be used to produce the well-being. For
example, natural land cover in a viewshed is an end-product that contributes to aesthetic
enjoyment and outdoor recreation, and fish populations are an end-product that contributes to
subsistence food consumption.
2.5.3 Limitations
Fisher and Turner (2008) disagree with one of the key aspects of the above definition,
which is that services are viewed as ecological components, that is, countable things such as
lakes, forests, or fish populations. According to Fisher and Turner (2008), functions and/or
processes are ecosystem services as long as there are human beneficiaries. They state that "This
is important because it connects human welfare to nature throughout an ecosystem, not just the
endpoint" (p. 1168). Like Costanza (2008a), Fisher and Turner (2008) disagree with the paper's
assertion that only direct endpoints can be a service. According to their different interpretation,
"as long as human welfare is affected by ecological processes or functions (somewhere down the
line) they are services" (p. 1168).
2.6 Wallace (2007)
2.6.1 Objective
The goal of Wallace (2007) is to provide an ecosystem service framework for natural
resource management decisions. To support this objective, ecosystem services must be classified
"in a way that allows comparisons and trade-offs among the relevant set of potential benefits"
(p. 236).
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2.6.2 Definition and Discussion
Wallace defines ecosystem services using the terminology from MA (2005)—as "the
benefits people obtain from ecosystems" (p. v). These benefits include food, water, timber,
cultural values, and others, and are the outcomes sought through ecosystem management.
The relationship between ecosystem processes and the structure and composition of
natural elements in the ecosystem is best described as a sequential process. In the first period, the
structure and composition of ecosystems are modified by ecosystem processes to create a new
structure and composition in the second period. The structure and composition are measured at
different points in time to derive the change in processes and to quantify the distribution of
ecosystem elements at these points. The role of natural resource managers is to maintain or
change the ecosystem elements to better support human values. This approach argues, however,
that ecosystem services should be described in terms of the structure and composition of
ecosystems rather than in terms of ecosystem processes.
One of the reasons provided for using structure and composition of ecosystems to
describe ecosystem services is similar to Boyd and Banzhaf (2007)—the former are more easily
observed and measured, more sensitive to degradation and less expensive to monitor. Also, some
species may be irrelevant to key processes, but their extinction would indicate a loss of an
ecological asset. Finally, human well-being, whether tangible or intangible is measured in
quantities rather than whether, for example, carbon or nitrogen cycles are working adequately.
Thus, the task of natural resource managers is to influence ecosystem processes to ensure that the
composition and structure of ecosystem elements continuously delivers human well-being.
Another issue raised by Wallace (2007) is the importance of determining the point at
which processes deliver ecosystem services. This determination helps to avoid double counting.
Similar to Boyd and Banzhaf, he defines this as the point at which an ecosystem directly
provides an asset used by one or more humans, which is the relevant end of a causal chain and
provides the delivery of a service. Thus, this approach does not mix "means" and "ends." All
ecosystem assets are defined at the same "level," in that they are all directly used or otherwise of
benefit to individual humans.
Wallace then notes that "it is possible to examine trade-offs and other aspects of
decisions at either the level of services or the level of values. This should not cause difficulties
provided decisions are made among either services or values, not a mixture of both, and the set
of endpoints chosen are relevant to the goal driving the decision" (p. 240). Again, similar to
Boyd and Banzhaf, he points out that the "broad components that make up a reasonable quality
24
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of life are likely to be consistent across cultures, but the relative weighting, specification and
means of achieving these components will vary among cultures and among individuals from any
one culture" (p. 240).
Wallace also proposes an alternative classification approach, where services are grouped
according to the human values they support. Thus, services are described in terms of the
structure and composition of particular ecosystem elements (expressed as assets), and these
services are in turn classified according to the specific human values they support. The
categories of human values include: adequate resources; benign physical and chemical
environment; protection from predators, disease and parasites; and sociocultural fulfillment.
2.6.3 Limitations
One of the criticisms offered by Fisher and Turner (2008) is that the Wallace framework
considers services and benefits to be the same. For valuation, this lack of distinction is a problem
and could lead to a problem of double counting. "For example, adding values for primary
production to values for recreational hiking would 'double count' the value that say forests add
to the hikers' experience" (p. 1168). The other problem is that benefits like recreation could
include non-ecological (i.e., human) components, which are not appropriate to be considered as
an ecosystem service.
Fisher and Turner (2008) and Costanza (2008a) disagree with Wallace's assertion that
only direct endpoints can be a service. According to them, to avoid double counting,
intermediate services should not be added to final services, but they should nonetheless be
interpreted as services.
Costanza (2008a) also argues that Wallace is essentially trying to differentiate between
final and intermediate, rather than between "means" and "ends" ("end" to him is welfare and
"services" are a "means" to achieve that end). Wallace (2008) responds to Costanza by
emphasizing that the distinction between "means" and "ends" has implications other than those
between "final" and "intermediate" services.26 He points out that in order for a manager to
choose between two options, they would have to be readily comparable. For example, how
would a natural resources manager trade off pollination with clean water (provisioning)?
Costanza and Wallace also do not agree on the necessity of a single consistent framework for
ecosystem services.
See Wallace (2008) for illustrative examples.
25
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2.7 Fisher and Turner (2008)
2.7.1 Objective
Fisher and Turner (2008) is a response to Wallace (2007). It critiques Wallace's proposed
framework, as well as the approaches in MA (2005) and Boyd and Banzhaf (2007). They point
out that these approaches are based upon the context in which they are being used as well as the
definition being used. They argue that although each approach is suitable for its own purpose,
none of these approaches are suitable for determining: (1) how ecosystem services deliver human
welfare benefits; (2) where the benefits are realized; (3) by whom the benefits are enjoyed; and
(4) how their value changes across the landscape under different future scenarios. To address
these limitations, they propose an alternative definition and classification approach for ecosystem
services.27
2.7.2 Definition and Discussion
Fisher and Turner's definition of ecosystem services (which draws largely on Boyd and
Banzhaf) is as follows: Ecosystem services are "the aspects of ecosystems utilized (actively or
passively) to produce human well-being" (p. 1168). They point out three key features of their
definition and compare them with the other three studies. Their conclusions are summarized in
Table 2-1. The main distinction they draw with respect to the Boyd and Banzhaf approach has to
do with whether ecosystem functions and processes (e.g., flood regulation, nutrient cycling)
should be included in the definition of ecosystem services. Fisher and Turner argue that they
should be included as intermediate ecosystem services.28 An illustrative example showing a
relationship between some intermediate services, final services, and benefits is provided in
Table 2-2.
Additional details of this proposed approach are provided in Fisher, Turner, and Morling (2009).
Boyd and Banzhaf (2007) do not necessarily reject this idea, but they use the terms "intermediate ecological
components" and "intermediate ecological processes" rather than "intermediate ecological services."
26
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Table 2-1. Characteristics of Fisher and Turner's (2008) Definition and Comparison with
Other Classification Systems"
Characteristic
ofF&T2008
Definition
Similarity/Dissimilarity with other Studies
1 Services are
not benefits
Similarity with "As deftly pointed out by Boyd and Banzhaf (2007) services and benefits
Boyd and are different. They argue that recreation is not a service provided by
Banzhaf ecosystems, but rather a benefit of which ecosystems provide important
inputs. A benefit is something that has an explicit impact on changes in
human welfare, like more food, better hiking, less flooding."
Dissimilarity "Wallace (2007) and the MA (2005) consider services and benefits to be
with Wallace the same. For valuation, this is a problem and could lead to a problem of
and MA double counting. For example, adding values for primary production to
values for recreational hiking would ' 'double count'' the value that say
forests add to the hikers experience."
2 Ecosystem
services are
ecological in
nature
Similarity with "Again, similar to Boyd and Banzhaf in that aesthetic values, cultural
Boyd and contentment and recreation are not ecosystem services. They are benefits,
Banzhaf and are not just a function of ecosystems, but include other inputs like
human capital, built capital, etc. They are benefits also because they
directly relate to changes in human welfare."
Dissimilarity "For Wallace (2007) and the MA (2005) these things [aesthetic values,
with Wallace cultural contentment and recreation] are services."
and MA
Dissimilarity "We differ here with Boyd and Banzhaf (2007) in that they see services as
with Boyd and ecological components, i.e., things you can count like lakes, forests, fish
Banzhaf populations. We think that functions and/or processes are ecosystem
services as long as there are human beneficiaries. This is important
because it connects human welfare to nature throughout an ecosystem, not
just the endpoint."
Similarity with "This is in line with Daily (1997 and the MA (2005) which both make this
Daily and MA connection explicit through the word service, not obscure it in ecological
lexicon (i.e., processes, functions). For example, flood regulation is an
ecosystem service here, as in Daily (1997) and the MA (2005), but is
considered a process in Boyd and Banzhaf (2007) and Wallace (2007)."
Dissimilarity "Here we take the opposite view of Boyd and Banzhaf (2007) and Wallace
with Boyd and (2007) who argue that only the direct endpoints are ecosystem services.
Banzhaf and We argue that as long as human welfare is affected by ecological processes
Wallace or functions (somewhere down the line) they are services."
"[P]ollination is an ecosystem service since it is an ecological phenomenon
that we utilize (indirectly) to enjoy certain food benefits. For us it makes
more sense to call pollination an ecosystem service than say the almonds
that we benefit from. In both Boyd and Banzhaf (2007) and Wallace
(2007) it would be almonds that are the ecosystem service."
Similarity with "Carbon sequestration is an ecosystem service because there are net human
Daily benefits derived for this process in a world of changing climate. This is in
line with much of Daily's original text (1997)."
All quotes are from p. 1168 in Fisher and Turner (2008)
3 Ecosystem
services do not
have to be
utilized directly
27
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Table 2-2. Illustrative Example of Relationships Between Some Intermediate Services,
Final Services, and Benefits (Fisher and Turner [2008])
Abiotic Inputs
Sunlight rainfall nutrients,
etc.
Intermediate Services
Soil formation
Primary productivity
Nutrient cycling
Photosynthesis
Pollination
Pest regulation
Final Services
Water regulation
Primary
productivity
Benefits
Water for irrigation
Drinking water
Electricity from hydro-power
Food
Timber
Nontimber products
Fisher and Turner point out that there are multiple relationships between ecosystem
processes and human benefits; however, there is little risk of double counting in valuation
exercises, as only distinct benefits are valued. The key factor for ecosystem service research is
that project scientists and stakeholders agree on the "line between final services and benefits, so
that we can manage, monitor and make policy to protect services that help maintain (and/or
value) that benefit" (p. 1169).
Fisher and Turner also note that their approach is consistent with other features of
ecosystem services (described in above sections). For example, the delineation between
intermediate services, final services, and benefits is not strict. Services are often a function of a
beneficiary's perspective. Also, the same service can generate multiple benefits—for example,
water regulation provides flood prevention, drinking water, and recreation potential. It would be
appropriate to add the value of these benefits together since these are distinct benefits. Finally,
characteristics like resilience and functional diversity would also be services under this
framework, as they are ecological phenomena from which humans derive benefits. However,
defining the benefit would require modeling and scenarios to understand just what the benefit
from such a service is, so it would remain difficult to attach meaningful economic valuation.
2.7.3 Limitations
Although Fisher and Turner propose an alternative conceptual framework for defining
and classifying ecosystem services, they do not apply this framework to develop or specify a
formal alternative classification system for ecosystem services. Instead, they provide illustrative
examples to explain how they differentiate between intermediate services, final services, and
benefits. A more detailed and extensive application of their proposed framework is needed to
fully evaluate its usefulness as a basis for ecosystem services classification.
28
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2.8 Roy Haines-Young and Marion Potschin (2010a, 2010b, 2013): Common
International Classification for Ecosystem Services (CICES)
2.8.1 Objective
The proposal for a Common International Classification for Ecosystem Services (CICES)
is summarized in Haines-Young and Potschin (2010a, 201 Ob, 2013). One of the goals of this
classification system is to be consistent with accepted typologies of ecosystem goods and
services currently being used in the international literature, and to be compatible with the design
of Integrated Environmental and Economic Accounting methods. CICES is motivated by some
essential directives in the report of the EPA Science Advisory Board (EPA, 2009):
1. It is important to identify relevant ecosystem services as a common list that can serve
different purposes.
2. Classification methodologies should follow some basic principles.
3. It is essential that classifications should help us avoid the problem of double counting
and so provide the basis for accurate assessments and valuations.
4. The contributions ecosystems make to human well-being should be defined in terms
that are both concrete and meaningful to those whose lives are affected by them.
2.8.2 Definition and Discussion
In the proposal for CICES, ecosystem goods and services are defined to be the
contributions that ecosystems make to human well-being, and arise from the interaction of biotic
and abiotic processes.29
To resolve the problem of identifying concrete outcomes, this approach seeks to cross-
reference ecosystem services with existing classifications of products and services, so that the
contributions that ecosystems make in the form of services can be better identified and
quantified. To be able to link changes in ecosystem structures and processes to economic
consequences, Haines-Young and Potschin (2010a, 201 Ob, 2013) note that it is also essential to
link ecosystem services and land cover.
Figure 2-3, taken from Haines-Young and Potschin (2010a), depicts a "pathway" from
ecosystems to human well-being. Haines-Young and Potschin (2010a) describes the key features
29 Haines-Young and Potschin (2010a, 2010b, 2013) note the distinction between biodiversity and geodiversity and
note that in the proposed CICES classification, both biotic and abiotic elements (including minerals, wind, snow,
salt, etc.) would be included when defining a service.
29
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of this "production chain," such as ecosystem components, structures, processes, functions,
services, and benefits. They note that although some of these terms have been interchangeably
used in the literature, it is important to make distinctions between certain concepts. However,
they also emphasize that whatever terminology is used, a mix of structures, processes, and
function generates the services that ultimately provide benefits to people. "Thus, services are
best seen as the 'useful things' ecosystems 'do' for people in relation to enhancing human well-
being directly or indirectly, and that we should strive to be clear about what we label as a service
and how it is to be measured and valued" (p. 7). In light of the above, CICES seeks to identify
only the "final products" of ecosystems and thus includes what was termed as provisioning,
regulating, and cultural services in the MA (2005).
Figure 2-3. Defining Ecosystem Functions, Services, and Benefits, and the Context for
CICES (Source: Haines-Young and Potschin, 2010a)
Biophysical
structureor
process
(e.g. woodland
habitat or net
primary
productivity)
Limit pressures via
policyaction?
Service
(e.g. flood
protection, or
harvestable
products)
Benefit
(e.g. contribution to
aspects of well-being
such as heaith and
safety)
Value
(e.g. willingness topay
forwoodtand
protection or for more
woodland, or
hur/estabte products)
Haines-Young and Potschin (2010a, 201 Ob, 2013) highlight the problems of using a
"flat" classification structure which essentially provides a one-dimensional list of categories,
even though they may be grouped in broad types such as regulating, provisioning, cultural, etc.
This leads to inflexibility, since the list needs to be updated every time a new service is
identified. More importantly, this leads to an unbalanced structure, as the scope of different
categories varies. For example, food production and ornamental resources would have the same
status under "provisioning," even though the former is of more widespread significance. To
avoid these problems, it was proposed that CICES use generic categories and link them in a
nested hierarchy to allow for different "scales of concern or thematic content." This hierarchy
would also allow for summaries of output at different levels as needed. Thus, the structure of
30
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CICES (Table 2-3) uses generic terminology, which can identify groupings that can
progressively be refined according to the interests of the user. Eight categories are proposed,
three for provisioning services, three for regulation and maintenance services, and two for
cultural services.
Table 2-3. Hierarchical Structure Proposed for CICES
Section
Provisioning
Regulation and
Maintenance
Cultural
Division
Nutrition
Materials
Energy
Mediation of waste, toxics
and other nuisances
Mediation of flows
Maintenance of physical,
chemical, biological
conditions
Physical and intellectual
interactions with ecosystems
and land-/seascapes
(environmental settings)
Spiritual, symbolic, and other
interactions with ecosystems
and land-/seascapes
(environmental settings)
Group
Biomass
Water
Biomass, Fibre
Water
Biomass-based energy sources
Mechanical energy
Mediation by biota
Mediation by ecosystems
Mass flows
Liquid flows
Gaseous/air flows
Lifecycle maintenance, habitat and gene pool
protection
Pest and disease control
Soil formation and composition
Water conditions
Atmospheric composition and climate regulation
Physical and experiential interactions
Intellectual and representational interactions
Spiritual and/or emblematic
Other cultural outputs
Source: Haines-Young and Potschin, 2013. Note that spreadsheets available on the CICES website provide more
detailed categories (Class and Class Type), but we do not present them here in the interest of space.
To test whether the data on ecosystem services can be linked to information on economic
performance and to ensure that "concrete outcomes" (as described in EPA, 2009) are defined,
cross tabulations of CICES groups were done with three international standards for products and
activities:
• International Standard Industrial Classification of All Economic Activities (ISIC V4);
• Central Products Classification (CPC); and
Classification of Individual Consumption by Purpose (COICOP)
-------
Cross-tabulation was also useful in identifying "final outputs" of ecosystems which
potentially helps overcome the problem of double counting.30
2.8.3 Limitations
Although CICES adapts and expands the MA approach to provide a more systematic and
detailed classification system, which includes more attention to the differentiation between
intermediate and final ecosystem services, its reliance on the basic MA structure—provisioning,
regulating, and cultural service categories—may been seen as a limitation. In particular, this
classification approach does not create categories that fully distinguish between (1) what is
provided by natural systems, (2) how these natural systems and outputs are used by humans and
(3) what is produced by human systems.
2.9 Staub et al. (2011): Indicators for Ecosystem Goods and Services
2.9.1 Objective
Staub et al. (2011), for the Federal Office for the Environment in Switzerland, aim to
provide a consolidated inventory of final ecosystem goods and services with concrete proposals
for operationalization using indicators.31 They also develop a methodology for validation and for
creating the indicators. Staub et al. consult scientists in specialty research areas as part of the
validation process, as well as people in the tourism and nature protection sectors, to verify
usability of the inventory, in an attempt to establish relevant baseline data. They develop an
inventory of 23 ecosystem services relevant to Switzerland, along with proposals for individual
indicators.
2.9.2 Definition and Discussion
In this study, ecosystem services "concentrates on those aspects of ecosystems that have a
recognizable connection to (human) welfare, that is, are used or valued in some form or other by
the human population" (p. 3). This approach follows Boyd and Banzhaf (2007) in considering
only those goods and services that are directly enjoyed, consumed or used by humans as Final
Ecosystem Goods and Services (PEGS). It identifies four types of ecosystem goods and services:
30 The ability to link to other ecosystem service classifications such as the MA is also demonstrated in this
CICES document.
31 This report builds on previous efforts to provide "Welfare-significant environmental indicators" (Ott and Staub,
2009)—a new approach for measuring ecosystem services in physical units.
32
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• Directly usable final ecosystem goods and services: Used directly by the human
population (e.g., recreational or protective services, foodstuffs and feed production,
timber yield, contribution to renewable energy);
• Input factors for market goods: Not directly consumed (e.g., pollination as an
agricultural input);
• Natural/healthy living environment: Qualities of health-related environmental media
are summarized (e.g., air quality); and
• Intermediate ecosystem goods and services: Offer humans no direct benefit.
Intermediate ecosystem goods and services are not normally covered here in order to
avoid double counting.32
The system for identifying these four types is depicted in Figure 2-4. For every PEGS,
the benefit it generates (e.g., recreation, prevention, etc.) for the population is also identified. The
benefits are assigned to the categories Health, Security, Natural diversity and Production factors
to enable establishing links to the product groups used by the Federal Office for the Environment
(FOEN). As shown in Figure 2-5, these FEGS can be integrated with MA (2005) and Haines-
Young and Potschin (2010a, 201 Ob, 2013).
To operationalize these FEGS, indicators were developed using the following steps:
• Find the components of nature that generate the goods or services. These are measurable
since they are elements of nature (e.g., recreational space for recreational service,
protective forests for protection from avalanches, etc.).
• Measure use (demand side) or the supply side of the service. It is important to note that a
supply that is not used does not produce any economic benefits.
• Check that there is a connection to welfare.
32 The only exception in the present inventory is CC>2 storage as an input to climate stability. The reasoning here is
that the resulting final ecosystem service only emerges after a considerable time delay.
33
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• Specify indicators that can be interpretable without ambiguity. Thus they are selected
according to the principle "more is better" (i.e., a higher value of the indicator signifies
an increasing amount of the good/service and consequently a higher level of welfare).33
• Take into account possibilities for spatial differentiation.
• Determine whether the indicator provides a flow value (benefit contribution per year)
rather than a stock value (potential for goods and services).
• Check availability of data
Staub et al. (2011) note the possibility of aggregating to an index relating to the quality of
a location or an index relating to health, or even an overall index such as an Ecosystem Services
Index (ESI) is possible.
Figure 2-4. System for Dividing the FEGS into the Four Types of Goods and Services
(Source: Staub et al., 2011)
Is it a final service of the ecosphere?
I
intermediate ecosystem service
(Preparatory stage for final ecosystem service)
YES
Does the service consist in a certa in
levelof quality for a healthy living
environment?
JNO
Does the service consist of input
factors or production support
services for certain economic sectors?
NO
YES
YES
^Natural/healthy living environment
Final Ecosystem Goods
^Ecosystemserviceasinputfactor > arid services (FEGS)
for market goods
Directly usable final ecosystem service
33 It is important to note that this principle only relates to the individual ecosystem service. An overall view is
necessary to take into account the change in the overall ecosystem services (e.g., improved access to a
recreational area may lead to a decrease in other ecosystem services as a result of an increase in the number of
visitors).
34
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Figure 2-5. Integration of the Inventory into the MA and CICES Classifications (Source:
Staubetal., 2011)
MA 2005
Classifications
f
1
CICES 2010
proposed groups
Provisioning Services
Food & Beverages
Materials
Energy
Regulating Services
Regulation (of)...
...waste assimilation
processes
...against hazards
...biophysical conditions
...biotic environment
Cultural Services
Benefit categories (FOEN)
Health
Microclimate (H5)
Airquafty (HS)
Quietness (H7)
United radiation (H8)
Information Recreational services
Symbolic
Sense of place (H4)
Experiential1
Security
Protective service
agarist avalanches (S1 )
Flood prevention (S2)
Carbon sequestration
(S3)
Production factors
Dnhking water (P1)
Forage plants and fertiizer (P4)
Timber increment (P5)
Wid animals (PS)
Renewable energy sources (P8)
Genetic resources and
Biochemicals (P10)
Pollination and biologcaS
pestcontrol (P2)
Fertlesoil (P3)
Cooling function in production (P9)
Decomposition and storage of
resklual matery (P11)
Natural diversity
,
i
I
f
5
1
8
1
CO
Natural and cuttivated Existence value
tendscapes valuable for use of natural
r touiism (P7) diversity (D1)
2.9.3 Limitations
Like CICES, the framework proposed by Staub et al. (2011) is fundamentally based on
the MA framework which, as described above, has limitations for fully classifying ecosystem
services. Also, some of the ecosystem service indicators proposed in the report were specifically
based on data available in Switzerland and may not be as relevant or available in other countries.
2.10 Landers and Nahlik (2013): Final Ecosystem Goods and Services Classification
System (FEGS-CS)
2.10.1 Objective
This report introduces and describes a detailed classification system for ecosystem
services, which focuses specifically on the concept of final ecosystem goods and services
35
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(PEGS).34 Its definition of PEGS as "the components of nature, directly enjoyed, consumed or
used to yield human well-being" is based on the final ecosystem service and ecological endpoint
concepts as described by Boyd and Banzhaf (2007) and Boyd (2007). According to the Landers
and Nahlik report, the purpose of developing this classification system—FEGS-CS—is to
"organize ecosystem services in a consistent and meaningful manner" (p. 15), and to provide "a
resource and tool for practitioners to use in consistently defining, identifying, quantifying, and
valuing PEGS" (p. 7). It provides an organizing framework that can help to identify the specific
ecosystem attributes that are valued by different beneficiary groups, which in turn can be used to
identify appropriate metrics and indicators for PEGS.
2.10.2 Definition and Discussion
The FEGS-CS is organized around two main independent classification/categorization
components:
1. An "Environmental Class" component, which addresses the question, "Which
ecosystems produce ecosystem services?"
2. A "Beneficiary Category" component, which addresses the question, "Who is the
beneficiary and what are the PEGS?"
Through the process of answering these two questions, PEGS can be identified or
"hypothesized" at the intersection of (or through a combination of) these two main components.
The organizational structure of FEGS-CS is further decomposed by dividing (1) the
environmental classes into "environmental subclasses," and (2) the beneficiary categories into
"beneficiary subcategories." FEGS-CS also provides a numeric coding system for uniquely
identifying individual classes, subclasses, categories, and subcategories, and for defining the
hierarchical relationship between the main groupings and their subcomponents.
The environmental class/subclass structure, which is shown in Table 2-4 (along with their
numeric codes), is based primarily on the Anderson Land Use and Land Cover Classification
system (Anderson et al., 1976).
34 For additional papers and reports related to the development of the FEGS-CS, see Nahlik et al. (2012a), Nahlik et
al. (2012b), Ringoldetal. (2009), Ringold et al. (2011), Johnston and Russell (2011), and Ringoldetal. (2013).
36
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Table 2-4. FEGS-CS Environmental Classification and Coding
1. AQUATIC
11. Rivers and Streams
12. Wetlands
13. Lakes and Ponds
14. Estuaries and Near Coastal and Marine
15. Open Oceans and Seas
16. Groundwater
2. TERRESTRIAL
21. Forests
22. Agroecosystems
23. Created Greenspace
24. Grasslands
25. Scrubland / Shrubland
26. Barren / Rock and Sand
27. Tundra
28. Ice and Snow
3. ATMOSPHERIC
31. Atmosphere
Source: Landers and Nahlik (2013)
The beneficiary categories and their codes are shown in Table 2-5. FEGS-CS also
identifies between one and eight subcategories (along with 2-digit codes) under each beneficiary
category (for a total of 38 subcategories). Beneficiaries are defined as "the interests of an
individual (i.e., person, organization, household, or firm) that drive active or passive
consumption and/or appreciation of ecosystem services resulting in an impact (positive or
negative) on their welfare" (p. 13). Because individuals often have multiple interests of this type,
each person, household, organization, or firm can be represented in more than one beneficiary
category or subcategory. However, the authors emphasize that the categories and subcategories
were designed to avoid any duplication of these interests across categories or subcategories, and
the report provides written descriptions of each subcategory, to specifically define each one.
The report describes the defined FEGS-CS classification system as an initial structure
which "may change as [the authors] further develop and use FEGS-CS." In particular, additional
beneficiary groups may be added as the system is used and tested.
37
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Table 2-5. FEGS-CS Beneficiary Categorization and Coding
00.01 Agricultural
00.0101 Irrigators
00.0102 CAFO
Operators
00.0103 Livestock
Grazers
00.0104
Agricultural
Processors
00.0105
Aquaculturists
00. 0106 Farmers
00. 0107 Foresters
00.06 Recreational
00.0601
Experiencers and
Viewers
00.0602 Food
Pickers and
Gatherers
00.0603 Hunters
00.0604 Anglers
00.0605 Waders,
Swimmers, and
Divers
00.0606 Boaters
XX.XX
00.02 Commercial /
Industrial
XX.XXXX
00.0201 Food Extractors
00.0202 Timber, Fiber,
and Ornamental
Extractors
00.0203 Industrial
Processors
00.0204 Industrial
Dischargers
00.0205 Electric and other
Energy Generators
00.0206 Resource-
Dependent Businesses
00.0207 Pharmaceutical
and Food Supplement
Suppliers
00.0208 Fur / Hide
Trappers and Hunters
XX.XX
00.07 Inspirational
XX.XXXX
00.0701 Spiritual and
Ceremonial Participants
and Participants of
Celebration
00.0702 Artists
Beneficiary Categories
00.03 Government,
Municipal, and
Residential
00.04 Commercial
/ Military
Transportation
00.05
Subsistence
Beneficiary Subcategories
00.0301 Municipal
Drinking Water
Plant Operators
00.0302 Waste
Water Treatment
Plant Operators
00.0303 Residential
Property Owners
00.0304 Military /
Coast Guard
Beneficiary Categories
00.08 Learning
00.0401
Transporters of
Goods
00.0402
Transporters of
People
00.09 Non-Use
00.0501 Water
Subsisters
00.0502 Food
Subsisters
00.0503 Timber,
Fiber, and Fur /
Hide Subsisters
00.0504
Building
Material
Subsisters
00. 10 Humanity
Beneficiary Subcategories
00.0801 Educators
and Students
00.0802
Researchers
00.0901 People
Who Care
(Existence)
00.0902 People
Who Care (Option
/ Bequest)
00.1001 All
Humans
Source: Landers and Nahlik (2013)
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By combining the two main classification dimensions—environmental classes/subclasses
and beneficiary categories/subcategories—the report lays out a detailed set of "PEGS Matrices."
These matrices are defined as "a collection of 15 tables that represents the FEGS-CS, in which,
for a specific Environmental Subclass, beneficiaries and sets of PEGS are identified and
described" (p. 40). Specific PEGS are defined at the intersection of these environmental and
beneficiary groupings. Through this combination process, the FEGS-CS report specifically
identifies 338 unique PEGS. It notes that this list does not represent an exhaustive catalog of
PEGS, rather it provides an initial illustration of the PEGS identification process. In addition, to
organize all of these unique PEGS combinations, the report identifies 21 categories of PEGS
(Table 2-6).
Table 2-6. 21 FEGS-CS Categories for Organizing FEGS
1 Water
2 Flora
3 Presence of the environment
4 Fauna
5 Fiber
6 Natural materials
7 Open space
8 Viewscapes
9 Sounds and scents
10 Fish
11 Soil
12 Pollinators
13 Depredators and (pest) predators
14 Timber
15 Fungi
16 Substrate
17 Land
18 Air
19 Weather
20 Wind
21 Atmospheric phenomena
Source: Landers and Nahlik (2013)
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2.10.3 Limitations
The FEGS-CS directly addresses many of the limitations of the previous approaches by
creating a system based on final ecosystem services that differentiates between what is provided
by natural systems and how they are used by humans. However, some of the terminology used in
FEGS-CS may present limitations. For example, most of the FEGS-CS categories shown in
Table 2-6 can be thought of as stock measures, whereas ecosystem services are inherently more
of a flow concept. FEGS-CS does not distinguish between stock and flow concepts. Also the
ability to categorize individual people or organizations into multiple beneficiary categories in the
FEGS-CS may lead to double counting services if not properly interpreted. For example, the total
FEGS received from wild fish stocks by a person who is a recreational angler may include both
the specific services received through his/her angling activities as well as from other FEGS (e.g.,
non-use values). Care must be taken not to double count the other FEGS within the recreational
angler beneficiary category.
2.11 Summary
As shown by this review, the existing literature provides a range of definitions and
classification approaches for ecosystem services. Table 2-7 summarizes the different objectives
and definitions of some of these approaches along with some of their advantages and
shortcomings.
In addition to the many differences highlighted above, these classification approaches
differ in their treatment or interpretation of the following key concepts:
• natural resource assets and components of nature;
• natural processes/functions;35
• service; and
• benefits.
35 Haines-Young and Potschin (2010) distinguish between processes and functions, but most other studies use these
terms interchangeably.
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Table 2-7. Summary of Ecosystem Services Classification Approaches
Study
Objective
Definition
Advantages
Critiques/Limitations
Daily et al. Identify and describe
(1997) the main connections
between ecosystems
and human well-
being
Conditions and
processes through
which natural
ecosystems help sustain
and fulfill human life
Provides an initial list
of key examples of how
ecosystems help to
sustain and fulfill
human life
Not a formal classification
system. Does not
distinguish between
ecosystem
processes/functions,
benefits, and services.
de Groot et Support comparative
al. (2002) ecological economic
analyses
Ecosystem functions
are 'the capacity of
natural processes and
components to provide
goods and services that
satisfy human needs,
directly or indirectly"
Clearly delineates 23 Risk of double counting by
categories of ecosystem "mixing means with ends"
(Wallace, 2007).
The term ecosystem
functions is unnecessary
and confusing (Wallace,
2007; Haines-Young and
Potschin, 2010b).
functions that,
indirectly or directly,
provide ecosystem
services
MA (2005) Provide a link
between human
welfare and services
provided by
ecosystems
Ecosystem services are
the benefits people
obtain from ecosystems
Relatively simple to Overlap of categories leads
grasp and apply, to double counting (Fu et
includes a wide range of al., 2011), "mixing means
services with ends" (Wallace, 2007),
problems of measurement
of processes (Boyd and
Banzhaf, 2007; Wallace,
2007)
Boyd and Develop an
Banzhaf accounting system
(2007) for ecosystem
services
Final ecosystem
services are
components of nature,
directly enjoyed,
consumed, or used to
yield human well-being
Some of the services as
defined by them (since
they would be stock of
fish, etc.) would be
much easier to measure
than some processes3
Functions/processes are also
services since they connect
ecosystems with welfare.
Ecosystem services do not
have to be used directly
(Fisher and Turner, 2008;
Costanza, 2008a)
Ecological components do
not lead directly to welfare
(Fisher and Turner, 2008)b
Provides conceptual
framework and illustration
rather than a detailed
classification system
Wallace
(2007)
Develop a framework
for managing
landscapes and
ecological processes
to deliver ecosystem
services
Same as MA (2005)
except services are
defined in terms of
structure and
components of
ecosystems rather than
processes
Points out importance
of delineating ends and
means (Fisher and
Turner, 2008)
Does not distinguish
between ecosystem services
and benefits, and allows for
ecosystem services
produced with human
inputs (Fisher and Turner,
2008)
(continued)
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Table 2-7. Summary of Ecosystem Services Classification Approaches (continued)
Study
Objective
Definition
Advantages
Critiques/Limitations
Fisher and
Turner
(2008)
Haines-
Young and
Potschin
(2010b)
Answers questions
such as: how do
ecosystem services
deliver human
welfare?; where are
the benefits realized?;
and how do their
values change across
the landscape in
regard to different
future scenarios
Provide a framework
(CICES) for
classifying ecosystem
services that is
consistent with other
international
classification systems
and allows for
linkages with product
and activity
classifications that
form the basis of
Ecosystem services are
the aspects of
ecosystems that are
used (either actively or
passively) to produce
human well-being
Contributions that
ecosystems make to
human well-being, and
arise from the
interaction of biotic and
abiotic processes
Tries to link ecosystems
to human welfare while
delineating a set of
goods — benefits that
can be valued
Hierarchical structure;
clear definition of
"pathway" from
ecological components
to human welfare;
ability to link to
products and activities
used in national income
accounting; ability to
link to other ecosystem
classification systems
Provides a few examples but
not a comprehensive
alternative structure for
classifying ecosystem
services.
Because it uses the MA
framework as its basic
structure, many of the same
potential double counting
limitations apply to this
approach as well.
economic accounting
Staub et al.
(2011)
Develop an inventory
of final ecosystem
goods and services
(relevant to
Switzerland) and
operationalize them
(i.e., provide
indicators)
Those aspects of Provides measurable
ecosystems that have a indicators, easy to link
recognizable connection to other classification
to (human) welfare, that systems
is, are used or valued in
some form or other by
the human population
Many of the limitations of
the MA as a classification
framework apply to this
approach as well. May be
difficult to obtain measures
in other countries where data
are not as readily available.
Landers Provide a framework
and Nahlik (FEGS-CS) that
(2013) practitioners can use
to define PEGS in a
consistent way, to
identify relevant
ecological metrics,
and to move
ecosystem services
analysis toward
quantification and
valuation
Based on Boyd and
Banzhaf (2007), PEGS
are defined as "the
components of nature,
directly enjoyed,
consumed or used to
yield human well-
being"
Provides detailed
hierarchical
classification/coding
systems for (1)
environmental classes,
and (2) beneficiary
categories. When
combined, the two
systems can be used to
identify unique PEGS
Requires the use of
beneficiary categories that do
not define mutually
exclusive groups of
individuals or organizations,
but rather mutually exclusive
groups of "interests" related
to the components of nature
a Note that it may be a challenge to measure some services, like "natural surroundings."
b Note that Boyd and Banzhaf (2007) indicate that stocks of ecological components may be fairly good proxies of
the flow of services from it (if flows are proportional to stocks).
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The different treatment of these concepts by different authors hinges on differing
opinions as to where ecosystem services are defined to occur along the continuum between
ecosystems and human welfare. Some authors view components of nature as the ecosystem
service (when consumed directly to yield human well-being) and consider services to be distinct
from benefits (e.g., Boyd and Banzhaf, 2007). Others consider the benefits people derive from
ecosystems to be ecosystem services (MA, 2005). A related area of disagreement is whether
outputs such as recreational angling, which involve human inputs, should be considered to be
ecosystem services. Because it is not purely nature's contribution, one viewpoint (e.g., Boyd and
Banzhaf, 2007; Fisher and Turner, 2008; Landers and Nahlik, 2013) is that they should be treated
as a benefit to which there are important ecological inputs.
There are also disagreements about the treatment of certain natural processes. Some
consider natural processes (such as pollination) to be ecosystem services (e.g., Daily, 1997; MA,
2005; Fisher and Turner, 2008), while others consider it inappropriate to include processes as a
service. The reasons for not including processes as services include both conceptual problems
(people do not care about the actual service, they care about the outcome of the service) and
practical implementation problems (e.g., difficulties in measuring processes, lack of sufficient
information, difficulty in comparing and trading off other services).
Haines-Young and Potschin (2010a, 2010b, 2013) also provide a very helpful discussion
of the distinction between these concepts. However, they also emphasize that whatever
terminology is used, a mix of structures, processes, and functions generates the services that
ultimately provide benefits to people. Some accounting and assessment studies have adapted
some of the classification systems described above to serve their specific objectives. For
example, de Groot et al. (2010) adapted MA (2005) to support an assessment of the economic
costs of biodiversity loss and ecosystem degradation (The Economics of Ecosystems and
Biodiversity commonly referred to as TEEB). MA (2005) has also been discussed in private
sector guidelines that describe methods to help managers proactively develop strategies to
manage business risks and opportunities arising from their company's dependence and impact on
ecosystems (e.g., Hanson et al., 2012).
On the other hand, frameworks to assess natural capital (e.g., Porritt, 2007) and
environmental accounting systems (e.g., System of integrated Environmental and Economic
Accounts [SEEA])36, have not utilized any existing classification system of ecosystem services to
36 SEEA (described in more detail in Section 3.2.2) has adopted existing UN systems for classifying economic
goods and services but have not extensively applied existing ecosystem service classification systems. In
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date. In fact, some studies found that consistent classification systems would be useful in
supporting their assessments (e.g., studies that focus on and assess the sustainable use of natural
capital such as Maxwell et al., 2014). However, to the best of our knowledge, such studies have
not developed any new classification system for ecosystem services and are thus not a part of the
literature review in this section.
2.12 Key Lessons Learned
As described in the introduction, the literature on ecosystem services has evolved toward
a definition that satisfies four criteria. These include defining services in a way that is consistent
and meaningful across different type of services; that is measurable and operational; that is
mutually exclusive (to avoid double counting); that matches the context and objective of the
study. The major area of disagreement centers on defining the point at which ecosystems deliver
services to human beings. How the point of hand-off is defined has crucial implications for
developing a classification that meets the four criteria described above.
Moving forward, the review of the literature suggests that certain key features need to be
considered in defining and classifying ecosystem services. A brief outline of the key features is
provided here.
• Outlining the objective and context: As described in the introduction, the analytical
objective provides the theoretical underpinning for the definition and classification of
ecosystems. Thus, identifying and defining the objective are the first crucial steps in
classifying ecosystem services.
• Defining ecosystem services: The following discussions are mostly related to what the
point of delivery of services should be. How the point of delivery is defined has
implications for implementation and/or measurement of services.
- Define the role of human inputs in producing ecosystem services and benefits:
Some studies emphasize that benefits from ecosystem services are realized only
when human beings combine natural elements and/or processes with human
capital in a household or market production framework. Other studies consider
only those components that are purely ecological to be true ecosystem services.
addition, although SEEA has developed tables that show physical uses of natural resources by industrial sectors,
they have not developed a comprehensive classification system for ecosystem services.
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Once human components are included in the picture, the outcomes should be
characterized as benefits rather than as services.
- Distinguish between ecosystems components/elements of ecosystems,
functions/processes, and benefits: Deciding which of the above should be
considered a service, or inputs/precursors to services, is crucial not only in
achieving consistency across different services, but also in implementing the
definition.
— Distinguish between final and intermediate services: Even though some services
may not be directly usable by human beings, but rather "support" or enhance
other services, they may provide a service to human beings. The main reason
provided for excluding these services from the definition of services is to avoid
double counting. It appears, however, that this reason is more of an issue in
measuring services than in defining them. It is important to distinguish between
intermediate and final services so that services are mutually exclusive; however,
there does not appear to be any a priori reason for excluding intermediate services
from the definition of services. It may be challenging to make this distinction,
especially because some services may be intermediate in one context and final in
another. For example, clean instream water provides a final service for
recreational swimmers but an intermediate service for commercial fishers who
rely on clean water to provide healthy fish stocks. Some of the recent literature
suggests that identifying existing classes of market products and services that use
ecological inputs may be helpful in defining what "final outcomes" of ecosystem
services are.
Identify beneficiaries: Services are only valuable if human beings perceive them to be
valuable and/or use them. Also, different groups can derive different services from the
same ecological resources. Thus, identifying the different ways in which humans use and
benefit from the resource is key to defining something as an ecosystem service.
Classification systems for economic goods and services also consider similarities in
human uses when grouping products; however, one important difference is that market
products are often designed to meet specific human needs or uses, whereas ecosystem
services are not.
Measuring services: An interesting issue raised in some studies is whether we need to
measure a service, or whether it would be sufficient to measure the value of a service.
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The answer depends on the relevant context/objective. Measuring values may be
appropriate for some natural resource management decisions or cost-benefit analysis, but
not for other contexts. Other issues to keep in mind are as follows:
— Consider whether a flow or a stock is appropriate: Measures of both stocks and
flows may be relevant for certain types of services because they may be indicative
of the current and the future potential for ecosystems to provide services. For
other services, flows may not be appropriate measures.
— Use proxies or indicators: Perfect measures of ecosystem services are rarely
readily available. However, proxies or indicators may be available, and these may
be sufficient - for example, in accounting frameworks, as measures of the
condition and potential of ecosystems to provide services.
— Consider spatial and temporal aspects: Most of the literature agrees that
ecosystem services and the values associated with them vary substantially both
spatially and temporally. Not only are these tied to the culture of the local
population, but they are also very closely tied to the surrounding land use and
land cover. They also vary temporally because of both human influence and
natural evolution.
— Identify datasets: Although this step has not been emphasized in most of the
literature, this is a key step to operationalizing definitions (Staub et al., 2011).
Classifying ecosystem services: The more recent literature suggests grouping according
to benefit categories that are also consistent with product categories. This helps provide a
framework that is both useful for accounting and for cost-benefit analysis (by helping
identify what "final outcomes" are). Using a flexible nested hierarchy also has certain
merits such as ease of adding services and summarizing and/or analyzing data at different
levels.
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SECTION 3
REVIEW OF ECONOMIC CLASSIFICATION AND ACCOUNTING SYSTEMS
3.1 Introduction
To develop a conceptual framework and classification system for ecosystem services
(NESCS), we draw on the concepts and methods used for classifying economic goods and
services. Although there are differences between traditional income and product accounting and
ecosystem service accounting, many of the underlying principles for economic classification can
be applied in developing NESCS. In Section 3.2, we review the main systems used to organize,
compile, and report economic accounts. In Section 3.3, we describe the main classification
systems used to support these accounts. We focus on the elements and features of these systems
that are most relevant for developing NESCS. In Section 3.4, we discuss the implications for the
design of NESCS.
3.2 What Are the Main Systems of Economic Accounts?
Not surprisingly, most systems of national accounts focus on economic activity within
the market sector of the economy. Therefore, we begin by reviewing the main systems used for
market-sector accounting; however, we also discuss how these systems are being adapted and
expanded to include non-market sectors and activities.
3.2.1 National Market-Sector Accounts
The National Economic Accounts (NEA) are the main system of accounts used in the
United States to measure national market-based economic activity in the country. The Bureau of
Economic Analysis (BEA), an agency under the U.S. Department of Commerce, has primary
responsibility for providing these accounts. The NEA are designed to answer two fundamental
questions: (a) what is the output of the economy (size, composition, and use), and (b) by what
economic process is this output produced and distributed? The two main components of the NEA
used to address these questions are:
• National Income and Product Accounts (NIPAs); and
• Input-Output (I-O) Accounts.
In addition, the NEA includes capital finance ("flow-of-funds") accounts that track
monetary and credit transactions in the economy.
Through the United Nations (UN), the international community (including the United
States) has also developed the System of National Accounts (SNA), which provides an
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internationally accepted set of guidelines for compiling national accounts.37 As feasible, to
maintain consistency between systems, the BEA incorporates the SNA guidelines into the
development of the NBA; however, some differences persist (Mead et al., 2004).
3.2.1.1 The National Income and Product Accounts (NIPAs)
The NIP As consist of seven main accounts designed to provide a consistent and
comprehensive picture of production, distribution, consumption, investment, and savings in the
economy. Of these seven accounts, the one that receives the most attention and interest is the
domestic income and product account, which includes measures of gross domestic product
(GDP) (BEA, 2009).
GDP for the U.S. economy is defined as a measure of "the value of final goods and
services produced in the United States in a given period of time" (BEA, 2007).38 Several points
are worth noting about this measure. First, it primarily includes market goods and services
involving economic transactions.39 Second, it is valued using market prices for the goods and
services. Third, it measures the value of final goods and services (i.e., those intended for end
users and not as inputs into additional stages of production). The value of intermediate products,
which are used as inputs for other products, is assumed to be included within the price of these
final products. Fourth, it is a flow measure, capturing economic activity over a period of time,
rather than a stock measure (e.g., capital equipment or inventory levels) at a point in time.
3.2.1.21-O Accounts
The I-O accounts serve as both the data source and the framework for preparing national
income accounts. Unlike the NIP As, they trace the flow of goods and services between industries
in the production process (i.e., they include intermediate goods and services), and they represent
the value added by each industry. They show the flow of goods and services from each industry
to other industries and to final users in the economy. The benchmark accounts,40 which are
produced every 5 years, include information on more than 425 industries. The annual I-O
accounts include information on 65 industries.
37 The most recent guidelines are laid out in the "SNA 2008" report (Commission of the European Communities,
International Monetary Fund, Organization for Economic Cooperation and Development, United Nations and
World Bank. 2009. System of National Accounts, 2008 (United Nations publication, Sales No. E.08.XVII.29).
38 In contrast, gross national product (GNP) measures the output produced by a country's residents, irrespective
of where it is produced.
39 Exceptions include, for example, the services provided by owner-occupied housing.
40 These accounts determine the structure and level of GDP for comprehensive revisions of the national income and
product accounts.
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3.2.2 Non-market Accounts
In many instances, activity occurring outside the traditional market sector can have
important implications for economic productivity and well-being. Below we discuss how both
macro- and micro-level accounting systems can and are being adapted to address non-market
elements, in particular the contribution of natural and environmental systems.
3.2.2.1 National Environmental and Economic Accounts
Although the NEA and GDP (in particular) measures provide useful indicators of the
state of the economy, they are often criticized for being incomplete. The primary reason for this
criticism is the exclusion of non-market features in or affecting the economy, such as unpaid
work, leisure activities, investment in human capital, household health production, and the
environment (Nordhaus, 2000). As a result, many experts have argued in favor of a system of
"satellite accounts." These accounts are not intended to replace the NIP As but rather to serve as a
complementary system that provides a more comprehensive picture of the economy and human
well-being (see, for example, NRC, 2005).
Satellite accounts for environmental and natural resources are among the most commonly
discussed and investigated types of non-market accounts. As for the market-based SNAs, the
international community has developed a set of internationally accepted guidelines for creating
these accounts. In 2003, the UN issued a handbook for what is called the System of integrated
Environmental and Economic Accounts (SEEA). This document proposes the following four
main categories of satellite accounts:
1. Physical flow accounts, including the flow of natural materials (e.g., wood),
resources, and energy as they relate to goods and services produced in the economy,
and hybrid accounts that combine the physical flows with related economic input data
for production activities;
2. Economic accounts and environmental transactions, including expenditures made by
businesses, governments, and households to protect the environment;
3. Environmental asset accounts, which measure stocks in physical and monetary terms,
for example, timber stock accounts showing opening and closing timber balances and
the related changes over the course of an accounting period; and
4. SNA extension accounts to incorporate natural resource depletion, degradation, and
defensive expenditures.
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The SEEA-2003 framework is currently being applied in three main areas: water, energy,
and land and ecosystems. All three areas require accounting for ecosystem services, in particular
the land and ecosystems category, which is currently under development and being coordinated
by the World Bank through the Global Partnership on Wealth Accounting and the Valuation of
Ecosystem Services (WAVES, 2013).
At this stage, the framework for water accounts—SEEA-Water (UN, 2012)—is the best
defined of the three areas. This framework includes the following main components:
• flow accounts, including physical water supply and use tables, water pollutant emission
accounts, and hybrid physical-economic accounts;
• asset accounts, including water quantity and water quality accounts; and
• valuation of non-market water resources.
The flow tables account for non-market water services by quantifying the physical flows
of abstracted water to different sectors of the economy (according to different types of uses). The
valuation component is intended to convert those non-market flows into monetary terms;
however, this account is considered "experimental" and has not yet been implemented in a
country-wide application.
One of the potential applications of the SEEA is to support the development and
estimation of green GDP. Although there are different interpretations of this concept, the
fundamental idea is to address the perceived limitations of traditional GDP measures by
(1) deducting annual losses associated with natural resource depletion and environmental
pollution (Wu and Wu, 2010), or (2) expanding traditional GDP to separately account for the
non-market public good benefits provided by nature each year (Boyd, 2007).
3.2.2.2 Micro-level Environmental Accounts
In addition to adapting national-level accounts, there is increasing interest in and
movement toward adapting private sector corporate accounts to incorporate environmental
factors (Waage and Kester, 2013). These changes involve at least two types of adjustments:
• accounting for the role and contribution of natural resources and ecosystem services in
corporate performance; and
• measuring the impacts of private-sector activities on ecosystem services to the public.
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Examples of other accounting/assessment work done to address issues of sustainability of
natural capital include Hanson et al. (2012) and Porritt (2007). However, in contrast to national
accounts, no commonly agreed upon framework like the SEEA has emerged to address these
changes. Instead, companies and industry groups have tended to work independently to address
their specific needs and requirements. For example, the oil and gas industry has developed a
checklist system to identify specific dependencies and impacts on ecosystem services associated
with specific industry activities in specific habitats (International Petroleum Industry
Environmental Conservation Association [IPIECA], 2011). This checklist system does not yet
quantify the dependencies or impacts of ecosystem services, but it is a first step in that direction.
3.3 How Are Classification Systems Used in Economic Accounts?
For several reasons, classification systems play a critical role in the development and
reporting of economic accounts. Below we review the main types, features, and roles of existing
economic classification systems.
3.3.1 North American Classification Systems
The BEA currently uses two main alternative classification systems in the NEA to
categorize and account for the flow of market goods and services in the economy:
• the North American Industry Classification System (NAICS); and
• the North American Product Classification System (NAPCS).
Both systems were developed jointly by Canada, the United States, and Mexico, to allow
for high-level comparability of business statistics among the North American countries.
NAICS is the standard used by federal statistical agencies in classifying business
establishments for the purpose of collecting, analyzing, and publishing statistical data related to
the U.S. business economy. It was adopted in 1997 to replace the Standard Industrial
Classification (SIC) system. Due to its focus on the producers of economic goods and services, it
can be thought of as a "supply-side" classification system.
NAPCS is the standard currently being developed to classify all of the products being
produced by business establishments in the economy. The two main objectives of NAPCS are:
1. to "identify, define, and classify the final outputs (outputs regardless of their
designation as intermediate or final demand) produced and transacted (sold
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transferred, or placed in inventory) by the reporting units within each industry"
(ECPC, 2003, p. 2); and
2. to "develop a demand-based, hierarchical aggregation system, in which products are
grouped according to how they are principally used [emphasis added] and according
to how they are used in relationship to each other in satisfying that principal use"
(ECPC, 2003, p. 2).
Although it is fundamentally a "demand-side" system, NAPCS is also being developed so
that it can be linked to the NAICS industry structure.41
3.3.2 UN Classification Systems
Through the UN, the international community has also developed classification systems
for industries and products. For supply-side classification, the UN uses the International Standard
Industrial Classification (ISIC) system, which classifies establishments in a way that is very
similar to NAICS (UN, 2003). For demand-side classification, they have developed the Central
Product Classification (CPC) system. Like NAPCS, CPC provides a product classification
system for both goods and services; however, NAPCS was developed in part to address
perceived shortcomings of CPC. In particular, CPC was "not based on a single unifying
theoretical principle for grouping and aggregating products." (Mohr, 2002, p. 3).
3.3.3 The Role of NAICS and NAPCS in U.S. Economic Accounts
The NAICS system for classifying industries and establishments was developed in part to allow
analysts to track the flow of intermediate goods and services between industrial sectors (as part
of the I-O accounts) and to distinguish them from final goods and services sold to consumers.
The NAICS coding system involves a six-digit hierarchical structure, where the first two digits
designate the general sector, and each subsequent digit represents a more detailed subset of the
sector or industry. Table 3-1 provides a list of the 20 major (two-digit) NAICS sectors. Note that
sectors 11 to 45 primarily involve production of goods whereas the remaining sectors primarily
produce services.
41 For example, a flu shot can be provided by a doctor's office, a hospital, or a walk-in clinic. These three units are
classified to three different NAICS industries. If data users want information about all flu shots provided, they
would need to be able to identify and aggregate the individual products coming out of the three different industries.
Thus, in many cases, the need for specific statistical data is better addressed with product data crossing industries
rather than with the creation of a new industry. This is particularly true with NAICS, which groups establishments
into industries based on their production function. For more details, see
http://www.census.gov/eos/www/naics/reference files tools/NAICS Update Process Fact Sheetpdf.
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Table 3-1. 2012 2-Digit NAICS Codes and Sectors
NAICS Code NAICS Sector
11 Agriculture, Forestry, Fishing and Hunting
21 Mining
22 Utilities
23 Construction
31-33 Manufacturing
42 Wholesale Trade
44-45 Retail Trade
48-49 Transportation and Warehousing
51 Information
52 Finance and Insurance
53 Real Estate Rental and Leasing
54 Professional, Scientific, and Technical Services
55 Management of Companies and Enterprises
56 Administrative and Support and Waste Management and Remediation Services
61 Educational Services
62 Health Care and Social Assistance
71 Arts, Entertainment, and Recreation
72 Accommodation and Food Services
81 Other Services (except Public Administration)
92 Public Administration
Source: U.S. Census Bureau (http://www.census.gov/eos/www/naics/index.html. accessed May 29. 2015)
Focusing on the supply-side of the economy, the NAICS classification is designed to
group together entities engaged in similar production activities. BEA typically refers to these
production entities as "establishments,"42 which it defines as "a single physical location where
business is conducted, or where services are performed." Conceptually, this approach means
grouping establishments with similar production functions. Accordingly, each establishment in
the economy is assigned to a single primary NAICS code, which corresponds to its primary
production activity (recognizing that some establishments produce multiple products and
therefore also have secondary activities).
To provide a demand-side counterpart to the NAICS, the North American Free Trade
Agreement (NAFTA) countries have begun to develop the NAPCS. This classification system is
intended to categorize commodities rather than establishments, where the categories reflect
42 Examples of an establishment include a factory, mill, store, hotel, movie theater, mine, farm, airline terminal,
sales office, warehouse, or central administrative office.
53
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similar product characteristics rather than production processes. In this system, each commodity
produced and sold in the economy should be assigned to a single NAPCS code.
According to the Economic Classification Policy Committee of the United States (ECPC,
2003), one of the broad main objectives of the NAPCS is to create a system where "products are
grouped according to how they are principally used and according to how they are used in
relationship to each other in satisfying that principal use" [emphasis added]. This objective
entails grouping products that are close substitutes, either as inputs to production processes or as
inputs to consumption.43 Thus NAPCS provides a demand-side perspective that focuses on the
similarities in how products are used, either by firms or by households, and NAICS provides a
supply-side perspective that focuses on similarities in how products are produced. Table 3-2
shows a few examples of product groups in NAPCS, as reported in a recent provisional
classification structure developed by Statistics Canada. Although preliminary, this demand-side
list provides a useful contrast to the supply-side NAICS groupings in Table 3-1.
Table 3-3 further highlights the differences between NAICS and NAPCS using two
examples. Example 1 shows how NAICS subdivides the electricity generating sector according
to differences in production processes, whereas NAPCS only includes one product category for
electricity because it's use does not depend on how it is produced. This example shows how a
single product category can be produced in more than one industry sector. In contrast, Example 2
shows how, from a production process perspective, NAICS treats "Other Basic Inorganic
Chemical Manufacturing" as a single sector, whereas NAPCS subdivides the products from this
sector into multiple chemical categories based on differences in their fundamental uses. This
example shows how a single sector can produce multiple products.44
One longer-term objective of the combined NAICS-NAPCS systems will be to provide a
detailed "cross-walk" between individual NAPCS product categories and the possibly multiple
NAICS industry categories that produce them (and vice versa).45
43 Technically, if two products are "substitutes," then if the price and/or scarcity of one product increases, it will
increase the demand of the other (substitute) product. If they are "complements," the opposite will occur.
44 Both NAICS and NAPCS use hierarchical coding systems, with additional digits representing additional levels of
hierarchical subdivisions. When there is only one element in a group it is assigned both a low and high level
code. For example, in NAPCS, the codes 145, 14511, and 145111 all refer to "electricity" since it is the only
product in the 3-digit category.
45 A preliminary cross-walk is available at http://www.census.gov/eos/www/napcs/ (accessed May 29, 2015).
54
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Table 3-2. Selected NAPCS Canada 2012 3-Digit Codes and Groups
Code High-Level Product Groups
111 Live animals
112 Wheat
121 Fish, shellfish and other fishery products
131 Logs, pulpwood and other forestry products
142 Natural gas
161 Potash
172 Meat products
193 Bottled water, carbonated soft drinks, other beverages, and ice
231 Clothing, footwear and accessories
271 Basic chemicals
371 Electronic and electrical parts
412 Medium and heavy trucks, buses and other motor vehicles
511 Transportation of commodities by pipeline
541 Warehousing and storage services
581 Rental and leasing (except rental of real estate)
712 Advertising, public relations, and related services
831 Sport and live performance services
871 Public administration services
Source: Statistics Canada; North American Product Classification System (NAPCS) Canada 2012
http://www.statcan.gc.ca/subjects-sujets/standard-norme/napcs-scpan/2012/index-indexe-eng.htm (accessed
May 29, 2015).
3.3.3.1 Key Features of the NAICS and NAPCS Classification Systems
The NAICS and NAPCS systems contain several features that make them particularly
useful for national economic accounting. These features including the following:
1. they provide organizing structures that facilitate a wide range of accounting activities,
including the collection, tabulation, presentation, and analysis of economic data;
2. they provide consistent systems that promote uniformity of data and allow for more
accurate comparisons of economic activity across sectors and over periods of time;
3. by providing hierarchical classification systems, they help in presenting accounts at
different levels of aggregation; and
4. by providing adaptable, nested classification structures, they offer flexibility for
adding to and expanding the number of subcategories as needed over time.
These features make them particularly well suited for helping to track the flow of goods
and services within the economy, and between sectors through the I-O accounts.
55
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Table 3-3. NAICS-NAPCS Comparison
Example 1
NAICS
Code Description
22 1 1 1 Electric Power Generation
22 1 1 1 1 Hydroelectric Power Generation
22 1 1 12 Fossil Fuel Electric Power Generation
22 1 1 1 3 Nuclear Electric Power Generation
22 1 1 1 4 Solar Electric Power Generation
22 1 1 1 5 Wind Electric Power Generation
22 1 1 1 6 Geothermal Electric Power Generation
22 1 1 17 Biomass Electric Power Generation
22 1 1 1 8 Other Electric Power Generation
Code
145
14511
145111
NAPCS
Description
Electricity
Electricity
Electricity
Example 2
NAICS
Code Description
32518 Other Basic Inorganic Chemical
Manufacturing
325 180 Other Basic Inorganic Chemical
Manufacturing
Code
27112
271121
271122
271123
271124
271125
271126
271127
271128
NAPCS
Description
Other Basic Inorganic Chemicals
Sulfuric acid
Chlorine
Sodium hydroxide
Inorganic potassium and sodium
compounds
Carbon black
Chemical catalytic
Nuclear fuel
Other
preparations
3.3.4 Relationships Between NAPCS and NAICS in Economic Accounts: Input-Output
Framework
In this section, we describe the accounting structure that links the NAICS and NAPCS
systems. The national I-O accounts are comprised of two main tables for tracking the flow of
goods and services within the economy.
1. a make table, which displays the production of different commodities across
industries; and
2. a use table, which displays the use of commodities across different intermediate and
final users.
56
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Table 3-4 provides a simplified example of a summary level I-O make table for the
economy. The NAICS industry categories are separated into separate columns and the NAPCS
commodity categories in rows.46 The purpose of the table is to show how the production (make)
of each commodity is divided across the different productive sectors of the economy. It shows
that, although the NAICS and NAPCS classifications have similar structures and category names
(e.g., both contain educational services as a separate category), there is not a one-to-one
relationship between them. Many categories of commodities in NAPCS can be produced by
more than one NAICS industry sector (e.g., food can be from agricultural and manufacturing
sectors), and many industries can produce more than one commodity (e.g., manufacturing
produces clothing and automobiles). Other examples are shown in Table 3-4.
In addition, Table 3-4 requires that the individual NAPCS and NAICS categories
represent mutually exclusive commodity and industry categories, respectively. In other words,
each commodity must be associated with a single NAPCS code, and each establishment must be
associated with a single primary NAICS code. This condition ensures that products are not
double-counted in the accounting framework. Each cell in the table represents the total dollar
amount of the product (row) that is produced by the industry category (column) during a specific
time period. The total value of production in each industry NAICS category (column) can be
generated by adding up the values in each NAPCS commodity category (row). Similarly, the
total production value for each commodity can be generated by summing across industry
categories.
46 Because the NAPCS is still in development, the actual I-O make and use tables for the United States reported by
the Bureau of Economic Analysis (http://www.bea. gov/industry/iedguide.htntfio') use a modified version of the
NAICS categories for both the industry and commodity groupings. However, once the NAPCS is completed, the
plan is to use it as the basis for commodity classification (BEA, 2009;
http://www.bea.gov/papers/pdf/IOmanual 092906.pdf).
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Table 3-4. Example of I-O Make Table Relating NAPCSa and NAICS Categories
Addresses the question: which industries (columns) make which commodities (rows)?
iPCS commodity
tie
S? e
Z u
111
112
121
131
142
161
172
193
231
271
371
412
511
541
581
712
761
782
821
831
871
Industries (producing a commodity) — >
Commodities (produced by an industry)!
NAICS Industry code
Live animals
Wheat
Fish, shellfish and other fishery products
Logs, pulpwood and other forestry products
Natural gas
Potash
Meat products
Bottled water, carbonated soft drinks, other beverages, and ice
Clothing, footwear and accessories
Basic chemicals
Electronic and electrical parts
Medium and heavy trucks, buses and other motor vehicles
Transportation of commodities by pipeline
Warehousing and storage services
Rental and leasing (except rental of real estate)
Advertising, public relations, and related services
Financial services (except insurance)
Water, sewer, and waste management services'3
Education Services
Sport and live performance services
Public administration services
Total industry output
Agriculture,
Forestry, Fishing
And Hunting
11
M
'3
§
21
Utilities
22
Construction
23
Manufacturing
31-33
Wholesale and
Retail Trade |
42-45
Transportation
and Warehousing
48-49
Information
51
Finance and
Insurance |
52
• • •
Educational
Services |
61
• • •
Public 1
Administration |
92
Total Commodity
Output
oo
a Only selected NAPCS categories are shown in this table. Source of NAPCS categories: Statistics Canada 2012
b Includes environmental remediation services in 78231 (Waste management and remediation services)
-------
Table 3-5 provides a simplified example of a summary level I-O use table for the
economy. Similar to the make table, the NAPCS commodity categories are separated into rows.
However, in this table the columns represent categories of commodity users, rather than
commodity producers. The purpose of the table is to show how spending on (use of) each
commodity is divided across different sectors of the economy. Despite this different objective,
most of the column categories are the same as in the make table. They mainly include industry
sectors, but in this table, these sectors are also combined to represent total "intermediate" uses of
the commodities. The additional columns, which make up the "final" uses, mainly include a
category for purchases by the household sector. As in the make table, there is not a one-to-one
correspondence between the commodity and sector categories. Many sectors can use the same
commodity category, and many commodity categories can be used by the same sector.
To avoid double counting, Table 3-5 also requires that the individual NAPCS and NAICS
categories represent mutually exclusive commodity and industry categories. The total value of
goods and services purchased by each NAICS category (and by households) can be generated by
adding up across NAPCS commodity category rows. Similarly, the total spending on each
commodity can be generated by summing across columns. In this table, each cell represents the
total dollar amount of the product category (row) that is purchased by the industry or other user
category (column) during a specific time period.
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Table 3-5. Example of I-O Use Table Relating NAPCSa and NAICS Categories
Addresses the question: which commodities (rows) are used by which sectors/users (columns)?
NAPCS commodity code
111
112
121
131
142
161
172
193
231
271
371
412
511
541
581
712
761
782
821
831
871
Sectors (using a commodity) — >
Commodities (used by sectors)!
NAICS Industry code
Live animals
Wheat
Fish, shellfish and other fishery products
Logs, pulpwood and other forestry products
Natural gas
Potash
Meat products
Bottled water, carbonated soft drinks, other beverages, and ice
Clothing, footwear and accessories
Basic chemicals
Electronic and electrical parts
Medium and heavy trucks, buses and other motor vehicles
Transportation of commodities by pipeline
Warehousing and storage services
Rental and leasing (except rental of real estate)
Advertising, public relations, and related services
Financial services (except insurance)
Water, sewer, and waste management services'3
Education Services
Sport and live performance services
Public administration services
Total sector use
Agriculture, Forestry,
Fishing And Hunting |
11
M
'3
§
21
Utilities |
22
Construction |
23
Manufacturing
31-33
Wholesale and Retail
Trade
42-45
Transportation and
Warehousing |
48-49
Information
51
Finance and Insurance
52
• • •
Educational Services
61
• • •
Public Administration
92
Total intermediate use
Household personal
consumption
expenditures
•_
-------
3.4 Implications of the NAICS and NAPCS Systems for Developing NESCS
Many of the key features and principles used to develop the NAICS and NAPCS systems
are also relevant for conceptualizing and developing NESCS. Like NAICS and NAPCS, NESCS
should provide (1) an organizing structure that facilitates accounting activities, in part by
specifying mutually exclusive categories; (2) a consistent system that promotes uniformity of
data collection and development; (3) a hierarchical classification structure that allows for
accounts at different levels of aggregation; and (4) a flexible structure suitable for adding to and
expanding subcategories as needed.
In addition, the important distinction between supply-side and demand-side classification
systems in NAICS and NAPCS can also be applied to ecosystem services. Just as economic
goods and services can be classified in NAICS according to supply-side characteristics and in
NAPCS according to demand-side characteristics, ecosystem services can also be classified
according to both supply- and demand-side characteristics. However, because ecosystem services
are produced only by natural systems, the supply-side classification for ecosystem services must
focus on natural systems rather than on human production systems. On the demand side,
ecosystem services must be grouped according to how (and by whom) these natural systems are
used and enjoyed by humans.
Despite these connections, there are also important differences between economic
classification and ecosystem services classification. First, whereas economic classification
systems can use information provided by market transactions to define categories of goods and
service, the non-market nature of ecosystem services and the resulting lack transaction
information make them more challenging to define and categorize.47 In most instances, market
transactions records (e.g., receipts or invoices) describe the type of product (good or service)
being exchanged for money. Developing a classification system for market products (i.e.,
NAPCS) is therefore less about defining what is exchanged than it is about grouping similar
products. Moreover, the availability of price data makes it feasible in some cases to group market
products based on similarities in their prices and their estimated cross-price elasticities (ECPC,
1994). In contrast, to develop a classification system for non-market products, one must first
define the implicit "commodities" that are being exchanged. Defining service commodities is
inherently challenging because they tend to be less tangible than goods. The absence of
transaction data for ecosystem services makes this process even more difficult.
47 ECPC (2001) includes some initial discussions on how to incorporate non-market goods and services into
economic classification; however, they are still largely excluded from NAICS and NAPCS.
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Second, the ability in NAICS to classify all economic production establishments into
individual and mutually exclusive categories is made possible largely because market systems
encourage producers to specialize. This specialization allows NAICS to classify producers
according to their primary production activity. The same incentives for specialization do not
exist for ecosystems; therefore, it is much less meaningful to develop a classification system that
categorizes ecosystems according to their primary ecological production processes. As a result,
alternative approaches are needed to classify the supply side of ecosystem services.
Third, the role and importance of categorizing human uses is different for ecosystem
service classification than for economic classification. One main reason for this difference is that
economic products are often designed to meet specific human needs and requirements. For
example, automotive manufacturers produce vehicles with different attributes (e.g., size, seating,
power, fuel efficiency) to satisfy different uses (e.g., commuting, recreation, passenger transport,
transport of goods and equipment). As a result, categorizing these products according to their
physical attributes is often equivalent to categorizing them according to their uses. In contrast,
ecosystems do not produce outputs that are designed for specific human use. In many cases they
can support a multiplicity of human uses with a wide range of benefits and values. For example,
migratory birds can provide hunting and bird watching benefits for recreators and pest control
benefits for some farmers. Each use reflects a different service with potentially very different
values. Moreover, in many cases the individual uses do not rival each other and can all be
enjoyed (i.e., there are public good benefits). Therefore, categorizing ecosystem services
requires not only an understanding of what is provided by nature but also how it may be used in
different ways.
The availability of price data for economic goods and services also reduces the need to
classify them according to how they are used. Although users may have different values for the
commodity, at the margin their values should approach the market price which is the same for
everyone.48 Moreover, those who value the commodity less than its price do not purchase or use
it. Therefore, price information can substitute to some extent for user information in classifying
market goods and services. This type of price information is not available for non-market goods
and services. Therefore, when classifying ecosystem services, the absence of a price makes it
more important to consider the different ways in which natural systems are used.
48 For example, rental rates for sports utility vehicles are generally the same, regardless of differences in how
renters use them (e.g., recreation/tourism, transporting equipment, or transporting passengers). NAICS and
NAPCS do not specify separate commodity categories based on how the rental vehicles are used.
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There is also a fundamental difference between the main analytical objectives of
NAICS/NAPCS and NESCS. NAICS and NAPCS were mainly designed to support the
development of national economic accounts, which measure trends in market-based economic
activity across, time, sectors, and regions. In contrast, the main objective of NESCS is to support
analyses of how policy-induced changes in ecosystems affect human well-being (e.g., cost-
benefit analysis).
Despite these differences, there are also important areas of overlap between these two
analytical objectives. First, as discussed in the next section, national income accounting and cost-
benefit analysis are based on the same underlying conceptual framework for economic analysis.
Second, by expanding this framework to include non-market ecosystem services, the
development of NESCS may provide a classification structure that is also applicable for
constructing green GDP and other national environmental accounts.
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SECTION 4
NESCS CONCEPTUAL FRAMEWORK, CLASSIFICATION STRUCTURE, AND
CODING SYSTEM
4.1 Introduction
The main goal of NESCS is to help identify the distinct "pathways" through which
policy-induced changes in ecosystems ultimately lead to changes in human welfare. To do this,
we begin by defining a conceptual framework for linking the ecological systems that produce
ecosystem services with the human systems that directly use them (i.e., market production
systems and households). Section 4.2 describes the conceptual framework for NESCS, which
draws from and adapts concepts underlying the economic accounting and classification systems.
Using this framework we then define the NESCS. This system is designed to provide an
exhaustive set of mutually exclusive categories for linking ecosystem outcomes to direct human
uses. Again, building on the concepts from economic concepts and principle, we argue that
services are defined as flows from the producers/providers to consumers/users. Thus, in order to
identify and define FFES, we first need to identify producers (or "supply-side") and consumers
(or "demand-side") of the service. As described in Section 3, the two existing classification
systems for economic goods and services in the United States (North American Industry
Classification System (NAICS) and North American Product Classification System (NAPCS)
also distinguish between "supply-side" and "demand-side" systems. To reiterate, the NAICS
system is designed to classify the production processes for goods and services based on a supply-
side perspective (i.e., who is producing the commodities and how), whereas the NAPCS system
focuses on the demand-side perspective to classify the goods and services (i.e., how and by
whom are the products being used). NESCS also distinguishes between a supply-side grouping
and a demand-side grouping. We thus include two complementary components in the NESCS
architecture:
• NESCS-S, which refers to the supply-side classification of ecosystems and ecological
end-products; and
• NESCS-D, which refers to the demand-side classification of human uses and users of
ecosystems and their end-products.
It is important to note is that while there are important parallels between NAICS/NAPCS and
NESCS, there are important differences as well. Specifically, it is important to note that while
NAICS and NAPCS provide alternative ways for classifying economic goods and services,
65
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NESCS-S and NESCS-D together constitute the classification system for FFES. They are
complementary systems that need to be used in conjunction with each other to identify and
classify FFES.
Section 4.3 provides a detailed description of the NESCS structure, including the various
subcomponents of NESCS-S and NESCS-D. Section 4.4 summarizes key elements of NESCS.
4.2 Conceptual Framework for the NESCS
In this section, we describe how the basic tools and concepts from national economic
accounting can be adapted and applied to develop a classification system for ecosystem services.
Even though the current focus of NESCS is not an application to green GDP accounting, for
several reasons the NIPA framework remains particularly useful for developing an ecosystem
services classification system. First, developing NIP As requires an understanding of the
interconnected system of input-output relationships that make up the economy. The flow and
transformation of products and services through this network ultimately results in goods and
services that are consumed by "households." This interconnected system can be expanded to
include the input-output relationships that (1) make up natural ecosystems and (2) connect
ecosystems to humans. Second, although the NAICS and NAPCS economic classification
systems were primarily created to support NIPA's development, we argue that many of the
concepts, principles, and lessons learned from the development of NAICS/NAPCS are
transferable to NESCS. More broadly, similar data sources and information may be relevant for
cost-benefit analysis.
Developing the conceptual framework for NESCS involves three broad steps, which are
described in the following sections. First (Section 4.2.1), we describe the conceptual framework
underlying the economic classification systems and the input-output relationships. Second
(Section 4.2.2), we describe how this framework can be expanded to classify ecosystem services.
Given that our primary objective is to support marginal analysis, the next step (Section 4.2.3) is
to adapt the framework so that it can be applied for conducting such analyses. This motivates and
provides the theoretical underpinning for the NESCS structure (described in Section 4.3). It is
important to note here that a more complete representation of the utility function should also
include other elements that contribute to welfare such as societal services (e.g., family relations,
health, etc.). However, since this is not the focus of NESCS, we do not explicitly include such
elements in our framework in the interest of simplicity.
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4.2.1 The Conceptual Framework for Economic Goods and Services
Before discussing their implications for ecosystem services classification, in this section
we describe and illustrate the conceptual framework underlying the national economic accounts
and classifications systems. To illustrate the key concepts relevant for NESCS, we develop a
simple, scaled-down representation of the framework underlying the national product accounts
(shown in Figure 4-1). The process begins with the main inputs—the factors of production—
which are represented here by physical capital and human labor. These two factors are
represented as stocks. That is, they can be measured at a specific point in time rather than over a
period of time. For example, the capital stock represents the amount of machinery and equipment
available to be used in production on a given date, and the labor stock represents the number of
workers available.
Figure 4-1. Conceptual Framework for Classification of Economic Goods and Services
Supply-Side Demand-Side
Capital and labor
services
I Production
Economic
K, L
Function
v_x
Q(K, L)
Household
Utility
Function
goods and services/
U(Y)
HUMAN
WELL-
BEING
W
NAICS classification
NAPCS classification
In this conceptual model, the productive factors are represented as inputs to a production
function, Q(K, L). This function represents the various processes and technologies by which
labor and capital inputs are transformed into output products (Y, represented by Y = Q(K, L)).
As a simplification, this representation of the production process does not include other inputs
such as services from land, energy, and other natural resources; however, these elements will be
included later in this section.49
49 In essence, this simplified representation of the production process only shows the "value added" by labor and
capital inputs. The contribution of other inputs are not shown but are essential to the output Y.
67
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These output products—goods and services—are sold to consumers who use them as
consumption inputs to support their own well-being. The process by which the consumption
inputs (Y) are transformed into human well-being is represented by a utility function, U(Y).
Because well-being (W, represented by W = U(Y)) is an abstract concept that cannot be
measured, it is sometimes approximated by consumption, in other words, it is in some cases
assumed that W = Y. Again, it is important to note that we assume that utility is only a function
of the consumption inputs (Y) here for the sake of simplicity.
In this simplified framework, the supply-side of the economy is represented by the
production process on the left hand side of Figure 4-1, which results in the output of goods and
services (Y). The demand-side is represented by the consumption and utility generation process
on the right side of the figure, which begins with the same goods and services (Y), which are
now consumption inputs. As discussed in more detail below, the NAICS system is designed to
classify the production function for these goods and services (Y) based on a supply-side
perspective (i.e., who is producing the commodities and how?), whereas the NAPCS system
focuses on the demand-side perspective to classify the goods and services (i.e., how and by
whom are the products being used?). Although production functions/uses are not explicitly
defined in NAICS/NAPCS systems, these criteria are embedded in how the categories are
developed.
In Figure 4-1, stocks are represented as boxes and functions are represented as circles.
Flows are represented as arrows. Unlike stocks, flows are measured over time. For example, the
output from production (Y), which is also the input to consumption, is a flow. It can be measured
as the number or monetary value of units produced/consumed per year. Strictly speaking, the
arrows from the capital and labor stock box to the production function represent flows of labor
and capital services. Although it is relatively easy to measure labor and capital stocks at a given
time, it is inherently more difficult, particularly for capital, to measure the amount of services
being provided to the production process in a particular period. Therefore, for practical reasons,
the stock measures (K,L) of these inputs (e.g., number of employed workers and value of
installed machinery) are often used as proxies for the service flows in the production function.
One important expansion of this simple conceptual framework is to distinguish between
intermediate and final products. Intermediate goods and services are the outputs produced by
one sector of the economy, which are then used as production inputs in another sector. For
example, many agricultural commodities such as corn are sold and used as inputs for food
processing and other industries. In contrast, final goods and services are sold directly to
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consumers (i.e., households) and not used to produce other goods and services for the market
economy.
In Figure 4-2, this expansion of the conceptual framework is represented by splitting the
production process into two production functions. The production of intermediate products is
represented by YI = Qi(K, L), and the production of final good and services is represented by
YF = Qp(K, L, YI). Only the final products, YF, are treated as consumption goods and services
and are therefore inputs to the utility function W = U(Yp). As in Figure 4-1, for simplification the
first stage of production (in this case, "intermediate" production) only includes capital and labor
as inputs. Other inputs not produced by humans, such as from land and other natural resources,
are not yet included in the framework.50
Figure 4-2 emphasizes that some producers act as both demanders of goods and services
(Yi) and as suppliers of goods and services (Yi and YF). The production and sale of final
products is represented in the figure as an area of overlap between the supply and demand sides.
Figure 4-2. Conceptual Model Distinguishing Between Intermediate and Final Goods and
Services Production
Supply-Side
[Supply- and
)emand-Side
Overlap
Intermediate
Economic Goods &
Services /Products
Demand-Side
Final Economic
Goods &
Services /Products
K, L
U(YF)
NAICS classification
NAPCS classification
50 By including intermediate production outputs (Yi) as inputs in final production, the representation of final
production now includes more than just the "value added" input contribution of labor and capital.
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Although not shown explicitly in Figure 4-2, some types of goods and services can be
classified as both intermediate and final. This dual classification occurs because assigning goods
and services as final or intermediate depends on who demands them, not on who supplies them.
For example, corn sold to food processors is classified as an intermediate good, whereas corn
sold to consumers is a final good.
The distinction between intermediate and final products is essential for estimating the
value of total production in an economy. Most importantly, the possibility of double counting the
value of a product (e.g., once when a commodity is sold as an intermediate product and again
when it is sold as part of a final product) is avoided if the analysis only focuses on the value of
final products. In other words, the value of a final product includes the value of all intermediate
goods and services that have contributed to its production (as well as the value-added
contributions of capital and labor to intermediate and final production). Adding together the
value of intermediate and final products would be redundant.
This framework also assumes that only final goods and services contribute directly to
human welfare (through the household utility function). Intermediate goods and services only
contribute indirectly to utility through their contribution to the production of final goods and
services.51 We use this assumption for simplification but acknowledge that there are cases where
it may not be true. For example, consumers may care about how intermediate and final goods
and services are produced and the kinds of inputs used in production (e.g., fair trade coffee,
dolphin safe tuna, organically produced food).
4.2.2 Expanding the Framework for Economic Goods and Services to Include
Ecosystem Services
Given this conceptual framework for measuring national production and classifying the
goods and services produced in the market economy, the next question is how this framework
can be expanded to account for and classify ecosystem services. Building on the simple
framework shown in Figure 4-2, Figure 4-3 depicts an expanded framework that incorporates
ecosystem services. Note that the framework can easily be expanded to include social services
for a more complete representation of human well-being. This could be done, for example, by
51 Using the terminology from Herrendorf et al. (2013), this representation of utility can be described as a "final
expenditure" approach. The alternative—a "value-added" approach—assumes that individuals care about at least
some of the intermediate inputs that go into the production of a final good or service. Both approaches have
merit and are consistent with the generally accepted proposition that households derive value from goods and
services through the "bundles" of attributes they provide (Lancaster, 1966). However, as should become clear in
the next section of this report, the final expenditure approach has advantages for expanding the framework to
include ecosystem services.
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including a circle for Social Services Production that would be connected to the household utility
function by an arrow. However, since social services are not the focus of NESCS, we do not
include this in the NESCS framework.
The expansion includes three main elements. First, in addition to physical capital and
labor, it includes a stock of natural capital, N, representing all ecosystems. Second, it includes
an "ecological production function," QE(N), which represents the myriad of natural processes
through which ecosystems (N) transform, adapt, and evolve to produce ecological end-products
(E, represented as E = QE(N)). Boyd (2007) describes these end-products as biophysical features
of ecosystems that are (1) concrete, tangible, and measurable, and (2) of direct value to humans.
These end-products are conceptually similar to stocks of PEGS (see Table 2-6, here) in Landers
andNahlik(2013).
Figure 4-3. Expanded Conceptual Framework, Including Ecological Production and Flows
of Final Ecosystem Services (FFES) as Inputs to the Economy
Economic Goods & Services
Supply-Side
Economic Goods & Services
Demand-Side
Intermediate
Economic
Production
Function
Intermediate
Economic Goods &
Natural
Capital
N
QE(N)
For example (illustrated in Figure 4-4), wetlands can be thought of as natural capital
assets. Among the many natural processes supported by wetlands, they receive and filter surface
water flows and recharge groundwater aquifers. Through this multistage ecological "production"
process, they replenish and maintain stocks of clean, accessible water. These water resources
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represent important ecological end-products for direct human use. For example, water is used to
support different types of plant cultivation such as corn. Water can also be used for industrial
processing activities such as manufacturing of cornflakes, for example. Water can also support
human life and health in different ways, such as being drawn from an aquifer for drinking.
Figure 4-4. Example Illustrating Conceptual Framework
HUMAN
WELL-
BEING
Economic Supply-Side
Economic Demand-Side
ntermed.
Economic
Production
Function
Corn
production
Final
Economic
Production
Function
Corn flake
production
Household
Utility
Function
Final
Product
Corn flake sales
Intermediate
Product
Bulk com sales
Ecological
Production
Function
Groundwater
Recharge
Similar to the economic production function, Q(K, L), the ecological production function,
QE(N), can involve multiple stages of intermediate ecosystem services production. These
intermediate production stages are not shown in Figure 4-4; however, using a similar approach to
what is shown in Figure 4-2, they could be separated from final production (See Figure B-l in
Appendix B). For example, the process of surface water filtration by wetlands can be thought of
as an ecological production process that provides an intermediate ecosystem service. The
removal of contaminants from water flowing into aquifers is clearly important for humans;
however, this service is not directly used by humans. Instead, it is the services provided by the
aquifer, as a source of clean drinking water supply, that are of direct value to humans and that
therefore constitute final services.
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Box 4-1. NESCS Definitions
End-products are biophysical components of nature that are either directly used by humans to produce goods and
services or directly enjoyed or used to yield human well-being. They can usually (but not always) be interpreted as
stocks of ecological goods.
Example: Stocks of clean water in an aquifer
Flows of Final Ecosystem Services (FFES) are the contributions of nature (1) directly to human production
processes or (2) directly to households and human well-being. FFES occur at the point of hand-off between natural
systems (ecosystems) and human systems (producers and households). They are represented as service flows
between ecological end-products and direct human uses. Note that by definition, ecosystem services only exist
when they contribute to human well-being.
Example: Water directly extracted from freshwater sources to support plant cultivation, food processing,
and human health/well-being (as drinking water)
Intermediate ecosystem services are inputs to the natural processes that ultimately produce FFES.
Example: Wetlands' removal of contaminants from water flowing into aquifers
Intermediate economic goods and services are produced using human inputs (physical capital and labor) and
ecological inputs (FFES) and are sold to other producers. They are the outputs produced by one sector of the
economy, which are then used as production inputs in another sector.
Example: Agricultural crops used as inputs in food processing such as corn used to produce ethanol
Final economic goods and services are produced using human inputs (physical capital and labor), intermediate
economic goods and services (e.g., corn) and ecological inputs (FFES) and are sold to households who use them as
consumption inputs to support their own well-being. They are not used to produce other goods and services for the
market economy.
Example: Food products sold to consumers, such as cornflakes
NOTE: Flows of final ecosystem goods are not included or defined in the NESCS framework. The main reason for
this exclusion is that the process of transferring physical ecosystem products from nature to humans, which
is necessary to generate flows of goods, typically requires human inputs. For example, transferring portions of
existing timber or fish stocks to humans for their use requires human labor for harvesting. In our framework,
the involvement of human inputs implies that the transferred goods are classified as economic rather than
ecosystem goods.
Third, it includes flows of final ecosystem services (FFES) from the ecological end-
products to the human systems. Importantly, all human systems—producers and households—
are only shown on the demand-side of ecosystem services. Although humans produce and supply
economic goods and services, they do not supply ecosystem services. The production and supply
of end-products is strictly the domain of natural systems. Through policies and other actions,
humans can alter the functioning of these natural systems, but ultimately it is the natural systems
that supply the end-products. Thus, considering human effects on natural systems is not essential
for defining and classifying flows of ecosystem services from natural to human systems.
Although there are important parallels between final economic goods and services (Y)
and final ecosystem services, a few key differences should be noted. First, final economic goods
and services are defined at the point of exchange between producers (firms) and households. A
good or service is final when it is not intended to be used as an input in further production and
resold. In contrast, final ecosystem services are defined at the point of "hand-off' between
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ecological systems and human systems. They are final if no further additional biophysical
transformation is required for humans to see them as relevant to human well-being (Ringold et
al., 2009). This final hand-off is shown in Figure 4-4 in the arrows that extend from the
ecological end-products to the human production and utility functions.
Second, whereas a final economic exchange can be directly observed through the terms
of a market transaction (i.e., the number and price of units exchanged), no explicit transaction
exists in a transfer from an ecosystem to humans. Therefore, the determination of a final
ecosystem service is more open to interpretation than it is for an economic good or service.
As shown in Figure 4-3, end-products enter human systems in two main ways: as inputs
to market production activities; or as direct inputs to households52 (non-market sector) and
human well-being.
In the first case, this role is shown by (1) the arrow from the ecological end-products (E)
to the market production function, and (2) the addition of FFES as an input to production, such
that Y = Q(K, L, FFES). For example, returning to the wetland and aquifer example shown in
Figure 4-4, if a private drinking water supplier uses the aquifer as a water source, then it is the
direct recipient of final ecosystem services from the stock of available groundwater (the
ecological end-product, in this case). Using labor, capital, and the water available in the aquifer,
the supplier then withdraws water and produces a final economic service (Y = tap water
distribution, measured in gallons per day) to a local population.
In the second case, the role as input to the household/non-market sector is shown by
(1) the arrow from the ecological end-products (E) to the utility function, and by (2) the addition
of FFES as an argument in this function, such that W = U(Y, FFES). In this case, the example
might be a household with a private well connected to the aquifer. Rather than purchasing tap
water distribution services from a supplier, this household is the direct recipient of the final
ecosystem services offered by the groundwater resource.
Given these distinctions, it is important to note that flows of final ecosystem goods are not
included or defined in this framework. The main reason for this exclusion is that the process of
transferring physical ecosystem products from nature to humans, which is necessary to generate
flows of goods, typically requires human inputs. For example, transferring portions of existing
timber or fish stocks to humans for their use requires human labor for harvesting. In our
Potentially, end-products may also provide inputs to other sectors such as government.
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framework, the involvement of human inputs implies that the transferred goods are classified as
economic rather than ecosystem goods.
Similar to the services received from physical capital, it can be difficult to specifically
define and measure the flow of final services received from an ecological end-product. In these
cases, the ecological end-product, like the stock of physical capital, can be a reasonable proxy.53
In other words, the production function using the final ecosystem service as an input can be
expressed as Y = Q(K, L, E) and, similarly, the utility function can be expressed as W = U(Y, E).
For example, consider the aesthetic amenities provided to local residents by a clear-water lake.
The lake is the ecological end-product and the residents are the direct users, but it is difficult to
quantify the flow of final ecosystem services received each year. In this case, a stock measure of
the ecological end-product (e.g., number of lake acres) may be the best available indicator.
Figure 4-3 also divides the overall system into a supply and demand side; however, in
this expanded framework, the green side represents the natural assets and processes that supply
FFES, and the blue side represents the human processes that use and derive well-being from the
FFES. As represented in Figure 4-3, the categorization of the supply-side providers of FFES in
this context is referred to as NESCS-S. The demand side categorization of uses of FFES is
referred to as NESCS-D.
It is important to emphasize and acknowledge that the strict separation of natural (green)
and human (blue) systems greatly oversimplifies the actual relationship between humans and
their natural surroundings. However, this dividing line is included in the conceptual framework
because it provides a useful abstraction for representing the basic properties of FFES. It stresses
that, to identify final ecosystem services, one must consider where the relevant "point of hand-
off' occurs between natural and human systems.
In actuality, there are numerous ways in which human and natural systems overlap and
interact. In many ways, humans can be viewed as an integral part of the larger ecosystem, and
there are few remaining ecosystems with little or no human footprint. Examples of "gray" areas
where it can be difficult to separate the two systems are:
• urban ecosystems, such as parks and greenways, which are often actively managed or
even created by humans;
53 It is important to note here that both measures of quantity as well as quality of end-products matter since both
these attributes are important factors that contribute to flows of services.
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• agricultural and commercial forest ecosystems, which produce economic goods and
services (e.g., crops, timber) but also generate positive non-market externalities such
as aesthetically pleasing scenery and wildlife habitat;
• wetland and stream restoration projects, which are constructed by humans with the
express purpose of restoring and providing lost ecosystem services;
• national parks, forests, and recreation areas, where ecosystems are typically less
managed than the previous examples, but they still involve significant human input;
and
• ocean fisheries, which are increasingly depleted or otherwise modified by commercial
and recreational fishing.
These gray areas present unavoidable challenges for identifying FFES. Section 6 of this report
discusses these types of challenges (and some potential solutions) in more detail. Some of these
gray areas can also be thought of as examples of "feedback" flows from human to natural
systems, which are discussed in the next subsection and in Appendix B.
4.2.3 A "Marginal" Analysis Framework for Applying NESCS
The previously described framework describes the linkages between ecosystems and
human welfare and defines the role of ecosystem services. The next step is to adapt the
framework so that it can be used to conduct "marginal" analyses of environmental policies, like
cost-benefit analysis (CBA).54 In marginal analysis, the focus is on how policy-related changes to
ecosystems affect human well-being. From the perspective of CBA, this primarily means
expanding the framework to identify, and to the extent feasible, quantify and monetize the
benefits of policies that protect or enhance ecosystems. For other analyses, like cost-
effectiveness analysis (CEA), the focus is on quantifying the positive effects of policy changes
(i.e., benefits), but not necessarily expressing them in monetary terms.
At its most simple level, this adaptation means using the framework to focus on changes
in its main components and how these changes are linked. For changes that occur through market
production systems, the linked changes can be represented as:
54 NESCS can also support analysis of policies outside the environmental context that also result in changes to
ecosystems.
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Policy Action -> AJV -> A£ > AF -> AVK.
AFF£S
The policy action is assumed to first cause a change in the natural capital stock (N), such
as an increase in the number of wetland acres.55 This change ultimately leads to a change in one
or more ecological end-products (E), such as an increase in the amount of water stored in an
aquifer that is used for irrigation and an increase in surface water storage capacity, which reduces
the number of flooding events. Another example of a change in E might be a change in
contamination levels in the water that is extracted from rivers for food manufacturing purposes.
Changes to these end-products result in an increase in flows of services from the end-products,
and consequently in the final market goods and services (Y). For instance, an increase in
groundwater stocks can support higher rates of irrigation and higher food production, and
decreases in flooding can result in a larger supply of housing. An increase in the quality of water
can result in a larger supply of drinking water and other beverages. These additional economic
goods and services then result in a higher level of human utility/well-being (W). In practice, this
linked process can be more complicated if, for example, changes in the costs of production and
prices are incorporated, but the fundamental connections remain.
For ecosystem changes that affect households directly rather than through the market
production system, the linked changes can be represented as:
Policy Action -» AJV -» A£ > AVK
AFFES
In these cases, household utility is directly enhanced by the change in ecological end-
products, for example by reducing the risk of flood damage to homes.
In a CBA framework, the change in well-being (AW) is typically converted to monetary
terms by estimating households' maximum willingness to pay (WTP) for either the additional
market final goods and services (AY) or the additional non-market final ecosystem service flows
(AFFES). A more formal and mathematical representation of the link between a policy action
that impacts on one or more ecosystems and the resulting effects on human well-being is
provided in Appendix A.
One of the main reasons for developing NESCS is to help identify and group all of the
multiple pathways through which changes in ecosystems (AN) result in changes in human well-
In practice, policy actions could alter the ecological production process or directly change the ecological end-
product, but for simplicity and illustrative purposes, we show the impact through AN.
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being (AW). Identifying these pathways is a necessary first step for developing a comprehensive
accounting of benefits.
Several types of pathways are shown in Figure 4-5. Each involves two or more stages. In
the first stage, the figure shows that a specific change in one ecosystem (AN) can affect multiple
ecological end-products, as shown by the arrows to AEi, AE2, ..., AEn. For example, a change in
wetland acres can lead to changes in groundwater supplies, changes in flood risks, changes in
migratory waterfowl populations, and to changes in the stock of clean water.
In the following stage(s), each of these affected end-products can then affect utility via
changes in FFES in one or more ways. First, the end-products can affect utility directly, as
shown by the arrows to AWj+3, ..., AWj+p. For example, the changes to groundwater, flooding,
and lakes can each have a separate but direct effects on households' well-being. Second, the end-
products can affect utility indirectly, through their effects on the market production processes, as
shown by the arrows to AYi, AY2, ..., AYm. For example, changes in groundwater and surface
water storage can affect the production of food crops and public water supply systems.
Figure 4-5. Representation of Multiple Pathways Linking Policy-Related Ecosystem
Impacts (AN) to Changes in Human Well-Being (AW)
Policy Action
AN
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The number of distinct pathways between AN and AW can be expansive because
(1) multiple ecological end-products can be affected, (2) each end-product can have multiple
pathways to utility (i.e., each end-product can yield multiple FFES through direct utility changes
to households and indirect utility changes through market production systems), and (3) each
market production process can be affected by multiple end-products. The NESCS system should
provide a classification structure for identifying and grouping distinct pathways that are
potentially relevant. Developing this system requires answers to the following questions:
1. Which ecosystems "produce" which ecological end-products?
2. What ecological end-products are potentially relevant for each of the different market
production sectors and directly relevant for households?
3. How are end-products directly used to produce market goods and services and/or to
directly derive utility?
4. Who are the direct users of these end-products?
Once the potentially relevant pathways are identified, the next step in applying the
NESCS framework in a CBA is to quantify the input-output relationships that make up these
pathways. In other words, it requires quantitative models to (1) represent the affected ecological
production functions, market production functions, and utility (i.e., valuation) functions, and to
(2) quantify the magnitude of the input-output relationships. However, these steps are beyond the
scope of NESCS.
When moving to the next steps of quantifying and valuing the relevant input-output
relationships identified with NESCS, it is important to note that the multiple links shown in
Figure 4-5 do not necessarily represent the complete set of links and effects on human well-being
from a policy action. In many instances, the connections will be more complex and
multidimensional for at least two reasons. First, within the human economy there may be
"spillover" or "general equilibrium" effects between economic sectors (including households).
For example, a change in the production process for one type of economic good (Y;) can alter
input and output prices in the market in a way that results in ripple effects through other sectors
of the economy. A specific example would be a policy that increases instream flows to hydro-
electric facilities, which would increase electricity supplies and put downward pressure on prices
in the electricity market. These price changes would not only affect the users of hydropower, but
could also affect other (e.g., fossil fuel) producers of electricity and their customers. For
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illustration, these linkages could be represented by additional arrows between the AYs shown in
Figure 4-5 (as well as arrow to sectors not originally shown in the figure).
Second, there may be "feedback" effects from the affected human systems back into the
natural systems. For example, a policy that increases the fish stocks in an estuary would increase
the FFES to commercial fishermen that harvest from the estuary. However, these changes could
also result in a significantly higher number of vessels fishing in the estuary, which would
increase catch levels and offset some or all of the increased fish stock. For illustration, these
linkages could be represented by additional arrows from the AYs (and AWs) back to the natural
capital.
Although this added complexity can be critical for fully capturing the magnitude and
value of the ecosystem service changes caused by a policy change, it is also important to
emphasize that this added complexity does not require revisions or additions to the NESCS
structure. First, capturing spillover effects within the human economy does not require a
different classification of FFES inputs. Second, although feedback effects may return to the
human systems through different pathways than the original primary effects, there is no reason to
believe that these different pathways require an alternative classification structure for FFES.
4.3 Proposed Classification Structure and Coding System for NESCS
In this section, we describe the main components of the NESCS structure, which can be
used to identify the pathways between ecosystems and human welfare. We also describe the
NESCS coding system that allows for a numeric representation of the NESCS structure.
As described in previous sections, we use and adapt many of the broad principles
underlying NIP A, NAICS, and NAPCS to define the NESCS structure. First, as described in
Section 4.1, similar to NAICS and NAPCS,56 NESCS also distinguishes between a supply-side
and a demand-side grouping.
Second, NIP A, NAICS, and NAPCS provides a framework and tools to account for the
main input/output relationships in the economy. For example, these relationships and the links
between the NAICS and NAPCS categories are represented in tables (referred to in NIPA as the
"make" and "use" tables) for the economy. Similar tables can be developed to show the
relationship between NESCS-S and NESCS-D.
56 Note again that while NAICS and NAPCS are two separate systems, NESCS-S and NESCS-D are components of
the same system.
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Third, NAICS/NAPCS uses a coding or numbering system that represents the underlying
classification structure and allows for easy identification and referencing of unique
industries/commodities. Both of these classifications allow for a nested hierarchical structure,
where each hierarchical level represents an aggregation of the components of the lower level.
Currently, NAICS industries can be represented by two-digit codes at the most aggregate level
and six-digit codes at the most disaggregate level. NAPCS commodities can be represented by
three-digit codes at the most aggregate level, and seven-digit codes at the most disaggregate
level. These coding systems were designed to allow for flexibility in several ways. They allow
policy analysts to select the level of aggregation (or digit code) that is appropriate for their needs.
They are also flexible enough to allow for additional categories to be included at each
hierarchical level, and for additional detailed levels to be included as the need arises. Similar
logic can be applied to NESCS, to develop a numbering system that will allow for easy
identification and referencing of each unique pathway.
We draw from the NIP A and NAICS/NAPCS structures and coding systems and adapt
them to define a structure and a coding system for NESCS-S/NESCS-D, as summarized in Table
4-1. To address the requirements for marginal analysis identified in Section 4.2.3, we define four
main classification groups. The first two groups—the environment and end-product groups—are
contained within NESCS-S, and the last two groups—the direct uses/non-use and direct user
groups—are within NESCS-D.
Within each of these four groups, NESCS adopts a nested hierarchical structure so that
each group can be represented at multiple levels of aggregation or detail. In the current NESCS
structure, as many as three hierarchical levels are defined within each group—Class, Subclass,
and Detail. Across these four groups, each hierarchical structure is independently defined from
the others. The classification structure representing the four groups (with examples of classes and
subclasses), and the flows between them, is represented in Figure 4-6. Below, we describe this
classification structure in more detail.
Similar to NAICS/NAPCS, our goal is to adopt the general principles of a classification
system (described in Section 4.3.1), so that at each level of the hierarchy, all subgroupings
represent mutually exclusive categories. The main purpose of this feature is to avoid double
counting, particularly when the system is used for CBA or other types of ecosystem service
accounting.
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Table 4-1. NESCS Structure and Coding System
Group
Definition
MESCS-S
Environment
Spatial units with similar
biophysical characteristics
that are located on or near the
Earth's surface, and that
contain or produce "end-
products"
End-Product
Biophysical components of
nature that are directly used
or appreciated by humans
Direct Use/Non-Use
Different ways in which
end-products are used or
appreciated by humans
Direct User
Entities that directly use or
appreciate the end-products
Hierarchy and Coding System
NESCS Code for FFES* : WW. . YYYY. /ZZZZZZ
Class
Subclass
Detail
W
WW
ww.x
ww.xx
WW.XX.Y
WW.XX. YY
WW.XX. YYYY
WW.XX. YYYY.Z
WW.XX. YYYY.ZZZ
WW.XX. YYYY.ZZZZZZZ
Example 1 : Water in the ocean being used as a medium for freight transportation
NESCS Code for FFES: 15.12.1202.1483111
Class
Subclass
Detail
Aquatic: 1
Open Ocean and Seas: 15
Water: 1
Liquid Water: 12
Direct Use: 1
In-Situ Use: 12
Transportation medium:
1202
Industry: 1
Transportation and
Warehousing: 148
Deep Sea Freight
Transportation: 1483111
Example 2: Water in rivers being extracted for household gardening purposes
NESCS Code for FFES: 11.12.1105.201
Class
Subclass
Detail
Aquatic: 1
Rivers and Streams: 11
Water: 1
Liquid Water: 12
Direct Use: 1
Extractive Use: 11
Support of plant or animal
cultivation: 1105
Households: 2
Households: 201
a Note that this 15-digit code is the most disaggregated level of representation. Different levels of aggregation can
be used depending on the context (See Examples 1 and 2 for different levels of aggregation for users).
NESCS also defines a coding system for this classification structure by assigning digits to
represent categories for each group. To represent that the categories across the four main groups
are independent of one another, NESCS uses a decimal point between the digits of each of the
four groups. The highest level of aggregation (Class) is represented by a single digit. The levels
below (Subclass and Detail) are represented by additional digits.
This classification and coding structure is designed to provide flexibility for expanding
the system in the future. As necessary, it can be expanded to include (1) additional categories at
each existing aggregation level, and (2) additional levels of detail for each existing category. The
NESCS structure also provides the option of using different levels of aggregation for each group,
depending on the context. For example, one group can be represented at the highest level of
aggregation (Class), two groups can be represented at the second level of aggregation (Subclass)
and the fourth group can be represented at the most disaggregated level (Detail). Table 4-1 shows
the maximum possible disaggregation level and corresponding digits for each group.
The purpose of this classification structure is to define unique FFES categories, such that
each category represents a distinct pathway for linking changes in ecosystems to changes in
human welfare. Using this NESCS structure, a unique FFES category is defined by combining
elements from each of the four groups. In other words, each FFES category is composed of an
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environmental class, an ecological end-product class, a direct use/non-use class, and a direct user
class. At its most disaggregate level for all four groups, an FFES can therefore be identified and
referenced by a unique fifteen-digit code.
4.3.1 Proposed Structure for NESCS-S
Since FFES is defined as a flow from a producer to a consumer, it is important to first
identify natural systems that are "producers" of the service and this is done in NESCS-S. Thus,
the system follows the broad supply-side logic of the economic classification systems. This leads
to the classification structure of the first group—Environment. This group includes two possible
levels of aggregation—Environmental Class and Subclass. The categories and coding system for
each of the two levels are obtained from the FEGS-CS (Landers and Nahlik, 2013). The different
Environmental Classes/Subclasses are defined as spatial units, with similar biophysical
characteristics, that are located on or near the Earth's surface and can be interpreted as producers
of end-products. The subclasses can be viewed as spatial units with similar biophysical
characteristics (see section 3.2 of Landers and Nahlik, 2013 for details). The FEGS-CS structure
for this group is reproduced in Table 4-2.
In developing the NESCS-S classification, we also reviewed and considered other
existing classifications for the environmental classes and subclasses shown in Table 4-2 (e.g.,
wetlands, rivers and streams, near coastal marine). In most cases, we identified numerous
classification systems built for a variety of purposes and using different organizing criteria (a
summary is available on request). For example, some systems apply purely biophysical criteria
and others apply human use-based criteria for defining categories and subcategories. For this
stage of NESCS-S development, we concluded that it would not be productive to define and
include more detailed levels than Environmental Classes and Subclasses.
NESCS-S also includes a classification structure for the second group—End-Products.
Following Boyd and Banzhaf (2007), end-products are biophysical outcomes of nature that
humans directly use and care about. This is a key component of the NESCS structure, since it
identifies the point of hand-off between ecosystems and human systems. Thus, this component
helps distinguish between "final" and "intermediate."
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Figure 4-6. NESCS 4-Group Structure
Environment
End-Products
Direct Use/Non-Use
Direct User
oo
Aquatic
• Rivers and streams
• Wetlands
• Lakes and ponds
• Near coastal marine
• Open ocean and
seas
• Groundwater
Terrestrial
• Forests
• Agroecosystems
• Created greenspace
• Grasslands
• Scrubland/shrubland
• Barren/rock and
sand
• Tundra
• Ice and snow
Atmospheric
• Atmosphere
A
9
Water
• Snow/ice
• Liquid water
Flora
• Specific classes/species of
flora
Fauna
• Specific classes/species of
fauna
Other Biotic Components
• Specific types of natural
material
Atmospheric Components
• Air
• Solar light/radiation
• Specific types of soil
Other Abiotic Components
• Specific types of natural
.
material
Composite End-Products
• Scapes: views, sounds and
scents of land, sea, sky
• Regulation of extreme events
• Presence of environmental
class
Other End-Products
uj
\
\
Flows of \
Final \
Ecosystem i
Services /
/
/
Use
• Extractive Use
- Raw material for transformation
- Fuel/energy
- Industrial processing
- Distribution to other users
- Support of plant or animal
cultivation
- Support of human health and
life or subsistence
- Recreation/tourism
- Cultural/spiritual activities
- Information, science,
education, and research
- Other extractive use
• In-situ Use
- Energy
- Transportation medium
- Support of plant or animal
cultivation
- Waste disposal/assimilation
- Protection or support of human
health and life
- Protection of human property
- Recreation/tourism
- Cultural/spiritual activities
- Aesthetic appreciation
- Information, science,
education, and research
- Other in-situ use
Non-Use
• Existence
• Bequest
• Other Non-Use
A
9
Industries
• Agriculture, Forestry,
Fishing and Hunting
• Mining
• Utilities
• Construction
• Manufacturing
• Wholesale Trade
• Retail Trade
• Transportation and
Warehousing
• Information
• Finance and Insurance
• Real Estate Rental and
Leasing
• Professional, Scientific,
and Technical Services
• Management of
Companies and
Enterprises
• Administrative Support and
Waste Management and
Remediation Services
• Educational Services
• Health Care and Social
Assistance
• Arts, Entertainment, and
Recreation
• Accommodation and Food
Services
• Other Services
Households
Government
) V j
NESCS-S
NESCS-D
-------
Table 4-2. Classification of Environment"
Environmental Class
1. Aquatic
2. Terrestrial
3. Atmospheric
Environmental Subclass
11.
12.
13.
14.
15.
16.
21.
22.
23.
24.
25.
26.
27.
28.
31.
Rivers and Streams
Wetlands
Lakes and Ponds
Near Coastal Marine
Open Ocean and Seas
Groundwater
Forests
Agroecosystems
Created Greenspace
Grasslands
Scrubland / Shrubland
Barren / Rock and Sand
Tundra
Ice and Snow
Atmospheric
a The environmental classes and subclasses were obtained from Landers and Nahlik (2013).
It is important to note that what is "final" depends on the context. In different contexts,
the same component of nature can be either intermediate or final (like many economic goods and
services). For example, water is an end-product when we consider drinking water, but, for
recreational fishing uses where fish is the relevant end-product, water can be considered to be an
intermediate product that is essential for fish abundance. Thus, what is "final" is specific to the
ways they are used by human beings. These uses are the domain of NESCS-D, which is
described in the next section.
Similar to Environment, this classification group also includes two potential aggregation
levels—End-Product Class and Subclass. Landers and Nahlik (2013) identify 21 "PEGS
Categories" (reproduced in Table 2-6). We use this FEGS-CS list as our starting point for
identifying end-products. For this classification group, one of our objectives forNESCS was to
add more structure to the list provided in FEGS-CS, so that it identifies mutually exclusive
categories to the extent feasible. The NESCS End-Product Classes are defined in Table 4-3,
which also includes descriptors and examples for the End-Product Subclasses.
There are nine possible End-Product Classes in NESCS.57 While NESCS does include
End-Product Subclasses as the next hierarchical level, it is important to note that not all of these
To allow for flexibility to include other types of end-products in the future (that NESCS currently does not
include), we include a ninth category "Other end-products." This category does not include any Subclasses,
descriptors, or examples at this point
85
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Classes are further decomposed into Subclasses. Specifically, Flora, Fauna, Other Biotic
Components, Soil, and Other Abiotic Components are not decomposed further. We only provide
descriptions and examples of these Classes. This is because, similar to Environmental
Subclasses, End-Product classes can be decomposed in a myriad of different ways. For example,
the Subclasses of Flora and Fauna could potentially be represented as individual species or as
classes of species, based on the objective of the user. Flora could be decomposed into Subclasses
based on life form,58 growth habit,59 ethnobotany (e.g., Ghimire and Aumeeruddy-Thomas,
2009), ecological succession, water requirements, or other factors. Similarly, Fauna could be
grouped by taxonomy or habitat (e.g., Lindenmayer and Cunningham, 1996). Soils can also be
classified in a variety of ways. For example, classification based on soil texture recognizes the
distinction between particles sizes (i.e., clay, sand, silt, gravel, pebbles).60 Soil taxonomy groups
soils based on similar physical and chemical properties.61 For this stage of NESCS-S
development, we concluded that it would not be productive to define and include End-Product
Subclasses other than those shown in Table 4-3.
Defining categories for End-Product Classes and Subclasses that are mutually exclusive
is challenging since there can be substantial complexity and diversity in which elements or
aspects of nature that people care about. There are two primary reasons for this complexity:
1. People may care about individual end-products, but they may also care about
combinations of them. There are complementarities in consumption where the value
of the bundle is higher than the sum of the individual parts. For example, people may
value an entire landscape more than the flora, fauna, water, and other parts. Also,
different people may care about different combinations of different end-products.
2. Some people may care about specific attributes of end-products, rather than the end-
products themselves, as we have defined them. For example, a person who enjoys fall
color viewing may care about the vibrant colors of the foliage of a tree rather than
about the full tree itself.
To account for the first issue, we include a category called "Composite end-products."
This category reflects the fact that specific combinations of end-products (within or across
Environmental Classes), rather than isolated end-products by themselves, are valuable to human
58 http://www.fs.fed.us/database/feis/plants/ (accessed May 29, 2015).
59 http://plants.usda.gov/about adv search, html (accessed May 29. 2015)
60
ftp://ftp.wcc.nrcs.usda.gov/wntsc/H&H/training/soilsOther/soil-USDA-textural-class.pdf (accessed May 29,
2015).
61 http://www.nrcs.usda.gov/wps/portal/nrcs/main/soils/survev/class/ (accessed May 29, 2015).
86
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beings. The composite end-products class, represented by "8," includes three Subclasses. The
first Subclass (represented by "81") includes different types of "Scapes" (landscapes, seascapes,
skyscapes) and can potentially encompass multiple Environmental Classes. This category
captures the fact that human beings may value entire landscapes more than the individual
components comprising them, such as trees, birds, and wildlife. "Regulation of extreme events"
(represented by "82") is considered a Composite End-Product because it encompasses multiple
Environmental classes and End-Product Classes. For example, the ability of a system to regulate
a flood is influenced by the soil and the flora. The fire susceptibility of a system is influenced by
the atmosphere, vegetation, water, and soil. Landslides are regulated by soil, water, and
vegetation. The third Subclass (represented by "83") is "Presence of Environmental Class," and
accounts for the fact that a person may care about the presence of an entire Environmental Class
(e.g., tropical forests), rather than individual end-products of the class (e.g., trees, birds, etc.).
Table 4-3. Classification of End-Products"
End-Product
Class
1. Water
2. Flora
3. Fauna
4. Other Biotic
Components
5. Atmospheric
Components
Definition
Liquid and solid forms of water
All plant, fungal and unicellular life
All animal life
All other biota or biotic material that
are not part of or attached to a
currently living floral or faunal
source
Components of the atmosphere
(excluding categories described
above)
End-Product Subclass
11. Snow/Ice
12. Liquid water
Specific
classes/species of flora
Specific
classes/species of
fauna
Specific types of
natural material
51. Air
End-Product Subclass
Examples
• trees
• shrubs
• herbs
• grasses
• ferns
• mosses
• lichens
• mushrooms
• viruses
• bacteria
• mammals
• fish
• birds
• reptiles
• amphibians
• insects
• driftwood not attached to
currently living tree
• shells not attached to
currently living clams
• oxygen
• carbon dioxide
• helium
• nitrogen
• hydrogen
(continued)
87
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Table 4-3. Classification of End-Products3 (continued)
End-Product
Class
6. Soil
7. Other Abiotic
Components
8. Composite
End-Products
9. Other End-
Products
Definition
The unconsolidated mineral or
organic matter on the surface of the
Earth
Other abiotic material (cannot be
attributed to soil, atmosphere or
water)
A composite set of specific elements
and components of single or
multiple environmental classes
All other end-products (nee*)
End-Product Subclass
52. Solar
light/radiation
Specific types of soil
Specific types of
natural material
81. Scapes:
• views
• sounds and scents of
land, sea, sky or a
combination
82. Regulation of
extreme events
83. Presence of
environmental
class/subclass
End-Product Subclass
Examples
• mud
• clay
• loam
• stones
• rocks
• seascape
• landscape
• skyscape
• includes natural
phenomenon (e.g., geysers,
hot springs, sunsets, cloud
formations) and
subterranean features , etc.
Regulation of:
• floods
•fire
• landslides
• storms
Presence of tropical forests
a For some end-products, we do not develop categories for subclass. We only include a descriptor and a few
examples. (See text for details)
* Not elsewhere classified
When applying NESCS to identify unique pathways for valuation, one important note of
caution must be kept in mind when considering Composite End-Products. Because they represent
a combination of elements, many of which may also be thought of as individual and separate
End-Products, particular care must be taken to avoid double counting their ecosystem service
values. For example, a natural landscape, which can be thought of as a Composite-End-Product
that delivers ecosystem services to households (Direct Users) through aesthetic appreciation
(Direct Use), may also be comprised of individual elements such as wildlife (fauna), trees (flora),
and lakes (water). The ecosystem services provided by this landscape would be double counted if
they were included as both (1) a flow from the Composite End-Product (landscape) to
households through aesthetic appreciation, and as (2) individual flows from the separate End-
Products (wildlife, trees, lakes) to the same households through aesthetic appreciation.
Therefore, the analyst must make a judgment about whether to treat the landscape as a single
88
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Composite End-Product or as multiple individual End-Products for the Direct Use-User group in
question (but not both without taking extra care to avoid double-counting, even if this involves
subtracting a redundant identified FFES in an actual valuation application).62 In this case,
NESCS offers a flexible framework for defining end-products, but care must be taken to use it
appropriately to avoid double counting.
To address the second issue (individuals caring about attributes of the end-products rather
than the entire end-product), we argue that in further developing and applying NESCS, it will be
important to define indicators that characterize different attributes of end-products. The attributes
of end-products that people care about will depend on how the end-product is being used, as well
as who is using it. Different types of indicators for these attributes would include the following:
• stock indicators;
• flow indicators;
• quality indicators;
• site characteristic indicators; and
• indicators to characterize extreme events such as floods, etc.
Table 4-4 illustrates the detailed structure of NESCS-S for each of the three
Environmental Classes (Aquatic, Terrestrial, and Atmospheric). A few key end-products are
identified for each of these classes, and the End-Product Subclass category includes examples
drawn from the FEGS-CS.
Table 4-5 provides additional detail for NESCS-S by identifying some key end-products
in each Environmental Subclass. This table can be viewed as a type of "Make Table" where the
Environmental Class "produces" the end-product. Figure 4-7 shows how NESCS-S can also be
represented with the end-product categories nested below the Environmental classes, in a "tree
structure."
62 Note that double counting occurs in these cases because the Composite and individual End-Products are enjoyed
or used by the same Direct Use-Direct User group (i.e., aesthetic appreciation by households). If the Direct Use
or Direct User categories are different across the Composite and individual End-Product categories (e.g.,
landscapes are enjoyed by households for aesthetic appreciation while wildlife is used by the same households
for recreational hunting) then double counting is less likely to be an issue. However, it is again ultimately the
user of NESCS who will have to make the judgment about how to apply the End-Product categories to avoid
duplication of ecosystem service values.
89
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Table 4-4. NESCS-S Detailed Structure: Examples
Environmental Class
1. Aquatic
Environmental Subclass
11. Rivers and Streams
End-Product Class
1. Water
2. Flora
3. Fauna
4. Other Biotic Components
6. Soil
7. Other Abiotic Components
8. Composite End-Products
End-Product Subclass Examples
• grasses
• reeds
• wild rice
• watercress
• water pepper
•fish
• crawfish
• clams
• snails
• alligator
• beaver
• moose
• ducks
• geese
• fish oil
• shells
• mollusk shells
• birds singing
• rapids
• viewscapes
• presence of the environmental class
VO
o
(continued)
-------
Table 4-4. NESCS-S Detailed Structure: Examples (continued)
Environmental Class
2. Terrestrial
3. Atmospheric
Environmental Subclass
24. Grasslands
31. Atmospheric
End-Product Class
2. Flora
3. Fauna
4. Other Biotic Components
6. Soil
7. Other Abiotic Components
8. Composite End-Products
5. Atmospheric Components
1. Water
3. Fauna
8. Composite End-Products
End-Product Subclass Examples
• berries
• tubers, grasses
• flowers, seeds
• fungi
• ducks
• rabbit
• deer
•elk
• buffalo
• bison
• grasshoppers
• fox
• wolf
• coyotes
• different species of pollinators,
depredators and (pest) predators
• deer antler velvet
•eggs
• dried flowers
• viewscapes
• sounds and scents
• presence of the environmental class
• wind
• weather
• birds
• thunder
• wind blowing
• clouds
• sunsets
• viewscapes
• presence of the environmental class
-------
Table 4-5. End-Products in Each Environmental Class
End-Product
Class
1. Water
2. Flora
3. Fauna
4. Other Biotic
Components
5. Atmospheric
Components
6. Soil
7. Other Abiotic
Components
8. Composite
End-Products
9. Other End-
Products
End-Product Subclass
11. Snow/Ice
12. Liquid water
Specific classes/species of
flora
Specific classes/species of
fauna
Specific types of natural
material
51. Air
52. Solar light/radiation
Specific types of soil
Specific types of natural
material
81. -Scapes:
• views
• sounds and scents of land,
sea, sky or a combination
82. Regulation of extreme
events
83. Presence of environmental
class/subclass
Environmental Subclass
•a
. Rivers an
reams
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to
-------
Figure 4-7. NESCS-S Tree Structure
Environmental Class
Environmental Subclass
End-Product Class
tna-rTOOuct buuciass/
Examples
Environment
r n
1. Aquatic 2. Terrestrial 3. Atmospheric
11. Rivers & Streams 12, Wetlands 16. Groundwater 21. Forests 28. Ice and Snow
1.11.1 Water 1.11.2. Flora 111 5 Fauna 1.11.8. Composite
1.11.3. rauna
1
i 1 i — : — ; — i
Liquid Presence of the
Water Grasses -- Wild rice Fish Deer Scapes- •- Frw|rnnmpf|t
VO
-------
In summary, NESCS-S helps to identify the point of hand-off from ecosystems to human
beings, by defining specific Environmental Classes and the End-Product Classes provided by
them. However, these ecosystem supply-side components must be combined with human
demand-side components to fully identify the potential pathways between ecosystems and
human well-being. The demand-side orientation (NESCS-D) is the focus of the next subsection.
4.3.2 Proposed Structure for NESCS-D
NESCS-D supports the second step in identifying direct contributions of ecosystems to
human welfare, such that it will then support quantification and valuation of changes in
ecosystem services. NESCS-D helps identify ways in which end-products are used by human
beings. In this section we propose a structure for NESCS-D classification. This classification
follows the broad demand-side logic of the NAPCS commodity classification. NESCS-D defines
explicitly how FFES are directly used and by whom they are used/appreciated.
One way in which the NESCS-D differs from the NAPCS classification system is that,
whereas NAPCS includes categories for intermediate economic goods and services (represented
by Qi(K,L) in Figure 4-2), NESCS-D does not include intermediate ecological processes and
services (represented by the function QE(N) in Figure 4-2). For example, the products consumed
by business are inherently intermediate economic inputs; however ecosystem services primarily
consumed by businesses are inherently final ecological inputs to production. Intermediate
ecological services, such as nutrient cycling, which is important but not directly used by humans,
are deliberately not included in NESCS-D.
The first part of NESCS-D (third group in the overall NESCS structure) is a classification
of Direct Use/Non-Use, which defines different ways in which End-Products are directly used or
appreciated by humans. This group has three hierarchical levels—Class, Subclass and Detail.
The Direct Use/Non-Use categories are defined in a way that is broadly consistent with the total
economic valuation (TEV) framework (shown in Figure 4-8), which is a commonly used
organizing and conceptual framework for non-market valuation. Use-Non-Use Classes
distinguishes between Use (represented by "1") and Non-Use (represented by "2"). Direct
Use/Non-Use Subclasses distinguish between extractive (represented by "11") and in-situ uses
(represented by "12"), and existence (represented by "21"), bequest (represented by "22"), and
other non-uses (represented by "23").63
63 The TEV framework is also sometimes expanded to include a separate "option value" category; however, there is
a growing consensus in the environmental economics literature that option value arises out of uncertainty
94
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Use/Non-Use Detail further decomposes the Subclasses into categories that strive to be
mutually exclusive and exhaustive. Table 4-6 lists and defines the different hierarchical levels in
this group. In developing these use/non-use categories it is important to distinguish between how
end-products are used and what they are used to produce. For example, irrigation is a direct use
and crop production relates more to the NAICS direct user category. Some direct use categories
may apply to multiple different end-products (e.g., the end-products water and air are both
directly used for energy).
The second part of NESCS-D (fourth NESCS group) is a classification of Direct Users.
The distinction between use and user classifications is included to account for the fact that some
direct use categories may apply to multiple different direct user categories (e.g., direct use of
water for industrial processing could apply to many NAICS categories). Moreover, some direct
users of ecosystems may benefit from multiple uses. This use-user dichotomy is similar, for
example, to established classification structures such as those adopted by the U.S. Census Bureau
(Table 3-5) and the United Nations. As can be seen from this table, the same user could be linked
to different uses (column) and the same use could be linked to different users (row).
We adopt the terms "Direct Use/Non-Use" and "Direct User" to distinguish between
users who directly use or appreciate end-products from potential downstream users. For
example, commercial fishermen who extract fish and then sell to households (represented by the
Direct Use "Distribution to other users") are Direct Users of the end-product fish. Households
who purchase fish from them are downstream users. Including commercial fishers and
households who buy fish would entail double counting. Hence, we do not include downstream
uses and uses in the NESCS.
Direct user categories representing sectors that directly use (or have non-use values for)
ecological end-products thus comprise the fourth group in the NESCS structure. This group also
has three hierarchical levels—Class, Subclass, and Detail. Again, we follow established
classification structures similar to those adopted by the U.S. Census Bureau and the United
Nations. The first hierarchical level or "Class" thus includes the broad sectors of the economy—
Industry, Household, and Government (represented by digits "1," "2," and "3," respectively).
regarding future supply or demand of the commodity in question, and it requires an expected utility approach for
incorporating uncertainty. Consequently, it should not be interpreted as a separate category of value, nor is its
introduction essential for classifying ecosystem services.
95
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Figure 4-8. Valuation Framework (TEV)
Total Economic Value (TEV)
Use Value
Non-use Value
Consumptive
Use Value
Non-
consumptive
Use Value
Table 4-6. Classification of Direct Use/Non-Use
Direct Use/Non-
Use Class
Direct Use/Non-
Use Subclass
Direct Use/Non-Use Detail
Direct Use/Non-Use Detail Definition
1. Direct Use
11. Extractive
Use
1101. Raw material for
transformation
Extracted or harvested and transformed into
other commercial products
1102. Fuel/energy
Extracted or harvested and directly used as
an energy source for commercial production
1103. Industrial processing
Extracted or harvested and directly used in
other ways as a material in industrial
processing
1104. Distribution to other
users
Extracted or harvested for distribution to
other users
1105. Support of plant or
animal cultivation
Extracted or harvested to support human
cultivation of plant or animal life
1106. Support of human
health and life or subsistence
Extracted or harvested and directly used by
humans for subsistence, health, or other life
support
1107. Recreation/tourism
Extracted or harvested as part of an outdoor
recreational or nature tourist activity
1108. Cultural/spiritual
activities
Extracted or harvested as part of a non-
recreational cultural or spiritual activity
1109. Information, science,
education, and research
Extracted or harvested to directly support
scientific research or education
1199. Other extractive use
Extracted or harvested for other uses
12. In-situ Use
1201. Energy
Used in situ as a source of energy for
commercial production
1202. Transportation medium
Used in situ as a medium for transporting
goods or humans
1203. Support of planter
animal cultivation
Used in situ to support human cultivation of
plant or animal life
1204. Waste
disposal/assimilation
Used in situ as a sink for assimilating and
disposing of waste
1205. Protection or support of
human health and life
Used in situ to protect against damages or
otherwise support human health and life
1206. Protection of human
property
Used in situ to protect against damages to
human property
1207. Recreation/tourism
Used in situ as part of an outdoor
recreational or nature tourist activity
(continued)
96
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Table 4-6. Classification of Direct Use/ Non-Use (continued)
Direct Use/Non-
| Use Class
2. Non-Use
Direct Use/Non-
Use Subclass
21. Existence
22. Bequest
29. Other non-
use
Direct Use/Non-Use Detail
1208. Cultural/spiritual
activities
1209. Aesthetic appreciation
1210. Information, science,
education, and research
1299. Other in-situ use
2101. Existence
2201. Bequest
2901. Other non-use
Direct Use/Non-Use Detail Definition
Used in situ as part of a non-recreational
cultural or spiritual activity
Used in situ for aesthetic (visual and other
senses) appreciation, separate from
outdoor/nature recreational, tourist, cultural
or spiritual activities
Used in situ to directly support scientific
research or education
Used in situ for other purposes
Appreciated and valued by humans for
existence reasons (without direct use or
contact)
Appreciated and valued by humans for
bequest reasons (without direct use or
contact)
Appreciated and valued by humans for othei
reasons (without direct use or contact)
Table 4-7. Classification of Direct Users
Direct User Class*
1. Industry
2. Households
3. Government
Direct User Subclass
111. Agriculture, Forestry, Fishing and Hunting
121. Mining
122. Utilities
123. Construction
131-33. Manufacturing
142. Wholesale Trade
144^5. Retail Trade
148^9. Transportation and Warehousing
151. Information
152. Finance and Insurance
153. Real Estate Rental and Leasing
154. Professional, Scientific, and Technical Services
155. Management of Companies and Enterprises
156. Administrative and Support and Waste Management and Remediation Services
161. Educational Services
162. Health Care and Social Assistance
171. Arts, Entertainment, and Recreation
172. Accommodation and Food Services
181. Other Services (except Public Administration)
201. Households
301. Government
Last two digits for Industry (in the Subclass Column) represent 2-digit NAICS sectors. We omit NAICS 814
(Private Households) and NAICS 92 (Public Administration). See https://www.census.gov/cgi-
bin/sssd/naics/naicsrch?chart=2012 for definitions. We include separate categories for households and
government to ensure we capture a broader range of uses than that implied by the NAICS definition.
97
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The NAICS system, which provides an existing and well-established framework for
classifying production establishments into mutually exclusive categories, is used to further
decompose market-based users of ecosystem services into Subclasses. Thus, the coding system
for User Subclass for Industry is represented by three digits, where the first digit is "1," and the
next two digits reproduce the two-digit NAICS structure.64 For example, the NAICS code for
Agriculture, Forestry, Fishing and Hunting is "11" and the code for Mining is "21." The User
Subclass codes for these two sectors are "111" and "121," respectively.
The next hierarchical level, User Detail, further decomposes Industry into more detailed
categories. This level is represented by "1," followed by four or more NAICS digits. Since
NAICS can include up to six possible digits, User Detail can include up to seven digits,
depending on the level of disaggregation necessary. For example, "Deep Sea Freight
Transportation" has a NAICS code of 483 111 and thus its counterpart in NESCS User Detail is
represented by "1483111." If a less detailed category was needed or applicable, the NESCS
counterpart for NAICS sector "Deep Sea, Coastal, and Great Lakes Water" is represented by
"14831." If an even more aggregate sector is needed, the NESCS counterpart for the NAICS
sector "Water Transportation" is represented by "1483" Transportation. Thus, the structure of the
User Detail allows for flexibility in the level of NAICS sector aggregation. Table 4-7 lists the
categories for User Class and Subclass. This table does not reproduce the NAICS categories for
User Detail (in the interest of space), since this is already provided by the U.S. Census Bureau.65
Currently, NESCS does not decompose Households and Government any further. Similar
to Table 3-5, all households are grouped into a single user category. The main reason for this
single grouping of households is because it is inherently more difficult to separate households
into mutually exclusive categories. In contrast, market establishments tend to specialize in the
production of specific goods or services; therefore, they can be relatively easily separated into
mutually exclusive categories, based on their "primary activity." For example, the primary
activity of a hotel is lodging, but it may also include a restaurant whose primary activity is
serving meals and beverages. In the automotive industry, dealers maintain sales and service
facilities in the same location. The NAICS grouping of establishments according to
specialization in similar production practices is carried over to NESCS-D, grouping them as
similar users of ecosystem services. We emphasize that the single category for households does
not imply that the benefits directly derived by households are any less important or smaller than
those experienced by businesses. Table 4-8 shows how the I-O use table framework in Table 3-5
64 See http://www.census.gov/eos/www/naics/faqs/faqs.html#q5 for details.
65 Available at https://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2012 (accessed May 29, 2015).
98
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can be adapted to show the relationship between the uses and the users of FFES. Rather than
using the table rows to show the NAPCS commodity categories, it instead includes the
preliminary NESCS-D classification. However, the classification of users across the table
columns is the same as in Table 3-5.
Similar to Table 3-5, Table 4-8 can also be used to present a cross-walk between uses and
users. For example, specific uses, such as cooling water provided by rivers and flood protection
provided by wetlands, can be relevant for multiple user categories. Similarly, specific user
groups may have multiple uses for the same ecological end-product.66
Table 4-8 provides a framework to identify and, if necessary, store the FFES values for
different user groups.
4.3.3 Relationship between NESCS-S and NESCS-D: Incorporating NESCS Into an Input-
Output Framework
Similar to the NAICS/NAPCS classification, the NESCS-D demand-side classification
can be linked to a NESCS-S supply-side classification. Table 4-9 shows how the framework in
Table 3-4 can be adapted to show the relationship between demand- and supply-side
classifications for ecosystem services. In Table 4-9, the NAICS production sectors are replaced
by NESCS-S categories of ecosystems and ecological end-products. The NAPCS commodity
classifications are replaced with the NESCS-D classification shown.
As a starting point, this table can be used to illustrate the cross-walk between the
NESCS-D and NESCS-S categories. For each NESCS-S ecological end-product category
(column), the table can indicate the NESCS-D direct uses (rows) it supports. For example, the
freshwater fauna (e.g., fish) category can link to distribution to other users (e.g., commercial
fishing), raw material for transformation (e.g., for food supply purposes), recreation (recreational
fishing), or to non-use values. Similarly, for NESCS-D direct use categories (rows), the table can
be used to indicate the ecological end-products that support it. For example, the non-use category
can be linked to (i.e., supported by) all of the ecological end-product categories shown.
66 At the lowest and most detailed levels of the NESCS-D hierarchy, it is likely that the number of user categories
associated each use category will approach one. At this level of disaggregation, therefore, the distinction between
use and user will be less relevant and important.
99
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Table 4-8. An Example of a NESCS Table Relating Use/Non-Use and Users
Direct
Use/Non-
Use Class
Direct
Use/Non-Use
Subclass
Direct Use/Non-Use Detail
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Table 4-8. An Example of a NESCS Table Relating Use/Non-Use and Users (continued)
1
Direct
Use/Non-
Use Class
1 . Direct
Use (cont.)
\2. Non-Use
1
Direct
Use/Non-Use
Subclass
12. In-situ Use
2 1 . Existence
22. Bequest
29 Other non-
use
Direct Use/Non-Use Detail
1201. Energy
1202. Transportation medium
1203. Support of plant or animal cultivation
1204. Waste disposal/assimilation
1205. Protection or support of human health
and life
1206. Protection of human property
1207. Recreation/tourism
1208. Cultural/spiritual activities
1209. Aesthetic appreciation
1210. Information, science, education, and
research
1299. Other in-situ use
2 101. Existence
2201. Bequest
2901. Other non-use
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Table 4-9. Example of a NESCS Table Relating NESCS-S and NESCS-D Categories
Direct
Use/Non-Use
Direct Use/Non-
Use Subclass
Direct Use/Non-Use Detail
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1102. Fuel/energy
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1104. Distribution to other users
1105. Support of plant or animal cultivation
1106. Support of human health and life or
subsistence
1107. Recreation/tourism
1108. Cultural/spiritual activities
1109. Information, science, education, and
research
1199. Other extractive use
1201. Energy
1202. Transportation medium
1203. Support of plant or animal cultivation
1204. Waste disposal/assimilation
1205. Protection or support of human health and
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1207. Recreation/tourism
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1210. Information, science, education, and
research
1299. Other in-situ use
(continued)
-------
Table 4-9. Example of a NESCS Table Relating NESCS-S and NESCS-D Categories (continued)
Direct
Use/Non-Use
Class
2. Non-Use
Direct Use/Non-
Use Subclass
21. Existence
22. Bequest
29. Other non-use
Direct Use/Non-Use Detail
2101. Existence
2201. Bequest
2901. Other non-use
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Next, this cross-walk can help to identify all of the mutually exclusive pathways linking
specific changes in ecosystems (AN) or ecological end-products (AE) with specific uses, and
thereby with changes in human well-being (AU) (see Figure 4-5). Thus, this cross-walk defines
and identifies an FFES.
For example, consider a policy that primarily increases salmon runs in a river basin. The
salmon in the river and the ocean, and the species that consume them, are the main ecological
end-products of interest, each of which can be assigned a separate column in the table. Going
down each column, one can then define the relevant use categories that are affected by the
increase. For example, uses of river salmon might include recreation, cultural activities, and non-
use values, whereas ocean salmon would also include distribution to other uses (e.g., commercial
harvesting).
Finally, once these pathways have been established, the table provides an accounting
platform for values attached to changes in ecosystem services. That is, the table cells can be used
to store value estimates for individual pathways, which can then be aggregated across rows and
columns (or both). For example, the cell representing the combination of river salmon (column)
and tribal cultural activities (row) would contain an estimate of the total value added by the
additional river salmon to all of the households that engage in the affected cultural activities.
It is important to note here that values of FFES typically vary with location, scale and
time and these must be accounted for when quantifying and valuing changes in FFES. However,
these attributes are not necessary for classifying FFES and are thus not a part of the NESCS 15-
digit system.67 It would also be challenging to develop mutually exclusive and exhaustive
categories for FFES if location, scale and time attributes were to be included in the classification
system.
4.4 Summary of the NESCS Structure
To summarize, the primary purpose of NESCS is to support welfare estimation of policy
induced changes in ecosystems by identifying ways in which people directly use or appreciate
outcomes provided by nature. This identification of pathways linking ecosystems to human uses
provides the basis for then quantifying and valuing ecosystem services. NESCS provides a
consistent conceptual framework and a classification system for systematically linking ecological
systems that produce ecosystem services with human systems that directly use these services
(i.e., market production systems and households).
Other classification systems do not include categories that account for location, scale and time attributes either.
104
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The classification system uses a 4-group structure and a coding system to define mutually
exclusive and exhaustive categories for linking ecosystem outcomes to direct human uses (i.e.,
identifying FFES). Figure 4-9 illustrates how the four groups fit into the pathway between policy
changes and human welfare. Implementing the NESCS framework involves identifying the point
of hand-off from the ecosystem to human beings, and identifying ways in which end-products
are used by human beings. The structure of NESCS-S supports the first step by defining a
classification structure for the two groups—Environment, and End-Products provided by them.
NESCS-D supports the second step by defining a classification structure for the two groups
Direct Use/Non-Use and Users.
Figure 4-9. Pathway Linking Policy Changes to Human Weil-Being
Changes in Policy
Environment
(Intermediate) Ecological Processes
End-Products
Changes
in FFES
Direct Uses/Non-Use
Direct Users
Changes in Human Welfare
105
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Flows of final ecosystem services (FFES) are represented by the connection from end-
products to the human uses, that is, from the second group to the third group. Each environment-
end-product-use-user combination thus identifies a potential FFES category and a unique
pathway for linking policy changes with human welfare. Each unique FFES can be referenced by
a NESCS code of up to 15 digits. Different combinations identify multiple mutually exclusive
pathways, allowing the NESCS structure to be both flexible and comprehensive:
1. The same end-product can be used in multiple ways (e.g., water can be used to
support human life [drinking water] and as an energy source [hydropower
production]).
2. The same use can be linked to different sectors. For example, recreational uses can
benefit households directly (recreational anglers), or benefit production processes in
the transportation sector (tourism and sightseeing). Another example would be water
being used to support plant cultivation (irrigation) by the agricultural sector for crop
production, or by households directly for lawn watering.
This distinction between the use and user has been designed to provide flexibility to the
analyst in the following ways:
1. Potentially, different values can accrue to different types of users from the same use.
Thus, in the second example (irrigation) described above, the value to a commercial
farmer may be different than for a household. The goal of NESCS is to identify
pathways in a way that will support valuation; therefore we distinguish between uses
and users to allow for this.
2. Potentially, different techniques may be necessary for valuing changes in uses to
different users. Thus, in the first example above, changes in recreational uses to
households may be valued using Random Utility Models, while changes in
recreational uses to the travel industry may be valued using production function
models.
The four groups in NESCS thus enable analysts to link the changes in policy to changes
in ecosystems to changes in human welfare. The following section (Section 5) provides
additional and more detailed illustrations of how NESCS can be applied for policy analysis.
106
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SECTION 5
APPLICATION OF NESCS TO POLICY ANALYSES
5.1 Introduction
Using the NESCS conceptual framework and classification system described in
Section 4, in this section we use two policy-related examples to illustrate how NESCS can be
implemented to identify the pathways through which policy changes can ultimately result in
human welfare changes. Specifically, we demonstrate how the NESCS four-group classification
structure and coding system can be applied to identify and reference unique FFES pathways.
This process involves the following main components (also summarized in Table 5-1):
• Based on region-specific scientific evidence and information, identify the environmental
classes/subclasses and corresponding end-product classes/subclasses (defined in Tables
4-2 and 4-3) that are likely to be impacted.
• For the affected environmental classes/subclasses, apply Table 4-9 to identify the
specific combinations of end-products and direct uses (defined in Tables 4-5 and 4-6) that
are likely to be impacted.
• Apply other tables and tools provided by NESCS tables (such as Table 4-8) to identify
relevant user categories (defined in Table 4-7) that directly use the end-products.
To demonstrate the wide range of contexts in which NESCS can be applied, we consider
two very different hypothetical policy applications. The first application (described in
Section 5.2) is a policy that reduces atmospheric deposition of acidifying and nutrient enriching
compounds, such as nitrogen oxides (NOX) and sulfur oxides (SOX). It is a policy that directly
alters the quality of multiple environmental classes. We focus on the atmosphere as an example.
These changes are assumed to occur on a national or large regional scale. The second application
(described in Section 5.3) focuses on wetlands restoration. In this case, the direct policy impact
can be characterized as a change in the quantity (i.e., stock) of natural capital in an
environmental class—wetlands. These changes are assumed to occur on a local or small regional
scale.
We emphasize that these examples are included for illustrative purposes and to
demonstrate some of the ways in which the framework can be used. Building off the conceptual
structure in Figure 4-5, they are intended to show how a specific policy action can be linked to a
large number of potential FFES pathways. Some of the identified pathways are included mainly
107
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to demonstrate the framework rather than to suggest that there are large impacts along these
pathways. In addition, these examples are not intended to be fully comprehensive. They should
not be interpreted as identifying all of the potential pathways (including spillover effects and
feedback effects) between a policy action and the resulting impacts on human well-being.
108
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Table 5-1. How to Apply the NESCS Structure to Identify and Represent Unique FFES Pathways for Policy Analysis
How to...
NESCS Tools
o
VO
...describe FFES pathways that may potentially be impacted by a policy change in a
systematic and consistent manner?
...identify unique FFES pathways?
1. Identify the environmental classes/subclasses and corresponding end-product
classes/subclasses that are likely to be impacted based on region-specific scientific
evidence and information.
2. Identify the specific combinations of end-products and direct uses/non-uses that are likely
to be impacted
3. Identify relevant user categories that directly use the end-products that are likely to be
impacted
.reference and illustrate FFES pathways in a readily understandable manner?
1. Diagrammatically
2. Numerically
.provide a structure that can be used to store values obtained from elsewhere?
1. Use tables that link each of the four groups to organize, store, and present values
(monetized or otherwise) that are obtained from other sources
Use NESCS conceptual framework (Figure 4-3) as
guide
• Classification of Environment (Table 4-2)
• Classification of End-Products (Table 4-3)
• End-products in Each Environmental Class
(Table 4-5)
• NESCS Table Linking End-Products and Direct
Uses/Non-Uses (Table 4-9)
• Classification of Direct Use/Non-Use (Table 4-6)
• NESCS Table Linking Direct Uses/Non-Uses with
Users (Table 4-8)
• Classification of Direct User (Table 4-7)
Fill in NESCS conceptual framework with categories
identified (See Figures 5-1 through 5-5 as examples)
Use NESCS 15-digit coding system
(Tables 4-1, 4-2, 4-3, 4-5, 4-6, 4-7, 4-8, and 4-9)
• End-products in Each Environmental Class
(Table 4-5)
• NESCS Table Linking End-Products and Direct
Uses/Non-Uses (Table 4-9)
• NESCS Table Linking Direct Uses/Non-Uses with
Users (Table 4-8)
-------
5.2 Application 1: Policies to Reduce Acid and Nutrient Deposition
This section focuses on hypothetical air quality regulations to reduce atmospheric
deposition of acidifying and nutrient enriching compounds such as NOX and SOX. This policy
was selected for its potential to impact human beings through multiple pathways, as illustrated in
Figure 5-1.68 First, on the NESCS-S side, the policy can impact multiple environmental classes
and subclasses (e.g., lakes, streams, forests) as well as multiple end-products (e.g., fish, sugar
maple trees, red spruce trees). Second, on the NESCS-D side, it can impact multiple direct uses
(e.g., raw materials, recreation, aesthetic appreciation) and multiple direct users (e.g., Forestry
and logging sector [NAICS code 113] and households).
Third, there are multiple ecological mechanisms or processes through which the same
type of FFES can be impacted. For example, NOX deposition can contribute to both the
acidification and nutrient enrichment of surface waters. Therefore, the contributions offish
stocks to recreational fishing may be impacted through both ecological processes. The NESCS
structure is flexible enough to consider these two mechanisms separately. It also allows the
analyst to organize and present the combined impact of the two mechanisms on each FFES, if
that is preferred. However, in what follows, we focus only on potential impacts of the policy
through the acidification mechanism (illustrated in Figures 5-2 and 5-3).
Table 5-2 identifies the primary components of NESCS-S (i.e., environmental classes and
end-products) that may potentially be impacted by acidification. Aquatic systems that may
change include rivers, streams, lakes, and ponds, while the main terrestrial system that may
change is forests. Among the end-products provided by aquatic environmental systems (see
Table 4-5), fauna, specifically fish and waterfowl, may change. Specific species of flora such as
red spruce and sugar maple trees provided by forests may be affected. These end-products are
directly used or appreciated by humans.
68 By focusing specifically on the effects of reducing acid deposition, this example by design does not address
reductions in human health risks from breathing cleaner air. However, a comprehensive CBA of this policy
would need to consider these potential co-benefits as well.
110
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Figure 5-1. Potential Multiple Pathways Linking NOxSOx Policy Changes to Welfare
Changes
Policy Change
Change in Atmospheric N and S Deposition Levels
Environment
Aquatic
Terrestrial
(Intermediate)
Ecological Processes
• Acidification of water
• Nutrient enrichment of water
Acidification of soil
Nutrient enrichment of soils and
invasive grasses
End-Products
• Fish
• Birds and other species
• Water
Changes
in FFES
• Sugar maple and red spruce
• Coniferous trees
• Coastal sage scrub
• Grasses
Changes
in FFES
Direct Uses/Non-Use
1 Extractive Use: Raw material, Support of human health/life
• In-situ Use: Recreation/tourism, Aesthetic appreciation
• Non-Use
Direct Users
Benefits of Policy
Change
Households
Agriculture, Forestry, Fishing & Hunting
Scenic & Sightseeing Transportation
• Households
• Forestry & Logging
• Food Manufacturing
Changes in Human Welfare
111
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Figure 5-2. Applying the NESCS Framework: Identify Potential Pathways Impacted by Terrestrial Acidification
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Human
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Physical
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Final Economic
Goods & Services
Furniture
Ecological
Production
Tree growth,
health &
regeneration
Natural
Capital
End-Products
Trees
Policy Change to
Atmosphere
-------
Figure 5-3. Applying the Framework: Identify Potential Pathways Impacted by Aquatic Acidification
,ystem Service Demand-Side
Economic
Physical
Capital and
Labor
Equipment,
n u mber of workers
used for
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End-Products
Fish
Policy Change to
Atmosphere
-------
Table 5-2. Environmental and End-Product Classes/Subclasses Likely to be Impacted
by Acidification
Environmental
Class
1. Aquatic
2. Terrestrial
Environmental
Subclass
11. Rivers and Streams
13. Lakes and Ponds
21. Forests
End-Product
Class
3. Fauna
2. Flora
End-Product Subclass
Specific classes/species of fauna
Specific classes/species of flora
End-Product
Subclass Examples
Fish
Waterfowl
Sugar maple trees
Red spruce trees
Table 5-3 illustrates how a table can be used as a tool for identifying linkages between
end-products and uses. Such tables can be used in conjunction with scientific information and
evidence to identify FFES that are likely to be impacted by a policy. For example, although
water may be affected by acidification, we do not include this as an end-product. Scientific
information indicates that direct uses of water are not likely to be impacted in a significant way
due to reduced acidification resulting from this specific policy action. Water is of course critical
for the ecological production offish, waterfowl, and other wildlife, but in this role it is part of an
intermediate process rather than the source of a final service of direct use to humans.
Tables 5-4 and 5-5 illustrate some of the main components of NESCS-D, that is, direct
uses and users of the end-products that may be affected for terrestrial and aquatic systems
respectively. Table 5-6 illustrates how direct use-direct user combinations that may be relevant
for each impacted end-product can be identified.
For terrestrial systems (Table 5-4), both sugar maple and red spruce trees may be sources
of non-use value to households. For our example, we assert that both extractive and in-situ uses
of sugar maple trees may be affected, but that only extractive uses of red spruce trees are likely
to be impacted by acidification. Households and different industrial sectors may use sugar maple
for extractive or in-situ purposes. For example, sugar maple wood can be used for construction,
and sap from sugar maple can be used for maple syrup production by the Food Manufacturing
sector, which are both categorized as extractive uses; however, the unique autumn foliage
associated with maple trees supports an in-situ aesthetic use.
Both sugar maple and red spruce can be used as raw materials, but not necessarily by the
same industrial sectors. Both species can be used by Forestry and Logging, Wood Product
Manufacturing and Furniture Manufacturing (3-digit NAICS sectors). However, only red spruce
is widely used in Musical Instruments Manufacturing (a 6-digit NAICS sector). The NESCS
codes that represent these different pathways are included in Tables 5-2 and 5-4. For example,
the NESCS code representing the FFES pathway where trees in forests are used as raw material
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in the Forestry and Logging sector is 21.2.1101.113. On the other hand, trees in forests that are
used as raw material in the Musical Instrument Manufacturing sector can be represented by
21.2.1101.1339992. The ability to use different NAICS aggregation levels for relevant users
highlights the flexibility of the hierarchical system.
Although we have included inputs for maple syrup as an extractive use, the tree is still
present after the sap is extracted. However, once the sap is extracted by someone, it is not
available for extraction by others within a short period. Thus, within a certain time period, we
include it as an example of an extractive use of the tree. After a certain length of time, the sap
may be available for extraction again. This highlights the temporal nature of the FFES and is
somewhat of a "gray" area for the classification system. This example also highlights the
challenge in defining the end-product. Specifically, one must determine whether to represent the
tree as the end-product or the sap, which is an attribute of the tree. As long as there is
consistency about how an FFES is categorized, double counting and ambiguity issues can be
avoided.
Both households and industrial sectors (e.g., Sightseeing and Scenic Transportation
sectors and the Lodging and Accommodation sectors) directly derive benefits from recreation
and tourism. This is an example of multiple users who derive value from the same use.
Households who purchase tickets for scenic tours to view fall color foliage are "downstream" or
indirect users. Including values derived by such households in addition to the industrial sectors
mentioned would result in double counting. The code representing the pathway described above
for Sightseeing and Scenic Transportation sectors is 21.2.1207.1487. However, households who
visit the forests in the Northeast United States (for example) to take scenic tours (but do not
purchase tickets) are direct users and this pathway can be represented by NESCS code
21.2.1207. 201. Another example of an in-situ use may be households who enjoy the aesthetics
of fall colors on their daily commute (represented by NESCS code 21.2.1209.201). Thus, though
the direct user category is the same (households), they derive values from different types of uses.
It is important to distinguish between the two, as each has different implications for both data
collection and determining appropriate methods for quantification and valuation. Therefore each
has a distinct pathway in our example.
Table 5-5 provides examples of linkages between the end-products provided by aquatic
systems and the appropriate NESCS-D categories. These examples also demonstrate that
different users can derive value from the same use (e.g., recreation/tourism values derived from
fish). It also shows that recreational uses can be both extractive and in-situ (e.g., catch-and
release fishing vs. catch-and-consume fishing, or waterfowl hunting vs. wildlife viewing).
115
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Table 5-3. Tool to Identify Link Direct Uses/Non-Uses to End-Products
Direct Use/
Non-Use Class
1. Direct Use
2. Non-Use
Direct Use/Non-Use
Subclass
1 1 . Extractive Use
12. In-situ Use
21. Existence
22. Bequest
29. Other non-use
Direct Use/Non-Use Detail
1101. Raw material for transformation
1102. Fuel/energy
1 103. Industrial processing
1 104. Distribution to other users
1 105. Support of plant or animal cultivation
1 106. Support of human health and life or subsistence
1107. Recreation/tourism
1108. Cultural/spiritual activities
1109. Information, science, education, and research
1 199. Other extractive use
1201. Energy
1202. Transportation medium
1203. Support of plant or animal cultivation
1204. Waste disposal/assimilation
1205. Protection or support of human health and life
1206. Protection of human property
1207. Recreation/tourism
1208. Cultural/spiritual activities
1209. Aesthetic appreciation
1210. Information, science, education, and research
1299. Other in-situ use
2101. Existence
2201. Bequest
2901. Other non-use
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-H «s fi * & iri U ve t-' U ao W o\ PM
y y y y y
J J J , , ,5
vvvvvvvv^
yyyyyyyyy
yyyyyyyy/
-------
Table 5-4. Direct Uses/Users Likely to be Impacted by Terrestrial Acidification
End-
Product
Subclass or
Example
Sugar maple
trees
Red spruce
trees
Direct
Use/
Non-Use
Class
1. Direct
Use
2. Non-
Use
1. Direct
Use
2. Non-
Use
Direct
Use/Non-Use
Subclass
1 1 . Extractive
Use
12. In-situ Use
21. Existence
22. Bequest
1 1 . Extractive
Use
21. Existence
22. Bequest
Direct Use/
Non-Use Detail
1101. Raw
material for
transformation
1207. Recreation/
tourism
1209. Aesthetic
appreciation
2101. Existence
2201. Bequest
1101. Raw
material for
transformation
2101. Existence
2201. Bequest
Examples of
Direct Uses/
Non-Use
Input for maple
syrup, furniture,
construction
Fall color viewing
Scenic views for
commuters
Existence use
Bequest use
Input for musical
instruments,
furniture,
construction
Existence use
Bequest use
Direct User
Class
1. Industry
1. Industry
2. Households
2. Households
2. Households
2. Households
1. Industry
2. Households
2. Households
Direct User Subclass
111. Agriculture,
Forestry, Fishing and
Hunting
123. Construction
131-33. Manufacturing
148^9. Transportation
and Warehousing
172. Accommodation
and Food Services
201. Households
201. Households
201. Households
201. Households
111. Agriculture,
Forestry, Fishing and
Hunting
131-33. Manufacturing
201. Households
201. Households
User Detail
1 1 13. Forestry and Logging
123. Construction
1 3 1 1 . Food Manufacturing
1321. Wood Product Manufacturing
1337. Furniture and Related Product
Manufacturing
1487. Scenic and Sightseeing
Transportation
1721. Accommodation
1722. Food Services and Drinking
Places
1 1 13. Forestry and Logging
1321. Wood Product Manufacturing
1337. Furniture and Related Product
Manufacturing
1339992. Musical Instrument
Manufacturing
-------
Table 5-5. Direct Uses/Users Likely to be Impacted by Aquatic Acidification
End-Product
Subclass or
Example
Fish
Direct
Use/Non-
Use Class
1. Direct use
2. Non-Use
Direct Use/Non-
Use Subclass
11. Extractive
Use
12. In-situ Use
21. Existence
22. Bequest
Direct Use/Non-Use
Detail
1 104. Distribution to other
users
1 106. Support of human
health and life or
subsistence
1107. Recreation/tourism
1207. Recreation/tourism
2101. Existence
2201. Bequest
Examples of
Direct Uses/
Non-Use
Commercial
fishing
Subsistence
fishing
Recreational
fishing
Catch and
release fishing
Existence use
Bequest use
Direct User
Class
1. Industry
2. Households
1. Industry
2. Households
1. Industry
2. Households
2. Households
2. Households
Direct User
Subclass
111. Agriculture,
Forestry, Fishing and
Hunting
201. Households
148-19.
Transportation and
Warehousing
171. Arts,
Entertainment, and
Recreation
172. Accommodation
and Food Services
201. Households
148-19.
Transportation and
Warehousing
171. Arts,
Entertainment, and
Recreation
172. Accommodation
and Food Services
201. Households
201. Households
201. Households
User Detail
111. Agriculture
1487. Scenic and
Sightseeing
Transportation
171393. Marinas
1721. Accommodation
1722. Food Services and
Drinking Places
1487. Scenic and
Sightseeing
Transportation
171393. Marinas
1721. Accommodation
1722. Food Services and
Drinking Places
oo
(continued)
-------
Table 5-5. Direct Uses/Users Likely to be Impacted by Aquatic Acidification (continued)
End-Product
Subclass or
Example
Waterfowl
Direct
Use/Non-
Use Class
1. Direct use
2. Non-Use
2. Non-Use
Direct Use/Non-
Use Subclass
11. Extractive
Use
12. In-situ Use
21. Existence
22. Bequest
Direct Use/Non-Use
Detail
1 104. Distribution to other
users
1 106. Support of human
health and life or
subsistence
1 106. Support of human
health and life or
subsistence
1107. Recreation/tourism
2101. Existence
2201. Bequest
Examples of
Direct Uses/
Non-Use
Commercial
hunting
Subsistence
hunting
Waterfowl
hunting
Wildlife
viewing
Existence use
Bequest use
Direct User
Class
1. Industry
2. Households
1. Industry
2. Households
1. Industry
2. Households
2. Households
2. Households
Direct User
Subclass
111. Agriculture,
Forestry, Fishing and
Hunting
201. Households
148-19.
Transportation and
Warehousing
171. Arts,
Entertainment, and
Recreation
172. Accommodation
and Food Services
201. Households
148-19.
Transportation and
Warehousing
171. Arts,
Entertainment, and
Recreation
172. Accommodation
and Food Services
201. Households
201. Households
201. Households
User Detail
111. Agriculture
1487. Scenic and
Sightseeing
Transportation
171393. Marinas
1721. Accommodation
1722. Food Services and
Drinking Places
1487. Scenic and
Sightseeing
Transportation
171393. Marinas
1721. Accommodation
1722. Food Services and
Drinking Places
-------
Table 5-6. Tool to Identify Linkages between Direct Uses/Non-Uses and Direct Users
Direct
Use/Non-
Use Class
Direct
Use/Non-Use
Subclass
Direct Use/Non-Use Detail
•O
S
a
s
°
« O< 2
1 i
a
HH o
n
»• T) ON -B B
* Tt Tt 03 HH
^H n «*i FH ri •^•OOCS^H
to^H ^H ^H ^H ^H ^H^H^^H
1
E S
"3
12 H
o
o
1. Direct
Use
11. Extractive
Use
to
o
1101. Raw material for transformation
1102. Fuel/energy
1103. Industrial processing
1104. Distribution to other users
1105. Support of plant or animal cultivation
1106. Support of human health and life or
subsistence
1107. Recreation/tourism
1108.Cultural/spiritual activities
1109.Information, science, education,;
research
1199. Other extractive use
and
V
y
V
y
y
y
(continued)
-------
Table 5-6. Tool to Identify Linkages between Direct Uses/Non-Uses and Direct Users (continued)
1
Direct
Use/Non-
Use Class
1 . Direct
Use (cont.)
\2. Non-Use
1
Direct
Use/Non-Use
Subclass
12. In-situ Use
2 1 . Existence
22. Bequest
29 Other non-
use
Direct Use/Non-Use Detail
1201. Energy
1202. Transportation medium
1203. Support of plant or animal cultivation
1204. Waste disposal/assimilation
1205. Protection or support of human health
and life
1206. Protection of human property
1207. Recreation/tourism
1208. Cultural/spiritual activities
1209. Aesthetic appreciation
1210. Information, science, education, and
research
1299. Other in-situ use
2 101. Existence
2201. Bequest
2901. Other non-use
ET « s i.
~ M a 2 g ®
l| ill! II !
si 1 1 •£ * i i i 1 « i I
Js 2 ... « s al'ai^'Sw'sJ 1 1
g -O W> 0> i, 53 S"S2'~SCJ-3'S 5
V ^ ^ ^2 rt ^^ ^^ ^^ 3 o W rt 3 ^ A
-H '•* -H ri «»i ^H ri 4 oo 1 -H ri -2 ^ ^ -2
y y
y y
y y
yyyyyyyyyy y
y y y
y y
y y y
y y
y y
y y
y y y
y y y
y y y
-------
The examples above demonstrate the design features of NESCS that play an important
role in identifying distinct policy-relevant pathways that will support quantification and
valuation. In particular, it demonstrates the flexibility in being able to use the appropriate
environmental-class-end-product-direct-use-direct-user combinations, depending on the context
and desired aggregation level.
5.3 Application 2: Wetland Restoration Policies
To further illustrate how NESCS can be used to identify discrete FFES pathways linking
a policy action to human welfare, in this section we consider a hypothetical wetland restoration
program. In particular, we use the example of a policy action involving the conversion to
freshwater wetlands of multiple acres of agricultural land along a river network. This example
was selected for two main reasons. First, it contrasts with the previous air pollution control
example, in that it focuses on a policy action targeted toward a change in land use (with indirect
implications for environmental quality), rather than a policy action targeting environmental
quality. Second, wetlands are always a useful example for illustrating FFES, due to the multiple
ecological functions that wetlands perform.
To organize the presentation and discussion of this example, we begin by distinguishing
between five main ecological functions that wetlands serve:
• groundwater recharge;
• surface water storage;
• water purification/filtration;
• wildlife habitat provision; and
• open space provision.
Each of these functions can be broadly represented as an ecological production process
that either (1) directly generates one of more ecological end-products, or (2) provides inputs to
other processes that produce these end-products.
It is worth noting that these functions are often described in the literature as wetland
ecosystem services (e.g., Ramsar, 2011). We use the term "function" to emphasize that, whereas
these processes are all important contributors to human well-being, they do not necessarily
represent final ecosystem services.
122
-------
Table 5-7. Example of NESCS-S Categories Associated with Five Wetland Functions
Environmental
Class
Environmental
Subclass
End-Product
Class
End-Product
Subclass
End-Product
Examples
1. Aquatic
16. Groundwater
1. Water
12. Liquid water
1. Aquatic
12. Wetlands
8. Composite
End-Products
82. Regulation of
extreme events
Flood Surge
Reduction
1. Aquatic
11. Rivers and
Streams
14. Near Coastal
Marine
1. Water
3. Fauna
12. Liquid water
Specific classes/
species of fauna
Fish
1. Aquatic
12. Wetlands
3. Fauna
Specific classes/
species of fauna
Waterfowl
Wading birds
1. Aquatic
12. Wetlands
8. Composite
End-Products
81. Scapes:
• views
• sounds and
scents of land,
sea, sky or a
combination
Wetland
Landscape
Table 5-7 presents the main NESCS-S pathways for each of these selected wetland
functions. In all five cases, FFES are mainly affected through changes in aquatic environments.
The affected environmental classes include groundwater for the recharge function, rivers,
streams, and estuaries for the water purification function, and wetlands themselves for the other
functions.
A variety of affected ecological end-products are also highlighted across wetland
functions and environmental classes, including water, fish, birds, flood surge control, and
wetland landscapes. For the case of water purification, we assume that in-stream water is the
main end-product of interest from affected rivers and streams. However, for downstream
estuarine waters, we assume that changes in fish stocks due to improved water quality are the
main end-product.
For selected wetland functions and end-products, Figures 5-4 and 5-5 use the conceptual
framework described in Section 4 to illustrate specific FFES pathways linking the policy action
to human well-being (i.e., through both NESCS-S and NESCS-D). Figure 5-4 focuses on the
linkages associated with groundwater recharge. In this diagram, the recharge capacity provided
by the restored wetlands is represented as the key ecological production process, and the
123
-------
resulting groundwater supplies are the main end-product of this process. The diagram also
highlights three main examples of direct uses of these groundwater supplies, all of which are
extractive uses. The first use is as a source of irrigation water for cultivating crops (by
agricultural producers), the second use is as a raw material input for beverage production, and
the third use is as a source of life support for households using private wells. The diagram also
shows that households benefit indirectly from the first two uses through the beverages they
purchase in the market.
Figure 5-5 focuses on the open space function of wetlands. In this particular example, the
ecological production process is the production/provision of the wetland landscape, which is also
the end-product. This "composite" end-product (e.g., including water, grasses, wading birds,
etc.) is shown to support one main type of in-situ use—that is, as an aesthetic amenity—for two
different categories of direct users. The first direct user is a hotel located in the restored wetland
landscape. In this case, the hotel "uses" the beauty of the natural setting to enhance the lodging
services it sells to its guests. The guests represent the indirect user households because they can
only gain access to this scenery through the market purchase of the hotel's services. The second
direct user is a household whose home is also located in the restored landscape, and the residents
directly benefit from the aesthetic setting. Figures 5-6 and 5-7 provide illustration of FFES
pathways associated with water purification and water storage.
124
-------
Table 5-8. Examples of FFES Pathway Categories Associated with the Groundwater Recharge Function
End-Product
Subclass or
Example
12. Liquid
water
Direct Use/
Non-Use Class
1. Direct Use
2. Non-Use
Direct Use/Non-
Use Subclass
11. Extractive
Use
22. Bequest
Direct Use/
Non-Use Detail
1101. Raw material
for transformation
1105. Support of
plant or animal
cultivation
1103. Industrial
processing
1104. Distribution
to other users
1106. Support of
human health and
life or subsistence
2201. Bequest
Examples of
Uses/Non-Uses
Beverage
production
Irrigation for crop
production
Cooling water
Distribution to
commercial and
household users
Tap water from
private wells
Bequest value for
future generations
Direct User
Class
1. Industry
1. Industry
1. Industry
1. Industry
1. Industry
2. Households
2. Households
Direct User
Subclass
131-33.
Manufacturing
111. Agriculture,
Forestry, Fishing
and Hunting
122. Utilities
131-33.
Manufacturing
122. Utilities
201. Households
201. Households
User Detail
13 121. Beverage
Manufacturing
111. Agriculture, Forestry,
Fishing, and Hunting
122 11. Electric Power
Generation, Transmission
and Distribution
13311. Iron and Steel Mills
and Ferroalloy
Manufacturing
122131. Water Supply and
Irrigation Systems
to
-------
Figure 5-4. Illustration of FFES Pathways Associated with the Groundwater Recharge Function
to
Economic Supply-Side
Economic Demand-Side
ntermed.
Economic
Production
Crop production
& processing
Human
Well-
being
Economic
Production
Beverage
production
Physical
Capital and
Labor
Household
Utility
Function
Capital
and Labor
Services
Intermediate
Economic Goods &
Services
Corn syrup sales
Final Economic
Goods & Services
Beverage sales
Natural
Capital
Freshwater
wetlands
Ecological
Production
Groundwater
recharge
End-Products
Water
Policy
Wetland restoration
-------
Figure 5-5. Illustration of FFES Pathways Associated with the Open Space Function
to
Economic Supply-Side
Economic Demand-Side
Final
Economic
Production
Hotel
services
Intermed.
Economic
Production
Human
Well-
being
Physical
Capital and
Labor
Household
Utility
Function
Capital
and labor
Intermediate
Economic Goods &
Services
Final Economic
Goods & Services
Rooms with a view
Natural
Capital
Freshwater
wetlands
Ecological
Production
End-Products
Landscape
Landscape
production
Policy
Wetland restoration
-------
Figure 5-6. Illustration of FFES Pathways Associated with the Water Purification Function
Economic Supply-Side
Economic Demand-Side
to
oo
ro
E
o
0)
o
o
U)
I
Q.
Q.
3
CO
0)
o
0)
w
E
-------
Figure 5-7. Illustration of FFES Pathways Associated with the Water Storage Function
to
VO
0
E
0
Q
0)
o
0
V)
o
o
UJ
0
a.
a.
3
CO
0
o
0
CO
E
0
O
o
UJ
Economic Supply-Side
Economic Demand-Side
ntermed.
Economic
Production
Crop production
& processing
Final
Economic
Production
Beverage
production
Human
Well-
being
Physical
Capital and
Labor
Household
Utility
Function
Capital
and labor
Intermediate
Economic Goods &
Services
Corn syrup sales
Final Economic
Goods & Services
Beverage sales
End-Products
Flood surge regulation
Policy
Wetland Restoration
-------
For each of the five wetland functions, Tables 5-8 to 5-12 provide a more detailed
breakdown of hypothetical FFES pathways linking the NESCS-S end-products with specific
direct use and user categories. For the groundwater recharge example, in addition to the
irrigation, raw material, and life support uses described above (and in Figure 5-4), Table 5-8
identifies two additional direct uses of groundwater. The first additional use is as industrial
processing (i.e., cooling) water for two separate industries. This specific example highlights how
a single direct use category can apply to multiple direct user categories. This table also accounts
for the possibility that households may derive non-use values (services) from the knowledge that
groundwater resources are being restored and protected (bequest value).
Table 5-9 provides examples of FFES pathways associated with water storage and the
resulting reduction in the size of periodic flood surges. In this example, the direct uses are all
classified as in situ and are broadly divided between protection of (1) human health and life and
(2) human property. For the health protection category, the "users" are households, whereas the
property protection category includes both household and multiple market/industry sector users.
This example also highlights how a single direct use category can apply to multiple user
categories, including both household and industry sector users.
Table 5-10 identifies multiple FFES pathways associated with the wetlands water
purification function. In nearby rivers and streams, the main affected ecological end-product is
assumed to be in-stream water. This water has both extractive and in-situ uses and is also a
source of non-use values. In this example, public drinking water supply systems are direct users
of surface water resources, then they distribute the water to households and businesses. These
customers are therefore considered to be indirect users of the water. To avoid double counting,
they are not included as a separate user category in the table. In contrast, households that live
along the affected rivers are included as direct users because they make in-situ use of the
aesthetic amenities provided by surface water.
In this example, the water purification function provided by wetlands is also assumed to
contribute to cleaner water and larger fish stocks in a downstream estuary. These fish stocks
provide a variety of services through both extractive and in-situ uses by households and
businesses. In this example, households that engage in recreational fishing by using chartered
fishing boat services are not considered to be direct users of the resource. Instead the charter
businesses are the direct users, who then sell recreational fishing services to households (who are
indirect users). In contrast, households who use their own boats and gear are treated as direct
users.
130
-------
Table 5-9. Examples of FFES Pathway Categories Associated with the Water Storage Function
End-Product
Subclass or
Example
Flood Surge
Reduction
Direct Use/
Non-Use Class
1. Direct Use
Direct Use/Non-
Use Subclass
12. In-situ Use
Direct Use/
Non-Use Detail
1205. Protection
or support of
human health and
life
1206. Protection
of human property
Examples of
Uses/Non-Uses
Avoided drownings
Avoided crop damage
Avoided damage to
water intake structures
Avoided damage to
vehicles
Avoided residential
damage
Direct User
Class
2. Households
1. Industry
1. Industry
1. Industry
2. Households
2. Households
Direct User
Subclass
201. Households
111. Agriculture,
Forestry, Fishing and
Hunting
131-33. Manufacturing
148-49. Transportation
and Warehousing
201. Households
201. Households
User Detail
111. Agriculture,
Forestry, Fishing
and Hunting
13121. Beverage
Manufacturing
1484. Truck
Transportation
-------
Table 5-10. Examples of FFES Pathway Categories Associated with the Water Purification Function
End-Product
Subclass or
Example
12. Liquid water
Fish
Direct
Use/Non-
Use Class
1. Direct
Use
2. Non-Use
1. Direct
Use
2. Non-Use
Direct
Use/Non-Use
Subclass
11. Extractive
Use
12. In-situ Use
22. Bequest
11. Extractive
Use
12. In-situ Use
21. Existence
Direct Use/
Non-Use Detail
1101. Raw material
for transformation
1104. Distribution
to other users
1209. Aesthetic
appreciation
2201. Bequest
1104. Distribution
to other users
1106. Support of
human health and
life or subsistence
1107. Recreation/
tourism
1207. Recreation/
tourism
2101. Existence
Examples of
Uses/Non-Uses
Beverage production
Distribution to
commercial and
household users
Scenic amenity for
waterside homes
Bequest value for future
generations
Harvesting for sale by
commercial fishers
Subsistence fishing
Chartered recreational
fishing
Private recreational
fishing
Catch-and release
private fishing
Existence value
Direct User
Class
1. Industry
1. Industry
2. Households
2. Households
1. Industry
2. Households
1. Industry
2. Households
2. Households
2. Households
Direct User Subclass
131-33. Manufacturing
122. Utilities
201. Households
201. Households
111. Agriculture,
Forestry, Fishing and
Hunting
201. Households
148-49. Transportation
and Warehousing
201. Households
201. Households
201. Households
User Detail
13121. Beverage
Manufacturing
122131. Water Supply
and Irrigation Systems
11 141. Fishing
1487210. Scenic and
Sightseeing
Transportation, Water
to
-------
Taken together, the water recharge, water storage, and water purification examples also
highlight how a single direct user category—in this case beverage manufacturers—can be
associated with multiple direct uses and FFES pathways. Due to these three wetland functions,
they benefit from larger groundwater stocks, cleaner surface water sources, and avoided damage
to their water intake structures.
Table 5-11 identifies FFES pathways associated with the provision of wetland wildlife
habitat, in particular for waterfowl and wading birds. Unlike the estuarine fish end-product
described above, these fauna end-products are assumed to exist within the wetland ecosystem.
However, they support similar types of direct extractive and in-situ uses, including recreational
and subsistence activities.
Expanding on the pathways shown in Figure 5-5, Table 5-12 identifies specific categories
of direct uses and direct users of the wetland landscapes provided by the open space function. All
of these uses are inherently in situ. In addition to the aesthetic appreciation use for nearby
households and businesses, this example imagines recreational and ceremonial uses of the
wetland landscape by certain households.
133
-------
Table 5-11. Examples of FFES Pathway Categories Associated with the Wildlife Habitat Provision Function
End-Product
Subclass or
Example
Waterfowl
Wading birds
Direct Use/
Non-Use Class
1. Direct Use
2. Non-Use
1. Direct Use
2. Non-Use
Direct
Use/Non-Use
Subclass
11. Extractive
Use
12. In-situ Use
21. Existence
12. In-situ Use
21. Existence
Direct Use/
Non-Use Detail
1106. Support of
human health and life
or subsistence
1107. Recreation/
tourism
1207. Recreation/
tourism
2101. Existence
1207. Recreation/
tourism
2101. Existence
Examples of
Uses/Non-Uses
Subsistence hunting
Waterfowl hunting
preserves
Private recreational
hunting
Bird watching
Existence value
Birdwatching
Existence value
Direct User
Class
2. Households
1. Industry
2. Households
2. Households
2. Households
2. Households
2. Households
Direct User
Subclass
201. Households
111. Agriculture,
Forestry, Fishing
and Hunting
201. Households
201. Households
201. Households
201. Households
201. Households
User Detail
11142. Hunting and
Trapping
-------
Table 5-12. Examples of FFES Pathway Categories Associated with the Open Space Function
End-Product
Subclass or
Example
Wetland
landscape
Direct Use/
Non-Use Class
1. Direct Use
2. Non-Use
Direct
Use/Non-Use
Subclass
12. In-situ Use
22. Bequest
Direct Use/Non-Use
Detail
1208. Cultural/
spiritual activities
1207. Recreation/
tourism
1209. Aesthetic
appreciation
2201. Bequest
Examples of
Uses/Non-Uses
Ceremonies in wetland
setting
Canoeing/kayaking
Hiking
Scenic amenity for
waterside homes
Scenic amenity for
waterside businesses
Bequest value for future
generations
Direct User
Class
2. Households
2. Households
2. Households
2. Households
1. Industry
2. Households
Direct User
Subclass
201. Households
201. Households
201. Households
201. Households
172. Accommodation
and Food Services
201. Households
User Detail
172 111. Hotels
(except Casino
Hotels) and Motels
-------
-------
SECTION 6
CONCLUSIONS
6.1 Summary of Report
Analyzing the human welfare impacts (benefits) of policy-induced changes in ecosystems
typically entails identifying, quantifying, and valuing changes in ecosystems and their
contributions to human welfare (EPA, 2009). However, ecosystems provide flows of services to
humans through numerous and often complex pathways. The goal of NESCS is to provide a
framework that helps identify these distinct pathways between natural and human systems. By
helping to identify and classify these ecosystem service flows, it is also intended to support the
quantification and valuation of ecosystem services. In this report we describe a conceptual
framework for defining and identifying ecosystem services (in particular, flows of final
ecosystem service), and we provide a classification structure and coding system based on this
framework.
Section 2 reviews the literature on classification of ecosystem services. This section
shows that although there is a common understanding that ecosystems support human welfare,
there is disagreement on where ecosystem services occur along the continuum between
ecosystems and human welfare. Boyd and Banzhaf (2007) addressed this issue by defmingfinal
ecosystem services as the end-products of nature, directly used or appreciated by humans. Most
importantly, final ecosystem services occur at the point of hand-off between natural systems
(ecosystems) and human systems (producers and households).
To define an approach for classifying ecosystem services, we adapt and apply some of
the basic concepts and structures of the classification and accounting systems commonly used for
economic goods and services (NAICS/NAPCS and NIP A). Section 3 describes these economic
accounts and classification systems and their implications for the design of NESCS. In particular,
it describes how the supply and demand side concepts from these systems are adapted for
classifying ecosystem services.
The approach and methods for developing the NESCS system are described in Section 4.
In addition to applying concepts from NAICS/NAPCS and NIP A, it adapts the logic and
principles underlying the concept of final ecosystem services. Specifically, NESCS describes
flows of final ecosystem services (FFES) as contributions that the end-products of nature provide
directly to human production processes or directly to human well-being. Section 4 also
introduces a conceptual framework that provides a way to organize and visualize the links
between ecological systems and human systems. It also provides the foundation for the NESCS
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structure, which comprises four groups. NESCS-S includes two groups (environment and end-
products), and NESCS-D includes the other two groups (direct use/non-use and direct users).
Each potential and mutually exclusive FFES pathway is identified by a unique combination of
the elements of these four groups (environment, end-product, direct use/non-use, and direct user)
NESCS also provides an up to 15-digit coding system for numeric representation and referencing
of FFES pathways.
In Section 5, we illustrate how NESCS serves its purpose with policy examples.
Specifically, we demonstrate how the components of NESCS can be applied to identify potential
pathways through which policy changes can ultimately result in changes in human welfare. We
select as examples policies to change acid deposition and wetland restoration policies.
6.2 Key Features of NESCS
In summary, NESCS offers several key features for classifying ecosystem services.
First, it provides an explicit conceptual framework for defining FFES. This framework
clearly distinguishes FFES (a) from the ecological production functions/processes that produce
them; and (b) from the goods and services produced by human beings (particularly those
requiring natural inputs, such as crops that require water and soil fertility). NESCS also defines
flows of services to be consistent with standard economic concepts. To be consistent with the
definition of services, NESCS explicitly separates out the supply-side (provider) and the
demand-side (consumer) of FFES.
Second, it is designed to avoid double counting of ecosystem services. It does this by:
(a) distinguishing between intermediate ecological production functions/processes and final
ecosystem services; (b) striving to define mutually exclusive use categories; and
(c) distinguishing between direct (e.g., fruit growers) and indirect users (e.g., households that
consume fruit from growers). As described in previous sections, there will inevitably be "gray"
areas where overlaps may exist; however, NESCS is intended to minimize those overlaps.
Third, NESCS provides a modular structure69 intended to be as comprehensive and
flexible as possible in capturing potential pathways from ecosystems to human beings. The hope
is that this flexible structure will limit the need for extensive modifications to the classification
system in the future. As new and unanticipated FFES become relevant in the future, it is intended
69 We allow for the fact that the same end-product can be used in multiple ways. For example, water can be used to
support human life (as drinking water) and as an energy source (hydropower production). The same use can be
linked to different sectors. For example, recreational uses can benefit households directly (recreational anglers),
or benefit production processes in the transportation sector (tourism and sightseeing).
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that they can be accomodated in NESCS by combining elements from the existing four groups.
The modular structure in NESCS also provides flexibility to the analyst in conducting valuation
in the following ways. Potentially, different values can accrue to different types of users from the
same use. Thus, the value to a commercial farmer of changes in water may be different than for a
household. Also, potentially, different techniques may be necessary for valuing changes in uses
to different users. Thus, changes in recreational uses to households may be valued using Random
Utility Models, while changes in recreational uses to the travel industry may be valued using
production function models.
Fourth, NESCS leverages several existing methods and classification systems. In
particular, it adapts and applies: (1) the FEGS-CS Environmental Classes, which are based on
Anderson Land Use and Land Cover classes; (2) NAICS to define user categories; and (3) make
and use table concepts from national economic accounts. In addition, to trace impacts from direct
users in the market production sector (NESCS-D) to "downstream" consumers, it implicitly
relies on NIPA input-output relationships.
Fifth, the NESCS framework captures causal links from ecosystems to human health and
safety in a variety of ways. Although a distinction is often made between human health and other
environmental benefits in discussions, analyses, and design of U.S. environmental policies,70 the
purpose of NESCS is to define, as comprehensively as possible, the pathways linking ecosystems
to human well-being, including health-related pathways. First, it defines direct use categories for
ecological end-products that have explicit connections to the health and safety of the direct
users—for example, support and protection of human health and life. These categories include
uses of air, water, nutrients, and natural hazard protections that are essential for human life.
Second, NESCS defines direct use (and non-use) categories that may have indirect health
effects on direct users. For example, individuals' physical and emotional health outcomes may
be affected through direct recreational and other cultural uses of natural resources. Third,
NESCS defines direct use (and non-use) categories that may have health implications for
"downstream" users (i.e., buyers) of the economic goods and services produced through direct
use of specific ecosystem inputs. For instance, purchases of food and medicine produced with
natural inputs have health implications for consumers who are, in this case, indirect users of
ecological end-products.
70 For example, EPA's mission is stated as protecting "human health and the environment." The Clean Air Act
(CAA) directs EPA to define separate national ambient air quality standards: (1) for protecting public health, and
(2) for protecting against adverse effects on public welfare, including the deterioration of the quality of
ecosystems. EPA's guidelines for conducting economic analyses of environmental policies (EPA, 2009)
distinguish between two main categories of benefits—human health and ecological benefits.
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To summarize NESCS, it is also important to emphasize its boundaries and areas that it
does not cover. First, and most importantly, NESCS is not an ecosystem service valuation
system. The goal of NESCS is to provide a framework for identifying categories of FFES that
may be affected by policy-induced changes to ecosystems. In this way, it can help to organize
and lay the groundwork for quantifying and valuing these changes, but it does not provide a
system for estimating or calculating these changes.
Second, unlike the NIPA and SEEA systems described in Section 3, NESCS is not an
accounting system. However, as discussed in more detail in Section 6.4, it may provide a useful
framework for helping to organize national environmental accounts, including green GDP
accounting.
Third, by design, the NESCS conceptual framework (as represented, for example, by
Figure 4-3) does not define and categorize feedback effects (flows) from human systems to
natural systems. For example, it does not include arrows representing how pollution or resource
depletion from human activities affects ecosystems. Figure B-2 in Appendix B illustrates such
effects. This omission is not intended to diminish the importance of these flows since these types
of feedback effects must be considered when conducting comprehensive economic or resource
accounting analyses. Feedbacks will generate more flows through the NESCS system and
therefore more FFES pathways will need to be considered. However, considering these
feedbacks does not imply that new FFES pathways will need to be defined and classified.
6.3 Comparison of NESCS with NAICS/NAPCS and FEGS-CS
Although NESCS was designed using concepts from the NIPA framework and the
NAICS/NAPCS classification systems, in this section, we highlight the major distinctions
between NESCS and NAICS/NAPCS. We also compare and contrast the NESCS system with
the FEGS-CS.
One way in which the NESCS differs from the NAICS and NAPCS is that, whereas
NAICS and NAPCS can be used to classify both intermediate and final economic goods and
services, the NESCS structure focuses specifically on flows of final ecosystem services. For
example, all output from crop production, whether used as an intermediate input in food
manufacturing or as a final good sold to households, is classified under NAICS code 111. In
contrast, although recognizing their importance for human well-being, NESCS does not include
classification systems for ecological production processes or for the inputs to these processes,
which can be thought of as intermediate ecosystem services. For example, nutrient cycling is
essential for human life, but it is not separately classified in NESCS, because the value of this
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"service" is embedded in the soil and/or water end-products provided by nature. Just as the input-
output relationships in the economy are left to other frameworks (i.e., NIP A), these intermediate
ecosystem services and processes are assumed to be captured in other ecological models and
frameworks.
Second, NESCS classifies the flow of final services derived from ecosystems that serve
as inputs to economic production functions, while NAICS/NAPCS classifies the output from
these economic production processes.
A third important distinction to note is that while NAICS and NAPCS provide alternative
ways for classifying economic goods and services,71 NESCS-S and NESCS-D together constitute
the classification system for FFES. They are complementary systems that need to be used in
conjunction with each other in order to identify and classify FFES.
A final key distinction is that NAICS and NAPCS primarily include goods and services
that are produced and sold in markets, whereas NESCS primarily addresses ecosystem services
which are not produced or sold in markets. One implication of a market system is that it provides
incentives for producers to specialize in certain production activities. This tendency toward
specialization does not mean that all producers only produce one type of good or service, but it
does make it much easier to define a firm's primary production activity, which can then be used
to categorize establishments according to NAICS categories. In contrast, ecosystems have less of
a tendency to specialize in specific ecosystem services, because they are not motivated by market
incentives. This lack of specialization implies that the NAICS categorization approach cannot be
directly replicated for ecosystem service production in NESCS-S. A second implication of a
market system is that it involves explicit transactions between producers and buyers. These terms
of transactions (including the agreed-upon price) provide important information about the
commodity (good or service) being exchanged, which can be used to define and categorize
commodities using NAPCS. Because the provision of ecosystem services does not involve
explicit market transactions, defining the relevant "commodity" in NESCS is inherently more
difficult. Instead, it must be inferred based on how and by whom the ecosystem is being used.
NESCS and FEGS-CS also have important features in common. The ultimate purpose
behind both systems is to provide a classification system for final ecosystem services that helps
to inform environmental and natural resource policy and management decisions. The two
approaches are based on the same fundamental conceptual framework for linking ecosystems to
human welfare. However, there are differences between the two approaches in their specific
71 Of course, NAICS and NAPCS together help support the accounting system (NIPA); however, they can be
viewed as independent classification systems for economic goods and services.
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objectives, methods, and organizational structures. We highlight some of the key similarities and
differences between the two approaches in Table 6-1.
Table 6-1. Comparison of NESCS and FEGS-CS
NESCS
FEGS-CS
Broad Goal
Key Features
Specific Objectives
and Focus
Design and
Implementation
Approach
Definition of Final
Ecosystem Services
The goal of both approaches is to provide a classification system that is based on a "rigid
framework in which ecosystem services can be identified on the landscape and explicitly
associated with people." (p2, Landers and Nahlik, 2013)
Both approaches contain the following key features:
• provide a standardized and consistent framework to promote communication and
collaboration between natural and social sciences
• connect ecosystems (components and processes) to human well-being
• seek to avoid disconnects between the ecosystem components measured by ecologists
and those valued by the public
• seek to avoid double counting ecosystem services by focusing on the "final" end-
products of nature that people directly care about
• distinguish between the services that ecosystems provide to humans and the human uses
and benefits that are supported by these services
• identify ecosystem service categories by combining separate classification systems for
(1) the environmental components that provide the services, and (2) the ways in which
humans use and benefit from these components
Develop a classification system that:
(1) comprehensively and uniquely (without
duplication) identifies distinct categories
of final ecosystem services;
(2) supports analysis of how policy-related
changes in ecosystems affect human well-
being.
Develop the system by applying, adapting, and
combining the principles underlying:
(1) existing economic classification and
accounting systems for market goods and
services;
(2) the concept of "final" ecosystem services
described in Boyd and Banzhaf (2007)
Flows of final ecosystem services (FFES) are
the contributions that the end-products of
nature provide directly to human production
processes or directly to human well-being.
They are thus represented by service flows
between ecological end-products and direct
human uses.72
Develop a classification system that will
"determine those specific ecosystem
attribute(s) associated with the specific
PEGS that the beneficiary values" such
that "these can directly lead to identifying
appropriate metrics and indicators for
PEGS" (p6, Landers and Nahlik, 2013).
PEGS are explicitly defined by the
landscape in which they occur
(Environmental Class) and the interests of
the people that interact with the PEGS
(Beneficiary Categories).
Final ecosystem goods and services
(PEGS73) are "components of nature,
directly enjoyed, consumed or used to
yield human well-being" (Boyd and
Banzhaf, 2007). As a result, PEGS are
more like a stock concept.74
(continued)
To deliberately separate "stock" and "flow" concepts, the NESCS framework does not include the term
"ecosystem goods." Instead, it uses the term "ecosystem end-products" to represent the stocks provided by nature
and "ecosystem services" to represent the flows provided by nature.
The concept of "final" ecosystem services was developed by Boyd and Banzhaf (2007) and EPA adopted the
term PEGS later to represent this concept.
Landers and Nahlik (2013) do not use the terms or make an explicit distinction between "stock" and "flow"
concepts, but the stock concept is implicit in their definition of PEGS
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Table 6-1. Comparison of NESCS and FEGS (continued)
NESCS
FEGS -CS
Classification
Structure
Ecosystem Service
Identification
Four main classification groups:
Two main classification groups:
1. Environmental classes divide the Earth's 1. Environmental classes divide the
systems into spatial units with similar
physical characteristics
2. Ecological end-product categories are
the biophysical components of nature,
either directly used by humans to produce
goods and services or directly appreciated
or used to yield human well-being
3. Direct human use/non-use categories
represent the different ways in which the
end-products of nature are directly used or
appreciated by humans
4. Direct human user categories are the
different sectors of the economy
(including households) that directly use or
appreciate the end-products.
The first two groups constitute the NESCS -
Supply (by whom and how services are
produced). The third and fourth groups
constitute the NESCS-Demand (by whom and
how services are used).
Each unique combination of the four
classification groups identifies a potential
category of FFES.
Earth's surface into spatial units with
similar physical characteristics
Human beneficiary categories are
the interests of an individual (i.e.,
person, organization, household, or
firm) that drive active or passive
consumption and/or appreciation of
ecosystem services resulting in
impact on the interested party's
welfare
Three Key Steps:
1. Clearly define the Environmental
Class
2. Identify the Beneficiary Categories
3. For a combination of specific
Beneficiary Category and
Environmental Class, hypothesize
FEGS received.
6.4 Other Potential Applications for NESCS
Although the primary motivation for developing NESCS is to support environmental
policy analysis, we expect NESCS will provide a useful framework for other applications as
well. NESCS could also potentially be used to analyze other policies (e.g., housing,
transportation, tax policies) that could also result in changes to ecosystems. In Section 3.1.2 we
discussed how both macro- and micro-level accounting systems can and are being adapted to
address non-market elements, in particular the contributions of natural and environmental
systems. Since the concepts and approach of the national economic accounts provide the
underlying principles and tools for NESCS (e.g., dual-supply and demand-side classification
systems), we expect that NESCS can also support efforts to expand NIPA accounts to include
ecosystem services (i.e., green GDP accounting). However, it is important to keep in mind that
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NIPA accounts focus on total levels of production rather than on the effects of policy changes,
which are the main focus of NESCS.
NESCS can also be useful for private-sector (micro-level) environmental systems. There
is a growing interest in incorporating environmental factors in private-sector corporate accounts
(See Section 3.1.2 for more details). NESCS may help support alternative frameworks that are
used for private-sector accounting. During the course of developing the NESCS system, we have
explored whether NESCS can potentially be applied to Full Cost Accounting (FCA) frameworks
adopted by the private sector. We found that at present, barring a few exceptions, accounting for
ecosystem services is still not part of the FCA structure. Given the rising interest in ecosystem
services, this may change in the future. There may be other micro-level accounting frameworks
such as life-cycle assessments that may be relevant for NESCS.
6.5 Suggested Next Steps and Future Research
The goal of NESCS is to support policy analysis such as CBA. The key features of
NESCS described in Section 6.2 will play an important role in this. It should be noted that some
of these features are unique to NESCS. For example, the systematic definition of services as
flows are an advancement over the FEGS-CS. The explicit separation of the providers and
consumers of these services are an advancement over CICES. In addition, the modularity of
NESCS provides more comprehensiveness and flexibility than both FEGS-CS and CICES.
Separating the uses and users, rather than representing them as beneficiaries for example,
provides more flexibility to an analysis! conducting valuation.
The policy applications described in Section 5 demonstrate how NESCS can be applied
to real-life policy questions; however, the existing structure can be further developed, refined,
and expanded in several ways. Some of the possible and recommended next steps are described
below.
1. Address remaining issues and challenges to support the goal of identifying distinct
pathways:
Although NESCS provides a detailed and structured approach for identifying and
classifying FFES, it does not completely resolve all of the issues associated with ecosystem
service classification. Some of the key issues and remaining challenges encountered during the
development of NESCS include the following topics.
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First, for conceptual purposes the NESCS conceptual framework draws a bright line
between natural systems and human systems. It depicts FFES as flows that specifically cross this
line (from nature to humans). In practice, however, it is often difficult to know where to draw
this line. Because some degree of human management is present in most ecosystems, it does not
make sense to define natural systems so narrowly that they exclude any areas with a human
footprint. But the level of human management varies widely across ecosystems, creating "gray"
areas that blur the line between natural and human systems. Whereas undeveloped and sparsely
populated wilderness areas can easily be thought of as natural systems, it is less clear how to
characterize heavily managed natural systems such as reservoirs, agricultural systems, and sand-
renourished beaches.
To help in drawing this line for NESCS, we argue that any good or service that is
(1) produced by humans, and (2) intended for sale in markets is not an ecosystem service. In
other words, for example, agricultural production and commercial harvesting offish produce
flows of economic goods rather than ecosystem services. In the NESCS conceptual framework,
these flows occur strictly within and between human systems. For these production systems,
final ecosystem services are the inputs that do not meet the two criteria above—for example,
FFES from soils and precipitation to farmers and FFES from ocean fish stocks to commercial
fishers.
Unfortunately, not all gray areas are resolved by these criteria. In particular, there are
continuing questions about how to handle the outputs of natural systems that are heavily
managed by humans, but not intended for sale in markets. For example, by planting and
maintaining trees for sale, plantation forests produce economic goods (e.g., saw logs); however,
they may also produce external benefits by filtering air pollutants, regulating stormwater, and
providing aesthetic amenities. In these particular roles, it may make sense to treat the trees as
inputs from natural systems rather than as outputs of market systems. Other examples are
publicly owned and managed natural systems such as certain reservoirs, fish hatcheries, and
renourished beaches. In these cases, public sector activities produce "natural" resources that are
generally not sold in markets (although access fees may in some cases apply), but ambiguity
exists regarding whether to treat these as natural systems with FFES outputs or as human
production systems using natural systems as FFES inputs.
A second issue arises in trying to define ecological end-product categories that are
mutually exclusive but still capture the main natural features that direct users care about. This
process is challenging because different uses of a natural resource may rely on different
individual attributes or different bundles of attributes. For example, as discussed in Section 4,
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sugar maple trees support multiple direct uses including maple syrup extraction, timber
harvesting, and fall foliage aesthetics. One approach is to treat the tree as the end-product.
Another approach might be to define end-products by further subcategorizing the tree into its
components or attributes (wood, sap, leaves, etc.) to target the specific uses. Alternatively, it
might be the case that the end-product for fall foliage viewing is not the leaves themselves, but a
bundle of attributes that define the entire landscape, including other trees and natural features. In
this case, using a composite end-product, such as a landscape, may correspond best with the
particular use, but it will also result in overlapping end-product categories (i.e., sugar maple trees
included as individual end-products and as components of a landscape end-product). However,
these types of overlaps may not be a problem, as long as they do not lead to double counting of
certain FFES.
A third issue is whether or how to address differences or changes in the quality
characteristics of ecological end-product in NESCS. For example, when a policy action leads to
improvements in water quality by increasing water clarity, where will these changes and the
resulting increases in ecosystem services be captured in NESCS or in applications of its
classification structure? We argue that the best way to address quality differences would be
through the quantification and valuation of ecosystem services rather than through the
classification system itself. For example, just as quality differences between market goods and
services are reflected in their market prices, quality differences in ecological end-products can be
captured through differences in their estimated values. Meanwhile, quality indicators, such as
water clarity and frequency of algal blooms, can be used to represent the end-product attributes
that people value, but these indicators would not be used to define mutually exclusive categories
within the classification system.75
A fourth issue is who to define as the direct user of an ecological end-product, when
access to in-situ use of the end-product is provided through a market transaction. For example,
many ecotourism services, such as chartered fishing excursions or nature tours, provide
customers with access to specific ecological end-products, such as ocean fish stocks or areas of
75 In principle, one potential alternative way to address quality changes would be to subdivide the end-products into
quality-related subcategories. Just as NAICS/NAPCS have separate categories for first- and second-class air
travel, the water end-product could in principle be divided into low- and high-quality subcategories (i.e., water
quality changes would be captured by differences in the number of waterbodies in each subcategory). However,
this approach is unlikely to be feasible on a large scale and is not recommended. The number of these types of
subcategories would need to be limited to avoid overcomplicating NESCS, and the criteria for assigning waters
to the different categories would need to be carefully considered. Moreover, assigning a quality level to an
ecological end-product requires consideration of how the end-product is used by humans (e.g., water quality
criteria for fishing and swimming can be very different). In other words, it would require mixing NESCS-D
concepts into the NESCS-S classification.
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natural beauty. Similarly, home builders receive a premium in the market by building and selling
structures with natural vistas. In these cases, are the sellers or buyers (or both) the direct users?
One perspective is that, in these cases, the end-products are inputs to the production process;
therefore, the sellers are the direct users. The buyers benefit but only indirectly through the
sellers. Another perspective is that the buyers are the direct users because they are the ones who
directly experience and enjoy the end-product. The sellers benefit but only indirectly through
payment from the buyers. In our policy examples in Section 5, we have allowed for the two
perspectives in different contexts. For example, in Table 5-10, households are direct users of
clean water through scenic amenities from waterside homes, and charter fishing trip providers
are direct users offish stocks to provide recreational trips. Arguments can be made for both
perspectives, as long as they are not used together in a way that results in double counting of
FFES.
2. Make explicit linkages to other classification and accounting systems:
Developing a cross-walk between four-group NESCS categories and two-group FEGS-
CS categories would be a useful next step. As described in Table 6-1, since the goal of the
FEGS-CS is to determine those specific ecosystem attributes that the beneficiary values, this can
help identify appropriate metrics and indicators. Thus, it can complement the NESCS structure in
a way that will further support policy analysis. Links and complementarities with the other
ecosystem service classification and accounting systems (such as SEEA-EEA) described in
Section 2 will be explored.
3. Test and evaluate NESCS through additional applications:
Continuing to evaluate and demonstrate NESCS using additional policy application
examples will be important to further refine NESCS. These policy applications would include
environmental contexts as well as other contexts. This would also help identify other potential
users of NESCS, and help expand inter-disciplinary and inter-agency collaborations.
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SECTION 7
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GLOSSARY OF KEY TERMS USED IN THE NESCS REPORT
Term
Definition
Classification system
Direct use/non-use
Direct users
Ecosystems
Ecosystem services
Ecological end-products
Environment
Final Ecosystem Goods
and Services (PEGS)
Final Ecosystem Goods
and Services Classification
System (FEGS-CS)
Flows of Final Ecosystem
Services (FFES)
Final economic services
Flows
Marginal Analysis
Provides an organized structure, through well-defined categories that allow one to
group similar elements together and to separate others. Pre-determined criteria
define what should be considered similar or different, and these criteria are driven
by the specific purpose for developing the classification system.
Different ways in which end-products are directly used or appreciated by humans.
Direct uses may be either extractive or in-situ. End-products may be used as inputs
into market production processes or they may be used or appreciated by
households. Note that households may derive well-being from actually using end-
products as well as from non-use (i.e., households may appreciate end-products
even if they do not see or use them).
Sectors of society/economy that directly use or appreciate the end-products
The dynamic complex of plant, animal, microorganism communities, and the non-
living environment which together interact as a system
The ways in which ecosystems contribute to human well-being
Biophysical components of nature that are either directly used by humans to
produce goods and services or directly enjoyed or used to yield human well-being.
They are usually (but not always) represented as stocks of end-products. Note that
conceptually, they are different from FFES (defined below) but in some situations
may be used as indicators of FFES
Spatial units, with similar biophysical characteristics, that are located on or near the
Earth's surface and that contain or produce "end-products"
Components of nature, directly enjoyed, consumed or used to yield human well-
being (The concept of "final" ecosystem services was developed by Boyd and
Banzhaf (2007) and Landers and Nahlik (2013) adopted the term PEGS later to
represent this concept.)
A two-group classification system developed by Landers and Nahlik (2013). PEGS
are identified by the landscape in which they occur (Environmental Class) and the
interests of the people that interact with the PEGS (Beneficiary Categories).
The contributions that the end-products of nature provide (1) directly to human
production processes or (2) directly to households and human well-being. They are
represented by service flows between ecological end-products and direct human
uses. Note that conceptually, they are different from end-products (defined above).
Final economic services are sold to the end user i.e., flow from producers to
households.
A flow variable is measured over an interval of time. Therefore, flow measures are
typically expressed as a rate per unit of time—e.g., annual income (dollars/year)
and daily nutrient load (pounds per day).
Analysis of policies that involves evaluations of changes to the system rather than
evaluating the status of the total system. Policies that are relevant in this context are
typically those that cause changes to ecosystems that are small relative to the total
value of ecosystems.
G-l
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Term
Definition
National Ecosystem
Services Classification
System (NESCS)
Natural capital
NESCS-D
NESCS-S
Non-market valuation
Non-use values
Use values
Services
Stock
Total Economic Value
(TEV) Framework
A classification system for flows of final ecosystem services. It provides a
conceptual framework, a four-group classification structure, and a coding system
for identifying distinct FFES. It is designed primarily to support the analysis of
welfare impacts of policy-induced changes to ecosystems. Note that the NESCS
terminology does not include flows of final ecosystem goods. NESCS defines (1)
ecological end-products (most of which are stocks of ecosystem goods), (2) flows
of final ecosystem services, and (3) flows of economic goods.
Natural capital is the stock of natural ecosystems that yields a flow of valuable
ecosystem goods or services into the future (Costanza, 2008b). In the context of
NESCS, it is important to consider both quantity as well as quality attributes of
natural capital. This is because changes in policy can lead to changes in one or both
of these attributes and consequently lead to changes in the FFES provided.
Demand-side classification in NESCS that characterizes how and by whom FFES
are used/appreciated and consists of two groups: Direct Use/Non-Use and Direct
Users
Supply-side classification in NESCS that characterizes how and by whom FFES are
provided and consists of two groups: Environment and End-Products
Methods used to estimate values of goods and services that are typically not
exchanged in markets and therefore do not have associated observable transactions.
Human preferences for goods or services that are not associated with or derived
from direct use or contact with them. For instance, individuals may care about or
appreciate ecological end-products, even if they never directly use or see them -
i.e., they may have non-use values for the existence of things like tropical forests or
pristine lakes, even if they never visit them. They are distinct from "use" values.
Human preferences for goods or services that are associated with or derived from
direct use or contact with them.
Services are distinct from goods. Services are typically intangible, non-storable,
and inseparable from provider and consumer. Also, typically in economics, in
contrast to goods, which can be treated as "stocks" and measured at a specific point
in time, services are viewed as "flows" from the provider to the consumer and are
measured over a period of time.
A stock variable represents a quantity existing at a point in time (which may have
accumulated in the past). Units of measurement are typically expressed in levels -
e.g., wealth (dollars), physical assets (number of machines), and nutrient
concentration (milligrams per liter) at the beginning of the year.
Broad conceptual framework commonly used by economists to organize different
types of values (e.g., use and non-use values) that may be associated with a good or
service. See chapter 4 for an example of a commonly used TEV framework.
G-2
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APPENDIX A
MATHEMATICAL REPRESENTATION OF THE CONCEPTUAL MODEL
The purpose of this appendix is to provide a more formal and mathematical
representation of the conceptual framework for linking a policy action and its impact on
ecosystems to resulting changes in human well-being. In this framework a policy action (AZ) is
assumed to cause changes to natural systems (AN), which then leads to changes in the ecological
end-products (AE) that are directly used or appreciated by humans. Changes in ecosystem
productivity and in the profile of end-products (AE resulting from AN) can take many different
forms, but in each case the result is to alter the flows of final ecosystem services (FFES) to
humans, either by altering the production of the final economic goods and services they consume
(AY, path 1 from AE) which then affects their well-being (AW), or by directly affecting their
well-being (by way of the curved arrow, path 2 from AE)
AZ
Generally speaking, the benefits of a policy-related change can be represented by the
marginal utility/well-being with respect to this policy change.
— — (— dE\ (— — 4- —} (^^^
~dZ ~ \dZ * awV * \dE * ~dY ~dE ) ^ ' '
In any "marginal" analysis, it is assumed that the changes in Z, N, E, and Y are relatively small
compared to the total economy and to all ecosystems; however, they still have a meaningful
effect on human well-being. In addition, N, E, Y, and W are all vectors, implying that there are
multiple avenues through which the policy change can affect human well-being (as shown in
Figure 4-5.
The components of equation (Al.l) can be described as follows:
dN
• The first term on the right-hand side — represents the marginal direct impact on
the quantity and/or quality of natural systems (N) with respect to the change in policy (Z).
For example, it could be the additional number of tidal wetland acres protected from
destruction by a coastal management policy.
f-lt?
• The second term on the right side — — — natural systems, or natural capital, with
respect to end-products - i.e., the additional amount of ecological end-product generated
per additional unit of N. For example, this could include the increase in striped bass
populations resulting from the additional protected wetland acres.
A-l
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• The third term — is the marginal product of the market production function with
respect to a change in the profile of ecological end-products (i.e., the additional output of
final economic goods and services generated per additional unit of input E). This term
reflects and is an indicator of the increase in final ecosystem service flows (FFES).76 For
example, this could represent the increment in fish supplied to the market (holding all
other production inputs constant, such as labor and capital inputs) as a result of larger fish
stocks in the wild.
dW
• The fourth term — — is the marginal utility (i.e., marginal well-being) per additional
unit of final market goods and services produced. In dollar terms, it can be interpreted as
the marginal value (i.e., price) per unit of additional output in the market Y (e.g., the price
offish).
dW
• The final term — — — is the marginal utility directly experienced by households per
additional unit of non-marketed characteristics of E. For example, it could include the
increment in utility from recreational fishing associated with a unit increase in the striped
bass fish population. It reflects the increase in FFES directly flowing to households and
can be interpreted as the non-market value (implicit price) per additional unit of E.
In this formulation, the total benefit of a policy-induced change in an ecological end-product (E)
is equal to the sum of impacts on well-being experienced (1) indirectly through changes in inputs
to market production processes, and (2) through direct, non-market-related changes in human
well-being.
dY dW
In this formulation, the FFES are primarily captured in the terms — and — which
oE oE
represent the marginal product and marginal utility of the ecological end-products. In other
words, the presence of an FFES requires that — > 0 and/or — > 0. If a change in an ecological
oE oE
end-product does not increase market output and/or human well-being (holding the flow of all
other goods and services constant), then it does not provide an ecosystem service.77
76 Using the marginal product of E as an indicator of FFES is similar to using the marginal product of labor or
capital to represent the services they provide to producers.
77 Negative effects would imply ecosystem "disservices," which are also possible (e.g., nuisance effects of
mosquitos from wetlands).
A-2
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APPENDIX B
EXPANDED CONCEPTUAL FRAMEWORK FOR
ECOSYSTEM SERVICES ANALYSIS
This appendix expands on the conceptual framework described in Section 4 (specifically
Figure 4-3) by describing in more detail the connections between natural capital and human well-
being. This expanded framework does not change how ecosystem services are defined or
classified in NESCS. It does, however, provide a more comprehensive representation of the
input-output relationships within and between natural and humans systems. Understanding these
relationships is vital for applying NESCS, and for comprehensively quantifying and valuing the
effects of policy-induced changes to natural capital through to human well-being.
B.I Intermediate Ecological Production and Ecosystem Services
In Section 4, to simplify the representation of ecological production processes, Figure 4-3
does not distinguish between intermediate and final ecological production in the same way that it
separates intermediate and final economic production. However, it is important to acknowledge
that the input-output relationships between ecological production systems can be as or more
complex than those between economic production systems. Therefore, Figure B-l expands the
conceptual diagram to explicitly show the parallel intermediate-to-fmal production processes in
natural and human systems.
Intermediate ecological production represents the multitude of natural processes that
generate output flows that contribute indirectly to human well-being but are not directly used or
appreciated by humans. For example, the processes underlying the MA concept of "supporting"
ecosystem services, such as nutrient cycling, primary production, and soil formation, can for the
most part be thought of as intermediate ecological production processes. As in economic
production systems, the assignment of intermediate or final production depends on the context—
in other words, what is final in one context can be intermediate in another. For example, the
wetland process of filtering sediment from surface water can be conceptualized as a final
ecological production process when it produces water clarity that is directly appreciated by
humans. The same process can also improve habitat for benthic biota in streams. This type of
output is typically not directly appreciated or used by humans but can be vital to the food chain
that supports highly valued recreational fisheries.
B-l
-------
Figure B-l. Expanded Conceptual Framework with Intermediated Ecological Production
and Ecosystem Services
Economic Goods & Services
Demand-Side
HUMAN
WELL-
BEING
Economic Goods & Services
Supply-Side
Final
Economic
Production
Function
Intermediate
Economic
Production
Function
Household
Utility
Function
Intermediate
Economic Goods &
Final Economic
Goods &
Capital
and labor
Services /Products
Services /Products
Flows of Final Ecosystem
Final
Ecological
Production
Function
Intermediate
Ecological
Production
Function
8
UJ
Flows of Intermediate Ecosystem Services
B.2 Feedbacks, Spillovers, and General Equilibrium Effects
The primary purpose of Figure 4-3 is to provide a diagrammatic representation of FFES
and where they occur along the continuum from natural capital to human well-being. However,
the connections between and among natural and human systems are considerably more complex
than those represented in Figure 4-3. Therefore, when assessing the impacts of policies that
affect natural capital, it is important to consider not only the flows shown in this figure, but also
a range of other linkages that are not shown in the figure.
As previously noted, recognizing these additional connections does not require an
alteration of the NESCS structure (i.e., the categories of flows between End-Products and Direct
Use/Users); however, it does change how the NESCS structure is applied. In particular,
depending on the context, it may require broadening (1) the spatial scale of the analysis to
include geographic areas that are indirectly affected by policy actions, or (2) the temporal scale
of the analysis to include dynamic feedback effects into the future.
In this appendix, we emphasize two main types of additional connections:
B-2
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1. Feedbacks from human systems to natural systems;
2. Spillover effects within economic systems and within natural systems.
Figure B-2 expands Figure B-l to show feedbacks from human systems to natural
systems. For completeness, it also expands the household utility function circle to include
"household production." This latter addition recognizes that households engage in non-market
production activities that transform inputs from economic and natural systems into goods and
services that they value. For example, households can be thought of as using transportation,
recreational equipment purchases, and their own time to produce recreation trips. Like the
previously included economic production functions, these activities can have both positive and
negative effects on natural systems.
Figure B-2. Expanded Conceptual Framework Showing Feedback Effects from Human to
Natural Systems
HUMAN
WELL-
BEING
Economic Goods & Services
Supply-Side
Economic Goods & Services
Demand-Side
Intermediate
Economic
Production
Function
Household
Production &
Utility
Functions
Economic
Production
Function
Capital
and labor
services
Intermediate
Economic Goods &
Services /Products
Final Economic
Goods &
Services /Produ
s of Final Ecosystem Services
Final
Ecological
Production
Function
Intermediate
Ecological
Production
Function
Flows of Intermediate Ecosystem Services
B-3
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In Figure B-2, several feedback effects are represented as red arrows flowing from the
economic and household production processes to natural capital. It is important to first note that
these feedback flows can have both positive and negative effects on natural capital. They
include:
• Depletion of natural capital stocks as a result of consumptive market and non-market
human activities.78 For example, commercial fishing activities that decrease ocean
fish stocks and private well use by households that decrease groundwater stocks.
• Degradation of the quality of natural capital as a result of market and non-market
human activities. For example, pollutant discharges to water from commercial
establishments and households.
• Remediation and restoration of natural capital. For example, clean-up of waste sites
and stream restoration projects.
• Development of urban parks and greenways.
Other feedback flows are represented as red arrow from human production processes to
the ecological production processes. These flows represent activities that directly alter (positively
or negatively) the functioning or productivity of these natural processes. For example, the
construction of roads, dams, and other obstructions often reduces the connectivity of stream
networks and wetland systems, impairing their ability to provide habitat for fish and other
wildlife.
These feedback effects from human to natural systems also underscore how the two
systems are often interdependent and integrated. As discussed in Sections 4 and 6, this
interconnectivity can make it difficult to strictly separate the two systems, as they are represented
in these figures (i.e., by the separate blue and green areas), and to define FFES in a standard way.
The second type of connection—spillover effects within human systems and within
natural systems—are not specifically represented in these figures, but they are also important to
consider and account for. On the human side, economic production systems are connected
through markets and input-output relationships (as described in Section 3). Consequently, policy-
induced changes in production activities in one economic sector can have ripple effects through
other sectors, primarily through changes in relative prices. These types of market-based
78 Depletion implies that rates of extraction by humans exceed the natural capital's ability to renew or replenish
itself.
B-4
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economic spill-over effects are typically captured using computable general equilibrium (CGE)
models. For example, Berrittella et al. (2006) and Bosello et al. (2007) examine how climate
change impacts the tourism sector and coastal economies (respectively), as well as how these
impacts have economy-wide effects.
Even when non-market systems (e.g., households) are the entities directly affected by
changes in natural capital and FFES, their connections to the broader economy can also have
ripple effects in the market. These spillovers into other parts of the economy eventually feed
back into households' well-being. For example, Carbone and Smith (2013) use a case study of
nitrogen and sulfur emissions control policies in the United States to show how ecosystem
services related to non-market uses, such as recreational fishing, aesthetic enjoyment of forest
scenery, and non-use values, can be formally incorporated into a CGE framework. They do this
in part by specifying a utility function that explicitly accounts for the link (non-separability)
between households' preferences for market goods and for non-market ecosystem services.
On the side of natural systems, there are also innumerable connections between
ecological production processes, which would ideally be accounted for in a comprehensive
assessment of policy impacts. Figures B-l and B-2 represent these processes in a linear and
sequential way; however, the input-output connections between these processes are likely to be
much more complex. For example, policies that reduce sediment loads, increase water clarity,
and help restore seagrass beds in an estuary can improve habitat for certain crab species.
However, if these crab species are also oyster predators, they may indirectly impair water clarity
by limiting the water filtration function performed by oysters. Understanding these potential
feedback effects is essential for fully identifying and quantifying the changes in ecological End-
Products, which are the source of FFES.
B-5
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r/EPA
United States
Environmental Protection
Agency
Additional Information
This document was developed under U.S. EPA Contract EP-W-11-029 with RTI International
(Paramita Sinha and George Van Houtven), in collaboration with the ORISE Participant Program
between U.S. EPA and U.S. DOE (Charles R. Rhodes), under the direction of Joel Corona and
Dixon Landers, U.S. EPA, Office of Water and Office of Research and Development. Peer
review for this report was conducted under U.S. EPA Contract EP-C-12-045 with Versar, Inc.
(David Bottimore).
This report may not necessarily reflect the views of U.S. EPA and no official endorsement
should be inferred.
To provide feedback on this report or any other aspect of the NESCS approach, please send
comments by email to NESCS@epa.gov.
NESCS Four-Group Classification
Aquatic
Terrestrial
Atmospheric
Ecological End-Products
Water
Flora
Fauna
Other Biotic Natural
Material
Atmospheric Components
Soil
Other Abiotic Natural
Material
Composite End-Products
Other End-Products
\
Flows of \
Final \
Ecosystem J
Services /
1 /
n
_j
/
\
Direct Use / Non-Use
Use
• Extractive/ Consumptive
Uses
• In-Situ (Non-Extractive/
Non-Consumptive) Uses
Non-Use
• Existence
• Bequest
k
\
Industries
Households
Government
NESCS-S
1
NESCS-D
United States Environmental Protection Agency. 2015. National Ecosystem Services
Classification System (NESCS): Framework Design and Policy Application. EPA-800-R-15-002.
United States Environmental Protection Agency, Washington, DC.
EPA-800-R-15-002
September 2015
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