Question

Economic valuation comprised of several techniques in giving value to the environment. It has been used in assessing the non-market services of environment. Economic valuation has been used extensively in non-market implementation such as Payment for Ecosystem Services (PES).
a)     Discuss the possible consequences if economic valuation of non-market good and services are not taken into consideration in decision or policy-making.
(10 marks)
b)     Explain how economic valuation can be incorporated in a PES project implementation.  You may answer by providing an example.

Answer 1

a). NON MARKET GOODS refers to the those goods, mainly environmental goods whose market value is not revealed to trade in the market. For example clean air, fresh water, clear sky, value for all these goods by showing how much consumers wants to pay for all these goods are not revealed in the market.Hence ECONOMIC VALUATION for all these non market goods is basically done by using non monetory old approaches . There is no monetory value assigned to these goods as no monetory preference for these goods are revealed by the consumers in the market by revealing how much they want to pay. Hence there is no revealed and fixed prices for these no market goods.

The economic valuations in non market goods is one of the difficult task as monetory value is to be determined for those non market goods whose value is not defined.

Consequences if economic valuation of non-market good and services are not taken into consideration in decision or policy-making.

1.Environment sector is one of the market where goods have no defined monetory value. We may not use these goods on daily basis but there should be some value assigned to these goods. By using Economic valuation, we can provide price information to the real owner and to the user of the goods or services as well.

2. If economic valuation of these non market goods are not considered then there will be over usage of natural resources for which no prices will be paid and no market valuation is done.

3. The consequence will be scarcity of goods.Though these market goods may not revealed any market prices but they are mostly the part of Public goods whose scarcity will be great loss for our society and future generation.Hence it is very important to consider economic valuation of non market goods in policy making. Markets do not recognize scarcity of non-market resources and cannot be relied upon to allocate these resources to their highest and best use.

b). PAYMENT FOR ECOSYSTEM : It refers to the process where the services taker or user of an ecosystem ( Natural resources) services make payment to the owner in a direct or indirect manner. The main idea behind this that whosoever is mainting the ecosystem and doing so hard work should get paid for the same.

Economic valuation in Payment for ecosystem can be incorporated via 4 steps by providing below4 services.

1. Provisioning Services : To obtain the best natural products from ecosystem.( Like fresh water, and clean food).

2.Regulating Services : There should be strict regulation in the ecosystem to get the maximum benefit like fresh air.

3.Cultural services : These are the non material benefits that can be reaped without paying anything.For example spiritiual enrichment.

4.Supporting services : These are the services needed to maintain the other services, like nutrient recycling.The provisions of such services might require commumities living in the proximity of the ecosystem to undertake or not to undertake certain activities.

The main role of PES is to pay a series of payment to land owners and other owners of natural resources in return for the guaranted flow of a services.

Foe ex , a beverage company pay a farmer to use less pesticides .