Valuing environmental services

Payments for environmental services usually signal the value that service users attach to them or the opportunity cost for land users to provide the same. The absence of markets for most environmental services makes it difficult to estimate a payment structure acceptable to both parties. For instance, an ecosystem may provide several kinds of environmental services, with only a few being valuable to service users. Similarly, opportunity costs for service providers will depend on the specific land uses they are asked to adopt. Therefore, an ad hoc payment structure will rarely work in the long run. Instead, PES programs must conduct careful analysis to estimate values of the environmental services they are going to secure. In some cases, like carbon sequestration, it is becoming to use actual market values as those markets come into being. Where there are no markets, methods to estimate value include: 1) imputing the value of the environmental service from observable phenomena; 2) using the survey-based approach known as contingent valuation to estimate buyers' willingness to pay (WTP) for a service and sellers' willingness to accept (WTA) compensation in return for providing a service, and 3) using auctions to identify actual WTP and WTA. Several techniques can be used to conduct these experiments, which are part of a growing field in economics called non-market valuation.