Subject: Economic issues raised by the proposal for Sweetens Swamp Executive Summary Sweetens Swamp is a functioning red maple swamp which provides wildlife habitat for a variety of birds, mammals, and amphibians, and provides flood storage capacity, groundwater discharge and water purification. Pyramid’s proposed shopping mall will result in the destruction of approximately 45 out of 49 acres of this wetland. Thirty acres would be permanently destroyed. Filling Sweetens Swamp would be the largest authorized wetland loss in Massachusetts in at least 5 years.
Pyramid has offered to recreate other atlantes on the site. Doing so would result in the at least temporary destruction of 13 of the remaining 17 acres of wetland habitat. However, the mall proposed by Pyramid would provide many jobs to the area and provide tax revenues, making the area potentially more economically stable. Still wetland losses may not be necessary in order to have a quality regional shopping mall. Economic Issues Wetlands provide many valuable functions and services, including flood storage, wildlife habitat, pollutant removal, recreation and commercial products.
These “free” services are often taken for granted and can be official and very expensive to replace, as wetlands are altered or degraded. Despite the expense and uncertainty associated with replacing the lost ecological services of wetlands, urban and rural development continues to impact wetlands. Preventing the loss of wetland functions is a challenge, particularly when financial gains for development seemingly outweigh non- market wetland values for the greater community.
To address this concern, economic values can be assigned to the important roles of wetlands. This can be done through an economic valuation that aims to make ecosystem goods ND services directly comparable to other sectors of the economy. Loss of environmental resources is an economic problem because important values are lost, some when these resources are degraded or lost. The choices to leave the wetland in its natural state or convert it to another use (a regional mall) each has implications in terms of values gained and lost.
For example, preserving an area in its natural state involves direct costs of preservation for setting up a protected area, and this may include paying guards and rangers to protect and maintain the area and perhaps the cost of establishing a buffer zone’ for surrounding local communities. Development options are sacrificed if preservation is chosen, and these foregone development benefits are additional costs associated with the preservation option. Such costs are easily identifiable as they often encompass marketable outputs and income sacrificed.
The direct costs plus the predetermined development benefits – or total costs – are often weighed heavily when choosing to retain an environmental resource in its natural or a managed state. The same approach should be taken in evaluating the development options for the environmental resource. If the environmental resource is to be converted to some other use, not only should the direct costs of conversion be included as part of the costs of this development option but so must the foregone values that the converted resource can no longer provide.
These may include the loss of both important environmental functions and important biological resources and amenity values as well. Economic valuation should be seen as only one of the elements in decision- making, along with political, social, cultural and environmental factors. It facilitates wetland planning and management decisions, which have economic components. An economic valuation of wetlands requires a complementary categorization, since economic values depend on human preferences; what people recognize as the impact wetlands have on their well-being.
In general, the economic value, I. E. The benefits, of an increased or a preserved amount of a good or service is defined as what individuals are willing to give up of some other resources in order to acquire the increase. While the total amount of resources that individuals would be willing to forego for an increased – or preserved -amount of a wetland service reveals he total economic value of this increase (or preservation), different factors of total economic value can be recognized.
Total economic valuation distinguishes between use values and non-use values Non-use values refer to those current or future (potential) values associated with an environmental resource which rely on its continued existence and are unrelated to Use. Typically, use values involve some human ‘interaction’ with the resource whereas non-use values do not. Use value occurs from humans’ direct or indirect use of wetlands through wetland goods and wetland services.
Some goods and services that wetlands provide are: ; Protection of water quality ; Flood mitigation ; Natural disaster protection ; Wildlife habitat support ; Support of ecosystems that provide food In order to estimate the economic worth of wetland values, either collectively or individually, it is necessary to be able to assign a monetary value to each Of them. This is not always an easy task, for many technical and economic reasons. The simplest way to approach this would be to apply market prices. However, for many wetland products and services there is no market, and mom values are intrinsically non-marketable.
The financial value(s) that will be calculated can then be used according to the objectives of work being carried out. One such purpose may be to establish the price of a wetland for Pyramid intending to buy it, using a loan. This requires the net present value to be calculated. To do this, factors other than the net economic cost of the wetland must be taken into account. The aim is to establish a net present value for the site; this requires a discount to be applied to the estimated yearly flow of benefits that the owner will receive.
The most commonly used valuation approach for measuring the economic value of goods and services provided by wetlands is Cost-Benefit Analysis (CAB). This measures the net gain or benefit from policy or action. It involves evaluating the measurable benefits and costs in a situation and comparing them. Policies or actions can be evaluated to conclude whether it provides net economic benefits. Because it focuses only on economic costs and benefits, CAB determines the economically efficient option. This may or may not be the same as the most socially acceptable option, or the most environmentally inefficacy option.
A cost benefit analysis could give a strong argument for wetland conversion vs.. Wetland conservation. A cost benefit analysis of a proposed policy affecting a wetland should take into account the policy impact on the wetlands provision of goods and services. Detailed knowledge regarding how the policy would affect the wetlands provision of goods and services is often imperfect. Even wetland structure is not entirely known. Many wetland functions result in goods and services that are not traded in markets and are not priced.
These goods or services must be valued using on-market valuation techniques. Measure and evaluating wetland conservation benefits in a way that makes them similar with the returns resulting from alternative uses can assist in enhanced social decision making in wetland protection versus development situations. Partial valuation, a type of cost-benefit assessment, can be used to evaluate alternative wetland use options. Choices involving diversion, allocation or conversion of wetland resources should compare the net benefits generated by each of the wetland uses.
If the predetermined wetland benefits are significant, then the failure to sees the loss of wetland benefits will lead to an overestimation of the true net benefits of the development projects. This is the same as assuming that there is no economic cost of diverting floodwater from the wetlands, which is rarely the case. It may not be necessary to measure all affected wetland benefits; one or two impacts may prove to be sufficiently large to make the development project uneconomic. It is not necessary to measure all wetland benefits.
To assess the merits of investing in these improvements, a cost-benefit analysis should be undertaken. However, significant services provided by a wetland are difficult to quantify. As the ultimate aim of a cost-benefit analysis is to assess the full net benefits of investing in wetland improvement, the study can be considered within the broad framework of a total valuation. Cost benefit analysis can be performed from society standpoint or the stakeholder standpoint. A societal cost-benefit analysis determines whether society will be better off if a policy or action is implemented; it finds the economically efficient solution.
A financial CAB looks at the costs and benefits or an individual stakeholder – in this case Pyramid. However the conclusions from a financial CAB will differ from stakeholder to stakeholder. Discounting is applied when adding costs and benefits flows that take place at different points in the future. The underlying reason is the time preference: people generally prefer to receive money sooner rather than later, and to pay costs later rather than sooner. Discounting takes this time preference into account by calculating the value in today’s dollars Of a given amount received or paid in the future.
For decisions related to natural resources, the appropriate discount rate is the rate that reflects society’s preferences for allocating natural resource use over time. However, determining this social discount rate is controversial, and the choice of discount rate can have a large effect on the results of a CAB. A larger discount rate gives more weight to the present in relation to the future, and the costs and benefits for the current generation are given more weight than costs and benefits for future generations. Recommendation / Conclusion Economic valuation is concerned ultimately with allocating wetland resources o improve human welfare.
Consequently, the various environmental benefits of wetlands are measured in terms of their contribution to providing goods and services of value to humanity. In order to make a cost benefit analysis of Sweetens Swamp wetland policies more reliable, the economic valuation of the wetlands goods and services has to be as comprehensive as possible. This calls for integrated modeling of the links between wetland ecology (characteristics, structure, processes and functioning) and wetland economics (the De demand for the goods and services supplied by wetlands).
Cost benefit analysis relies on a particular ethical basis, and it may need to be supplemented as policy-makers respond to concerns other than economic efficiency. The lack Of detailed, quantitative knowledge of wetland functioning prohibits a full economic valuation of wetlands. Wetlands, where possible, should be left undisturbed, and society should look to other kinds of property first for development.