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Economic Analysis of Invasive Species. Module 6: informing actions to address invasives. what this module covers. addressing invasives through management interventions tools for weighing up invasive costs and benefits incorporating the time dimension dealing with risk and uncertainty

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slide1

Economic Analysisof Invasive Species

Module 6:

informing actionsto address invasives

what this module covers
what this module covers
  • addressing invasives through management interventions
  • tools for weighing up invasive costs and benefits
  • incorporating the time dimension
  • dealing with risk and uncertainty
  • distinguishing between financial and economic values
  • designing economic and financial instruments to tackle invasives

about invasive species

Module 1

understanding the economic causes of invasions

Module 2

impacts of invasive species and ways to address them

Module 3

defining invasive-relatedcosts & benefits

Module 4

valuing ecosystem impacts

Module 5

informing actionsto address invasives

Module 6

typology of management interventions

steps to invasion

interventions

aims

examples

interventions targeting the steps to invasion

introduction

establishment

naturalisation/spread

invasion

prevention

stopping introductions

quarantine, blacklists, inoculation, trade/import bans, land use restrictions

eradication

destroying or removing a new invasion

physical removal, chemical eradication, biocontrol

containment

stopping a new invasion from further spreading

confinement of the species, phytosanitary controls, border checks

management

restoration

of established invasions

of affected ecosystems

periodic clearance, burning, revegetation/repopulation with native species, landscape restoration

interventions targeting ecosystem resilience

biodiversity conservation; protected areas; sustainable land and resource management; … etc. …

typology of management interventions
management interventions as public goods
management interventions as public goods

public good

a good whose benefits can be providedto all people at no more cost than that required to provide it for one person

the benefits of a public good are indivisible, and people cannot be excluded from enjoying them

management interventions as public goods1
management interventions as public goods
  • control and management of invasives displays many of the characteristics of a public good
  • weak incentives for individuals to take action to control invasives
  • is one of the reasons that the market cannot be relied upon to deal with invasives
  • and some form of public intervention or collective action is required
using economics to inform decision making
using economics to inform decision-making
  • economic analysis provides important information to assist decision-makers to arrive at rational, beneficial and effective decisions on invasives
  • includes justifying taking action to address invasives, as well as choosing the “best” option for managing them
  • decision-making involves considering trade-offs, and weighing up relative costs and benefits
  • economic criteria an important factor in decisions
  • requires that the marginal benefits of action are at least equal to the marginal costs it gives rise to
weighing up invasive costs and benefits

benefits

costs

a number of woody plants from various parts of the world were introduced into South Africa for dune stabilization, tannin extraction and firewood

as a result of the introduced species, South Africa's highly-endemic Cape Flora is under serious threat. Watersheds are becoming less productive, potentially causing a huge increase in water prices

the Triclad flatworm Platydemus manokwari, is a successful predator of the giant African snail Achatina fulica, so it was transported as a biological control agent to the Pacific

the Triclad flatworm has become established on Guam, Saipan, Tinian, Rotar, and Palau and now poses a serious threat to the native gastropod fauna of the Pacific region

the meso-American tree Prosopis juliflora was introduced to the Thar Desert of India for checking soil erosion, reducing the dryness of the desert air, giving shelter to several species of wild animals, and providing legumes which are relished by wild as well as domesticated animals. It meets 85 percent of firewood demands of rural people.

while Prosopis juliflora has been a boon to people in the Thar Desert who need firewood and fodder, it overwhelms other flora in the area, thereby reducing the range of products available to local people and reducing biodiversity

weighing up invasive costs and benefits

(McNeely 1996, 2001)

cost benefit analysis
cost-benefit analysis
  • Most commonly-used decision-making framework for comparing economic and financial trade-offs
  • Judges alternative courses of action by comparing their costs and benefits
  • Presents three basic measures of worth:
    • Net Present Value (should be positive, and the higher the better)
    • Benefit:Cost Ratio (should be greater than one, and the higher the better)
    • Internal Rate of Return (should be above the discount rate, and the higher the better)
cost benefit analysis1
cost-benefit analysis

control of Ruffe, Great Lakes USA

  • controls include the use of toxins, trawling and ballast water management
  • cost-benefit analysis carried out for proposed 11 year control programme
  • total costs $13.5 million
  • benefits to commercial and sport fisheries calculated for 50 year period
  • present value of between $119 million and $1 billion

(Leigh 2003)

cost effectiveness analysis
cost-effectiveness analysis
  • sub-set of CBA in which a particular outcome is taken as given
  • seeks to identify the least-cost means of achieving that goal
  • particularly useful where benefits are unquantifable or where a specific goal has already been set
  • involves calculating all costs and comparing NPVs of different alternatives
cost effectiveness analysis1
cost-effectiveness analysis

Control of Oyster Drills, Willapa Bay USA

  • accidentally introduced: cause harm by preying on small oysters
  • goal of preventing established invaders from continuing to increase
  • manual removal the only control technology
  • CEA to judge best timing of intervention
  • showed that targeting adult phase is most cost effective option

(Buhle et al 2005)

multi criteria analysis
multi-criteria analysis
  • economic and financial measures only one of many criteria used to weigh up decisions
  • multi-criteria analysis deals with situations where decisions must be made taking into account multiple objectives which cannot be reduced to a single dimension
  • integrates monetary and non-monetary indicators to reach decisions
  • usually clustered into three dimensions: social, economic, ecological
  • monetary values and CBA measures can be incorporated alongside other criteria
multi criteria analysis1
multi-criteria analysis

examples of the use of MCA

  • comparing different options in Scheu Creek, Australia in order to take account of conflicting stakeholder views
  • evaluating the environmental impacts of the adoption of GMOs on wildflowers
  • analyse trade-offs among conflicting objectives for controlling feral pigs in Hawaii

(Qureshi and Harrison 2001, Aslaksen and Ingeborg Myhr 2007, Maguire 2004)

the time dimension modelling the trajectory of invasions
the time dimension: modelling the trajectory of invasions
  • invasive species typically show an unusual, and hard to predict, trajectory
  • time taken to move from introduction to invasion varies greatly, as does progressions from one stage of invasion to another
  • hard to judge what the impacts on ecosystem services will be
  • depends on species, state of ecosystem, utilisation of species
  • determining spatial and biophysical trajectories requires detailed scientific data and models
  • costs and benefits will vary considerably, at different times in the same place, and between different places
  • as time goes by, management and control efforts (as well as economic impacts) tend to become higher and higher
the time dimension using a discount rate
the time dimension: using a discount rate
  • time a key factor in economic analysis
  • need to incorporate a sufficiently long time frame
  • need to be able to express future costs and benefits as a single measure of value which can be compared between different options being considered
  • use discounting: essentially the inverse of comparing a compound interest rate
  • accounts for the fact that money invested elsewhere could yield a return, and that people generally prefer to enjoy benefits now and costs later
the time dimension using a discount rate1

V = value being discounted

t = time being considered

R = discount rate

the time dimension: using a discount rate
  • usually based on the opportunity cost of capital
  • high discount rate reflects strong preference for future consumption
  • the higher the discount rate applied, the less weight given to future costs and benefits
  • controversy over projects which show high initial costs, but yield long-term benefits
risk uncertainty

risk

uncertainty

risk & uncertainty

some idea of what the likelihood is of an event occurring

probabilities can be assigned

value of possible outcomes can be known

little is known about future impacts

no probabilities can be assigned to different outcomes

range of possible valuescan be estimated, but no probabilities can be attached

risk uncertainty1

risk

uncertainty

risk & uncertainty

risk can be dealt with by treating as a cost and incorporating numerical probabilities into analysis

calculate expected values for the costs and benefits of different courses of action, outcomes or options

uncertainty is much more difficult to cope with

requires a general policy of caution and precaution

factoring in risk and uncertainty

sensitivity analysis

risk-benefit analysis

decision analysis

factoring in risk and uncertainty

tests the effects of changing key variablese.g. discount rate, prices, levels of impact, exchange rate, management costs

provides range of possible values for net benefits of action

highlights which variables the NPV is most sensitive to changes in

focuses on prevention of events carrying serious risks

inversion of normal CBA

starts by presuming no action and then assessing the costs of inaction as the likelihood of risk occurring

benefit of inaction is the saving in costs of preventive measures

weights expected values by attitudes to risk, to give expected utilities

assesses decision-makers’ preferences, judgements and trade-offs to obtain weights

factoring in risk and uncertainty1
factoring in risk and uncertainty

control of invasive weeds in Australia

  • decision model designed to determine whether to eradicate or do nothing, when weeds first discovered
  • net benefits measured relative to do-nothing option
  • simulations used to derive probability distributions of costs
  • identifies “switching points”:
    • Invasion size at which is no longer optimal to attempt eradication, but containment may be an option
    • invasion size at which it becomes optimal to apply no form of control

(Cacho et al 2008)

financial and economic analysis

financial

analysis

economic analysis

financial and economic analysis

examines the effects of projects, programmes and policies on costs and benefits to the private returns accruing to a particular individual or group

values measured at market prices, as outflows or inflows to a particular individual or group

examines the effects of projects, programmes and policies on costs and benefits to society as a whole

values measured at their “real” cost or benefit to the economy, usually omitting transfer payments and valuing all items at their opportunity cost to society

internalising externalities and correcting market distortions
internalising externalities and correcting market distortions
  • economic policy, price and market failures are the root causes of invasions
  • economic and financial instruments attempt to reverse, overcome or correct for these failures
  • they internalise the (social/economic) externalities of invasives into the prices, profits and costs people face as they go about their business
  • they make sure that the full costs of invasives, and the full benefits of their control, are incorporated into policies, markets and prices
internalising externalities and correcting market distortions1

category

description

examples

charges and fees

measures which rationalise prices and improve markets for goods and services which utilise/depend on invasive species or to alternative products and technologies, or develop markets in quotas or permits which relate to invasives

ballast water fees,tradeable permits

fiscal instruments

budgetary measures which apply taxes and subsidies to the goods and activities which utilise or depend on invasive species or to alternative products and technologies

investment taxes,product taxes,preferential credit

bonds and deposits

measures which require the provision of monetary security when economic activities are carried out which involve invasive species, refundable against any damage occurring as a result of that activity

performance bonds,damage bonds, import deposits, restoration deposits

trade measures

measures whose justification is primarily to guard against invasives but which take the form of trade instruments

import tariffs and quotas, export taxes, trade bans, eco-duties, border tax adjustment

internalising externalities and correcting market distortions

(Emerton 2001)

internalising externalities and correcting market distortions2
internalising externalities and correcting market distortions
  • Most based on “polluter pays” principle
  • Most instruments have dual purpose:
    • Changing incentive structures to motivate particular behaviour
    • Raise funds to cover the costs of a third party undertaking invasives control, compensation, mitigation or remedy
  • unique characteristics of invasives mean that some of the economic and financial instruments that are conventionally used to deal with environmental externalities only have limited applicability
instruments which have been recommended for invasive control
instruments which have been recommended for invasive control
  • invasion risk tariffs for exporters
  • damage bonds against repair costs
  • assurance bonds for importers of new species
  • fees on travel and trade activities that might cause invasions, to create fund
  • packages of insurance and bonding requirements
  • tradable risk permits on cargo vessels

(Perrings et al 2005a, Thomas and Randall 2000, Perrings 2000, Jenkins 2001 & 2002, Horan & Lupi 2005)