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What Is the Chesapeake Bay Worth?

From Port Folio Weekly.

            How much is the Chesapeake Bay worth?

            It's a timely question. The General Assembly has pledged $500 million to clean up the Chesapeake Bay watershed over the next decade. It sounds like a lot of taxpayer money, an investment in a bountiful and beautiful estuary. Never mind that one legislature can't bind a future legislature. Never mind that the $500 million is a fraction -- a very small fraction -- of the $15 billion in initial state and federal dollars recommended that Virginia and nearby states spend over the next six years by the Chesapeake Bay Blue Ribbon Finance Panel, headed by former Gov. Gerald Baliles.

            That's what critics are saying.

            But there's another way to look at that $500 million, one even more damning. One that puts environmentalists on the same footing as developers, who have long touted the economic virtues of exploiting nature.

            It's called ecosystem value.

            Taking that view, the Chesapeake Bay watershed is an asset that can be measured not just in terms of the products it yields -- food, shelter, raw materials -- but by the irreplaceable services and opportunities it renders. Increasingly, a small number of academics -- some from economics, some from ecology -- are daring to put dollar figures next to the subtle services like clean water, clean air, flood control and storm mitigation that ecosystems provide, but have been taken for granted throughout history.

            The idea isn't necessarily that you can put a single value on an ecosystem. It's that if you want to develop that ecosystem, damaging its services or hurting its appeal as a recreational area, you must calculate the cost. If you develop land upstream that degrades water quality, for instance, you have to calculate the cost of building a water filtration plant.

            As the attempts to restore the Bay drag into their third decade -- the original Bay agreement was signed in 1983 -- the debate has failed to keep pace with research showing that forests and waterways often have more economic value if left untouched.

            We now know that undeveloped forests in healthy watersheds provide millions, perhaps billions, of dollars' worth of water and air filtration, for instance. We now know that recreation often is more valuable than exploitation when it comes to natural resources.

            "We're really good at managing most types of capital," says Gretchen Daily, a StanfordUniversity researcher and co-author of "The New Economy of Nature: The Quest to Make Conservation Profitable." Physical capital like homes and cars. Financial capital. Human capital -- knowledge and skills.

            "Over a long period of time -- thousands of years -- we've evolved ways as a society of monitoring and safeguarding and investing wisely in these types of capital, yet we've done nothing on ecosystem capital, which underpins all aspects of human well-being," she adds. "If you get into things from that point of entry, an ecosystem as a capital asset, you can really attract the attention of a much, much broader audience."

            What's striking is that in the debate over restoring the Chesapeake Bay watershed, apparently few Bay proponents, including environmentalists, have tried to put a price tag on its value. Oh, there are bits and pieces of the economic argument spread over the years, but no one has seized the theories of Daily and others to make a comprehensive ecosystem value argument for Bay restoration.

            Perhaps it's because the watershed is enormous, 64,000 square miles that are home to more than 3,600 species of plants, fish and shellfish. A spokesman for The Chesapeake Bay Foundation, asked over two weeks to supply someone to discuss the Bay's ecosystem value, came up empty, saying, "We don't have much on it."

            There are strands of information scattered about that provide a glimpse of the Bay watershed's value and what is being lost to its continuing decline.

            The Blue Ribbon Finance Panel devoted one page of its 44-page report last year to economic issues. The panel noted that in Maryland, for example, economists have measured recreational boating activity at $2 billion a year. In Pennsylvania, the estimate is $4.7 billion a year for fishing activities across the whole state, resulting in 43,000 jobs outfitting, lodging and guiding anglers. (Interestingly, that means recreational fishing is a bigger industry than agriculture in the state, according to 2001 figures, which totaled $4.4 billion).

            "Any way you calculate it, the economic value of the Bay and its rivers is enormous. Homes along the waterfront are often valued in the hundreds of thousands or even in the millions of dollars," the report added. "Businesses in the region are able to attract top-notch talent because of the lure of the Chesapeake. In fact, from real estate to shipping to seafood and tourism, it would be difficult to identify a major segment of the region’s economy that is not shaped and enhanced by the Chesapeake."

            The report even dipped into ecosystem services, noting that a clean environment has direct benefits for human health by citing the Bush Administration's claim that health benefits under the Clean Air Act would grow to $110 billion per year by 2020, including 14,000 avoided deaths.

            Just as quickly, though, the report dropped the issue with regard to the Bay, missing an opportunity. "Similar calculations can surely be done for the Bay, its watershed and its airshed," the report added. "In the end, however, the Chesapeake Bay is more than just a powerful economic engine for the region."

            If the calculations can surely be done, why not do them?

            Then it went on to site the warm and fuzzy list of things environmentalists have used for years in their increasingly futile battle to prod state and federal legislators to fund Bay restoration -- swimming, sailing and "enjoying the Bay's timeless rhythms."

            The report did note a 1989 study by the Maryland Department of Economic and Employment Development concluding that annual incomes generated by boat building, ship repair, port activity, commercial fishing and tourism in Maryland and Virginia was $31.6 billion in 1987 dollars -- or $53.8 billion in 2005 dollars. It also placed an annual premium on real estate along that Bay at $2.3 billion -- $3.9 billion in today's dollars. Overall, it declared the 1987 value of the Bay to be an estimated $678 billion -- or $1.15 trillion today.

            That's likely an underestimate. The value of waterfront real estate --- and the taxes collected on it -- has soared since then. So has tourism. Outdoor recreation and tourism, for example, is the globe’s largest and fastest-growing industry. The World Tourism Organization estimates that spending by travelers in 1999 was more than $453 billion with about $150 billion related to nature travel, the fastest growing category.

            Placed in that context, $500 million is fractions -- tiny fractions -- of pennies on the dollar.


Geoffrey Heal, a professor of public policy and business responsibility at ColumbiaUniversity and the author of "Nature and the Marketplace: Capturing the Value of Ecosystem Services," became interested in the idea as an economist concerned about the environment.


            "The idea of ecosystem services is an interesting framework for thinking why the environment matters," he says. "The traditional argument for environmental conservation had been essentially aesthetic or ethical. It was beautiful or a moral responsibility. But there are powerful economic reasons for keeping things intact as well."

            For instance, a U.S. Fish and Wildlife report issued last year found that 66 million Americans spent more than $38 billion in 2001 observing, feeding or photographing wildlife. Those expenditures resulted in more than 1 million jobs with total wages and salaries of $27.8 billion.

            At Yellowstone National Park, the reintroduction of gray wolves is credited with increasing revenues in surrounding communities by $10 million with additional economic impact on the area projected to reach $23 million annually as more visitors come.

            Sometimes bringing ecosystem value into the equation can turn around the argument in favor of preserving the environment.

            In the hotly disputed fight over whether to tear down four dams on the Lower Snake River in Idaho to restore the salmon fishery, various studies have noted the plan would increase flood control while actually improving the local economy. How much depends on the study, with the figures ranging from a net positive impact of between $87 million and $150 million annually. Meanwhile, a study by the RAND Corporation said removing the dams would increase sales from recreational activities by $230 million over 20 years.

            In Napa, California, the county suffered $542 million in property damage from repeating flooding in the last 36 years. So in 2000, the county devised a flood protection project creating a "living river," reconnecting the NapaRiver to its historical floodplain and allowing it to meander again. It is spending $250 million to relocate homes and businesses, remove bridges and rebuild wetlands and marshlands. It's a fraction of the estimated $1.6 billion that would be spent to repair flood damage over the next century without the project. And, as Daily writes in her book, within a year of the project's groundbreaking, flood insurance rates for the city dropped by 20 percent and real estate prices rose by 20 percent, thanks to the flood safety promised by relying on nature.

            Napa isn't alone among cities that have developed urban rivers they once abandoned. Marjorie Mayfield Jackson, executive director of The Elizabeth River Project, notes that when Norfolk turned towards the ElizabethRiver and began developing the riverfront it provided the impetus for the city's downtown renaissance. The project's "River Stars" program builds on that ideal, working with industries, as Jackson says, "to help them realize the economic as well as feel-good values of environmental stewardship."

            Daily divides nature's services into four categories:

            -- Ecosystem goods; the traditional measure of nature's products such as seafood, timber, agriculture.

            -- Basic life support functions such as water purification, flood control, soil renewal and even pollination.

            -- Life-fulfilling functions; the beauty and inspiration we get from nature

            -- Basic insurance; the idea that nature's diversity contains something whose value isn't known today but may prove to be large in the future.

            Only the first category, Daily notes, traditionally has been valued. The others are now slowly being recognized.

             In the life support category, for example, Stephen Buchman, the author of "The Forgotten Pollinators," claims that one in three bites of food we eat comes courtesy of pollinators. More than 218,000 of the world’s 250,000 flowering plants, including 70 percent of the world’s species of food plants, rely on pollinators for reproduction. More than 100,000 invertebrate species -- including bees, moths, butterflies, beetles, and flies -- serve as pollinators worldwide. (Their diversity, Daily notes, is also an example of nature's "insurance."). Another 1,000 or more species of vertebrates, including birds, mammals, and reptiles, also pollinate plants.

A Cornell University study placed the value of pollination through honeybees alone at $14.6 billion in 2000. But bee populations are dropping everywhere, as much as 25 percent since 1990, according to one study, often requiring farms and orchards to pay to have bees shipped in to do what they once did naturally for free. In a similar vein, the U.S. Forest Service estimates the use of pesticides to accomplish the level of pest control provided by birds nested in forests would cost at least $7.34 an acre. Farmers, say the authors of a 1998 study, would have to spend $54 billion annually to replace natural pest control services.

            Increasingly, studies reveal the aesthetic or recreational value of an ecosystem as well as its basic goods.

            A federal commission appointed by President George W. Bush that called for preserving coastal fisheries noted that recreation is the major coastal industry, almost doubling its economic output, to $59.4 billion in 2000 from $29.9 billion in 1990. (The American Sportfishing Association claims that Americans spent $42 billion on fishing tackle, trips and related services in 2001 with each angler spending an average of $1,046 on fishing.).  A U.S. Fish and Wildlife analysis reported that birders spent an estimated $32 billion on wildlife watching in 2001, generating $85 billion in economic benefit.

            In 1995, U.S. Forest Service economists took stock of the agency's land and found that national forests generated $125 billion a year in economic activity. Recreation accounted for 75 percent of that figure. Timber and mining made up 15 percent. States like Idaho and Montana tout their open "worthless" lands and pristine rivers to tourists, using them as an economic engine.


Daily doesn't believe an absolute value of an ecosystem can be discovered. Heal agrees. But they and others argue that pricing ecosystem services is another tool in making decisions about nature -- and making the case for conservation. "Valuation is just one step in the broader politics of decision-making," she says. "We need to be creative and innovative in changing social institutions so we are aligning economic forces with conservation."



            "Some people think it sounds crass -- putting a price tag on something and careening down the slippery slope of the market economy," she adds. "In fact, the idea is to do something elegant but tricky. That is to finesse the economic system, the system that drives so much of our individual and collective behavior so that without even thinking it makes natural sense to invest in and protect our natural assets, our ecosystem capital."





            What ecological economists want is to insinuate the consideration of ecosystem services into decision-making. "At a practical level, decisions are made at the margin (small-scale changes), not at the "should we sterilize the Earth" level," Daily says.  "It's in all the little decisions -- whether to farm here or leave a few trees, whether to build the shopping mall there or leave the wetland, whether to buy an SUV or a Prius -- that ecosystem service values need to be incorporated."


            With natural resources becoming scarce their value is rising. Heal notes that for millennia water was considered to have no value because of its abundance. Now, in many developing nations, potable water is the number one priority.






             There is a lesson for Bay proponents in the case of New York city's water supply.

            The water that quenches thirsts in Queens and bubbles into bathtubs in Brooklyn begins about 125 miles north in a forest. It flows down distant hills through pastures and farmlands and eventually into giant aqueducts serving 9 million people with 1.3 billion gallons daily.

            That water, long regarded as the champagne of city drinking supplies, comes from what often is called the largest "unfiltered" system in the nation because it flows from the ground through reservoirs to the tap.

            But that's not strictly true.

            Water percolating through the Catskills is filtered naturally. Beneath the forest, fine roots and microorganisms break down contaminants. In streams, plants absorb nutrients from fertilizer and manure. And in the meadows, wetlands filter nutrients while breaking down heavy metals. For free.

            Just ask the city of New York, which discovered how valuable that service was fifteen years ago when a combination of unbridled development and failing septic systems in the Catskills began degrading the quality of the water that serviced Queens, Brooklyn and the other boroughs.

             By 1992, the Environmental Protection Agency warned it would require the city to build a filtration plant, estimated to cost between $6 and $8 billion and between $350 and 400 million annually to operate, unless water quality improved.

            Instead, the city rolled the dice with nature in an historic experiment. Rather than building a filtration plant, the city would restore the health of the Catskills and Delaware River watershed so it would do the job naturally. So far it's spent $1.3 billion and plans to spend another $700 million.

 It's a lot of money. It's also a fraction of the cost of the filtration plant, a plant city officials note wouldn't work as tirelessly or efficiently as nature -- and in a post-9-11 world, would be a target for terrorists.

            "It was a stunning thing for the New York City council to think maybe we should invest in natural capital," Daily says.

            Daily points out that the Catskills ecosystem has other value for recreation, particularly trout fishing; as a wildlife habitat, and for its beauty, but it's not necessary to measure them to know the fiscally responsible course is to try to protect the watershed -- and the clean water it produces.

            Much as the Blue Ribbon Panel has suggested for the Bay, New York set up long-term financing to push the restoration.

            Negotiations among the city, the towns of the Catskills and the EPA led to an agreement in 1997 with the hope of not only avoiding the expensive filtration plant, but also an astronomical rise in New Yorkers' water rates. There's no guarantee the experiment will work; it may be another decade before the city knows.

            Under the agreement, the city created new institutions to pay farmers, landowners and businesses if they agree to restrictions designed to protect the watershed. Though it has purchased property in recent years, the city owns less than 8 percent of the land in the 2,000-square-mile watershed; the vast majority is in private hands.

             So Jerry and Jessica Farrell of Once Upon a Forest, which builds furniture with sustainably harvested local wood, got a watershed grant to renovate the barn they use as a studio. "In the long run, sustainable businesses go hand in hand with water quality," says Karen Rauter, the communications director for the Watershed Agriculture Council. "There is a need to keep this economy land based and we're going to give you the funding to do it."

            Tom Hutson, a seventh-generation farmer who manages River Haven Farms with 170 head, including 90 milk cows, got some help creating stream side willow plantings and has worked to stabilize the banks of the brook and river running along his land.

             “We get technical assistance and funding for things we could never get done any other way -- that farmers could never afford in their lifetime,”  Hutson says. Things like instituting best management practices to reduce pollution, including raising fences and planting streamside vegetative buffers. (Under one program, farmers receive annual rent payments and reimbursement if they agree to create the buffers, separating their livestock from the water).

            Landowners, too, are rewarded if they agree not to develop their property. As part of the WAC’s conservation program, Robert Greenhall and his wife, Myrna, earned $125,000 by selling the development rights to 225 acres they purchased 30 years ago in eastern DelawareCounty. They retain ownership of the land, though its woods and meadows are new preserved forever, and they have invested the money to help their 11 grandchildren pay for college.

            Funding for the projects came from New York City's Department of Environmental Protection, funneled through the Watershed Agricultural Council, a non-profit corporation based in the Catskills and founded to assist landowners to protect the watershed -- and foster sustainable economic development.

            "In the case of the Catskills, it was a matter of coming up with a way to reward the stewards of the natural asset for something they had been providing for free," Daily says. "As soon as they got paid even a little bit, they were much happier and inclined to go about their stewardship."

            There are more subtle ways than water that ecosystems benefit humans.  Daily notes that Hurricane Mitch in 1998 caused landslides destroying portions of El Salvador, which has just 2 percent natural forest cover remaining, the least in Latin America. Costa Rica was also heavily hit by the storm, but the damages were less. While Costa Rica also has been deforested over the past 50 years, much more cover remains.

            She suggests that one day soon insurance companies may begin using satellite imaging to determine which areas are more deforested and therefore more likely to suffer flood damages and adjust their premiums accordingly. The same goes for wetlands and coral reefs, which offer storm mitigation as well.

            "Basically, what you have to do is establish some kind of financial responsibility for the consequences of modifying an ecosystem," Heal says. "If you cut down a lot of trees, you have to understand that has significant financial consequences for everybody downstream."

            That, of course, is exactly what has happened with the Bay. Forest cover has been lost, replaced by development and agriculture. In the Bay watershed, for instance, trees are important because they filter the air and the water. Forests in the Bay watershed retain up to 85 percent of the nitrogen deposited on them from the air and capture and store precipitation, allowing it to seep into the soil, according to the Blue Ribbon Panel's report. By contrast, urban areas retain only about 20 percent of the nitrogen deposited from air emissions, and a one-acre parking lot produces 40 times the volume of stormwater runoff that comes from one acre of mature trees.

            That loss of trees contributes to runoff, the Bay’s biggest pollution nemesis. Runoff from the 87,000 farms in the watershed is the Bay's biggest problem, according to the Blue Ribbon Panel, accounting for 41 percent of the nitrogen, 47 percent of the phosphorous and 63 percent of the sediment. Municipal and industrial wastewater account for another 21 percent of the nitrogen and 22 percent of the phosphorous. To meet federally mandated water quality standards by 2010, nitrogen pollution needs to be reduced from an estimated 285 million pounds per year in 2000 to no more than 175 million pounds by 2010. Phosphorous loads will have to be reduced from about 19 million pounds per year to less than 13 million pounds. As the panel report noted, "The challenge is indeed daunting -- the region must essentially quadruple the pace of the Bay cleanup to meet the 2010 commitment."

            In the end, as writer Bruce Barcot argued in a recent essay in Outside magazine, the new research and the theory of ecosystem value provide a common ground for environmentalists and their longtime opponents -- those who want to exploit undeveloped land to create "value." Undeveloped land had long been considered “worthless. No longer. The new research shows that sometimes the best economic development of land is no use --   or only moderate recreational use.

            For the Bay, it's a matter of pay now or pay more later. No matter what value placed on the watershed, it is an economic engine extending across several states. As the blue ribbon panel noted:

                "Financially, it is wise to make this investment in the Bay now. Legally, it would be imprudent to ignore the consequences that would flow from failure to make this investment."









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