The Natural Capital Value of Forest Habitat Conservation

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1 The Natural Capital Value of Forest Habitat Conservation Brian DePratto (TD Economics) and Dan Kraus (Nature Conservancy Canada) Conservation, including forest conservation, helps ensure that natural areas are protected and thus able to continue providing their many benefits to nature and to people. Protected areas help to conserve important habitats and species, maintain essential ecological processes, and provide benchmarks to monitor environmental change. There has been increasing recognition of the importance of these areas to the quality of human life (Secretariat of the Convention on Biological Diversity, 2008; Canadian National Conservation Plan, 2014). In addition to conserving nature, protected areas provide important ecosystem goods and services, or natural capital services, such as water filtration, flood control, pollination and carbon storage. Historically these environmental benefits have been taken for granted, but the emerging field of natural capital valuation placing a financial value on ecosystem goods and services shows that natural systems provide substantial value. The valuation of nature provides an opportunity to link conservation and economics. The important role of ecosystem goods and services in conservation has been recognized in Canada s biodiversity goals and targets for 2020 (Canada, 2015). By valuing the ecosystem goods and services that nature provides, we can improve our understanding of the impacts of habitat loss and land conservation, which leads to more informed planning and decision-making. What is good for the environment is also good for the economy. This paper reviews the natural capital values of forest habitats, using the example of several properties conserved by the Nature Conservancy of Canada (NCC) through the TD Forests program. Since the program launched in 2012, TD Forests has helped NCC protect more than 37,000 acres (15,000 hectares) in nine different types of forest habitat across Canada. This report considers the value of these habitats from a natural capital perspective. For more information on natural capital, see the TD Economics report Valuing the World Around Us: An Introduction to Natural Capital. The ecological services provided by forest habitats were valued based on data from representative properties in three forest regions of Canada (NRC 2015) that were recently acquired by NCC as part of the TD Forests program: Columbia Forest Region/ Columbia Mountains and Highlands Ecoregion (British Columbia) The Canadian portion of the Columbia Forest Region only occurs in eastern BC and is characterized by a diversity of forest types. Lower elevations are dominated by mature forests of western hemlock and western red cedar, mixed with Douglas-fir, western white pine, and western larch. The subalpine zone is characterized by Engelmann spruce, alpine fir and stands of lodgepole pine, which can develop after fire. Valley bottoms often contain rivers and associated wetlands. Our study considers the Midgeley property (162 ac / 66 ha) located at the southern end of Kootenay Lake. The property contains cedar-hemlock forests in the upland areas and wetlands in the valley. These valley wetlands have been recognized as being of international importance by the Ramsar Convention on Wetlands and as Important Bird Areas in Canada. The property also supports rare species and forms part of an important linkage area for grizzly bear populations. ewsas The Kenauk property, Que.

2 Montane Forest Region/ Northern Continental Divide Ecoregion (Alberta) The Montane Forest Region occurs in the interior of BC and along the Rocky Mountains in both BC and Alberta. Elevation is a strong driver in forest composition, with Engelmann spruce and alpine fir at Table 1 -Selected natural capital services by habitat type higher elevations. Middle and lower elevations Habitat type Service are characterized by Douglas-fir, lodgepole pine, Forests Carbon storage and sequestration, soil ponderosa pine and trembling aspen, interspersed formation, waste treatment, air quality, storm water control, biodiversity, with alpine meadows. habitat/refuge, recreation, fibre. Our study considers the Lusicich property (263 ac / 106 ha), which is located in the Crowsnest Pass, in southwest Alberta. The property is characterized by Douglas-fir and trembling aspen forests with montane grasslands and pasture. In addition to its significant habitat values, the Lusicich property provides important connectivity for species, including grizzly bear, elk and grey wolf. Great Lakes St. Lawrence Forest Region/ Southern Laurentians Ecoregion (Quebec) The Great Lakes St. Lawrence Forest Region occurs on the southern Canadian Shield and extends from southeastern Manitoba through central and southern Ontario and Quebec into western New Brunswick. In the southern Laurentian area, the mixed forests are characterized by sugar maple, yellow birch, eastern hemlock and eastern white pine. Dry sites are dominated by red and eastern white pine, and red oak. Wetter areas support red maple, black ash, white spruce, black spruce, tamarack, and eastern white cedar. Our study considers the Kenauk property (10,051 ac / 4,068 ha) located in Quebec just north of the Ottawa River. The property lies at the southern limits of the Canadian Shield, in a landscape dominated by deciduous forests that are characterized by maple-dominated forests with stands of birch and aspen, and mixed forest. It includes lakes, wetlands and open rock barrens. More than 30 rare species have been documented on the property, along with wide-ranging mammals such as black bear, moose and eastern wolf. A Brief Overview of Natural Capital Services Grasslands Wetlands Lakes, rivers, riparian zones Croplands Other land types Carbon storage and sequestration, water regulation, erosion control, soil formation, waste treatment, pollination, habitat, food production. Disturbance regulation, water supply and treatment, food production, habitat/refuge. Water supply, waste treatment, food production, erosion control, recreation. Food production, habitat/refuge, scenic. Scenic, recreation, existence value. Sources: Sauer (2002); Olewiler (2004); TD Economics. Note: list is nonexhaustive. While the idea of natural capital has a long history in economics, it has arguably only entered the mainstream in recent years, with the rise of carbon pricing in many jurisdictions, including Alberta, British Columbia and Quebec and, as recently announced, in Ontario. Natural capital is, in effect, the natural resources and ecosystems that provide direct and/or indirect benefits to the economy, society, and the world more generally. These benefits are referred to as natural capital services. Much as financial capital yields a series of payments, natural capital produces a continuous stream of services. For instance, a wetland provides a potential breeding ground for fish, opportunities for wildlife viewing and other recreational activities, and filters the water passing through it, thereby reducing the strain on filtration plants in downstream communities. Unlike financial capital, however, these benefits are diffuse, and do not necessarily accrue to a particular individual or group, but rather to society more broadly. Natural capital services vary by habitat type Table 1 provides an overview of the most common services provided. It is important to remember that this list is not exhaustive or exclusive most lands provide intrinsic value to nearby communities (and sometimes even those not so near) and not only because of the environmental benefits they provide. They can also have cultural significance and an impact on health and well-being. While it is difficult to assign a value to these services, they are nonetheless important and have economic value. 2

3 Table 2. Annual Natural Capital Service Values of Representative Properties Service Type Midgely, B.C. Lusicich, Alta. Kenauk, Que. Total Non-Carbon Atmospheric Pollutants $ 63,754 $ 88,581 $ 1,271,019 $ 1,423,354 Stored Carbon 1 $ 3,046,812 $ 4,585,562 $ 76,075,620 $ 83,707,994 Annual Carbon Storage $ 45,665 $ 11,683 $ 1,390,934 $ 1,448,282 Flood Control $ 1,685 - $ 51,384 $ 53,069 Water Treatment: Phosphorous $ 2,027 - $ 61,790 $ 63,817 Water Treatment: Nitrogen $ 2,458 - $ 74,959 $ 77,417 Total $ 3,162,401 $ 4,685,827 $ 78,925,706 $ 86,773,934 Note: Value per Hectare $ 46,476 $ 42,136 $ 19,405 $ 20,420 Details of service values, sources and methodology are provided in the technical appendix. Note that properties are used as a representative sample of their habitat context. 1 : This represents the accumulated value of the carbon estimated to be stored within each property. The continued existence of ecosystems within the property prevents this carbon from entering the atmosphere. Natural Capital Valuation Case Study of Selected Forest Habitats With only a limited number of environmental attributes quantified at a regional level, we restrict our analysis to atmospheric and water pollution benefits, and exclude social and other benefits. Despite the relatively limited evaluation scope, the total natural capital value provided within the three habitats considered is estimated to be more than $86 million per year, or around $20,000 per hectare (Table 2; per-hectare values are provided to help distinguish the intensity of ecosystem services by land type and geographic location). Given the diverse habitat features and location of the areas, individual values vary: Columbia Forest Region/ Columbia Mountains and Highlands Ecoregion (British Columbia) At more than $46,000 per hectare, the forest habitat represented by the Midgeley property has the highest natural capital service value per hectare of those considered. The bulk of the annual service value stems from the large amount of carbon stored in the trees, bushes, grasses and other vegetation, as well as the additional carbon sequestered each year. The removal of atmospheric pollutants, such as NO2 and SO2, are the next largest contribution, while water-oriented services provide only minor annual benefits. Montane Forest Region/ Northern Continental Divide Ecoregion (Alberta) The habitat of which Lusicich Forest is part provides the second-highest annual service value per hectare, despite not containing any lands that would provide water benefits. An estimated 31,000 tonnes of carbon stored within the property itself provide the majority of the annual service value, in conjunction with the removal of atmospheric pollutants. Great Lakes St. Lawrence Forest Region/ Southern Laurentians Ecoregion (Quebec) Although the property studied provides the lowest natural capital service value per hectare, the sheer size of the property gives it the largest total natural capital value of the properties considered over $75 million. The size of the property translates into significant carbon sequestration: more than half-a-million tonnes of carbon are estimated to be stored within the property itself, with nearly 10,000 more tonnes captured each year. The Kenauk property helps illustrate the scale of natural capital services that can occur when protection of land occurs at scale. There are also significant wetlands within the property, which help mitigate storm water for surrounding communities, as well as acting as a purifier, removing 5,000 kg of phosphorous and 21,000 kg of nitrogen from the water system each year, thereby reducing the burden for water users farther down the system. 3

4 Beyond Pollution: Other Natural Capital Services Not only do forests help purify our air and water, they provide a wide range of other benefits as well. Although it is difficult to assign dollar values to many of these other services, the importance of these other benefits should not be underestimated. To begin with, all three habitats that these properties represent provide significant biodiversity benefits, providing homes to a variety of rare and endangered species as outlined in this paper s introduction. Each year, Canadians spend millions of dollars on equipment, travel, lodging and other expenses to observe wildlife activities that clearly would not take place were there nothing to observe (Scott and Callahan, 2000). Beyond opportunities for wildlife observation, natural areas also provide space for other nature-related activities, such as hiking, picnicking, or just relaxing. The opportunity to engage in these activities is clearly important to Canadians, as three in four of us reported participating in nature-based recreation in 2012 (Federal, Provincial, and Territorial Governments, 2014). Canadians spent more than $14 billion on these activities hardly pocket change. Moreover, these expenditures often take place in more remote parts of Canada, helping distribute income geographically, including to Aboriginal communities. Other benefits of protected lands that are difficult to value but are no less important, include the cultural value, particularly for Aboriginal Peoples, as well as the intrinsic value of biodiversity in and of itself and the resilience that results from non-monocultural landscapes; the value that we derive from the mere existence of wild spaces, and many others. All of these values contribute to the worth of protected lands, regardless of whether a dollar value can be explicitly assigned or not. Conclusion Canada s protected areas represent a vast natural capital resource. Protected areas help ensure that these resources will continue to benefit Canadians for years to come. The TD Forests program with NCC has helped protect lands and natural ecosystems that provide countless benefits for the communities around them, while at the same time conserving important habitats and wildlife. The value of Canadian natural capital should not be underestimated. Although this analysis focused on a small set of properties, scaling these results up to the national level implies an incredible amount of value accruing to Canadians year after year. By protecting these important lands, we can help ensure that these benefits continue to be maintained for generations to come. Technical Notes Land sizes and ground coverage types are the outcome of independent assessment of the properties (so-called timber cruises ). Non-carbon atmospheric pollutants and water pollutant removal coefficients are adapted from Wilson (2010) and Wilson (2012). Carbon storage rates are based on Kulshreshtha et. al (2000). Values for non-carbon atmospheric pollutants are those reported in Nowak et. al (2008). We use abatement costs for these pollutants as consensus social costs have not yet emerged in the literature. A social cost of carbon is used, based on the Interagency Working Group on Social Cost of Carbon, United States Government (2013). 95th percentile values at a 3% discount rate are used. The 95th percentile is used to reflect a number of criticisms of models of the social cost of carbon which suggest that the values arising from each model may be too low (see for instance Revesz et. al (2014)). The value of phosphorus removal is based on the lowest reported cost in Jiang et. al (2005), while the value of removed nitrogen is based on the lowest reported value in Wilson (2012). In all cases, values are adjusted to 2014 Canadian dollars by first using a currency-specific price index, then converting to Canadian dollars using the average observed exchange rate over that year. 4

5 References Federal, Provincial, and Territorial Governments of Canada Canadian Nature Survey: Awareness, participation, and expenditures in nature-based recreation, conservation, and subsistence activities Government of Canada Biodiversity Goals and Targets for Canada. Retrieved from Government of Canada website: Interagency Working Group on Social Cost of Carbon, 2011 Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis (Revised November 2013) Jiang, F., et. al Estimation of Costs of Phosphorous Removal in Wastewater Treatment Facilities: Adaptation of Existing Facilities Water Policy Working Paper # Kulshreshtha, S., et. al Carbon Sequestration in Protected Areas of Canada: An Economic Valuation Canadian Parks Council Economic Framework Project Report 549 Natural Resources Canada Forest Regions. Retrieved from Natural Resources Canada website: Nowak, D., et. al A Ground-Based Method of Assessing Urban Forest Structure and Ecosystem Services Aboriculture & Urban Forestry 34(6) Olewiler, N The Value of Natural Capital in Settled Areas of Canada Ducks Unlimited Canada and Nature Conservancy of Canada Revesz, R., et. al Global Warming: Improve Economic Models of Climate Change Nature Comment, 4 April 2014 Scott, S., and A. Callahan Establishing a Birding-Related Business: A Resource Guide Texas Agricultural Extension Service. Secretariat of the Convention on Biological Diversity (2008). Protected Areas in Today s World: Their Values and Benefits for the Welfare of the Planet. Montreal, Technical Series no. 36, i-vii + 96 pages. Wilson, S Natural Capital in BC s Lower Mainland: Valuing the Benefits from Nature Wilson, S Canada s Wealth of Natural Capital: Rouge National Park Location Map 5