New Report Quantifies the Economic Value of “Natural Capital” in the Colorado River Basin

From college classrooms to private boardrooms, a common refrain in natural resource management is the difficulty of monetizing the value of natural services provided by the earth’s ecosystems. As a result, emerging policies and projects tend to favor easily quantifiable benefits (e.g. oil and gas production) over ecosystem degradation costs, which are difficult to pinpoint.

This quandary holds especially true for the management of water resources. While it is possible to quantify the value of water supplied for agriculture, energy development or residential use, water used for ecosystem maintenance, aesthetic purposes, or recreation is often undervalued due to the myriad of indirect and ignored benefits of such services.

This past July, Earth Economics published an ambitious report that attempts to address this data gap. The report assesses the economic value of natural capital, or ecosystem services, in the Colorado River Basin.

The study considered the various ecosystems found in the river basin and attributed specific environmental services to each one. For example, rivers and streams provide water supply, habitats, recreation and aesthetic value. Meanwhile, woody wetlands may provide food, carbon sequestration, flood risk reduction, and erosion control, among other benefits. In all, 12 environmental services were considered across 14 different ecosystems in the Basin.

Then, the authors assigned a range of monetary values to each ecosystem found in the Colorado River Basin based on the environmental services they provide, resulting in some significant findings:

  1. Colorado River Basin ecosystems provide between $69.2 billion and $496.4 billion in economic benefits every year.
  2. Over a lifespan of 100 years, the asset value of the Colorado River Basin falls between $1.8 and $12.8 trillion at a discount rate of 4.125% (the same rate used by the Army Corps of Engineers).

The study relies heavily on the benefit transfer methodology, which involves using valuations of environmental services in locations comparable to the Colorado River Basin in order to assign appropriate values. Though not as robust as primary valuation studies, the use of benefit transfer was made necessary by the lack of existing valuation studies in the Colorado Basin.

Critical water management issues in the western United States have highlighted the importance of investing in complex, but necessary economic valuations of ecosystem services in order to make well informed water decisions. While the authors of the report urge decision-makers to use their findings in future policy and investment considerations, the ultimate significance of Earth Economics’ report has yet to be seen. The hope should be that these findings trigger follow-up studies that enhance and expand on Earth Economics’ bold initial analysis.

Access the report here.

Written by Stratecon Staff