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PROBLEMS OF ECONOMIC VALUATION OF ECOSYSTEM SERVICES: THE CASE

OF THE YASUNÍ RAINFOREST

Thesis · November 2012

DOI: 10.13140/RG.2.2.19909.55521

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PROBLEMS OF ECONOMIC VALUATION
OF ECOSYSTEM SERVICES:
THE CASE OF THE YASUNÍ RAINFOREST
A Master's Thesis by ZielonyGrzyb
written between August and November 2012

Licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

Table of Contents
Summary..............................................................................................................................................1
Introduction.........................................................................................................................................3
1 Theoretical foundations of economic valuation of ecosystems.......................................................6
1.1 What are ecosystem services?..........................................................................................6
1.1.1 Kinds of ecosystem services............................................................................7
1.2 Ethical foundations...........................................................................................................7
1.2.1 The anthropocentric approach to ecosystems valuation...................................8
1.2.2 Alternative ethical perspectives.......................................................................9
1.3 From biophysical measures to economic values..............................................................10
1.3.1 Biophysical measures and indicators...............................................................11
1.3.2 The importance of biodiversity........................................................................12
1.3.3 Total Economic Value and its components......................................................13
1.4 Economic valuation methods...........................................................................................14
2 The Yasuní rainforest....................................................................................................................17
2.1 Ecosystem characteristics.................................................................................................17
2.1.1 Biodiversity hotspot.........................................................................................17
2.1.2 Ecosystem services covered by the Yasuní rainforest.....................................19
2.2 Indigenous peoples...........................................................................................................20
2.2.1 The Huaorani....................................................................................................20
2.2.2 Others...............................................................................................................23
2.3 Natural resource endowments: petroleum........................................................................24
2.4 Ecuador's developing country status................................................................................27
3 Problems of economic valuation of ecosystem services...............................................................30
3.1 General caveats.................................................................................................................30
3.1.1 Ethical arguments against economic valuation of Nature................................31
3.1.2 Problems specific to Contingent Valuation......................................................33
3.1.3 Endogeneity of carbon price............................................................................36
3.2 Idiosyncratic problems in the Yasuní case.......................................................................37
3.2.1 Relevant stakeholders and aggregation issues.................................................38
3.2.2 Willingness-to-pay, ability-to-pay and equity weighting.................................41
3.2.3 Uncertainty and non-linearity issues................................................................42
3.2.4 Benefit Transfer in the case of a biodiversity hotspot......................................45
3.2.5 Discounting petroleum against conservation...................................................46
Summary and conclusions.................................................................................................................51
Appendix...........................................................................................................................................55
Literature...........................................................................................................................................58
SUMMARY
The present master's thesis aims at providing insights into the difficulties arising from efforts
to economically value ecosystem services. To do so, it uses the case study of the Ecuadorian
Yasuní rainforest.

In the first part of this thesis, it is sketched a) what the conceptual basis of valuation is and b)
what methodology is used to derive estimates of the economic value of an ecosystem. This in-
cludes many specific questions regarding, e.g., the choice of the ethical framework, data col-
lection, particularly about the biophysical properties of the ecosystem in question, and stake-
holder involvement. Since there are different categories of economic values of ecosystem ser-
vices, some of which are reflected in markets, whereas others are not, a number of different
methods are used. An aggregated sum of the results derived from these methods is then the
TEV, the Total Economic Value of an ecosystem.

However, what looks clear and feasible in theory, is not necessarily so in reality. To make this
visible, the middle-part of the present thesis is devoted to the Yasuní rainforest. In this second
chapter, it is shown that it is excepional in more than one aspect. First, Yasuní exhibits seldom
seen levels of biological diversity and endemism. Also, it is the home of indigenous peoples,
the Huaorani, Taromenane and Tagaeri, whose livelihoods still depend heavily on the intact-
ness of the Yasuní ecosystem. Furthermore, Taromenane and Tagaeri are among the last tribes
in the Amazon that live in voluntary isolation. At the same time, parts of Yasuní store large
amounts of petroleum, the main revenue source of the Ecuadorian government. Given Ecua-
dor's status as a developing country, this constitutes a political trade-off between ecosystem
preservation and petroleum extraction.

However, as discussed in the main part of this thesis, economic valuation of ecosystem ser-
vices is all but a straightforward matter. The problems discussed include:

• ethical justifications for economic valuation of Nature and for the adoption of an an-
thropocentric world-view,

• controversies around stated preference based methods, such as the embedding effect,
the WTA-WTP divergence or the "warm glow" effect,

1
 • the causality loop caused by carbon price endogeneity,

• identification, involvement of stakeholders and the aggregation of values over those,

especially in the Yasuní case,

• issues related to the inherent complexity of Yasuní and similar systems, including un-
certainty, irreversibility and non-linearity,

• the questionable feasibility of Benefit Transfer for such an exceptional ecosystem as

Yasuní,

• problems related to comparison of the present values of both options involved in the
Yasuní case, namely ecosystem conservation vs. petroleum extraction, including esti-
mation of the petroleum reserves' value and controversies around discounting of eco-
systems and biodiversity.

The general message of the present analysis is that economic valuation of ecosystem services,
while desirable and potentially crucial in the effort to promote sustainability, is linked to a
huge number of difficult and problematic issues of all kinds - ethical, methodological, data-
related etc. This means, among other things, that every researcher who deals with this subject,
be it in the Yasuní case, be it in other cases, is forced to make judgement calls. Even under the
assumption that she would make them explicit, it is not obvious that this is good scientific
practice.

2
INTRODUCTION
On September 24, 2007, the Ecuadorian president Rafael Correa Delgado made an unusual
proposal to the General Assembly of the United Nations Organization. He offered, as part of
the international effort to combat anthropogenic climate change, to not exploit the petro-
leum-fields Ishpingo, Tambococha, Tiputini (ITT) in exchange for payments from the interna-
tional community. His offer was part of the so-called Yasuní-ITT Initiative 1 (RIVAL 2010).
The requested payments equal half the estimated value of the petroleum underground, or $3.6
billion over 13 years. The estimated amount of petroleum lying under the ITT-fields is 846
million barrels2 - around 20% of Ecuador's known reserves and equivalent to almost $7 billi-
on, based on a benchmark price of about $60 per barrel of WTI 3 crude (LARREA & WARNARS,
2009). Through the Initiative, 407 million tons of CO 2 emissions could be avoided by not bur-
ning the petroleum only, notwithstanding the additional emissions from deforestation, trans-
portation etc. RIVAL (2010) calls this step a "re-evaluation" of petroleum.

In addition to climate protection, the Yasuní-ITT Initiative is thought to be a major attempt to

protect biodiversity from human interference - the Yasuní rainforest is part of a UNESCO
Man and the Biosphere Reserve and is considered to be 'globally outstanding for its exceptio-
nal biological richness [...] across taxonomic groups' (BASS et al, 2010, p. 7). Since Ecuador
has requested financial reward for protecting Yasuní, the Initiative can be seen as an attempt
to economically value Nature.

The economic valuation of ecosystems is a controversial issue. While some ecologists and en-
vironmentalists dismiss it and view it as commoditisation of Nature (MCCAULEY, 2006;
RIVAL, 2010; EHRENFELD, 1988), environmental economists defend it as necessary and ethi-
cally acceptable (COSTANZA, 2006; KUMAR, 2012). They argue that putting a value on eco-
systems is necessary to incorporate the costs of environmental destruction into economic cal-
culus. It has been argued that Earth's global ecosystem is limited by a number of boundaries,
some of which have already been violated as a result of human economic activity
(ROCKSTRÖM et al, 2009; see also ARROW et al, 1995; NORGAARD, 1988). Therefore, attempts

1
Yasuní is the rainforest in which the ITT fields lie. Some basic information about the Initiative can be found
on its web-page run by the Ecuadorian government: http://yasuni-itt.gob.ec/
2
Although estimates vary from around 700 to some 950 million barrels (RIVAL, 2010), 846 million barrels is
the number used by the Ecuadorian government.
3
West Texas Intermediate: a grade of crude oil commonly used as a pricing benchmark.

3
have been made by the economic profession to conceptualise incorporating measures of the
natural environment’s condition into accounting systems - which is a futile enterprise if we
cannot value ecosystems and their services (DASGUPTA & MÄLER, 2000; HUETING, 1991).
Moreover, it has been argued that the alternative is an implicit zero-value of Nature (NRC,
2005, p. 14).

However, even under the assumption that economists are on the "right" side of the debate
about the appropriateness of attempts at valuing Nature, economic valuation of ecosystems
still is linked to a number of important caveats and difficulties - conceptual, methodological,
ethical and regarding data availability and our understanding of the way ecosystems work.

The following master's thesis is an attempt to show what economic valuation of ecosystem
services can and what it can not do, and why this is so. Additionally, to make the discussion
of the problems persistent in ecosystem valuation4 more imaginable, it is based on a case stu-
dy - the Ecuadorian Yasuní rainforest, which is at the core of the Yasuní-ITT Initiative men-
tioned above.

The thesis is structured as follows:

Chapter 1 is an introduction into the concept of economic valuation of ecosystem services. All
of its parts have importance for the discussion of valuation problems that follows. First, eco-
system services are defined and categorised. The philosophical-ethical foundation of econo-
mic valuation is sketched, as well as some alternative view-points. The inclusion of the latter
is important because the value systems of some of Yasuní's stakeholders differ largely from
"Western" standards. Subsequently, the conceptual steps from biophysical properties of eco-
system services to the final notion of Total Economic Value (TEV), which is to be estimated
in the process of their economic valuation is presented, including an account of the various
categories of ecosystem values. The last part of the first chapter is devoted to a brief presenta-
tion of economic valuation methods. Most parts of this chapter draw heavily on the TEEB
(The Economics of Ecosystems and Biodiversity), an UNEP-led project whose first report
(KUMAR, 2012) is a thorough synthesis of the knowledge generated in recent decades in the
field of ecosystem valuation.

4
In what follows, the terms economic valuation (of ecosystems/ecosystem services) and ecosystem valuation
will be used interchangably.

4
Chapter 2 introduces the reader into the case study, the Yasuní rainforest. It has 4 parts devo-
ted to the following aspects of the Yasuní case: its role as an exceptionally biodiverse ecosys-
tem, its being the home of indigenous communities who were contacted only recently (or not
at all) and exhibit some special cultural characteristics, Yasuní as Ecuador's major petroleum
storage, and Ecuador's development status as the background against which the discussion
about the ecosystem's conservation takes, and should take, place. Taken together, these
aspects are needed for understanding of some difficulties faced by those who may attempt to
determine Yasuní's economic value.

Chapter 3 is the main part of this thesis. It is devoted to the discussion of some selected pro-
blems of economic valuation of ecosystem services. The problematic issues are, somewhat ar-
bitrarily, divided into two categories: general caveats and idiosyncratic problems in the Ya-
suní case. The first part considers the caveats posed to economic valuation by: alternative
ethical concepts, difficulties related to the very important stated preference methods, with
Contingent Valuation as the most prominent one, and the problem of carbon price endogenei-
ty. The second part is devoted to problems that are more closely related to the specific case of
Yasuní: the identification and involvement of stakeholders, including some aggregation issu-
es, the conflict between willingness-to-pay and ability-to-pay and the direct reliance of im-
portant stakeholders on ecosystem services, which are justifications for equity weighting, un-
certainty and non-linearity issues inherent of ecosystem valuation but possibly particularly
profound in Yasuní, the questionable applicability of the Benefit Transfer method to Yasuní
because of its exceptional biodiversity and endemism levels, and the problem of comparing
the present values of two different goods, petroleum income and conservation benefits.

5
 1 THEORETICAL FOUNDATIONS OF ECONOMIC
VALUATION OF ECOSYSTEMS
The following chapter is devoted to the discussion of the theoretical and methodological foun-
dations of economic valuation of ecosystem services. The main basis for this enterprise is the
highly acknowledged and comprehensive first report of the UNEP-led TEEB project (KUMAR
2012). However, further sources have been consulted where necessary. The chapter is structu-
red as follows: first the question is answered - what are ecosystem services? Also, a list of the
kinds of ecosystem services identified in TEEB is presented. Then a short summary of the
philosophical-ethical foundations of the TEEB approach is discussed, including some alterna-
tive perspectives. In the next section the conceptual steps from biophysical measures and indi-
cators to the Total Economic Value (TEV) is sketched. Also, an overview about the difficult
issue of the importance of biodiversity for ecosystems is given. In the last section, an account
of the most common valuation methods is presented.

1.1 What are ecosystem services?

Daily, in her influential edited book on ecosystem services (DAILY, 1997a), defined them as
follows:

Ecosystem services are the conditions and processes through which natural eco-
systems, and the species that make them up, sustain and fulfill human life. They
maintain biodiversity and the production of ecosystem goods, such as seafood, fo-
rage, timber, biomass fuels, natural fiber, and many pharmaceuticals, industrial
products, and their precursors. [...] In addition to the production of goods, ecosys-
tem services are the actual life-support functions, such as cleansing, recycling, and
renewal, and they confer many intangible aesthetic and cultural benefits as well.
(DAILY, 1997b, p. 3; emphasis in original)

Implicitly, the concept of ecosystem services, a flow from the (capital 5) stock of Nature, is an
old one, dating back at least to Plato (MOONEY & EHRLICH, 1997). Explicitly, it emerged rela-
tively recently6 as a way to convey the messages of environmental and resource sciences and
to translate them into the language of economics (NORGAARD, 2009). Although environmen-

5
The concept of natural capital is well presented in EL SERAFY (1991).
6
MOONEY & EHRLICH (1997) identified a 1970 Study of Critical Environment Problems report as the first
that described 'the functioning of ecosystems in terms of delivering services to humanity' (MOONEY &
EHRLICH, 1997, p. 14; emphasis in original).

6
tal economics has been criticised for the overemphasis of this concept (NORGAARD, 2009), it
remains an important tool in economic modeling of ecosystem change, particularly in efforts
at valuation of Nature. Within the TEEB framework, the notion of ecosystem services is cen-
tral. They are defined there as 'the direct and indirect contributions of ecosystems to human
well-being' (DE GROOT et al, 2012, p. 25), which is consistent with DAILY's (1997) definition
quoted above.

1.1.1 Kinds of ecosystem services

The TEEB framework distinguishes 4 major categories of ecosystem services with a number
of more concrete examples within each category (DE GROOT et al, 2012, Table 1.2):

• provisioning services, including food, water, raw materials, genetic, medicinal and
ornamental resources,

• regulating services, including air quality and climate regulation, moderation of extre-
me events, regulation of water flows, waste treatment, erosion prevention, mainte-
nance of soil fertility and nutrient cycling, pollination and biological control,

• habitat services, including maintenance of life cycles of migratory species and main-
tenance of genetic diversity,

• cultural and amenity services, including aesthetic information, opportunities for re-
creation and tourism, inspiration for culture, art and design, spiritual experience and
information for cognitive development.

This typology will be used in the following analysis of the case study of the Ecuadorian Ya-
suní rainforest in Chapter 2. Also, it is the basis of the typology of economic values that are
generated by ecosystems (to be presented in section 1.3.3.).

1.2 Ethical foundations

Like most of economic theory, the TEEB approach is based on the ethical notion of anthropo-
centrism7. This implies, among other things, that no intrinsic value of Nature is recognized in

7
However, there are examples outside the mainstream of the use of other ethical foundations. See e.g. DALY
(1980).

7
the valuation process (BRONDÍZIO et al, 2012). However, the choice of the ethical preanalytic
vision is crucial:

[T]he way ecosystems and biodiversity are perceived determines the way they are
valued, and the way they are valued determines the human interaction with, and
(mis)use of, the natural environment. (BRONDÍZIO et al, 2012, p. 174)

In the exposition below, the anthropocentric position is briefly presented. After that, a few al-
ternative approaches will be sketched.

1.2.1 The anthropocentric approach to ecosystems valuation

As already mentioned above, in most cases (including the TEEB) the anthropocentric ap-
proach is adopted when Nature is to be valued economically. This practice follows the traditi-
on of most schools of economics.

Anthropocentrism stands in the tradition of Kantian ethics (ROGALL, 2009, p. 186) and means
that only those values that are meaningful from the perspective of human welfare are included
in the valuation process; this is also consistent with utilitarianism, the dominant ethical back-
ground of most economic theory (GOULDER & KENNEDY, 1997; RANDALL, 1988). In other
words, it is assumed that Nature has no intrinsic value (i.e., value on its own, independently of
the needs and pursuits of humans) (BRONDÍZIO et al, 2012). Similarly, Nature, including ani-
mals other than humans, does not have any rights. Within the anthropocentric ethical frame-
work Nature and its use are seen entirely from the human perspective.

However, there are two somewhat distinct views of anthropocentrism in the literature. One is
called 'utilitarian' anthropocentrism (KNAUS & RENN, 1998, cited in: WBGU, 1999, p. 29) - it
is the "more extreme" version of this ethical approach and proposes that Nature is solely a
source of resources for humanity and should therefore be transformed according to human
purposes. Accordingly, utilitarian anthropocentrism views only transformed (non-natural) sys-
tems as valuable from the human perspective; in other words, it precludes the existence of
non-use values in the language of TEEB (see below). The other version is 'protectionist' an-
thropocentrism, which is similar to ROGALL's (2009, p. 186) 'enlightened' anthropocentrism.
In this perspective, Nature is still viewed solely through the lens of humanity's needs, but it is
also seen as worth protecting. Furthermore, enlightened anthropocentrism acknowledges that
humanity depends not only on transformed systems, but also on intact wilderness, and that its

8
protection should be both an important goal and a means to sustain the existence of homo sa-
piens.

In this chapter, the TEEB approach is largely embraced, and therefore an anthropocentric per-
spective is adopted. However, it is important to know that there are alternative ethical stand-
points that may well claim credibility.

1.2.2 Alternative ethical perspectives

There are manifold ethical perspectives that could be taken as an alternative to anthropocen-
trism. The basic distinction appears to be whether Nature is granted intrinsic value/rights and,
if yes, to what extent. In what follows, some examples of alternative approaches are briefly
presented:

• It has been noted in the literature that the anthropocentric approach is deeply rooted in
the Judeo-Christian culture and does not necessarily apply for other cultural traditions
(WHITE, JR., 1967). This has been confirmed, among others, by SCHUMACHER (1968)
who developed a theory of 'Buddhist economics' and argued that it would be entirely
distinct from conventional economics in terms of its ethical foundations, including
much more regard for Nature's rights.

• A major discussion has emerged between ecologists, who tend to embrace a biocentric
perspective, and economists, who prefer anthropocentrism (PASCUAL et al, 2012). Bio-
centrism also has been called "deep ecology" and posits '[i]n a nutshell [...] that all li-
ving things have a right to exist - that human beings have no right to bring other crea-
tures to extinction or to play God by deciding which species serve us [...]' (NATIONS,
1988, p. 79). However, there appears to be a conflict between this philosophical stance
and the recognition of the rights of the poor (NATIONS, 1988), and it may be only re-
solvable by weakening the original approach.

• An 'intermediary' position is provided by the animal-rights oriented pathocentrism

(going back to Arthur Schopenhauer and having a prominent contemporary represen-
tative in SINGER (1975)). This approach grants rights to animals, though not to plants
(ROGALL, 2009, p. 186). It is supported in an interesting way by SEN (2009) who, quo-
ting Gautama Buddha, argues that humans have responsibility toward animals (i.e.,

9
 animals have rights) 'precisely because of the [power] asymmetry between us, not be-
cause of any symmetry that takes us to the need for cooperation' (p. 205). This ap-
proach could be potentially extended to cover all living organisms (biocentrism).

Obviously, there are many ethical approaches that differ from anthropocentrism in their attitu-
de toward Nature. It is not clear, however, whether there exists a conflict between them or if
they may be complementary (PASCUAL et al, 2012).

1.3 From biophysical measures to economic values

Figure 1: TEEB conceptual framework (Figure 1.5 in REYERS et al (2012))

The TEEB's conceptual framework for linking ecosystems and human well-being (i.e., the
source of economic values) is complex. The basic structure is as follows (see Figure 1 above):
ecosystems and biodiversity have functions (production, regulation, habitat and information)
within their ecological structures and processes, which generate (ecosystem) services. The use
of these services provides economic, social and ecological benefits and values for humans,
and thus influences human well-being. When benefits and values are recognized, they influ-

10
ence governance and decision making and thus both direct and indirect drivers of hu-
man-induced changes in ecosystems.

The goal of the following section is to present the different parts of the TEEB framework. To
achieve this, first the importance of biophysical measures as a basis and the availability of in-
dicators on this level are discussed. After that, the central and complex role of biodiversity is
the subject of inquiry. Finally, the Total Economic Value (TEV) and its components are pre-
sented.

1.3.1 Biophysical measures and indicators

The availability and use of biophysical measures and indicators is crucial for the enterprise of
valuing Nature's services (REYERS et al, 2012). In the literature, three key functions of such
measures have been identified: 'to track performance (results-based management), to discrimi-
nate among competing hypotheses (scientific exploration), and to discriminate among alterna-
tive policies (decision analysis) ' (FAILING & GREGORY, 2003, p. 122). However, it is import-
ant that the indicators used have been created for the specific purpose or at least that they are
relevant for it (REYERS et al, 2012).

The first TEEB report identifies 7 main categories of measures relevant for the purpose of
ecosystem valuation (REYERS et al, 2012, Table 3.1): measures of biodiversity, measures of
quantity, measures of condition, measures of pressures, provisioning service measures, regu-
lation service measures and cultural service measures.

In a review of the availability of and need for biophysical indicators, LAYKE (2009) found that
the ability of available indicators to provide information about ecosystem services is generally
low, that most indicators are not comprehensive and often inadequate, that there is a wi-
despread data insufficiency, and that the relatively best covered category is provisioning ser-
vice measures. This is very problematic given that '[i]n order to make a comprehensive and
compelling economic case for the conservation of ecosystems and biodiversity it is essential
to be able to understand, quantify and map the benefits received from ecosystems and biodi-
versity' (REYERS et al, 2012, p. 142).

To effectively measure the contribution of ecosystems to human well-being, there is a need

for a comprehensive set of biophysical measures and indicators as basis for consecutive socio-

11
economic analyses. The TEEB report recognizes this and suggests that new and better indica-
tors should be developed to meet this goal.

1.3.2 The importance of biodiversity

Biodiversity is a measure of the diversity of a biotope. Importantly, it means the diversity of

species that 'have co-evolved under selection pressure [not] a simple head-count of "objects"'
(DASGUPTA, 2001, p. 128). Basically, ecology distinguishes three kinds of biodiversity: α-
diversity (the abundance of species within a local biotope), γ-diversity (on the level of lands-
capes) and β-diversity (between two local biotopes, i.e., the amount of different species in
them) (MUNK, 2009, p. 163). Components of biodiversity are genetic variability, population
sizes/biomass, species communities and structures, interactions between organisms and their
abiotic environment, interactions between and among individuals and species (ELMQVIST et
al, 2011, Table 2.1b).

The link between biodiversity and the functioning of an ecosystem is very complex and diffi-
cult to understand (MUNK, 2009, p. 178). In general, however, it can be said that in most cases
an increase in biodiversity leads to an increase in productivity and resilience (or stability) of
ecosystems (ELMQVIST et al, 2012; DASGUPTA, 2001, pp. 129-30). In ecological literature
four kinds of links between biodiversity and the functioning of ecosystems have been identi-
fied: complementarity of species (with a monotonically increasing relationship between the
two variables), key species (where the functioning of the ecosystem is highly dependent on
the stability of the population of a few species, the so-called key species or functional groups),
redundant functionality (with different species fulfilling similar roles within the ecosystem, so
that an increase in biodiversity soon leads to a saturation effect in functioning), and idiosyn-
cratic effects (which are difficult to predict) (MUNK, 2009, pp. 178-9). New studies have sug-
gested that biodiversity may increase forests' resilience to drought (FAUSET et al, 2012),
which shows that its role is indeed crucial.

An important gap in knowledge concerning biodiversity is how ecosystems interact with each
other (ELMQVIST et al, 2012).

12
1.3.3 Total Economic Value and its components

According to the TEEB definition the TEV is the value 'obtained from the various constitu-
ents of utilitarian value, including direct use value, indirect use value, option value, quasi-
option value and existence value.' (KUMAR, 2012, p. xxxviii) This definition excludes, among
others, any intrinsic values of Nature (as already mentioned in the discussion of the underly-
ing ethical concept of anthropocentrism) and insurance value, which describes the 'ecosys-
tem's capacity to maintain a sustained flow of benefits' (PASCUAL et al, 2012, Figure 5.2).

The TEV consists of two main categories, use values and non-use values, each of which is
further divided into numerous sub-categories, as well as the so-called (quasi-)option value,
which cannot be easily linked to any of them (see Figure 2 below).

Figure 2: The TEV Framework (PASCUAL et al, 2012, Figure 5.3)

As can be seen, the category "use values" has two sub-categories ("actual value" can be skip-
ped if option value is taken as a truly independent category). Direct use values correspond
with the category of provisioning while indirect use values correspond with the category of
regulating ecosystem services. Within the sub-category "direct use values" a further distincti-

13
on is made between consumptive and non-consumptive direct use values (for examples, see
Figure 2). As is discussed in the next section on valuation methods, the more problematic ca-
tegory is non-use values, which are divided further into existence value/altruism to biodiversi-
ty, and philanthropic value, which has the intragenerational component of altruist value and
the intergenerational component of bequest value.

A special category is the option value, since it is per definitionem unknown. However, its
existence is being implicitly recognized by pharmaceutical companies acquiring and scree-
ning ecosystem parts in search for substances that may become new medicines
(FARNSWORTH, 1988).

The assessment of these value categories using different valuation methods leads to the deter-
mination of the Total Economic Value of an ecosystem. TEV likely is the lower bound of the
true value of the ecosystem since other, "non-economic" value categories are excluded from
the valuation process.

1.4 Economic valuation methods

While some of the value categories constituting the TEV are relatively easy to derive, particu-
larly the consumptive use value of an ecosystem, others are not. Numerous value derivation
methods have been developed over the years. In what follows, they are briefly presented, in-
cluding examples of specific methods within each category and comments on their reach 8.
This account is based on PASCUAL et al (2012), DE GROOT et al (2006) and HANSJÜRGENS
(2011).

Following categories of methods for economic valuation of ecosystems exist:

• Market-based methods (also known as direct market valuation) are an attempt to

capture at least some of the use values of an ecosystem by either using market prices
for goods generated by them or by imposing numerous cost-based estimations. Ex-
amples are: the market price approach, the opportunity costs approach9, the avoidance
cost approach, the replacement cost approach, the restoration cost approach, and the
production function approach. Generally, market-based approaches are unable to cap-

8
For more details on the methods listed here, see Appendix.
9
This is, basically, the approach behind the Yasuní-ITT Initiative.

14
 ture values that are not reflected in any market. Conversely, their application is rela-
tively easy and low-cost. If market prices are handled with care (e.g., by adjusting for
distortions), the results of these methods are relatively uncontroversial, if still incom-
plete.

• Revealed preference methods (also known as indirect market valuation) follow the
Revealed Preference Theory, which has its origins in SAMUELSON (1938). This theory
assumes that preferences of consumers, and thus their valuations, can be deducted
from their consumption choices. Accordingly, some values of ecosystems are thought
to be deductible from consumer choices that have something to do with these ecosys-
tems. This category includes the travel cost approach and hedonic valuation. Revealed
preference methods are an addition to market-based valuation methods and can to-
gether, at least theoretically, help to determine the use value of an ecosystem. Similar
to market-based methods, they are relatively easy to handle and fit the foundations of
economic theory well. However, it should be mentioned that Revealed Preference
Theory has been criticised on theoretical grounds (SEN, 1973).

• Stated preference methods: As is evident from the discussion above, market based
and revealed preference methods can capture use values at best. They provide no in-
formation about non-use values, since these values exist only "in the heads" of people.
To disclose these values, alternative methods are needed, of which stated preferences
or survey-based methods are the most popular. They include: the contingent valuation
method, choice models and the contingent behaviour method. Stated-preferences ba-
sed methods are very important in the process of valuation of ecosystem services.
They can potentially capture all value categories or, in the case of contingent beha-
viour, supplement the results from other methods based on revealed preferences. Ho-
wever, methodologically these methods are very challenging and, indeed, also very
problematic, as will be discussed in section 3.1.2 of this thesis.

• Deliberative methods are an alternative to contingent valuation and choice models,

adapted from political sciences and developed more recently. Research has suggested
that they may have the potential to overcome some of the caveats of those simpler va-
luation methods which are based on stated preferences of individuals (WILSON &

15
 HOWARTH, 2002). Generally, the idea behind deliberative methods is to inform stake-
holders about an issue and to let them discuss it with each other before they are asked
to fill out a questionnaire similar to those used in contingent valuation. In some cases,
participants may be contacted later and asked whether their initial value estimate still
holds. Potentially, all value categories can be captured by these methods. Much hope
within the scientific community is linked to the adaptation of deliberative methods
from political science, since they are thought to help overcome many problems found
in simple survey-based methods (PASCUAL et al, 2012). Properly applied they may be
the best available source of non-use value estimates.

• Benefit Transfer: The application of many of the methods discussed above is very ex-
pensive. The ecological/biophysical properties of the ecosystem in question have to be
properly assessed, then data have to be collected and surveys conducted. All of this is
both money- and time-consuming. The scarcity of resources such as time and money
has led to the development of the Benefit Transfer (BT) method, which attempts at
transferring values between sites, the site where the original study was conducted
being called the study site and the transfer destination site being the policy site. Follo-
wing BT methods exist: unit BT, value function BT (also called demand funtion BT)
and meta-analytic function BT. While saving costs and time, the BT method bears
multiple caveats and risks, which increase in the order in which they have been pre-
sented above (PASCUAL et al, 2012, p. 230) and should therefore be applied with care,
if at all (see section 3.2.4).

16
 2 THE YASUNÍ RAINFOREST
As stated in the introduction, the main goal of this work is to highlight the caveats of econo-
mic valuation of ecosystem services. A useful approach for doing so is to present a case study.
Here, the case study is the Ecuadorian Yasuní rainforest, which is at the centre of the Ya-
suní-ITT debate (see introduction). In this chapter, the Yasuní will be presented as an ecosys-
tem, as the home of indigenous peoples (some of whom live in voluntary isolation from the
outside world) and as a potential source of natural resources, particularly petroleum. The pre-
sentation is embedded in a perspective on Ecuador as a developing country.

2.1 Ecosystem characteristics

As a first step, the ecosystem characteristics of Yasuní are sketched. An overview discussing
the area as a biodiversity hotspot is given, and it is shown which ecosystem services following
the TEEB classification are potentially covered by this rainforest.

2.1.1 Biodiversity hotspot

A biodiversity hotspot is, according to MYERS et al (2000, p. 853), an 'area [...] featuring ex-
ceptional concentrations of endemic species and experiencing exceptional loss of habitat '. In
their article about the conservation importance of biodiversity hotspots, they listed the Tropi-
cal Andes as one of the most biodiverse places in the world (MYERS et al, 2000). A small part
of this larger area is the Ecuadorian Yasuní rainforest.

Yasuní is a rather small part of the Western Amazon. It lies on the Equator, close both to the
Andes foothills and the western edge of the Amazon basin (BASS et al, 2010). The Yasuní is a
low-elevation moist rainforest in a warm area characterised by high humidity and dissected by
numerous rivers (FINER et al, 2009). Most of its forest cover is still intact (BASS et al, 2010).
A large part of it is protected area, covering 9820 km2, which is embedded in the UNESCO
Man and Biosphere Reserve. The Reserve covers 16820 km 2 and also includes the Huaorani
Ethnic Reserve. It is the largest protected area in Ecuador and its only Amazonian national
park (FINER et al, 2009). However, it is said to be rather poorly protected (ACOSTA et al,
2009).

17
The Yasuní rainforest is part of a centre of "quadruple species richness" (viz., covering four
taxonomic groups: amphibians, birds, mammals and vascular plants) with very high biodiver-
sity levels (BASS et al, 2010). In Table 1 a summary of the data on species diversity is given.

Class/phy- Number of Number of Endemic spe- Threatened Percentage of

lum* species species in cies species all Amazoni-
Germany an species in
category
Amphibians 150 21 20 1 28%
Reptiles 121 13 - 2 33%
Birds 596 314 19 2 34%
Mammals 169 91 4 8 27%
Fish 382 259 - - at least 12%
Vascular 2704 3755** at least 400 28 7-10%
plants*
Table 1: Species diversity data for Yasuní (documented species only), including species
numbers in Germany for comparison; all Yasuní data are compiled from BASS et al. (2010),
German data for animals are from VÖLKL & BLICK (2004), the number of plant species is
from WISSKIRCHEN & HAEUPLER (1998); explanations: *vascular plants are a phylum that
encompasses the classes of phanerogams/spermatophytes, lycopodiophyta/lycopads and
ferns; **the number includes only phanerogams and ferns, not lycopads
To make the numbers more conceivable, Table 1 contains comparisons of species numbers for
the different classes of animals and for vascular plants with Germany. It should be noted that
Germany's area (around 357 000 km2) is over 35 times that of the Yasuní. Moreover, there are
a number of different biotopes in Germany (lowlands, highlands, mountains etc.), whereas
Yasuní is essentially only one. Nonetheless, there are more than 7 times as many amphibian
species, 9 times as many reptilian species, almost twice as many bird and mammal species,
and some 1,5 times as many fish species in Yasuní as in Germany. Indeed, Yasuní provides
habitat for 20 endemic amphibian species, while there are only 21 total amphibian species in
Germany.

With regard to vascular plants, there is some difficulty with interpreting the exact numbers
since the categories used do not exactly correspond between the sources. However, it is clear
that, given the difference in area, Yasuní is much more biodiverse than Germany.

18
In addition to the comparison with Germany, Table 1 also provides information on ende-
mism10, an important criterion for the consideration of an ecosystem as biodiversity hotspot
(MYERS et al, 2000), threatened species and the relationship between species numbers in Ya-
suní and the corresponding numbers for the whole Amazon basin. It should be noted that Ya-
suní covers only 0,15% of the Amazon basin area.

Less well surveyed, the insect populations in the Yasuní rainforest also appear to be highly di-
verse, e.g., there are estimates of there being some 100 000 species of insects on a single hec-
tare of Yasuní, as compared with around 33 thousand in all Germany (BASS et al, 2010;
VÖLKL & BLICK, 2004).

In summary, 'Yasuní National Park is globally outstanding for its exceptional biological rich-
ness on both landscape and local scales, across taxonomic groups' (BASS et al, 2010, p. 7).
Furthermore,

What makes Yasuní even more special is the potential to sustain this biodiversity
in the long term due to its 1) large size and wilderness character, 2) intact large
vertebrate assemblage, 3) IUCN level-II protection status in a region lacking other
strictly protected areas, and 4) likelihood to maintain wet, rainforest conditions as
climate change-induced drought intensifies in the eastern Amazon. (BASS et al,
2010, p. 13)

It is believed that the reason for Yasuní's outstanding biodiversity may be that its territory was
a refuge during the Pleistocene 11 when much of the Amazon basin was covered by grasslands
due to substantially lower global temperatures than today (LARREA & WARNARS, 2009). This
suggests an additional reason for conservation of the area.

2.1.2 Ecosystem services covered by the Yasuní rainforest

For better understanding of the relevant dimensions that may cause problems when valuing
the Yasuní ecosystem, it is helpful to investigate which categories of ecosystem services as
outlined in section 1.1.1 are covered by this biotope. Table 2 contains a list of relevant ecosys-
tem services within each category (provisioning, regulating, habitat and cultural/amenity ser-
vices).

10
However, BASS et al (2010) call for precaution due to the incompleteness of surveys of Amazonian biodiver-
sity (i.e., the actual endemism levels may be lower than indicated in Table 1).
11
A geological era that had begun around 2,6 million years ago and ended some 10 000 years B.C.

19
Ecosystem service category Services relevant for Yasuní
Provisioning services food, water, raw materials (wood and petroleum), genetic
resources, medicinal resources, ornamental resources (e.g.,
traditional Huao earplugs of balsa wood (RIVAL, 1993))
Regulating services climate regulation, regulation of water flows
Habitat services maintenance of genetic diversity
Cultural and amenity services aesthetic information, recreation and tourism, inspiration for
culture, art and design, spiritual experience, information for
cognitive development
Table 2: Ecosystem services relevant for Yasuní (based on the TEEB classification)
As can be seen, not all services listed in section 1.1.1 are relevant for Yasuní. Particularly tho-
se regulation services that are important for agriculture or large human settlements are hardly
relevant here. This has to be kept in mind when case-specific problems of economic valuation
of ecosystems are discussed.

2.2 Indigenous peoples

There are at least 4 groups of indigenous peoples living within the borders of the Yasuní Bios-
phere Reserve: Huaorani, Tagaeri, Taromenane and Quichua. By far the largest group is the
Huaorani, therefore they are examined first here. Afterwards the other 3 groups will be briefly
presented.

2.2.1 The Huaorani

The Huaorani (also spelled, particularly recently, Waorani) are an indigenous people whose
ancestral territory is the Yasuní Biosphere Reserve region (FINER et al, 2009). The Huaorani
were contacted for the first time only in the 1950s, so not much is known about their history
prior to the twentieth century; many speculative theories exist, but none has been able to esta-
blish itself (ZIEGLER-OTERO, 2007, pp. 30-31).

The language of the Huaorani, Huao Terero, which is linguistically isolated, suggests that pri-
or to their first contact with "Western" outsiders they lived in isolation from other Amazonian
indigenous peoples as well (FINER et al, 2009). This is confirmed in a way by their traditional
view of strangers, whom they used to call cohouri (or kowodi) - "cannibals" or "non-humans"
- and would kill if encountered (BECKERMAN et al, 2009). Generally, the Huaorani, the first

20
reports about whose existence date back to the end of the 19th century, are regarded as having
been a very violent tribe. According to BECKERMAN et al (2009), inner-tribal homicides ac-
counted for over half of Huaorani male deaths and more than one-third of female deaths at all
ages, in addition to some 8% having been killed by outsiders. Because of this the Quichua
have called the Huaorani auca, the "wilds" or "savages".

There is some controversy in the literature around the classification of the general life-style of
the Huaorani. While most researchers call them semi-nomadic hunter-gatherers and horti-cul-
turalists (BECKERMAN et al, 2009; FINER et al, 2009; LU, 2001), RIVAL (1993), who otherwise
is rather influential due to her long-lasting research, insists that they are primarily hun-
ter-gatherers and not really horticulturalists. She has been critisised for this allegedly baseless
insistence by BECKERMAN et al (2009). However, it is clear that, whatever the exact interpre-
tation, the livelihood of Huaorani is based on hunting, gardening and recently also fishing 12
(LU, 2001).

First encounters of Huaorani with representatives of "Western" civilisation 13 likely took place
during the rubber boom in the end of the 19th century. But more reliable reports date back to
the first penetration of the Yasuní rainforest by petroleum companies (mainly Shell) in the
1940's, when numerous workers were speared by the Huaorani (FINER et al, 2009).

The first peaceful contact with members of the Huaorani ethnic group was made in October
1958 by US-American missionary Rachel Saint - soon after that many of them were moved to
a newly established "Protectorate", a kind of an unofficial reserve, and convinced to settle
(FINER et al, 2009). Thus began the process of "civilising" the Huaorani which, among other
things, seems to have broken the cycle of vengeance killings (BOSTER et al, 2004, cited in
FINER et al, 2009). Today, there exists a Waorani Ethnic Reserve (which is part of the UNES-
CO Man and the Biosphere Reserve Yasuní), which covers around 7000 km 2, a third of their
ancestral territory, where there exist between 35 and 40 steadily-changing Huaorani commu-
nities with a total population of between 1400 and 2000 (up from 600 in pre-contact times)
(FINER et al, 2009). Additionally, between 1999 and 2007 the so-called zona intangible was
12
Opposite to most Amazonian indigenous peoples, the Huaorani didn't live on the shores of rivers (and there-
fore were not able to build canoes or to fish), but in the hills between the river streams of Yasuní (ZIEGLER-
OTERO, 2007, p. 36).
13
It should be noted that the term "civilisation" is not meant to be understood in normative or judgemental
terms as indicating any superiority of the "civilized" West over the "wild" Huaorani. Its use here is comple -
tely neutral.

21
created within the reserve with no access for drilling and logging companies as a refuge for
the uncontacted Tagaeri and Taromenane tribes (see next section).

The basic societal unit of the Huaorani is the nanicabo, a longhouse where between 10 and 35
members of an extended family live together (RIVAL, 1993; ZIEGLER-OTERO, 2007, p. 37).
With regard to culture and normative systems, it has been noted by researchers that the
Huaorani are characterised 'more than anything by a relaxed and pragmatic view of their own
norms and rules' (ZIEGLER-OTERO, 2007, p. 35), including little rigidity in sex roles. LU
(2001, p. 431) has assigned them 'an egalitarian political structure' and noted that they are
characterised by independence and individualism. The decision making process of the
Huaorani communities has traditionally been based on consensus, although likely without for-
mal structures (ZIEGLER-OTERO, 2007, p. 46). However, it also has been remarked that the
contact to outside "civilization" (particularly missionaries and petroleum companies) has had
a deep influence on Huaorani life-styles and their value system, including (as already mentio-
ned) the breakdown of vengeance cycles (BOSTER et al, 2004, cited in FINER et al, 2009), a re-
laxation of the traditional consensus-based decision making processes after the introduction of
majority voting by missionaries (ZIEGLER-OTERO, 2007, p. 46), money earning 14 and purcha-
ses of products from the outside world (like guns, clothing, medicine, food) (LU, 2001), wild-
life trading (FINER et al, 2009), and creation of political organizations to represent Huaorani
interests and rights (NAWE - Nationality Waorani of Ecuador, and AMWAE, Association of
Waorani Women of the Ecuadorian Amazon) (FINER et al, 2009; see also ZIEGLER-OTERO,
2007). Conversely, the Huao Terero language has been reported to be thriving in most of the
communities (FINER et al, 2009).

Beside the fact that the traditional Huaorani livelihood depends on intact ecosystems and is
therefore threatened by environmental degradation more than elsewhere (MANNINA, 1993),
they also have been seen as "managers" of the Yasuní rainforest (LU, 2001). The main source
of the Huaorani's interactions with the forest is their food gathering and hunting activities.
With regard to their diet, LU (2001) noted:

The greatest bulk in the diet comes from manioc (Manihot esculenta), which is
consumed as a premasticated drink many times a day. Plantains, peanuts, peach
palm (Bactris gasipaes), and sweet potatoes also are important cultigens. The
14
The Huaorani work primarily for petroleum and logging companies, in tourism and handicrafts sale (LU,
2001).

22
 Huaorani receive important supplements to their diets from wild fruits, nuts, and
tubers that they eat almost continually while walking through the forest[...]. (p.
430)

Their pre-contact seminomadic life-style, which included moving to other locations every 3-4
months, served many purposes: from the prevention from overuse of natural resources (soils,
faunal populations and others) to a reduction of the threat of being attacked by cohouri (LU,
2001). However, in addition to being a source of food, the forest has been an important part of
the Huaorani identity and self-determination:

Th[eir] interest in plant growth and maturation is more than mere pragmatic re-
source management: they have a genuine aesthetic delight in observing plant life,
particularly the growth of new leaves, and explicitly relate this to certain aspects
of human physical growth[...]. (RIVAL, 1993, p. 637)

Interestingly, the Huaorani seem not to consciously view rainforest resources as scarce (LU,
2001) and thus do not have a conscious property regime. However, in her interviews with
members of the Huaorani people, LU (2001) found some implicit patterns of both private and
common property embedded in an extensive culture of sharing. Nevertheless, she concluded
that due to the lack of recognition of scarcity by the Huaorani, no recognition of informal
common property management rules by outside authorities and the ongoing "invasion" of tra-
ditional Huaorani lands by members of the Quichua ethnic group, the conditions for a su-
stainable management of natural resources famously outlined by OSTROM (1990) are not met
(LU, 2001). An additional threat to sustainability seems to be recent population growth and in-
creasing use of shotguns by the Huaorani (WATTS, 2012b; see also SIERRA et al, 1999).

2.2.2 Others

As already mentioned, the Yasuní, traditionally the territory of the Huaorani ethnic group, has
been increasingly "invaded" by members of other indigenous peoples, mainly Quichua (also
spelled Quechua or Kichwa) and particularly through intermarriage (LU, 2001; ZIEGLER-
OTERO, 2007, p. 38). This ethnolinguistic group (CLARK & BECKER, 2007), which is related
to the Incas (WHITTEN JR., 2008), dominates most of the northwestern part of Andes and
Amazon15 and is much more integrated with the outside world than the Huaorani. The Qui-

15
Which is partly due to Spanish colonial influence - Spanish conquistadores promoted Quichua language and
culture among other ethnic groups since they were those the European invaders had learned first
(WROBLEWSKI, 2012).

23
chua also began to organize much sooner in order to protect their rights and interests. Indeed,
Huaorani organisations (see above) were created following the Quichua model and both work
together within national networks (ZIEGLER-OTERO, 2007, p. 1). It has been noted that the
Huaorani seem to be less concerned with their own population growth than with the pressures
on their lands put by Quichua immigration (LU, 2001). Indeed, the Quichua are likely at least
as much responsible for over-hunting the Yasuní as are the Huaorani (FINER et al, 2009).

The other important groups of possibly non-Huaorani indigenous people living in the Yasuní
are the uncontacted Taromenane and Tagaeri 16. It is not entirely clear how these peoples are
related to the Huaorani. They appear to be members of the same linguistic family and the con-
tacted Huaorani consider the Tagaeri a part of their family 17 with the Taromenane a distinct,
but related group (FINER et al, 2009). However, due to their voluntary isolation and scant in-
formation these are only speculations. It is not even known with certainty whether both tribes
still exist. There are theories speculating that the Taromenane may have killed all Tagaeri or
that both tribes merged into one group (FINER et al, 2009).

While many Huaorani have worked for petroleum companies (BRADY, 1997; but see also
ZIEGLER-OTERO, 2007, p. 3), the last reported attack against their workers by Tagaeri/Taro-
menane occurred as recently as in 1984 (FINER et al, 2009). To prevent further incidents and
to protect both sides of the conflict, the Ecuadorian government established a Zona intangible
in the southern part of the Yasuní rainforest in 1999. However, it took another 8 years to
clearly define its boundaries. Today, its area covers 7580 km2 of the southern part of the Ya-
suní Reserve. Alas, its creation has not prevented illegal loggers from entering the zone
(FINER et al, 2009).

2.3 Natural resource endowments: petroleum

In the last two sections, Yasuní was presented as a uniquely biodiverse ecosystem and as the
home of only recently contacted (or not contacted at all) indigenous communities. In what fol-
lows, Yasuní's role as a potential source of a natural resource, petroleum, is discussed briefly.
This is of particular importance since this provisioning ecosystem service, together with the
16
ACOSTA et al (2009) also mention the group of Oñamenane - however, they are not mentioned in other
sources.
17
PATZELT (1992), who lived with the Huaorani for a while, reports that they have relatives among the Tagae -
ri.

24
country's development status (to be discussed in section 2.4), is the main reason given in op-
position to conservation of the east-Ecuadorian rainforest.

The first natural resource extracted from the region was rubber in the end of the 19th century
(ZIEGLER-OTERO, 2007, p. 34). As is well-known, the Amazonian rubber boom did not last
long, because the British succeeded in smuggling seeds of the rubber tree out of Brazil and
successfully set up plantations in Indonesia (FINER et al, 2009). Since rubber was an import-
ant product of the Yasuní rainforest only from 1880s until the beginning of the 20th century
and the country's timber production is concentrated in northwestern Ecuador (SIERRA, 2001)18,
we will focus on petroleum in the following discussion.

As mentioned in the introduction, petroleum drilling is the main "competitor" of ecosystem

conservation in the Yasuní rainforest. Indeed, the first petroleum extracting company to enter
the forest was Royal Dutch Shell in the 1940s (FINER et al, 2009). However, due to lack of
success and repeated spearing attacks by the Huaorani, Shell did not stay long in Yasuní.

The Ecuadorian petroleum "boom" began after large reserves had been discovered in 1967,
which were 'heralded as the salvation of Ecuador's economy, the product that would pull the
nation out of chronic poverty and "underdevelopment" at last' (KIMERLING, 2007, p. 60; see
also ZIEGLER-OTERO, 2007, p. 68). Until then, the main export product of the country had
been bananas. Indeed, by 1972 Ecuador was already a net petroleum exporter (LARREA &
WARNARS, 2009)19. In 1973, it joined the Organization of the Petroleum Exporting Countries
(OPEC). It has remained a member despite a 15-year period (1992-2007) of voluntary mem-
bership-suspension20. However, Ecuador is the smallest OPEC member in terms of proven pe-
troleum reserves (7.21bn barrels in 2010, 8.24bn barrels according to the member country fact
sheet), with a share of only around 0.5% of world petroleum reserves.

One of the most active petroleum companies involved in Ecuador has been the US-American
ChevronTexaco. Among other things, it built in the early 1980s the so-called Auca Road into

18
Due to this fact, there is hardly any data available concerning timber production in the Yasuní. This may also
be influenced by the specific structure of the timber market in Ecuador, where most production is by small-
scale, informal producers (SIERRA, 2001). However, it should be noted that this does not mean that there is
no commercial logging in this region.
19
In this year a pipeline across the Andes, built by Texaco and Petroecuador, was completed (ZIEGLER-OTERO,
2007, p. 69).
20
This and the following information are taken from the OPEC's official web site:
http://www.opec.org/opec_web/en/ (accessed 24.09.2012).

25
the Yasuní rainforest, some 120 km deep into Huaorani territory (FINER et al, 2009). Accor-
ding to FINER et al (2009, p. 6; see also FINER et al, 2008), this 'triggered a massive influx of
colonists and large-scale deforestation' in the forest.

In the years that followed, the Ecuadorian government has zoned around 65% of the Amazon
as destined for petroleum extraction, including 5 already leased blocks in the Yasuní National
Park (FINER et al, 2008; FINER et al, 2009). Petroleum has become the single largest revenue
source of the Ecuadorian state (accounting for 26% of revenues on average in 2000-07) and
accounts for around a half of total exports of this country (LARREA & WARNARS, 2009). A
large portion of exports goes to the US (with a high of nearly 90% in 2006; more recently this
share has been declining) (EIA, 2012). In Yasuní, a number of petroleum companies are acti-
ve - LU (2001) names Conoco, Maxus, YPF, Petro-Canada, Elf Aquitaine, Petrobras and Oryx
as being active within the Huaorani territory, which, as discussed above, covers large parts of
this rainforest. An exception is the already mentioned zona intangible, the area where the un-
contacted Tagaeri and Taromenane live (FINER et al, 2008).

The ITT oilfield that is the subject of the Yasuní-ITT Initiative contains an estimated 850 mil-
lion barrels of petroleum, which equals some 20% of all known reserves in Ecuador (LARREA
& WARNARS, 2009).

While providing the Ecuadorian State with means to promote economic and social develop-
ment, petroleum extraction has numerous downsides. Since the beginning of Yasuní's explo-
ration, widespread contamination of the surrounding ecosystems has taken place and as re-
cently as 2008 a major oil spill in the Yasuní forest occured (FINER et al, 2008). Along with
timber production, petroleum extraction, particularly through road building, is a major factor
in deforestation with Ecuador experiencing one of the highest deforestation rates in South
America (LARREA & WARNARS, 2009). Also, there are health risks related to petroleum pro-
duction. In 2011, after an 11-years law suit, ChevronTexaco was fined $8 billion by an Ecua-
dorian court for widespread contamination of the country's Amazon basin due to Texaco's 21
activities between 1972 and 1990, including many adverse health effects to the people living
in the area (RUSHE & CARROLL, 2011). An appeals court upheld the ruling in 2012 (THE
GUARDIAN, 2012).

21
Chevron bought Texaco in 2001 and is thus its legal successor.

26
It is apparent that there exists a conflict between the recognition of Nature's value in the Ecua-
dorian Amazon basin and the country's development needs:

It is important to note that the new Ecuadorian Constitution, approved by voters in

September 2008, initiated a prohibition on oil extraction in protected areas such as
Yasuní National Park. An exception was built-in, however, that would allow such
drilling to proceed if petitioned for by the President and declared in the national
interest by Congress, which may call for a national referendum if deemed necessa-
ry. (FINER et al, 2009, p. 12)

2.4 Ecuador's developing country status

For numerous reasons, the economic and social background of the country where the ecosys-
tem under valuation is located is of importance. It is clear that poor people depend on ecosys-
tems in different ways than the rich, and they assign different values to the various modes of
their use (DASGUPTA, 1995). It is therefore useful, while preparing to analyse the problems re-
lated to economic valuation of ecosystem services in the Yasuní case, to take a look at the de-
velopment status of Ecuador.

A useful tool to assess a country's development status is its Human Development Index
(HDI), published for every country in the world on a per annum basis in the United Nations
Development Programme's (UNDP) Human Development Report22. The HDI consists of three
dimension indices: the GNI index (based on data on Gross National Income (GNI) per capita
in purchase-power-parity-adjusted dollars (PPP $)), the education index (based on data on
mean and expected years of schooling) and the life expectancy index (life expectancy at
birth). Although not uncontroversial (DASGUPTA, 2001, pp. 80-83; STIGLITZ et al, 2010, pp.
89-90), the HDI is rather widely acknowledged as a useful development indicator (SEN, 2001,
pp. 318-319n.). However, in more recent Human Development Reports, the UNDP included
three additional indices to broaden the perspective: the Indequality-Adjusted HDI (IHDI), the
Gender Inequality Index (GII) and the Multidimensional Poverty Index (MPI).

In the 2011 Human Development Report (UNDP, 2011), Ecuador was listed at rank 83 out of
187 countries, in the class of "High Human Development", with an HDI of 0.720 (for compa-
rison, Germany was 9th with 0.905). Among South American countries, Ecuador was 6th (out

22
All information about the Human Development Reports and the development indices presented therein are
from UNDP (2011).

27
of 12)23. World HDI was lower than Ecuador's in 2011, with the value of 0.682. Annual HDI
growth of Ecuador was 0.64% between 1980, when the Index was established, and 2011,
which is close to the overall growth in the "High Human Development" class (0.61% over this
period).

Index Rank Score Better South Average "High Average

American Human "Medium
nations* Development" Human
Development"
HDI 83 0.720 5 0.741 0.630
IHDI 93 0.535 5 0.590 0.480
GII 85 0.469** 6 0.409 0.475
Table 3: Ecuador's performance in the 3 indices of the Human Development Report 2011; * -
number of South American nations ranked higher; ** - the lower the GII, the higher the rank
Ecuador's performance in 3 of the Human Development Report's indices is summarized in Ta-
ble 2. MPI is not included since it is a new index and data are incomplete. As can be seen, the
inequality-adjustment does not change much in Ecuador's relative performance within South
America; however, the country drops by 10 ranks as compared to the rest of the world in this
index. This may reflect the general tendency of Latin American countries toward inequality 24.
Regarding the Gender Inequality Index, Ecuador's performance is also relatively similar to
that in the HDI-ranking. However, it is much closer here to the average for "Medium Human
Development" countries and there is one more South American country that is better (Brazil).

Economically, Ecuador was hit by the global crisis of 2008-9 as in 2008 its rate of economic
growth dropped to 0.4%, but the country has recovered quickly and reached 4.7% growth in
GDP in 2011 (WORLD BANK, 2012). It is classified as "upper middle income" by the World
Bank. According to the World Bank, the country's current development strategy primarily re-
lies on public spending, which increased by over 30 percentage points to 57.6% of GDP bet-
ween 2005 and 2011. The poverty rate fell by 9 percentage points between 2006 and 2011 to a
still high 28.6% of the population, while the share of population living in extreme poverty
dropped by 5 percentage points to 11.6%. The World Bank's overview concludes that
'[p]overty and inequality continue to be Ecuador's main challenges' (WORLD BANK, 2012).
23
The others were: Chile at rank 44, Argentina (45), Uruguay (48), Venezuela (73), Peru (80), Brazil (84), Co-
lombia (87), Suriname (104), Paraguay (107), Bolivia (108) and Guyana (117).
24
Indeed, in terms of UNDP's income index, Latin America and the Carribean is the region losing most after
inequality-adjustment (39.3%), as indicated by Table 3 of the last Human Development Report (UNDP,
2011, p. 138).

28
Like many other developing countries, Ecuador heavily relies on exports as a development
driver and its merchandise exports equaled around 30% of its GDP in 2010 (WTO, 2012).
But, as noted by LARREA & WARNARS (2009), the Ecuadorian economy is poorly diversified
with primary products25 accounting for some 90% of exports - petroleum alone accounting for
about one half. The latter is the reason why STIGLITZ (2007, p. 134) named Ecuador as one of
the countries affected by the so-called "resource curse"26.

It is apparent that, while not being a truly "underdeveloped" country, Ecuador still has a large
need for further economic and social development. It seems to be a rather typical (particularly
for South America) upper middle income developing country. However, it is important to note
with regard to the main subject of this work that the Huaorani, who depend heavily on the in-
tactness of the Yasuní rainforest, are part of a rather poor layer of the Ecuadorian society, ha-
ving their livelihoods mainly based on self-subsistence (ZIEGLER-OTERO, 2007, p. 9). Yet,
even they at least partly benefit from petroleum extraction (BRADY, 1997), which is the main
income source of the country. There seems to be a significant conflict between petroleum ex-
traction and ecosystem preservation as seen against the background of Ecuador's development
needs.

25
LARREA & WARNARS (2009) name petroleum, bananas, shrimp, coffee, cacao and flowers as main export
products.
26
"Resource curse", also known as the "paradox of plenty", is the empirically observed economic underperfor -
mance of (developing) countries that own significant amounts of natural resources (SACHS & WARNER,
1995).

29
 3 PROBLEMS OF ECONOMIC VALUATION OF
ECOSYSTEM SERVICES
In Chapters 1 and 2 of this thesis, a foundation was laid for the discussion of problems related
to economic valuation of ecosystem services. Chapter 1 contains a summary of the theoretical
aspects of economic valuation of Nature's services, including the common ethical base, defini-
tion of ecosystem services and the corresponding value categories, as well as an overview of
the most common valuation methods. Chapter 2, conversely, is the basis of the case study
used in this thesis. It provides a summary of relevant facts about the Yasuní rainforest in
Ecuadorian Amazon, which includes ecosystem characteristics, some information about the
indigenous peoples living in this area, the petroleum reserves lying underground and threate-
ning the intactness of the forest, as well as the socio-economic background of Ecuador's deve-
lopment status.

The third and last Chapter deals directly with the main subject of this thesis: problems and
difficulties related to economic valuation of ecosystem services. The discussion of these will
have two parts: in section 3.1 more general problems are discussed (among them, ethical ar-
guments against valuation, problems related to the important method of Contingent Valuation,
and endogeneity of carbon price). Section 3.2 focuses on idiosyncratic problems that are di-
rectly related to the Yasuní case and include: problems related to the identification and invol-
vement of relevant stakeholders, equity concerns related to socio-economic characteristics of
the relevant Ecuadorian population, uncertainty issues, the application of Benefit Transfer in
this specific case, and the paramount problem of discounting (in this case, discounting of pri-
vate income from petroleum extraction against long-term public benefits of conservation).

3.1 General caveats

In this section, problems of economic valuation of ecosystem services of a more general na-
ture will be discussed. First, ethical arguments against valuation will be reviewed. In the se-
cond subsection, the Contingent Valuation specific problems will be discussed, particularly
the apparent inconsistence between willingness-to-pay and willingness-to-accept approaches
and the so-called embedding effect. The last section will be devoted to the issue of carbon pri-
ce endogeneity.

30
 3.1.1 Ethical arguments against economic valuation of Nature

As already mentioned briefly in the introduction, there is no agreement particularly between

economists and environmentalists, but also partly within the economic profession, about whe-
ther Nature and its services should be economically valued - or, as some critics bemoan, com-
moditized. Indeed, many commentators have been criticising approaches similar to that of the
TEEB. Following arguments can be found in the literature:

• Many assign an intrinsic value to Nature and call for 'protection of nature for nature's
sake' (MCCAULEY, 2006, p. 27). Meanwhile, TEEB and similar approaches explicitly
ignore (but not deny) that natural systems may have a value "on their own", i.e., inde-
pendently of people's feelings about them. Critics argue that we are not protecting
wildlife 'based on a cost-benefit analysis, but on a widely shared ethical judgement',
this judgement not being 'clarified, nor made more precise, by performing a contrived
survey of public willingness to pay for something that cannot be bought or sold'
(ACKERMAN & HEINZERLING, 2004, pp. 162-3). The consequence of this argumentati-
on is the conclusion that Nature is priceless (RIVAL, 2010).

• Another, closely related strand of criticism questions the merits of monetisation. E.g.,
BOYLE & SIMMS (2009, p. 15) argue that while it does make sense to measure financi-
al investments in terms of money, the latter 'is also partially blind to the assets repre-
sented by people and planet'. In this understanding, monetisation implies an assumpti-
on 'that the elasticity of substitution for nonmarginal changes in the composition of en-
vironmental and nonenvironmental goods in utility is infinite' (DECANIO, 2001, p. 57).
In other words, monetisation is understood as being equal to the assumption of weak
sustainability27.

• Another fear, expressed by MCAFEE (1999), is that economic valuation of Nature

downplays the vast complexity of natural systems and of the links between them and
human systems, thus necessarily grossly underestimating the value of ecosystems.
This view is shared by EHRENFELD (1988), who questions economic science's ability
to properly describe complex systems

27
Weak sustainability assumes that man-made and natural capital are basically substitutes. Strong sustainabili-
ty views them as being basically complementary. (DALY, 1995)

31
 • EHRENFELD (1988) views attempts to economically value Nature as a sign of the mo-
ral degeneration of society, maintaining that in the beginning of the 20th century its in-
trinsic value was taken for granted. Also, he finds the adherence to economic valuation
inconsequent since economic activity is the source of destruction of natural systems,
and writes that 'economic criteria of value are shifting, fluid, and utterly opportunistic
in their practical application. This is the opposite of the value system needed to con-
serve biological diversity' (EHRENFELD, 1988, p. 214). This leads him to a rejection of
any attempts to economically assign a value to ecosystems.

• The common concern of critics of economic valuation of Nature is commoditisation.

As some put it, they fear the replacement of 'voting with shopping' (ACKERMAN &
HEINZERLING, 2004, p. 176) and that the assignment of an economic value to an eco-
system or a part of it may be understood as equal to the permission to destroy it - if
those responsible were able to pay the amount calculated (ACKERMAN &
HEINZERLING, 2004, pp. 157 and 162). Capitalism critics view this as a contribution to
the expansion of capitalism (MCAFEE, 1999). Economists dealing with ecosystem va-
luation are accused of "reductionism".

• The concern, mentioned above, that economic valuation may lead to a replacement of
"voting with shopping" has found some support in the findings of experimental econo-
mics. Behavioural experiments suggest that economic incentives may undermine mo-
ral reasons for conservation (BOWLES, 2008).

Economists defend the attempt to value ecosystems for multiple reasons. First of all, they
pragmatically argue that the alternative to economic valuation is the implicit assignment of
zero-value to Nature (BABBAGE, 2012). Also, they stress that commoditisation is an erroneus
term since ecosystem services are for the most part public goods, i.e., valuation should not be
set equal to marketisation (COSTANZA, 2006). Instead, 'valuation can work as a feedback me-
chanism for a society that derives its resources from the environment but has distanced itself
from the consequences of its actions' (BRONDÍZIO et al, 2012, p. 152). Furthermore, the need
to manage ecosystems has been stressed, and the fact that 'you cannot manage what you can-
not measure' (SUKHDEV, 2012, p. xxv). In the end, most economists dealing with economic
valuation of ecosystems emphasise that the estimates reflect a "lower bound" of the actual va-

32
lue only (RANDALL, 1988), and that the attempt to attach value to Nature may itself be more
important than the specific numerical outcome (BRONDÍZIO et al, 2012).

As one prominent environmental economist put it:

Finally, there is no avoiding the question, "what should I value?" if we are to see
ourselves living through time, rather than in time. It is, for example, a mistake to
try to justify [...] the preservation of ecological diversity solely on instrumental
grounds; on the grounds that we know they are useful to us, or that they may pro-
ve useful to our descendants. Such arguments have a role, but they are not all. Nor
can the argument rely on the welfare of the members of such species (it does not
account for the special role species preservation plays in the argument); nor, inde-
ed, on the "rights" of animals. A full justification must base itself as well on how
we see ourselves, on what kind of people we ought try to be, on what our rational
desires are. In examining our values, and thus our lives, we should ask if the de-
struction of an entire species-habitat for some immediate gratification is some-
thing we can live with comfortably. (DASGUPTA, 1998, p. 151)

In the end, it appears that economic valuation of ecosystems is a matter of both pragmatism
and concern about the ongoing implicit neglect of the value of Nature in economic decisions.

3.1.2 Problems specific to Contingent Valuation

As already stated in section 1.4, which was devoted to eonomic valuation methods, stated pre-
ference methods are of crucial importance to any attempt to determine the economic value of
an ecosystem since they provide the only way to capture non-use components of the Total
Economic Value (TEV), which are not subject of any market. The most prominent and widely
applied stated preference method is Contingent Valuation, first proposed by CIRIACY-
WANTRUP (1947). However, it also can be viewed as being representative for the whole
branch of valuation methods, particularly with regard to the subject of this thesis, i.e., pro-
blems of economic valuation of ecosystem services. In the following section, problems related
to this method will be sketched and discussed, since they are central for every valuation effort,
including that of the Yasuní rainforest.

There is a vast and controversial body of literature on the merits of CVM, particularly on its
application in environmental and health economics (ARROW et al, 1993). In general, two main
problems of the Contingent Valuation Method (CVM) can be identified: the so-called embed-
ding effect and the willingness-to-pay (WTP)/willingness-to-accept (WTA) divergence. Fur-
ther controversies include the "warm glow" effect and the opportunity costs of survey respon-

33
ses. While being distinctive problems, these aspects are closely interrelated and interlinked,
and it is often difficult to draw clear-cut lines separating them from each other.

Embedding effect: The embedding effect, which also has been called part-whole bias or in-
sensitivity to scope (PASCUAL et al, 2012)28, was first observed by KAHNEMAN (1986) in a
study about fish populations in lake Ontario. It is 'the name given to the tendency of willing-
ness-to-pay responses to be highly similar across different surveys, even where theory sug-
gests (and sometimes requires) that the responses be very different' (DIAMOND & HAUSMAN,
1994, p. 46). It has been argued that such responses are in violation of the rationality assump-
tion even in its weakest form, while economics does not yet know a way how to interpret this
kind of surveys without assuming rationality at all (ARROW et al, 1993). DIAMOND &
HAUSMAN (1994) pointed out that embedding might be interpreted as reflecting substitution
'since protecting one area results in being less willing to protect another' (p. 51), but they re-
ject the interpretation themselves as being inconsistent with what CVM is aiming at. Howe-
ver, citing a review by CARSON (1994), HANEMANN (1994) points out that most CVM studies
do not show any significant embedding effect and the exceptions may be methodologically
flawed. In newer studies, however, the existence of an embedding effect has been confirmed
(AMIGUES et al, 2002). DASGUPTA (2001, p. 135) suggests that the embedding effect may be
the result of insufficient information given to respondents prior to the survey, and thus resol-
vable. However, he also expresses his concern about a related problem, called the "framing
problem" (also mentioned by others29, see ARROW et al, 1993): sometimes respondents seem
to answer the same question differently if it is put in different ways ("reframed"), which may
lead to manipulation by the researcher.

WTP/WTA divergence: A particularly controversially debated problem related to the Con-

tingent Valuation and related methods is the so-called WTP/WTA divergence. While most
economists agree that, theoretically, willingness-to-pay for a good and willingness-to-accept
for its loss should be equal (PASCUAL et al, 2012), more often than not they are not
(GRUTTERS et al, 2008; HOROWITZ & MCCONNELL, 2002; MORRISON, 1998). However, some
scholars have tried to give an explanation for the WTP/WTA divergence suggesting that it is

28
GOLDBERG & ROOSEN (2007) differentiate between embedding effect (non-adequate responses to similar
risks) and scope insensitivity (non-adequate responses to changes in magnitude of the same risk), but most
scholars don't and this differentiation appears to have no merit for the discussion advanced here.
29
HANEMANN (1994) calls this the "response effect".

34
not necessarily at odds with economic theory. E.g., DASGUPTA (2001, p. 134) proposed the ar-
gument that the divergence may be the result of two different functional representations (wil-
lingness-to-pay and willingness-to-accept) of the same preference ordering. In an influential
paper, HANEMANN (1991) suggested that perceived non-substitutability of the valued good
may be the source of the WTP/WTA divergence. Following this logic, WTA should be expec-
ted to be much larger than WTP, which is consistent with empirical observations. This hypo-
thesis finds experimental support in SHOGREN et al (1994). However, HOROWITZ &
MCCONNELL (2003) showed formally that the observed divergence is too large to be explai-
ned by Hanemann's mechanism solely. In their understanding, there are only two plausible ex-
planations: either the survey methods are flawed or there is a flaw in the neoclassical prefe-
rence concept. Another possible explanation is the "endowment effect" or loss aversion, a
phenomenon of people valuing goods higher once they own them. MORRISON (1998) maintai-
ned that her experimental study confirmed the "endowment effect" as being responsible for
the WTP/WTA divergence. However, there is no definitive agreement among scholars about
how to interpret this phenomenon. Those not dismissing CVM in general tend to recommend
WTP as the more "robust" approach30 (SHOGREN et al, 1994).

Other issues: Embedding effect and the WTP/WTA divergence are the most prominent pro-
blems related to CVM, but they are not the only ones. An issue often deliberated upon is the
so-called "warm glow" effect. Unexpectedly high values reported by survey respondents are
often interpreted as merely reflecting an altruistic feeling of having to do something good, and
dismissed for they do not fit the assumption that self-interest is the source of value (DIAMOND
& HAUSMAN, 1994). This practice of dismissal has been criticised a lot (ARROW et al, 1993;
HANEMANN, 1994; ACKERMAN & HEINZERLING, 2004, p. 163), but there remains the problem
of a conflict between large valuations and budget constraints the respondents are faced with in
reality (ARROW et al, 1993). This is closely related to the opportunity costs dilemma. Survey
respondents are faced with "virtual" choices, so the opportunity costs of unrealistic responses
are very low (PASCUAL et al, 2012). Another downside of CVM was bemoaned by DECANIO
(2003, p. 24), namely the fact that CVM is dealing only with existing property rights, which
may not reflect all facettes of the problem at stake. HANEMANN (1994) pointed out that the ag-
gregation of CVM-derived willingness-to-pay across individuals is not a straightforward mat-
30
Another reason for recommending the WTP approach is that mostly WTP values are lower than WTA, and
thus represent "lower bound" estimates, which is believed to be more "safe" (NRC, 2005, p. 42).

35
ter and actually does not lie within the competence field of economists. GOLDBREG &
ROOSEN (2007) reported that they derived different values when applying different methods
(CVM and Choice Experiments), even though they measured the same good under equal con-
ditions. All these issues are additionally aggravated by the fact that there is no way of compa-
ring the values generated by CVM with the "real" values the surveys are supposed to measure
(DIAMOND, 1996).

After reviewing some of the most severe problems related to the Contingent Valuation Me-
thod, it shall be concluded that it is a very important but at the same time all but a noncontro -
versial valuation method. Indeed, as DECANIO (2003) put it, '[c]onsensus within economics on
the validity and limits of CV has yet to be reached.' (p. 164n.) While some argue that CVM
surveys, when properly conducted, may still be a valuable tool for environmental and health
economists (HANEMAN, 1994; ARROW et al, 1993), other scholars dismiss it as too problema-
tic (DIAMOND & HAUSMAN, 1994) and not well-suited for valuing biodiversity since '[p]reser-
ving biodiversity [...] is a political choice' (DASGUPTA, 2001, p. 136).

3.1.3 Endogeneity of carbon price

Another problem of economic valuation of ecosystems, which seems to have gone unaccoun-
ted for in the economic literature on ecosystem valuation and/or climate change, is what may
be called "endogeneity of carbon price".

In econometrics, endogeneity is the phenomenon that occurs when there is a correlation bet-
ween an explanatory variable and the error term or, in other words, a causality loop between
explanatory and explained variables. Carbon price is the estimated social cost of one unit of
greenhouse gases emitted (mostly in terms of CO2e31). In other words, carbon price is meant
to reflect the likely damages caused by each additional unit of greenhouse gases emitted into
the Earth's atmosphere (ACKERMAN & STANTON, 2010). Many attempts have been made at
calculating the carbon price, or social cost of carbon (see, e.g., STERN, 2007; ACKERMAN &
STANTON, 2010; NORDHAUS & BOYER, 2000; TOL, 2008).

There are many components that flow into the estimation of carbon price. Examples include
the value of constructed capital (buildings, roads etc.) damaged due to extreme weather events
31
Carbon dioxide equivalents: a way of comparing the change in radiative forcing caused by different green-
house gases, based on their lifetime and radiative forcing per time unit, as compared with carbon dioxide, the
main greenhouse gas.

36
whose magnitude was increased as a result of climate change (IPCC, 2012), the value of de-
clines in agricultural production due to changed weather patterns, the estimated value of addi-
tional human lives lost due to climate change, and damages (i.e., value losses) to ecosystems
caused by rising temperatures, changed precipitation patterns or extreme weather events
(IPCC, 2007). The latter component, damages to ecosystems, is important for our discussion.

To be able to calculate the social cost of carbon, one needs, among other things an estimate of
the value of ecosystem services that would be affected by climate change. To take a relatively
simple example: if rising temperatures and the increased risk of droughts would be projected
to negatively affect biomass production in the Yasuní rainforest, the cost of these losses for
the timber industry should become a part of the social cost of carbon. Or, if climate change
would make the rivers of Western Amazon unsuitable for a particular fish species having
commercial value, this loss for fishers and the fish processing industry should also be accoun-
ted for in the calculation of carbon price. Of course, the examples named above would have
by themselves a negligible influence on the overall price of carbon if seen in an isolated way.
However, such damages to ecosystems constitute, when aggregated, an important component
of the social cost of carbon.

The problem with this estimation procedure is that to calculate the value of an ecosystem, one
must know, inter alia, the social price of carbon (DASGUPTA, 2001, p. 133). An important
ecosystem service is the role of forest ecosystems, mangroves, wetlands, oceans etc. as carbon
sinks, and thus as climate regulators. In the course of photosynthesis, plants take up carbon di-
oxide from the air and store it. Therefore, a part of the economic value of an ecosystem is the
amount of carbon dioxide absorbed by it times the social price of carbon. But the price of car-
bon itself depends on the value of this ecosystem. In other words, carbon price is an endoge-
nous variable here and there is no easy way to deal with this causality loop, aside from igno-
ring the problem, as seems to be the case in modern economic literature on ecosystem valuati-
on and climate change.

3.2 Idiosyncratic problems in the Yasuní case

After some general problems related to economic valuation of ecosystem services that are
common to every valuation effort have been presented, it is time now to focus on the case stu-

37
dy envisaged in this thesis. Clearly, there are idiosyncratic problems of ecosystem valuation in
the Yasuní case. Beyond the points made here, further issues may emerge when such a valua-
tion would indeed be done. The discussion here is not complete. However, even these 5 preli-
minarily identified problems give reasons for concern. They are: the identification of relevant
stakeholders and problems arising from the differences in their value systems and world
views, particularly between the Huaorani and the "West", the issue of how to take into ac-
count the relationship between willingness-to-pay and ability-to-pay on the side of Ecuado-
rians (equity weighting), how to deal with the inherent uncertainty resulting from the vast
complexity of a rainforest ecosystem, including a discussion of the consequences of threshold
effects for economic valuation, the sensibility of a Benefit Transfer in the Yasuní case, and
the problem of comparing the two sides of the tradeoff involved in the Yasuní case, i.e., dis-
counting petroleum income against conservation benefits.

3.2.1 Relevant stakeholders and aggregation issues

To successfully assess the value of an ecosystem, one has to identify and involve all relevant
stakeholders - 'persons, organizations or groups with interest in the way a particular ecosys-
tem service is used, enjoyed or managed' (PASCUAL et al, 2012, p. 225). Stakeholder involve-
ment is important not only for the valuation effort to be successful in terms of the resulting
value estimate, but also as a way to prevent possible social conflicts resulting from alternative
decisions regarding the ecosystem in question.

In a case like that of Yasuní, many difficulites may arise in the process of identification and
involvement of stakeholders. The first question to be answered is, of course: who are the sta-
keholders? In the Yasuní case, there appear to be three relevant groups, each with different in-
terests and perspectives on the issue of whether the Yasuní ecosystem should be kept intact.
The first group are, of course, the indígenas - particularly the Huaorani. The second group is
the broader Ecuadorian society. The third group is the international community. Clearly, this
is a rough division, but it appears to be of some merit for the following discussion.

Obviously, each of the three stakeholder groups relevant in the Yasuní case has a unique per-
spective on the problem, and unique needs. The differences go beyond the fact that '[l]ocal
agents tend to attach higher values to provisioning services than national or global agents,
who attach more value to regulating or cultural services' (PASCUAL et al, 2012, p. 226; see

38
also HEIN et al, 2006). In fact, the Huaorani and other indigenous groups living in or near the
Yasuní rainforest are clearly most closely connected to the ecosystem. As already pointed out
in this thesis, they directly depend on the intactness of the ecosystem. They likely are most in-
terested in the provisioning services drawn from the ecosystem, particularly game, fish, wild
fruits and ornamental resources. But, as stressed by RIVAL (1993), the forest is also a constitu-
tive part of Huaorani identity and world-view, which means that cultural ecosystem services
are central for them, too (Table 4 summarizes our findings as to which ecosystem service ca-
tegories are most important to each of the three stakeholder groups). Meanwhile, the Ecuado-
rian society as a whole seems to be more interested in the provisioning service of the Yasuní
as a petroleum reserve. As pointed out earlier, Ecuador's development status means that it
needs additional financial resources to pursue its development goals. Conversely, however,
there is support among the Ecuadorian people for conservation of rainforests, as expressed in
the adoption of the new constitution in 2008, which was the first in the world to grant rights to
Nature (GUDYNAS, 2011). So, the Ecuadorian society seems to be the constituency with a rat-
her ambivalent attitude toward the Yasuní trade-off. More details would have to be determi-
ned to clarify this ambivalence, possibly in the course of valuation surveys/audits. The inter-
national community's interests are much easier to determine. The only ecosystem services
provided by Yasuní that are truly relevant to it are regulating and cultural services. Of course,
international stakeholders would also benefit from the petroleum extracted from the ITT
fields, but there is too little fuel there for it to significantly influence global prices. This is
even more true for other ecosystem goods harvested in Yasuní. The preservation of biodiver-
sity and the regulating service of climate stabilisation appear to be of central interest for the
international community in the Yasuní case, as implicated by the widespread rhetorical sup-
port for the Yasuní-ITT Initiative (WATTS, 2012a).

Stakeholder group Ecosystem services focused on

Indigenous peoples provisioning (food, water, ornamental resources), cultural
(identity basis)
Ecuadorian society provisioning (timber, petroleum), regulating? (water flows
regulation), cultural (Nature's rights, aesthetic information)
International community regulating (climate regulation), cultural (tourism, aesthetic
information), provisioning (genetic resources), habitat
(maintenance of genetic diversity),
Table 4: Yasuní stakeholders and ecosystem services they focus on

39
A paramount difficulty in dealing with different stakeholder groups in the process of ecosys-
tem valuation is the need to somehow compromise their differing world-views and value sys-
tems. In the Yasuní case, this caveat is particularly important due to the Huaorani culture dif-
fering much from what "Westerners" are used to.

One example is related to contingent valuation and similar methods where stakeholders are
asked to value the ecosystem's non-use cultural services. As is well-known, the source of eco-
nomic values, including prices, is believed to be the scarcity of goods and resources
(SAMUELSON & NORDHAUS, 2010, p. 4). However, the Huaorani, whose valuations are argua-
bly particularly important for assessing the overall value of Yasuní, seem not to have an un-
derstanding of scarcity with regard to rainforest resources (LU, 2001). It might thus be very
difficult to explain to them the reasoning behind stated preference methods and get meaning-
ful willingness-to-pay estimates from them.

Furthermore, the adoption of the 2008 constitution in Ecuador has shown the widespread ad-
herance of its people to a world-view, often called buen vivir (Spanish) or sumak kawsay
(Quichua), that explicitly and implicitly assigns an intrinsic value to Nature (ACOSTA, 2012;
GUDYNAS, 2011). The buen vivir is at odds with many central aspects of the "Western" world-
view, including a dismissal of the idea of linear social development and the assignment of int-
rinsic rights and values to Nature. Apparently, it is not easy to compromise this exceptional
world-view and the associated value system with conventional methodology of economic va-
luation of ecosystem services (WAGNER & PASCUAL, 2011).

In addition to these specific problems, there are also more general issues related to stakehol-
der involvement. A particularly problematic one seems to be aggregation. Even if meaningful
value estimates from all stakeholders could be collected, and regardless of equity concerns
(see next section), aggregation is not straightforward. Some scholars have criticised the aggre-
gation of individual willingness-to-pay both generally and across various stakeholder groups
on conceptual grounds. E.g., WAGNER & PASCUAL (2011) stressed the importance of collecti-
ve formation of preferences for ecosystem services. This critique, however, can be at least
partly absorbed by deliberative valuation methods (see 1.4 of the present thesis). Meanwhile,
DECANIO (2003) dismissed stated preference methods as 'a mechanical faith that "democracy"

40
or "public opinion" can somehow miraculously aggregate disparate, partial, and frequently
conflicting information into a coherent and reasonable policy' (p. 23). Another related, though
more technical problem is that if there is a "warm glow" effect (see 3.1.2) and it cannot be fil-
tered out, simple aggregation of individual willingnesses-to-pay would result in double coun-
ting.

Generally, it should be clear from the above discussion that aggregation across different and
divergent stakeholder groups is not a simple issue and involves many "judgement calls" on
the side of the researcher.

3.2.2 Willingness-to-pay, ability-to-pay and equity weighting

It already was shown in section 2.4 that the Ecuador's development status is still one of a de-
veloping country, and that it has to cope with high levels of poverty and inequality. It would
be unrealistic to expect ability-to-pay for environmental public goods (ecosystem services) in
the order of those common in, say, Europe. Furthermore, the Huaorani, who arguably are the
most important stakeholder group in the Yasuní case (see last section), are at the bottom of the
Ecuadorian society in terms of socio-economic welfare. Their ability-to-pay for anything is
very low, regardless of the problems caused by their lack of understanding of the notion of
scarcity. However, as discussed in the last section, to calculate the TEV of Yasuní, one needs
to aggregate willingness-to-pay across various stakeholder groups. This raises the question
whether there is a need for equity weighting, given that willingness-to-pay can be expected to
be related to ability-to-pay of the individual in question. In other words, individuals with low
incomes are likely to have a low willingness-to-pay for public goods, even though they do not
necessarily value them less than richer stakeholders do.

Conventional economic theory is rather ambivalent with regard to equity weighting. Most tra-
ditional standpoints dismiss the idea, e.g., the widely applied Kaldor-Hicks criterion
(ANTHOFF et al, 2009). However, more recent research has suggested numerous arguments in
favour of equity weighting (PASCUAL et al, 2012; DASGUPTA, 2001, p. 20). One argument is
at the core of economic theory: it is normally assumed that the marginal utility of income is
declining, viz. 'the same absolute consumption change results in a smaller welfare change for
a rich person than a poor person. ' (ANTHOFF et al, 2009, p. 836) To reflect this while aggrega-
ting WTPs, one needs some form of equity weights. Another argument that has been put for-

41
ward in the context of environmental valuation is that poor people depend on ecosystem ser-
vices much more directly (DASGUPTA, 1995). Still another, though related point was made by
SEN (2001, pp. 62-3), who stressed the empirical observation that deprived people exhibit a
tendency to "adapt" to their circumstances by lowering expectations, what has been called "re-
signed adaptation" elsewhere (WAGNER & PASCUAL, 2011) and is a clear distortion of prefe-
rences.

Obviously, there are numerous strong reasons in favour of the application of equity weighting
in the process of economic valuation of ecosystem services. However, how to do it is not a
straightforward matter:

[S]o far it has proved difficult to develop a consensus for the formulation, quanti-
fication and application of such weights. This is because there are practical diffi-
culties as well as theoretical controversies as one moves from the basic identifica-
tion of how costs and benefits are distributed to the actual assignment of weights
on the basis of judgements about society’s distributional preferences [...].
(WAGNER & PASCUAL, 2011, p. 14)

In some cases, the task may be easier, e.g., to account for differences in income only, one
could use income elasticity estimates available in the literature (PASCUAL et al, 2012). But
how should differences in the dependence on ecosystem services be accounted for? What
about "resigned adaptation"? Does this effect occur in the Yasuní case at all? These are im-
portant empirical and ethical questions, which still have to be answered before the effort of
economic valuation is started, particularly in Yasuní-like cases with many divergent stakehol-
der groups involved. There is no way around this problem. Obviously, refusal to use equity
weights at all also implies an ethical judgement.

3.2.3 Uncertainty and non-linearity issues

Economists have to deal with uncertainty and knowledge deficits all the time. Indeed, the ma-
jor difference between various schools of thought within economics is often how they deal
with these issues. Similarly, environmental economics has to account for uncertainty and im-
perfect knowledge, both with regard to the natural systems themselves and the socio-econo-
mic systems embedded in them.

An important critique of economic valuation of ecosystems is linked to exactly these issues:

42
 [H]ow do we deal with values of organisms whose very existence escapes our no-
tice? Before we fully appreciated the vital role that mycorrhizal symbiosis plays in
the lives of many plants, what kind of value would we have assigned to the tiny,
threadlike fungi in the soil that make those relationships possible? (EHRENFELD,
1988, p. 214)

As briefly stated in section 2.1 of this thesis, Yasuní is not an exception in this regard. Indeed,
the whole Amazon is believed to still be full of places, species and traits we do not know. For
example, estimates regarding the number of different insect species in the Yasuní are still
highly speculative (BASS et al, 2010). How to deal with this problem?

Indeed, in the quotation above, Ehrenfeld mentioned two issues that environmental econo-
mists are certainly aware of. In the economics of ecosystem valuation, they go by the names
of option value and quasi-option value (PASCUAL et al, 2012). The former relates to the (un-
known) value of species or properties of the ecosystem of whose existence we are not aware.
It 'assumes supply uncertainty of ecosystem servcices and derives from risk aversion on the
part of the beneficiaries of such services' (p. 224). The latter relates to the unknown value of
uses of a known ecosystem (service) we are not yet aware of - '[i]t is the value of preserving
options for future use given expected growth of knowledge' (p. 224). However, the fact that
we are aware of these problems does not mean that we know well how to deal with them:

Calculating option and quasi-option values are thus perhaps one of the most pro-
blematic issues surrounding valuation of ecosystem services. However, such va-
lues may be significant especially with regard to irreversible changes to natural
capital. (PASCUAL et al, 2012, p. 225)

It is not easy to calculate the value of something we know nothing about, not even whether it
actually exists. A part-solution to this is provided by the notions of risk aversion and irreversi-
bility, even though the latter causes further problems on its own.

Risk aversion is a characteristic of human preferences. Simply put, it means that people tend
to prefer a sure payoff over a lottery with expected value equal to that sure payoff. This provi-
des a potential tool for handling option values. However, its application is nontrivial
(PASCUAL et al, 2012). Nevertheless, even if we do not know all parts of the Yasuní ecosy-
tem, we still can methodologically account for this imperfect knowledge (PERRINGS, 1991).
Conversely, doing this forces us to rather arbitrary procedures because risk aversion estimates

43
have to be used, for which no unequivocally accepted values are available (NRC, 2005, p.
186).

While option value is related to risk-aversion, quasi-option value is not. However, ARROW &
FISHER (1974) still were able to show that if decisions regarding an ecosystem are irreversible
over meaningful time scales, e.g., damages due to drilling for petroleum in Yasuní ITT, con-
servation value raises above the baseline case without the irreversibility assumption:

Essentially, the point is that the expected benefits of an irreversible decision

should be adjusted to reflect the loss of options it entails. (p. 319; emphasis ZG)

ARROW & FISHER (1974) emphasised that their results do not imply an overthrow of marginal
analysis. However, there is still another point related to irreversibility they did not take ac-
count of: non-linearity.

Non-linear effects (also threshold effects, regime shifts or bifurcations) compound the effects
of uncertainty (ARROW et al, 2004). In the case of Yasuní, one possible form of a threshold ef-
fect would be the collapse of the population of a keystone species - army ants may be such a
species (O'DONNELL et al, 2007). It may also be something else. We do not know. If we
would know, the problem would be much less severe. What is important is that an approa-
ching threshold effect does overthrow marginal analysis:

The problem for economic valuation is that before the threshold is reached, the
marginal benefits associated with a particular ecological service may either be
fairly constant or change in a fairly predictable manner with the provision of that
service. However, once the threshold is reached, not only may there be a large
“jump” in the value of an ecological service, but how the supply of the service
changes may be less predictable. (NRC, 2005, p. 114; emphasis ZG)

This is similar to the butterfly effect, a key notion of the chaos theory. In complex, dynamic
systems, Yasuní clearly being such a system, a fairly small change in one variable (say, army
ants population) may lead to a bifurcation point, after which the system behaves in a manner
completely different from how it would have behaved without this seemingly minor change.

Such threshold effects are also possible in people's preferences. NRC (2005, p. 115) names
the example of the enlisting of a species as endangered as a possible "triggering event". This
further compounds the problem. Even though there have been attempts by scholars to model
non-linearities in ecosystems, it seems that the application of economic valuation under thres-

44
hold conditions is not reasonable (WAGNER & PASCUAL, 2011). Even though we seldom
know whether a bifurcation point is approaching, some help is provided by the concept of
ecosystem resilience32, as proposed by HOLLING (1973). He stressed that the stability and resi-
lience of ecological systems depends on numerous factors. If we want to support resilience,
we have to be precautious and acknowledge our limitations resulting from imperfect knowled-
ge and uncertainty. This may mean refraining from marginal analysis in some cases in favour
of ecosystem conservation on a more ad hoc basis.

3.2.4 Benefit Transfer in the case of a biodiversity hotspot

If a "normal" valuation process is not viable due to lack of resources or other difficulties, the-
re still remains the option of conducting a Benefit Transfer (BT). As outlined in section 1.4, it
is a relatively non-expensive way of attaining an estimate of the value of an ecosystem. One
only needs a study site that is similar to the policy site in all relevant dimensions. If the sites
are really well fitting each other, even a unit BT may be reasonable. Otherwise, unit BT may
be adjusted or a value function approach be used. Even the latter will be still much less expen-
sive in most cases than conducting a primary study. However, the precondition is always that
there exists a rather-more-than-less similar policy site. So, for the case study considered here,
there emerges a question: is there any ecosystem in the world that can be assumed to resemble
Yasuní? Is BT sensible in the face of exceptionally high levels of biodiversity and endemism,
and the existence of very specific stakeholder groups?

In Section 2.1 we learned about the ecosystem characteristics of the Yasuní rainforest. Accor-
ding to available data, it is among the most biodiverse places in the world across taxonomic
groups, particularly amphibians, birds, mammals and vascular plants, although there may be
many species there still to be discovered and documented (see 3.2.3 above). There are no aut-
horitative, last-resort measures of "total biodiversity", but it may well be that Yasuní is the
most biodiverse ecosystem on planet Earth, blessed with exceptionally high levels of ende-
mism. Indeed, it is the home of some 40 endemic animal and at least 400 endemic plant spe-
cies despite its comparably small area.

Furthermore, as indicated in Section 2.2, the Huaorani and the uncontacted tribes of Tagaeri
and Taromenane are a rather untypical stakeholder group culturally and regarding their li-
32
Resilience is understood as the 'ability of an ecosystem to recover from disturbance without human inerven-
tion' (KUMAR, 2012, p. xxxvii).

45
festyle. The value they attach to the Yasuní forest and their dependence on its services is rat-
her exceptional, which further aggravates the prospects of BT.

The exceptional species richness and endemism of the Yasuní rainforest and the existence of
an untypical constituency, the Huaorani, is the reason why it is doubtful that a Benefit Trans-
fer would be feasible in this case. The magnitude of adjustments that would likely be needed
even if the study site would be as closely related as possible33 would likely increase the possi-
bility of major errors beyond acceptable limits. In other words: Yasuní appears to be an extra-
ordinary example of a case in which BT is not a viable option and "traditional", re-
sources-consuming methods should be applied. This is particularly important because con-
cerns have been expressed about the general feasibility of BT, even in less complicated cases
(NRC, 2005, pp. 103-4).

3.2.5 Discounting petroleum against conservation

In the end, the political-economic decision about the future of the Yasuní rainforest is about a
seemingly simple tradeoff. It is a decision between a) leaving petroleum underground and
protecting the ecosystem, and b) extracting the petroleum to finance Ecuador's development
needs. However, as suggested throughout this thesis, this choice is not as simple as it may ap-
pear. Even if we were able to agree that economic valuation of an ecosystem is an ethically
proper action, that the methodology commonly used to value ecosystem services provides re-
liable value estimates, that there exist reliable data to base the valuation process on, that it is
clear who are the relevant stakeholders and how to include them in the valuation process.
Even if we were able to agree on all these issues, there still remains at least another one. The
two possible modes of use of the Yasuní rainforest have to be compared with each other. And
this is not a straightforward thing to do, either.

On the one side, there is the continuous annual stream of socio-economic benefits generated
by the services the ecosystem Yasuní provides. On the other, there is the annual stream of
economic benefits generated by petroleum extraction, over a limited time period (in most ca-
ses, 20-50 years). Let us assume for the moment that the value of the conservation benefit
stream has been determined already. What has to be done next? Two things are required: first,
of course, the value of the petroleum income stream has to be determined based on estimated
33
This presupposes that a) there exists an ecosystem sufficiently similar to the Yasuní and b) there is a valuati -
on study available for this ecosystem.

46
reserves and expected future petroleum prices, which are the requirements for optimality in
exhaustible resource extraction (HOTELLING, 1931). Second, since the two streams in conside-
ration flow over different time periods, they have to be discounted to be compared in terms of
their present values.

One would expect the first task at least to be easy. However, it is not. Problems already emer-
ge when the question is asked: how much petroleum do the ITT fields contain? As stressed by
RIVAL (2010), estimates range from around 850 million barrels (although lower estimates
have been given, too) to 950 million barrels, which implies a non-negligible difference bet-
ween the range bounds. Why is it so difficult to give a reliable ex ante estimate of petroleum
reserves? First, since nothing has been extracted yet, no-one has seen it. Geological techni-
ques allow for relatively exact measurements, but they still bear some uncertainty. Furthermo-
re, even if the amount of petroleum lying underground is known, it does not necessarily mean
that all of it is recoverable. Recoverability depends on both geophysical characteristics of the
field (RIVAL, 2010) and future petroleum prices. Some years ago, petroleum extracted from
tar sands or, for that matter, shale gas, were not relevant for the market, since their extraction
was too expensive given the market price. In more recent past, this has changed, both in terms
of extraction costs, which went down due to technological progress, and in terms of petroleum
and gas prices, which climbed up.

Even if we had a more or less exact estimate of the petroleum reserves in question, an even
more profound problem remains: forecasting petroleum world market prices. Since most of
the resource would be sold in the years to come, we do not know how much people will be
willing to pay for it in the future. However, economic models that aim at forecasting middle-
to long-term development of basic economic data such as the petroleum price have been
found to be very unreliable:

[E]ven when the best representatives of the modelling community are examined
regarding the accuracy of their forecasts, there is very little justification for opti-
mism about long-term economic forecasting ability. (DECANIO, 2003, p. 131)34

34
See DECANIO (2001, pp. 130-139) for an excellent account of the historical failure of economic forecasting
models to properly predict resource prices.

47
Petroleum price is particularly volatile and hardly-predictable economic datum (RIVAL, 2010).
But without being able to give an acceptably reliable estimate of future petroleum price, any
comparison of the kind mentioned above is not feasible.

Let us assume, nonetheless, that we have acquired a reliable estimate of the income stream to
be generated by the ITT fields. As already mentioned, there is one more step toward compa-
ring this income stream with the benefit stream generated by an intact Yasuní ecosystem.
Both streams have to be brought to a common denominator, i.e., they have to be discounted.
Here, also, problematic issues abound.

Even though the petroleum profits are meant to be used for public purposes, namely to foster
Ecuador's development policy, they are of private-good nature themselves. Therefore, it is ob-
vious and rather non-controversial to discount the petroleum income stream using the market
interest rate (HOTELLING, 1931)35. However, the paramount characteristic of most ecosystem
services is that they generate public goods (POSTEL & CARPENTER, 1997). How should a be-
nefit stream flowing from an ecosystem be discounted then? This is a question that have foste-
red a vigorous debate within the economic profession, particularly following the publication
of STERN (2007), which has not been settled yet. Without going into details, we are going to
take a look at some issues raised in what follows:

Ramsey equation: Most environmental economists use the Ramsey-approach (RAMSEY,

1928) when discounting environmental public goods. This approach is a indefini-
tely-living-representative-agent model (also called a social-planer or social-evaluator model).
However, DECANIO (2003, pp. 84f.) suggested that this model is both ethically and methodo-
logically problematic, and proposed instead to deal with intergenerational equity concerns
with models related to the Overlapping Generations Model (OLG), as conceptualised by
HOWARTH & NORGAARD (1992) (see also NORGAARD & HOWARTH, 1991). In this approach,
discounting is only necessary within generations. However, there is no possibility to objec-
tively determine which approach should actually be used.

35
However, it may be pointed out that since petroleum consumption is the main driver of climate change, i.e.,
the greenhouse-effect of the CO 2 emissions generated in the process of petroleum burning is a major exter-
nality, market rate of interest as discounting factor may not be as proper a choice as it appears in the first
place. We abstract from this issue here.

48
Pure time preference: The discussion over the use of market interest rates is closely related
to the determination of the rate of pure time preference within the Ramsey-model. Here, also,
differing values have been proposed. Most were based on ethical considerations - see
DASGUPTA (2008), STERN (2007, p. 53). In some cases account was taken of issues such as
uncertainty or relative prices (see LIU, 2011; STERNER & PERSSON, 2008). Most scholars, ho-
wever, have found 'that no such justification (against a zero rate of time preference) exists'
(STERNER & PERSSON, 2008, p. 65), this also being the view expressed by the first scholars to
deal with the problem, among them Frank Ramsey, Arthur Pigou and Roy Harrod (ARROW et
al, 2004). However, NORDHAUS (2007) has repeatedly argued, in the context of climate
change mitigation investments, that the market rate of interest should be used for discounting
environmental goods , this being a way of avoiding an "ethical" (i.e., normative) judgement
when choosing the "right" discount rate. Accordingly, his resulting rate of pure time prefe-
rence was not close to zero. However, others have argued that since markets are not perfect,
they do not reflect true social preferences. Therefore, the market rate of interest is not equal to
the social discount rate (ACKERMAN, 2009, p. 24; DASGUPTA, 2008; ARROW et al, 2004). Ad-
ditionally, recent behavioural literature suggests that people tend to discount distant future
lower than they discount events within their own life span (GOWDY et al, 2012). Market inte-
rest rates do not reflect this effect. Last but not least, even if one accepts the argument put for-
ward by NORDHAUS (2007), it is not necessarily clear which of the many market interest rates
to choose (ARROW et al, 2004). Indeed, the choice becomes then a non-economic judgement,
exactly the issue the "positive" approach is meant to avoid.

Consumption/well-being: The other component of the Ramsey Rule, along with the rate of
pure time preference, is a weighted term of consumption or well-being. It is a source of even
wider-ranging controversies. Both the choice of the weighting factor and its theoretical inter-
pretation are subject to an ongoing debate (DASGUPTA, 2008; GOWDY et al, 2012). Furthermo-
re, while the conventional approach is to assume a continuously rising consumption (STERN,
2007, p. 56; NORDHAUS, 2007), some scholars have been questioning this assumption on nu-
merous grounds. First of all, the assumption that GDP growth, which is mostly used as a
proxy of the consumption/well-being component of the Ramsey Rule, can be set equal to in-
creases in well-being have been questioned (EASTERLIN, 1995; NORDHAUS & TOBIN, 1972;
STIGLITZ et al, 2010; DASGUPTA & MÄLER, 2000). So were the likelihood of the assumption

49
that the world economy will grow indefinitely (ARROW et al, 1995; see also CLEVELAND,
1991). HEAL (2009) pointed out that economic models of ecosystem change should endogeni-
se future consumption, while mostly it has been assumed exogenous so far (see also STERNER
& PERSSON, 2008). This is related to the problem of optimist's paradox: the 'assumption of
continual growth justifies the present use of more resources and more pollution because our
descendants [are supposed to] be better off. But such growth would leave future generations
with a degraded environment and a lower quality of life.' (GOWDY et al, 2012, p. 266) Indeed,
it has been suggested that well-being may actually already be declining due to the degradation
of natural capital (GOWDY et al, 2012; ARROW et al, 2004).

Even though only a few specific problems have been highlighted here, it should be obvious
that discounting public environmental goods is not a straightforward issue. Given that it
would be only the last step of a chain of difficult decisions and judgements in the process of
comparing the value of the Yasuní ecosystem and the petroleum under it, the other steps being
the economic valuation of the ecosystem services generated by Yasuní now and in the future
and the estimation of the value of the petroleum reserves below Yasuní, there is no reason to
be optimistic about the reliability of the results eventually generated in this process.

50
SUMMARY AND CONCLUSIONS
In times of ever more pressing ecological crises (ROCKSTRÖM et al, 2009) it is crucial to figu-
re out how to deal with the critical interferences of human economic activity with ecosystems.
One possible way to do this is, as has been argued particularly by environmental economists,
to express the social costs of these interferences in a language understandable by those who
are responsible for environmental degradation: firms, consumers, regulators and policy ma-
kers. Economics may be such a language. Within economics, the concept of ecosystem ser-
vices (DAILY, 1997) is a useful tool for this purpose.

A notable example of how ecosystems can be economically valued is provided by the Ecua-
dorian Yasuní-ITT Initiative. Large amounts of petroleum lying under this exceptional Ama-
zonian rainforest lead to a trade-off that requires informed political decision: should the petro-
leum be extracted and the resulting income benefit Ecuador's pressing development needs? Or
should the Yasuní rainforest be preserved intact for its exceptional biodiversity and role as an
important carbon sink in times of rapidly ongoing climate change? What about the indigenous
communities living there? The Ecuadorian government chose an unusual way out of this di-
lemma: it asked the international community for financial support in return for keeping the
hydrocarbons underground and conserving the forest on surface.

The present master's thesis attempted to give the reader an impression of how complicated a
task economic valuation of ecosystem services is. In this context, Yasuní provided welcome
material for a case study.

The most thorough and encompassing synthesis of the state of the art in the theory and practi-
ce of economic valuation of ecosystems is the first report of the TEEB project (KUMAR,
2012). It was the basis of the first part of this thesis, in which it was sketched a) what the con-
ceptual basis of valuation is and b) what methodology is used to derive estimates of the eco -
nomic value of an ecosystem. This involves a lot of reasoning about, e.g., which ethical basis
to choose and why, data collection, particularly about the biophysical properties of the ecosys-
tem in question, and stakeholder involvement. Since there are different categories of econo-
mic values of ecosystem services, some of which are reflected in markets, while others are
not, a number of different methods are used: market based, revealed preference based, stated

51
preference based, deliberative. An aggregated sum of the results derived from these methods
is then the TEV, the Total Economic Value of an ecosystem.

However, what looks clear and feasible in theory, is not necessarily so in reality. To make this
visible, the middle-part of the present thesis was devoted to the Yasuní rainforest. Based on
numerous sources, it was shown that it is excepional in more than one aspect. First, Yasuní
exhibits seldom seen levels of biological diversity and endemism. Indeed, it is considered one
of the most biodiverse places in the world (BASS et al, 2010). Also, it is the home of indige-
nous peoples, the Huaorani, Taromenane and Tagaeri, whose livelihoods still depend heavily
on the intactness of the Yasuní ecosystem. Furthermore, Taromenane and Tagaeri belong to
the last tribes in the Amazon who live in voluntary isolation, while the Huaorani were contac-
ted peacefully for the first time only in 1958. At the same time, parts of Yasuní store large
amounts of petroleum, the main revenue source of the Ecuadorian government. This is an im-
portant aspect of the above-mentioned trade-off given Ecuador's status as a developing coun-
try. There is clear need for an informed decision about the future of the rainforest. Environ-
mental economics offers support in this respect.

However, as discussed in the main part of this thesis, economic valuation of ecosystem ser-
vices is all but a straightforward matter. Problems already begin in the ethical justification of
valuation - should Nature be valued at all? Is it right to adopt an anthropocentric standpoint
and ignore intrinsic values? What about different, particularly non-"Western" ethical traditi-
ons and views?

Even if we assume that the ethical questions can be resolved satisfactorily, there remains a
number of more technical issues as well:

• Stated preference based methods, particularly the widely adopted Contingent Valuati-
on method, are crucial in economic valuation of ecosystem services since they are the
only ones capable of capturing non-use values. However, they are all but uncontrover-
sial due to problems such as the embedding effect, WTP-WTA divergence or "warm
glow" effect. There is no consensus among scholars whether CVM and related measu-
res should be applied at all, not to mention the eventual treatment of the problematic
issues.

52
• An important regulating service provided by ecosystems, particularly by fast-growing
rainforests, is carbon storage. Therefore, the social cost of carbon absorbed by an eco-
system should be included in its estimated value. However, a part of the social cost of
carbon is damage to ecosystems related to climate change, the value of this damage
depending on the value of ecosystems. A causality loop emerges.

• To properly assess the economic value of an ecosystem, it is imperative to identify and

involve all relevant stakeholders. While the former appears to be a relatively straight-
forward task in the Yasuní case, involvement faces various obstacles, e.g., value sys-
tem and world-view differences between the Ecuadorian stakeholder groups and rese-
archers and their methods or the need to reconcile divergent positions in the course of
WTP aggregation, including the need for equity weighting and all related difficulties.
There is no consensus among researchers how exactly to deal with these issues.

• The properties of such complex natural systems as Yasuní are inherently uncertain.
There is reason to assume that their behaviour often is non-linear and that changes
may be irreversible, at least over relevant time-scales. This imposes additional cons-
traints on the viability of economic methods of ecosystem valuation. Marginal analysis
may be problematic in cases where thresholds are approached. How to deal with opti-
on and quasi-option values depends on many assumption, interpretations of empirical
findings and, in the end, judgement calls on the side of the researcher.

• If conducting a primary study at a site is not viable, for whichever reasons, there re-
mains the option of a Benefit Transfer. However, in the Yasuní case there are reasona-
ble doubts of the feasibility regarding BT due to the ecosystem's exceptional biodiver-
sity and endemism levels as well as the existence of specific stakeholder groups, i.e.,
the Huaorani and the uncontacted tribes.

• Under the assumption that all the obstacles mentioned above have been overcome, the-
re is still the need to conduct a cost-benefit analysis, i.e., to compare the estimated
(present) value of the Yasuní ecosystem with the estimated (present) value of the pe-
troleum reserves. Two difficulties arise: first, the estimation of both the amount of pe-
troleum and its future worth according to world market prices is a highly speculative
enterprise. Second, to make both alternative uses comparable, one needs their present

53
 discounted values. While in the case of petroleum it is a relatively straightforward
matter, discounting ecosystems and biodiversity is at least as controversial and invol-
ves at least as many judgement calls as their valuation.

The general message of the present analysis is that economic valuation of ecosystem services,
while desirable and potentially crucial in the effort to promote sustainability, is linked to a
huge number of difficult and problematic issues of all kinds - ethical, methodological, data-
related etc. This means, among other things, that every researcher who deals with this subject,
be it in the Yasuní case, be it in other cases, is forced to make judgement calls. Even under the
assumption that she would make them explicit, it is not obvious that this is good scientific
practice. Furthermore, in the Yasuní case, it is not easy to find arguments against the thesis
that the implicit opportunity-costs approach reflected by the Yasuní-ITT Initiative, namely,
calling upon the international community for financial support on the basis of foregone petro-
leum income, should be considered of similar merit as a state-of-the-art valuation done by an
economics professional. In the end, as was stated in the TEEB report:

[O]ne may argue that it is more important how we value than which value we at-
tach to nature. (BRONDÍZIO et al, 2012, p. 174)

54
APPENDIX
Valuation method Description
Market based methods
Market price Some goods produced by ecosystems have market prices (e.g.,
timber, fish and some fruits), which can be used for the estima-
tion of the value of the ecosystem in question. However, in
many cases these prices should be adjusted for distortions re-
sulting, among others, from public subsidies.
Some direct-use values can be captured.
Opportunity cost The value of an ecosystem is calculated as the opportunity cost
of not transforming it into direct, for-the-market use (e.g., the
value of a piece of forest would be the value of the agricultural
production that could be drawn from its area if it would be
cleared for agriculture).
Some (foregone) use values can be captured.
Avoidance cost The value of an ecosystem is taken to be reflected by individu-
als' willingness-to-pay for measures that protect it (e.g., filters
that clean water before it is released into natural systems).
Some use values can be captured.
Replacement cost The cost of measures aimed at replacing a particular ecosystem
service (e.g., building a sewage treatment site that is to replace
water cleaning services of a wetland) is interpreted as reflec-
ting the value of it.
Some direct-use values are captured.
Restoration cost Some ecosystems can be restored after human-induced dama-
ges - the cost of restoration is set equal to the value of the eco-
system services restored.
Some use values can be captured.
Production function This is an attempt to formulate a relationship between some
variables that describe the state of an ecosystem, and its capa-
city to generate services; changes in state variables can be di-
rectly linked to changes in the provision of services.
Some use values can be captured.
Revealed preferences based methods
Travel cost It is assumed that people's willingness-to-pay for amenities
they travel to (e.g., national parks) reflects their valuation of
services provided by the underlying ecosystems (e.g., the value
of recreation); however, no marginal changes in the state of the
ecosystem in question can be valued.
Use values that are not reflected in market prices can be captu-
red by this method.

55
Hedonic valuation
Stated preferences based methods
Contingent valuation This approach is based on questionnaires; with their help a hy-
(CVM)
Choice models
Contingent behaviour
Deliberative methods
Valuation workshop
Market stall
Benefit Transfer methods
Unit BT
This approach utilizes the fact that differences in the prices of
otherwise equal real estate that are located in areas with diffe-
ring environmental characteristics can be used to estimate the
incremental value that emerges from these differences (theore-
tically, many factors can be valued independently by using a
large sample of real estate data).
Non-market use values can be captured.
pothetical market for the services of a particular ecosystem is
construed and respondents are asked to name their willingness-
to-pay for or their willingness-to-accept of a specified change
in the state of an ecosystem.
All use and non-use values can be potentially captured by this
method.
Another questionnaire-based approach; respondents are pre-
sented combinations of certain characteristics of an ecosystem
with prices attached, and asked to rank them according to their
personal valuation.
All value categories can be captured.
This method supplements the travel cost method (see above)
and is questionnaire based; respondents are asked about chan-
ges in their travelling behaviour as a result of a hypothetical
change in the state of the ecosystem in question.
Since this method is only a supplement of the travel cost me-
thod, it can only capture use values accordingly.
An ecosystem-related problem is presented to a group of peo-
ple by experts in a possibly objective way; participants are
then given time for discussion, after which they are asked to
fill out questionnaires similar to those used in CVM.
All value categories can be captured.
An extended version of the valuation workshop: after having
stated their preferences, the workshop's participants are contac-
ted again after some time and asked whether they still hold to
them.
All value categories can be captured.
If the study and the policy sites are very similar in their bio-
physical and socio-economic characteristics, the transfer may
have the very simple form of multiplying the mean unit value
(i.e., total estimated value of an ecosystem divided by either
area or relevant population) estimated at the study site by the
56
 relevant quantity (i.e., area or population size) at the policy
site; in some cases some adjustments are proper, e.g. for diffe-
rences in incomes or in prices, both across space and over time
(adjusted unit BT).
Value function BT (also cal- In many cases unit BT is not sensible; then an estimation of a
value function may be appropriate; relevant parameters of the
led demand function BT)
policy site have to be plugged into the function estimated at
the study site to generate a value estimate for the former.
Meta-analytic function BT In this case, the value function BT approach is expanded
through the use of value estimates from multiple different sites
as a basis for the estimation of value function.
Table 5: Description of the most common methods of economic valuation of ecosystems,
based on PASCUAL et al (2012), DE GROOT et al (2006) and HANSJÜRGENS (2011).

57
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