Valuation of some environmental damages in Georgia

Report 2018/40

John Magne Skjelvik

Valuation of some environmental damages in Georgia

Category	Reports
Sub-Categories	Economic AnalysisKraft og energiEnvironment
Year	2018
Report Number	40
Author(s)	John Magne Skjelvik
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Draft Report 2018/	40	 | International Centre for Hydropower	 (ICH)/Government of Georgia

Valuation of some 	environmental damages in Georgia
Biodiversity /ecosystem services, water q	uality and land damage
John M. Skjelvik

Valuation of some enviro	nmental damages in Georgia

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Do	c	ument	 details
Tit	le 	Valuation of some environmental d	amages in Georgia
Report Number	 	2018/40
ISBN	 	978	-82	-8126	-393	-2
Author	 	John M. Skjelvik
Project Leader	 	John M. Skjelvik
Quality Controller	 	Haakon Vennemo
Com	missioned by	 	International Centre for Hydropower (ICH),	 Government of Georgia (GoG)
Dat	e of Completion	 	31. 	December 2018
Availability	 	Public
Keywords	 	Environmental damages, economic valuation, 	EU Environmental Liability Di-
rective (ELD	)

About	 Vista Analyse
Vista Analysis is a social science consultancy with its main emphasis on economic research, policy analysis and
advice, and evaluations. We carry out projects to the highest professional standards, with independence and
integrity. Our key th	ematic areas include climate change, energy, transport, urban planning and welfare issues.
Our employees have high academic credentials and broad experience within consulting. When needed we
utili	ze an extensive network of companies and resource persons nationally and internationally. 	The company
is fully employee	-owned.

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For	eword
Vista Analyse has prepared	 an overview of 	valuation 	methods fo	r environmental damage/impact on b	iodiver-
sity and 	water	-soil pollution/contamination	. The purpose with this is to help the Government of Georgia	 (GoG)
in the implementation of the 	EU 	Environmental Liability Directive (ELD). The report 	presents an outline of the
main requirements of the ELD regarding valua	tion, and discusses the main approaches and methods for valu-
ing environmental damages in monetary terms based on best international practi	ce. 	The methods and cases
in Annex I were presented at a training session for Georgian civil servants 10. 	– 11. Decemb	er 2018. 	Also, a
short, practical tip sheet has been prepared to present 	some	 practical guidelines for 	economic 	valuation.
This project is part of a larger assignment to	 provide assistance to GoG in development of a package supporting
the 	implementation 	of the 	EU 	Environmental Liability Directive (ELD), financed by grants from the Norwegian
Ministry of Foreign Affairs.
Draft reports have been discussed with representatives for GoG. A special thanks	 to Dr. S. Dhillion, 	ENVIRO	-
DEV, for useful comments. 	Con	tact person at ICH has been Carole Rosenlund.
31. 	December 2018
John M. Skjelvik
Partner, senior economist
Vista Analyse AS

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Content
1 	Introduction	 ................................	................................	................................	................................	........	 7
2 	Requirements in the ELD	 ................................	................................	................................	....................	 8
2.1	 	Categories of environmental damages in the ELD	 	8
2.2	 	Remediation is required	 	8
2.3 	Summary of ELD requirements	 	10
3 	The value of environmental damages	 ................................	................................	..............................	 12
3.1	 	The value of a good or service is what people are willing to pay for it	 	12
3.2	 	Total Economic Value (TEV) of Ecosystem Services	 	14
3.3	 	Initial steps	 	17
4 	Overview of valuation methods	 ................................	................................	................................	.......	 18
4.1	 	Two main approaches: revealed and stated preferences	 	18
4.2	 	Cost	-based approaches are among the most commonly used	 	18
4.3	 	Changes in	 production/	productivity are often easy to valuate	 	20
4.4	 	Cost	 of illness	 and	 premature death are likely not that relevant in an ELD context	 	22
4.5	 	Hedonic	 pricing is not so applicable	 	23
4.6	 	Travel cost method has limited use	 	23
4.7	 	Contingent valuation (CV)	 	23
4.8	 	Choice	 Experiments could be useful, but are complex to use	 	25
4.9	 	Benefits (value) transfer is very useful, but must be used	 with care	 	26
4.10	 Summary and recommendations	 	30
4.11	 Valuation of land damage	 	32
5 	Valuing vegetation, wildlife, fish and water damage	 ................................	................................	.......	 33
5.1	 	Start with the steps required by ELD, and estimate the remediation	 costs	 	33
5.2	 	Overview of services and valuation approaches	 	33
5.3	 	Vegetation loss could mostly be valuated from market prices	 	35
5.4	 	Wildlife loss could be valuated from market prices and costs	 	37
5.5	 	Fish loss could be valued from market prices	 	38
5.6	 	Recreation and tourism loss could be v	alued by loss of net revenue	 	38
5.7	 	Water damage could be valuated from abatement costs	 	39
5.8	 	Valuation of land damage	 	39
5.9	 	In practical valuation data availability and quality is often the most important factor for the
valuation approach	 	40
Appendix 1: cases	 ................................	................................	................................	................................	.....	 42
Appendix 2: some u	seful websites	 ................................	................................	................................	...........	 53

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Valuation of some environmental damages in Georgia

1	 	Introduction
The 	Terms of Reference (	ToR	) for this assignment	 asks for a Consultancy on Valuation Methods fo	r
environmental damage/impact on b	iodiversity and water	-soil pollution/contamination. The aim is to
assist the Government 	of Georgia (GoG)	 autho	rities who have to make decisions about environmen-
tal damage or i	mminent threat of the same in the hydropower sector 	and other similar interventions
and/or other stakeholders who can be responsible for environmental damage or have an imminent
threat of the same.
This project is part of a larger assignment to	 provide a	ssistance to GoG in development of a package
supporting the 	implementation of the 	EU 	Environmental Liability Directive (ELD)	, including practical
guidelines for supporting directives and processes to limit Environmental Liability.
This report presents som	e simple approaches on how to value the specified damages. It also contains
some references to more advanced valuation techniques for those who want to spend more time
and resources on these issues. As specified in the ToR, focus is on vegetation, wildlife	 and fish. Also,
the value of biodiversity per se needs to be addressed, since it is important that the biodiversity is
available for future generations to provide ecosystem services	 and other services	.
In c	hapter 2 an overview of the requirements in the	 ELD	 is presented	. Chapter 3	 explains the value
of environmental damages in monetary terms. An overview of valuation methods is presented in
chapter 4. Chapter 5 goes through how damages on vegetation, wildlife, fish and water could be
valued in monetary t	erms. In Annex I 3 examples (cases) of how to value various damages from var-
ious incidents are discussed. Annex II gives an overview of some useful websites for practical mone-
tary valuation approaches.

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2	 	Requirements in the ELD
The aim with the EU 	Environmental Liability Directive (ELD)	 2004/35 EC	 is to establish a framework
of environmental liability, based on the “polluter pays principle”, to prevent and remedy environ-
mental damage	 from occupational activities listed in Annex III of the Directive	. The ELD aims at en-
suring that the financial consequences of certain types of harm	 caused to the environment will be
borne by the economic operator who caused this harm.
The Government of Georgia (GoG) has prepared a draft law on Environmental Liability	 that has been
considered in this project	. The draft law will be 	put 	under Parliament review 	during the first 	part	 of
2019.
2.1	 	Categories of environmental damages in the ELD
There are three categories of environmental damage covered by the ELD:

i) 	Damages to pr	otected species and natural habitats, i.e. any damage that has significant
adverse effects on reaching or maintaining the favorable conservation status of such
habitats or species, defined in the relevant parts of the EU Birds Directive 79/409 EC and
the E	U Habitats Directive 92/43 EC.
ii) 	Water damage, i.e. any damage that significantly adversely affects the ecological, chem-
ical and/or quantitative status and/or ecological potential, as defined in the EU Water
Framework Directive 2000/60 EC
iii)	 	Land damage, i.e. a	ny land contamination that creates a significant risk of human health
being adversely affected as a result of the direct or indirect introduction in, or under
land, of substances, preparations, organisms or micro	-organisms.

2.2	 	Remediation is required
Four re	mediation steps should be considered
Annex II of the ELD sets out a common framework to be followed to choose the most appropriate
measures to ensure the remedying of environmental damage. For remediation of 	damage to water,
protected species or natural ha	bitats	 restoration of the environment to its baseline condition should
be achieved by way of:

• 	Primary remediation	: any remedial measure which returns the damaged natural resources
and/or impaired services to,	 or towards, baseline condition.	 This could either be on an ac-
celerated time frame or through natural recovery.

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• 	Complementary remediation	: any remedial measure t	aken in relation to natural resources
and/or services 	to be implemented when	 primary remediation does not result in fully re-
storing the damaged nat	ural resources and/or services. The purpose is to provide a similar
level of natural resources and/or service	s, including eventually at an alternative site (if pos-
sible linked geographically to the damaged site), as would have been provided if the dam-
aged site had been returned to its baseline condition.
• 	Compensatory remediation	: any action taken to compensate 	for interim losses of natural
resources and/or services that occur from the date of damage occurring until primary re-
mediation has achieved its full effect	, either at the damaged or an alternative site. It does
not consist of financial compensation to memb	ers of the public.
• 	Interim losses	: losses which result from the fact that the damaged natural resources and/or
services are not able to perform their ecological functions or provide services to other nat-
ural resources or to the public until the primary 	or complementary measures have taken
effect. 	It does not consist of financial compensation to members of the public.

Where primary remediation does not result in the restoration of the environment to its baseline
condition, then complementary remediation should be undertaken. In addition, compensatory re-
mediation should be undertaken to compensate for the interim losses.
Remedying of environmental damage, in terms of damage to water or protected species or natural
habitats, also implies that any significant risk of human health being adversely affected 	is removed.
Monetary valuation and cost benefit considerations should	 be applied
Regarding the determination of complementary or compensatory remedial measures, Annex II says
the following (ref. 1.2.2 and 1.2.3):
“When determining the scale of complementary and compensatory remedial measures, the use of
resource	-to-resourc	e or service	-to-service equivalence approaches shall be considered first. Under
these approaches, actions that provide natural resources and/or services of the same type, quality
and quantity as those damaged shall be considered first. Where this is not po	ssible, then alternative
natural resources and/or services shall be provided. For example, a reduction in quality could be
offset by an increase in the quantity of remedial measures.
If it i	s not possible to use these 	approaches, then alternative valuation	 techniques shall be used. The
competent authority may prescribe the method, for example monetary valuation, to determine the
extent of the necessary complementary and compensatory remedial measures. If valuation of the
lost resources and/or services is pr	acticable, but valuation of the replacement natural resources
and/or services cannot be performed within a reasonable time	-frame or at a reasonable cost, then
the competent authority may choose remedial measures whose cost is equivalent to the estimated
mo	netary value of the lost natural resources and/or services.
The complementary and compensatory remedial measures should be so designed that they provide
for additional natural resources and/or services to reflect time preferences and the time profile of
the remedial measures. For example, the longer the period of time before the baseline condition is
reached, the greater the amount of compensatory remedial measures that will be undertaken (other
things being equal).	”

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When evaluating the different identified	 remedial options, primary remedial measures that do not
fully restore the damaged water, protected species or natural habitat to baseline or that restore it
more slowly can be chosen. This decision can be taken only if the natural resources and/or service	s
foregone at the primary site as a result of the decision are compensated for by increasing comple-
mentary or compensatory actions to provide a similar level of natural resources and/or services as
were foregone. This will for example be the case when the 	equivalent natural resources and/or ser-
vices could be provided elsewhere at a lower cost.
The competent authority is entitled to decide that no further remedial measures should be taken if
(ELD 	section 1.3.3):
• 	The remedial measures already taken secure 	that there is no longer any significant risk of ad-
versely affecting human health, water or protected species and natural habitats, and
• 	The cost of the remedial measures that should be taken to reach baseline conditions or similar
level would be dispropor	tionate to the environmental benefits to be obtained.
Regarding 	remediation of land damage	, Annex II says the following (ref. section 2.):
“The necessary measures shall be taken to ensure, as a minimum, that the relevant contaminants
are removed, contr	olled, contained or diminished so that the contaminated land, taking account of
its current use or approved future use at the time of the damage, no longer poses any significant risk
of adversely affecting human health. The presence of such risks shall be 	assessed through risk	-as-
sessment procedures	, taking into account the characteristic and function of the soil, the type and
concentration of the harmful substances, preparations, organisms or micro	-organisms, their risk and
the possibility of their dispersi	on. Use shall be ascertained on the basis of the land use regulations,
or other relevant regulations, in force, if any, when the damage occurred.
If the use of the land is changed, all necessary measures shall be taken to prevent any adverse effects
on hu	man health. If land use regulations, or other relevant regulations, are lacking, the nature of the
relevant area where the damage occurred, taking into account its expected development, shall de-
termine the use of the specific area. A natural recovery optio	n, that is to say an option in which no
direct human intervention in the recovery process would be taken, shall be considered.	”
2.3	 	Summary of ELD requirements
From the outline of ELD requirements some conclusions can be drawn regarding 	valuation 	methods
for environmental damages/impacts:

• 	The valuation of damages is to be used in the assessment of what preventive or remedial
measures to implement, eventually through a formal cost benefit analysis comparing costs
and benefits of the various 	measures.
• 	The ELD does not specify the use of any specific 	valuation 	methods or approaches to be
used.
• 	The ELD emphasizes the importance of reducing/removing adverse impacts on human
health.
• 	Emphasis should be on local conditions when considering what meas	ures to implement.

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Valuation of some environmental damages in Georgia

Figure 2.1 summarizes the formal steps that is envisaged through the ELD Directive.
Figure 2.1 Steps in ELD 	remediation 	assessment

Source: Vista Analyse

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Valuation of some environmental damages in Georgia

3	 	The v	alu	e	 of environmental dam-
ages
In this chapter we define what economic v	aluation is, and what it means to value 	damages to 	biodi-
versity/ecosystem service, water and land in economic terms.	 Our main approach to this is to value
the goods and services they provide when not damaged, and then one can use these estimates to
value t	he loss one has when the goods and services are damaged.
3.1	 	The value of a good or service is what people are willing to pay for
it
While the value of biodiversity and ecosystem services is the object of interest, it is necessary to
make a detour 	through the valuation of ordinary goods and services.
For goods and services sold in a market the price refle	cts the marginal value
Every day people make decisions whether to by a good or service or not. Consumers consider the
price of a good or service, 	and compare it with the benefits they might have from 	it. If the price of
the good or service is lower than the anticipated benefits, a consumer will buy an item of the good
or service in question. In a market with free competition, t	he economic	 value of a	 good or service is
determined by the demand for and supply of that good or	 service	, see f	igure 	3.1	. This figure shows
a demand and a supply curve for a good 	or service 	traded in a market at quantity ‘Q’ and at price	 ‘P’.
The demand curve shows all buyer	s/consumers of a good or service in the market. Because buyers
tend to buy more when the price is low, the curve is falling as the price is dropping. For produc-
ers/suppliers of the same good or service the situation is the opposite, they will produce and s	ell
more when the price increases. Where the curves cross each other at the price ‘P’, buyers and sellers
will buy and sell the same amount (‘Q’), and the market is in balance.	 The buyers	’ willingness to buy
at 	price ‘P’ is called their 	marginal willingnes	s to pay	, often abbreviated WTP. The sellers’ cost of
production at ‘P’ is called 	marginal cost.

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Figur	e 3.1: 	Definition of producer an	d consumer surplus

Source:	 	Vista Analyse
Consumer surplus is a measure of consumers’ gains
Those buyers that are on the part of the demand curve above the market price ‘P’, want this good
or service so much that they are willing to pay more than the market price, i.e. their value of the
good or service is higher than P. Because they are able to 	buy the good or service at a lower price	 (P)
than the highest price they are willing to pay, they have a gain. The total gain obtained by consumers
is the area ‘A’ in Figure 3.1, and is called 	consumer surplus	 in economic literature.
Producer surplus is 	a measure of producers’ gains
Similarly, t	he	 producer	 surplus	, depicted	 by	 ‘B’	 in the figure	, is the	 amount	 that	 producers	 benefit	 by
selling	 at a market price that is higher than the lowest price that they would be willing to sell 	for,
which	 is determined	 by	 their	 production	 costs	 and	 represented	 by	 the	 supply	 curve.	 The	 area ‘C’ rep-
resents production costs, which 	usually 	differ among producers and/or over the scale of production.
The welfare value is the total 	net 	value of the good or service

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The	 areas A and B 	can	 be	 seen	 as the	 net	 economic	 gain	 resulting	 from	 production	 and	 consumption
with	 a volume	 of Q at price	 P. This	 corresponds	 to the	 definition	 of welfare	 value	 (UNEP, 2013).	 A and
B are often complicate to calculate, since 	the calculation 	requires a lot of data and 	experti	se.
The market price is the willingness to pay for one unit more
As we commented above, t	he market price (P) reflects consumers’ marginal 	willingness to pay	 (WTP)
for one additional	 unit	 of the	 product	 at the	 market	 equilibrium	 quantity	 of services	 Q, C	onversely	, it re-
flects their	 the	 marginal	 willingness	 to accept	 (WTA)	 one	 unit	 less	. Valuation often focusses on small,
marginal changes, and then the 	observed price P could be used as the value of the change of one
unit	 (or some few units)	. For	 larger changes, when for instance the total amount of good and service
disappears, the 	welfare value should be calculated.
Monetary valuation of ecosystem	 services is about finding P 	or the welfare value
Since 	ecosystem services or other 	environmental goods and services are usually not traded in mar-
kets, one has to find ways of estimating their value	. This is what monetary valuation of environmental
goods a	nd services is about. 	Small	 changes	 in ecosystem	 service	 provision	 should	 be	 valued	 estimating
WTP	 or finding the price P	 through various a	pproaches	. In cases where the total 	amount of the good
or service is destroyed, one has to try and find the welfare value of the good or service, i.e. A+B in
figure 3.1
The 	average value	 of an ecosystem service or other environmental good can be calculated as its total
value divided by t	he total quantity of the service provided and consumed.	 Average	 values	 may	 be
useful	 for	 comparing	 the	 aggregate	 value	 of an	 ecosystem	 service relative	 to the	 scale	 of provision	 (de-
fined	 in terms	 of units	 of provision,	 area	 of ecosystem, or	 number	 of beneficiaries).
In the next chapter we go through various ways of estimating or finding P, A and B. As mentioned
above A and B are often difficult to estimate or calculate, much of the efforts are on ways of finding
P.
3.2	 	Total Economic Value (TEV) of Ecosy	stem Services
While there is growing awareness of the value and importance of 	bio	diversity 	per se	, there is a lack
of consensus on how 	bio	diversity can be defined and measured	 (Secretariat, 2007)	. For example,	 the
richness of species is frequently the only	 accessible indicator of species diversity, although it is well
known that a head count of the number	 of apparently different species in an area may not be a good
proxy for the portfolio effect of genetic distance between them. As a consequence, valuation 	does
normally not entail measuring the economic value of biodiversity as such. Instead, valuation typically
focusses on the economic values of the goods and services generated by biodiversity resources
and/or functions, the so	-called 	ecosystem services	. Th	e Millennium Ecosystem Assessment under-
took between 2001 and 2005 a comprehensive assessment of the consequences of ecosystem
change for human well	-being, and analyzed options available to enhance the conservation and sus-
tainable use of ecosystems.

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Ec	osystem services cover a wide range of services. 	As they are 	often 	not traded on markets, their
value 	cannot be	 observed 	in market prices. The reason is that many ecosystem services bear
characteristics of 	“publi	c good	s”. On	e impo	rtan	t charac	teristi	c of publi	c good	s is tha	t nobo	dy
ca	n be exclude	d from their 	use.	 For	 this	 reason,	 markets	 for	 public	 goods	 cannot	 easily	 develop,
and	 the	 value	 of these	 public goods will therefore not be reflected in a market price	 (Secretariat,
2007)	.
The	 framework	 commonly	 used	 for	 describing	 the	 different	 types	 of economic	 value	 ascribed	 to
natural resources is known as 	Total 	Economic 	Value 	(TEV)	. The framework comprises use values
(direct, indirect and option value) and non	-use values	 (bequest and existence values)	. These
types of value are summarized in figure	 3.2, and consists of the following (Secretariat, 2007):
• 	Direct	 use	 value	: this is	 the	 value	 derived	 from	 direct	 use	 or interaction	 with	 environmen-
tal	 resources	 and services (e.g	., timber, 	fuelwood	 and	 recreation are direct use values of
a forest). They 	involve 	commercial, subsistence, leisure, or other activities associated
with a	 resource. Often the value of these can be derived from prices of products and
services sold in the 	markets
• 	Indirect	 use	 value	: relates	 to	 the	 indirect	 support	 and	 protection	 provided	 to	 eco-
nomic	 activity	 and 	prope	rty by th	e ecosys	tem’’s natu	ral functions	. For example	, ca	rbon
seques	tratio	n is a functio	n of forest 	ecosystems	 whose	 value	 can	 be	 derived	 from	 the
market price of carbon credits 	or the	 avoided	 costs	 of having	 to	 sequester	 by	 other	 means,
or from	 avoiding	 the	 actual	 effects	 of warming.	 Similarly,	 the	 watershed	 protection
function	 of a forest may 	have 	indirect use value 	through controlling water quality
and flood drainage that affect downstream	 agriculture,	 fishing,	 water	 supplies	 and
other	 economic	 activities.
• 	Option value	: a type of use value that relates to future use of the environment or biodi-
versity resources and functions. Option value arises because individuals may value the
option to be able to use the natural resource sometime in the future. For example, there
may be	 an additional premium placed on preserving a forest system and its resources
and functions for future use, particularly if prospects of future value are high and if cur-
rent exploitation or conversion 	of a forest 	is irreversible.	 The logic of the option mo	tive
is to maintain a diverse portfolio of resources as a means to reducing the risk of large
fluctuations in value.	 A more diverse ecosystem also tends to be considerably more re-
silient. This has been 	called	 insur	anc	e value	 as we	ll. The lack of knowledge 	is reflected in
the concept of a 	quasi	-optional value	, referring to the value of having more time to learn
about the extent	 or possible uses of biodiversity, thereby making it possible for future
decisions to be based on better information. Decisions shoul	d always take into account
that	 the	 results	 of an	 interference	 with	 an	 ecosystem	 can	 never	 be	 fully	 predicted	.
• 	Existence and bequest values: 	these	 are often referred to as “passive” values	 and are 	derived
neither	 from current direct or indirect use of the environment. For example, there are
individuals who do not use 	a forest	 but	 nevertheless	 wish	 to see	 it preserved	 because
they	 simply	 derive	 utility	 from	 the	 ongoing	 existence	 of the	 ecosystem,	 or because	 they
wish	 to conserve	 it for	 future	 generations	 (bequest	 value	). The concrete reasons why they

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derive utility may vary and may be based on, for instance, religious,	 spiritual,	 or ethical
motives.	 In particular,	 a non	-use	 motive	 may	 coincide	 with	 the	 recognition	 of a right of
existence. In this sense, valuation that is based on the concept of total economic value
will	 also	 capture,	 at least	 to some	 extent,	 non	-utilitarian	 values.
The “total” in TEV refers to the aggregation of different sources of valu	e rather than the sum of all
values derived from a resource. Accordingly, many estimates of TEV are for marginal changes in the
provision of ecosystem services, but “total” in the sense that they take a comprehensive view of
sources of value (UNEP, 2013). 	Of all the value categories, existence or 	passive	 value is the most
complex one in terms of quantification and valuation.
Figure 3.2 	Total Economic Value o	f Ecosystem Services
Source: Vista Analyse

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Valuation of some environmental damages in Georgia

3.3	 	Initial steps
Valuation	 is a process	 involving	 several	 steps	 (Secretariat, 2007)	. First,	 the	 services	 being	 val-
ued	 must	 be	 identified.	 This includes understanding the nature of the services 	or 	goods	 and
their	 scale	 (local, regional	 and/or	 global,	 on	-site	 or	 off	-site),	 and	 how	 they	 would	 change	 if the
ecosystem	 changed;	 knowing	 who	 makes	 use	 of the	 services,	 in what	 way	 and	 for	 what	 pur-
pose,	 and	 what	 alternatives	 they	 have	, and	 establishing	 what	 trade	-offs	 might	 exist	 between
different	 kinds	 of services	 an	 ecosystem	 might	 pr	ovide.	 The	 bulk	 of the	 work	 involved	 in valua-
tion	 actually	 concerns	 quantifying	 the	 physical	 relationships.	 In many	 cases,	 this	 requires	 trac-
ing	 through	 and	 quantifying	 a chain	 of causality.	 Valuation	 in the narrow	 sense	 enters	 in the
next	 step	 in the	 process,	 in which	 the	 value	 of the	 impacts	 is estimated in monetary	 terms.

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4	 	Overview of valuation methods
In this chapter we go through 	common	 valuation methods for biodiversity/ecosystem services, water
quality and soil pollution/contamination. The overview is based on Secretariat (2007), which is again
based on the Millennium Ecosystem Assessment. 	In accordance with the literature in this fiel	d, the
main focus is on valuing goods and services provided, which can be used to value the loss when
biodiversity, water and land is damaged	, and the quantity and/or quality of the goods and services
are reduced. 	An exception is land damage, which is ofte	n valued directly	. It is often unclear what
goods and services land provide directly, but damaged land might have negative impacts on several
goods and services by causing damage to water	. We include a section on valuing land damage 	in
accordance with the 	ELD 	at the end of the chapter.
It is important to note that different valuation methods produce different 	estimates	 of economic
value that cannot necessary be directly compared. The valuation method, and the amount of eco-
nomic value it estimates, will ha	ve a substantial bearing on the magnitude of the value estimated. It
is therefore important to understand what each method or value is and to select a method that is
relevant to the actual case. Accordingly, when transferring values from other sites/studie	s it is im-
portant to understand the methods used and the type of values that are produced.
4.1	 	Two main approaches: revealed and stated preferences
There are two main approaches to economic valuation of ecosystem services and other environmen-
tal goods, namel	y revealed preferences	 and 	stated preferences	.
• 	Revealed preferences	 are based on actual observed behavior data from markets etc., includ-
ing some methods that deduce values indirectly from behavior in surrogate markets, which
are assumed to have a direct r	elationship with the ecosystem service in question.
• 	Stated preferences 	are based on hypothetical rather than actual behavior data, where peo-
ple’s responses to questions describing hypothetical markets or situations are used to infer
value.
Revealed prefe	rences are generally favored since they reflect actual behavior, but are according to
UNEP (2013) limited in their applicability to some ecosystem services. Stated preferences can be
costly, complicated and time	-consuming to use, but could be more flexible	 in their application.
4.2	 	Cost	-based approaches are among the most commonly used
One common form of revealed preference estimation is the cost	-based method. The c	ost	-based
method estimate	s the costs incurred if the services have to be restored or replaced by various
means (Brander et. al., 2016). 	The main advantage with th	is approach is that one do	es	 not have
to value each 	service (damage)	 separately, but can instead estimate the costs to b	ring the 	ser-
vices	 back to baseline conditions. If one is willing to accept these costs, they can be seen as the
lowest value assigned to the 	services (one might have been willing to accept higher costs if

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Valuation of some en	vironmental damages in Georgia

necessary to bring the services 	back to baseline	). To start with these approaches are in line with
the requirements in the ELD, see chapter 2.
There are several techniques that can be applied	 to assess the	 remediation	 costs	:
• 	Replacement cost	 method	 (RC)	: costs that the authorities (or the population) are willing to un-
dertake to replace the lost products/services with other means. The estimates could be based
on 	estimates from (local) experts, offers from entrepreneurs or estimate 	from similar replace-
ment	 activities in other parts of the country or abroad. For instance, in the case of lost vegeta-
tion, costs for implementing alternative actions to restore erosion control and/or flood preven-
tion if appropriate	, could be used. This approach fits into the requ	irements of the ELD (see
chapter 2), but could be problematic if the value is to be compared to the remediation costs to
decide what and/or to what extent remediation actions should be implemented.
• 	Avoidance Cost method (AC)	: costs that the authorities (o	r the population) are willing to under-
take to avoid the loss of products/services. The estimates could be based on costs from similar
avoidance activities in other parts of the country or abroad, or offers from entrepreneurs or
similar. For instance, costs	 for cleaning contaminated water to achieve freshwater quality or
the costs to supply freshwater from other sources could be an estimate of the value of (lost)
freshwater resources. As for RC this approach fits into the requirements of the ELD, but could
be problematic when the values are to be used to decide what and/or to what extent remedia-
tion actions should be implemented.
• 	Mitigation/restoration cost method	 estimates the costs of restoring damaged ecosystem
services or mitigating the effects of t	heir loss/damage.	 The costs could be estimated in a
similar way as RC and AC.
The major underlying assumptions 	behind	 these approaches are that the nature and extent of
physical damage expected is predictable and that the costs to replace or restore	 damaged	 assets
can	 be	 estimated	 with	 a reasonable	 degree	 of accuracy.	 It is further	 assumed	 that the	 replace-
ment	 or mitigat	ion	 costs	 do	 not	 exceed	 the	 economic	 value	 of the	 service. These assumptions
may not be valid in all cases. It simply may cost more to replace or restore	 a service	 than	 it was
worth	 in the	 first	 place	, for	 example	 because	 there	 are	 few	 users	 or because their	 use	 of the	 ser-
vice	 was	 in low	-value	 activities.
When there are alternative measure t	o choose among, 	It should be consider	ed	 whether 	they
yield the same benefits	. The	 decision	-makers	, that could be (local	) politicians	 on behalf of the
population	, should consider which of the approaches (if all are viable) that yield the highest
benefits compared to the costs. 	When considering this one could for instance look at what costs
have been accepted in similar situations in oth	er sites, what are the budget one is facing etc.
Even 	if there is not necessarily any relationship between the replacement or 	mitigation	 cost and
the value of the service, cost	-based approaches can provide useful guidance in a number of
cases, in particul	ar when the specific decision	-making problem calls for a comparison of the
costs resulting from all	 different replacement or 	mitigation	 options. 	Then	, the 	valuation chal-
lenge	 is simply	 to minimize	 the	 cost	 of meeting	 an	 objective,	 by	 comparing	 the	 costs	 resulting
from replacement and 	mitigation	 options	 to achieve 	for instance 	a reliable supply of drinking
water meeting certain quality standards.

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Valuation of some environmental damages in Georgia

Given the nature of the ELD and the use of the estimated values, replacement, avoidance and/or
mitigation costs w	ill be important tools when valuing the various damages. 	How to use this approach
in practi	ce is shown in figure 4.1.
Figure 4.	1 Steps in valuating damages using cost	-based approaches.

Source: Vista Analyse
In case the cost	-based approaches cannot be used to value the damages, 	and/or there are some
remaining damages after 	the remediation actions are carried out,	 other approach	es will have to be
tried, for instance changes in production/productivity. 	Some interim losses etc. w	ould for instance
likely have to be valued by other approaches.
4.3	 	Changes in	 production/	productivity	 are 	often easy to valuate
Reduced availability of water, fish, timber and non	-timber products	 etc. could be val-
ued by market prices
This approach	 consists of 	assessing	 impact of changes in the condition of an ecosystem 	that 	can
be related to various measures of human well	-being	 or benefits	. Such impacts are often re-
flected in goods or services t	hat contribute directly to human well	-being (such as production of
timber, fuelwood,	 non	-timber forest products (NTFPs) like mushrooms, berries and other crops,
bushmeat, fish	 or clean water), and as such are often relatively easily valued. The valuation s	tep
itself depends on the type of impact but is often straightforward	, especially if they are based on
goods sold in a market	.

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For instance, the value	 of reductions	 of timber/fuelwood production caused by forest degrada-
tion/removal or 	fish catch	 resultin	g from	 reduced	 water	 availability	 and/or quality 	are	 easy	 to es-
timate, as 	these products	 are often sold. 	The value can then be estimated as the market price
multiplied by the (estimated) loss of quantity, subtracting the production costs.	 According to
Secr	etariat (2007) 	it is a very common error to use the reduction in the gross value rather than
the net value	, i.e. “forgetting” to subtract the production costs.
Whe	n the impact is on a good or service that is not 	sold in the market	 or where observed prices
are unreliable indicators of value, the valuation can become more complex. 	Using as	 an	 example
drinking water supply	, the prices charged to consumers for water consumption are typically not
reliable measures of the value of the wat	er to consumers, as they are often set administratively,
with no regard for supply and demand (in 	many	 cases water fees do not even 	cover 	the cost of
delivering the water to consumers,	 let	 alone	 the	 value	 of the	 water	 itself).
The	 value	 of an	 additional	 unit	 of water	, fish	 or timber/fuelwood 	can	 be	 estimated in various ways,
such as the cost of alternative sources of supply (cost	-based measures are described 	above	) or
asking consumers directly how much they would be willing to pay for it (contingent valuat	ion,
described 	below	). Note 	that it is very important to use the value of an 	additional	 unit of 	the good	,
which 	will	 be	 very valuable when 	it is scarce, but much less so when 	it is plentiful. 	This shows
that	 average	 numbers	 can	 be	 misleading.
Reduced quality of goods	 and services	 are more difficult to valuate
When	 the	 impact	 is on	 water	-, fish	- or even timber	- and non	-timber	-products	’ quality	 rather
than	 quantity	, the	se	 impact	s on well	-being 	should 	be valuated	 as well	. Reduced quality of wa-
ter and fish could result 	in increased	 morbidity	 or	 even	 mortality.	 The	 process	 begins	 by	 trac-
ing	 through	 chains	 of impacts	, for	 example	 by	 using	 dose	-response	 functions	 that	 tie	 concen-
trations	 of pollutants	 to	 human	 health. 	Valuing	 the	 impact	 on	 health	 itself	 can	 then	 be	 done	 in
a number	 of ways	 (see	 cost	 of illness	 and	 human capital	 below	).
In some cases, the impact 	from changes in ecosystem services 	is on 	fairly	 intangible	 aspects of
well	-being, such as aesthetic benefits or existence value. 	Particular 	valuation	 techniques	 exist
to value such impacts, including hedonic price, travel cost, and contingent valuation methods,
see below.
Figur	e 4.2 How to estimate changes in pro	duction	 of a good or service

Source: Vista Analyse

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4.4	 	Cost	 of	 illness	 and	 premature death 	are likely not 	that 	relevant in an ELD
context
Direct out	-of	-pocket costs are relatively easy to use, but will likely underestimate the
damages
The	 economic	 costs	 of an	 increase	 in morbidity	 due	 to increased	 pollution	 levels	 of for instance
drinking water and fish 	can	 be	 estimated	 using information 	about	 costs associated with the in-
crease: any loss of earnings resulting from illness	, medical costs such as for doctors, hospital
visits or stays, medication and other related out	-of- pocket expenses. The estimates obtained in
this manner are interpreted as lower	-bound estimates of the presumed costs or benefits of
actions that result in changes in the level of morbidity, since this method 	dis	rega	rds th	e affe	cted
ind	ividual	s’ prefe	ren	ce for healt	h versu	s illnes	s an	d restriction	s on non	-work activities	 that
illness often impose on people	. Also, the method does not recognize that	 individuals	 may	 un-
dertake	 defensive	 actions	 (such	 as using	 special	 water	 filtration	 systems	 to 	reduce exposure to
pollution) and incur costs to reduce health	 risks.	 If this is the case, the treatment costs may be
a better measure of the damages (see below).
Methods to estimate mortality are complex and often controversial
When 	the abovementioned	 ap	proach is extended to estimate the costs associated with pol-
lution	-related mortality (death), it is referred to as the human	-capital approach. It is similar
to the change	-in-productivity approach	 in that	 it is based	 on	 a damage	 function	 relating	 pol-
lution	 to	 productivity,	 except	 that	 in this case	 the	 loss	 in productivity	 is that	 of human	 beings,
measured	 in terms	 of expected	 lifetime	 earnings. Because	 it reduces	 the	 value	 of life	 to	 the
present	 value	 of an	 individual’s	 future	 income	 stream,	 the 	human	-capital	 approach	 is ex-
tremely	 controversial	 when	 applied	 to	 mortality.	 Many	 therefore	 prefer	 to use other ap-
proaches like Value of Statistical Life (VSL)	 or	 measures	 such	 as	 disability	-adjusted	 life	 years.
VSL is based on individuals’ 	willingness to pay (WTP)	 for a reduction in the risk of death. 	VSL can for
instance be derived from observations of costs of measures to reduce the risk of premature death
imposed by society in other cases, for instance costs o	f actions to reduce (the damages from) traffic
accidents. For instance, the number of premature deaths from inadequate water supply could be
estimated from so	-called dose response functions (also called exposure	-respon	se), which are rela-
tions between impac	ts on deaths from various exposures of a pollutant or similar derived from sci-
entific studies.
Disability	-adjusted life years (DALY) is a measure of overall disease burden, expressed as the number
of years lost 	due to ill	-health, disability or early deat	h. DALY=Years lived with disability (YLD) + Years
of life lost (YLL). 	DALYs are calculated by combining measures of	 life expectancy	 as well as the ad-
justed quality of life d	uring a burdensome disease or disability for a population. DALYs are related to
the	 quality	-adjusted life year	 (QALY) measure, however QALYs only measu	re the benefit with and
without medical intervention and therefore do not measure the total burden. Also, QALYs tend to
be an individual measure, and not a societal measure.	 There are several examples in the literature
on how DALYs could be calculated	.

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4.5	 	He	donic	 pricing	 is not so applicable
The prices paid for goods or services that 	have 	environmental attributes differ depending
on those attributes.	 Thus,	 a house	 in a clean	 environment	 will	 have a higher price	 than	 an	 oth-
erwise	 identical	 house	 in a	 polluted	 neighborhood.	 Hedonic	 price	 analysis	 compares	 the
prices	 of similar	 goods	 to	 estimate	 the 	implici	t valu	e (als	o called	 “shad	ow price”) tha	t buyers
pla	ce on th	e environmenta	l attribu	tes. This 	method	 assumes	 that	 markets	 are	 transparent
and	 work	 reasonably	 well,	 and	 it would	 not	 be	 applicable where	 markets	 are	 distorted	 by	 pol-
icy	 or	 market	 failures.	 Moreover,	 this	 method	 requires	 a very	 large number	 of observations,
so	 its	 applicability	 is limited.
4.6	 	Travel cost	 method has limited use
This	 method is an example of a technique that attempts to deduce value from observed
beh	avior in a su	rroga	te ma	rket. It use	s info	rmatio	n on visitors’ tota	l expenditu	re to visit a site to
de	rive thei	r deman	d cu	rve for th	e site’s se	rvices. From thi	s deman	d cu	rve, th	e total benefi	t visi-
tors obtai	n can 	be	 calculated.	 It is important	 to	 note	 that	 the	 value	 of the	 site	 is not	 given	 by
the	 total	 travel	 cost	, this information	 is only	 used	 to	 derive	 the	 demand	 curve.	 This	 method
was	 designed	 for	 and	 has	 been used	 extensively	 to	 value	 the	 benefits	 of site	-seeing	 or	 of recre-
ation	 at particular	 sites,	 but	 it has	 limited utility	 in other	 settings.	 The method could be use	d
when calculating the value of recreational services from ecosystems.
4.7	 	Contingent valuation (CV)
CV is costly and time	-consuming to use
CV	 is an example of a stated preference technique.	 It is carried out by asking consumers directly
about their willingness	-to-pay 	(WTP) 	to obtain an environmental service.	 A detailed description
of the service involved is provided, along with details about how it will be provided. The actual
valuation can b	e obtained in a number of ways, such as asking respondents to name a figure,
asking them whether they would pay a specific amount or having them choose 	between 	options
that differ in both quality and cost	.
CV	 can, in principle, be used to value any environ	mental benefit simply by phrasing the	 ques-
tion	s appropriately.	 Moreover,	 since	 it is not	 limited	 to deducing	 preferences	 from	 available	 data,
it can	 be	 targeted	 quite	 accurately	 to ask	 about	 the	 specific	 changes	 in benefits	 that	 the	 change
in ecosy	stem	 condition	 would	 cause.	 Because	 of the	 need	 to describe	 in detail	 the	 service	 being
valued,	 interviews in 	CV	 surveys are often quite time	-consuming. It is also very important to
identify the relevant population, to ensure representativeness of the sample of	 respondents,
and to 	have 	the questionnaire	 extensively	 pre	-tested	 to avoid	 sources	 of bias.
A potentially important limitation 	when	 applying 	the CV method	 to ecosystem services is
that respondents	 cannot	 typically	 make	 informed	 choices	 if they	 have	 a limited	 understanding
of the	 issue	 in question.	 Choosing	 the	 right	 approach	 for,	 and	 the	 adequate	 intensity	 of efforts

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in improving	 the	 under	standing	 of biological	 complexity	 of the	 sample	 group	 is a challenge	 for
stated	 preference	 methods.
CV has some weaknesses, but 	most of them can 	be overcome
CV	 methods have been the subject of severe criticism by some analysts, in particular because a
number of biases can occur that would lead	 CV	-studies to not reflect true preferences:
• 	One major issue is that of so	-called zero	-bids, that is, respondents that 	say they	 have
no willingness	-to	-pay	 at all.	 In some	 cases,	 such	 an	 occurrence	 can	 be	 explained	 by	 that
the	 service	 in question	 is not	 valued	 by	 the	 respondent	 or	 his/her	 budget	 restr	ictions are
too	 tight.	 However,	 zero	-bids	 can	 also	 reflect	 protest	, respondents	 who	 are	 not	 agreeing
that	 they	 should	 pay	 for	 the	 service	 in question	 and	 who	 consider	 someone	 else	 responsi-
ble,	 for instance	 the	 government	 or	 the	 polluter.	 A zero	-response	 may	 also	 be	 given	 when
no	 trade	-offs for	 the	 service	 are	 accepted	 at all.	 Finally,	 protest	 bids	 can also occur when
the survey itself is rejected as a methodology, or payment 	alternatives	 are not ac-
cepted.
• 	Exaggerated willingness	-to-pay statements are possible as well, for different reasons: (i) The
phenomenon of “ye	s-saying” has been shown to occur	 sometimes	, respondents will agree to a
proposal or bid to please the interviewer or avoid further questions. (ii) The existence of a
“warm glow” can also have an influence; respondents tend to feel good about giving, about be-
ing “good” or “nice”, and will	 initially offer higher a willingness	-to-pay than after thorough con-
sideration.	 (iii) Strategic 	behavior 	can also occur: participants will state 	unrealistic 	willing-
ness	-to-pay numbers in an attempt to 	influence 	the 	outcome 	of the 	study. 	(iv) 	Willingness	-
to-pay statements tend 	to also be elevated due to a lack of 	awareness 	of possible 	substi-
tutes.
• 	Another source of bias can be through the interviewer giving information that is not
fully neutral,	 or	 formulating	 questions	 to	 favor	 certain	 answers.
The most renown CV on environmental damage is the one used after the 1989 Exxon Valdez oil spill. 	A
“blue	-ribbo	n” pane	l wa	s organi	zed by in th	e United Sta	tes foll	owing controversy over th	e us	e of
CV in this case	. The	 report	 of this	 so	-called 	NOAA	 panel	 (Arrow	 et al.	 1993)	 concluded	 that	 con-
tingent	 valuation	 can	 provide	 useful	 and	 reliable information when used 	carefully, 	and it pro-
vided guidance thereon that can help to reduce or 	avoid 	many	 of the	 biases	 described	 above.
This	 report	 is generally	 regarded	 as	 authoritative	 on	 appropriate	 use of the	 technique.
The guidance of the panel includes 	inter alia	 the following requirements:
• 	The design of 	CV	 studies should be conservative, always rather allowing for an underesti-
mate than an overestimate of	 willingness	-to-pay.
• 	Because the concept of willingness	-to-accept is a source of potential bias, willingness	-to-
pay should be preferred over	 willingness	-to-accept.
• 	The	 valuation	 questions	 are	 to	 be	 asked	 as	 a vote	 on	 a referendum,	 not	 completely	 open.
• 	Sufficient information must be provided, however care is necessary in the use of pic-
tures, including	 the	 pre	-testing	 their	 effect	 on	 participants,	 and	 possibly	 making	 another
choice.

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• 	Participants should be made aware of substitutes for the good being	 evaluated.
• 	Sufficient time should pass after a negative impact on the ecosystem before a contin-
gent valuation study is conducted in order to avoid answers 	out of a momentary dispo-
sition. Answers averaged over several points in time can avoid catching temporary
changes in preferences.
• 	Respondents	 should	 be	 able	 to	 refuse	 an	 answer,	 with	 an	 attempt	 to	 be	 made	 of finding
out	 the reasoning	 behind	 both	 refusals	 to	 answer	 and	 yes/no	 answers.
• 	A high-quali	ty su	rvey woul	d als	o includ	e question	s on socioe	conomi	c dat	a an	d respond-
ent	s’ general attitudes and perceptions of the issue at stake, with the influence of these
variables on the 	willingness	-to-pay being	 analyzed.
• 	Lastly, with all the above guidelines met, the questionnaire must still be easy enough
to understand	 and	 not	 take	 an	 excessive	 amount	 of time	 to	 complete.
So	-called d	ichotomous or polychotomous choice is a variant of 	CV	 where instead of open
questions	 the	 respondents	 are	 asked	 whether	 they	 would	 pay	 a certain	 amount.	 Dichoto-
mous	 choice 	all	ows onl	y for “yes” an	d “no” ans	wers	, pol	ychotomou	s choice provide	s mo	re option	s
su	ch as “probably 	pay”, “certainl	y pay” or “not su	re”. Question	s ca	n be sin	gle-bounded	, whe	re onl	y
on	e questio	n is asked, 	or	 multiple	-bounded,	 where	 follow	-up	 questions	 with	 higher	 or	 lower
amounts,	 depending	 on	 the	 initial	 reply,	 are	 asked.	 There	 are	 usually	 different	 versions	 of a
questionnaire	 with	 different	 amounts	 being initially	 offered	 for	 choice.	 This	 technique	 makes
answering	 easier	 for	 respondents,	 thereby	 reducing	 the chance	 of unrealistic	 statements.	 It
does	 however	 bear	 the	 risk	 of starting	 point	 bias,	 that	 is researchers influencing	 outcomes	 by
choosing	 certain	 starting	 points.
For further reading about CV, design of survey etc.: 	see OECD Handbook on Biodiversity Valuation
(2002).
4.8	 	Choice	 Experiments could be use	ful, but are 	complex to use
Choice	 experiments	 (also	 referred	 to as contingent	 choice,	 choice	 modelling	, conjoint	 analysis,	 or
attribute	-based	 stated	 choice	 method)	 is a newer	 approach	 to obtaining	 stated	 preferences.	 It
consists	 of asking respondents to choose 	their preferred option from a set of alternatives where
the alternatives are defined by attributes (including the price or payment). These	 approaches
are	 useful	 in cases	 where	 we are	 interested	 in the	 valuation of the attributes of the situation or
when the decision lends itself to respondents choosing from a set of alternatives described by
attributes.
Choice 	experiments	 has several advantages: the control of the 	parameters	 is in the experi-
menter’s hand, as opposed	 to the	 low	 level	 of control	 genera	ted	 by	 real	 market	 data	, the	 control
of the	 design	 yields	 greater statistical efficiency	, the attribute range can be wider than found in
market data and the introduction or	 removal	 of products,	 services	 and	 attributes	 is easily	 accom-
plished	. The method also minimizes some of the technical problems associated with 	CV	, such as
strategic behavior of respondents. The disadvantages associated	 with	 the	 technique	 are	 that	 the
responses	 are	 hypothetical	 and	 therefore	 suffer	 from	 problems of hypothetic	al bias (similar to

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CV	), and that the choices can be quite complex when there are many attributes and alternatives.
The econometric analysis of the data generated by choice modelling is also fairly	 complex.
4.9	 	Benefits (value) transfer is very useful, but m	ust be used with care
4.9.1	 	Must make sure that the circumstances are similar
Benefits or value transfer	 is not a methodology 	per se	, but rather refers to the use of estimates
obtained (by whatever method) in one context	/site	 (study site) 	to estimate 	values in a different
context	/site (policy cite)	. For example, an estimate of the benefit obtained by tourists viewing
wildlife in one park might be used to estimate the benefit obtained from viewing wildlife in a
different park. 	Alternatively, 	the relatio	nship used to estimate the benefits in one case might be
applied in 	another, 	by using adjusted data from this case 	together	 with some data from the site
of interest (	this is called 	“benefit function	 transfer”).	 For	 example,	 a relationship	 that	 estimates
tourist	 benefits	 in one	 park,	 based	 in part on their attributes such as income or national origin,
could be used in another park, but with data on 	incom	e an	d nationa	l origin of tha	t pa	rk’s visitors.
Estimates based on benefits transfer can be generated with considerably less time and re-
sources than primary studies	, and is often used in valuation of ecosystem services and similar
goods	. Benefits transfer has been the subject of considerable controversy 	in the literature, as it
has often been used inappropriately.	 According to the Millennium Ecosystem Assessment, a
consensus seems to be emerging that benefit transfer can provide valid and reliable estimates
under certain conditions. These conditions inclu	de the requirement that the commodity or ser-
vice being valued 	is very similar 	to the site where the estimates were made	, and the site where
they are applied and that the populations affected have similar characteristics.	 Of course, the
original estimates b	eing transferred must themselves be reliable for any transfer to be mean-
ingful.	 But a	s the conditions at two sites are unlikely to be perfectly identical, some transfer error
is to be expected. 	It should be recognized that the determinants of both the supp	ly and demand
of ecosystem services are spatially variable, which makes the assessment and transfer of eco-
system service values inherently spatial.
The number of primary studies on the value of ecosystem services is substantial and is growing
rapidly. Thi	s means that the benefits transfer can be based on multiple primary studies.
However, benefit values should be adjusted for differences between the study and policy site.
These are elaborated below.
4.9.2	 	Adjustments for differences in i	ncome level 	should be 	made
The demand for most goods and services, including ecosystem services, changes with income.
Generally, as income rise	s, the demand for and value of 	“normal	” goods and services also in-
creases. When transferring values for ecosystem services from countries or areas with different
incomes it is therefore necessary to adjust for the effect of income on the demand and value of
ecosystem services. Ideally, such adj	ustments should use measures of individual or household

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income. 	Adjustments	 for	 differences	 in income	 between	 study	 sites	 and	 policy	 sites	 can	 be	 made us-
ing	 information	 on	 how the	 willingness	-to-pay	 (WTP)	 for	 the	 ecosystem service in question 	changes
wit	h respect to income. The economic term for this is the “income elasticity of WTP”. This is a meas-
ure of how much the WTP for an ecosystem service changes	 with	 income,	 and	 is generally	 expressed
as the	 percentage	 change	 in WTP	 for a	 one	 percentage	 point	 change	 in income.	 Estimates	 of the	 in-
come	 elasticity	 of WTP	 for 	different	 ecosystem	 services	 can be	 available	 from	 primary	 valuation	 studies
and	 meta	-analyses 	that	 include	 income	 as an	 explanatory	 variable	 in estimated	 value	 functions.	 UNEP
(2013) present as an example	 of 	estimates	 of the	 income	 elasticity	 of WTP	 for	 wetland	 ecosystem
services	 from	 recent	 meta	- analyses	 in the	 range	 0.295	 - 1.16.
The formula for unit value transfer adjustment is:
WTP	p = WTP	s (Yp / Ys)E

Where:
WTP	p = willingness to pay at the policy site 	(“our” site)
WTP	s = willingness to pay at the study site
Yp = income per capita at the policy site
Ys = income per capita at the study site
E = income elasticity of willingness to pay
When using valu	e estimates from other parts in the country one does not usually adjust for
differences in income level, unless income levels vary considerably. 	When information on the
income of beneficiaries is not available (as is often the case), one can use information on Gross
Domestic Product (GDP) per capita as a proxy for income. 	This is the main approach when using
estimates from other countries, as data 	on GDP per capita for countries are easily available.
The income elasticity E is often not easily available in the literature. In this case the adjustment
is often made by multiplying the value from the study cite with the relation 	Yp / Ys, , implicitly 	as-
suming that the elasticity is 1. While this is generally not a correct estimate of E in most cases,
it is an omission that could be accepted if one for instance shows the impacts on the estimate
of higher and lower values of E.
4.9.3	 	Year of value and gener	al price level must be adjusted for
Value	 estimates	 from	 primary	 valuation	 studies	 are	 reported	 at the	 general	 price	 level	 for a	 particular
year,	 usually	 (but	 not	 always)	 the	 year	 in which	 the	 study	 was	 conducted.	 For example,	 a valuation
study	 conducted	 in 1995	 is likely	 to report	 values	 in the	 price	 level	 in that	 year.	 Inflation,	 however,
causes	 general	 price	 levels	 in a country	 to rise	 over	 time	 so that	 any	 given	 amount	 of money	 is worth
less	 over time	 in terms	 of the	 goods	 and	 services	 that	 it can	 purchase.
When transferring study site values that were estimated in previous years to inform a current	 policy
decision	 (and	 to compare	 transferred	 ecosystem	 service	 values	 with	 other values	 that	 are	 relevant	 to
the	 policy	 decision),	 it is necessary	 to adjust	 values	 to account	 for inflation.	 All	 values	 should	 be	 adjusted
to ensure	 that	 they	 represent	 the	 general	 price	 level of	 the	 same	 year.	 This	 can	 be	 done	 using	 available

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Valuation of some 	environmental damages in Georgia

domestic	 price	 indices	 or GDP	 deflators that	 measure	 the	 annual	 rate	 of price	 change	 in an	 economy.
GDP	 deflators	 are	 available 	for instance 	from	 the	 World	 Bank	 World	 Development	 Indicators
(http://data.worldbank.o	rg/data	-catalog/world	-development	-indicators	).
The formula for this adjustment is:
WTP	P = WTP	S (DP / DS)
Where:
WTP	P = willingness	 to pay	 at the	 policy	 site
WTP	S = willingness	 to pay	 at the	 study	 site
DP = GDP	 deflator	 index	 for	 the	 year	 of the	 policy	 site	 assessment
DS = GDP	 deflator	 index	 for	 the	 year	 of the	 study	 site	 valuation
4.9.4	 	Purchasing power and currency	 also differ between countries
General prices for goods and services vary across different countries and even within countries	, re-
flecting	 differences	 in the	 costs	 of production	 and demand	. Differences	 in the	 general	 price	 level	 across
countries	 are	 measured	 using	 price	 indices, which	 compare	 prices	 for	 a representative	 basket	 of con-
sumer	 goods	 in each	 country.	 When 	comparing	 across	 countries	 with	 different	 price	 levels,	 a given
amount	 of income will	 be	 able	 to purchase	 more	 goods	 and	 services	 in a country	 with	 a lower	 general
price level than in a country with a higher general price level. 	For example, someone	 earning USD
750	 in Georgia	 would	 need	 to earn	 USD	 1000	 in the	 United	 States	 to be	 able	 to buy	 the same	 quantity	 of
goods	 and	 services if prices are	 generally	 33percent	 higher	 in the	 United States.
This	 means	 that	 it is	 not	 valid	 to directly	 transfer	 values	 between	 countries	 with	 different	 price	 levels	,
since the same amount of money represents a different quantity of goods and services (and there-
fore	 utility	 for	 the	 consumer).	 It is therefore	 necessary	 to make	 adjustments	 to values when transferring
from one country to	 another.
Transferring	 values	 from	 a study	 site	 in one	 country	 to a policy	 site	 in another	 country	 also need to
account for that 	most	 countries	 have	 their	 different	 currencies,	 and	 so values	 need	 to be	 converted	 to
the	 appropriate	 currency	 as well	 as price	 level.	 Primary	 valuation	 studies generally	 report	 values	 in the
currency	 of the	 country	 in which	 the	 study	 site	 is located	, and often	 also	 in US	 dollars	 (USD)	 if the	 results
are	 intended	 for	 an	 international	 audience.
To transfer values between countries involves using purchasing power parity 	(PPP) 	adjusted ex-
change rates, which are also available for	 all countries in the World Bank World 	Development Indica-
tors	 (https://data.worldbank.org/indicator/PA.NUS.PPPC.RF).	 The formula for this adjustment is:
WTP	P = WTP	S x E

Where:
WTP	P = willingness	 to pay	 in currency	 of the	 policy	 site
WTP	S = willingness	 to pay	 in the	 currency	 of the	 study	 site

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Valuation of some environmental damages in Georgia

E = purchasing	 power	 parity	 adjusted	 exchange	 rate	 between policy and
study site currencies
In cases	 where	 the	 study	 site	 value	 estimate	 is reported	 in a second	 currency	 (often	 US	D) that	 has	 been
calculated	 using	 a standard	 market	 exchange	 rate,	 it is necessary	 to adjust this	 reported	 value	 to reflect
differences	 in price	 level.	 This	 involves	 converting	 the	 value reported in US	D into the local currency
using the market exchange rate (ideally the	 rate that	 was	 used	 by	 the	 analyst	 for	 the	 primary	 study)
and	 then	 converting	 it into	 the	 desired 	currency	 using	 a PPP	 adjusted	 exchange	 rate	. If the standard mar-
ket exchange rate is not reported in the primary study, market exchange rates are available in the
World Bank World Development Indicators 	or any other website reporting exchange rates. 	For ex-
ample	, the WB indicator shows that	 in 2017 0.	38	 Georgian	 lari 	(GEL) 	would buy the same amount of
goods and services in Georgia as would 1 USD in the US.
4.9.5	 	Other benefit transfer challenges
Cultural differences should be considered
Different people and cultures can have very different perceptions,	 preferences	 and	 values	 for	 ecosys-
tem	 services.	 For example, patterns of outdoor recreational activities in natural areas are observed
to be very	 different	 across	 countries.	 More	 fundamentally,	 ecosystems	 can	 have	 strong	 cultural 	signifi-
cance	 in some	 societ	ies	 and	 not	 in others.	 Differences are most likely smallest between neighboring countries.
Transferring	 ecosystem	 service	 values	 from 	one cultural context to another can therefore be problem-
atic. Cultural considerations should	 be	 reflected	 in the	 selection	 of relevant	 primary	 valuation	 studies
from	 which	 values 	are	 transferred.	 In cases	 of specific	 cultural	 significance	 and	 customs	 related	 to ecosys-
tems, 	however,	 the	 scope	 for	 using	 value	 transfer	 may	 be	 limited	 and	 primary	 research	 is the	 only 	valid
valuation	 approach.
Local scarcity of a good or service should be considered and eventually adjusted for
As a good	 or service	 becomes	 scarce,	 its	 price	 or marginal	 value increases. The local scarcity or abun-
dance of an ecosystem service	 is therefore	 a potentially	 important	 determinant	 of its	 value.	 For	 exam-
ple,	 the	 value of	 water	 supplied	 by	 a wetland	 is likely	 to be	 considerably	 higher	 in an	 environment	 with
low	 water	 availability	 than	 one	 in which	 water	 is abundant	 (setting	 aside	 other	 factors).	 It is therefore
necessary	 to consider	 and	 eventually	 adjust	 for	 differences	 in the	 relative 	scarcity	 of the	 resource	 or eco-
system	 service	 being	 valued.
The availability of substitutes or complementary resources should also be considered
Sim	ilarly,	 differences	 in the	 availability	 of substitute	 or complementary	 resources	 should be	 con-
trolled	 for.	 Substitute	 ecosystems	 are	 alternative	 sources	 of the	 same	 service.	 For example,	 parks	 and
green	 spaces	 within	 a city	 can	 be	 used	 for	 recreation	 activities	 and may	 be	 direct	 substitutes	. The	 con-
sequence of	 disregarding	 substitutes	 is generally	 an	 overestimation	 of WTP,	 as the	 sum	 of the	 value of
ecosystem services measured individually is higher than the value measured for all 	ecosystem	 services
at once.

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Valuation of some environmental damages in Georgia

Complementary	 ecosystems	 are	 those	 that	 when 	combine	d provide	 a greater	 quantity	 or quality 	of an
ecosystem	 service.	 For	 example,	 systems	 of coastal	 and	 marine	 ecosystems	 that	 include mangroves,	 seagrass
and	 coral	 reefs	 support	 commercially	 important	 fish	 species	 that	 depend 	on	 each	 habitat	 at different	 stages
in their	 lifecycle	 (UNEP, 2013)	. The	 presence	 of complementary	 ecosystems 	in a locality	 may	 enhance	 the
value	 of an	 ecosystem	 service,	 and	 this	 should	 be	 reflected	 in transferred	 values.	 Disregarding	 comple-
mentary	 sites	 is likely	 to result	 in underestimation 	of WTP.
The unit of the valuation must also be taken into account
Value	 transfers	 that	 use	 values	 per	 beneficiary	 involves	 identifying	 the	 appropriate 	number	 of benefi-
ciaries for the	 ecosystem service	 in question.	 In other	 words,	 how	 many	 individuals	 or households
hold	 values	 for the	 ecosystem	 service	 and	 are	 affected	 by	 the	 change	 in provision	? For value transfers
that use values per unit of ecosystem area, it is important to	 identify the	 relevant	 area	 over	 which	 to
aggregate	 unit	 values.	 For	 example,	 this	 might	 be	 the	 area of a forest converted to agricultural land or
the area of restored wetland in a floodplain. Generally	, most	 policy	 decisions	 will	 result	 in relatively
small	 or marginal	 changes	 to area	s of ecosystems.	 Very	 rarely	 will	 a po	licy	 decision	 involve	 the	 total	 loss
of an	 ecosystem.	 It is therefore necessary, and more useful 	for	 the decision 	maker, 	to identify and
value	 the specific	 area	 that	 is impacted	 by	 the	 policy	 decision.	 This	 information	 may	 be	 obtained	 from
technical	 reports,	 inputs	 from	 experts,	 or through	 stakeholder	 consultation.
For further reading about practical ways of adjusting benefit transfer estimates, see UNEP (2013).
4.10	 	Summary and recommendations
Primary valuation techniques could be time 	consuming and costly to use
According to Secretariat (2007) i	t appears	 that,	 when	 applied	 carefully	 and	 according	 to	 best
practice,	 valuation	 tools	 can	 generally	 pro	vide	 useful	 and	 reliable	 information	 on	 the	 changes	 in
the	 value	 of non	-marketed	 ecosystem	 services	 that result	 (or	 would	 result)	 from	 management
decisions	 or	 from	 other	 human	 activities.	 Data	 requirements may	 be	 quite	 demanding	 for	 a
number	 of tools,	 as	 are	 the	 preconditions	 in terms	 of technical	 expertise. 	Moreover,	 conduct-
ing	 primary	 valuation	 studies	 like CV	 is typically	 time	-consuming	 and	 costly	, and require exper-
tise to design the study, carrying out the survey and analyzing/presenting the results	.
Approaches based on observed behavior should be preferr	ed
When valuating 	ecosystem service and 	environmental damages, we prefer using data based on 	ob-
served behavior	, i.e. revealed preferences instead of stated preferences. 	This is also in accordance
with the recommendations of the Millennium Ecosystem Assess	ment. When u	sing revealed prefer-
ences one tries to observe (reveal) what people actually pay under similar circumstances etc. to pre-
vent or avoid the damages in question, instead of asking people what their willingness to pay is for
the actual 	services or 	measures. Revealed preferences tend to give more accurate estimates of the
WTP, and 	are	 also easier and cheaper to use than WTP surveys and similar	 approaches	. Therefore,
we recommend that the 	approaches	 are based on revealed preferences. 	These are generally not

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Valuation of some environmental damages in Georgia

very costly or time	-consuming to carry out, and do not necessary require expertise in any particular
field as long as the physical impacts are assessed and described, though some knowledge of bas	ic
economics would be useful.
The 	cost	-based approaches and 	change in production/productivity are most com-
monly used
The 	various	 cost	-based approaches, valuating the damages at the restoration, removal or avoid-
ance costs. When using this approach one sho	uld bear in mind that this could underestimate
the value sin	ce people or the authorities could have been willing to pay higher costs if necessary
to restore or avoid the damages.
The change in 	production/	productivity approach	 is applicable	 to a wide	 rang	e of direct and indi-
rect use values and most commonly used	.
Several	 techniques	 have	 been	 specifically	 developed	 to cover	 the	 characteristics	 of particular
problems. The	 travel	 cost	 method,	 for	 example,	 was	 specifically	 developed	 to measure	 the	 utility
derived	 by	 visitors to sites such as protected areas, and could also be applied to similar areas of
interest, but is of limited applicability outside that particular case.	 It is time	-consuming a	nd
costly to use, and requires some expertise to be ca	rried out properly.
Contingent valuation is necessary to estimate non	-use values
Contingent valuation is potentially applicable to any issue, simply by phrasing the questions ap-
propriately	. As such	 it has	 become	 very	 widely	 use	d (according to Secretariat (2007) 	probably
excessively	 so	), as it is easy	 to misapply	 and, being	 based	 on	 hypothetical	 behavior,	 is inherently
less	 reliable	 than	 measures	 based	 on	 observed	 behavior.	 For	 instance,	 if the	 focus	 is on	 the
quantification	 of indirect	 use	 values,	 the	 application	 of other	 valuation	 tools	 would	 often
seem	 to	 be	 preferable.	 For	 some	 types	 of value,	 however,	 stated	 preference	 methods	 may	 be
the	 only	 alternative.	 Thus,	 existence	 value	 can	 only	 be	 measured	 by	 stated	 preference tech-
niques	 like CV	. As mentioned	, this is often very time	-consuming and costly to carry out, and
need expertise in economics and/or other social sciences to be carried out properly. 	Guid-
ance on the appropriate use of the technique exists 	and should be followed 	closely	, see
above	.
Benefits transfer approaches are cost efficient to apply, but should be used cau-
tiously
Benefits	 transfer	 can	 provide	 valid	 and	 reliable	 estimates	 under certain	 conditions.	 Given	 the
cost	 of undertaking	 primary	 valuation	 studies,	 benefits	 transfer	 when	 used cautiously	 is likely
to	 be	 an	 increasingly	 appealing	 way	 for	 extending	 the	 use	 of valuation,	 including	 in 	developing
countries	 and countries in transition	. This approach is not very time	-consuming or costly to carry
out, but likely need some knowledge on economics to be carried out properly. It is often the
approach that “saves” the valuation if there are no site	-specific data available, and collection
such 	data is not a viable option.

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Valuation of some environmental damages in Georgia

4.11	 	Valuation of land damage
The focus on land damage in the ELD is on human health impacts from new project interventions (i.e.
interventions after 2007). In the literature and practical valuation the main focus have been on cle	an-
ing up contaminated sites, where for instance industries over many years have dumped chemicals
and various waste that have leaked into the ground and eventually also nearby water. 	One way soil
pollution can harm humans is 	through	 bioaccumulation. Plants 	that are grown in polluted soil absorb
the pollutants. Animals who eat many of these polluted plants take on all the pollution those plants
have accumulated. Larger animals who eat the plant	-eating animals take on all the pollution from
the animals they ea	t. Humans who eat plants or animals that have accumulated large amounts of
soil pollutants may be affected	.
Various exposures of soil contamination have led to long	-term, low	-level (chronic) exposure to sev-
eral harmful pollutants (heavy metals, persistent	 organic chemicals, oil spill etc.) for humans, leading
to for instance cancer, neurological damage, kidney disease (EC, 2013). Current pollution could also
contribute to this. The relation between soil contamination and long	-term human health is compli-
cat	ed and not so well understood as pollution to air and water. Impacts of high levels (acute) soil
contamination around the world have also been studied, and the causes and effects are often rela-
tively straightforward to determine, but there are few if any o	f these in Europe.
Thus, we are facing a challenge when valuating human health impacts from new, potential land dam-
age or contamination. One way could be to use previous valuations of contaminated sites to illustrate
what the long	-term impacts mig	ht be, given that new sites are allowed to be established and leak
pollutants into the ground and/or water. The valuation methods to use could be similar to those
used for valuating health impacts from contaminated water, i.e. dose response relations and V	SL.
Observed treatment costs could be a first step.

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Valuation of some environmental damages in Georgia

5	 	Valu	ing	 vegetation, wildlife, fish
and water 	damage
In this chapter 	we go through various practical approaches when estimating the 	damages caused	 to
the various ecosystem 	goods and 	services obtained from vegetation, wildlife, fish and water. 	Again,
the approach	 is to 	show how to 	value the goods and services provided, and 	then to see	 how	 the	 loss
of these 	goods and services 	could be	 valued	. At the end of the chapter	 we 	present some ex	amples
on how the economic va	lues of 	reduced quantity and/or quality of 	some 	goods and 	services 	could
be found.
5.1	 	Start with the steps required by ELD, and 	estimate	 the remediation
costs
Figure 2.1 shows the main remediation steps that should be taken to re	store the 	damaged	 site, re-
placement site or similar back to baseline conditions, i.e. how it was before the 	damage	 was done.
Four steps are eventually required, depending on to what extent each step is able to restore the site.
Then the damages will be in	directly valuated through the costs of the various remediation measures
that are deemed necessary. If the site 	and the ecosystem services it provides 	is then fully brought
back to baseline conditions, then there should be no more damages to valuate and the	 value of the
damages 	is then	 implicitly valued at remediation costs. However, as mentioned in chapter 4 this may
underestimate the 	actual 	damages or 	value of the 	ecosystem services	.
It may seem	 unlikely that a 	damaged	 site is fully restored back to baseline conditions. Most often
there 	will	 still 	be 	some damages left that could eventually be valuated, depending on what kind of
damage and if they are large enough to have any significant value. Besides, remediation could	 take
time, and during that time there would likely be some damages to at least the direct and indirect use
of the	 ecosystem services	. The impacts on these uses should be estimated in physical terms and
valuated, using the most appropriate approaches descr	ibed in previous chapters.
5.2	 	Overview of services and valuation approaches
Separate between use and non	-use values
According to the ToR	 biodiversity (vegetation, wildlife and fish) and water quality should be core foci
of the work. Below is an outline of some of the services and values that could potentially be linked
to these.

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Valuat	ion of some environmental damages in Georgia

Tab	le 5.1: 	Goods and s	ervices fr	om vegetat	ion	, wildlife	, fish	 and water
Use Values	 	Non	-use values
Direct Use Values	 	Indirect Use Values	 	Option Values	 	Existence values
Vegetation	 	Flood 	and landslide
protection
 	Biodiversity as such-
Culture, heritage
Fuelwood	 	Carbon 	sequestration	 	Potential future uses
Timber	 	Flood and landslide
control
Potential future uses
Non	-timber forest
products (NTFPs)
Water filtering	 	Potential future uses
Recreation and tour-
ism
 	Potential future uses
Esthetic value	 	 	Potential 	future uses	 	Culture, heritage
Peat harvesting	 	Groundwater regula-
tion and protection	,
methane storage
Potential future uses	 	Culture, heritage
Beekeeping	 	Pollination	 	Potential future uses	 	Biodiversity as such
Wildlife	 	 	 	Biodiversity as such
Hunting	 	 	Potential future uses
Recreation and tour-
ism
 	Potential future uses
Fish	 	 	 	Biodiversity as such
Fishing	 	 	Potential future uses	 	Biodiversity as such
Recreation and tour-
ism
 	Potential future uses
Water quality
Drinking water 	quality	 	 	Potential future uses
Water quality for
other purposes
Fish farming	, irriga-
tion	, bathing	 etc.
Potential future uses
Source: Vista Analyse
Use values and likely also option values can be estimated through observed prices of
goods and 	services
Bearing in mind the recommendations above, the preferred and likely only viable approach would
be to value the various direct and indirect use values using the revealed preferences approach, i.e.
using observed market prices of the various 	goods a	nd 	service to the extent possible.

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Valuation of some environmental damages in Georgia

The option value of biodiversity for future generations can 	also likely 	be valued by estimating the
future values of the ecosystem services that could be provided. Thus, this valuation can then use the
same approach 	as the estimation of the current use values, eventually adjusting these values and
calculate a present value of the estimates using an appropriate discount rate. Through this approach
it will be possible to estimate some of the future option values, likely	 the most important ones.
Eventually, if market prices do not exist or are hard to find, benefits transfer could also be used. Then
one ha	s to be very careful to adjust these data to reflect local conditions at the cite that are to be
valued.
Non	-use 	values must likely be valuated through contingent valuation techniques or bene-
fit transfer
As mentioned in chapter 4 there are most often no market data that can be used to indicate the non	-
use value of a site. CV and other approaches can be used,	 but are 	often not a viable approach	 be-
cause the	y are time	-consuming, costly and require experti	se. Then one must look for valuation of
non	-use values 	from	 other sites, and if they eventually could be used for the site in question.
Travel cost method could perhap	s be used to valuate recreation and tourism
From the table it c	an among other things be seen that recreation and tourism could be services from
both vegetation, wildlife and fish. These could be hard to separate when valuing damages and losses.
The existe	nce of wildlife depends on vegetation, mainly forests and similar cover, and the loss of
vegetation might indirectly impact wildlife and thus the services it can provide. Thus, the valuation
of these should be seen together if for instance using the travel	 cost method to value recreation 	and
tourism 	as such. When valuing the benefits from recreation using the travel cost method, one should
avoid “double valuation” if one also value loss of hunting, fishing, NTFPs etc. separately. Valuing
hunting for subsist	ence through the value of the meat should yield an accurate estimate of the value
for (local) hunters, although they might have a pleasure in the hunting itself that is not covered by
this approach.
When some people are hunting for fun and recreation, not	 necessarily taking the meat value into
consideration, the value of wildlife would be far higher than the meat value itself. This could be val-
uated using the travel cost method, trying to avoid “double valuation”. See below how this could
eventually be avo	ided. Alternatively, contingent valuation could be used. 	Since the recreation value
is often connected to vegetation, wildlife and/or fishing, it is proposed to value the recreation value
separately from all the species and service	s.
5.3	 	Vegetation	 loss could mostly be valuated 	from	 market prices
Vegetation	 could be defined	 as 	an assemblage of	 plant	 species and the	 ground cover	 they provide.	 It
is a general term, without specific reference to particular 	species	, life forms, structure, spatial extent,
or any other specific botanical or geographic characteristics	 (Wikipedia.org)	. It is broader than the
term	 flora	 which refers to species composition. V	egetation	 can, and often does, refer to a wider
range of spatial scales than that term does, including scales as large as the g	lobal.

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Valuation of some environmental da	mages in Georgia

Starting with the direct and indirect use values, the various services that vegetation 	provide 	could
be valued as follows:
Loss of f	uelwood, timber and NTFPs 	could be valuated at market prices and 	lost net 	reve-
nue
These services could be valued by estimating the gross revenues for each service (quantity multiplied
by price), minus the costs of production. Prices of the products could be observed in (local) markets,
eventually in published price lists etc., or specia	l enquiries would have to be made to reveal the
prices. In Brander et. al. (2016) there are examples of market prices on some NTFPs in Georgia like
blackberries, blueberries, mushrooms and chestnuts. Production costs could be harder to estimate.
The costs 	for timber production would be costs related to input for cutting and transporting the
timber to a buyer, which could perhaps be found through contact to some timber companies or from
previous studies. The costs of picking berries and similar would be low/	negligible, and local market
prices (if they exist) could be used. 	Eventually, national prices	 on the products could be used.
Thus, following the	 approach designed in Figure 4.2 the loss from market	-based services from vege-
tation could be calculated.
Loss of c	arbon sequestration/storage	 could be valuated through various approaches
This could be valued in three alternative ways:
1. As the potential net revenue from selling additional stored carbon as carbon credits;
2. As the avoided climate change damages	 resulting from the storage of additional units of carbon
in living biomass (mainly forests) and forest soil or
3. The costs of alternative actions to reduce emissions and/or increase sequestration to fulfil a na-
tional emissions target for greenhouse gases (	GHGs).
Which one to use will depend on the situation in the country. If carbon credits from forest activities
etc. could be sold internationally, the price (that could be achieved from international brokers, web-
sites etc.) multiplied with the annual amoun	t of carbon that could be stored minus the costs of set-
ting up, monitoring, enforcing and marketing credits (which can be obtained from existing initiatives)
could be used as an estimate	 of the value for the country	. Alt. 2 is difficult, but there are some	 inter-
national studies that have estimated the global damages per ton of carbon emitted. Alt. 3 could be
valued	 by observing or estimating the costs of alternative emissions reduction actions, given that
Georgia has some national GHG commitments. The annua	l amounts of sequestration by each species
could be found in (international) studies estimating this for various species and areas of the world.
Similarly, the amount of already stored carbon that could be released if the vegetation was damaged
could be es	timated. Brander et.al. (2016) have some examples of how carbon sequestration could
be valued	 in Georgia	.

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Valuation of some environmental damages in Georgia

Loss of f	lood and landslide control could be valued by 	remediation 	costs	, eventually based
on 	previous damages or alternative actions
The 	services that vegetation provide to avoid floods and landslides could be valued using the avoided
damages costs approach	, i.e	. the costs of a flood or landslide that could be avoided by vegetation.
(Brander et.al., 2016). This involves assessing how the ri	sks of damage events change with changes
in forest/other vegetation cover, and then estimating the associated changes in expected damage
costs. Physical damages would have to be assessed by some experts, eventually from comparing with
historic events. The 	value of the damages could be estimated from the costs of historic events, i.e.
costs of restoration of the damaged sites. Since landslides occur frequently in Georgia there should
be several estimates of previous damages, but since each landslide is diffe	rent and (all) historic costs
could be hard to assess there will likely be some uncertainty in the estimates. Brander et.al. (2016)
provides some examples of how landslide damages could be assessed and valued. An alternative
valuation approach could be to 	value the costs of alternative actions to prevent landslides, if possible.
Loss of flora species (plants) could eventually be valued by removal costs or similar
Interventions may lead to partial or eventually total loss of species in an area. The 	value of this loss
depends on how scarce the species in question are. For instance, if the plant is an endangered, red	-
listed species only situated in the area in question, the potential value of its loss might be huge.	 Then
there would 	perhaps	 be some act	ions taken to preserve it, for instance by moving (some of) the
specimen to another area if possible. In this case the actual costs of the avoidance/mitigation actions
could be used as a (minimum) value of the existence of the species.
In cases where the 	species in danger of being lost in an area are plentiful, i.e. exist in lots of other
areas in the country or elsewhere, the value of the loss itself will likely be small or nil, since the
species would not be completely lost. Then the only potential value	 of the loss in the area would be
the eventual loss of services caused by the local loss of the species.
5.4	 	Wildlife	 loss could be valuated 	from	 market prices and costs
Wildlife 	traditionally refers to	 undomesticated	 animal	 species	, but has come to include
all plants	, fungi	, and other	 organisms	 that grow or live wild in an area without be-
ing	 introduced	 by	 humans	 (Wikipedia.org)	.
Loss of meat	 can be valued by market prices
Hunting is an important activity in many areas, used by locals for leisure and/or to supply meat for
the family or for selling in (l	ocal) markets. The loss of these services could be valued by multiplying
the prices of the meat with the quantity lost, subtracting the hunting costs. The costs of hunting
would likely be very low	/negligible	, related to gun use etc.
The availability of s	ome wildlife species could attract hunters for recreational hunting or watching
(for instance bird watching), which would yield additional losses to the loss of meat. These activities
are valuated below.

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Valuation of some environmental damages in Georgia

Loss of species	 could eventually be valued by removal costs or similar
Interventions may lead to partial or eventually total loss of animal species in an area. The loss of
animal species (fauna) could be valued in the same way as the loss of flora species, see above.
Th	e value of this loss depends on how scarce the species in question are. For instance, if the species
is an endangered, red	-listed one 	that is 	only situated in the area in question, the potential value of
its loss might be huge.	 Then there would 	probably	 be	 some actions taken to preserve it, for instance
by moving (some of) the specimen to another area. Another action could be to alter the project/in-
tervention to avoid it being lost. In both cases the actual costs of the avoidance/mitigation actions
could be	 used as a (minimum) value of the existence of the species.
5.5	 	Fish	 loss could be valued 	from	 market prices
Fish is a part of wildlife, but could also comprise fish raised in fish farms. As for wildlife, the loss of
fish catch can be valued by multiplying 	the prices of the fish with the quantity lost, subtracting the
fishing costs. The costs of fishing would likely be low, related to boat use and fishing gear should be
included.
The availability of some fish species could attract 	fishers	 for recreational	 fishing, which would yield
additional losses to the loss of 	fish 	meat. 	How to valuate t	hese activities are 	described	 below.
5.6	 	Recreation	 and tourism	 loss	 could be va	lu	ed by loss of net revenue
Recreation and tourism 	often depend on	 vegetation wildlife, f	ish	ing	, berry picking etc. In this context,
the value of recreation could be the value of just enjoying nature, without taking into account	 the
values of reduced catch of fish, meat etc. In some areas hunting of some animals, fishing etc. are
activities that attract people from other parts of Georgia or even abroad, yielding a value to these
people that they are willing to pay for. This value	 could by far exceed the value of the catch	 itself	.
One way of potentially avoiding double valuation could be to valuate tourism activities in the area in
question, given that the impacts are so large that they might impact tourism negatively. (Extensiv	e
tourism might also have negative impact on ecosystems, which according to TEEB (2013) have been
observed in Georgia, but this is another issue).
The value of tourism and recreation in an area is the tourist’s willingness	-to-pay to travel to the area
and	 spend time there, and	 reduced ecosystem services could lead to	 reduced number o	f visits and/or
reduced length of a visit. One way of indirectly valuing this would be to assess the lost income from
tourism in the areas potentially negatively impacted by th	e decrease in ecosystems or loss of species,
and the reduced travel costs. This value could eventually be derived from Georgian public statistics,
if this shows regional figures for the value creat	ed	 in this sector. If not, a simple, local survey could
be 	carried out by contacting (local) companies in the tourist sector, to get some information on their
revenue from the tourist sector, and some estimate of their potential loss. If getting information
about where visitors come from, it could also be possible	 to estimate their travel costs. Thus, the
total reduced willingness to pay to visit the area could be estimated.

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Valuation of some environmental damages in Georgia

5.7	 	Water 	damage	 could be valuated from abatement costs
Pollution of water can cause impacts on human health (through reduced drinking or irri	gation water
quality or by eating contaminated sea/freshwater food and plants irrigated with contaminated wa-
ter), and harm animals, plants, shores etc. and thus have impact on leisure and tourist activities like
fishing, bathing and also cause problems wit	h odour (smell) and similar. How to value damages on
animals, plants, leisure and tourist activities are described above. Below valuing of negative impacts
on drinking and irrigation water quality and sea/freshwater food on human health is described.
Star	t with	 abatement costs
For valuing 	contaminated 	drinking 	or irrigation 	water there are two main approaches: 1) abatement
costs, i.e. costs for cleaning contaminated water to achieve drinking	 or irrigation	 water quality, or
supplying water from other sourc	es, or 2) cost of illness and/or 	eventually 	premature death, given
that the water 	has caused illness through contaminating the drinking water or sea/freshwater and
plant food before or after actions to improve the quality have been carried out	.
Often it w	ould take some time before the water is cleaned, and it might not be possible to clean it
to the required standard	. Therefore,	 some actions to provide drinking 	and irrigation 	water from
other, clean sources	 will likely be taken	. Thus, the costs of these ac	tions would represent an estimate
of the value of reduced drinking water quality. These costs could be obtained from the local author-
ities in charge of drinking water	 supply	, and/or the companies providing the 	alternative, clean 	water.
Odour etc. could on	ly be valued by asking people through a survey what they would be willing to pay
to get rid of it, or try and find some estimates from other studies that have valued this.
Cost of illness approach	 to value 	damage to human health
If the 	contaminated 	water 	is used and 	causes disease	 through drinking and/or eating sea/freshwater
and plant food	, the cost of illness approach could be applied to estimate the value of degraded water
quality. Also, 	if the water is still used for irrigation purpo	ses	 even if it has not reached the required
standard	, people could become 	ill from eating crops that have been contaminated from the use of
low	-quality irrigation water.
These costs could be estimated by observing costs of medical treatment, hospital adm	issions, loss of
income etc., see chapter on Cost of Illness above	.
5.8	 	Valuation of land damage
As for 	vegetat	ion	, wildlife	, fish	 and water quality, the valuation of land damage should start by esti-
mating the remediation costs to bring the damaged land ba	ck to baseline conditions. If there 	are	 still
some damages left after the remediation actions, the impacts on human health should be assessed
and valuated. Then the cost of illness 	could be estimated	 in the same way as for water quality loss
described in c	hapter 5.7.

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5.9	 	In practical valuation 	data availability	 and quality	 is often the most
important factor for the valuation approach
The overview in the previous sections of this chapter shows that there are often not very many al-
ternative approaches to choos	e among when valuating loss of ecosystem services. For many of the
direct and indirect use values 	and values for optional future use 	the 	most 	obvious 	approach would
be to calculate various remediation costs to bring the situation back to baseline. 	This sho	uld ideally
be done for the site in question, but transfer of costs from other sites would be an option. The one
should make sure that the costs transferred are cov	ering the same situation/damage, and make nec-
essary adjustments regarding income level, currency etc.
For remain	ing losses/damages	 or in the (perhaps unlikely) situation that remediation costs cannot
be 	estimated	, the often 	only viable approach is using m	arket prices to calculate the various losses.
This is often rather straight forward, and do not require any particular skill. 	Transfer of such data
from other countries are often not an option, since the situation regarding 	demand/supply, substi-
tutes, pref	erences	 etc. may be too differe	nt. However, 	transfer of prices between neighboring coun-
tries could be feasible if the c	onditions are similar.
The availability of data is most often the single issue that determines what approach to use, or if the
good or 	service is possible to valuate at all. Time, costs and/or required expertise are often the main
constraints for the collection of data beyond collecting simple observations of market prices	 etc	.
However, the latter can also be tricky when there are non	-transparent markets, for instance for fuel
wood. In such situations non	-scientific approaches like talking to (some) people selling or buying fuel
wood can provide the necessary information.
Because of lack of data, time, funding and/or expertise on often e	nds up with valuating only some of
the damages on 	ecosystem services	. The existence value is frequently the one lacking most due to
these constraints. However, the best should not be the enemy of the good, and one should try and
valuate as many goods and/o	r services as possible within the existing constraints, recognizing that
this could be useful as long as one acknowledges that the estimated values underestimate the total
value of the good or service. 	Then, a good d	escription of the impacts on the remaini	ng services that
cannot be valuated	 would be a good alternative to valuation, and a supplement to the services being
valued.

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Refer	ences
Arrow, K.; R. Solow; P. Portney; E. Leamer; R. Radner; H. Shuman (1993: Report of the NOAA panel
on Contingent Valua	tion. 	Resources for the Future	, Washington.
Brander, Luke; Chansopheaktra Sovann; Davit Kharazishvili and Nino Memiadze (2016): Th	e Econom-
ics of Ecosystems and Biodiversity for the Forestry Sector of Adjara Autonomous Republic, Georgia.
WWF	-Caucasus Progr	amme Office.
EC (2013): Soil contamination: Impacts on human health. In	-depth report Issue 5, Science for Envi-
ronment Policy. European Commission.
Secretariat (2007). AN EXPLORATION OF TOOLS AND METHODOLOGIES FOR VALUATION OF
BIODIVERSITY AND BIODIVERSIT	Y RESOURCES AND FUNCTIONS	. Secretariat of the Convention on
Biological Diversity	, Technical Series no. 28, Montreal, Canada.
TEEB (2013): TEEB scoping study for Georgia: Main findings and way forward. Ministry of Environ-
ment and Natural resources Protectio	n of Georgia, United Nations Environment Programme (UNEP).
World Wildlife Fund (WWF) Caucasus.
UNEP (2013): Guidance Manual on V	alue Transfer Methods for Ecosystem Services. United Nations
Environment Programme, Nairobi	-Kenya.

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Appendix	 1	: 	cases
In 	this appendix we present the following three cases as examples on how valuation of vari	ous dam-
ages could be approached:

1. Dam break, causing flooding 	and destroying forests, roads, vegetation etc.
2. Leakage of contaminated water into drinking water 	source
3. Leakage of contaminated water into a lake popular for fishing
None of these are real cases, but are constructed based on various incidents in Georgia and other
countries.
A.1	 	Case 1. Dam break
The incident
A hydropower dam breaks down, causing masses of	 water to flow into the neighboring valley. On its
way it destroys large areas of forest and other vegetation,	 and destroys roads. The valley is not very
populated, but there are some damages to houses also. No people are injured or killed. The damaged
are	a is used for timber production, and local people use the forest for fuelwood logging, berry and
mushroom picking. There is also some hunting in the area. 	Also	, there are	 several species of birds
and mammals, and various species of flora, of those some end	angered ones. Some of these have
been damaged. Recently the valley has also become popular among international tourists for day
visits.
Restoration
According to the requirements in the ELD the company responsible for the dam is asked by the au-
thorities to 	restore the area back to the situation before the dam break. This restoration will consist
of cleaning up of the area, i.e. removing broken trees, bringing the masses back onto the slopes etc.
and pla	nting new trees. The other vegetation is harder to resto	re, but nature itself will likely bring
the vegetation back to its baseline position after some years. How many years this will take is uncer-
tain. The damaged roads will be rebuilt, and the destroyed buildings will be rebuilt or compensated
for in monetary	 terms.
The company estimate the total restoration costs. This is indirectly an estimate of (some of) the
damages caused by the flooding. But there are also some losses that the restoration will not cover,
mainly because it will take time to bring the are	a back to baseline conditions, and in the meantime
there will be some losses. These remaining damages need to be assessed and valued. This could be
complicated, since one does not know how many years the natural restoration will take.

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Valuation of the re	maining damages
It was assessed that the following damages could remain after the restoration:
Loss of forest/trees
The trees that was destroyed by the flooding could now or later have been logged and used as tim-
ber or fuel	 wood. Some of the broken trees 	could be used, but it is 	assumed	 that 	most of the	 trees
that could	 have been	 used as timber	 are destroyed and cannot be used for any purpose.	 Further-
more, most of the trees that could have been used for fuelwood are destroyed.
Value of trees for timber production
An easy way to valuate the timber would be to estimate the value as the revenue (the number of
lost trees	 * price) minus productio	n costs as if all the trees had been chopped and sold today. But
that would not necessary had happened if they had not been destroyed, since they would perhaps
gradually have been 	cut down	 over time when each tree had reached the “right” (optimal) time for
logging, yielding maximum value. It is challenging to estimate this future value since future timber
prices are unknown and we do not know exactly when the trees would have been cut. Thus, there
could be two alternative ways of approaching this:

1. Estimat	e the value of the trees as if they 	all 	had been 	cut	 today	. This value is the gross rev-
enue: price	 * number of lost trees 	– production costs. We know the number of trees lost,
and can calculate the timber quantity from this with the help of some experts. H	ow about
the price? It could perhaps be observed in some statistics or similar, but most likely there
is no easily available price. Then we have to ask around to find a suitable price. One could
ask (local) forest owners and/or buyers about what price woul	d be the right one to use,
but could we rely on their answers? Their answers could be checked by national experts or
people that know the timber markets. From this it should be possible to find a suitable
price. Then there are the production costs. The rel	evant costs are the costs of 	cutting	 the
trees and transporting the logs to the buyers. They are most likely even more unobserva-
ble than the price, and again we have to ask forest owners, (local) loggers, transporters or
similar to get some indications of 	the costs.
2. Estimate the future value of the trees. 	In this approach we try and valuate the loss accord-
ing to a more realistic baseline. Then we need a	n estimate 	for the future timber prices,
which can be established from statistics of historic timber pric	es. If available, the statistics
could be used to estimate annual future prices for the years when the trees are assumed
to be cut. Furthermore, the future cutting pattern would also have to be estimated, based
on for instance historic cutting patterns and	/or knowledge of the age distribution of the
various parts of the destroyed forest. One should also estimate future cutting/transporta-
tion costs. If the future price	, logging pattern and cutting cost estimates could be estab-
lished, one 	can	 calculate the ne	t present value of the future cash flow using a suitable dis-
count rate similar to the rate level used for investment projects in Georgia.
What approach to choose largely depends	 on the availability of the data needed, time, budget/costs
and skills of the 	personnel. Alternative 2 could be the one closest to the actual baseline, but given

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Valuation of some environmental damages in Georgia

the challenge and uncertainty with this approach alternative 1 	could be the most suitable approach
to apply.
Value of lost fuel wood
Then there is the value of the lost fuel wood. One does not know exactly how much fuel wood that
is lost, and how much of it that would actually have been used. Also, there is a question if households
have alternative sources for fuel wood not too far away	, and that would not have any alternative use
(i.e. would not be used by others). Investigations show that there are no alternative fuel wood
sources available nearby that could be used by the households. Therefore, the affected households
would have to bu	y alternative fuel wood (or other fuels) in the market.
Then one needs an estimate of annual fuel wood use from the destroyed forest. This could be found
through a (door	-to door) survey among (a sample of) households. If this is too costly and/or take to	o
much time, perhaps some representatives for (local) authorities, forest experts etc. could be asked
for an estimate. 	Data from Brander et. al. 	(2016) shows the results of a household survey from Adjara	,
indicating 	that some 95	 percent	 of nearby household	s cut wood, and very few buy wood at the mar-
ket. The average quantity of wood used per year per household in this survey was 9.5 m	3, with a
minimum use of 4 m	3 and a maximum of 15 m	3. All respondents use wood for heating, just over 80
percent use wood for 	cooking and 46 percent use wood for preparing animal fodder. These numbers
could perhaps be used also in “our” area, if no better estimate is available. This is an example of a
benefits transfer within a country, and one should try and check whether the nu	mbers from Adjara
would be representative for “our” case. The check would consist of whether the areas are of the
same population density, income level etc.
When we have an estimate for the quantity of fuel wood used and the number of households af-
fected,	 we need a price estimate for the fuel wood that would have to be bought in the market. If
there is a well	-developed local market for fuel wood, one could ask around for the market price. But
one should also try and take into account that this new situatio	n could increase the market signifi-
cantly, implying that supplies would have to increase (perhaps from far away areas), thus 	perhaps
increasing the cost and also the market price. If there is no or just a small local market for fuel wood,
one has to imagin	e how a (temporary) fuel wood market, or a market for other heating/cooking fuels
could be developed. There will be several years before new fuel wood has grown sufficiently so that
households again can cut their own fuel wood. Forest experts and/or estima	tes of various fuel wood
trees growth rates should give an answer to how many years the households would need to be sup-
plied from other fuel sources. Then the present value of the costs should be calculated.
Should saved costs for time used for cutting fue	l wood be subtracted? When people cannot cut fuel
wood they will have extra time to do other things, for instance more paid work. This could be seen
as a benefit that could be subtracted from the costs. When people engage in cutting fuel wood this
is proba	bly considered the best use of their time, otherwise they would have used it for other activ-
ities. What these are would vary between people: someone would take on more paid work (if possi-
ble), and others would use the time for various other non	-paid activi	ties. People might also have to
spend some time getting the bought fuel wood and transporting it home. One could eventually try
and estimate an average time saved, and value it with for instance half the average salary per hour
in the area (assuming that h	alf the time would be used for paid work). But all in all there is likely no
great error made by leaving these costs out of the valuation.

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Valuation of some environmental 	damages in Georgia

Loss of berries and mushrooms picking opportunities
There is a lot of local people collecting blueberries, blackberries, mushrooms and chestnuts in the
destroyed woods. This is mostly for subsistence, but some amounts are also believed to be sold both
locally or to more far	-away markets. These activities wi	ll no longer be possible until the vegetation is
restored. Experts on vegetation should be able to estimate how long it will take before the vegetation
is sufficiently restored so that these non	-tree forest products (NTFPs) are possible to collect again.
Then there is the question of how large amounts of these products are collected annually, and what
prices that should be used to calculate the loss. There is uncertainty as to how much of the NTFPs
that were available, and how much of them that were actual	ly collected. Since the collecting is done
by local people, one should try and find out how many people in what local communities that have
collected NTFPs) regularly, and how much. Again, one could ask local people or carry out a survey if
there is time a	nd money. Data from a survey in Adjara presented in Brander et.al (2016) indicate that
30 percent of households collect blueberries, 26 percent mushrooms, 16 percent blackberries and 7
percent chestnuts. There are also some (uncertain) estimates of amounts	 of collected NTFPs. The
majority of households in this survey do not collect NTFPs. The survey also shows that people within
av radius of 5 km are affected by reduced vegetation. These numbers could be used as a benefits
transfer if no local estimates are	 easily available and/or it is not possible to carry out a survey.
Then prices of the products will have to be found, asking around for some information. If no such
(reliable) local prices can be found, Brander et.al. (2016) present some market prices per	 kg from
their Adjara survey. Prices for blackberries are in the range of GEL 5	-10 per kg, blueberries GEL 7	-10
per kg, mushrooms GEL 5	-15 per kg, and chestnuts GEL 2	-3 per kg. These can eventually be used if
they are considered realistic for “our” case.
Now the loss of NTFPs can be calculated by calculating the annual loss for the future years when
collecting NTFPs will not be possible, and then calculate the net present value of these losses. As for
fuel wood, 	one could eventually	 subtract	 saved labor c	ost.
Loss of hunting opportunities
There has over the years been some hunting in the damaged area. This will in principle still be pos-
sible, but because of the open space due to lack of vegetation there will likely be few animals to hunt
and little cover f	or the hunters. This will, however, gradually change in the coming years when the
vegetation recovers. Besides, there are several other areas not very far away available for hunting.
This is important both for locals hunting for subsistence and others comi	ng from more far	-away parts
of Georgia to hunt
Therefore, it is assumed that there is no real loss of hunting opportunities to value.
Loss of species
Some flower species were destroyed in the flooding. One of these is an endangered, red	-listed one,
that e	xists no other place in Georgia. It is not sure that it will survive, but the restoration of the
damaged area aims at ensuring this.

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Thus, indirectly the restoration costs put a value on the specie in danger of being lost. However, the
value of a species	 in danger of being lost could likely be far higher than these costs, since the willing-
ness to pay to ensure further existence would likely be large. Georgia is a party to the Convention on
Biological Diversity, and therefore has a responsibility to protec	t red	-listed species on its territory.
Loss of recreation opportunities
Before the flooding the area was quite popular with locals for hiking and walking in the forest, watch-
ing birds as well as the flora etc. This will not be possible for several ye	ars until the vegetation recov-
ers. The recreation opportunities will then gradually improve, and people will then likely gradually
be coming back for hiking. There are some other areas with recreation opportunities, but they are
about two 	hours of travel a	way.
This shows that there are some potential losses for local people that use this area (frequently) for
recreation. This loss could be valued by the travel costs people take on to travel to the other area for
recreation activities. However, this could b	e difficult to observe, requiring people stationed to even-
tually observe increased activities in the alternative area, eventually combined with asking people
visiting this area if they come because their primary area is damaged. Alternatively, one could ca	rry
out a survey asking households close to the damaged area if they will travel to the alternative area
for recreation activities.
None of these alternative approaches to the valuation are easy to apply. One has to try and assess
how important this loss 	is, i.e. how many people that used the area, how large the travel costs are
etc., and see if the loss seems large enough to justify the efforts of analyzing this further. If not
substantial, this loss can remain un	-valued. Another alternative is to try and	 find other studies that
have valued this, and consider carefully if these values could be used.
Loss of tourism
Over the years there has been developed considerable tourist activities in the area. Local operators
are receiving foreign tourists that are b	ussed into the area for hiking, animal	-watching etc., and stay-
ing one night or two in local accommodation. This activity is now reduced considerably, resulting in
fewer visits. However, there are several alternative areas in Georgia to visit, including the	 abovemen-
tioned area some two hours away. Thus, tourists face a limited/no loss, and Georgia as such also face
no loss since the number of tourists visiting the country will likely not be affected.
But for the local area and operators there will be a loss	 for some years until the area recovers. It is
also a danger that the loss might be permanent if tourists are not coming back. Is this a loss that
should be valued? Generally, when environmental damages are valued, it is the value for the 	country
that is r	elevant. There may be lots of various actors that may loose from the environmental deterio-
ration, and some might gain as this example shows. Usually, these gains and losses are considered
as “transfers”, and not valuated. However, who gains and who loses a	re often described (and even-
tually valuated in monetary term) to get a picture of losses and gains. And if there 	are	 no alternative
sites to visit there would certainly be a loss that should be valued.

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The local loss from reduced tourist activities could 	eventually be valued by calculating the net loss
from these activities, i.e. the lost income 	– saved costs. Since these are often internal numbers of
relatively few companies, it may be hard to get reliable data for the loss. Eventually, numbers from
simil	ar incidents other places in Georgia or abroad could give an indication of the loss.
Loss of landslide protection
The damage of the vegetation could increase the chances for landslides that could damage a larger
area than the one we are considering. B	ut since the area is being recovered, it will after some years
again contribute to landslide protection. However, there will be some years when the landslide pro-
tection is reduced until the area is fully recovered. To valuate this, one need the probability	 of a
landslide to occur and some cost estimates of the damages. The probability of a landslide can be
developed from statistics showing the frequency of landslides in the area or in other, similar areas,
and some overview of historical damage costs. For t	he latter, data on average compensation pay-
ments is useful. Brander et.al. (2016) shows how the avoided damage costs from landslides could be
calculated, and has some data (including historical compensation costs) that could perhaps be used.
Then the total, estimated costs of a landslide could be multiplied with the probability for the land-
slide to occur.
Loss of carbon storage
Trees and vegetation take up (sequester) carbon when they grow and store it as long as they stay
alive, and contrib	ute to take carbon away from the atmosphere in an effort to limit global warming.
When trees and vegetation are destroyed there will be a release of carbon into the atmosphere,
contributing to global warming. Georgia has signed the Paris Agreement, which a	ims to
keep …”	global temperature rise this century well below 2 degrees Celsius above pre	-industrial levels
and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius”.	 Thus,
the country might want to reduce its emission of	 greenho	use gases and increase the uptake of car-
bon to contribute to this goal. A way to value the carbon loss from the damaged area could be
through the costs of implementing alternative actions to reduce emissions or increase the uptake of
carbon, if the	 country has an active policy on this issue.
There is a market for selling carbon credits to other countries, international companies or other in-
terested buyers through an agreement where the country commits itself to implement actions to
reduce emissions and/or increase uptake of carbon. There is no	 agreement on carbon uptake con-
nected to the damaged area, so there is no loss from reduced credit sales revenue. Since such agree-
ments should ensure actions that would not take place in the absence of the agreement (one should
not be paid to do things one	 would do anyway), it is not likely that the restoration of the damaged
area could be connected to a new agreement on the sales of credits from this area. This restoration
will take place anyway as part of the liabilities in the ELD, and would therefore no	t be eligible for new
agreements on carbon credit sales.

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Valuation of some environmental damages in Georgia

A.2	 	Case 2. Leakage of contaminated water into a drinking water
source
The in	cident
Due to a pipe leakage huge amounts of toxic water from a factory spills into a lake used as a drinking
wat	er source. It takes some time before the leakage is discovered, and when it is the lake is so con-
taminated that it is no longer possible to use it as a drinking water source. Therefore, the authorities
issue a ban on the use, but some people already got il	l from drinking the water before the ban was
issued. They need medicines and also some hospital treatment.
Restoration
According to the requirements in the ELD the utility responsible for the leakage is asked to restore
the lake back to its initial 	condition. The flow of toxic water into the lake is quickly stopped after the
leakage is revealed, and the pipes are sealed and changed.
It is soon realized that cleaning the whole lake is not possible. Cleaning the amounts of water used
for drinking purp	oses could be possible, but likely very costly. The utility starts the work to find out
this. Restoration could also happen through natural recovery, and data from similar incidents show
that this could take many years. In the mean	 time other source of dri	nking water supply will have to
be found if the water from the lake could not be cleaned at acceptable costs.
The valuation of a lost drinking water source
The costs of alternative sources
Someone suggests that the fee paid for the drinking water supply c	ould be a way to value the water,
since this is what people actually pay for it. But it is soon revealed that the fee does not cover the
utility’s historical cost of supplying the water. Besides, the costs of alternative supply are likely even
higher than 	the historical costs. There are several alternative ways of supplying water:

• 	Buy bottles and cans in the local store	. This is possible for small amounts and as a short	-
term alternative supply, but 	is no suitable solution in the longer term. Eventually, t	he
price of the bottles/cans is an indication of the value of the drinking water.
• 	Alternative short time supply	. As an emergency solution drinking water is supplied by
trucks that stops in various streets in the affected villages, allowing people to come a	nd
collect water (for free). The costs of this is a part of the value of the lost drinking water.
• 	Organize some	 other	 long	-term alternative supply	. Since it is assumed that a (natural)
recovery of the lake will take many years, one starts to look for more	 permanent supply
alternatives. A new pipeline could be built from a lake more far away from the contami	-

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Valuation of some environmental damages in Georgia

nated lake, and the costs for the construction is investigated. Another alternative could
be to use ground water, and the costs of establishing and r	unning this alternative (if
possible) is also investigated.
It is after some time revealed that the costs of building a cleaning facility for the existing, contami-
nated water source will be higher than establishing alternative sources, and it is also uncertain if it is
possible to have it sufficiently cleaned to be	 suitable for drinking. Also, the alternative with building
a new pipeline is estimated to be too costly to pursue. The ground water alternative however, seems
promising, given that sufficient amounts of ground water can be found. Thus, one decides to purs	ue
this alternative as a long	-term solution. In the mean time water will have to be supplied by trucks in
the street.
The total value of the lost drinking water
Then the total value of the lost drinking water consists of the following parts:

• 	The costs 	of temporary water supply	. This is the costs related to supply by trucks in the vil-
lage. The costs for people having to collect water from the trucks instead of being supplied
through the tap should also be estimated	, if significant	. This could be done by 	estimating
an average time spent by a household per day collecting water, and then multiply this with
total affected households. Then this number could be multiplied with a price, that could
be the average hourly wage rate in the area reduced with a share 	accounting for that not
all household members are working (for instance using half the wage rate).
• 	The medical costs	. These are the costs for medicines and hospital treatment for those who
got ill from drinking the contaminated water. These costs could be found from local doc-
tors and hospital that have treated people, assuming that all of them had to seek medical
help.
• 	Other costs related to illness	. These are costs related to lost income from not being able to
work, and the disadvantages and discomfort of being ill. These costs could be hard to find,
and one might perhaps carry out a survey going around asking some peo	ple in the village
that have been ill what their costs have been. If one then knows the total number of ill
people from doctors and the hospital, one can calculate the total costs/loss from the ill-
ness. The disadvantages and discomfort from being ill will 	likely not be valuated, implying
that the presented value will underestimate the actual costs of illness. Eventually, the
costs of discomfort could be found from other studies that have estimated it.
• 	The costs of establishing and running the new	, permanen	t supply source	. The total invest-
ment and operating costs of supplying ground water should be included. But the (saved)
operating and maintenance costs for the old supply source should be subtracted, so that
only the cost increase is included (given that t	he costs for the new source is higher).

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Valuation of some environmental damages in Georgia

A.3	 	Case 3. Leakage of contaminated water into a lake popular for fish-
ing
The incident
The utility that operates the sewer network in the town has a failure in one of its pumping stations,
causing untreated sewage to	 flow into the lake. This again causes the oxygen level in the lake to fall,
which together with the ammonia in the sewer has a toxic effect on the fish population. And since it
took some time before the cause of the damage was found	, thousands of fish are	 killed. This has a
devastating effect on the fishing activities. There are both some commercial fishing activities, and
some local people fish for leisure/subsistence. There are also some people travelling from other parts
of Georgia to fish in this fish	-rich lake. The incident causes bad smell (odour) in the nearby village,
and since it happens in the summer it also has some negative impacts on bathing and other leisure
activities in and around the lake.
Restoration
According to the requirements in the	 ELD the utility responsible for the leakage is asked to restore
the lake back to its initial condition. The flow of raw sewage into the lake is stopped after the pump
breakdown is discovered. But besides some cleaning up along the lake shores, there is li	ttle the utility
can do to restore the lake. The restoration will therefore have to happen through natural recovery
over time. It is hard to say how long this will take,	 but based on experiences from other similar inci-
dents it is assumed that it might take	 some years. In the mean time the fishing potential will likely be
gradually improved.
The valuation of the damages
Thus, the value of the contamination of the lake will have to be decided by estimating the value of
the various damages and eventually some	 actions to reduce these. The following damages have oc-
curred:
• 	Reduced commercial fishing	. The fishermen report that there is less catch, and problems
selling the fish in the local markets since consumers assume that the quality is reduced and
the fish som	etimes smells. The 	utility	 carr	ies	 out a small survey among the few affected
fishermen to ask how much they have lost since the sewage release happened, and what
their expectations are for future losses. Their loss is both related to reduced catch and re-
du	ced price for (some of) the catch, due to reduced quality. Their costs related to the fish-
ing activities (vessel fuel. crew etc.) is also asked for. From this information the net total
loss	 could be calculated	, based on reported loss already occurred and e	xpected, annual fu-
ture loss, subtracting the saved costs. A difficult part here is to assess how long time it will
take before the catch will gradually come back to normal. Different calculations using vari-
ous number of years until full recovery are made t	o illustrate this uncertainty. The future
net loss is discounted to its present value, using a suitable discount rate.

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Valuation of some environmental damages in Georgia

• 	Reduced	 local	 leisure/subsistence fishing	. There is no statistics or overview of how many
locals that fish for subsistence/leisure. 	Therefore, the 	utility	 carry out a survey by asking
some (selected), local households if they fish in the lake, how much they usually fish and
what their loss have been so far. Then the	y must estimate how large the total catch loss
have been, and calculate	 the direct loss from reduced catch, using the market prices for
the fish that the professional fishermen have reported. No costs should be subtracted,
since it could be assumed that the costs they take on with the fishing activities are some-
thing they are	 willing to pay to do the activities. These costs can therefore be seen as a
(partial) value for the leisure part of the activities, and thus the gross calculated loss will
also cover part of the lost leisure activity from reduced fishing. Estimated, futur	e losses
must be discounted to its present value.
• 	Reduced fishing/leisure activities for people from other parts of Georgia. 	As for local fish-
ing/leisure activities there is no statistics/overview of this. But people that travel from
other parts of Georgi	a often stay overnight, and reduced number of stays can give an indi-
cation of the reduced activities. The 	utility	 therefore ask the local inns etc. about what
their (estimated) net loss from reduced fishing opportunities might be. However, this will
undere	stimate the loss, since the total value of this fish and leisure activities is likely
higher. What they pay for this at the local inns will only be a part of the value, some people
would for instance be willing to pay more for it. Estimated travel costs (i	f possible to get)
could also be included, but the value would still be a low estimate. The number of affected
people will also be underestimated, since there are some people that travel to and from
the lake the same day. 	Perhaps	 there 	are 	other ways of fi	nding how many people are af-
fected, for instance through reduced purchase of local fish permits, (if needed). If the total
number of affected people is found, one could perhaps find some values for similar activi-
ties from other parts of Georgia or other co	untries (benefits transfer), but the use of these
should be considered with great care.
• 	Reduced bathing and other leisure activities	. In the same year as the leakage the possibili-
ties for bathing and other leisure activities are severely reduced because the water is con-
sidered unhealthy, and there is an unpleasant odour coming from it. The nearest alterna-
tive lake for bathing/leisure 	is one hour travel away, and could represent an alternative for
some people. How many people that are affected is uncertain, but some rough estimate
are possible to obtain by asking some locals about it. The only realistic way to find the
value of this is t	o carry out a contingent valuation survey, i.e. ask a representative number
of people what they would be willing to pay to have the lake back to normal conditions.
Such a study would also indirectly value most of the other local losses, so if carried out o	ne
should take this into account to avoid double	-counting. Alternatively, one could try and
find some estimates for this from other parts of Georgia or abroad (benefits transfer), but
such estimates should be considered with great care among other things t	o avoid double
counting.
• 	Odour from the lake	. People living around the lake experience some smell from the lake,
especially on hot days. This disadvantage could only be valued by asking people through a
survey what they would be willing to pay to get rid of it (see above). Alternatively, one
could t	ry and find some estimates from studies in other parts of Georgia or other coun-
tries. However, such benefit transfer should be considered with great care.

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Va	luation of some environmental damages in Georgia

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Valuation of some environmental damages in Georgia

Appendix 2: 	s	ome useful web-
sites
Below are some useful technical websites for support on valuati	on of ecosystem services and biodi-
versity.
Biodiversityeconomics.org
Ecosystemvaluation.org
Envirovaluation.org
Evri.ca
Beijer.kva.se/valuebase.htm

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Valuation of some environmental damages in Georgia

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Valuation of some environmental damages in Georgia

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