Safe Usage of Monetary Valuation

1. Outcome

Monetary valuation of ecosystem services and assets represents one of the most powerful yet potentially misunderstood aspects of ocean accounting. When applied appropriately within the framework established by international statistical standards, monetary values can support comparison of ecosystem services and assets with standard economic measures, inform policy trade-offs, and contribute to extended measures of national wealth.^[1] However, monetary valuation is not appropriate for all decision-making contexts, and inappropriate application can undermine the credibility of ocean accounts and lead to flawed policy conclusions.^[2]

This circular provides gateway guidance on the safe and appropriate use of monetary valuation in ocean accounting. It establishes the foundational distinction between exchange values used in national accounting and welfare values used in cost-benefit analysis, describes when and how to apply valuation methods to different marine ecosystem services, and identifies circumstances where monetary valuation should and should not be pursued. The guidance draws exclusively on adopted international statistical standards--the System of National Accounts 2025 (SNA 2025), the SEEA Central Framework 2012, and the SEEA Ecosystem Accounting 2021--while noting that the valuation chapters (8-11) of SEEA EA have the status of "internationally recognized statistical principles and recommendations" rather than full international statistical standard.^[3]

Critically, this circular recognizes that monetary values from accounts, and wider economic values, will not fully reflect the importance of ecosystems for people and the economy.^[4] Assessing the importance of ocean ecosystems requires consideration of a wide range of information beyond monetary data, including biophysical data on extent and condition, and data on the characteristics of people, businesses, and communities that depend on them. Physical accounts should be compiled and released alongside monetary accounts to support appropriate interpretation and application.

This principle of joint release is strongly supported across all three foundational standards. The SEEA EA explicitly states that associated biophysical data should always be considered alongside monetary values, and that assessing ecosystem importance requires information on biophysical characteristics and on the characteristics of people and communities that depend on them.^[4:1] The SNA 2025 reinforces this by positioning natural capital accounts within an integrated statistical framework that links physical and monetary measurement. Joint release of physical and monetary accounts ensures that users can assess the biophysical context underpinning any monetary estimate, reducing the risk of misinterpretation.

2. Requirements

• TG-0.1 General Introduction -- Understanding of the GOAP framework and ocean accounting fundamentals

Related Circulars:

• TG-0.2 -- Statistical Classifications and Standards (if available)
• TG-3.1 Marine Ecosystem Asset Accounts -- Physical and monetary asset accounts that apply valuation
• TG-3.2 Flows from Environment to Economy -- Ecosystem service accounts that require valuation

3. Guidance Material

3.1 When Monetary Valuation Should Be Applied

Monetary valuation of ocean ecosystem services and assets is appropriate and valuable in specific decision contexts where monetary comparison provides necessary information. Understanding these contexts helps compilers focus valuation efforts where they will generate decision-relevant insights.

3.1.1 Integration with National Accounts

Exchange-value-based monetary accounts support:^[5]

• Extended national wealth measures: Comparing values of marine ecosystem assets with other asset types (produced assets, financial assets)
• Visibility of ocean contributions: Highlighting the economic relevance of non-market ocean services in a common unit of account
• Supply chain analysis: Assessing ecosystem inputs to blue economy industries (fisheries, aquaculture, tourism, shipping)
• Trade-off analysis: Comparing relative exchange values of different ecosystem services to inform allocation decisions
• Adjusted income measures: Deriving degradation-adjusted measures (e.g., net national income less ocean ecosystem degradation)

3.1.2 Ecosystem Asset Valuation

The net present value approach to ecosystem asset valuation, using the discounted present value of expected future ecosystem service flows, provides a basis for:^[6]

• Recording opening and closing values of marine ecosystem assets in monetary balance sheets
• Measuring ocean ecosystem degradation and enhancement in monetary terms
• Tracking changes in marine natural capital wealth over time
• Comparing ecosystem asset values across different ocean realms and ecosystem types

The selection of an appropriate discount rate is a critical determinant of the resulting asset value. The SEEA EA recommends the use of a market-based discount rate that reflects the opportunity cost of capital, rather than a social discount rate, in order to maintain consistency with the valuation of other assets in national accounts.^[7] In practice, different discount rates can produce widely divergent asset values for long-lived marine ecosystems, particularly for services such as carbon sequestration and coastal protection where benefits accrue over decades or centuries. Compilers should conduct sensitivity analysis to assess the effect of alternative discount rates on asset values and should document the chosen rate and its rationale transparently. The SEEA EA does not prescribe a single rate but encourages consistency within and across accounts.

3.1.3 Blue Economy Policy Analysis

Monetary values from ocean accounts can provide baseline data to support:

• Scenario modelling of alternative ocean use patterns
• Assessment of climate-related financial risks to ocean-dependent sectors
• Design and calibration of marine environmental policy instruments (e.g., marine spatial planning, pollution charges, payment for ecosystem services schemes)
• Evaluation of blue economy investment opportunities^[8]

3.1.4 Ocean-Specific Applications

For ocean accounting specifically, monetary valuation is particularly valuable for:

3.2 When Monetary Valuation Should Not Be Applied

Monetary valuation should not be pursued, or should be approached with significant caution, in the following circumstances:

3.2.1 Physical Accounts Are Sufficient

For many policy questions, physical accounts on ecosystem extent, condition, and service flows provide sufficient information without requiring monetary valuation. Physical accounts may be preferred when:^[9]

• The policy question relates to biophysical thresholds (e.g., maximum sustainable yield, critical habitat area, water quality standards)
• Stakeholders have legitimate concerns about commodification of marine ecosystems
• Data and capacity constraints make reliable monetary valuation infeasible
• Primary users require physical metrics for environmental management (e.g., tonnes of carbon, hectares of habitat, population abundance)

Recommendation: Always compile and publish physical accounts. Consider monetary valuation as a complement, not a replacement, for physical measurement.

3.2.2 Data Quality Concerns

Monetary valuation should be approached cautiously when:^[10]

• Underlying physical data (extent, condition, service flows) are of insufficient quality or uncertain
• Available valuation methods require assumptions that cannot be validated from observed data
• The uncertainty range in monetary estimates is so large as to undermine decision-usefulness
• Value transfer from other contexts involves significant "institutional mismatch" (different regulatory or property rights regimes) or "ecological mismatch" (different ecosystem characteristics)

In such cases, it may be preferable to:

• Present ranges rather than point estimates, with explicit documentation of uncertainty
• Clearly document methods, assumptions, and data quality limitations
• Focus resources on improving physical data before attempting valuation
• Use qualitative assessments alongside limited monetary data

3.2.3 Risk of Misinterpretation

Special care is needed to avoid situations where monetary values may be misinterpreted. Monetary values from accounts:^[11]

• Do not represent the "true" or "total" value of ocean ecosystems (they measure exchange value, not total welfare)
• Do not justify ecosystem destruction if monetary "compensation" is paid (non-substitutability and irreversibility matter)
• Do not capture all relevant considerations for decision-making (cultural values, equity, rights, and biodiversity intrinsic value)
• Are not precise even when presented as single numbers (they reflect estimation assumptions and uncertainty)

Clear communication (see Section 3.8) is essential to manage these risks. Compilers should make explicit the limitations of monetary values and the complementary information required for robust decision-making.

3.2.4 Inappropriate Aggregation

Caution is required when aggregating monetary values across:^[12]

• Multiple ecosystem services: Risk of double-counting (e.g., water flow regulation and water supply may overlap; nursery habitat services and fish provisioning services have an intermediate-final service relationship)
• Different time periods: Requires appropriate discounting and adjustment for price changes; nominal values from different years are not directly comparable
• Spatial units: Different institutional contexts (e.g., open-access versus managed access fisheries) may make aggregation misleading
• Different methods: Mixing values from methods with different uncertainty characteristics (e.g., observed prices versus simulated exchange values) requires careful documentation and sensitivity analysis

3.3 Valuation in the SEEA Framework

The System of Environmental-Economic Accounting applies a specific approach to monetary valuation that aligns with the concepts of the System of National Accounts. Understanding this approach is fundamental to the safe usage of monetary valuation in ocean accounts.

3.3.1 Exchange Values versus Welfare Values

A key characteristic of ecosystem accounts is that they use exchange values, defined as "the values at which goods, services, labour or assets are in fact exchanged or else could be exchanged for cash."^[13] For the vast majority of entries in national accounts, exchange values are measured using data from observed transactions involving market prices. Market prices are amounts of money that willing buyers pay to acquire something from willing sellers.^[14]

Exchange values differ fundamentally from welfare values, which are commonly used in environmental cost-benefit analysis and include consumer surplus.^[15] Consumer surplus is the difference between what is paid for a good or service and what a person is willing to pay. The accounts record the former (exchange value), not the latter (total willingness to pay including surplus).^[16]

This distinction has profound implications for ocean accounting:

The 2025 SNA clarifies that the integrated framework of the SNA does not attempt to determine the utility of flows and stocks within its scope; rather, it measures the current exchange value of entries in the accounts in monetary terms.^[17]

This table reflects the distinction as set out in the SEEA EA and is intended to assist practitioners in identifying which type of value is being produced by a given method. Exchange values align with national accounting conventions and are the appropriate concept for entries in ecosystem accounts. Welfare values, while important for cost-benefit analysis, yield estimates that cannot be directly compared with GDP, national wealth, or other aggregates from the System of National Accounts. Practitioners should use this distinction as a first check when selecting or interpreting valuation studies for ocean accounting purposes.

3.3.2 The SNA Production Boundary

Ecosystem services as defined in SEEA EA are excluded from the production boundary of the SNA since they are not the result of a production process by an economic unit as defined by the SNA.^[18] The SEEA EA extends this boundary by recording flows of ecosystem services. This extension creates a framework where:

• Provisioning services (e.g., wild fish harvest, aquaculture inputs, coastal timber) contribute to SNA benefits--goods and services already within the SNA production boundary
• Regulating services (e.g., coastal protection, carbon sequestration, water purification) typically contribute to non-SNA benefits that are outside the production boundary
• Cultural services (e.g., marine recreation, coastal amenity) may contribute to both SNA and non-SNA benefits depending on institutional arrangements^[19]

For ocean accounting, this means that the value of many marine ecosystem services--such as coastal protection, carbon sequestration, and recreation--requires estimation using non-market valuation methods since direct market transactions are rarely observed.

3.3.3 Status of SEEA EA Valuation Chapters

It is essential to note the specific status of different components of SEEA EA, as this affects the authority of valuation guidance for Core badge circulars.

The United Nations Statistical Commission at its fifty-second session in March 2021 (Decision 52/101):

• Adopted SEEA EA chapters 1-7 (accounting framework and physical accounts) as an international statistical standard
• Recognized that chapters 8-11 describe "internationally recognized statistical principles and recommendations" for valuation of ecosystem services and assets in a context coherent with the SNA for countries undertaking valuation
• Noted chapters 12-14 as describing applications and extensions^[20]

Implication for Ocean Accounting: The physical accounting framework has full international statistical standard status. The valuation guidance represents best practice recommendations that countries may apply when undertaking valuation, rather than mandatory requirements. This circular follows these recommendations while acknowledging their status.

The characterization above is drawn directly from the text of UNSC Decision 52/101. The Commission's choice of the phrase "internationally recognized statistical principles and recommendations" rather than "international statistical standard" for chapters 8-11 was deliberate, reflecting the state of methodological maturity of monetary valuation at the time of adoption. In practical terms, this means that countries are encouraged but not required to implement monetary valuation, and where they do so they should follow the principles and recommendations set out in those chapters. For Core badge circulars, which draw only on adopted standards, this circular is careful to present the valuation guidance as authoritative best practice rather than as binding statistical standard.

3.4 Valuation Method Preference Order

The SEEA EA establishes a preference order for valuation methods based on their proximity to observed market prices and their alignment with exchange value concepts.^[21] This preference order provides a decision framework for selecting valuation methods, prioritizing those closest to observed transactions.

3.4.1 Five-Level Preference Hierarchy

Table 1 summarizes the SEEA EA preference order with examples relevant to ocean accounting.

Table 1: SEEA EA valuation method preference order

The preference order reflects proximity to observed exchange values. Methods at lower preference levels introduce greater uncertainty and require stronger assumptions. Where feasible, compilers should aim for methods at preference levels 1-3, which rely on observed market data. Methods at levels 4-5 should be applied with explicit documentation of assumptions and sensitivity analysis.

3.4.2 Decision Tree for Method Selection

The following decision tree provides a simplified guide to selecting a valuation method based on data availability, following the SEEA EA preference order from most to least preferred.

Figure 1.9.1: Valuation method decision tree based on SEEA EA preference order (SEEA EA, para. 9.23)^[22]

Sections 3.5 and 3.6 describe each preference level in detail, with specific ocean accounting examples and worked calculations.

3.5 Valuation Methods Appropriate to Accounts (Preference Levels 1-3)

Methods at preference levels 1-3 rely directly on observed market transactions and are conceptually most closely aligned with exchange value principles. Where data permit, these methods should be prioritized.

3.5.1 Directly Observable Prices (First Preference)

Where prices are directly observable in market transactions, these provide the most reliable basis for valuation. Examples relevant to ocean accounting include:

These directly observed values reflect the current institutional context and should be applied in accounts even when the resulting values might appear "low" relative to the perceived importance of the ecosystem. As the SEEA EA notes, resource rents for natural resources extracted in open-access contexts will tend toward zero, and this is a well-understood result that reflects institutional arrangements rather than low ecosystem importance.^[23]

The examples listed above are illustrative of the types of market transactions most commonly found in ocean accounting contexts. Data availability varies considerably across countries and depends on the institutional arrangements governing marine resource access, including whether individual transferable quota (ITQ) systems are in place for fisheries, whether formal leasing arrangements exist for aquaculture sites, and whether blue carbon offset markets operate in the relevant jurisdiction. Compilers should assess which directly observable prices are available in their national context before proceeding to lower-preference methods.

Care should be taken to understand the size of markets and their maturity because the use of prices from small or immature markets may not be sufficiently representative for use in ecosystem accounting. To the extent that the recorded values are considered 'low', there may be an interest in estimating complementary values on the basis of alternative institutional contexts and market settings. These hypothetical values should not be recorded in ecosystem accounts but may be presented in complementary accounts.^[24]

3.5.2 Prices from Similar Markets (Second Preference)

When market prices for a specific ecosystem service are not observable, prices from markets for similar goods and services may provide an approximation. The SNA states that "if there is no appropriate market in which a particular good or service is currently traded, the valuation of a transaction involving that good or service may be derived from the market prices of similar goods and services by making adjustments for quality and other differences."^[25]

For ocean accounting, this might include:

• Using rental prices from comparable coastal land parcels for aquaculture sites
• Applying fish prices from similar species/fisheries in other jurisdictions
• Using carbon prices from comparable ecosystem types (e.g., terrestrial forest carbon prices for mangrove carbon)
• Applying timber prices from comparable terrestrial forests to value mangrove timber provisioning

Caution: Value transfer across different institutional and ecological contexts requires careful adjustment for differences. Institutional mismatch--where source study contexts differ significantly from accounting application contexts--is a significant risk.^[26] The most widespread example of applying this approach in the national accounts is the estimation of the imputed rent for owner-occupied dwellings, where the observed rents paid by tenants are commonly used to apply a 'similar markets' method to estimate rents for owner-occupied dwellings (adjusting for variations in rents associated with the location and characteristics of the dwellings).^[27]

3.5.3 Prices Embodied in Market Transactions (Third Preference)

These methods estimate ecosystem service values from data on market transactions where the ecosystem contribution is embedded but not directly observable:

Residual Value and Resource Rent Methods

The resource rent method estimates value by taking gross output value and deducting costs of all other inputs including labour, produced assets, and intermediate inputs.^[28] For marine fisheries, this means:

Resource rent = Gross output value of catch
              - Intermediate consumption (fuel, ice, repairs)
              - Compensation of employees
              - Other taxes/subsidies on production
              - Consumption of fixed capital (vessel depreciation)
              - Return on produced assets (normal profit on vessel investment)
              - Imputed cost of self-employed labour

The residual represents the contribution of the marine ecosystem to the production value. This method is commonly applied for valuing wild fish provisioning services.

This formulation follows the structure set out in SEEA CF Annex A5.1, which defines the resource rent as the residual after deducting all user costs of produced assets and labour from the gross value of output.^[28:1] In the fisheries context, the inclusion of an imputed cost of self-employed labour is essential because owner-operators are common in many small-scale fisheries and omitting this cost would inflate the residual. Similarly, the return on produced assets (i.e. normal profit on the capital invested in vessels and gear) must be deducted to isolate the ecosystem contribution from the return to produced capital. The formula as presented is appropriate for fisheries application and is consistent with standard resource rent calculations used in national accounting for natural resources.

The calculation is subject to variations in prices of outputs and inputs that can be considerable under market conditions, resulting in high annual volatility of estimates. For this reason, statistical offices tend to use 3-5 year moving averages when calculating residual value.^[29]

Hedonic Pricing

Estimates the differential premium on property values derived from proximity to marine and coastal environmental attributes such as beach quality, water clarity, or marine protected areas.^[30] This method is particularly relevant for valuing coastal amenity and visual amenity services. Applications of hedonic pricing have grown substantially in recent years, with studies documenting property premiums for nature views, open spaces, beach access, and water quality.^[31]

Productivity Change Method

Estimates value based on the marginal contribution of ecosystem inputs to production functions. For ocean contexts, this includes estimating the productivity contribution of:

• Nursery habitat services to fishery production
• Water quality services to aquaculture productivity
• Coastal vegetation services to agricultural productivity in adjacent lands^[32]

The productivity change method estimates an exchange value that is consistent with the SNA by estimating a production function directly, based on micro-level data on physical inputs and outputs at the site (e.g. farm) level. The econometric estimation of the equation provides a direct estimate of the marginal productivity of the input(s). Multiplying the marginal productivity by the price of the output gives the exchange value of the ecosystem service.^[33] Such a method requires the availability of micro data to make the estimation, which can be data intensive.

3.6 Valuation Methods Requiring Caution (Preference Levels 4-5)

Methods at preference levels 4-5 are further removed from observed market transactions and rely on revealed or expected expenditures. These methods introduce stronger assumptions and should be applied with explicit documentation and sensitivity analysis.

3.6.1 Revealed Expenditure Methods (Fourth Preference)

These methods derive prices from actual expenditures on related goods and services:

Averting Behaviour (Defensive Expenditure)

Based on expenditures to mitigate or eliminate damages from adverse environmental impacts.^[34] Ocean examples include:

• Expenditure on desalination or treatment when natural water purification services decline
• Coastal engineering expenditure when natural coastal protection is degraded
• Health expenditure related to poor coastal water quality

Travel Expenditure

Uses travel costs as a proxy for recreation service values.^[35] The consumer expenditure method--using direct out-of-pocket expenditures (transport, fuel, accommodation, fees)--provides exchange values appropriate for accounts. This differs from the traditional travel cost method that estimates total willingness to pay including consumer surplus.

For marine and coastal recreation, consumer expenditure data from tourism statistics can provide a basis for valuation, though care is needed to:

• Isolate the marine/coastal component from total trip expenditure
• Attribute expenditure to specific ecosystem assets
• Avoid double-counting with coastal property amenity values

3.6.2 Expected or Simulated Expenditure Methods (Fifth Preference)

Where observed prices and expenditures are not available, methods based on expected or simulated expenditures may be applied:

Replacement Cost

Estimates the cost of replacing a single ecosystem service using a process that provides equivalent benefits.^[36] For ocean accounting, common applications include:

Validity conditions: The replacement must (i) provide exactly the same function, (ii) be the least-cost alternative, and (iii) have evidence of actual demand.^[37]

Avoided Damage Cost

Estimates value based on the costs of damages that would occur due to loss of services.^[38] This is particularly relevant for coastal protection services, where avoided damages from storm surge, flooding, and erosion can be estimated using flood risk models. The validity of the avoided damage cost method depends on conditions including that the damages avoided can be related to a specific service, and that people would be willing to pay an amount to actually avoid the damage.^[39]

Simulated Exchange Value (SEV)

Estimates the price and quantity that would prevail if the ecosystem service were traded in a hypothetical market.^[40] The SEV method uses demand curves estimated from travel cost or stated preference studies to simulate what price would clear a hypothetical market for the service. While more complex, this method can provide exchange-value-consistent estimates where other methods are not feasible.

Case illustration: UK Marine Natural Capital Accounts (JNCC/Cefas)

The UK Joint Nature Conservation Committee (JNCC) and Centre for Environment, Fisheries and Aquaculture Science (Cefas) compiled an initial set of natural capital accounts for UK marine and coastal ecosystems. At the time of their study, the authors reported that a substantial proportion of marine habitats remained unmapped--an estimated 36% were classified as unknown, though subsequent UK marine habitat mapping programmes have since expanded coverage considerably.^[41] For those habitats where data were available, the study applied several valuation methods consistent with SEEA principles: replacement cost for waste mediation (phosphorus, nitrogen, BOD) by littoral sediments, coastal saltmarsh, shelf-sea, and deep-sea ecosystems; replacement cost for coastal protection based on the cost of constructing equivalent seawalls; abatement cost for carbon burial in marine sediments; and the resource rent approach for marine fish and shellfish, offshore renewable energy (wind), and abiotic products (marine aggregates). This study illustrates both the feasibility of applying the SEEA EA preference order to marine assets and the practical constraint that incomplete habitat data imposes on comprehensive valuation.^[42]

3.7 Valuation Methods Inappropriate for Accounts

Certain valuation methods, while useful for other analytical purposes, do not yield exchange values appropriate for direct recording in ecosystem accounts.

3.7.1 Consumer Surplus Measures

Methods that estimate total willingness to pay including consumer surplus are not appropriate for direct entry in accounts. Consumer surplus cannot be transferred between transactors and represents value that is not exchanged.^[43] However:

• Demand curves from such studies can inform SEV calculations
• Welfare values remain important for cost-benefit analysis and impact assessment
• A "bridge table" between exchange and welfare values can be compiled as a complementary account^[44]

3.7.2 Stated Preference Methods (Direct Application)

Contingent valuation and choice experiment results that estimate total willingness to pay should not be directly entered in accounts. If data from stated preference studies are considered for compilation purposes, they should be checked for consistency with exchange value principles and adjusted as required before use.^[45]

Appropriate uses of stated preference data:

• As inputs to SEV calculations
• For complementary welfare analysis
• For services where no other method is feasible (with clear documentation)

3.7.3 Non-Use Values

Non-use values (existence values, bequest values, option values) are not within scope of ecosystem service values in accounts since there are no inherent transactions associated with these values.^[46] This is particularly significant for ocean accounting given the high perceived non-use values associated with:

• Iconic marine species (whales, dolphins, sea turtles)
• Unique marine ecosystems (coral reefs, kelp forests)
• Marine biodiversity in general

While these values may be highly relevant for comprehensive policy analysis and public communication, they represent a different measurement concept that should not be mixed with exchange-value-based accounts.

Where non-use values are considered important for policy purposes, the SEEA EA framework accommodates their presentation through complementary accounts and thematic analyses. Chapter 12 of the SEEA EA describes how welfare values--including non-use values--can be reported in supplementary tables alongside exchange-value-based accounts, using a bridge-table approach that makes the relationship between the two measurement concepts explicit.^[44:1] This approach allows policymakers to access information on non-use values without compromising the conceptual integrity of the core accounts. For ocean accounting, compilers may wish to consider producing such complementary analyses for ecosystem types or species where non-use values are known to be large relative to exchange values, such as iconic marine habitats and species.

3.7.4 Restoration Costs for Total Asset Valuation

The SEEA EA distinguishes between replacement costs (appropriate for individual services) and restoration costs (the cost of restoring an ecosystem as a whole). Restoration costs should not be used to value ecosystem assets because this would make it impossible to separately assess the benefits of ecosystem restoration--they would by definition equal the costs.^[47]

However, restoration costs can provide policy-relevant information in certain contexts and may be presented in complementary accounts.

3.8 Worked Example: Applying the Preference Order to Marine Ecosystem Services

This section demonstrates how to apply the valuation preference order through a synthetic worked example for a coastal marine ecosystem. The example illustrates the step-by-step process of selecting and applying valuation methods for multiple ecosystem services supplied by a hypothetical coastal accounting area.

3.8.1 Scenario Description

Accounting Area: A coastal region encompasses 500 hectares of mangrove forest, 200 hectares of coral reef, and 5,000 hectares of continental shelf waters. The area supports commercial fisheries (targeting reef and pelagic fish), recreational diving, and provides coastal protection to 10 km of populated coastline. An ITQ system for fishing is not in place; catch is managed through annual total allowable catch (TAC) limits. Carbon markets operate at national level with verified blue carbon offsets for mangrove conservation.

Objective: Compile monetary values for four key ecosystem services--fish provisioning, coastal protection, carbon sequestration, and recreation--using the SEEA EA preference order.

3.8.2 Fish Provisioning Service

Step 1: Check for directly observable prices (Preference 1)

• No ITQ market exists → No directly observable quota prices
• Fish are sold at observed market prices, but these are product prices not ecosystem service prices

Step 2: Check for similar markets (Preference 2)

• A neighboring jurisdiction with comparable species and fishing methods operates an ITQ market where quota prices average USD 800 per tonne
• However, institutional differences (this jurisdiction has TAC but no ITQ) mean direct price transfer is not appropriate without adjustment

Step 3: Apply prices embodied in transactions (Preference 3)

• Method selected: Resource rent
• Data available: National fishery statistics provide gross output value, intermediate consumption, employment, and vessel capital stock data

Calculation:

Gross output value (landed value):        USD 5,200,000
Less: Intermediate consumption:           USD 1,800,000
Less: Compensation of employees:          USD 1,200,000
Less: Consumption of fixed capital:       USD   400,000
Less: Return on produced assets (5%):     USD   300,000
Less: Imputed self-employed labour:       USD   500,000
= Resource rent:                          USD 1,000,000

Annual catch: 2,000 tonnes
Resource rent per tonne: USD 500

Result: Fish provisioning service valued at USD 500 per tonne using resource rent method (Preference level 3). This represents the ecosystem contribution after deducting all other input costs.

3.8.3 Carbon Sequestration Service

Step 1: Check for directly observable prices (Preference 1)

• National blue carbon offset market exists for mangrove conservation
• Verified carbon credits from mangroves trade at USD 15 per tonne CO₂-equivalent
• Method selected: Observed market prices

Calculation:

Mangrove carbon sequestration rate: 8 tonnes CO₂/ha/year
Mangrove extent: 500 hectares
Annual sequestration: 4,000 tonnes CO₂
Market price: USD 15 per tonne CO₂
Annual service value: USD 60,000

Result: Carbon sequestration service valued at USD 15 per tonne CO₂ using directly observed carbon credit prices (Preference level 1). This is the preferred method and reflects the current institutional arrangements for carbon markets.

3.8.4 Coastal Protection Service

Step 1: Check for directly observable prices (Preference 1)

• No market for coastal protection services exists
• Property owners do not pay for protection services provided by reefs and mangroves

Step 2: Check for similar markets (Preference 2)

• No comparable markets for natural coastal protection

Step 3: Check for prices embodied in transactions (Preference 3)

• Hedonic pricing study of coastal properties would require extensive data collection
• Productivity change method not applicable (no direct production function)

Step 4: Apply revealed expenditure methods (Preference 4)

• Method selected: Replacement cost
• Engineering studies for the region show that a seawall providing equivalent protection would cost USD 12,000 per km of coastline
• Validity conditions: (i) seawall provides equivalent flood protection function; (ii) seawalls are the least-cost engineered alternative; (iii) recent coastal development proposals demonstrate demand for protection

Calculation:

Protected coastline: 10 km
Replacement cost: USD 12,000 per km
Annual service value (assuming 50-year asset life and 4% discount):
  = USD 120,000 / 32.57 (annuity factor) = USD 3,684 per year

Alternatively, using direct annual equivalent:
  = (USD 120,000 x 0.04) / (1 - (1.04)^-50) = USD 3,684 per year

Result: Coastal protection service valued at USD 3,684 annually using replacement cost method (Preference level 4). Sensitivity analysis should be conducted on asset life (30-70 years) and discount rate (3-5%).

3.8.5 Recreation Service

Step 1: Check for directly observable prices (Preference 1)

• Dive operators charge fees, but these are for guide services not for the ecosystem service itself
• Marine protected area has no entry fee

Step 2: Check for similar markets (Preference 2)

• Nearby marine parks charge entry fees of USD 10 per visitor
• However, institutional difference (this site is free-access) means fee cannot be directly applied

Step 3: Check for prices embodied in transactions (Preference 3)

• No hedonic property study available for this specific area

Step 4: Apply revealed expenditure methods (Preference 4)

• Method selected: Consumer expenditure
• Tourism statistics record visitor numbers and expenditure on transport, accommodation, and dive operator fees

Calculation:

Annual visitors: 15,000
Average expenditure per visitor on marine recreation: USD 80
  (Transport USD 30, accommodation USD 35, dive fees USD 15)
Total consumer expenditure: USD 1,200,000

Result: Recreation service valued at USD 1,200,000 annually using consumer expenditure method (Preference level 4). Care must be taken to isolate the marine component of expenditure and avoid double-counting with accommodation services.

3.8.6 Summary Table

Table 2: Valuation method selection summary

Interpretation: The worked example demonstrates the practical application of the preference order. Carbon sequestration benefits from a functioning carbon market (preference level 1). Fish provisioning uses resource rent (preference level 3) because no ITQ market exists. Coastal protection and recreation require lower-preference methods (level 4) due to absence of markets. The resulting values are exchange-value-consistent and suitable for entry in ecosystem service accounts, but should be presented alongside physical accounts showing mangrove extent, reef condition, fish stock biomass, and visitor numbers.

3.9 Communication and Transparency

Given the potential for misinterpretation of monetary values for ecosystem services and assets, clear communication is essential.

3.9.1 Key Messages to Communicate

When presenting monetary values from ocean accounts, compilers should communicate that:^[48]

1. Valuation concept: Monetary values are based on exchange values consistent with national accounting concepts--they represent what ecosystem services would be exchanged for, not their total economic value or welfare value

2. Complementarity: Monetary values should be interpreted alongside physical data on ecosystem extent, condition, and service flows

3. Uncertainty: All monetary estimates involve uncertainty, which should be acknowledged and where possible quantified

4. Institutional context: Values reflect current institutional arrangements (property rights, regulations, markets) which may understate long-term importance

5. Limitations: Monetary values do not capture non-use values, and low monetary values do not mean ecosystems are unimportant

3.9.2 Documentation Requirements

Transparent documentation should include:^[49]

• Methods: Clear description of valuation methods used for each ecosystem service and asset category
• Data sources: Description of primary data sources and their quality
• Key assumptions: Explicit statement of assumptions, particularly regarding discount rates, time horizons, and future projections
• Sensitivity analysis: Assessment of how results change with alternative assumptions
• Method comparison: Where feasible, comparison of results using alternative methods
• Uncertainty ranges: Presentation of ranges or confidence intervals where possible

3.9.3 Presentation Guidance

Do:

• Present monetary values alongside physical quantities and condition indicators
• Show time series to reveal trends
• Disaggregate by ecosystem type and service to reveal composition
• Explain what is and is not included in the estimates

Do not:

• Present aggregate "total value of the ocean" figures without extensive caveats
• Compare monetary values across studies using different methods without adjustment
• Use monetary values as sole basis for decisions about ecosystem protection
• Imply that monetary compensation can adequately substitute for ecosystem loss

4. Acknowledgements

Authors: Kristine Grimsrud, Kirsten Oleson

Reviewers: Ethan Addicott, Dan Whitaker

5. References