When valuing natural capital, one method used widely by economists is value transfer. In a nutshell, the value transfer method takes a previously defined natural capital valuation from one site and transfers it to another.
It sounds simple. And it is. Sometimes too simple… The value transfer method requires significant expertise to be done well. A lack of rigor can lead to natural capital valuation transfer errors that can undermine economic analysis, and reduce confidence in economic advice.
If you choose to commission advice that uses the value transfer method, the key is to ensure a high degree of similarity between the study and policy contexts.
These best-practice tips from natural capital valuation expert Jeremy Cheesman can help you reduce risks, unlock investment opportunities and make the most of this time- and budget-friendly method.
1. Select quality, contemporary studies
The better the quality of the initial study, the more accurate and useful the transferred value will be. In terms of approach and robustness, natural capital valuation has come leaps and bounds over the past 20 years. Ensure that any studies used are peer-reviewed and published post-2003. Surveys that have larger sample sizes – 500 people or more – are also preferable to help ensure responses are representative.
2. Look for similarities between sites and policy contexts
The source site of any study should be as similar as possible to the site and locations you are assigning natural capital value to. This should include:
- size/scale
- environmental characteristics/features
- timing
- population and demographics.
It’s also important to make sure that valuations take any ‘distance decay’ effects into consideration. For example, do the communities analysed in the study used live as close to the site as those you’re assessing? If not, are they likely to value such sites as highly?
The policy context should also be as similar as possible. For example, if a value is being transferred from a policy context dealing with preventing the extinction of an endangered species, then the values should be transferred to the same type of policy context.
3. Be clear on limitations
When it comes to application, it is crucial that limitations and uncertainties of this value transfer method are clearly communicated. Ask analysts what you need to know to defend this work as robust in the face of scrutiny. When presenting valuations, it’s also important to emphasise that values are estimates, and to report on values ranges, not point values or exact numbers.
Further resources and information
Developed by Marsden Jacob Associates in partnership with Melbourne water utilities and hosted on the Clearwater website, the ‘Economic Values Factsheets for blue-green infrastructure’ are valuable resources for anyone seeking economic values and guidance for the valuation of non-market benefits from integrated water management and blue-green projects.
For more insights into identifying and leveraging natural capital valuation opportunities and avoiding common challenges, watch our Talks Live Valuing Natural Capital webinar here or contact Jeremy Cheesman directly: https://www.marsdenjacob.com.au/profile/dr-jeremy-cheesman/
