In this Subsection:

Perspective
Purpose
Introductory Questions
Challenges
Basis in Traditional Economic Indicators
Performance vs Management Indicators
Ranking Criteria as Management Indicators
Conservation Benefit Indicators

Also in this Section:

Relative Value Home

Part I

Introduction to Relative Ecosystem Valuation

Steps in Developing Relative Value Indicators

Three Illustrations of Relative Ecosystem Value

Part II Definitions

Food for Thought

Types of Indicators

Perspective

Conservation benefit indicators should be viewed as leading indicators of the expected beneficial outcomes from conservation practices. Performance measures related to past environmental investments, like profit and loss statements related to economic investments can be helpful in developing these indicators. However, the purpose of conservation benefit indicators as they are developed here is to manage and improve performance, not to measure it. The issue being addressed here, in other words is not how well last years environmental investments perform, but what we should look at to make this year's and next year's perform better.

This section describes an approach for developing conservation benefit indicators that can be used to assess and compare the expected payoff from investing in conservation practices at different sites. The same approach could be used at broader geographic scales to compare the benefits from investing in different regions or counties.  The indicators reflect different types of environmental benefits, but are based on an assumption that the sole purpose of conservation spending is to achieve environmental benefits. In some cases patterns of spending that achieve the greatest environmental benefits per dollar spent will result in funding allocations that are considered inequitable or undesirable for other reasons.  In those cases the indicators may be used to measure differences in attainable levels of environmental benefits that result from constraining conservation spending to achieve non-conservation goals.  If developed and used correctly, these indicators can provide an economic basis to account for conservation investment decisions and, within limits, can be used to justify continued or increased levels of spending.

Purpose

Conservation benefit indicators should link the anticipated environmental benefits from current or future spending decisions with specific conservation practices undertaken at specific locations. They cannot be used to measure benefits derived from past spending decisions. They are not useful for justifying a particular level of dollar spending on conservation, but they are useful for managing conservation spending to achieve the greatest benefits per dollar spent.

Introductory Questions

Performance-based

General What are the dollar benefits of USDA environmental incentive programs?
Specific What are the dollar benefits of Project A? How about Project B?

Management-based

General Is USDA managing environmental incentive programs to maximize environmental benefits?
Specific Are the environmental benefits per dollar spent on Project A greater or less than those of Project B?

Showing that the environmental benefits from spending on one project are greater than the benefits of spending on another project is much easier than estimating the dollar benefits of either project. It is easier to justify that spending is being managed to maximize environmental benefits per dollar spent than to justify any particular level of dollar spending.

Challenges

To be useful, conservation benefit indicators need to overcome three challenges:

General Acceptance of how people benefit from environmental improvements. Physical measures of program outcomes, such as acres of wetlands restored, tons of manure stored, or miles of riparian buffers created are not benefit indicators.
Practical for use in field offices where spending decisions are made under tight time and budget constraints.
Flexible to distinguish between different projects and sites and be capable of reflecting tradeoffs among different types of environmental benefits measured at different geographic scales.

Basis in Traditional Economic Indicators

Choosing among investment alternatives always involves predicting potential outcomes and assessing risks, which can be defined generally as the volatility of potential outcomes. The focus of conservation benefit indices are factors that can exist at a site that will limit or complement the beneficial outcomes of a conservation practice, or reflect risks that these outcomes may not result or will be disrupted in the future.

There are two general types of economic indicators:

Performance indicators, such as dollars, are after-the-fact measure of the outcome of previous decisions; they are useful primarily for scorekeeping and to justify past decisions.
Management indicators are leading indicators of performance; they are useful primarily for making decisions and for allocating spending to achieve the greatest level of performance.

USDA field office staff involved in managing conservation spending could use both performance and management indicators. However, dollars are the only widely accepted type of economic performance indicator, and reliable dollar estimates of conservation benefits are not available and may never become available. Under the circumstances it is extremely important for USDA field office staff to have defensible management indicators. These are necessary to show that spending is being allocated to achieve the greatest expected level of program benefits, and also to illustrate the tradeoffs associated with decisions to use conservation spending to achieve non-conservation goals.

Ranking Criteria as Management Indicators

There are three general questions that should be addressed before considering project ranking and weighting criteria to guide program funding.

First, how strategic and how opportunistic should the programs be? If meaningful distinctions can be made to target incentives to increase environmental payoffs a more strategic approach more detailed ranking criteria- might be used; if not, perhaps projects should be selected on a first-come, first-serve basis if they meet general selection criteria.
Second, how should risk and uncertainty be addressed? In conventional investment and portfolio management it is understood that all investments, besides not having the same potential payoffs, may have significantly different risks of failure. This is especially true in the case of environmental investments where potential payoffs may depend on uncontrollable risks that are not uniformly distributed across the ecological landscape.
Third, how should the demand for parity or equity in the allocation of program funding be balanced against the demand to achieve the greatest environmental payoff per dollar spent? Constraints imposed on spending decisions to achieve political goals have clear opportunity costs in terms of foregone environmental benefits. Should an environmental benefits indicator system be designed to clarify these opportunity costs?

Conservation Benefit Indicators

To be of value, conservation benefits indicators must meet three criteria. First, they must be based on sound economic principles so they will be generally accepted by USDA and OMB program reviewers. Second, they must be practical enough to be applied in the field by agency staff with limited economic training and tight time and budget constraints. Third, they must be capable of making meaningful distinctions between the expected benefit resulting from different types of environmental projects and from similar projects undertaken at different sites.

While the underlying biophysical and socioeconomic relationships of the benefits indicators need to be sound, the benefits indicators do not need to be scientifically rigorous to be useful. For purposes of evaluating environmental benefits each farm site should be considered as a portfolio of environmental assets.

The value of these assets, like the value of all assets, is derived from the value of the stream of services they are expected to provide over time. As environmental assets, site value depends on:

1
Level of functional capacity
2
Rate of functional capacity utilization
3
Level of service provided per unit function
4
Expected Value per unit of service
5
Risk of service flow disruptions

Click for a Checklist on Regional Information to Develop ecosystem Benefit Indicators.

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