Shedding light on the hidden costs of the Habitats Directive: the case of hamster conservation in Germany

Abstract

The EU Habitats Directive provides in Annexes II and IV a list of species that need to be conserved. In response to this obligation, Member States have implemented a variety of conservation measures. These measures include the rejection, modification or delay of land development plans, payments to landowners for implementing conservation measures and management actions such as breeding programmes. The extent of the cost of these various conservation measures is not always apparent. Particularly when land development plans are modified costs are hidden because there is no visible flow of financial resources. This may lead to an underestimation of conservation costs. In contrast, costs which directly lead to a flow of financial resources, such as expenses for management measures, are visible and may be given more attention. This difference in visibility may result in selecting conservation measures with high but hidden costs, whereas conservation measures with low but visible costs are neglected. The first purpose of this paper is to provide a framework that captures, along with the visible costs, the range of hidden costs relevant to the conservation of species protected by the Habitats Directive. The second purpose is to demonstrate the relevance of the problem of hidden costs by means of a case study. We apply the framework to estimate the costs of protecting the common hamster (Cricetus cricetus, listed in Annex IV of the Habitats Directive) in the region of Mannheim, Germany and find that the hidden costs of changes in development plans are higher than the visible conservation costs by at least an order of magnitude.

Appendices

Appendix A: selected aspects of economic cost assessment

For economists, the concept of opportunity costs is crucial for assessing the costs of goods. Opportunity costs arise because the use of a scarce resource such as land, labour and public or private funds for one specific opportunity precludes the use of this resource for other opportunities. In such a setting of scarcity, the opportunity costs of a decision to employ the resource in one use are defined as the foregone benefits of not being able to use the resource in the most highly valued of the other opportunities (see e.g. Buchanan 1998). For the purpose of illustration, assume that the use of a piece of land for biodiversity conservation precludes the use of that land to develop a theme park, an industrial area or a housing estate. Suppose that among the alternatives that were not chosen an industrial area was the one with the highest benefits. Then the opportunity costs of the decision to use the land for biodiversity conservation are the foregone benefits of not being able to use this land as an industrial area.

In most studies, market prices are used as an indicator for assessing opportunity costs. Opportunity costs and market prices are closely linked in a well-functioning market because of the way in which a market economy sets prices. Consider again the example above. The opportunity costs of using the land for conservation are high if the industrial park were to generate a substantial amount of income for economic developers. The market price for that parcel of land would reflect these high opportunity costs because developers will be willing to pay a high price for the land due to the good income prospects. Market systems, however, do not always function well. For example, external costs that arise, e.g. if consumption or production leads to pollution, are not reflected by market prices. When using market prices to assess opportunity costs it needs to be borne in mind that if market failures exist, market prices are a somewhat distorted indicator for opportunity costs (e.g. Willis et al. 1997).

Another important aspect of cost estimation concerns the timing of costs. Costs for conservation measures often occur at various points in time. In such circumstances, costs cannot simply be added because €1 available one year from now is not as good as €1 available today. A straightforward explanation is that €1 available now could be invested to earn interest and would be worth more than €1 in one year. If the interest rate is δ then €1 invested for t years will become € (1 + δ)^t in t years. Therefore, the amount of money that would have to be deposited now in order to grow to €1 in t years in the future is € (1 + δ)^−t. This is referred to as the discounted or present value of €1 available t years in the future. Economists usually refer to δ as the discount rate, rather than the interest rate. In the context of long-term studies such as the Stern Review, the appropriate value of the discount rate is a complex and much debated issue (e.g. Dasgupta 2006; Nordhaus 2007). We do not wish to enter into this discussion here, but refer to a clear exposition provided by Heal (2007).

Appendix B: derivation of net annual payments from land market prices

Let V be the market price of a parcel of land in any particular use at t = 0, T the number of economically productive periods of that parcel in that use and v _t the resulting constant net benefits in period t, then:

$$ \begin{aligned} & V = \sum\limits_{t = 0}^{T} {\frac{{v_{t} }}{{\left( {1 + \delta } \right)^{t} }}} \hfill \\ & V = v_{t} \sum\limits_{t = 0}^{T} {\frac{1}{{\left( {1 + \delta } \right)^{t} }}} \hfill \\ & v_{t} = V\left/\sum\limits_{t = 0}^{T} {\frac{1}{{\left( {1 + \delta } \right)^{t} }}}\right. \hfill \\ \end{aligned}$$

Finally, the net present value of v _t is given by v _t /(1 + δ)^t. All recalculations of land market prices have been performed using this formula, as illustrated below for the Sandhofen development project in the low-cost scenario. To calculate the costs of not developing the Sandhofen area to a residential site, we assess the foregone benefits for the period between 2001and 2010, i.e. we reduce the time horizon from 50 years to the first 10 years:

$$ \begin{gathered} V_{50} = {\sf C}\!\!\!\!\raise.8pt\hbox{=} 2,175,000 = \sum\limits_{t = 0}^{49} {\frac{{v_{t} }}{{\left( {1 + 0.02} \right)^{t} }}} \hfill \\ v_{t} = {\sf C}\!\!\!\!\raise.8pt\hbox{=} 68,132.39 \hfill \\ V_{10} = \sum\limits_{t = 0}^{9} {\frac{68,132.39}{{\left( {1 + 0.02} \right)^{t} }}} = {\sf C}\!\!\!\!\raise.8pt\hbox{=} 623,711.10 \hfill \\ \end{gathered} $$

For estimating the costs of the one-year delay in the Sandhofen development project, we calculate the foregone benefits of development for the first year in the ten-year period between 2001 and 2010

$$ \begin{gathered} V_{9}^{\text{delayed}} = \sum\limits_{t = 1}^{9} {\frac{68,132.39}{{\left( {1 + 0.02} \right)^{t} }}} = {\sf C}\!\!\!\!\raise.8pt\hbox{=} 555,578.71 \hfill \\ V_{10} - V_{9}^{\text{delayed}} = {\sf C}\!\!\!\!\raise.8pt\hbox{=} 68,132.39 \hfill \\ \end{gathered} $$