Counting the economic benefits of environmental research

New Zealand economists and NIWA have counted the economic benefits from investing in environmental research.

New Zealand economists and NIWA have counted the economic benefits from investing in environmental research.

Mark Blackham reports on a case study where NIWA research was estimated to return economic benefits at least seven times the cost of the research itself.

In 2010, US President Barack Obama announced a resurgence of science funding, saying: “Science is more essential for our prosperity … than it has ever been before.”

In the same year, the New Zealand Government made science funding a centrepiece of the 2010 budget. Sir Peter Gluckman, the Prime Minister’s Chief Science Adviser, said the policy meant science would no longer “be seen as a cost to the New Zealand economy, but rather as a major and underpinning investment for New Zealand’s economic growth”.

Although the rhetoric sounds logical, it has been difficult to ascertain the return on that investment.

An analysis in Nature magazine (issue 465, 2010) found “the numbers attached to widely quoted economic benefits of research have been extrapolated from a small number of studies … [which were not] objective assessments”.

Moreover, these studies have generally derived their estimates based on indicators, rather than tracing causal links between specific pieces of research and quantifiable, realised or future economic outcomes.

Against this background, NIWA commissioned research from Enveco*, an environmental economics consultancy, to see if quantifying the economic benefits that follow from its research was possible.

Hard evidence is important

According to Dr Bryce Cooper, NIWA’s General Manager of Strategy, the absence of hard evidence about the economic value of environmental research has been awkward when making decisions about science investment.

“The direct causal link between, say, aquaculture production research and the flow-on economic benefits is relatively easy to understand and quantify in dollar terms. The environmental benefits of environmental research are also often easy to understand and quantify, albeit in non-monetary values such as ecosystem biodiversity protected or improved water quality. The difficulty arises when the economic benefits of environmental research are to be quantified and yet, intuitively, we know there are some.

“If we can measure the value of environmental research in all its dimensions (economic, environmental, social and cultural), we can all better judge the relative merits of investing in such research against the more obvious.”

Cooper says the reason NIWA commissioned Enveco was to see if there was a way of moving beyond the hand-waving to actually providing an economics methodology that could be applied across its research fields, and to see if rules of thumb were possible.

“NIWA’s Statement of Core Purpose, determined by the government, is to enhance the economic value and sustainable management of New Zealand’s aquatic resources and environments ... so we must develop means to measure how well we are doing at that.”

Annabelle Giorgetti, an economist with Enveco, says that the lack of international research gave few starting points for benchmarks or methodologies.

“Until now economists have used a broad brush in describing the value of science research. Few people have taken the time to count up what users do with the results, and to put a dollar value on the real world effects.”

Agriculture and health have been the focus of most studies. For example, there are over 1800 separate agriculture studies on record. The return on investment varies wildly, up to 40 per cent in some cases, but averages between 5 and 7 per cent.

“It has been easier to count the value added by producing a more productive strain of crop, or by people recovering from illness.

“It’s been far more difficult to count the value of the wider effects from environmentally linked research,” she says.

United Kingdom study counted environmental research's flow-on benefits 

A study, one of the few, by Natural Environment Research Council (NERC) in the United Kingdom made an effort to count the flow-on benefits of specific environmental research projects.

Rather than apply unsuitable models across NIWA’s work, Enveco decided on ‘micro-research’ – assessing a small handful of NIWA case studies to test if an approach could work.

Giorgetti says it was fascinating to draw links between NIWA’s research and what others were able to achieve using the research.

“Traditionally, scientists are pre-occupied with research and solutions, and the users are pre-occupied with applying the results. In these case studies, we held workshops to connect the research to what the users had done ‘on the ground’ because of the results.”

Giorgetti says the workshops were critical to understanding not only what things had changed, but also the extent to which the NIWA science was instrumental in the changes – that is, the attribution.

“Research is often one strand of a user’s attempt to solve a problem. There are many other people involved in making changes. All of them, quite rightly, have a claim to be influential on the result. So we needed a fair assessment from those end users about the proportional influence of the research on what they ended up doing.”

NIWA case study

The major part of the project was the counting: Enveco had to physically trace and value all the things that resulted from the research findings.

For example, one case study was research into the effects of land use on stream water flows. The economic research measured what happened to the value of agriculture and forestry production when land use policy changed in response to NIWA’s stream research.

The study calculated that for every $1 spent on the research, NIWA’s client generated between $7 and $148. The variation arose from the extent to which NIWA’s research could be said to contribute to the bulk of the client’s project and outcomes. The higher the attribution, the higher the benefits.

Giorgetti concluded that the economic benefits from using NIWA research to aid water allocation decisions were very high. The large benefits were because NIWA’s research informed changes in regional plans that affect large areas of land and economic sectors, for example, for forestry or irrigation.

When Giorgetti carefully extrapolated the case studies to all of NIWA, she found that NIWA’s research contributes around $825 million of economic benefits in a given year at a modest five per cent attribution level. These benefits would more than double to over $1.7 billion at an average 20 per cent attribution level, suggesting every dollar invested would return over $14.

Bryce Cooper says the research is a useful first step towards filling in that ‘economic’ gap in valuing the research that NIWA does.

“We now have a concrete example from an economic analyst that our research can lead to returns at least seven times the cost. Such a cost-benefit ratio seems quite impressive to me.

“That makes our research a safer bet, gives funders more confidence, and can reassure communities that such research is very likely to result in better, and more profitable, decisions,” Dr Cooper says.

Note: This feature originally appeared in Water & Atmosphere, June 2015
NIWA's Research Vessel Tangaroa at Queens Wharf, Wellington. [Dave Allen]