Rio Tinto
Corporate Ecosystem Valuation (CEV) Road Test Summary (Work in progress)
Rio Tinto is one of the world's leading mining and exploration companies.
As part of the company’s efforts to incorporate ecosystems into decision-making, it road
tested the Guide to Corporate Ecosystem Valuation (2009-2010) with support from the
IUCN. The study assessed the financial and economic costs and benefits of conserving
areas of rainforest as part of the company’s policy of Net Positive Impact (NPI) on
biodiversity at an operational level. Ecosystem services examined included carbon
sequestration, ecotourism, habitat conservation and hydrological regulation.
Context
Rio Tinto has a policy goal of Net Positive Impact (NPI) on biodiversity in its operations. The
company aims to achieve NPI by combining state-of-the-art avoidance, mitigation and ecosystem
restoration with biodiversity offsets and other conservation actions. In Madagascar, Rio Tinto mines
ilmenite in the southeast via a subsidiary. As part of its offset strategy, the company is considering to
support the conservation of 60,000 hectares of lowland rainforest, to compensate in part for the
unavoidable residual impacts of its mining operations in the region. The area to be conserved and
the resulting biodiversity benefits are expected to meet and possibly exceed the conservation gains
required to compensate for the residual impact of the mining operation.
The valuation study looked at the biodiversity and ecosystem services of a large part of
Tsitongambarika, the largest expanse of lowland rainforest remaining in southern Madagascar. This
forest is characterized by high levels of biodiversity, it provides important ecosystem services and is
a key source of local livelihoods. However, over 10,000 ha of forest have been lost, and the forest is
currently being cleared at roughly 1–2 percent per annum, mainly through land conversion driven by
shifting cultivation. Degradation also occurs through unsustainable and often illegal logging and
harvesting of forest products and fuel wood.
Objective
The study examined the cost of conserving, and the value of benefits associated with biodiversity, in
the Tsitongambarika (TGK) forest. The objective was to quantify and value the changes in
ecosystem services that result from interventions that deviate from “business as usual” in TGK, i.e.
projected continued deforestation and ecosystem degradation, in favor of some form of
conservation.
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Approach
Rio Tinto commissioned IUCN to estimate the monetary value of biodiversity benefits associated
with conservation. The study examined the costs of conservation, including up-front investment and
maintenance costs of protected areas, together with the opportunity costs that local people bear
when they lose access to land that had historically provided food and cash income in lean periods as
well as a resource for agricultural expansion.
The study‟s environmental baseline was a projection of how local forests would be converted or
degraded without conservation action. It looked at historical rates and drivers of deforestation such
as „slash and burn‟ agriculture and the unsustainable harvest of forest products.
On the benefit side, TGK provides an important store of biodiversity as well as ecosystem services,
a number of which can be quantified and valued. Biodiversity was valued by looking at the
willingness to pay (WTP) of rich country populations for the conservation of tropical rainforests. As
local survey-based research was not undertaken, average global WTP estimates for average
rainforest were applied. These WTP estimates did not take account of the high level of endemism in
Madagascar and may therefore have underestimated the value rich country populations have for the
rainforests of Madagascar. These values were predominantly non-use values. The hydrological
functions of the watersheds within the forest were valued based on the agricultural production
benefits associated with avoided erosion (indirect use values) and on local WTP for the regular
provision of good quality water (direct use values). The value of avoided greenhouse gas emissions
associated with avoided deforestation and forest degradation was estimated based on the avoided
damage costs of climate change. The value of potential revenue from ecotourism was assessed
based on projected visitation rates and daily expenditure estimates from studies in other protected
areas in Madagascar; however, because increased tourism in TGK is likely to result in reduced
tourism in other parts of Madagascar, ecotourism benefits were excluded from the economic
analysis (as there would not be any net economic gains for Madagascar).
Two approaches were used to value the above forest-based ecosystem services and biodiversity.
First, a cost-based approach assessed the costs of conservation to estimate the costs of supplying a
range of ecosystem services at the forest level and on a per hectare basis. Second, “demand side”
valuation looked at the benefits to people from changes in ecosystem services. If units or “hectares
of biodiversity” were traded in the context of offsets, as in conservation and wetland banking in the
U.S. and biodiversity banking in New South Wales, Australia, prices would likely range between the
lower, cost-based estimate and the higher estimates based on the net benefits of biodiversity and
ecosystem services. Benefit transfer was the main source of unit values for ecosystem services
used.
Results
The study calculated the net present value of the establishment of a protected area in TGK over
thirty years applying a discount rate of five percent. The ecosystem service and biodiversity benefits
considered here included wildlife habitat (US$2.9 million), hydrological regulation (US$470,000)
and carbon storage (US$26.8 million). Potential ecotourism was considered, but not included as
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increased tourist visits to TGK would result in decreased tourist visits to other parks in Madagascar
and there would be little net increase in revenue to the country. Bio-prospecting values were also
considered, but due to the large range of value estimates in the literature and the ban on bioprospecting in Madagascar, these values were also excluded. The study found that there were
significant net economic benefits associated with conservation (about US$17.3 million net of all
costs) mainly associated with carbon storage values.
The study illustrated the need to improve quantification and valuation of ecosystem services in
corporate decision-making. However, there are limitations using benefit transfer techniques and
applying average values for ecosystem services to estimate the value of conserving areas of
particular biodiversity value. Biodiversity values are highly sensitive to levels of biodiversity,
endemism, the prevalence of charismatic species, the level of threat and other local factors. The
application of global or regional average values did not capture the unique features of one of the
world‟s top five biodiversity hotspots.
Figure 1: Costs and benefits of conservation
Many of the ecosystem service benefits listed above accrue globally (e.g. wildlife habitat, carbon
storage), while the costs of conservation are mainly borne by local communities whose access to
forest resources would be restricted. The study underscored the need for, and potential scale of,
compensation of local populations, for example through Payments for Ecosystem Services. The
ecosystem values that are easiest to capture are generally those associated with carbon. While the
value of carbon storage is significant, local communities would have to receive roughly one quarter
of revenues associated with Reduced Emissions from Deforestation and Forest Degradation
(REDD) to not be disadvantaged by conservation. The study suggested that if more than one-quarter
of REDD revenues were received by local communities, they would be made better off and
conservation would be more likely to be successful as incentives to reduce the expansion of
agriculture into forest land are ensured by financial payments for REDD.
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By looking at the distribution of internal and external costs and benefits, the company is better able
to determine appropriate compensation and benefit sharing regimes that protect local communities
and identify potential income streams associated with benefits that accrue to rich country
populations.
Applications
This work has application for Rio Tinto at both a technical and strategic level. It has direct relevance
to the company‟s biodiversity strategy and will be used as a tool in programs aimed at achieving
NPI on biodiversity at an operational level.
At a technical level, this study has implications for the way Rio Tinto structures and manages the
biodiversity offsets needed to achieve a net positive impact on biodiversity. The aim is to build
valuation methodologies into corporate biodiversity action planning and into offset identification
and implementation methodologies.
This study addressed the question of the value of biodiversity benefits produced by conserving a
forest biodiversity hotspot in Madagascar. The next phase of the project will integrate this
methodology and its results into the existing biodiversity offset and NPI planning and
implementation metrics and methodology framework. Valuation methodologies will be used to
complement and enhance the existing quality hectares metric that is used by Rio Tinto to calculate
biodiversity losses and gains generated by projects and operations. The use of valuation
methodologies in this work presents new opportunities to identify ecosystem values and potential
income streams that can be used to:
o provide long term sustainable income streams for the TGK conservation programs;
o provide long term sustainable income streams for local communities that live and work in
and around TGK, who may be disadvantaged by conservation programs, and;
o demonstrate that the company‟s investment in the TGK conservation programs is
transparent, equitable across stakeholders, and commensurate with the value of the
biodiversity impacts that are being offset by the TGK program.
From a strategic point of view, Rio Tinto believes that the economic valuation of ecosystem services
and the development of ecosystem service markets have the potential to change the way private
companies manage their environmental footprints. Rio Tinto is using established relationships with
its biodiversity partners and specifically its relationship with IUCN to explore how ecosystem services
can be accurately valued and the implications for corporate risks and opportunities. For companies
like Rio Tinto, robust methods of valuing ecosystem services and the development of wellfunctioning markets for ecosystem services could provide an opportunity to use large nonoperational land holdings to create new income streams for Rio Tinto to be used for conservation
activities and to establish sustainable long-term income streams for local stakeholders and
communities, through the sale of ecosystem service credits.
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