Ding H., Nunes P., (2013) Modeling the links between biodiversity, ecosystem services and human welleing in the context of climate change - Results form an econometric analysis of the European forest ecosystems.pdf

Methodological and Ideological Options
Modeling the links between biodiversity, ecosystem services and human

wellbeing in the context of climate change: Results from an econometric
analysis of the European forest ecosystems
Helen Ding
a,
, Paulo A.L.D. Nunes
b,c
a
Biodiversity Governance Research Unit (BIOGOV), Center for Philosophy of Law (CPDR), Universit catholique de Louvain, Belgium
b
WAVES Wealth Accounting and Valuation of Ecosystem Services, Agriculture and Environmental Services Department, The World Bank, Washington, DC 20433, USA
c
Department of Agricultural and Resource Economics TESAF, University of Padova, Campus di Agripolis, Viale dell'Universit, 16, 35020 Legnaro, Pd, Italy
a b s t r a c t a r t i c l e i n f o
Article history:
Received 9 November 2012
Received in revised form 14 September 2013
Accepted 9 November 2013
Available online 1 December 2013
Keywords:
Natural capital index
Composite biodiversity indicator
European forest ecosystem services
Simultaneous equation modeling
3SLS
Nature-based policy for climate change
mitigation
This paper constitutes a rst attempt to model the relationship between climate change, biodiversity, and ecosys-
temservices, witha specic emphasis onEuropeanforests. Firstly, we construct a composite biodiversity indicator
that integrates quantitative and qualitative changes of biodiversity projected to 2050 for the EU-17 under future
IPCC scenarios. Secondly, this indicator is integrated into two simultaneous equation models to capture the
marginal impacts of changes in biodiversity on the value of ecosystem goods and services (EGS) due to climate
change.
Our estimation results conrm the role of biodiversity as a nature-based policy solution for climate change
mitigation, shedding light on the policy actions that generate co-benets by enhancing ecosystems' capacity to
mitigate climate change impacts, while conserving biodiversity and sustaining the ows of EGS for human
livelihoods. Especially, nature-based mitigation policies are more cost-effective and better at coping with the
ethic and inequality issues associated with distributional impacts of the policy actions, compared to the pure
technical solutions to improving energy efciency and reducing emissions. However, the strength of biodiversity
as a nature-based policy option for climate change mitigation depends on both the nature of the EGS and the
geographical area under consideration.
2013 Elsevier B.V. All rights reserved.
1. Introduction
Current model projections have consistently indicatedthat biodiver-
sity would continue to decline over the 21st century, under different
socioeconomic scenarios with trajectories of key indirect drivers of
ecological changes, such as human population growth and greenhouse
gas emissions (Leadley et al., 2010; Pereira et al., 2010). This in turn
will impose threats to the benets of future humanity and result in a
change in our production and consumption patterns in the long run
(Martens et al., 2003), as biodiversity underpins a variety of ecosystem
goods and services (EGS) that are vital to human well-being. Biodiversi-
ty by denition encompasses the variety of life on earth from genes to
species, through to the broad scale of ecosystems across time and
space (Loreau et al., 2001). It is important in terms of determining the
health of ecosystem, ensuring the stability and productivity of ecosys-
tem, as well as contributing directly or indirectly to human wellbeing
(MEA, 2005). In this regard, the term biodiversity is used broadly as
an assumed foundation for ecosystem processes, rather than simply
the changing number of species on a species list (Loreau et al., 2001).
The relationship between biodiversity and ecosystem functioning or
primary productivity has been of long-standing interest to ecologists
(Cameron, 2002; Kinzig et al., 2001; Loreau et al., 2001, 2002). Over
the past years, the subject has been researched in various ways via
experimental eld research, the formulation of mechanistic theories
and quantitative eld observation, most of which have led to a common
conclusion that a large variety of species has a positive inuence on the
productivity and stability of ecosystems, as greater biodiversity can
cope with various circumstances in a given habitat and thus lead to
the more efcient use of available natural resources (Loreau et al.,
2001; Martens et al., 2003). Nonetheless, quantifying the link between
biodiversity andecosystemgoods and services remains a major scientic
challenge to date (Pereira et al., 2010), because there does not exist a
general ecological relationship between ecosystemfunction and diversi-
ty owing to species-specic effects and important tropic links (Paine,
2002; Willims et al., 2002). Certainly, biodiversity loss will negatively
affect ecosystem functioning by changing the composition and distribu-
tion of species (Bloger, 2001; Giller and O'Donovan, 2002; Loreau et al.,
Ecological Economics 97 (2014) 6073
Corresponding author at: BIO IS-Deloitte, Deloitte's Sustainability Services in France,
Deloitte Touche Tohmatsu Limited, 185 avenue Charles De Gaulle, 92524 Neuilly, Ile-de-
France, France. Tel.: +33 652422258.
E-mail address: helen.ding@biois.com (H. Ding).
0921-8009/$ see front matter 2013 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.ecolecon.2013.11.004
Contents lists available at ScienceDirect
Ecological Economics
j our nal homepage: www. el sevi er . com/ l ocat e/ ecol econ
2001; Schmid et al., 2000), which may have far-reaching socioeconomic
consequences in the future, through the provision of ecosystemservices
to human society (Martens et al., 2003).
In order to quantify the loss of biodiversity, scientists rely on the use
of biodiversity indicators to measure and monitor the different dimen-
sions of biodiversity and to predict the future trends of biodiversity
and ecosystems. At a global scale, there are roughly 40 potential mea-
sures being developed for the Convention on Biological Diversity
(CBD) and about 26 indicators being considered in the Streaming Biodi-
versity Indicators in Europe 2010 process (Mace and Baillie, 2007). Each
of these indicators has been developed to reect a specic attribute and/
or issue of concern. Nevertheless, for the purpose of public and business
decisions andeffective communicationwithbroader audience, there is a
general need of creating a single, simple or composite biodiversity mea-
sure that can both encompass essential biological information and
incorporate socio-economic impacts. Moreover, such kind of indicator
may also have broader application in the socio-economic research in
terms of explicitly quantifying and evaluating the effect of biodiversity
loss on human welfare. In fact, the economics literature has shown
many attempts to both conceptualize and value biodiversity, exploring
the use of stated- and revealed-preference valuation methods, both of
which intend to estimate the marginal impact of biodiversity loss on
utility (Kontoleon et al., 2007; Nunes and van den Bergh, 2001). These
methods have been largely used to estimate the nonmarket values of
biodiversity. On the other hand, biodiversity also has considerable
market value through the supply of important inputs for economic pro-
duction. Thus, when estimating (at the margin) the economic value of
biodiversity, this exercise should encompass biodiversity's impact, on,
or biodiversity's contribution to the ecosystems capacity to provide
goods and services, including provisioning, cultural, regulating and
supporting services
1
(see Chiabai et al., 2011; Ding et al., 2010). None-
theless, numerical analysis of the links between biodiversity and
human wellbeing remains exceptional in the literature. In this regard,
only two studies have attracted our particular attention, both of which
exploring the use of different biodiversity indicators, i.e. species rich-
ness and threatened ora and fauna indexes in modeling the effect of
biodiversity loss in the value of ecosystem services or ecosystem pro-
ductivity. The rst refers to a recent study conducted by Costanza
et al. (2007), who numerically demonstrated a positive relationship
between species richness and net primary production (NPP) for the
US, followed by Ojea et al. (2010), who employed the use of meta-
analysis to greatly extend the regional forest ecosystem valuation stud-
ies to a global scale. These indicators partially explain (not sufciently
enough) the causality between biodiversity loss and changes in ecosys-
temservices and human welfare, but some other important information
may be lost as most of the individual biodiversity indicators deal with
only one biodiversity attribute or a specic policy target.
In this context, the present paper constitutes a rst attempt to
model, and empirically estimate, the relationship between climate
change, biodiversity and EGS, by constructing a news composite biodi-
versity indicator that integrates essential informationof species changes
(e.g. change in species richness and abundance) and ecosystemchanges
(e.g. change in the area of particular biomes). This indicator is expected
to be a simple, but comprehensive, measure to map quantitative and
qualitative changes of biodiversity projected to 2050 for seventeen
European countries under future climate-change scenarios. Further-
more, this indicator is integrated into a set of constructed simultaneous
equation systems to allow formally estimating the marginal impacts of
changes in biodiversity on the value of ecosystem goods and services
due to climate change. Data availability with regards to both biological
species and economic values of the ecosystem services leads us to
focus on the forest ecosystems in Europe.
The organization of the paper is as follows. Section 2 introduces the
concept of climate-change scenarios and describes the source of data
used in the research. Section 3 presents the empirical and innovative
approach that is characterized by the creation of a composite biodiver-
sity indicator. Section 4 presents and discusses the theoretical model,
which is characterized by the use of simultaneous equations. Section 5
presents and compares the empirical results for both model specica-
tions, i.e. a European-aggregated, and a European-regional model spec-
ication, respectively. Section 6 discusses the impact of the estimation
results on the design and implementations of the EU environmental
policies. Section 7 concludes.
2. Data Description
2.1. Future Climate Change Scenarios
For a comprehensive interpretation of climate change scenarios and
the respective socio-economic and biological impacts, it is an essential
rst step to understand the underlying assumptions of the scenarios
under consideration. Scenarios do not predict the future, but rather
paint pictures of possible futures and explore the various outcomes
that might result if certain basic assumptions are changed. In order
to explore the possible future patterns of biodiversity in Europe,
the scenarios are developed based on the recent efforts of the Inter-
governmental Panel on Climate Change (IPCC) (2000), which explore
the global and regional dynamics that may result from changes at a
political, economic, demographic, technological and/or social level.
The distinction between classes of scenarios is broadly structured by
dening themex ante along two dimensions. The rst dimensionrelates
to the extent of economic convergence, and of social and cultural inter-
actions across regions; the second has to do with the balance between
economic objectives and environmental and equality objectives. This
process therefore leads to the creation of four climate change scenarios,
namely A1, A2, B1 and B2. Hereafter, we call them IPCC storylines
throughout the paper.
Table 1 below summarizes the political, economic, demographic,
technological and social assumptions made in each of the IPCC storyline
and analyzes their potential impacts on the future patterns of global
biodiversity.
As we can see, scenario A1 and A2 are both economic-oriented
scenarios, but with differentiated focuses on global and regional eco-
nomic development, respectively. In particular, scenario A2 represents
a world differentiated into a series of consolidated economic regions
characterized by loweconomic, social, and cultural interactions, uneven
economic growth and with the income gap between industrialized and
developing countries that does not narrow. Alternatively, the B-type
scenarios depict a world, where economic objectives and environmen-
tal and equity objectives are more balanced. In particular, scenario B1
shows that environmental and social consciousness can be combined
in a more sustainable manner at global scale, offering a more favorable
perspective for biodiversity than the A-type scenarios. Moreover, tech-
nological development is expected to shift towards renewable energy
and higher productivity and consequently reduce the pressure on natu-
ral ecosystems from decreased pollution and land conversion. Finally,
biodiversity will also benet from lower pressure of global population
growth and improved ecological capital. Similar to scenario B1, the B2
scenario is environmentally oriented with a focus on local environmen-
tal and social sustainability. Inthis scenario, average education level and
degrees of organization within communities are high and energy and
material efciency can be achieved. All these social and technological
achievements can reduce the pressure on natural ecosystem.
1
As dened by the MillenniumEcosystemAssessment (MEA) (2005), provisioning ser-
vices are the goods obtained from ecosystems and they include food, ber, fresh water,
and genetic resources. Regulating services include benets obtained from the regulation
of ecosystem processes, including air quality regulation, climate regulation, water regula-
tion, erosion regulation, pollination and natural hazard regulation. Cultural services are
the nonmaterial benets that people obtain from the ecosystem through esthetic experi-
ence, reection, recreation and spiritual enrichment. Supporting services refer to an eco-
system's life supporting function, which will ultimately inuence the provision of other
three types of ecosystem goods and services.
61 H. Ding, P.A.L.D. Nunes / Ecological Economics 97 (2014) 6073
2.2. Socio-economic, Climatic and Ecological Data Projected Under Future
IPCC Scenarios
Under different IPCC storylines, projections have been developed to
describe possible outcomes of different political, economic, demographic,
technological and social assumptions for the future development. These
include the projected trends of GDP, population, incremental tempera-
ture, ecosystem productivity, and distribution of species and so on,
subject to the changes in a set of key assumptions on which the IPCC
storylines are based. In this study, we explore the use of climatic,
socio-economic and ecological projections to investigate the pressure
on biodiversity and to quantify the consequent quality and quantity
changes of terrestrial biodiversity following the four future develop-
ment paths dened by IPCC. Since we have empirical evidence showing
that the impacts of changing climate conditions are highly spatially
heterogeneous, as organisms, populations and ecological communities
do not respond to approximated average of global warming (Walther
et al., 2002), we opt to work at the country level. This however, requires
a strong investment in data, both in terms of data from earth observa-
tion systems (e.g. current land use patterns) as well as fromsimulation
model architectures (e.g. projection of species diversity for 2050). In
this context, we opt to work with all the European countries that report
(projected) values for biological species under the four IPCC storylines
under consideration. To account for regional climate differences/
commonalities, where similar climatic patterns and taxa might be
identied, we propose to map the EU-17 in terms of three geo-
climatic clusters, including the Mediterranean Europe (Greece, Italy,
Portugal, Spain), the Central North Europe (Austria, Belgium, France,
Germany, Ireland, Luxembourg, Netherlands, Switzerland, United
Kingdom), and the Scandinavian Europe (Denmark, Finland, Norway,
Sweden). The data used are independently published by a number of
IPCC data distribution centers across the world for 2050, downscaled
at country level. The demographic and economic trends represented
by the future per capita GDP, population density are projected and dis-
tributed by the Center for International Earth Science Information
Network (CIESIN) (2002) at Columbia University. The annual mean
temperature are projected by the Tyndall Centre in the UK (www.
tyndall.ac.uk), who combines the use of Global Circulation Models/
SRES (including CGCM2, CSIRO2, HadCM3 and PCM) to estimate the
possible increase of temperature in degrees Celsius for each country
under different IPCC scenarios. The biophysical changes of biodiversity
comprise the quantitative changes measured in terms of changes in
the area of forest habitat, andthe qualitative change indicatedby changes
in the number of terrestrial species (including plant, tree, bird and
herptile). The future trends of these changes under IPCC scenarios are
projected in the frame of the Advanced Terrestrial Ecosystem Analysis
and Modeling (ATEAM) project (Schrter et al., 2004). In particular,
species richness under current and future conditions are projected
taking into account total 383 bird species, 108 reptile and amphibian
species, 1350 plant species and 125 tree species appeared in the EU.
To keep the consistency across a large range of data sources, we derive
all data fromprojections that represent a combinationwith the HadCM3
2
model, which directly relates socioeconomic changes to climatic changes
through greenhouse gas concentration, and relates land use changes
through climatic and socioeconomic drivers such as the demand for
food (Schrter et al., 2004).
Table 1
IPCC scenarios of future global biodiversity patterns.
Source: adapted from Martens et al. (2003) and ATEAM model assumption.
Storyline Key assumptions Summary of major effects of the scenario Impacts on biodiversity
A1 (offers an
unfavorable
perspective for
biodiversity)
Slight population increase till 2050, then decrease;
very rapid economic growth; high level of income;
a global mean increase in temperature of at least
4.4 C (std 0.9) toward 2080; forest area is stable
due to increasing timber demand and recreational
land use pressure; and signicant conversion of
agricultural land from food to bioenergy
production.
Many pristine natural areas are converted into
man-made areas; costs of preserving natural areas
are very highdue to increase inlandprices; reduced
ecosystem quality due to increased population
densities, increased tourism, etc.; and higher
concentrations of GHG due to a substantial
increase in energy use and land conversion
Patterns of bird and herptile species richness will
not change dramatically; and plant and tree species
richness will decrease in the southern part of
Europe but increase in central and Scandinavian
Europe.
A2 (offers a
heterogeneous
world)
Continually growing human population (15 billion
by 2100); slow economic growth; economic
development is primarily oriented and uneven;
regional self-reliance in terms of resources; weak
global environmental concern; Total consumption
of natural resources is considerable; a global mean
increase in temperature of at least 3.5 C (std 0.7)
toward 2080; slightly decrease of forest area; and
signicant conversion of agricultural land from
food to bioenergy production and human
settlement.
Sharply increasing demand for foods, water, energy
and land will result in a signicant loss of natural
ecosystems and species; regional competition for
good-quality natural resources will negatively
affect the economic conditions in these countries
and reduce attention for the preservation of natural
resources; and an increasing number of people will
compete for a declining number of natural
resources at the cost of quantity and quality of those
remaining resources.
Patterns of bird and herptile species richness will
not change dramatically; and plant and tree species
richness will decrease in the southern part of
Europe but increase in central and Scandinavian
Europe.
B1 (offers a more
favorable
perspective for
biodiversity)
A sharp reduction in arable farming and cattle
breeding acreage due to a strong increase in
productivity; the estimated temperature increase
is about 2.7 C (std 0.6) toward 2080; pressure
from population growth is considerably lower;
forest area increases; and signicant conversion
of agricultural land from food to bioenergy
production and human settlement.
A lot is done to improve ecological capital and
therefore reduce threatening factors and prospects
for biodiversity; cropland production is
concentrated in optimal locations; and grassland is
protected by policy.
Natural ecosystems are less affected both in
quantity and quality
B2 (very locally
concentrated
social, economic
and ecological
problems)
The pressure on natural system is greatly reduced
due to high average education levels and high
degree of organization within communities;
stable population; relatively slow economic
development; regionally and locally oriented
environmental policies are successful; a global
mean increase in temperature of at least 2.0 C
(std 0.7) toward 2080; and land-use changes
from food to bioenergy production or forestry.
The general picture of biodiversity in the future
largely depends on the introduction of socio-
economic policies that support local and regional
initiatives to achieve structural solutions.
Hard to estimate global biodiversity trend due to
the high heterogeneity
2
HadCM3, Hadley Centre Couplet Model Version 3 is a coupled atmosphereocean
GCM developed at the Hadley Centre and described by Gordon et al. (2000).
Our knowledge about to what extent biodiversity can respond to
climate change is limited and the quantication of associated economic
gains or losses to human welfare cannot be straightforward but through
valuing biophysical changes of ecosystem services under future climate
conditions. In this study, values of EGS provided by the Europeanforests
are taken from Ding et al. (2010), who provided detailed projections of
ecosystem values following four future IPCC storylines vis--vis to the
baseline year of 2000. The valuation exercises were conducted sepa-
rately for three types of forest ecosystemservices dened inMillennium
Ecosystem Assessment, i.e. provisioning, regulating and cultural ser-
vices (MEA, 2005). More specically, forest provisioning services
contained the benets derived from the production of timber and other
wood forest products, regulating services provided non-monetary
benets from CO
2
sequestration in the forest, and cultural services
provided humans with direct incomes from the related tourism
industries and non-monetary benets from the enjoyment of existing
forests. All values were rst projected to 2050 and then adjusted to
2005 US$. All original data used in the present study are presented in
the Annex see also Ding et al. (2010) and Schrter et al. (2004) for
more details.
3. Biodiversity Metrics
3.1. The Rationale for the Use of a Composite Indicator
As previously mentioned, there is a growing interest among scien-
tists to develop a single, simple or composite biodiversity measure
that is able to encompass essential biological information, incorporate
socioeconomic impacts, and guide policy interventions towards more
effective biodiversity management. A simple format may allow it to be
more inuential in the public and business decision-making and more
effective in communications, just like the use of Gross Domestic Produc-
tion (GDP) in economic analysis and the Dow Jones indicator in stock
market (Balmford et al., 2005; Halpern et al., 2012; Mace and Baillie,
2007). To this extent, the existing biodiversity data will be useful for
developing quantitative scenarios of the future trajectories of biodiver-
sity (Pereira et al., 2010). Moreover, froma methodological perspective,
there is a general need of creating a workable calculus of biodiversity
that allows not just global summation, but also estimation of the more
localized marginal gains and losses from global changes induced by
socioeconomic development and land use changes in different places
(Faith, 2005). This is particularly the case when assessing climate-
change-induced biodiversity changes, because individual indicators
alone, such as species richness or abundance of a certain species, do
not provide sufcient information to enable a better understanding of
the impacts of increased temperature or precipitation rate on the
ecosystem functioning and overall performance. Therefore, this section
will focus on the development of a methodological approach to
construct such a composite biodiversity indicator, which will serve as
a biodiversity variable in the econometric model later on.
By far, a number of composite indicators have been developed in the
literature. For example, the Natural Capital Index (NCI) is constructed as
a weighted sumof the product of the extent of each ecosystem(relative
to a baseline) with the condition of the ecosystem, where the condition
is measured as the population size of a group of indicator species rela-
tive to a baseline (tenBrink, 2000). Asimilar indicator is the Biodiversity
Intactness Index recently developed by Scholes and Biggs (2005), who
also takes into account different ecosystems being weighted by their
species richness and population size being estimated for each land-use
class in each ecosystem. Apparently, the latter requires more detailed
information of species under each type of land-use. Our biodiversity
data are limited, as we have only the country data on species richness
projected under future climate scenarios. Thus we propose to adopt
the NCI approach to construct an NCI-like composite biodiversity indi-
cator for analyzing climate change impacts on the biodiversity and
ecosystem services in Europe. This way, the future state of ecosystem
in both quality and quantity terms under different climate change sce-
narios may be assessed with respect to a selected baseline.
NCI framework considers biodiversity as a natural resource contain-
ing all species with their abundance, distribution, and natural uctua-
tions. Human direct and indirect interference may affect ecosystem
size (through land conversion) and exert pressures on ecosystem
quality (such as over-exploitation and fragmentations). As a result,
both decreased ecosystem quantity and quality will lead to the loss of
biodiversity. In this context, the development of NCI framework aims
at providing a quantitative and meaningful picture of the state of and
trends in biodiversity to support policymakers in a similar way as
GDP, employment and Price Index do in economics. Moreover, the
structure of NCI also allows the analysis of socio-economic scenarios
on their effect on biodiversity. In technical terms, NCI is the product
of changes in the size of ecosystems (ecosystem quantity) and the
changes in abundance of a core set of species (ecosystemquality) with-
in the remaining ecosystem, where both quality and quantity are
expressed relative to an optimal or intact baseline (ten Brink, 2000).
Equation of the NCI:
NCI = ecosystem quality (% of species abundance)
ecosystem quantity (% area of the country)
(Source: ten Brink, 2000)
Originally, the NCI chooses the use of less modied pre-industrial
baseline so that major anthropogenic impacts on the changes of biodi-
versity quality (e.g. loss of species abundance) and quantity (e.g. loss of
natural habitat) can be observed and compared. The NCI score ranges
from0 to 100% representing an entire deteriorated (0%) and intact eco-
system (100%), respectively. It summarizes the extent to which a land-
scape has preserved its original (baseline) natural capital and enables
the analysis of biodiversity effects in different socio-economic scenarios.
Obviously, one of the advantages of the NCI is that it allows us to aggre-
gate many biodiversity parameters to a fewor perhaps a single, more or
less representative biodiversity index for the entire ecosystem see
Fig. 1.
Fig. 1. Trends of ecosystem quality and quantity using NCI.
Source: Ten Brink (2000) pp. 2.
3.2. Constructing a Composite Forest Biodiversity Indicator
In the present study, an NCI-like composite biodiversity indicator,
i.e. Composite Forest Biodiversity Indicator (CFBI) is constructed
following a three-step approach, to measure the overall change of forest
biodiversity in Europe between 2000 and 2050 under different IPCC
scenarios. The rst step is to compute the average changes of forest
ecosystem quality, which contains the changes of total numbers of four
core species, i.e. tree, plant, bird and herptile, for each of the EU-17
countries, under different climate change scenarios. Note that for each
country, the change of individual species under each scenario is
expressed as the ratio between species richness of the species in 2050
and that of the baseline. Furthermore, we aggregated individual
percentage changes of species richness for tree, plant, bird and herptile
to get a country average score, which depicts the changes of country's
forest ecosystem quality under each IPCC scenario with respect to the
baseline. The second step is to calculate the forest ecosystem quantity,
which is expressed as the percentage of a country's forest coverage to
its total land area under different IPCC scenarios. The third step is to
produce the CFBI, which is the product of percentage changes of forest
ecosystem quality (calculated in step 1) and the percentage changes of
forest ecosystem quantity (calculated in step 2). Therefore, we may
expect that the computed CFBI score can also reect the direct land-
use change impacts on biodiversity. In particular, the expansion of
forest area in many parts of Europe can have a positive impact on the
CFBI score. Fig. 2 presents a ow chart to visualize how our NCI-like
composite biodiversity indicator is constructed.
It is important to note that our data cover only the post-industrial
era, during which many stringent environmental policies have been
successfully implemented among the 17 most developed European
economies, in terms of pollution reduction, sustainable resource man-
agement and greening economy. As a result, many countries are found
to have a stable increase in either forest area or increased species rich-
ness or both, and thus the original NCI score range cannot apply.
Instead, we set up two intervals to indicate the future state of the forest
biodiversity:
(1) 0 b CFBI b 100% indicates a degradation of forest biodiversity in
quantity and/or quality terms in 2050, with respect to the base-
line year 2000. This implies that the state of biodiversity in a
country is deteriorated because of the decreased forest coverage
as a result of land conversion to agricultural production or
human settlement, and/or because of the decreased species rich-
ness in the country.
(2) CFBI N 100% indicates an improved state of forest biodiversity in
2050 with respect to the baseline year 2000. However, such
Country
average
biodiversity
quality
IPCC scenarios in
2050
Forest
biological
diversity
Species richness in
2000
Plant
Tree
Bird
Herptile
A1
A2
B1
B2
Baseline (2000) Target (2050)
SBIA1
SBIA2
SBI
B2
SBIB1
Country
ecosystem
quantity
ForestA1
ForestA2
Forest
B2
ForestB1
x
x
x
x
Constructed NCI-
like indicator
CFBIA1
CFBIA2
CFBI
B2
CFBIB1
Fig. 2. Constructing a NCI-like indicator to estimate the trend of biodiversity in future IPCC scenarios (note: SBI refers to the aggregated average score of species richness of plant, tree, bird
and herptile species).
Fig. 3. Computed CFBI score for the EU-17 under four IPCC storylines.
improvement may not be necessarily caused by the increased
species richness as a result of some effective conservation mea-
sures. It may be due to the increased ecosystem coverage/area
as an outcome of national conservation policies. Moreover, it is
also important to note that a CFBI score greater than 100% does
not necessarily mean that the individual species are not under
threats, rather it indicates an overall improvement of the biodi-
versity status.
Thus, to better interpret the CFBI score, we need to look closely at the
national/regional forest management policies and their effectiveness.
3.3. Mapping Composite Forest Biodiversity Indicator Across Different IPCC
Scenarios
The calculated CFBI scores for the EU-17 under four different IPCC
scenarios are presented in Fig. 3. Overall, the CFBI score decreases
when moving towards the economic oriented development paths (as
represented by the A1 and A2 scenarios), as increased pressures from
the fast growing economy and population, rising global temperature
and unbalanced land-use conversion will most likely worsen future
state of forest biodiversity across Europe. Among all others, the warmer
region, i.e. Mediterranean Europe suffers the greatest loss of biodiversity
quantity and quality in both scenarios compared to the other colder
regions.
On the contrary, the CFBI score increases following the environmen-
tal oriented development paths (as represented by B1 and B2 scenarios)
in most of the European countries, except Portugal, Spain, Finland,
NorwayandSweden. This implies that the adoptionof sustainable forest
management practices in Europe is successful in general. However,
given the relatively high level of forest status in the Scandinavian coun-
tries in the baseline year, we will not foresee any signicant increase in
forest ecosystemquantity over the next 50 years, independent fromthe
future standpoints. Finally, although the Mediterranean forests appear
to be the most vulnerable to global change (Lindner et al., 2010; Sala
et al., 2000), for instance, in Portugal andSpain three out of four selected
species are projected to decrease by 2050 (see Table A6 in Annex), we
can still observe a general improvement of the future state of forest
biodiversity in Italy and Greece owing mainly to a mixed effect of
increasing in certain species richness and slowing down economic
growth and land conversion in the region.
4. The Econometric Model
4.1. European-aggregated Model Specication
This section focuses on econometric model specication so as to
capture the marginal impacts of changes in biodiversity on the value
of EGS due to climate change. The CFBI will be a constituent of our
model. In particular, we would like to test:
(1) Whether climate change, here expressed as an increase in tempera-
ture, will alter the pattern of biodiversity distribution and species
richness presented in a geo-climatic zone, which is measured
by the CFBI. In particular, we want to test (i) whether increases in
temperature will have effects over the CFBI and across geo-climatic
clusters.
(2) Whether the climate-change-induced CFBI changes will further
affect the ecosystem's capacity of providing goods and services
and their respective values. Similarly, we want to test whether
climate-change-induced CFBI changes will have effects over the
economic value of EGS. In particular, we want to assess (ii)
whether this effect will change across the geo-climatic regions,
and (iii) whether it will differ depending on the type of EGS
under consideration.
In this context, we propose to model the relationship between
biodiversity, ecosystemand human welfare in a simultaneous equation
system. More specically, we choose to run a three-stage-least-squares
(3SLS) regression instead of a two-stage-least-squares (2SLS) regres-
sion. Theoretically, 3SLS performs in a similar manner as 2SLS in terms
of regressing endogenous regressors against all predetermined vari-
ables of the system to get theoretical values (Verbeek, 2000), but the
main difference is that 2SLS focuses on individual equations, which
causes inefciency. 3SLS is preferred in this study because it considers
not only the simultaneous correlations between various equations'
error terms, but also the inter-temporal (and not simultaneous) corre-
lations between error terms, which has an obvious advantage in
assessing climate change impacts at different points in time. In the pres-
ent study, the simultaneous structural system contains the following
three equations:
ln EV
i

10i

11i
ln fa
12i
ln t
13i
CFBI
1i
1
ln fa
20

21
ln GDP
22
ln t
23
ln pop
dens

2
2
CFBI
30

31
t
32
t
2
33
nts
34
nbs
35
nps
36
nhs
37
ln pop
dens

38
ln GDP
3
3
where
EV the estimated economic value of the ith type of ecosystem
service by 2050 under future IPCC scenarios (in million $)
i 1, 2 and 3 types of ecosystem services under consideration,
i.e. provisioning services (PS), cultural services (CS), and
regulating services (RS)
fa projected forest area (million ha) in 2050 under future IPCC
scenarios
t increased Celsius degrees of local temperature by 2050 under
future IPCC scenarios
CFBI Composite Forest Biodiversity Indicator is measured as the
changes (%) of average biodiversity status between 2000
and 2050
GDP projectedgross domestic production (billion $) in 2050 under
IPCC scenarios
Pop_dens projected population density (heads/ha) in 2050 under IPCC
scenarios
nts number of tree species projected in2050 under IPCC scenarios
nbs number of birdspecies projectedin2050 under IPCCscenarios
nps number of plant species projected in 2050 under IPCC
scenarios
nhs number of herptile species projected in 2050 under IPCC
scenarios.
Table 2
Descriptive statistics (summary).
Variables Obs Mean Std.
dev.
Min Max
Forest area (fa) 68 7.02 7.36 0.07 25.88
Population density (pop_dens) 68 1.24 1.02 0.08 3.33
GDP 68 1110.28 1310.00 22.38 5569.02
Number of tree species (nts) 68 38.42 13.51 10.96 70.96
Number of bird species (nbs) 68 130.26 13.58 106.47 154.31
Number of plant species (nps) 68 259.64 36.52 199.61 361.78
Number of herptile species (nhs) 68 20.00 11.04 1.72 39.39
The composite forest biodiversity
indicator (CFBI)
68 1.08 0.34 0.47 2
Temperature (t) 68 3.69 1.22 1.5 6.9
Economic value of provisioning
services (EV
PS
)
68 4776.07 5214.79 100.95 17,600
Economic value of cultural services
(EV
CS
)
68 454.07 568.80 3.13 2615.14
Economic value of regulating services
(EV
RS
)
68 2041.77 2023.33 71.39 7465.75
We assume that EV, CFBI and fa are endogenous variables in the
system and
1
,
2
and
3
are the stochastic disturbance terms that
capture all unobservable factors, which may inuence the dependent
variables. In the rst two equations, all variables, except CFBI are in
their log-transformations indicating that the estimated beta coefcients
measure the elasticity of dependent variables withrespect to the changes
in a set of explanatory variables. As for the warming impact on biodiver-
sity, it is estimated using Eq. (3) by regressing CFBI on temperature
variables (t and t
2
), along with other biological and socio-economic
variables that may explain the trends of biodiversity changes in the
future scenarios. In particular, the temperature variable t will capture
the marginal impact of climate change on biodiversity with increment of
1 C in the temperature and the squared t is introduced to capture the
rate of this change. Finally, the impact of GDP growth in the EU-17 on
biodiversity and forest ecosystems is mixed. On the one hand, it may
positively affect biodiversity if the future GDP growth goes hand-in-
handwithenhanced public awareness of environmental and biodiversi-
ty protection, as demonstrated by the Environmental Kuznets Curve
(EKC) that in the early stages of economic growth degradation and
pollution increase, but beyond a turning point, the trend reverses, so
that at high-income levels economic growth leads to environmental
improvement (De Bruyn, 2000). On the other hand, this impact may
be negative, if the future GDP growth is associated with overexploita-
tion of natural capital, which can directly result in the reduction of the
ecosystem quantity indicator (i.e. forest land cover) and/or the degra-
dation of the ecosystem quality indicator (i.e. species richness of core
species). Ex ante, the nal impact is therefore ambiguous and will be
depend on the result of the empirical exercise.
In Table 2, we summarize the descriptive statistics of all the vari-
ables. For each variable, we have four observations under four IPCC
storylines for total 17 countries under consideration, which gives rise
to total 68 observations.
Next, we proceed with running a 3SLS regression in a global condition,
where all data are pooled together without considering the regional
heterogeneity of climate change impacts. This allows us to estimate
simultaneously (1) the determinants of economic value of ecosystem
services; (2) the determinants of land-use changes (i.e. the changes of
forest cover); and (3) the determinants of changes in biodiversity.
Eq. (1) attempts to explain the economic value of ecosystemservices
as a function of forest area, average annual temperature and the state of
forest biodiversity. We simultaneously test the hypotheses that the
enlarged forest area and improved state of biodiversity will positively
affect the ecosystem values, whereas the rising temperature may have
a negative impact. Since the ecosystem values vary greatly depending
on the types of ecosystem services under consideration, we shall treat
separately the three types of values to reduce bias.
Eq. (2) attempts to explain that the change of forest coverage is
determined by three variables: the wealth of the nation (expressed as
GDP), the population density and the average annual temperature, but
in opposite directions. We expect that GDP growth in the EU-17 is
beyond the EKC turning point assumption and will positively affect
forest cover, as in these wealthy states increasing demand for forest
EGS, including timber product consumption and recreational use of
forests (especially natural forests), which in turn will direct the forest
management practices towards more sustainable-sound use and man-
agement of forest resources. On the contrary, the mounting population
Table 3
Aggregated model estimation results.
Provisioning services Cultural services Regulating services
Eq. R-sq chi
2
P-value Eq. R-sq chi
2
2
P-value
(1) 0.401 54.25 0.000 (1) 0.931 548.13 0.000 (1) 0.839 198.57 0.000
(2) 0.534 78.04 0.000 (2) 0.537 78.80 0.000 (2) 0.536 79.36 0.000
(3) 0.615 141.77 0.000 (3) 0.624 138.74 0.000 (3) 0.636 135.69 0.000
Eq. (1) Eq. (1) Eq. (1)
Dep. var.: lnEV
i
Dep. var.: lnEV
i
Dep. var.: lnEV
i
Var. Coef. z P N |z| Var. Coef. z P N |z| Var. Coef. z P N |z|
lnfa 0.671 5.68 0.000 lnfa 1.060 22.19 0.000 lnfa 0.740 12.27 0.000
lnt 1.032 2.04 0.041 lnt 0.664 3.24 0.001 lnt 0.670 2.59 0.010
cfbi 2.299 3.94 0.000 cfbi 0.895 3.73 0.000 cfbi 1.202 3.97 0.000
Eq. (2) Eq. (2) Eq. (2)
Dep. var.: lnfa Dep. var.: lnfa Dep. var.: lnfa
lnGDP 0.850 8.00 0.000 lnGDP 0.837 7.85 0.000 lnGDP 0.836 7.84 0.000
lnt 0.854 2.16 0.030 lnt 0.819 2.07 0.038 lnt 0.813 2.06 0.040
lnpop_dens 0.453 3.65 0.000 lnpop_dens 0.539 4.27 0.000 lnpop_dens 0.555 4.40 0.000
Eq. (3) Eq. (3) Eq. (3)
Dep. var.: CFBI Dep. var.: CFBI Dep. var.: CFBI
t 0.492 4.48 0.000 t 0.519 4.51 0.000 t 0.494 4.28 0.000
t
2
0.054 4.01 0.000 t
2
0.058 4.12 0.000 t
2
0.055 3.90 0.000
nts 0.016 5.03 0.000 nts 0.017 5.33 0.000 nts 0.020 6.20 0.000
nbs 0.004 1.72 0.085 nbs 0.001 0.45 0.653 nbs 0.000 0.02 0.986
nps 0.001 0.91 0.363 nps 0.001 0.60 0.548 nps 0.001 1.07 0.286
nhs 0.001 0.72 0.474 nhs 0.000 0.04 0.972 nhs 0.005 2.11 0.035
lngdp 0.022 1.01 0.311 lngdp 0.024 1.12 0.264 lngdp 0.032 1.46 0.145
Nr. of observations: 68.
Endogenous variables: lnEV
i
, lnfa and CFBI.
Exogenous variables: lnt, lngdp, lnpop_dens, t, t
2
, nts, nbs, nps and nhs.
in all future IPCC scenarios is assumed to increase the pressure on
natural forest land, and lead to more severe competition between natu-
ral forests occupation and other land uses, such as agricultural lands or
human settlement. Finally, we assume that temperature may play a role
in affecting the forest natural regeneration process, but the direction of
its impact on forest coverage is ambiguous.
Eq. (3) tests statistically whether the RHS variables, such as rising
temperature, changes of species richness in terms of a set of key species,
and changes of socio-economic and demographic conditions under
different climate change scenarios can inuence the dependent variable
CFBI in different future states. Especially, we are interested in testing
whether warmer conditions will negatively affect forest biodiversity,
which is integral part of the EGS and the value it provides. Moreover,
high population density is expected to impose high pressure on biodi-
versity through the intensive land conversion fromforest habitats to ag-
ricultural lands or human settlements. Furthermore, we would like to
empirically test how GDP growth can directly affect biodiversity.
4.2. European-regional Model Specication
In addition to the global effect tested above, this section will focus
on testing the presence of heterogeneous effects of regional climate-
change-induced CFBI impact on EGS. To do this, the model specication
is modied in two steps to count for the three geo-climatic zones,
i.e. Mediterranean(M), Central-North (C) and Scandinavian(S) Europe,
respectively. First, we introduce a cross-effect betweenCFBI andregional
temperature variables to generate a matrix of CFBI_T
region
, which
contains three region specic CFBI variables, namely cfbi_ts, cfbi_tm
and cfbi_tc for the S, M, and C regions, respectively. This gives rise to
Eq. (4), in which CFBI is replaced by CFBI_T
region
to capture the indirect
impacts of climate change on the value of ecosystem services through
associated biodiversity effect in the regional forests (i.e. the climate-
change-induced biodiversity effect, CCIBE). Second, in Eq. (6), the
regional warming effects on biodiversity are captured by introducing
a matrix of regional temperature variable, t
region
, which consists of
three temperature variables ts, tmand tc to represent changing temper-
atures in the S, M, and C regions, respectively. As a result, we can obtain
a modied structural simultaneous system below:
ln EV
i

10i

11i
ln fa
12i
ln t
13i
CFBI
T
region
1i
4
ln fa
20

21
ln GDP
22
ln t
23
ln pop
dens

2
5
CFBI
30

31
t
region

32
t
2
33
nts
34
nbs
35
nps
36
nhs
37
ln pop
dens

38
ln GDP
3
:
6
The regional effects can be estimated by repeating the 3SLS regres-
sioninthis modiedstructural system. At this stage, we are inconditions
to proceed with the empirical estimation of the two simultaneous equa-
tion systems, andto estimate the respective beta coefcients. The results
are presented and discussed in the following section.
5. Empirical Results
5.1. European-aggregated Model Estimates
Table 3 below reports the 3SLS results of the European-aggregated
model Eqs. (1)(3). The goodness of the linear approximation in the
structural simultaneous system is assessed based on the coefcients of
determination (R
2
). For most of the simultaneous equations, across
the three different types of forest ecosystemservices including provi-
sioning, cultural and regulating services, the R
2
statistic is larger than0.5
(with P N 0.0000) and thus conrm the overall goodness of t of the
performed model specications. Moreover, most of the estimated beta
coefcients carry the expected sign.
Firstly, in Eq. (1), it shows that the value of forest ecosystemservices
is statistically signicantly related to the forest size. In other words, an
additional hectare of forest will be associated with an increase in the
economic value across all the forest ecosystemservices under consider-
ation. Bearing in mindthe estimation results, expressed in terms of elas-
ticity, vary from 0.67 for the provisioning services, to 0.74 for the
regulating services, and to 1.06, for the cultural services. This means
that an increase in forest area is always associated with an increase in
the economic value of the forest EGS. In particular, 10% increase of the
forest size is associated with an increase of 10.6%, 6.7%, and 7.4%
increase in the economic value of cultural services, provisioning ser-
vices, and regulating services, respectively. From a strict costbenet
analysis perspective, the cultural value of forest is ranked the most
valuable forest EGS ceteris paribus, and shall be given careful consider-
ation while making the forest land use planning.
Moreover, the estimated coefcients of CFBI reveal to be statistically
signicant for all ecosystem services, implying that biodiversity has
marginal impact on mapping the economic value of forest EGS. The
direction of the impact is, however, mixed. On the one hand, the mar-
ginal impact of CFBI is found positive for both regulating and provision-
ing services, which is estimated between 1.202 and 2.299, respectively.
On the other hand, the marginal impact of CFBI is found negative for
culture services, which is estimated to be 0.895. This means that, on
average, a marginal increase of one-unit of CFBI is associated with
229.9% ( e
3
1

100percentage) change in the economic value of
forest provisioning services and 120.2% change in the economic value
of regulating services, ceteris paribus, but with 89.5% decrease in the
economic value of cultural services. Since this is an aggregated global
effect, we suspect this is due to the fact that pooling data across geo-
climatic regions may lead to the neglected spatial heterogeneity of the
impacts. We will further investigate on this point using a modied
regional model specication.
Finally, as expected, changes in the temperature are statistically
signicant, at the margin, in explaining the economic value of the
three forest ecosystem services under consideration. According to the
elasticity estimates, we can see that an increase of 10% of the average
temperature may result in 10.32% increase of the value of forest provi-
sioning services and 6.7% increase of the value of forest regulating ser-
vices. These results reconrm the recent nding in scientic research
that the changing climate can increase both forest productivity and
carbon stock in the boreal forests in the Scandinavian Europe for at
least the short run (Garcia-Gonzalo et al., 2007). However, our estima-
tion results show that temperature impacts are negatively associated
with the economic value of forest cultural services. According to the
parameter estimate, a 10% increase in the temperature causes, on aver-
age, a decrease of 6.64% in the economic value of cultural services pro-
vided by the European forests.
Secondly, Eq. (2) shows that all selected explanatory variables are
statistically signicantly related to changing forest coverage. The esti-
mated coefcients of each variable are found similar across all ecosys-
tem services, suggesting the robustness of our results. In particular,
our estimation results show that GDP growth is positively correlated
with the extension of forest areas. As argued previously, this result is
consistent with the phenomena explained by Environmental Kuznets
Curve. This indicates that economic growth in the EU-17 will further
stimulate the social desire for improved environment and extended
forest coverage in Europe. Moreover, the rising temperature is found
positively correlated with the forest area, which might be explained
by the fact that warmer climate will result in increased timber produc-
tivity due to prolonged growing season for boreal forests in Scandina-
vian Europe (Garcia-Gonzalo et al., 2007), which in turn may stimulate
the decision of extending forested area for timber production. Next,
the population density is found to have a negative impact on the forest
area, independent from the type of ecosystem services under consider-
ation. According to the estimation results, an increase of 10% in the pop-
ulation density causes, on average, a decrease of 4.53% to 5.55% in the
total forest area of the EU-17 countries. We can interpret this estimation
result as signaling that higher population density in the European coun-
tries may accelerate the conversion of land uses from forested lands to
agriculture and human settlements.
Finally, estimation results of Eq. (3) show that an increase in the
temperature has always a negative impact on the CFBI, independent
from the type of forest ecosystem services under consideration, On
average, a 1 C increase in the temperatures can lead to about 0.5 de-
crease in the CFBI value, and at an accelerating rate, which is explained
by the positive and statistically signicant t
2
parameter estimate. And
again, this parameter estimate is found consistent across different
ecosystem services, suggesting the robustness of our results. Next, the
number of different trees species (nts) is revealed to be the most signif-
icant constituent of the CFBI. In particular, changes in one-unit of the nts
is associated with an increase of 0.016 in the CFBI value. In contrast,
changes in the richness of other species are not statistically signicant
in explaining CFBI, so as the two socio-economic variables, including
GDP and population density.
All in all, the proposed model specication was successful in
estimating empirically the relationship between climate change, biodi-
versity, and the value of forest ecosystem services, with a specic
emphasis on European forest ecosystems. Note that the investigation
is conducted in a European-aggregated model, where a global effect of
climate change was considered. Now, we will move on to disentangling
the climate change effects across three European regions, including
Mediterranean Europe, Central Europe, and Scandinavian Europe, so
as to capture the potential geo-climatic distributional impacts. This
model is presented and discussed in the next section.
5.2. European-regional Model Estimates
The 3SLS regression results for the European-regional model, as
described by Eqs. (4)(6), are presented in Table 4. As we can see, the
introduction of the region specic climate change impacts improves
signicantly the overall goodness of t for the proposed 3SLS routine.
In fact, bothEqs. (4) and (6), whichnowhave also explanatory variables
that are region specic, present higher R
2
statistics when compared
with Eqs. (1) and (3) respectively. These results signal the success of
the regional model, when compared to the European-aggregated
model, in explaining the variation of the data.
In particular, Eq. (4) shows that the elasticity estimates for the forest
area are positive, same as in the European-aggregated model specica-
tion. Furthermore, the respective empirical magnitudes are also similar,
ranging from 0.769 to 0.863, respectively for the economic value of the
forest regulating and provisioning services. Again, forest area elasticity
is estimated higher than 1 for forest cultural services, reiterating the
economic signicance of this services provided by the European forests.
With respect to the climate change impacts on the economic value of
forest EGS, we have now two types of impact (or value transmission
mechanisms). First, we have the direct climate change impact, which
Table 4
Regional model estimation results.
Provisioning services Cultural services Regulating services
Eq. R-sq chi
2
2
2
P-value
(1) 0.582 111.16 0.000 (1) 0.985 3704.47 0.000 (1) 0.874 345.85 0.000
(2) 0.533 77.07 0.000 (2) 0.537 79.38 0.000 (2) 0.537 79.37 0.000
(3) 0.643 154.25 0.000 (3) 0.643 152.49 0.000 (3) 0.642 157.07 0.000
Eq. (4) Eq. (4) Eq. (4)
Dep. var.: lnEV
i
Dep. var.: lnEV
i
Dep. var.: lnEV
i
Var. Coef. Z P N |z| Var. Coef. z P N |z| Var. Coef. z P N |z|
lnfa 0.863 8.19 0.000 lnfa 1.011 43.18 0.000 lnfa 0.769 13.50 0.000
lnt 0.193 0.41 0.680 lnt 0.290 2.77 0.006 lnt 0.156 0.62 0.536
cfbi_ts 0.041 0.27 0.786 cfbi_ts 0.059 1.74 0.082 cfbi_ts 0.085 1.04 0.296
cfbi_tm 0.493 2.50 0.012 cfbi_tm 0.279 6.31 0.000 cfbi_tm 0.251 2.38 0.018
cfbi_tc 0.062 0.57 0.571 cfbi_tc 0.027 1.10 0.272 cfbi_tc 0.259 4.38 0.000
Eq. (5) Eq. (5) Eq. (5)
Dep. var.: lnfa Dep. var.: lnfa Dep. var.: lnfa
lnGDP 0.844 7.94 0.000 lnGDP 0.846 7.93 0.000 lnGDP 0.838 7.89 0.000
lnt 0.859 2.18 0.030 lnt 0.821 2.08 0.038 lnt 0.820 2.08 0.038
Eq. (6) Eq. (6) Eq. (6)
Dep. var.: CFBI Dep. var.: CFBI Dep. var.: CFBI
ts 0.536 4.68 0.000 ts 0.538 4.70 0.000 ts 0.503 4.46 0.000
tc 0.513 4.40 0.000 tc 0.514 4.40 0.000 tc 0.483 4.19 0.000
tm 0.575 4.73 0.000 tm 0.578 4.76 0.000 tm 0.553 4.61 0.000
t
2
0.061 4.27 0.000 t
2
0.061 4.29 0.000 t
2
0.057 4.07 0.000
nts 0.017 5.11 0.000 nts 0.017 5.11 0.000 nts 0.018 5.44 0.000
nbs 0.001 0.43 0.669 nbs 0.001 0.60 0.550 nbs 0.001 0.65 0.513
nps 0.000 0.42 0.674 nps 0.000 0.38 0.702 nps 0.001 0.57 0.570
nhs 0.007 1.73 0.083 nhs 0.007 1.72 0.086 nhs 0.009 2.11 0.035
lngdp 0.035 1.56 0.119 lngdp 0.037 1.64 0.102 lngdp 0.038 1.69 0.091
Nr. of observations: 68.
Endogenous variables: lnEV
i
, lnfa, and CFBI.
Exogenous variables: lnt, cfbi_ts, cfbi_tm, cfbi_tc, lnpop_dens, lnpd, ts, tc, tm, t
2
, nts, nbs, nps and nhs.
is captured by the beta coefcient estimated for the temperature vari-
able. Second, we have the indirect regional climate-change-induced-
biodiversity effect (CCIBE), which is modeled as a cross-effect between
the regional temperature and the biodiversity indicator, CFBI. All in all,
estimation results show that the estimated directions of direct climate
change impacts on the economic value of provisioning and cultural
services remain the same as in the European-aggregated model, where-
as the regional CCIBE show a great heterogeneity across geo-climatic
regions and forest EGS.
First, for provisioning services, the model estimates show that the
direct climate change impact is now 0.193, still positive but smaller
than in the European-aggregated model, ceteris paribus. Furthermore,
the CCIBE is found statistically signicant only in the Mediterranean
Europe, with an estimated marginal impact of 0.493. This means
that an increment of 1 C in the Mediterranean temperature can cause
at the margin, a reduction of 57% in the CFBI score (estimated in
Eq. (6)), which together with the direct impact of rising temperature
(estimated in Eq. (1)), will be responsible for at least 49% loss in every
one-dollar value derived from the provisioning services. In other
words, the cross-effect of rising temperature and biodiversity loss in
the Mediterranean forests goes hand-in-hand, causing a net negative
impact on the total economic value generated from this EGS.
Second, for the cultural services, the model estimates show that the
direct climate change impact is 0.290, which is still negative, but at a
smaller magnitude, when compared to the European-aggregated model
specication, ceteris paribus. Furthermore, the CCIBE is estimated to be
0.059, negative and statistically signicant for the Scandinavian
Europe. This means that CCIBE will accelerate the loss of economic
value of cultural services provided by the Scandinavian forests, and
this effect is estimated to be nearly 6% of every additional one-dollar
reduction of the value of cultural services provided. On the contrary,
CCIBE will increase, at the margin, the economic value of cultural
services provided by the Mediterranean forests, whose effect amounts
to nearly 28% of every additional one-dollar increase of the value of
cultural services provided.
Finally, for the regulating services, the model estimates show that
the direct climate change impact is not statistically signicant. However,
the CCIBE is revealed to be positive and statistically signicant for both
forests located in Mediterranean and Central Europe. According to
estimation results, these impacts are estimated to be 0.251 and 0.259,
respectively. This means that for the forest in the Mediterranean and
Central Europe, very one-unit biodiversity change caused by the incre-
ment of the regional temperature will correspond to, at the margin,
25% of every additional one-dollar increase of the value of these forest
regulating services.
5.3. Comparative Analysis
By comparing the results obtained from European-regional specic
climate model with the European-aggregated model, we are able to
highlight the following two key ndings:
(1) Climate-change-induced biodiversity effect, which is cap-
tured by the cross-effect between regional temperature and
the composite biodiversity indicator, has clear heterogenic char-
acteristics. In particular, it is characterized by the reduction of
the estimated magnitude of average effect for the EU-17, and
thus can hamper the direct temperature effect at regional level.
As we can see fromTable 5, the average direct temperature effect
is reduced from 1.032 (aggregated model) to 0.193 (regional
model) and from 0.664 (aggregated model) to 0.290
(regional model) respectively for the economic value of the
European forest's provisioning and cultural services. In addition,
as far as the regulating service is concerned, on average, the esti-
mated direct temperature impact on the economic value of these
forest ecosystem services is reduced from 0.670 (aggregated
model) to an impact that is not statistically different from zero
(regional model).
(2) The impacts of CCIBE on the economic value of EGS are mixed.
In some cases, this impact amplies the (reduction of the posi-
tive) direct temperature impact. This is the case for the cultural
services provided by the Scandinavian forests, where the CCIBE
imposes a negative impact on the economic value of the cultural
services and thus play as an additional Keynesian multiplicative
effect of the aggregated climate change impact on the EGS in
this geo-climatic regionof Europe (adding upto the also negative
direct impact of temperature). A similar situation is observed for
the provisioning services provided by the Mediterranean forest,
where the CCIBE also negatively affect the economic value of
these services. Furthermore, the estimated magnitude of this
regional marginal effect suggests that the aggregated climate
change impact for this EGS in this geo-climatic region of
Europe is most likely to be negative (reversing the marginal
and positive direct impact of temperature).
However, in other cases, we observe the opposite cross-effects
of biodiversity and temperature change on the value of ecosystem
services. This is the case for the cultural services provided by the Medi-
terraneanforests. Here, the CCIBE can lead to a marginal positive impact
on the economic value of the services and therefore will play as
buffering impact to the negative direct impact of the temperature.
Furthermore, the estimated magnitude of this regional marginal
impact suggests an offset effect of the marginal negative direct
impact of temperature. In other words, the aggregated climate
change impact for this EGS in this geo-climatic region of Europe is
most likely to be null. A similar situation is observed for the regulating
services provided by the Central and Mediterranean forests, where the
CCIBE is responsible for a positive aggregate impact on the economic
value of this service.
6. Policy Recommendations: the Role of Biodiversity as a
Nature-based Policy Option for Climate Change Mitigation
These estimation results conrmthe role of biodiversity as a nature-
based policy option for mitigating climate change impacts. Policies as
such can generate co-benets by enhancing ecosystems' capacity to
mitigate climate change impacts, while conserving biodiversity and
sustaining the ows of EGS for human livelihoods. In particular, well-
Table 5
Climate change marginal impacts on the economic value of European forest's ecosystem services.
Provisioning Cultural Regulating
Aggregated model Regional model Aggregated model Regional model Aggregated model Regional model
Europe
a
1.032 0.193 0.664 0.290 0.670 n.s.s.
Scandinavian
b
n.s.s. 0.059 n.s.s.
Central
b
n.s.s. n.s.s. 0.251
Mediterranean
b
0.493 0.279 0.259
a
Expressed in terms of elasticity.
b
Expressed in terms of perceptual change in the economic value of the forest ecosystem services under consideration.
dened natural resource management and biodiversity conservation
policies may provide sustained ows of EGS for local livelihoods and
cost-effective options for natural adaptation and mitigation of climate
change impacts. The policy implication of our model results is that,
when the marginal benets derived from biodiversity conservation
efforts are large enough to compensate the marginal loss of ecosystem
productivity and values as a result of direct negative impacts of global
warming (i.e. the CCIBE), policy-making should be directed to favor
the actions/measures that improve the overall biodiversity condi-
tions, for example by either increasing the species richness or enlarg-
ing the total area of natural habitats. Thus the ecosystem functioning
can be strengthened and serve as a natural mitigation means to
sequester CO
2
emissions, while providing shelter and other ecosys-
tem services to safeguard human livelihoods. Estimation results
show, however, that the strength of biodiversity as a nature-based
policy solution to climate change mitigation will be depending on
both the nature of the EGS as well as the geo-climatic region under
consideration. Moreover, estimation results inform us, that the po-
tential of the biodiversity as a nature-based policy option for climate
change mitigation will be of particular interest to the management of
Mediterranean forests.
It is important to highlight the impacts of data limitation on the
model results. As mentioned earlier, the use of time-span of 50 years
between 2000 and 2050 to describe the evolution of number of species
under climate change scenarios has resulted in an observed increase of
species richness as well as forest areas in many EU-17 countries. This
gives rise to a very large range of CFBI scores (between 0% and 200%),
which increases the difculty to perceive the negative impacts of global
warming on biodiversity. However, the robustness of the econometric
model results can be improved by selecting the pre-industrial base-
line as the reference year may allow us to observe more sensitive
reaction of biodiversity (in terms of estimated CFBI scores) to the
changes of temperature over time. In particular, this effect may be
more signicant when conducting sensitivity analysis of the hetero-
geneity of regional climate change impacts and help us to better
understand the cross-effects between biodiversity and temperature
as well as the pattern in which they affect the value of ecosystem
services.
7. Conclusions and Further Research
This paper attempted to model the relationships between climate
change, biodiversity and the value of ecosystem services with a specic
emphasis on the climate change included biodiversity effects in
European forests. To our knowledge, this represented one of the rst
attempts in the literature to formally model and empirically test the
strength of biodiversity as a nature-based policy option for climate
change mitigation.
The research begun with the construction of a Composite Forest
Biodiversity Indicator (CFBI) that integrated quantitative and qualita-
tive changes of biodiversity projected under different future climate
scenarios. The model results suggested that CFBI couldserve its multiple
design purposes better than other individual biodiversity indicators for
two reasons. First, it was capable of aggregating the core biological in-
formation to measure and predict the trends of biodiversity changes
in response to both global warming and socio-economic changes over
a period of time under different future climate change scenarios
and then link the biodiversity state to its capacity of providing EGS.
Second, the computation of the CFBI was standard and simple,
which led to a simple format of biodiversity indicator with the scales
of measurement that could be both easily understood by, and
effectively communicated with a variety of stakeholders, including
nature scientists, social scientists, economists, policymakers and
the broader audience.
We also made the best use of existing data released by a large num-
ber of IPCC data distribution centers, regarding the projected trends of
population and economic growth, future species richness and increase
in local temperature under different future climate scenarios. Economic
values of ecosystem services were derived from a most recent assess-
ment study on the climate change impacts on forest ecosystems in
Europe (Ding et al., 2010). In this data setting, we used 3SLS regression
to simultaneously estimate (1) the determinants of economic value of
ecosystem services; (2) the determinants of land-use changes (i.e. the
changes of forest land cover); and (3) the determinants of changes
in biodiversity. The investigation was conducted rst in a baseline
model at an aggregated European level, where a global effect of
climate change was assessed, followed by a regional model, where
the marginal magnitudes of CCIBEs were assessed at three specic
geo-climatic regions.
Despite the data limitation, our preliminary results from a 3SLS
regression were promising. First, European-aggregated model specica-
tion results conrmed that rising temperature negatively affected biodi-
versity conditions at an accelerating rate across geo-climatic regions in
Europe by 2050. Second, we also found a strong relationship between
temperature and the value of EGS, but the direction of this relationship
depended on the type of EGS under consideration. For example, this
relationship was estimated to be positive for provisioning and regulating
services, but negatively related to cultural services. Third, the regional
model specication results suggested that the negative impacts of
climate change on biodiversity (i.e. CCIBE) could go against the positive
direct climate change impact on forest growth and generate a net neg-
ative impact on total value of EGS, such as for the provisioning services
in the Mediterranean Europe. However, the model estimates also
showed that these impacts were region specic and shall be assessed
accordingly. In some cases, this marginal impact could amplify the
(reduction of the positive) direct temperature impact, e.g. for the
cultural services provided by the Scandinavian forests; whereas in
some other cases, we could observe an opposite cross-effect of biodiver-
sity and temperature change on the value of ecosystemservices, suchas
for the cultural services provided by the Mediterranean forests. In the
latter case, the climate-change-induced biodiversity effect was respon-
sible for a marginal positive impact on the economic value of the cul-
tural services, through its buffering impact on the negative direct
impact of the temperature. To conclude, independent from the sign
and magnitude of the effects, these estimation results conrmed
the role of biodiversity as a nature-based policy solution for climate
change, shedding light on the policy actions that generate co-benets
by enhancing ecosystems' capacity to mitigate climate change impacts,
while conserving biodiversity and sustaining the ows of EGS for
human livelihoods. Especially, nature-based mitigation policies could
be more cost-effective andbetter at coping withthe ethic andinequality
issues associated with distributional impacts of the policy actions, com-
pared to the pure technical solutions to improving energy efciency and
reducing emissions.
Finally, notwithstanding the success in modeling the relationship
between biodiversity, ecosystem services and human wellbeing in the
context of climate change, we acknowledge that several aspects deserve
future investigation for the future development of the model. For in-
stance, the degree of heterogeneity within the three geo-climatic
zones is not tackled in the present model. A further extension of this
model may focus on investigating the marginal difference of climate
change impacts on forest EGS across countries within the same geo-
climatic zone, and the results may be useful for guiding the design of
specic national forest management strategies. In addition, a sensitivity
analysis of the model's outputs to the changes of the policy-mix under-
pinning the scenarios shall be conducted, so as to allowpolicymakers to
compare the marginal impacts of environmental policies implemented
in different socio-economic contexts. Finally, future research may also
be extended to other countries outside Europe, preferably to areas
in the globe, where present a wider biological diversity with respect
to their geo-climatic conditions as well as the economic signicance
of forest EGS to their economies. We are convinced that these
roadmaps for potential future research will present promising,
follow-up economic analysis, with which we can benchmark the results
presented here.
Acknowledgment
This research received nancial support from the European Invest-
ment Bank University Research Sponsorship Programme (EIBURS).
Particular thanks go to Rafat Alam, Jonah Busch and Peter Carter and
participants of the 12th annual BIOECON conference held in Venice,
Italy, for their comments ona previous version of the paper. The authors
are also grateful to Laura Onofri for the discussions on the econometric
work.
Annex
Table A1
Trends of European forest area projected under IPCC scenarios (estimates in 1000 ha).
Country 2005
a
2050 A1FI
b
2050 A2
b,c
2050 B1
b
2050 B2
b
Greece 3752 2292 2360 3762 3598
Italy 9979 8346 8253 11,677 11,893
Portugal 3783 2170 2174 3254 3283
Spain 17,915 12,052 11,969 17,389 17,633
Austria 3862 5298 5177 5199 5471
Belgium 667 526 545 698 842
France 15,554 15,094 16,056 20,080 21,926
Germany 11,076 10,049 10,075 12,696 14,033
Ireland 669 442 379 638 656
Luxembourg 87 80 78 103 94
Netherlands 365 151 421 333 413
Switzerland 1221 1985 1913 2113 2121
UK 2845 1986 2145 2780 3476
Denmark 500 414 677 434 839
Finland 22,500 18,224 17,999 16,517 17,079
Iceland 46 30 29 28 28
Norway 9387 6478 6277 5141 5761
Sweden 27,528 22,704 22,198 25,884 22,704
Source:
a
data fromFAO;
b
projections by ATEAMand CLIBIOon the basis of the Integrated
Model to Assess the Global Environment (IMAGE), developed by Netherlands Environ-
mental Assessment Agency;
c
interpreted by the European Commission as the baseline
scenario, i.e. the scenario characterized by policy inaction.
NB: For the detailed data explanation, please refer to Ding et al. (2010).
Table A2
Projected total value of wood forest products in EU-17 by 2050.
Country (Million US$ 2005)
2005 2050 A1FI 2050 A2 2050 B1 2050 B2
Greece 141 101 104 166 158
Italy 3225 1465 1447 1884 2082
Portugal 1859 1760 1844 2279 2301
Spain 3337 2212 2197 2870 3233
Austria 5990 7510 7236 5186 6897
Belgium 4807 4832 3343 3513 4306
France 7204 4909 5281 5684 6211
Germany 16,636 12,741 12,712 12,620 14,906
Ireland 506 299 250 304 384
Luxembourg 216 107 104 137 125
Netherlands 3693 2568 9289 5134 6375
Switzerland 2003 2120 2039 2095 1847
United Kingdom 2665 2997 2925 2543 3361
Denmark 465 439 1067 410 714
Finland 12,067 15,913 15,333 12,985 14,183
Norway 1863 2021 1625 1476 1708
Sweden 13,200 17,606 16,984 17,310 16,052
Note: value estimates are derived from Ding et al. (2010).
Table A3
Projected total value of forest carbon stocks in EU-17 by 2050.
2005 2050 A1FI 2050 A2 2050 B1 2050 B2
Greece 9052 2695 2775 4424 4230
Italy 4768 2617 2628 3236 3075
Portugal 614 273 264 364 337
Spain 2911 1796 1784 2269 2218
Austria 3372 3690 3748 3985 3900
Belgium 364 185 203 222 212
France 7020 6408 6750 7466 7097
Germany 6703 3972 4144 4969 4752
Ireland 198 140 136 169 174
Luxembourg 197 89 87 115 104
Netherlands 184 71 166 114 124
Switzerland 1035 1349 1357 1502 1428
United Kingdom 1232 668 796 913 924
Denmark 186 111 208 135 160
Finland 5487 2459 2429 2831 2539
Norway 1740 693 670 731 724
Sweden 7816 3879 4043 5746 4370
Note: value estimates are derived from Ding et al. (2010).
Table A4
Projected total cultural value of forest in EU-17 by 2050.
2005 2050 A1FI 2050 A2 2050 B1 2050 B2
Greece 390 239 247 566 490
Italy 1039 869 863 1756 1619
Portugal 394 226 227 489 447
Spain 1864 1254 1251 2615 2401
Austria 402 222 206 308 218
Belgium 69 22 22 41 34
France 1619 632 640 1191 872
Germany 1153 421 402 753 558
Ireland 70 19 15 38 26
Luxembourg 9 3 3 6 4
Netherlands 38 6 17 20 16
Switzerland 127 83 76 125 84
United Kingdom 296 84 86 194 156
Denmark 52 17 27 30 38
Finland 2342 462 459 1039 833
Norway 977 164 160 323 281
Sweden 2865 576 566 1629 1107
Source: value estimates are derived from Ding et al. (2010).
Table A5
Trends of GDP and population in IPCC scenarios (2050).
Country Population density
(head/ha)
a
GDP per capita (000'US$)
A1FI A2 B1 B2 A1FI A2 B1 B2
Greece 0.41 0.41 0.41 0.37 27.38 21.36 21.87 19.30
Italy 1.06 1.06 1.06 0.92 73.52 57.36 58.73 53.65
Portugal 0.63 0.63 0.63 0.56 23.17 18.08 18.51 16.70
Spain 0.57 0.57 0.57 0.51 47.14 36.78 37.66 33.13
Austria 0.87 0.87 0.87 0.89 72.06 56.21 57.56 44.74
Belgium 3.33 3.33 3.33 3.05 59.96 46.78 47.90 41.50
France 1.10 1.10 1.10 0.93 57.47 44.83 45.91 42.67
Germany 2.12 2.12 2.12 1.85 70.11 54.70 56.01 50.67
Ireland 0.53 0.53 0.53 0.35 26.44 20.63 21.12 25.44
Luxembourg 2.99 2.99 2.99 1.78 45.75 35.69 36.55 48.56
Netherlands 3.169 3.19 3.19 2.73 54.83 42.77 43.80 40.53
Switzerland 0.93 0.93 0.93 1.02 117.04 91.30 93.49 67.46
United Kingdom 1.66 1.66 1.66 1.49 49.00 38.23 39.14 34.44
Denmark 0.14 0.14 0.14 0.13 77.26 60.27 61.71 52.19
Finland 0.12 0.12 0.12 0.12 85.15 66.43 68.02 54.17
Norway 0.10 0.10 0.10 0.09 69.32 54.08 55.37 50.38
Sweden 2.11 2.11 2.11 2.32 88.51 69.05 70.70 50.90
Source: CIESIN (2002).
Source: Schrter et al. (2004).
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Table A6
Trends of tree, bird, plant, and herptile for the EU17 projected between 2000 and 2050.
Country Biodiversity
indicators
Baseline
2000
A1FI
2050
A2
2050
B1
2050
B2
2050
Greece No. of tree species 24 22 30 26 31
No. of bird species 98.28 108.71 111.09 110.62 110.44
No. of plant
species
262.40 236.66 247.95 214.89 228.45
No. of herptile
species
38.85 38.24 38.52 39.39 39.22
Italy No. of tree species 33 34 43 41 45
No. of plant
species
330.55 273.96 303.47 269.50 287.84
No. of herptile
species
30.80 29.51 30.31 31.01 30.68
Portugal No. of tree species 18 11 14 13 13
No. of plant
species
237.24 242.43 231.88 215.35 204.92
No. of herptile
species
38.76 37.84 37.51 37.77 37.78
Spain No. of tree species 23 16 19 20 21
No. of plant
species
284.12 243.05 246.59 231.15 230.89
No. of herptile
species
35.00 34.81 34.18 35.70 34.95
Austria No. of tree species 46 52 69 70 71
No. of plant
species
257.74 305.52 361.78 338.09 348.90
No. of herptile
species
20.32 19.71 19.68 19.86 19.62
Belgium No. of tree species 30 31 46 52 52
No. of plant
species
281.29 230.98 256.88 261.99 252.35
No. of herptile
species
22.04 23.08 23.62 23.81 23.37
France No. of tree species 32 20 31 34 38
No. of plant
species
307.62 227.17 265.41 268.48 262.96
No. of herptile
species
24.28 24.33 25.02 25.11 25.03
Germany No. of tree species 32 36 45 50 49
No. of plant
species
309.47 263.87 281.88 297.25 279.91
No. of herptile
species
22.86 22.86 22.50 22.57 22.64
Ireland No. of tree species 21 28 33 37 37
No. of plant
species
236.79 227.62 243.49 253.40 252.58
No. of herptile
species
6.65 7.28 7.63 7.70 7.53
Luxembourg No. of tree species 29 21 37 45 46
No. of plant
species
262.75 203.00 230.00 255.00 243.00
No. of herptile
species
20.83 21.25 21.42 22.67 21.83
Netherlands No. of tree species 28 44 48 51 51
No. of plant
species
281.45 261.31 283.51 279.56 274.16
No. of herptile
species
19.39 20.70 20.85 20.17 20.15
Switzerland No. of tree species 47 41 60 63 63
No. of plant
species
344.60 225.68 281.27 282.64 273.33
No. of herptile
species
19.01 18.30 18.22 18.24 18.04
Denmark No. of tree species 31 41 45 49 48
Table A6 (continued)
Country Biodiversity
indicators
Baseline
2000
A1FI
2050
A2
2050
B1
2050
B2
2050
No. of plant
species
308.02 298.86 318.13 359.58 337.47
No. of herptile
species
17.35 16.85 16.77 16.82 16.63
United
Kingdom
No. of tree species 22 30 34 37 37
No. of plant
species
231.94 245.09 260.11 254.19 251.73
No. of herptile
species
9.69 9.64 10.03 10.44 9.95
Finland No. of tree species 21 31 33 36 36
No. of plant
species
129.59 240.21 211.84 204.93 199.61
No. of herptile
species
5.58 5.42 5.41 5.71 5.43
Norway No. of tree species 25 36 40 41 42
No. of plant
species
171.62 291.60 256.03 243.24 249.37
No. of herptile
species
2.00 1.94 1.82 1.85 1.72
Sweden No. of tree species 24 33 36 39 38
No. of plant
species
165.85 250.59 235.68 226.14 230.55
No. of herptile
species
6.14 5.34 5.20 5.66 5.37
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Ding H., Nunes P., (2013) Modeling the links between biodiversity, ecosystem services and human welleing in the context of climate change - Results form an econometric analysis of the European forest ecosystems.pdf

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