Firm-Level Ecosystem Service Valuation Using Mechanistic Biogeochemical Modeling and Functional Substitutability

Increasingly, private firms are focusing on environmental sustainability. However, such entities continue to experience difficulty in operationalizing sustainable practices in management decisions. For firms that own natural ecosystems, part of the difficulty stems from their inability to balance the environmental value of conserving these ecosystems against potential profits that could be captured through their development. To overcome this, we present a new comparative framework for natural and engineered systems, which allows for a rigorous valuation of ecosystem services based on functional equivalence with engineered systems. This framework allows for the opportunity of such value to be represented within international accounting standards, thus aligning biological ecosystem service valuation with current, rigorous, accepted accounting norms. Looking specifically at the removal of phosphorus via wetland, we characterize an ecosystem service using a mass-balance mechanistic biogeochemical model. We then simulate the ecosystem performance under various loading conditions to determine the limit state for which the wetland can perform the service of phosphorus removal in the long-term. Finally, using functional substitutability, we apply an appropriately scaled price of the engineered equivalent system to determine a market-based value of the ecosystem service. As a demonstration, we apply this methodology to an estuary located in Southern California.