Biodiversity, Public Preferences and Substitutability with an Application to Cost-Based Shadow Pricing

Biodiversity is a multifaceted component of natural capital and challenges traditional valuation methods. We therefore propose a cost-based approach, novel in its application to biodiversity, and seek to define a metric that accurately reflects within-class substitutability of different biodiversity attributes. Preferences from the British public over key biodiversity attributes are elicited through a choice experiment, while eschewing problematic money-biodiversity trade-offs, and compared to the preferences of experts. The findings indicate a consensus between public and expert preferences regarding within-class substitutability, prioritising species richness and reduced extinction risk over increased intactness. Furthermore, we apply the preference-derived metric in a case study of optimal conservation restoration policy for Great Britain to determine shadow prices which enable policymakers to value biodiversity within cost-benefit analyses. Targeting the Kunming-Montreal Global Biodiversity Framework 30-by-30 commitment, our proposed utility metric suggests a biodiversity shadow price of approximately £45 million per 1% of the available uplift. Thus, this paper establishes preference-aligned marginal rates of substitution for within-class attributes, determining a metric which is applied to calculate a robust cost-based shadow price for across-class substitution.