Guidance

Value environmental improvements that deliver environmental benefits and outcome measure 4 (OM4)

Published 22 November 2021

Before you read this guidance, you should:

• read the flood and coastal erosion (FCERM) appraisal guidance and the partnership funding guidance
• understand the appraisal process and the partnership funding arrangements

This guidance:

• is intended for appraisal practitioners
• provides supplementary information to the Environment Agency’s FCERM appraisal guidance
• helps you appraise and value the environmental impacts of FCERM projects to include in the Economic Case
• shows how to use this valuation in the new partnership funding calculator

Some of the information in this guidance that applies to the partnership funding calculator will help you make valuations in the economic appraisal.

1. Present an FCERM project appraisal economic case and environmental outcomes

All FCERM project teams that submit a request for FCERM Grant-in-Aid (GiA) must present an Economic Case. The Economic Case compares alternative options for FCERM in the study area. When developing the Economic Case, consider the environmental outcomes of different flood risk management options at each main stage of the appraisal.

You should:

• produce a longlist of options
• shortlist options to appraise
• define the baseline
• identify significant impacts of each option against the baseline
• qualitatively describe significant impacts
• physically quantify impacts
• value impacts

2. Define the baseline

The FCERM appraisal guidance states that you should consider all impacts when you appraise options. The guidance promotes the use of an ecosystem services approach.

“The ecosystem services approach is a term that has come to describe a basis for analysing how people are dependent upon the condition of the natural environment. The approach explicitly recognises that ecosystems and the biological diversity contained within them contribute to human wellbeing (or “welfare‟ in economic terminology).” Flood and Coastal Erosion Risk Management: Economic Valuation of Environmental Effects, prepared for the Environment Agency, page 4

When defining the baseline, think about:

• the parameters used to measure OM4
• how you’ll collect data to complete this section of the partnership funding calculator

You can use an appraisal summary table (AST) to summarise the baseline against each ecosystem service.

3. Identify and qualitatively describe significant impacts

“The environmental effects of a scheme arise due to the changes it creates in an ecosystem (for example, habitats degraded / lost or expanded / created). The changes in the ecosystem in turn, lead to changes in the services they provide and hence their impact on human welfare.” Flood and Coastal Erosion Risk Management: Economic Valuation of Environmental Effects, prepared for the Environment Agency, page 10

You should assess each long-listed option and consider whether:

• each option has a significant impact on the ecosystem services identified in the baseline
• the impact is positive or negative

This will help you decide which options to shortlist.

At this stage you should consider:

• the habitat and watercourse categories changes that the partnership funding calculator describes
• how to capture the effects on these categories in the AST

4. Quantitatively describe significant impacts

After completing your shortlist, you can physically quantify the environmental change from the baseline that an FCERM project will deliver. For example, what is the affected area or length of habitat or watercourse?

At this stage you should quantify as much of the impact as possible. Include elements that may be difficult or impossible to value.

Where environmental impacts from the FCERM project fit the categories in the partnership funding calculator, report the scale of change using the OM4 metrics.

For each shortlisted option, it may be enough to capture the physical change in terms of the ecosystem services approach. Only value the impact if it is easy to do so or if it is a material change that will affect your preferred economic option.

5. Value significant impacts

At this stage, you need to value the change in ecosystem services for each of the shortlisted options.

There are two ways to place a monetary value on environmental impacts:

• carry out an original bespoke study for your appraisal
• apply monetary values taken from an existing study

Taking the second approach is known as applying transfer values. You should use transfer values because they:

• ensure consistency across the FCERM programme
• reduce appraisal costs
• mean projects can be implemented more quickly

Where appropriate, use the default values built into the partnership funding calculator as transfer values. Use these to capture annual benefits relating to OM4A and OM4B. There are a range of sources of transfer values that you can apply. You should clearly list all references. You will need to discount these annual values across the appropriate study appraisal period to calculate present value benefits (PVb).

The enhancements captured in OM4A may not reflect environmental improvements in some locations such as in urban environments. In highly populated areas, the generic transfer values may not reflect the potentially high level of benefits to people from enhanced environments. For example, the air quality benefits from green and blue spaces will be higher in urban environments where there are more people to benefit.

Similarly, amenity values of green / blue spaces in urban environments are likely to be greater than the default values in OM4A. In these cases, appraise the enhanced ecosystem service impacts. You can refer to other tools already available to help you value these impacts. These include the Construction Industry Research and Information Association (CIRIA’s) Benefits Estimation tool (B£ST) and Exeter University’s Outdoor Recreation Valuation tool (ORVal).

6. Outcome measure 4A and 4B: default transfer values

The partnership funding calculator uses default transfer values to determine OM4A and OM4B. Not all environmental outcomes are captured in these default transfer values. OM4A and OM4B are both included.

Outcome measure 4A (OM4A) is the net change in hectares of intertidal and terrestrial habitats created or improved. The habitats captured under OM4A are:

• intertidal habitat
• woodland
• wet woodland
• wetlands/wet grassland
• grassland
• heathland
• ponds/lakes
• arable land

Outcome measure 4B (OM4B) is the number of kilometers of river habitats created or improved. OM4B expresses the environmental enhancement in 3 categories:

• comprehensive restoration of natural processes
• partial restoration of natural processes
• restoration of a single major physical improvement

The ecosystems table shows which ecosystem services are captured by each OM4A and OM4B category. Food refers to foraging only.

ECOSYSTEM SERVICES	Intertidal habitat	Woodland	Wet woodland	Wetlands / Wet grassland	Grassland	Heathland	Ponds and lakes	Arable	OM4B
PROVISIONING SERVICES
Food	x	x
Water	x
REGULATORY SERVICES
Air quality regulation	x	x	x	x	x	x	x	x
Climate regulation	x	x	x	x	x	x	x	x
Water quality regulation	x
CULTURAL SERVICES
Existence Values (biodiversity non-use values)	x	x	x	x	x		x		x
Recreation and tourism		x	x	x		x	x	x	x

The default transfer values used to capture OM4A and OM4B do not include benefits relating to flood loss reduction. Value these benefits using the approach described in Flood and Coastal Erosion Risk Management: A Manual for Economic Appraisal (the multi-coloured manual).

The default OM4A values table and the default OM4B values table show the default transfer values associated with OM4A and OM4B. All values are in £ sterling.

Default OM4A values for habitats (2018 prices per habitat per year)

Habitat	Poor	Moderate	Good
Intertidal habitat	1,860	6,410	10,970
Woodland	1,100	3,440	6,450
Wet woodland	1,100	3,440	6,450
Wetlands / wet grassland	670	2,040	3,410
Grassland	60	110	490
Heathland	90	1,400	2,270
Ponds / lakes	670	2,040	3,410
Arable	30	50	60

The partnership funding supporting guidance for OM4 contains definitions of poor, moderate and good.

Default OM4B values for river restoration (2018 prices per kilometre per year)

OM4B categories	£ per km per year
Comprehensive restoration of natural processes, habitats and removal of physical modifications	13,200
Partial restoration of natural processes, habitats and partial removal of physical modifications	6,600
A single major physical or habitat enhancement	3,300

7. Capture environmental outcomes in the partnership funding calculator

In outcome measure 1 (OM1) of the partnership funding calculator, include:

• the PVb associated with the environmental outcomes captured in OM4A and OM4B
• the PVb of environmental outcomes not captured by either OM4A and OM4B

In OM4 of the partnership funding calculator, include the physical quantification of OM4A and OM4B. Include all benefits in OM1 of the partnership funding calculator. The calculator subtracts any benefits used in OM4 before assigning eligible funding under OM1. This means you don’t have to worry about potential double counting.