An ecosystem services approach to estimating economic losses associated with drought

- Economic estimates of ecosystem service loss arising from drought inform drought preparedness and mitigation policy.
- We develop an ecosystem services approach to estimating ecosystem service losses and apply it to a case study in Australia.
- An estimated $810 million was spent to mitigate losses and adapt to new ecosystem equilibria during the Millennium Drought.

A consistent methodology enabling the estimation of the economic losses associated with drought and the comparison of estimates between sites and across time has been elusive. In this paper, we develop an ecosystem service approach to fill this research gap. We apply this approach to analysis of the Millennium Drought in the South Australian portion of the Murray-Darling Basin which provided a natural experiment for the economic estimation of hydrological ecosystem service losses. Cataloguing estimates of expenditures incurred by Commonwealth and State governments, communities and individuals, we find that nearly $810 million was spent during the drought to mitigate losses, replace ecosystem services and adapt to new ecosystem equilibria. The approach developed here is transferable to other drought prone regions, providing insights into the potentially unexpected consequences of drought and ecosystem thresholds and socioeconomic and political tipping points after which ecosystem restoration may become very costly. Our application to the South Australian Murray-Darling Basin demonstrates the potential of this approach for informing water, drought preparedness and mitigation policy, and to contribute to more robust decision-making.