Evaluating services and damage costs of degradation of a major lake ecosystem

•Ecosystem services of lakes are commonly ignored and likely underestimated.•We develop a systematic approach to assess the value of lake ecosystem services.•We also assess potential damage costs associated with eutrophication.•Our study shows lakes as an important economic asset, justifying restoration and conservation.

Values of ecosystems and potential losses associated with their degradation are complex and often ignored in economic assessments. The concept of ecosystem services may describe these values, as it is widely used to communicate the benefits that humans derive from ecosystems. The aim of this study was to conduct a valuation of a lake ecosystem and potential damage costs arising from its degradation. The approach was applied to Lake Rotorua (central North Island, New Zealand). The range of values derived from ecosystem services provided by Lake Rotorua was calculated using selected indicators and direct market pricing, indirect pricing (hedonic pricing, replacement cost) and existence value pricing. Social damage costs were calculated from loss of income from impaired recreation and reduced property values, as well as ecological damage costs caused by algal blooms and decline in habitat quality for aquatic fauna. The values of ecosystem services provided by Lake Rotorua in 2012 were calculated to be NZD 94-138 million p.a., with potential damage costs of eutrophication calculated at $14-48 million p.a. These estimates indicate that lakes are an important economic asset, and continuous ecosystem degradation has an external cost that is commonly ignored in management decisions.