Environmentalists have tirelessly pointed to the global environmental degradation. Many ecosystems such as wetlands, boreal areas and coral reefs have disappeared due to industrialization, modern infrastructure and agriculture. But at what cost? Payment for Ecosystem Services puts a price tag on the natural environment, calculating inter alia the gained welfare of pollination, water purification and flood protection.
Degradation is costly. Not just for society as a whole, but the loss of the benefits ecosystem services provide us with cost real money, estimated to be 50 bn € a year, according to the comprehensive international study on The Economics of Ecosystems and Biodiversity (TEEB). For comparison, this roughly figures the GDP of Slovenia.
In this context, observers are looking for solutions to ecosystem conservation and identified the economic relevance as a win-win for the planet’s ecosystem and its shareholders – the generations of the future. Environmental assets – like other assets – provide benefits that improve economic performance, enable investment and employment, and enhance living standards. They provide basic needs, such as clean air and water, but also further contribution to good health and natural processes, like climate regulation, soil formation and crop pollination. They lay the foundation for a strong economy through raw materials as well as cultural benefits in our interaction with nature.
Essentially, ecosystem services contribute to economic welfare in two ways, through generation of income and through prevention of damages on society. Some of the benefits are well-known such as provision of food, fibre and fuel. Other valuable services such as carbon sinks, water purification, flood protection, and nutrient cycling are frequently neglected in economic policy.
The UN Millennium Ecosystem assessment found indeed that ecosystems have been under increasing pressure as a result of human activity and ‘two thirds of the services provided by nature to humankind are found to be in decline worldwide. In effect, the benefits reaped from our engineering of the planet have been achieved by running down natural capital assets.’
Policy-makers now gradually realize the importance of preservation, slowly integrating principles into economic policy and project appraisals. The UK Department for Environment, Food and Rural Affairs (DEFRA), in particular, has published numerous reports and policy recommendations in this field. For instance, the UK Public Service Agreement explicitly calls for the value of services provided by ecosystems to be reflected in decision-making.
Making the Priceless Valuable
Ecosystem valuation implies a shift from focusing on environmental damage to highlighting the value of the services provided by the natural environment. Payment for Ecosystem Services (PES) requires to account what we gain or lose from marginal changes in nature. Some of the evaluation techniques include stated and revealed preference methods relying on people’s choices for marketable goods which include environmental attributes. This preference modeling allows to create a more comprehensive Total Economic Value (TEV) framework, which is a first step towards sustainable ecosystem management.
Importantly, many ecosystem services are not traded in markets, and therefore remain unpriced. For instance, we do not pay for the air we breathe. This is an issue that the NGO Ecosystemsmarketplace intends to tackle. Their slogan “Making the priceless valuable” encapsulates their efforts of defining and reporting on ecosystem markets and issues such as watershed investments and voluntary carbon offsetting markets.
Naturally, there exists valid criticism to the idea of paying for ecosystem services. The most vocative opposition has come from environmentalists, who speak of a commoditization of nature, where property rights are given to public goods, and criticize the anthropocentric view. PES, essentially, would justify to destroy “worthless” ecosystems, that have no direct economic value to humans. Others have pointed to the administrative and scientific burden of including ecosystem services in economic policy. Advocates of PES, on the other hand, have countered that it is necessary to discuss the economic value of nature in the first place to reach decision-makers, and that it serves as an additional argument to emotional and intrinsic value.
The ramifications of pricing were displayed for instance, in the DEFRA report on the Social and Environmental Benefits of Forestry in Britain. Estimating the value of national forest services at €1.2 bn annually, it shows that regulating services such as the absorption of harmful dust particles and gases such as sulphur dioxide is worth real money. The model could also be advertised for the crucial rainforests of South America. This could lead to other outcomes to what happened ten years ago. Then-president Correa tried to put a price tag on the conservation of Yasuni National Park after oil reserves were discovered, but efforts failed and the forest has since been badly damaged.
In the end, one obvious path for solving a doom and gloom scenario of ecological crisis where among others coral reefs, forests, and glaciers disappear, is to rethink our economy, that continues to be based on exploitation of natural resources. Economists, investors, policy makers – they can, and arguably should listen to the voices advocating payment for ecosystem services.