THE ECONOMIC VALUATION OF ECOSYSTEM SERVICES

By Sara Azeem, GLOBUS Correspondent

Let us take a walk in the park and become enveloped by the sweet fragrances of the surrounding flowers, those that exist because of pollination. Or a nice long swim in the ocean, along the coral reefs as they protect the shorelines from storms and erosion. Or maybe a stroll through the forest, breathing in the fresh air purified by the plants and trees that surround us. As we are engulfed by all that Nature has to offer, its easy to take it all for granted and forget that all these luxuries are at our disposal for free.

The irreplaceable quality of the ecosystem is really brought to light when one looks at man’s attempt to replicate it. Biosphere II was an American experiment that tried to recreate a self-sustaining ecosystem; the three-acre complex contained a miniature rain forest, a mangrove, a desert and a coral reef as well as 3,800 species of plants and animals. Seven “Biosphereans” went in expecting to live there for two years – but chaos soon ensued, and the first mission was cut short. The interactions between the various ecosystems soon became counterproductive and the project was doled a failure. Rebecca Stewart, a prominent ecologist from Lund University, and her colleagues, stated that “In short, the Biosphere 2 experiment failed to generate sufficient breathable air, drinkable water and adequate food for just eight humans, despite an expenditure of $200 million”. This irrefutably shows how priceless Nature and its components are.

Despite this, the integration of economics and ecology is advocated by both conservationists as well as economists to align with the more “mainstream” political economy, which places primary importance on the number of dollar signs over anything else. Under this reality, the products of nature are viewed as a form of capital (natural capital) and a monetary value is assigned to them. The initial intention behind using a financial measure was to gain a tool to inform better, more balanced decisions regarding trade-offs involved in land and resource use. However, the boundary between economic value and market price can become blurred and lead to the commodification of nature, and the logic soon becomes a way to advocate environmental finance markets as the universal panacea to environmental problems.

This leads to further dilemmas such as deciding whether assigning a price to biodiversity implies that it can be divided into smaller parts, like regular commodities. This presents itself as a paradox: how does one put a price on a unit of biodiversity asset when its true value is apparent only when it is part of a coherent whole? Transference to this market approach also brings about the added assumption that environmental goods are substitutes of each other. But reality shows that conserving the ecosystem service with the highest potential revenue may not be the most optimal choice for biodiversity. The system becomes a utilitarian tactic which conserves only those environmental services that display explicit utility to mankind. The biggest pro of the monetary valuation of ecosystem services is also its greatest downfall: simplicity. Economic outputs are easy to quantify and understand. Socio-cultural information, not as much. But this simplification of information also means that the entire story is not being told. For this very reason, the economic valuation of nature is considered a reductionist approach, as it ignores all other forms of value provided by nature and reduces it to purely monetary terms. This, however, is a difficult challenge to overcome because there isn’t an overall comparative measure that can be used to value different environmental goods and services.

The choice then seems to become between putting an imperfect price on nature, or continuing with economic models that regard the natural world and the services it provides as valueless.

Valuing nature monetarily can be seen as legitimising the very economic institutions that degraded it in the first place. But instead of villainising the entire concept, a more integrated approach help improve the way we manage our relations with nature. The term “value” needs to be accepted as an umbrella concept comprising various types of values rather than purely economic worth. Intrinsic value, for example, is the “value of ‘nature in itself’; the value of natural world irrespective of its utility, functioning, humans and humans needs”. An integrated approach incorporates non-monetary measures to value the ecology; this is critical to truly appreciate the linkages of various ecosystems and their values in terms of biophysical generation, socio-economic and human well-being. A promising hybrid valuation method is the ‘balance sheet approach’ by R. Kerry Turner, which combines CBA (cost-benefit analysis), social impact assessment and multi-criteria analysis methods. The Multi-Criteria Decision Analysis (MCDA) approach outperforms even CBA by accounting for multiple dimensions of well-being, including ecological, economic as well as cultural and moral aspects of a policy or management problem. These methodologies, however, require further examination in real-life case studies before they can be adopted.

Pavan Sukhdev, the Indian economist, describes the situation clearly: ‘We use nature because it is valuable – we lose it because it’s free’. At the end of the day, the different components of nature and its services maybe be worth trillions to the economy, but if they are mismanaged and destroyed permanently, no amount of capital invest can ever revive them. We need to be especially careful that our acknowledgement of the pricelessness of nature does not end up with us treating it as valueless.