In twenty or so years, the concept of biodiversity has gradually emerged to become1 a major political, economic, and strategic issue, creating the fundamental link between ecosystems and human development. Should nature be considered an economic factor?
From biodiversity to economics: the history
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The facts are simple. Humanity is growing exponentially; wilderness is shrinking as each person’s footprint on the planet increases. Both the sheer size and the quality of the natural environment are diminishing. The notion of biodiversity, which highlights the wealth of ecosystems, helps us to understand the notion of quality.
“The age of a finite world has begun”
Paul Valéry, Regards sur le monde actuel, 1945
Humankind developed in large part thanks to animal and plant resources produced by nature and little by little domesticated and transformed by Man. Until recently many still thought these resources were inexhaustible and available in infinite quantity. The gradual development of agriculture, of different techniques and tools, then of industrialization and urbanization contributed to the significant improvements in the welfare of a large part of humanity. These improvements meant an increase in GDP2 as well as growth in world population, which passed the symbolic threshold of a billion people at the height of the industrial revolution. But the quantitative focus on GDP and wealth creation has gradually made us forget that the lion’s share of raw materials necessary for growth originated in natural resources which we could exploit free of charge. Indeed, the quantity and quality of these natural resources are in no way reflected in GDP, just as the latter neglects the quality of public health, education, and culture3.
In this way, although our well-being is founded on the public goods provided by the services of nature, lacking the means to attribute to them a price and a value, the economic machine forgot about them, literally excluding them from the decision-making process.
Still, their value to long-term economic performance is undeniable.
DEFINITION
Key terms (source: The Economics of Ecosystems and Biodiversity (TEEB), European Commission, 2008)
> An ecosystem is a dynamic complex of plant, animal, and micro-organism communities and their non-living environment interacting as a functional unit. Ecosystems include deserts, coral reefs, wetlands, rainforests, boreal forests, grasslands, urban parks, and cultivated farmlands. They can be relatively undisturbed by people, such as virgin rainforests, or can be modified by human activity.
> Ecosystem services are the benefits that people obtain from ecosystems (food, freshwater, climate regulation, protection from natural hazards, erosion control, pharmaceutical ingredients, and recreation).
> Biodiversity is the quantity and variability among living organisms within the same species (genetic diversity), between different species or different ecosystems. Biodiversity is not in itself an ecosystem service but underpins the supply of services. The value placed on biodiversity for its own sake is reflected in the cultural ecosystem service called “ethical values.”
1The UN’s declaration of 2010 as “the International Year of Biodiversity” is symbolic of this development.
2GDP: Gross Domestic Product, a measure of the value of goods and services
3In this regard, see the work of the Stiglitz-Sen-Fitoussi Commission on measuring performance and progress in these areas (http://www.stiglitz-sen-fitoussi.fr).
From economics to biodiversity: anthropogenic erosion
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The development decisions taken since the start of the industrial age and intensified over the last decades have had a real impact on ecosystems. Indeed, numerous species have disappeared due to the pressure humans have put on their environment. If we continue on the same developmental trajectory, the next forty years or so will reveal the serious consequences of human activity, adding to those already witnessed since the end of World War II (cf. insert / TEEB4 ).
FOCUS
The degradation of biodiversity (source: TEEB, European Commission, 2008)
Biodiversity has seen a spectacular worldwide decline over the last 50 years. The following are some examples:
> In the last 300 years world forests have shrunk by approximately 40%, having completely disappeared in 25 countries. Another 29 countries have lost more than 90% of their forest cover. The decline continues (FAO 2001; 2006).
> Since 1900, the world has lost about 50% of its wetlands, much of this occurring in northern countries prior to 1950, with growing pressure since then for conversion of tropical and subtropical wetlands to alternative land use (Moser et al. 1996).
> 30% of coral reefs have been seriously damaged through fishing, pollution, disease, and coral bleaching (Wilkinson 2004).
> 35% of mangroves have disappeared over the last two decades, with up to 80% in certain countries (through conversion for aquaculture, overexploitation, and storms). (Millennium Ecosystem Assessment 2005).
> The anthropogenic rate of species extinction is 1,000 times more rapid than the “natural” rate of extinction reflected in earth’s long-term history (Millennium Ecosystem Assessment 2005).
Natural species have always evolved and undergone extinction but the timescale resulting from the recent impact of human activities on ecosystems makes the current situation strikingly atypical. The current processes of biodiversity degradation could as a result bring about the 6th great extinction5.
4TEEB: The Economics of Ecosystems and Biodiversity, an initiative led by the United Nations Environment Programme (UNEP) with the financial support of the European Commission, the German Federal Environment Ministry, and British Department for Environment, Food and Rural Affairs – Cf. the TEEB Report for Policymakers, published in November 2009.
5The previous five major extinctions are considered catastrophic; the most famous is probably that of the dinosaurs, at the end of the Cretaceous-Tertiary geological eras, some 65 million years ago – see http://en.wikipedia.org/wiki/Extinction.
The loss of biodiversity or the degradation of an ecosystem does not necessarily entail a direct or instantaneous deterioration of ecosystem services. There may exist a certain number of thresholds beyond which ecosystems can no longer survive and begin to decline rapidly. The resilience of ecosystems indeed seems clearly tied to their biological diversity (cf. R.I.S.K. 2009 – Resilience6 ).
One might explain the economic blindness described above by the fact that until now the degradation of ecosystems has above all affected the poorest populations, whose subsistence directly and locally depends on these ecosystems. With the globalization of commercial trade, ever-increasing demographic pressures, and the increasingly concrete threat of world climate change, the inhabitants and leaders of rich countries have finally become aware of the fact that their own welfare also depends on the wealth and well-being of ecosystems. This is why biodiversity and ecosystem services have become major economic issues.
From economics to the value of biodiversity
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The issue might be put in the following way: biodiversity and ecosystem services have no price. They thus have no economic value and are neglected in the political and economic decision-making of our societies. Consequently, the natural environment is not adequately protected and is not given the same weight as the expected profits from a given building or development project. In this way, the effects of industrial development, in general, most often go to the detriment of biodiversity and, in the end, to the human populations that benefit from them.
Not taking into account the value that ecosystems represent and provide (Nature, to put it simply) thus leads to short-sighted decisions which diminish the value provided by development choices.
The current question is therefore how to valorize biodiversity and ecosystem services so as to ensure that political and economic decisions are based on more comprehensive information.
These considerations, meant to influence ex-ante choices, have to be brought in line with ex-post perspectives, directed at assessing the effects of these choices from the standpoint of compensation (cf. Guest column).
Value, valorization, and price of ecosystem services
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Ecosystem services may involve supply, regulation, or cultural services. Self-sustaining services, which ensure that other services function well (e.g., nutrient recycling), is also mentioned7. These benefits can be direct or indirect, tangible or not, on a local or global scale.
The value of biodiversity can be assessed indirectly by valorizing ecosystem services from which humankind benefits from the beginning of its development.
Assigning a value to an ecosystem service is a challenge which scientists and experts have been addressing for several years, looking at a complex combination of scholarship and approaches that bring together the life sciences, sociology, economics, and law.
6R.I.S.K. (Risk Intelligence Symposium and Knowledge): an annual event focused on a unified vision of risk organized by OTC Conseil, dedicated to the theme of Resilience in 2009 (http://www.otc-conseil.com/eng/).
7Like biodiversity as such, self-sustaining services are often neglected in monetary assessments because other services depend on them, which therefore runs the risk of counting them twice (cf. Centre d’analyse stratégique report 2009).
The following are classically distinguished in considering these services (CAS Report 20098 ):
> Use values include the benefits enjoyed by the agent who consumes the assets and the practices linked to the assets but not involving their consumption;
> Non-use values translate the benefits enjoyed by others as long as the utility function of the agent includes ethical or altruistic preferences.
At a time of carbon financialization, it is moreover important to emphasize that valorization of ecosystems, however systematic, does not imply their commodification nor a willingness to leave it to the free market to ensure that valorization is managed right.
In order to price these services, one approach involves quantifying the impact of the loss of services or of damage to ecosystems in order to assess their monetary equivalent.
Take the example of a small town that draws its drinking water free of charge from a spring around which the town grew up. A disruption of the ecosystem that supplies the spring makes it unusable – through pollution or exhaustion (upstream farming operations, aquifer pumping, chemical waste in the soil, the disappearance of plant species that had neutralized toxins). The value of the services of the spring can thus be assessed by way of the costs of different substitutes: pump installation, pollution clean-up, implementation of logistical steps or infrastructure necessary to supply drinking water to the community, etc.
Another approach involves valuating the reparation costs necessary in order to reestablish an ecosystem service. In our example, this means assessing the cost of “reopening” the spring by closing upstream agricultural producers or by constructing a water treatment plant attached to the nearby chemical plant, etc.
Other pricing approaches are based on observation of direct or substitute market behavior or on studies aimed at ranking agent preferences with regard to scenarios that highlight future risks.
The latter approaches have the advantage of including the indirect value of these services but are difficult to implement and utilize because of how greatly the agents involved / surveyed / studied depend on the services and because of the subjective character of their concerns. Cost-based approaches, on the other hand, have the advantage of being objective and more robust but are less exhaustive, especially with regard to the effects of implementing different substitutes.
This is why recent work like that presented in the CAS 2009 Report is able to offer benchmark values: on the order of 970€/ha per year for metropolitan forest ecosystems, varying between 500 and 2,000€/ha per year according to the management approach and the use type (recreational or touristic). Similarly, a minimum value of about 600€/ha per year has been put forward for grasslands used in a non-intensive way.
As is the case for all long-term issues, the question of what discounting and rate to use is central since by back-forecasting future values in the present their discounting reflects the level of actors’ preferences for the present over future generations. The previous CAS valorization for metropolitan forests thus comes to about 35,000€/ha in total present value (by using a discount rate of 4% now, and decreasing 30 years out).
Current work on the pricing of ecosystem services on the global scale puts forward a figure of 23,500 billion euros, the equivalent of about half of world GDP9.
8An economic approach to biodiversity and services linked to ecosystems – Contribution to public decision-making – Working-group report, headed by Bernard Chevassus-au-Louis, Centre d’Analyse Stratégique, April 2009, hereafter CAS 2009.
9Source: Pavan Sukhdev, TEEB
Bringing the value of nature into economics
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Once a natural factor has been assigned a price or thought of in terms of price, the economic dimension of biodiversity necessarily enters into the choices actors face through various operational tools (direct payment for ecosystem services, taxes on pollution, compensation measures, paid entry to natural parks, fees on natural resources, reforms on subsidies going to land use, etc.).
Economic valorization of ecosystem services obviously isn’t perfect, especially at this point in time, since the widespread use of the approach has only just begun. But it is no less necessary so that each step in the decision-making process, from public policies to individual choices, is affected by the notion of price, whether ex ante or ex post. The benchmark values proposed by current studies don’t make a claim to complete accuracy nor to offer the final word on the subject, but they do constitute operational tools that can immediately be made part of the decision-making process, which represents considerable progress since the benchmark values that they have come to replace were nonexistent. One can always do better, but always infinitely better than nothing.
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