The economics of ecosystems

Should ecosystems and environmental issues be determined by a traditional economic cost-benefit analysis?

When determining the economics of clear-cutting a forest, environmental benefits should be considered, says the UN's recent TEEB (The Economics of Ecosystems and Biodiversity) report.

On Friday, the United Nations Environment Program released The Economics of Ecosystems and Biodiversity report for Policymakers.

TEEB, as it's known, stresses the importance of putting a dollar amount on ecosystem services. As such, it belongs to a broader, ongoing effort to correct what ecological economists say is a failure in most cost-benefit analyses to adequately account for the very real value of living systems.

As a result of this oversight, living systems are all too often liquidated when, in reality, preserving them would bring more economic benefit.

A forest gets clear-cut, for example, because standard economics accounts only for its value as wood pulp. The forest's storage of carbon, its water filtration, and biodiversity preservation are ignored.

And because these all-important services don't make it into the cost-benefit analysis, conclusions too often tend toward liquidation of natural systems rather than their retention.

Or, to view the argument another way, Homo economicus will, by definition, follow the economic incentives. If the profit seems to be in cutting down the forest, he'll cut it down. If it seems to be in leaving the trees standing, he'll leave them standing.

The trick is ensuring that the analysis is sufficiently rigorous — that it accounts for all services provided by a forest, both as paper and as living trees, and that it includes both short- and long-term outcomes.

TEEB's implicit contention is that a well-informed cost-benefit analysis will, more often than not, persuade people to leave ecosystems intact rather than liquidate them.

For example, an aspiring entrepreneur can clear mangroves from a coastal area, put in a shrimp farm, and probably earn around $1,220 per 2.5 acres cleared. That sounds good, except the profit doesn't account for the greater cost to nearby communities of losing the mangroves — an estimated $12,000 per 2.5 acres, which includes the loss of fish nurseries, coastal protection, and a source of wood.

TEEB cites several case studies of investment made in natural infrastructure that, it says, is now paying off handsomely.

– In Venezuela, money put into a national protected area system has prevented the buildup of sediments that might reduce farm earnings by $3.5 million yearly, thereby saving money.

– In Vietnam, the planting and protection of nearly 30,000 acres of mangroves cost just over $1 million. But it saves about $7 million yearly on not maintaining dykes.

– The money put into protecting Guatemala's Maya Biosphere Reserve has created about 7,000 jobs and generated almost $50 million yearly.

While conservationists generally look favorably on the sort of effort that TEEP represents — putting a dollar amount on ecosystem services — the approach is not without its critics.

Some say that the underlying assumption that everything can be quantified in a dollar amount is wrong. (See this book: "Priceless: On Knowing the Price of Everything and the Value of Nothing.")

The authors argue that some things – such as human life or the importance of a stable climate for future generations, for example – have no acceptable dollar value. They contend that decisions that affect either can't be made on the basis of cost-benefit analyses, even new, improved ones. Rather, they must be made on moral grounds.

Others say that it's more complicated. The author of this review of "Priceless" argues that some environmental problems can, in fact, be illuminated by a sufficiently nuanced cost-benefit analysis, while others — such as environmental justice issues — clearly can't.

The trick is discerning where, exactly, lies the line between the two.

It's interesting that Ken Burns' much-talked-about PBS opus "The National Parks: America's Best Idea" seems to make a version of the former argument. The parks, he seems to contend, were created out of a drive to preserve the country's natural heritage for future generations, not as a result of a cost-benefit analysis that convincingly projected how much they'd be worth as unspoiled wilderness in later years (the TEEB approach).

In other words, when it came to conservation, our "best idea" was not the product of economic calculation, but of what seem to be moral and ethical — or at the very least, aesthetic — considerations.

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