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Environmental economics: how economists count biodiversity in figures

Putting a monetary value on flora and fauna is an increasingly common research topic. Environmental economics is developing the first models for putting a ‘price tag’ on biodiversity and the services of ecosystems.

It might not be immediately obvious, but the questions are tricky: how much are the services actually worth that a forest provides? And how valuable is the work of honeybees? Previously such topics were insignificant in international environmental policy, because there had hardly been any economic investigation of the services of nature at all. This, however, changed in 2007: the G8 states and the European Union commissioned a study from the United Nations Environment Programme (UNEP). It was to assess the value of the planet‘s biodiversity and put a ‘price tag’ on the services of nature. Ever since then environmental economics has played a greater role with its new way of looking at nature and ecosystems.

The Economics of Ecosystems and Biodiversity (TEEB)

The ‘TEEB Study’ (The Economics of Ecosystems and Biodiversity) was carried out between 2007 and 2010, and its results and recommendations are still being published. The study was modelled on the 2006 ‘Stern Review’, in which the British economist Nicholas Stern calculated the costs of uninterrupted climate change for the first time. The question of costs will be posed more and more frequently: during UN climate negotiations, for instance, the question arises of how forests can be included in a climate treaty. To this end the environment ministers are discussing a forest protection-fund: it should provide money to developing countries if they protect their forests, instead of allowing them to be used for business purposes.

The focus is always the value (underestimated until now) that a forest represents. Its economic benefit is tremendous, as shown by the TEEB Study: the world loses two to five trillion dollars of natural capital every year to destruction of forests. On the other hand, it would cost only 45 billion euro to maintain the threatened forests and thus to avoid these costs.

The term biodiversity

In public debate, biodiversity is often equated with variety of species, which is not basically incorrect. However, ‘biological variety’ comes much closer to the meaning of the term. This is because the UN Convention on Biological Diversity (CBD) understands ‘biodiversity’ as ‘the variability among living organisms from all sources including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part‘. This definition thus includes diversity of species, along with the varied range of ecosystems and also the natural genetic variety on the planet.

Environmental economics: services from trees

The environmental economic studies on the value of nature are still in their infancy and are also somewhat controversial, because a lot depends on which factors the researchers take into consideration. In other words, it is not totally clear which services an ecosystem provides – and this will become even more difficult to clarify, especially for international issues. Therefore, the smaller the ecosystem, the more precise the studies generally are. According to the Centre for Environmental Research (UFZ), one hectare of urban woodland in Freiburg, for example, is worth almost 13,000 euro over a period of 100 years. This is because the forest provides quite a range: it filters air and water, sequesters CO2, supplies wood and provides employment for forest managers.

Such considerations flow into the studies supplying fundamental results. Biodiversity enhances the performance of an ecosystem. And estuaries and mangrove forests are especially valuable systems, as flood protection and fisheries represent special services provided by these ecosystems. One example would be the 1.1 billion dollars it costs per year to maintain 12,000 hectares of mangrove forests in Viet Nam. By contrast, it would cost 7.3 billion dollars alone to maintain dykes to provide artificial flood protection. The investments in building dykes flow into Viet Nam’s gross domestic product (GDP). However, the contribution from the mangroves does not appear as a credit. On the contrary, it is the destruction of the mangroves that allows the GDP to grow – and this fact is criticised by ecological economists.

Prophylactic environmental conservation for high-risk projects

Environmental economics encourages environment-related growth indicators and a new mentality. Robert Costanza, the US ecological economist, calls for businesses to pay into a precautionary fund when launching high-risk ventures, with the payment being returned only if their project causes little or no environmental damage. The oil corporation BP, for instance, would have had to pay in more than one quarter of its corporate value to drill for oil in the Gulf of Mexico, Costanza writes in an essay. ‘What would have happened then? Either it would’ve decided not to drill, or it would have looked into ways to reduce the risk and increased its investments in safe technology.’

In this way the oil disaster could be used to calculate the massive potential from precautionary environmental protection in maintaining biodiversity. This idea from environmental economics is still new and so far it has had only marginal impact on the political debate. However, examples such as the TEEB Study and the current climate negotiations prove that the subject of the price of nature will be heard more and more often. That may be a new step towards greater awareness of its protection, both regionally and globally.

May 2013

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