The price of biodiversity: book review

Review of The Economics of Ecosystems and Biodiversity: in National and International Policy Making

Edited by Patrick ten Brink, published by Earthscan, 494pp, £60 [buy here]

Along with death and taxes, one of life’s great rules is that in general you get what you pay for. So why do so many people feel squeamish about putting a price – in dollars, yuan or whatever currency you like – on the natural world? How we should pay for the maintenance of biodiversity, and ecosystems in general, is the central question at the heart of TEEB: The Economics of Ecosystems and Biodiversity, a multi-year, multi-expert effort which has just published a weighty guide for policymakers.

Of course, there are many good philosophical arguments – often made by deep greens – as to why the monetarisation of ecosystem services is an unattractive idea in principle. But in practice, as TEEB leading light Pavan Sukdev argues in the introduction, the case for it it is very strong indeed:

“TEEB has assembled much evidence that the economic invisibility of nature’s flows into the economy is a significant contributor to the degradation of ecosystems and the loss of biodiversity.”

Righting this wrong is an ambitious proposal. In essence it aims to correct the Great Mistake of classical economics, which is to count everything outside the human productive economy as a valueless ‘free good’ – perhaps reasonable in the eighteenth century when timber, coal and iron ore seemed limitless in quantity, and only human labour and capital were worthy of proper consideration. But in today’s era of resource scarcity, both in terms of ‘renewable’ resources like crops and fresh water, and ‘non-renewable’ things like copper and platinum, economics clearly needs to change. The question now is how to alter the market system so that the real-world value of environmental resources is reflected in their real-world prices. This is the challenge that TEEB tries to address.

The idea of marketising ecosystem services has had a rocky ride in recent years. Partly this is deserved: the standard cost-benefit analysis is not generally a good way of deciding whether or not to cut down a forest for a new road, if only because the numbers used are likely to be wrong. But in some cases it is legally necessary to price ecosystems – because they have been damaged or destroyed, and compensation is due to those who were their beneficiaries. An example might be the Exxon-Valdez oil tanker disaster in Alaska, where monetary valuations based on field work, interviews, surveys and so on came up with a damage figure of around $2 billion. In another marine example, a ship which runs aground on an Israeli Red Sea coral reef incurs a charge of $120,000 per 20-square-metre area of damage.

One problem with pricing is time. An instantaneous value for an ecosystem is one thing, but how might its value into the future also be taken into account? This brings up the thorny issue of discounting – a low discount rate (such as was used by the Stern Review) gives benefits achieved in the future a high value today, whilst a high discount rate asserts that what happens in future does not matter much. This may seem amoral, but it is how individuals behave in practice: everyone prefers jam today to jam tomorrow, for obvious reasons. Interestingly, the poor tend to have the highest discount rates of all: if you do not even know where your next meal is coming from, damages (or benefits) experienced in a year’s time are much less of a priority.

A few years ago, anti-globalisation was all the rage, and progressive types lined up to condemn the iniquities of the ‘free market’. But TEEB suggests that exposure to genuinely free markets can be a good thing, especially with regard to the removal of subsidies. Half a trillion dollars a year are spent by governments subsidising energy, and most of this supports continued use of fossil fuels. There is strong evidence too that privatised water companies are better at providing services, even to the poor, than state-owned companies, and that the removal of fishing subsidies (total: $15bn to $35bn) could do a lot to help conserve endangered fish stocks around the world. As I have argued elsewhere, the economic and environmental case for the removal of biofuels subsidies is overwhelming.

Another matter of controversy might be ‘biodiversity offsets’, which extend the carbon offset concept into the arena of species conservation. As TEEB reports,

Offsets and habitat banking work by triggering new actions that provide additional measurable biodiversity benefits (credits) compared to the damage (debits). This equivalence can involve the same kind of habitat or species (like-for-like) or different kinds of equal or higher importance or value. Offset benefits arise from actions to protect habitats at risk or to restore degraded or destroyed habitats.

As with carbon offsets, there are moral hazard arguments to be considered here – will the mere existence of offsets legitimise the destruction of biodiversity by a harmful project that would otherwise not have gone ahead? Experience suggests that this concern is overplayed: what mostly happens in the real world is that the harmful project goes ahead anyway, and the existence of offsets is at least one way of trying to ensure ‘no net damage’ – assuming (and this is crucial) that true additionality can be guaranteed insofar as far as is possible.

Offsets also offer the prospect of tradeable biodiversity assets, where species and habitats can be exchanged on the market just like rice and iron. Again, this presents a host of problems, from determining (or dividing) true ownership where this is contested between, say, loggers and indigenous tribes in a rainforest, to the question of fungibility – a tonne of carbon dioxide is the same wherever it is emitted, but the value of a rare spider in Essex is not directly comparable to that of a midwife toad in Mallorca. There is also the question of ‘leakage’ – a big concern in the ongoing REDD (Reducing Emissions from Deforestation and Degradation) negotiations at climate change summits. A forest might be conserved in Papua New Guinea, but how useful is this if the loggers or plantation owners simply pack up and move next door to Indonesia?

None of these challenges need be deal-breakers, but they do make the issue of pricing biodiversity and ecosystems a very complex area for policy-makers to get involved in. But get involved they must, for otherwise, as Pavan Sukdev stated in the TEEB introduction, an asset without a price will remain an asset without a value. Surely making ecosystems visible to markets is not totally beyond the wit of today’s economists – and today’s politicians. And in that endeavour, the latest TEEB report will be an invaluable source of guidance.

1 Comment

  1. Karl-Friedrich Lenz

    These are interesting questions, and your point of view on them is interesting as well.

    However, for this to qualify as a “book review”, you would need to inform the reader somewhat more about who wrote what in that particular volume. And then go on to state whether you agree with their position or not.


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