News Articles

Redefining 'Wealth'

Amanda Hawn

The UN Environment Programme (UNEP) gathered ecologists, economists and a hearty alphabet soup's worth of non-profit organizations and environmental conventions for a meeting at the London School of Economics from October 10-12. Their task: weaving ecosystem services like water filtration, climate control and the benefits of biological diversity (pest control, crop pollination, nutrient cycling etc.) into the economics of sustainable development. The Ecosystem Marketplace spotlights UNEP's push to spread the new economy of nature in the developing world.

The UN Environment Programme (UNEP) gathered ecologists, economists and a hearty alphabet soup's worth of non-profit organizations and environmental conventions for a meeting at the London School of Economics from October 10-12. Their task: weaving ecosystem services like water filtration, climate control and the benefits of biological diversity (pest control, crop pollination, nutrient cycling etc.) into the economics of sustainable development. The Ecosystem Marketplace spotlights UNEP's push to spread the new economy of nature in the developing world. In a sleek room at the London School of Economics (LSE), Sir Partha Dasgupta and Jeffrey Sachs–two of the world's most prominent economists–recently discussed social rates of return, disparate causes of market failure, ecosystem services, and common pool problems while an audio track of hooting owls and chattering macaws sounded in the background. It would have seemed a strange, futuristic scene ten years ago. Now, it is an increasingly common one, and, importantly, the owls are as central to the picture as the ruminating economists. "2005 has witnessed unprecedented interest in the economics of the environment and the goods and services that nature provides," said Klaus Toepfer, Executive Director of the UN Environment Programme (UNEP). Dasgupta and Sachs, along with a host of other sharp minds, gathered in London last week (October 10-12) for a UNEP sponsored workshop. On the menu, Toepfer placed one colossal question: Can global society weave the value of ecosystem services like climate regulation, flood control and crop pollination into economic frameworks that will fuel sustainable development and ecological restoration in the places that need it most? Traditionally, changes in the services provided by healthy ecosystems have not been included in economic calculations of a nation's ever-shifting wealth. Many people warn this must change or environment and man will both lose out. "The "wealth" of many countries, developing and developed, has been decreasing over the last 3 decades even when the Gross National Product (GNP) and the Human Development Index (HDI) has been increasing," said Dasgupta, a professor of economics at Cambridge University. "We really need to start valuing our natural capital and find innovating mechanisms to promote the sustainable use of these assets to ensure that "wealth" does not decrease," he added. "Poverty will only be made history when nature enters economic calculations in the same way as machines and roads."

The Good News

The task set forth by economists like Dasgupta is not a small one. A recent report entitled "Investing in Environmental Health for Poverty Reduction" estimated that an annual investment of some $60 to $90 billion in environmental assets is needed over the next 10-15 years if the world is to reach the Millennium Development Goals concerning poverty reduction. Fortunately, those taking up the call to recalculate the world's wealth will not be starting from zero. Hal Mooney, a renowned Stanford University ecologist who spoke at the UNEP meeting, stressed that the recently completed Millennium Ecosystem Assessment mapped the physical flow of ecosystem services throughout the world and, importantly, traced their connection to human well being at a variety of scales. The next step is to quantify the value of these services and, according to Mooney, there is good news here, too. "The area of understanding and quantification of ecosystem services is in its infancy but is progressing rapidly." A recent paper published by Claire Kremen of the University of California at Berkeley, for instance, cited 13 scientific studies that quantified ecosystem services ranging from the dung burial of beetles to the carbon storage of trees. And, importantly, once you've located and measured services, valuing them becomes much easier. New research suggests that the value of carbon storage in some forests can be as high $2,200 per hectare and that conserving trees instead of cutting them becomes the more profitable option for forest owners once the price of carbon credits tops $30 per ton (carbon credits, which are measured per ton, currently trade for approximately $30 on the EU ETS and $5-10 in the Kyoto-based Clean Development Mechanism). Similarly, a study of coral reefs in the Caribbean suggests that the aesthetic value of intact reefs may be worth just over $2 billion annually to the coral-based tourism industry. Add it all up and UNEP's Toepfer said that, "Conservation of habitats and ecosystems are cost effective when compared with the short term profits from environmentally damaging activities like dynamite fishing and sedimentation as a result of deforestation." Importantly, this is as true in the developing countries of the world as it is in Europe or New Zealand. "Every dollar invested in fighting land degradation and desertification may conservatively generate over three dollars in economic benefits helping to fight poverty among the millions living on fragile land," said Toepfer. Communities on all sides of the globe have taken notice of this logic. In Napa, California, residents elected to restore 650 acres of wetlands (removing 109 buildings and 9 bridges) to address the city's flooding problems rather than build more dykes and levees. And in South Africa, the Working for Water Programme invests over $60 million annually in ecological restoration projects that increase groundwater recharge, prevent forest fires, augment carbon storage on rural lands, regenerate the water purification functions of wetlands and provide work for the country's poor. Notably, the London gathering included representatives from several Multilateteral Environmental Agreements (MEAs), including the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), the Convention on the Conservation of Migratory Species of Wild Animals (CMS), and the African-Eurasian Waterbirds Agreement (AEWA). The contributions of these organizations focused the conversation on how to direct investments toward those ecosystem services that underlie the shared goals of Multilateral Environmental Agreements, the Millennium Project and UNEP's stewardship of the global environment. In particular, representatives from the MEAs welcomed the idea of a pilot project demonstrating the links between slowing biodiversity losses, supporting migratory species and developing a sustainable economy of conservation. The Lake Victoria ecosystem of East and Central Africa was put forward as a likely location for a pilot project and conference attendees agreed that the MEAs might help develop widespread political support for such an undertaking among their constituents, while UNEP could draw upon its expertise and experience to cultivate funding streams to pay for the ecosystem services that would be conserved. Marceil Yeater of CITES pointed out that Multilateral Environmental Agreements have few resources to develop a deep understanding of these issues and asked that UNEP assist MEAs to explore the potential of an ecosystem service based approach to future conservation efforts. "Valuation techniques are still a work in progress, particularly for certain services," said Moony. "[But] happily, economists and ecologists are working together to close the gaps in understanding and application since the ecosystem service concept is powerful and can provide another tool in conservation as well as providing an incentive for mechanisms for sustaining the delivery of services to all segments of society."

A Cautionary Note

The news, of course, is not uniformly good when it comes to wielding economics to protect, restore and harness ecosystem services. Sachs, who heads the Earth Institute at Columbia University and recently authored "The End of Poverty," sounded a decidedly sober note when addressing the UNEP group. At a workshop with a concept note entitled "Creating Pro-Poor Markets for Ecosystem Services," Sachs cautioned, "Market failures do not mean that there are market solutions and market forces do not give any assurance at all about equity." Sachs then pointed to the huge "pent-up" demand for consumption that will be released as communities around the world climb the economic ladder to prosperity and noted that, "Everything depends on context. In the case of the Amazon, for instance, it is going to require not market forces, but anti-market forces." Sachs also took issue with the overly casual use of terminology employed by many conservationists when speaking about the synergies between the new science of ecosystem services and innovative models of conservation finance. "The rhetoric and logic, to date, has not been rigorous enough," he said. "Finer distinctions need to be made and there needs to be a mapping from the ecological reality to the correct economic mechanism." This, observed Stanford's Mooney, can be tough since ecosystems rarely behave in a linear manner. Often, he said, ecosystems hit a tipping point and flip from a productive state to an unproductive one. The oxygen starved dead zones that can arise overnight when nutrient levels pass thresholds in the Gulf of Mexico are one example of this phenomenon, the collapse of fisheries around the world are another. To date, observed Mooney, humans have proved remarkably poor predictors of these sudden threshold events. Even when ecosystems are not undergoing huge changes, they can be difficult to understand. Jeff Sayers of the World Wildlife Fund and Ivan Bond of the International Institute for Environment and Development both remarked how difficult it has been to structure sustainable payment schemes for ecosystem services like flood control and water filtration when the complex hydrology of a watershed is not fully understood and you are operating in some of the poorest countries in the world.

The Consensus

The race toward universally effective conservation strategies fueled by efficient investments in ecosystem services, everyone recognized, is long, hard, and far from over. Fortunately, the field of runners striving toward the finish line is growing, not thinning. Numerous experiences from the field were related during UNEP's three-day workshop: Alain Lambert, a conservation finance expert at the UNEP Division of the Global Environment Facility, highlighted payments for environmental service projects in places as varied as Kazakhstan and the Fiji Islands; John Forgach, Chairman of ForestRe, outlined his innovative work putting private sector investments to work conserving the watershed surrounding the Panama Canal; Brent Swallow of the World Agroforestry Centre described six projects in the Philippines and Indonesia where payments are made to upland communities for their stewardship of rain forests; and Randy Stringer handed out literature concerning the UN Food and Agriculture Organization's new research into "Environmental Services for Poverty Reduction and Food Security." Importantly, a number of common lessons emerged from these diverse initiatives. Many project managers highlighted the utility of starting with a concrete problem, rather than a theoretical policy prescription. In the case of South Africa's Working for Water Programme, for instance, water thirsty invasive trees are a visible problem around which communities have rallied to further ecological restoration projects of all kinds. Several speakers noted that since ecosystem services are inherently linked, ecological restoration aimed at increasing the flow of one of them often delivers co-benefits by also augmenting others. Bundling these services in management programs and then stacking the revenue streams associated with them can help generate better ecological and economic returns. More than one presenter also echoed Sachs' observation that market-like approaches to ecosystem services are just one among a complementary set of tools for directing public and private investments toward environmental and sustainable development aims. And last but not least, all parties agreed that the proliferating number of projects focused on payment schemes for ecosystem services provides an important opportunity to "learn by doing." Continual communication between project managers, they stressed, is key in order to avoid redundancy or repeated mistakes. At the close of the meeting, UNEP announced a resolve to "take a lead in the field of ecosystem services and human well-being and to work towards computation of wealth indicators using integrated assessment frameworks like the Millennium Ecosystem Assessment." As an information source and partner in the fight to create an economy of conservation that suits both economists and owls, The Ecosystem Marketplace looks forward to following UNEP's work. Amanda Hawn is the Associate Editor of The Ecosystem Marketplace: Related Links: First posted: October 26, 2005

Please see our Reprint Guidelines for details on republishing our articles.