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Putting a price-tag to nature

By Darryl D'Monte

Can you put a price-tag to nature and biodiversity? Unfortunately, we may have to, as all decision-makers today base their choices on economic considerations. Which is why there have been attempts to put a value on, for instance, natural forests, fuelwood, animal species and so on

The very idea of putting a price tag to nature -- and the even more elusive concept of biodiversity -- seems anathema. Environmentalists like to castigate economists, to adapt what Oscar Wilde said about cynics, for being overly concerned about the price of certain natural objects, and being supremely unaware of their value.

A typical example is the ‘worth’ of a natural forest. Ironically enough, it acquires a price in the market only when the timber is felled -- in other words, when it is a ‘dead’ product. It is as if it had no price as a living, breathing, active being. The timber is valued in terms of volume, the price per cubic metre multiplied by the cubic metres in a tree trunk, or the average number of trees in a hectare of forest. The ecological role of a forest -- in breaking the impact of rain, helping to store it in the earth, preventing runoff and thereby soil erosion -- simply doesn’t figure in the normal economic calculus.

No wonder ecologists believe that economists are “resource-illiterate”. The irony is that both economics and ecology stem from the same Greek root oikos, meaning a household or family. Thus, ecology is the science (and equally the art) of keeping the household stocked with goods for the wellbeing of the whole family. Economics, on the other hand, is the science of balancing the budget and making sure that the household doesn’t spend beyond its income. They are actually, in an ideal world, two sides of the same coin.

It is that much more complex when economists attempt to put a price tag to biodiversity, because few have an idea of what it represents. Broadly, the concept connotes variability among living organisms, within species, between species and the ecosystems of which they are part. The lesson was driven home to this columnist during the UN Earth Summit in Rio de Janeiro in 1992, when New York Times reporters never referred to “biodiversity” -- with reference to the controversial draft convention on biological diversity which President George Bush Sr was refusing to sign -- but “wild plants and animals”, which is the appropriate shorthand for the uninitiated.

However, given the way the world functions, all decision-makers base their choices on economic considerations, which is why there have been attempts to define the returns, in monetary terms, of preserving biodiversity. As it happens, one of the foremost exponents in the world of this relatively new branch of economics is an Indian banker, Pavan Sukhdev, now based in London with Deutsche Bank but whose services have been made available to the UN Environment Programme (UNEP) during the current International Year of Biodiversity.

At a UNEP Governing Council meet in Bali this February, he made a presentation to international journalists on ‘The Economics of Ecosystems and Biodiversity’, an international initiative headed by the UNEP which goes by the acronym TEEB. At the last World Economic Summit at Davos in January, there were as many as six sessions on biodiversity, which only goes to show that at long last, head honchos and other movers and shakers who attend this annual snowbound conclave are sitting up and taking notice of the issue.

TEEB addresses national and international policymakers. The world’s much-abused mangrove forests provide an interesting case in point. In southern Thailand, citing 1996 figures, the return per hectare of converting mangroves into shrimp farms provided a profit of $9,632 per hectare. However, there was also a public subsidy to such farms which, once deducted, yielded a private net profit of only $1,220. If left intact, each hectare of mangrove -– which are among the most diverse and productive ecosystems in the world; being at the interface of land and sea they allow fish and crustaceans to breed -- yields a commercial profit of $584.

On the face of it therefore, even after allowing for public subsidies to shrimp farmers, the private profit per hectare is twice that of leaving mangroves intact. However, there is one factor that has not been accounted for, which is that shrimp farms have to be abandoned after five years. Due to intensive aquaculture of this kind, with artificial feeding, the farm is no longer productive. If the very expensive cost of restoring the mangrove cover is factored in, which is a public cost, there is a net loss per hectare of $9,318.

On the other hand, TEEB calculates the public benefits of mangroves.  It estimates that local communities benefit to the tune of $584 per hectare from wood and non-wood produce, and $987 for acting as a nursery for off-shore fisheries. Most of all -- as the experience with cyclones in Orissa and the tsunami in Tamil Nadu shows -- mangroves provide benefits worth $10,821 for every hectare by way of protection against coastal storms. Thus, without calculating other ecosystem services like capturing carbon (sequestration), the public benefits from each hectare of mangrove add up to $12,392, far more than the net profit on shrimp farms of $1,220.

In much the same way, it has been estimated that in Vietnam planting and protecting some 12,000 hectares of mangrove cost around $1.1 million but saved the authorities $7.3 million every year on maintaining dykes. It also helped reduce the impact of storms, coastal and inland flooding, and landslides.

Once a decision-maker is confronted by such figures, there is hardly any doubt that it is advantageous to retain mangroves and not destroy them in favour of fish farms. Of course, it all boils down to the question of private gain and public loss, not to mention the deprivation of protein in the form of a variety of marine life which mangroves afford to poor coastal communities. One only has to recall the controversies, around 15 years ago, when prawn farming was the rage in several Southeast and South Asian countries, including India. The figures can help any authority to arbitrate in favour of public benefits, provided this is backed up by appropriate policy responses such as clear property rights, permit systems and removal of perverse subsidies.

Indeed, there is no question that if one adds up countless projects that destroy biodiversity systems, the total economic losses as well as the welfare implications are enormous.

There is therefore a strong link between the preservation of natural diversity and poverty, as well as the capacity to meet the UN Millennium Goals by 2015, which are a brief five years away. One of the most significant of these goals is to reduce the number of people living below the poverty line in the world by half, by that deadline. In the ultimate analysis, the economists’ favourite tool of discount rates to calculate the net private economic returns is based on ethical choices, not some hard, empirical, dismal “science”.

An example much closer home was a decision on whether to develop the floodplain, occupying 3,250 hectares between the Yamuna and the landmass of New Delhi, into land for housing and industry. The authorities acknowledged that the floodplain provided ecosystem services such as provision of water, fisheries, fodder and other material and recreation benefits. However, they were unable to provide a clinching argument in favour of retaining the floodplain with ascribing an economic value to this ecological role. These services were estimated at $843 per hectare per year at 2007 prices, which helped tilt the balance in favour of conserving the floodplain. The ecosystem benefits exceeded the opportunity costs (the potential value of land once developed), using various discount rates. The Delhi government halted the embankment plan on the Yamuna.

Only days ago, the Lieutenant Governor of Delhi asked the Delhi Development Authority to extend the biodiversity area, which was originally a stretch of 22 km from Wazirabad to Okhla, to an entire 48-km-long stretch of the river in the state of Delhi, from Palla to Okhla. He emphasised that people should be aware of the conservation zone so that there is no scope for encroachment.

An instance of a different kind in a super-affluent society, of benefiting from preserving nature, that is often cited by environmentalists has to do with water supply in New York. The authorities decided to maintain a watershed in the Catskills mountains, which helped purify water at a cost of around $1.5 billion. Had a filtration plant been built in the conventional manner it would have cost $6-8 billion plus $300-500 billion a year in maintenance costs. What’s more, by maintaining the watershed water bills went up by 9%; this would have doubled with the purification plant.

There is another example from India. In 2006, the Supreme Court drew up a scale of compensatory payments for converting different types of forested land to other uses. The court based the rates on a valuation study by the Green Indian States Trust, an initiative also masterminded by Sukhdev. The study estimated values (for example, timber, fuel wood, non-timber forest produce, ecotourism, bio-prospecting, forest ecological services, non-use values for conserving charismatic species like the Bengal tiger and the Asian lion) for six categories of forests. Compensatory payments are paid by those who obtain permits to convert forests to other uses into a publicly-managed afforestation fund to improve the country’s forest cover. In 2009, the Supreme Court directed Rs 1,000 crore to be released every year for afforestation, wildlife conservation and the creation of rural jobs. 

As we saw, biodiversity also comprises animals in the world. Wild bees play an important role in agriculture by pollinating plants, quite apart from the honey they produce. According to the UNEP, the global contribution of honeybees to the pollination of crops amounts to $2-8 billion. In the US, which is a major agricultural power, the contribution by wild pollinators, which includes birds, is itself valued at $4-6 billion a year by ecologists and farm economists. In that country, there is considerable alarm over the disappearance of wild bees, not least due to heavy use of pesticides. 

TEEB has a telling slide of the levels of biodiversity in the world, measured by “mean species abundance, or MSA” -- the presence of wild species as an average. This is a completely different atlas of the world. The most badly hit is North America: huge swathes are coloured bright red, indicating less than 10% of remaining wild species of plants and animals. The whole of the UK is in the same boat, while Western Europe is covered in shades of orange, indicating the presence of species from 10-30%. Most of India too is coloured orange, with the exception of northern India where the mean species abundance hovers between 10 and 20%.

Perhaps the most dramatic findings, when it comes to putting an economic value on biodiversity, are in relation to fisheries. Due to extensive overfishing by “factory ships”, which are also extremely wasteful because they junk the “by-catch” which has no commercial value, the net benefit losses in this sector -- in terms of sustainable productivity -- have been put at a staggering $50 billion a year by the World Bank. From the 1990s, due to the depletion of  fish stocks in European waters, fleets now trawl the ocean off the African coast, where local fleets are by no means as powerfully equipped.

Half the world’s fisheries are fully exhausted, with a further quarter already over-exploited. The total value of the world’s fish catch is put at between $80-100 billion, which is at risk. This sector provides direct employment to 27 million people. In most developing countries, fisherfolk are among the most marginalised. And, as we have observed, fish is often the only or main source of animal protein for over 1 billion people. For that matter, it may come as something of a surprise to realise that if one includes fish, the majority of Indians are non-vegetarians!

Belatedly, there is a modest attempt to set this situation right. There are a few marine protected areas or MPAs which, at present, only cover 0.5% of the high seas. It has been estimated that conserving 20-30% of global oceans through a network of MPAs could create a million jobs and sustain a marine fish catch worth $70-80 billion per year. A review of 112 studies and 80 MPAs found that fish populations, size and biomass all dramatically increased inside reserves, allowing spillover to nearby fishing grounds.  

As far as India is concerned, Sukhdev points out that as many as 480 million people earn their livelihood through small farming, animal husbandry, informal forestry -- so-called “minor forest produce” in Indian foresters’ parlance; this could add up to hundreds of crores a year, as the example of tendu leaves for bidis itself indicates -- fisheries and the like. In the conventional system of accounting, these economic activities comprise only 7% of GDP. However, if one takes “the GDP of the poor”, the proportion jumps to 57%, more than half the total value of goods and services produced in the country every year. This is how the “dismal science” of economics can be tweaked to value what biodiversity means to people, including the poorest of the poor.  

Infochange News & Features, May 2010