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A price tag on nature

TEEB estimates that every year the world loses $2-4.5 trillion worth of natural capital. Does it make sense to put an economic value to our natural resources? Darryl D'Monte explores

giant squirrel natural resources

Putting a price tag on nature is always a problem because ecologists believe that economists -- to paraphrase what Oscar Wilde said about cynics -- are said to know the price of everything and the value of nothing. There is something about nature that transcends such valuation: its very pristine character is ‘priceless’. It is not for nothing that economists have been dubbed ‘resource-illiterate’, even though economics and ecology derive from the same Greek root -- oikos, meaning household. While economics relates to making sure that the family household spends within its means, ecology has to do with ensuring that the household is supplied with basic necessities.

A year ago, in an article in the Guardian, the radical British environmental journalist George Monbiot ridiculed the UK government’s attempt to bring out its National Ecosystem Assessment under which, among other factors, it calculated that the value of the country’s green areas and parks would work out to £290 per household in 2060.

“Love, economists have discovered, is depreciating rapidly,” he wrote scathingly. “On current trends, it is expected to fall by £1.78 per passion-hour between now and 2030. The opportunity cost of a kiss foregone has declined by £0.36 since 1988. By 2050, the net present value of a night under the stars could be as little as £56.13. This reduction in the true value of love, they warn, could inflict serious economic damage.”

A message circulated on an environmental journalists’ e-network recently about The Economics of Ecosystems and Biodiversity (TEEB), a UN Environment Programme (UNEP) global initiative headed by an Indian, Deutsche banker Pavan Sukhdev, raised a storm, with respondents openly critical of such attempts. The basic objection was that putting a price to natural ‘goods’ like forests might lead to even greater exploitation of this resource. Economists never refer to the opposite of goods, which are ‘bads’.

Monbiot raises the same point when he illustrates his argument with a hypothetical case in the UK. Suppose a planning inquiry for an open-cast coal mine assesses the destruction of forests and meadows at £1 million a year. And on the other hand, the value of the coal is put at £10 million, there are no prizes for guessing what the decision will be.

The French philosopher and economist Serge Latouche talks of “degrowth” or preferably “agrowth”, like atheism. According to Argentine social scientist Julio Gambina, “GDP only counts what is created, and doesn’t subtract what is destroyed. Perhaps there are cases where GDP is lower, as in Cuba or Venezuela, but quality of life or the distribution of wealth improves. Social wellbeing is not necessarily tied to economic growth”.

The crux of this controversy lies in the market system. Once one accepts market forces, even if these are not freely operating on a level playing field, it is difficult to see how putting a price to the services that nature provides can itself prove harmful. Till now, many planning decisions in this country have been based on cost-benefit analysis, which is another variant of applying such economic principles. Only if one discards the market altogether do concepts such as TEEB make no sense. And that is plainly out of the question in the present scenario.

As it happens, there is a very respectable body of ecological economists like Herman Daly, Robert Costanza and Joan Martin Alier (who has co-authored a book with Ramachandra Guha and bases much of his academic work, based out of Barcelona, on India). Alier is one of the moving forces behind the International Society of Ecological Economists.

Costanza is the lead author of a study that measures the economic contribution of 17 global ecosystem services that nature provides. Significantly, all these were renewable services, which exclude fossil fuels, minerals and so on. He estimates this for the entire planet at anything between $16-54 trillion a year, most of which lies outside the market. This works out to an annual average of $33 trillion per year. By comparison, the globe’s Gross National Product is $18 trillion, only a little more than half as much, which yields a compelling argument in favour of valuing ecosystem services.

The services include water regulation and supply (through aquifers, reservoirs and watersheds), erosion control and sedimentation, soil formation, nutrient recycling, waste treatment, pollination (including by bees, which UNEP estimates at between $2-8 billion a year, and is in a critical state), food production (fish, nuts, fruits which are obtained from the wild, not farmed), genetic resources (at least a third of all medicines derive from plants) and last but by no means least, culture and recreation. In an interview with Forbes magazine, Sukhdev mentions the preservation of sacred groves in India, on which pioneering studies were conducted a few decades ago by Dr Madhav Gadgil and the anthropologist Dr Kailash C Malhotra. Incidentally, Gadgil recently headed a taskforce on the Western Ghats, the report of which the government has refused to make public.

Costanza’s study shows a map of the world, where ecosystem services are colour-coded. Green areas are estimated to yield $500 per hectare per year, moving up to deep red at $10,000 per hectare per year. In India, only the west coast and parts of the northeast are coded orange, at about $4,000 a year, while parts of the Deccan peninsula, the east coast and areas in the Himalayas are green.

Globally, the largest swathes of orange are the Amazon basin in Latin America, central Africa and most of southeast Asia.

Alier has co-authored a book with Costanza and another economist titled Getting Down to Earth: Practical Applications of Ecological Economics in 1996. The very title of his 2002 book indicates its thrust: The Environmentalism of the Poor: A Study of Ecological Conflicts and Valuation. Certainly, economists like Alier, a Catalan who teaches at the Autonomous University of Barcelona, cannot be accused of being overly influenced by laissez-faire economics.

TEEB is more modest than Costanza in its assessments. In 2008, Wall Street and the world’s financial capital of London lost $2.4 trillion, which shook up the entire global economy. At the same time, TEEB estimated the annual loss in economic terms of the earth’s natural capital at between $2-4.5 trillion a year. Obviously Costanza and Sukhdev were measuring different things differently, but their overwhelming message is the same: no one is measuring what we are losing by way of natural capital, on which the world’s poor particularly depend.

The late pioneering environmental journalist, Anil Agarwal put it succinctly, if rhetorically, in the early-1980s. He stressed that there was Gross National Product and Gross Natural Product; as the former went up, the latter declined. At the time, this was quite a novel formulation. It remains a stern reminder for those who till today place all their faith on ever-increasing economic growth rates, with no thought whatsoever to the shrinking of biological systems and biodiversity.

The TEEB India project was launched in February 2011. It will be hosted by the Ministry of Environment and Forests, but conducted through an independent structure. The project will focus on the development of a framework for assessing the economic value of India’s natural capital with a distinct three-pronged approach: 1) a national-level green accounting study; 2) state-level policy-focused studies in three or four pilot states; and 3) development of local examples as success stories. These will be showcased at the UN Convention on Biodiversity at its Conference of Parties (similar to that for climate change, which met in Copenhagen, Cancun and Durban since 2009) this November in Hyderabad.

Our neighbour, Bhutan, has deservedly earned a reputation for coining the concept of Gross National Happiness which many of the world’s leaders have praised, and some tried to emulate. This February, it published its initial assessment of the country’s ecosystems and put it at around $14 billion. What is revealing, however, is that unlike most of its neighbours, India included, as much as 54% of its population benefited from these services. According to the IMF, every Bhutanese earned $2,121 in 2011, ranking 127th in the world. By contrast, India figured 140th, with $1,389. Little wonder therefore that Bhutan’s people are happier than most others in the neighbourhood!

In conclusion, therefore, it would amount to throwing out the baby with the bathwater to discard valuing ecosystem and biodiversity services in any country. Like many formulations, it can be misused, but this should not be reason enough to get rid of it altogether.

Infochange News & Features, May 2012