Environment & Poverty Times
Economics for the planet The economics of nature
By Håkon F. Høydal, Anne Solgaard and Hedda L. Bredvold
Based on an interview with Mr Pavan Sukhdev, study leader for the project on The Economics of Ecosystems and Biodiversity and the UNEP Green Economy Initiative
“Most of what nature provides us is free. It does not go through a market economy. That is why it tends to get ignored,” says Pavan Sukhdev. The Indian economist aims to include the natural environment in our economic calculations.
Pavan Sukhdev is the leader of the TEEB project – The Economics of Ecosystems and Biodiversity – which was launched at the G8+5 Environment Ministers’ meeting in Germany in March 2007. If he achieves what he is work- ing for, we might in a few years see a different economy, which includes the pricing of what nature gives us. “Even if nature may seem to give it for free, that is no reason not to include its value when measuring our economy,” Sukhdev tells Environment and Poverty Times.
– In nature, you can appear to have a free lunch once in a while, but not continuously. We are focusing too much on what human beings produce, and are missing the extent to which nature creates and human beings use up those created resources. We give priority to the market economy: to manufacturing, industrial processing and to the service sector, because these generate profits for corporations and taxes for governments. What we are missing is the importance of nature when it comes to providing climate stability, free flows of clean air and fresh water and biodiversity. Services like flood prevention and carbon sequestration are certainly not paid for. They are services provided free by nature that do not go through a market economy. And so they tend to get ignored in our modern world.
– This is what TEEB wants to change. The project was started by the G8+5 conference in 2007 in an effort to try and merge the two ecos: ecology and economy. The traditional way of approaching and applying economics is too narrow, and misses a lot of the equation, Sukhdev explains.
– Industrial processes are only the fag end of the overall process. Even if you make food, it is not the harvesting and the processing that are central in the production. It is the production and selection of the seeds, their cultivation, the growing of the food, the fertility of the soil, the cycling of nutrients, and the access to the use of fresh water resources. There is a lot of pro- duction in nature that goes into everything we consume. But traditionally we only look at the
element of production that is manufactured by man. Because of that limitation in our thinking we tend to take actions that are not good for the survival of the economy and humanity, Sukhdev says. What TEEB tries to do is to convert all this into numbers.
– We try to calculate how much it is worth to have these nature-given services. What is the value of biodiversity? How much is it worth? What are the costs of the alternatives? How much will it cost not to have fresh water, to replace it with artificial irrigation? Which costs would be incurred by the economy to provide the alternative? All this adds up to us working out the economics of nature’s losses.
– How is it possible to translate the multiplicity of our ecosystem into numbers?
– It’s not. Nature itself is everything. All we can calculate in economic terms is the value of the services we receive. We cannot value nature itself. If we want to value nature, the answer is very simple: it’s infinitely valuable. With it we can survive, and without it we cannot. The difference between survival and non-survival is one divided by zero, and the answer to that is infinity. I don’t need a project to calculate the value of nature. I need a project to work out the value of ecosystem services and biodiversity benefits to the economy.
– Nature in numbers. How do you want to use these ecosystem spreadsheets?
– We must make politicians and businesses understand what they are missing when they think they can run the economy without pay- ing attention to these values. That is what the project is about. We in TEEB are trying to prove that without these values you wouldn’t have the economy we have today.
– Can you give us an example of how this is already implemented today?
– Yes, I can. In Costa Rica, for example, the government has decided to charge a tax on transportation by private cars through fuel tax. The income from this is used for payments of environmental services. The government identifies farmers who have patches of forest on their farms, and they reward them for conserv- ing these. The government pays for four values of the forest: carbon, water, the landscape and biodiversity. If the forest has some of these values, the farmers are rewarded. So far, they have identified 10,000 farmers to whom these payments are made. It has become so big it has become part of the environmental policy of Costa Rica. The logic is that you have to have a reward, and the reward has to be material, otherwise people will not change. You can
Pavan Sukhdev, Lead Author, ‘The Economics of Ecosystems and Biodiversity’ on the “To be honest, the economic con- sequences (from human consumption of natural resources) are huge” - http://www.youtube.com/watch?v=7JwaYCRyDII
object that the money is only going to the rich farmers, because only rich farmers have large farms with forests. But because of this, the overall fertility of the soil will improve, so poor farmers are also benefitting from this.
Pavan Sukhdev hopes a similar system soon will be applied to his home country India. In neighbouring Nepal, over 80% of the energy comes from fuel wood. People are constantly chopping wood. This forest degradation has a serious effect on flooding in Bihar, an Indian state south of Nepal and as a result, the flood and mud flows down the Nepalese hills to Bihar get worse every year. These floods cost Bihar a third of their GDP. Therefore it makes sense for Bihar to pay Nepal for protecting the forests in Nepal. It is not happening yet, but this is one of the international payments for ecosystem services which need to be worked out.
– The basic problem is that nature gives us all this for free. Why should producers or any of us be interested in giving value to resources and services for which consumers do not have to pay? If that resource was taken away, the cost of replacing it would be high. Take coal for example. It has taken several hundred mil- lion years with heat and very high pressure to produce the coal which we mine. Try to estimate the value of that, imagine how much it would cost to replace that process, to recreate coal. It’s massive.
As a trained economist and devoted ecologist, it is easy for Mr Sukhdev to talk about nature in economic terms. He argues that we need to buy assurance from nature, to safeguard us from a loss we cannot afford.
– The risk comes in two ways. There is the risk of running out of resources. The other is the climate risk: you burn fossil fuels, the company which sells it doesn’t pay for the resource, but only the cost of extracting it, nor does the individual who uses it pay for it. In the end we shall all pay for it by not having a world for our children. So you need to value this risk. In finance we always value risk. We pay premium for risk. But nature does not charge you a premium. Nature is no financial institution. It is not charging a premium for the assurance of providing its services next year and the year after. You’re assuming it, for there is no charge.
Pavan pauses briefly before he continues, mak- ing exclamation marks by thumping his finger on the table:
– Right now, there is no assurance! Nobody is paying their premium. No one is putting up the pressure to bring about real changes in consumption patterns, or political, economic or social structures for that matter. Governments are more focused on ensuring employment, and will ensure that they meet the needs of the people in the short term. And corporations are not interested in controlling their externalities. A corporation is targeted at making a profit. So we have a fundamental problem.
He is, however, optimistic.
– Change is gradual. You cannot have a vision for the future without a plan for getting there. But nowadays, people do not have a vision for a low-carbon economy. Gradually the vision is
coming, but we are struggling to find out how to get there. Transition is always difficult, but it has to be done. It cannot just be GDP growth that drives everything.
– Regarding that, you are known for having calculated a GDP of the poor. What does that mean?
– The whole world is as dependent upon nature as the poor are, but the result of the loss of nature is more immediate for them. For the rich, biodiversity is perceived as a luxury. For the poor, it is part of their daily survival. What they get from nature is vital. They get fuel wood, fresh water, free honey, leaves for the cattle, building materials, to mention a few gifts of nature. Their livelihoods depend heavily on these things that are harvested free. We did the calculation in India: If you take the ecosystem services not accounted for, it was only 7% of the national GDP. But if you look at to whom these benefits go, the answer was almost 60% of the GDP for the poor comes free from nature. So if you lose biodiversity you are condemning the poor to eternal poverty. There is a deep and economically proven link between what comes from nature, and poverty. Development has to happen by ensuring that those flows continue, and then by providing extra, like education and health and new livelihoods. You can’t say to a poor person “so you’ve lost your forest, but you now have a hospital and a school!” What is he going to do? He can’t eat the hospital, he can’t feed the cattle with the school. We can’t have development that looks only on building of schools and so on. You have to build livelihood, and respect existing livelihoods of the poor.
This is why he is pessimistic about our achiev- ing the Millennium Development Goals.
– They cannot be successful because people do not understand the connection between having a healthy environment and achieving these goals. You can’t solve health problems just by building hospitals. You have to look at what the people eat, how they live, what is the impact of a healthy environment on them?
No budget ends with a total of infinity. Mr Sukhdev is convinced this is also the case for the budget of nature’s services and resources provided to man. It is finite.
– You can’t have sustainability if you are eating capital. Today we are consuming our natural capital. The Global Footprint Network has compared the bio capacity in many countries to what they consume. The global average is 1.35 – we are consuming 35% more than the Earth’s bio capacity. That is not a good idea. It is like living in a house and say “I need a fire, so I’ll chop up this window. I need some clothes, so I’ll rip off the carpet.” You have to live on the flows from nature.
Right now, the rich world consumes at a rate that would require 3 to 4 earths to sustain it. That does not worry Mr Sukhdev. Yet.
– Right now, the rich world is so small it does not seem to matter. But if the developing world becomes richer, and follows the same pattern of development, we will be in even more trouble than we are today. That is also the part of the problem for the Copenhagen meeting in De-
| Page 2
| Page 3
| Page 4
| Page 5
| Page 6
| Page 7
| Page 8
| Page 9
| Page 10
| Page 11
| Page 12
| Page 13
| Page 14
| Page 15
| Page 16
| Page 17
| Page 18
| Page 19
| Page 20
| Page 21
| Page 22
| Page 23
| Page 24
| Page 25
| Page 26
| Page 27
| Page 28
| Page 29
| Page 30
| Page 31
| Page 32
| Page 33
| Page 34
| Page 35
| Page 36