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Towards a green economy Biodiversity Ecosystems (variety & extent/area) Species (diversity & abundance) Genes (variability & population)

Ecosystem goods and services (examples)

• Recreation • Water regulation • Carbon storage

• Food, fiber, fuel • Design inspiration • Pollination

• Medicinal discoveries • Disease resistance • Adaptive capacity

Economic values (examples) Avoiding greenhouse gas emissions by conserving forests: US$ 3.7 trillion (NPV) Contribution of insect pollinators to agricultural output: ~US$ 190 billion/year 25-50% of the US$ 640 billion pharmaceutical market is derived from genetic resources

Table 1: Natural capital: Underlying components and illustrative services and values Source: Eliasch (2008); Gallai et al. (2009); TEEB (2009)

Yet, there has always been concern that some forms of natural capital are essential to human welfare, particularly key ecological goods and services, unique environments and natural habitats, and irreplaceable ecosystem attributes. Uncertainty over the true value of these important assets to human welfare, in particular the value that future generations may place on them if they become increasingly scarce, further limits our ability to determine whether we can adequately compensate future generations for today’s irreversible losses in such essential natural capital. This concern is reflected in other definitions of sustainable development. For example, in 1991, the World Wide Fund for Nature, the International Union for Conservation of Nature (IUCN), and UNEP interpreted the concept of sustainable development as “improving the quality of human life within the carrying capacity of supporting ecosystems” (WWF, IUCN and UNEP 1991).

As this definition suggests, the type of natural capital that is especially at risk is ecosystems. As explained by Partha Dasgupta (2008): “Ecosystems are capital assets. Like reproducible capital assets … ecosystems depreciate if they are misused or are overused. But they differ from reproducible capital assets in three ways: (1) depreciation of natural capital is frequently irreversible (or at best the systems take a long time to recover); (2) except in a very limited sense, it isn’t possible to replace a depleted or degraded ecosystem by a new one; and (3) ecosystems can collapse abruptly, without much prior warning.”

Rising ecological scarcity is an indication that we are irrevocably depleting ecosystems too rapidly, and the consequence is that current and future economic welfare is affected. An important indicator of the growing ecological scarcity worldwide was provided by the Millennium Ecosystem Assessment (MEA) in 2005, which found that over 60 per cent of the world’s major ecosystem goods and services covered in the assessment were degraded or used unsustainably.

Some important benefits to humankind fall in this category, including fresh water; capture fisheries; water


purification and waste treatment; wild foods; genetic resources; biochemicals; wood fuel; pollination; spiritual, religious and aesthetic values; the regulation of regional and local climate; erosion; pests; and natural hazards. The economic values associated with these ecosystem services, while generally not marketed, are substantial (see Table 1).

One major difficulty is that the increasing costs associated with rising ecological scarcity are


routinely reflected in markets. Almost all the degraded ecosystem goods or services identified by the Millennium Ecosystem Assessment are not marketed. Some goods, such as capture fisheries, fresh water, wild foods, and wood fuel, are often commercially marketed, but due to the poor management of the biological resources and ecosystems that are the source of these goods, and imperfect information, the market prices do not reflect unsustainable use and overexploitation.

Nor have adequate policies and institutions been developed to handle the costs associated with worsening ecological scarcity globally. All too often, policy distortions and failures compound these problems by encouraging wasteful use of natural resources and environmental degradation. The unique challenge posed by rising ecological scarcity and inefficient resource and energy use today is to overcome a vast array of market, policy, and institutional failures that prevents recognition of the economic significance of this environmental degradation.

Reversing this process of unsustainable development requires three important steps. First, as argued by the Blueprint for a Green Economy authors, improvements in environmental valuation and policy analysis are required to ensure that markets and policies incorporate the full costs and benefits of environmental impacts (Pearce et al. 1989; Pearce and Barbier 2000). Environmental valuation and accounting for natural capital depreciation must be fully integrated into economic development policy and strategy. As suggested above, the most undervalued components of natural capital are ecosystems and

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