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Report: The Economic Costs of Deteriorating Ecosystems

by Jack Rosebro

Teeb2
The proposed valuation framework for biodiversity loss and ecosystem degradation. Click to enlarge.

The Economics of Ecosystems and Biodiversity (TEEB), an assessment of the potential economic costs of deteriorating ecosystems and mass extinctions, was released 30 May at the Ninth Conference of Parties (COP 9) for the Convention on Biological Diversity, meeting in Bonn, Germany. Modeled on the 2006 Stern Review on the Economics of Climate Change, the current iteration of TEEB is an interim report.

Work on the interim TEEB report, which is referred to as Phase I, was organized by Sigmar Gabriel, Germany’s Minister of the Environment, and Stavros Dimas, Environment Commissioner for the European Commission, following the Potsdam G8+5 summit in March 2007. Pavan Sukhdev of Deutsche Bank is TEEB’s lead author. The Conference of Parties comprises signatory countries that meet periodically under the umbrella of the Convention on Biological Diversity, a key agreement of the 1992 Earth Summit in Rio de Janiero.

Acknowledging that “the well-being of every human population in the world is fundamentally and directly dependent on ecosystem services,” the report’s authors propose that existing world markets are based on a “defective economic compass” which cannot properly value natural resources that are crucial to human life, even when it is apparent that such resources are dwindling.

The Decline of Ecosystems

Citing previous studies, the TEEB report notes that by 2050, a business-as-usual harvesting of ecosystems could lead to the loss of up to 11% of the world’s natural areas that remained in 2000, primarily to agriculture and development, as well as the effects of climate change. Another 40% of the land currently under low-impact forms of agriculture may be converted to intensive, high-impact agricultural use, with further deterioration of biodiversity, in part due to the changing diet of an expanding global middle class.

Although much biodiversity has already been lost, the effects of such losses are only now beginning to appear: earlier this year, a World Resources Institute Corporate Ecosystems Services Review predicts that “global warming may dominate headlines today...ecosystem degradation will do so tomorrow.”

Among other red flags, the report’s researchers found:

  • Globally, forests have shrunk by approximately 40% in the last three centuries, having completely disappeared in 25 countries; another 29 countries have lost more than 90% of their forest cover.

  • About 50% of the planet’s wetlands have been lost in the past century, with increasing pressure in the last half-century to convert tropical and sub-tropical wetlands to alternative land use.

  • Around a third of the world’s coral reefs—which can have higher levels of biodiversity than even tropical forests—have been seriously damaged through fishing, pollution, disease and coral bleaching; another 25% are in immediate danger of the same fate.

  • More than a third of the world’s mangroves have disappeared in the last two decades; in some countries, the loss is up to 80%, via conversion for aquaculture, over-exploitation and storms.

  • The Earth is currently undergoing its sixth mass extinction event, which has the distinction of being the only one that has been human-induced. The rate of manmade species extinction is estimated to be 1,000 times faster than the natural rate of extinction which is typical of Earth’s long-term history.

The net effect is that more than half of the world’s life-giving ecosystems, which operate in interdependent ways that are not fully understood by science, have deteriorated in the last half-century, primarily as a result of human impacts. In their introduction to the report, Stavros Dimas and Sigmar Gabriel bluntly assert that “we are, so to speak, erasing nature’s hard drive without even knowing what data it contains.

Economic Policy vs. Equity and Ethics

The decline of biodiversity is estimated to already be costing the world economy hundreds of billions of dollars per year, and is projected by the report to affect the world’s poor hardest and first, primarily subsistence economies such as farming, animal husbandry, fishing and informal forestry. The report notes that economic losses related to the decline are typically expressed in terms of a few percentage points of GDP, and argues that such losses are more clearly framed in terms of equity and ethics.

A climate change-induced drought, for example, that would reduce the income of the poorest of today’s 28 million Ethiopians, would nevertheless cut global GDP by less than 0.003%. “The right of the world’s poor to livelihood flows from nature which comprise half of their welfare or more, and which they would find it impossible to replace... most of the [UN] Millennium Development Goals today are in fact hostage to this very basic [biodiversity] issue,” says Sukhdev.

While a rising GDP is conventionally considered to be a positive metric, recent concern over GDP growth and resource use by emerging economies has also highlighted the limitations of conventional economics. Speaking to the UK’s Guardian, James Rice, who oversees China operations for Tyson Foods, the world’s largest meat producer, recently said “This is the end of self-sufficiency for China. This year will be the last in which China produces enough corn for itself, and the last that it is self-sufficient in protein.

Teeb1
Land and water resource demands of different foodstocks. Click to enlarge.

Rice expects China to be importing US$4.5 billion worth of protein by 2010. “Whenever China goes from being a net exporter to a net importer of anything, it has a big impact on global prices. Just look at oil. The $40 per barrel price popped just when China started buying.

Increased global demand for meat-based diets, largely fueled by the expanding middle class in BRIC (Brazil, Russia, India, as well as China) countries, is expected to place additional pressure on the world’s food supply, as well as the conversion of land to high-impact agricultural use.

A Challenge to Conventional Economic Theory

One drawback of conventional economics is its dependence on the concept of discounting to calculate valuations of services in relation to time: the farther in the future that gains or losses occur, the less significant they become. The problem of discounting has previously been raised with regard to the use of economic modeling in climate change scenarios, notably by Stephen DeCanio of the University of California, Santa Barbara, who has asserted “current [modeling] practices only hide the essential questions behind a technical facade.

Using a typical discounting rate of 4% per year, any essential natural resource, as well as its “service”, in economic parlance, would be discounted to one-seventh of current value in fifty years, reducing incentive to current economies to preserve it for future generations.

Many ecosystem benefits are not included in GDP calculations, yet losses of natural capital stock are felt beyond the year of the loss, as the reduction in the service flow continues over time. Citing the convention that &lquo;we cannot manage what we do not measure,” the TEEB report proposes to develop a method of valuing ecosystem services in scientific as well as economic terms. This will be developed in Phase II.

Parallels with Ecological Economics

Although the interim report does not expressly cite ecological economics as its foundation, the report’s philosophies largely mirror the tenets of ecological economics, which challenges standard economic growth theory and its counting of the destruction of natural capital as income. Herman Daly, a pioneer of ecological economics, framed the problem in a 1994 lecture to the World Bank:

...In balance of payments accounting, the export of depleted natural capital, whether petroleum or timber cut beyond sustainable yield, is entered in the current account, and thus treated entirely as income. This is an accounting error.

Ecological economics, which is not to be confused with the separate discipline of environmental economics, has existed since the 1970s, but has until now remained somewhat isolated from the mainstream economic community. Rarely taught in depth in the world’s schools of economics, it proposes that a perpetually expanding economy is by its very nature at odds with the finite ecosystem in which it resides.

The classic economic concept of substitution, for example, dictates that different but equal services or goods can take the place of goods and/or services that are no longer available. Ecological writer Paul Hawken has famously framed the dilemma of substitution with two rhetorical questions: “how much is a blackbird worth, and how much will the last blackbird be worth?”

Toward a Valuation Framework

The market’s failure to properly value ecosystems is seen as an information failure as much as a policy failure. For some services (e.g. scenic beauty, hydrological functions and nutrient cycling), supply and demand are difficult to calculate by conventional means. In addition, “perverse economic drivers” as well as failures in markets, information and policy were found to be significant barriers to accurate valuation of ecosystem services. Economic gain resulting from ecosystem degradation is counted as part of GDP, but the degradation itself is not counted.

A re-thinking of subsidies that distort trade is particularly encouraged: global subsidization of the fishing industry, for example, is estimated to be equal to the total value of the product itself. The report also calls for an expansion of damage valuations to address degradation of biodiversity and ecosystem services. Using the “polluter pays” principle, the polluter is frequently required to pay for damage caused, either by bearing the costs of restoration, or through punitive damages. However, such damages are typically event-based, while the majority of ecological degradation is ongoing.

Another potential tool is the use of habitat banking and/or payments for environmental services (PES), in which individuals and corporations invest in ecosystems of interest. For example, the Vittel mineral water company, which is part of Nestlé Waters, pays farmers that affect its watersheds to make their practices more sustainable, reducing nitrate contamination caused by agricultural intensification. Vittel has also financed needed technological changes so that the farmers would not need to tie up their own capital.

Although the evaluation and economic valuation of biodiversity is a primary goal of TEEB, it “is not as an end in itself,” Sukhdev explained at a workshop earlier this month, “but as preparing a valuation toolkit, tailored for successful end use, to help engage end users, with the end goal of achieving biodiversity conservation.

Phase II: Next Steps

Phase II’s primary goal is to develop a so-called “economic yardstick” that also encompasses the non-economic, intrinsic values of ecosystem services, and to

  • publish a science and economics framework which can help frame valuation exercises for most of Earth’s ecosystems, including in its scope all material values across the most significant ecosystems;

  • further evaluate and publish recommended valuation methodology for major ecosystems as well as values which had not been investigated in depth in Phase I;

  • engage key end-users of the work from the beginning, to ensure that output is as focused as much as possible on their needs, and is user- friendly in terms of organization, accessibility, and usefulness; and

  • further evaluate and publish a policy toolkit for policymakers and administrators which supports policy reform and environmental impact assessment with the help of revised economics, in order to foster sustainable development and better conservation of ecosystems and biodiversity.

Much as the IPCC Report on Climate Change provides a range of scenarios arising from various atmospheric concentrations of greenhouse gases, TEEB’s Phase II, which is expected to be completed in 2010, will apply a range of discount rates, representing different ethical approaches, to ecosystem valuations.

Resources

Comments

Michael

Interesting bit of news about plants great design that should make everyone happy to some degree. Plants are natural filters, just like clams or other filters in the oceans.

Someone from NASA figured out some important features 7 years ago. "You need plants to act as lungs in buildings." Link:
http://news.cnet.com/8301-11128_3-9952640-54.html

I think the long term solution is genetic design as a breathing enhancer of algae for conversion of CO2 to fuel. IT is a natural symbiotic conversion along with improvements in efficiency for clean air.


Aussie

I hope the IPCC doesn't get into discounting or cost-benefit analysis as their existing message isn't getting across. I'd keep it simple and forget hi falutin' concepts like discounting. For example like what cities will be flooded and how much fuel there will be in 20 years when many of us or our descendants hope to still be alive. As to biodiversity I'd ask if we can't save large mammal species can we save ourselves?

MikeW

What grimm reading! We are killing off life in our planet by our greed for material things and these guys are trying to develop an accounting system. We will then be able to predict the dollar value of that last blackbird.

Do they think this will make a difference? Western culture educates us through mass media to consume, So we want everything possible at lower cost and to be faster and or bigger. And now that is spreading to large developing countries. If the purchase price of goods reflected environmental value based on the true impact of production our consumer civilisation would colapse! It is obvious that we cannot have all these goods and a sustainable future. There is no answer unless we all make distinct changes to our life style.

Perhaps changes in advertising could help when smoking was recognised as harmful advertising on TV etc was stoped!

Tom Street

This is not news. Knowledge that we have been destroying our natural capital has been around for decades, if not centuries, going back to Thoreau. Two courses of action. Cut consumption and population. "In Wildness is the preservation of the world"

NCyder

@Tom Street

'Cut consumption and population.'

Thank you for volunteering to be the first 'up against the wall.' That is what you are saying, right? Or is it everyone else whose population needs to be reduced?

Let us make sure that we understand that people are one of the most precious resources that we have and hope that it doesn't take an epidemic of war, starvation, or pestilence to realize it.

HarveyD

MikeW:

Sooner or latter we may have to pay the full ecological and economical price for what we consume.

That may put liquid fuel between $10 and $15/gal, coal and oil produced electricity between $0.20 and $0.30/KWh, red meat at $30 to $60/lb etc.

If the change is progressive enough, we will adapt to electrified cars, trains, buses, trucks and more ecology friendly energy and food.

Unfortunately, as happened with tobacco smoking, we will not change our ways as long as we can afford not to and certain restrictions are applied. That's why the price of many non-ecological products may have to be increased up to 10 folds before we react sufficiently.

Government policies can be used to accellerate the transition. Variable tariff and tax rates can be aplied to influence consumption. Many will resist and call that undue government influence in their live, but business as usual will not suffice.

fred schumacher

This is valuable because classical economic theory does not take into account the limits set by environment. Most economists have a poor education in botany, biology, geology and general environmental science. Economists tend to see human agency as being open-ended, rather than being finite and limited.

What drivel.

There is more biota on the planet than there was at mid-20th century, before conservation efforts really began in earnest.

Are these fellows saying all the works that various green conservation organizations have undertaken for the past half century are all for naught? It would seem to be the case according to this "study", but the reality? Of course not...

The numbers of species that have gone into extinction in the last half centrury is minuscule. All this talk of extinction is of species never taxonomically identified or catalogued, and hence this is a pure subjective extrapolation with absolutely no proof.

Meanwhile the evidence is in. The forest cover worldwide is up everywhere, and in some places, like North America, 30-40%, by an enormous percentage.

The density of the tropical rainforests has increased as well; more than making up for the decrease in acreage. Overall the Amazonian rainforest has some 15% more tonnage of plantlife by UN estimates.

The spread of Saharan desertification has halted, as improved animal husbandry, and re-forestry efforts are reclaiming desert at the margins.


"What drivel."

Thanks for providing an executive summary of your comments.

Neil

NCyder: Nobody needs go "up against the wall", but we do need to stop making more babies than we can reasonably support. Some assets are also liabilities. Bacteria will breed until they exceed the carrying capacity of their environment. I'd like to think we're a little smarter.

aym

What drivel

Stan's posting again but this time anonymously but obviously the same stuff pulled from the same dubious sources.

Joseph

Neil,

Unfortunately we are not. We screamed by 6 billion like it was nothing. I remember my 3rd grade teacher telling us that the world past the 3 billion mark, I'm 42. By the time I retire, we will be around 10 billion. If 6.5 billion is creating all the problems I'm seeing, whats 10 billion going to be like?

Treehugger

What the guy, who was cuting the last tree in Easter Island before the civilization collapse, was thinking about ? the same thing as what we are thinking now destroying the rain forest, pumping the last drop of oil in ANWR, destroying the last reef of coral, drying up the last aquifer : tomorrow is another day, there is enough challenge for today...

Our system is trapped in a addiction to growth, modern economy can only works with steady growth, otherwise our life would lost its meaning... so how did humanity went trough 70 000 years of existence when the concept of growth didn't even exist ? I am waiting for a decent answer from any person with some economy background.

we are heading for a globlal ecological disaster, like it or not, the momentum of our system is such that it seems impossible to curb it in the time left to avoid the catastrophe, so let's go for the sixth massive extinction, after all mother nature will survive it and starts a new cycle.

But one thing for sure, even if the ecological system, which we depend on, collapses, men will keep worshiping and praying their stupid gods (or God)hoping that they (he) will save their miserable souls, and forgive them...Halleluia

Treehugger

As I said before

"What Drivel" is talking from another planet where everybody is republican and think that the nuclearization of our society will save humanity.

There is not yet psychatric hospital for that type of mental disease, but fortunately it is not contagious.

ToppaTom

What IS this? I think it really is mostly drivel and mostly dishonest. It attempts to confuse decline of biodiversity with loss of natural areas. These may be cause and effect but is the decline of biodiversity really “costing hundreds of billions of dollars per year”? It supposedly assesses the potential economic costs of deteriorating ecosystems and mass extinctions. It then mentions and supports many threatened ecosystems but extends that risk (with little or no justification) to cover loss of Biological Diversity. Elimination of, or reduction in size of a natural area is to be avoided, but not at all costs. Of those who think drilling in ANWR is a sacrilege, I would ask, is there ANY untouched place that you believe is not sacred, by definition? ANWR is not the badlands, but only because that name was already taken. ANWAR is more than three times the size of Massachusetts. It’s 220 natives support oil production. Preserving ANWAR like preserving Newark, no wait, thousands of people, who live in Newark like it. Tourists often misjudge Newark, and ANWAR.
The following are (mostly) their words, my comments are in [brackets].
… the loss of up to 11% of the world’s natural areas [bad ]
,,, Although much biodiversity has already been lost, the effects of such losses are only now beginning to appear: [Oh?, where?]
* Globally, forests have shrunk … [bad ]
* About 50% of the planet’s wetlands have been lost ,,, [also bad]
* Around a third of the world’s coral reefs—…. —have been seriously damaged [bad]
* More than a third of the world’s mangroves have disappeared
[All bad, and probably causing decline of biodiversity, maybe not ]
* The Earth is currently undergoing its sixth mass extinction event [Umm, wait says who? show me ]
The decline of biodiversity is estimated to already be costing the world economy hundreds of billions of dollars per year, and is projected by the report to affect the world’s poor hardest and first, primarily subsistence economies such as farming, animal husbandry, fishing and informal forestry. [What? Wait, don’t you mean fewer animals or less rain or more sand or climate change, not decline of biodiversity, is costing hundreds of billions of dollars per year?]
A climate change-induced drought, for example, that would reduce the income of the poorest of today’s 28 million Ethiopians, would nevertheless cut global GDP by less than 0.003%. [Are rainbirds a species that we are loosing ??]
“how much is a blackbird worth, and how much will the last blackbird be worth?” [Aren’t these guys claiming to know this?]
[As far as controlling population – good luck. Those who can least afford kids, and those with the least social conscience, typically have the most.]

Michael

Hmmm, yes, lets force the entire world to invoke the China plan. 1 child per couple, murder the rest, especially daughters. That's a plan Margaret Sanger would almost be proud of if only we could eliminate the undersirables like she desired.

I'm guessing population control freaks want to keep out illegal immigrants from America too? Afterall, they are trashing and degrading our environment, correct?

Global Warming by CO2? I grow more skeptical every day.

As to problems around the world today. They are mismanagement or no management at all in poor economic countries run by meglomainiacs or corrupt leaders. Russia, China, Africa and Asia are woefully behind the times in technology and education for farming and healthy environments. Eliminate the corrupt leaders, eliminate most of the worlds problems. And stop blaming America or the West. If we talk about eliminating population, the first to go should be the leaders responsible for the mess in their own nations. How's that for hubris?

Unless you get the third world and other corrupt countries that are not transparently open, you will not make progress in the world. America, Canada, Australia, Europe can all be the cleanest nations. It will mean nothing while the largest nations in the world like India, China and Russia lag behind us.

The panic creation is unwarrented. Disasters happen locally. Our global system is self-correcting and cyclical according to the Sun.

Michael

For some sensible discussion on CO2 impact and the cyclical nature of climate.

http://www.abc.net.au/tv/swindle/

Hmmm, yes, lets force the entire world to invoke the China plan. 1 child per couple, murder the rest, especially daughters. That's a plan Margaret Sanger would almost be proud of if only we could eliminate the undersirables like she desired.

I'm guessing population control freaks want to keep out illegal immigrants from America too? Afterall, they are trashing and degrading our environment, correct?

Global Warming by CO2? I grow more skeptical every day.

As to problems around the world today. They are mismanagement or no management at all in poor economic countries run by meglomainiacs or corrupt leaders. Russia, China, Africa and Asia are woefully behind the times in technology and education for farming and healthy environments. Eliminate the corrupt leaders, eliminate most of the worlds problems. And stop blaming America or the West. If we talk about eliminating population, the first to go should be the leaders responsible for the mess in their own nations. How's that for hubris?

Unless you get the third world and other corrupt countries that are not transparently open, you will not make progress in the world. America, Canada, Australia, Europe can all be the cleanest nations. It will mean nothing while the largest nations in the world like India, China and Russia lag behind us.

The panic creation is unwarrented. Disasters happen locally. Our global system is self-correcting and cyclical according to the Sun.

The collective intelligence of the human race measurably dropped upon the publishing of that comment.

Head Case

@ ToppaTom

Of those who think drilling in ANWR is a sacrilege, I would ask, is there ANY untouched place that you believe is not sacred, by definition?

Forget drilling in ANWR, think Coal to Liquid (CTL). Alaska has 40% of the total American coal reserves, found mostly above the Arctic Circle in the Alaska Coal Province . Most of this coal is a substandard bituminous unsuited for anything other than CTL production. Designate this area for national sacrifice; it’s just a cold wind swiped wasteland. Energy production means sacrifice. Pay the Alaskans a generous stipend for their permission. It’s their decision. Build the mines and CTL plants to support 100% utilization of the Alaskan pipeline for CTL transport back to the lower 48. Contract plant operations to foreign companies who will use foreign workers to endure the unendurable hardship that working and living conditions above the Arctic Circle bring. Use CO2 sequestration to keep the Gaian nouveaux religionists happy, and America’s fuel problems are on the way to resolution.

Berserker

@HarveyD

That may put liquid fuel between $10 and $15/gal,
coal and oil produced electricity between $0.20 and $0.30/KWh,
red meat at $30 to $60/lb etc.

Soylent Green?

A dystopia view of the future.


By the way, your electricity price is low!

Head Case

Sorry, my fault for the html error.

HarveyD

Berserker:

Those were prices required to make us change our behavior not what would be desired or good for us.

As you know, we no longer respond to ecological coming disasters, peak oil, peak coal, global warming, food shortages, over-under population, drugs, religions, oil wars, gods etc but to the all mighthy $$$$.

Basically, it you want North Americans to change their acquired behavior you have to make the status quo cost more and the new ways cost less.

That can easily be done with added (tariffs + taxes) on existing ways and adequate (subsidies) on replacement ways. The exercise can be revenue-expenditure neutral.

Introducing major behavior changes should be done progressively. Impose a progressive $1K/year (average) extra cost on ICE gas guzzler for the next 15 years. Simultaneously, support purchase of hybrids-PHEVs and BEVs at the same rate with weighted subsidies. Ajust both every 2 or 3 years to keep the operation revenue neutral.

A well advertised national plan could reduce oil import to almost zero with about one decade and simultaneously reduce GHG by up to 75%.

Another (similar) national program could do the same for electrical energy generation, to phase out the polluting coal fired power plants and replace them with wind-solar-wave-geothermal-nuclear.

Why rely on imported oil, oil wars etc to provoke the required changes. We should have the guts to do it on our own.

HarveyD:

You misunderstand I think.

By Soylent Green: A dystopia view of the future, I meant "Hell on Earth".

Your apoarch is the same proposed in the Warner bill before the Senate. Did you think all that up yourself? I'm impressed.

Those concepts are filling the halls of Congress today.


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