Economics of Ecology

Meteora By Vasilis Karamouzos (CC 2.0)

Economics of Ecology

Regardless of where we live, natural ecosystem goods and services provide all of us with a myriad of necessities as well as comforts, yet we rarely, if ever, stop to think about their origins. From the morning cereal and fruits that were made possible by insect pollination to the glass of fresh water purified by a wetland or the root system of an entire forest, or even the medicine taken to remedy an ailment, nature’s services have always been an indispensable part of our lives. Yet most of us are unaware of the fact that the economic value of natural ecosystem goods and services was evaluated in 2014 by ecological economist Robert Costanza, Ph.D., and his team at US$142.7 trillion each year, which is considerably more than the value of what humans produce each year. Dr. Costanza is the Australian National University Professor of Public Policy, co-founder of the International Society for Ecological Economics and 1993 Pew Scholar in Conservation and the Environment.

As an example, the total global economic value of the goods and services provided by seagrasses is currently estimated to be US$1.9 trillion every year which does not take into account their ecological value to the more than 1,000 marine animal and plant species supported by these meadows nor does it include their contribution to cloud formation, human recreation and cultural customs. The annual value of insect pollination to the world-wide agriculture industry is US$190 billion while as much as 25-50% of the US$1.1 trillion pharmaceutical market is derived from genetic resources, according to The Economics of Ecosystems & Biodiversity (TEEB) Report. TEEB is a Cambridge, England-based project directed by Pavan Sukhdev, Managing Director of the Global Markets Division of Deutsche Bank, AG, who has served as a special advisor to the United Nations Environment Programme (UNEP).

For centuries, human societies have usually relied on market prices to indicate values. The lack of public awareness about the extraordinary economic value of ecosystem goods and services suggests an omission in our system of economic market valuations and may be explained by the fact that we normally do not measure or manage economic values that are not exchanged in the traditional market place. This is especially true of the indispensable goods and services provided by nature that are unconsciously woven into the fabric of our everyday lives but which are overlooked or undervalued despite their enormous contributions to the delivery of goods and services that satisfy our daily needs around the world. As a result, the economic invisibility of nature’s participation in our economies becomes a phantom force that silently contributes to the pernicious degradation, fragmentation and removal of natural ecosystems which result in biodiversity and ecosystem productivity losses that, in some cases, are irreversible; however, the consistent use of specific and justifiable currency values applied to ecosystem goods and services would enable the terrestrial and aquatic ecosystems that are worth protecting to be prioritised, managed and even enhanced through investment as with any other commodity in a financial market.

One reason for the need to regularly update the annual value of global ecosystem goods and services is to ascertain the effectiveness or impact of human management or mismanagement of valuable ecosystems. The 2014 data indicates that humans have caused damage to ecoystems resulting in an annual worldwide loss of US$23.1 trillion since 1997 when a previous annual ecosystem valuation was officially compiled and published. To put this into perspective, the total U.S. gross domestic product as of April 2014 was US$17.15 trillion. As people remove or cause irreparable damage to ecosystems such as mangroves, forests, coral reefs, wetlands, hydrothermal vents and seagrasses, just to name a few, many – if not all – of these services need to be artificially replaced.

Expensive artificial replacements are becoming increasingly required for many natural ecosystem services that have been degraded or removed by human activities. As a result, the true value of natural ecosystem services is revealed and publicly disseminated for the first time in human history. This realisation provides us with opportunities to evaluate the natural ecosystem services that were once taken for granted in order to safeguard those ecosystems now deemed to be indispensable or too costly to replace artificially.

Business practices on land and at sea that perpetuate the exploitation and removal of natural resources for commercial gain at a rate that exceeds the natural reproduction rate of these resources have created serious risks as well as significant losses, but our nascent awareness of their non-sustainability has also created new opportunities for businesses to identify the resources required for their current and long term future needs, invest in the protection or enhancement of those ecosystems on which they have become reliant and determine the extent to which ecologically sustainable business practices will contribute an additional margin of profitability and consumer support.

Our natural resources have long been possessed of contrasting fragility and resilience, beauty and productivity, births and deaths, silence and sound, while they have alternately thrived and barely survived through periods of fire and ice. Ecological economists are increasingly demonstrating the value of natural resources as economic assets to facilitate economic growth and sustainable employment, yet, to many of us, their worth is simply priceless.