The Economics of Ecosystems & Biodiversity (TEEB) Report

Ceahlău Massif, Romania, by Sergiu Luchian (CC 2.0).

The Economics of Ecosystems & Biodiversity (TEEB) Report

In 2007, the European Commission and the German Federal Ministry for the Environment initiated a project to assess the global economic benefits of biodiversity. The aim of the project was to promote a better understanding of the value of biodiversity for human health and socio-economic well-being and to provide policy-makers with the requisite tools to ensure a more stable future for human societies.

In undertaking this ecosystem services valuation task, the European Commission and the German government launched a study hosted by the United Nations Environment Programme (UNEP) and financially supported by the European Commission as well as the governments of Britain, Germany, the Netherlands, Norway and Sweden for the preparation of The Economics of Ecosystems & Biodiversity (TEEB) Report. This project was directed by senior Deutsche Bank economist Pavan Sukhdev for the financial valuation of terrestrial and aquatic ecosystem services. Following the release of a series of interim reports, the final TEEB report was released in October 2010.

This project serves to establish and justify the values assigned to ecosystem services such as clean water, natural flood barriers and diverse plant sources for obtaining life-saving pharmaceuticals and medical treatments. Part of this project presents “a world with” and “a world without” certain enumerated ecosystem services, such as water quality functions, in order to demonstrate the cost of substitutes that may have to be developed in the future in the event that today’s natural ecosystems become functionally degraded or disappear.

The TEEB report represents a compilation of credible, peer-reviewed evidence of the financial benefits of terrestrial and aquatic environmental conservation for presentation to the public and policymakers, including government ministries concerned with finance, energy security and employment, in an effort to illustrate the staggering hidden cost to citizens around the world of permitting the continuing loss of valuable ecosystems, many of which must out of necessity be artificially replaced to ensure our health, coastal land and building protection, purified water availability, food security, physical safety and provision of raw materials on which we base our jobs and economies.

The report revealed that the cost of our global adverse impact on biodiversity is estimated to reach as much as 7.5% of global Gross Domestic Product every year. The report also cited examples of the methods by which we can mitigate these losses, manage natural ecosystems, preserve biodiversity and support economic activities.

One example of the economic benefits of ecosystem conservation is situated in Vietnam where a single investment in planting and protecting nearly 12,000 hectares of mangroves cost the government $1.1 million, but spared the government from the requisite annual dike maintenance and associated expenditures which resulted in an annual savings of $7.3 million. Cost savings from this investment have since been redirected to other public necessities.

The economic benefits of mangrove restoration have been particularly impressive by any investment banking standards whereby the average internal rate of return on mangrove restoration investments has been calculated in the TEEB report at 40% (with a benefit-cost ratio of 26.4:1). By comparison, the rates of return on other ecosystem restoration investments were cited in TEEB for coastal ecosystems at 11% (benefit-cost ratio of 4.4:1); coral reefs at 7% (benefit-cost ratio of 2.8:1); grasslands at 79% (benefit-cost ratio of 75.1:1); lakes/rivers at 27% (benefit-cost ratio of 15.5:1); and tropical forests at 50% (benefit-cost ratio of 37.3:1).

According to TEEB, the mangrove assessment per hectare was based on the typical restoration cost (US$ 2,880), the estimated annual restoration benefits ($ 4,290), the net present value of benefits over 40 years ($86,900) with an internal rate of return calculated at 40%. [Note: TEEB used a discount rate of 1% and discount rate sensitivity flexing to 4%. Benefits were calculated using a benefit transfer approach.]

Another example of ecological economics cited in the TEEB Report concerns wildlife pollinators, the services of which are valued at US$395 per hectare of forest per year. A Costa Rican study demonstrated that the presence of wildlife pollinators in small patches of natural forest in human-dominated agricultural landscapes increased coffee farm yields by 20% and also increased the quality of the product because the trees shelter pollinating insects necessary for coffee production. The ecosystem services provided by the wildlife pollinators represent 7% of regional farm income. This is one of many examples in the report that demonstrates the association between ecosystem conservation and income. The report also explains the causal connections between ecosystem protection and sustainable economic development as well as ecosystem degradation and the persistence of rural poverty that plagues so many developed as well as developing nations around the world.

By recognising natural ecosystem goods and services as capital, assigning economically justifiable values to these goods and services in relation to the benefits they provide, integrating these values into all levels of public sector as well as private sector decision-making, and responding efficiently with the aims of conserving natural ecosystems and sustainably using the ecosystem services and goods produced, we have the ability to avert the potential degradation or loss of remaining natural ecosystems. Whether human societies are capable of learning from this knowledge is far from certain and remains to be seen.