Ecosystem Services Valuation

cc by-nc-nd Bruno Monginoux &

Croatia, By B. Monginoux (CC 2.0)

Ecosystem Services Valuation

In the past, natural ecosystem services were never considered worthy of evaluation in financial terms and therefore could never be categorised as assets, yet individual costs could always be calculated, if necessary, for the construction of a water filtration system, manual crop pollination or the development of coastal defences which are simply expensive artificial substitutes for natural ecosystem services that, in the past, have been widely provided for free.

Most services provided by the natural environment to human society have never been included in the calculation of a country’s Gross Domestic Product (GDP), which can be defined as: the total market value of all final goods and services produced in a country in a given year, equal to consumer, investment and government spending, plus the value of exports, minus the value of imports. While traditional accounting procedures include the depreciation of man-made capital assets, there has never been any allowance for the “wear and tear” on ecological assets or a reserve account for ecological contingencies. These hidden losses have not only escaped the watchful eye of supposedly enlightened public scrutiny but they have also distorted balance sheets and undermined the ability of business managers to forecast and ensure the short and long term resouce needs of an enterprise.

Despite these accounting principal anomalies, natural ecosystem services are legitimate economic assets due to their vital contributions to the long term economic performance of individual nations. For example, tangible services provided by wetland and marine ecosystems include: industrial and domestic waste treatment; provision of agriculture, fishing, firewood, and other raw materials for products relating to pharmaceuticals, medical treatments and commercial uses; water filtration, purification, regulation and provision; nutrient cycling and soil enrichment; mitigation of extreme events; transportation; recreation; coastal protection and climate regulation. An example of one of the many valuable services provided by fish and aquatic life living in the high seas is their removal of 1.5 billion tonnes of atmospheric carbon dioxide every year – a service valued at US$148 billion, according to Rashid Sumaila, director of the University of British Columbia Fisheries Economics Research Unit who noted in 2014 that “We’ve found that the high seas are a natural system that is doing a good job of [atmospheric carbon dioxide removal] for free. If we lose the life in the high seas, we’ll have to find another way to reduce emissions at a much higher cost.”

To a great extent, the economic value of biodiversity and ecosystem services will continue to be a function of demand-side and other socio-economic factors (e.g. population growth and urbanisation, economic growth, political changes, preferences and environmental policy, developments in information technology) as well as supply-side constraints (e.g. climate change, increasing scarcity of natural resources, declining quality of ecosystem services).

Today, ecosystem services are being evaluated and valued by nations and institutions out of necessity following the awareness of that which has already been lost to human societies as well as that which remains and must therefore be safeguarded to avoid further irretrievable losses. One such undertaking is the ecosystems evaluation project initiated by the European Commission and the German government in 2007, the results of which were compiled in The Economics of Ecosystems & Biodiversity (TEEB) Report published in 2010. Another natural resource valuation guide was launched by the British National Ecosystem Assessment and the British Natural Environment White Paper, which resulted in the development of a natural capital accounting system to be used in conjunction with Gross Domestic Product indices along with the national index of well-being that collectively assess the socio-economic health and progress of British society.

Universities are also engaging in ecological economics in conjunction with associated scientific research. For example, in an effort to mitigate the $500 million of damage inflicted every year on global coffee bean production by the coffee berry borer beetle (Hypothenemus hampeii), Stanford University (California) biologists who conducted a study in Costa Rica concluded that coffee farms that set aside one or more areas of protected tree groves or rain forest, which provide a habitat for insect-eating birds, had higher production yields per hectare and suffered far less damage to their crops than farms without such insect-eating birds living in a nearby natural forest habitat. The study which was published in August 2013 in the journal Ecology Letters revealed that these pest-control services to the farms are valued at US$75–310 per hectare per year, “a benefit per plantation on par with the average annual income of a Costa Rican citizen”.

The incorporation of ecological economics into our asset valuations, income production schemes and industry forecasts of future resource requirements represents just one of the many ways in which visionary institutions are endeavouring to ensure sustainable economic growth, reduce poverty and protect the natural resources on which we are dependent; however, history has shown us through the ages that the passage of time and consequences of our actions will ultimately reveal the presence or absence of our wisdom reflected in our natural resource management or mismanagement that succeeding generations will inevitably question but for which current generations may never have to account.