Ecological Economics and Biodiversity Synthesis PDF

Ecological Economics and Biodiversity Synthesis Farley and Ceroni (2010) Mangrove forests converted to shrimp aquaculture in Tagabinet, Palawan, the Philippines. Photo by J. Farley. ABSTRACT The new field of ecological economics recognizes the importance of containing economic growth within the biophysical limits of the biosphere and the need for a new economic model that recognizes and maintains the diversity of functions and species in the planet’s ecosystems (Costanza and Daly 1987, Daly and Farley 2010). This module explains why the current economic model is leading to irreparable depletion of natural capital, and presents ecological economics as a viable alternative for achieving a fair and sustainable biodiversity economy. 2 TABLE OF CONTENTS 1. INTRODUCTION.................................................................................................................. 4 2. ECONOMICS FOR A FULL WORLD......................................................................................... 5 2.1. WHAT IS ECONOMICS?.................................................................................................5 2.2. ENVIRONMENTAL ECONOMICS......................................................................................5 2.3. ECOLOGICAL ECONOMICS............................................................................................6 3. BIODIVERSITY, ECOSYSTEM GOODS, AND ECOSYSTEM SERVICES....................................... 10 3.1. WHAT IS BIODIVERSITY?............................................................................................10 3.2. WHAT ARE ECOSYSTEM SERVICES?............................................................................12 4. BIODIVERSITY, THE NATURE OF RESOURCES, AND ECONOMIC INSTITUTIONS....................... 14 4.1. RIVALRY AND RATIONING............................................................................................14 4.2. EXCLUDABILITY AND ECONOMIC INSTITUTIONS............................................................15 4.3. INTEGRATING RIVALNESS AND EXCLUDABILITY.............................................................16 5. THE VALUE OF BIODIVERSITY AND ECOSYSTEM SERVICES.................................................. 17 5.1. WHAT IS ECONOMIC VALUE?......................................................................................17 5.2. MONETARY VALUATION OF BIODIVERSITY AND ECOSYSTEM SERVICES..........................19 5.3. WHAT’S BIODIVERSITY WORTH TO THE FUTURE?.........................................................20 5.4. CRITIQUES OF MONETARY VALUATION.........................................................................21 5.5. ALTERNATIVE APPROACHES.......................................................................................21 6. ECONOMIC POLICIES FOR CONSERVING BIODIVERSITY AND ECOSYSTEM SERVICES............. 23 6.1. PROPERTY RIGHTS, PAYMENTS AND PENALTIES: CAP AND TRADE AND GREEN TAXES... 24 6.2. PAYMENTS FOR ECOSYSTEM SERVICES.................................................................... 25 7. ETHICS AND THE NEW BIODIVERSITY ECONOMY................................................................. 29 GLOSSARY.......................................................................................................................... 31 LITERATURE CITED.............................................................................................................. 33 3 Ecological Economics and Biodiversity Joshua Farley and Marta Ceroni 1. INTRODUCTION The multiplicity of landscapes, ecosystems, and species on Earth is a source of important benefits for human wellbeing. From medicinal plants to fisheries, to the diversity of animal and plant communities that perform different ecological functions, biodiversity provides human societies with food, medicine, shelter, and essential ecosystem services. Ecosystem services are benefits that humans derive from well functioning ecosystems such as the provision of food, fiber, and fuels by forests, regulation of water and waste by wetlands, and spiritual and recreational enjoyment in terrestrial, coastal, and marine ecosystems. Completing the circle, ecosystems provide habitat for the biodiversity responsible for sustaining all other services (Costanza et al. 1997b, Daily 1997, Millennium Ecosystem Assessment 2005). Collectively, these ecosystem services sustain the economy at local and global scales. The current economic system strives for continuous economic growth, while clinging to outdated assumptions developed in an era of relative resource abundance. It fails to recognize that ecosystem services are essential to human survival and have no adequate substitutes. The growing human population and appropriation of natural ecosystems and resources make it increasingly obvious that the current growth driven economic system is no longer biophysically sustainable. The new field of ecological economics recognizes the importance of containing economic growth within the biophysical limits of the biosphere and the need for a new economic model that recognizes and maintains the diversity of functions and species in the planet’s ecosystems (Costanza and Daly 1987, Daly and Farley 2010). This module explains why the current economic model is leading to irreparable depletion of natural capital, and presents ecological economics as a viable alternative for achieving a fair and sustainable biodiversity economy. In particular, the module will allow students to: 1. Investigate the contributions of biodiversity to local and global economies 2. Examine the reasons why the current economic system ignores the contributions of biodiversity 3. Analyze the consequences of neglecting the contributions of biodiversity to our economies and identify alternative approaches 4. Examine the complex link between poverty, biodiversity protection, and sustainable development within an interdisciplinary framework 5. Evaluate ecological economics as an alternative to the current dominant economic model 2. ECONOMICS FOR A FULL WORLD 2.1. WHAT IS ECONOMICS? Economics is frequently defined as the science of the allocation of scarce resources among alternative desirable ends. A resource is scarce if there is not enough available to achieve all desirable ends, forcing us to choose among them. Allocation is the apportionment of resources among different products or outcomes. It follows from the definition of economics that an economist must first decide which ends are most desirable and next assess the resources required to attain them. Only then can we decide what mechanisms are appropriate for allocation. In everyday language, economics is how we use what we have to get what we want. The desirable end for most economists is enhanced human welfare. Conventional economics1 seeks to achieve this by increasing economic output, typically as measured by gross domestic product (GDP). The scarce resources required to create consumer goods and services include energy, raw materials, labor and capital—the factors of production. In theory, competitive markets allocate factors of production towards the most profitable goods and services, and in turn distribute those goods and services towards those who value them the most, as measured by their willingness to pay. Markets maximize monetary value. Most economists focus almost exclusively on the free market as the most efficient allocative mechanism. Within the last century, there has been a fundamental shift in the relative scarcity of resources required to attain our desired ends—natural capital and the income2 it generates have become scarcer, while the market goods and services produced by humans have become more abundant. Unfortunately, many forms of natural capital have physical characteristics that prevent them from functioning as market commodities—markets not only fail to allocate them efficiently, but instead lead to their depletion and degradation (see section 4). Two distinct approaches have emerged to defining and addressing the problem: environmental and ecological economics. 2.2. ENVIRONMENTAL ECONOMICS Environmental economics emerged as a sub-discipline of conventional or neo-classical economics focused on natural resources and the environment. Using the tools of conventional economics, the emphasis is on correcting market failures that lead to sub- optimal levels of resource consumption and pollution. Among its distinguishing features, environmental economics takes a disciplinary approach, applying the tools of economics to address environmental problems. It assumes that people are insatiable and the desirable end of economic activity is to maximize consumption. In contrast to its parent discipline, environmental economics includes the goods and services generated by nature as well as human made ones in its definition of consumption. Like its parent, environmental economics assumes that market prices (when they exist) balance supply and demand for all commodities, 5 moving the economy towards a general equilibrium in which resources are optimally allocated towards improving human well being. The discipline is based on mathematics and strives to be value neutral. While environmental economists recognize that natural capital is an important scarce resource in general, most seem to believe that technology allows us to develop substitutes for any specific resource, and there is no such thing as absolute scarcity. Few environmental economists seem to recognize any inherent limits to growth. Finally, environmental economists generally focus on market solutions, and believe that if we can get prices right, market forces will lead to ecologically sustainable and desirable scale (see for example Pearce and Turner 1990). 2.3. ECOLOGICAL ECONOMICS Ecological economics is a transdisciplinary field, not an academic discipline. Practitioners of a discipline learn a set of methods and tools they apply to any problem, while transdisciplinary fields let a given problem determine what methods and tools are appropriate. Ecological economists recognize that we cannot separate the ecological and economic systems, which form part of one complex whole, and it is impossible to understand this whole from the perspective of any single discipline (Costanza 1996). Ecological economics recognizes that when the economy grows, it does not grow into a void, but rather into a finite planetary ecosystem, unavoidably reducing the supply of ecosystem services. Over the past 200 years, we have moved from an empty world in which human populations and consumption levels were small relative to the sustaining and containing ecosystem, into a full world, in which the converse is true, as shown in Figure 1. With this framework in mind, ecological economists pursue three distinct goals: 1) sustainable and desirable scale, 2) just distribution and 3) efficient allocation (Costanza et al. 1991, Daly 1992). 6 Figure 1: The Ecological Economy: From empty world to full world (Adapted from Daly and Farley 2010) Sustainable and desirable scale Scale is the size of the economic system relative to the ecosystem that contains and sustains it. We know from the laws of physics that it is impossible to make something from nothing. All economic production requires the transformation of raw materials provided by nature. It is also impossible to do work without energy, and fossil fuels account for some 87% of the energy used in modern society (British Petroleum 2012). Furthermore, it is impossible to make nothing from something, and disorder (entropy) increases. This means that when we burn fossil fuels, we generate waste (disorder), and all economic production eventually wears out, breaks down or falls apart, becoming waste in the process. This waste must return to the sustaining and containing 7 ecosystem. Ultimately, the scarce resource essential for all economic production is low entropy (i.e., ordered, useful) matter-energy, of which there is a finite supply on our finite planet. We do have a continuous flow of solar energy that can restore low entropy, but it arrives on Earth’s surface at a fixed rate over which we have no control. Once fossil fuels have run out, the size of the economy is limited by the flow of solar energy that can counteract the forces of entropy (Georgescu-Roegen 1971, Daly 1973). We know from the laws of ecology that everything is connected to everything else (Commoner 1971). The raw materials we extract from nature such as plants, animals and water alternatively serve as the structural building blocks of ecosystems. When we remove ecosystem structure and spew waste back into the environment, we degrade or destroy ecosystem functions (Odum 1989). The economy has reached its desirable scale3 when the rising marginal costs of ecological degradation equal the diminishing marginal benefits of economic growth, and additional growth is uneconomic (Costanza et al. 1997a, Daly and Farley 2010). The economy exceeds sustainable scale4 when it extracts renewable resources faster than they can regenerate or emits waste faster than it can assimilate, threatening the ability of the ecosystem to reproduce itself or generate the ecosystem services essential to our survival. Just distribution5 Ecological economists assert that we have a moral obligation to future generations not to exceed sustainable scale and to leave adequate resources for them to enjoy a quality of life at least equal to our own. It makes little ethical sense however to care about the wellbeing of future generations without caring about those alive today— intragenerational distribution of our finite resource endowment is as important as intergenerational distribution. Furthermore, markets allocate resources based on the principle of one dollar, one vote, so resulting allocations can be no more desirable than the initial distribution that gave rise to them. Logically then, just distribution takes precedence over efficient allocation (Daly and Cobb 1994). Efficient allocation6 After addressing the issues of how many resources can be sustainably used by this generation (scale) and who is justly entitled to use them (distribution), ecological economists focus on efficient allocation—how to generate the greatest level of well- being from a given quantity of resources. Well-being is a multi-dimensional concept, and cannot be achieved simply by increasing consumption or maximizing monetary value. Figure 2 exemplifies this by showing that beyond a certain level of consumption (expressed as per capita Gross National Income for different countries), there are limited gains in quality of life (measured as satisfaction with one's life as a whole). Figure 2 also shows that some countries can achieve high quality of life regardless of their limited income and consumption levels. Markets can help achieve efficient allocation, but play only a limited role in achieving sustainable scale and just distribution. In fact, the marginal benefits of increasing consumption of market goods may be negligible or even negative at some point (Lane 2000, Layard 2005, Easterlin and Angelescu 2009). 8 Figure 2: Self reported satisfaction with life as a whole and Per Capita Gross National Income. The squares represent data from 120 countries around the world between 2005 and 2008, while the circles represent data from the US, from 1959-2007.1 (Figure adapted from Daly and Farley 2010) This module adopts the perspective of ecological economics. Rather than simply allocating resources provided by nature among different economic goods and services (which is micro-allocation7, the traditional subject matter of neoclassical economics), ecological economists believe the biggest challenge faced by society today is macro- allocation8—the apportionment of ecosystem structure between economic production and ecosystem services, both of which are essential to human well being and even survival. Ecological economists seek improvements through adaptive management, a continuous process in which each action is treated as an experiment that scientifically tests our knowledge of the biophysical and social systems, as well as our value judgments of better and worse (Costanza et al. 1998, Norton 2005). This approach integrates society’s ethical values with the best natural science and social science available. 1 Sources and methods: Veenhoven, R., World Database of Happiness, Distributional Findings in Nations, Erasmus University Rotterdam. Available at: http://worlddatabaseofhappiness.eur.nl, 2010; Bureau of National Economic Accounts. Current-dollar and "real" GDP. US Department of Commerce. Available at: http://www.bea.gov/national/index.htm, 2007; World Bank Group. World Development Indicators. Available at: http://devdata.worldbank.org/data-query/, 2010. For each country, we used the most recent survey results from 2004-2008 for the question “All things considered, how satisfied or dissatisfied are you with your life as-a-whole these days?” on a scale of 0-10, or on a scale of 1-10, adjusted to 0-10, if the former was not available. No surveys were available for the missing countries. The US data consists of all years available for the same question. To standardize all income measurements into the same unit, we created a conversion factor: CFt = (US “real” GDP per capita (in 2005 dollars))t / (US GNI per capita PPP current international dollars)t, for t = 2004-2008. The x-axis is in units of CF* GNI per capita PPP. 9 3. BIODIVERSITY, ECOSYSTEM GOODS, AND ECOSYSTEM SERVICES 3.1. WHAT IS BIODIVERSITY? Biodiversity9, a contraction for “biological diversity”, is a broad term used to describe the variability of living organisms, ecosystems, and landscapes that exist on Earth (see NCEP module: What is Biodiversity?). Biodiversity refers to diversity across all scales, biological (i.e., genetic, population, community, taxonomic, ecosystem), spatial (e.g., from root structure in soils to landscapes), and temporal (e.g., from annual, to decadal, to millennial changes in the distribution and abundance of species) (Wilson 1992, Pimm et al. 1995, Cardinale et al. 2012). Biodiversity at the community or ecosystem level can be measured by species evenness or species richness. The former describes the relative abundance of each species in a community, while the latter describes the number of species in a given place at a given time (Loreau et al. 2001). Biodiversity can be seen as the structure or fabric that enables ecosystems to function the way they do, supporting the flows of nutrients, matter, and energy on which human societies largely depend. While biodiversity is not itself an ecosystem service, it plays a critical role in sustaining virtually all other services (Hooper et al. 2005; Millennium Ecosystem Assessment 2005). Each time species go locally extinct, energy and nutrient pathways are lost with consequent alteration of ecosystem efficiency. Agricultural intensification, for example, causes biodiversity loss and loss of function (see Box 1). 10 Box 1. Loss of agricultural biodiversity Combines harvesting soybeans in Brazil – Source: FoodandYou (Flickr) Agricultural intensification has led to a widespread decline of wild plant and animal species and of agricultural biodiversity measured across many different levels, from a reduction in the number of crop and livestock varieties, to decreasing soil community diversity, to the local extinction of a number of natural pest predators. Monoculture agriculture is typically more susceptible to perturbations such as drought, flooding, pest outbreaks, and invasive species and to uncertainties related to market fluctuations. By contrast, multifunctional and sustainable agriculture generates a whole array of ecosystem services besides edible and fiber biomass production, such as erosion control, carbon sequestration, nutrient cycling, wildlife habitats, and sources of spiritual and cultural enjoyment (Gliessman 2000, Schroth et al. 2004, Moonen and Bàrberi 2008, Schmitt F. et al. 2012). Establishing clear links between biodiversity and human wellbeing would strengthen the case for conservation (Pimm et al. 1995, Czech 2003, Worm et al. 2006, Chan et al. 2007, Pearce 2007, Turner et al. 2007), but it presents a formidable challenge (Gowdy 1997, James et al. 2001, Turner et al. 2007). The challenge can be better addressed by making a distinction between biological resources and biological diversity (OECD 2002). Biological resources10 are elements of ecosystems, such as genes or species, which are of direct importance to human economies. Most studies have assessed the direct value of biological resources, focusing for example on the value of wild animal and plant products (Randall 1988). Biological diversity is considered to be of value to human societies as the source of the variety of species’ ecological interactions, physiological 11 tolerances, structural arrangements in space, and genetic structures that in the end determine ecosystem services. The positive connection between biological diversity and human welfare has only become more realized in recent years (Cardinale et al. 2012). A number of empirical ecological studies have measured the relationship between biological diversity and ecosystem processes such as decomposition or primary productivity. Results have not always been easy to interpret but some trends have emerged, as described in Box 2. Box 2. Effects of biodiversity on human wellbeing Positive effect on biomass production: Environments that have higher species richness normally display higher plant biomass accumulation. A study on hay fields in southern Britain shows that restoration of species richness in fields that were previously impoverished in species resulted in a 60% yield increase (Bullock et al. 2001). Insurance against environmental perturbations: Systems that are more diverse have more capability to respond to various shocks such as flood events or fires, whereas those with lower diversity are more likely to collapse and not recover (Tilman and Downing 1994, Worm et al. 2006). This is similar to having a more diverse portfolio of investment options, which will ensure more secure returns. Positive effect on scenic beauty: A variety of different land uses can promote scenic beauty, with positive effects on the economy of local communities. Entire communities in the Tuscany region of Italy benefit from a rural tourism economy. Similarly, Vermont’s farm landscape that includes a mix of land uses and types such as open fields, farm buildings, forests and mountains, helps draw tourists (Gliessman 2000). Diversity of genes and adaptability: Genetic diversity ensures adaptability and evolution. This is of particular value in food production systems where it is often needed to select for desirable genetic traits in the face of pest outbreaks, drought, salinization of soils, and increasingly, climate change. For an example on the importance of potato diversity in Peru, see this informative video: http://www.amnh.org/explore/science-bulletins/(subcategory)/24946 3.2. WHAT ARE ECOSYSTEM SERVICES? Ecosystem services are those natural processes that directly or indirectly affect human welfare and wellbeing, as in the case of forests producing timber, regulating atmospheric gasses, filtering water, providing genetic resources and offering habitat for biodiversity. Ecosystem services are produced by the structural fabric provided by biodiversity and by the exchanges of matter and energy between living organisms and the physical environment. The Millennium Ecosystem Assessment (MA, http://www.millenniumassessment.org), the largest effort to assess the status of 12 ecosystems and the services they provide, has categorized ecosystem services as regulating services, provision services, cultural services and supporting services (Table 1). Table 1: Ecosystem Service classification based on the Millennium Ecosystem Assessment and examples Service category Examples Provisioning Services: The capacity for ecosystems to reproduce or production and replenish supplies of food, fuel, fiber, water, etc. as purification of raw distinct from the stock of raw materials available at a materials given time Regulating Services: Regulation of climate, atmospheric gasses, water regulation of natural flows, waste absorption, agricultural pests, processes disturbances, soil formation, etc. Information and Cultural Genetic information, recreations, spiritual values, etc. Services Supporting Services: Habitat, nutrient cycling, pollination, etc. Background processes that sustain other processes Some authors distinguish between ecosystem goods11 and ecosystem services, an important distinction based on physical characteristics of the resource (Farley and Costanza 2010, Malghan 2011). Ecosystem goods are the material products derived from natural or managed ecosystems for humans to use, such as water, minerals, fish or timber. Humans can control the rate at which these are harvested. They are physically transformed in the act of production, so that use equals depletion. The change in a stock of ecosystem goods is determined by the difference between extraction and renewal over a period of time. Ecosystem goods are elements of a broader class known as stock-flow resources12. Ecosystem goods are also structural building blocks of ecosystems, and are thus essential for the provision of ecosystem services. In contrast, ecosystem services are elements of a broader class known as fund-service (or fund-flux) resources13, resulting from a particular configuration of stock-flow resources (Georgescu-Roegen 1971). Fund-services are not transformed in the act of production, and use does not equal depletion. For example, when a forest absorbs rainfall and prevents flooding, the forest itself is not converted into the benefits it provides. Humans have little control over the rate at which ecosystem services are provided. For example, a forest can absorb a certain amount of rainfall per day, but if there is no rainfall for some period of time, absorption capacity does not accumulate. Provisioning services are not the actual stocks of fish or forests, for example, but rather their reproductive capacity. A billion sterile fish might have immense value as a stock, but generate no provisioning service. 13 Whether a particular species or resource is stock-flow or fund-service in nature depends on the specific use. For example, a whale can be a fund-service resource when observed by whale-watchers, or a stock-flow resource when hunted by whalers. We explore the significance of these characteristics in more detail below. 4. BIODIVERSITY, THE NATURE OF RESOURCES, AND ECONOMIC INSTITUTIONS The market model, responsible for the allocation of most natural resources, is largely responsible for the current dire threats to biodiversity. Biodiversity and many of the ecosystem services it generates have public good characteristics. Most economists recognize that markets will not efficiently allocate resources towards the provision, protection, and restoration of public goods. To understand exactly why this is so, and to develop economic institutions that can effectively protect and restore biodiversity, we must understand the concepts of rivalry and excludability. 4.1. RIVALRY AND RATIONING Markets use the price mechanism to ration goods and services to whoever is willing to pay the most. Rationing, however, is only desirable when resources are rival14: one person’s use of the resource leaves less for others to use. All stock flow resources are rival, as is the fund-service of waste absorption capacity (e.g., global ecosystems can absorb some of the CO2 emitted into the atmosphere, but the use of this capacity by one country leaves less for others to use, and when this capacity is exceeded, atmospheric stocks increase). Failure to ration rival resources, such as timber or fisheries frequently results in unsustainable use, an unjust distribution of benefits across society, and inefficient allocation of the resource among different end uses. Some regulating, supporting, and cultural services are non-rival, but can be made artificially rival. For example, countries generally donate newly discovered harmful viruses to the World Health Organization, which in turn allows access to anyone who wishes to develop vaccines. However, private corporations then patent the vaccines so they can ration access to consumers, ironically increasing the likelihood of a pandemic. In 2007 a new strain of avian flu was discovered in Indonesia. Indonesia threatened to sell access of the virus to a single corporation, which would dramatically reduce the likelihood of finding a cure, but would ensure access to Indonesians. Rationing non-rival services creates artificial scarcity. The social welfare provided by a non-rival service is maximized when the price equals zero, but markets provide no incentive to produce or protect resources with a zero price (Daly and Farley 2010). Non-rival resources should be open access, in which case only non-market, collective institutions are likely to fund their provision or protection. Non-rivalry should not be confused with abundance, which in economic jargon means that there is enough for everyone to use as much as they like, so there is no need to compete for access. For example, on an empty beach there is no competition for a place to lay your towel, but when the beach fills up, there is. The physical space your 14 towel occupies is rival. Rivalry is a physical characteristic of a resource that cannot be affected by policy; it is not dynamic. Unfortunately, some economists conclude “that the conditions that underlie market failure, namely non-rivalry and non-excludability, are dynamic” (Landell-Mills and Porras 2002, p. 11) and seek to develop market mechanisms for allocating non-rival resources (Farley and Costanza 2010). 4.2. EXCLUDABILITY AND ECONOMIC INSTITUTIONS Rationing is only possible when a resource is excludable15: one person or group can prevent others from using the resource. Excludability is always the result of institutions, and hence a dynamic policy variable. Most governments regulate access to land, timber, fossil fuels, and minerals, and many regulate access to game animals and fish stocks. Some ecosystem services are excludable, such as recreation on a game reserve or waste absorption capacity for regulated pollutants, but most are not. If a rival resource is non-excludable- such as oceanic fisheries, forests in the Amazon too remote for legal protection, or unregulated pollutants- price rationing is not possible. Individuals who harvest or pollute keep all the gains for themselves while sharing the costs with others. Garret Hardin (1968) labeled the overexploitation of rival but non- excludable resources the tragedy of the commons. In reality, the tragedy is one of open access regimes—the absence of property rights (Bromley 1991). Open access regimes require a collective institution at the scale of the problem to create some sort of property right—common, public, or private—to make the resource excludable and ration access. Once resources have been made excludable, economists generally favor market mechanisms to ration access. For example, cap and trade schemes (widely used for fisheries and regulated pollutants) cap total resource use, ideally within ecologically determined limits. Permits for use can then be distributed among private users and subsequently traded, or auctioned off to the highest bidder. Elinor Ostrom (1990), Daniel Bromley (1991) and others have shown that collective institutions can also create effective non-market common property mechanisms for rationing rival resources. We discuss these at greater length in section 6. Many ecosystem services however are inherently non-excludable as a physical characteristic, and no institution can make them excludable. Most of these services are also non-rival. Resources that are both non-rival and non-excludable are known as pure public goods. For example, forested land may provide critical habitat for pollinators, regulate climate, and protect neighboring communities from hurricane winds, but short of eliminating the service, neighboring communities cannot be prevented from benefiting from these services. Limited incentives exist for individuals to bear the real costs of protecting ecosystems in order to provide public goods. In this case, collective institutions are required to provide, protect, or restore the ecosystems that generate the services. Possibilities include establishing public or common ownership of the ecosystem providing the services, or limiting the property rights of the existing owner. For example, Brazil’s national forest code law forbids removal of forest cover in riparian zones and in other critical ecosystems on rural properties, and demands restoration 15 where these have been removed (though the law is poorly enforced) (Metzger 2010, Farley et al. 2011). Collective institutions could also pay existing landowners to manage ecosystems for service provision, known as payments for ecosystem services16 (Farley and Costanza 2010, Muradian et al. 2010), as described in section 6. The only purely non-rival ecosystem service we know of that can be made excludable is genetic information, with the problems noted above in our discussion of the avian flu (beautiful views on private land can be made excludable, but as pointed out earlier, the physical spot to enjoy the view is actually rival, albeit abundant when there are few users.). Making information excludable may slow the production and dissemination of important new technologies, creating a tragedy of the non-commons (Kubiszewski et al. 2010). 4.3. INTEGRATING RIVALNESS AND EXCLUDABILITY Because ecosystem components are excludable and most ecosystem services are not, market forces systematically favor the conversion of ecosystem components to marketable products at the expense of their conservation to generate ecosystem services, even when the social value of the ecosystem services greatly outweighs the market value of the marketable products (Farley 2010). Market institutions fail to protect biodiversity, and new economic institutions are required. Table 2 suggests the general characteristics of appropriate institutions for each possible combination of rivalness and excludability. We provide more detail on appropriate institutions in section 6. Table 2: Rivalness, Excludability and their relevance to allocation (adapted from a similar table in Farley and Costanza 2010) Excludable (rationing Non-excludable (open access) possible) Rival and Potential Market Goods and Open Access Regimes: Unowned scarce Services: Privately owned ecosystem structure (e.g. Oceanic (rationing ecosystem structure (e.g. fisheries), absorption capacity for desirable) timber, harvested fish, land), unregulated wastes. agricultural production, Collective institutions are required to absorption capacity for ration access. regulated wastes Rival and Club or Toll Goods and Congestible Goods and Services: abundant Services: golf course, private public beach, public wilderness beach, privately owned recreation areas. wilderness recreation Treat as open access regime when facilities. heavily used and as public good when Treat as market good when abundant. scarce, or when required to raise revenue for preservation. Otherwise, open access desirable. Non-rival Tragedy of the Non- Public Good Services: Most 16 (open commons: Genetic regulating, information/cultural and access information protected by supporting services, non-patented desirable) convention on biodiversity, information. patented information. Collective institutions required for Access is rationed, but should provision, restoration and protection. be funded by collective Open access is unavoidable. institutions and made open access. 5. THE VALUE OF BIODIVERSITY AND ECOSYSTEM SERVICES Biodiversity conservation is widely seen as conflicting with economic goals and human welfare, especially when local communities face restricted use of the resources being protected. The role biodiversity plays in sustaining ecosystem processes essential for the well being of local, regional and global communities is largely invisible to the layperson. It is also important to recognize the different types of values that people hold in terms of benefits from nature at the local, regional, national, and global level. These values have to do, for example, with how much people depend on the resource being protected, with their cultural environment, education, income, and worldviews. Tourists may value scenic beauty and biodiversity far more than the locals, while locals may place spiritual values on biodiversity that cannot be monetized. Everyone depends on essential life support functions, which unfortunately are often the least understood and least tangible. A thorough assessment of ecosystem services must therefore consider the whole range of values for beneficiaries of services at different scales. In recent years, conservation organizations and governments have looked with increasing interest at the economic benefits that biodiversity and protected areas bring to communities locally and globally. The national government of Costa Rica for example has adopted the protection of forests and watersheds as a strategy to build a solid ecotourism economy, bringing in 2.2 billion USD every year (8.1% of the country’s GNP in 2005). 5.1. WHAT IS ECONOMIC VALUE? Economic value is a very complex concept that has been debated for centuries. How this debate is resolved has profound implications for the valuation of biodiversity. To illuminate important elements of this debate, we will dissect two questions. First, what is more valuable, water or diamonds? Second, for whom is water more valuable: a destitute mother who needs to protect her child from dysentery, or a wealthy person who uses it to flush his toilet? Why are diamonds considered extremely valuable, while water, which is essential for life, often has minimal market value? Most economic decisions are made based on marginal units. Say that a farmer has a well that produces five units of water per day. She uses the water for drinking, watering her animals, crop irrigation, personal hygiene, and flushing the toilet. If a drought decreases her well’s output, she doesn’t cut back on 17 all uses equally, but rather eliminates the least important ones first; she will begin using an outhouse and cut back on personal hygiene before she lets her crops and animals die. Economists therefore focus on value in exchange, which is determined by the value of an additional unit—one more glass of water, one more diamond. The more we have of something, the less we value an additional unit. In economic jargon, there is diminishing marginal utility. The total utility of water is immeasurably high, but the marginal utility is so low that we literally defecate in it. Diamonds, in contrast, are very scarce, so the marginal diamond is used in wedding rings—marginal utility is high even though total utility is modest. Markets measure marginal values, which are based on marginal utility. However, when something is essential and has no substitutes, small decreases in quantity can lead to enormous increases in marginal value. For example, on a lifeboat at sea down to a gallon of water per person with no sign of rescue, only a fool would trade his water for diamonds. This leads to the next question about who values water the most. To most people it would seem obvious that the water has higher value for a mother desperate to save her dying children. However, the monetary value of something is determined by how much an individual is willing to pay for it, which in turn is determined by preferences weighted by purchasing power. The intense preference of this mother for water is weighted by her negligible purchasing power, while the weak preference of the rich man is weighted by his immense purchasing power. Markets maximize monetary value by allocating water to flush toilets, while dysentery remains a leading cause of infant mortality. While an individual sacrifices the least important uses of water as the quantity available declines, a market society characterized by unequal wealth sacrifices the least important individuals, where importance is measured by wealth (Farley 2012). The economic value of something is defined by the desirable ends we choose to pursue, and is not synonymous with monetary value. Biodiversity itself and many of the ecosystem services it helps sustain, such as the provision of food and water, are essential and have no substitutes. These resources are known as critical natural capital (CNC)17 and exhibit inelastic demand18, which means that small percentage changes in quantity lead to large percentage changes in price. When critical natural capital is abundant, there is enough to satisfy all desired uses, no matter how frivolous, and plenty to maintain full ecosystem function. In the absence of scarcity, exchange value is zero. Examples include water supplies from a large river for a small population, or current levels of atmospheric oxygen. As supply diminishes, scarcity engenders competition for use. As we sacrifice increasingly important uses, marginal value rises rapidly. For example, continued deforestation of the Amazon threatens regional climate and biodiversity loss. When there is no longer enough available to meet essential and non-substitutable needs, or to sustain reproductive capacity, the value skyrockets, approaching the infinite. If enough of the Amazon is lost, it may be unable to recycle enough rainfall for the forest to regenerate, leading to spontaneous decline (Nepstad et al. 2008). In the presences of such thresholds, marginal analysis is no longer relevant and a biophysical (instead of simply economic) assessment of ecosystem services may provide more valuable information (see section 18 5.6) (Farley 2008). Figure 3 illustrates a hypothetical demand curve for critical natural capital exhibiting these characteristics. Figure 3: A conceptual framework for the valuation of critical natural capital stocks. When stocks are healthy, resilient and abundant, there is no competition between uses, and marginal values are zero. As stocks become scarcer, competition for different uses emerges, but marginal uses are still inessential, and marginal values are insensitive to modest changes in stocks. As capital stocks decrease further, society must forego increasingly important uses, and risk having inadequate supplies to meet essential needs. Ecosystems become less resilient, and may approach a threshold beyond which they cannot spontaneously recover from further loss or degradation. Marginal values are highly sensitive to small changes in stocks. When capital stocks have passed critical ecological or economic thresholds, marginal values are essentially infinite, and restoration of natural capital stocks essential. 5.2. MONETARY VALUATION OF BIODIVERSITY AND ECOSYSTEM SERVICES Market economics drives many of the most important decisions affecting biodiversity, but generally fails to account for the values of biodiversity and the ecosystem services it generates. Many people believe that estimating the monetary value of biodiversity will lead to better decision-making. The way monetary values of biodiversity and ecosystem services are calculated varies substantially depending on the characteristics of the biodiversity component or ecosystem service being assessed and the type of value that society places on that service. A distinction is normally made between use values and non-use values and between direct- and indirect use values (Pearce and Turner 1990). Direct-use values 19 are generated by stock flow resources (e.g. from provisioning services) and indirect-use values by fund-service resources. (See also NCEP’s “Why is Biodiversity Important?”). Since a rival resource is depleted by use, the monetary value is determined by the greatest amount an individual is willing to pay for an additional unit. Non-rival resources in contrast are not depleted by use. The monetary value is therefore determined by the sum across all willing to pay for an additional unit. In the case of non-rival or non- excludable ecosystem services, economists must rely on revealed or stated preference valuation methods. Revealed preference19 valuation methods typically document behaviors or impacts that are traceable in the marketplace. For example, one study estimates that Brazilian free-tailed bats in South-Central Texas destroy pests that would otherwise cause a $638,000 annual loss in cotton production. Note that this technique focuses only on a small subset of values—bats provide far more than just pest control. Stated preference20 valuation methods, primarily used for ecosystem services that have non-use values such as spiritual or cultural importance, usually consist of interviews employed to assess people’s willingness to pay (WTP) or accept (WTA) compensation for maintaining a given service (Mitchell and Carson 1989). Studies of this kind are also called contingent valuations21 because the stated preference for a given option is contingent on a specific hypothetical scenario and description of the environmental service. For example Turpie (2003) used a WTP survey to establish the existence value of biodiversity in the Cape Floristic Region in South Africa. Willingness to pay was strongly correlated to both monthly income and level of interest, with WTP nearly doubling when the respondents were shown the predicted impacts of climate change (contingent scenario) on biodiversity. 5.3. WHAT’S BIODIVERSITY WORTH TO THE FUTURE? One of the biggest challenges in valuation is how to account for the flow of costs and benefits across time. Take the example of activities leading to the loss of biodiversity. Brazil’s Atlantic Forest, reduced to less than 10% of its original area, risks catastrophic collapse in biodiversity, though there may be a time lag of centuries before this occurs (Brooks and Balmford 1996). While the benefits of converting ecosystem structure to economic production are generally felt in the present, the costs often accrue in the future. Economists have long argued that we must systematically discount future costs and benefits relative to present ones because of opportunity costs. For example, if investment opportunities are available today that generate 10% return per year, then $110 one year from now can be worth no more than $100 today. What is the impact of discounting? Though discount rates typically have profound impacts on valuations, the choice of a discount rate is often fairly arbitrary. Cost benefit analyses with high discount rates suggest we should do very little now to prevent catastrophic climate change in the future (Nordhaus 2008). The more we discount the future, the more resources we’re likely to use today. Some economists recommend the 20 smallest discount rate possible (Weitzman 1998), and the Stern Review on Climate Change used a discount rate very close to zero, based on the low likelihood of the human race going extinct in a given year (Stern 2006). Many ecological economists argue in contrast that not all values can be reduced to dollar amounts and discounted. The economy cannot continue to grow forever, and even mainstream economists recognize that a shrinking economy would call for a negative discount rate (Nordhaus 2007, Dasgupta 2009). At the very least, we should not discount across large systems and into the distant future (Voinov and Farley 2007). 5.4. CRITIQUES OF MONETARY VALUATION There are a number of serious critiques of monetary valuation of biodiversity and ecosystem services. As a scientific method, valuation studies are often not replicable, and even different interviewers or minor variations in questions can have measurable impacts on results (Diamond and Hausman 1994, Kanninen 1995). At the conceptual level, valuation is criticized as a process that leads to the “commodification” of nature, turning nature into a commodity without recognizing its inherent value (McAuley 2007). On moral grounds, monetary valuation imposes economists’ valuation standards and languages on other people (Martinez Alier 2003). In many cultures, it is as inappropriate to measure spiritual or ethical values in dollars as it would be to ask “how much for your child?” Furthermore, most valuation studies, based on demand curves and thus measuring preferences weighted by purchasing power, give little weight to the preferences of the poor (Sunstein 2005, Farley 2008). Markets also ignore demand by future generations. A more comprehensive mandate to ensure the interests of future generations would require that renewable resources be harvested no faster than their regeneration rate, and that waste be emitted no faster than its absorption rate (Daly 1977). Any attempts to perform monetary valuations should thoughtfully consider all of these criticisms, choose the most appropriate method, and frame the valuation analysis in ways that can readily inform decision-making. 5.5. ALTERNATIVE APPROACHES Decision-making regarding different uses of the land is generally a multi-dimensional problem. It cannot be reduced to just comparing monetary costs and benefits of competing alternatives for several reasons: 1. Not all values can be expressed in monetary terms, 2. Marginal values of critical natural capital can change dramatically with small changes in quantity, and marginal valuation becomes increasingly inappropriate as we near ecological or economic thresholds, 3. Ethical values matter. Different groups of stakeholders might judge different dimensions of a problem more or less important, 4. Data might not be available on the monetary costs and benefits; and 21 5. There is a need to incorporate qualitative measures of values. Perhaps most important, complex systems simply cannot be managed with a single feedback signal for a single goal. At the very least, ecological economic assessments strive for ecological sustainability, just distribution, and efficient allocation. Monetary valuation at best should be treated as one feedback signal among many. Biophysical quantifications22 are another way of getting values for ecosystem services. These values are not monetary to start with but can be used to inform monetary valuations if needed. 5.5.1. Biophysical quantifications Decision-making often revolves around what we are willing to lose as a consequence of a given change in the landscape. What ecosystem services are we willing to give up partly or completely? How much of these services are we actually going to lose? Who is going to be affected the most by the changes? These questions need a spatial assessment and quantification of the actual amounts of service being generated by ecosystems and the actual trajectories of how the services reach beneficiaries in the end. In the past few years, Geographic Information System (GIS) technology and ecological/landscape modeling have been combined to map and quantify gains and losses of ecosystem services and biodiversity associated with changes in the ecosystems and landscapes over time (see for example the ARIES project: http://www.ariesonline.org). This biophysical quantification can, for example, identify areas that are critical for the delivery of services such as the aesthetic benefits in Figure 4. The monetary value associated with the loss of such aesthetic service could be estimated by losses in property value (and therefore in tax revenues). 22 Figure 4. Critical flow paths of aesthetic benefits in the Puget Sound, Washington State, USA. Mount Rainier (white area in the center) and the Sound (upper left corner) are considered major sources of aesthetic enjoyment. Red-contoured areas are the most critical ones for the delivery of the service to a large number of beneficiaries; any development in this area is expected to have a large impact. 6. ECONOMIC POLICIES FOR CONSERVING BIODIVERSITY AND ECOSYSTEM SERVICES Many studies show the disproportionate marginal benefits of non-converted or lightly managed ecosystems over converted and intensely managed ecosystems (e.g. Balmford et al. 2002, Farley et al. 2010b). Because most of the services they provide are public goods, unregulated market forces will rarely reward their conservation. Regardless of our ethical views concerning the monetary valuation of biodiversity and ecosystem services, there are typically real monetary costs to protecting and restoring them, just as there are real costs to their continued degradation. Someone must pay these costs. Biophysical factors, such as the spatial distribution of services lost, largely determines who pays the costs of continued degradation. Economic institutions, however, determine who pays the costs of conservation. There are two basic economic approaches to the provision of biodiversity and ecosystem services: either those who damage them can compensate for their loss 23 (penalties), or those who protect and restore them can be compensated for their provision (payments). Designing policies or tools that promote one or the other of these approaches may require changes in property rights or adequate enforcement of existing rights. We provide here some illustrative examples, though many variations exist. 6.1. Property rights, payments and penalties: cap and trade and green taxes As discussed in section 4.2, many resources are over-exploited because there is an absence of property rights. It is possible to create property rights to these resources so that access can be rationed. This approach has been done for various pollutants and for many oceanic fisheries. Whether payments or penalties are involved depends on to whom the property rights are allocated. The first step is to create a cap on resource harvest or waste emissions, which requires a collective institution such as a national government or international protocol. If caps are based on ecological limits—i.e. harvests cannot exceed regenerative capacity, emissions cannot exceed absorption capacity, and both must ensure the adequate provision of ecosystem services—this addresses ecological sustainability. The second step is to distribute property rights, ideally according to principles of justice. A common approach is to distribute rights to existing resources users; an alternative approach is to assign the rights to the government. The third step is to ensure efficient allocation, typically via markets. Three specific examples are helpful. New Zealand for example determined that fish harvests were unsustainable in their coastal waters. The government assigned permits to fisherman that allowed them to continue harvesting as many fish as they had in previous years, but then purchased back permits to bring harvests in line with the fisheries’ regenerative capacity. In effect, fishermen were paid to voluntarily reduce their harvests to sustainable levels. Fishermen were subsequently allowed to trade remaining permits (Batstone and Sharp 1999). Such programs around the world have played an important role in protecting and restoring fish populations (Costello et al. 2008). In a similar fashion, the US government capped allowable emissions of sulfur dioxide to reduce the problem of acid rain, which was causing serious damage to lakes and forests. Caps were much lower than existing emissions, and tradable emissions were distributed to existing polluters more or less in proportion to their emission levels prior to the program. Polluters had to bear the costs of reducing pollution, but those who could do so most cost effectively could then sell their remaining permits, a combination of penalties and payments. This approach was credited with dramatic reductions in sulfur dioxide emissions at a very modest cost (Napolitano et al. 2007). The European Union Emissions Trading System is a similar program targeting carbon dioxide emissions, though caps are currently far in excess of absorption capacity, and will do little to address climate change if countries such as the USA and China refuse to participate (Ellerman and Joskow 2008). In the USA, the Regional Greenhouse Gas Initiative caps carbon dioxide emissions from electricity in a handful of northeastern states, then auctions off permits in frequent 24 regional auctions. Most of the revenue is invested in energy efficiency programs. In this case, polluters are forced to pay for the permits, while efficiency investments to reduce emissions are subsidized (RGGI Inc. 2011). A cap and auction scheme is virtually identical to a tax on emissions or extraction, which is the clearest example of the “polluter pays” principle. 6.2. Payments for Ecosystem Services Payments for Ecosystem Services (PES) can be defined as “a transfer of resources between social actors, which aims to create incentives to align individual and/or collective land use decisions with the social interest in the management of natural resources” (Muradian et al. 2010 p. 1205). PES are increasingly used to promote conservation. Payment schemes are typically initiated by the service beneficiaries (local, national or international), who must identify the providers. Though currently quite popular, the approach is new and there is still much to learn. Evidence of success is limited (Pattanayak et al. 2010) (See also NCEP’s Payments for Ecosystem Services: An Introduction and Case Study on Lao PDR). PES can take a number of forms, depending on the nature of the ecosystem services being provided and of the land uses that provide it. In some cases, the ecosystem services in question have market good characteristics. For example, forest cover can filter water and regulate water supplies. In many cases, there may be a single municipal water utility (Chichilnisky and Heal 1998), water bottling plant (Perrot-Maitre 2006), or hydroelectric dam that functions as the primary beneficiary of these services (Blackman and Woodward 2010). Under these circumstances, water supply is a rival and excludable resource. It is a fairly straightforward process for the primary beneficiary of water supply to pay upstream landowners to manage riparian forests in a way that improves water quality and flow. No new policies or property rights are required, and beneficiaries monitor provision. Cap and trade schemes for carbon dioxide can also involve offset markets that take the form of PES. For example, in the European Union Emission Trading System for greenhouse gasses, firms can pay for carbon sequestration projects such as reforestation in developing countries to earn additional emission permits. Preventing degradation and deforestation of existing forests is emerging as a new form of ‘offset’, though it can be very difficult to prove additional reductions in carbon emissions (additionality), and to ensure that deforestation will not simply occur elsewhere (leakage). Such policies can play an important role in preserving biodiversity (Venter et al. 2009). However, the purchaser of carbon sequestration is primarily interested in the permits and not directly in the service, so a third party is required to monitor provision. There is legitimate concern that such offsets restrict development options for poor nations while allowing greater total carbon dioxide emissions (Lohman 2006). In many cases, ecosystem services are pure public goods, and the private sector is unlikely to pay for them. In this case, governments can create PES policies. The government of Costa Rica for example pays private landowners for watershed services, scenic beauty, carbon sequestration and biodiversity (Pagiola 2008). Some states in 25 Brazil use intergovernmental fiscal transfers, in which the state government returns a share of tax revenue to local municipalities based on the municipalities’ efforts to protect biodiversity and various ecosystem services (Ring 2008). PES has serious limitations. Transaction costs (e.g. negotiating a contract, monitoring results, and making payments) can be very high, as can the costs of implementation. Given limited funding, it is important to consider the economic threats to the ecosystem, the values generated by conservation and the values generated by conversion as well as secondary goals such as poverty alleviation. Payments to landholders who do not pose a threat to the integrity of the traded ecosystem services are considered inefficient (Scherr et al. 2006), but failure to pay them may create an incentive for them to degrade the ecosystem in order to be eligible for payments. Each PES scheme must be tailored to the local fiscal and regulatory system, as well as institutional capacity, which may be inadequate for successful implementation. There is currently a debate about whether PES should seek to force ecosystem services into a market framework (e.g. Engel et al. 2008, Wunder et al. 2008), or whether economic institutions should be adapted to the local context and to the physical characteristics of the services involved (Farley and Costanza 2010, Muradian et al. 2010). All reviews of the success of PES mechanisms in different parts of the world seem to concur that there are no easy or general formulas that can be applied. Every project area is unique and the success is often achieved via time intensive consultations and the inclusion of non-monetary benefits in addition to monetary compensations. As a final note, local or national governments can use a variety of policies, both economic and regulatory, to prevent the loss of biodiversity. However, many species, along with many of the benefits provided by ecosystem services, do not respect political boundaries. Migratory species for example must be protected everywhere along their route to ensure conservation. Governments may care little about regional and global ecosystem services generated by the ecosystems they control, and may prove unwilling to reduce economic benefits of extracting ecosystem structure in order to generate benefits for people who are not their constituents. Under these circumstances, PES may be the only viable policy tool. Table 3 provides examples of different ecosystem goods and services that are provided in one country and benefit others. 26 Table 3: Transboundary Ecosystem Goods and Services categorized according to their physical characteristics. Local, state and national governments may be unwilling to provide ecosystem services that flow beyond their boundaries unless they receive compensation from the beneficiaries. Market Goods: Ecosystem structure can be Open Access Regimes: Cleared transformed directly into market goods, or forestlands returned to forest would land can be cleared to grow agricultural dramatically increase the waste products. Global trade in raw materials absorption capacity for carbon dioxide. (including fossil fuels) and agricultural Though developed nations have products are payments for converting contributed the bulk of anthropogenic ecosystem structure to economic products, carbon to the atmosphere, they have and total about $4 trillion/year, while made minimal payments for payments for conservation are a tiny fraction reforestation in developing nations. of this value (Farley et al. 2010a). Deforested degraded land, Awassa, Mangrove forests converted to shrimp Ethiopia (photo by J. Farley) aquaculture in Tagabinet, Palawan, the Philippines (photo by J. Farley) Tragedy of the non-commons: Vincristine Public Goods: Tropical forests play an and Vinblastine, two important drugs are important role in stabilizing global derived from the Rosy Periwinkle, a plant climates, both by sequestering and found in Madagascar. These drugs have storing CO2 and through been patented, rationing the use of the evapotranspiration that sends heat and information required to make them. rainfall to distant areas. To date Madagascar has received no money in however, there are few international return. International funding for biodiversity payments for climate regulation services protection and open access the genetic provided by existing forests. information may be an efficient alternative. 27 Remnant patches of Brazil’s Atlantic Forest: one of the most biodiverse Rosy Periwinkle: Extracts from this plant are terrestrial ecosystems. (Photo by J. use to cure Hodgkin’s Lymphoma and Farley) childhood leukemia. (Photo by Ulhaspa- Creative Commons) 28 7. ETHICS AND THE NEW BIODIVERSITY ECONOMY Ecological economics strives to be based on science but driven by ethical values. One simply cannot avoid ethical values when discussing the desirable ends, which are inherently normative. Many people view ethics as the domain of philosophy and religion, not of science. In fact, many scientists have argued that human behavior has been determined by natural selection, in which the only criterion for good or bad is the survival of our genes (e.g. Dawkins 1990), and those who put ethics over self-interest fail to survive. Conventional economists have wholeheartedly adopted this approach, and argue that the market system channels our innate self-interest for the good of the many. As John Maynard Keynes purportedly stated, “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” There is an emerging view in science however that natural selection can operate at the group level as well as the individual level, and group cooperation has played a central role in our evolutionary success (Wilson and Wilson 2007). From this perspective, ethical behavior is what promotes the welfare of the group over the welfare of the individual, and unethical behavior is the opposite (Wilson 2007). The scientific evidence now strongly suggests that our continued success as a species depends on conserving global biodiversity. Humans, like all species, depend on our ecosystem for survival, and cannot afford to shred the fabric of which it is made. To address a problem of such global nature, we must expand the borders of our group correspondingly. Competitive markets cannot solve the biodiversity crisis; rather, collective institutions at the global level may be required. The global Convention on Biological Diversity, the Montreal Protocol, the Kyoto Protocol and other international agreements must be viewed as the initial precursors of the required institutions. However, we should also bear in mind Nobel laureate Elinor Ostrom’s call for an "evolutionary approach to policy", where "a variety of overlapping policies at city, subnational, national, and international levels is more likely to succeed than are single, overarching binding agreements” (Ostrom 2012). The conventional model of inserting monetary values into market decisions is driven by the goal of maximizing monetary values for the current generation. This assumes that the desirable end of economic activity is to maximize the discounted monetary value of present and future costs and benefits. We challenge this goal on practical and ethical grounds. In practical terms, extremely complex ecological economic systems are not amenable to precise calculations, much less ones that use a single metric. We do not know when biodiversity loss will lead us across ecological thresholds beyond which the planetary ecosystem can no longer sustain the ecosystem services essential to human survival. The difficulties and costs of estimating monetary values of biodiversity in the face of such uncertainty is immense. Though we cannot predict future technologies, we currently have none that can substitute for critical ecosystem services 29 on a global scale, and must instead accept that natural capital is irreplaceable and hence invaluable. On moral grounds, the maximization of monetary value is also very shaky. It pays no attention to future generations, and none to just distribution. As mentioned earlier, we assume that most people believe that water is more valuable when used to save the life of an infant than when it is used to flush feces down a toilet. Ecological Economics proposes new ethical goals for economics. The first goal is to ensure that the physical size of the economic system can be sustained by the global ecosystem. Current rates of biodiversity loss suggest that we have already exceeded sustainable scale (Rockstrom et al. 2009). Economic institutions must accept the biophysical limits of sustainability described in section 2.3. Extraction of renewable resources must be limited to their rate of regeneration. Waste emissions must be limited to their rate of assimilation. Knowledge of ecosystems, not monetary values, is required to set these limits. Extraction of non-renewable resources upon which society depends for its survival must not exceed our ability to develop renewable substitutes. A feedback loop likely exists here, in which the more we limit extraction of non-renewable resources (e.g., fossil fuels), the faster prices rise, and the greater the incentives to develop substitutes. Given a finite quantity of natural resources and waste absorption capacity, the second goal is to decide on their just distribution. Who is entitled to use these resources? Since they were created by nature and are a shared inheritance of all mankind, the starting position in any ethical argument is presumably an equal distribution for all. In practice, this may translate into common ownership via the public sector, or through the reestablishment of the institution of the commons. The third goal, given finite resources and unmet needs, is to ensure an efficient allocation of available resources towards the end of maximizing human welfare. Market mechanisms fail to address ecological sustainability and just distribution, but can play an important role in resource allocation once these two ends have been met. One caveat with prioritizing sustainable scale is the problems that arise when resources are too scarce to support the current generation; the basic needs of the present conflict with the basic needs of the future. The ecological economist’s position is to evaluate the marginal costs and marginal benefits. What are the least important economic activities we would need to forego to protect biodiversity? If we prioritize the maximization of monetary value, then the least valuable economic activity is the satisfaction of basic needs by the poor. If however we prioritize sustainability and distribution, the least important economic activities are luxury consumption and resource waste by the rich. If our current economic system demands such consumption to remain afloat, at the cost of survival by future generations, perhaps it is time to modify that system. 30 GLOSSARY 1. Conventional economics: what is taught in the vast majority of introductory economic courses. The central idea is that prices in a competitive free market economy function as a fulcrum balancing supply and demand for all goods and services, leading to a general equilibrium in which no one can be made better off without making someone else worse off. 2. Income: the amount we can consume in one year without reducing our capacity to consume in future years. 3. Desirable scale: when the rising marginal costs of ecological degradation equal the diminishing marginal benefits of economic growth, and additional growth is uneconomic. 4. Sustainable scale: exceeded when the economy extracts renewable resources faster than it can regenerate or emits waste faster than it can assimilate, threatening the ability of the ecosystem to reproduce itself or generate the ecosystem services essential to our survival. 5. Just distribution: how many resources can be sustainably used by this generation (scale) and who is justly entitled to use them (distribution). 6. Efficient allocation: how to generate the greatest level of well-being from a given quantity of resources. 7. Micro-allocation: allocating resources provided by nature among different economic goods and services. 8. Macro-allocation: the apportionment of ecosystem structure between economic production and ecosystem services, both of which are essential to human well being and even survival. 9. Biodiversity: a contraction for “biological diversity”, is a broad term used to describe the variability of living organisms, ecosystems, and landscapes that exist on Earth. 10. Biological resources: elements of ecosystems, such as genes or species, which are of direct importance to human economies. 11. Ecosystem goods: the material products derived from natural or managed ecosystems for humans to use, such as water, minerals, fish or timber. Humans can control the rate at which these are harvested. They are physically transformed in the act of production, so that use equals depletion. 12. Stock-flow resources: the change in a stock of ecosystem goods is determined by the difference between extraction and renewal over a period of time. 31 13. Fund-service resources: not transformed in the act of production, and use does not equal depletion. For example, when a forest absorbs rainfall and prevents flooding, the forest itself is not converted into the benefits it provides. 14. Rival resource: one person’s use of the resource leaves less for others to use. 15. Excludable: one person or group can prevent others from using the resource. 16. Payments for ecosystem services: a transfer of resources between social actors, which aims to create incentives to align individual and/or collective land use decisions with the social interest in the management of natural resources. 17. Critical natural capital (CNC): biodiversity itself and many of the ecosystem services it helps sustain, such as the provision of food and water, are essential and have no substitutes. 18. Inelastic demand: small percentage changes in quantity lead to large percentage changes in price. 19. Revealed preference valuation methods: typically document behaviors or impacts that are traceable in the marketplace. For example, one study estimates that Brazilian free-tailed bats in South-Central Texas destroy pests that would otherwise cause a $638,000 annual loss in cotton production. 20. Stated preference valuation methods: primarily used for ecosystem services that have non-use values such as spiritual or cultural importance, usually consist of interviews employed to assess people’s willingness to pay (WTP) or accept (WTA) compensation for maintaining a given service. 21. Contingent valuations: the stated preference for a given option is contingent on a specific hypothetical scenario and description of the environmental service. 22. Biophysical quantifications: spatial assessment and quantification of the actual amounts of service being generated by ecosystems and the actual trajectories of how the services reach beneficiaries in the end. 32 LITERATURE CITED Balmford, A., A. Bruner, P. Cooper, R. Costanza, S. Farber, R. E. Green, M. Jenkins, P. Jefferiss, V. Jessamy, J. Madden, K. Munro, N. Myers, S. Naeem, J. Paavola, M. Rayment, S. Rosendo, J. Roughgarden, K. Trumper, and R. K. Turner. 2002. Economic reasons for conserving wild nature. Science 297:950-953. Batstone, C. J. and B. M. H. Sharp. 1999. New Zealand's quota management system: the first ten years. Marine Policy 23:177-190. Blackman, A. and R. T. Woodward. 2010. User financing in a national payments for environmental services program: Costa Rican hydropower. Ecological Economics 69:1626-1638. British Petroleum. 2012. Statistical Review of World Energy, Full Report 2012. Online: http://www.bp.com. Bromley, D. 1991. Environment and Economy: Property Rights and Public Policy. Blackwell, Oxford. Brooks, T. and A. Balmford. 1996. Atlantic forest extinctions. Nature 380:115-115. Bullock, J. M., R. F. Pywell, M. J. W. Burke, and K. J. Walker. 2001. Restoration of biodiversity enhances agricultural production. Ecology Letters 4:185-189. Cardinale, B. J., J. E. Duffy, A. Gonzalez, D. U. Hooper, C. Perrings, P. Venail, A. Narwani, G. M. Mace, D. Tilman, D. A. Wardle, A. P. Kinzig, G. C. Daily, M. Loreau, J. B. Grace, A. Larigauderie, D. S. Srivastava, and S. Naeem. 2012. Biodiversity loss and its impact on humanity. Nature 486:59-67. Chan, K. M. A., R. M. Pringle, J. Ranganathan, C. L. Boggs, Y. L. Chan, P. R. Ehrlich, P. K. Haff, N. E. Heller, K. Al-Khafaji, and D. P. Macmynowski. 2007. When Agendas Collide: Human Welfare and Biological Conservation. Conservation biology 21:59-68. Chichilnisky, G. and G. Heal. 1998. Economic returns from the biosphere. Nature 391:629-630. Commoner, B. 1971. The Closing Circle: Nature, Man, and Technology. Knopf, New York. Costanza, R. 1996. Ecological economics: Reintegrating the study of humans and nature. Ecological Applications 6:978-990. Costanza, R., F. Andrade, P. Antunes, M. v. d. Belt, D. Boersma, D. F. Boesch, F. Catarino, S. Hanna, K. Limburg, B. Low, M. Molitor, G. Pereira, S. Rayner, R. Santos, J. Wilson, and M. Young. 1998. Principles for sustainable governance of the oceans. Science 281. Costanza, R., J. Cumberland, H. Daly, R. Goodland, and R. B. Norgaard. 1997a. An Introduction to Ecological Economics. International Society for Ecological Economics and St. Lucie Press, Boca Raton, Florida. Costanza, R., R. d'Arge, R. d. Groot, S. Farber, M. Grasso, B. Hannon, S. Naeem, K. Limburg, J. Paruelo, R. V. O'Neill, R. Raskin, P. Sutton, and M. v. d. Belt. 1997b. The value of the world's ecosystem services and natural capital. Nature:253-260. Costanza, R. and H. E. Daly. 1987. Toward an Ecological Economics. Ecological Modelling 38:1-7. Costanza, R., H. E. Daly, and J. A. Bartholomew. 1991. Goals, agenda, and policy recommendations for ecological economics. Pages 1-20 in R. Costanza, editor. 33 Ecological Economics: The Science And Management Of Sustainability. Columbia University Press, New York. Costello, C., S. D. Gaines, and J. Lynham. 2008. Can Catch Shares Prevent Fisheries Collapse? Science 321:1678-1681. Czech, B. 2003. Technological Progress and Biodiversity Conservation: a Dollar Spent, a Dollar Burned. Conservation biology 17:1455-1457. Daily, G. C., editor. 1997. Nature's Services: Societal Dependence on Natural Ecosystems. Island Press, Washington, D.C. Daly, H. 1977. Steady-State Economics: The Political Economy of Bio- physical Equilibrium and Moral Growth. W. H. Freeman and Co., San Francisco. Daly, H. E., editor. 1973. Toward A Steady-State Economy. W. H. Freeman and Co., San Francisco. Daly, H. E. 1992. Allocation, distribution, and scale: towards an economics that is efficient, just, and sustainable. Ecological Economics 6:185-193. Daly, H. E. and J. B. Cobb, Jr. 1994. For the common good : redirecting the economy toward community, the environment, and a sustainable future; 2nd edition. 2nd edition. Beacon Press, Boston. Daly, H. E. and J. Farley. 2010. Ecological Economics: Principles and Applications. 2 edition. Island Press, Washington, DC. Dasgupta, P. 2009. Nature's role in sustaining economic development. Philosophical Transactions of the Royal Society B-Biological Sciences 365:5-11. Dawkins, R. 1990. The Selfish Gene, 2nd ed. Oxford University Press, USA. Diamond, P. A. and J. A. Hausman. 1994. Contingent Valuation: Is Some Number better than No Number? The Journal of Economic Perspectives 8:45-64. Easterlin, R. A. and L. Angelescu. 2009. Happiness and Growth the World Over: Time Series Evidence on the Happiness-Income Paradox. Institutute for the Study of Labor (IZA) discussion paper No. 4060. Ellerman, A. D. and P. L. Joskow. 2008. The European Union's Emissions Trading System in Perspective. Pew Center on Global Climate Change, Washington, DC. Engel, S., S. Pagiola, and S. Wunder. 2008. Designing payments for environmental services in theory and practice: An overview of the issues. Ecological Economics 65:663-674. Farley, J. 2008. The Role of Prices in Conserving Critical Natural Capital. Conservation biology 22:1399-1408. Farley, J. 2010. Conservation Through the Economics Lens. Environmental Management 45:26-38. Farley, J. 2012. Ecosystem Services: The Economics Debate. Ecosystem Services 1:40-49. Farley, J., A. Aquino, A. Daniels, A. Moulaert, D. Lee, and A. Krause. 2010a. Global mechanisms for sustaining and enhancing PES schemes. Ecological Economics 69:2075-2084. Farley, J., D. Batker, I. de la Torre, and T. Hudspeth. 2010b. Conserving Mangrove Ecosystems in the Philippines: transcending disciplinary, institutional and geographic borders. Environmental Management 45:39-51. Farley, J. and R. Costanza. 2010. Payments for ecosystem services: From local to global. Ecological Economics 69:2060-2068. 34 Farley, J., A. Schmitt Filho, Juan Alvez, and N. Ribeiro de Freitas, Jr. 2011. How Valuing Nature Can Transform Agriculture. Solutions 2:64-73. Georgescu-Roegen, N. 1971. The Entropy Law and the Economic Process. Harvard University Press, Cambridge, MA. Gliessman, S. R. 2000. Agroecology: ecological processes in sustainable agriculture. CRC Press LLC, Boca Raton. Gowdy, J. 1997. The Value of Biodiversity: Markets, Society and Ecosystems. Land Economics:25-41. Hardin, G. 1968. The Tragedy of the Commons. Pages 1243-1248. James, A., K. J. Gaston, and A. Balmford. 2001. Can We Afford to Conserve Biodiversity? BioScience 51:43-52. Kanninen, B. J. 1995. Bias in Discrete Response Contingent Valuation. Journal of Environmental Economics and Management 28:114-125. Kubiszewski, I., J. Farley, and R. Costanza. 2010. The production and allocation of information as a good that is enhanced with increased use. Ecological Economics 69:1344-1354. Landell-Mills, N. and I. T. Porras. 2002. Silver Bullet or Fools’ Gold? A Global Review of Markets for Forest Environmental Services and their Impact on the Poor. International Institute for Environment and Development London. Lane, R. E. 2000. The Loss of Happiness in Market Economies. Yale University Press, New Haven. Layard, R. 2005. Happiness: Lessons from a New Science. Penguin Press, New York. Lohman, L., editor. 2006. Carbon Trading: A critical conversation on climate change, privatisation and power. Dag Hammarskjold Foundation, Durban Group for Climate Justice and the Corner House, Uppsala, Sweden. Loreau, M., S. Naeem, P. Inchausti, J. Bengtsson, J. P. Grime, A. Hector, D. U. Hooper, M. A. Huston, D. Raffaelli, B. Schmid, D. Tilman, and D. A. Wardle. 2001. Biodiversity and Ecosystem Functioning: Current Knowledge and Future Challenges. Science 294:804-808. Malghan, D. 2011. A dimensionally consistent aggregation framework for biophysical metrics. Ecological Economics 70:900-909 Martinez Alier, J. 2003. The Enviromentalism of the Poor. Edward Elgar, London? Metzger, J. P. 2010. O Código Florestal tem base científica? Conservação e Natureza 8:preface. Millennium Ecosystem Assessment. 2005. Ecosystems and Human Well-being: Synthesis. Island Press, Washington, DC. Mitchell, R. C. and R. T. Carson. 1989. Using surveys to value public goods, the contingent valuation method. Resources for the Future., Washington, D.C. Moonen, A.-C. and P. Bàrberi. 2008. Functional biodiversity: An agroecosystem approach. Agriculture, Ecosystems & Environment 127:7-21. Muradian, R., E. Corbera, U. Pascual, N. Kosoy, and P. H. May. 2010. Reconciling theory and practice: An alternative conceptual framework for understanding payments for environmental services. Ecological Economics 69:1202-1208. Napolitano, S., J. Schreifels, G. Stevens, M. Witt, M. LaCount, R. Forte, and K. Smith. 2007. The U.S. Acid Rain Program: Key Insights from the Design, Operation, and Assessment of a Cap-and-Trade Program. The Electricity Journal 20:47-58. 35 Nepstad, D. C., C. M. Stickler, B. Soares, and F. Merry. 2008. Interactions among Amazon land use, forests and climate: prospects for a near-term forest tipping point. Philosophical Transactions of the Royal Society B-Biological Sciences 363:1737-1746. Nordhaus, W. 2007. The Challenge of Global Warming: Economic Models and Environmental Policy. Yale University, New Haven. Nordhaus, W. 2008. A Question of Balance: Weighing the Options on Global Warming Policies. Yale University Press, New Haven. Norton, B. G. 2005. Sustainability: A Philosophy of Adaptive Management. University of Chicago Press, Chicago. Odum, E. P. 1989. Ecology and our endangered life-support systems. Sinauer Associates Inc., Sunderland, MA. Ostrom, E. 1990. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press, Cambridge. Pagiola, S. 2008. Payments for environmental services in Costa Rica. Ecological Economics 65:712-724. Pattanayak, S., S. Wunder, and P. J. Ferraro. 2010. Show Me the Money: Do Payments Supply Environmental Services in Developing Countries? Review of Environmental Economics and Policy Summer:254-274. Pearce, D. 2007. Do we really care about Biodiversity? Environmental and Resource Economics 37:313–333. Pearce, D. W. and R. K. Turner. 1990. Economics of Natural Resources and the Environment. Harvester Wheatsheaf, Hertfordshire England. Perrot-Maitre, D. 2006. The Vittel Payments for Ecosystem Services: A “Perfect” PES Case? International Institute for Environment and Development., London, UK. Pimm, S. L., G. J. Russell, G. J. L., and T. M. Brooks. 1995. The Future of Biodiversity. Science:347-350. Randall, A. 1988. What Mainstream Economists have to Say about the Value of Biodiversity.in E. O. Wilson, editor. Biodiversity. National Academy Press, Washington, DC. RGGI Inc. 2011. Investment of Proceeds from RGGI CO2 Allowances. Regional Greenhouse Gas Initiative. Online: http://www.rggi.org/docs/Investment_of_RGGI_Allowance_Proceeds.pdf. Ring, I. 2008. Integrating local ecological services into intergovernmental fiscal transfers: The case of the ecological ICMS in Brazil. Land Use Policy 25:485- 497. Rockstrom, J., W. Steffen, K. Noone, A. Persson, F. S. Chapin, E. F. Lambin, T. M. Lenton, M. Scheffer, C. Folke, H. J. Schellnhuber, B. Nykvist, C. A. de Wit, T. Hughes, S. van der Leeuw, H. Rodhe, S. Sorlin, P. K. Snyder, R. Costanza, U. Svedin, M. Falkenmark, L. Karlberg, R. W. Corell, V. J. Fabry, J. Hansen, B. Walker, D. Liverman, K. Richardson, P. Crutzen, and J. A. Foley. 2009. A safe operating space for humanity. Nature 461:472-475. Schmitt F., A., J. Farley, G. Alarcon, J. Alvez, and P. Rebollar. 2012. Integrating Agroecology with Payments for Ecosystem Services in Santa Catarina’s Atlantic Forest.in R. Muradian and L. Rival, editors. Governing the provision of environmental services Springer. 36 Schroth, G., G. A. B. Fonesca, C. A. Harvey, C. Gascon, H. L. Vasconcelos, and A. M. N. Izac. 2004. Agroforestry and Biodiveristy Conservation in Tropical Landscapes. Agroforestry and Biodiveristy Conservation in Tropical Landscapes. Stern, N. 2006. Stern Review: The Economics of Climate Change. Cambridge University Press, Cambridge. Sunstein, C. 2005. Cost-Benefit Analysis and the Environment. Ethics 115:351-385. Tilman, D. and J. A. Downing. 1994. Biodiversity and stability in grasslands. Nature 367:363-365. Turner, W. R., K. Brandon, T. M. Brooks, R. Costanza, G. A. B. d. Fonseca, and R. Portela. 2007. Global conservation of biodiversity and ecosystem services. BioScience 24:868-873. Turpie, J. K. 2003. The existence value of biodiversity in South Africa: how interest, experience, knowledge, income and perceived level of threat influence local willingness to pay. Ecological Economics 46:199-216. Venter, O., W. F. Laurance, T. Iwamura, K. A. Wilson, R. A. Fuller, and H. P. Possingham. 2009. Harnessing Carbon Payments to Protect Biodiversity. Science 326:1368. Voinov, A. and J. Farley. 2007. Reconciling sustainability, systems theory and discounting. Ecological Economics 63:104-113. Weitzman, M. L. 1998. Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate. Journal of Environmental Economics and Management 36:201- 208. Wilson, D. S. 2007. Evolution for everyone : how Darwin’s theory can change the way we think about our lives. Delacorte Press, New York. Wilson, D. S. and E. O. Wilson. 2007. Rethinking the Theoretical Foundations of Sociobiology. The Quarterly Review of Biology 82:327-348. Wilson, E. O. 1992. The Diversity of Life. Harvard University Press, Cambridge, MA. Worm, B., E. B. Barbier, N. Beaumont, J. E. Duffy, C. Folke, B. S. Halpern, J. B. C. Jackson, H. K. Lotze, F. Micheli, S. R. Palumbi, E. Sala, K. A. Selkoe, J. J. Stachowicz, and R. Watson. 2006. Impacts of Biodiversity Loss on Ocean Ecosystem Services. Science 314:787-790. Wunder, S., S. Engel, and S. Pagiola. 2008. Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries. Ecological Economics 65:834-852. 37

Ecological Economics and Biodiversity Synthesis PDF

Document Details

Tags

Related

Summary

Full Transcript