x Abu Dhabi, UAEWednesday 24 January 2018

Eco-nomics: putting a price tag on natural resources

The financial crisis might be an opportunity to reinvent economics and include value of the world's natural resources.

Pyramid lake in Jasper National Park, Canada.
Pyramid lake in Jasper National Park, Canada.

BARCELONA // The worst financial crisis since the Great Depression in the 1930s may be a chance to put price tags on nature in a radical economic rethink to protect everything from coral reefs to rainforests. According to environmental experts, farmers know the value of land from the amount of crops they can produce. But large parts of the natural world - wetlands that purify water, oceans that produce fish or trees that soak up greenhouse gases - are usually viewed as "free".

"Most of our valuable assets are not on the books," said Robert Costanza, a professor of ecological economics at the University of Vermont. "We need to reinvent economics. The financial crisis is an opportunity." Advocates of "eco-nomics" say that valuing "natural capital" could help protect nature from rising human populations, pollution and climate change that do not figure in conventional measures of wealth such as gross domestic product (GDP) or gross national product (GNP).

"I believe the 21st century will be dominated by the concept of natural capital, just as the 20th was dominated by financial capital," Achim Steiner, the head of the UN Environment Programme, said at the International Union for Conservation of Nature congress in Barcelona earlier this month. "We are reaching a point... at which the very system that supports us is threatened." Conventional economists often object that it is impossible to value an Andean valley, or the Caribbean. "We have struggled with nature-based services: how does a market begin to value them?" Mr Steiner said.

Mr Costanza helped get the international debate under way a decade ago with a widely quoted estimate that the value of natural services was US$33 trillion (Dh121.21 trillion) a year, which was almost twice the world's GDP at the time. Some economists dismissed Mr Costanza's $33 trillion as an overestimate. Others pointed out that no one would be alive without nature, so its value to humans was infinite.

"There is little that can be usefully done with a serious underestimate of infinity," the economist Michael Toman said at the time. But with the seizure of world money markets bringing for some, at least, an opportunity to rethink modern capitalism's basic tenet that greed and self-interest can counterbalance each other, more environmental experts hope to revisit nature's role in producing food, water, fuels, fibres or building materials.

"The financial crisis is just another nail in the coffin [of a system that seeks economic growth while ignoring wider human well-being]," said Johan Rockstrom, the executive director of the Stockholm Environment Institute. Under standard economics, nations can boost their GDP briefly by chopping down all their forests and selling the timber, or by dynamiting coral reefs to catch all the fish. A rethink would stress the value of keeping nature intact.

Mr Rockstrom said bank bailouts totalling hundreds of billions of dollars might change the mindset of the public, but "if we are willing to save investment banks, why not spend a similar amount on saving the planet?" And there are ever more attempts to mix prices and nature. The EU set up a carbon trading market in 2005 to get industries such as steel makers or oil refineries to cut emissions of greenhouse gases, blamed for global warming. Ecuador has asked rich countries to pay it $350 million a year in exchange for not extracting one billion barrels of oil in the Amazon rainforest.

The Himalayan kingdom of Bhutan has shifted from traditional GNP to a goal of "gross national happiness", which includes respect for nature. And in UN talks on a new climate treaty, more than 190 countries are considering a plan to pay tropical nations billions of dollars a year to leave forests alone to slow deforestation and combat global warming. "We want to see a shift to valuing ecosystems," said Erik Solheim, the Norwegian environment minister. Oslo has led donor efforts by pledging $500m a year to tropical countries for abandoning the chainsaw and letting trees stand.

Deforestation accounts for about one fifth of all greenhouse gas emissions. Trees soak up carbon dioxide, the main greenhouse gas, as they grow, and release it when they rot or are burnt, usually to clear land for farming. Mr Steiner said longstanding objections that it was too hard to value ecosystems were dwindling as the ability of economists to assess risks improved. A report sponsored by the European Commission and Germany in May estimated that humanity was causing ?50 billion (Dh244.28bn) damage to the land every year.

And a 2006 report by the former World Bank chief economist, Nicholas Stern, said that unchecked global warming could cost five to 20 per cent of world GDP, damaging the economy on the scale of the world wars or the Great Depression. Mr Steiner said that stock market plunges, or a halving of oil prices since the July peak of $147 a barrel, showed that environmental experts were not the only ones who had trouble valuing assets.

A 2005 Millennium Ecosystem Report also said that natural systems were worth more intact than if converted. It announced that a Canadian wetland was worth $6,000 a year per hectare, and just $2,000 if converted to farmland. A hectare of mangrove in Thailand was worth $1,000 a year if it maintained fish or helped prevent coastal erosion, against $200 if uprooted and converted to a shrimp farm. In a letter to the journal Science with a colleague earlier this year, Mr Costanza said that one way to value nature would be to set up a government-backed system to trade all greenhouse gas emissions and channel the revenues, estimated at up to $3.6 trillion a year, into an "Earth Atmospheric Trust".

If half the cash were shared out, each person on the planet could get up to $285 a year - a big step towards ending poverty. The rest could go to renewable energy and clean technology. * Reuters