The Economics of Ecosystems and Biodiversity
Pavan Sukhdev“Bridging the Gap”,
15th May 2008, Portoroz
A Story … from Haiti
- Poorest country in the Western Hemisphere 65% of its people must survive on less than 1 $ a day.
- Haiti was originally fully forested, less than 3% cover still remains.
- 1950-1990, the amount of arable land almost halved due to soil erosion.
- Deforestation has diminished evaporation back to the atmosphere over Haiti, and total rainfall in many locations has declined by as much as 40%, reducing stream flow and irrigation capacity :
- Avezac Irrigation System only supports half of the initially 9,500 acres it planned to cover.
- When it rains , hillsides no longer efficiently retain or filter water - even moderate rains cause devastating floods.
- Ground and stream waters are laden with sediment and pollution which has degraded estuarine and coastal ecosystems.
- about 90% of Haitian children are chronically infected with intestinal parasites that they acquire from the water they drink
Mount Elgon National Park
Murchison Falls National Park
Semliki National Park
Kibaale National Park
Rwenzori Mountains National Park
Queen Elizabeth National Park
Lake Mburo National ParkMgahinga Gorilla National Park
Bwindi Impenetrable National Park
Some Protected Areas placed under the “Revenue Sharing Programme” of the Ugandan Wildlife Authority, and a case study
Mount Elgon National Park
Murchison Falls National Park
Semliki National Park
Kibaale National Park
Rwenzori Mountains National Park
Queen Elizabeth National Park
Lake Mburo National ParkMgahinga Gorilla National Park
Bwindi Impenetrable National Park
Some Protected Areas placed under the “Revenue Sharing Programme” of the Ugandan Wildlife Authority, and a case study
A Different Story……. From Uganda
Population Trends of Selected Species in Lake Mburo National Park
Species 1999 2002 2003 2004 2006
Zebra 2,249 2,665 2,345 4,280 5,968
Buffalo 486 132 1,259 946 1,115
Waterbuck 598 396 899 548 1,072
Hippo 303 97 272 213 357
Impala 1,595 2,956 2,374 3,300 4,705
(Source : UWA )
Since 1995 Ugandan legislation places the management of natural resources in the hands of local authorities. Consequently the Ugandan Wildlife Authority (UWA) disburses 20% of all revenues from Protected Area (PA) tourism to the local communities neighbouring PA’s. This percentage has been fixed without a precise picture of PA economics, but even a rough approximation of costs and benefits allows enhancing local livelihoods while preserving biodiversity. Of course such a benefit sharing regime only works in the long run if it actually compensates for the use restrictions which PA’s imply for local communities. Thus, knowing better the costs and benefits involved, will allow reconciling ongoing biodiversity conservation and enhancing rural livelihoods. (Alice Ruhweza)
URGENCY…
Land use / conversion &Loss of biodiversity
(MSA)
Source: Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium.
Fragmentation
High levels of biodiversity
Level of Biodiversity in the World in 2000Using Mean Species Abundance (MSA) indicator
Remaining MSA in %
Source: Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium.
Source: Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium.
Level of Biodiversity in the World in 2050One Scenario of the future : OECD/Globio
Remaining MSA in %
Global terrestrial biodiversity development by major biomes, from 1700 to 2050COPI : MSA statistics indicate that in the “Policy Inaction” scenario :-! Global objective (significant reduction in rate of loss) unlikely by 2050 ! Stricter European goal (halting further loss ) unlikely by 2050 ! CBD goals (for 2010 ) unlikely over short term
(COPI, Fig 4.2 ) Rate of yearly terrestrial biodiversity loss (MSA %-points) for different periods. Mean Species Abundance (MSA) 2000 and Predictions 2050
COPI Figure 4.4a : Contribution of different pressures to the global biodiversityloss between 2000 and 2050 in the OECD baseline
What will be the main drivers of 11+% Biodiversity Loss over the 50 years to 2050 ? What will each of the drivers contribute ?
We are fishing down the foodweb – going for ever smaller species
We also log, plough, burn, convert, burn, pollute and hunt down ecosystemsSource: Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium. Original source: Pauly
Land-uses and trade offs for ecosystem services
Source: Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium.
Energy
Soil protection
Food
regulation
Energy
Soil protection
Food
-
Freshwater
Soil protection
Food
Climate regulation
Climate regulation
Energy
Freshwater
1natural extensive
3 intensive
Freshwater
Energy
Soil protection
Food
Climate regulation
Energy
Soil protection
Food
-
Freshwater
Soil protection
Climate regulation
Climate regulation
Freshwater
2
3
Freshwater
ECONOMICS…
Quotation …
“ Nothing is more useful than water : but scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any value in use ; but a very great quantity of other goods may be had in exchange for it”
….On exchange, prices, and “value”
Quotation …
“ Nothing is more useful than water : but scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any value in use ; but a very great quantity of other goods may be had in exchange for it ”
….On exchange, prices, and “value”
" The nature of Value
" The value of Nature
Quotation …
“ Nothing is more useful than water : but scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any value in use ; but a very great quantity of other goods may be had in exchange for it”
….On exchange, prices, and “value”
From : Adam Smith
“An inquiry into the Nature and Causes of the Wealth of Nations”
1776
Biodiversity, Ecosystems, and their Services
Change inEconomic
Value
InternationalPolicies
Changein
Land use,Climate,
Pollution,Water use
OECDBaselinescenario
ChangeIn
EcosystemServices
Changein
Biodiversity
Changein
Ecosystemfunctions
Change inEconomic
Value
InternationalPolicies
Changein
Land use,Climate,
Pollution,Water use
OECDBaselinescenario
ChangeIn
EcosystemServices
Changein
Biodiversity
Changein
Ecosystemfunctions
Change inEconomic
Value
InternationalPolicies
Changein
Land use,Climate,
Pollution,Water use
OECDBaselinescenario
ChangeIn
EcosystemServices
Changein
Biodiversity
Changein
Ecosystemfunctions
The link between biodiversity, ecosystems and their services…
Biophysical structure or
process(e.g. woodland habitat or net
primary productivity )
Service(e.g. flood
protection, or harvestable products)
Service(e.g. flood
protection, or harvestable products)
Function(e.g. slow
passage of water, or biomass)
Function(e.g. slow
passage of water, or biomass)
Benefit (Value)(e.g. willingness to pay for woodland protection or for
more woodland, or harvestable products)
Benefit (Value)(e.g. willingness to pay for woodland protection or for
more woodland, or harvestable products)Σ Pressures
Limit pressures via policy action?
Biophysical structure or
process(e.g. woodland habitat or net
primary productivity )
Service(e.g. flood
protection, or harvestable products)
Service(e.g. flood
protection, or harvestable products)
Function(e.g. slow
passage of water, or biomass)
Function(e.g. slow
passage of water, or biomass)
Benefit (Value)(e.g. willingness to pay for woodland protection or for
more woodland, or harvestable products)
Benefit (Value)(e.g. willingness to pay for woodland protection or for
more woodland, or harvestable products)
Biophysical structure or
process(e.g. woodland habitat or net
primary productivity )
Service(e.g. flood
protection, or harvestable products)
Service(e.g. flood
protection, or harvestable products)
Function(e.g. slow
passage of water, or biomass)
Function(e.g. slow
passage of water, or biomass)
Benefit (Value)(e.g. willingness to pay for woodland protection or for
more woodland, or harvestable products)
Benefit (Value)(e.g. willingness to pay for woodland protection or for
more woodland, or harvestable products)Σ Pressures
Limit pressures via policy action?
‘Intermediate Products’ ‘Final Products’
Maintenance and
restoration costs
Economic and social values (sometimes
market values).
Source: Jean-Louis Weber (EEA) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium
Ecosystem services, land use and well-beingServices 1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 3.1 3.2 3.3 3.4 3.5
Land cover types Fo
od
Mat
eria
ls
Fo
rest
tre
es-
rela
ted
Pla
nt-
rela
ted
Ph
ysic
al
sup
po
rt
Am
enit
y
Iden
tity
Did
acti
c
Cyc
ling
Sin
k
Pre
ven
tio
n
Ref
ug
ium
Bre
edin
g
Artificial surfaces/ Urban
Arable land & permanent crops
Grassland & mixed farmland
Forests & woodland shrub
Heathland, sclerophylous veg.
Open space with little/ no vegetation
Wetlands
Water bodies
Source: Jean-Louis Weber (EEA) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium
Different Measures to represent the monetary and non-monetary benefits. Who is interested in what & how can they
best be combined?# The single global number# Ranges# Local / national numbers# Partial aggregations# 1 locality, 1 service numbers
Mon-etary
Quantitative
Qualitative
All
# Indexes (eg living planet index)# Indices (eg species richness)# People/population (share) affected# Species at risk, endangered# Risk assessments# Loss of forest cover (ha)# Aggregates and cases# Surveys
# Story lines, uniqueness, indispensible # Hotspots# Maps # Critical trends and thresholds# Stakeholder perceptions
Key Objectives: understanding, representativeness and getting the message across
Politicians, media, general public
Economists; local politicians
ScientistsPolicy analysts
All
Source: Patrick ten Brink (IEEP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium
Non specified benefits.
Increasing up the
benefits pyramid
Table 6.1 Total Area by Land-use; aggregated across all biomes
Actual 2000 2050 Difference Area million km2 million km2 2000 to 2050
Natural areas 65.5 58.0 -11% Bare natural 3.3 3.0 -9% Forest managed 4.2 7.0 70% Extensive agriculture 5.0 3.0 -39% Intensive agriculture 11.0 15.8 44% Woody biofuels 0.1 0.5 626% Cultivated grazing 19.1 20.8 9% Artificial surfaces 0.2 0.2 0% World Total * 108.4 108.4 0%
From “COPI” (Cost of Policy Inaction ) Study
Welfare losses, in terms of annual consumption in 2050, could be upto 6.1% (vs2010) or 7.1 % (vs 2000). This is a conservative estimate, because:-
1) it is partial - excludes all marine biodiversity, deserts, the Arctic and Antarctic, & some ecosystem services (disease regulation, pollination, ornamental services, etc), while others are barely represented (e.g. erosion control), or underrepresented (e.g. tourism);
2) it also excludes losses from invasive alien species 3) estimates for the rate of land use change and biodiversity loss are globally
quite conservative and do not reflect the full extent of global demand growth 4) It does not account for non-linearities, feedbacks, and threshold effects.
Valuation and Ecosystem service losses
2000 2050
Services that would have been there, had biodiversity loss been halted
Ecosystem service level
Population
GDP (OECD Senarios)GDP, with feedback on
economic losses from biodiversity losses integrated -
illustrative
Relative to 2000
Population: 6092 million
GDP: 41.4$ trillion (PPP) (10^12)
GDP/capita: 680$ (PPP)
GDP adjusted for impact of biodiversity loss - illustrative
Source: Patrick ten Brink (IEEP), Leon Braat (Alterra), Mark van Ooorshot (MNP), Matt Rayment (GHK)
Cost-Benefit Analyses to Disclose the Economics of Conservation vs Conversion
The economic values of conservation can help to inform policy choices on creating / maintaining / destroying protected areas
Guatemala’s Maya Forest Road Projects : Road-building projects in the Maya Biosphere Reserve to connect Mexico & Guatemala biosphere were evaluated. An estimated 311,000 hectares of jaguar habitat were shown to be at risk. Some of these road projects were shown to have negative rates of return on investment just on the basis of project economics, others would be negative if merely the CO2 emissions (225 mT CO2 over 30 years ) were accounted for.
Hungary’s Gabcikovo-Nagymaros Barrage System : Valuations showed that if the value of biodiversity was measured, the natural capital loss involved far outweighed the benefit of the proposed dam project. The project would have caused tremendous adverse impacts on biodiversity in the Szigetkov wetland
COMMUNICATION…
… WITH PEOPLE
“Is it only about Money ?”
Surprise : Its about Ethics too !
Three Hidden Stories of “Discounting” ! Declining Growth Paths …
! Marginal Utility of $1 to the Rich vs Poor ….
! Inter-generational Equity…
Cash flow 50 years in the
future
Annual discount
rate
Present value of the future cash
flow
1,000,000 4% 140,713
1,000,000 2% 371,528
1,000,000 1% 608,039
1,000,000 0% 1,000,000
“Is Conservation a Big Business ?”
How Big is “Conservation” as a Sector ?
1.5 Mio3$ 125,000 Bio2$ 5,000 Bio1Protected Area Conservation
5.7 Mio$ 179 Bio$ 942 BioIT Services & Software4
4.5 Mio$ 588 Bio$ 530 BioSteel4
4.4 Mio$2,217 Bio$ 1,882 BioAutomobiles4
People Employed
Capital Employed (USD Bio)
Revenues (USD Bio)
Measures
Sectors
1. Balmford et al, 2002, “Economic Reasons for Conserving Wild Nature”, Science 297, estimates Protected Areas could produce goods and services valued at between $ 4,400 billion - $ 5,200 billion per annum
2. Natural Capital : Present Value (PV) of a constant service annuity of $ 5,000 billion per annum, discounted @ 4% per annum3. Estimate of the number employed directly in the maintenance, protection, and oversight of Protected Areas globally 4. Global Business Sector estimates from Global Markets Centre (“GMC”), Deutsche Bank
New markets are forming which reward biodiversity & ecosystem conservation….
Wetland Banking : In the U.S., companies or individuals can buy environmental credits from Wetland Mitigation Banks to pay for degradation of wetland ecosystems due to agriculture or development activities. More than 400 banks had been approved by September 2005, almost three quarters of them sponsored by private entities. The total market is over $ 3 billion.
Endangered Species Credits : A biodiversity cap-and-trade system in the U.S. has created ‘endangered species credits’, which can be used to offset a company’s negative impacts on threatened species and their habitats. The market volume as of May 2005 was over US$40 million, with 930 transactions carried out and more than 44,600 ha of endangered species habitat protected.
BioBanking : In 2006, Australia began a pilot project in New South Wales called BioBanking to create incentives for protecting private land with high ecological value. Developers buy “biodiversity credits” to offset negative impacts on biodiversity. These credits can be created by enhancing and permanently protecting land.
…. but to be successful, they all need appropriate institutional infrastructure, incentives, financing and governance: in short, investment.
About TEEB.. The Economics of Ecosystems and Biodiversity….
The Economics of Ecosystems & Biodiversity (TEEB Report)
(Potsdam Initiative, March 2007, G8+5 Environment Ministers)
Vision Society must urgently replace its defective economic compass so that it does not jeopardize human well-being and planetary health through the under-valuation and consequent loss of ecosystems and biodiversity
The Economics of Ecosystems & Biodiversity (TEEB Report)(Potsdam Initiative, March 2007, G8+5 Environment Ministers)
Objectives
– disclose the global economic values of biodiversity and ecosystem services• recommend analytical economic frameworks and preferred valuation
methodologies with which to value ecosystems and biodiversity• evaluate the ethical choices implicit in our approach• present a spatially-detailed global evaluation based on the above
– support the achievement of the MDG’s• evaluate and quantify the vulnerability of societies, especially the poor, to
ecosystem & biodiversity losses• evaluate and identify stakeholder compensation mechanisms to promote
biodiversity conservation and livelihoods
– support “end-users” of the economics • (a) governments - to enhance national accounting, improve policy frameworks,
support local decision-making, • (b) corporations - to redefine corporate performance and qualitative litative,
voluntary, disclosure schemes • (c) consumers – to standardize individual footprints
Advisory Board
• Lord Nicholas Stern• Achim Steiner, UNEP• Giles Atkinson, LSE• Herman Mulder, GRI• Jacqueline McGlade, EEA• Joan Martinez Alier• Julia Marton-Lefevre, IUCN• Karl-Goran Maler• Peter May, ISEE
Project TimetableThe Economics of Ecosystems
and Biodiversity
COP-9• May 10th – final version of Interim Report • May 28th – Bonn - Advisory Board Meeting / Briefing Session• May 29th – Bonn – Ministerial Session at COP-9, presenting Interim
Report and associated papers
12 Months• June 2009 – first draft of Final Report
COP-10• Present Final Report
Our Deliverables at COP-928th -29th May 2008
• “COP-9 Glossy” ( Interim Report : The Economics of Ecosystems & Biodiversity – Core Group + open network - Sukhdev et al )
• COPI Report ( The Cost of Policy Inaction : The case of not meeting the 2010 biodiversity target – Alterra & IEEP, Braat, ten Brink et al )
• Scoping Science Study (Science and Economics framework for Valuation of Ecosystems and Biodiversity – Cambridge, Balmford et al)
• Forest Biodiversity Valuation (Study on the Economics of Conserving Forest Biodiversity – Cambridge, Kontoleon et al - IUCN)
• EU Wetlands Study (EEA paper on EU Wetlands, Weber et al)
Some Highlights
1. There are strong link between ecosystem degradation / biodiversity loss and persistent poverty and MDG’s will fail unless these are addressed …. “BAU” scenario is presented as an unacceptable human and natural tragedy
2. “GDP %” estimates of damage do not express the scale of welfare lost : when we measure the population affected, the true scale of the problem unfolds…. Fresh sectoral analysis of the beneficiaries of ecosystem services shows that most such benefits flow to the “GDP of the Poor” i.e. small farming, informal forestry, animal husbandry sectors ( giving them a per-capita income adjustment +40%). Deprivation of these benefits places an insurmountable burden on the poor of replacing them (per-capita income adjustment, equity-weighted, of almost +100%).
3. Conservation is in reality a ‘mega-industry’ of $5 Trillion… if one values public benefit flows as ‘turnover’, natural capital as ‘market cap’, etc… it awaits recognition, integration, investment, market creation, & risk management
4. Ethical choices make a big difference to valuations : future generations (intergenerational equity), discounting in a scenario of declining natural resources (‘the optimists paradox’), and inequality ($1 marginal cost for rich vs. poor)
5. Several successful policy examples need highlighting and further exploration to scale up ….. Community-based Conservation, REDD, PES, ABS, local markets in biodiversity…