The Economics of Ecosystem and Biodiversity (TEEB)

A brief synthesis

Lalit KumarAssociate Professor

Department of Business Economics, Delhi University

A forest of questions…Why TEEB

• Is it actually ethical to reduce biodiversity, which is about life, to mere economics ?

• And why should the complex web of life, diverse and location-specific in character, lend itself to global economic analysis and modelling ?

• And isn’t the scientific understanding of ecosystem dynamics, and of the link between biodiversity and ecosystem resilience, too weak to support a study of economic implications ?

• Is it appropriate to isolate ecosystem and biodiversity benefits and value them individually (as in a TEV approach), and assume the whole does not exceed the sum of its parts ?

• We are still struggling to find the “value of nature”.

• Nature is the source of much value to us every day, and yet it mostly bypasses markets, escapes pricing and defies valuation.

• This lack of valuation is, we are discovering, an underlying cause for the observed degradation of ecosystems and the loss of biodiversity.

The Problem and its Root Causes

• The history of post-War economic growth has been one of unsustainable development : unsustainable for the planet’s ecosystems, for its species diversity, and indeed for the human race.

• By some recent yardsticks of sustainability, our global ecological footprint has doubled over the last 40 years, and now stands at 30% higher than the earth’s biological capacity to produce for our needs.

• The ongoing degradation of ecosystems and loss of biodiversity, especially observable in the post-war era, is a well-documented reality.

• Several reports, culminating in the Millennium Ecosystem Assessment, (2003 and 2005), have presented the evidence of a 60% loss in ecosystem services in the last 40 years (MA, 2005)

Direct Drivers

Indirect Drivers

EcosystemServices

Human Well-being

Life on Earth: Biodiversity

MA Conceptual Framework

Causes of Biodiversity loss• Thus the root causes of biodiversity loss lie in the nature of

the human relationship with Nature. We have not widely understood that our survival depends on co-existence, on living in harmony with Nature.

• Our dominant economic model promotes and rewards more versus better consumption, private versus public wealth creation, man-made capital versus natural capital.

• This is the “triple-whammy” of self-reinforcing biases which leads us to promote an economic model in which we tend to extract without fear of limits, consume without awareness of consequences, and produce without responsibility for third-party costs, the so-called ‘externalities’ of business.

What to do…corrections

To include natural and human capital formation and destruction in the accounts of society;To expand the reach of markets in order to enable payments for ecosystem services ; To tax what we take (resources) and not what we make (profits from goods and services); and so on. These are all big changes, each of which would address the “root causes” of biodiversity loss and ecosystem degradation.

Economics for a Changing Society

• But of course, there are no markets for the largely public goods and services that flow from ecosystems and biodiversity, and no prices. The traditional term for this is “market failure”.

• There is deep-seated, widespread and inherent market-centric mindset (and our almost unequivocal association of price with value).

• TEEB attempts to demonstrate significant value flowing from nature to human society in terms of welfare benefits, employment, and solutions to poverty.

TEEB Approach

• Shadow prices can and should be calculated and presented, in the proper context of different biomes and differing socio-economic conditions, for a wide range of ecosystem services.

• TEEB’s view is that we should acknowledge the weaknesses of valuation methodology in calculating such shadow prices and not shy away from stating best available estimates of value using the most appropriate of reviewed methodologies, strictly to help decision- makers to take better informed choices.

• This is because the alternative is in fact ethically worse : to permit the continued absence of prices to seep even further into human consciousness and behaviour as a “zero” price and thus no value.

“you cannot manage what you do not measure”

Accounts for a Changing Society • Society wishes to manage its development sustainably, mitigate

climate risks, reduce ecological scarcity, and arrest the extinction of species.

• However, to be able to achieve any of that, society needs appropriate measures of the underlying variables : the sustainability of economic development, the quantum of greenhouse gases, the extent and quality of our ecological commons, and the richness and viability of species.

• Other than the total GHG levels and annual GHG emissions, none of these underlying quantities has a widely accepted standard measure.

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

TEEB approach

TEEB valuation – (1) Recognize value: a feature of all human

societies and communities

(2) Demonstrate value: in economic terms, to support decision making

(3) Capture value: introduce mechanisms that incorporate the values of eco-systems into decision making.

A story of 50 year old TREE

Provides oxygen worth USD 7,700 (INR 350,000) Facilitates recycling of water worth USD 10,000 (INR

450,000) Conserves soil worth USD 8,333 (INR 375,000) Controls pollution worth USD 17,700 (INR 750,000) Provide shelter for animals and birds worth USD 8,333 (INR

375000)

Cut the TREE and you will get USD 1,111 (INR 50,000) only!!

Few basic questions for Valuation

What are the key ecosystem goods and services (EGS) provided by natural resources?

How does EGS support livelihoods? What is the consumptive and non-consumptive values of EGS

for rural/ urban/ national GDP? How do the provisioning of EGS impact and gets impacted by

market dynamics? What are the distributional aspects of EGS? Who benefits

most? How much? Why? What would be the economic cost for restoration of EGS and

its avoided destruction?

Valuation map

Challenges– Uncertainty. – Resilience– Non linear changes– Scaling-up value estimates. – The possibilities for adjusting transferred values for differences

in ecosystem context – Aggregation of bundled ecosystem values and double counting; – Transfer of non-use values that are highly specific to social

context; – Transferring and aggregating values for non-marginal changes

in ecosystem service provision.

Biomes:

• 1    Marine/open ocean• 2    Coastal systems (Estuaries, Shelf sea, Sea grass beds etc)• 3    Wetlands (Mangroves, Floodplains, Peat-wetlands, Tidal marsh• 4    Fresh water bodies (Lakes, rivers)• 5    Forests (Tropical, Temperate and Boreal)• 6    Woodland / Shrubland• 7    Grassland / Rangeland• 8    Desert• 9    Tundra / Taiga• 10  Cold desert (Ice/Rock/Polar)• 11 Cultivated• 12 Urban

Valuation Methods and value type• 1 Direct market pricing Direct• 2 Factor Income Direct• 3 Avoided Cost Indirect• 4 Replacement cost Indirect• 5 Mitigation and restoration Cost Indirect• 6 Travel Cost Indirect• 7 Hedonic Pricing Indirect• 8 Contingent Valuation CVM• 9 Group Valuation CVM• 10 PES Indirect• 11 Benefit transfer Direct• 12 Total Economic Value Total

Ecosystem services considered

2023-05-02 20

A. SupportingA1. Primary productionA2. Nutrient CyclingA3. Water Cycling

C. ProvisioningC1. Food provisionC2. Water provisionC3. Energy provisionC4. Fiber productionC5. Biochemical provision

B. RegulatingB1. Climate regulationB2. Disease regulationB3. Water regulationB 4. Protection from HazardB 5. Pollination

D. Cultural servicesD 1. SpiritualD2. Recreation

Values of Nature

05/02/2023 22

Physical costsHuman preferences

SOCIAL AND POLITICAL SCIENCESMARKET THEORY /CHREMATISTICS

DIRCT USE

INDIRECT USE

OPTION OR CUASI-OPTION

USE VALUE

NON-USE VALUE

LEGACYEXISTENCE

Market analysis.

Cost methods

Market analysis. Cost methods.

Hedonic pricing.Contingent valuation.

Contingent election

Replacement and avoided cost methods

Contingent valuation

Contingent election

VALU

ATIO

N /

VALU

ATIO

N /

ACC

OU

NTI

NG

SU

BJE

CTAC

CO

UN

TIN

G S

UB

JECT

MET

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/ TO

OLS

/ M

ETHO

DS /

TOO

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MO

DEL

SM

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Group and deliberative

valuation

Joint analysis

CO

NC

EPTU

AL

CO

NC

EPTU

AL

APPR

OAC

HAP

PRO

ACH

Socio-cultural

valuationEconomic valuation

NON ECONOMIC

VALUES

SOCIAL VALUE

Human preferences

SOCIAL AND POLITICAL SCIENCESMARKET THEORY /CHREMATISTICS

DIRCT USE

INDIRECT USE

OPTION OR CUASI-OPTION

USE VALUE

NON-USE VALUE

LEGACYEXISTENCE

Market analysis.

Cost methods

Market analysis. Cost methods.

Hedonic pricing.Contingent valuation.

Contingent election

Replacement and avoided cost methods

Contingent valuation

Contingent election

VALU

ATIO

N /

VALU

ATIO

N /

ACC

OU

NTI

NG

SU

BJE

CTAC

CO

UN

TIN

G S

UB

JECT

MET

HODS

/ TO

OLS

/ M

ETHO

DS /

TOO

LS /

MO

DEL

SM

OD

ELS

Group and deliberative

valuation

Joint analysis

CO

NC

EPTU

AL

CO

NC

EPTU

AL

APPR

OAC

HAP

PRO

ACH

Socio-cultural

valuationEconomic valuation

NON ECONOMIC

VALUES

SOCIAL VALUE

INDUSTRIAL ECOLOGY/ TERMODYNAMICS

MATERIALS /SURFACE /

LAND COVER

ENERGY /EXERGY /EMERGY

Embodied Energy Analysis

Exergy analysisEmergy analysis

PHYSICAL COST

Physical accounts

Material flow analysis

Input-Output aEcological footprint

Land-cover flow

INDUSTRIAL ECOLOGY/ TERMODYNAMICS

MATERIALS /SURFACE /

LAND COVER

ENERGY /EXERGY /EMERGY

Embodied Energy Analysis

Exergy analysisEmergy analysis

PHYSICAL COST

Physical accounts

Material flow analysis

Input-Output aEcological footprint

Land-cover flow

Total Economic Value

Direct use Indirectuse

Recreation, spriritua/cultural

well-being, reserach education

Crops, livestock,

fisheries , wild foods,

aquaculture

Pest control, pollination, water

regulation and purification, soil

fertility

Actualvalue

Altruist value

Bequest value

Philantropic value

Altruism to biodiversity

Existence value

Satisfaction of knowing that a species or ecosystem

exists

Satisfaction of knowing that

future generationswill have acces tonature’s benefits

Satisfaction of knowing thatother

people have acces to nature’s benefits

Non-use values

Future use of known benefits

Option value

Consumptive

Use values

Output value

Minimum provisioning of healthy functioning

ecosystems

Infrastructure valueRights that

species have to exist

Intrinsic value

Value

Instrumental value

Non consumptive

Source: Gómez-Baggethun, deGroot, et al. in progress

TEEB final average value per biome (Rs/ha/year), 2016

ESService Marine Coastal Wetlands Fresh water Forests Woodlands Grasslands Cultivated Average1 Food 658550 233892 54282 4962 7681 203342 2915 97974 1579502 Water 0 101710 451101 247248 10541 0 20614 12017 1405383 Raw materials 24027 558 42979 93 11500 38962 1485 4390 150604 Genetic 1471253 0 829 0 14025 0 1 0 3715275 Medical 0 0 6648 0 4859 0 0 0 57546 Ornamental 18984 0 722 0 0 898 0 0 68687 Air quality 0 0 16638 0 16541 35764 7395 12247 147648 Climate 25335 0 112293 4252 59487 15758 31687 55937 462939 Extreme events 1814370 1811332 410224 0 2831 0 0 0 1009689

10 Water flows 0 0 38510 0 96333 0 0 0 4534311 Waste 3037 0 373272 121393 3999 18889 9121 15959 7795312 Erosion 13641817 0 19331 0 25061 3971 3422 0 273872113 Soil fertility 3159 1394500 30729 93 36568 0 18025 20266 21476314 Pollination 0 0 1236 0 11004 0 0 1581 460715 BioControl 259 3929 1137 0 925 0 0 0 156216 Life cycles 0 7760 9325 0 910 35957 0 0 1348817 Genetic Diversity 325273 5946 39808 23016 21535 39 3360 52254 5890418 Aesthetic 267285 0 0 0 0 268771 0 0 26802819 Recreation 1902045 992184 90845 46753 45152 0 271 3804 43715220 Inspiration 1 0 42824 0 4 0 0 0 1427621 Spiritual 0 0 0 0 0 0 0 0 022 Cognitive 155058 2951 0 0 0 0 0 0 79004

Total 20310453 4554761 1742735 447808 368957 622352 98295 276429 0

TEEB final average value per biome ($/ha/year), 2007 1 2 3 4 5 6 7 11 ESService Marine Coastal Wetlands Fresh water Forests Woodlands Grasslands Cultivated Average

1Food 9,147 3,248 754 69 107 2,824 40 1,361 2,1942Water 1,413 6,265 3,434 146 286 167 1,952

3Raw materials 334 8 597 1 160 541 21 61 209

4Genetic 20,434 12 195 0 5,1605Medical 92 67 80

6Ornamental 264 10 12 95

7Air quality 231 0 230 497 103 170 2058Climate 352 1,560 59 826 219 440 777 643

9Extreme events 25,200 25,157 5,698 39 14,023

10Water flows 535 1,338 63011Waste 42 5,184 1,686 56 262 127 222 1,08312Erosion 189,470 268 348 55 48 38,038

13Soil fertility 44 19,368 427 1 508 250 281 2,983

14Pollination 17 153 22 64

15BioControl 4 55 16 13 22

16Life cycles 108 130 13 499 187

17Genetic Diversity 4,518 83 553 320 299 1 47 726 818

18Aesthetic 3,712 3,733 3,723

19Recreation 26,417 13,780 1,262 649 627 4 53 6,072

20Inspiration 0 595 0 19821Spiritual 22Cognitive 2,154 41 1,097

Total 282,090 63,261 24,205 6,220 5,124 8,644 1,365 3,839

GDP of the POOR

While the value of forest services such as fresh water, soil nutrients, and non-timber forest products was only around 7% of national GDP, it amounted to some 57% of the livelihood incomes of India’s rural poor

Ecosystem Losses and Poverty “GDP of the Poor” is the most seriously hit by ecosystem losses

Indonesia India Brazil

99 million 352 million 20 millionEcosystem services dependence

Ecosystem services as a Percentage of classical GDP

Ecosystem services as a percentage of “GDP of the Poor”

Ecosystem services Source: Gundimeda and Sukhdev, D1 TEEB

The Economics of Ecosystems and Biodiversity

The Economics of Ecosystem Services (TEEB): some numbers

1. Conserving forests avoids greenhouse gas emissions worth US$ 3.7 trillion.

2. Global fisheries underperform by US$ 50 billion annually.3. The importance of coral reef ecosystem services: Coral reefs are home to an estimated 1-3 million species,

including more than a quarter of all marine fish species. Some 30 million people in coastal and island communities

are totally reliant on reef-based resources as their primary means of food production, income and livelihood (Gomez et al. 1994, Wilkinson 2004).

Contd......4. Green products and services represent a new market opportunity:

Global sales of organic food and drink have been increasing by over US$ 5 billion a year, reaching US $46 billion in 2007.

5. Ecotourism is the fastest-growing area of the tourism industry with an estimated increase of global spending of 20% annually.

6. Bee keeping generates US$ 213 million annually in Switzerland. The total economic value of insect pollination worldwide is estimated at €153 billion, representing 9.5% of world agricultural output in 2005.

7. Tree planting enhances urban life quality in Canberra, Australia: These benefits are expected to amount to some US$ 20-67 million over the period 2008-2012, in terms of the value generated or savings realized for the city.

Shrimp Farm

private profits less

subsidies Net of public costs of restoration after 5 yrs

private profits

Mangroves

0

10,000

US$/ha

private profits

5,000

PRIVATE PROFITS PUBLIC LOSSES

If public wealth is included, the “trade-off” choice changes completely…..

$584ha

$1220ha

$9632ha

$584ha

-ve $11,172ha

$12,392ha

Sour

ce: B

arbi

er 2

007

After adding public benefits from

mangroves

The Economics of Ecosystems and Biodiversity

• Thanks