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Costing the earth
lf we are to save the natural world from destruction, must we first put a cash value on it? Fred Pearce investiqates
34 | NewScientist I 27 October Z01Z

your perspective - to a matter of dollars. in a bid to save them from destruction. It makes a certain intuitive sense.

Welcome to the weird world of green economics, in which the value of ecosystems is being reduced - or elevated, dependlng on

Economics and ecology are intimatelv related. and not just in name (the,,eco,,in both has the same Greek root, oikos, or,.house,,).

those are iust some of the direct connections. a stable climate, water to drink and air to breathe, there would be no economy at all. But at present, the environmental factors that keep economies ticking over are almost entirely absent from economics itself. If they are acknowledged, it is as ,.externalities,,that

All economic activity is dependent on the environment: what would the timber trade be without forests, or fisheries without fish? And




are not reflected in the prices ofgoods and services. A classic example is greenhouse gases: emitters emit them for free, and wider

The argument is that only wh"n *.."n ,". th" true value of nature will we have the incentive to look after it.

society picks up the tab. To try to plug this loophole, economists have given nature a new name: natural capital.

This isn't a new idea. The United Nations agreed a "System of Environmental_Economic


i_ J
N I to A rainforest in Guyana, two men are trying I sell rain. Ifyou want, theywill also seliyoi I soil, biodiversity, nitrogen-fixing bacteria

This forest s ecosystem

services are for sale, but

sofarnobodys buying

experiment to save the planet: to see whether hard-nosed self-interest can succeed where altruism and politics are failing. The experiment, run by zoologist Andrew Mitchell of the University of Oxford and banker Hylton Murray-philipson, takes the form of a private company called Canopv Capital. It does not own the 36o,ooo_hectare Iwokrama forest, but has bought the rights to market its "ecosystem services,,. por this it has so far paid half a million pounds.

and all kinds ofotherthings. Tempted? Thought not. But these men are not con artists. They are engaged in a serious

The services on offer include ,,the storage of carbon, the generation of rainfall, the supply of water, the maintenance of biodiversitv,ihe

prevention of erosion, the formation of ioil. the fixation of nitrogen, the treatment of waste and pollution and the support ofindigenous and other forest community livelihoods,,. Anyone interested in buying these services can do so, in the form ofgreen bonds. It's an impressive list. But who would pay for services from a remote rainforest when they already appear to come for free? And what, exactly, would they get for their money? At present the answers are: nobodv, and not much. But that is partly the point. ihe future ofthe planet could depend on finding some

Accounts" almost a decade ago. What is new is that global environmental politics is embracing it. Recent international conferences on climate change, rainforests, biodiversity and rivers have endorsed the idea that natural capital can turn the promises of politicians into real action. Sois natural capital really a game_changer? . It's a big ask. One reason natural capital h been ignored is that, by and large, nature is not owned by anyone. Most ofit is shared. Ifyou don't own something, you can,t put it on vour balance sheet as an asset. Investing to proiect it makes little sense, because you would be giving your competitors a free ride. The ecologist Garret Hardin put a name on this in a famous r968 paper: .,Tie Tragedy of the Commons". In it, he pointed out that shared natural resources with open access quickly get depleted, because evlryone has an interest in grabbing what they can, while they
can (Science, voh6z,p rz4;,).This bleak logic plays out in the real world in the form of deforestation, soil erosion, overfishine and so on. It is easy to see the folly of such ictions _ but why would anyone stop ;nless they knew that everyone else would, too? Making matters worse, people are often barely aware that natural capital exists until it disappears - that is, when deforested coastlines are flooded, drained wetlands cease to clean up pollution, razed forests result in droughts, and the trashing of coral reefs causes fisheries to collapse. The task of green economics, then,

different answers.



Z7 October 2012 | Newscientist | 35

twofold. First, it must overcome ignorance by translating abstruse ecological value into a measure more easily understood-money. Secondly, and more controversially, it must turn that abstract valuation into real money, by finding ways for people to get richer by valuing nature. That way, the argument goes, the unstoppable forces ofglobal capital will be directed towards saving nature ratherthan
destroying it. dollar sign on natural capital, speaks to the old business adage that "you can't manage what you can't measure". So what kind of numbers do the green economists come up with?

The biggest study yet, The Economics of Ecosystems and Biodiversity (TEEB), tried to value a range of important ecosystems. Coral reefs came top, worth up to gr.z million per hectare per year, largely derived from tourism The Amazon rainforest was reckoned to be worth between 96.5 and gr3 billion a year as a carbon store alone. Even humble grasslands can be worth thousands ofdollars per hectare, as protectors ofwater supplies and carbon stores. The TEEB study did not tell ecologists anything new, but it translated their knowledge into a metric that economists and hopefully policymakers - can understand. But simply putting a value on natural

capital is not enough. What does it mean to say that coral reefs are worth gr.z million per hectare per year? That's not "value" in the conventional sense. It is not a physical thing that can be bought and sold, but more like a future or another similarly esoteric

financial product.
To see how this value can be integrated into the economy, consider Thailand's coastal


first step, putting

, .. ..J4

Mangroves are worth more as coastal barriers than shrimp farms,


while coral reefs are the mostvaluable
ecosystems on Earth

mangrove forests. Many of these have been chopped down and turned into shrimp ponds, making Thailand the world's largest shrimp exporter. Edward Barbier, an environmental economist from the Universityof Wyoming in Laramie, calculated that the farms had a value of $ro,6oo per hectare, 1o times that of the timber. Economically, it looks like a no-brainer. But hold on. Mangroves also provide Iess tangible benefits, such as protecting the coastline. We learned this dramaticallv after the Boxing Day tsunami of zoo4, when coastlines with mangroves suffered much less damage than those without (Science,vol3to, p 643). Barbier calculated a value for that benefit at gt8,ooo per hectare - much more than shrimp ponds. Suddenly, trashing the mangroves doesn't seem like such a cannv idea(Land Economics, vol 8o, p 3S9).

Conservation as investment
Knowing that is useful. But iust knowing it won't stop the spread of the farms, because they generate profits for individuals. The tragedy of the commons still wins out unless the government decides to keep the mangroves intact in the national interest. In the past that would have been a difficult decision to justify, but having a valuation helps. Setting aside a hectare of mangrove is equivalent to investing g18,ooo in coastal protection. In this way, the tragedy ofthe commons is avoided. Governments, ofcourse, tend to be shorttermist and vulnerable to business lobbying. But there are signs that the message is getting across. Some enlightened governments now pay people to protect ecosystem services on the _ understanding that, like preventive healthcare, f it is cheaper than not acting until problems i arise. There are already over 3oo such ! programmes round the world, according to S Sven Wunder, an economist at the Center for ! International Forestry Research in Bel6m, Brazil. ! Most famously, Costa Rica reversed rampant E deforestation by paying landowners to protect i and replant. Less well known is that China, $ often an environmental pariah, has paid out groo billion for reforestation and $ more than $ other such projects since r999. 4 But there are two problems with such schemes. One is practical. Costa Rica's $ n payments were not rigorously monitored, B undermining the accounting principles the
35 | NewScientist | 27 October 2012

system is built on. The other is more fundamental. National systems tend to
be parochial, attuned to local needs. Thev


reduce pollution. The next step is to extend the scheme to include forests. Say a power company is required to cut emissions, a task that will cost S3o pertonne ofCOr. Ifit is allowed, as

generally ignore global benefits such as climate protection. If nations only assess the national value ofecosystem services, thev will undervalue them. So the big question is whether economics itself can be recast to incorporate global concerns. Can it find a way ofgiving a cash value to the huge variety of ectsystem services provided even by something as simple as a patch of rainforest? For some, this is the holy grail of environmentalism. For others, it is a pernicious privatisation that can only bring disaster. Ifeven nature can be owned and bought and sold, then there are no commons any more - not even the air we breathe. The first big test looks like being carbon in forests. Forests have value in various forms. They are valuable in a conventional sense for (Nature Climate Change, vol z, p 35o). timber, food and medicine. The land on which The carbon market could iust be the start. they grow is potentially valuable as a place to Canopy Capital is betting that governments Srow crops. will set up similar markets, allowing it to sell, As for their ecosystem services, one ofthe say, nitrogen-fixing services to companies most valuable is as a carbon store. Every tonne that want to offset their nitrogen emissions. ofcarbon held in a tree is a tonne ofcarton Well, maybe. Many ecologists are not not in the atmosphere warming the planet. convinced. All this talk ofnatural capital rings This carbon store currently has no value to an alarm bells. "Nature is very different from individual or corporation, but it is extremely human, social or manufactured capital valuable to the planet. Can green economics stocks," warns Paul Ekins of University College create a market for it, one that encourages the London in a report for the UN Environment protection offorests rather than their plunder? Programme. "lt operates through its own A number of countries already put a price complex laws and systems',. on industrial carbon emissions, based on the Ecosystems are not like goods in a cost of cleaning them up. California will open warehouse or money in a bank. If you spend the first such scheme in the US in Januarv. In a halfyour cash you will still have exactly half system known as cap-and-trade, big emiiters left. But ecosystems are more complex. Chop are granted permits to pollute, which they are down half a rainforest and you are left with half allowed to trade. The economic theory beiina as much timber - but you might retain most of this is that emitters who can make bis cuts the biodiversity while destroying the forest,s cheaply will do so and then sell surolis ability to boost rainfall in a distant country. permits at a profit. The market should thus Joseph Burger of the University of New unleash incentives to find better ways to Mexico atAlbuquerque says that natural-

Savannah performs valuable service to


environment, including climate regulation

tradability is not the aim. ,,privatising the ecological commons and letting markets decide the price ofthem is not at all what


But the logic of the market surelV leads there. Economic theory holds that without trade, nothing has value. And the proposed carbon market comes close to doing what Ekins fears. It will allow carbon polluters to choose between cutting emissions or protecting a forest. The impact on carbon in the atmosphere may be the same, but their impacts elsewhere maybe very different. Forest species may benefit, but human lungs downwind of the power station may suffer. So

an alternative, to invest in protecting a forest and so keep CO, out ofthe air at the equivalent of Szo a tonne, it will surely do so. UN climate

"For some, this is the holy grail of environmentalism, for others, it is a pernicious privatisation of nature"
capital accounting ignores these complex interactions. Moreover, says Ekins, putting a dollar sign on natural capital suggests thaione capital stock is exchangeable for another. That means, for example, that selling rainforests and buying coral reefs - or next year,s rubber harvest or a shipload of computlrs - would be

might fish in rivers suffering from the effects of acid rain. The overall environmental impacts are impossible to predict. We are still a long way from finding out how such a market might perform. Since it opened for business in zooT Canopy Capital has failed to sell a single bond. Its bankers concluded that, as yet, there is nothing to sell. Whatever its theoretical value, the rainforest had no actual market value beyond its timber and land. ,,lt is
taking longer than I anticipated to achieve value for the forest," admits Murrav-philipson.
Some will be thankful that the -o.r"y -"r, still haven't found a way to trade naturil

negotiators aim to allow that to happen from 2o2o, through a scheme called Reducing Emissions from Deforestation and Forest Degradation, or UN-REDD. It would be the first global market in a key ecosystem service. Policing the system won,t be easV, but if it works, the atmosphere will gain. The wider environment might also benefit. A recent study predicted that a global system that priced CO, at 925 per tonne emitted could curb climate change, protect forests and, as a byproduct, reduce the rate of species extinctions

environmentally neutral. This "tradability" looks like the crunch point at which economics and ecology are fundamentally incompatible. pavan Sukhdev,

capital. It is only five years since the global banking system, one created by humans and based on strict rules and measurable units of currency, crashed. That, critics sav, does not augur well for our chances of using markets to manage the planet's ecosystems. Perhaps green economics is the least bad tool we have. But like the global banking system, it could all turn into a massive gamble. Is that a risk we're willing to take? #
Fred Pearce is a consultant for rVew Scientist 27 october 2012 | Newscientist

banker who led the TEEB proiect, insists that