Putting a Price on Nature
If we cannot value nature's assets how can we protect them?
We can put a price on almost anything - a book, a pen, a pig, a lesson, a film star, a track on Spotify - heck, even a trip to the moon. But when it comes to our single most abundant asset - nature - we have no price list in sight.
This was not perceived as a problem pre global warming, because we convinced ourselves that nature was limitless and free. Man’s bottomless pit.
But, now that climate change has reached an alarming point, we are starting to wake up to the fact that biodiversity collapse is a real possibility. It seems that nature is no longer in such abundance. This has become more of a problem since we discovered that much of our economic output is dependent on it.
The insurance firm Swiss Re has estimated that more than half of global GDP – $42tn (£32tn) – depends on high-functioning biodiversity. The World Economic Forum lists biodiversity loss as one of the five biggest risks over the next decade and experts say financial institutions are increasingly aware that biodiversity regulation is coming.
The Amazon is an ideal case study to try to explain the issue in more concrete terms. One of the world's largest and most visible biodiversity-rich biomes will be transformed into a degraded mess unless a sustainable biodiversity-based economy develops which properly values (ecosystem) services and products produced by the rainforest.
Already 17% of the Amazon has been deforested and research has suggested 20-25% deforestation would trigger the tipping point at which the rainforest would start to transition into savannah. This crucial moment was generally thought to be decades away, but a paper in the journal Nature Communications last year suggested that 40% of the existing rainforest is already on the brink of transitioning.
Prof Thomas Lovejoy, the “godfather of biodiversity”, said if agro-industrial economic developments such as cattle farming, palm oil production and mining continue, the rainforest’s hydrological cycle will be “in tatters”, with global weather systems severely disrupted.
Turning this around will require an innovative green economy which monetises the food, medicines, aquaculture and climate regulation the forest provides, said Lovejoy, a senior fellow at the United Nations Foundation and president of the Amazon Biodiversity Centre. And this does not take into account other approaches to monetising nature such as ecotourism.
“Is [biodiversity] to be locked away for the amusement of science with no practical value? It has in fact contributed substantially to human wellbeing in ways that simply are not tracked or entered into human accounting.”
But the reality is that if we do not create a mechanism for economically valuing the often intangible assets provided by nature, then leaders will continue to prioritise the already established, and easier to understand activities, such as farming, fishing, mining and logging.
It is simpler to value food, water and building materials than carbon credits and mystical, deep-forest medicines. How are normal people supposed to get their heads around assets such as the tropical Amazonian viper, the fer-de-lance, which inspired the discovery of angiotensin converting enzyme (ACE) inhibitors which have extended the lives of millions of people by controlling blood pressure? Another, Curare – a muscle relaxant used in surgery – is still harvested directly from the Amazon. Way more simple to value than cutting a tree down!
It's not surprising that the Brazilian president, Jair Bolsonaro, has said that ecological reserves “hinder development”. Under his leadership deforestation has reached a 12-year high. But then again, who can understand the environmental mumbo jumbo and scientific pontification that surrounds ecosystem services, with their all too intangible assets.
As a result, the current Brazilian government tends mostly to see the forest and its biodiversity as of little value compared to economic activities like cattle, soy or mining. In contrast, the Amazon’s highest value is in development that is based on forest biodiversity, and in maintaining the hydrologic cycle for the Amazon and the South American climate system.
To move forwards, and to get the backing of government and industry, we will need to start classifying ecosystem services using simple and universally acceptable terminology. Following this we can compile a simple price list for these services and start to develop a functioning marketplace. One that works as well as any livestock market. Preferably not the Wuhan kind of market.
Ecosystem services classification should be inclusive, listing tangible services such as food supplies, sustainable logging, clothing and ecotourism as well as the more intangible such as medicine, carbon storage, biochemical and mineral discoveries as well as habitats for all kinds of flora and fauna.
The latter can be quite easily catalogued to understand its intrinsic value. Think of the Amazon as the world's largest garden nursery. Thanks to the popularity of garden centres around the world we have a price list for almost any kind of plant or tree. At the same time zoos have helped us to understand the monetary value of most wild animals. After all, they have to buy their animal stock from somewhere. The most popular herbivores are priced in livestock markets.
Combine these price lists and we could create a dynamic valuation system for flora and fauna. We could then implement a natural capital accounting approach which would enable the Amazon, a wildlife reserve or a farm to count their trees, plants and animals so they can put them on their balance sheet, enhance the value of their property, and gain conservation credits and grants as opposed to agricultural payments.
If the World Economic Forum or the United Nations was presented with a profit and loss account and a balance sheet which included all the ecosystem services and the natural assets hidden in the Amazon rainforest, then they could surely be persuaded that these assets should be subsidised and financially protected.
Given how critical Amazon's rain forest is to the world's climate, like ice caps and remote jungles, then surely we have the capability to value the specific annual cost of increased extreme storms, drought and wildfire. Factor in a more robust economic link between the Amazon and storms elsewhere and you have the argument for storm reduction payments flowing from the developed world to key biodiversity hotspots.
Equally, if venture capital companies can provide capital for universities to develop their research and associated IP, then why would they not equally pay the Amazon rainforest to develop its IP. As we gain a better understanding of how to catalogue, value and monetise nature's assets then businesses and financial investors will begin to focus on the business of biodiversity.
Perhaps the first scaled up sector to support biodiversity is ecotourism. Like renewable energy is the first major industry to help reduce emissions. According to Allied Market Research the ecotourism market was valued at $181.1 billion in 2019, and is expected to reach $333.8 billion by 2027, registering a CAGR of 14.3% from 2021 to 2027.
Ecotourism is a form of travel that puts a great emphasis on maintaining and preserving nature. It is one of the more successful mechanisms for monetising biodiversity and a vital subsidiser of conservation within wildlife parks, rewilding landscapes and remote wild spaces. They key is to ensure that more of our nature-based travel dollars go to biodiversity conservation and not solely to travel companies and hotels.
If, by cataloguing and pricing nature's assets, Bolsonaro could understand how to monetise the Amazon's ecosystem services as readily as he can monetise agriculture, he might consider building it up and stop tearing it down.
Unless something changes we could be left staring down the barrel of biodiversity collapse within just a few decades. Surely accountants and stock takers can help us get our heads around this one.
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