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Global Ideas

In economic rethink, experts call for putting price tag on nature

Amid growing evidence of the global loss of biodiversity and ecosystems, economists are pushing businesses and governments to factor the price of ecological destruction into their decision-making.

A Costa Rican rainforest

Rainforests provide services that are literally valuable

What’s a forest worth? Can you put a figure to what a single bee yields in its lifetime? What’s the actual value of the role played by mangroves in protecting coastlines and marine life?

Questions like these have never really been asked until now, with nature’s services taken largely for granted and therefore never precisely quantified.

But it's a way of thinking that's been gathering pace ever since the Group of eight industrialized nations commissioned a report in 2007 from the United Nations Environment Program. The aim was to draw attention to the global benefits of biodiversity, and to the social and economic costs of biodiversity loss and ecosystem degradation.

The precursor to the TEEB Study (The Economics of Ecosystems and Biodiversity) was the Stern Review compiled by British economist Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. This 2006 report was one of the first in-depth studies of the effects of global warming on the world economy.

"With TEEB, we want to spell out how much natural capital is worth," said Christoph Schroeter-Schlaack from the Helmholtz Center for Environmental Research (UFZ) in Leipzig, who worked on the study. "We also want to ensure that the financial value of the environment is taken into greater consideration during the process of political and economic decision-making."

Funds to save forests

A rubber tree

Harvesting rubber doesn't have to damage the environment but still brings farmers a good yield

The final TEEB synthesis report will be released in October at the 10th Conference of Parties to the Convention of Biological Diversity meeting in Nagoya, Japan. Then, in December, environmental economics will be topping the agenda at the UN climate summit in Cancún, when experts will be calling for sustainable management of forest resources to be integrated into international climate agreements.

Environment ministers will also be discussing a forest protection fund which would award subsidies to developing nations that protect their forests instead of selling them off to clear land that can then be used for agriculture, for example.

A number of South American countries will be bringing their own ideas to the table, including Brazil, Ecuador, Guyana and Costa Rica, which is currently playing a pioneering role in terms of forest protection.

Enormous value

Mangroves

Mangroves serve as natural dykes

Clearly, it has grasped the significance of forest economics.

Forests have a huge financial value. As the TEEB study shows, deforestation costs the world between $2 and 5 trillion worth of natural capital a year – whereas it would cost a mere $60 billion to conserve threatened forests.

The smaller the eco-system, the more precise the studies. According to the UFZ, one hectare of wood in the middle of the southwestern city of Freiburg is worth almost 13,000 euros across a period of 100 years. It acts as an air and water filter, a carbon sink, a supplier of timber and an employer for lumberjacks and a service provider for locals who come here in their leisure time – and save money, since these services are free.

Factors contributing to the studies include the role played by biodiversity in boosting the efficiency of an eco-system. Estuaries and mangroves are especially valuable types of landscape because flood protection and fishing opportunities are just some of the services they provide.

In Vietnam, planting and protecting nearly 12,000 hectares of mangroves cost $1.1 million but saved annual expenditures on dyke maintenance of $7.3 million.

Investment in dyke building is absorbed into Vietnam’s gross domestic product (GDP), but the economic contribution of the mangroves is never quantified. In fact, their very destruction is seen as boosting GDP – much to the dismay of environmental economists.

A new mindset

They are keen to promote the idea of environmental indicators of growth and a new mindset: US ecological economist Robert Costanza has proposed that businesses pay into a precautionary fund when embarking on high-risk ventures, and can claim their payment back only if the project proves to cause little or no environmental damage.

BP would have had to pay up over 25 percent of the entire value of the company before it began drilling for oil in the Gulf of Mexico, Constanza said.

"What would have happened then?" he asks. "Either it would’ve decided not to drill, or it would have looked into ways to reduce the risk and increased its investments in safe technology."

The recent oil disaster in the US is a perfect illustration of how quickly precautionary environmental protection can pay off. The global fishing industry would also stand to profit. A detailed study has yet to be carried out, but the World Bank estimates that the fishing industry loses an annual $50 billion because of smaller catches despite rising expenditure on ships and equipment.

Stephan Lutter is an expert on fishing with the World Wildlife Fund, and stressed that the costs incurred by the destruction of valuable coral reefs by trawl nets, by-catches and illegal fishing have yet to be calculated. "The fishing frenzy means that right now, everyone is a loser," he said.

A rethink is long overdue. Studies such as TEEB can help bring it about – and unlike the value of nature’s services, their message can be quantified. Ultimately, the economics of nature are based on a 1:100 ratio: Nature pays back an average 100 euros for every euro invested in environmental protection – with services whose value has been overlooked for too long.

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