By Bhavani Prakash
Pavan Sukhdev, unlike most economists, has a strong passion to make Nature count. He’s on an important mission to enable governments, businesses and communities incorporate a sense of the true worth of nature’s services which historically has been taken for free.
Pavan Sukhdev is Special Adviser to UNEP’s green economy initiative and lead author of the path-breaking study called The Economics of Ecosystem Biodiversity or TEEB. He is often called the ‘Nicholas Stern’ of biodiversity, striving as he does to put a value on it the way Stern did for climate change. All this while he’s on a sabbatical from Deutsche Bank where he is a senior banker.
His efforts may well provide a very important solution to the deep socio-environmental crises facing the planet – which he attributes to the triple factors of “market failure, information failure and institutional failure”. These have been a result of the obsession with economic growth, and the concomitant political systems which have evolved as a response to the industrial revolution and that are clearly out of sync with current environmental realities.
Sukhdev is not the first ‘environmental economist’ to put a price tag on ecosystem services or say that economic activity or prices do not fully reflect ‘externalities’ such as the cost of air or water pollution, or loss of oceans, atmosphere and biodiversity. Robert Constanza et al for instance, estimated the value of the world’s ecosystem services and natural capital at US$33 trillion in 1997.
However, Sukhdev is certainly behind a critical and visible momentum that is building up to operationalize this information and account for these ‘externalities’ in the National Income Accounting of countries as well as the balance sheet of companies, so that their true costs to society can be assessed and given weight.
This is also the first time a study the scale of TEEB has ever been done. Set up by UNEP in 2007 and steered by Pavan Sukhdev, the study was carried out with over 500 scientists and 225 co-authors. The report highlighted various dimensions to the issue of biodiversity, including the importance of investing in ecological infrastructure, and how critical biodiversity is to the poor of the world.
The Bank of Natural Capital is an advisory website that is part of the TEEB study. It shows how and why to value nature. The TEEB Synthesis Report , launched at the 10th meeting of the Convention of Biological Diversity, Nagoya (COP-10) , Japan illustrates how the various economic concepts and tools described in TEEB can assist society to incorporate the values of nature into decision-making at all levels.
So what is the world worth? Or rather why should we value nature and bring it into the balance sheet of a nation or of companies?
* We are operating beyond the carrying capacity of Nature, or the ability of nature to regenerate itself. For 2006, humanity’s total ecological footprint was estimated at 1.4 planet Earths – in other words, humanity uses ecological services 1.4 times as fast as Earth can renew them. This is like drawing down our bank balance of natural resources – by living off our ‘natural capital’ instead of from the interest.
* What we don’t measure we can’t manage. This is the reason we are losing invaluable resources in the form of ecosystem services. Unless you put a price tag on nature – its forests, coral reefs and mangrove swamps, we are not going to be able to save it. The idea is beginning to catch up.Last year for example, the World Bank’s 5-year study to incorporate the value of ecosystems into countries’ national income accounts, was an outcome of Nagoya COP-10, Japan. Colombia and India are to be the first countries to value their natural capital. Even businesses are slowly warming up to the idea.
The EU isn’t far behind. Its 2020 biodiversity strategy is going to account for nature. According to UK government’s National Ecosystem Assessment, looking after all the UK’s green spaces is worth the sum of £30bn a year to the economy. Bob Watson, chief scienific adviser to DEFRA and co-author of the report, said the assessment should be used to shape government policy at the national and local level. “Putting a value on these natural services enables them to be incorporated into policy in the same way that other factors are. We can’t persist in thinking of these things as free.”
* The top 3,000 public companies in the world were responsible for $ 2.25 trillion worth of environmental damage, which represent 33% of the profits of these companies. This is private profit at the cost of public wealth. Some pioneering businesses are taking the cue to calculate these costs. PUMA is one of the world’s first companies to adopt environmental accounting to show the full impact of its use of ecosystem services.
* According to TRUCOST, global environmental damage caused by human activity as estimated by UNEP Finance Initiative and Principles of Responsible Investment (PRI) in 2008 cost US$ 6.6 trillion/year (or 11% of 2008 GDP). Those global costs are 20% larger than the $ 5.4 trillion decline in the value of pension funds in developed countries caused by the global financial crisis in 2007/8.
The global environmental damage is estimated to be $28 trillion by 2050. Five sectors account for about 60% of environmental costs – electricity, oil and gas producers, industrial metals & mining, food producers, construction & materials. Certainly these are numbers not to be taken lightly.
* Economics only measures manmade capital, while ignoring human and natural capital. If we do not assign economic values to nature, society as a whole will be making wrong trade-offs. Sometimes the issue goes beyond economics into the realm of ethical choices. Take coral reefs for example. Sukhev says in the video below called, “What is the world worth”:
“The problem is that at today’s targeting in Copenhagen, or for that matter in the climate process, we are targeting a level of carbon dioxide which most scientists believe is too high for coral reefs to survive on an ongoing basis. Scientists have given us numbers of 320 ppm, 350, 380 ppm – only one has given us a number of 480, which is higher than where we are targeting. So there is an issue here that, you know, we are probably making a societal choice, as a community, to not have coral reefs. Can economics save this? No, we can’t. The last coral reef is probably worthless because, you know, it just is too precious to put a price on. So we can’t actually apply the logic of economics and marginal value when you’re coming to the last unit of what’s left. And that’s where you need to make an ethical choice. So here we have it. We have an ethical choice. Sadly, this is an ethical choice which we are making kind of unconsciously, if you know what I mean. We’ve sort of stepped into it and made that choice without necessarily having thought through the consequences.”
* Nature is very important for the most vulnerable sections of society – a point that Sukhdev often makes. In Sukhdev’s words,” We may dismiss ecosystem services as only ’10-20% of GDP’, but they are actually ‘50-90% of the GDP of the poor’. Preserving ecosystem services is critical for the livelihood of the poor.
For a detailed understanding of the issue, do watch the excellent and comprehensive talk by Pavan Sukdhev at the Sydney Opera House. It was organised by Centre for Policy Development (CPD), Australia.
The full transcript of the speech has been generously made available by CPD here.
Further links you may be interested in:
YouTube: Pavan Sukhdev on the Invisible Economy
Video link here