Brian Fallow 's Opinion

The Economics Editor of the NZ Herald

Brian Fallow: Depletion of natural capital a cost to all

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Putting a value on ecosystems and the environment is essential to bolster conventional economic measures.

Ecosystems regulate the climate and water quality, and control pests and diseases.
Ecosystems regulate the climate and water quality, and control pests and diseases.

If a river is turned into a drain, how much is lost?

If bees are deprived of a healthy diet, how long will it be before we are too?

Questions like these underlie an increasingly serious international effort to bolster the conventional measures of economic growth and wealth with measures of natural capital and the depletion thereof, and of the services which ecosystems provide us.

At the local level we expect regional councils or the Environment Court to weigh the benefits of some proposed development, in terms of jobs, incomes, tax revenue and so on, against costs to the environment, which are difficult to quantify and even harder to attach a monetary value to.

It is a case of comparing apples and oranges. Decisions are likely to depend on the subjective sympathies of decision-makers for one set of values over another, and the process becomes a lottery, says the New Zealand Institute of Economic Research in a recent paper on the subject.

At a national level policy-making can be distorted by the limitations of gross domestic product and the tendency to use it as the default measure of progress, coupled with the practice of judging governments by what happens to GDP on their watch.

The national accounts, and the Government's accounts for that matter, allow for the depreciation of built capital like industrial plant and machinery, but not for the depletion of natural capital.

The result is to inflate the value added by some industries, like mining and the more intensive forms of farming.

Pollution is not deducted from GDP; indeed, if it is bad enough - an oil spill, say - the activity involved in cleaning it up increases GDP.

These issues are the focus of a conference, Valuing Nature, to be held in Wellington next month.

One of the keynote speakers is Professor Sir Robert Watson, a former Nasa scientist who served as the first chairman of the United Nations Intergovernmental Panel on Climate Change (IPCC), the body which produces mega-reports on the state of climate science for the guidance of governments. He now teaches at the University of East Anglia and chaired the UK National Ecosystem Assessment.

"The first thing we need to get across, to the public and to politicians, is that ecosystems provide essential services to human beings," Watson says.

Food is the most obvious one.

But ecosystems also regulate the climate and water quality, and control pests and diseases.

Then there are the more intangible benefits: aesthetic, cultural and recreational.

"Yes, biodiversity has an innate value. It is valuable in its own right. We shouldn't destroy it, for moral and ethical reasons," he says.

"But as important, or even more important for many people, it underlies sustainable development. Protecting biodiversity is an investment, not a cost."

Getting that message across, especially to a finance minister, means putting a value on it.

"Why are we losing biodiversity and degrading ecosystems? It is fundamentally because we haven't put a value on them."

Doing that is not easy.

Especially not if you are looking for measures which are consistent across countries and over time. The UN Statistical Commission has been plugging way for at least 20 years now on the development of a framework for environmental accounting akin to, and intended to sit alongside, the System of National Accounts used to calculate GDP.

But if Statistics New Zealand's output is anything to go by the harvest of this effort is so far pretty meagre.

Where there is a market and things are measured or counted in the ordinary course of commerce - like natural gas reserves or visitor numbers - valuation might not be too difficult.

Sometimes it might be possible to look at the cost of the next best alternative to some service - valuing natural pollination at the cost of doing it artificially, perhaps.

There is something ineffably poignant, though, about the image of elderly men in a part of China long famous for its pears, but now bereft of honey bees, pollinating their trees with a feather duster on top of a pole and fretting about who will do it in the future when all the young people are leaving for the cities.

Fancy regressions on house prices might reveal the monetary value people place on proximity to a park or beach.

But other values are unquantifiable.

There is the option value of preserving a resource which may be much more valuable in the future a result of increased scarcity or technological change.We have barely begun to asses the pharmacological potential of the hundreds of thousands of different chemical compounds Mother Nature produces.

The timber in a forest might have a market value, but not the birdsong.

Watson readily concedes the point but argues that however difficult it may be to measure the services ecosystems provide, especially in monetary terms, it is important to make the effort, if only because it is language policymakers understand.

"Are these numbers hard? No. But at the same time, do we need to think through this whole issue of ecosystem services and their value? I would answer yes. But we have to be quite explicit about what our assumptions are, and what the uncertainties are."

If we are to slow down the rate of loss of biodiversity, and use ecosystems sustainably, relying on sentimentality about the fate of cute little animals won't cut it.

"It hasn't worked in the past."

- NZ Herald

Brian Fallow

The Economics Editor of the NZ Herald

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