4.5 Costs and valuation of ecosystem goods and services

There is growing interest in developing techniques for environmental accounting. To that end, definitions of ecosystem goods and services are currently fluid. For example, ecosystem services accrue to society in return for investing in or conserving natural capital (Heal, 2007), or ecosystem services are ultimately the end products of nature, the aspects of nature that people make choices about (Boyd, 2006). Definitions aside, all humans clearly rely on ecosystem services (Reid et al., 2005). While many efforts have been made to use standard economic techniques to estimate the economic value of ecosystem goods and services (Costanza et al., 1997, 2000; Costanza, 2000, 2001; Daily et al., 2000; Giles, 2005; Reid et al., 2005), others argue that such efforts are not only largely futile and flawed (Pearce, 1998; Toman, 1998b; Bockstael et al., 2000; Pagiola et al., 2004), but may actually provide society a disservice (Ludwig, 2000; Kremen, 2005). The estimates from these techniques range from unknown (incomparability cf. Chang, 1997), or invaluable, or infinite (Toman, 1998b) because of lack of human substitutes, to about 38*10¹² US$ per annum (updated to 2000 levels – Costanza et al., 1997; Balmford et al., 2002; Hassan et al., 2005), which is larger but of similar magnitude than the global gross national product (GNP) of 31*10¹² US$ per annum (2000 levels). These monetary estimates are usually targeted at policy-makers to assist assessments of the economic benefits of the natural environment (Farber et al., 2006) in response to cost-benefit paradigms. Some argue (Balmford et al., 2002, 2005; Reid et al., 2005) that unless ecosystem values are recognised in economic terms, ecosystems will continue their decline, placing the planet’s ecological health at stake (Millennium Ecosystem Assessment, 2005). Others argue that ecosystems provide goods and services which are invaluable and need to be conserved on more fundamental principles, i.e., the precautionary principle of not jeopardising the conditions for a decent, healthy and secure human existence on this planet (e.g., Costanza et al., 2000; van den Bergh, 2004), or a moral and ethical responsibility to natural systems not to destroy them.

What is sometimes lost in the arguments is that natural capital (including ecosystem goods and services) is part of society’s capital assets (Arrow et al., 2004). The question then may be considered as whether one should maximise present value or try to achieve a measure of sustainability. In either case, it is the change in quantities of the capital stock that must be considered (including ecosystem services). One approach in considering valuation of ecosystem services is to calculate how much of one type of capital asset would be needed to compensate for the loss of one unit of another type of capital asset (Arrow et al., 2004). What is not disputed is that factoring in the full value of ecosystem goods and services, whether in monetary or non-monetary terms, distorts measures of economic wealth such that a country may be judged to be growing in wealth according to conventional indicators, while it actually becomes poorer due to the loss of natural resources (Balmford et al., 2002; Millennium Ecosystem Assessment, 2005; Mock, 2005 p. 33-53.). Ignoring such aspects almost guarantees opportunity costs. For instance Balmford et al. (2002) estimated a benefit-cost ratio of at least 100:1 for an effective global conservation programme setting aside 15% of the current Earth’s surface if all aspects conventionally ignored are factored in. Additionally, many sectors and industries depend directly or indirectly on ecosystems and their services. The impacts of climate change could hold enormous costs for forests and coastal marine systems, as well as for managed agricultural systems (Epstein and Mills, 2005; Stern, 2007). Multiple industries, such as timber, fisheries, travel, tourism and agriculture, are threatened by disturbances caused by climate change. Impacts on these sectors will influence financial markets, insurance companies and large multinational investors (Mills, 2005).

The United Nations has recognised the need to develop integrated environmental and economic accounting. However, many difficulties remain, especially as ecosystems may be the most difficult of all environmental assets to quantify (Boyd, 2006). There is a growing recognition that national accounting procedures need to be modified to include values for ecosystem goods and services (Heal, 2007). Outside of the techniques mentioned above (often using contingent valuation) others have argued for developing a Green GDP to describe the state of nature and its worth, or an Ecosystem Services Index to account for all of nature’s contributions to the welfare of human society (Banzhaf and Boyd, 2005; Boyd, 2006). Ultimately, it may be developing economies that are the most sensitive to the direct impacts of climate change, because they are more dependent on ecosystems and agriculture (Stern, 2007). As such, it is the poor that depend most directly on ecosystem services. Thus the degradation of these systems and their services will ultimately exacerbate poverty, hunger and disease, and obstruct sustainable development (e.g., Millennium Ecosystem Assessment, 2005; Mock, 2005; Mooney et al., 2005; Stern, 2007).