Pavan Sukhdev THE ECONOMICS OF ECOSYSTEMS AND … and... · Pavan Sukhdev “Bridging the Gap”, 15th May 2008, Portoroz. A Story … from Haiti - Poorest country in the Western

The Economics of Ecosystems and Biodiversity

Pavan Sukhdev“Bridging the Gap”,

15th May 2008, Portoroz

A Story … from Haiti

- Poorest country in the Western Hemisphere 65% of its people must survive on less than 1 $ a day.

- Haiti was originally fully forested, less than 3% cover still remains.

- 1950-1990, the amount of arable land almost halved due to soil erosion.

- Deforestation has diminished evaporation back to the atmosphere over Haiti, and total rainfall in many locations has declined by as much as 40%, reducing stream flow and irrigation capacity :

- Avezac Irrigation System only supports half of the initially 9,500 acres it planned to cover.

- When it rains , hillsides no longer efficiently retain or filter water - even moderate rains cause devastating floods.

- Ground and stream waters are laden with sediment and pollution which has degraded estuarine and coastal ecosystems.

- about 90% of Haitian children are chronically infected with intestinal parasites that they acquire from the water they drink

Mount Elgon National Park

Murchison Falls National Park

Semliki National Park

Kibaale National Park

Rwenzori Mountains National Park

Queen Elizabeth National Park

Lake Mburo National ParkMgahinga Gorilla National Park

Bwindi Impenetrable National Park

Some Protected Areas placed under the “Revenue Sharing Programme” of the Ugandan Wildlife Authority, and a case study

Mount Elgon National Park

Murchison Falls National Park

Semliki National Park

Kibaale National Park

Rwenzori Mountains National Park

Queen Elizabeth National Park

Lake Mburo National ParkMgahinga Gorilla National Park

Bwindi Impenetrable National Park

Some Protected Areas placed under the “Revenue Sharing Programme” of the Ugandan Wildlife Authority, and a case study

A Different Story……. From Uganda

Population Trends of Selected Species in Lake Mburo National Park

Species 1999 2002 2003 2004 2006

Zebra 2,249 2,665 2,345 4,280 5,968

Buffalo 486 132 1,259 946 1,115

Waterbuck 598 396 899 548 1,072

Hippo 303 97 272 213 357

Impala 1,595 2,956 2,374 3,300 4,705

(Source : UWA )

Since 1995 Ugandan legislation places the management of natural resources in the hands of local authorities. Consequently the Ugandan Wildlife Authority (UWA) disburses 20% of all revenues from Protected Area (PA) tourism to the local communities neighbouring PA’s. This percentage has been fixed without a precise picture of PA economics, but even a rough approximation of costs and benefits allows enhancing local livelihoods while preserving biodiversity. Of course such a benefit sharing regime only works in the long run if it actually compensates for the use restrictions which PA’s imply for local communities. Thus, knowing better the costs and benefits involved, will allow reconciling ongoing biodiversity conservation and enhancing rural livelihoods. (Alice Ruhweza)

URGENCY…

Land use / conversion &Loss of biodiversity

(MSA)

Source: Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium.

Fragmentation

High levels of biodiversity

Level of Biodiversity in the World in 2000Using Mean Species Abundance (MSA) indicator

Remaining MSA in %



Level of Biodiversity in the World in 2050One Scenario of the future : OECD/Globio

Remaining MSA in %

Global terrestrial biodiversity development by major biomes, from 1700 to 2050COPI : MSA statistics indicate that in the “Policy Inaction” scenario :-! Global objective (significant reduction in rate of loss) unlikely by 2050 ! Stricter European goal (halting further loss ) unlikely by 2050 ! CBD goals (for 2010 ) unlikely over short term

(COPI, Fig 4.2 ) Rate of yearly terrestrial biodiversity loss (MSA %-points) for different periods. Mean Species Abundance (MSA) 2000 and Predictions 2050

COPI Figure 4.4a : Contribution of different pressures to the global biodiversityloss between 2000 and 2050 in the OECD baseline

What will be the main drivers of 11+% Biodiversity Loss over the 50 years to 2050 ? What will each of the drivers contribute ?

We are fishing down the foodweb – going for ever smaller species

We also log, plough, burn, convert, burn, pollute and hunt down ecosystemsSource: Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium. Original source: Pauly

Land-uses and trade offs for ecosystem services


Energy

Soil protection

Food

regulation

Energy

Soil protection

Food

-

Freshwater

Soil protection

Food

Climate regulation

Climate regulation

Energy

Freshwater

1natural extensive

3 intensive

Freshwater

Energy

Soil protection

Food

Climate regulation

Energy

Soil protection

Food

-

Freshwater

Soil protection

Climate regulation

Climate regulation

Freshwater

2

3

Freshwater

ECONOMICS…

Quotation …

“ Nothing is more useful than water : but scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any value in use ; but a very great quantity of other goods may be had in exchange for it”

….On exchange, prices, and “value”

Quotation …

“ Nothing is more useful than water : but scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any value in use ; but a very great quantity of other goods may be had in exchange for it ”


" The nature of Value

" The value of Nature

Quotation …

“ Nothing is more useful than water : but scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any value in use ; but a very great quantity of other goods may be had in exchange for it”


From : Adam Smith

“An inquiry into the Nature and Causes of the Wealth of Nations”

1776

Biodiversity, Ecosystems, and their Services

Change inEconomic

Value

InternationalPolicies

Changein

Land use,Climate,

Pollution,Water use

OECDBaselinescenario

ChangeIn

EcosystemServices

Changein

Biodiversity

Changein

Ecosystemfunctions

Change inEconomic

Value


Changein

Land use,Climate,

Pollution,Water use


ChangeIn

EcosystemServices

Changein

Biodiversity

Changein

Ecosystemfunctions

Change inEconomic

Value


Changein

Land use,Climate,

Pollution,Water use


ChangeIn

EcosystemServices

Changein

Biodiversity

Changein

Ecosystemfunctions

The link between biodiversity, ecosystems and their services…

Biophysical structure or

process(e.g. woodland habitat or net

primary productivity )

Service(e.g. flood

protection, or harvestable products)

Service(e.g. flood


Function(e.g. slow

passage of water, or biomass)

Function(e.g. slow


Benefit (Value)(e.g. willingness to pay for woodland protection or for

more woodland, or harvestable products)


more woodland, or harvestable products)Σ Pressures

Limit pressures via policy action?




Service(e.g. flood


Service(e.g. flood


Function(e.g. slow


Function(e.g. slow









Service(e.g. flood


Service(e.g. flood


Function(e.g. slow


Function(e.g. slow





more woodland, or harvestable products)Σ Pressures

Limit pressures via policy action?

‘Intermediate Products’ ‘Final Products’

Maintenance and

restoration costs

Economic and social values (sometimes

market values).

Source: Jean-Louis Weber (EEA) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium

Ecosystem services, land use and well-beingServices 1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 3.1 3.2 3.3 3.4 3.5

Land cover types Fo

od

Mat

eria

ls

Fo

rest

tre

es-

rela

ted

Pla

nt-

rela

ted

Ph

ysic

al

sup

po

rt

Am

enit

y

Iden

tity

Did

acti

c

Cyc

ling

Sin

k

Pre

ven

tio

n

Ref

ug

ium

Bre

edin

g

Artificial surfaces/ Urban

Arable land & permanent crops

Grassland & mixed farmland

Forests & woodland shrub

Heathland, sclerophylous veg.

Open space with little/ no vegetation

Wetlands

Water bodies

Source: Jean-Louis Weber (EEA) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium

Different Measures to represent the monetary and non-monetary benefits. Who is interested in what & how can they

best be combined?# The single global number# Ranges# Local / national numbers# Partial aggregations# 1 locality, 1 service numbers

Mon-etary

Quantitative

Qualitative

All

# Indexes (eg living planet index)# Indices (eg species richness)# People/population (share) affected# Species at risk, endangered# Risk assessments# Loss of forest cover (ha)# Aggregates and cases# Surveys

# Story lines, uniqueness, indispensible # Hotspots# Maps # Critical trends and thresholds# Stakeholder perceptions

Key Objectives: understanding, representativeness and getting the message across

Politicians, media, general public

Economists; local politicians

ScientistsPolicy analysts

All

Source: Patrick ten Brink (IEEP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium

Non specified benefits.

Increasing up the

benefits pyramid

Table 6.1 Total Area by Land-use; aggregated across all biomes

Actual 2000 2050 Difference Area million km2 million km2 2000 to 2050

Natural areas 65.5 58.0 -11% Bare natural 3.3 3.0 -9% Forest managed 4.2 7.0 70% Extensive agriculture 5.0 3.0 -39% Intensive agriculture 11.0 15.8 44% Woody biofuels 0.1 0.5 626% Cultivated grazing 19.1 20.8 9% Artificial surfaces 0.2 0.2 0% World Total * 108.4 108.4 0%

From “COPI” (Cost of Policy Inaction ) Study

Welfare losses, in terms of annual consumption in 2050, could be upto 6.1% (vs2010) or 7.1 % (vs 2000). This is a conservative estimate, because:-

1) it is partial - excludes all marine biodiversity, deserts, the Arctic and Antarctic, & some ecosystem services (disease regulation, pollination, ornamental services, etc), while others are barely represented (e.g. erosion control), or underrepresented (e.g. tourism);

2) it also excludes losses from invasive alien species 3) estimates for the rate of land use change and biodiversity loss are globally

quite conservative and do not reflect the full extent of global demand growth 4) It does not account for non-linearities, feedbacks, and threshold effects.

Valuation and Ecosystem service losses

2000 2050

Services that would have been there, had biodiversity loss been halted

Ecosystem service level

Population

GDP (OECD Senarios)GDP, with feedback on

economic losses from biodiversity losses integrated -

illustrative

Relative to 2000

Population: 6092 million

GDP: 41.4$ trillion (PPP) (10^12)

GDP/capita: 680$ (PPP)

GDP adjusted for impact of biodiversity loss - illustrative

Source: Patrick ten Brink (IEEP), Leon Braat (Alterra), Mark van Ooorshot (MNP), Matt Rayment (GHK)

Cost-Benefit Analyses to Disclose the Economics of Conservation vs Conversion

The economic values of conservation can help to inform policy choices on creating / maintaining / destroying protected areas

Guatemala’s Maya Forest Road Projects : Road-building projects in the Maya Biosphere Reserve to connect Mexico & Guatemala biosphere were evaluated. An estimated 311,000 hectares of jaguar habitat were shown to be at risk. Some of these road projects were shown to have negative rates of return on investment just on the basis of project economics, others would be negative if merely the CO2 emissions (225 mT CO2 over 30 years ) were accounted for.

Hungary’s Gabcikovo-Nagymaros Barrage System : Valuations showed that if the value of biodiversity was measured, the natural capital loss involved far outweighed the benefit of the proposed dam project. The project would have caused tremendous adverse impacts on biodiversity in the Szigetkov wetland

COMMUNICATION…

… WITH PEOPLE

“Is it only about Money ?”

Surprise : Its about Ethics too !

Three Hidden Stories of “Discounting” ! Declining Growth Paths …

! Marginal Utility of $1 to the Rich vs Poor ….

! Inter-generational Equity…

Cash flow 50 years in the

future

Annual discount

rate

Present value of the future cash

flow

1,000,000 4% 140,713

1,000,000 2% 371,528

1,000,000 1% 608,039

1,000,000 0% 1,000,000

“Is Conservation a Big Business ?”

How Big is “Conservation” as a Sector ?

1.5 Mio3$ 125,000 Bio2$ 5,000 Bio1Protected Area Conservation

5.7 Mio$ 179 Bio$ 942 BioIT Services & Software4

4.5 Mio$ 588 Bio$ 530 BioSteel4

4.4 Mio$2,217 Bio$ 1,882 BioAutomobiles4

People Employed

Capital Employed (USD Bio)

Revenues (USD Bio)

Measures

Sectors

1. Balmford et al, 2002, “Economic Reasons for Conserving Wild Nature”, Science 297, estimates Protected Areas could produce goods and services valued at between $ 4,400 billion - $ 5,200 billion per annum

2. Natural Capital : Present Value (PV) of a constant service annuity of $ 5,000 billion per annum, discounted @ 4% per annum3. Estimate of the number employed directly in the maintenance, protection, and oversight of Protected Areas globally 4. Global Business Sector estimates from Global Markets Centre (“GMC”), Deutsche Bank

New markets are forming which reward biodiversity & ecosystem conservation….

Wetland Banking : In the U.S., companies or individuals can buy environmental credits from Wetland Mitigation Banks to pay for degradation of wetland ecosystems due to agriculture or development activities. More than 400 banks had been approved by September 2005, almost three quarters of them sponsored by private entities. The total market is over $ 3 billion.

Endangered Species Credits : A biodiversity cap-and-trade system in the U.S. has created ‘endangered species credits’, which can be used to offset a company’s negative impacts on threatened species and their habitats. The market volume as of May 2005 was over US$40 million, with 930 transactions carried out and more than 44,600 ha of endangered species habitat protected.

BioBanking : In 2006, Australia began a pilot project in New South Wales called BioBanking to create incentives for protecting private land with high ecological value. Developers buy “biodiversity credits” to offset negative impacts on biodiversity. These credits can be created by enhancing and permanently protecting land.

…. but to be successful, they all need appropriate institutional infrastructure, incentives, financing and governance: in short, investment.

About TEEB.. The Economics of Ecosystems and Biodiversity….

The Economics of Ecosystems & Biodiversity (TEEB Report)

(Potsdam Initiative, March 2007, G8+5 Environment Ministers)

Vision Society must urgently replace its defective economic compass so that it does not jeopardize human well-being and planetary health through the under-valuation and consequent loss of ecosystems and biodiversity

The Economics of Ecosystems & Biodiversity (TEEB Report)(Potsdam Initiative, March 2007, G8+5 Environment Ministers)

Objectives

– disclose the global economic values of biodiversity and ecosystem services• recommend analytical economic frameworks and preferred valuation

methodologies with which to value ecosystems and biodiversity• evaluate the ethical choices implicit in our approach• present a spatially-detailed global evaluation based on the above

– support the achievement of the MDG’s• evaluate and quantify the vulnerability of societies, especially the poor, to

ecosystem & biodiversity losses• evaluate and identify stakeholder compensation mechanisms to promote

biodiversity conservation and livelihoods

– support “end-users” of the economics • (a) governments - to enhance national accounting, improve policy frameworks,

support local decision-making, • (b) corporations - to redefine corporate performance and qualitative litative,

voluntary, disclosure schemes • (c) consumers – to standardize individual footprints

Advisory Board

• Lord Nicholas Stern• Achim Steiner, UNEP• Giles Atkinson, LSE• Herman Mulder, GRI• Jacqueline McGlade, EEA• Joan Martinez Alier• Julia Marton-Lefevre, IUCN• Karl-Goran Maler• Peter May, ISEE

Project TimetableThe Economics of Ecosystems

and Biodiversity

COP-9• May 10th – final version of Interim Report • May 28th – Bonn - Advisory Board Meeting / Briefing Session• May 29th – Bonn – Ministerial Session at COP-9, presenting Interim

Report and associated papers

12 Months• June 2009 – first draft of Final Report

COP-10• Present Final Report

Our Deliverables at COP-928th -29th May 2008

• “COP-9 Glossy” ( Interim Report : The Economics of Ecosystems & Biodiversity – Core Group + open network - Sukhdev et al )

• COPI Report ( The Cost of Policy Inaction : The case of not meeting the 2010 biodiversity target – Alterra & IEEP, Braat, ten Brink et al )

• Scoping Science Study (Science and Economics framework for Valuation of Ecosystems and Biodiversity – Cambridge, Balmford et al)

• Forest Biodiversity Valuation (Study on the Economics of Conserving Forest Biodiversity – Cambridge, Kontoleon et al - IUCN)

• EU Wetlands Study (EEA paper on EU Wetlands, Weber et al)

Some Highlights

1. There are strong link between ecosystem degradation / biodiversity loss and persistent poverty and MDG’s will fail unless these are addressed …. “BAU” scenario is presented as an unacceptable human and natural tragedy

2. “GDP %” estimates of damage do not express the scale of welfare lost : when we measure the population affected, the true scale of the problem unfolds…. Fresh sectoral analysis of the beneficiaries of ecosystem services shows that most such benefits flow to the “GDP of the Poor” i.e. small farming, informal forestry, animal husbandry sectors ( giving them a per-capita income adjustment +40%). Deprivation of these benefits places an insurmountable burden on the poor of replacing them (per-capita income adjustment, equity-weighted, of almost +100%).

3. Conservation is in reality a ‘mega-industry’ of $5 Trillion… if one values public benefit flows as ‘turnover’, natural capital as ‘market cap’, etc… it awaits recognition, integration, investment, market creation, & risk management

4. Ethical choices make a big difference to valuations : future generations (intergenerational equity), discounting in a scenario of declining natural resources (‘the optimists paradox’), and inequality ($1 marginal cost for rich vs. poor)

5. Several successful policy examples need highlighting and further exploration to scale up ….. Community-based Conservation, REDD, PES, ABS, local markets in biodiversity…

Documents

Pavan Sukhdev THE ECONOMICS OF ECOSYSTEMS AND … and... · Pavan Sukhdev “Bridging the Gap”, 15th May 2008, Portoroz. A Story … from Haiti - Poorest country in the Western