The Political Economy of Ecosystem Services: Sustainability, Justice and

Efficiency

Joshua FarleyCommunity Development and Applied

EconomicsGund Institute for Ecological Economics

University of Vermont

What are Ecosystem Services?

Most conventional definitions too simplistic, not very useful, e.g. “ecological functions of value to humans”

Important to distinguish between goods and services, structure and function

Ecosystem Goods Raw materials required for all

economic production: stock-flow resource

Physically transformed into economic products Failure to ration leads to overuse

Value is independent of time; we decide when and how much to harvest

Generally market goods Value determined by benefit to single

individual

Ecosystem Services Generated by particular configuration of

ecosystem structure: fund-service resource Ecosystem structure not physically

transformed into services it provides Value is flow over time

Provisioning service = reproductive capacity Often non-excludable

Non-market, cannot be rationed Often non-rival

Value determined by sum of benefits to all individuals

Rationing access reduces value

Examples of Ecosystem Service Regulating services

Regulation of climate, disturbance, water, atmospheric gas, etc.

Provisioning services Reproductive capacity of living organisms

Cultural/information services Recreation, spiritual values, genetic

information, etc. Supporting services

Those that sustain the ecosystem as a whole: pollination, habitat, etc.

Ecosystem Services and Commodification

Many economists are actively seeking to integrate ecosystem services into the market framework

Critics of this approach call it the commodification of nature

This presentation breaks the debate down into three societal goals concerning ecosystem services: Sustainability, Justice and Efficiency

Sustainability

Ecological Economic World View

Economy is sustained and contained by global ecosystem

Relative scarcity has changed dramatically

Economy must adapt

Laws of Physics Can’t make something

from nothing or vice versa

Can’t do work without energy

Disorder increases

Laws of ecology Conversion of ecosystem structure into

economic products and waste degrades and destroys ecosystem services Time lags common

Both economic products and ecosystem services essential to civilization

Unavoidable tradeoffs

The Laws of Economics

Rising ecological costs to growth Diminishing economic benefits When the marginal costs of doing

something exceed the marginal benefits, stop Uneconomic growth

Markets provide no “when to stop” signal for economic growth

Essential and Non-substitutable Resources

Food, water, energy, ecosystem services Critical natural capital

Components of natural capital that are essential to human survival and for which there are no adequate substitutes

Critical thresholds Physiological Ecological

Inelastic demand Large changes in marginal value with small

changes in quantity

Does Critical Natural Capital Exist?

Schelling (Nobel Memorial Prize in 2005):

“Agriculture and Forestry are less than 3% of total output, and little else is much affected. Even if agricultural productivity declined by a third over the next half century, the per capita GNP we might have achieved by 2050 we would still achieve in 2051.”

Production functions and substitutability

Or is it all CNC?

“If the biota, in the course of aeons, has built something we like but do not understand, then who but a fool would discard seemingly useless parts? To keep every cog and wheel is the first precaution of intelligent tinkering.”

Aldo Leopold

Demand curve for essential resources: Food

Value: low and stable

Trade-offs: relatively unimportant benefits

Value: shift from marginal to total value (e.g. diamond-water paradox)

Trade-offs: Life sustaining benefits

Value: Increasing rapidly with decreasing quantity.

Trade-offs: Resilience, increasingly important benefits

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The Biophysical Demand Curve for Critical Ecosystem Services

Stock/fund of Critical Natural Capital: e.g. services required for food production, disturbance protection

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Value: low and stable

Trade-offs: relatively unimportant benefits

Value: Increas-ing rapidly with decreasing quan-tity.

Trade-offs: Resilience, increasingly important benefits

Value: shift from marginal to total value (e.g. dia-mond-water paradox)

Trade-offs: Life sustaining bene-fits

LARGE TIME LAG LIKELY

RESTORATION ESSENTIAL

Demand curve for CNC

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Sustainability and Markets

Markets assign no property rights to future generations; todays prices do not reflect future demand

Markets systematically discount the future, hence the value of sustainability

Markets are designed to manage preferences, e.g. oranges vs. apples. No ethical implications

Sustainability is a higher order end than preferences

Justice

Who should make decisions concerning ecosystem services?

Shared inheritance from nature Ethical obligations to leave for future

generations Market decisions and market valuation

based on preferences weighted by purchasing power One dollar, one vote

Who values ES the most? Conventional view is that they are luxury

goods; e.g. Lawrence Summers quote

The Biophysical Demand Curve for local CNC: Rich vs. Poor

Stock of Critical Natural Capital: e.g. services re-quired for food production, disturbance protection

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Demand curve for local CNC for rich. Substitution (or flight) is pos-sible

Demand curve for local CNC for poor

Market demand curves in an unequal world

~50% of income

~1% of income

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Real World Outcomes from Market Allocation

Food in 2007 Eflornithine Water

Whose Values Matter?

Biophysical demand greater for poor, market demand greater for rich

One person, one vote or one dollar, one vote?

Or should we weight votes by need?

Definitions of Justice

Procedural Justice Just Deserts Contextual justice/just outcomes Is market allocation just for any of

these?

Efficiency

What is Efficiency?

Pareto Efficiency? From utility to Pareto efficiency

Satisfactory well-being for as many people as possible while minimizing risk to life sustaining ecosystem services?

Requirements for Market Efficiency

Excludability One group or person can own something and

keep others from using it. True for most ecosystem goods (stock-flows) but

not true for ecosystem services Policy variable

Rivalry One person’s use leaves less for others True for all stock-flows, but not for all fund-

services Not a policy variable—loaves and fish

The ‘Market’ Demand Curve for Global CNC

Stock/fund of Critical Natural Capital

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Price: low and stable

Trade-offs: suffering for poor, negligible inconve-nience for rich

Price: Increas-ing rapidly with decreasing quantity.

Trade-offs: death for poor, suffering then death for middle class

Price: DE-PENDS ON TIME LAGSimmeasurable to future gen-erations

Trade-offs: system change or col-lapse

FOR FUTURE GENERATIONS

Demand curve for CNC

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Market Allocation of Essential Resources on an Unequal Planet

Is it Pareto efficient? Would it be possible to re-allocate food

from obese people to malnourished people without making anyone worse off?

Do we need to make subjective value judgments to answer this?

Does it maximize utility? Do we want to apply this logic to

non-marketed ES?

Solutions from Ecological Economics

Internalize market into global ecological and social systems

First determine sustainability, planetary boundaries and cap throughput

Second determine just distribution Third allocate resources efficiently:

sufficient well-being from sustainable throughput

Valuation and Policy for Sustainable, Just and Efficient Allocation

Safe scarcity: value low and stable

Policy: Market valuation/allocation potentially suitable

Not many resources in this category

Unsafe scarcity: critical for those with poor access.

Policies:1) Halt degradation, loss

2) Ensure basic needs are met

3) Markets can allocate surplus (quantity determines price)

Critical:

Restoration essential. Economics should focus on replacement cost (supply curve)

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Conclusions

How we allocate depends on our goals and the nature of the scarce resources

The concept of ecosystem services helps us understand our goals and resource characteristics

Leads to conclustion that it is safer to adapt economic institutions to ecosystem services than to force ES into market