Our Balancing Act – The real value of ecosystems
A book revealing the economic and ecologic value of the planet’s forests and other ecosystems.
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Why value ecosystem services

Mon, 11/02/2009

Almost every individual knows that ecosystems are valuable, but what this means in monetary terms is often unknown and therefore not taken into account when individuals and companies make consumption decisions. Ecosystems play a vital role in sustaining life on earth but the impact that the degradation of these ecosystems has on our day-to-day lives is often too slow to become apparent.

Despite the numerous efforts made by NGOs to conserve ecosystems, these organisations are often unsuccessful. These efforts depend on donations by good willing and worried individuals. Nevertheless, ecosystems are continuously being degraded resulting in a decreasing level of ecosystem services that are provided sustainably by ecosystems. It seems a contradiction, the very positive attitude towards ecosystems against the continuous degradation and conversion of ecosystems.

There is no one reason for the continued degradation. The following sections will outline the reasons why degradation continues and how valuation of ecosystem services helps to solve each of these issues.

Consumption
The current level of consumption by the global population is truly unsustainable. We need one and a half planets to sustain our current level of consumption of resources that the planet provides us. It is expected that this will grow in the coming decades to needing more than two planets by mid-2030 to sustain our consumption. The reason for this increased consumption is the ever increasing population, expected to reach of nine billion by 2050, and the increasing demand from emerging1

Consumers in the industrialised world often ignore long-term well being and focus on immediately visible needs2. They have become accustomed to unsustainable levels of consumption and companies do not have any incentive to decrease consumption levels as this would affect their short-term profits3. This is linked to the ever decreasing ecological intelligence4, which is people’s ability to assess the impact of their behaviour on ecosystems and, if necessary, change their behaviour so that they do less harm to ecosystems in order to live sustainably on the planet. The ecological intelligence of the average consumer in the industrialised world is decreasing because the link between our behaviour and the impact it has on ecosystems is less clear than it was before the industrial revolution. In the ages that the direct dependency on ecosystems was much greater than it is now, people were more ecologically intelligent. Without ecological intelligence, for example the ability to only kill or harvest those amounts of food that were needed, people could not live long and sustainably.

Apart from overconsumption, the post-industrial revolution period has been dominated by the development of technologies based on the ideas of abundant raw materials, cheap energy, and unlimited basins for waste disposal5. However, the situation has changed, now resources are scarce and the basins for waste disposal are running out6. Therefore, dependency on ecosystems still exists today, but through urbanisation and globalisation our ecological intelligence has faded away.

In economic theory, scarcity is a strong driver of price. Demand for products is often unlimited; however, the supply is constrained. If no price is charged, demand will outstrip supply. Ecosystem services are not (yet) valued in monetary terms, meaning that the demand for these services is often far greater than the supply, seen by the extreme overconsumption of the earth’s natural resources. In order to ensure that the expected scarcity does not result in voluntary investments by companies that try to guarantee supply for themselves and so restricting supply to others, ecosystem services should be valued beforehand, through international agreements. As scarcity increases, the price for ecosystem services, set in the international agreements, will increase. Paying for ecosystem services (the price depending on scarcity) will make people, organisations, and countries understand that ecosystem services need to be used and managed sustainably because they are limited and running out.

Short Term Horizon
The importance of ecosystems may not be directly visible, nor are the negative consequences of degrading them. The impact of changes in the composition of the ecosystem often only becomes apparent when the services that they provide start to break down7. At the same time a short-term financial gain is realised when the ecosystem is converted. The conversion of an ecosystem means changing the land-use from, for example, forest land to agricultural land. These short-term gains prevail over the long term, sometimes indirect, negative effects. There are three main explanations for this.

Firstly, products harvested when converting an ecosystem (such as wood and fuel) are marketed goods, as are the products available when an ecosystem is turned into arable land. This means that there is a demand and supply, which leads to a price for these products. Harvesting and converting ecosystems fulfils the demand for these marketed goods and if the price is right, the demand will be honoured.

Secondly, the focus of current economies is on short term gains with the tendency to neglect long term gains. This is not directly related to ecosystems, but it characterises the global economic paradigm. Short term financial benefits are what matter and how they define success. This paradigm is reflected in the focus of companies to create shareholder value, in the ambition of many people to earn more, and the high levels of consumption. The recent financial crisis shows that a narrow minded focus on financial benefits can result in greedy behaviour, and create major damage to organisations and national economies. Society has come to a point that individuals have been 'trained' to prioritise their own financial gains and act in their own interest.

The final explanation for the focus on the short term is that the negative effect from the loss of ecosystems is unknown because the benefits they provide are not valued. If it is unclear what the negative effects will be, when these effects will occur, and what impact changes will have on our daily lives, it will not be taken into account in the decision making process. Although ecologists agree that the loss of ecosystems will have strong effects on our daily life, it is difficult to pinpoint how the future of individuals and organisations will be affected. Climate change is a good example as it is widely known and accepted that it is a serious problem. However, there is still a discussion on the severity of the problem, when it will occur, when we reach a critical threshold and whether human behaviour causes climate change. Discussions such as this result in doubt, and doubt ensures that people do not change their behaviour.

Valuing ecosystems will make individuals and companies aware of the gains that can be sustained over the long-term, but more importantly, it will make them aware of what is being lost in making short-term conversion decisions. While valuing ecosystem services will not decrease the demand for land and agricultural products, it will result in more innovation towards agricultural techniques, sustainable energy, and other new technologies. Valuing ecosystems will act as a catalyser for sustainable technological innovation, eventually resulting in less pressure on ecosystems. A financial value on the benefits ecosystems provide will act as a trigger to protect the ecosystem.

The Individual versus the Community
Problems related to the loss of ecosystem services, such as climate change, hunger, and water shortage, occur on a global scale and are considered as global or regional problems, rather than my problems. It is impossible to have these problems solved by one individual as it is impossible to see the positive impact from the sustainable measures of an individual. When asked why individuals do not change their behaviour immediately to prevent, for instance, climate change, the following answers are given:

- “My actions do not solve the problem, my actions are a drop in the ocean”

- “Why should I change my behaviour if nobody else does”

- “In China a coal-fired power plant is becomes operational every three days, the problem should be solve there”

- “The problem is not that bad as it is said it is”

- “The government should solve it, not me”

- “I do not believe the problems will affect me and my family”

This list of answers is only a select few; there are many more of the same. Evidently, the fact that the problems related to ecosystem services are global problems, needing global solutions makes it extremely hard to get people to act on it. It is understandable why individuals do not change their behaviour, looking at the elements of impact, time, and scale. Next to this, individuals in the industrialised world are less part of communities and have become more self-oriented. The problems discussed typically need to be solved by entire communities, based on mutual interests and agreements. The result of lost community values is that it is becoming increasingly difficult to get people to act together to solve the global problems we are facing. This means that individuals will not take action because of impact, time, and scale issues, and community action is rare.

Seeing that community action is rare and extremely difficult to accomplish in the industrialised world, putting a price on the use of ecosystem services is one way to make individuals take responsibility for their consumption. When reducing individual use of ecosystem services results in lower costs, individuals are likely to aim for this, for example, the introduction of energy efficient light bulbs gives consumers a simple way to reduce their energy bill. Therefore, although community action is desirable tackling individual usage is a simpler way to tackle ecosystem degradation in the individualistic mindset of the industrialised world.

Ownership
Are ecosystems private or government property? The answer is that it can be both. Ecosystems can either be privately owned or owned by the government. The owner of an ecosystem eventually decides whether the ecosystem is conserved or converted into other forms of land-use, such as farmland.

For ecosystem services the issue of ownership is not that simple. Ecosystem services are often (global) commons meaning that they are shared and free for all to use8 Several issues related to this are:

- Who owns the ability of the planet to provide us with oxygen?

- Who owns the capacity of the planet to provide medicinal value from plants?

- Who is responsible for providing climate regulation services to all inhabitants of the planet?

In the current global society ecosystem services are considered as public goods. A public good has two key characteristics. The first is that of non-excludability. This means that once it has been provided, it is freely available for everyone (unless they are repressed). The second characteristic is that consumption is also non-rival, meaning that consumption by one person does not prevent other people from also consuming it9.

The lack of clear ownership of ecosystem services has had a pitiful result; no one is held accountable for the decreasing ability of ecosystems to provide the vital, life-sustaining ecosystem services. At the same time ownership of ecosystems is clear in most cases. These ecosystem owners (whether private or public) can decide at their own discretion whether to conserve ecosystems or to harvest them and introduce other forms of land-use. In many case land-owners decide to sell ecosystems, harvest them, and change the land-use. These decisions are mainly driven by a financial business case and do not take into account the effect on ecosystem services.

Here the problem becomes clear: ecosystem owners can decide to harvest ecosystems and create financial benefits for themselves, without being held accountable for the financial losses and problems that will occur in the future as a result of a decreasing biocapacity. This situation is far from sustainable. As long as ecosystem owners are able to decide on behalf of their own direct financial benefits, the risk of a continuous decreasing amount of conserved ecosystem is strong.

By defining or assigning entities that will be held accountable for the delivery of ecosystem services the degradation of ecosystems can be stopped. This would mean however, that funding needs to become available to conserve ecosystems. This funding can be obtained from pricing ecosystem services.

Cost-Benefit Analysis
As mentioned above, the landowner makes land-use decisions. Landowners will make cost-benefit analyses of the available options (usually conservation versus conversion) and the alternative that reaps the highest benefits and lowest costs will be the one that the landowner will opt for. Converting land is a prominent driver in the degradation of ecosystems. In many cases, ecosystems are converted into arable land (for growing soy, palm for oil and other crops). Based on the current economic value of ecosystems it is understandable that they are converted into ‘profitable’ farmland. In the current economy, the services ecosystems provide are not valued in financial terms, meaning that landowners are not able to capitalise from the conservation of ecosystems. Ecosystems are valued by the benefits that can be created when an ecosystem is harvested and replaced with a marketed product. It is not the benefits that ecosystems provide that are valued, but the benefits created from conversion.

Although ecosystems are generally perceived as precious, it is not reflected in a monetary value. Thus, ecosystems cannot compete with financially beneficial activities, such as industrial agriculture. This reveals a problem of the Western economy: it is mainly driven by finance. Money equals success, wealth, status, and happiness in many societies, for example, the success of listed companies is measured in terms of (financial) shareholder value.

When ecosystems are valued in terms of the services they provide, landowners can make better land-use decisions. The main goal is that landowners can capture a higher (monetary) value from conservation than they capture from conservation10.

Rights of Future Generations
The continuous conversion of ecosystems will lead to major problems all around the world in the future. Whether it is a rising sea level, drought, hunger or epidemics, our current behaviour will have a huge impact on the lives of our children, and generations after that. The question that can be raised is: is our current behaviour towards ecosystems ethical? This question seems almost rhetorical. There is no good reason to argue why current generations should be entitled to more ecosystem services than future generations. If the degradation of ecosystems, and thus their compromised ability to provide ecosystem service, is accepted, in essence our generation is risking the lives of future generations. We believe this should be morally unaccepted, as we should not have the right to take away future generations’ right to live.

Why then is ecosystem degradation accepted? The belief that is rooted deep in society is that life will not become very hard or impossible. Human beings consider themselves not as a part of the global ecosystem but as a species that can control it. Human beings believe that they can create new technologies that will solve problems, such as food shortages and climate change. Instead of being part of one global ecosystem, mankind sees itself as the dominant inhabitant of the planet, who might even be able replicate the vital functions and processes that create the life-sustaining ecosystem services. Although mankind is dominant in certain areas, there is, beyond any doubt, a limit to our ability to 'make' natural processes that enable life. A clear example is the attempt to recreate the biosphere with a project known as Biosphere Two. An attempt was made to recreate the functions and processes done by the earth’s ecosystems in the production of ecosystem services. The attempt failed.

From an ethical point of view we cannot take the risk that we might be able to solve major global problems on behalf of future generations. By putting a price on ecosystem services the benefits provided by ecosystems can be guaranteed for our generation and for future generations.

Conclusion: Fight Fire with Fire

Key to solving any of the problems mentioned above is a behaviour change. Valuing ecosystems and their services is a practical and, if implemented well, is expected to be a successful measure to make humankind change their behaviour. Ironically valuing ecosystems shows strong similarities with what we believe to be the major cause of the problem: capitalism in an extreme form. In other words, we will fight fire with fire. The train of thought that we hold onto is: “What gets measured gets managed!”11

Denis Slieker and Sara van der Meer, The Forest Enterprise

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1 World Wildlife Fund 2008

2 Bazerman and Hoffman 1999

3 Shrivastava 1995

4 Coleman 2009

5 Hart and Milstein 1999

6 Lovins et al. 2007

7 Lovins et al. 2007

8 Post 1991

9 Baye 2006

10 Grieg-Gran et al. 2005 as cited by Barbier 2008

11 Parris and Kates 2002