The global value of ecosystem services

With that background, let's take a brief look at an ambitious attempt to apply some of these ideas, an attempt to place a value on the world's ecosystem services and natural capital [3]. The authors ``acknowledge that there are many conceptual and empirical problems inherent in producing such an estimate,'' but they argue that we know the value of these services is not zero, and coming up with some number for a value is better than having no value at all.¹⁴

• Ecosystem functions - the habitat, biological, or system properties or processes of ecosystems

• Ecosystem goods and services - the benefits humans derive directly or indirectly from ecosystem functions

• The values Costanza et al. provide are intended specifically as use values.
  • They identify 17 values potentially provided by any ecosystem, ranging from regulation of atmospheric gases and climate to genetic resources and cultural uses.

  • They identify 16 biomes worldwide, covering everything from the open ocean through forest, grassland, cropland, and urban land uses.

  • They then identified the value per unit area of each service for each biome, summed across the services to get a total value per unit area for each biome, multiplied the value and the area of each biome to get a total value of the services provided by each biome, and summed across biomes to get the result for the entire world.

• The result? $33 trillion is the best guess. $16-54 trillion is the reasonable range. That's an enormous amount of money.¹⁵ To put it in perspective if we sum the gross national product of all countries in the world,¹⁶ the gross world product is about $18 trillion.

Not surprisingly the figure of $33 trillion attracted a lot of attention. Now it seems to me that if you're going to present an economic argument in favor of conserving biodiversity or protecting ecosystem services, the argument has to make economic sense. Unfortunately, there at least two ways in which the Costanza et al. analysis seems to fall short.

• Many of the values included in the analysis are based on willingness-to-pay, and as we just saw, there's an upper limit on willingness-to-pay, namely the total amount of money available. The total willingness to pay for all ecosystem services cannot exceed the total of world financial assets.

• Willingness-to-pay (and willingness-to-accept) are based on the premise that we are faced with a choice between two different states of the world, one of which (presumably) we prefer to the other and one of which costs us nothing beyond what we now spend. The logic of this type of valuation is based on making incremental choices among alternatives. We aren't faced with the choice between having a biome and not. We are faced with local, incremental choices - Do we build a mall here or not? - , and those local, incremental choices aren't influenced by what we think about the value of ecoystem services to the whole planet because any change to the planetary supply of gas regulation is not detectably affected by single decisions of the scale we (mostly) consider.

  There are two obvious responses to this point:

  1. Some of our decisions, e.g., the decision whether to adopt policies that limit emission of greenhouse gases, that could have a large effect on global ecosystem services.

  2. Incremental changes may accumulate to a scale that we would not have chosen had we been given a dichotomous choice between where we start and where we end up.

  But those responses aren't entirely satisfactory.

  1. Even when talking about things like limiting the emission of greenhouse gases to limit global climate change, we are not talking about eliminating ecosystem services. We're talking about reducing the level of those services. So it still doesn't make sense to talk about a willingness to pay that exceeds our ability to pay.

  2. As incremental changes accumulate, the value of what remains will typically increase - the law of supply and demand. Thus, there's a natural self-correction built in.

  I'm not entirely convinced by the second response, because we tend to extrapolate linearly even when we shouldn't, but I find the first compelling. If we're going to try to justify biodiversity conservation in economic terms then we have to play by the established rules of the discipline, and this effort doesn't seem to play by the rules.

  Now you may suggest that the established rules of economic analysis are wrong and need to be changed because they miss something important. But that's another story, and another lecture.