August 9, 2002


Furry Math? Market Fails To Capture Nature's Value

What am I bid for these swamps?

If you belong to the new discipline of ecological economics, to determine the worth of a wetland you might calculate what it would cost to construct levees and other structures to provide the flood control and storm protection that natural wetlands do. From that, you'd extrapolate that the world's wetlands are valued at $4.9 trillion -- the cost of replacing "nature's service" with technology.

That's one way scholars led by Robert Costanza of the Institute for Ecological Economics guesstimated nature's worth in 1997. They also calculated that coastal estuaries recycle nutrients (grabbing nitrogen out of the air and converting it into fertilizer, for instance) and perform other services to the tune of $4.1 trillion a year. Forests provide services such as regulating climate and recycling nutrients worth $4.7 trillion a year.

All told, they valued nature's services at about $33 trillion a year.

Some traditional economists responded -- in one of the few retorts suitable for a family paper -- "ludicrous." As Paul Portney, president of the Washington, D.C., think tank Resources for the Future, told me, "Equating nature with its replacement value is seductive, but from an economist's perspective, a non sequitur. Something's economic benefit is determined by how much people are willing to pay for it."

The nature's services study was nevertheless a hit, judging by the 375-and-counting papers that cite it (compared with fewer than two cites for the average science paper), and by the books and journals it inspired. Now, in advance of the World Summit on Sustainable Development in Johannesburg this month (10 years after the first Earth Summit in Rio de Janeiro), a team of 19 researchers from Britain and the U.S. is weighing in on an equally controversial question: the relative values of developed and undeveloped land.

Their conclusion, in Friday's issue of the journal Science: An intact ecosystem is worth 82% more, on average, than the same parcel clear-cut, drained, paved or otherwise developed in a nonsustainable way.

Some examples. A mangrove swamp in Thailand was worth 72% more when left intact to provide timber, charcoal, fish and storm protection than after being converted to a shrimp farm. A freshwater marsh in Canada was worth 58% more intact (thanks to hunting, angling and trapping) than farmed. A Philippine reef was worth 73% more when fished sustainably and providing coastal protection than when blast-fished.

"In every case we looked at," conservation biologist Andrew Balmford of the University of Cambridge, England, said, "the loss of nature's services outweighed the benefits of development, often by a large amount."

Which raises two obvious questions. If ecosystems are worth more intact, why the heck are they being razed and paved? And surely it can't be true that leaving America the way the Europeans found it would make it worth more today than with its highways, railroads, factories and cities?

Dr. Costanza, who with his Institute moves to the University of Vermont next month, readily acknowledges that past conversions -- turning Nebraska into grain central and Silicon Valley into tech heaven -- "benefited society as a whole." What's different now is that we're running out of nature. What's left has a higher marginal value.

Which market mechanisms fail to capture. No one collects money from those who benefit from the flood control a wetland provides, or the nutrient recycling a forest does. Such nonmarketed externalities accrue to society but have no tollbooth attached.

"Every textbook says that the market is the most efficient way to allocate resources," says Dr. Portney. "But the market also fails, especially when it comes to public goods. If you could charge people for using nature, you might show that it's more valuable to preserve it than to convert it, but for now there's no way to capture those values."

In contrast, owners reap the value of development, collecting real money. In a nutshell, market failures help drive habitat loss. Although the benefits of conversion are often private, society bears the losses. "We've already done the profitable conversions," argues Dr. Balmford. "Developing what's left makes less sense, and the benefits of keeping ecosystems intact are much higher."

Since the 1992 Rio summit, Earth has lost an astonishing 11.4% (by area) of its natural places -- this in a decade when the nations of the world supposedly cared. Efforts to save habitats to preserve species or mitigate climate change haven't been raging successes. Maybe denominating nature in cold hard cash will work better.

Write me at [email protected],,SB1028830650401073120,00.html

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