Valuing Nature - for what it’s worth1

June 2013

Suze Keith

Both before, and particularly since, the completion of

the Millennium Ecosystem Assessment (MA) in 2005, there

has been a large international effort to seek out ways to

make nature visible within the economy, as a means to

slow or halt the degradation of the environment and loss

of biodiversity.

In this paper I examine the origins of the economic

evaluation of nature, and the role neoliberal economics

and a concern with gross domestic product (GDP)

contribute to this movement. I also outline some

international examples of these evaluations with

reference to New Zealand developments, and broadly

analyse pros and cons to the approach. I then ask whether

quantifying the value of nature will address

environmental degradation and biodiversity loss.

I draw on research from various central government

agencies, the United Nations Environment Program (UNEP),

and the World Bank, and examine critiques of the work

amongst academic and journalistic writings. By referring

to the economic evaluation tools currently being

1 This paper was originally produced for the graduate seminar paper Énvironmental Management ENVI 520, at VUW (coordinated by Assoc. ProfRalph Chapman).

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developed, while looking back to the original vision and

objectives of the movement, I aim to shed light on the

possible consequences of putting a price on nature.

There is a glossary of terms at the end of the paper.

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When does nature becomes natural capital, and within what

context, and when do Earth’s natural systems become

ecosystem services? Why would we seek to put a price on

nature, when it is the one thing that ultimately sustains

us? Is it to support broad conservation gain? Or is it a

method of creating new markets?1 Is there a system which

can achieve environmental and economic sustainability?

The backdrop of neoliberal economics and global use of

GDP as a measure of economic achievement (and implicitly

welfare) contributes significantly to this conversation,

as does the historic relationship between natural

resource management and human well-being. The

conventional interpretation of, and focus on growth in,

GDP, coupled with the tenets of neoliberalism, can now be

seen as strongly driving Earth’s environmental

degradation and biodiversity loss, as expressed by

social scientists as diverse as Stern (2005) writing that

‘climate change is the greatest market failure the world

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has ever seen’, and Oreskes and Conway (2013), who trace

the dangerous limitations of neoliberal perspectives.

Early thinking around the use of natural resources for

human well-being was that they were free, a theory

supported by the belief that nature would replenish

itself without undue human intervention. Low population

and low consumption meant resources, at this time, would

have appeared, if not infinite, at least in excess of

demand. Introduce neoliberal economics and the ‘myth of

the market winning is perpetuated’ (Prugh, 1995, p114).

Within this context, nature was viewed as a provider of

goods and services, a resource valued only when it

benefitted humans. Humans were positioned as the dominant

being and the environment as a subsidiary of the human

economy, while allowing humans to ‘enjoy the fruits of

industrialisation without undue obligations and concern

for nature’ (Berkes, 2010, p18). Neoliberal ideology also

promoted the view that the free market would find the

best and most innovative ways to support human well-

being, and as such ‘would take care of business’.

Consideration was given to preservation of the

environment in the form of protected areas, set aside to

ensure environmental well-being was achieved – separate

to economic activity and everyday human well-being.

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However the supporters of the free market economy and

proponents of the corresponding reduction in governmental

regulation had overestimated a number of factors.

Firstly, the ability of the economy to succeed without a

healthy and functioning natural environment, the ability

to substitute human capital for natural capital, the

ability of the natural environment to cope with a rapidly

expanding population and consumption rates, the

dependency of human well-being on ecosystem integrity,

and the ability of the market to innovate to the degree

that the economy could be decoupled from the environment.

Neoliberalism encouraged reduction of state intervention

in the economy, while expanding the market into

previously unexplored parts of society. Market

environmentalism or environmental economics emerged as an

extension of this, with the objective to bring closer

together economic growth with environmental conservation2.

Traditional methods of conservation were not achieving

protection of the environment and the ‘use of market

metaphors was necessary to awaken a public deeply

embedded in a global economy and distant from natural

processes’ (Norgaard, 2010, p1).

Despite protestation from some naturalists seeking

appreciation for the intrinsic value of nature, and their

outright rejection of reconciling nature with monetary

value, many conservationists saw ‘strategic endorsement

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of valuation as a pragmatic and transitioning short-term

tool to communicate the value of biodiversity using a

language that reflects dominant political and economic

views’ (Gomez-Baggethun 2011, p624).

Countries’ emphasis of gross domestic product, in the

meantime, was also having an impact on the environment.

Designed by American economist Simon Kuznets to aid

economic policy development following the Great

Depression, the GDP measure draws on data established by

a country’s system for national accounting (SNA). Seen as

an effective tool for monitoring the effectiveness of

fiscal and monetary policy, its use had spread globally

by the end of the 1940s.

Despite Kuznets’ warning that GDP should not be ‘equated

with economic or social well-being’3 and the recognition

amongst economists of its distinct limitations as a

measurement tool, its global implementation led to the

‘widespread, tacit assumption that GDP gauges, or at

least correlates, with total human welfare’ (Prugh, 1995,

p85). The lack of an alternative globally accepted

measure reinforced this belief.

As it was never intended to be a measure of human well-

being, GDP fails to account for the value to human well-

being contributed by non-monetary aspects of society,

such as volunteer work, social and cultural activities

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and benefits gained from the natural environment. Even

more perversely, its quantitative, rather than

qualitative focus, records as progress the work generated

around the clean-up of an oil spill, for example and

other defensive, remedial activity.

Ultimately GDP ‘provides an incomplete picture of the

system within which the human economy operates’

(Costanza, 2009, p8). Its failure to ‘allow for

externalities (e.g., the failure to include pollution,

congestion, and so on, as negative items)’ (Prugh, 1995,

p85) means it encourages ‘activities which are counter

to long-term community well-being . . . and the

depletion of natural resources faster than they can

renew’ (Costanza, 2009, p9).

In light of the significant role GDP plays in the failure

to aid the design of transparent policies for sustainable

development, there are numerous efforts going into

alternative measures of progress – a movement known as

‘beyond GDP’. The proposed measures address a broader and

more inclusive interpretation of progress and focus on

human well-being, thereby incorporating non-monetary

qualities of human life. Sustainability indices such as

Genuine Progress Index, Gross National Happiness, Human

Development Index, and New Zealand Treasury’s Higher

Living Standards paper aim to produce a set of accounts

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which records all outputs of human activity, to provide

fuller information to decision makers.

An environmentally inclusive version could be described

as ‘Green GDP’, conventional GDP that takes into account

the financial costs and benefits provided by the natural

environment. Environmental economics seeks to switch the

paradigm of conventional GDP and neoliberal economics and

make clear the dependency of the economy on the

environment, as displayed in this model of strong

sustainability.

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Seeking to develop a comprehensive measure and set of

tools that not only identify the value nature delivers,

but also integrate ‘financial, environmental, social and

governance information in a concise, consistent and

comparable format’ (UK Ecosystems Taskforce, 2013) is a

formidable challenge. To change the incumbent system

demands an internationally acknowledged response. There

is a growing body of knowledge in this field, but the

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development of this knowledge into applicable guidance

documents and tools has only been relatively recent4. The

common objective of these measures is the desire to make

explicit the value of natural resources as a way of

better informing decision-making and trade-offs

associated with the environment.

The System of Environmental - Economic Accounting (SEEA)

was first reported by the United Nations Statistics

Division in 1993, with the most recent review carried out

in 2012. SEEA is an adaptation of SNA which aims to

integrate environmental and economic statistics as a way

of ‘monitoring interactions between economy and

environment and the state of the environment to better

inform decision-making’5. By integrating new environmental

data, it aims to break down information silos and to

develop ‘indicators that express relationships between

the environment and economy’.

The largest global research project into the value of

natural ecosystems, the Millennium Ecosystem Assessment

(MA), was called for by the UN Secretary General, Kofi

Annan, in 2000, and reported by UNEP in 2005. The

objective of the MA was two-fold, firstly to provide a

scientific analysis of the consequence of human impact on

Earth’s ecosystems and human well-being and secondly to

create a well-endorsed call to action for the future use

of natural resources. The MA intended to, among other

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things, foster use of natural capital accounting by

policy makers, institutions, communities and business.

Eight years on, the MA appears a prescient paper,

crafting the vision of a world in which natural

ecosystems are integrally valued to the point that

‘people and institutions appreciate . . . the central

roles these assets play in supporting human well-being,

and routinely incorporate their material and intangible

values into decision-making’ (Daily, 2009, p21).

G8 +5 countries, to build on the information of the MA,

initiated the Economics of Ecosystems and Biodiversity

(TEEB) group in 2007. Since then four key publications

have been issued which seek to operationalise the work of

the MA and specifically address policy-makers at all

levels, and provide guidance for business with a

consistent set of tools. Comparisons have been made

between TEEB’s work and the Stern Review on the Economics

of Climate Change (2006), which also attempted to give

voice to environmental issues by describing the problem

in economic terms6. The World Bank launched Wealth

Accounting and Valuation of Ecosystem Services (WAVES) in

2010 to facilitate the implementation of SEEA and TEEB,

and cites 24 countries which are using some form of

natural capital accounting (WAVES, 2010).

The United Kingdom National Ecosystem Assessment (NEA)

was a localised adaptation of the MA, which also

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incorporated scientific advances made since 20057. The

taskforce produced its first report in 2011; this is seen

as the first implemented set of national environmental

accounts. The vision for the NEA was to develop a

conceptual framework of the links between nature and

society. The frame of the NEA cleverly incorporates 3

sets of values into its measure: economic, health and

shared social; however it acknowledges that there remain

gaps in the analysis and as such, has not captured all

non-economic impacts on well-being. It is backed by UK

Deputy Prime Minister, Nick Clegg, who has called for a

system which no longer ‘ignores the state of assets like

forests or coastal areas – vital natural resources’8.

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This snapshot of agencies and frameworks, promoting and

guiding the implementation of natural capital accounting,

demonstrates only a small sample of the widespread push

to mainstream natural capital accounting.

So how useful and appropriate is this approach? How

effective will these measures be in slowing or halting

the decline of environmental health? Ultimately, will it

achieve a sustainable relationship between the

environment and the economy?

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In its 2012 Green Economy: Valuing Nature Briefing Paper, UNEP

argues the case for the use of economic tools to progress

environmental gains. Addressing the concern that putting

a price on nature ultimately undermines its value, the

paper explains that monetising nature may well be

inappropriate in some cases. It suggests that for places

such as protected conservation areas, the need for

economic valuation is not apparent – and may even be

‘counterproductive if it is inconsistent with cultural

norms or fails to reflect the full range of values’9. The

paper acknowledges that while natural capital accounting

could lead to the commodification of nature, its intent

is to provide a method to fully consider the impacts of

resource management trade-offs and it notes the potential

risk of the “privatisation [of] the ecological commons

and letting markets discover prices for them”.

Pavan Sukdhev (Study leader of TEEB), argues that

economics has become the ‘currency of policy’10 and with

the valuation of ecosystem services, TEEB has been able

to quantify the extent to which society is currently

losing natural capital – at the rate of US$2 - 4 trillion

per annum, a figure which has startled many. He believes

that by highlighting the degree to which society has

externalised the cost of economic activity to the natural

environment it not only adds strength to the call to

action, but also provides policy makers and businesses

the data with which to fuel future resource management

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strategies. However, Sukdhev acknowledges that ethics

must also be taken into account, and that “there is still

much work to do to incorporate the ‘stuff of life’ into

the system”11.

Environmental commentator George Monbiot, in his analysis

of the United Kingdom Ecosystems Taskforce, states ‘the

argument of this [natural capital accounting] approach is

coherent and plausible. Business currently treats the

natural world as if it is worth nothing. Pricing nature

and incorporating that price into the cost of goods and

services creates an economic incentive for its

protection’12. However he also expresses concern that if

elements of nature are assigned a price, they become

exchangeable and furthermore that payments for ecosystems

look like ‘the prelude to the greatest privatisation

ever’13. He sees the commodification of nature as an

extension of the neoliberal construct of environment as a

subsidiary to the human economy, rather than a system for

ensuring its rightful valuation.

Paul Anderson (2012) queries the rationale that market-

led mechanisms can benefit the natural environment given

their history of environmental neglect, and two

underlying assumptions. Firstly he notes that there is no

global agreement to arrest resource degradation, nor

biodiversity loss. Secondly, he suggests that it is

‘incorrect to think that genuine environmental protection

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can be achieved within the context of the global market

economy’, particularly given that ‘neoliberal economics

understands neither environmental degradation nor

environmental sustainability’14. He uses innate features

of the market economy, such as competition, profit over

replenishment, the devaluing of elements which are not

recognised as productive, and substitutability, to

describe why nature has no place in this framework, and

ultimately argues that natural capital accounting could

encourage continued exploitation of the environment.

Norgaard (2010) continues with this line of thought,

identifying three flaws he sees in the market’s

application to the environment. Firstly that natural

capital does not fit the stock-flow market framework as

it is unable to capture the complexities of ecosystem

services; secondly that it assumes all things are equal;

and thirdly, that there is either a lack of global

institutions, or effective ones, to govern the

environment, if it is to be exposed to the market. He

goes on to suggest that the MA framework is a reminder of

the temporal and spatial scales of ecosystem services

that exist within a variety of ecological and social

contexts. He believes that these complexities will

inevitably be ‘mischaracterised’ if viewed through the

current economic system. In a similar vein, McAfee (1998)

believes the market is ‘unable to take account of the

diversity within biodiversity’15, and that the

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commodification of nature ‘does more to legitimate and

speed the extension of the market . . . with outcomes

that do more to diminish than to conserve

sustainability’16.

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So if the scientific complexity and the ideological

diversity of ecosystems and biodiversity are too complex

to capture with valuation processes, how is it that human

well-being and environmental well-being are to be

achieved? Should the ‘eye-opening metaphor’ (Norgaard,

2010), such as used by Sukdhev (TEEB) and his team to

draw society’s attention to the multi-trillion dollar

contribution of nature, have stayed as that – a metaphor

or a visionary concept? Or should perhaps the evaluation

of ecosystem services be treated as one strand of a

multi-faceted re-vamp of the global measures of wealth?

Folke (2006, p687) sees these approaches as a method of

‘reframing environmental values, fostering cooperation

and evaluating success’. Gomez-Baggethun et al (2011) agree

that innovative responses to environmental degradation

and biodiversity decline are needed and that the

demonstration of the importance of healthy environment to

human well-being is key to this discussion.

The common criticism of monetising nature is that it

promotes ‘the idea that economic valuation can capture a

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comprehensive picture of nature’s societal value and the

belief that economic valuation can solve the problems of

traditional conservation’ (Gomez-Baggethun et al 2011).

They also warn that such valuations cannot be seen as a

neutral tool, as ‘economic rationality does not fit with

ecosystem services and biodiversity’. However, they agree

that economic valuation can be a ‘potent information

tool’ when not used as a single decision-making

criterion.

Sustainability is not a single strand currency. It

depends on those things that the market doesn’t see, such

as equity, cultural heritage and natural wealth. The free

market system recognises the contribution of the

environment to business success and seeks to absorb its

resources to that end, while ignoring everything else.

Tools such as have been described in this paper seek to

bring the interrelated aspects of human well-being under

one umbrella. However to bring in non-priced contributors

into an ‘economised’ framework is challenging and risky.

Using the strong sustainability model as a basis, the

solution demands a series of approaches, as one size does

not fit all in the valuation of the economy, society and

environment. This new paradigm shifts from humanity and

the economy as the masters of the environment to the

environment as the definer of human well-being, with the

human role being one of caretaker. Concurrently, the

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reframing of measures of wealth establishes a new

framework where natural and social capital can be, in

principle, appropriately described and valued17.

This paradigm shift is of such scale and scope that it

requires both innovative step changes, and incremental

adjustments (Packard & Chapman, 2012). Natural capital

accounting works to incorporate one very important aspect

of sustainability and in doing so places the environment

alongside the economy (Folke, 2006), rather than in

silent support of it, a reconfiguration which aims to

encourage dialogue and perhaps eventually mutual

understanding through shared knowledge and relationships.

More specifically, such solutions might take the

following shape:

1. Incorporate environmental data into SNA to ensure

the accounts are a true reflection of the state of a

country’s assets. This activity should be closely

affiliated to efforts towards integrating broader

country measures of well-being, such as culture,

heritage, health. Constant acknowledgement of the

limits of any one system is required.

2. Continue to advance understanding of the systems of

natural resources and ecosystem services to

facilitate improved decision-making around resource

management. The incomplete nature of this

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understanding should encourage caution and be an

accepted component of the work.

3. Acknowledge that not all aspects of nature can be

monetised and ensure the institutions monitoring

natural resource use have the capacity and incentive

to incorporate the priceless values of the

environment.

4. Use this knowledge and these systems to educate

humanity about the dependency of their well-being on

the health of the environment, as a way to reignite

their connection to and valuation of, nature.

The dire consequence of continuing with business as usual

is well recognised, and the interconnectivity of the

world means a global system for repair is needed. Valuing

nature economically enables the contribution it makes to

human survival to be effectively communicated across

society. The risk of doing nothing far outweighs the risk

of nature being cheapened by this process. Valuing

nature? Well worth it.

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Commodification of Ecosystems, Oct 2011, Progress in Physical Geography, Vol. 35.

No. 5, p6243 Costanza, R, Beyond GDP: The Need for New Measures of Progress, 2009, p4 4 Daily, Gretchen C et al, Ecosystem services in decision making: time to deliver,

Feb 2009, Frontiers in Ecology and the Environment, Vol. 7, No. 1, p215 SEEA http://unstats.un.org/unsd/envaccounting/Brochure.pdf 6 Jones-Walter, J et al, Valuing Nature: the Economics of Biodiversity, 2009,

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http://www.ted.com/talks/pavan_sukhdev_what_s_the_price_of_nature.html11 Sukdhev, Pavan, July 2011

http://www.ted.com/talks/pavan_sukhdev_what_s_the_price_of_nature.html 12 Monbiot, George, The Guardian, 6 August 2012, Putting a price on the rivers and

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GLOSSARY

Gross Domestic Product (GDP) measures the monetary transactions related to the

delivery of goods and services of a country

System of National Accounts (SNA) is an international standard system of national

accounts

Natural Capital Accounting – taken from the WAVES website

Natural capital includes, first of all, the resources that we easily recognize and

measure such as minerals and energy, forest timber, agricultural land, fisheries

and water. It also includes ecosystems producing services such as air and water

filtration, flood protection, carbon storage, pollination for crops, and habitat

for fisheries and wildlife. Natural capital can be renewable (e.g. water) which

yield goods and a flow of ecosystem services or nonrenewable (e.g. fossil fuel),

which tend to be more passive in that they yield no services until extracted.

Ecosystem Services

Ecosystem functions or services are the physical, chemical, and biological

processes or attributes that contribute to the self-maintenance of an ecosystem; in

other words, what the ecosystem does. Some examples of ecosystem functions are

provision of wildlife habitat, carbon cycling, or the trapping of

nutrients. Ecosystems, such as wetlands, forests, or estuaries, can be

characterised by the processes, or functions, that occur within them.