Measuring the economic costs of environmental degradation

Measuring the economic costs of environmental degradation

A new reports shows humankind overextending its resource base

April 21, 2005

Habitats provide humans with services such as erosion prevention, flood control, water treatment, fisheries protection and pollination — functions that are particularly important to the world’s poorest people, who rely on natural resources for their everyday survival. Traditional studies have tended to overlook the value of such services and undervalue intact ecosystems so five years ago the United Nations commissioned an assessment of the consequences of habitat change for humankind.

The problem with traditional measures of economic health

The Millennium Ecosystem Assessment report indicates the problems with the current method of measuring progress, noting that, “a country could cut its forests and deplete its fisheries and this would show only as a positive gain.” The problem with yardsticks such as GDP — Gross Domestic Product, which is the annual aggregate production of all goods and services in a country — is that it does not necessarily indicate the economic well-being of a country since activities that are detrimental to the long-term economy (like deforestation, strip mining, over-fishing, murders, terrorism) increase today’s GDP. Therefore environmental degradation is rarely accounted for in GDP calculations. For example, the infamous Exxon Valdez oil spill showed up as a net economic gain in the US because of the expenditures associated with the clean-up effort. These expenditures outweighed the eleven million gallons of oil spilled into Alaskan waters.

Last week, the Millennium Ecosystem Assessment — an effort that cost $24m and involved roughly 1,400 ecologists and other researchers from 95 countries — produced its first official report
on the capacity of ecosystems to perform valuable services. The conclusion: humanity is quickly stretching its natural assets through the degradation of natural systems. The study shows that around 60% of the ecosystem services taken into consideration by the Millennium Ecosystem Assessment are being degraded or used unsustainably.

Some of the most severe degradation has come in the world’s oceans where overfishing has led to the collapse of several fisheries including the Atlantic cod industry of Newfoundland during the early 1990s. Virtually all of the world’s ocean fisheries are exploited beyond their capacity and annual world fish catch has leveled off after growing five-fold from 1950 to 1990.

Global problem

While many of the regions where such natural assets are being most rapidly degraded are amoung the world’s poorest, wealthy countries are contributing to the problem through pollution (like agricultural runoff and industrial pollution) and their demand for products derived through habitat alteration and destruction.

Goal: measuring the importance of future changes to the environment

The aim of the Millennium Ecosystem Assessment is to create a baseline against which governments can measure the importance of future changes to the environment, and so, hopefully, make policy decisions likely to “have implications for achieving the UN’s goals of reducing poverty and improving health in poorer countries” [The Economist, Mar 31st 2005].

You can learn more about the Millennium Ecosystem Assessment at www.millenniumassessment.org.

Bioeconomic analysis

Bioeconomic analysis can make some assessment for the services (like climate stabilization, recreation value, soil protection, and clean water) an area of natural habitat provides. By accounting for these benefits it can help guard against the uninformed destruction of species and ecosystems. Globally, ecosystems and the services they provide are estimated to be $33 trillion. The biodiversity of ecosystems can provide material benefits beyond simple thevalue as their well-known products (timber, minerals, etc). For example, in the late 1970s, Malaysia imported weevils from Cameroon to pollinate oil-palm plantations, saving $120 million in labor costs from hand pollination in 1981. Finding this cost-saving species was straight forward: weevils are the natural pollinators of oil-palm which originated in the rainforests of Cameroon. Once a bioeconomic analysis is complete, the decision can be made on how to best use them; whether to protect them using their sustainable yield or to destroy them for immediate return and accept the long term effects.