If the worsening climate crisis teaches us anything, it’s that we are anchored in the natural world and ignore this reality at our peril. At last month’s Climate Leaders’ Summit, US President Joe Biden urged the world’s major economies to cut greenhouse gas emissions and unveiled the US’s own plans to do so. The US commitment was impressive, but necessarily provisional. It remains to be seen whether a politically divided United States can deliver on the administration’s promise to cut emissions by 50 to 52 percent from 2005 levels by 2030. Still, the ambition scale suggested realism. nascent ecological – a belated recognition of the plight and wealth of nations and, indeed, human survival are inextricably linked with the health of the biosphere.
Climate change, of course, is only one facet of the planet’s poor environmental health. The other major ecological emergency is the collapse of biodiversity, which threatens the myriad benefits humans derive from nature. We often take them for granted and, because they are undervalued or not at all, we are tempted to degrade them and exploit them to the point of exhaustion – the fate of many fisheries, for example. In the aftermath of Earth Day, it is worth taking a step back to consider the financial value of these ecosystem services, the cost of deteriorate and ignore the planet’s natural capital assetsand whether adjusting our traditional economic and governance models could help put the world on a more sustainable path.
Scientists classify nature’s contributions to people into three categories. Regulatory benefits are the functions that organisms and ecosystems play to create conditions conducive to human life, including regulating air quality, pollinating crops, enriching the soil, filtering pollutants, ensuring fresh water, controlling pests and diseases and protecting against floods and storms. The benefits of sourcing encompass the many ways in which nature directly supports human existence, including providing food, fiber, biofuels, timber, genetic resources, and herbal medicines. Non-material services include the subjective psychological, spiritual, and recreational benefits that humans derive from healthy ecosystems.
Many environmentalists are reluctant to place a monetary value on the environment, arguing that nature has intrinsic merit. But it can help its advocates reach economists. In 2014, an influential study estimated the total annual value of the planet’s ecosystem services is between $ 125 trillion and $ 145 trillion. Yes, billions.
Unfortunately, humans jeopardize all these services by degrading the planet’s biodiversity. A cavalcade of heartbreaking reports documents dramatic declines in ecosystems and species around the world, driven by a global economic system that does not value the biosphere beyond what can be mined in the short term and assumes that innovation can overcome the ecological constraints of a finite planet. This path is not viable. According to the Global Footprint Network, it would take almost five Earths so that the 7.8 billion people of the world enjoy the same standard of living as the 331 million Americans today.
Many environmentalists are reluctant to place a monetary value on the environment. But it can help its advocates reach economists.
Late, an intellectual revolution is underway. In January 2020, the World Economic Forum reported that at least half of global GDP was heavily or moderately dependent on the increasingly threatened benefits of nature. More importantly, this February saw the release of a massive report titled “The economics of biodiversityBy Bangladeshi-British economist Sir Partha Dasgupta. Quickly dubbed the âStern Biodiversity Report,â he threw a hand grenade at traditional economic models, which he took to task on assuming that âthe biosphere is external to the human economy â; to focus on building physical and human capital âwhile ignoring natural capitalâ; and for assuming that “human ingenuity and market incentives can lead to perpetual growth and development, regardless of their impact on the biosphere”.
Dasgupta’s report underscores the world’s urgent need for a new growth model that both explains and encourages the conservation of Earth’s natural capital assets. GDP, the orthodox measure of wealth and economic progress, does neither. A more accurate measure of national welfare and long-term productive capacity is inclusive wealth, which encompasses the value of natural capital as well as human and product capital.
Raising the status of natural capital in global economic models would have several salutary implications. First, it would encourage governments to tackle the many environmental externalities generated by the global economy. These arise because many goods and services in the biosphere have no cost and sometimes even a negative price due to perverse subsidies, thus encouraging their overexploitation. An immediate priority is to adopt new regulations and deploy incentives to get market players to bear the costs of such behavior. Governments should also reduce and ultimately eliminate environmentally harmful subsidies, including for fisheries, fuel and water, on which they spend a great deal. estimated at $ 500 billion per year– well above their conservation expenditure.
Second, a natural capital perspective would encourage authorities to compensate actors for the preservation or restoration of ecosystem services. This can and is happening at local and national levels, such as when communities and governments pay landowners to maintain healthy watersheds. But it can also happen internationally. The Biden administration is is currently negotiating a multi-billion dollar deal pay Brazil to preserve its Amazon rainforest as a carbon sink and repository of biodiversity.
Third, natural capital accounting could encourage a more sustainable global trading system, especially with regard to resource extraction. The global timber trade, for example, often damages ecosystems at the expense of people in exporting countries, costs that are not incorporated in the operations of forestry companies or consumers at the end of the supply chain. A more sophisticated and transparent system of accounting for natural capital, supported by civic activism, could correct these failures. Importing countries should also be allowed to use border adjustment taxes to reduce the gap between the economic and environmental costs of this trade.
Fourth, a natural capital approach would encourage governments to invest significantly more resources in protected areas. Many countries have already adopted the â30×30â campaign, which aims to permanently protect 30% of the Earth’s land and sea surface by 2030. It may seem like an expensive proposition, but a recent study estimates the cost at $ 140 billion per year, which equates to 0.16 of global GDP and about a third of what governments currently spend on nature-destroying subsidies.
Finally, the natural capital lens has the potential to transform the global financial system in a nature-friendly way. This is particularly evident for national governments, central banks and multilateral financial institutions, which seek to correct market failures and deliver public goods. But the natural capital perspective is also making inroads into the private sector, as companies – led unsurprisingly by the insurance and reinsurance sectors –come to see the loss of nature as a threat to their bottom line. Asset managers are under increasing pressure to view environmental damage and risks as part of their fiduciary responsibility.
These trends underscore a central theme of the Dasgupta journal: when it comes to managing the Earth’s natural capital, âwe are all asset managersâ.
Stewart Patrick is the James H. Binger Principal Investigator at the Council for External Relations and author of âThe Sovereignty Wars: Reconciling America with the Worldâ (Brookings Press: 2018). His weekly The WPR column appears every Monday.