Why Is Biodiversity Important? Who Cares?

It was noted earlier that ecosystems provide many services to us, for free.

Although some dislike the thought of trying to put an economic value on biodiversity (some things are just priceless), there have been attempts to do so in order for people to understand the magnitude of the issue: how important the environment is to humanity and what costs and benefits there can be in doing (or not doing) something.

The Economics of Ecosystems and Biodiversity (TEEB) is an organization — backed by the UN and various European governments — attempting to compile, build and make a compelling economics case for the conservation of ecosystems and biodiversity.

In a recent report, The Economics of Ecosystems and Biodiversity for National and International Policy Makers 2009, TEEB provided the following example of sectors dependent on genetic resources:

In addition, it is estimated that implementing REDD (Reducing Emissions from Deforestation and Forest Degradation) could help

• Halve deforestation by 2030, and
• Cut emissions by 1.5 Gt of CO₂ per year.

From a cost perspective (p.18), it is estimated that

• It would cost from US$ 17.2 – 33 billion per year
• The estimated benefit in reduced climate change is US$ 3.2 trillion
• The above would be a good return on the initial investment. By contrast, waiting 10 more years could reduce the net benefit of halving deforestation by US$ 500 billion.

In addition, they cited another study that estimated that 3,000 listed companies around the world were responsible for over $2 trillion in environmental externalities (i.e. costs that have to be borne by society from ignored factors, or social costs). This is equivalent to 7% of their combined revenues and up to a third of their combined profits.

The benefits of these silent parts of our economy is also summarized in these videos by TEEB’s Pavan Sukhdev:

The BBC notes that biodiversity is fundamental to economics. For example,

• The G8 nations, together with 5 major emerging economies — China, India, South Africa, Brazil, Mexico — use almost three-quarters of the Earth’s biocapacity
• An estimated 40% of world trade is based on biological products or processes.

Despite these free benefits, it has long been recognized that we tend to ignore or underestimate the value of those services. So much so that economic measures such as GDP often ignores environmental costs.

The economic benefits of protecting the environment are well-understood, even if seemingly rarely practiced:

It has perhaps taken about a decade or so — and a severe enough global financial crisis that has hit the heart of this way of thinking — to change this mentality (in which time, more greenhouse gases have been emitted — inefficiently).

Economists talk of the price signal that is fundamental to capitalism; the ability for prices to indicate when a resource is becoming scarcer. At such a time, markets mobilize automatically to address this by looking for ways to bring down costs. As a result, resources are supposedly infinite. For example, if energy costs go up, businesses will look for a way to minimize such costs for themselves, and it is in such a time that alternatives come about and/or existing resources last longer because they are used more efficiently. Running out of resources should therefore be averted.

However, it has long been argued that prices don’t truly reflect the full cost of things, so either the signal is incorrect, or comes too late. The price signal also implies the poorest often pay the heaviest costs. For example, commercially over-fishing a region may mean fish from that area becomes harder to catch and more expensive, possibly allowing that ecosystem time to recover (though that is not guaranteed, either). However, while commercial entities can exploit resources elsewhere, local fishermen will go out of business and the poorer will likely go hungry (as also detailed on this site’s section on biodiversity). This then has an impact on various local social, political and economic issues.

In addition to that, other related measurements, such as GNP are therefore flawed, and even reward unproductive or inefficient behavior (e.g. Efficiently producing unhealthy food — and the unhealthy consumer culture to go with it — may profit the food industry and a private health sector that has to deal with it, all of which require more use of resources. More examples are discussed on this site’s section on consumption and consumerism).

Our continued inefficient pumping of greenhouse gases into the environment without factoring the enormous cost as the climate already begins to change is perhaps an example where price signals may come too late, or at a time when there is already significant impact to many people. Resources that could be available more indefinitely, become finite because of our inability or unwillingness to change.

In effect, as TEEB, and many others before have argued, a key challenge will be adapting our economic systems to integrate sustainability and human well-being as well as other environmental factors to give us truer costs (after all, market systems are supposed to work when there is full availability of information).

Think of some of the effects this could have:

• Some industrial meat production, which is very harmful for the environment, may become more expensive
  • For example, as mentioned in the previous link, if water used by the meat industry in the United States were not subsidized by taxpayers, common hamburger meat would cost $35 a pound.
  • Instead of regulation to change people’s habits, markets would automatically reflect these true costs; consumers can then make better informed choices about what to consume, e.g. by reducing their meat consumption or demand more ecologically sustainable alternatives at reasonable cost.
• A reduction in meat production could protect forests or help reduce clearance of forests for cattle ranches, which would have a knock-on benefit for climate change concerns.
• Appropriate investment in renewable energy could threaten the fossil fuel industry though they are trying to adapt to that (perhaps slowly, and after initial resistance). But at the same time, governments that are able to use renewable sources are less likely to find themselves spending so many resources in geopolitical areas (e.g. politics, military, terrorist response to Western presence in Middle East, etc) to protect or secure access to fossil fuels.
• Cradle to cradle type of design — where products are designed to be produced and recycled or disposed of more sustainably — could considerably reduce costs for producers and consumers alike, and possibly reduce stress on associated ecosystems.
• Land that is used to produce unhealthy or marginally nutritious items (e.g. tobacco, sugar, possibly tea and coffee) could be used for more useful or healthier alternatives, possibly even helping address obesity and other issues. (For example, while factoring in environmental costs could make healthy produce more expensive too, expanding production of healthier foods could help contain costs rises to some extent.)
• etc.

How much would such accounting save? It is hard to know, but there is a lot of waste in the existing system. In the mid-1990s, the Institute for Economic Democracy calculated that as much as half the American economy constituted of wasted labor, wealth and resources (book: World’s Wasted Wealth, II — see sample chapter).

Naturally, those who benefit from the current system may be hostile to such changes, especially if it may mean they might lose out.

This is a clear case of inter-related issues: the health of the environment is strongly tried to our economic choices (i.e. how we use resources), but addressing core short-comings in our economic systems is a crucial political challenge.