If you’ve been paying attention to climate change news for the last few years, you may have seen the headlines: "A Cheap Fix for Climate Change?" "Pay People Not to Chop Down Trees, Paying Farmers to Save Rainforests Is Cheap and Works", "In Brazil, Paying Farmers to Let the Trees Stand". These programs are using an increasingly popular conservation strategy called Payment for Ecosystem Services, which is based on the idea that services that natural systems provide for free have an economic value to society. For example, maintaining a buffer of natural vegetation around streams can prevent pollutants from washing into them. It may make sense economically to pay landowners to maintain vegetative boundaries instead of spending money at the municipal level to treat polluted water lower in the watershed.
Ecosystem services – admittedly a broad term – are incredibly valuable; a 1997 Report estimated the global value of ecosystem services to be approximately $33 trillion per year, or double the global gross domestic product at the time. These services include foundational services such as nutrient recycling and soil formation, as well as services like food production, pollination, biodiversity, and improved water quality. The vast majority of PES schemes focus on four areas: biodiversity protection, watershed services, climate regulation, and marine protection.
So who is benefiting from these services? It depends on the scale of the service, but the beneficiaries are almost always the public in some form. As a result, we see governments and non-governmental organizations most often footing the bill. There are, however, situations in which private entities invest in securing ecosystem services; for example, in Costa Rica, a PES scheme was developed by the National Biodiversity Institute in which payments were partially funded by pharmaceutical companies in exchange for bioprospecting rights.
Despite the fact that we've recognized the societal benefits of healthy ecosystems for centuries, these benefits have long been excluded from neoclassical economics – a fact that left these services undervalued for the majority of the last century.
The History of Ecosystems in Economics:
The recognition that healthy ecosystems provide value is nothing new. As early as the 4th century BCE, we have examples Plato describing the results of silver mining and deforestation at Attica on the local watershed:
"What now remains of the formerly rich land is like the skeleton of a sick man with all the fat and soft earth having wasted away and only the bare framework remaining… The soil was deep and it absorbed and kept the water… and the water that soaked into the hills fed springs... now the abandoned shrines at spots where formerly there were springs attest that our description of the land is true."
While Pliny the Elder connected deforestation with flooding in his 79 C.E. publication, Natural History:
"Very often… after removing the wood which has covered an elevated spot and so served to attract and consume the rains, devastating torrents are formed by the concentration of the waters."
In early classical economics, natural services were acknowledged but often set apart as free services. Smith, Mills, Malthus, Ricardo and Marx all touched on the value provided to society by natural systems, but always as value set apart due to its free nature:
"In agriculture too, nature labours along with man; and though her labour costs no expense, its produce has its value, as well as that of the most expensive workman." -Adam Smith, 1776
"There is not a manufacture which can be mentioned, in which natures, does not give her assistance to man, and give it too, generously and gratuitously." -David Ricardo 1817
By the turn of the nineteenth century, the shift from classical to neoclassical economics was slowly removing any representation of natural services from the equation. Environmental services were excluded from mainstream economic thought for the following century, a fact that is most visible in their absence from Robert Solow’s economic growth theory (1957). Solow, a U.S. economist, has been demonized as one of the loudest voices in the removal of natural limitations from economics, an accusation often supported by this quote from his famous 1974 Ely lecture:
"If it is very easy to substitute other factors for natural resources, then there is in principle no ‘problem.’ The world can, in effect, get along without natural resources, so exhaustion is just an event, not a catastrophe."
This, of course, is a mischaracterization of what he said. The full quote goes on:
"… If, on the other hand, real output per unit of resources is effectively bounded – cannot exceed some upper limit of productivity which is in turn not too far from where we are now – then catastrophe is unavoidable. In-between there is a wide range of cases in which the problem is real, interesting, and not foreclosed."
Solow was primarily talking about oil and gas, for which his point rings true. Technological advances and resource substitution have largely put to bed the concerns over dwindling oil and gas reserves. Other environmental resources, however, are not so easily replaced or mimicked with technology – the most straightforward example of which is the Amazon rainforest and its function as a carbon sink and biodiversity hub.
The rise of modern environmentalism in the 1960s led economists to take another look at environmental problems. The early mentions of ecosystem and environmental services (1970, 1981) mention climate regulation, flood control, pollination, and biodiversity, but use the concept more as an outreach tool rather than assigning systems monetary value. Throughout the 1990s, however, the conversation around ecosystem services focused more and more on assigning these services an exchange value and incorporating them into the economic models. As ecosystem services became more established in conventional economics, they also gained more traction in the policy sphere. By 2002, there were over 300 PES schemes throughout the world. After the 2005 Millennium Ecosystems Assessment, which heavily promoted market-based instruments for conservation, PES schemes were launched even further into the mainstream.
Over the last 20 years there has been a major shift in the way conservation professionals conceptualize and promote conservation strategies – a shift from viewing conservation as a moral imperative to an economic opportunity. Payments for Ecosystem Services and other market-based instruments seem to be promising tools for policymakers in a world constantly faced with new environmental challenges. But are these schemes successful? What are their drawbacks and limitations? The next blog post will delve into these questions with an in-depth look at a program being led by one of the pioneers of market-basked instruments for conservation: The Nature Conservancy.