The Ecological Economics of Biodiversity:

Biodiversity, ecosystem services and human wellbeing

Outline of Lecture

• From empty world to full world• Biodiversity, ecosystem goods and ecosystem

services• Biodiversity, markets and the nature of resources• Economics as if biodiversity and ecosystems

mattered• Biodiversity and payments for ecosystem services• Ethics and the new biodiversity economy

From Empty World to Full World

From empty world to full world

• Economic production requires raw materials, energy from nature

• Opportunity cost of economic growth = loss of ecosystem goods and services

• Population and consumption have soared

• Relative scarcity of human made and natural capital has shifted

Relationship Between GDP and Threatened and Endangered Species

What is economics?

• The allocation of scarce resources among alternative desirable ends

• Sequence of questions:– What are the desirable ends?– What are the scarce resources, and what are their

physical and institutional characteristics relevant to allocation?

– What allocation mechanisms are most effective?

Ecological economics• Pre-analytic vision

– Economy is part, ecosystem whole: endless growth impossible

– Highly complex system, transdisciplinary approach required

• Requirements for human well-being– Sustainable and desirable scale

• Continuous economic growth undesirable• Biodiversity is essential

– Just distribution– Efficient allocation

Environmental economics

• Pre-analytic vision– economic system is

whole, ecosystem is part– Unlimited economic

growth is possible– Complicated system.

Disciplinary approach suitable

• Requirements for human well-being– Maximize total monetary value of market and non-market

goods and services.

The Ecological-Economic Problem

• How do we allocate finite ecosystem structure between:– Economic production– Production of life sustaining ecosystem goods and

services, themselves sustained by biodiversity• Can markets achieve this?

Biodiversity, Ecosystem Goods and Ecosystem Services

Ecosystem goods

Raw materials Structural building blocks of ecosystems Low entropy matter-energy

Stock-flow resources Materially transformed into something else Used up, not worn out: use = depletion Units independent of time—we can clear cut a

forest today, or harvest slowly over time Can be stockpiled

Mostly market goods

Ecosystem services Structure generates function ecosystem

services Fund-service resources

Fund not materially transformed when generating services

Units time dependent: production per year Cannot be stockpile—not using water

regulation this year will not leave us more for next year

Spontaneously restored by solar energy Mostly non-market, non-priced

So What?

Economic production depletes ecosystem structure, and generates waste

Depletion of ecosystem structure and waste emissions both deplete ecosystem services

Both ecosystem goods and services are essential

Economic growth has an enormous opportunity cost, measured in the depletion of ecosystem services

Biodiversity, the nature of resources, and economic institutions

Excludability

Excludable resource regime One person or group can prevent others from

using the resource Necessary for markets to exist

Non-excludable No enforceable property rights Can’t charge for use

Some resources non-excludable by nature. None are inherently excludable.

Excludability function of institutions. Policy variable

Rivalry

Rival resources My use leaves less for you to use

Non-rival My use does not leave less for you to use Rationing through prices reduces benefits

without reducing costs: INEFFICIENT

Innate characteristic of the resource, not a result of institutions

How do we allocate?

Rival:

Non-rival:Markets

inefficient

Excludable:Markets possible

Non-Excludable:No market possible

Market Good: Ecosystem structure,Waste absorption capacity (e.g. CO2)

Tragedy of the non-commons: genetic diversity under CBD, patented information

Pure Public Good:Most ecosystem services, unowned genetic diversity, unpatented information

Open Access Regime “tragedy of the commons”:Unowned ecosystem structure, waste absorption capacity (e.g. SO2)

The Value of Biodiversity and Ecosystem Services

The Value of Biodiversity The diamond-water paradox

value in exchange (marginal value) and value in use (value of all units consumed)

Economists emphasize exchange value The value of private (rival) vs. public (non-

rival) resources Rival goods:

value to highest bidder Non-rival services:

sum of values across all users

The Value of Critical Natural Capital

Critical Natural Capital Stocks

Mar

gina

l val

ue

Safe: elastic demandAt risk: inelastic demand

Critical: perfectly inelastic demand

Demand curve for critical natural capi-tal

Total Economic Value• Total Economic Value = Direct use value

– E.g. shade, timber• + Indirect use value

– E.g. food source for valued birds, carbonsink

• + Option value• + Non-use value

– E.g. spiritual values• The sum of marginal values: neoclassical concept,

dependent on scarcity

Millennium Ecosystem Assessment

Estimating Demand Curves: Willingness to Pay

• Typical approach to estimating monetary values. – Revealed by market purchases for market

resources, typically determined by contingent valuation surveys for non-market resources.

• Preferences weighted by purchasing power: one dollar, one vote

• Fails to account for values to future generations• Is monetary valuation appropriate?

Value of conservation

Biodiversity and Payments for Ecosystem Services

Payments for Biodiversity and Ecosystem Services

Providers and beneficiaries

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3. Flow paths between areas of provision and areas of use

provision

beneficiaries

1. Areas of provision of ES and biodiversity

2. Areas of use of ES and biodiversity where beneficiaries are located

Payment for Ecosystem Services

• There are real costs to conservation, and someone must pay them– Opportunity costs of conservation: The income gained

from conversion (e.g. timber) or from use of the converted ecosystem (e.g. agricultural land)

• PES is based on the beneficiary pays principle – “a transfer of resources between social actors, which aims

to create incentives to align individual and/or collective land use decisions with the social interest in the management of natural resources” (Muradian et al. 2010 p. 1205),

• Generally instigated by beneficiaries

Types and Examples of PES

Rival

non-rival

Excludable Non-excludable

Market Good: Purchase of waste absorption capacity CO2 (CDM); water supply (Perrier, hydroelectric)

Tragedy of the non-commons: (PES inappropriate) Avian flu, Ozone depleting compounds, etc

Pure public goods: Payments by governments, international institutions, NGOs, etc.: payments for biodiversity, public technologies that protect biodiveristy and ecosystem services (e.g. Agroecology, clean energy)

Open Access Regime:Create common property regimes; e.g. cooperatives, government payments, caps on CO2 emissions

Rival, on thresholdof scarcity

Congestible: Club goods: e.g. ecotourism

Green Certification

Ethics and the new biodiversity economy

• Deciding on the desirable ends is inherently normative

• Ethical behavior stresses the group over the individual, unethical behavior the individual over the group.

• Conserving biodiversity requires cooperative, collective economic institutions, not competitive markets