Economic Valuation of Biodiversity

An Interdisciplinary Conceptual Perspective

Bartosz Bartkowski

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351708166
• Edition: 1
• Topic: Economia
• Subtopic: Sviluppo sostenibile

While biodiversity loss is an ecological phenomenon, it also has further dimensions – political, social and, last but not least, economic. From the economic perspective, the rapid loss of biological diversity can be viewed in two ways. First, the consequence of this deterioration process is a loss of options and an increase in scarcity of the environmental 'good', biodiversity. Second, economic activity and the structure of global and local economic institutions have frequently been identified as the major drivers of biodiversity loss. In economic terms, this constitutes a market failure – market-based economic activities lead to processes which undermine the long-term stability of these very activities.

This book provides an ecological economic perspective on the value of diversity in ecosystems. Combining insights from various sub-disciplines of ecology and environmental/ecological economics, the author constructs a conceptual framework which identifies the ways in which biodiversity influences human well-being and offers a novel, unifying perspective on the economic value of biodiversity.

This framework demonstrates that biodiversity's economic value mainly results from uncertainty about the future, regarding both supply of and demand for ecosystem services, and interconnections between ecosystems. The book goes on to identify suitable methods for economic valuation of biodiversity and discusses the currently underdeveloped and underused approach of deliberative monetary valuation.

Combining a strong theoretical framework with practical examples, this book will be of great interest to students and researchers of ecological economics, ecosystem services, environmental values and environmental and resource economics.

1 Introduction

Biodiversity is difficult to define. It is likewise difficult to succinctly describe its role in supporting human activities, but its importance is nonetheless real.

(Heal, 2000, p. 87)

Ecologists and ecological economists have stressed that biodiversity has an important value in so far as it is instrumental for ecosystem functioning and ecosystems’ capability of providing essential life-supporting ecosystem services for humankind.

(Baumgärtner et al., 2006, p. 492)

Biodiversity loss and economic valuation

Hardly any term, besides possibly sustainability, has become so popular in environmental discourses in so short a time as did biodiversity. Coined in 1985 and presented to the general public three years later (Wilson, 1988), already by 1994 it was identified as having experienced a ‘dramatic’ and ‘explosive’ growth in popularity (Harper and Hawksworth, 1994). Indeed, as early as 1992 the Convention on Biological Diversity (CBD) was a major result of the Rio Earth Summit. One consequence of the CBD is the periodic publication of the highly influential Global Biodiversity Outlooks. In recent years, the Millennium Ecosystem Assessment (MEA), published in 2005,¹ the launch of the TEEB (The Economics of Ecosystems and Biodiversity) process in 2008 and IPBES (Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services) in 2012 have been signs that the growth in interest and popularity of the biodiversity concept is not decreasing. One reason for this is that this concept helps to frame some of the most important environmental problems of today (Meinard et al., 2014; Meinard and Quétier, 2014). Consequently, since its introduction the biodiversity concept has engaged scholars from numerous disciplines and the number of related publications has skyrocketed (Figure 1.1).

Different disciplines focus on different aspects of biodiversity. Yet most of them are interested in assessing the causes, rapidity and consequences of biodiversity loss. In 2009 a multidisciplinary group of experts led by Johan Rockström of the Stockholm Resilience Centre published an influential report in which they presented the concept of ‘planetary boundaries’ (Rockström et al., 2009; Steffen et al., 2015). They identified key ecological processes at the global level which humanity is highly dependent on, and made an attempt at quantifying and assessing them against a ‘safe operating space’, a set of limits whose transgression is considered dangerous for the long-term survival of humanity. They came to the conclusion that three out of the nine planetary boundaries identified have already been trespassed, the most severe trespass being that of the biodiversity boundary, as indicated by the current rates of biodiversity loss, which are estimated to be 100–1,000 times as high as the fossil record (Barnosky et al., 2011; Cafaro, 2015; McCallum, 2015).² In fact, the unprecedented rates of biodiversity loss are one reason why many commentators speak of a new ‘geological era’, the Anthropocene (Crutzen, 2002; Lewis and Maslin, 2015; Steffen et al., 2011), characterised by the heavy influence of humanity on many essential Earth processes. Accordingly, it was observed that ‘The context in which biodiversity conservation strategies are currently being developed is not, of course, the time behaviour of untouched natural systems, it is the time behaviour of jointly determined ecological-economic systems’ (Perrings et al., 1995, p. 72). Thus, while biodiversity loss certainly is an ecological phenomenon, it also has further dimensions – political, social and, last but not least, economic. From the economic perspective, the rapid loss of biological diversity can be viewed in two ways. First, the consequence of this deterioration process is a loss of options and an increase in scarcity of the environmental good biodiversity. It has been argued that ‘future losses of biodiversity and ecosystems may significantly reduce the productivity of our economic systems’ (Helm and Hepburn, 2014, p. 7). Second, economic activity and the structure of global and local economic institutions have frequently been identified as the major drivers of biodiversity loss (Dasgupta and Ehrlich, 2013; Pereira et al., 2012). In economic terms, this constitutes a market failure – market-based economic activities lead to processes which undermine the long-term stability of these very activities.

Figure 1.1 Growth in the number of biodiversity publications.

Note
Based on a title search for ‘biodiversity’ or ‘biological diversity’ in the Web of Science database on 20 March 2015; bars indicate the number of matching publications in a given year.

For this massive market failure to be corrected, many approaches are possible. The classic environmentalist movement and scientists associated with it have used mainly moral arguments to convince the public that by destroying the environment we are effectively harming ourselves (McCauley, 2006). Also, it is often thought that the sustainability³ goal can only be achieved through a dramatic institutional and cultural transformation of modern societies (cf. Kallis et al., 2012). However, appeals to morals and attempts to radically transform society have not been successful so far and are unlikely to be so in the near future (Jakob and Edenhofer, 2014; van den Bergh, 2011). Also, it has been repeatedly recognised that there exist trade-offs between (short-term) human well-being and the preservation of natural ecosystems (McShane et al., 2011; Raudsepp-Hearne et al., 2010).

Until another ‘Great Transformation’ can be initiated, society should be able to deal with environmental problems within the institutional framework of today, shaping it gradually. For instance, it appears essential to make clear the meaning of ecosystem change for human well-being in such a way that it would influence individual and collective decision-making. Also, trade-offs implicit in the relationship between modern societies and the ecosphere have to be made explicit to facilitate rational decision-making and at least correct the market failure referred to above. This can be done by means of economic valuation, which allows one to demonstrate the scarcity of ecosystems and the goods and services they provide as well as ‘to unravel the complexities of socio-ecological relationships, make explicit how human decisions would affect ecosystem service values, and to express these value changes in units (e.g. monetary) that allow their incorporation in public decision-making processes’ (Pascual et al., 2010, p. 190). Above all, it is a potentially highly potent source of information. Despite being quite controversial (some of the controversies will be discussed in the present book) and even though it exhibits limitations (e.g. Hansjürgens and Lienhoop, 2015; Wegner and Pascual, 2011), when applied properly, economic valuation has the potential to play ‘a major role […] in stemming the rising tide of degradation of ecosystems and the loss of biodiversity’ (Sukhdev et al., 2014, p. 136).

This book is concerned with the economic value of biodiversity.

Motivation and structure of the book

As this is supposed to be a scientific book, the reader can expect a number of things: first, there should be a clear research gap that is supposed to be closed; second, the approach and methods to be used in closing it should be transparent; third, the book should have a clear and concise structure that allows the closing of the research gap. In what follows, these issues will be briefly discussed.

Research gap

In the introductory section above, a link was identified between biodiversity and economic valuation: biodiversity can be and often is viewed as an environmental good. Like most environmental goods, however, it is not traded in markets and therefore has no price. Yet prices are important providers of information about the relative scarcity of goods. This insight is the main motivation for economic valuation of environmental goods – it is hoped that shadow prices⁴ of these goods can be used to inform decision-making at various levels.

The problem and starting point of the present book is that ‘there is certainly not yet an established framework for valuing biological variety’ (Nijkamp et al., 2008, p. 218), a conclusion which, almost 10 years later, still seems to be an adequate description of reality. In fact, in Chapter 4 it will be shown that the situation in the field of the economic valuation of biodiversity is almost as precarious as it was when Nijkamp and colleagues reached their above-quoted conclusion.

But why is this a problem? Obviously, as will be shown in Chapter 4, the lack of a biodiversity-specific valuation framework has not prevented economists from making attempts at estimating the economic value of biodiversity. However, the lack of a consistent, established framework has two negative consequences: first, many approaches chosen by those wanting to estimate biodiversity’s economic value are deficient: they do not really provide the information they are supposed to provide. If we want to know the price of bread, it is unhelpful if the number we find under this heading is actually the price of rye flour or the running costs of the bakery shop. The same holds analogously for biodiversity. But while it is relatively straightforward to estimate the price of bread, it is anything but simple to estimate the shadow price of biodiversity. Second, and this is even more problematic from the perspective of information provision, the approaches chosen to date in biodiversity valuation studies are inconsistent and incomparable. Which estimate, which study should one choose if the goal is to inform a decision-making process? The overarching aim of this book, as indicated in its title, is thus to develop an interdisciplinary conceptual perspective on the economic valuation of biodiversity.

An important preliminary question that should be asked to clearly identify the research gap that is to be closed by the present book is: what is already there and what is missing? Many approaches, arguments and ideas regarding the economic value of biodiversity and its estimation are available. There is no need to reinvent the wheel here. What is needed, though, is conceptual clarity, consistency and comprehensiveness. Which of these many approaches and ideas do actually hit the target, i.e. capture (parts of) biodiversity? In other words, which are relevant? And how do they interact, do they overlap or are there gaps between them? How do they fit together? What is missing is a consistent, unifying conceptual framework which would filter, adapt, extend (where necessary) and pull together the scattered approaches, arguments and ideas developed to date in the context of the economic valuation of biodiversity. Such a framework will be offered in this book.

One of the main reasons for the currently precarious state of biodiversity valuation research is probably the fact that biodiversity is a highly abstract, complex concept, which has ensued a terminological chaos of sorts. While biodiversity has been analysed from many different vantage points, including many related to the topic of economic valuation and relevant to it, there have been very few attempts to consistently connect the insights from these analyses. Thus, one aim of the present book is to clarify what biodiversity is and what it ‘does’. It is essential to have a clear view about what the valuation object is before one can identify why it is valuable and how its value can be estimated properly. This is, in fact, a major problem of biodiversity valuation studies to date: as criticised by Pearce (2001, p. 27), and confirmed by the literature review reported in Chapter 4, ‘[i]f we look at the literature on the economic valuation of “biodiversity” much of it is actually about the value of biological resources and is linked only tenuously to the value of diversity’.

The lack of a coherent conceptual framework for the economic valuation of biodiversity has serious repercussions for valuation practice. First, it is not clear why biodiversity is actually valuable. What useful properties or functions does it have that influence human well-being (positively or negatively)? Also, there are many different valuation methods which are variously useful in different contexts. The question is then: is there a method or a class of methods that is particularly well-suited for the estimation of the economic value of biodiversity? As this question cannot be answered without first clarifying (i) what biodiversity is and (ii) why and how it is valuable, it constitutes an essential part of the research gap that is to be closed in this book.

Prima facie, it would seem that there are already publications which fill the gap(s) identified here. Two of them should be especially mentioned to show how they are different from the present volume. Nunes et al. (2003; see also Nunes and van den Bergh, 2001) offer an ecological economics perspective on biodiversity, a large part of which focuses on valuation. However, while very informative in many respects, their overview suffers (against the background of the research questions listed above) from a very broad understanding of ‘biodiversity’, which allows them to discuss its economic value in terms of the provision of ecosystem services, habitats etc. It will be argued here that these are not parts of biodiversity. Nonetheless, those aspects of their book that are really biodiversity-specific will be considered in the discussion in Chapter 4. The other important overview is the first report of the international TEEB initiative on Ecological and Economic Foundations (Kumar, 2010). Here, however, the focus is even broader and while many of the threads discussed in the present book can be found there, they are scattered and lack a consistent unifying perspective. Such a perspective will be unfolded in this book.

To sum up, the research gap which has motivated the development of the present book consists in the lack of a consistent conceptual framework for the economic valuation of biodiversity. Such a framework is necessary if economic valuation studies of biodiversity are to provide relevant and meaningful information.

Approach and methods

As the title of the book suggests, its starting point is economic theory. This has much to do with the author’s education. However, the idea is to enrich the economic perspective...