Price Fixing – Why It Is Important to Put A Price On Nature
January 18, 2010: The insight that nature provides services to mankind is not a new one. In 360BC Plato remarked on the helpful role that forests play in preserving fertile soil; in their absence, he noted, the land was turned into desert, like the bones of a wasted body.
The idea that the value provided by such “ecosystem services” can be represented by ecologists in a way that economists can get to grips with, though, is rather newer. A number of the thinkers who have made it a hot topic in the past decade gathered at a meeting on biodiversity and ecosystem services held by the Royal Society, in London, on January 13th and 14th. They looked at the progress and prospects of their attempts to argue for the preservation of nature by better capturing the value of the things – such as pollination, air quality and carbon storage – that it seemingly does for free.
Environmental valuations aim to solve a problem that troubles both economists and ecologists: the misallocation of resources. Take mangrove swamps. Over the past two decades around a third of the world’s mangrove swamps have been converted for human use, with many turned into valuable shrimp farms. In 2007 an economic study of such shrimp farms in Thailand showed that the commercial profits per hectare were $9,632. If that were the only factor, conversion would seem an excellent idea.
However, proper accounting shows that for each hectare government subsidies formed $8,412 of this figure and there were costs, too: $1,000 for pollution and $12,392 for losses to ecosystem services. These comprised damage to the supply of foods and medicines that people had taken from the forest, the loss of habitats for fish, and less buffering against storms. And because a given shrimp farm only stays productive for three or four years, there was the additional cost of restoring them afterwards: if you do so with mangroves themselves, add another $9,318 per hectare. The overall lesson is that what looks beneficial only does so because the profits are retained by the private sector, while the problems are spread out across society at large, appearing on no specific balance sheet. Continue reading the original article here.