The economics of worldwide coral reef degradation

Coral reefs are an incredibly valuable ecosystem. Not only are they very important for nature, but they represent a very high value for humankind, supporting millions of people whose lives depend on these natural resources for a source of food and income. Estimates in this report show that coral reefs provide each year nearly US$ 30 billion in net benefits in goods and services to world economies, including, tourism, fisheries and coastal protection (Table 1). Yet coral reefs are under heavy pressure. Already, 27% is permanently lost and with current trends, a further 30% is at risk of being lost in the coming thirty years. With such devastating levels of destruction, the social and economic implications for the millions of people who depend on coral reefs are of great concern. Over 39% of the world population now live within 100 kilometres of the coast and many people in these areas depend on reefs. Reefs protect coastlines and reef fish provide a source of nutrition and income. Poverty increases and food security decreases as fish stocks are depleted. This drives fishers further toward the use of destructive methods to catch what little there is left. Key causes of coral reef decline have been the over-development of the coastal area and the over-use of coral reef resources. Migration to coastal areas has created a surge in land development leading to clearance of important coastal ecosystems such as mangroves and seagrass beds. Unregulated coastal construction, such as hotels, factories and desalination plants, has increased sedimentation in the coastal waters and is destroying reefs worldwide as light levels in the water column are reduced and reefs are smothered. Untreated sewage and chemical agriculture run-off (e.g. pesticides, herbicides and fertilizers) have caused nutrient loading into coral reef waters, leading to algal blooms and eutrophication. Overfishing and destructive fishing practices have decimated coral reef fish populations and their habitats. In addition, increases in sea surface temperatures associated with global climate change are causing ever more frequent bleaching events. Countries with coral reefs attract millions of SCUBA divers every year, yielding significant economic benefits to the host country. Globally, tourism is estimated to provide US$ 9.6 billion in annual net benefits and a multiple of this amount in tourism spending (Table 1). These revenue streams in coral reef areas are being threatened by the deterioration of coral reefs. Damage to the reefs has often been caused by the increase in tourism itself, through direct damage by careless tourists and through the unregulated construction and the irresponsible operation of tourist related facilities. Mass tourism poses a threat to reefs and to the income that coral reefs provide to the local population. Sustainable tourism, on the other hand, is a source of income to people in reef areas. It even forms an alternative to destructive fishing practices. Reef fisheries provide nutrition and necessary necessary incomes to millions of people in developing countries. Potential reef fishing benefits are estimated at US$ 5.7 billion annually. However, increases in fishing effort, driven by rising populations and more effective fishing technology, have led to overfishing, such that the obtained economic value of coral reef fisheries is now close to zero in many developing countries. With fewer fish on the reefs many fishermen have resorted to more efficient yet highly damaging methods, such as bomb and cyanide fishing. Because enforcement of these illegal operations is difficult, the financial incentive to fishers in the short run is high. However, the ecological impact causes a net loss to society. For instance, in areas of Indonesia with high potential value of tourism and coastal protection, the socio-economic costs have been estimated to be four times higher than the total net private benefits from blast fishing. The cost of ‘inaction’ on blast fishing has been estimated at US$ 3.8 billion in Indonesia over the last 25 years. These figures would have justified enforcement expenditures of around US$ 400 million annually. Land-based pollution is another major threat to coral reefs as untreated sewage from urban areas and runoff from chemicals used in agriculture cause sedimentation and mass algal growth. Currently 22% of the world’s coral reefs are under medium to high risk from these land-based sources of pollution. As a result, investment to decrease the flow of sediments and excess nutrients into coastal waters is often justified despite high upfront costs. For example, a proposed wastewater treatment plant in the Florida Keys requires around US$ 60-70 million in investment costs and around US$ 4 million annually in operation and mainetance costs. However, in the long-term, the benefits to the local population are much higher, estimated at around US$ 700 million in Net Present Value (NPV) terms. Additional side benefits such as reduction in water-borne diseases provide further arguments in favour of these investments. To be cost-effective, river basin management should be linked with coastal zone management. This is the essence of the H2O Partnership (from Hilltop to Ocean) launched at the World Summit on Sustainable Development in Johannesburg, August 2002. Global climate change and related coral bleaching pose a final set of threats to coral reefs. In 1998, 75% of reefs worldwide were affected by bleaching and 16% suffered mortality. Recent studies predict that bleaching could become an annual event within the next 25 to 50 years. The study here calculates the net present value of future losses over the next 50 years at a 3% discount rate. The losses in the case of the ‘severe’ coral bleaching scenario with mass coral mortality are estimated around US$ 83 billion. For the ‘moderate’ scenario, where bleaching leads to less mortality, costs are estimated at around US$ 21 billion. Other associated impacts of global climate change also have adverse effects on coral reefs, such as increased frequencies of storms and hurricanes. A recent study estimates that climate change will cause losses of US$ 109.9 million in the Caribbean due to increased sea-surface temperatures, sea-level rise and loss of species, among others. This is equal to 13.8% of the total GDP in the region. Reduction of other stressors to reefs such as those mentioned above, in combination with climate change adaptation measures, could help to decrease the impacts of climate change and coral bleaching on reefs. Without even attempting to measure their intrinsic value, it is clear that coral reefs contribute enormously to food, income and various other quantifiable benefits, if properly managed. Net potential benefits are estimated at US$ 30 billion per year. With current trends of reef degradation, revenues will decrease, in some cases by as much as 75% with increasing costs. This will imperil the lives of millions of people who rely on reefs for food and income, especially in developing countries. Good reef management is costly, but the losses will be much higher if we fail to take action now. The choice is ours.