The economics of ecosystems and biodiversity : an interim report.
Date: 2011-11-28
Institutions: Directorate-General for Environment
Subjects: biodiversity, cost of pollution, degradation of the environment, economic consequence, economic value, ecosystem, management of resources, sustainable development

T
h
of
e
&
e
e
bio
c
c
o
o
s
n
div
y
o
ste
mic
ersity
m
s

s

report

interim

An

Photos: Cover and title page, all images UNEP/Topham.

T
h
of
e
&
e
e
bio
c
c
o
o
s
n
div
y
o
ste
mic
ersity
m
s

s

report

interim

An

ISBN-13 978-92-79-08960-2

© European Communities, 2008
Reproduction is authorized provided the source is
acknowledged.

Cover photos (clockwise from top): Ian McAllister/UNEP/
Topham; Ian Johnson/UNEP/Topham; Alex Wong/UNEP/
Topham; Lim Kien Hock/UNEP/Topham

Printed by Welzel+Hardt, Wesseling, Germany.

A Banson Production, Cambridge, UK

F O R E W O R D

Biological diversity represents the natural wealth of

the Earth, and provides the basis for life and
prosperity for the whole of mankind. However,
biodiversity is currently vanishing at an alarming rate, all
over the world. We are, so to speak, erasing nature’s hard
drive without even knowing what data it contains. The
aim of the Convention on Biological Diversity (CBD) and
its 190 Contracting Parties is to signiﬁcantly reduce the
loss of biodiversity by 2010. This is an ambitious goal
which can only be achieved through the concerted efforts
and combined strength of all sections of society. We
therefore need both national and international alliances
between policy makers, science, the public and business.

The success of this joint initiative was always going to be
highly dependent on the quality of the leadership and for
this reason we have been particularly pleased that Pavan
Sukhdev, a Managing Director in the Global Markets
division at Deutsche Bank, and founder-Director of a “green
accounting” project for India, has accepted to take on the
role of Study Leader.

Pavan Sukhdev and his team have had an extremely
challenging task to bring together a lot of information in
such a short time. Fortunately, they have beneﬁted from the
support and contribution of many international organi-
zations as well as prominent experts.

Arising out of a discussion at the meeting of G8+5
environment ministers which took place in Potsdam in
May 2007, we decided to launch a joint initiative to draw
attention to the global economic beneﬁts of biodiversity
and the costs of biodiversity loss and ecosystem
degradation.

The results from Phase I of the initiative we launched in
Potsdam a year ago will be presented at the high-level
segment of CBD COP9. We invite and encourage CBD
Member Countries and international organizations to
contribute actively to Phase II of this work which will begin
immediately after COP9.

Stavros Dimas
Commissioner for Environment
European Commission

Sigmar Gabriel
Federal Environment Minister
Germany

Foreword

3
3

P R E F A C E

Pavan Sukhdev, Study Leader

Not all that is very useful commands high value (water, for
example) and not everything that has a high value is very
useful (such as a diamond).

This example expresses not one but two major learning
challenges that society faces today. Firstly, we are still
learning the “nature of value”, as we broaden our concept
of “capital” to encompass human capital, social capital and
natural capital. By recognizing and by seeking to grow or
conserve these other “capitals” we are working our way
towards sustainability.

Secondly, we are still struggling to ﬁnd the “value of
nature”. Nature is the source of much value to us every
day, and yet it mostly bypasses markets, escapes pricing
and deﬁes valuation. This lack of valuation is, we are
discovering, an underlying cause for the observed deg-
radation of ecosystems and the loss of biodiversity.

Our project on “The Economics of Ecosystems and
Biodiversity” is about addressing this second challenge,
and making a comprehensive and compelling economic
case for conservation of ecosystems and biodiversity.

A DEFECTIVE ECONOMIC COMPASS?

Some readers may be surprised to learn that the example
above is as old as economics. It is from Adam Smith’s great
classic of 1776. So perhaps a third and smaller challenge
is for us to understand why it took mankind over 200 years
to really come to grips with the ﬁrst two challenges!

Two and a quarter centuries ago, land was plentiful, energy
was not a major factor of production, and the scarce input
to production was ﬁnancial capital. How times have
changed. Adam Smith designed his thinking framework
for economics in a world in which global capital and trade
were measured in millions, not trillions, of dollars. Bill
McKibben (2007) identiﬁes the steam engine and “GDP
growth” as the two most signiﬁcant discoveries of the 18th
century, both of which improved the well-being of a
signiﬁcant part of humanity. GDP growth created jobs,
avoided recessions, and has thus become a preferred
yardstick for progress. However, GDP growth does not
capture many vital aspects of national wealth and well-
being, such as changes in the quality of health, the extent
of education, and changes in the quality and quantity of
our natural resources.

It can be said that we are trying to navigate uncharted and
turbulent waters today with an old and defective economic
compass. And this is not just a national accounting problem
– it is a problem of metrics which permeates all layers of
society, from government to business to the individual,
and affects our ability to forge a sustainable economy in
harmony with nature.

THE ECONOMICS OF ECOSYSTEMS AND
BIODIVERSITY – “TEEB”

In March 2007, the G8+5 environment ministers met in
Potsdam. Inspired by the momentum for early action
and policy change created by the Stern Review of the
Economics of Climate Change, they expressed the need
to explore a similar project on the economics of the loss
of ecosystems and biodiversity. The Minister for the
Environment in Germany, Sigmar Gabriel, with the support
of
the European Commissioner for the Environment,
Stavros Dimas, took the lead and accepted the challenge
of organizing this study.

The sheer complexity and size of the task was self-evident,
and its urgency quite compelling, so I felt both deeply
honoured and not a little worried when Commissioner
Dimas and Minister Gabriel offered me the position of
Study Leader for this task. The science of biodiversity and
ecosystems is still evolving, their services to humanity only
partially mapped and imperfectly understood, and the
economics used to assign monetary values to these
sometimes contentious. However, I believed in the vision
driving this project, I felt it was crucial and timely that it be
done, and so I accepted the assignment happily.

I was reminded of a similar trepidation I had felt when, four
years ago, some friends and I launched an ambitious “green
accounting” project for India and its states with the aim of
providing a practical “sustainability” yardstick for their
economies, adjusting classical GDP measures and reﬂecting
large unaccounted externalities such as those involving
ecosystems and biodiversity. Most of the results of this
project are already published (Green Indian State Trust,
2004-2008), and some have already been used, a rewarding
experience from which inter alia we learnt the importance of
challenging people’s expectations, including our own.

As Phase I of TEEB draws to a close, I would like to
give due recognition to the overwhelming support and

4
4

The economics of ecosystems and biodiversity

engagement we have received from such a vast number of
contributors from all over the world (see Acknowledgements,
page 60).

Firstly, I wish to thank all the members of our “core team”,
who worked tirelessly and it seemed continuously for weeks
on end, often taking time off their day jobs to pull together,
evaluate, extract and summarize volumes of material that
came to us, and who contributed to the writing of this
interim report. I wish to thank all those who contributed
knowledge and papers on various aspects of the subject;
we received over 100 submissions in response to our calls
for evidence in September 2007 and March 2008. Our
key meeting (Brussels, March 2008) drew 90 participants
from almost as many institutions, many of whom wrote in
subsequently with information and advice. We outsourced
much of the work in Phase I to a set of distinguished
research institutions, all of whom delivered excellent meta-
studies and papers in very short time, and for this we thank
the teams at FEEM, IEEP, Alterra, GHK, ECOLOGIC and
IVM. Furthermore, colleagues at EEA, IUCN and UFZ
provided valuable support in writing and editing. I thank
especially our distinguished Advisory Board, both for
agreeing to be involved and for taking time off their very
busy schedules to advise me on this project. And ﬁnally,
our thanks to the governments and institutions that
supported this project, the G8+5, UNEP, IUCN, EEA, and
especially the teams at our hosts and sponsors the DG
Environment, EU Commission and BMU, Germany.

HIGHLIGHTS OF PHASE I

There is a new model evolving here: it is collegiate, colla-
borative and global. We have every hope and expectation
that this will continue into Phase II, and indeed, we intend to
increase and broaden our base of contributors, contractors,
partners and advisers.

There were ﬁve main deliverables from Phase I of TEEB,
and short summaries of these are given in the Annex to this
interim report. These meta-studies and papers have
collectively given us a ﬁrm foundation of information and
analysis from which to launch Phase II.

Here, I would like to highlight three important aspects of our
preliminary work in Phase I and our direction for Phase II.

The ﬁrst is that we ﬁnd poverty and the loss of ecosystems
and biodiversity to be inextricably intertwined. We explored
who were the immediate beneﬁciaries of many of the
services of ecosystems and biodiversity, and the answer is
that it is mostly the poor. The livelihoods most affected are
subsistence farming, animal husbandry, ﬁshing and informal
forestry – most of the world’s poor are dependent on them.
This realization (see Chapter 3, “GDP of the poor”) needs
further research for global substantiatiation and we intend
to carry it out in Phase II. Annual natural capital losses are

typically estimated at an unimpressive few percentage
points of GDP. If, however, we re-express these in human
terms, based on the principle of equity and our knowledge
of where nature’s beneﬁts ﬂow, then the argument for
reducing such losses gains considerable strength.

This is about the right of the world’s poor to livelihood ﬂows
from nature which comprise half of their welfare or more,
and which they would ﬁnd it impossible to replace. We
shall also argue that most of the Millennium Development
Goals today are in fact hostage to this very basic issue.

The second issue is of ethics – risks, uncertainty, and
discounting the future, issues which have also been raised
in the Stern Review. In most of the valuation studies we
examined, discount rates used were in the range 3-5%
and higher. Note that a 4% discount rate means that we
value a natural service to our own grandchildren (50 years
hence) at one-seventh the utility we derive from it, a difﬁcult
ethical standpoint to defend. In Phase II we shall address
this issue by applying a discrete range of discount rates
representing different ethical standpoints.

Finally, and most important perhaps, we are convinced that
every aspect of the economics of ecosystems and bio-
diversity that we examine and represent here, and in Phase
II, must be sharply focused on the end-user – be it the policy
maker, the local administrator, the corporation or the citizen.

OUR AMBITIONS FOR PHASE II

Phase II of TEEB sets out to conclude our scoping and
exploratory work during Phase I and achieve four important
objectives. These are to:

• ﬁrm up and publish a “science and economics
framework” which can help frame valuation exercises
for most of Earth’s ecosystems, including in its scope
all material values across the most signiﬁcant biomes;
• further evaluate and publish “recommended valuation
methodology”, including biomes (e.g. oceans) and
some values (e.g. option values and bequest values)
which have not been investigated in depth in Phase I;
• engage all key “end-users” of our valuation work,
early and comprehensively, to ensure that our output
is as focused as possible on their needs, and “user-
friendly” in terms of its organization, accessibility,
practicability and, overall, its usefulness.

• further evaluate and publish a policy toolkit for policy
makers and administrators which supports policy
reform and environmental impact assessment with the
help of sound economics, in order to foster sustainable
development and better conservation of ecosystems
and biodiversity

I have been a banker and a markets professional for 25
years. Two tenets that I learnt early and which have always

Preface

5

stood me in good stead are that “the seeds of trouble are
sown in good times”, and that “you cannot manage what
you do not measure”. No matter how challenging, if we truly
want to manage our ecological security, we must measure
ecosystems and biodiversity – scientiﬁcally as well as
economically. The economic compass that we use today
was a success when it was created, but it needs to be
improved or replaced. I invite you to look, once again, at the
cover of this interim report: it is no coincidence that our title
and the images are tilted. We need that new compass in
place, urgently.

REFERENCES

Smith, A. (1776) An Inquiry into the Nature and Causes
of the Wealth of Nations. Edinburgh. Available at
www.adamsmith.org/smith/won-index.htm (last
access 13 May 2008).

McKibben, B. (2007) Deep Economy: The Wealth of

Communities and the Durable Future. Times Books,
New York.

Green Indian States Trust (2004-2008) Green Accounting

for Indian States Project (GAISP). Available at
www.gistindia.org (last access 13 May 2008).

6
6

The economics of ecosystems and biodiversity

TA B L E O F C O N T E N T S

Foreword

Preface

Executive summary

Chapter 1 BIODIVERSITY AND ECOSYSTEMS TODAY

Chapter 2 BIODIVERSITY, ECOSYSTEMS AND HUMAN WELFARE

Pressures on biodiversity will continue and human well-being will be affected

Food is news on land...
...and at sea
Water supply increasingly at risk
Our health is at stake
Growth and development

Climate change and biodiversity
Impacts on the poor

Business-as-usual is not an option
What next?
References

Chapter 3 TOWARDS A VALUATION FRAMEWORK

Many failures, one problem
Economics, ethics and equity

Recognizing risks and uncertainty
Discount rates and ethics
Discounting and intergenerational equity
Discounting in a welfare context
Discounting biodiversity losses

The evaluation challenge
The costs of biodiversity loss
The costs of biodiversity conservation
Proposed valuation framework

Bringing together the ecological and economic aspects in our valuation framework
Key principles of best practice on the valuation of ecosystem services

References

Chapter 4 FROM ECONOMICS TO POLICIES

Rethinking today’s subsidies to reﬂect tomorrow’s priorities
Rewarding unrecognized beneﬁts, penalizing uncaptured costs

Payments for ecosystem services
Extending the “polluter pays” principle
Creating new markets

Sharing the beneﬁts of conservation
Measuring what we manage: metrics for sustainability
Imagining a new world
References

3

4

9

11

15
15
15
16
17
18
19
20
20
21
25
25

27
27
28
29
29
29
31
32
33
36
37
39
40
43
44

47
47
48
48
49
50
51
53
55
56

The economics of ecosystems and biodiversity

7
7

An outline of Phase II

Acknowledgements

Synopses of studies

BOXES

Box 1.1: Key terms
Box 2.1: Biofuels generate much debate
Box 2.2: Coral reefs
Box 2.3: Gender, poverty and biodiversity in Orissa, India
Box 2.4: The changing use of land and changing services
Box 2.5: Vicious cycle of poverty and environmental degradation: Haiti
Box 3.1: Mayan Forest Road Projects: market failure from information failure
Box 3.2: The effect of subsidies on ﬁsheries
Box 3.3: Discounting and the optimist’s paradox
Box 3.4: GDP of the poor
Box 3.5: Putting it together – an example of a Cost of Policy Inaction study on biodiversity loss
Box 3.6: The multiple values of coral reefs
Box 4.1: Environmentally harmful subsidies
Box 4.2: Subsidies that distort trade
Box 4.3: Payments for environmental services in Costa Rica
Box 4.4: Experience with habitat banking, endangered species credits and biobanking
Box 4.5: Panama Canal reforestation
Box 4.6: The Vittel example
Box 4.7: Protected areas in Uganda

FIGURES

Figure 2.1: World commodity prices
Figure 2.2: Global trends in the state of marine stocks since 1974
Figure 2.3: Global biodiversity loss 2000-2050 and contribution of pressures
Figure 3.1: The link between biodiversity and the output of ecosystem services
Figure 3.2: Valuing ecosystem services
Figure 3.3: Establishing a scenario analysis
Figure 3.4: Proposed evaluation framework: contrasting appropriate states of the world
Figure 3.5: Ecosystem beneﬁts from a protected forest, Madagascar
Figure 3.6: Ecosystem beneﬁts to Greater London, UK
Figure 4.1: Land and water use of various foods

MAPS

Map 1.1: Environmental conﬂicts
Map 2.1: Plant species per ecoregion
Map 2.2: Agricultural returns
Map 2.3: Mean species abundance 1970
Map 2.4: Mean species abundance 2000
Map 2.5: Mean species abundance 2010
Map 2.6: Mean species abundance 2050

TABLES

Table 2.1: Ecosystem services and Millennium Development Goals: links and trade-offs
Table 3.1: Valuing a “biodiversity option”
Table 3.2: Discount rates and outcomes
Table 3.3: Projection of total beneﬁts of carbon storage in European forests
Table 3.4: Results from studies on the costs of conservation

8
8

The economics of ecosystems and biodiversity

58

60

63

12
16
17
20
22
24
27
28
30
31
34
36
47
48
49
50
51
51
52

15
16
23
32
33
34
39
41
42
54

13
19
19
22
22
23
23

21
29
30
36
37

E X E C U T I V E S U M M A R Y

Nature provides human society with a vast diversity of
beneﬁts such as food, ﬁbres, clean water, healthy soil and
carbon capture and many more. Though our well-being is
totally dependent upon the continued ﬂow of
these
“ecosystem services”, they are predominantly public goods
with no markets and no prices, so are rarely detected by our
current economic compass. As a result, biodiversity is
declining, our ecosystems are being continuously degraded
and we, in turn, are suffering the consequences.

Taking inspiration from ideas developed in the Millennium
Ecosystem Assessment, our initiative, The Economics of
Ecosystems and Biodiversity (TEEB), aims to promote a
the true economic value of
better understanding of
ecosystem services and to offer economic tools that take
proper account of this value. We are conﬁdent that the results
of our work will contribute to more effective policies for
biodiversity protection and for achieving the objectives of the
Convention on Biological Diversity.

TEEB is in two phases and this interim report summarizes
the results of Phase I. It demonstrates the huge signiﬁcance
of ecosystems and biodiversity and the threats to human
welfare if no action is taken to reverse current damage and
losses. Phase II will expand on this and show how to use this
knowledge to design the right tools and policies.

PHASE I

The world has already lost much of its biodiversity. Recent
pressure on commodity and food prices shows the
consequences of this loss to society. Urgent remedial action
is essential because species loss and ecosystem deg-
radation are inextricably linked to human well-being.
Economic growth and the conversion of natural ecosystems
to agricultural production will, of course, continue. We
cannot – and should not – put a brake on the legitimate
aspirations of countries and individuals for economic
development. However, it is essential to ensure that such
development takes proper account of the real value of
natural ecosystems. This is central to both economic and
environmental management.

In Chapters 1 and 2 of this report we describe how, if we do
not adopt the right policies, the current decline in biodiversity
and the related loss of ecosystem services will continue and
in some cases even accelerate – some ecosystems are likely
to be damaged beyond repair. Findings on the cost of

inaction suggest that, with a “business-as-usual” scenario, by
2050 we will be faced with serious consequences:

• 11% of the natural areas remaining in 2000 could be
lost, chieﬂy as a result of conversion for agriculture, the
expansion of infrastructure, and climate change;

• almost 40% of the land currently under low-impact
forms of agriculture could be converted to intensive
agricultural use, with further biodiversity losses;

• 60% of coral reefs could be lost – even by 2030 –
invasive alien

through ﬁshing, pollution, diseases,
species and coral bleaching due to climate change.

Current trends on land and in the oceans demonstrate the
severe dangers that biodiversity loss poses to human health
and welfare. Climate change is exacerbating this problem.
And again, as with climate change, it is the world’s poor who
are most at risk from the continuing loss of biodiversity. They
are the ones most reliant on the ecosystem services which
are being undermined by ﬂawed economic analysis and
policy mistakes.

The ultimate aim of our work is to provide policy makers
with the tools they need to incorporate the true value of
ecosystem services into their decisions. So in Chapter 3 –
since ecosystem economics is still a developing discipline –
we describe the key challenges in developing and applying
suitable methodologies. In particular, there are ethical choices
to be made between present and future generations and
between peoples in different parts of the world and at
different stages of development. Without taking these
aspects into account, the Millennium Development Goals
cannot be achieved.

Some promising policies are already being tried out. In
Chapter 4 we describe several that are already working in
some countries and could be scaled up and/or replicated
elsewhere. These examples come from many different ﬁelds,
but they convey some common messages for developing
the economics of ecosystems and biodiversity:

• rethink today’s subsidies to reﬂect tomorrow’s priorities;
• reward currently unrecognized ecosystem services and
make sure that the costs of ecosystem damage are
accounted for, by creating new markets and promoting
appropriate policy instruments;
• share the beneﬁts of conservation;
• measure the costs and beneﬁts of ecosystem services.

Executive summary

9
9

PHASE II

The economic approach we will be working on in Phase II
will be spatially speciﬁc and will build on our knowledge of
how ecosystems function and deliver services. We will also
examine how ecosystems and their associated services are
likely to respond to particular policy actions. It will be essential
to take account of the ethical issues and equity, and of the
risks and uncertainty inherent in natural processes and
human behaviour.

Most biodiversity and ecosystem beneﬁts are public goods
that have no price. There are different approaches for solving
this problem. Notably, we can adopt policies that reward
preservation of the ﬂow of these public goods, or we can
encourage “compliance markets” which attach tradable
values to the supply or use of these services. One example
is payments for ecosystem services (PES). These can create
demand so as to correct the imbalances which harm
biodiversity and impede sustainable development. Phase II
will examine the investment case for PES, but also for other
new and innovative instruments.

New markets are already forming which support and reward
biodiversity and ecosystem services. To be successful, they
need the appropriate institutional infrastructure, incentives,
ﬁnancing and governance:
investment and
resources. In the past, the state was often considered solely
responsible for managing ecosystems. Now it is clear that
markets can also play their part – often without drawing on
public money.

in short,

The fundamental requirement is to develop an economic
yardstick that is more effective than GDP for assessing
the performance of an economy. National accounting
systems need to be more inclusive in order to measure the
signiﬁcant human welfare beneﬁts that ecosystems and
biodiversity provide. By no longer ignoring these beneﬁts,
such systems would help policy makers adopt the right
measures and design appropriate ﬁnancing mechanisms
for conservation.

Countries, companies and individuals need to understand
the real costs of using the Earth’s natural capital and the
consequences that policies and actions, individual or
collective, have on the resilience and sustainability of natural
ecosystems. We believe that policies which better reﬂect
the true value of biodiversity and natural ecosystems will
contribute to sustainable development by helping to secure
the delivery of ecosystem goods and services, particularly
food and water, in a transparent and socially equitable way.
This will not only protect biodiversity, ecosystems and the
associated ecosystem services, but will also improve the
well-being of our present generation and the generations
to come.

If we are to achieve our highly ambitious goals we will need
to draw on the knowledge, skills, and talent of countries,
international bodies, academia, business and civil society
from around the world. We look forward to working together
openly, ﬂexibly and constructively and to seeing further
substantive progress in 2009 and 2010.

10
10

The economics of ecosystems and biodiversity

1B I O D I V E R S I T Y A N D E C O S Y S T E M S

T O D AY

“Global warming may dominate headlines today.

Ecosystem degradation will do so tomorrow.”

Corporate Ecosystems Services Review, WRI et al. March 2008

Rewarding forest conservation
The leaders of the communities in Latin America's forested
areas want a consensus on the economic compensation for
environmental services that they give to the planet by helping
conserve millions of hectares of native woodland in the
tropics. And it seems that they are being heard: Brazil's
government has just decided to pay residents of the Amazon
money and credits for their "eco-services" in helping to
preserve the country’s vast forested area.

Terra Daily 6 April 2008

Emerging markets for environmental services
A private equity ﬁrm recently bought the rights to environmental
services generated by a 370,000 hectare rainforest reserve in
Guyana,
recognizing that such services – water storage,
biodiversity maintenance, and rainfall regulation – will eventually be
worth something on international markets. Revenues will be
shared with 80% going to the local community. The reserve
supports 7,000 people and locks up some 120 million tonnes of
carbon. President Jagdeo of Guyana has cited it as a potential
model for payments for all such services.

www.iNSnet.org 4 April 2008

Ecosystem collapse
On 20 February 2008, between 500 and 700 tonnes of ﬁsh
were reported dead in ﬁsh cages in the marine waters of
Amvrakikos, Greece (Eleftherotypia 20 February 2008).
Scientists have suggested it is likely that the reduction of
freshwater inﬂow into the gulf could be the cause of these
incidents. The cost to restore some of the ecosystem
functions in the lagoons is estimated at EUR 7 million.

EC DG ENV 2008

These news bulletins above give us a glimpse of an

emerging new nexus: the connection between nature,
its preservation and destruction, human welfare, and
ﬁnally, money. Historically, nature’s role as the nurturer of
human society was accepted as a given, and the “maternal”
image of nature abounds in rituals, epics and beliefs across
all societies and times. Over the last half century however,
the intricate relationship between human wealth and welfare
and biodiversity, ecosystems and their services is increasingly
being understood in ecological and economic terms. Our
knowledge, of the many dimensions of this relationship is
improving fast. At the same time, we are recognizing
losses – worsening environments,
increasing natural
declining species.

Environmental refugees increase
Environmental refugees already number some 25 million, and it
is estimated that by 2020, some 60 million people will move from
desertiﬁed areas in Sub-Saharan Africa towards Northern Africa
and Europe. But this south-north migration is nothing, compared
to internal migrations within Africa itself. Most internal refugees
settle in bloated megacities, a trend that – given the scarce water
resources – is regarded as a potential disaster. Trapped in a
deteriorating environment without access to freshwater and
plagued by rising food prices, refugees and locals alike may be
prone to poverty, disease, and unrest.

http://knowledge.allianz.com 19 March 2008

Many high-proﬁle species such as pandas, rhinos and
tigers face extinction, while rainforests, wetlands, coral reefs
and other ecosystems are under huge pressure from
human activity. Natural disasters such as ﬂoods, droughts
and landslides are today almost commonplace, while food
and water shortages have recently been commanding
world attention.

While there is some understanding that
these many
phenomena are in some way connected, there is at the
same time an expectation that “normal service” will soon
be resumed. There seems to be little appreciation of the

Biodiversity and ecosystems today

11

many dimensions of biodiversity loss, or the connections
between biodiversity loss, climate change and economic
development. Species loss and ecosystem degradation are
inextricably linked to human well-being, and unless we take
urgent remedial action, “normal service” – in the sense of
being able to enjoy the beneﬁts that our environment affords
us – may never be resumed.

Humanity receives countless beneﬁts from the natural
environment in the form of goods and services (generally
grouped under the collective title of ecosystem services) such
as food, wood, clean water, energy, protection from ﬂoods
and soil erosion (see Box 1.1). Natural ecosystems are also
the source of many life-saving drugs as well as providing
sinks for our wastes, including carbon. Human development
has also been shaped by the environment, and this
interlinkage has strong social, cultural and aesthetic
importance. The well-being of every human population in
the world is fundamentally and directly dependent on
ecosystem services.

However, the levels of many of the beneﬁts we derive from
the environment have plunged over the past 50 years as
biodiversity has fallen dramatically across the globe. Here are
some examples:

• In the last 300 years, the global forest area has shrunk
by approximately 40%. Forests have completely

Box 1.1: Key terms

• An ecosystem is a dynamic complex of plant,
animal and micro-organism communities and their
non-living environment interacting as a functional
unit. Examples of ecosystems include deserts, coral
reefs, wetlands, rainforests, boreal forests, grass-
lands, urban parks and cultivated farmlands.
Ecosystems can be relatively undisturbed by
people, such as virgin rainforests, or can be
modiﬁed by human activity.

• Ecosystem services are the beneﬁts that people
obtain from ecosystems. Examples include food,
freshwater, timber, climate regulation, protection
from natural hazards, erosion control, pharma-
ceutical ingredients and recreation.

• Biodiversity is the quantity and variability among
living organisms within species (genetic diversity),
between species and between ecosystems.
Biodiversity is not itself an ecosystem service but
underpins the supply of services. The value placed
on biodiversity for its own sake is captured under
the cultural ecosystem service called “ethical
values”.

12

The economics of ecosystems and biodiversity

disappeared in 25 countries, and another 29 countries
have lost more than 90% of their forest cover. The
decline continues (FAO 2001; 2006).

• Since 1900, the world has lost about 50% of its
wetlands. While much of this occurred in northern
countries during the ﬁrst 50 years of the 20th century,
there has been increasing pressure since the 1950s for
conversion of tropical and sub-tropical wetlands to
alternative land use (Moser et al. 1996).

• Some 30% of coral reefs – which frequently have even
higher levels of biodiversity than tropical forests – have
been seriously damaged through ﬁshing, pollution,
disease and coral bleaching (Wilkinson 2004).

• In the past two decades, 35% of mangroves have
disappeared. Some countries have lost up to 80%
through conversion for aquaculture, overexploitation
and storms (Millennium Ecosystem Assessment
2005a).

• The human-caused (anthropogenic) rate of species
extinction is estimated to be 1,000 times more rapid
than the “natural” rate of extinction typical of Earth’s
long-term history (Millennium Ecosystem Assessment
2005b).

The effect of trends such as these is that approximately
60% of the Earth’s ecosystem services that have been
examined have been degraded in the last 50 years, with
human impacts being the root cause (Millennium
Ecosystem Assessment 2005c). Further declines are
projected over the coming decades because of factors
such as population growth, changing land use, economic
expansion and global climate change. Leading international
economic organizations such as the World Bank and the
Organisation for Economic Co-operation and Development
(OECD) conﬁrm these worrying predictions. The OECD has
described a highly daunting combination of challenges
tackling climate change, halting
facing humanity:
biodiversity loss, ensuring clean water and adequate

Map 1.1: Environmental conﬂicts

Conﬂict intensity

Diplomatic crisis
Protests (partly violent)
Use of violence (national scope)
Systematic/collective violence

Conﬂict cause

Water
Land/soil
Fish
Biodiversity

Source: WBGU, 2008

sanitation, and reducing the human health impacts of
environmental degradation (OECD 2008).

The pressures have intensiﬁed even in the short time since
the publication of the Millennium Ecosystem Assessments in
2005. In 2007, more people were living in urban than rural
areas for the ﬁrst time in human history. During 2007 and
2008, the push to develop biofuels resulted in massive
changes in land use and a steep increase in the price
of some staple food crops. Continuing high rates of eco-
nomic growth in some of the large developing economies
have resulted in demand outstripping supply for several
commodities, putting even greater pressure on natural
systems. Recent evidence of climate change suggests
much faster and deeper impacts than previously predicted,
including the risk of human conﬂicts caused by com-
petition for biodiversity resources and ecosystem services
(WBGU 2008).

Such trends may change our relationship with nature but not
our reliance on it. Natural resources, and the ecosystems that
provide them, underpin our economic activity, our quality of
life and our social cohesion. But the way we organize our

economies does not give sufﬁcient recognition to the
dependent nature of this relationship – there are no
economies without environments, but
there are
environments without economies.

There have been many attempts to ﬁll this gap by putting
some kind of monetary value on ecosystem services. Such
approaches can be helpful, but above all we need to regain
a sense of humility about the natural world. As traditional
peoples have long understood, we must ultimately answer to
nature, for the simple reason that nature has limits and rules
of its own.

We are consuming the world’s biodiversity and ecosystems
at an unsustainable rate and this is already starting to have
serious socio-economic impacts. If we are to ﬁnd solutions
to the problems we face, we need to understand what is
happening to biodiversity and ecosystems and how these
changes affect the goods and services they provide. We then
need to look at the way we can use economic tools to ensure
that future generations can continue to enjoy the beneﬁts of
these goods and services.

This is a highly complex challenge, but one which must be
met. However, lessons from the last 100 years demonstrate
that mankind has usually acted too little and too late in face
of similar threats – asbestos, CFCs, acid rain, declining
ﬁsheries, BSE, contamination of the Great Lakes and, most
recently and dramatically, climate change. Assigning just
1% of global GDP up to 2030 can achieve signiﬁcant
improvements in air and water quality and human health,
and ensure progress toward climate targets. As the OECD
has observed: “You can call it the cost of insurance” (OECD
2008). With the beneﬁt of hindsight, we recognize the
mistakes that we have made in the past and we can learn
from them (EEA 2001).

Biodiversity and ecosystems today

13

The loss of biodiversity and ecosystems is a threat to
the functioning of our planet, our economy and human
society. We believe it is essential to start tackling this problem
as soon as possible. We do not have all the answers, but in
the remainder of this document we will describe a framework
for action that we hope will attract wide support.

RReeffeerreenncceess

Millennium Ecosystem Assessment (2005a) Global

Assessment Report 1: Current State and Trends
Assessment. Island Press, Washington DC.
Millennium Ecosystem Assessment (2005b) Living

Beyond Our Means: Natural Assets and Human Well-
being. Island Press, Washington DC.

Millennium Ecosystem Assessment (2005c) Ecosystems
and Human Well-being: Synthesis. Island Press,
Washington DC.

EC DG ENV – European Commission DG Environment

Moser, M., Prentice, C. and Frazier, S. (1996) A Global

(2008) Wetlands: Good practices in Managing Natura
2000 Sites: An Integrated Approach to Managing the
Amvrakikos Wetland in Greece. Available at
http://ec.europa.eu/environment/nature/natura2000/
management/gp/wetlands/04case_amvrakikos.html
(last access 8 May 2008).

EEA – European Environment Agency (2001) Late Lessons
From Early Warnings: The Precautionary Principle
1896-2000. Environmental issue report No 22.
Eleftherotypia (20 February 2008) 700 tonnes of dead

ﬁsh. Available at www.enet.gr/online/online_
text/c=112,dt=20.02.2008,id=85914648.

FAO – Food and Agriculture Organization of the United

Nations (2001) Global Forest Resources Assessment
2000.

FAO – Food and Agriculture Organization of the United

Nations (2006) Global Forest Resources Assessment
2005.

Insnet (2008) www.insnet.org/printable.rxml?id=

9199&photo.

Knowledge Alliance (2008) Water Conﬂicts: Fight or

Flight? http://knowledge.allianz.com/en/globalissues/
climate_change/natural_disasters/water_conﬂicts.html.

Overview of Wetland Loss and Degradation. Available
at www.ramsar.org/about/about_wetland_loss.htm
(last access 6 May 2008).

OECD – Organisation for Economic Co-operation and

Development (2008) OECD Environmental Outlook to
2030. ISBN 978-92-64-04048-9.

Terra Daily (2008) Brazil to pay Amazon residents “eco-

services”. www.terradaily.com/reports/brazil_
to_pay_amazon_residents_for_eco-services_
minister_999.html.

WBGU – German Advisory Council on Global Change
(2008) World in Transition: Climate Change as a
Security Risk, Earthscan, London.

Wilkinson C. (ed.) (2004) Status of Coral Reefs of the

World: 2004. Australian Institute of Marine Science,
Townsville.

WRI – World Resources Institute et al. (2008) The

Corporate Ecosystem Services Review: Guidelines for
Identifying Business Risks & Opportunities Arising from
Ecosystem Change. Available at http://pdf.wri.org/
corporate_ecosystem_services_review.pdf (last access
8 May 2008).

14

The economics of ecosystems and biodiversity

2B I O D I V E R S I T Y, E C O S Y S T E M S A N D

H U M A N W E L F A R E

“No place is immune, neither the arid Sahel of Africa nor the

grain-exporting regions of Australia nor the drought-prone

Southwest of the US. To fight it [climate change], the UN

family … has begun tapping into a pool of global resources

– scientific and engineering expertise, corporate engage-

ment and civic leadership. We have begun to appreciate

more fully how the world’s dazzling know-how can solve the

seemingly unsolvable when we view our problems from the

The UN Secretary-General’s resolute optimism with

regard to tackling climate change could also be taken
for addressing the
as an appropriate rallying call
indeed take a global
problem of biodiversity loss. It will
response and a concerted effort from all nations and across
all sections of society if we are to achieve our goal.

Today's global consumption and production patterns are
underpinned by ecosystems around the world. Many
different types of policy can affect the resilience of natural
as well as human-modified ecosystems. From transport to
energy, agriculture to cultural well-being, policies and actions
can have many unintended consequences. As demonstrated
by the Millennium Ecosystem Assessment (2005a), the
impacts of cumulative pressures on ecosystems may not be
felt for many years, until some tipping points are reached
leading to rapid non-linear changes. We begin this chapter
with selected examples that illustrate the wide range of
effects, from food to health. Then we set out some common
themes, especially the disproportionate impact on the poor.

This chapter shows that the implications of ecosystem
degradation can be far-reaching, for example the threat to
healthcare from the loss of plant species. The result, as this
chapter concludes, is that business-as-usual is not an option,
even in the short-term.

right perspective.”

Ban Ki-moon, UN Secretary-General 2008

PRESSURES ON BIODIVERSITY WILL CONTINUE
AND HUMAN WELL-BEING WILL BE AFFECTED

FOOD IS NEWS ON LAND.....

Rising food prices have provoked protests in many countries.
In February 2007, tens of thousands of people marched
through the streets of Mexico City, demonstrating against a
400% increase in the cost of corn used to make tortillas –

Figure 2.1: World commodity prices,
January 2000-February 2008 (US$/tonne)

Source: FAO International Commodity Prices database, 2008; IMF World
Economic Outlook database, 2007.

Biodiversity, ecosystems and human welfare

15

Box 2.1: Biofuels generate much debate

Bioenergy can play an important role in combating
climate change, speciﬁcally if biomass is used for
heat and electricity generation. However, biofuels
also are another source of competition for scarce
land, and the scale of potential land conversion
for agro-fuels is extraordinary. The International
Monetary Fund reports that “although biofuels still
account for only 1.5% of the global
liquid fuels
supply, they accounted for almost half of the increase
in consumption of major food crops in 2006-2007,
mostly because of corn-based ethanol produced in
the US”. Reports indicate that this pattern could be
replicated elsewhere in the world.

IMF April 2008

countries (Millennium Ecosystem Assessment 2005a). But
half of wild marine ﬁsheries are fully exploited, with a further
quarter already overexploited (FAO 2007). We have been
“ﬁshing down the food web”. As stocks of high-trophic, often
larger species are depleted, ﬁshermen have targeted lower-
trophic, often smaller species. The smaller ﬁsh are increas-
ingly used as ﬁsh meal and ﬁsh oil for aquaculture and to feed
poultry and pigs. Aquaculture, which includes mobile open-
sea cages (e.g. for red tuna) is growing quickly, particularly in
China and the Mediterranean, and contributed 27% of world
ﬁsh production in 2000 (Millennium Ecosystem Assessment
2005a). Aquaculture is, however, extremely dependent on
marine ﬁsheries for its inputs and, looked at from a global
perspective, it may not be reducing our overall dependency
on wild marine ﬁsheries.

“Fishing down the food web” leads to diverse impacts on the
biodiversity of the oceans. The blooms of jellyﬁsh that have
increased rapidly worldwide in the last decade are believed
to result in part from this situation. Jellyﬁsh have replaced ﬁsh
as the dominant planktivores in several areas, and there is
some concern that these community shifts may not be easily

Figure 2.2: Global trends in the state of marine
stocks since 1974
Percentage of stocks assessed

60

50

40

30

20

10

Underexploited + Moderately exploited
Fully exploited
Overexploited + Depleted + Recovering

0
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
Source: FAO 2006

Chappatte/International Herald Tribune

blamed on increased demand for biofuels in the United
States of America. In Asia, many governments had to
intervene to ease rocketing rice prices and to manage
supplies, while the Philippines also distributed food aid to
affected people in rural areas.

There are many causes for the increase in food prices. They
include rising demand for food and especially meat (which
requires more land per calorie), the rising price of energy
(which is an important input) and increasing demand for
biofuels.

In 2007, the food price index calculated by the Food and
Agriculture Organization of the United Nations (FAO) rose by
nearly 40%, compared with 9% the previous year (FAO
2008). In the ﬁrst months of 2008 prices again increased
drastically. Nearly every agricultural commodity is part of this
rising price trend (FAO 2008). As demand for basic
commodities increases, this raises the pressure to convert
natural ecosystems into farmland and to increase the
intensity of production from already converted land. Already,
the shift toward higher meat consumption is one of the most
important causes of deforestation worldwide (FAO 2006).

There is no sign that this pressure for conversion from natural
ecosystems towards arable land will abate. Demand for food
is set to increase as populations grow and their consumption
shifts towards more meat. Supply cannot keep pace as
yields are growing only slowly. On top of this, scientists of the
Intergovernmental Panel on Climate Change (IPCC) predict
in their 2007 report that even slight global warming would
decrease agricultural productivity in tropical and subtropical
countries (IPCC 2007).

.....AND AT SEA

More than a billion people rely on ﬁsheries as their main
or sole source of animal protein, especially in developing

16

The economics of ecosystems and biodiversity

y
t
i
n
u
m
m
o
C
n
a
e
p
o
r
u
E

reversible, since the jellyﬁsh also eat the eggs of their ﬁsh
competitors (Duffy 2007).

biggest rivers in the dry season – precisely the period when
water is needed most to irrigate the crops on which hundreds
of millions of people depend. In this example, climate

This loss of biodiversity could have disastrous effects on the
supply of seafood to the human population and on the
economy. There is increasing evidence that species diversity
is important for marine ﬁsheries, both in the short term, by
increasing productivity, and in the long term, by increasing
resilience, while genetic diversity is important particularly for
the latter. A 2006 study (Worm et al. 2006) concluded that
all of the world's commercial ﬁsheries are likely to have
collapsed in less than 50 years unless current trends are
reversed. It found that low diversity is associated with lower
ﬁshery productivity, more frequent “collapses”, and a lower
tendency to recover after overﬁshing than naturally species-
rich systems.

The security value of biodiversity can be compared with
ﬁnancial markets. A diverse portfolio of species stocks, as
with business stocks, can provide a buffer against ﬂuc-
tuations in the environment (or market) that cause declines
in individual stocks. This stabilizing effect of a “biodiverse”
portfolio is likely to be especially important as environmental
change accelerates with global warming and other human
impacts.

WATER SUPPLY INCREASINGLY AT RISK

There is also growing pressure on water resources – both
the supply of water and its quality. Many parts of the world
already live with water stress. The risk of water wars was a
major theme at the 2008 World Economic Forum in Davos.
The United Nations believes there is enough to go round –
but only if we keep it clean, use it wisely and share it fairly.

In Asia, the water vital for the irrigation of the grain crops that
feed China and India is at risk of drying up because of climate
change. Global warming melts the glaciers that feed Asia's

Box 2.2: Coral reefs

Coral reefs are the most biodiversity-rich eco-
systems (in species per unit area) in the world, more
diverse even than tropical forests. Their health and
resilience are in decline because of overﬁshing,
pollution, disease and climate change.

Caribbean coral reefs have been reduced by 80% in
three decades. As a direct result, revenues from dive
tourism (close to 20% of total tourism revenue) have
declined and are predicted to lose up to US$ 300
million per year. That is more than twice as much
as losses in the heavily impacted ﬁsheries sector
(UNEP February 2008).

The underlying explanation for this situation is that in
1983, following several centuries of overﬁshing of
herbivores, there was a sudden switch from coral to
algal domination of Jamaican reef systems. This left
the control of algal cover almost entirely to a single
species of sea urchin, whose populations collapsed
when exposed to a species-speciﬁc pathogen.
When the sea urchin population collapsed, the reefs
shifted (apparently irreversibly) to a new state with
little capacity to support ﬁsheries. This is an excel-
lent example of the insurance value in biologically
diverse ecosystems. The reduction in herbivore
diversity had no immediate effect until the sea urchin
population plummeted, illustrating how vulnerable
the system had become due to its dependence on a
single species.

Biodiversity, ecosystems and human welfare

17

Z
F
U

l

,
n
n
a
m
e
z
n
ü
K
é
r
d
n
A

change could accentuate the problems of chronic
water shortage and drive the ecosystem service that
provides a reliable supply of clean water beyond
breaking point.

regulating
In many areas, ecosystems provide vital
functions. Forests and wetlands can play an important role
in determining levels of rainfall (at a regional and local level),
the ability of land to absorb or retain that water and its
quality when used. In other words, ecosystems play a
part in determining whether we have droughts, ﬂoods and
water ﬁt to drink. The value of this role is often forgotten
until it is lost.

OUR HEALTH IS AT STAKE

People have known the medicinal value of certain plants
for thousands of years and biodiversity has helped our
understanding of the human body. So ecosystems provide
huge health beneﬁts, and thus economic beneﬁts. The
corollary is that losing biodiversity incurs potentially huge
costs, and our knowledge of these is growing (Conseil
Scientiﬁque du Patrimoine Naturel et de la Biodiversité –
in press).

There are signiﬁcant direct links between biodiversity and
modern healthcare (Newman and Cragg 2007):

• Approximately half of synthetic drugs have a natural
origin, including 10 of the 25 highest selling drugs in the
United States of America.

• Of all the anti-cancer drugs available, 42% are natural

and 34% semi-natural.

• In China, over 5,000 of the 30,000 recorded higher

plant species are used for therapeutic purposes.

• Three quarters of the world’s population depend on

natural traditional remedies.

• The turnover for drugs derived from genetic resources
was between US$ 75 billion and US$ 150 billion in the
United States of America in 1997.

• The gingko tree led to the discovery of substances
which are highly effective against cardiovascular
diseases, accounting for a turnover of US$ 360 million
per year.

Despite the enormous health beneﬁts, plants are
disappearing fast and will continue to do so unless urgent
action is taken. The 2007 IUCN Red List of Threatened
Species identiﬁed a signiﬁcant increase in species under
threat during this decade. It estimates that 70% of the world’s
plants are in jeopardy (IUCN 2008).

A recent global study reveals that hundreds of medicinal
plant species, whose naturally occurring chemicals
make up the basis of over 50% of all prescription drugs,
are threatened with extinction. This prompted experts to
call for action to “secure the future of global healthcare”.
(Hawkins 2008).

The biodiversity-healthcare relationship also has a strong
distributional equity dimension. There is often a mismatch
between the regions where beneﬁts are produced, where
their value is enjoyed, and where the opportunity costs for
their conservation are borne. So the plant species that are
the sources of many new drugs are likely to be found in
poorer tropical regions of the world (see Map 2.1). The
people that beneﬁt are more likely to be found in rich
countries where the resulting drugs are more readily
available and affordable. People in these countries there-
fore have a great incentive to conserve natural habitats
in biodiversity-rich parts of the world. However, such
conservation has costs for local people in these parts, in
particular the opportunity costs such as the loss in
potential agriculture returns (see Map 2.2) of not converting
such habitats. Transferring some of the rich world beneﬁts
back to local people could be one approach to improving

18

The economics of ecosystems and biodiversity

Map 2.1: Plant species per ecoregion (Kier et al. 2005, J. Biogeog. 32:1107)

Species number
per ecoregion

10,000

0

Map 2.2: Agricultural returns (Strassburg et al. 2008, based on data from Naidoo & Iwamura. 2007. Biol. Conserv. 140: 40)

US$ per hectare

1,800

0

incentives to conserve those natural habitats and species
locally that clearly have wider beneﬁts globally.

It is clear that if we undermine the natural functions that
hold this planet together, we may be creating conditions
that will make life increasingly difﬁcult for generations to
come – and impossible for those already on the margins
of survival.

GROWTH AND DEVELOPMENT

increasing wealth and changing
Population growth,
consumption patterns underlie many of the trends we
have described. Unsustainable resource use has been
evident
in the developed world for many years. The
ecological footprints of Europe, the United States of America
and Japan are much higher than those of developing
countries. And the emerging economies are catching up.
India and China both have ecological footprints twice the size
of their “biocapacities” (Goldman Sachs 2007) – the extent to
which their ecosystems can generate a sustainable supply of

renewable resources. Brazil, on the other hand, has one of
the world’s highest “biocapacities”, nearly ﬁve times as large
as its ecological footprint, yet this is declining as a result of
deforestation (Goldman Sachs 2007).

Under current practices, meeting the food needs of
growing and increasingly afﬂuent populations will further
threaten biodiversity and ecosystem services. Based on
population projections alone, 50% more food than is
currently produced will be required to feed the global
population by 2050 (United Nations Department of
Economic and Social Affairs/Population Division 2008).
Irrigated crop production will need to increase by 80% by
2030 to match demand.

Already, 35% of the Earth’s surface has been converted for
agriculture, limiting scope for the future productivity of natural
systems (Millennium Ecosystem Assessment 2005b). The
livestock sector already represents the world’s single largest
human use of land. Grazing land covers 26% of the Earth’s
surface, while animal feed crops account for about a third of

Biodiversity, ecosystems and human welfare

19

arable land (FAO 2006). Extending agricultural production
will have consequences for biodiversity and ecosystem
services as more land is converted for food production. The
expanding livestock sector will be in direct competition with
humans for land, water and other natural resources.
Livestock production is the largest sectoral source of water
pollutants. It is also a major factor in rising deforestation:
70% of land in the Amazon that was previously forested is
now used as pasture, and livestock feed crops cover a large
part of the remainder (FAO 2006).

CLIMATE CHANGE AND BIODIVERSITY

Climate change is linked to many of the issues we have
presented in this chapter. The El Niño-La Niña cycle in
the Paciﬁc Ocean is one prominent example of
the
vulnerability of biodiversity to climate. A small rise in
the sea surface temperature in 1976 and 1998 led to a
series of worldwide phenomena, which resulted in
1998 being characterized as “the year the world caught
ﬁre”. Permanent damage includes (US Department of
Commerce 2008):

• burned forests that will not
meaningful human timescale;

recover within any

• a rise in the temperature of surface waters of the central
western Paciﬁc Ocean from an average of 19°C to
25°C;

• shifts toward heat-tolerant species living inside corals;

• a northward shift in the jet stream.
`

These types of complex phenomena show us how vul-
nerable we are to tipping points beyond those linked directly
to increasing temperatures and carbon dioxide levels.

Biodiversity losses can also contribute to climate change in
many complex ways. There are many examples of how
overharvesting or changed land-use patterns have triggered
social and economic changes leading to greater reliance
on carbon.

Draining peat lands results in carbon losses. But predicted
changes to climate could cause accelerated rates of carbon
release from the soil, contributing in turn to higher green-
house gas concentrations in the atmosphere (Bellamy et al.
2005). Under the same climatic conditions, grassland and
forests tend to have higher stocks of organic carbon than
arable land and are seen as net sinks for carbon. Yet de-
forestation and intensiﬁcation of cropland areas are rampant.

To take account of these complexities we will need more than
energy-based econometric models. We will need to respond
to knowledge about how to adapt and how vulnerabilities
might arise from global ecological processes. This will
require a much deeper dialogue than we have seen so
far between economists, climate scientists and ecologists.

IMPACTS ON THE POOR

A striking aspect of the consequences of biodiversity
loss is their disproportionate but unrecognized impact
on the poor. For instance, if climate change resulted in a
drought that halved the income of the poorest of the 28
million Ethiopians, this would barely register on the global
balance sheet – world GDP would fall by less than 0.003%.

The distributional challenge is particularly difﬁcult because
those who have largely caused the problems – the rich
countries – are not going to suffer the most, at least not in the
short term.

The evidence is clear. The consequences of biodiversity loss
and ecosystem service degradation – from water to food to
ﬁsh – are not being shared equitably across the world. The
areas of richest biodiversity and ecosystem services are in
developing countries where they are relied upon by billions of
people to meet their basic needs. Yet subsistence farmers,
ﬁshermen, the rural poor and traditional societies face
the most serious risks from degradation. This imbalance
is likely to grow. Estimates of the global environmental costs
in six major categories, from climate change to overﬁshing,
show that the costs arise overwhelmingly in high- and
middle-income countries and are borne by low-income
countries (Srinivasan et al. 2007).

Box 2.3: Gender, poverty and biodiversity in
Orissa, India

The impact of the loss of biodiversity, often not very
visible, has serious implications for poverty reduction
and well-being for women as it severely affects the
role of women as forest gatherers. Studies in the
tribal regions of Orissa and Chattisgarh, states in
India which were once heavily forested, have
recorded how deforestation has resulted in loss of
livelihoods, in women having to walk four times the

distance to collect forest produce and in their
inability to access medicinal herbs which have been
increases
depleted. This loss reduces income,
drudgery and affects physical health. There is also
evidence to show that the relative status of women
within the family is higher in well-forested villages,
where their contribution to the household income is
greater than in villages that lack natural resources.

Commonwealth Secretariat, personal communication, May 15th 2008.

Sarojini Thakur, Head of Gender Section,

20

The economics of ecosystems and biodiversity

Table 2.1: Ecosystem services and the Millennium Development Goals: links and trade-offs

Ecosystem
services
Provisioning
and regulating
services

Links with
targets

Related
MDG
MDG 1: Eradicate Steady daily supplies of
extreme poverty
and hunger

water, fuelwood and food:
these inﬂuence the material
minimum standard of the
lives of the poor, alleviating
poverty and hunger

Services from, MDG 3:
wetlands and
forests

Promote gender
equality and
empower women

Fuelwood and water:
adequate availability and
and proximity – would
help gender equality by
reducing this burden that
falls mainly on women
(see Box 2.3)

Provisioning
(medicinal
plants) and
regulating
services (water)
Provisioning
and regulating
services
Provisioning
services

MDG 5: Improve
maternal health

Better availability of clean
water and traditional medical
services would create
enabling conditions (see
Box 2.5)
This would be facilitated by

MDG 6: Combat
HIV/AIDS, malaria widening the availability of
and other dieases
MDG 8: Develop a Fair and equitable trade
Global Partnership practices and a healthy
for Development

clean water

Provisioning
and regulating
services
Provisioning
and regulating
services

MDG 4: Reduce
child mortality

MDG 2: Achieve
universal primary
education

world economic order
would reﬂect the true
cost of export/import
from the ecosystem
services perspective
Creating enabling
conditions, e.g. through
clean water (see Box 2.5)
Provisioning services might
be affected by expansion
of education-related
infrastructure (schools
and roads)

Evaluation

Strong and direct links:
Intervention needs to be
receptive to ecosystem
services, biodiversity
and the resilience of
cultivated ecosystems

Indirect link

Conﬂicting
outcome
Greater conﬂicts over
water, exploitation of
top soil, coastal and
marine resources and
the resilience of agri-
biodiversity could
constitute trade-offs
There could be
greater extraction of
groundwater. The
enforcement of land
rights for women
would, however,
ensure the prevention
of biodiversity loss to
a greater extent

Indirect link

Indirect link

Indirect link

Indirect link

Weak or unclear link

The Millennium Development Goals (MDGs) represent the
world’s ambition to attack poverty. Anecdotal evidence
abounds showing that achievement of these goals assumes
sound environmental practice and governance. An example
that powerfully illustrates this point is that of Haiti (see Box
2.5), where forest degradation and its consequences have
jeopardized water availability and agricultural productivity
to the point where hunger and poverty elimination (MDG1)
has proved impossible, and have severely affected health
and child mortality (MDG4, MDG5 and MDG6), to name
some of the MDG linkages. In Table 2.1, we map eco-

system services against the MDGs. The extent of linkage
is deep and broad, suggesting that there are signiﬁcant
risks to the achievement of all MDGs, and not just
MDG7 about environmental sustainability, if the current
pace of ecosystem degradation and biodiversity losses
continues unchecked.

BUSINESS-AS-USUAL IS NOT AN OPTION

If no major new policy measures are put in place, past trends
of biodiversity and ecosystem service loss will continue. In

Biodiversity, ecosystems and human welfare

21

Box 2.4: The changing use of land and
changing services

Humans have been causing biodiversity loss for
centuries (see maps below). By the year 2000, only
about 73% of the original global natural biodiversity
was left. The strongest declines have occurred in the
temperate and tropical grasslands and forests,
where human civilizations ﬁrst developed (Mc Neill
and Mc Neill 2003).

A further 11% of land biodiversity is expected to be
lost by 2050, but this ﬁgure is an average including

desert, tundra and polar regions. In some biomes
and regions, projected losses are about 20%.
Natural areas will continue to be converted to
agricultural land, with the ongoing expansion of
infrastructure and increasing effects of climate
change being additional major contributors to
biodiversity loss. For the world as a whole, the loss
of natural areas over the period 2000 to 2050 is
projected to be 7.5 million square kilometres or
around 750 million hectares, i.e. the size of Australia.
These natural ecosystems are expected to undergo
human-dominated land-use change in the next few
decades. Biodiversity loss in the Cost of Policy

Map 2.3: Mean species abundance 1970 (MNP/OECD 2007)

Map 2.4: Mean species abundance 2000 (MNP/OECD 2007)

Key to maps

0-10

10-20

20-30

30-40

40-50

50-60

60-70

70-80

80-90

90-100

22

The economics of ecosystems and biodiversity

Inaction (COPI) study is measured by the MSA
indicator, a reliable
(mean species abundance)
measure of biodiversity that has been recognized by
the Convention on Biological Diversity.

The impact on livelihoods is local and therefore not
necessarily reﬂected in aggregate global numbers.
Maps can give a clearer picture and the ﬁgures
below show the changes in biodiversity based on
mean species abundance between 1970, 2000,
2010 and 2050. Major impacts are expected in
Africa, India, China and Europe (Braat, ten Brink et
al. 2008).

Map 2.5 Mean species abundance 2010 (MNP/OECD 2007)

Figure 2.3: Global biodiversity (MSA) loss
2000-2050 and contribution of pressures

Infrastructure
Climate change
Crops area
Forestry
Pasture area
Fragmentation
Woody biofuels
Nitrogen deposition

Total

-12        -10

-8

-6
-4
MSA (%)

-2

0

7
0
0
2
D
C
E
O
/
P
N
M
e
c
r
u
o
S

Map 2.6: Mean species abundance 2050 (MNP/OECD 2007)

Key to maps

0-10

10-20

20-30

30-40

40-50

50-60

60-70

70-80

80-90

90-100

Biodiversity, ecosystems and human welfare

23

Box 2.5: Vicious cycle of poverty and
environmental degradation: Haiti

Haiti
is the poorest country in the Western
Hemisphere and one of the most environmentally
degraded. Over 60% of its income comes as aid
from the USA and other countries, and 65% of its
people survive on less than $1 a day. Almost all of
the country was originally forested but now there is
less than 3% cover left. As a consequence, from
1950-1990, the amount of arable land fell by more
than two ﬁfths due to soil erosion. At the same time
deforestation has diminished evaporation back to
the atmosphere over Haiti, and total rainfall in many
locations has fallen by as much as 40%, reducing
stream ﬂow and irrigation capacity. The Avezac
Irrigation System supports only half of the initially
planned 9,500 acres (3,845 hectares). When the
rains do come, hillsides no longer efﬁciently retain
or ﬁlter water. Due to deforestation, even moderate

some cases losses will accelerate. In others the ecosystem
will be degraded to such an extent that it will not be possible
to repair or recover it. These are some of the likely results of
inaction:

• Natural areas will continue to be converted to
agricultural land, and will be affected by the expansion
of infrastructure and by climate change. By 2050, 7.5
million square kilometres are expected to be lost, or
11% of 2000 levels (see next section) (Braat, ten Brink
et al. 2008).

• Land currently under extensive (low-impact) forms of
agriculture, which often provides important biodiversity
beneﬁts, will be increasingly converted to intensive
agricultural use, with further biodiversity losses and with
damage to the environment. Almost 40% of land
currently under extensive agriculture is expected to be
lost by 2050 (Braat, ten Brink et al. 2008).

Z
F
U

l

,
n
n
a
m
e
z
n
ü
K
é
r
d
n
A

24

The economics of ecosystems and biodiversity

rains can produce devastating ﬂoods. Ground and
stream waters are laden with sediment and
pollution which has degraded estuary and coastal
ecosystems. As a consequence, nearly 90% of
Haitian children are chronically infected with
intestinal parasites they acquire from the water they
drink. Due to ﬂooding, Haiti has lost half of its
hydropower potential since sediment clogged the
Peligre Dam.

Haiti is a stark example of the “vicious circle” of
extreme poverty and environmental degradation.
Much of Haiti’s poverty and human suffering derives
from the loss of its forests, and extreme poverty is
itself one of the root causes of deforestation and a
powerful barrier to sustainable forest management.
The alleviation of poverty must be a central strategy
to restore Haiti’s forest and biodiversity.

Amor and Christensen 2008

• 60% of coral reefs could be lost by 2030 through
ﬁshing damage, pollution, disease,
invasive alien
species and coral bleaching, which is becoming more
common with climate change. This risks losing vital
breeding grounds as well as valuable sources of
revenue to nations (Hughes et al. 2003).

• Valuable mangrove areas are likely to be converted to
use for private gain, often to the detriment of local
populations. Important breeding grounds will be lost,
as will buffers that protect against storms and
tsunamis.

• If current levels of ﬁshing continue, there is the risk of
collapse of a series of ﬁsheries. The global collapse of
most world ﬁsheries is possible by the second half of
the century unless there is an effective policy response
– and enforcement (Worm et al. 2006).

• As global trade and mobility increase, so do the risks
from invasive alien species for food and timber
production, infrastructure and health.

Business-as-usual is not an option if we wish to avoid these
consequences and to safeguard our natural capital and the
well-being of future generations. The cost of insufﬁcient
policy action is too great.

Some solutions are already visible, however, and economics
could play an important part. Although forests are at risk
of conversion to agriculture, grazing lands and biofuel
production, they can play a valuable role as carbon sinks and
biodiversity vaults, and this capacity could be recognized by
a higher market value (see REDD in Chapter 4).

WHAT NEXT?

and organizational solutions that reduce human demand
on nature. These include:

Managing humanity’s desire for food, energy, water, life-
saving drugs and raw materials, while minimizing adverse
impacts on biodiversity and ecosystem services, is today’s
leading challenge for society. Maintaining an appropriate
balance between competing demands means under-
standing economic resource ﬂows and tracking the
biological capacity needed to sustain these ﬂows and
absorb the resulting waste.

Five common threads emerge from this chapter’s quick
sweep across the many dimensions of the problems facing
the biodiversity, ecosystem-services and human-welfare
chain. These could provide the basis for prioritizing how to
address the questions posed at the outset of the Potsdam
process in March 2007.

1. The problem of biodiversity loss is increasingly urgent
in terms of the rate and costs of loss and the risks of
crossing “tipping points”.

2. Our growing, if still fragmented, understanding is often

sufﬁcient warning to support action.

3. We have time to act but that time is fast diminishing.

4. Seemingly small changes in one place can have huge
though largely unpredictable impacts elsewhere.

5. In all cases the poor are bearing the brunt of the

situation.

The classic development challenge of increasing economic
opportunity and providing goods and services is still with us,
but it has now been sharpened by the emerging recognition
of global ecological constraints. Similarly, social justice will be
threatened if the world continues to deepen the gulf between
those who have the use of ecological goods and services
and those who do not. Resentment over inequitable use of
the planet's resources could erode international collaboration
and trust, undermining the beneﬁts of an integrated global
economy and even threatening its very existence.

Acting to reduce ecological deﬁcits before being forced
to do so is far preferable to the alternative. If we plan
reductions by cutting demand for ecological resources, this
need not necessarily entail hardship, and may even add
growth opportunities to the economy and improve quality of
life. On the other hand, as many telling examples from history
show, when societies that operate with an ecological deﬁcit
experience unplanned reductions in resource use and are
forced to rely on their own “biocapacity”, a decline in quality
of life, often severe, generally follows (Diamond 2005).

There is still time to act. A wide variety of strategies and
approaches are already being used to drive technological

• Natural Step (www.naturalstep.org), biomimicry

(Benyus 1997);

• Factor 4/Factor 10 (www.factor10-institute.org);
• Natural Capitalism (Hawken et al. 1999);
• Cradle to Cradle Design (www.mbdc.com), industrial

ecology (www.is4ie.org);

• zero emissions (http://www.zeri.org/); and
• waste initiatives, sustainable architecture and so on.

Social
technologies are also being developed. For
example, ecological tax reform helps society shift from
taxing “work” to taxing “waste” (Pearce et al. 1989).

Since the apparent unsustainability of society’s current
growth path has often been guided by economic metrics that
ignore market and regulatory failures, and accompanied by
a policy framework that does not achieve adequate
conservation of biodiversity and ecosystems, we must ask
two basic questions. First, what are the economic tools we
need to guide us towards a sustainable, ecologically secure
future? Second, how can this economics "toolkit" help us to
evaluate and reform policies in order to achieve sustainable
development, ecological security, and an accompanying level
of conservation of ecosystems and biodiversity?

The following chapters attempt to address these crucial
questions. In Chapter 3 we examine how the economics
of ecosystems and biodiversity can be used to value
the unaccounted beneﬁts and costs of biodiversity
conservation, and in Chapter 4 we explore some illustrative
working examples of how economics can better inform us
of the policies for the future.

References

Amor, D. and Christensen, N. (2008) Environmental
degradation and poverty a vicious cycle: Haiti.
Duke University, Durham, personal communication,
27 April 2008.

Bellamy, P.H., Loveland, P.J., Bradley, R.I., Lark, R.M. and
Kirk, G.J.D. (2005) Carbon losses from all soils across
England and Wales 1978-2003, Nature 437: 245-248.

Benyus, J.M. (1997) Biomimicry: Innovation Inspired by

Nature. William Morrow & Co., New York.

Braat, L., ten Brink, P. et al. (eds.) (2008) The Cost of Policy

Inaction: The Case of Not Meeting the 2010
Biodiversity Target, report for the European
Commission. Wageningen/Brussels, May 2008.

Conseil Scientiﬁque du Patrimoine Naturel et de la
Biodiversité (in press). Biodiversity illustrated.

Diamond, J. (2005) Collapse: How Societies Choose to Fail

or Succeed. Viking Penguin, New York.

Duffy, J.E. (2007) Marine biodiversity and food security,

Encyclopaedia of Earth. Available at

Biodiversity, ecosystems and human welfare

25

www.eoearth.org/article/Marine_biodiversity_and_foo
d_security (last access 5 May 2008).

Bird’s-Eye View of World History. W.W. Norton &
Company, New York.

FAO – Food and Agriculture Organization of the United
Nations (2008) World Food Situation: Food Price
Index (April 2008). Available at www.fao.org/
worldfoodsituation/FoodPricesIndex (last access 8
May 2008).

FAO – Food and Agriculture Organization of the United
Nations (2007) The State of World Fisheries and
Aquaculture 2006. Rome. Available at ftp://ftp.fao.
org/docrep/fao/009/a0699e/a0699e.pdf (last access
8 May 2008).

FAO – Food and Agriculture Organization of the

United Nations (2006) Livestock’s Long Shadow.
Available at http://virtualcentre.org/en/library/key_
pub/longshad/a0701e/A0701E00.pdf (last access
8 May 2008).

Goldman Sachs (2007) BRICs and Beyond, Chapter 8:
Why the BRICS dream should be green. Available at
www2.goldmansachs.com/ideas/brics/book/BRICs-
Chapter8.pdf (last access 8 May 2008).

Hawken, P., Lovins, A. and Lovins, H. (1999) Natural

Capitalism: Creating the Next Industrial Revolution.
Little, Brown & Company, Boston.

Hawkins, B. (2008) Plants for Life: Medicinal Plant

Conservation and Botanic Gardens. Botanic Gardens
Conservation International, Richmond, UK.
Hughes, T.P., Baird, A.H., Bellwood, D.R., Card, M.,
Connolly, S.R., Folke, C., Grosberg, R., Hoegh-
Guldberg, O., Jackson, J.B.C., Kleypas, J., Lough,
J.M., Marshall, P., Nyström, M., Palumbi, S.R.,
Pandolﬁ, J.M., Rosen, B., Roughgarden, J. (2003)
Climate change, human impacts, and the resilience of
coral reefs, Science 301(5635): 929-933.
IMF – International Monetary Fund (2008) World

Economic Outlook April 2008: Housing and the
Business Cycle. Available at:
www.imf.org/external/pubs/ft/weo/2008/01/pdf/text.p
df (last access 8 May 2008).

IPCC – Intergovernmental Panel on Climate Change
(2007) Climate Change 2007: Synthesis Report.
Available at www.ipcc.ch/pdf/assessment-
report/ar4/syr/ar4_syr.pdf (last access: 8 May 2008).
IUCN – International Union for the Conservation of Nature
(2008) 2007 IUCN Red List of Threatened Species.
Available at www.iucnredlist.org/ (last access 8 May
2008).

Ki-moon, Ban (2008) A green future: The right war, Time,
28 April 2008. Available at www.time.com/time/
specials/2007/article/0,28804,1730759_1731383_17
31345,00.html (last access 8 May 2008).

Kier, G., Mutke, J., Dinerstein, E., Ricketts, T. H., Kuper,

W., Kreft, H., and Barthlott, W. (2005) Global patterns
of plant diversity and ﬂoristic knowledge. Journal of
Biogeography 32: 1107-1116.

McNeill, J.R. and McNeill, W.H. (2003) The Human Web: A

Millennium Ecosystem Assessment (2005a) General
Synthesis Report. Island Press, Washington DC.

Millennium Ecosystem Assessment (2005b) Living Beyond
Our Means: Natural Assets and Human Well-being.
Island Press, Washington DC.

MNP/OECD (2007) Background report to the OECD

Environmental Outlook to 2030. Overviews, details and
methodology of model-based analysis. Netherlands
Environmental Assessment Agency Bilthoven, The
Netherlands and Organisation of Economic Co-
operation and Development, Paris, France.

Newman, D. and Cragg, G. (2007) Natural products as

sources of new drugs over the last 25 years, Journal of
Natural Products 70(3): 461-477.

Pearce, D., Barbier, E. and Makandya, A. (1989) Blueprint

for a Green Economy. Earthscan, London.

Rabbinge, R. and Wall, D. (2005) Implications for MDGs, in:
Chopra, K., Leemans, R., Kumar, P. and Simons, H.
(eds.) Findings of the Responses Working Group,
Millennium Ecosystem Assessment. Island Press,
Washington DC. Available at www.millennium
assessment.org/documents/document.324.aspx.pdf
(last access 8 May 2008).

Srinivasan, T., Carey, S. P., Hallstein, E., Higgins, P.A.T.,
Kerr, A.C., Koteen, L.E., Smith, A.B., Watson, R.,
Harte, J. and Norgaard, R.B. (2008) The debt of
nations and the distribution of ecological impacts from
human activities, PNAS – Proceedings of the National
Academy of Science of the United States of America
105(5): 1768-1773.

UNDP – United Nations Development Programme (2008)
About the MDGs: Basics – What are the Millennium
Development Goals? Available at www.undp.org/
mdg/basics.shtml (last access 8 May 2008).
United Nations Department of Economic and Social

Affairs/Population Division (2008) World Urbanization
Prospects: The 2007 Revision. Available at
www.un.org/esa/population/publications/wup2007/20
07WUP_Highlights_web.pdf (last access 8 May 2008).

UNEP – United Nations Environment Programme (2008)

Environment Alert Bulletin: Coastal degradation leaves
the Caribbean in troubled waters.
www.grid.unep.ch/product/publication/download/ew_c
aribbean_runoffs.en.pdf (last access 18 May 2008).

US Department of Commerce, National Oceanic and
Atmospheric Administration (2008) NOAA El Nino
Page. Available at: www.elnino.noaa.gov/ (last access
8 May 2008).

Worm, B., Barbier, E.B., Beaumont, N., Duffy, J.E., Folke,
C., Halpern, B.S., Jackson, J.B.C., Lotze, H.K.,
Micheli, F., Palumbi, S.R., Sala, E., Selkoe, K.A.,
Stachowicz, J.J. and Watson, R. (2006) Impacts of
biodiversity loss on ocean ecosystem services, Science
314: 787-790.

26

The economics of ecosystems and biodiversity

3TOWARDS A VALUATION FRAMEWORK

The previous chapter demonstrated the many

dimensions of the continuing decline of ecosystems
and biodiversity, its significant human impact and
the urgent need for action. Here we consider how the failure
to recognize the economic value of wild nature has
contributed to this continuing decline. We evaluate the
challenges of placing economic values on the benefits of
ecosystems and biodiversity that are not currently captured,
and consider vital issues of ethics and equity which need to
be at the heart of such evaluation. This chapter identifies
the difficulties in evaluating ecosystem services and the
main aspects of work we will carry out in Phase II, when
we will focus on addressing these difficulties while firming
up both a preferred framework and methodologies for
estimating ecosystem and biodiversity values.

MANY FAILURES, ONE PROBLEM

Biodiversity loss and ecosystem degradation continue,
despite the fact that policy makers, administrators, NGOs
and businesses around the world have been seeking ways
to stem the tide. There are many reasons for this, but
perverse economic drivers as well as failures in markets,
information and policy are significant factors. Markets tend
not to assign economic values to the largely public benefits
of conservation, while assigning value to the private goods
and services the production of which may result
in
ecosystem damage.

The term market failure can cover anything from the lack of
markets for public goods and services (called public goods
failure, e.g. absence of “markets” for species conservation
or for most of the regulating and supporting services of
ecosystems) to imperfections in structure or process around
markets which cause inefﬁciency and distortions (e.g. it can
be argued that some price distortions in today’s carbon
markets are attributable to timid emissions caps).
Furthermore, there is potential for market-based instruments
to produce results that are socially unacceptable – carbon
markets could be said to have helped legitimize global
greenhouse gas emission levels (42 billion tonnes), that are
perhaps ﬁve times the Earth’s ability to absorb such gases
(Stern 2006).

The size of the challenge of market failure should not be
underestimated: for some services (e.g. scenic beauty,
hydrological functions and nutrient cycling) it is difﬁcult even

to obtain a proﬁle of demand and supply. There is an element
of information failure here which leads to market failure.

There are many cases across the globe where information
failure is overcome by measures such as environmental
impact assessments (EIA). They can provide arguments that
lead to less destructive options being taken. The viability of
road-building projects connecting Mexico and Guatemala
through the Mayan forest (see Box 3.1) was challenged on
economic grounds. In India, information provided to the Indian
Supreme Court on the value of ecosystems and biodiversity
helped enshrine rates of compensation for forest conversion
that will make it more difﬁcult for approving authorities to take
decisions that destroy public value. Nevertheless, information
failure is common. For example, local authorities grant land
conversion permits that lead to the fragmentation of habitats
or damage to ecosystems for marginal private economic gain.
Decision makers often have insufﬁcient
tools,
arguments or support to take a different decision and avoid
biodiversity loss. This is particularly unfortunate since much
of the lost biodiversity was of greater beneﬁt to the region than
the private gains. There are many cases of local economy and
local societal losses in the interests of short-term private gain.

facts,

Lack of secure property rights is another cause of market
failure. Many people in developing countries may have weak

Box 3.1: Mayan Forest Road Projects: market
failure from information failure

Road-building projects in the Mayan Biosphere
Reserve to connect Mexico and Guatemala were
subjected to a cost-beneﬁt evaluation. Up to an
estimated 311,000 hectares of jaguar habitat were
found to be at risk of deforestation due to these
projects. Some of the projects were shown to have
negative rates of return on investment on the basis of
project economics, whilst others would be negative if
only the carbon dioxide emissions (225 million tonnes
over 30 years) were accounted for. A fuller evaluation
including biodiversity values would have tilted the
conclusions more ﬁrmly in the direction of continued
conservation rather than road development.

Duke University, personal communication, 27 April 2008

Dalia Amor Conde,

Towards a valuation framework

27

legal rights over the lands on which they live and work. This
may become an incentive to “mine” these lands rather than
to manage them sustainably.

Policy failures arise due to incentives encouraging harmful
action. Tax incentives and subsidies can lead to the market
working for the destruction of natural capital, even where
natural assets offer a sustainable ﬂow of services to the
economy and to society. Environmentally harmful subsidies
(EHS, see Chapter 4 on subsidies) discriminate against
sound environmental practices while encouraging other, less
desirable activities. Fisheries are an example of this (see Box
3.2). Such subsidies are often economically inefﬁcient,
prompting growing calls for reform.

Policy failures also arise when the system of incentives fails
to reward those who work to improve the environment, or
fails to penalize those who damage it. Many agricultural
practices can support high-value biodiversity. But without
appropriate recognition, for example through payments
for environmental services (PES), some good practices
risk disappearing.

There are often no mechanisms for winning compensation
from those who damage the environment for those who
have lost as a result. Upstream mining activities do not
generally pay those downstream for the ﬁsh they can no
longer eat, or for health impacts. While such failures are still
the norm, there is a shift in some countries. Costa Rica is
the poster child for PES (see Chapter 4, Box 4.3), although
the approach is widely used in developed countries as well
in the form of agri-environment subsidies. Overall, beneﬁt
sharing is becoming a more acceptable concept, and
liability and compensation payments are sometimes offered
at levels that begin to act as real incentives. We elaborate
on these aspects in the following chapter.

Lastly, due to population pressures, poverty and weak
enforcement of protection, development policies some-

times indirectly result
in natural ecosystems being
converted into agricultural or urban landscapes in situations
where, for social and environmental reasons, these are not
the optimal choices. This is an example of policy failure
driven by institutional failure and information failure. Formal
and informal networks and rules are needed to support
responses to policies which effectively manage ecosystem
services. The costs of such institutional frameworks can
be called policy costs and we return to this topic later in
the chapter.

But before we discuss and analyse beneﬁts and costs, we
would like to recognize three important issues – risks,
uncertainty, and the principle of equity – which must be
addressed. Not only do they inﬂuence analysis, evaluation
and the design of solutions for the various failures we have
outlined above, but because they are in essence deep
ethical issues, they translate into underlying assumptions
for our analytical framework. We show that selecting an
appropriate discount rate, a vital component of any cost-
beneﬁt analysis, is the outcome of implicit or explicit ethical
choices.

ECONOMICS, ETHICS AND EQUITY

“Economics is mere weaponry;
its targets are ethical choices.”
Sanjeev Sanyal, Director, GAISP

Economics has developed techniques to deal with risks,
uncertainty and questions of equity. Discounting is a key
tool in many conventional economic analyses because it
helps to assess the value of cash ﬂows resulting from
decisions taken now. Conventional economic approaches
can also be important in valuating biodiversity, but they
cannot necessarily be applied routinely because of the
potentially extreme consequences of biodiversity decisions.
We outline below the complexities of applying economics
in a ﬁeld such as biodiversity.

Box 3.2: The effect of subsidies on ﬁsheries

Subsidies are considered to be one of the most
signiﬁcant drivers of overﬁshing and thus indirect
drivers of degradation and depletion in marine
biodiversity.

• Subsidies fund ﬁsheries expansion. Globally,
the provision of subsidies to the ﬁsheries
industry has been estimated at up to US$ 20-50
billion annually, the latter roughly equivalent to
the landed value of the catch.

• Over half the subsidies in the North Atlantic have
negative effects through ﬂeet development. This

includes decommissioning subsidies, which
have been shown usually to have the effect of
modernizing ﬂeets, thereby bringing about an
increase in their catching powers.

• While ﬁshing vessel populations stabilized in the
late 1990s, cheap fuel subsidies keep ﬂeets
operating even when ﬁsh are scarce.

• The Common Fisheries Policy of the European
Community, for example, allows for vessels to
be decommissioned to reduce effort in some
countries while simultaneously subsidizing
others to increase their ﬁshing capacity.

Millennium Ecosystem Assessment 2005a: Chapter 18

28

The economics of ecosystems and biodiversity

RECOGNIZING RISKS AND UNCERTAINTY

The treatment of climate change by the Stern Review
surfaced an issue which had been widely recognized but
not tackled squarely: how to assess a roll of the dice,
when one of the outcomes is the end of civilization as we
know it?

This dilemma also applies to assessing the risks of
ecosystem collapse. The difﬁculty was highlighted when one
academic study (Costanza et al. 1997) estimated the
economic value of ecosystem services at US$ 33 trillion
(compared to US$ 18 trillion for global GDP). This result was
criticized on the one hand for being far too high, but on the
other hand for being “a signiﬁcant underestimate of inﬁnity”
(Toman 1998).

Expressed in the language of ﬁnance, the global economy is
“short an option” on climate change and on biodiversity and
needs to pay a premium to buy protection. The Stern
Review’s most quoted result, that a 1% per annum cost
would be needed to protect the world economy from a loss
of up to 20% of global consumption, is an example of such
an “option premium”.

Table 3.1: Valuing a “biodiversity option”

Measures of:

a) Current
value
b) Level of

protection

c) Life of

protection
d) Uncertainty

e) Discounting

Financial
option
Spot price

Strike price

Expiration

Implied
volatility
Interest rate

“Biodiversity
option”
All variables –
current state
All variables –
future state
Conservation
horizon
Modelled
uncertainty
Social discount
rate

This analogy with a ﬁnancial option illustrates how
complex it would be to price a “biodiversity option”. All
ﬁve input variables a) to e) for a ﬁnancial option have
market values, as against NONE of those for biodiversity.

help with the urgent and practical problems confronting
conservationists.”

In the case of biodiversity and ecosystem losses, the size
of such premiums will depend on several aspects of the
ecosystem in question: its current state, the threshold
state at which it fails to deliver ecosystem services, its
targeted conservation state, and our best estimate
of uncertainties (see Table 3.1). This is an exceedingly
complex exercise as there are no market values for any of
these measures.

Economists discount any future beneﬁt when comparing
it to a current beneﬁt. At one level, this is just a mathe-
matical expression of the common-sense view that a
beneﬁt today is worth more than the same beneﬁt in the
future. But ethical considerations arise, for example when
we consider giving up current income for the beneﬁt of
future generations, or the opposite: gaining beneﬁts now at
the expense of future generations.

We described in Chapter 2 the alarming risks of “business-
as-usual”: the loss of freshwater due to deforestation, soil
erosion and nutrient loss, losses in farm productivity, the
loss of ﬁsheries; health problems and poverty. Attempting
to value these losses raises important ethical dimensions –
especially about the value of human well-being in the future
compared to now. We believe the economics of uncertainty
and discounting can help to address these ethical issues.

DISCOUNT RATES AND ETHICS

We are addressing issues here (such as species extinction)
where there is no universal agreement on the appropriate
the issue is widely
ethics. But
recognized. A group of ethics experts (IUCN Ethics Specialist
Group 2007) recently framed the issue like this:

the ethical nature of

“If human behaviour is the root cause of the biodiversity
extinction crisis, it follows that ethics – the inquiry into what
people and societies consider to be the right thing to do in
a given situation – must be part of the solution. However,
ingredient and
ethics is rarely accepted as an essential
is usually dismissed as being too theoretical a matter to

Financial discount rates consider only the time value of
money, or the price for its scarcity, and relate the present
value of a future cash ﬂow to its nominal or future value.
Simple discount rates for goods and services consider just
time preference, or the preference for a beneﬁt today versus
later. Social discount rates are more complex, and engage
ethical aspects of a difﬁcult choice: consumption now versus
later, for society rather than for an individual. The preferences
built into this choice cover the relative value of goods or
services in the future when their beneﬁt may be lower, or
higher, than now, and that beneﬁt might ﬂow to a different
person or to a future generation.

Box 3.3, overleaf, explains the basic concept of discounting
and the paradox of the conventional economic approach.

DISCOUNTING AND INTERGENERATIONAL EQUITY

The Stern Review has highlighted the crucial importance of
the choice of discount rates in long-term decisions that range
beyond conventional economic calculations. The discount
rate has even been described as the “biggest uncertainty of
all in the economics of climate change” (Weitzman 2007).

Towards a valuation framework

29

Box 3.3: Discounting and the optimist’s paradox

There are two main reasons for discounting. The ﬁrst
is called “pure time preference” by economists. It
refers to the inclination of individuals to prefer 100
units of purchasing power today to 101, or 105, or
even 110 next year, not because of price inﬂation
(which is excluded from the reasoning) but because
of the risk of becoming ill or dying and not being able
to enjoy next year’s income. Whatever the reason for
this attitude, it should not apply to a nation or to
human society with a time horizon in the thousands
or hundreds of thousands of years. Economists have
often criticized “pure time preference”. The most
famous critique against it was perhaps that of the
Cambridge economist Frank Ramsey, in 1928.

In the context of growth theory, economists agree
with the discounting of the future for other reasons.
They might agree with Ramsey, that to discount later
enjoyments in comparison with earlier ones is “a
practice which is ethically indefensible and arises
merely from the weakness of the imagination”. But
discount they will, as Ramsey himself did, because
they assume that today’s investments and technical
change will produce economic growth. Our
descendants will be richer than we are. They will
have three, four or even more cars per family.
Therefore,
incremental
the marginal utility, or
satisfaction they will get from the third, fourth or ﬁfth
car, will be lower and lower. Discounting at the rate
at which marginal utility decreases could be
ethically justiﬁed.

Growth is then the reason for undervaluing future
consumption and future enjoyments. Is it also a

reason to undervalue future needs for environmental
goods and services? It is not, particularly if we think
of
irreversible events. Economic growth might
produce virtual Jurassic Theme Parks for children
and adults; it will never resurrect the tiger if and when
it goes.

Growth theory is economic theory. It does not take
out from the accounts the loss of nature, nor does it
exclude from the accounts the defensive expen-
ditures by which we try to compensate for nature’s
loss (building dykes against sea-level rise induced
by climate change, or selling bottled water in
polluted areas).

If we try to add up the genuine increase of the
economy because of positive technical changes
and investments (which nobody would deny), and
the loss of environmental services caused by
economic growth, the balance would be doubtful.
In fact, we step on the issue of incommensurability
of values.

Discounting gives rise to “the optimist’s paradox”.
Modern economists favour discounting not because
of “pure time preference” but because of the
decreasing marginal utility of consumption as growth
takes place. The assumption of growth (measured
by GDP) justiﬁes our using more resources and
polluting more now than we would otherwise do.
Therefore our descendants, who by assumption are
supposed to be better off than ourselves, perhaps
will be paradoxically worse off from the environ-
mental point of view than we are.

Joan Martinez-Alier 2008

This is because the events being considered will happen over
periods of 50 years or more, and the effect of choosing
different discount rates over such long periods is signiﬁcant,
as Table 3.2 shows. The effects of only small differences in
the discount rate, applied to a cash ﬂow of US$ 1 million in

Table 3.2: Discount rates and outcomes

50-year
forward
cash ﬂow
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000

Annual
discount
rate %
4
2
1
0.1
0

Present value
of future
cash ﬂow
140,713
371,528
608,039
951,253
1,000,000

50 years’ time, are dramatic. A zero discount rate means the
cost or beneﬁt is worth the same now as it would be in 50
years, but small increases in the rate result in substantial
reductions in the present value of the future cash ﬂow. An
annual discount rate of 0.1% produces a present value of
95% of the forward cash ﬂow (US$ 951,253). Discounted
at 4%, the result is only 14% of the future cash ﬂow – just
US$ 140,713.

Applying a 4% discount rate over 50 years implies that
we value a future biodiversity or ecosystem beneﬁt to
our grandchildren at only one-seventh of the current
value that we derive from it!

If our ethical approach sees our grandchildren valuing nature
similarly to our generation, and deserving as much as we do,
the discount rate for valuing such beneﬁts over such a time
period should be zero. Unlike man-made goods and services

30

The economics of ecosystems and biodiversity

in

to

be

likely

larger

which are growing in quantity (hence the argument to discount
future units of the same utility), the services of nature are not in
fact
quantities
produced
in future. Perhaps the discount rate for biodiversity and
ecosystem beneﬁts should even be negative, on the basis that
future generations will be poorer in environmental terms than
those living today, as Paul Ehrlich (2008) has suggested (see
also Box 3.3). That raises important questions about present
policies which assume signiﬁcant positive discount rates
(Dasgupta 2001; 2008). When incomes are expected to grow,
goods or services delivered later are relatively less valuable
(because they represent a smaller part of the future income).
This supports the usual, positive discount factor. The opposite
holds true when asset values or incomes are expected to fall
– future goods and services will become more valuable than
now. In the case of biodiversity it is questionable whether it will
be equally, more or less available in future, and therefore even
the direction of the discount rate is uncertain.

DISCOUNTING IN A WELFARE CONTEXT

In welfare economics the objective is to maximize the so-
individuals, with
cial beneﬁts of consumption across all

“consumption” covering a broad range of goods and
services, including health, education and the environment.
Aggregating social utility across individuals is problematic
and prone to value judgements such as comparing the
value of consumption for a rich person versus a poor
person.

What are “appropriate” discount rates for communities or
countries with signiﬁcant poverty and hardship? Focusing on
poverty alleviation now means that the beneﬁts and costs
of today’s poor are more valuable than those of future
generations (who may live under better conditions). This is
an ethical argument for high discount rates!

But if today’s poor rely directly on the conservation of
biodiversity for vital supplies such as freshwater and fuel-
wood, is it then justiﬁable to provide more income options to
today’s rich if this would jeopardize these vital supplies?
Consider some examples of ethically indefensible trade-offs.
A forest ecosystem may be essential to the well-being of
poor farming communities downstream – by providing
nutrient ﬂows, recharging aquifers, regulating seasonal water
supply, preventing soil erosion and containing ﬂood damage

Box 3.4: “GDP of the poor”

The full economic signiﬁcance of biodiversity and
ecosystems does not ﬁgure in GDP statistics, but
indirectly its contribution to livelihood and well-being
can be estimated and recognized. Conversely, the
real costs of depletion or degradation of natural
capital
forest
(water availability, water quality,
biomass, soil fertility, topsoil,
inclement micro-
climates, etc.) are felt at the micro-level but are not
recorded or brought to the attention of policy
makers. If one accounts for the agricultural, animal
husbandry and forestry sectors properly,
the
signiﬁcant losses of natural capital observed have
huge impacts on the productivity and risks in these
sectors. Collectively, we call these sectors (i.e.
agriculture, animal husbandry, informal forestry) the
“GDP of the poor” because it is from these sectors
that many of the developing world’s poor draw their
livelihood and employment. Furthermore, we ﬁnd
that the impact of ecosystem degradation and
biodiversity loss affects that proportion of GDP most
which we term the “GDP of the poor”.

The end-use of ecosystem and biodiversity
valuations in National Income Accounting, either
through satellite accounts (physical and monetary)
or in adjusted GDP accounts (“Green Accounts”)
does not of itself ensure that policy makers read the
right signals for signiﬁcant policy trade-offs. A
“beneﬁciary focus” helps better recognize the

human signiﬁcance of these losses. In exploring an
example (GAIS project, Green Indian States Trust
2004-2008) for this interim report, we found that the
most signiﬁcant beneﬁciaries of forest biodiversity
and ecosystem services are the poor, and the
predominant economic impact of a loss or denial of
these inputs is to the income security and well-being
of the poor. An “equity” focus accentuated this
ﬁnding even further, because the poverty of the
beneﬁciaries makes these ecosystem service losses
even more acute as a proportion of their livelihood
incomes than is the case for the people of India at
large. We ﬁnd that the per-capita “GDP of the poor”
for India (using 2002/03 accounts and exchange
increases from US$ 60 to US$ 95 after
rates)
accounting for the value of ecological services, and
also that if these services were denied, the cost of
replacing lost livelihood, equity adjusted, would be
US$ 120 per capita – further evidence of the “vicious
cycle” of poverty and environmental degradation.

We shall explore this approach for the developing
world more broadly in Phase II. We believe that by
using such sectoral measures and forcing a
reﬂection of the equity principle by its “human”
signiﬁcance (given that most of the world’s 70%
poor are dependent on this sector) we shall focus
adequate importance on policy making and con-
tribute to a halt in the loss of biodiversity.

Gundimeda and Sukhdev 2008

Towards a valuation framework

31

Figure 3.1: The link between biodiversity and the output of ecosystem services

Maintenance and
restoration costs

Biological structure 

or process

(e.g. woodland

habitat or net

primary productivity)

Link pressures
via policy action?

Pressures

Intermediate products

Function 

(e.g. slow passage 

of water, or biomass)

Service 

(e.g. food protection,

or harvestable

products)

Economic and social 
values (sometimes 
market values)

Benefit (value)

(e.g. willingness to

pay for woodland

protection or for 

more woodland, 

or for harvestable

products)

Final products

Source: Roy Haines-Young, presented by J-L Weber, the Global Loss of Biological Diversity, 5-6 March 2008, Brussels

and drought losses. It could be ethically difﬁcult to justify
destroying such a forest watershed in order to release
economic value which has utility for the agents of destruction
(e.g. proﬁts from minerals and timber, related employment,
etc.), whilst on the other hand, the costs of replacing
ecosystem beneﬁts forgone may be the same or less in
monetary terms, but impossible to bear in human terms as
they fall on poor subsistence farming communities (see Box
3.4). We see such situations as outcomes of bad economic
targeting – economics is mere weaponry, its targets are
ethical choices.

DISCOUNTING BIODIVERSITY LOSSES

We do not suggest that there are always defensible “trade-
offs” for ecosystems and biodiversity, especially if signiﬁcant
ecosystems cease to function altogether as providers of
provisioning or regulating services, or if biodiversity suffers
signiﬁcant extinctions. The evaluation of trade-offs using
for
cost-beneﬁt analysis and discounting works best
marginal choices involving small perturbations about a
common growth path. However, the reality is that there are
trade-offs, explicit or implicit, in any human choice. Even
trying to set a boundary where trade-offs should not apply
is itself a trade-off!

Trade-offs involve a choice between alternatives, and in
the case of biodiversity losses, there are not always com-
parable alternatives. For development to be considered

sustainable, a boundary condition called “weak sus-
tainability” is deﬁned, being a situation in which overall
capital – natural, human and physical – is not diminished.
But this also suggests that one form of capital can be
substituted for another, which is not true: more physical
wealth cannot always be a substitute for a healthy
environment, nor vice versa. However, it is important for all
aspects of the “natural capital” side of a trade-off at least
to be appropriately recognized, valued and reﬂected in
cost-beneﬁt analysis, and even this is not yet being done in
most trade-off decisions. There is a different boundary
condition called “strong sustainability” which requires no
net diminution of natural capital: this is more difﬁcult to
achieve, although compensatory afforestation schemes
are examples of instruments designed to achieve strong
sustainability. Finally, any trade-off has to be ethically
defensible, and not just economically sound.

With biodiversity, we are not only considering long-term
horizons as we are with climate change. Ecosystem deg-
radation is already extensive and observable, and some of
its effects are dramatic – such as the loss of freshwater
causing international tension. Signiﬁcant biodiversity losses
and extinctions are happening right now, and ﬂagship
species such as the Royal Bengal tiger in India are under
threat. A higher or lower discount rate can change the
quantiﬁcation of the social cost of imminent losses, but it
would not alter the nature of the outcomes – loss of vital
ecosystem services and valuable biodiversity.

32

The economics of ecosystems and biodiversity

Figure 3.2: Valuing ecosystem services

Non-specified

Monetary: e.g. avoided water purification costs,

value of food provision, value of carbon storage

Monetary valuation

Quantitative assessment

Qualitative review

Quantitative: e.g. cubic metres of water purified, tonnes

of carbon stored, share of population affected by

loss of food provisioning

Qualitative: range and materiality of various ecosystem

and biodiversity benefits provided by the ecosystem 

instance being evaluated, and knowledge gaps

Full range of ecosystems services underpinned by biodiversity

Source: P. ten Brink, Workshop on the Economics of the Global Loss of Biological Diversity, 5-6 March 2008, Brussels

In one of the accompanying papers of Phase I (IUCN 2008),
approximately 200 valuation studies on forests have been
examined. Many of these included some discounting of
annuity ﬂows in order to calculate an aggregate value for
natural capital. We found that most studies used social
discount rates of 3-5% or higher, and that none were below
3%. Our intention in Phase II is to leverage off this body of
work, but to recalculate its results with different discounting
assumptions.

Thus in Phase II we will propose a conceptual framework
for the economics of biodiversity and ecosystem
valuation which includes assessments of the sensitivity
of ecosystem values to ethical choices. Our intention is
to present a discrete range of discounting choices
connected to different ethical standpoints, enabling end-
users to make a conscious choice.

THE EVALUATION CHALLENGE

Economic evaluation can shed light on trade-offs by
comparing beneﬁts and costs and taking account of risks,
and this can be applied to alternative uses of ecosystems.
But there are many difﬁculties, which we set out in this
section, and which we will address in Phase II.

Before economic valuation can be applied it is necessary
to assess ecosystem changes in biophysical terms. Most
beneﬁts provided by ecosystems are indirect and result from

complex ecological processes that often involve long lag times
as well as non-linear changes (see Figure 3.1). Pressures may
build up gradually until a certain threshold is reached, leading
to the collapse of certain functions. A typical example is forest
die-back caused by acidiﬁcation. The impacts of pressures
on ecosystems, including the role of individual species, the
importance of overall levels of biodiversity, the relationship
between the physical and the biological components of
the ecosystem, and the consequences with regard to the
provision of services, are difﬁcult to predict.

Economic valuation builds on the biophysical understanding
and aims to measure people’s preferences for the beneﬁts
from ecosystem processes. These beneﬁts may accrue to
different categories of population over different geographical
and time scales.

Our ability to assess the beneﬁts provided by ecosystems, or
the costs from their loss, is limited by lack of information at
several levels. There are probably beneﬁts that we have not
yet identiﬁed, so we are able to assess, even in qualitative
terms, only part of the full range of ecosystem services. We
will probably never be able to assess the full range. It will be
possible to make a quantitative assessment in biophysical
terms only for part of these services – those for which the
ecological “production functions” are relatively well under-
stood and for which sufﬁcient data are available. Due to the
limitation of our economic tools, a still smaller share of these
services can be valued in monetary terms.

Towards a valuation framework

33

Box 3.5: Putting it together – an example of a
Cost of Policy Inaction study on biodiversity loss

MODELLING BIODIVERSITY LOSS

In November 2007, a consortium1 started work on a
“Cost of Policy Inaction” or COPI study (Braat, ten
Brink et al. 2008) on the costs of not halting
biodiversity loss. COPI’s approach is the mirror
image of beneﬁts valuation, with the use of scenario
analysis. Their terms of reference were to build up a
global quantitative picture between now and 2050,
and to try to value this in monetary terms.

The project succeeded in establishing an appropriate
approach (see diagram), identifying the data gaps
and the methodological problems, and providing
indicative ﬁgures. Some interesting, be they only
illustrative, results have been produced.

Figure 3.3: Establishing a scenario analysis

The GLOBIO model was used to project changes
in terrestrial biodiversity to 2050 (OECD 2008). The
main indicators were changes in land use and quality
and the mean abundance of the original species of an
ecosystem (MSA), for all of the world’s biomes. The
model provides regional estimates for conversions
from natural to managed forest and from extensive
to intensive agriculture, and for the resulting decline
in natural areas. The largest driver for conversions
has historically been demand for agricultural land
and timber, although infrastructure development,
fragmentation, and climate change are predicted to
become increasingly important. The expected loss of
biodiversity by 2050 is about 10-15% (decline in MSA),
the most extreme being in savannah and grassland.

OECD

Baseline scenario

International

policies

Change in

land use,

climate,

pollution,

water use

Change in

biodiversity

Change in

economic

value

Change in

ecosystem

services

Change in

ecosystem

functions

It is therefore important not to limit assessments to monetary
values, but to include qualitative analysis and physical
indicators as well. The “pyramid” diagram in Figure 3.2
illustrates this important point.

Measurement approaches vary depending on what we
measure. For provisioning services (fuel, ﬁbre, food, medici-
nal plants, etc.), measuring economic values is relatively
straightforward, as these services are largely traded on
markets. The market prices of commodities such as timber,
agricultural crops or ﬁsh provide a tangible basis for
economic valuation, even though they may be signiﬁcantly
distorted by externalities or government interventions and

may require some adjustments when making international
comparisons.

For regulating and cultural services, which generally do not
have any market price (with exceptions such as carbon
sequestration) economic valuation is more difﬁcult. However,
a set of techniques has been used for decades to estimate
non-market values of environmental goods, based either on
some market information that is indirectly related to the
service (revealed preference methods) or on simulated
markets (stated preference methods). These techniques have
been applied convincingly to many components of
biodiversity and ecosystem services (an overview of the

34

The economics of ecosystems and biodiversity

The scenario used was largely developed by the
OECD as its baseline (OECD 2008). It is broadly
consistent with other modelling exercises such as
those by the FAO or other UN agencies. The model
itself forecasts a slowing rate of biodiversity loss in
Europe (compared to an increasing rate worldwide).

ASSESSING CHANGES IN ECOSYSTEM
SERVICES AND APPLYING MONETARY VALUES

• it is partial, excluding numerous known loss
categories, for example all marine biodiversity,
deserts, the Arctic and Antarctic; some eco-
system services are excluded as well (disease
regulation, pollination, ornamental services,
etc.), while others are barely represented (e.g.
erosion control), or under-represented (e.g.
tourism); losses from invasive alien species are
also excluded;

Changes in land use and biodiversity are translated
into changes in ecosystem services. The assess-
ment relies to a large extent on the valuation
literature, and creative solutions have been devel-
oped to extrapolate and ﬁll data gaps. This is an area
where further work is clearly needed in Phase II.

• estimates for the rate of land-use change and
biodiversity loss are globally quite conservative;

• the negative feedback effects of biodiversity and
ecosystem loss on GDP growth are not fully
accounted for in the model;

The biggest difﬁculty has been to ﬁnd studies to
monetize changes in ecosystem services. While
there are many case studies, not all regions, eco-
systems and services are equally covered, and there
were often difﬁculties in identifying values per
hectare for use in such a widespread beneﬁt transfer.
Also, most studies are based on marginal losses,
and the values are often location speciﬁc.

THE VALUATION RESULTS

In the ﬁrst years of the period 2000 to 2050, it is
estimated that each year we are losing ecosystem
services with a value equivalent to around EUR 50
billion from land-based ecosystems alone (it has to
be noted that this is a welfare loss, not a GDP loss,
as a large part of these beneﬁts is currently not
included in GDP). Losses of our natural capital
stock are felt not only in the year of the loss, but
continue over time, and are added to by losses
in subsequent years of more biodiversity. These
cumulative welfare losses could be equivalent to
7% of annual consumption by 2050. This is a
conservative estimate, because:

• values do not account for non-linearities and

threshold effects in ecosystem functioning.

CONCLUSIONS AND NEXT STEPS

The study showed that the problem is potentially
severe and economically signiﬁcant, but that we
know relatively little both ecologically and econ-
omically about the impacts of future biodiversity
loss. Further work is envisaged in Phase II to
address the points mentioned above, and further
elaborate on the framework and methodology in
line with our recommendations.

1. The Cost of Policy Inaction (COPI): The case of not meeting the 2010

biodiversity target

(ENV.G.1/ETU/2007/0044) was carried out by a

consortium led by Alterra, together with the Institute for European

Environmental Policy (IEEP) and further consisting of Ecologic, FEEM, GHK,

NEAA/MNP, UNEP-WCMC and Witteveen & Bos.

suitability of these methods to valuate ecosystem services is
provided by the Millennium Ecosystem Assessment (2005b).
But they remain controversial.

Fundamentally, there is the ethical question about the extent
to which some life-supporting functions of biodiversity can
be fully addressed by economic valuation and be considered
as part of possible trade-offs instead of being dealt with as
ecological constraints. Similarly, economic valuation may not
be appropriate to address spiritual values. Keeping these
limitations in mind, substantial progress has been made since
the 1990s by economists working with natural scientists to

improve these methods: there is increasing consensus on
the conditions under which they can be used, and increas-
ing conﬁdence in the comparability of the results. These
techniques are now commonly applied to measure a wide
range of values, including many indirect and non-use values.

Another set of challenges relates to assessing the con-
sequences of the loss of biodiversity and ecosystem services
on a large scale. First, valuation methods generally do not
cover second-round effects of the losses on the wider
economy. To assess such effects, the use of economic
models is necessary. While there are already some promising

Towards a valuation framework

35

attempts (Pattanayak and Kramer 2001, Gueorguieva and
Bolt 2003, Munasinghe 2001, Benhin and Barbier 2001), this
is still very much an area of ongoing research. Secondly, most
of the valuation evidence comes from individual case studies
concerning a particular ecosystem or species. Some studies
have tried to make a global assessment of the world’s
ecosystem services (e.g. Costanza et al. 1997) but, while
they have been useful in raising attention and discussion,
their results are controversial. Others focus at species or
genera levels (Craft and Simpson 2001, Godoy et al. 2000,
Pearce 2005, Small 2000). Any integral assessment on a
broad scale raises substantial difﬁculties: how to deﬁne a
coherent framework; how to deal with limitations in data; how
to aggregate values to estimate the global impacts of large-
scale changes in ecosystems.

In Phase II, we expect to rely on “beneﬁt transfer” logic, i.e.
using a value estimated in a particular site as an approxi-
mation of the value of the same ecosystem services in
another site. Beneﬁt transfer is easier for some homogeneous
values (such as carbon absorption, which is a global good),
than for others that are site-speciﬁc or context-dependent
(such as watershed protection). However, we must recognize
the trade-off between providing incomplete assessment on
the one hand, and using inferred estimates (rather than
primary research-based estimates) on the other.

For both ecological and economic reasons, caution is
needed when scaling up and aggregating values estimated
from small marginal changes to assess the effects of large
changes. Ecosystems often respond to stress in a non-linear
fashion. Large changes in ecosystem size or condition may
have abrupt effects on their functioning, which may not be
extrapolated easily from the effect of small changes.
Generally, as some ecosystem services decline substantially
as we continue to use them, extrapolation of beneﬁts should
recognize and be limited by the “law of diminishing returns”.

THE COSTS OF BIODIVERSITY LOSS

There is a substantial body of evidence on the monetary
values attached to biodiversity and ecosystems, and thus on
the costs of their loss. A number of recent case studies and
more general contributions have been received in reply to a
call for evidence (see TEEB website http://ec.europa.eu/

Table 3.3: Projection of total beneﬁts of carbon
storage in European forests

Latitude

35-45
728.56

45-55
1,272.85

55-65
468.60

65-71
253.33

Value
per hectare
(US$, 2005)

Box 3.6: The multiple values of coral reefs

Coral reefs provide a wide range of services to
around 500 million people. Some 9-12% of the
world’s ﬁsheries are based directly on reefs
(Mumby et al. 2007), while a large number of off-
shore ﬁsheries also rely on them as breeding,
nursery or feeding grounds (Millennium Ecosystem
Assessment 2005c). Tourism generally is the dom-
inant beneﬁt. Reef recreation has been estimated at
US$ 184 per visit globally (Brander et al. 2007), at
US$ 231-2,700 per hectare per year in Southeast
Asia (Burke et al. 2002) and at US$ 1,654 per
hectare per year in the Caribbean (Chong et al.
2003). Coral reefs provide genetic resources for
medical research, and ornamental ﬁsh and pearl
culture are extremely important for the economies
of some insular states, such as French Polynesia.
The reefs protect coastal areas in many islands:
this vital service has been estimated to be worth
US$ 55-1,100 per hectare per year in Southeast
Asia (Burke et al. 2002).

Sources: Ministère de l’Ecologie, du Développement et de

l’Aménagement durables 2008, Braat, ten Brink

et al. 2008, Balmford et al. 2008.

environment/nature/biodiversity/economics/index_en.htm for
a list of submissions and a synthesis report).

Our Phase I report COPI (Costs of Policy Inaction, Braat, ten
Brink et al. 2008) made a ﬁrst review of the general valuation
literature and databases and tried to build up a global
quantitative picture of biodiversity loss in biophysical and
monetary terms (see Box 3.5, p36). A more targeted review
of valuation case studies concerning forest ecosystems has
also been made (IUCN 2008).

The existing valuation studies vary in their scope, quality,
methodology, and suitability for use in a large-scale
assessment. Often the estimated economic values are not
comparable as they may be of a different nature or be
expressed in different units, or the estimates may not be
clearly related to a speciﬁc service or an area.

A particular effort is needed to assess indirect use values,
especially those of regulating services, which are receiving
increasing attention as a consequence of the Millennium
Ecosystem Assessment. For carbon sequestration, sub-
stantial values have often been found, although they vary
depending on the type of forest – for example deciduous or
coniferous – and their geographical location.

Source: ten Brink and Bräuer 2008, Braat, ten Brink et al. 2008

Some signiﬁcant values have been estimated for water
regulation, although they are highly context-speciﬁc. The

36

The economics of ecosystems and biodiversity

value of the watershed protection provided by intact coastal
ecosystems, such as mangroves and other wetlands, has
been estimated at US$ 845 per hectare per year in Malaysia
and US$ 1,022 per hectare per year in Hawaii, United States
of America. Overall, the values of the multiple watershed
services tend to range from US$ 200 to 1,000 per hectare
per year (Mullan and Kontoleon 2008). The value of bee
pollination for coffee production has been estimated at US$
361 per hectare per year (Ricketts et al. 2004), although the
beneﬁts only accrued to producers within 1 kilometre of
natural forests. Many of the studies evaluating regulating
services, for example for coastal protection or regulation of
the water cycle, use production function approaches. These
approaches are being increasingly reﬁned, allowing better
assessment of trade-offs between competing uses of
ecosystems (see, for example, Barbier et al. 2008).

While there is increasing evidence of the value of some
regulating services, many others, such as health regulation,
have been little explored so far, although there are some
indications that they might be signiﬁcant (Pattanayak and
Wendland 2007).

ways) is probably very high but still poorly quantiﬁed, although
studies have analysed aspects such as the contribution of
crop diversity to agricultural yields and farm income (e.g. Di
Falco and Perrings 2005, Birol et al. 2005). This important
gap in knowledge reﬂects the difﬁculty of ﬁrst quantifying the
risks of a system collapse from an ecological perspective,
and then measuring people’s willingness to pay to reduce
those risks which are not yet well understood.

The real costs of the loss of biodiversity and ecosystems
also include option values. Although they are difﬁcult to
measure, these values placed on conserving resources for
possible uses in the future are signiﬁcant because our
knowledge of the importance of ecosystem services is
expected to improve over time, and because part of the
losses of biodiversity and the services it underpins are
irreversible. A preferred methodology for measuring option
values (in particular, bio-prospecting values) has been
prepared as part of the preparatory work in Phase I
(Gundimeda 2008). In Phase II, we propose to build on
this approach.

THE COSTS OF BIODIVERSITY CONSERVATION

The economic importance of the contribution of aggregated
biodiversity to ecosystem resilience (the capacity of an
ecosystem to absorb shocks and stresses in constructive

Losing biodiversity and ecosystem services might cause
tremendous costs for society due to the subsequent loss of

Table 3.4: Results from studies on the costs of conservation

Source

Object

Assessed costs

Estimates

Frazee et al. 2003

Conserving the Cape Floristic
Region (South Africa)

OC + MC

Chomitz et al. 2005

Wilson et al. 2005

Network of protected
ecosystems (Bahia, Brazil)
Preservation of tropical
forest (certain regions)

Ninan et al. 2007

Sinden 2004

European Commission
2004

Bruner et al. 2004

Non-timber forest product
beneﬁts (Nagarhole National
Park, India)
Biodiversity protection
(Brigalow Belt, New South
Wales)
Biodiversity protection within
the Natura 2000 network
(covering 18% of
EU25-territory)
Expanding forest conservation
to all priority areas (worldwide)

OC = opportunity costs TC = transaction costs MC = management costs

One-off US$ 522 million and
annual expenses of
US$ 24.4 million
OC 10.000 ha

Sumatra: US$ 0.95/ha/year
Borneo: US$ 1.10/ha/year
Sulawesi: US$ 0.76/ha/year
Java/Bali: US$ 7.82/ha/year
Malaysia: US$ 27.46/ha/year
Net present value of
US$ 28.23 per household
annually
US$ 148.5 million

OC

OC

OC

OC

MC + TC

EUR 6.1 billion annually over
a 10-year period

OC + MC

US$ 5.75/ha/year for
10 years

Towards a valuation framework

37

various provisional and regulatory services such as food
production, water regulation and climate change resilience.
All these create the necessary arguments for biodiversity
protection, while the rate of loss demands urgent action. But
conservation, too, has a cost, which needs to be factored
into decision making. Knowing these costs provides the
basis for determining the relationship between costs and
beneﬁts, and for identifying the most cost-effective options
of conservation.

A comprehensive cost assessment has to include various
types of costs: biodiversity conservation may require use
restrictions which lead to opportunity costs from fore-
gone economic development; management costs arise for
measures like, for example, fencing and breeding pro-
grammes, and transaction costs are associated with
the design,
implementation, and control policies for
biodiversity conservation.

Globally, between US$ 8 billion and US$ 10 billion are
invested annually in biodiversity conservation (James et al.
2001, Pearce 2007); protected areas take up a signiﬁcant
portion of these resources. At the global level, US$ 28 billion
may be required annually over the next 30 years to expand
IUCN priority habitats to 10% of the area of all countries
(James et al. 2001). This cost estimate includes acquisition
and management costs of the current and future biodiversity
reserve sites. If the protected area system is expanded
to cover key currently unprotected species and to meet
biological/ecological needs, up to US$ 22 billion per year in
management costs would be required (Bruner et al. 2004).
But safeguarding the provisioning of ecosystem services and
biodiversity beneﬁts in protected areas could cost as little as
two orders of magnitude less than the valued beneﬁts of
ecosystems and biodiversity. (Balmford et al. (2002) have
taken this idea and proposed that, for the annual investment
of US$ 45 billion – around a sixth of that needed to conserve
all ecosystem services worldwide – we could protect natural
services worth some US$ 5 trillion in protected areas: an
extremely good beneﬁt-cost ratio of 100:1.)

The costs of conservation vary between regions because
of differences in their economies and cost structures.
Conservation costs have been found to be as little as
US$ 0.01 per hectare per year in remote areas and as high
as US$ 1,000 per hectare per year in densely populated
areas. The beneﬁts of services derived from different
ecosystems go from several hundred to over US$ 5,000
per hectare annually and in some cases much more. An
extreme case is that of coral reefs, for which UNEP
estimated an overall value of ecosystem services at
between US$ 100,000 and US$ 600,000 per square
kilometre; based on an estimated cost of US$ 775 per
square kilometre for maintaining marine protected areas,
the management costs of coral reefs could be as little as
0.2% of the value of the ecosystem protected (UNEP-
WCMC 2007) – the opportunity costs of coral reef

conservation are not included in this comparison. However,
knowledge of the spatial distribution of beneﬁts and costs
of biodiversity protection is necessary to enable cost-
effective conservation of ecosystem services.

Although the ﬁgures available so far apply to small bits of
nature here and there, policy makers want the big picture.
When the Natura 2000 network of protected areas started to
emerge in the European Union, one common thread was the
costs of managing it and delivering on the targets. The cost of
implementing this network of protected sites, which
then accounted for 18% of
the EU-25 territory, has
been estimated at over EUR 6 billion annually (European
Commission 2004). These costs included management,
restoration and provision of services (like recreation and
education), but excluded expenditures for buying up land for
nature. The overall costs of conservation are higher if we
include philanthropy and subsidies. For example, in the United
States of America, private charity to “environment and animals”
was estimated at US$ 9 billion in 2005 (Giving USA 2006).

Protected areas in developing countries are considerably
cheaper per hectare to establish and manage than in
developed countries. Thus, although developing countries
account for 60% of the total area of biodiversity reserve sites,
their actual conservation budget needs come to just 10% of
the global budget (James et al. 1999).

The costs of achieving a given conservation target depend
on the chosen policy instruments and their designs. In
testing this assumption, it was found that simply using a
different design for a conservation instrument can yield
cost-savings of up to 80% for a given species coverage. A
necessary, but not sufﬁcient, prerequisite for cost-effective
spending is that conservation spending conforms to current
conservation priorities. Only 2-32% of spending patterns
by conservation agencies can be explained by the
guidelines for prioritizing biodiversity conservation (Halpern
et al. 2006).

Another point to be considered is the spread of resources
needed between different portions of biodiversity.
In
economic terms, it appears that the marginal costs of
conservation investments are increasing: that is, while the
ﬁrst “units” of conservation can be bought at a low cost, each
additional unit costs more. However, researchers believe that
“low-hanging fruits” are available in biodiversity conservation.
Saving a large number of species is relatively cheap, but
costs may explode as the last few species, habitats or
ecosystems are included in conservation targets.

The general scarcity of studies pointing to the beneﬁts and
costs of biodiversity conservation, especially at regional and
local
levels, contributes to the non-allocation of sufﬁcient
resources for conservation and to the observed budget
shortfalls. Only a very limited number of studies have
assessed simultaneously the beneﬁts and costs of protecting

38

The economics of ecosystems and biodiversity

Figure 3.4: Proposed valuation framework: contrasting appropriate states of the world

Drivers of
biodiversity
loss and 
ecosystem 
degradation

Policy action to 
halt/reduce 
biodiversity loss
and ecosystem 
degradation

WORLD A
without
action

WORLD B
with
action

Quantify and 
map costs 
of action

Quantify and map
marine fisheries A

Quantify and map
risk to fisheries A

Quantify and map
water provision A

Quantify and map risk
to water supply A

Quantify and map
marine fisheries B

Quantify and map
risk to fisheries B

Quantify and map
water provision B

Quantify and map risk
to water supply B

Quantify and map
differences in
fisheries 

Quantify and map
differences in
risk to fisheries
production

Quantify and map
differences in
water supply

Quantify and map
differences in risk
to water supply

Quantify and map
economic value of
differences in
fisheries 

Quantify and map
economic value of
differences in risk to 
fisheries production

Quantify and map
economic value of
differences in water
supply

Quantify and map
economic value of
differences in risk to 
water supply

Quantify and map
net economic consequences
of action to reduce/prevent
biodiversity loss

Quantify and map
economic value of
differences in risk
and benefits flow

Key

ECOLOGY

ECONOMY

POLICY

How does it
affect global
GDP?

How does it
affect national
GDP?

How does it
affect poverty 
reduction goals?

How does it
affect regional 
stability?

How does it
affect equity?

Evaluate socio-economic
consequences of action to
halt/reduce biodiversity loss
and ecosystem degradation

biodiversity and ecosystem services in speciﬁc conservation
projects. Some studies have been area-speciﬁc, like the
assessment of protecting ecosystem services in Madagascar,
which revealed that the country’s biodiversity provides a wide
array of services that brings beneﬁts of a value twice as high
as the management costs of biodiversity resources on the
island. Other studies have been sector-speciﬁc: for example,
it has been estimated that a global marine protected area
system, accounting for the closure of 20% of total ﬁshing area
and resulting in a lost proﬁt of US$ 270 million per year
(Sumaila et al. 2007), would help sustain ﬁsheries worth US$
70-80 billion per year (FAO 2000) while creating 1 million jobs
(Balmford et al. 2004). Furthermore, the methodology used
for studies on conservation costs often lacks some common
understanding of what to include and how to measure these
costs. The resulting picture of conservation economics is
incomplete and a spatially explicit method for distributing
conservation funding is missing (Bruner et al. 2008).

Although conservation of biodiversity appears economically
reasonable, current global expenditures (estimated at US$
10-12 billion annually) fall short of expected needs. Because
conservation, mainly in developing countries, suffers from

budget shortfalls, developing countries should get priority
when allocating additional money for global biodiversity
conservation to enhance the effectiveness of their protection
measures. However, as conservation goals for developing
countries are often seen to compete with their development
goals, there are important societal issues to address in a local
context: property rights versus access rights and usufruct
rights, rights for local residents versus rights for migrant and
neighbouring poor, livelihood and welfare issues, and the
persistence of the “vicious cycle” of poverty and environmental
degradation. In addressing these issues in Phase II, we have
to recognize policy overlaps that will affect the viability of an
economic toolkit for policy makers in the developing world.

PROPOSED VALUATION FRAMEWORK

The considerations explained in this chapter have led to a
valuation framework (see Figure 3.4) which we propose to
use in Phase II, in conjunction with our meta-analysis of
valuation studies, so that we can prepare a globally com-
prehensive and spatially speciﬁc framework and estimation
the economic valuation of ecosystems and
grid for
biodiversity. It is based on the science study (Balmford et al.

Towards a valuation framework

39

2008)1 and the issues of ethics, equity and the discount rate
discussed earlier.

These are the key elements of our proposed framework:

• Examine the causes of biodiversity loss: designing
appropriate scenarios to evaluate the consequences
of biodiversity loss means incorporating information on
the drivers of this loss. For example, loss of marine
ﬁsheries is driven by overﬁshing, so it would be
appropriate to compare a scenario of business-as-
usual (continued overﬁshing) with one where ﬁsheries
are sustainably managed. Evidence suggests that
biodiversity is often being lost even where it would be
socially more advantageous to preserve it. Identifying
the market, information and policy failures can help us
identify policy solutions.

• Evaluate alternative policies and strategies that
decision makers are confronted with: the analysis
needs to contrast two or more “states” or scenarios that
correspond to alternative action (or inaction) to reduce
biodiversity and ecosystem loss (World A and World B).
This approach is also used in impact assessments and
cost-beneﬁt analyses to ensure that decision makers can
make informed decisions on the basis of a systematic
analysis of all the implications of various policy choices.

• Assess the costs and beneﬁts of actions to conserve
biodiversity: the analysis will need to address both
differences in beneﬁts obtained from biodiversity con-
servation (e.g. water puriﬁcation obtained by protecting
forests) and in the costs incurred (e.g. foregone beneﬁts
from conversion of the forest to agriculture).

• Identify risks and uncertainties: there is much that
we do not know about how biodiversity is valuable
to us, but that does not mean that what is not known
has no value – we risk losing very important, but still
unrecognized, ecosystem services. The analysis needs
to identify these uncertainties and assess the risks.

• Be spatially explicit: economic valuation needs to be
spatially explicit because both the natural productivity of
ecosystems and the value of their services vary across
space. Furthermore, beneﬁts may be enjoyed in very
different places from where they are produced. For
example, the forests of Madagascar have produced
anti-cancer drugs that save lives all over the world.
Besides, the relative scarcity of a service, as well as
local socio-economic factors, may substantially affect
the values. Taking into account the spatial dimension
also allows for better understanding of the impacts of
conservation on development goals, and for the
exploration of trade-offs between the beneﬁts and
costs of different options, highlighting regions that may
be cost-effective investments for conservation.

• Consider the distribution of impacts of biodiversity
loss and conservation: the beneﬁciaries of ecosystem
services are often not the same as those who incur
the costs of conservation. Mismatches can lead to
decisions being taken that are right for some people
locally, but wrong for others and for society as a whole.
Effective and equitable policies will recognize these
spatial dimensions and correct them with appropriate
tools, such as payments for ecosystem services.

Figures 3.5 and 3.6 illustrate the multi-scale dimension of
ecosystem services and thus the need to account for the
spatial pattern in their production and use. Even large cities
like London depend on a diversity of beneﬁts produced by
ecosystems and biodiversity, often at a considerable
distance.

This framework will be used during Phase II but it will not be
possible to collect information for the elaboration of detailed
maps for all types of ecosystem services and biomes. Thus
the evaluation will also largely rely on “beneﬁts transfer”,
making clear the assumptions and deﬁning carefully the
conditions for extrapolating from limited data, taking into
account the scale and distance-dependency of the various
services. Spatial data bases will be used, highlighting where
data gaps need to be ﬁlled.

BRINGING TOGETHER THE ECOLOGICAL
AND ECONOMIC ASPECTS IN OUR
VALUATION FRAMEWORK

Valuing ecosystems requires integration of ecology and
economics in an interdisciplinary framework. Ecology should
provide the necessary information on the generation of
ecosystem services, while economics would bring the tools
for estimating their values (see Figure 3.4).

Valuation of regulating ecosystem services and some pro-
visioning services must be based on an understanding of
the underlying biological and physical processes that lead to
their provision. For example, to be able to valuate the water
regulation provided by a forest, it is ﬁrst necessary to have
information about the land use, the hydrology of the area and
other characteristics, in order to make a biophysical assess-
ment of the service provided.

Such an understanding makes it possible to estimate
economic value, but there are some challenges which need
to be addressed:

• Measuring the quantity and quality of services provided
by ecosystems and biodiversity in various possible
states is a key challenge, and also an opportunity, to
avoid the pitfalls of generalization. Valuation is best
applied to alternative states or scenarios (e.g. services
provided under differing land-use practices reﬂecting
different policy scenarios). For example, the conser-

40

The economics of ecosystems and biodiversity

Figure 3.5: Ecosystem beneﬁts from a protected forest, Madagascar

Source: Balmford et al. 2008

Towards a valuation framework

41

Figure 3.6: Ecosystem beneﬁts to Greater London, UK

42

The economics of ecosystems and biodiversity

Source: Balmford et al. 2008

vation of tropical forest catchments might provide net
beneﬁts to water compared to the same area as
grazing land or cropland, but these beneﬁts might not
exceed the beneﬁts of agroforestry on the same piece
of land (Chomitz and Kumari 1998, Konarska 2002).
Estimating extant biodiversity in these different
scenarios would add another layer of challenge. It
would be important to scope such scenario-based
assessment appropriately, to ensure that the main
purpose of our valuations (estimating the costs and
beneﬁts of conservation of biodiversity) is not lost in
modelling alternative land uses.

• Non-linearity in the ﬂow of services needs special
attention. For example, recent studies on coastal
mangroves in Thailand have taken into account that the
ecosystem service providing coastal protection does
not vary in line with the area of natural mangrove. This
leads to signiﬁcantly different values and policy
conclusions compared to previous studies, notably
on the optimal mix between conservation and
development (Barbier et al. 2008). Another important
aspect is the existence of threshold effects and the
need to assess how close an ecosystem may be to the
collapse of certain services. There are still major gaps
in scientiﬁc knowledge about the role of species in
ecosystems and what the key factors are for producing
ﬂows of beneﬁcial ecosystem services and ensuring
their resilience. However, for some services, there is
evidence on the inﬂuence of certain biophysical
indicators (habitat areas, indicators of health, species
diversity, etc.). The Scoping the Science study
(Balmford et al. 2008) has reviewed the state of
ecological knowledge on a series of ecosystem
services and assessed the available information. The
ﬁndings of this study – which will be added to in Phase
II – will provide a basis for the economic evaluation by
means of:
o building appropriate scenarios for the provision of

each ecosystem service;

o deﬁning for at least a set of services the method for
generating a global quantiﬁcation and mapping of
service provision under different scenarios, upon
which to base the economic valuation;

o formulating reasonable assumptions to allow for the
extrapolation of values estimated for certain
ecosystems so as to ﬁll data gaps.

• The links between ecosystem processes and the
beneﬁts they provide to people vary in complexity and
directness. A classiﬁcation system is needed, and can
be developed from the system built in the context of
the Millennium Ecosystem Assessment (2005b), which
can still be improved to provide a good basis for
economic valuation (following, for example, Boyd and
Banzhaf 2007, Wallace 2007, Fisher et al. in press). It
appears useful to distinguish between “ﬁnal” services

(e.g. crop provision, clean water provision) that provide
for human welfare, and
beneﬁts directly relevant
“intermediate” services that serve as inputs for the
production of other services (e.g. pollination, water
regulation). The economic value of pollination, for
example, cannot be assessed separately from that of
the provision of crops. An end-user perspective must
be adopted: the value of intermediate services can only
be measured through their contribution to the
production of end-user beneﬁts. We intend to structure
the classiﬁcation of services for the evaluation in Phase
II around this perspective.

KEY PRINCIPLES OF BEST PRACTICE ON THE
VALUATION OF ECOSYSTEM SERVICES

These principles build on the recommendations made at the
Workshop on the Economics of the Global Loss of Biological
Diversity organized in the context of this project in Brussels
in March 2008 (ten Brink and Bräuer 2008).

1. The focus of valuation should be on marginal changes

rather than the “total” value of an ecosystem.

2. Valuation of ecosystem services must be context-
speciﬁc, ecosystem-speciﬁc, and relevant to the initial
state of the ecosystem.

3. Good practices in “beneﬁts transfer” need to be
adapted to biodiversity valuation, while more work is
needed on how to aggregate the values of marginal
changes.

4. Values should be guided by the perception of the

beneﬁciaries.

5. Participatory approaches and ways of embedding the
preferences of local communities may be used to help
make valuation more accepted.

6. Issues of irreversibility and resilience must be kept

in mind.

7. Substantiating bio-physical linkages helps the valuation

exercise and contributes to its credibility.

8. There are inevitable uncertainties in the valuation of
ecosystem services, so a sensitivity analysis should be
provided for decision makers.

9. Valuation has the potential to shed light on conﬂicting
goals and trade-offs but it should be presented in
combination with other qualitative and quantitative
information, and it might not be the last word.

In Phase II, we will exploit existing valuation literature in
greater depth and develop a methodology for choosing

Towards a valuation framework

43

valuation techniques for different beneﬁts, and for applying
beneﬁt transfer and aggregation. The work will build on the
framework described in this chapter and will reﬁne it in these
ways:

1. It will focus on the contribution of services to ﬁnal
beneﬁts to people, thus avoiding double counting.

2. There will be a clear “spatial focus” – on the locations

where the services and beneﬁts arise.

3. It will

identify risks by noting the fragility of an
ecosystem and whether it is judged to be near
thresholds, and will reﬂect this in selecting a valuation
approach, recognizing the limitations of conventional
analysis where changes are not marginal.

4. Likewise, for estimating stock values from ecosystem
service ﬂows, it will recognize the limitations of
discounting where we are not looking at small
variations along a given growth path.

Finally, we should afﬁrm here that valuation is not an end
in itself, and should be oriented towards the needs of end-
users. This includes policy makers and decision makers at
all
levels of government. It also includes corporate and
consumer organizations, since private-sector actors are
signiﬁcant users of biodiversity beneﬁts and potential
stewards of biodiversity and ecosystems.

Our effort in Phase II will be to engage these end-users
report on
to ensure that our output – the ﬁnal
The Economics of Ecosystems and Biodiversity – is
relevant, purposeful and effective in ensuring an appro-
priate reﬂection of the economic value of biodiversity. Our
emphasis on end-users brings us to focus the policy-
relevance of our economic evaluations, and much of
Chapter 4 is a preview of examples where we have seen
good economic estimations and logic being used to
support better policies for the conservation of ecosystems
and biodiversity.

End notes

1. The Scoping the Science study had the University of
Cambridge as scientiﬁc lead, and was done in colla-
boration with the Institute for European Environmental
Policy (IEEP), United Nations Environment Programme
World Conservation Monitoring Centre (UNEP-WCMC)
and Alterra-Wageningen University and Research Centre.

References

Balmford, A., Bruner, A., Cooper, P., Costanza, R., Farber,
S., Green, R.E., Jenkins, M., Jefferiss, P., Jessamy, V.,
Madden, J., Munro, K., Myers, N., Naeem, S., Paavola,
J., Rayment, M., Rosendo, S., Roughgarden, J.,
Trumper, K. and Turner, R.K. (2002) Economic

reasons for conserving wild nature, Science 297:
950-953.

Balmford, A., Gravestock, P., Hockley, N., McClean, C.J.
and Roberts, C.M. (2004) The worldwide costs of
marine protected areas, Proceedings of the National
Academy of Science 101: 9694-9697.

Balmford, A., Rodrigues, A., Walpole, M., ten Brink, P.,
Kettunen, M. and Braat, L. (2008) Review on the
Economics of Biodiversity Loss: Scoping the Science,
ENV/070307/2007/486089/ETU/B2. Available at
http://ec.europa.eu/environment/nature/biodiversity/
economics/index_en.htm (last access 8 May 2008).

Barbier, E.B., Koch, E.W., Silliman, B.R., Hacker, S.D.,

Wolanski, E., Primavera, J., Granek, E.F., Polasky, S.,
Aswani, S., Cramer, L.A., Stoms, D.M., Kennedy, C.J.,
Bael, D., Kappel, C.V., Perillo, G.M.E., and Reed, D.J.
(2008) Coastal ecosystems based management with
non linear ecological functions and values, Science
319: 321-323.

Benhin, J.K.A. and Barbier, E.B. (2001) The effects of the
structural adjustment program on deforestation in
Ghana. Agricultural and Resource Economics Review
30(1): 66-80.

Birol, E., Kontoleon, A. and Smale, M. (2005) Farmer
demand for agricultural biodiversity in Hungary’s
transition economy: a choice experiment approach, in:
Smale, M. (ed.), Valuing Crop Genetic Biodiversity on
Farms during Economic Change. CAB International,
Wallingford.

Boyd, J. and Banzhaf, S. (2007) What are ecosystem

services? The need for standardized environmental
accounting units, Ecological Economics 63(2-3):
616-626.

Braat, L., ten Brink, P. et al. (eds.) (2008) The Cost of Policy

Inaction: The Case of Not Meeting the 2010
Biodiversity Target. Report for the European
Commission, Wageningen/Brussels. Available at
http://ec.europa.eu/ environment/nature/biodiversity/
economics/index_en.htm (last access 8 May 2008).
Brander, L.M., Van Beukering, P. and Cesar, H.S.J. (2007)
The recreational value of coral reefs: a meta-analysis,
Ecological Economics 63(1): 209-218.

Bruner, A., Gullison, R.E. and Balmford, A. (2004)
Financial needs for comprehensive, functional
protected area systems in developing countries,
BioScience 54: 1119-1126.

Bruner, A., Naidoo, R. and Balmford, A. (2008) Review of
the costs of conservation and priorities for action, in:
Review on the Economics of Biodiversity Loss: Scoping
the Science. ENV/070307/2007/486089/ETU/B2.
Burke, L., Selig, L. and Spalding, M. (2002) Reefs at Risk in

Southeast Asia. UNEP-WCMC, Cambridge, UK.
Chomitz, K.M. and Kumari, K. (1998) The domestic

beneﬁts of tropical forests: a critical review, World Bank
Research Observer 13: 13-35.

Chomitz, K.M., Thomas, T.S. and Brandao, A.S.P. (2005)
The economic and environmental impact of trade in

44

The economics of ecosystems and biodiversity

forest reserve obligations: a simulation analysis of
options for dealing with habitat heterogeneity, Revista
de Economia e Sociolgia Rural 43(4): 657-682.

Chong, C.K., Ahmed, M. and Balasubramanian, H. (2003)
Economic valuation of coral reefs at the Caribbean:
literature review and estimation using meta-analysis.
Paper presented at the Second International Tropical
Marine Ecosystems Management Symposium, Manilla,
Philippines. 24-27 March, 2003.

Costanza, R., D’Arge, R., de Groot, R., Farber, S., Grasso,
M., Hannon, B., Limburg, K., Naeem, S., O’Neill, R.V.,
Paruelo, J., Raskin, R.G., Sutton, P. and van den Belt,
M. (1997) The value of the world’s ecosystem services
and natural capital, Nature 387: 253-260.

Craft, A.B. and Simpson, R.D. (2001) The social value
of biodiversity in new pharmaceutical product
research, Environment and Resource Economics
18(1): 1-17.

Dasgupta, P. (2001) Human Well-being and the Natural
Environment. Oxford University Press, Oxford.

Dasgupta, P. (2008) Discounting climate change, Review
of Environmental Economics and Policy, in press.
Di Falco, S. and Perrings, C. (2005) Crop biodiversity, risk
management and the implications of agricultural
assistance, Ecological Economics 55(4): 459-466.

Ehrlich, P.R. (2008) Key issues for attention from
ecological economists. Environment and
Development Economics 13: 1-20.

European Commission (2004) Communication from the

Commission to the Council and the European
Parliament – Financing Natura 2000 COM (2004).
Available at http://eurlex.europa.eu/LexUriServ/
LexUriServ.do?uri=COM:2004:0431:FIN:EN:PDF (last
access 7 May 2008).

FAO – Food and Agriculture Organization of the United
Nations (2000) The State of World Fisheries and
Aquaculture 2000. FAO, Rome.

Fisher, B., Turner, R.K., Balmford, A., Burgess, N.D.,
Green, R., Kajembe, G., Kulindwa, K., Lewis, S.,
Marchant, R., Morse-Jones, S., Naidoo, R., Paavola,
J., Ricketts, T. and Rouget, M. (in press) Valuing the
Arc: an ecosystem services approach for integrating
natural systems and human welfare in the Eastern Arc
Mountains of Tanzania.

Frazee, R. et al. (2003) Estimating the costs of conserving

a biodiversity hotspot: a case-study of the Cape
Floristic Region, South Africa. Biological Conservation
112(1-2): 275-290.

Green Indian States Trust (2004-2008) Green Accounting

for Indian States Project (GAIS). Available at
www.gistindia.org (last access 13 May 2008).

Godoy, R., Wilkie, D., Overman, H., Cubas, A., Cubas, G.,
Demmer, J., McSweeney, K. and Brokaw, N. (2000)
Valuation of consumption and sale of forest goods from
a Central American rain forest, Nature 406: 62-63.
Giving USA (2006) The Annual Report on Philanthropy for
the Year 2005. Giving USA Foundation, Philadelphia.

Gueorguieva, A. and Bolt, K. (2003) A Critical Review of
the Literature on Structural Adjustment and the
Environment, World Bank Environmental Economics,
Series Paper No. 90. Available at www-wds.
worldbank.org/servlet/WDSContentServer/WDSP/IB/
2003/07/23/000090341_20030723141839/Rendere
d/PDF/263750PAPER0EN110900Critical0review.pdf
(last access 18 May 2008).

Gundimeda, H. (2008) Option prices and bio-prospecting,

unpublished manuscript.

Gundimeda, H. and Sukhdev, P. (2008) GDP of the poor,

unpublished manuscript.

Halpern et al. (2006) Gaps and mismatches between
global conservation priorities and spending,
Conservation Biology 20(1): 56-64.

IUCN – International Union for the Conservation of Nature
Ethics Specialist Group, Biosphere Ethics Project
(2007) On Ethics and Extinction. Workshop report,
Windblown Hill, Illinois, USA, 11-14 September.

IUCN – International Union for the Conservation of Nature
(2008) Study on the economics of conservation of
forest biodiversity. In progress, under contract with the
European Environment Agency, Copenhagen,
Denmark.

James, A.N., Gaston, K.J. and Balmford, A. (1999)

Balancing the Earth’s accounts, Nature 401: 323-324.

James, A.N., Gaston, K.J. and Balmford, A. (2001) Can
we afford to conserve biodiversity? BioScience 51:
43-52.

Konarska, K.M., Sutton, P.C. and Castella, M. (2002)

Evaluating scale dependence of ecosystem service
valuation: a comparison of NOAA-AVHRR and
Landsat TM datasets. Ecological Economics 41:
491-507.

Martinez-Alier, Joan, (2008) Discounting and the

optimist’s paradox, Universidad Autónoma, personal
communication, 9 March 2008.

Millennium Ecosystem Assessment (2005a) Ecosystems
and Human Well-being: Current State and Trends.
Available at www.millenniumassessment.org/
en/Condition.aspx (last access 8 May 2008).

Millennium Ecosystem Assessment (2005b) Ecosystems
and Human Well-being: A Framework for Assessment.
Available at www.millenniumassessment.org/en/
Framework.aspx (last access 8 May 2008).

Millennium Ecosystem Assessment (2005c) Ecosystems
and Human Well-being: General Synthesis. Available
at www.millenniumassessment.org/en/Synthesis.aspx
(last access 8 May 2008).

Ministère de l’Ecologie, du Développement et de

l’Aménagement durables (2008) La préservation des
ecosystèmes coralliens, unpublished manuscript.
Mullan, K. and Kontoleon, A. (2008) Beneﬁts and costs of
protecting forest biodiversity: case study evidence.
Available at http://ec.europa.eu/environment/nature/
biodiversity/economics/index_en.htm (last access
8 May 2008).

Towards a valuation framework

45

Mumby, P.J., Hastings, A. and Edwards, H.J. (2007)
Thresholds and the resilience of Caribbean coral
reefs, Nature 450: 98-101.

Munasinghe, M. (2001) Exploring the linkages between
climate change and sustainable development: a
challenge for transdisciplinary research, Conservation
Ecology 5(1): 14.

Ninan, K.H. et al. (2007) The Economics of Biodiversity

Conservation: Valuation in Tropical Forest
Ecosystems. Earthscan, London.

OECD – Organisation for Economic Co-operation and

Development (2008) Environmental Outlook to 2030.
Available at: http://www.oecd.org/document/20/0,
3343,en_2649_37465_39676628_1_1_1_37465,00.h
tml (last access 18 May 2008).

Pattanayak, S.K. and Kramer, R. (2001) Worth of

watersheds: a producer surplus approach for valuing
drought control in eastern Indonesia. Environmental
and Development Economics 6: 123-45.

Pattanayak, S.K. and Wendland, K.J. (2007) Nature’s

care: diarrhea, watershed protection, and biodiversity
conservation in Flores, Indonesia, Biodiversity and
Conservation 16: 2801-2819.

Pearce, D.W. (2005) Paradoxes of biodiversity
conservation, World Economy 6(3): 57-69.

Pearce, D. (2007) Do we really care about biodiversity?,
Environmental and Resource Economics 37: 313-
333.

Ricketts, T.H., Daily, G.C. et al. (2004) Economic value of
tropical forest to coffee production, Proceedings of
the National Academy of Sciences of the United
States of America 101(34): 12579-12582.

Simpson, R.D. (2007) David Pearce and the economic

valuation of biodiversity, Environmental and Resource
Economics 37: 91-109.

Sinden, J.A. (2004) Estimating the costs of biodiversity

protection in the Brigalow belt, New South Wales,
Journal of Environmental Management 70: 351-362.
Small, R. (2000) Valuing research leads: bioprospecting

and the conservation of genetic resources, Journal of
Political Economy 108(1): 173-206.

Stern, N. (2006) Stern Review of the Economics of
Climate Change. Cambridge University Press,
Cambridge.

Sumaila, U.R., Zeller, D., Watson, R., Alder, J. and Pauly,
D. (2007) Potential costs and beneﬁts of marine
reserves in the high seas, Marine Ecology Progress
Series 345: 305-310.

ten Brink, P. and Bräuer, I. (2008) Proceedings of the

Workshop on the Economics of the Global Loss of
Biological Diversity, with inputs from Kuik, O.,
Markandya, A., Nunes, P. and Rayment, M., Kettunen
M., Neuville, A., Vakrou, A. and Schröter-Schlaack, C.
5-6 March 2008, Brussels, Belgium.

Toman, M. (1998) Why not to calculate the value of the
world’s ecosystem services and natural capital,
Ecological Economics 25: 57-60.

UNEP-WCMC – United Nations Environment Programme

World Conservation Monitoring Centre (2006)
In the Front Line: Shoreline Protection and Other
Ecosystem Services from Mangroves and Coral
Reefs. UNEP-WCMC, Cambridge.

UNEP-WCMC – United Nations Environment Programme
World Conservation Monitoring Centre (2007) World
Database on Protected Areas. Available at
http://sea.unep-wcmc.org/wdbpa/index.htm
(last access 7 May 2008).

Wallace, K.J. (2007) Classiﬁcation of ecosystem services:
problems and solutions, Biological Conservation
139: 235-246.

Weitzman, M.L. (2007) Stern Review of the Economics
of Climate Change. Yale University, New Haven,
Mimeo.

Wilson, K.A., Pressey, R.L., Newton, A.N., Burgman,
M.A., Possingham, H.P. and Weston, C.J. (2005)
Measuring and incorporating vulnerability into
conservation planning, Environmental Management
35: 527-543.

46

The economics of ecosystems and biodiversity

4FROM ECONOMICS TO POLICIES

Society’s defective economic compass can be

repaired with appropriate economics applied
to the right information. This will allow existing
policies to be improved, new policies to be formed,
and new markets to be created: all of which is needed
to enhance human well-being and restore the planet’s
health.

In the last chapter we described how biodiversity is seriously
affected by policy – or a lack of policy. Since there are no
markets for most of the “public goods and services” from
biodiversity and ecosystems, their costs and beneﬁts often
fall to different actors or at different levels, as with all
“externalities”. There is little or no private reinvestment in
maintaining and conserving these resources. The polluter
often does not pay for causing losses to others. The sub-
sidized ﬁshing ﬂeet depletes ﬁsh stocks well beyond levels
that would occur in the absence of such subsidies. Vital
services of forests – such as water provisioning and regulation,
soil retention, nutrient ﬂow, enhanced landscapes – do not
reward the beneﬁciaries and are provided at much lower levels
than desirable. The beneﬁt of conserving a species for future
generations is global, whereas costs for its conservation are
local and uncompensated, and therefore it becomes extinct.

Despite all these “disconnects”, there is room for optimism.
During our Phase I studies, we observed several good
policies already in place, in many countries, that address
these issues. However, a more thorough consideration of the
economics of biodiversity and ecosystem services is needed
to make these solutions scalable and workable beyond their
initial stages, “pilot” phases and current host locations.

The ﬁnal report on The Economics of Ecosystems and
Biodiversity (TEEB) will systematically address a compre-
hensive range of such policy options for better conserving
biodiversity and ecosystem services, and will demonstrate
how better policies result from applying and integrating the
new economics of ecosystems and biodiversity. Here, we
provide some examples to illustrate how the economic values
of ecosystem beneﬁts and costs can be internalized and
used to help improve current policies or offer new options.

The examples come from diverse policy ﬁelds but they convey
four broad messages, elaborated in the sections that follow:

• rethink today’s subsidies to reﬂect tomorrow’s priorities;

• reward unrecognized beneﬁts, penalize uncaptured

costs;

• share the beneﬁts of conservation;

• measure what you manage.

RETHINKING TODAY’S SUBSIDIES TO REFLECT
TOMORROW’S PRIORITIES

Subsidies exist across the globe and across the
economy. They affect us all and many affect the health
of the planet’s ecosystems. Harmful subsidies must be
reformed to halt biodiversity loss and achieve appro-
priate stewardship of the planet’s resources.

Subsidies can support social and environmental innovation
as well as technological and economic development. On
the other hand they can result in private gain with no social
beneﬁts and can lead to economic inefﬁciency and market
distortions. Worse, they can result in biodiversity losses
and damage to ecosystems. In some cases, rational
support for a social objective such as food security outlives
its purpose,
resulting in unnecessary economic and
environmental costs.

Most subsidies are intentional and introduced for a clear,
speciﬁc purpose, such as payments to develop commercial
nuclear power in the 1950s and 1960s, and agricultural

Box 4.1: Environmentally harmful subsidies

The OECD deﬁnes subsidy as “a result of a
government action that confers an advantage on
consumers or producers, in order to supplement
their income or lower their costs”.

However, this deﬁnition ignores consequences for
natural resources and does not cover subsidy
as a result of inaction. Environmentally harmful
subsidies are a result of a government action or
inaction that: “confers an advantage on consumers
or producers, in order to supplement their income
or lower their costs, but in doing so, discriminates
against sound environmental practices”.

From economics to policies

47

l

Z
F
U
/
n
n
a
m
e
z
n
ü
K
é
r
d
n
A

Box 4.2: Subsidies that distort trade

Trade policies inﬂuence global trends in biodiversity.
Provisions for trade in agriculture and ﬁsheries
(e.g. favourable treatments or preferential tariffs) can
have a signiﬁcant effect on land and resource-use
patterns across exporting and importing countries.
International trade agreements, combined with
export-oriented national policies, can cause coun-
tries to focus on exporting natural resources at an
unsustainable level. For example, the EU Fishing
Agreements have led to exhaustion of resources by
EU vessels outside the EU, leading to unsustainable
use of natural resources in these countries.

(mainly “compliance markets” which attach tradable private
values to the supply or use of these goods and create
incentive structures to pay for them). We highlight the
example of payments for ecosystem services, and some
nascent markets which could harness the power of supply
and demand if appropriate infrastructure, incentives, ﬁnanc-
ing and governance are provided.

PAYMENTS FOR ECOSYSTEM SERVICES

Payments for ecosystem services (PES) can create
demand, a necessary market force to correct an existing
imbalance which harms biodiversity and stymies sus-
tainable development.

PES are payments for a service or the land use likely to
secure that service (UNEP/IUCN 2007). Governments
are increasingly creating incentive programmes that sup-
port
landowners who protect ecosystem services by
compensating for lost revenues (Millennium Ecosystem
Assessment 2005). Payments are particularly valuable when
land cannot be purchased and set aside for conservation, or
where protected areas cannot be established.

8
1
1
0
0
0
/
U
H
/
T
A
N
4
0
E
F
L

I

–

i

i

n
o
s
s
m
m
o
C
n
a
e
p
o
r
u
E

support to rebuild devastated European agriculture after
World War II. Many are permanent features – agricultural
inputs and products are often subsidized directly, along with
energy, food, transport and water.

Less obvious subsidies exist as accidental features of
policies or lack of policies which means that the costs of
damage to biodiversity and ecosystems are ignored. For
example, water abstracted is rarely priced at its resource
value, companies rarely pay for the value of genetic materials
they build products on, and the cost of damage to forest or
coastal areas is not generally paid for.

This has already begun to change. Although existing
subsidies are well defended by vested interests, policy
makers have recognized the importance of reforming them
for environmental and economic reasons. Two avenues have
proved to be promising. Subsidies can either be removed or
reformed to promote environmentally friendly resource use –
such as the changes to the agricultural subsidies in the
United States of America and the European Union. Subsidies
can be replaced, using private resources to sustain ﬁnancial
ﬂows for certain land-use practices, as in the example of
landscape auction in the Netherlands. Landscapes are
broken down into distinct elements such as a tree, a
hedgerow or a pond. While the landowner still owns the item,
people bid at auction to support the conservation of a
speciﬁc element and thereby raise money for its preservation.
Thus both farmers’ incomes and the conservation of bio-
diversity can be assured without state subsidies.

REWARDING UNRECOGNIZED BENEFITS,
PENALIZING UNCAPTURED COSTS

Getting prices right is a cardinal rule for good economics.
Since most biodiversity and ecosystem beneﬁts are in fact
public goods that have no price, this can be done in two
ways: instituting appropriate policies (which reward the
preservation of the ﬂow of these public goods and penalize
their destruction), and encouraging appropriate markets

48

The economics of ecosystems and biodiversity

Payments can be international
(IPES). One prominent
example is the Clean Development Mechanism (CDM) that
operates under the Kyoto Protocol. The Bali COP agreed
to consider REDD (projects to Reduce Emissions from
Deforestation and Forest Degradation) as part of the post-
2012 regime. This is an important milestone, as it addresses
the 18-20% of global greenhouse gas emissions from
tropical deforestation and related land-use change (CAN
2008). Preventing deforestation and creating and restoring
forests can simultaneously protect biodiversity and eco-
system services as well as countering climate change.

But signiﬁcant funding is needed – possibly US$ 10 billion
a year to achieve a substantial impact on deforestation
rates (Dutschke and Wolf 2007) – and there is still
uncertainty about how to implement REDD and the scale
of its ambitions (Miles 2007). Suitable ﬁnancial mecha-
nisms need to be designed to stimulate activity. One option
is a market-based mechanism which would allow credits
in avoided deforestation to be traded. The advantages of
an early start with pilot schemes have to be weighed
against the risks of leakage of deforestation pressure to
neighbouring forests.

REDD can signiﬁcantly reduce greenhouse gas emissions at
low cost, and at the same time help to conserve forests and
their biodiversity. However, potential risks from knock-on
effects must be considered. REDD is unlikely to include
support for ecosystem services other than carbon storage,
and other services could be damaged by displaced de-
forestation pressures. For example, pressures to remove
fuelwood and fodder from a degraded forest that has come
under the purview of REDD could shift to a neighbouring
forest area with healthier ecosystems and more biodiversity,
which then would suffer. REDD could achieve reductions in
emissions, but at the cost of biodiversity loss.

PES can be substantial and support mainstream bio-
diversity policies. The US government spends more than
US$ 1.7 billion a year in direct payments to farmers for

Z
F
U

l

,
e
n
e
H
s
u
a
K

l

Box 4.3: Payments for environmental services
in Costa Rica

From 1997 to 2004 Costa Rica invested around US$
200 million in its PES programme, protecting over
460,000 hectares of forests and forestry plantations
and indirectly contributing to the well-being of more
than 8,000 people. A series of associations and
partnerships at national and international level were
built around the programme, contributing to its long-
term ﬁnancial sustainability.

The PES programme in Costa Rica is practically a
national strategy for forest and biodiversity conser-
vation and sustainable development. It has been a
powerful tool to demonstrate the additional values
of forest ecosystems rather than just the wood, and
has thus offered incentives for the producers to
provide these values. Legislation compensates for
four environmental services: greenhouse gas miti-
gation, water services, scenic value and biodiversity.

The PES programme has contributed to reducing
deforestation and has at the same time reactivated
the forestry industry.

Portela and Rodriguez 2008

environmental protection (Kumar 2005). Payments under
the Department of Agriculture’s Environmental Quality
Incentives Program encourage sustainable use of irrigation,
nutrients and fertilizers, integrated pest management and
wildlife protection. Similarly, the European Union mech-
anism for promoting environmentally friendly agriculture and
forestry is a major part of the EU Rural Development
programmes (European Commission 2005), worth some
EUR 4.5 billion annually (European Commission 2007). In
2005, agri-environment schemes covered an area reaching
36.5 million hectares for EU-27 (excluding Hungary and
Malta), through 1.9 million contracts with farmers. PES can
give communities the chance to improve their livelihoods
through access to new markets. A feature of success is to
combine “carrot and stick” by introducing protective
legislation in conjunction with conservation incentives. This
can be particularly signiﬁcant for people in developing
countries (see Box 4.3).

EXTENDING THE “POLLUTER PAYS” PRINCIPLE

There is an increasing trend to use damage valuations to
address degradation of biodiversity and ecosystem services.
The polluter is frequently required to pay for damage caused,
either through bearing the actual costs of clean-up and
restoration projects, or through court-determined punitive
damages. Signiﬁcant examples include:

From economics to policies

49

Z
F
U

i

,
r
e
s
e
h
u
e
N
a
m
r
o
N

• the Exxon-Valdez spill – a 7,800-square-kilometre oil
slick that still affects Alaska’s ﬁsheries, costing the
polluter US$ 3.4 billion of penalties, clean-up costs and
compensation (Space Daily 2008).

• Guadiamar River – the main water source for the
Doñana National Park salt marshes in Spain, which
suffered from the devastating failure of a dam in
Aznalcóllar mine, releasing toxic muds for which clean-
up and restoration efforts cost the Spanish authorities
over EUR 150 million (Nuland and Cals 2000).

Such incidents have set large precedents for event-based
recovery of costs. The “polluter pays” principle can be further
extended through compliance markets, created so that cost
externalities can be captured, securitized and capped in
order to be traded amongst polluters who bear a market-
determined price for covering their pollution costs. This is
covered in the next section.

CREATING NEW MARKETS

New markets are already forming which support and
reward biodiversity and ecosystem services. Some
of them have the potential to scale up. But to be
successful, markets need appropriate institutional
infrastructure, incentives, ﬁnancing and governance –
in short, investment.

The state has traditionally been considered solely responsible
for managing the public services of ecosystems, but it is now

50

The economics of ecosystems and biodiversity

clear that markets can also contribute to this task, often without
spending public money. Market-based approaches can be
ﬂexible and cost-effective – a feature that
traditional
conservation policies often lack. There are, however, difﬁculties
because “environmental services markets” may be imperfect,
sometimes lacking depth and liquidity, and with limited
competition. Price discovery is often not easy, since most
ecosystem services are public services, delivered widely and
often remotely in the form of positive externalities. In some
cases transaction costs could offset potential gains.
Governments can help to remedy some of these shortcomings
by providing an adequate institutional framework, for example
by modifying liability rules, or capping resource use and issuing
tradable permits to allow ﬂexibility within the cap. The EU-ETS
(European Union Emissions Trading Scheme for carbon
credits) is a prime example of such a “compliance market”.
Governments can also facilitate private engagement to make
ecosystem services visible, for example through labelling.

Mechanisms and ﬁnancial products have been developed
to deal with environmental
liabilities. Habitat and species
banks (see Box 4.4) are among the most innovative new
instruments, providing tradable credits.

Box 4.4: Experience with habitat banking,
endangered species credits and biobanking

In the United States of America, companies or
individuals can buy environmental credits from
Wetland Mitigation Banks to pay for degradation
of wetland ecosystems due to agriculture or
development activities. More than 400 banks had
been approved by September 2005, almost three
quarters of them sponsored by private entities, while
in 2006 the trade of wetland bank credits reached an
amount of US$ 350 million (Bean et al. 2007).

A biodiversity cap-and-trade system in the United
States has created “endangered species credits”,
which can be used to offset a company’s negative
impacts on threatened species and their habitats.
The market volume as of May 2005 was over US$ 40
million, with 930 transactions carried out and more
than 44,600 hectares of endangered species habitat
protected (Fox and Nino-Murcia 2005).

In 2006, Australia began a pilot project in New South
Wales through the 2006 BioBanking Bill to create
incentives for protecting private land with high
ecological value (New South Wales Government
2006). The project resulted in developers buying
“biodiversity credits” to offset negative impacts on
biodiversity. These credits can be created by enhanc-
ing and permanently protecting land (Thompson and
Evans 2002).

2
1
1
0
0
0
/
K
S
/
T
A
N
5
0
E
F
L

I

–

i

i

n
o
s
s
m
m
o
C
n
a
e
p
o
r
u
E

Box 4.6: The Vittel example

The Vittel mineral water company (Nestlé Waters)
was concerned about nitrate contamination caused
by agricultural intensiﬁcation so it began to pay
farmers within its catchment to make their practices
more sustainable. A key element of success was that
Vittel gained the farmers’ trust and maintained their
income levels by providing them with sufﬁciently
large payments.
It also ﬁnanced any required
technological changes, meaning that farmers were
not out of pocket. The company worked intensively
with farmers to identify suitable alternative practices
and mutually acceptable incentives.

Perrot-Maître 2006

Markets for products that are produced sustainably permit
consumers to express their preferences for biodiversity and
ecosystem protection in terms that businesses understand.
Such markets are growing fast – markets for organic
agriculture, certiﬁed food and timber products are growing
three times faster than the average and the market for
sustainably produced commodities could reach US$ 60
billion a year by 2010 (see The Economist 2005). In South
Africa’s Cape Floral Kingdom – a biodiversity hotspot home
to nearly 10,000 plant species – wine producers who
commit to conserving at least 10% of their vineyard are
awarded “championship status” which they can advertise
on product labels. They can also raise revenue from eco-

tourism since the “Green Mountain Eco Route” was
established in 2005 (Green Mountain 2008). Such certi-
ﬁcation and eco-labelling are popular market-based
instruments, although possibly with less long-term potential
than the banking and trading schemes described here (see
Box 4.4).

Businesses will also invest in ecosystem service manage-
ment even if there are no direct products or reputational
advantages, if the risks to the business of losing ecosystem
services and the expected beneﬁts are high enough. This
makes a clear investment case on purely ﬁnancial grounds
for privately funded payments, as the Vittel-example
demonstrates (see Box 4.6).

Box 4.5: Panama Canal reforestation

SHARING THE BENEFITS OF CONSERVATION

Insurance ﬁrms and major shipping companies are
ﬁnancing a 25-year project to restore forest eco-
systems along the 80-kilometre length of the
Panama Canal. The Canal is the preferred shipping
route between the Atlantic and Paciﬁc Oceans,
with more than 14,000 vessels passing through in
2007. But its operation is becoming increasingly
affected by ﬂoods, erratic water supply and heavy
the
silting as a result of deforestation of
surrounding land (Gentry et al. 2007).

The costs of maintaining the canal are rising, and
there is a growing risk that it will have to close.
Shipping companies faced increasing insurance
premiums until ForestRe – a specialist insurance
entity focused on forest risks – convinced them to
fund ecosystem restoration (The Banker 2007). The
advantages are less erosion and a more controlled
ﬂow of freshwater to the canal, which reduces
insurance risk so that shippers enjoy lower
premiums.

Protected areas could produce beneﬁts from
goods and ecosystem services worth between
US$ 4,400 and 5,200 billion a year.

Balmford et al. 2002

A better understanding of the economics of ecosystem
services is crucial to safeguarding and extending pro-
tected areas, showing how to realize and share their
value with local communities without jeopardizing their
biodiversity beneﬁts.

More than 11% of the Earth’s land surface is already legally
protected thanks to a loose network of more than 100,000
protected areas (UNEP-WCMC/IUCN-WCPA 2008), which
together contain most types of terrestrial biodiversity. The
EU’s Natura 2000 network is one example, accounting for
around 20% of the EU-27 member territory (EU 2008).

But the protected area network is not complete and those
that exist are under threat (Bruner et al. 2001) from a lack
of both funding and political support. Importantly in the
context of our work, protected areas face ﬁnancial pressure

From economics to policies

51

8
1
1
0
0
0
/
U
H
/
T
A
N
4
0
E
F
L

I

–

i

i

n
o
s
s
m
m
o
C
n
a
e
p
o
r
u
E

Where the beneﬁts are less direct than in the example above
from Uganda, tax transfers between central, regional and
local governments can provide local revenue that represents
a share of ecosystem beneﬁts. Brazil also demonstrates how
this kind of ﬁnancing works. Protected areas in the state of
Paraná have been valued in intergovernmental payments to
municipalities since 1992. Quality indicators which determine
payments take account of conservation goals achieved. As
a result, the number of protected areas increased and their
quality improved. Similar models have been developed in 12
of the 27 Brazilian states and others are considering this
approach (Ring 2008).

Box 4.7: Protected areas in Uganda

Since 1995 Ugandan legislation places the manage-
ment of natural resources in the hands of local
authorities. Consequently the Ugandan Wildlife
Authority (UWA) disburses 20% of all revenues from
protected area (PA) tourism to the local communities
neighbouring the PAs. This percentage has been
ﬁxed without a precise picture of PA economics, but
even a rough approximation of costs and beneﬁts
allows local livelihoods to be enhanced while pre-
serving biodiversity. Of course such a beneﬁt-
sharing regime only works in the long run if it actually
compensates for the use-restrictions that PAs imply
for local communities. Thus, knowing better the
costs and beneﬁts involved will allow reconciling
ongoing biodiversity conservation and enhancing
rural livelihoods (Ruhweza 2008).

Some protected areas placed under the
“Revenue Sharing Programme” of the Ugandan
Wildlife Authority
Bwindi Impenetrable National Park
Mgahinga Gorilla National Park
Lake Mburo National Park
Queen Elizabeth National Park
Rwenzori Mountains National Park
Kibaale National Park
Semliki National Park
Murchison Falls National Park
Mount Elgon National Park

Population trends of selected species in Lake
Mburo National Park

Species
Zebra
Buffalo
Waterbuck
Hippo
Impala

1999
2,249
486
598
303
1,595

2002
2,665
132
396
97
2,956

2003
2006
2004
2,345 4,280 5,986
946 1,115
1,259
548 1,072
899
357
213
272
2,374 3,300 4,705
Source: UWA 2005

because of the potential to make money from timber,
meat, biofuels and other resources (CBD 2003, 2004;
Terborgh 1999).

^

The economic values of conservation need to be better
understood and made more explicit. Valuation can help to
inform policy choices on creating or maintaining protected
areas. Examples like the Gabcíkovo-Nagymaros Barrage
System in Hungary show that if the value of biodiversity is
measured against the beneﬁts of large development projects,
the chance of protecting sensitive areas increases. In this spec-
iﬁc example, analysis showed that the natural capital involved
far outweighed the beneﬁt of the proposed dam project, which
would have caused tremendous adverse impacts on
biodiversity in the Szigetköz wetland areas (OECD 2001).

Local communities are the ﬁrst to bear the costs of
biodiversity loss. They should share the beneﬁts of
conservation.

Local communities as well as local governments typically
look to achieve growth and economic development by
attracting more people and businesses, promoting con-
struction and infrastructure development. They may see
protected areas as barriers to development, particularly
where land is scarce and its use limited. The resulting costs
of limiting land use are borne locally, but the beneﬁts are
likely to reach far beyond municipal borders.

This mismatch needs to be corrected, ideally by participation
in the revenues from protected areas, as in Uganda (see Box
4.7). The costs of community-based conservation, such as
livestock and crop losses, can be signiﬁcant and need to be
managed by communities, forest conservators and NGOs.
Inadequate compensation for losses is a common refrain,
although there are other recent examples of success (e.g.
Bajracharya et al. 2008) where a survey of local residents
concluded that the socio-economic beneﬁts outweighed
the costs.

52

The economics of ecosystems and biodiversity

In Europe, Portugal has led the use of intergovernmental
ﬁscal transfers to municipalities for Natura 2000 areas that
relate to the EU Habitats and Birds Directives.

MEASURING WHAT WE MANAGE: METRICS FOR
SUSTAINABILITY

The costs of loss and degradation relate to how much
local communities depend on biodiversity and ecosystem
services. Many indigenous communities are utterly depend-
ent for survival on their local resources. Especially in such
cases, “community-conserved areas” based on traditionally
sustainable resource-use systems are a further alternative
and can be more effective than conventional protected areas
(IUCN 2008). They could have governance structures that
are adapted to local needs as well as the local skills and
knowledge available.

Valuing and sharing the beneﬁts of biodiversity and
ecosystem services can thus help biodiversity protection
policies to better address the needs of local communities.
If beneﬁts mainly occur beyond the local level, transfers
can reward communities’ efforts and help them ﬁnd the
resources needed for the protection of biodiversity and
the provision of ecosystems services.

WHAT ECOSYSTEM AND BIODIVERSITY
ECONOMICS CAN OFFER TO PROTECTED AREAS

A better understanding of biodiversity economics will help to:

• Create cashﬂow: protected areas’ chronic funding
shortages totalled US$ 38.5 billion in 2001 (Balmford
et al. 2002). Quantifying the ﬁnancial and non-ﬁnancial
beneﬁts of ecosystems is key to tapping private
funding and generating income for protected areas by
realizing payments for ecosystem services.

• Gain political support: clarity about the economic
beneﬁts of maintaining ecosystem services could
increase political support to match that typically
achieved for sectors such as agriculture, industrial
development and regional planning.

• Improve policy making: introducing values for bio-
diversity and ecosystem services will support better
policy decisions about land use, based on quantifying
the effects of decisions and allowing evaluation of
trade-offs between options, for example levels of
grazing or wood extraction.

the distribution of

• Improve the governance structures: protected areas
are often managed according to blueprints without
relevant
taking into account
those most
competences and the concerns of
affected by protection. A better understanding of the
costs and beneﬁts of conservation and use of
biodiversity can help to improve the distribution of
responsibilities in management (Birner and Wittmer
2004).

“Because National Accounts are based on ﬁnancial
transactions, they account nothing for Nature, to
which we don’t owe anything in terms of payments
but to which we owe everything in terms of
livelihood.”

Bertrand de Jouvenel 1968

Our economic compass is defective because of un-
accounted externalities at every level – national, corporate
and individual. Here we summarize work in progress to
correct this failure, and describe how we can contribute in
Phase II.

y
r
t
s
u
d
n

I

i

n
a
d
n

I

f

o
n
o
i
t
a
r
e
d
e
n
o
C

f

,
r
e
d
a
H

l

i
t
i
d
A

The inadequacy of national accounting has been rec-
ognized for at least 40 years (see box below). It is now
essential to aim “beyond GDP” as inadequate metrics have
cost us dearly in terms of unsustainable growth, degraded
ecosystems, lost biodiversity, and even reduced per-capita
human welfare, especially in developing countries.

the European Commission,
the
In November 2007,
European Parliament,
the Club of Rome, WWF and
the OECD held a major conference in Brussels called
Beyond GDP. It was attended by 650 policy makers and
opinion leaders from all over the world. It focused on the
need for more than GDP as a measure of what society
values, highlighted by the fact that devastation by events
such as Hurricane Katrina and the Asian tsunami show
up as increases in GDP despite the human tragedies and
property losses.

The conference consensus was that we needed to add
environmental and social measures to the existing GDP
metric (Beyond GDP 2007). Targeting solely for classical
GDP growth may not be of much help with many of our
pressing problems. For example, it may not be able to solve
persistent poverty in Africa and Asia, nor equip us to tackle
climate change and unsustainable development.

The call for action comes not just from policy makers and

From economics to policies

53

t
n
e
m
a

i
l
r
a
P
n
a
e
p
o
r
u
E

f

o
y
s
e
t
r
u
o
C

experts, but also from the public. In a survey (GlobeScan
2007) on measures of progress beyond GDP, three-quarters
of those asked (in 10 countries including Australia, Brazil,
Canada, France, Germany and Russia) concluded that
governments should “look beyond economics and include
health, social and environmental statistics in measuring
national progress”.

The widely used System of National Accounts (SNA) does
not recognize many signiﬁcant externalities in the areas
of natural resources, health and education. This means
that desirable improvements in health and education are
accounted for as expenses instead of investments. Valuable
ecosystem services which are income sources are not
recognized at all and deforestation is not recorded as a form
of depreciation.

Managing improvements in health, education and quality of
environment without a formal framework to value them
ﬁnancially can be a frustrating exercise. Sub-optimal policy
choices and trade-offs are likely in the absence of a
“sustainability yardstick”. The publication of a “genuine
savings” indicator for many years by the World Bank showed
that adding to the GDP metric was indeed possible at a
global level (World Bank 2008). However, the usefulness of
this metric was limited by its need to capture minimum
standards in data collected across all countries, thus limiting
the range of natural capital adjustments which could be
included in computing genuine savings.

Developing a more inclusive national income and wealth
accounting (NIWA) metric should be a priority, especially
for countries most prone to ecosystem and biodiversity
losses. It could make the difference between a viable and
sustainable economic trajectory and one which spells disas-
ter not just for developing countries but for us all.

and Economic Accounting (UNSD 2008) can be a starting
income and wealth
point for preparing holistic national
accounts that reﬂect externalities in the areas of natural
resources, health and education. At present, few countries
produce holistic national income statistics on this basis, and
there is no comparability because different areas are
covered, different externalities captured, and there are
varying degrees of granularity.

A revision of the SNA 1993 is currently being ﬁnalized by the
UN Statistical Commission, involving many key organizations
including UNEP, the World Bank, IMF, OECD, European
Commission and statistical ofﬁces around the world. We
understand that an important component of the SNA revision
is the recognition of an enhanced version of the SEEA as a
standard. The ongoing SEEA revision process, initiated by
the UN Committee of Experts on Environmental-Economics
Accounting (UNCEEA) Bureau, is a timely and necessary
step for national income metrics to progress “beyond GDP”.
We believe that ecosystems, biodiversity and their valuation
deserve particularly close attention. It is very important that
the development of ecosystem/biodiversity accounting
in physical and monetary terms is promoted as a key
early priority of the ongoing SEEA revision, building on
the work of EEA and others.

At the corporate level, too, there is gradual recognition of
the need to redeﬁne corporate success, and enhance per-
formance measurement and reporting to reﬂect a broader
vision for the corporation than just an optimizer of ﬁnancial
capital for its shareholders. “Triple bottom line” and sus-
tainability reporting disciplines are being followed by an
increasing number of corporations. The Global Reporting
Initiative (GRI) has issued detailed guidelines on

Figure 4.1: Land and water use of
various foods

Land consumption

Equivalent water requirement

200

150

100

50

i

n
e
t
o
r
p
f
o
g
k

r
e
p
2

m

,

n
o
i
t
p
m
u
s
n
o
c
d
n
a
L

0

Soya

Pulses

Palm 
oil

Citrus 
fruit

Cereals Meat
poultry

Meat
pork

Meat
sheep

Meat
bovine

15

12

9

6

3

0

d
o
o
f

f
o
g
k

r
e
p
3

m

,
r
e
t
a
w

l

t
n
e
a
v
u
q
E

i

The United Nations’ System of Integrated Environmental

Source: United Nations World Water Assessment Programme (2003)

54

The economics of ecosystems and biodiversity

 
sustainability reporting. The Carbon Disclosure Project has
been successful in eliciting voluntary disclosure from an
increasing number of corporations and countries year after
year. All these initiatives are, however, based on voluntary
disclosure, and are not followed widely enough to be
considered market standards.

In Phase II we will reach out to organizations involved in
redeﬁning corporate performance metrics and reporting
standards as we intend to evolve valuation guidance on
corporations’ use of natural capital, including carbon
footprint measurement.

Consumers are a major source of pressures to convert
natural ecosystems to other land uses, especially through
demand for food. Different kinds of foods have dramatically
different ecological footprints (see Figure 4.1). It is difﬁcult
for consumers to incorporate these factors in purchasing
choices unless the products they buy – especially food –
clearly disclose their ecological footprint at the point of
sale. A credible standard methodology is a basic
prerequisite, which we shall explore further with end-user
groups in Phase II. The goal is to identify or evolve
standard metrics for consumer footprint (in terms of
land, water and energy use) which are based on sound
ecology and economics simple enough to understand
and to be implemented by retailers.

IMAGINING A NEW WORLD

It is gradually becoming accepted that healthy ecosystems
maintaining high levels of biodiversity are more resilient to
external pressure and consequently better able to sustain
the delivery of ecosystem services to human society.
Countries and more and more companies and citizens want
to know and understand the reality of the costs of using the
Earth’s natural capital and the consequences of policies on
the resilience and sustainability of ecosystems.

We still face many gaps in knowledge on the status and
trends of biodiversity and the drivers and pressures that
contribute to its loss, but the scenarios we have outlined
on the projected loss of biodiversity, ecosystems and
ecosystem services point ﬁrmly to the high risk of further
losses to human well-being and development.

This chapter has highlighted different approaches to replace
society’s defective old economic compass and then to use
the new one: to rethink today’s subsidies, to design policies
and market structures which reward unrecognized beneﬁts
and penalize uncaptured costs, and to share the beneﬁts
of conservation and protected areas in a more equitable
manner. Parts of the evolving toolkit of new economics and
policies are already in place in some countries or regions,
yet others are still under development with initial case
studies showing their potential, but overall a lot more needs
to be done.

Z
F
U

l

,
n
n
a
m
e
z
n
ü
K
é
r
d
n
A

Imagine now that these measures were not only applied
in pilot schemes or single countries. Imagine the tiny seeds
planted now growing to majestic trees. Imagine how they
can contribute to improved quality of life in the 2030s
and beyond.

Imagine the growth of human well-being and security that is
not based on higher and higher per-capita GDP and ever-
more serious climate and ecosystem disasters hitting the
headlines every morning.

Imagine a secure and stable world with universal access to
clean water and healthy food, with equity in access to
education and income opportunity, and with social and
political security – a world meeting and even going beyond
the Millennium Development Goals.

Biodiversity and ecosystem services are now recognized
as vital infrastructure to achieve human welfare and well-
being. We are convinced that The Economics of Ecosystems
and Biodiversity, if used with careful consideration of the
underlying ethical choices, can make decisive contributions
towards safeguarding biodiversity and ecosystem services
and improving well-being for us and for generations to come.

“Another world is not only possible, she is on her
way. On a quiet day, I can hear her breathing.”

Arundhati Roy, author of The God of Small Things,

at the World Social Forum, 2003

From economics to policies

55

References

Bajracharya, S.B., Furley, P.A. and Newton, A.C. (2008)
Impact of community-based conservation on local
communities in Annapurna Conservation Area,
Nepal, in: Hawksworth, D.L. and Bull, T. (eds.)
Human Exploitation and Biodiversity Conservation.
Springer, Dordrecht: 425-446.

Balmford, A., Bruner, A., Cooper, P., Costanza, R.,

Farber, S., Green, R.E., Jenkins, M., Jefferiss, P.,
Jessamy, V., Madden, J., Munro, K., Myers, N.,
Naeem, S., Paavola, J., Rayment, M., Rosendo, S.,
Roughgarden, J., Trumper, K. and Turner, R.K. (2002)
Economic reasons for conserving wild nature,
Science 297: 950-953.

Bean, M., Kihslinger, R. and Wilkinson J. (2007) Design
of U.S. Habitat Banking Systems to Support the
Conservation of Wildlife Habitat and At-Risk Species.
Environmental Law Institute (ELI). Available at
www.elistore.org/reports_detail.asp?ID=11273 (last
access 8 May 2008).

Beyond GDP (2007) Measuring progress, true wealth,

and the well-being of nations. International
conference, 19-20 November 2007, Brussels. See
www.beyond-gdp.eu/ (last access 8 May 2008).

Birner, R. and Wittmer, H. (2004) On the ‘efﬁcient
boundaries of the state’: the contribution of
transaction-costs economics to the analysis of
decentralization and devolution in natural resource
management, Environment and Planning C:
Governance and Policy 22(5): 667-685.

Bruner, A., Gullison, R.E., Rice, R.E. and Da Fonseca,
G.A.B. (2001) Effectiveness of Parks in Protecting
Tropical Biodiversity, Science 291: 125-128.

CAN – Climatenetwork (2008) COP 13, Bali, December
2007. Available at www.climatenetwork.org/climate-
change-basics/by-meeting/cop-13-bali-december-
2007 (last access 8 May 2008).

CBD – Convention on Biological Diversity (2003)

Synthesis of Thematic Reports on Protected Areas
(UNEP/CBD/SBSTTA/9/INF/2). Available at
www.cbd.int (last access 8 May 2008).
CBD – Convention on Biological Diversity (2004)
Conferences of the Parties 7, Kuala Lumpur:
Decision VII/28: Programme of Work on Protected
Areas. Available at www.cbd.int.

de Jouvenel, B. (1968) Arcadie: essais sur le mieux-vivre.

Futuribles 9, Paris.

Dutschke, M. and Wolf, R. (2007) Reducing emissions
from deforestation in developing countries: the way
forward. GTZ, Germany. Available at www.gtz.de/de/
dokumente/en-climate-reducing-emissions.pdf

European Commission (2005) Council Regulation

1698/2005 on support for rural development by the
European Agricultural Fund for Rural Development
(EAFRD). Ofﬁcial Journal of the European Union
L 277, 21.10.2005: 1-40.

European Commission, DG Agriculture and Rural
Development (2007) Rural Development in the
European Union: Statistical and Economic
Information, 2007 Report. Available at
http://ec.europa.eu/agriculture/agrista/rurdev2007/
RD_Report_2007.pdf (last access 8 May 2008).
European Union (2008) Nature & Biodiversity. Available at
http://ec.europa.eu/environment/nature/index_en.htm
(last access 18 May 2008).

Fox, J. and Nino-Murcia, A. (2005) Status of species

conservation banking in the United States,
Conservation Biology, 19(4): 996-1007.

Gentry, B.S., Newcomer, Q., Anisfeld, S.C. and Fotos,
M.A. III (2007) Emerging Markets for Ecosystem
Services: A Case Study of the Panama Canal
Watershed. Haworth Press. ISBN: 978-1-56022-
173-9.

GlobeScan (2007) New global survey lets on-the-ground

climate decision makers be heard. Available at
www.globescan.com/news_archives/climate_panel/
(last access 8 May 2008).

Green Mountain (2008) Green Mountain Eco Route: the
world’s ﬁrst biodiversity wine route. Available at
www.greenmountain.co.za/index.htm (last access 8
May 2008).

Kumar, P. (2005) Market for Ecosystem Services. IISD,
Winnipeg, Canada. Available at www.iisd.org/
pdf/2005/economics_market_for_ecosystem_
services.pdf (last access 8 May 2008).

IUCN – International Union for the Conservation of

Nature (2008) Community conserved areas: a bold
new frontier for conservation. Available at
www.iucn.org/themes/ceesp/CCA/Index.html
(last access 8 May 2008).

Miles, L. (2007) Reducing Emissions from Deforestation:

Global Mechanisms, Conservation and Livelihoods.
UNEP-WCMC, Cambridge, UK. Available at
www.unep-wcmc.org/climate/publications.aspx
(last access 8 May 2008).

Millennium Ecosystem Assessment (2005) Ecosystems

and Human Well-being: Opportunities and
Challenges for Business and Industry. Available at
www.millenniumassessment.org/documents/
document.353.aspx.pdf (last access 8 May 2008).
New South Wales Government, Dept. of Environment

and Climate Change (2006) Biodiversity certiﬁcation
and biobanking: a new initiative for threatened
species protection. DEC 2006/135, ISBN 1-74137-
873-7. Available at www.environment.nsw.gov.au/
biobanking/biobankbill.htm (last access 8 May
2008).

Nuland, H.J. and Cals, M.J.R. (eds.) (2000) River
restoration in Europe: practical approaches,
Conference proceedings. Available at www.ecrr.org/
pdf/proceedings2000.pdf (last access 8 May 2008).
OECD – Organisation for Economic Co-operation and
Development (2001) Valuation of Biodiversity

56

The economics of ecosystems and biodiversity

Beneﬁts: Selected Studies. Paris.

Thompson, S. and Evans, T.G. (2002) Threatened

Perrot-Maître, D. (2006) The Vittel Payment for

Ecosystem Services: A ‘Perfect’ PES Case? IIED
and DFID. Available at www.iied.org/NR/forestry/
documents/Vittelpaymentsforecosystemservices.pdf
(last access 8 May 2008).

Portela, R. and Rodriguez, M.C. (2008) Environmental
services payment in Costa Rica, unpublished
manuscript. Conservation International.

Ring, I. (2008) Integrating local ecological services into
intergovernmental ﬁscal transfers: the case of the
ecological ICMS in Brazil, Land Use Policy 25(4):
485-497.

Ruhweza, A. (2008) Local communities’ involvement in

biodiversity conservation: examples from Uganda,
unpublished manuscript.

Space Daily (2008) US high court to review 1989 Exxon
Valdez oil spill case. Available at www.spacedaily.
com/reports/US_high_court_to_review_1989_Exxon_
Valdez_oil_spill_case_999.html (last access 8 May
2008).

Terborgh, J. (1999) Requiem for Nature. Island Press,

Washington, DC.

The Banker (2007) The new eco-warriors: can markets
succeed where tree-huggers failed? 01/08: 32-37.
Available at www.thebanker.com/news/fullstory.
php/aid/4676/ (last access 8 May 2008).
The Economist (23-29 April 2005) Rescuing

environmentalism. Available at www.economist.com/
opinion/displaystory.cfm?story_id=E1_PRRRDDG
(last access 8 May 2008).

The Katoomba Group (2007) Ecosystem Marketplace:
Mitigation Mail, 2(11). Available at www.ecosystem
marketplace.com/pages/newsletter/mm_12.4.07.html
(last access 8 May 2008).

species conservation in New South Wales, Australia:
a review of the value of the 8-part test. Journal of
Environmental Planning and Management, 45(1):
85-102.

United Nations World Water Assessment Programme
(2003) Water for People: Water for Life. Available
at www.unesco.org/water/wwap/wwdr/wwdr1/
table_contents/index.shtml (last access 8 May
2008).

UNEP-WCMC/IUCN-WCPA (2008) World Database on
Protected Areas. Available at http://sea.unep-
wcmc.org/wdbpa/index.htm (last access 8 May
2008).

UNEP/IUCN (2007) Developing International Payments
for Ecosystem Services: Towards a Greener World
Economy. Available at www.unep.ch/etb/areas/pdf/
IPES_IUCNbrochure.pdf (last access 8 May 2008).

UNSD – United Nations Statistics Division (2008)

Integrated Environmental and Economic Accounting
2003 (SEEA 2003). Available at http://unstats.un.org/
unsd/envaccounting/seea.asp (last access 18 May
2008).

UWA – Ugandan Wildlife Authority (2005) Wildlife

Population Trends in Uganda 1960-2005. Available at
http://data.mtti.go.ug/docs/Wild%20Life%20Populati
on%20Trends%20in%20Uganda%20(1960-
2005).pdf (last access 8 May 2008).

World Bank (2008) Adjusted net savings – a proxy for

sustainability. Available at http://web.worldbank.org/
WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/EXTE
EI/0,,contentMDK:20502388~menuPK:1187778~pa
gePK:148956~piPK:216618~theSitePK:408050,00.
html, last access 8 May 2008).

From economics to policies

57

A N O U T L I N E O F P H A S E I I

Phase II of The Economics of Ecosystems and Biodiversity
(TEEB) study sets out to continue the work initiated in
Phase I and will seek to achieve ﬁve important goals. These
are to:

• Firm up a “science and economics framework”
integrating ecological and economic knowledge to
structure the evaluation of ecosystem services under
different scenarios.

• Identify “recommended valuation methodologies”,
applicable under differing conditions and data
assumptions to the most tangible and signiﬁcant
economic values of biodiversity and ecosystem serv-
ices, across the world’s main biomes.

• Examine the economic costs of biodiversity decline
and the loss of ecosystem services worldwide in a
business-as-usual scenario and the costs and
beneﬁts of actions to reduce these losses in
alternative scenarios, focusing on a medium- to long-
term perspective.

• Develop a “policy toolkit” which supports policy reforms
and integrated impact assessment to ensure that all
relevant information is considered to analyse the pros
and cons of different options,
in order to foster
sustainable development and better conservation of
ecosystems and biodiversity.

• Engage key “end-users” at an early stage to ensure that
the output of this study is relevant to their needs,
accessible, practical, ﬂexible and, overall, useful.

To understand what these goals mean for the scope of the
work in Phase II, some of the considerations involved are
outlined below, as well as key points to be covered and
tasks to be carried out:

1 Science and economics framework: the con-
ceptual framework as set out in Chapter 3 will be
elaborated further to serve as a practical basis for the
evaluation. A classiﬁcation of ecosystem services
structured around an end-user perspective will be
proposed. The review of the state of ecological
knowledge will need to be complemented for the
ecosystem services not covered in Phase I. Building
on this review, methods will be deﬁned for the

58

The economics of ecosystems and biodiversity

(spatially explicit) assessment of the provision of
ecosystem services in biophysical
terms under
different scenarios, upon which to base the eco-
nomic valuation. Due attention will be given to
addressing risks and uncertainties associated with
ecological processes as well as human behaviour,
and to analysing the consequences of applying
different discount rates in the calculation of beneﬁts
and costs.

2 Valuation methodologies: the extensive literature
on methodologies will be assessed further, making
use of submissions received in reply to our call for
evidence in Phase I. Some biomes (e.g. oceans) and
some values (e.g. option values and bequest values)
which were not addressed in depth in Phase I will be
evaluated further. Phase II work will indicate preferred
valuation methodologies appropriate for use under
different conditions determined by biome classes,
economies, and socio-political contexts. It will look
at
the strengths and weaknesses of different
techniques, assessing their degree of applicability
and their data requirements. The key challenges
identiﬁed in Chapter 3 of this report will need to be
addressed. This includes deﬁning a methodology for
beneﬁt transfer and for aggregation which should be
both credible and appropriate for
large-scale
assessments. Phase I also illustrated the value of
using biophysical indicators to build metrics from the
ecological to the economic layers (e.g. MSA – Mean
Species Abundance – used in the Cost of Policy
Action (COPI) study) and Phase II will further evaluate
available qualitative and quantitative measures which
exhibit potential use for policy formulation, targeting
and oversight, as well as economic assessments.

3 Costs of policy inaction, and policy costs: a global
assessment of the net economic consequences of
inaction and of actions to reduce the loss of bio-
diversity and ecosystem services will be completed,
making use of the valuation literature and of previous
large-scale assessments and global scenarios,
including the COPI study carried out in Phase I.
However, to be meaningful, a global assessment
cannot be reduced to a single quantiﬁcation exercise
and will need to be complemented by more
disaggregated levels of analysis, which are relevant
for decision making.

4 Policy toolkit: recognizing the central importance of
policy action, a policy toolkit will be developed,
building on a review of policies that are already
working in some countries and appear to have the
potential
replicated
to be scaled up locally or
elsewhere. This toolkit should be relevant around the
world, so that policy makers from any country could
ﬁnd something useful. It should in all cases be illus-
trated with the associated economics. For example,
the economics of protected areas will form a part-
icular focus: the economic value of protected areas
is at present not adequately recognized and policy
enforcement is neither sufﬁciently robust nor ade-
quately funded. Phase II will aim to demonstrate how
policies can be changed when we are able to better
take into account biodiversity values to people and to
reconstruct society’s broken compass.

5 End-user interfaces: to succeed on a global scale,
alliances are needed across all sectors of society. Links
should be established with key stakeholders such as
the groups in charge of improving the System of
Integrated Environmental and Economic Accounting
(SEEA-2003), and the evolving institutional network of
projects addressing the greening of economies (e.g.

UNEP), the greening of national accounting (e.g.
United Nations Committee of Experts on Environ-
mental Economic Accounting – UNCEEA), the funding
of protected areas (e.g. PA Network), and the
development of payments for ecosystem services.
Likewise, it would appear useful to engage with on-
going efforts to enhance corporate performance
reporting to include sustainability considerations (e.g.
Global Reporting initiative – GRI), consumer organ-
izations at the forefront of greening consumer choice,
and governments involved in similar initiatives (through
computing consumer goods footprints, point-of-sale
disclosures, etc.).

Biodiversity must become the responsibility of everyone
with the power and resources to act. Phase II therefore
aims to provide policy-relevant information to inform and
accelerate better policies that support conservation and
sustainable use of biodiversity in all regions of the world and
feed into the development of new “sustainability” metrics
to complement the familiar metrics of GDP growth and
corporate proﬁtability. The ﬁrst steps are taken, and we are
conﬁdent the ﬁnal report on TEEB planned for Phase II will
be a work appreciated and valued by all our end-users.

An outline of Phase II

59

A C K N O W L E D G E M E N T S

Phase I of this project has been supported by the German
Federal Ministry for the Environment, Nature Conservation,
and Nuclear Safety (BMU) and the European Commission
(DG Environment), together with the European Environment
Agency (EEA), on the initiative of Mr Jochen Flasbart, BMU
Director General of Nature Conservation, and Mr Ladislav
Miko, EC Director of Protecting the Natural Environment.

the core working group and key

Members of
contributors to this interim report include:
Mark Schauer (BMU)
Katarina Lipovska, Aude Neuville, Alexandra Vakrou,
Stephen White (European Commission, DG Environment).

Jock Martin (EEA)
Heidi Wittmer and Christoph Schröter-Schlaack (Helmholtz

Centre for Environmental Research - UFZ)

Patrick ten Brink (Institute for European Environmental Policy

– IEEP)

Pushpam Kumar (Department of Geography and Institute for
Sustainable Water, Integrated Management & Ecosystem
Research, University of Liverpool).

Haripriya Gundimeda (Indian Institute of Technology, Mumbai)

We would also like to thank the following experts for
their substantial contributions to this report:
Carlos M. Rodriguez and Rosimeiry Portela (Conservation

International)

Alice Ruhweza (Forest Trends)
John Hanks (International Conservation Services, South Africa)
Ronan Uhel, Hans Vos, Jean-Louis Weber, Charlotta

Colliander, and Charlotte Islev (EEA)

Augustin Berghöfer, Florian Eppink, Carsten Neßhöver, Irene

Ring, and Frank Wätzold (UFZ)

Dalia Amor Conde and Norman Christensen (Duke

University)

Roberto Constantino (Mexico)
Pedro Pereira (Brazil)
Aditi Halder (Confederation of Indian Industry)
Sarojini Thakur (Commonwealth Secretariat)
Timothy Patrick Fox (“Engage Carbon”, Chennai, India)
Zoe Cokeliss (CONTEXT-London)

We are grateful to the members of the Advisory Board
who have provided guidance and support at this early
stage of the project:
Joan Martinez-Alier, Giles Atkinson, Karl-Göran Mäler, Peter
May, Jacqueline McGlade, Julia Marton-Lefevre, Herman
Mulder, Lord Nicholas Stern, Achim Steiner.

We are indebted to the researchers who have carried out the
various studies contracted during Phase I for their high quality
work within very tight time constraints. These studies are
available on the TEEB website (see http://ec.europa.eu/
environment/nature/biodiversity/economics/index_en.htm).

THE COSTS OF POLICY INACTION: THE CASE OF
NOT MEETING THE 2010 BIODIVERSITY TARGET
(COPI STUDY) – under contract with the European
Commission:

Partners and key staff
Alterra: Leon Braat (team leader), Chris Klok
IEEP: Patrick ten Brink (deputy team leader),

Marianne Kettunen, and Niele Peralta Bezerra

Ecologic: Ingo Bräuer, Holger Gerdes
FEEM: Aline Chiabai, Anil Markandya, Paulo Nunes,

Helen Ding, Chiara Travisi

GHK: Matt Rayment
MNP: Mark van Oorschot, Jan Bakkes, Michel Jeuken,

Ben ten Brink

UNEP-WCMC: Matt Walpole, Katarina Bolt
Witteveen & Bos: Ursula Kirchholtes

Advisors
German Federal Agency for Nature Conservation: Horst Korn
Institute for Environmental Studies: Pieter van Beukering

SCOPING THE SCIENCE STUDY – under contract with the
European Commission

Partners and key staff
University of Cambridge: Andrew Balmford (scientiﬁc leader),
Ana S.L. Rodrigues, Rhys Green, James J.J. Waters, Kelly
Flower, James Beresford, Hannah Peck
IEEP: Patrick ten Brink, Marianne Kettunen
Alterra: Rik Leemans, Rudolf de Groot, Leon Braat
UNEP-WCMC: Matt Walpole, Katie Bolt Lera Miles
Centre for Social and Economic Research on the Global
Environment, University of East Anglia: Kerry Turner,
Brendan Fisher

WWF-US: Robin Naidoo, Taylor H. Ricketts
University of California:Claire Kremen, Alexandra-Maria Klein
Bryn Mawr College: Neal M. Williams
University of British Columbia: Reg Watson

The study has also beneﬁted from the contributions of many
experts who have provided information, suggestions, and

60

The economics of ecosystems and biodiversity

review; they cannot all be mentioned here (cf the full report of
the study).
Review of the Costs of Conservation and Priorities for Action:
Andrew Balmford, Aaron Bruner (Conservation International),
Robin Naidoo (WWF-US)

Murphy, Paulo Nunes, Vanessa Nuzzo, Patrizia Poggi, Ana
Rodrigues, Guillaume Sainteny, Hugo-Maria Schally,
Burkhard Schweppe-Kraft, Martin Sharman, Anne Teller,
Ronan Uhel, Hans Vos, Jean-Louis Weber, Sebastian
Winkler, and Karin Zaunberger.

ECONOMIC ANALYSIS AND SYNTHESIS – under
contract with the European Commission

Partners and key staff
FEEM: Anil Markandya, Paulo Nunes, Chiara Travisi, Aline

Chiabi, Helen Ding

Ecologic: Andreas R. Kramer, Ingo Bräuer, Aaron Best, Sören

Haffer, Kaphengst Timo, Gerdes Holger

GHK: Matt Rayment
IEEP: Patrick ten Brink, Marianne Kettunen
IVM: Pieter van Beukering, Onno J. Kuik, Luke Brander, Frans

Oosterhuis, Dini Helmers

ECOSYSTEM ACCOUNTING FOR THE COST
OF BIODIVERSITY LOSSES: FRAMEWORK AND
CASE STUDY FOR COASTAL MEDITERRANEAN
WETLANDS – coordinated by EEA, using a grant
provided by BMU

Partners and key staff
EEA: Jean-Louis Weber, Ronan Uhel, Rania Spyropoulou
ETCLUSI: Françoise Breton, Juan Arévalo
ETCBD: Dominique Richard
University of Nottingham: Roy Haines-Young, Marion Potschin
University of Liverpool: Pushpam Kumar
University Autonomous of Madrid: Berta Martin, Pedro

Lomas, Erik Gomez

Tour du Valat: Pere Tomas, Driss Ezzine
Danube Delta National
Marin

Institute: Iulian Nichersu, Eugenia

STUDY ON THE ECONOMICS OF CONSERVATION
OF FOREST BIODIVERSITY – coordinated by EEA,
using a grant provided by BMU

Partners and key staff
IUCN: Joshua Bishop, Sebastian Winkler
University of Cambridge: Katrina Mullan, Andreas Kontoleon
EEA: Ronan Uhel, Hans Vos, Jean-Louis Weber, Jock Martin

Various organizations have contributed to the ﬁrst phase of
this project with resources, studies, or expertise, notably
UK Defra, French MEDAD, IUCN, OECD, UNEP, UNEP-
WCMC, and BfN. In particular, we are grateful to the
members of the working group for their active support and
advice: Martin Brasher, Andrew Balmford, Joshua Bishop,
Pascal Blanquet, Eric Blencowe, Katie Bolt, Leon Braat,
Guy Duke, Anantha Kumar Duraiappah, Robert Flies, Mark
Hayden, Katia Karousakis, Marianne Kettunen, Ariane
Labat, Stefan Leiner, Katarina Lipovska, Anil Markandya,
Robin Miège, Helen Mountford, Shaun Mowat, Jonathan

We would like to thank in particular UK Defra for providing the
results of their various studies on economic valuation, including
“An introductory guide to valuing ecosystem services” and
French MEDAD for providing the results of their study on coral
reefs “La préservation des écosystèmes coralliens: aspects
scientiﬁques, institutionnels et socio-économiques”. All material
is available at the TEEB-website (see http://ec.europa.eu/
environment/nature/biodiversity/economics/index_en.htm).

A variety of reports, articles and other contributions have been
received in reply to the web-based call for evidence organized
by the European Commission, and will also be used in Phase
II. We would like to thank all the respondents to this call.

Name
Alwi

First name Organization
Tanya

Azqueta
Baumgärtner

Diego
Stefan

Bearzi
Bellon
Bernstein
Berrisford
Bozzi

Brander
Brotherton
Bullock
Carraro
Cerulus

Giovanni
Maurizio
Johannah
Kate
Pierluigi

Keith
Peter
Craig
Carlo
Tanya

Chalad Bruns Pakping

Christie
Cobra

Cokeliss
Costanza
Danby
De Corte

Deke

Dieterich
Dietzsch

Mike
Jose

Zoe
Robert
Ian
Pieter

Oliver

Martin
Laura

Borneo Tropical Rainforest
Foundation
University of Alcalá
Leuphana University of
Lüneburg
Tethys Research Institute
Conservation International

University of Rome “La
Sapienza”

Natural England
Optimize
University of Venice
Departement Leefmilieu,
Natuur en Energie (LNE)
Vlaanderen
Coordination Centre for
Natural Resources &
Environment management
& Environment partnerships
Aberystwyth University
European Cork
Confederation
Context, London
University of Maryland, USA
BASC
European Landowners
Organisation (ELO)
German Advisory Council
on Global Change (WBGU)
University of Hohenheim
Amazon Institute of
Environmental Research,
Brazil

Acknowledgements

61

Name
Eijs
Farooquee

First name Organization
Arthur
Nehal

Name
Perrings

First name Organization
Charles

Ministry of Environment, NL
G.B. Pant Institute of
Himalayan Environment
and Development
Instituto Alexander von
Humboldt
Canadian Forestry Service
Royal Botanic Garden
The Energy and Resources
Institute
National Farmers Union
International Institute for
Environment and
Development
Leuphana Universität
Lüneburg
Indian Institute of
Technology, India
BAFU Federal Ofﬁce For the
Environment
MTT Economic Research
IUCN UK
Federal Institute for Less-
Favoured and Mountainous
Areas
Free Journalist, Berlin
Witteveen+Bos, NL
M S Swaminathan
Research Foundation
University of Torino, Dept.
of Economics
Convention on Biological
Diversity
Norwegian University of
Life Sciences
European Coalition for
Silent Oceans
Delegation of the European
Commission to the
Philippines

Universidad Autónoma de
Madrid
Wroclaw University of
Economics
Scottish Agricultural
College (SAC)
UK Defra

Norwegian University of Life
Sciences

Gast

Fernando

Gauthier
Gibby
Gokhale

Sylvie
Mary
Yogesh

Graham
Grieg-Gran

Andrea
Maryanne

Groth

Markus

Gundimeda

Haripriya

Hauser

Andreas

Jaakko

Heikkilä
Henson Webb John
Josef
Hoppichler

Kälberer
Kirchholtes
Kumar

Achim
Ursula
Anil

La Notte

Alessandra

Lehmann

Markus

Lindhjem

Henrik

Lüber

Sigrid

MacDonald

Alistair

Marthy
Martín-López Berta

William

Michalowski

Arthur

Moran

Dominic

Shaun
Norman
Ståle

Mowat
Myers
Navrud

Ninan

Karachepone Centre for Ecological
N.

Economics and Natural
Resources Institute for
Social and Economic
Change

62

The economics of ecosystems and biodiversity

Smale

Melinda

Spijkerman
Sud
Thornberry

Lilian
Ridhima
Brian

Tschirhart
Vaissière

John
Bernard

van den Hove Sybille
van Ham

Chantal

Waliczky

Zoltan

Wätzold

Frank

Wensing
White
Wossink
Yessekin

Young

Daan
Richard
Ada
Bulat

Carlos
Eduardo

Arizona State University and
DIVERSITAS ecoSERVICES
International Food Policy
Research Institute
Conservation International
Development Alternatives
Biodiversity Policy Unit,
National Parks & Wildlife
Service, Ireland

INRA, Laboratoire
Pollinisation & Ecologie des
Abeilles

IUCN – The World
Conservation Union
Royal Society for the Pro-
tection of Birds (RSPB), UK
Helmholtz Centre for
Environmental Research
Triple E, NL
Devon Wildlife Trust
University of Manchester
National Council on
Sustainable Development of
the Republic of Kazakhstan
Instituto de Economia –
UFRJ

Note: some of the contributors responded to the call on
own account.

Finally, over 90 experts in economics, ecology, and policy
participated in the workshop on the economics of the global
loss of biological diversity held on 5-6 March 2008, Brussels.
We are very thankful for the ideas provided and the set of
recommendations on the way forward developed. The
proceedings of the workshop and the presentations made
are available on the TEEB website: http://ec.europa.eu/
environment/nature/biodiversity/economics/index_en.htm as
well as at the following link: http://www.ecologic-events.de/
eco-loss-biodiv/index.htm.

We would like to thank especially the leaders of the sessions
– Kerry Turner, Pushpam Kumar, Ben ten Brink, Alistair
McVittie, Patrick ten Brink, Ståle Navrud, Joshua Bishop,
Anantha Duraiappah, Anil Markandya, and Heidi Wittmer –
and the authors of case studies – Salman Hussain, Katrina
Mullan, and Jean-Louis Weber – for their substantial inputs.

Special thanks go to Roger Cowe from Context, London, UK,
Jennifer Scarlott, from International Conservation Initiatives,
New York, USA, and David Skinner, from the EC, for editing;
to Banson, Cambridge, UK, for copy editing and lay-out; and
to Manfred Heuser, from Welzel+Hardt, Wesseling, Germany,
for printing under very tight time constraints.

S Y N O P S E S O F S T U D I E S

COST OF POLICY INACTION (COPI): THE CASE OF NOT
MEETING THE 2010 BIODIVERSITY TARGET

Braat L. (Alterra) and ten Brink, P. (IEEP) et al, May 2008
(for DG Environment, European Commission)

The study presents the impacts of global economic
development according to the OECD baseline scenario
(OECD March 2008) on biodiversity on land and in the
oceans, on the associated ecosystem services and on
economic and social systems, in quantitative and monetized
terms. Building on modelled future change in biodiversity
(Global Biodiversity Outlook 2, CBD 2006) and the Millennium
Ecosystem Assessment (2005), the annual global and
regional welfare losses due to decreased biodiversity and
loss of ecosystem services have been calculated. The
study is exploratory, identifying preliminary numbers as to
the scale of the impacts and the economic importance of
addressing biodiversity loss, and clarifying methodological
approaches for a wider analysis of its implications for welfare
and well-being.

REVIEW ON THE ECONOMICS OF BIODIVERSITY
LOSS: SCOPING THE SCIENCE

Balmford, A., Rodrigues, A. (University of Cambridge),
Walpole, M. (WCMC), ten Brink, P., Kettunen, M. (IEEP),
and Braat, L. and de Groot, R. (Alterra), May 2008 (for
DG Environment, European Commission)

This study encompassed two main tasks. Firstly, it developed
a conceptual framework for estimating the net economic
consequences of policy actions to conserve biodiversity and
ecosystems. This framework, which can be used as a tool for
testing policy packages at a diversity of spatial scales, relies
on the spatial assessment of the variation in the marginal
beneﬁts and costs of biodiversity conservation. The second
main task in this study was a coherent overview of existing
ecological knowledge, upon which to base the economics of
the review. For a diversity of ecological processes (e.g.
pollination, water regulation) and beneﬁts (e.g. ﬁsheries, wild
meat) the project reviewed the literature and consulted with
experts to understand: the relationship with human well-
being; how biodiversity loss and ecosystems degradation are
likely to inﬂuence the provision of each process or beneﬁt,
including in terms of long-term resilience; what challenges
such provision faces; and what are the current trends.
Crucially, this review also investigated how far current

knowledge is from being able to quantify and map, at the
global scale, estimates of the production of each process or
beneﬁt, upon which a spatially explicit economic valuation
can be based. A mixed picture emerged, with some areas
sufﬁciently advanced in knowledge to form the basis of the
economic valuation, while for others substantially more
research is needed.

REVIEW ON THE ECONOMICS OF BIODIVERSITY
LOSS: ECONOMIC ANALYSIS AND SYNTHESIS

Markandya, A., Nunes, P.A.L.D. (FEEM), Brauer, I.
(Ecologic), ten Brink, P. (IEEP), and Kuik, O. and
Rayment. M. (GHK), April 2008 (for DG Environment,
European Commission)

This report reviewed the set of articles and other submissions
that responded to the European Commission’s “call for
evidence”. A hundred and sixteen contributions were
received from 55 participants. The main message is that we
are witnessing a progressive loss of biodiversity and that this
is the cause of signiﬁcant welfare damages. Secondly,
economic valuation of changes of biodiversity losses can
make sense – when a clear diversity level is chosen, when a
concrete scenario for biodiversity change is formulated, when
changes are within certain boundaries, and when the
particular perspective on biodiversity value is made explicit.
The call for evidence also clariﬁed that there is a range of
gaps in the coverage of the valuation literature, for example,
the value of indigenous knowledge in the conservation of
biodiversity is under-researched, as is the biodiversity value
of marine resources, especially deep sea resources, and also
the valuation of genetic material. In addition, the review also
concludes that estimates of economic values should be
considered at best as lower bounds to unknown values of
biodiversity. Priorities for research are to carry out more case
studies of biodiversity loss and practical ways of dealing with
it at the country level, and to explore existing valuation data
and value transfer techniques. Most importantly, biodiversity
should not remain an isolated “environment” issue and its
importance in the context of economic and other global
issues, such as climate change, should be further analysed.

Synopses of studies

63

STUDY ON THE ECONOMICS OF CONSERVING
FOREST BIODIVERSITY

Kontoleon, A. et al., University of Cambridge, Dept of
Land Economy, March 2008 (for IUCN)

This meta-study examines the evidence from existing case
studies on the beneﬁts and costs of protecting forest
biodiversity to assess the extent to which these values can
aid decision making about biodiversity policy; and to identify
information gaps. The review covers almost 200 studies that
value a number of beneﬁts arising from forest biodiversity,
and 40 studies that estimate the costs of conserving forest
biodiversity. All forest types are covered, although studies
relating to forests with signiﬁcant biodiversity value are
prioritized. All geographical locations for which evidence is
available are covered, and the individual studies include a mix
of global, regional, national and local estimates. The study
also assesses alternative policy and ﬁnance options for
conserving forest biodiversity: protected areas, land-use
regulations and technology mandates; incentives such as
user fees and subsidy payments; and market-enabling
instruments such as certiﬁcation schemes.

ECOSYSTEM ACCOUNTING FOR THE COST
OF BIODIVERSITY LOSSES: FRAMEWORK
AND CASE STUDY FOR COASTAL MEDITERRANEAN
WETLANDS

An EEA - European Environmental Agency study,
March 2008 (Phase I)

The purpose of the case study on Mediterranean wetlands
was to demonstrate both the feasibility of ecosystem
accounts and their interest for policy making. The questions
behind ecosystem accounts relate to the sustainability of
ecosystem assets use, to the amount to reinvest in main-
tenance and restoration in order to keep ecosystem functions
and services in the future and to the value of the non-market
services currently not recorded in households’ private or
collective consumption, and therefore not considered as a
component of their well-being. The main ﬁndings include:
accounting has to be carried out for socio-ecological
systems dominated by wetlands, not at a smaller level;
ecological functions and ecosystem services values need to
be measured at three different scales: micro, meso and
macro, in order not to miss high-value regulating services; at
the micro scale, accounting charts could be usefully
promoted for the needs of the local actors; at the global
scale, macroscopic accounts of ecosystem potentials can
be undertaken shortly with the support of Earth observation
programmes; at the meso scale (countries, regions) further
development of accounts should be undertaken within the
ongoing revision process of the UN System of Economic
Environmental Accounting.

Detailed information with regard to these studies can
be found at:
http://ec.europa.eu/environment/nature/biodiversity/eco
nomics/index_en.htm

64

The economics of ecosystems and biodiversity