Valuing Ecosystem Services and Climate Change Impacts – by Pushpam Kumar


photo credit: leafy via photopin cc

As you will no doubt be aware if you have visited the Google UK homepage—which currently features an elaborate interactive mountain scene spanning the cycle of the seasons—today is Earth Day 2013.  Every year on April 22nd, over a billion people across the globe acknowledge this event, voicing their concerns for the planet and taking action to protect it.  

In the following article, Dr Pushpam Kumar discusses how economic valuation and the subsequent design of innovative response tools, such as payment for ecosystem services (PES), has the potential to increase transparency in policies designed and implemented to manage ecosystem services across time and space.

In last four decades or so, no issues have commanded as much attention as economic valuation of ecosystem services and the impact of climate change, in the field of the environment and development. How to value economic assets accurately has been the preoccupation of economists, but valuing impacts of climate change and global warming, and capturing the malign and benign effects of change in ecosystem services and biodiversity, occupy the center stage in the discourse on sustainability of the economy and environment. Although people are convinced of the need and rationale to undertake these evaluations, there is a considerable level of debate about how to do it. People—especially the decision makers—are invariably reluctant to embrace estimated figures emerging from  economists’ spreadsheets. Sometimes even robust estimates achieved using an advanced array of economic tools and methods can lack credibility.

Valuation of services like scenic beauty, wildlife and carbon always leads to controversy, ranging from issues with data to methodology to ethical dilemmas.  Some of these problems can easily be rectified, and the reliability of the estimates restored, by adopting several practices.

  1. First, if the assumptions behind the estimate can be put up front and in simple words, this will immediately clarify the context and logic of the valuation of nature and its services.
  2. Second, the purpose of valuation must be stated very clearly, whether this is for cost benefit analysis, natural capital accounting or to use in a management scenario, such as payment for ecosystem services. The choice of valuation method and related assumption hinges upon the purpose of doing it.
  3. Third, the nature of data and availability of resource (especially time) helps in establishing the credibility of the value. The way economists use other conventional data for income, wage and inflation estimate, is just as relevant here.
  4. And finally, over all clarity and confidence in communication are critical in convincing people of the importance and reliability of the economic estimate.

A related issue to the valuation of nature and its contribution to society is how we interpret the change in the status of natural capital, like forest, wetland and marine resources.  The outcome of the United Nations Conference on Sustainable Development (UNCSD) in Rio de Janeiro in 2012 (Rio+20)—‘The Future We Want’—describes the importance of an ‘Inclusive Green Economy’ in the context of sustainable development and poverty eradication. The consensus emerging from world leaders is loud and clear—for broader measures of progress to complement conventional indices such as gross domestic product (GDP), and for sustainable management of ecosystems and the economy.

There have been persistent efforts over the last two decades to reform our national accounting system, through ‘green accounting’ or ‘inclusive wealth’ measures. It is expected that one of these new measures will eventually provide a yardstick for sustainable development. These broader measures of national economic performance will also reflect our institutional and political commitments through the Agenda 21 document ‘Our Common Future’ (of the 1992 Earth Summit at Rio) and ‘The Future We Want’ document (accepted at Rio+20, in 2012). The United Nations, encouraged by the general success of quantitative targets for the Millennium Development Goals in focusing policy-making and civil society discourse on specific, tangible and measurable results towards solving poverty, is now formulating ‘Sustainable Development Goals’, starting in 2015. Developing the accounts of society so that they measure what matters becomes even more crucial in this context.

The emerging importance and use of innovative tools like payments for ecosystem services (PES) hinges upon the robustness of economic valuation, as only a credible value would facilitate a transaction between the beneficiaries and providers of ecosystem services. In fact, transactions between the beneficiaries and providers of ecosystem services, although widely used, require objective criteria, scientific understanding and a trans-disciplinary approach to make this a credible response tool for ecosystem management. Some of the quintessential aspects of PES are how the value of the service is measured. Although a promising tool for ecosystem management, however, PES suffers from several limitations. Most of the limitations arise from the necessary preconditions required for a transaction to take place between the parties involved. For example, inadequate understanding of what is being bought and sold, and long-term implications for local livelihoods and resource rights. This happens when the clarity of the service is less than evident. Further, limited access to information about payments for ecosystem services, lack of financing for PES assessment, limited bargaining power to influence, shape or enforce rules and contracts, a limited asset base to absorb risks, invest time and resources in management, limited organization or outreach to attract buyers, and a lack of efficient intermediary institutions to reduce transaction costs, are all well documented in the literature.

My forthcoming co-edited book Values, Payments and Institutions for Ecosystem Management includes carefully selected articles from world class researchers on the above issues, bringing the discourse on valuation, accounting and payment for ecosystem services to a new level and offering solutions to burning policy questions.

Dr Pushpam Kumar is Chief, Ecosystem Services Economics Unit, Division of Environment Programme Implementation, UNEP where he focusses on the mainstreaming of ecosystem services into development policy. He has been engaged in international scientific assessment efforts on biodiversity and ecosystems and climate change including the Millennium Ecosystem Assessment and the Fourth Assessment of the IPCC (Mitigation). He was also the Scientific Co-coordinator of the Conceptual Framework for the Economics of Ecosystem and Biodiversity (TEEB). His research has been on designing market based response options for management of biodiversity, ecosystem services, and linkages of poverty and ecosystems. Currently, he leads the GEF supported ProEcoServ on mainstreaming of ecosystem services and Co Chairs the Policy and Technical Expert Committee (PTEC) of the World Bank’s led Wealth Accounting and Valuation of Ecosystem Services (WAVES) Programme.

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