Putting a price on nature

Leaf
60 cents for the droplet...

For something that combines thoroughly both concepts of economics and the environment. A question that occasionally pops up when we ask about how we can internalise the external costs and benefits of nature, how we can monetise and valuate what is deemed free or priceless and how can we account for environmental protection and conservation in our equations of governance and environmental management.

The trigger for these questions came about when I read The Economist’s Green.view column online and saw an article about “price fixing”: not so much price fixing in terms of what we learn in Economics about monopolistic behaviour, but about how we can fix a pricetag on nature.

There’s plenty of debate with regard to putting a price on nature, as witnessed from the tremendous number of articles that can be found on this issue. The plausibility of this recommendation, with a detailed discussion on how it can work, has been discussed on Earthbeat on Australia’s Radio National, while in very recent history there has been a flurry of writings from Planet Green, The New York Times and BBC News. LiveScience has a more concrete and specific suggestion: a “market-driven approach to habitat preservation”.

Anyway, let me just try to summarise and highlight some of the pros and cons of putting a pricetag on nature. You should read the articles above for much more detailed discussions however.

Why would / should we put a price on nature?

1. Solve misallocation of resources: what we learn in economics in terms of the external costs of, say, water pollution on marine biodiversity, would thus be accounted for when firms do cost-benefit analysis because there’s a explicit price tag attached to it (The Economist uses a slightly different line of argument, I’m just phrasing what I understand in my own words)

2. Allows for developing and some especially-impoverished but nature-rich countries to tap into the money-spinning potential for the natural resources and at the same time enable economic development

3. On the Earthbeat link, it quotes a paper written in the Nature journal 4 years earlier on the value of “ecosystem services”, valued at US$33tr. Compared to the GDP of Earth at US$18tr, it seems like there is plenty of value in these “ecosystem services” waiting to be tapped, of which these services could be invaluable to humans (for example, clean air)

Why cant / shouldnt we put a price on nature?

1. Insult to the concept of the beauty of nature or reducing everything intangible in the environment to a dollar value or ignoring the greater benefits that ecosystems and nature provides. Like the sense of serenity and peace when one walks in a park: that cannot exactly be quantified in a monetary sense, and that may not be reflected even if a pricetag were to be placed on the park

2. How do we put a value to animals that might be of little utility but of much value to conservation and beauty? The article in The Economist compares the panda, which “humans are fond of”, with the dung bettle, which “provide the greatest utility”. How then do you price the two vis-a-vis each other?

The articles themselves cover much more details and examples. Again, this is some more food for thought for those who have always found themselves fighting a moral battle in their minds between economic development and environmental conservation.

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