Why the Valuation of Natural Capital Is Key to Protecting the Planet

18/12/2013 11:06 GMT | Updated 16/02/2014 10:59 GMT

"Grow your economy. And become poorer!" Not a very inspiring message.

It doesn't even sound coherent. But however stupid it might sound, that is what is still happening in many developing countries. And if you don't believe that it is possible to grow your GDP at the same time as seeing a decline in your national wealth then consider the following.

A man buys a logging concession and cuts down the trees. He exports the logs to a neighbouring country for cutting into timber and production into furniture. Although the country has failed to gain any of the jobs from onward processing and production, its economy has benefitted from the export price of the logs and the value of alternative land use.

So according to classical economics the GDP of the country has risen. However, the true value of tropical forest lies not only in the timber.

The Global Legislators Organisation (GLOBE) Forest Initiative working with economists and forest scientists in Brazil, Mexico, Democratic Republic of Congo and Indonesia has conclusively shown that far greater value resides in things like soil stabilisation that stops the neighbouring farmer's soil getting washed away; watershed protection that purifies the neighbouring town's water supply; flood prevention that protects the local village; and provisioning and pharmaceutical services that feed and medicate indigenous people. And that is before we have even talked of carbon sequestration.

Collectively, these provide 70% of the value of a tropical forest, but classical economics regards these as mere "externalities". It simply does not put them into the equation. So a country can grow its GDP whist becoming poorer.

And it's not just forests. The same is true for rivers, reefs, salt marshes, mangroves and all other natural ecosystems; because most of the services they provide are not bought or sold in markets, they are not normally taken into account. So the mangroves are ripped up for shrimp farms leaving the coast exposed to typhoons with no protection. Moreover, salt marshes are built upon, leaving the cities exposed to flooding.

And of course it is easy to see why. These wider benefits, although immensely valuable, do not accrue to an individual property owner. The benefits are experienced by the community at large.

They are regarded as free goods by the wider economy and the wider community. In classical economics because these externalities are not directly captured by the landowner, they do not feature in the landowner's decision on how or whether to dispose of them.

Yet, at the present rate of decline, the cumulative loss of ecosystem services from the year 2000 up until 2050 is the equivalent of losing 7% of global GDP. Alarmingly, this is the economic model upon which the edifice of our world trade rests.

Now people are talking about putting a price on these "free goods" as a way of protecting them. It is called valuing our Natural Capital.

But what if we end up simply creating a tariff sheet for those who would be quite happy to buy up nature and destroy it? That is the big question facing environmentalists today.

My own way of thinking says "Well, when we couldn't put a value on nature those people went right ahead and trashed it anyway. So at least knowing what it's worth may give us a fighting chance."

A few years ago when I was Minister for Biodiversity in the UK I put £6million in my budget for research into bee diseases. The finance minister thought I was mad -- "Bee diseases? We could build a hospital for people's diseases with that sort of money."

So I said he could keep his £6million, but he should understand that it would cost him £194million every year until he sorted these bee diseases out! The loss of pollination services was reducing the yield from our farmers so much that the Treasury was losing £200million every year... I got my £6million.

GDP has been a con perpetrated upon the poor of the world: a measure of economic activity and not of actual wealth. What it masks is the way in which we transform their natural capital into our consumption through international rules that regard the ecosystem services upon which they rely as mere externalities.

This is why the valuation of Natural Capital is so important. It makes injustice explicit and transparent.

We all know the principle that the polluter pays? Well one day I got to wondering why it is that the polluter seems to get away with it quite so often! Then it occurred to me that if the polluter is going to pay, somebody needs to tell him how much. The proper valuation of natural capital will enable us to say how much.