Ecological tragedy, economic naiveté
The tragic extinction of species, from the black rhinoceros to plants remaining undiscovered, is unfortunately one of the hallmarks of humans on the planet. This week, the Trondheim Conference of Biodiversity celebrated its 20 year anniversary by gathering 400 scientists and international negotiators to an exchange of knowledge and ideas. The focus of this conference was on the economy and options for engaging companies and economic approaches to protect biodiversity, as well as making biodiversity relevant for economic decision makers. Key words are externalities, payment for ecosystems services and natural capital. In general, the gist of this effort is in the right direction and deserves to be supported. There are hopeful successful examples to follow, but at the same time the framework rests on an insufficient theory and some of the examples cannot be upscaled or generalized. There is no coherent strategy of how to protect ecosystems on a larger scale.
I would like to offer a friendly critique and options for improvements.
(1) A microeconomic approach is both insufficient and impractical. Microeconomics is concerned with markets for individual products and the prices and quantities of these markets; it treads decision makers as rational and well-informed. Higher extinction levels than those that would be economically optimal, according to this analysis as presented by Ed Barbier, occur because individual decision makers are not affected by the disappearance of the ecosystem services provided by a species – these services accrue to someone else. These economists hence engage in the valuation of ecosystem services, estimating the value provided by species through looking, e.g., at the value of crops dependent on pollination by bees, or the expenditure of visitors of a nature park, or by asking for a willingness to pay. Now they have taken the next step, promoting the correction of these externalities through payments in order to stop behavior that threatens species.
Robert U. Ayres and Ralph Kneese have already in 1969 identified important shortcomings of the usefulness of the externality concept: it makes sense only when looking at certain individual decisions and if externalities are few and small. Environmental externalities, however, are pervasive and large. Just think about climate change, land use or the nitrogen cycle: practically every human activity causes these externalities, either directly or indirectly. The same is true for ecosystem services; we are all entirely dependent on them. Determining the right level of prices is hence problematic, as current prices are a poor reference; they are affected by externalities. Ayres and Kneese proposed an alternative research program; the field that has emerged reflecting their recommendations is now called Industrial Ecology. In addition, with regards to the payment concept, there is now convincing psychological evidence that payments can have counterintuitive effects, taking away the sense of social obligation that makes people do good.
(2) The focus on specific cases obscures the larger picture. Stories of specific populations that are threatened and how they can be protected are interesting, but collectively may provide the wrong basis for analysis. Case studies suggest that biodiversity is threatened by a sum of independent, local decisions; just getting these decisions right would protect biodiversity. This picture is most certainly incorrect. There are larger drivers for biodiversity loss. Protecting the whale shark off the Indian West Coast from local fishermen is laudable, but it implies that these fishermen need to find their livelihoods and food somewhere else. Protecting one population or ecosystem may just pass the pressure on to another place. Pressures are systemic, as the Millennium Ecosystem Assessment showed. Protective action in one location may enhance overall biodiversity, as the worst offences are curbed, or it may not, if levels of protectiveness differ across localities, as they certainly do across countries. What is needed is a more macro-level analysis of the problem of biodiversity loss, addressing the drivers for biodiversity loss in a more systematic manner. Fortunately, the conference had a range of presentations that attempted to do so, in particular those by Arne Geschke, Paul Leadley, Rob Alkemade and me. I think there is a general awareness of these issues among the negotiators of the biodiversity convention; however, our understanding of these drivers and their effect mechanisms are spotty.
If my argument is correct that we need to pay more attention to the systematic drivers of biodiversity loss, there is probably a common cause to be made between climate protection and biodiversity preservation. Climate finance already supports reducing deforestation and forest degradation. Reducing food waste, as well as improving rich-world diets with fewer calories and less meat could contribute significantly to both causes. Our understanding of other interactions, however, is still very poor. Naïve perspectives on the economy do not bring us any further; rather we need a solid understanding of the biophysical dimensions of our economy in order to understand its interactions with the physical environment and how to reduce pressures on ecosystems.
PS: See IISD for reporting on the conference.