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.