Put a value on nature! - Pavan Sukhdev

I'm here to talk to you about the economic invisibility of nature. The bad news is that Mother Nature's back office isn't quite working yet, so those invoices don't get issued. But we need to do something about this problem.

I began my life as a markets professional and continued to take an interest, but most of my recent effort has been looking at the value of what comes to human beings from nature and which doesn't get priced by markets. A project called TEEB was started in 2007 and it was launched by a group of environment ministers of the G8 +5. Their basic inspiration was a Stern Review of Lord Stern. They asked themselves the question: If economics could make such a convincing case for early action on climate change, well why can't the same be done for conservation? So I found an equivalent case be made for nature, and the answer is yeah, it can, but it's not that straightforward.

Biodiversity, the living fabric of this planet, is not a gas. It exists in many layers: ecosystem, species, and genes, across many scales: international, national, local, community. Doing for nature what Lord Stern esteemed for climate is not that easy. And yet we began. We began the project with an interim report which quickly pulled together a lot of information that had been collected on the subject by many, many researchers.

Amongst our compiled results was the startling revelation that, in fact, we were losing natural capital, the benefits that flow from nature to us. We were losing it at an extraordinary rate, in fact, of the order of two to four trillion dollars worth of natural capital. This came out in 2008, which was of course around the time that the banking crisis had shown that we had lost financial capital of the order of two and a half trillion dollars. So this was comparable in size to that kind of loss.

We then have gone on since to present for the international community, for local governments, and for businesses, and for people, for you and me, a whole slew of reports, which were presented at the UN last year. These addressed the economic invisibility of nature and described what can be done to solve it.

What is this about? A picture that you're familiar with, the Amazon rainforest, is a massive store of carbon; it's an amazing store of biodiversity. But what people don't really know is this: also, it's a rain factory.

Because the northeastern trade winds, as they go over the Amazonas, effectively gather in the water vapor—something like 20 billion tons per day of water vapor is sucked up by the northeastern trade winds and eventually precipitates in the form of rain across the La Plata basin. This rainfall cycle, this rainfall factory, effectively feeds an agricultural economy of the order of two hundred and forty billion dollars worth in Latin America.

But the question arises: Okay, so how much do we require Paraguay, Argentina, and indeed the state of Mato Grosso in Brazil pay for that vital input to that economy, to the state of Amazonas, which produces that rainfall? And the answer is zilch—exactly zero. That's the economic invisibility of nature. That can't keep going on, because economic incentives and disincentives are very powerful. Economics has become the currency of policy, and unless we address this invisibility, we are going to get the results that we are seeing, which is a gradual degradation and loss of this valuable natural asset.

It's not just about the Amazonas or indeed about rainforest. No matter what level you look at—whether it's at the ecosystem level or at the species level or the genetic level—we see the same problem again and again.

So rainfall cycle and water regulation by rainforest at an ecosystem level. At the species level, it's been estimated that insect-based pollination—bees pollinating fruit and so on—is something like 190 billion dollars worth. That's something like an 8% of the total agriculture output globally. It completely passes below the radar screen. When did a bee actually ever give you an invoice?

Or, for that matter, if you look at the genetic level, 60% of medicines were prospective, were found first as in a rainforest or a reef. Once again, most of that doesn't get paid. And that brings me to another aspect of this, which is to whom should this get paid? That genetic material probably belonged, if it could belong to anyone, to a local community of poor people who parted with the knowledge that helped the researchers to find the molecule which then became the medicine. They were the ones that didn't get paid.

If you look at the species level, you saw about fish today. The depletion of ocean fisheries is so significant that effectively it is affecting the ability of the poor, the artisanal fisherfolk, and those who fish for their own livelihoods to feed their families. Something like a billion people depend on fish. The quantity of fish in the oceans—a billion people depend on fish for their main source for animal protein. At the rate at which we are losing fish, it is a human problem of enormous dimensions, a health problem of a kind that we haven't seen before.

And finally, at the ecosystem level, whether it's flood prevention or drought control provided by the forests, or whether it is the ability of poor farmers to go out and gather leaf litter for their cattle and goats, or whether it's the ability of their wives to go in and collect fuel wood from the forest, it is actually the poor who depend most on these ecosystem services.

We did estimates in our study that for countries like Brazil, India, and Indonesia, even though ecosystem services—these benefits that flow from nature to humanity for free—are not very big in percentage terms of GDP: two, four, eight, ten, fifteen percent. But in these countries, if we measure how much they're worth to the poor, the answers are more like forty-five percent, seventy-five percent, ninety percent. That's the difference, because these are important benefits for the poor.

You can't really have a proper model for development if, at the same time, you are destroying or allowing the degradation of the very asset, the most important asset, which is your development asset—that is ecological infrastructure.

How bad can things get? Well, here's a picture of something called the mean species abundance. It's basically a measure of how many tigers, toads, sticks, or whatever, on average, of biomass of various species around the green represent the percentage. If you're dark green, it's like 80 to 100%; if it's yellow, it's 40 to 60%. These are percentages versus the original state, so to speak, the pre-industrial era 1750.

Now, I'm going to show you how business-as-usual will affect this, and just watch the change in colors in India, China, Europe, sub-Saharan Africa, as we move on and consume global biomass at a rate which is actually not going to be able to sustain us. See that again? The only places that remain green—and that's not good news—is, in fact, places like the Gobi Desert, like the tundra, and like Sahara. That doesn't help because there are very few species and volumes of biomass there in the first place. This is the challenge.

The reason this is happening boils down in my mind to one basic problem, which is our inability to perceive the difference between public benefits and private profits. We tend to constantly ignore public wealth simply because it is in the common wealth. It's common goods.

Here's an example from Thailand, where we found that because the value of a mangrove is not that much—it's about 600 dollars over the life of nine years that this has been measured, compared to its value as a shrimp farm, which is more like nine thousand six hundred dollars—there has been a gradual trend to deplete the mangroves and convert them to shrimp farms.

But of course, if you look at what exactly those profits are, almost 8,000 of those dollars are, in fact, subsidies. So you compare the two sides of the coin, and you find that it's more like twelve hundred versus six hundred—that's not that hot. But on the other hand, if you start measuring how much it would actually cost to restore the land of this shrimp farm back to productive use once salt deposition and chemical deposition have actually had their effects, the answer is more like twelve thousand dollars of cost.

And if you see the benefits of the mangrove in terms of the storm protection and cyclone protection that you get, and in terms of the fisheries—the nurse fish in nurseries that provide fish for the poor—that answer is more like eleven thousand dollars. So now look at the different lens: if you look at the lens of public wealth as against the lens of private profits, you get a completely different answer, which is clearly conservation makes more sense and not destruction.

So, is this just a story from South Thailand? Sorry, this is a global story. Here's what the same calculation looks like, which was done recently—and well, I say recently, over the last ten years—by a group called True Cost. They calculated for the top 3000 corporations: what are the externalities? In other words, what are the costs of doing business as usual? This is not legal stuff; this is basically business as usual, which causes climate-changing emissions that have an economic cost. It causes pollutants being issued that have an economic cost, health cost, and so on.

Use of fresh water? If you drill water to make coke near the village farm, that's not illegal, but yes, it costs the community. Can we stop this? And how? I think the first point to make is that we need to recognize natural capital. Basically, the stuff of life is natural capital, and we need to recognize that and build that into our systems.

When we measure GDP as a measure of economic performance at the national level, we don't include our biggest asset at the country level. When we measure corporate performance, we don't include our impacts on nature and on what our business costs society. That has to stop. In fact, this was what really inspired my interest in this space.

I began a project way back called the Green Accounting Project. That was in the early 2000s, when India was going gung-ho about GDP growth as the means forward, looking at China with its stellar growth of eight, nine, ten percent and wondering why can't we do the same? A few friends of mine and I decided this doesn't make sense; this is gonna create more costs to society and more losses. So we decided to do a massive set of calculations and started producing green accounts for India and its states. That's how my interest began.

As for the TEEB project, calculating this at the national level is one thing, and it has begun. The World Bank has acknowledged this, and they've started a project called WAVES—Wealth Accounting and Valuation of Ecosystem Services. But calculating this at the next level, that means at the business sector level, is important.

We've done this with the TEEB project. We've done this for a very difficult case, which was for deforestation in China. This is important because in China in 1997, the Yellow River actually went dry for nine months, causing severe loss of agricultural output and pain and loss to society. Just a year later, the Yangtze flooded, causing something like 5500 deaths. So clearly there was a problem with deforestation; it was associated largely with the construction industry.

The Chinese government responded sensibly and placed a ban on felling. But retrospective on 40 years shows that if we had accounted for these costs—the costs of loss of topsoil, the costs of loss of waterways, the lost productivity, the loss to local communities as a result of all these factors, desertification, and so on—those costs are almost twice as much as the market price of timber. So in fact, the price of timber in the Beijing marketplace ought to have been three times what it was had it reflected the true pain and the cost to society within China.

Of course, after the event, one can be wise. The way to do this is to do it on a company basis to take leadership forward and to do it for as many important sectors which have a cost and to disclose these answers. Someone wants to ask me who is better or worse: is it Unilever or TNG when it comes to their impact on rainforests in Indonesia?

I couldn't answer because neither of these companies, good that they are and professionals they are, do not calculate or disclose their externalities. But if we look at companies like Puma, Yokin Sites' chairman once challenged me at a function, saying that he's going to implement my project before I finish it. Well, I think we kind of did it at the same time, but he's done it.

Basically, he worked out the cost to Puma. Puma has 2.7 billion dollars of turnover, 300 million dollars of profits, 200 million dollars after-tax, and 94 million dollars of externalities cost to business. Now that's not a happy situation for them, but they have the confidence and the courage to come forward and say, "Here's what we are measuring." We are measuring it because we know that you cannot manage what you do not measure. That's an example I think for us to look at and for us to draw comfort from.

If more companies did this, and if more sectors engaged, you could have analysts, business analysts, and you could have people like us and consumers and NGOs actually look and compare the social performance of companies. Today we can't yet do that, but I think the path is laid out. This can be done, and I'm delighted that the Institute of Chartered Accountants in the UK has already set up a coalition to do this—an international coalition.

The other favorite, if you like, solution for me is the creation of green carbon markets. By the way, these are my favorites—externalities calculation and green carbon markets. TEEB has more than a dozen separate groups of solutions, including protected area evaluation and payments for ecosystem services, eco-certification, and you name it. But these are the favorites.

What's green carbon? Today, what we have is basically a brown carbon marketplace. It's about energy emissions; the European Union ETS is the main marketplace. It's not doing too well. We've over-issued, a bit like inflation: you over-issue currency, you get what you see—declining prices. But that's all about energy and industry.

What we are missing out is also some other emissions, like black carbon—that is soot. What we are also missing is blue carbon, which by the way is the largest store of carbon. More than 55%, thankfully, the flux—in other words, the flow of emissions from the ocean to the atmosphere and vice-versa—is more or less balanced. In fact, what's being absorbed is something like 25% of our emissions, which then leads to acidification or lower alkalinity in oceans. More of that in a minute.

And finally, there's deforestation, and there's emission of methane from agriculture. Green carbon, which is the deforestation and agricultural emissions, and blue carbon together comprise 25 percent of our emissions. We have the means already in our hands through a structure, through a mechanism called REDD+, a scheme for the reduced emissions from deforestation and forest degradation. And already Norway has contributed a billion dollars each towards Indonesia and Brazil to implement this REDD+ scheme.

So, we actually have some movement forward. But the thing is to do a lot more of that. Will this solve the problem? Will economic solutions solve everything? Well, I'm afraid not. There is an area that is the oceans. Coral reefs, as you can see, they cut across the entire globe, all the way from Micronesia, across Indonesia, Malaysia, India, Madagascar, and to the rest of the Caribbean.

These red dots, these red areas, basically provide the food and livelihood for more than half a billion people. So that's almost an eighth of society. And the sad thing is that as these coral reefs are lost—and scientists tell us that any level of carbon dioxide in the atmosphere above 350 parts per million is too dangerous for the survival of these reefs—we are not only risking the extinction of the entire coral species, the warm water corals; we are not only risking a fourth of all fish species which are in the oceans, but we are risking the very lives and livelihoods of more than 500 million people who live in the developing world in poor countries.

So in selecting targets of 450 parts per million and selecting 2 degrees at the climate negotiations, what we have done is we’ve made an ethical choice. We have actually kind of made an ethical choice in society to not have coral reefs.

What I would say to you in parting is that we may have done that; let's think about it and what it means. But please, let's not do more of that, because Mother Nature only has that much in ecological infrastructure and that much natural capital. I don't think we can afford too much of such ethical choices. Thank you.