Environmental accounting aims to assign dollar value to nature's bounty
What is a sip of clean water worth? Is there economic value in the shade of a tree? And how much would you pay for a breath of fresh air?
Putting a price on a natural bounty long taken for granted as free may sound impossible, even ridiculous. But after three decades on the fringes of serious policymaking, the idea is gaining traction, from the vividly clear waters of the Maldives to the sober, suited reaches of the World Bank.
As traditional measures of economic progress like GDP are criticized for ignoring downsides like pollution or diminishment of resources such as fresh water or fossil fuels, there has been an increased urgency to arguments for a more balanced and accurate reckoning of costs.
That is particularly so as fast-developing nations such as India and China jostle with rich nations for access to those resources and insist on their own right to pollute on a path toward growth.
Proponents of so-called green accounting, gathered in Rio de Janeiro this week for the Rio Earth Summit, hope that putting dollar values on resources will slam the brakes on unfettered development. A mentality of growth at any cost is already blamed for disasters like the chronic floods that hit deforested Haiti or the raging sand storms that have swept regions of China, worsening desertification.
Can't manage what you don't measure
Environmental economists argue that redefining nature in stark monetary terms would offer better information for making economic and development decisions. That, they say, would make governments and corporations less likely to jeopardize future stocks of natural assets or environmental systems that, while mostly unseen, make the planet habitable, from forests filtering water to the frogs keeping swarming insects in check.
If the value of an asset like a machine is reduced as it wears out, the same accounting principle should apply to a dwindling natural resource, proponents of green accounting say.
"Environmental arguments come from the heart, but in today's world based on economics, it's hard for arguments of the heart to win," said Pavan Sukhdev, a former banker now leading an ongoing project that was proposed by the Group of Eight industrialized nations to study monetary values for the environment.
That study, started in 2007, has estimated the world economy suffers roughly $2.5 trillion US to $4 trillion US in losses every year because of environmental degradation. That's up to seven per cent of global GDP.
"We need to understand what we're losing in order to save it," Sukhdev said. "You cannot manage what you do not measure."
Using the same accounting principles, some countries are already changing policy.
The Maldives recently banned fishing grey reef sharks after working out that each was worth $3,300 a year in tourism revenue, versus $32 paid per catch. Ugandans spared a Kampala wetland from agricultural development after calculating it would cost $2 million a year to run a sewage treatment facility — the same job the swamp does for free.
Green record-keeping unlikely in Third World
But environmental accounting still faces many detractors and obstacles. Among them is resistance from governments who might lack the resources and expertise to publish a "greened" set of national accounts alongside those measuring economic growth. Particularly in the developing world, many still struggle to produce even traditional statistics that are timely and credible.
And even practitioners are riven by debates on how to put a price on a vast range of natural resources and systems that encapsulate everything from pollination by bees to the erosion prevented by mangroves in an estuary. The single largest difficulty is that markets, which are the easiest way to value goods and services, don't exist for ecosystems.
"Since many things don't formally have a market price, how do you value them? Almost all the debate and discussion really hinges around valuation issues, and that is where it can get flakey," said India's former chief statistician Pronab Sen.
At one extreme, said Sen, are people who say natural resources should get a zero value since we don't know how to value them. Others argue that the values for such resources should be infinite, meaning they can't be touched since no one has an infinite amount of money.
Opposition is also expected from parts of the corporate world, since green accounting could make doing business or buying products more expensive.
A forest once valued by what its trees fetch on the timber exchange might instead be valued according to the carbon dioxide it absorbs, the animals it supports, the water it filters and the firewood it provides. Or it could be revalued with future generations in mind. That might lead to higher felling fees, pricey replanting requirements or more expensive wood. Some might rethink the economic benefit of cutting it down. Science would become a more important factor in economic decision-making.
Some businesses, governments on board
Some businesses, however, are embracing the idea to appeal to consumers demanding more accountability. Supermarkets like Britain's Tesco now offer carbon footprints on packaging alongside calorie counts.
At a national level, green accounting is already being embraced by some governments, even if still in piecemeal fashion.
India in April announced plans for green national accounts by 2015 though it's unclear if the country's chaotic bureaucracy can reach that target. Australia will soon begin taxing carbon dioxide emissions, which Costa Rica has been doing for a decade to fund forest preservation.
Late last century, a team of U.S., Dutch and Argentine researchers put a $33 trillion value a year on natural resources such as water, wood and fossil fuels and "services" such as a forest's absorption of carbon dioxide. The estimate is more than double the value of the U.S. economy, the world's largest. While admitting difficulties and uncertainties in their methods and calculations, the team's report said the $33 trillion figure was conservative.
Carbon credits, perhaps the best-known example of giving a value to an environmental good, also illustrate the difficulties. Experts thought the pricing of carbon credits might have been straightforward, since emissions are easily measured and every CO2 unit is the same. But the carbon market wobbled wildly for years over estimates ranging from $5 to $500 per unit.
Other resources open worlds of debate. Water — frozen, liquid or gas —is found just about everywhere from vast oceans or tropical mist to mountain glaciers and underground aquifers. It's used for drinking, bathing, growing plants, processing sewage, powering hydroelectric plants, driving weather systems and more. So, not all water is created equal.
But should one lake be worth more than another? Does it matter if people depend on it, or if it supports schools of tasty fish? Should it even matter what it's used for now? Or is it more important to consider if it can be replenished?
Some argue such questions make it clear that subjecting the natural world to free market ideology is immoral and counterproductive.
"The result would be the further privatization of essential elements of our planet to which we all share rights and have responsibilities," writes Hannah Griffiths from the World Development Movement, a U.K.-based anti-poverty campaigning organization, in a recent essay for the Guardian newspaper.
UN framework exists
Still, some experts in the field say the world is on track to having comprehensive green accounts within 10 to 15 years.
A crucial advance has been the UN's quiet adoption in April of a framework of agreed concepts and definitions for green accounting that can be applied in any country. It took two decades to develop but stops short of valuing complex ecosystems.
"The accounting is not pie in the sky anymore," said economist Peter Bartelmus, who led the original United Nations effort.
The World Bank, meanwhile, is backing projects in Botswana, Colombia, Costa Rica, Madagascar and the Philippines that are looking for ways for national accounts to include the value of natural resources.
"Doing something is better than doing nothing. We shouldn't even aim for perfection, either," said Sen, the former statistician.
"It is much more important to come up with a methodology that people find intuitively acceptable rather than looking for hard commercial truths. If at a gut level people find it fair, then I think we can run with the idea."