Putting a Price on The Real Value of Nature

Indian banker Pavan Sukhdev has been grappling with the question of how to place a monetary value on nature. In an interview with Yale Environment 360, he discusses the ways natural ecosystems benefit people and why policymakers and businesses must rethink how they assess environmental costs and benefits.

How do you put a price on the value of nature? That’s the question Indian banker Pavan Sukhdev and his colleagues are seeking to answer in their international project on The Economics of Ecosystems and Biodiversity (TEEB), which published its latest report last month. The challenge, as Sukhdev sees it, is how to address the “economic invisibility of nature,” which allows the economic value of ecosystems to be ignored by governments and businesses.

Pavan Sukhdev
Pavan Sukhdev
In an interview with Yale Environment 360 editor Roger Cohn, Sukhdev, who heads a green consulting firm in based in India, cited crucial benefits from nature that are often overlooked, including the capacity of wetlands for filtering water, the role of forests in preventing erosion and flooding, and the importance of bees in pollinating crops. “When did the bees last send you an invoice for pollination?” he asks.

Sukhdev contends that the current tough economic times globally might be the right moment to promote awareness of the real value of natural systems. “If we think differently,” he says, “if we value natural capital, if we see its productive potential and its employment potential, we might have solutions in our hands.”

Yale Environment 360: You’ve been focused on the importance of putting a monetary value on nature and on ecosystem services. Can you explain what you mean by that?

Pavan Sukhdev: Well, partly it’s the challenge of addressing what I call the economic invisibility of nature, because nature provides a hell of a lot to us — whether it’s clean air, fresh water, or nutrients and water cycling for agriculture, or whether it’s disease prevention or recreation. There’s a lot coming to us free. These are goods and services which are not market goods and services. They’re in the nature of public goods. But the problem is that we are not in a situation of plenty anymore. We have been eating into this capital, so to speak, that’s providing us free, but valuable, services. We use nature because it’s valuable, but we lose it because it’s free.

As a society, we just got so entranced by this idea that value means market value. And we can’t seem to get over the fact that there’s a lot that’s valuable which doesn’t have a price. Now how do you get this inside people’s heads? I think that’s the challenge for my [TEEB] project… I hate the term “putting a price on nature,” because there’s more than that. It’s more about valuing nature.

e360: But you have, in some of the studies you’ve done, tried to put a monetary value on it. Can you give an example of an ecosystem service that should have a value placed on it, and how you would go about monetizing it? Give a couple of examples.

Sukhdev:Well, a slightly tongue-and-cheek one, if I may. It has to do with sanitation. Toilets. And this is about basically a sewage system for the city of Kampala, Uganda. Now as it happens, their sewage system in Kampala was a swamp — basically a large swamp of about 40 square kilometers — which the local administration at one point decided to
Nature has a value — it’s just that it’s not market-price value.”
convert into additional land by damming up the swamp and converting it to agricultural land. Until an economist pointed out that the value of this horrible mosquito-infested swamp, as a way of eating up the human sewage from the city of Kampala, was something like $2 million. The economist also pointed out that to build an alternative physical [sewage-treatment] plant would cost a huge amount of money and would cost another one-and-a-half-million dollars to run. And all this was being provided free by this swamp — the swamp was doing it for free.

When did the bees last send you an invoice for pollination? That’s a more global example where a group of researchers calculated the global value of pollination for food-bearing trees and various forms of agriculture to be of the order of $190 billion per annum. Billion. We are not talking about small numbers.

e360: And that has been an issue, of course, the collapse of bee populations.

Sukhdev: Correct. In fact, a few years back, I think the estimate was a loss of something like $15 billion of value here in the U.S., thanks to [bee-population collapse]. So these are, again, free services, but you really feel the cost of them if you lose them. We should put in these values and make people understand that when they’re making trade-off choices. If you’re thinking of it as a weighing scale, it’s not as if the pan on one side is empty. Nature has value — it’s just that it’s not market-price value.

e360: How do you realistically get governments and businesses to think this way and to start acting this way? It’s one thing to sit here and theoretically talk about it. How do you do that?

Sukhdev:Well, we found in the TEEB project that there’s actually a strong correlation between the persistence of poverty and the dying out of nature. Typically we find that the people who suffer the most when you lose forest, or you lose wetlands, are actually the poor. I mean, the forest is not theirs, but the poor farmer is the one who suffers from the flood or the drought. If the forest is not there, then it’s his goats and cattle who can’t go in and forage for leaf litter. If the forest isn’t there, it’s his wife that has to walk an extra ten miles to get fuel wood for the cooking. So it’s usually the poor
“There are 20-odd countries where there is an interest in working out nature values.”
farmer and the poor pastoralist who are the sufferers of loss of nature.

By various estimates, there’s something like a billion to 1.2 billion people around the world who are still dependent on natural ecosystems for their survival. And we did economic projections for Brazil, India, and Indonesia and found that the costs of these ecosystem services are not huge if you compare them with the GDP of developed countries. But if you look at the poorest people, this is, like, 50 to 90 percent of their total livelihood income — all the stuff that comes to them free from nature. That’s its real value. So once governments get that logic, then attitudes do change.

e360: What countries are those that have been receptive to what you’ve been saying in the TEEB reports?

Sukhdev: Well, the ones who have actually sort of embraced the TEEB project, who actually started local implementations, are Brazil, India, and the rich ones you sort of expect — Norway, Germany, and the Scandinavian countries. And we are finding a very interesting set of developing countries like Georgia, where the president has just written us and the UN a letter saying, “Can you please assist with a Georgia TEEB study?”… I mean, there are about 20-odd countries where there is an interest in taking this forward and basically working out nature values. And there are some developed countries where work is really pretty advanced, like the UK, for instance. They’ve done a complete ecosystem assessment.

e360: What about business? Has business been as receptive as government?

Sukhdev: With business, it’s a lot more difficult, because business is driven by profits. It has to be by law. It’s about shareholder value. So you have to prove it on one of three counts. Either that they’re missing out on risks which they’ve not recognized — for instance, if BP had thought about the ecological value at-risk concept [before the 2010 Gulf of Mexico oil spill], then they might have come to the view that these pressure-sealing, sound-sealing caps — which close immediately whenever there’s a shock or a sound and are worth half a million dollars a piece — are actually a good investment. They’re an insurance policy against a huge ecological value at risk.

So sometimes companies can get it right because they understand risk. Sometimes they get it right because they see an opportunity, as in there is a carbon market, or an eco-certification market, or an eco-labeling market, or there’s a premium being paid on such and such. And sometimes it’s that you will have to disclose these impacts eventually anyway [in public and shareholder documents].

e360: Can you give some of the examples besides BP and oil where a type of company or a specific company would have to factor in and disclose something like that?

Sukhdev: Sure. Let’s take a construction company, for instance, which is using logs or wood. Now if it’s sourcing them sustainably, that’s fine. It’s probably worthwhile for them to disclose how little impact that has on ecosystems. But if it’s sourcing its logs and wood unsustainably, you need to disclose the total of forest impact.

For example, we did a study of the entire construction sector in China between the years 1950 and 1990 using data from China — correlating the drawing of wood from China’s forests, and working out what was the impact
“The people who worked on the TEEB project agree that the economic invisibility of nature is a problem.”
on the Chinese people in terms of loss of nutrient value, disruption due to floods and droughts, loss of waterway value, and things like that, which are basically as a result of deforestation. To give you an example, in 1997, there was a severe drought. The Yellow River went dry for nine months. No water. Villages lost their entire livelihoods. 1998, a year later, the Yangtzee floods, and 5,500 people die after a lot of destruction. During the period from 1950 to 1998, there was a huge amount of cost.

So we calculated what the costs would have been if you were a construction company in China — how much would the cost be? — and then we converted that into what would have been the real price of wood in China had you accounted for these costs? And lo and behold, the answer was 250 percent higher.

e360: Wow.

Sukhdev: Another example is fresh water. Take the impact of the cotton industry in central Asia on fresh water and on the drying up of the Aral Sea, and the economics of that. There are many examples where at a company level, or at a sector level, you can calculate the impacts.

e360: A cynic might say that you actually in a sense devalue nature by putting a price on it because there’s no way of calculating the intrinsic value in nature. How do you respond to that?

Sukhdev: I respect that cynic, because that is a valid point and a genuine concern that’s been bothering us literally from the beginning. The people who worked on the TEEB project all agree that the economic invisibility of nature is a problem. But we also all agree that there’s a huge risk in blind monetization. And that’s not what we’re about. So when we talk about valuation, we see it as a human institution. And we know that there are societies, and there should be societies, that just value pristine nature because it’s a connection. It’s a spiritual connection.

In my country in India, there are sacred groves. Thousands, literally thousands of sacred groves where villages will just simply not touch that
There are societies that value pristine nature because it’s a connection. It’s a spiritual connection.”
piece of forest. They will not allow it to be touched because, you know, it’s their spirits and their ancestors and their deities that live there, and they’re concerned. Now, what’s the value of that sacred grove? Well, it’s infinity, because you have to kill them before they let you cut it. So society has valued it, in a sense, at a spiritual level. That’s valuation as well, right?

Then sometimes societies value it from the point of view of heritage, patrimony. A century or so ago when, you know, national parks were declared in the UK, in Yorkshire or in the Lake District, or here [in the U.S.] in Yosemite and places like that. There was a sense of patrimony, that this is extraordinary and we need to leave this as a bequest to our future generations. Well, do you think they’re putting calculators with economic numbers? Forget it. They just said, this is patrimony.

e360: You, in the TEEB report, did try to put a monetary value on the damage done to the natural world in a single year by human activity, and I think you put the damages somewhere between $2 trillion and $4.5 trillion. How did you arrive at a figure like that, and what accounted for some of the most costly and significant damage?

Sukhdev: What we did was to calculate all of the ecosystem service values and make estimates. For instance, how much is there in terms of eco-tourism? How much is there in terms of providing medicinal cures out of discovery of new remedies? How much is there in terms of bee-based pollination, et cetera, et cetera, et cetera. Literally a long, long list of values. And the biggest one was the carbon values — if you have a forest, and it’s being lost at a particular rate per annum, that is creating further emissions, or if you have a standing forest, it would provide carbon capture. If it’s being lost, it’s creating emissions, and those emissions have an economic cost.

e360: Your latest [TEEB] report came out last month, and you’ve been focused on this issue now and talking about it publicly at a time when the world economy has been tanking.

Sukhdev: That’s right.

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e360: Are people receptive to this message or this way of thinking now, or is this something that may have to wait for flusher times for people to really respond to it?

Sukhdev: The knee-jerk reaction is, “Oh God. This is not the time to talk about it. Let’s get jobs back.” I have a contrarian view. My point is that, look, when things are good, people don’t think of change. People only respond to the need to change when things are bad, and they’re struggling, and they want different solutions. Adversity opens the mind. And we have adversity. And therefore, minds must be opened…

Let’s work on a global green new deal because this is the time to communicate that there is a problem with the economic model. If we think differently, if we value natural capital, if we see its productive potential and we see its employment potential, we might have solutions in our hands.

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