Poverty to Rise Unless Economies Factor ‘Nature’s Capital’ into National Accounts

Economists and Environmentalists Gather in London to Bring Environment into Centre of Wealth Creation

London, 10 October 2005 - Poverty will only be made history when nature’s capital is factored into national profit and loss books, one of the world’s leading economists will assert today.

Key to this is creating markets that give real and long lasting value to the goods and services nature provides.

Traditional measures such as gross domestic product (GDP) are short changing current and future generations, says Professor Sir Partha Dasgupta of Cambridge University.

This is because they fail to value the goods and services generated by the natural world and instead treat them as free to use and limitless in their abundance and ability withstand damage and decay.

Such services include the carbon soaking power of forests, the fisheries and coastal defense activities of coral reefs, the pollution filtering-potential of wetlands and the nutrient recycling processes of the earth’s soils.

Currently countries that fell their forests for timber exports, dynamite reefs for fish, pollute their land for intensive agriculture and contaminate their waterways with farm and factory run off can appear to be getting richer in the short term.

In reality, they are likely to be sliding into poverty or, at the very best, treading water, because they are plundering their natural capital—a key pillar of medium and long term wealth.

“Take the Indian sub-continent as an example. On the basis of traditional measures, like GDP, the region has been getting richer since the 1970s but in reality wealth per capita has actually declined. This is because, relative to population growth, investments in manufactured capital, knowledge, skills and health, and improvements in institutions were not sufficient to compensate for the depreciation of natural capital,” said Professor Das Gupta.

This has alarming consequences for not only this but the next generation who stand to inherit a planet with insufficient clean and functioning ‘ecosystems’ to sustain their basic needs let lone their hopes and aspirations.

“Poverty will only be made history when nature enters economic calculations in the same way as do buildings, machines, roads and for example software. It is a particular catastrophe for the very poor,” said Professor Das Gupta.

“As countries mine their natural wealth to fuel economic activity, the poorest of the poor lose their very life support systems. If fish disappears from a rich country’s supermarket shelves shoppers can substitute this loss of protein by buying another form for example pork, beef or soya. Poor people, depending on the natural resources around them, do not have this luxury, do not have this kind of choice,” said Professor Das Gupta.

Klaus Toepfer, Executive Director of the United Nations Environment Programme (UNEP) which is running a two day brainstorming at the London School of Economics on how to mainstream environment in pro poor development strategies, said: “In the end we are all facing poverty if we fail to address environmental decline, if we fail to reinvest in nature’s capital. You cannot continue to drive a car if all you do is put petrol in the tank. It needs servicing, parts require replacing and we must pay for the roads and infrastructure on which it runs”.

“In reality, nature is even more complicated. By continually depleting and damaging it and without investment in the running, maintenance and management costs, the Earth’s life support can suddenly and abruptly fade or switch to become less productive and unpredictable. I believe we are slowly winning this political and economic argument but not fast enough. So we must hurry up otherwise all six billion of us will eventually be scratching around trying to survive,” he added.

Mr Toepfer said this was given fresh urgency by the Millennium Ecosystem Assessment, the work of over 1,300 experts.

According to the assessment, some 60 per cent of the planet's ecosystem services are currently being degraded by human activities.

This week’s two day brainstorming, running from 10 to 12 October, has brought together some of the finest minds in environmental economics as well as senior figures from the environmental and intergovernmental fields.

It is hoped to engage the so called Multilateral Environmental Agreements, covering areas like biological diversity, migratory species and climate.

These treaties could go a long way towards helping refine ecosystem valuations and to improve cost benefit analysis of targeted investments in degraded ecosystems to boost political and financial support for this nature-based approach.

One of the primary aims is to see how pro-poor markets can be created that generate income for those in desperate need while conserving the life support systems upon which they and the rest of the world depend.

Currently, most of the good and services provided by ecosystems have little or no market value despite their importance in the economic lives of communities, nations and the globe.

It has been calculated that tropical forests are worth some $60 billion a year as a result of their carbon removal activities alone which are helping in the fight against global warming.

But these forests, found in countries like the Democratic Republic of Congo or Indonesia, are only valued as timber resources rather than for their even more valuable carbon sequestration services.

Thus governments and local people have less incentive to conserve them and more incentive to cut them down.

Mr Toepfer said the Millennium Ecosystem Assessment and other reports released during the year have made compelling economic cases for conserving ecosystems and for carrying out targeted investments in restoring degraded ones.

Valuing Natural Capital and Ecosystems

New figures show that an intact wetland in Canada is worth $6,000 a hectare versus $2,000 a hectare for one cleared for intensive agriculture.

Intact tropical mangroves, coastal ecosystems that are nurseries for fish, natural pollution filters and coastal defenses, are worth around $1,000 a hectare. Cleared for shrimp farms, the value falls to around $200 a hectare.
The Assessment also puts a value on peat bogs and marshlands. It estimates that the Muthurajawela Marsh, a more than 3,000 hectare coastal bog in Sri Lanka, is worth an estimated $5 million a year as a result of services such as local flood control.

Losses as a result of damage by alien invasive species in the Cape Floral region of South Africa is calculated at around $2,000 a hectare.

The annual recreational value of coral reefs in the six Marine Management Areas of the Hawaiian islands ranges from $300,000 to tens of millions of dollars a year.

Studies from Algeria, Italy, Portugal, Syria and Tunisia also point to the value of intact forests.

These estimate that the value of the timber and fuel-wood from a forest is worth less than a third when compared with the value of their services such as water-shed protection and recreation to the absorption of pollutants like greenhouse gases.

The burning of 10 million hectares of Indonesia's forests in the late 11000s cost an estimated $9 billion as a result of factors including increased health care and tourism losses.

There are also new findings on the link between the spread of disease and environmental destruction. The provision of treated bed nets, the better availability of low cost anti-malarial drugs and the development of vaccines are crucial but so are healthy ecosystems.

Studies in the Amazon by researchers at Johns Hopkins University in the United States have concluded that for every one per cent increase in deforestation, there is an eight per cent increase in the number of malaria-carrying mosquitoes.

This has implications for human health but also to economic development. It is calculated that Africa's Gross National Product (GNP) in 2000 could have been 25 per cent or $100 billion higher if malaria had been eradicated 35 years ago.

Investing in Ecosystems to Meet the Millennium Development Goals on Poverty, Health, Women and Water

Research indicates that investing in nature can provide an excellent rate of return and help meet the internationally agreed development goals.

Every dollar invested in fighting land degradation and desertification may conservatively generate over three dollars in economic benefits helping to fight poverty among the millions living on fragile lands.

Money could be spent on such traditional and soil conserving features like terracing.

Meanwhile every dollar spent on delivering clean water and sanitation is likely to give impressive rates of return of up to $14. It indicates that in some cases the income of the very poor could be boosted fourteen fold.

Here the economic benefits arise from areas including reduced health care costs, increased productivity because of workers spending less time searching for water and improved school attendance.

Conservation of habitats and ecosystems are also cost effective when compared with the short term profits from environmentally damaging activities such as dynamite fishing, mining and sedimentation as a result of deforestation in the interior.

A study of coral reefs in the Caribbean indicates that sustainable harvesting of coral fish for food and industries such as the pet and aquaria trade may be worth $300 million a year, coral-based tourism just over $2 billion annually and shoreline protection from reefs up to $2.2 billion a year.

However, these economic benefits are threatened by damage and degradation amounting to between $350 million and $870 million a year. Overall for every dollar invested in coral reef conservation economic returns will total up to $5.

Meanwhile the carbon storage or “sequestration” potential of forests ranges between $360 and $2,200 per hectare which makes them worth far more than if they are converted to grazing or cropland.

Indeed once carbon reaches over $30 a ton it becomes far more cost effective to conserve forests than to clear them.

Natural capital also serves as back up against calamities such as droughts or crop failures. Studies from Brazil show that farmers in the Amazon’s Tapajos National Park turn to forests products such as nuts and berries when crop yields tumble.

In other words, the forest acts as a kind of nature-based insurance policy for those denied access to formal insurance and financial markets.