The $100 million pond

A bold new idea for protecting nature: Put a price tag on it

By Rebecca Tuhus-Dubrow
April 10, 2011

E-mail this article

Invalid E-mail address
Invalid E-mail address

Sending your article

Your article has been sent.

Text size +

The coral reefs of Hawaii are enchanting: a full spectrum of brilliant colors, teeming with spiky urchins, striped damselfish, sluggish sea cucumbers, and hundreds of other creatures. Many of these species are found nowhere else in the world, and the ecosystem’s uniqueness makes it a darling of oceanographers. Researchers, Hawaiian residents, and visiting snorkelers can all agree: The reefs are a priceless treasure, and their disappearance would constitute an incalculable loss.

But Hawaii’s reefs are more than just photogenic seascapes with sentimental value; they’re economic powerhouses. They provide a suite of quantifiable benefits to Hawaiian society, through fisheries, tourism revenue, and their role as a buffer against wave erosion and tropical storms. The authors of one study collected a mass of data — ranging from fishery income to the cost of renting masks and fins — and placed the value of the reefs at a minimum of $360 million per year. To thoughtlessly damage a coral polyp, in this view, is tantamount to shredding a $20 bill.

A growing number of environmentalists, scientists, and economists have embraced the concept of putting a price tag on nature, which is reframed as “natural capital” and “ecosystem services.” Rather than casting nature as some abstract, awe-inspiring entity, or as a luxury trumped by economic imperatives, they see it as a provider of an array of specific, identifiable services that are vital to our well-being. And increasingly, they are deploying sophisticated methods to arrive at precise and credible dollar values. They hope that their painstaking analyses will lead to smarter decisions about land and water management. And, more broadly, the thinking is that hard numbers will resonate more than odes to Mother Earth — that dollar figures will allow people to better understand their own reliance on natural goods and services, as well as the costs of neglecting or destroying them.

“The value that nature delivers to us is economically

invisible,” says Pavan Sukhdev, study leader of a UN-sponsored report on The Economics of Ecosystems and Biodiversity. “Effectively we pretend that it’s zero. The point is, it’s there.”

In recent years, this approach has gained a foothold in academia, international institutions, and a number of governments. In the United States, China, Costa Rica, and elsewhere, governments have opted to fund the preservation of forests, watersheds, and other ecosystems — and not because, or not only because, of their beauty. The primary impetus, rather, is the “services” they provide, including air and water purification, carbon sequestration, flood control, and drought prevention. The World Bank has sponsored numerous relevant projects, and a Stanford-based initiative, the Natural Capital Project, draws together environmental organizations and academics to advance and implement the idea.

And yet, for all of the obvious appeal of this approach to green types, there are serious concerns about translating ecological value into dollars and cents. Commodifying nature offends the sensibilities of some environmentalists, who believe we should prize it for its intrinsic worth, and for ethical and historical reasons. If we appraise nature only for the “services” it provides to humans, could that lead to an overly anthropocentric ethos that jettisons any elements that do not obviously accrue to our benefit? Several years ago, Douglas McCauley, a doctoral candidate in Stanford University’s biology department, published a much-discussed Nature commentary, in which he stressed the dangers of relying too heavily on this model.

“Ecosystems were not made to serve people,” McCauley wrote in an e-mail from Kenya. “I worry about teaching children and legislators to protect nature *because of* these services. How will generations raised on this message treat costly panda bears, worthless butterflies, or forests whose water purification services have been replaced by human innovation?...I think there are bigger and better reasons to protect nature.”

Most advocates of monetary valuation acknowledge that it cannot constitute the sole basis for conservation; it supplements other, less tangible rationales. (At the same time, some assessments do try to account for those bigger, better reasons, classified as “cultural services,” which include aesthetic and spiritual value.) But proponents insist that without this additional tool in the conservationists’ arsenal, ecological disaster awaits — policy makers deal in numbers and dollars, so pragmatic environmentalists must speak that language too.

As Gretchen Daily, a Stanford biology professor and chair of the Natural Capital Project, puts it, “Conservation, using traditional approaches, is utterly doomed to fail.”

Some parts of nature, of course, have long had prices: Timber, salmon, blueberries, and other goods have a market value. But efforts to place a price on natural services with no market value began to take shape in the 1970s and 1980s. This period saw the advent of a field called “ecological economics,” in which scientists and social scientists attempted to reconcile two disciplines that were often at odds. In 1997, some of this work culminated in a seminal Nature paper by Robert Costanza, then a professor at the University of Maryland, and others. The paper estimated the value of the earth’s natural capital to be an average of $33 trillion per year, as compared with a global gross national product of about $18 trillion. Reflecting on natural capital’s indispensability to the world economy, the authors suggested that it should be factored into everything from national accounting systems to commodity prices.

In the mission to valuate nature, there are two distinct but complementary tacks. Calculating the global or national value of natural capital is a fundamentally “rhetorical” exercise, as Duke University law professor James Salzman notes; the point is to convey in a forceful, concrete manner the enormous worth of these assets. The other approach, which has gained currency recently, is much more practically oriented: to try to assess the economic outcomes of different interventions in specific places, in order to manage land and water more wisely.

So how do you assign a dollar value to something as nebulous and unpredictable as nature? It’s not easy, but a variety of methods have emerged. One relatively straightforward strategy is to make a direct comparison to alternative scenarios. What cost would be incurred — in the form of natural disaster, lost income, etc. — by the degradation of, say, a wetland, which offers water filtration and flood protection? Or a forest, whose benefits include carbon storage, air and water purification, timber, and fuel wood? Similarly, how much would it cost to create a technological substitute for, say, clean drinking water, such as a filtration plant? Or a levee to replace mangroves as flood buffers?

“If we were to provide that service, is it cheaper to provide it with landscape management?” asks Salzman, who is involved in the Natural Capital Project. “You can provide it through built capital or you can provide it through natural capital.”

Assessments of more amorphous value can be made by proxies. For example, you can compare housing prices near a beach or a mountain range to similar houses in a different locale. This, in theory, provides a clue about the implicit value homeowners place on the natural area. Similarly, the “travel cost method” looks at what visitors pay to enjoy a site in terms of transportation expenditures and time. The “contingent valuation” method surveys people about how much they are willing to pay for a given ecosystem service.

Of course, daunting challenges arise. First are the scientific ones: Ecosystems are complex, dynamic affairs, subject to so-called feedback and threshold mechanisms, in which abrupt, unforeseen changes take place. It is often exceedingly difficult to predict how an intervention will affect the multiple, interacting services at stake. Then there is the task of translation into monetary values. The method of surveying people depends on their opinion of the value — and part of the problem is limited awareness of that value, as Costanza, now at Portland State University, points out. (On the other hand, such surveys entail no actual financial sacrifice, so the answers could be artificially generous.) There are also difficult ethical questions, regarding, for instance, how much weight to give present versus future benefits. Stefano Pagiola, an economist at the World Bank’s Sustainable Development Department, says the field is “polluted with bad estimates.”

Despite the hurdles, there are now a number of projects underway throughout the globe, often under the rubric of “payment for ecosystem services.” Not all of them attempt to rigorously determine the monetary value of the services; they simply recognize the economic benefits of conservation, and offer some financial reward on that basis.

One of the most celebrated examples is in New York City, which gets most of its water from the Catskill/Delaware watershed. By conserving land upstream — through acquisitions and payments to landowners — the city has avoided the need to build a new filtration plant, which would cost billions of dollars. Most recently in 2007, the city pledged $300 million over 10 years to these investments. Within the past two years, Santa Fe and Denver have opted for similar policies, as the news source Ecosystem Marketplace has reported. In China, devastating floods and drought in the late 1990s spurred leaders to take action, when they realized deforestation was a primary culprit. (Forests absorb and slowly release rainwater, providing the “services” of flood and drought prevention.) They launched initiatives, still ongoing, to pay villagers to conserve forests and to convert cropland back to forest and grasslands. Costa Rica also has a longstanding program paying landowners to conserve and restore forests.

A few models are emerging to try to calculate reliable, meaningful dollar values. One, in development by the Natural Capital Project, is called InVEST, for Integrated Valuation of Ecosystem Services and Tradeoffs. The software analyzes the benefits of services like water quality and quantity, erosion control, carbon sequestration, and pollination. It models alternative scenarios to inform users how ecosystem services would be affected, presenting outcomes in the form of maps, balance sheets, and “tradeoff curves.” The results show both tradeoffs and synergies between different services — so that, ideally, policy makers might choose to prioritize the areas that maximize useful service provision. At least four “water fund” projects in South America — in which downstream users, including a hydropower company and a beer bottling business, pay people upstream to keep the water clean — are using InVEST. The Natural Capital Project is working with Google to make it freely available on the Internet. Other new tools — two prominent examples are EcoMetrix and ARIES — have similar aims.

But even as these techniques become increasingly refined, they will not suffice to effect the widespread change their inventors are seeking. Only in certain cases will crunching the numbers show conservation to be the fiscally obvious choice. For example, in the absence of a carbon tax or a cap-and-trade policy, the tools can calculate the social value of carbon storage, which would mean long-term economic savings for society at large. They can’t, however, claim that carbon storage has a current monetary value for an individual company or municipality or private landowner.

“I don’t want to be too cynical,” says Steve Polasky, an economist at the University of Minnesota who works on InVEST. He acknowledges that some people would consider the social value seriously, but “the cynical part of me says, you know, you really do have to have the right set of incentives in place.”

The development of these tools and the proliferation of related projects have occurred against the backdrop of a broader philosophical shift in environmentalism. Historically, conservationists had sought to fence off pristine wilderness, protecting it from any human interference. Over the past few decades, the ethos has evolved to emphasize the interdependence of humanity and nature. In part, this is sheer realism: With a global population nearing 7 billion, people have to find ways to live in concert with nature. This newer focus also stems from the recognition that human survival depends directly on healthy ecosystems. Not incidentally, it also happens to be seen as a more effective way of selling conservation to those who are disinclined to be tree-huggers — i.e. it’s not just for the cute and furry animals, it’s essential to us, too.

But this more utilitarian view — nature as handmaiden to human well-being — has elicited skepticism. One critique questions its accuracy. Mark Sagoff, director of the Institute for Philosophy and Public Policy at George Mason University, has written that “we benefit from nature not by preserving but by ‘improving’ it — for example, by plowing a field, building a road, constructing a house, drilling a well, damming a river, farming a salmon or oyster, or altering a genome.” He has challenged the received wisdom about New York’s water plan, pointing out that the city uses chlorine to disinfect the water, and that one of the greatest sources of pollution is fecal matter from wildlife.

The utilitarianism also troubles some environmentalists: What happens when the filtration plant becomes cheaper than conservation easements? These environmentalists hold dear the useless magnificence of nature, its bizarreness and its fearsomeness, whether in the funny face of a snub-nosed monkey or the dizzyingly precipitous walls of a canyon. The value they perceive resists quantification — even in the form of “cultural services.”

And yet, they see that older approaches have left the environment deeply vulnerable. The greatest weakness of pricing nature — its kinship with market ideology — is also its greatest strength.

Douglas Kysar, a Yale law professor and author of the book “Regulating from Nowhere: Environmental Law and the Search for Objectivity,” expresses what may be a common ambivalence — wary in theory, resigned in practice. “We used to have this idea of being humbled by nature, being awestruck by its ability to exceed our comprehension, to exceed our mastery,” he says. He worries that the logic of ecosystem services “reinforces a deeper mindset that is very much in tension with the needs of ecology.”

But on an immediate, practical level, he supports the efforts as far preferable to the status quo. “It fits with the dominant ideology — and if you can’t beat ’em, join ’em.”

Rebecca Tuhus-Dubrow is an Ideas contributing writer. She can be reached at