Pushing the Ideas of a Green Economy: Methods for Evaluating Ecosystem Services and Natural Capital

Decisions are founded on simplistic cost-benefit principles and for the better part of human existence, this shallow approach has led us to the staggering seven billion people sharing this one Planet. Unsurprisingly, this caused us to surpass four of our nine planetary boundaries, also known as thresholds in which this Planet is safe for human life.

Planetary boundaries according to the paper by Rockström et al. published in Nature 2009.

This information is made widely available, but is generally ignored by decision and policy-makers. Science has now turned to its lacklustre cousin, economics, to solve the world’s issues, under the umbrella of a Green Economy. It seems that when an ecosystem service can be pegged with a price tag policy makers begin to shift in their seats. Organizations like TEEB are at the forefront of these initiatives, translating the benefits of our natural world into dollar signs with huge success. The Institute for European Environmental Policy refines this idea in practice through its presentation titled Nature and its role in the transition to a Green Economy. A shortcoming is addressed as the efforts for assessing ecosystem value are heavily diluted as we move up the Benefits Pyramid. They state that:

  • There must be a clear understanding of the value of nature and how to take this value into account in public and private decisions in light of the multiple benefits it provides. This is one of many ways of assessing the role and importance of nature.
  • It is important to understand that identifying the value of nature does not suggest that it should have a cost or a price or be traded in the market and hence commoditized.
  • Furthermore, an economic valuation does not necessarily imply a policy response using market-based instruments; there are many instruments that can be used to reflect the values of nature.

Benefits Pyramid

Environmental Impact Assessment (EIA) can greatly benefit from incorporating natural capital by bringing forth the much needed economic dimension of ecosystem services. According to Noble (2010), scoping is designed to delineate the “key issues and the boundaries to be considered in the assessment”. After the initial scoping phase, impact prediction, evaluation, and management become the crux of the EIA process since they contribute to environmental protection plans. Natural capital can be integrated at the onset of the EIA process as an economic indicator highlighting the importance of ecosystem services. The question you should be asking is: How do I calculate natural capital for EIA?

Henceforth, this will be Dillon Crosilla and my contribution to the ‘science’ of economics and its implications for EIA. The inspiration for an equation comes from Risk Analysis as explained by Peter Sandman and the many initiatives put forth by TEEB. The equation is based on calculating a Return on Investments (ROI) by incorporating natural capital through ecosystem service.

The Return on Investment formula according to Investopedia:

The goal of the following section is to encapsulate the Benefit Pyramid into one economic indicator. The process of evaluating impacts to ecosystem services is based on the degree of change from a natural state (magnitude) followed by the anthropogenic viewpoint that boils down to ‘how much do we care about that change’ (outrage). Next we can add the actual risk these changes may have (hazard). It does not have to stop there; natural capital can encompass the entire range of variables.

Natural Capital =

Hazard * Magnitude * Outrage * Hazard * Extent (Temporal and Spatial) * Degree of Reversibility * Likelihood to Occur * Nature (Direction of Change)…

The best part of this equation is how it can be modified to integrate whatever ecosystem services could be impacted by adding them all together. Natural capital, in this case, is meant to encompass the full value of an ecosystem. Our (simple) modification is based on adding a measure for natural capital to the equation of ROI to better reflect the loss of ecosystem services due to the proposed project’s impacts.

ROI =  (Gain From Investment – Cost of Investment) ÷ (Cost of Investment + Natural Capital)

Going forward would mean that this idea is put in practice and used as a measure for decision making. There exist plenty of other ways to gauge environmental impacts and many more ways of understanding ecosystem services and hopefully this minor contribution can solicit a different take on the EIA process.

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References

Institute for European Environmental (2014) Nature and its role in the transition to a Green Economy. Policy. Accessed February 1st, 2015 from: http://www.europarc.org/uploaded/documents/1902.pdf

Noble (2010). Introduction to Environmental Impact Assessment – A Guide to Principles and Practice. Oxford University Press, Second Edition, Canada, 2010