All human activity, including the global economy, is made possible through the diversity of ecosystem services nature provides. In this report, a brief overview is provided of how new initiatives in economics evaluate the services that nature provides. The value of these services can be broken down roughly as shown in Figure 1[1]
Figure 1: Ecosystem Services Value Classification
The value of our environment can be measured not only in terms of what benefits are derived for humans, but also looking at what is called the intrinsic value of nature.
There are people who argue that we should look past the benefits we, as humans, derive from nature, recognizing instead that nature has inherent or "intrinsic" value, simply because it exists. On the other hand, there are also those who argue that if nature is not evaluated from the viewpoint of the service provided to human society, there is no way to incorporate protective measures in to our political and institutional frameworks.[2]
Still others argue that animals have the ability to perceive, display joy and pain, and feel pleasure and discomfort. They argue that stepping back from our anthropocentric viewpoint we should objectively recognize the existence of such feelings, allowing us to show a basic dignity toward sentient creatures thus treating them with due respect.[3]
This argument is the basis for animal rights laws that exist in some countries.
There have been various attempts to measure the economic or monetary value of ecosystem services. In 1997, a team led by Robert Costanza attempted to put monetary value on 17 different ecosystem services and concluded that the total value was between 18-54 trillion dollars per year, as compared to total global GNP, which was 18 trillion dollars at the time. The paper introducing this research created much controversy and as of today there are greatly differing views as to the value of this approach. Some scientists believe such an approach to be meaningful because it helps us deal with the value of nature in an economic framework, while others describe it as meaningless because, ultimately, no value can be put on the ecosystem services that underpin human existence.
Here, three different methods used to try to incorporate the value of ecosystem services to our modern economic system are described briefly -the Traditional Market Approach, Household Production Function, and the Hedonic Price Method. Each methodology evaluates ecosystem services based on data gathered from the market and the prices associated with them.
Traditional Market Approach
Application: A method of measuring the total value of ecosystem services by looking at the current market price for damage caused when an ecosystem service fails, as well as the market value of potential gains when an ecosystem service improves.
Examples:
Cost of substitution: Judging the value of the environment by the cost to replace a lost ecosystem service or to develop a substitute.
Examples:
Household Production Function
Measuring the value of ecosystem services by looking at how personal spending is influenced.
Application: For example, estimating the monetary value of clean tap water based on the point at which consumers purchase water purifiers or begin boiling water.
Travel Cost Method:
Measuring the value of ecosystem services by conducting a survey to find the amount of money people spend to visit swimming and other recreation areas.
Hedonic Price Method
Measuring the value of ecosystem services by estimating how changes in the services affect real estate, housing costs, and wages.
Example:
Examining the effect on real-estate value of noise, vibrations, air quality, water quality, etc.
Examining the effect of differences in working environment on wages.
There are various criticisms of monetary evaluation methods for ecosystem services.
Ecosystem services cannot technically be evaluated correctly
Monetary evaluation creates more problems than it solves
There is no need to measure the economic value
Political choice can well enough be made based on real and available information (such as the unemployment rate)
On the other hand, one of the merits of assigning a monetary value to ecosystem services is that such an approach fits well within the current economic model thus offering an easy way for people to make judgments. It is argued that one reason that the value of nature and ecosystem services has been neglected until now, it is argued, is that the value was hard to understand. To explain the merits and demerits of a given policy or environmental measure, it is thought to be useful to provide a cost benefit analysis. In order to conduct an objective, scientific discussion on the issue, however, it is important that the monetary evaluation is made from a neutral viewpoint.
Finally, there is the opinion that assigning monetary value by the use of opinion surveys. The Contingency Valuation Method (CVM), in particular, is a democratic approach, and that the acceptability of the policy in question will increase when such methods are applied.[4]
While there are those ecosystem services that can be evaluated based on market values, there are also many aspects of the environment that cannot be correctly evaluated based on market valuation. "Place," "deadline," and "quantity" are surrounded by uncertainty and are virtually impossible to define when we talk of the provision of ecosystem "services." The fact that some extremely valuable ecosystem services once lost may be impossible to recover further complicates the picture.
Opinions among economists are thus divided as to whether or not man-made capital and natural capital have a "substitutable" relationship, or a "complementary" relationship.5 Those who see them as substitutable are of the so-called "weak sustainability school," promoting the view that sustainable development is possible if, where natural capital is depleted, it is replaced by man-made capital, ensuring that the aggregate amount future generations inherit is not reduced.
The "strong sustainability school," on the other hand, takes the stance that man-made capital and natural capital are not substitutable, but complementing parts of a whole. Those who subscribe to this view think it is important that neither man-made capital, nor natural capital are significantly diminished.
Whichever the case, our economy cannot function or even exist without ecosystem services. Our economy operates by extracting resources and energy from nature and emitting waste and emissions back into the ecosystem. Humans cannot enjoy healthy, culture-rich lives, without the amenities provided by our environment. Our very existence depends on whether or not we manage ecosystem services intelligently in our social and economic institutions and policies.