From Exploitation to Conservation: Recognizing the Value of Natural Assets

Nature and ecosystems provide various goods and services categorized into four main types: (i) provision services (e.g., food, timber, fresh water, medicinal plants); (ii) regulating services (e.g., pollination, purification, climate regulation, flood protection); (iii) cultural services (e.g., recreation, spiritual and aesthetic, education); and (iv) supporting services (e.g., soil formation, nutrient cycling). 

Based on these services, the values of nature can be classified into use and non-use values. Use values can be direct or indirect. Direct use values are provided by provisional services such as foods, crops, fish, and water directly consumed by people. These values are often priced in markets. Indirect use values are mostly attributed to regulating and supporting services. These values may not be experienced immediately by people but provide functions without which human life and society cannot sustain. 

In addition to use values, natural systems also generate non-use values, mostly derived from cultural services, categorized into bequest value and existence value. Bequest value refers to the knowledge that future generations can benefit from natural systems, while existence value is related to the knowledge that ecosystems and biodiversity exist. These non-use values are more abstract and rely on human perspective. For example, a person does not need to use or see an ecosystem (e.g., wetland, lake), but its existence may still bring satisfaction and contribute to the person’s welfare.

Until a few centuries ago, humans enjoyed and harvested abundant natural resources without witnessing any major repercussions of their activities. At the time, the demand for and use of nature had not exceeded its capacity for regeneration. Moreover, the loss of habitats or ecosystems could take a lifetime to become noticeable due to time lags, contributing to ignorance of natural assets. For many centuries, it was mistakenly believed that nature could never be irreversibly degraded.

The rapid growth of the global population in a limited environment has transformed natural resources from plentiful to scarce. In times of abundance, the marginal values of these resources are minimal. Adam Smith's well-known diamond-water paradox highlights how people historically undervalued water compared to diamonds. Now, however, in an era where water is increasingly scarce, it's crucial to reevaluate this perspective. The marginal value of water is likely to soar as its availability diminishes. When society harms nature to the point where it can't support basic human needs or regenerate itself, the marginal value of nature, or the cost of losing even a single unit of it, could become immeasurable.

Valuing nature is challenging due to the complexity of assigning monetary values. While direct use values of ecosystem services have clear market prices, many goods and services from nature lack market value. Various methods, ranging from simple to complex, exist to quantify these non-market values of ecosystem services. It's essential to include all use and non-use values in the total valuation of nature, encompassing non-market aspects such as life support functions, spiritual, emotional, and cultural values.

The failure to accurately value nature has exposed the planet to extreme risks, evidenced by the increasing frequency of climate-related disasters, shifts in agricultural productivity due to weather changes, and pandemics such as COVID-19. Previous notions like “nature is priceless” or “you can’t put a price on nature” once considered respectful, now inadvertently contribute to environmental degradation. Without proper valuation, natural assets’ scarcity remains economically invisible, leading to their exploitation for short-term gains and economic growth. This approach results in actions like forest destruction for industrial crops, disregarding forests’ protective role against soil erosion, landslides, and floods. Similarly, water mismanagement—through canalization, pollution, extraction, and rerouting—has resulted in dead fish, dying vegetation, undrinkable water, and the collapse of entire ecosystems.

Despite the dependence of many economic activities on natural resources, sustainable utilization remains uncommon due to frequent oversight of nature's value in policymaking. For example, in Western Australia, acknowledging the impact of agricultural water extraction on wetlands and vegetation would require reducing groundwater allocation for agriculture by up to 38%. In New Zealand, Lake Rotorua and its ecosystem services are estimated to be worth as much as $48 million annually. Globally, natural assets are believed to contribute benefits worth at least $125 trillion every year. Emphasizing these figures in policy formulation could lead to improved environmental outcomes.

Programs like REDD+ and Payment for Ecosystem Services (PES) use monetary values of ecosystem services, such as carbon sequestration and water purification, to incentivize (re)forestation. Countries like Australia and the USA have implemented biodiversity offset and wetland mitigation banking schemes, enabling private businesses to purchase credits from restoration and conservation projects to offset their economic activities. The values of ecosystem services provided by such projects are crucial for credit verification and quantification. 

In 2012, the United Nations officially adopted the System of Environmental Economic Accounting (SEEA) to integrate environmental and economic factors into a common framework. Despite some controversial arguments about the method, this framework has been accepted as the standard for natural capital accounts by other international organizations, including the ADB, EU, IMF, OECD, and World Bank. 

The recent "Make Nature Count" event at COP15 emphasized the urgent need for national frameworks to promote greener, more sustainable decision-making. Ecosystems valuation and SEEA methods have been implemented in 11 EU member countries, with pilot programs underway in developing nations like Brazil, India, Mexico, South Africa, and the People’s Republic of China. However, other countries may require additional support to adopt such frameworks, tailored to their unique local cultures and ecosystems. 

Valuing nature extends beyond pricing ecosystem services for market trade. It entails recognizing nature’s significance as a cultural, economic, and intrinsic asset. Using monetary values offers policy makers and businesses crucial guidance, emphasizing the prioritization of public health and natural capital over private wealth and physical capital. Furthermore, integrating nature's values into environmental markets and policies can promote more efficient and sustainable natural resource utilization.

The second and third articles in this series will introduce various approaches to measuring nature and its global implications.