Asian Officials Look at Valuing Nature in Economic Decision-Making

By Thein Lei Win 10 October 2013

BANGKOK — Over 80 statisticians, economists, ecologists and senior policy makers across Asia began a three-day workshop at the United Nations in Bangkok on Tuesday to look at ways of valuing natural resources so they can be better protected.

Current national accounting systems, used since 1950, produce numbers such as Gross Domestic Product (GDP) to measure the value of goods and services produced in a national economy. But such measures rarely value assets such as mangroves, wetlands, coral reefs or clean air and water, leading to decisions that degrade them and undermine poverty alleviation goals.

“The development process is very rapacious in its demand for natural capital because it’s out there for the taking,” Sir Partha Dasgupta, professor emeritus of economics at the University of Cambridge, told Thomson Reuters Foundation on Tuesday.

“When mangroves are destroyed in order to create fish farms, the national accounts don’t look at the loss. It only looks at the increase in income coming out of the fish,” said the environmental economist, who has long pointed to links between sustainability and economics.

A good accounting system should include the costs as well as the benefits of replacing mangroves with aquaculture, he added.

But how does one value mangroves? By looking at the services they provide, such as a place for the spawning of fish, protection against storm surges and provision of wood, Dasgupta said.

Value of Mangroves

A 2012 report by World Bank calculated just that. Coastal mangrove forests in Thailand are currently worth about $955 a hectare, the value of their wood and non-wood products, it found. That is a paltry sum compared to the potential $10,949 per hectare that can be earned from the same land from farming shrimp.

But if the value of mangrove forests in protecting vulnerable communities from coastal flooding is taken into account, a hectare’s worth of standing mangroves in Thailand has a value of $18,641, the report found.

“If the mangroves’ ability to store carbon as well as their role as a nursery and breeding habitat for offshore fisheries are considered, the value further increases to as much as $21,456 per hectare,” it said.

Rethinking Numbers

Effectively valuing natural capital requires a new mindset too, of focusing on broader ranges of benefits rather than exact numbers.

Gupta said he hopes one of the outcomes of this week’s workshop will be for national accounts to begin incorporating ranges instead of a specific numbers – something they should already be doing anyway, he said.

For instance, national statistics might report that exports for a given year amounted to 10 percent of GDP. But such exact numbers fail to take into account black markets and other hidden effects on the formal economy, and as such do not reflect the true output of the economy.

Working instead with broader range of outcomes would be more honest, and make Natural Capital Accounting easier to incorporate.

Right now, “I think we’re so used to point estimates that the moment you have something difficult to measure, you say, ‘You can’t do that,’” he said.

Dasgupta is aware that getting decision-makers in finance ministries and economic planning agencies – let alone the general public and media – to start accepting ambiguity in economic figures would be a tall order, but insists it needs to happen.

“We don’t like ranges so we ignore them. We know the value is positive but since we can’t pin it down, we’re going to assume it’s zero. Now, does that look rational? It doesn’t look rational at all,” he argued.

“We’re used to ambiguity in our lives. Why on earth do we feel that in the public domain we have to give a number?” he asked.

Link to Poverty Alleviation

Pushpam Kumar from the United Nations Environment Program (UNEP), a co-organizer of the workshop, said the time is now right to move beyond just GDP as the measure of an economy.

Countries in Asia such as India, Indonesia and the Philippines have started to incorporate Natural Capital Accounting into their process, he said, adding that Vietnam, Laos, Bhutan and Bangladesh also have green growth strategies with similar goals.

Kumar also pointed to the Rio+20 sustainability conference last year, where governments expressed support for the valuation of natural capital.

“In the past it would have been economists and statisticians talking, but this time the interest is coming from politicians,” partly because protecting natural resources is key to poverty alleviation, which remains a key goal for policymakers, he said.

When UNEP looked at the value of ecosystems and biodiversity in three countries – Indonesia, Brazil and India – it found that 10 to 21 percent of the country’s value, in terms of natural systems, was missing in existing national accounts, Kumar said.

Because so many rural people in Indonesia, in particular, rely on natural systems for their income, “that (missing) 10 percent constitutes 90 percent of the poor people’s income,” Kumar said.

As a result, any policy based “on wrong microeconomic indicators like the current GDP is bound to be a failure in the goal of alleviation of poverty,” he added.