October 26, 2010—Ecosystems are under stress and thousands of species are at risk of extinction in the waning months of the Year of Biodiversity. As leaders gather in Nagoya, Japan, for the United Nations biodiversity conference, many hope a different approach to calculating national wealth will mark a turning point for the global environment.
On Thursday, the World Bank will launch a global partnership to pilot this approach—known as wealth accounting or green accounting—in six to 10 countries, starting with India and Colombia. The goal is to help countries discover the true economic value of ecosystems such as forests and coral reefs, and use that information in their national policymaking and economic plans.
According to a forthcoming World Bank publication, The Changing Wealth of Nations, the economic value of farmland, forests, minerals and energy worldwide exceeds $44 trillion, with $29 trillion of that in developing countries. The new partnership will build on this work, valuing the flows of services from natural ecosystems, and making this information usable for finance and development planning ministries in developing countries.
Fully accounting for the benefits of ecosystems and the services they provide to human beings may reveal natural wealth that runs into the billions or even trillions of dollars globally. Better informed decision-making will help countries avoid costly mistakes, say proponents.
Furthermore, it’s been estimated that conserving forests would avoid greenhouse gas emissions worth $3.7 trillion by 2030, notes a report released last week by The Economics of Ecosystems and Biodiversity (TEEB), commissioned in 2007 by G8+5 environment ministers.
On the other hand, subsidies, poor regulations and weak enforcement of global fisheries has led to over-exploitation and caused the industry to underperform by $50 billion each year, according to a 2009 World Bank—Food and Agriculture Organization study.
“In countries and globally, we must fully inform decision-making by providing the missing information that leaders need,” said World Bank President Robert Zoellick.
“A country’s wealth should not just be the measure of its exploitable assets,” he said. “National accounts need to reflect the vital carbon storage services that forests provide and the coastal protection values that come from coral reefs and mangroves. These services —provided by nature— are just as much a part of the wealth of a nation as its manufactured capital and its human capital.”
In recognition of this crucial but neglected part of the economy, the World Bank Group has built up a $6.5 billion portfolio of biodiversity projects over the past 20 years and is working directly with 122 developing countries to save threatened ecosystems and species.
The Bank,a backer of the Global Tiger Initiative, will increase financing of ecosystem and biodiversity services through regular operations, and is contributing $5 million to a Save Our Species fund, currently worth $10 million and growing, aimed at preserving globally threatened species and their habitats.
Goal to Mainstream Green Accounting
While many wealthy countries use some form of green accounting in national and sub-national analysis, the method has mostly only been tested in case studies and demonstration projects in developing countries over the last 20 years, with a few exceptions.
The Global Partnership for Ecosystems and Ecosystem Services Valuation and Wealth Accounting aims to refine the methodology for calculating the value of ecosystems and to “mainstream” green accounting in the pilot countries. Once successfully demonstrated, the World Bank envisions the approach will eventually be adopted by many countries.
“What we need is a critical mass of countries to work on this together,” said Glenn-Marie Lange, a senior environmental economist at the Bank.
“We’re looking at institutionalizing a process,” she said. “The key is convincing the finance ministries — that’s why getting the economics and the science right is so important.”
Economists and Scientists Will Work Together
Teams of economists and natural scientists will work together to measure the value of ecosystem “services” — some of which aren’t obvious from either an economic or scientific perspective.
For instance, only one-third of a forest’s overall value is from timber, according to several studies. Other value lies in the services it provides, such as hydrology regulation, soil retention, and pollination—as a home to insects such as bees. Cutting down a forest for its timber may have negative consequences for other sectors of the economy, such as loss of agricultural productivity, loss of capacity for hydroelectric power, and loss of water quality, says Lange.
Likewise, studies have shown that clearing coastal mangrove forests for aquaculture or commercial development can result in the loss of coastal protection from storms and seriously damage fish populations.
The partnership will build on two decades of research and project work by the Bank and others, such as a pioneering solution in several Latin American countries that involves domestic water supply systems paying landowners in the uplands not to cut their trees and to use other erosion reducing methods, thus preserving downstream water quality.
In the absence of such measures, “there’s a gap between the source of the problem and who feels the problem,” says Kirk Hamilton, Lead Economist in the Bank’s Development Economics Research Group and a long-time proponent of green accounting.
“The consequence is environmental services are constantly under threat, because one person is making a decision about how to use resources without understanding what the impact is in other parts of the economy.”
“All of these things cascade in ways we’re not necessarily aware of,” adds Lange. “And that’s really what this is about. How can we make this explicit so that we don’t inadvertently make decisions that undermine long-term development?”
An Eye on Sustainable Income
The stakes are arguably highest for developing countries. In these countries a greater proportion of national wealth — Hamilton estimates 30% versus 2% in Organization for Economic Cooperation and Development countries—is in the form of natural capital.
“Managing natural wealth is much more important in developing countries, because developing countries are much more dependent on the natural resources they have. It’s a huge proportion of their wealth, bigger than infrastructure and other produced capital.”
That’s why a principal goal is to help countries avoid mistakes that deplete wealth and fail to lay the foundation for a sustainable future, says Lange.
“We’re looking for long term change — fundamental change,” she says.