October 11, 2008

Nature Loss Affects Economy More Than Bank Crisis

A EU-commissioned study claims the global economy is losing more money from the disappearance of forests than through the current banking crisis.

The study puts the annual cost of forest loss at between $2 trillion and $5 trillion, a figure that comes from adding the value of the various services that forests perform, such as providing clean water and absorbing carbon dioxide.

The study, headed by a Deutsche Bank economist, parallels the Stern Review into the economics of climate change.

The World Conservation Congress has discussed the issue during many sessions.

Conservationists hope it will be a new way of persuading policymakers to fund nature protection rather than allowing the decline in ecosystems and species to continue.

The study's leader, Pavan Sukhdev, emphasized that the cost of natural decline dwarfs losses on the financial markets.

"It's not only greater but it's also continuous, it's been happening every year, year after year," he said.

"So whereas Wall Street by various calculations has to date lost, within the financial sector, $1-$1.5 trillion, the reality is that at today's rate we are losing natural capital at least between $2-$5 trillion every year."

The Economics of Ecosystems and Biodiversity (Teeb), was a review initiated by Germany under its recent EU presidency, with the European Commission providing funding.

Ending in May, the first phase released findings claiming forest decline could be costing about 7% of global GDP. The second phase will expand the scope to other natural systems.

Sukhdev said the key to understanding his conclusions is that as forests decline, nature stops providing services that it used to provide essentially for free.

"Therefore, the human economy either has to provide them instead, perhaps through building reservoirs, building facilities to sequester carbon dioxide, or farming foods that were once naturally available."

"Or we have to do without them; either way, there is a financial cost."

The cost falls disproportionately on the poor, because a greater part of their livelihood depends directly on the forest, especially in tropical regions, according to the Teeb calculations.

However, the greatest cost to western nations would initially come through losing a natural absorber of the most important greenhouse gas.

Many in the conservation community believe the Teeb review will lay open the economic consequences of halting or not halting the slide in biodiversity.

Andrew Mitchell, director of the Global Canopy Program, an organization concerned with directing financial resources into forest preservation, said the numbers in the Stern Review enabled politicians to wake up to reality.

"Teeb will do the same for the value of nature, and show the risks we run by not valuing it adequately."

A growing number of nations, businesses and global organizations are beginning to direct funds into forest conservation, and there are signs of a trade in natural ecosystems developing, analogous to the carbon trade, although it is clearly very early days.

Some have ethical concerns over the valuing of nature purely in terms of the services it provides humanity; but the counter-argument is that decades of trying to halt biodiversity decline by arguing for the intrinsic worth of nature have not worked.

It is still an uncertainty whether or not Sukhdev's arguments will find political traction in an era of financial constraint, even though many of the governments that would presumably be called on to fund forest protection are the ones directly or indirectly paying for the review.

But he believes governments and businesses are getting the point.

"Times have changed. Almost three years ago, even two years ago, their eyes would glaze over.

"Today, when I say this, they listen. In fact I get questions asked - so how do you calculate this, how can we monetize it, what can we do about it, why don't you speak with so and so politician or such and such business."

The ultimate goal is to complete the Teeb review by the middle of 2010, the date by which governments are committed under the Convention of Biological Diversity to have begun slowing the rate of biodiversity loss.