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Accounting for Nature

Updated: Sep 22

From mangroves shielding a storm-prone coast to peatlands locking up carbon and landscapes coated in life-giving soil: Earth’s ecosystems have massive value. But that value is hard to measure and often gets ignored – with alarming consequences for the environment.

A report by UNEP found that half of the world’s GDP is dependent on nature, and for every dollar invested in restoration, up to 30 dollars in economic benefits are generated. Focussing on conventional economic growth will not be adequate to provide future generations with the quality of life that we enjoy today, as it does not evaluate climate change, biodiversity loss or pollution in any meaningful way. Economic development has long been measured primarily using a country’s gross domestic product (GDP). Calculated annually, GDP sums the market value of the output of goods and services in a given country.

GDP captures some of the most tangible ways that nature contributes to the economy, such as supplying markets for timber and fish. But it largely omits nature’s “non-market” benefits, including its spiritual, aesthetic, or recreational value. Also overlooked are fundamental functions such as the generation of fertile soil, the provision of clean air and water, and natural barriers to disease. Additionally, market mechanisms typically fail to reflect the alarming erosion of the natural capital from which these vital benefits flow, such as the loss of forests and wetlands or the pollution of the atmosphere.

In response, economists are developing new ways to measure wealth and well-being that better reflect the health of the planet as well as of people and economic systems. More governments have begun to use these metrics to guide their development strategies and economic policies.

A few different methods have been devised so far, UNEP has developed the Inclusive Wealth Index (IWI). This index accounts for the social value of economic, human, produced and natural assets to indicate whether countries are developing sustainably. The index, which has now been calculated for 140 countries, indicates that inclusive wealth expanded by an average of 1.8% between 1990-2014, this is significantly less than the 3.4% expansion rate of GDP in the same period, the difference is largely because of the inclusion of declines in natural capital. Another alternative is the System of Environmental Economic Accounting (SEEA), by which countries can track environmental assets such as energy and water resources, their use in the economy, and return flows of waste and emissions. Around 90 countries already use this system with more joining.

Using indices and systems such as these when quantifying and evaluating the economics of our natural resources can hopefully allow a more realistic global accounting for what we have left, and the economic value of the environmental damage that continues to destroy our natural capital.

The second part to the issue of evaluating natural resources in economic terms is the value of animals rather than entire ecosystems. This highlights that in many cases, protecting them and keeping them alive has more value than killing or marginalising them. A good example of this is the economic value of sharks. Sharks have greater economic value alive, than dead. Despite huge advancements in protections, a demand and consequently a market for shark fins still exists. For island nations in the tropics, tourism involving marine life is a significant draw, with snorkelling and scuba diving rating highly in activities to do in a huge number of these destinations. In fact, almost half of tourists to the Pacific island of Palau travel there to dive.

Diver tourism contributes about 39 percent of the country’s gross domestic product of $257 million (2020) , and 21 percent of divers chose their vacation there specifically to see the sharks, meaning that tourism to view sharks contributes about 8 percent of GDP.

The researchers concluded that roughly 100 sharks inhabit the prime dive sites of Palau, were each worth $179,000 annually to the island nation’s tourism industry, and that each shark had a lifetime value of $1.9 million.

It is clear that moving away from GDP is imperative if natural resources are to be accounted for fairly. Furthermore, it is not just ecosystems that must be accounted for, we must also value species and in some cases individuals. For Palau, sharks’ presence accounts for 8% of their GDP. Nations like these would be more positively represented by systems like the UNEP Inclusive Wealth Index, while other countries whose economy is propped up by wealth created through environmental destruction will be seen more negatively for their actions.

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