Interim Report - TEEB

legal rights over the lands on which they live and work. This
may become an incentive to “mine” these lands rather than
to manage them sustainably.
Policy failures arise due to incentives encouraging harmful
action. Tax incentives and subsidies can lead to the market
working for the destruction of natural capital, even where
natural assets offer a sustainable flow of services to the
economy and to society. Environmentally harmful subsidies
(EHS, see Chapter 4 on subsidies) discriminate against
sound environmental practices while encouraging other, less
desirable activities. Fisheries are an example of this (see Box
3.2). Such subsidies are often economically inefficient,
prompting growing calls for reform.
Policy failures also arise when the system of incentives fails
to reward those who work to improve the environment, or
fails to penalize those who damage it. Many agricultural
practices can support high-value biodiversity. But without
appropriate recognition, for example through payments
for environmental services (PES), some good practices
risk disappearing.
There are often no mechanisms for winning compensation
from those who damage the environment for those who
have lost as a result. Upstream mining activities do not
generally pay those downstream for the fish they can no
longer eat, or for health impacts. While such failures are still
the norm, there is a shift in some countries. Costa Rica is
the poster child for PES (see Chapter 4, Box 4.3), although
the approach is widely used in developed countries as well
in the form of agri-environment subsidies. Overall, benefit
sharing is becoming a more acceptable concept, and
liability and compensation payments are sometimes offered
at levels that begin to act as real incentives. We elaborate
on these aspects in the following chapter.
Lastly, due to population pressures, poverty and weak
enforcement of protection, development policies sometimes
indirectly result in natural ecosystems being
converted into agricultural or urban landscapes in situations
where, for social and environmental reasons, these are not
the optimal choices. This is an example of policy failure
driven by institutional failure and information failure. Formal
and informal networks and rules are needed to support
responses to policies which effectively manage ecosystem
services. The costs of such institutional frameworks can
be called policy costs and we return to this topic later in
the chapter.
But before we discuss and analyse benefits and costs, we
would like to recognize three important issues – risks,
uncertainty, and the principle of equity – which must be
addressed. Not only do they influence analysis, evaluation
and the design of solutions for the various failures we have
outlined above, but because they are in essence deep
ethical issues, they translate into underlying assumptions
for our analytical framework. We show that selecting an
appropriate discount rate, a vital component of any costbenefit
analysis, is the outcome of implicit or explicit ethical
choices.
ECONOMICS, ETHICS AND EQUITY
“Economics is mere weaponry;
its targets are ethical choices.”
Sanjeev Sanyal, Director, GAISP
Economics has developed techniques to deal with risks,
uncertainty and questions of equity. Discounting is a key
tool in many conventional economic analyses because it
helps to assess the value of cash flows resulting from
decisions taken now. Conventional economic approaches
can also be important in valuating biodiversity, but they
cannot necessarily be applied routinely because of the
potentially extreme consequences of biodiversity decisions.
We outline below the complexities of applying economics
in a field such as biodiversity.
Box 3.2: The effect of subsidies on fisheries
Subsidies are considered to be one of the most
significant drivers of overfishing and thus indirect
drivers of degradation and depletion in marine
biodiversity.
• Subsidies fund fisheries expansion. Globally,
the provision of subsidies to the fisheries
industry has been estimated at up to US$ 20-50
billion annually, the latter roughly equivalent to
the landed value of the catch.
• Over half the subsidies in the North Atlantic have
negative effects through fleet development. This
includes decommissioning subsidies, which
have been shown usually to have the effect of
modernizing fleets, thereby bringing about an
increase in their catching powers.
• While fishing vessel populations stabilized in the
late 1990s, cheap fuel subsidies keep fleets
operating even when fish are scarce.
• The Common Fisheries Policy of the European
Community, for example, allows for vessels to
be decommissioned to reduce effort in some
countries while simultaneously subsidizing
others to increase their fishing capacity.
Millennium Ecosystem Assessment 2005a: Chapter 18
28 The economics of ecosystems and biodiversity