Interim Report - TEEB

which are growing in quantity (hence the argument to discount
future units of the same utility), the services of nature are not in
fact likely to be produced in larger quantities
in future. Perhaps the discount rate for biodiversity and
ecosystem benefits should even be negative, on the basis that
future generations will be poorer in environmental terms than
those living today, as Paul Ehrlich (2008) has suggested (see
also Box 3.3). That raises important questions about present
policies which assume significant positive discount rates
(Dasgupta 2001; 2008). When incomes are expected to grow,
goods or services delivered later are relatively less valuable
(because they represent a smaller part of the future income).
This supports the usual, positive discount factor. The opposite
holds true when asset values or incomes are expected to fall
– future goods and services will become more valuable than
now. In the case of biodiversity it is questionable whether it will
be equally, more or less available in future, and therefore even
the direction of the discount rate is uncertain.
DISCOUNTING IN A WELFARE CONTEXT
In welfare economics the objective is to maximize the social
benefits of consumption across all individuals, with
“consumption” covering a broad range of goods and
services, including health, education and the environment.
Aggregating social utility across individuals is problematic
and prone to value judgements such as comparing the
value of consumption for a rich person versus a poor
person.
What are “appropriate” discount rates for communities or
countries with significant poverty and hardship? Focusing on
poverty alleviation now means that the benefits and costs
of today’s poor are more valuable than those of future
generations (who may live under better conditions). This is
an ethical argument for high discount rates!
But if today’s poor rely directly on the conservation of
biodiversity for vital supplies such as freshwater and fuelwood,
is it then justifiable to provide more income options to
today’s rich if this would jeopardize these vital supplies?
Consider some examples of ethically indefensible trade-offs.
A forest ecosystem may be essential to the well-being of
poor farming communities downstream – by providing
nutrient flows, recharging aquifers, regulating seasonal water
supply, preventing soil erosion and containing flood damage
Box 3.4: “GDP of the poor”
The full economic significance of biodiversity and
ecosystems does not figure in GDP statistics, but
indirectly its contribution to livelihood and well-being
can be estimated and recognized. Conversely, the
real costs of depletion or degradation of natural
capital (water availability, water quality, forest
biomass, soil fertility, topsoil, inclement microclimates,
etc.) are felt at the micro-level but are not
recorded or brought to the attention of policy
makers. If one accounts for the agricultural, animal
husbandry and forestry sectors properly, the
significant losses of natural capital observed have
huge impacts on the productivity and risks in these
sectors. Collectively, we call these sectors (i.e.
agriculture, animal husbandry, informal forestry) the
“GDP of the poor” because it is from these sectors
that many of the developing world’s poor draw their
livelihood and employment. Furthermore, we find
that the impact of ecosystem degradation and
biodiversity loss affects that proportion of GDP most
which we term the “GDP of the poor”.
The end-use of ecosystem and biodiversity
valuations in National Income Accounting, either
through satellite accounts (physical and monetary)
or in adjusted GDP accounts (“Green Accounts”)
does not of itself ensure that policy makers read the
right signals for significant policy trade-offs. A
“beneficiary focus” helps better recognize the
human significance of these losses. In exploring an
example (GAIS project, Green Indian States Trust
2004-2008) for this interim report, we found that the
most significant beneficiaries of forest biodiversity
and ecosystem services are the poor, and the
predominant economic impact of a loss or denial of
these inputs is to the income security and well-being
of the poor. An “equity” focus accentuated this
finding even further, because the poverty of the
beneficiaries makes these ecosystem service losses
even more acute as a proportion of their livelihood
incomes than is the case for the people of India at
large. We find that the per-capita “GDP of the poor”
for India (using 2002/03 accounts and exchange
rates) increases from US$ 60 to US$ 95 after
accounting for the value of ecological services, and
also that if these services were denied, the cost of
replacing lost livelihood, equity adjusted, would be
US$ 120 per capita – further evidence of the “vicious
cycle” of poverty and environmental degradation.
We shall explore this approach for the developing
world more broadly in Phase II. We believe that by
using such sectoral measures and forcing a
reflection of the equity principle by its “human”
significance (given that most of the world’s 70%
poor are dependent on this sector) we shall focus
adequate importance on policy making and contribute
to a halt in the loss of biodiversity.
Gundimeda and Sukhdev 2008
Towards a valuation framework
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