The Economics of Desertification, Land Degradation, and Drought

Box 3.1—Recent major economic assessments of the environment
Stern Review
The Stern Review deals with the economics of climate change as a result of externalities from greenhouse gas
emissions. Climate change leads to global consequences (off-site effects) taking place over a long period and its
analysis involves ethical dimensions, because the impacts of climate change are not equally distributed among
countries, people, and generations. The economic analysis needs to take into account that impacts of climate
change are long term and persistent, even irreversible, and are associated with uncertainties and risks. Results
are therefore dependent on assumptions about plausible future emission scenarios, as well as on assumptions
about technical progress and discount rates.
The review has focused on the costs of mitigation to reach the stabilization of greenhouse gas concentrations in
the atmosphere in the range of 450–550 parts per million of carbon dioxide, whereas the inaction path
(“business as usual”) is associated with a temperature increase of 2–3 degrees Celsius. Costs of inaction are then
estimated at an average reduction of at least 5 percent in global per capita consumption.
Costs of mitigation are estimated at around 1 percent of the global GDP by 2050 on average, with a range of –2
to +5 percent of GDP. Comparison of the costs of mitigation with the costs of inaction suggest that there is a net
gain in taking action to mitigate climate change now rather than bearing its consequences. The social costs of
carbon are taken as $85 per ton of carbon dioxide, which is well above the marginal abatement costs in many
sectors. The net present value suggests net benefits in the order of $2.5 trillion when implementing a strong
mitigation policy in 2011. There is a high price to delay taking action on climate change. As these findings show
that strong action on climate change is beneficial, the second half of the report examines the appropriate form of
such policy and how to fit it in a collective action framework.
TEEB
TEEB provides ways to create a valuation framework for ecosystems and biodiversity in order to address the
true economic value of ecosystem services by offering economic tools. The analytical framework of a cost–
benefit analysis must deal with the economics of risks and uncertainty. Crucial for any cost–benefit analysis is
the setting of discount rates to make future losses and benefits comparable. Decisions on discount rates involve
ethical dimensions; therefore, TEEB intends to present a range of discounting choices connected to different
ethical standpoints. TEEB reviews a number of studies concerning the costs of both biodiversity loss and
biodiversity conservation. Monetary values attached to biodiversity and ecosystems have often focused on case
studies (area-specific) and on particular aspects of ecosystems or sectors. Assessing the consequences of
biodiversity loss and ecosystem services globally thus demands a globally comprehensive and spatially explicit
framework and estimation grid for the economic valuation of ecosystems and biodiversity, combined with a
meta-analysis of valuation studies. The key elements of Phase 2 of TEEB include the causes of biodiversity loss;
the design of appropriate scenarios for the consequences of biodiversity loss; the evaluation of alternative
strategies (“actions to conserve”) in a cost–benefit framework, including risk and uncertainties; a spatially
explicit analysis; and the consideration of the distribution of the impacts of losses and benefits. The evaluation
also largely relies on benefit transfer, because data cannot be collected for all kinds of ecosystem services and
biomes.
From a society’s point of view, all costs and benefits (including externalities) that occur due
to ongoing land degradation need to be considered to result in the optimal “social” rate of land
degradation. This includes not only on-site and direct costs that farmers experience in terms of lower
yields, but also changes in the value of the benefits derived from all ecosystem services that may be
affected; off-site costs arising at other sites within the watershed, such as sedimentation; as well as
indirect effects, such as economywide impacts, threats to food security, poverty, and other outcomes
affecting the society. (See Figure 1.2 for a description of the various costs and how they are linked to
externalities and social costs.)
Government policies and other institutional factors can also lead to socially and privately
nonoptimal rates of land degradation. Imperfect or unenforced land rights, distorted and volatile
market prices, lack of information about future damages related to degradation, and imperfect or
missing credit markets are among the factors that prevent farmers from investing in potentially
profitable soil conservation measures. Anything that creates uncertainty about the future benefits of
conservation measures reduces farmers’ incentives to adopt them.
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