Putting a Price on Nature

For much of American history, undeveloped land was seen as a waste. Why leave nature alone when you could turn it into farmland or build a mill to make a profit? Indeed, European settlers used the argument that Native Americans underutilized the land as one justification for their forced resettlement.

However, with the conservation movement, our view of natural landscapes has changed. We now know that native ecosystems provide a host of vital “ecosystem services,” such as pollination, flood control, and water filtration. It’s no longer a choice between waste and profit; every land use decision involves tradeoffs.

Preserve the wetlands and their role in controlling floods and filtering fertilizer from our water supply, or fill them to create farmland and reap the profits from crops. Monitor forest use to provide timber now and in the future, or clear the land for more suburban sprawl. Each choice presents different costs and benefits over time, with different winners and losers. Often, conservation benefits society as a whole—by protecting pollinators or storing carbon, for example—while development provides profit.

Deciding which use is best requires comparison of the full costs and benefits. Unfortunately, modern economics has not kept up with changes in ecological understanding; it often fails to take ecosystem services into account, focusing on the economic benefits of development while ignoring those of conservation. Some economic researchers, such as University of Minnesota Professor Steve Polasky, believe we should calculate ecosystem services' contribution to human welfare to enable more accurate comparison.

One of Polasky’s studies measured the change in four ecosystem services—habitat provision, water quality, agricultural production, and carbon storage—from 1992 to 2001 in Minnesota and then compared the economic value of these changes to a set of alternative scenarios, including agricultural expansion, forest expansion, and conservation. He found that while converting all high quality land to agriculture yielded the most private return, it provided the least total value.

The results show that environmental economics, or “full-cost accounting,” provides policymakers with better information about the opportunity cost of development and the public benefit of conservation. This could influence the use of public lands and the incentives for private land use. For instance, the government could encourage conservation by compensating private landowners for the ecosystem services their property provides.

The goal to represent the economic value of nature is admirable and will lead to better policy than current practices. However, it’s also complicated. Ecosystems provide multiple, linked services—a forest might store carbon, provide habitat for pollinators, and improve air quality—and every action creates chains of consequences. Should economists value those benefits separately or discount them because of their overlapping nature? How much should a future benefit be worth today? How far down the chain of consequences should economists calculate?

Moreover, the underlying assumptions reinforce the idea that nature exists solely for human profit. Polasky calculates the economic value of ecosystem services based on their contribution to human welfare; if crop prices rise above the value of wetland flood protection, then public policy favors crops. But mightn’t nature have intrinsic value? Mightn’t other species have a right to exist? That would suggest we have a responsibility to conserve nature and set limits to human activity irrespective of cost. We need to decide whether we want to govern solely for short-term human benefit or as stewards for the rest of nature, too.

Policymakers should take steps to consider the full value of nature when making land use decisions.

Posted in Economic Development | Related Topics: Environment  Lakes & Rivers  Sustainability 

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