Placing Value on the Priceless

Last week we read (among many, many…many other things) this article, written by Robert Costanza (and many, many others) in 1997, entitled “The Value of the World’s Ecosystem Services and Natural Capital.” I won’t tell anyone if you don’t read it, but as far as scholarly articles go, it’s a quick read and an ultimately fascinating concept. What Costanza and other ecological economists attempted to do with this study was to value the goods and services which ecosystems provide us with.

Take a tree. Yes, this tree could provide lumber, something we can certainly place a price on once processed and put on the market. What is this tree worth to you in the forest, though? It’s pleasing to look at, and, OK, maybe it provides shade, but what is it really worth? Zero, according to conventional neoclassical economics. Most people probably wouldn’t find that remarkable, though, considering it’s hard for most things to make money by just sitting there. But what is remarkable is another thing that trees do, which is sequester carbon from our atmosphere. The same carbon found next to two oxygen atoms, in, you guessed it, pesky CO2, that sneaky greenhouse gas that’s slow-cooking the planet. Trees are really great at balancing carbon emissions; they even absorb more than is naturally released into the atmosphere, which neutralizes several gigatons of humans’ contribution. What would it cost us if this were not so?

This example and countless others make up ecosystem services, what Costanza et al. refer to as ” the benefits human populations derive, directly or indirectly, from ecosystem functions.” These include things like nutrient cycling, gas regulation, and water supply (that’s a biggie!)

moneytree

Long story short, using all kinds of valuing methodologies and metrics, Costanza and co. were able to tally the final estimation of Earth’s ecosystem services in 1997 as a whopping $33 trillion dollars. A year. For reference, the United States GNP that year was roughly $18 trillion. So, big bucks coming from something that most of us would consider free.

Now comes the question of what this means, and how to use it. There are plenty of ideas that we should calculate these values into our traditional economic growth measurements, but how, and when, and why would people care, etc. An interesting debate came up in class discussion when somebody brought up this study, described in the first chapter of Freakonomics. Fed up with parents who were late picking up their children, a daycare manager decided to fine those few parents a nominal fee for this inconvenience, essentially monetizing the time spent waiting. You’d imagine this would serve as a disincentive to tardiness, but in fact the opposite was true: knowing the value of those few minutes, the few parents turned into many (going from 8 late pick-ups a week to 20). Is this an indicator of what might happen should we place a value on nature? “This tree is worth $40 standing here, so charge my card to cut it down and I’ll be on my way.”

How should we proceed with this modeling? What will make the average person value something that she usually cannot see, whether it is time, or the invisible processes of nature?

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