Valuing ecosystem services can also point to places where inaction is best. After fires in Croatia had damaged many forests, a study was done to see if restoration was worthwhile given their value to the tourist industry. Examination of 11 sites revealed that the net benefits varied significantly (see chart). Some sites were not worthy candidates and were dropped.
As scientific understanding of ecological services improves, new financial opportunities emerge. For example, the importance of insect pollination to the quality and quantity of agricultural crops such as coffee, almonds and apples, has only recently become appreciated. Last year, a study in Costa Rica found that on one farm alone the natural pollination of coffee by insects was worth $60,000. Coffee yields were 20% higher on plots that lay within a kilometre of natural forest.
Simply having this kind of information could change the way that coffee farmers view areas such as forest and wild grasslands on or near their property. Looked at another way, it might encourage owners of forests that help to pollinate a neighbour's crops to demand payment. Indeed, a version of this sort of blackmail already happens on an international scale. Elliot Morley, Britain's minister for the environment, says that developing countries sometimes say to him, “give us the money or the forest gets it”.
Putting a proper value on ecological services is bound up with another economic anomaly that haunts environmental economics. This is the creation of what economists term externalities—economic impacts made when those taking a decision do not bear all the costs (or reap all the gains) of their actions. When a piece of natural habitat is ploughed, for example, the conversion may make sense to the land owner, but it may also damage fisheries downstream, increase flooding and clog rivers with sediment. This makes those who lose out angry. It can also, in some circumstances, subtract from, rather than add to, a country's total wealth.
The problems discussed above all involve externalities as well as the need to price ecological services correctly. If Catskill farmers had not changed their methods, for example, New York City's government would not have faced the question of how to keep its water potable. But when an externality affects only a relatively small, recognisable group of people, negotiation between the parties can often resolve the matter. If, however, an externality is a public “bad” (ie, the opposite of a public good), such deals are not possible.
Public goods are those which are in everybody's interest to have, but in no one's interest to provide. Clean air, for example, or, more controversially, the preservation of rare species of plant or animal.
In such situations, the first reaction is frequently to legislate to try to ban the externality. But a more efficient solution can often be what is known as a cap and trade scheme, in which legislation creates both an overall limit to the amount of the externality in question, whether it be a polluting chemical or the destruction of a type of habitat, and a market in the right to impose the externality within that limit.
The article concludes by saying:
The valuation of ecosystem services is not without its difficulties. Nevertheless, the fact that there is a growing consensus about how and where it is appropriate is an important step forward for economists and environmentalists. In 1817, David Ricardo, a pioneering economist, noted that abundance in nature was rarely rewarded: “where she is munificently beneficent she always works gratis.” But if nature pays, who then will pay for nature?
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