Contribution to GTI Roundtable "Monetizing Nature"

William Rees

I would like to raise a few issues regarding the pros and cons of “valuing” nature in light of Barbara Unmüßig’s piece.

First, while it is true that quantification and monetization are not the only way to value ecosystems services, or nature more generally (or anything else for that matter), this is usually what economists mean when they talk about “valuation.” The general purpose of the exercise is to aid in decision-making about development options, particularly in the context of benefit-cost analysis (BCA). Surely, economists argue, it is useful to know the worth of a natural asset before deciding on its fate. Monetary valuation is the key; it theoretically enables rational trade-offs among options (“rational” being based on self-interested utility maximization in strictly monetary terms). Interested in conservation? If nature is so valuable, then all you have to do is prove it—a no-development decision based on the value of ecosystem services is theoretically possible. If, on the other hand, we find that the benefits of development (e.g., of a wild river for hydropower) exceed the estimated monetary benefits of wild nature, then it would be irrational to forgo development. It is easy to see why BCA has historically been sold as conceptually elegant and theoretically air-tight; indeed, it is sometimes considered the most powerful policy-relevant tool in the economist’s kit bag.

Of course, the assumption of BCA is that all significant costs and benefits associated with a development proposal can be identified, quantified, and monetized. Indeed, a truly economically efficient decision is one in which benefits not only exceed costs, but in which the preferred version of the project maximizes this difference. BCA is therefore often politically useful. What politician wouldn’t like to announce the approval of a mega-project that is not only good for society but that maximizes potential benefits?

There is, however, a non-trivial problem—it is both theoretically and practically impossible to identify, quantify, and monetize all important present and future ecological costs associated with any development. For example, if we consider just what has been called the “functional transparency” of many ecological services, some will remain unknown unknowns until they have been lost, i.e., until after the project is up and running. The bottom line? The basic assumption of BCA cannot be satisfied.

To be fair, there is usually a discussion of possible hidden impacts and of “intangible” benefits/costs that are difficult to price. However, this is often the weakest part of the analysis and the most frequently ignored—people prefer at least the illusion of hard numbers. So it is that many BCAs have been shown to be biased in favor of development (and even an unbiased analysis may be deeply flawed). On all such grounds, opponents of BCA dismiss this strongest tool in the economist’s kit bag as a form of crackpot rigor.

So much for ‘the valuation of nature as defense of nature’ in its most practical context.

Second, as implied above, mainstream economists typically argue that monetization enables the comparison of apples and oranges, i.e., that a dollar’s worth of apples is equivalent to a dollar’s worth of oranges (or ecosystems services, etc.) regardless of quantitative, qualitative, or any other differences. The collective wisdom of all players in the market automatically takes such differences into account in the resultant pricing.

Of particular relevance to this discussion, such theoretical ‘commensurability’ leads easily to belief in the substitutability of various forms of 'capital' and thus to the 'weak sustainability' criterion:

"A society is sustainable if each generation inherits from the previous generation at least an equivalent per capita value of natural capital, finance capital and manufactured capital, taken in the aggregate."

In other words, sustainability requires that the total dollar value of wealth-producing assets remains constant or grows on a per capita basis between generations.

This produces the ludicrous situation in which vital natural capital can be liquidated provided that the monetary value of remaining stocks (or the income derived from its liquidation) rises in inverse proportion to stock size (which it likely will because of increasing scarcity value). Countries whose monetary investments or savings keep pace with the destruction of their natural capital are deemed sustainable by this criterion. In short, mainstream analysis declares some of the most ecologically irresponsible nations on earth to be sustainable; clearly, the valuation of nature in this context does nothing to ensure its conservation/preservation. (Mainstream economists are confident that human ingenuity can overcome losses of nature’s services. If technological gains and human-made capital can substitute for natural capital at cost or better, the loss of nature per se is irrelevant.)

Third, the frequent assumption that the high and rising value (price) of nature’s goods and services will lead to its conservation is particularly invalid for open-access resources. For example, bluefin tuna are skyrocketing in value with rising demand for quality sashimi around the world and the increasing scarcity of the fish. (A single individual will sometimes sell for several hundred thousand dollars.) This makes it profitable for fishers to continue harvesting down to the last specimen since their incomes may be constant or growing with capital depletion. Since politically-determined quotas are ineffective, I suspect we will see the market-driven extinction of the highly valued bluefin in this generation.

What is the lesson here? There may be no harm in monetizing ecosystems’ goods and services, and society may sometimes learn much that is useful in the process. However, if we really want to save nature (and ourselves), then we cannot rely on short-term market costs and prices or other monetary metrics. It will generally be necessary to stand firm on philosophical, ethical, or moral grounds and hope enough other people join the cause to clinch a favorable decision. Often, today, what are really multi-value political choices are being made on spurious economic grounds.

William Rees
William Rees is a professor at the University of British Columbia’s School of Community and Regional Planning and the originator of ecological footprint analysis.

Cite as William Rees, contribution to GTI Roundtable "Monetizing Nature," Great Transition Initiative (August 2014),

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