Ecosystem Marketplace is a news service launched in 2005 by environmental NGO Forest Trends to cover the burgeoning field of environmental finance for both experts and non-experts alike.
In addition to our news service, Ecosystem Marketplace publishes original research reports on pioneering finance for conservation, such as carbon offsets, results-based forest finance, biodiversity offsets and compensation, watershed investments, and private investment in conservation. We also cover developments through news and feature articles on our webpage.
We get a lot from nature. Just think about your last 24 hours. What was the last meal you ate? Maybe you had wild fruit, vegetables, meat, or fish that was harvested directly from nature. Maybe it was grown on a farm, where that farmer relies on predictable temperature patterns, reliable rainfall, pollinators like bees, and nutrient-rich soil for his or her plants to grow. If you took medicine, there is a good chance some of those ingredients are from the rainforest. You probably had a drink of water, or washed dishes or clothes, or showered. Before the water came out of your tap, it came from the ground or reservoirs or rivers where nearby forests and wetlands filtered out silt and other pollutants.
These benefits that people derive from nature are called ecosystem services – and there are many different kinds (see figure below). They can be goods taken directly from the environment, like food, water, timber, and other raw materials. They can be benefits we receive from natural systems – plants filtering our air and water; bees pollinating our crops; or wetlands and waterways maintaining water flows in our rivers and reservoirs. They can be less tangible too – like the value of being able to swim and fish in the ocean, or climb a mountain, or look out over a beautiful landscape.
Despite the fact that we rely on our environment, humans are wiping out healthy, intact ecosystems and the benefits they provide. The most comprehensive assessment of ecosystem services to date—the Millennium Ecosystem Assessment—found that over 60% of the environmental services studied are being degraded faster than they can recover. Because there is no financial cost associated with ecosystem services, it is easy to assume they have no value.
Let’s say a local authority wants to allow a mine to be constructed on protected land. Proponents say it will boost the economy – they compute benefits like employing local people, supplying raw materials, and supporting other industries. But the site is located in a pristine wilderness – an area that is popular with tourists and local people for outdoor recreation and also with commercial fishermen – and is at the headwaters of a river that flows through productive agricultural land and population centers. Decision makers face a dilemma – preserving the environment is important, but the mine will bring well-defined benefits. Without a uniform way to talk about these trade-offs, they are stuck comparing apples and oranges. Enter ecosystem services valuation.
Measuring the benefits humans receive from the environment and putting a dollar value on them allows us to better understand the true cost of environmental degradation and provides us with tools to make informed decisions about resource management trade-offs. It helps politicians and policymakers account for environmental externalities in planning decisions. It helps business leaders accurately consider all assets and liabilities on a company’s balance sheet, including ecosystem-based risks and opportunities.
For our mine in the wilderness scenario, this means taking stock of all the ecosystem benefits that would be lost if the mine was built. The area would be off-limits for outdoor recreation; the flow of tourists would decline, along with the money they spend on food, gas, lodging, use permits, and recreation equipment. Through runoff, seepage, leaching, or spills, mines often release potentially harmful pollutants in nearby waterways, impacting ecosystems and human communities for generations. Fish populations may decline, resulting in lower income for commercial fishermen. Downstream, silt and chemical pollution would make surface and groundwater unsuitable for irrigating crops or drinking. Farmers would need either to install pricey filtration systems or find alternative water sources. Cities and towns would have to do the same, or risk health issues for their residents. With these costs in mind, politicians and decision makers can make more-informed choices whether to build the mine or keep that land protected.
By placing a financial value on the benefits nature provides, we can make smarter, more proactive choices that benefit our societies and the environment.
As the degradation of ecosystem services becomes ever more apparent, many non-profits, governments, and businesses are using innovative financial incentives to conserve and restore them. One example is payments for ecosystem services, where those who benefit from healthy natural environments pay those who own or control those environments to provide particular ecosystem services, like clean water, biodiversity habitat, or carbon sequestration.
These payments can take many different forms; from companies or individuals buying carbon offsets from forestry projects, where planting trees removes carbon from the atmosphere to prevent climate change; to cities and towns paying nearby industrial farms or factories to adopt pollution prevention techniques that keep water sources clean. Generally, payments for ecosystem services systems fall into three categories:
Each of these mechanisms has a different structure, but their goal is the same. By attaching a dollar value to ecosystem benefits and creating a way for those who benefit from them to pay for their upkeep, payments for ecosystem services aim to create self-sustaining ways to maintain the healthy environments we rely on.