GREEN ECONOMY

Briefing Paper Valuing Nature

Overview

Economic activity and human well-being depend on the Earth’s ecosystems and the services these ecosystems provide such as food, fresh water, climate and flood regulation, and recreational and aesthetic enjoyment. Forests store carbon, provide timber and other valuable products as well as habitat to a wide array of species. Wetlands purify water and offer protection against floods. Mangroves protect coasts and coastal populations from storms and tsunamis.

Coral reefs provide breeding grounds for fish and attractions for tourists. The list of benefits provided by nature is vast. Yet, species are still being lost and ecosystems destroyed with nearly two thirds of ecosystem services now considered degraded. Although the cost of these losses is felt on the ground, particularly by the poor who are highly dependent on natural capital, it often goes unnoticed at national and international levels because the true value of natural capital is not reflected in decisions, indicators, accounting systems and prices in the market. 

Part of the challenge is that the sheer range of benefits from

ecosystems is often poorly understood. The term “ecosystem

services” – the benefits derived from nature – is a useful concept

for making the value of nature more explicit and relevant to human well-being. The Millennium Ecosystem Assessment (MA), launched in 2005, distinguishes between “provisioning services” such as food, water or timber; “regulating services” such as flood and disease regulation; “cultural services” including recreational and spiritual services; and “supporting services” such as soil formation and nutrient cycling.

In reality, most ecosystems deliver a variety of services and benefits to humans. These benefits can be direct or indirect and tangible or intangible (beautiful landscapes foster cultural identity and human well being). They can be provided locally and at global

scale (forests influence local rainfall but also sequester carbon and help regulate climate change). They can be scattered and in some cases are even more important to future generations – all of which makes measuring their value challenging – yet critical. Indeed, the systematic under-valuation of ecosystem services and failure to capture their values is one of the main causes of today’s biodiversity and ecosystem crisis.

These ecosystem services, especially those supporting food,timber and fisheries production, contribute significantly to global

employment and economic activity, particularly in developing countries.

For instance, it is estimated that more than one billion people are employed in the agriculture sector with another 30 million people deriving income from fishing and fishing related activities. Moreover, approximately 95 per cent of the employment in the fisheries sector is located in developing countries. The loss of biodiversity and ecosystem services has direct economic repercussions that are systematically underestimated. Ensuring

that the value of natural capital is visible to economies can help society pave the way for more targeted and cost-effective solutions. Valuing natural capital should not be equated with its sale on the open market, but rather as an indicator of its importance in sustaining human and economic prosperity.

UNEP defines a green economy as one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. At a more fundamental level, healthy ecosystems represent the foundation of economic activity and a prerequisite for achieving a green economic transition. Given this, it is essential that the economic value of these services are recognized, demonstrated and

captured in the accounts and decision-making of governments, the private sector and consumers. 

Understanding the full range and value of ecosystem

services can help governments and businesses make

the most efficient, cost-effective, and responsible

decisions. For instance, it can reveal opportunities

for cost savings through timely or targeted action,

such as where ecosystem services could be provided

at lower cost than man-made alternatives (e.g., for

water purification/ provision, carbon storage or flood

control). A pragmatic, tiered approach to valuation in

analyzing problems and developing policy responses is

recommended.

In some cases, it may be sufficient to simply recognize

the value of ecosystems and biodiversity to ensure their

sustainability. These values can often be described

in qualitative terms and reflect the intrinsic, spiritual

or social value of nature. For instance, protected

areas such as national parks have historically been

established in response to a collective heritage or

patrimony without the need to place a monetary value

on the services provided. In such cases, economic

valuation may even be counterproductive if it is

inconsistent with cultural norms or fails to reflect the

full range of values.

In other cases, it may be necessary to “demonstrate”

the value of ecosystems and biodiversity in economic

terms to ensure balanced and informed decisionmaking.

This is particularly true when policy-makers

and businesses make decisions impacting ecosystems

based on a cost and benefit calculation. A failure to

demonstrate ecosystem values in such cases can easily

lead to perverse policy and business decisions. For

instance, when considering the conversion of wetlands

for agricultural or industrial use, a policy-maker would

not have the full picture if the value of the wetland in

terms of water filtration and flood control services is

ignored 

In addition to assisting in cost-benefit analyses,

the demonstration of economic value can be an

important tool for achieving more efficient use of

natural resources, highlighting the costs of achieving

environmental targets, and identifying more efficient

Ecosystems & Biodiversity: Human well-being (socio-cultural context)

(Econ)Value

(e.g., WTP for

protection)

Management/

Restoration

* Subset of biophysical structure or process providing the service

Service

(e.g., flood

protection,

products)

Institutions & Human

Judgements

determining (the use of) services

Benefit(s)

(contribution to

health, safety, etc.)

Function*

(e.g., slow water

passage, biomass)*

Biophysical

structure or

process

(e.g., vegetation

cover or Net Primary

Activity)

Feedback between value

perception and use of

ecosystem services

Figure 1. The pathways from ecosystem structure and processes to human well-being

Source: Adapted from Hanes-Young & Potschin, 2010 and Maltby (ed.), 2009.

UNEP launched its Green Economy Initiative in 2008, and is

currently supporting over 20 countries around the world

in their transition towards a green economy.

Box 1. Nakivubo Swamp

means of delivering ecosystem services. As such,

valuation can assist policymakers in addressing tradeoffs

in a rational manner.

Once values have been demonstrated, it is sometimes

useful to “capture” these values through various policy

instruments, such as Payments for Ecosystem Services

(PES), which provide financial incentives for the

responsible stewardship of the services. The structure

of PES schemes can vary widely and involve a number

of different stakeholders. However, the use of PES

schemes should be limited to those instances where

appropriate safeguards have been put in place to avoid

abuse.

Moreover, it should be noted that demonstrating the

economic value of nature should not, and does not,

always lead to the marketization of nature. This is a

separate societal and policy choice which can only

be made after careful consideration of the potential

impact this will have on the ecosystems and the

communities dependent on these ecosystems. Placing

blind faith in the ability of markets to optimize social

welfare, by privatizing the ecological commons and

letting markets discover prices for them, is not the

answer.

What UNEP is doing

Given the key role of natural capital in a green

economy transition and poverty alleviation, UNEP

is engaged in a number of projects focused on

recognizing, demonstrating and capturing the value

of natural capital in decision-making. For example:

The Project for Ecosystem Services (ProEcoServ):

ProEcoServ, funded by the Global Environment

Facility, consists of three components each adapted

to the particularities of participating countries: the

development of valuation tools to support decisionmaking,

assistance in the application of ecosystem

management approaches and strengthening of

science-policy interface. Its overall goal is to better

integrate the assessment and valuation of ecosystem

services into resource management and sustainable

development planning.

For more information: www.proecoserv.org

The Economics of Ecosystems and Biodiversity (TEEB):

TEEB is an international initiative hosted by UNEP

to draw attention to the global economic benefits

of biodiversity, to highlight the growing costs of

biodiversity loss and ecosystem degradation, and to

The results of a valuation exercise for

the city of Kampala, Uganda, showed

that the nearby Nakivubo Swamp

provided an economic value of between

USD 1 million and USD 1.75 million a

year in wastewater purification and

nutrient retention services. Researchers

concluded that the services provided by

the Nakivubo Swamp created a much

cheaper means of treating Kampala’s

wastewater than the expansion and

maintenance of new wastewater

facilities. Moreover, public funds were

simply not available to replicate the

natural ecosystem services provided

by the swamp. Despite these findings,

policy makers have been slow to protect

the area and the wetland’s ability

to remove nutrients and pollutants

has been greatly reduced over the

past decade. However, in 2008, the

Kampala Sanitation Programme

proposed a new plan to reduce the

pollutant load by expanding existing

sewage treatment facilities in Kampala

and rehabilitating and increasing the

Nakivubo wetland area in order to reestablish

its original ecosystem services.

The Green Economy Report, published by UNEP in 2011, makes a

compelling economic and social case for investing two per cent of

global GDP in greening 10 central sectors of the economy.