9 - Valuing Ecosystems Flashcards
What is neoclassical economics
Theory of economics that explains market prices in terms of consumer preferences for units of particular commodities
Buyers desire the lowest possible price, whereas sellers desire the highest possible price = results in the “right” quantities of commodities being bought and sold
Four assumptions of the neoclassical theory
- Resources are infinite or substitutable
- Long-term effects should be discounted
- Costs and benefits are internal (no externalities)
- Growth is good
The assumptions of the neoclassical theory have…
massive environmental implications
Why aren’t resources infinite or substitutable
Earth is a closed system
Even renewable resources can be used quicker than they can be replenished
What is the tragedy of the commons
Analogy showing how self-interested individuals can end up destroying a resource they all depend on
Each individual acts independently according to their best interest and contrary to the common good by depleting a resource
Slide 8
Why are long-term effects discounted in the neoclassical theory
Market value of resource is discounted for future use (do not account for future market value)
Economically, it is best to gain value now instead of waiting
Costs and benefits in neoclassical economics vs real life
Neoclassical: all costs and benefits of goods or services are borne by the individuals involved in the transaction
Real life: we are all connected, and our decisions always impact others somehow
What are externalities
Costs or benefits of a transaction that involve people other than the buyer or the seller
Is growth good?
Commonly used metric for the health of an economy is its growth rate
But do we need more?
What is the single bottom line?
Generating profit is the only focus
What is the triple bottom line?
Make decisions accounting for social, economic and environmental wellbeing
Slides 15-17
Triple bottom line
What should we do about neoclassical economics?
Think beyond the single economic bottom line of profit
Triple bottom line!
How do we achieve the triple bottom line from an environmental perspective?
Assign a value to the goods and services we receive from the environment
What are ecosystem goods and services?
The benefits humans derive, directly or indirectly, from ecosystem functions. Often referred together simply as “ecosystem services”
What is ecosystem function
The capacity of natural processes and components to provide goods and services that satisfy human needs, either directly or indirectly
Four categories of ecosystem services
- provisioning
- regulating
- cultural
- supporting
What is provisioning ecosystem service? E.g.
The delivery of products that we directly use
e.g. food, water, medicine
What are regulating ecosystem services? E.g.
Services provided that regulate our environment
e.g. flood prevention, CO2 sequestration, climate regulation, disease regulation, water regulation, water purification, pollination
What are cultural ecosystem services
e.g.
“Non-material” benefits that enrich the human experience
e.g. Spiritual and religious, recreation and ecotourism, aesthetic, inspirational, educational, sense of place, cultural heritage
What are supporting ecosystem services? E.g.
Ecosystem processes needed to support life and all other ecosystem services
e.g. primary productivity, nutrient cycling, soil production
Examples of provisioning services*
Food, freshwater, fuelwood, fiber, biochemicals, genetic resources
Slides 27-30
Ecosystem services and functions with examples
What is ecosystem valuation
The assignment of economic value to an ecosystem or ecosystem services
Ecosystem valuation often repesents:
- the monetary cost of replacing the ecosystem service
- the monetary value of the capital gained from the resource
Types of estimations that need to be made to value natural capital
- Estimating the values of the Earth’s natural capital: monetary worth of ecosystem services
- Estimating nonuse values: existence value, aesthetic value, bequest or option value
What is bequest or option value?
Willingness to pay to protect some forms of natural capital for future generations
What is capital?
Goods and services of economic value; resources that can be used to produce goods
What is social vs natural capital in traditional/neoclassical economics
Social: the value of relationships between people
Natural: the summation of all ecosystem services on Earth, available to us for free
Natural capital, human capital and manufactured capital in ecological economics
Natural: resources and services provided by the Earth’s natural processes
Human: people’s physical and mental talents; includes the “social capital” from traditional economics
Manufactured: tools and materials
Slide 36, 37
Economics recap
What is the marginal cost of resource production?
Cost of removal goes up with each additional unit taken
Slide 39 graph
What is optimum level of resource use? Pollution cleanup?
Resource use: intersection of supply and demand curve (point at which removing more resources is not worth the marginal cost)
Pollution cleanup: when cost of removing pollutants exceeds harmful costs of pollution
Value of timber production in Alberta comes from… What is the number?
From pulp, saw-logs, veneer
$6.2 billion over 20 years, based of simulated harvest activities based on a preference for 80+ year old trees
Ecosystem valuation of carbon sequestration in AB?
- How much C is stored in forests
- Valued as the market cost of C as defined by the AB government ($20/tonne in 2018)
- value of forest carbon in AB would be $144 billion based on current storage (4.8 billion tonnes)
Two solutions to neoclassical economics
- Ecological economics
- sustainable economics
Slide 42
What is sustainable economics
- a sustainable economy can be maintained over time without causing a depletion of its natural capital
- “wise use” of renewable resources, harvested at rates equal to or less than their productivity
- “economic development” = progress made toward a sustainable economic system
Slide 46
Supply and demand
How can we use resources more sustainably while employing economics?
- include the harmful environmental and health costs of producing goods and services in their market price (full cost accounting)
- subsidizing environmentally beneficial goods and services
- taxing pollution and waste instead of wages and profits
What is full-cost pricing? Vs?
Includes estimated costs of harmful environmental and health effects of production
Versus market price; does not include indirect, external, or hidden costs
Slides 50-55
Global value of ecosystem services
