Putting a Price on Nature

I’ve done the math, and for $1.20, you can preserve a 19-inch by 19-inch square of rainforest habitat—home, on average, to 0.000006 long-tailed macaques and 0.0000001 pangolins. All you have to do is pay a bit more for palm oil, found in roughly half of all grocery store items: chocolate bars, cereal, and lipstick, to name a few.

“Most people probably consume some palm oil every day,” says David Wilcove, a professor of ecology at Princeton University. The ubiquitous stuff is squeezed from the fruit of trees whose rapidly expanding cultivation has infamously contributed to widespread deforestation in southeast Asia, and increasingly, parts of South America and Africa.

Indonesia, 2007.
A palm oil plantation in Indonesia

I derived the numbers above from a study appearing this week in the Proceedings of the National Academy of Sciences (PNAS), part of a collection authored by over 80 researchers from 50 institutions spanning ten different countries. The collection examines the tangible value people derive from ecosystems and natural processes—a concept known as “natural capital.”

Natural capital is a catch-all concept that covers everything from crop pollination by bees to the water-cleansing properties of wetlands. Consider a coastal mangrove forest, for example, says Jane Lubchenco, professor of marine studies at Oregon State University and one of the editors of the collection. “A lot of people think of mangrove forests as dirty, mosquito-infested places that might as well be converted into something useful,” she says, but in fact mangroves provide many unrecognized benefits. These include taking up toxic runoff, providing habitat for wildlife (including seafood humans later eat), removing carbon dioxide from the atmosphere, and protecting shorelines from storm surges and erosion.

Natural capital can be found all around the globe, from coastal flats to rain forests and alpine watersheds. In a world where money neither grows on trees nor has done much to incentivize their protection, researchers are figuring out how to put price tags on forests, rivers, and wild animals. Many consider this process a necessary element of 21st century conservation.

Authors of the new palm oil study wondered if producers might be able to turn a profit while also helping wildlife. The researchers asked people how much more they would be willing to pay for palm oil if they knew it came from plantations that preserve some land as rainforest. They found that people would be willing to shell out 15–36% more for “conservation-grade” palm oil. At the low end, an 80,000-acre plantation could still make a profit while leaving roughly one-sixth of its land unplanted.

Then the authors used mathematical models to determine how the conserved areas might aid threatened species, including long-tailed macaques, gibbons, and pangolins. Using their data, I ran the numbers on how much land—and how many wild critters—a hypothetical purchase of 16 fluid ounces of palm oil¹ would contribute. A bit of rainforest the size of a manhole cover would add an additional $1.20 to the purchase.

On one hand, that may not seem like a lot. But among price-conscious consumers—and, more importantly, companies that use palm oil in their products—a 15% price hike is not insignificant. Which raises a question: will assigning cash value to the natural world be enough to save it?

“Pricing nature alone won’t, in itself, do anything to improve the way we actually manage resources,” says Gretchen Daily, a professor of biology at Stanford University who coauthored several papers in the PNAS collection. Daily emphasizes that, in natural capital accounting, economics are just part of a complex balance sheet that also considers cultural, educational, community values.

That said, the money matters. “Fundamentally, a lot of the decisions in conservation are economic ones,” says Robin Naidoo, senior conservation scientist at the World Wildlife Fund and coauthor on the palm oil study. “We can do a better job as conservationists if we understand that and we use techniques from economics.”

Decades in the Making

The general concept behind natural capital is not new—pollinating insects, for example, have long been recognized as economically important—but only recently have people started systematically calculating dollar values for bees, birds, and even smelly mangrove forests.

“Ten years ago, this stuff was kind of a glimmer in a few people’s eyes,” says Anne Guerry, lead scientist at the Natural Capital Project at Stanford University and coauthor on several papers in the PNAS collection. That began to change when, in 2005, thousands of scientists had just completed a project called the Millennium Ecosystem Assessment at the request of the United Nations. This seminal study catalogued benefits that nature provides for people, including “ecosystem services” such as clean water, clean air, cycling of nutrients like carbon and nitrogen, and buffering against floods or erosion. The assessment showed that the majority of these were in decline.

Extensive mangrove forests in the Sundarbans protect the region from coastal flooding.

In 2005, there was only one practical example of applying dollar value to ecosystem services, Guerry says, and even that was almost a decade old. In 1996, rather than build a purification plant, the city of New York decided to restore an upstream watershed in the Catskills—which provides most of the city’s water supply. Two years later, in a commentary in Nature, Columbia economists Geoffrey Heal and Graciela Chichilnisky estimated the Catskill project saved the city $6 billon. The project and the paper helped cement the idea of natural capital.

Now, Guerry says, there are hundreds of stories of accounting for or discovering ecosystem services. For example, one study in the PNAS collection describes how a coastal development plan in Belize prioritizes both wildlife habitat and development revenue. In another, researchers found that environmental protection in a part of the Brazilian Amazon was associated with reduced instances of diseases like malaria among inhabitants.

Calculating Conservation

The process of assigning dollar value to something like an intact forest often begins with a crisis. Daily describes how, in the late 1990s, deforestation across China had increased the risk of severe flooding. “Forests soak up rainfall, like a sponge, gradually releasing the water. Without them, you put millions of people at risk,” she says. In 1998, catastrophic flooding on the Yangtze River drowned thousands of people and millions of homes, causing $40 billion in damage. The scale of this disaster provided an estimate for valuing ecosystem services: China has now implemented a $150 billion program to protect and restore forests.

“Nature is often a hell of a good engineer,” says Jonathan Foley, director of the California Academy of Sciences, who was not directly involved with the PNAS work. “It’s often cheaper and better to let nature do work for us.”

Science has advanced a great deal in understanding not only what nature contributes, Guerry says, but also how, when, and where these contributions take place. Yet even as the science leaps ahead, the implementation often lumbers. Lost natural capital is usually an externality, or what economists call a price paid by a third party who never had a choice in the matter. For example: suppose a farmer in the Iowa applies fertilizer to his fields. As this fertilizer washes into rivers flowing west, it degrades water quality and contributes to algae blooms that diminish the oxygen available to fish. Everyone downstream pays—from a town treating drinking water to an empty-netted fisherman in the Gulf of Mexico. “The failure isn’t about the environmental science, really, but more in economic theory,” Foley says.

Accounting for externalities can be challenging. “Ecosystem services and natural capital are still in the Wild West phase,” says Steve Polasky, a professor of ecological and environmental economics at the University of Minnesota and editor of several of the PNAS studies. There is no single, standard way of valuing something like water or habitat. And biodiversity is difficult to price because it’s a form of infrastructure, like an airport, that underpins a lot of other benefits. Take the airport by way of analogy. It has direct value—in the land it occupies, for example, and the rent it charges—but it also brings in people and goods that might not otherwise come to the city. Quantifying the indirect value can be incredibly difficult. Sorting out how much revenue at a certain restaurant should be attributed to the nearest airport—or to how much that restaurant stands to lose if the airport closes—is no simple task.

In the same way, changes in the number and variety of plants and animals may have complex effects on ecosystem services. For example, researchers studying a Minnesota grassland found that increased biodiversity was associated with more of what ecologists call productivity, or the total mass of all the insects, grasses, birds, worms, dead leaves, and so on. A productive ecosystem stores carbon and nutrients, which can decrease atmospheric carbon and improve water and soil quality, for example. Declines in productivity would cascade through each of those services.

Hard Numbers

When it comes to protecting biodiversity threatened by palm oil deforestation, Wilcove argues that even after including natural capital, the economic argument alone is going to be a tough sell. Wilcove, who is unaffiliated with the recent PNAS collection, estimates that if you cut down an acre of undisturbed tropical rainforest in lowland Borneo, sell the timber, plant palms, and sell all the oil you can harvest, the present value of that one acre is $54,000. If you leave the forest undisturbed, he says, “you don’t recover anything close to that amount,” even after adding up contributions from carbon sequestration, watershed protection, biodiversity, and tourism. You come up at least $25,000 per acre short.

Furthermore, these valuations may not be enough to help a severely threatened species like the Sumatran tiger, whose global population is down to 400. Wilcove points out that rare species, “almost by definition,” are unlikely to contribute to human economic activities a substantial amount and thus don’t fare well in a in a purely economic calculation. He notes, however, that natural capital may still be a useful supplement—say, if the tiger inhabits a watershed that provides clean drinking water to people downstream. And as the PNAS study showed, when consumers are willing to pay more for the principle of protecting wildlife—which some are—producers could find it economical to restore habitat or even leave it intact from the start.

Still, the palm oil case illustrates the difficulties of tackling global environmental problems. Only 2% of the world’s palm oil goes to the U.S., whereas half is consumed either in India, China, or Indonesia. A 15% price increase might not be tenable in these emerging economies.

What’s It Worth?

So is assigning value to wild forests or free-roaming gibbons going to halt the palm oil crisis? The answer, as you might expect from something tangled up with everything from fuzzy animals to atmospheric carbon to the price of cornflakes, is that it’s complicated.

The researchers I spoke with assert that the idea of natural capital has already worked for both people and nature—coastal protection has stabilized fisheries in Belize and wildlife conservation is benefiting local economies in Namibia, for example. They firmly believe that more success stories are on the horizon.

oil palm kernels
Oil palm kernels

For his part, Polasky describes himself as “pragmatically optimistic.” An economist by training, he recalls the tension when he walked into a in a room full of conservationists, many of whom have been averse to assigning any dollar value to nature. Indeed, if one considers the last few Sumatran tigers to be priceless, assigning a value—no matter how high—only makes them cheaper. But Polasky believes that there’s been somewhat of “a detente between economics and conservation, and there’s great power in bringing them together.” Daily echoes his optimism, and even Wilcove, who remains skeptical on some fronts, says he is “stubbornly and cautiously optimistic.”

Already, the idea of natural capital has spread beyond the small community of academics who coined the term. In 2006, China made a commitment to measuring a “green GDP.” Large corporations like Dow and Unilever have issued public statements committing to ambitious ecological goals in addition to their economic targets. Daily points out that some of these stances, like the green GDP, “might sound ridiculous, but ten years ago, we didn’t have anybody saying anything like this.”

Just last month, in an open letter encouraging higher sustainability standards for palm oil producers, major corporations including Walmart, Starbucks, and ConAgra, and various investors wrote that they “recognize that protecting forests and upholding human rights are essential for long-term business models.”

Today, Polasky says acceptance of natural capital is similar to where life-cycle analysis was several decades ago. The technique, which catalogs every impact a product has on the world, from the source of its raw materials to how its disposed when it stops working, was originally considered a messy, intractable idea with no practical applications. Now, Polanksy says, businesses use it all the time. With more research and standards, he thinks accounting for natural capital will be just as common.

Despite that, many of the researchers stress that economic valuation shouldn’t always be the last word on conservation. When trying combine wildlife, nutrient cycles, human welfare, and market pressures on the same balance sheet, there’s bound to be some confusion. As Foley puts it, “Whether a dollar figure is always the correct unit of measure, I’m not always sure. That’s kind of tricky.”