The Economics of Ecosystems and Biodiversity

The Economics of Ecosystems and Biodiversity study is an international initiative to draw attention to the global economic benefits of biodiversity. Its objective is to highlight the growing cost of biodiversity loss and ecosystem degradation and to draw together expertise from the fields of science, economics and policy to enable practical actions moving forward. TEEB aims to assess, communicate and mainstream the urgency of actions through its four deliverables; D0: science and economic foundations, policy costs and costs of inaction, D1: policy opportunities for national and international policy-makers, D2: decision support for local administrators, D3: business risks, opportunities and metrics and D4: citizen and consumer ownership.

The TEEB study was launched by Germany and the European Commission in response to a proposal by the G8+5 Environment Ministers in Potsdam, Germany 2007, to develop a global study on the economics of biodiversity loss. The second phase of the TEEB study is hosted by UNEP with support from a number of organizations, including the European Commission, German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety and the UK Department for Environment, Food and Rural Affairs.

The study is led by Pavan Sukhdev, a senior banker from Deutsche Bank, and founder-Director of the green accounting project “GIST” (Green Indian States Trust[1]) in India. The TEEB Advisory Board includes experts from the fields of science and economics.

The TEEB Interim Report was released in May 2008 under Phase I. The report provided evidence for significant global and local economic losses and human welfare impacts due to the ongoing losses of biodiversity and degradation of ecosystems. It focused largely on forests and looked at the extent of losses of Natural Capital taking place as a result of deforestation and degradation. TEEB estimates that this is between US$ 2 - 4.5 trillion per year, every year.

Phase II of the study sets out to expand on the work begun in Phase I. It will be completed in 2010 and presented in Nagoya, Japan, at the 10th Conference of parties of the Convention on Biological Diversity (CBD) in October 2010.

“Our dominant economic model seeks and rewards more versus better consumption, private versus public wealth creation, man-made capital versus natural capital : this is a triple-whammy of destructive biases.”

Pavan Sukhdev, Study Leader

Pavan Sukhdev

Pavan Sukhdev, a senior banker at Deutsche Bank, is currently on secondment to the United Nations Environmental Programme to lead the agency’s Green Economy Initiative. This initiative includes The Economics of Ecosystems and Biodiversity study, the Green Economy Report, and the Green Jobs report.

As a career banker, he continues to be Chairman of Deutsche Bank’s Global Markets Centre Mumbai (GMC Mumbai).

Pavan was instrumental in the evolution of India’s currency and interest rate and in the introduction into India of the Overnight Indexed Swap, which is today India’s most liquid traded interest rate swap instrument.

Advisory Board Members

• Achim Steiner, Executive Director, United Nations Environment Programme
• Lord Stern, IG Patel Professor of Economics and Government and Chairman of the London School of Economic’s new Grantham Research Institute on Climate Change and the Environment
• Julia Marton-Lefèvre, Director General, International Union for Conservation of Nature
• Herman Mulder, was Director-General and Head of Group Risk Management of ABN AMRO Bank, Amsterdam, Netherlands
• Peter May, President, International Society of Ecological Economics
• Ladislav Miko, Minister of Environment , Czech Republic
• Walter Reid, Director Conservation and Science Program, David and Lucile Packard Foundation
• Giles Atkinson, Reader in Environmental Policy, Department of Geography and Environment and Associate, Grantham Research Institute of Climate Change and Environment, London School of Economics
• Edward Barbier, Professor of Economics, Department of Economics and Finance, University of Wyoming
• Jacqueline McGlade, Executive Director, European Environment Agency
• Yolanda Kakabadse, President, Worldwide Fund for Nature International from January 2010
• Jochen Flasbarth, President, Federal Environment Agency, Germany
• Karl Göran-Mäler, Professor in Economics, Stockholm School of Economics and Director, Beijer International Institute of Ecological Economics
• Joan Martínez-Alier, Professor, Department of Economics and Economic History, Universitat Autonoma de Barcelona

Phase I: Key Messages

The world has already lost much of its biodiversity. TEEB indicates that pressure on commodity and food prices shows the consequences of this loss to society. TEEB recommends that urgent remedial action is essential because species loss and ecosystem degradation are inextricably linked to human well-being. Economic growth and the conversion of natural ecosystems to agricultural production are forecasted to continue, but TEEB feels that it is essential to ensure that such development takes proper account of the real value of natural ecosystems. This is central to both economic and environmental management.

The findings of TEEB (Interim Report) were largely in three areas - the economic size and welfare impact of losses of ecosystems and biodiversity, the strong links between biodiversity conservation and ecosystem health on the one hand and poverty elimination and the achievement of Millenium Development Goals on the other, and the ethical choices involved in selecting a social discount rate for discounting the benefits of ecosystems and biodiversity.

Main findings

• 11% of the natural areas remaining in 2000 could be lost, chiefly as a result of conversion for agriculture, the expansion of infrastructure, and climate change.
• Almost 40% of the land currently under low-impact forms of agriculture could be converted to intensive agricultural use, with further biodiversity losses.
• It is estimated that for an annual investment of US$ 45 billion into protected areas alone, the delivery of ecosystem services worth some US$ 5 trillion a year could be secured.

TEEB finds that sound ecosystem and biodiversity management, and the inclusion of Natural Capital in governmental and business accounting can start to redress inaction and reduce the cost of future losses.

“Currently governments are considering multi-billion dollar investments in carbon capture and storage at power stations. Perhaps it is time to subject this to a full cost benefit analysis to see whether the technological option matches nature’s ability to capture and store carbon—a natural system that has been perfected over millions of years and with the multiple additional benefits for water supplies up to reversing the rate of biodiversity loss.”

Achim Steiner, Executive Director, UNEP

Phase II

TEEB Phase II, currently underway, takes an economic approach that is spatially specific and builds on knowledge of how ecosystems function and deliver services. It examines how ecosystems and their associated services are likely to respond to particular policy actions. A fundamental focus of TEEB is on developing an economic yardstick that is more effective than GDP for assessing the performance of an economy. TEEB recommends that National accounting systems need to be more inclusive in order to measure the significant human welfare benefits that ecosystems and biodiversity provide. Such systems can help policy makers adopt the right measures and design appropriate financing mechanisms for conservation.

In Phase II TEEB aims to:

• Integrate ecological and economic knowledge to structure the evaluation of ecosystem services under different scenarios.
• Recommend appropriate valuation methodologies for different contexts.
• Examine the economic costs of biodiversity decline and the costs and benefits of actions to reduce these losses.
• Develop ‘toolkits’ for policy makers at international, regional and local levels in order to foster sustainable development and better conservation of ecosystems and biodiversity.
• Enable easy access to leading information and tools for improved biodiversity practice for the business community – from the perspective of managing risks, addressing opportunities, and measuring impacts.
• Raise public awareness of the individual’s impact on biodiversity and ecosystems, and areas where individual action can make a positive difference.

“Human vulnerability to the harmful impacts of global climate change is significantly increased by the loss of biodiversity. TEEB proves that the protection and restoration of ecological infrastructure is a cost effective means to mitigate global climate change and its effects. To me, ecological restoration is a critical tool in addressing global climate change, enhancing the extent and functioning of carbon sinks as well as reducing greenhouse gas emissions. What we now need is a breakthrough in Copenhagen. We have to recognize that enhancing the resilience of ecosystems and maintaining the planet’s biodiversity are key parts of the mitigation and the adaptation agendas.”

Sigmar Gabriel, German Minister for Environment

Climate Issues Update

TEEB's Climate Update states that an agreement on funding for forests is a key priority for governments attending the crucial United Nations climate convention meeting in Copenhagen in December 2009.

An estimated 5 gigatonnes or 15 percent of worldwide carbon dioxide emissions - the principal greenhouse gas - are absorbed or ‘sequestrated’ by forests every year, making them the “mitigation engine” of the natural world.

TEEB finds that investing in ecosystem-based measures such as financing Reduced Emissions from Deforestation and forest Degradation (REDD) can thus not only assist in combating climate change but can also be a key anti-poverty and adaptation measure.

The Update also underlines a ‘Coral Reef Emergency’ that is already here as a result of the current build-up of greenhouse gases. Scientists contributing to the TEEB process indicate that irreversible damage to coral reefs can occur at atmospheric CO2 concentrations of over 350 parts per million (ppm). This is linked with rising temperatures but also ocean acidification.

Concentrations are already above this threshold and rising. It raises concerns that stabilizing CO₂ levels at 450 ppm, or some 16 percent above the current levels, may condemn this critical, multi-billion dollar ecosystem to extinction and take with it the livelihoods of 500 million people within a matter of decades.

Green Economy Initiative

UNEP’s Green Economy Initiative is a project designed to communicate that the greening of economies is not a burden on growth but rather a new engine for growth, employment, and the reduction of persistent global poverty.

The Green Economy Report, due in October 2010, will use economic analysis and modelling approaches to provide an in-depth assessment of identified economic sectors where “greening” can lead to prosperity and job creation. It will cover sectors such as: agriculture, buildings, cities, fishery, forests, industry, renewable energy, transport, tourism, waste management, and water as well as the enabling conditions in finance, domestic and international policy architecture deed to bring about the transformation to a green economy.

External Links

• TEEB Website [2]
• TEEB Climate Issues Update [3]
• TEEB Interim Report [4]
• United Nations Environment Program [5]
• UNEP Green Economy Initiative [6]
• GIST [7]
• Department for Environment, Food and Rural Affairs [8]
• Federal Ministry for the Environment, Nature Conservation and Nuclear Safety [9]
• European Commission [10]
• Helmholtz Centre for Environmental Research [11]