Some limitations in pricing nature

Nature is complicated and protecting it cannot be reduced to pricing a single species, place or chemical. Even if economists would like it so.

In the Netflix film, Social Dilemma, one of the interviewees, Justin Rosenstein, talks of a world where a whale is worth more dead than alive, a tree worth more cut down than living. His beautifully made point: people generally undervalue nature.

From time to time economists and policy people say that if you want to protect nature you have to put a price on it. Most recently Gillian Tett in her article in the weekend Financial Times 26/27 September 2020. https://www.ft.com/content/e82d6703-27d1-4bf0-972e-16fa726811d0

I have been doubtful about pricing nature. I wrote an article on this back in 2012: http://www.thebustard.com/?p=770

The main reason is that I imagine that there is always a (newly) rich guy who can pay that bit more because he wants to kill the elephant or cut down the tree. So nature might have a price, but if someone can pay it, you’re no better off. As there is an infinite supply of nouveau riche thugs, bezerk engineers, insane town planners and various other categories of nature haters, spending their own or others’ money, nature will always get outbid and then, ripped apart.

But the FT article made me try and think more constructively.

The 300 year old oak tree

Recently there are horrible bits of news coming out of the UK where a demented railway scheme called HS2 is annihilating of dozens of ancient woods and thousands of venerable trees. Consider the case of a 300 year-old oak tree near Leamington (https://www.leamingtoncourier.co.uk/news/environment/another-day-another-ancient-tree-felled-300-year-old-hunningham-oak-near-leamington-knocked-down-make-way-hs2-2984031) cut down to make way for a service road.*

But back to the killing of trees.

Designers and planners of a railway line deem it appropriate that a 300 year old oak should be cut down to make way for a service road. How would pricing nature save the tree?

I assume there would be a charge and the charge could be so big that they decide it’s better to build their road elsewhere. Given the size and importance (to some delirious empire builders) of the project, and the relative cost of road-building, I think we need to be talking at a price of at least £100,000 for it not to be worth cutting down. Perhaps even £1 million.

If you take a £10 cost of planting a tree and compound it at 3% for 300 years, you get to around £70,000; compound it at 4%, you get to £1.3m. It’s somewhere around there.

If someone is ready to pay the price, the tree still gets cut down. How does that pricing scheme help nature?

It might help nature if the fee is earmarked for nature restoration projects. This is unlikely to work in the UK where I understand that the Treasury does not like “hypothecation”. Hypothecation is where tax revenues are earmarked for specific purposes instead of going into the general slop bucket for the political snouts to slurp up.

If someone is not ready to pay the price, the tree is saved.

But if you want to save that tree, you might as well just prohibit its felling. I don’t see why pricing it is better.

Either way, you still need an effective supervisory system to prevent someone breaking the rules. One of the big problems with any regulatory system – pricing or not – is that you need resources to track every tree and prevent lawbreakers; you need resources to gather evidence and prosecute them if you fail to prevent the crime. The odds of getting away with it are in favour of the tree-killer. There is no point having an economically clever regulatory scheme without plenty of resources to monitor compliance.

The Amazon rainforest

At the other end of nature you have the Amazon rainforest. How might pricing save that? You see. The problem is not pricing, it is Bolsonaro. If you want pricing you need good government first.

Pricing nature like the EU Emissions Trading Scheme

So how can we price nature? Could it be like the EU Emission Trading Scheme? Under the EU ETS we have a target level of CO2 emissions to reach. We have an agreed amount of CO2 which can be emitted each year. Permits are issued to the market in that amount, and companies trade them. If there are not enough permits to go round, the price goes up to the point that it is worthwhile for one of the companies not to emit.

Importantly, it does not matter where the emissions happen or do not happen. A tonne of CO2 from a Portuguese paper factory is the same as a tonne of CO2 from a Polish cement plant. Practically, too, the number of regulated entities is countable and power plants don’t move about, unlike golden eagles and elephants.

In some cases a scheme like this can work. The SOx NOx trading scheme in the USA in the 1980s did result in a reduction of acid rain at lower cost than anticipated. It works where there is a general area to be protected, but not where specific place matters. An oak tree in Leamington Spa cannot be replaced by a larch tree in Malmö. Equating the two would be like saying: “If your Granny in Glasgow passes away, it’s ok there’s a kid just been born in Shanghai.”

How would a scheme work, taking into account this constraint?

You could take a particular, ecologically homogenous area – say an area of mixed farmland outside a city. You would say: “Here there are 10,000 hectares of mixed forest and 8,000 hectares of wetland. And we want to increase that to 20,000 hectares of forest and 17,000 hectares of wetland by 2030. This means that every year for ten years we need to add 1,000 hectares of forest and 900 hectares of wetland.”

The government would each year run a reverse auction for suppliers of land for conversion to forest and wetland. The lowest bidders would give up their land for cash and the land would be converted. There might be features giving extra value for contiguous areas of land or for land which creates connectivity between other ecologically rich areas.

That could work. It would require a tremendous amount of study and data – an inventory of the entire natural capital of the region in question; a stop on all exploitation of existing “natural land” because otherwise you are just chasing your tail. It would also need a strong inspection system to be sure that there is no unrecorded, illegal destruction of nature.

It would also require a government which wants to protect nature. I haven’t seen any evidence recently of any government of a large country which is serious about protecting nature.

It is worth noting, that Andy Burnham, the mayor of Manchester has recently identified an area of peatland on which to build 6,000 houses. Even though the emissions of about 1 million tonnes of CO2 from destroying the peat would be valued at least €30 million under, say, the UK’s commitments under Paris, this clearly has not been taken into account. A pricing scheme is not worth much if people ignore it. [2]

Pricing through offsetting

Another approach to pricing nature is a certificate scheme – as in wetland or biodiversity certificates. If you want to chop down a tree you have to buy certificates from someone who has planted trees in compensation. This might have some applications. It is used in some places to make good damage from development. If the ecosystem being destroyed isn’t that special, and can be recreated elsewhere – preferably with double the area, then it’s a useful scheme.

As far as our 300 year old oak goes, such a scheme has a fundamental and unacceptable flaw: you cannot replace old with new when it comes to nature. A 300 year old oak in one place is not replaced by 20 saplings elsewhere. The richness of ecology above and below soil takes decades or centuries to achieve. By cutting it down you are setting us back hundreds of years. No clever engineer can make good on that, MIT or otherwise.

Pricing the cost of protecting nature into consumer products

There is a case to say that customers should pay for goods which are produced in a way to protect nature. Thus the cost of protecting nature is priced into the cost of retail products in the supermarket. If customers are ready to pay extra then that is great, but we know that markets don’t work on “should”.

We see this in certified organic foods or shade-grown coffee or dolphin friendly tuna (which is not very friendly to the tuna). A small portion of customers are aware and wealthy enough to choose these product. To build these markets to a scale where they will have a significant impact on protecting land will take a huge amount of work. It is underway with initiatives like OP2B – One Planet, Business for Biodiversity which involves 19 large companies mainly in food and agriculture (https://op2b.org/).

Ultimately this is not about pricing. It is about enlightened businesses and enlightened consumers. It’s a purer route than pricing – but takes a long time to get there.

It will take more than money to overcome industrial interests

I think that talk of pricing nature is not going to get us very far. It might be useful to expand the area of some ecosystems, but it’s only a partial solution. It cannot save special places, special trees, and it cannot protect ancient things any better than tough laws.

Any scheme depends on politics and good government. Pricing nature is an idea from a dreamland now lost – where governments once wanted the right things and thought carefully about the policies needed to achieve those things.

Today there is no government of any large country on the planet which is serious about nature. It gets in the way of the interests of agrichemical companies, construction businesses, farmers, fishermen, manufacturers of cement and steel, miners, oil and gas companies, paper makers, peat extractors, plastic manufacturers, railway builders, road builders, wood products guys and any other people or businesses engaged in industrial activity. For any tree or square meter of wetland, there are dozens of entrepreneurs or bureaucrats queuing to cut it down or drain it.

Killing nature is too embedded in the workings of industry and commerce for the political system to be ready to do much about it.

It will take all sorts of things, no simple economic solution

It took policy people and economists several decades to realise that a single carbon price is not the silver bullet solution to tackling climate change. I remember conferences in the early 2000s when economists of some note would say it’s rather easy to solve climate change, just have a universal carbon price. Right. So let’s not make the same mistake with biodiversity.

Whatsmore the situation is burningly urgent. We have not got decades in hand for economists to realise they are wrong.

Nature needs our help in a complex medley:

- Everyone doing their thing in their garden, in spaces they influence or control

- Everyone doing their thing by not eating fish or industrially farmed meat, the consumption of which is destroying nature more than anything else

- There are many, many people who can afford not to worry about financial return – so use your spare cash to buy land and protect it

- Farmers restoring their land to mixed, regenerative farms with rotations and space for nature

- Some brave people ready to break rules and force issues [3]

- People to learn to love themselves so they stop taking their loathings out on nature – a kind of spiritual renewal

- Governments to implement strict rules; people to call governments on implement strict rules

- Businessmen tempted to cut down trees and destroy nature in the interests of becoming even richer, to resist that temptation and think of the interests of their children, their grandchildren, and, if fate smiles upon them, their great grandchildren [4]

- Children to be taught to love nature, to be in awe of it, and to take care of it

- Ruthless mockery of the brutish self-confidence of the nature destroying thugs out there, whether in offices or earth movers, yielding laptops or chainsaws.

- Invaders to listen to indigenous people to relearn how to live off the land and live from forests without destroying them

- Entrepreneurs and their financiers to invest their energies, brainpower and funds into businesses which care for nature and take its produce modestly

- A rejection of the nature-hating governments, their business friends and financiers, who insist on destroying nature at any cost, even if it means spoiling a dinner party.

- Some, limited pricing schemes

Notes

[1] Yes it is an unspeakable evil for which, one day, I hope the individuals all the way along the chain of command from the digger driver via the CEO of HS2 Ltd, Mark Thurston, all the way down to putrid mire in which the prime minister crawls, will be brought to justice. I also hope, for good measure, that on that day the judge presiding over the Court of Nature Justice will be as bilious as Judge Jeffreys and as compassionate as Genghis Khan, and his executioner’s sword will be rusty and skew.

[2] https://www.linkedin.com/posts/joshua-styles-727a0612b_why-on-earth-have-you-just-allocated-6000-activity-6721498721177153536-_Bur

[3] http://www.thebustard.com/?p=1921

[4] There are positive signs that business is starting, terribly slowly, to understand that change is needed. Recent announcements like OP2B (above), the plans by HSBC to invest $1bn in biodiversity, the plan by Cargill to convert 10 million acres to regenerative farming. These are great initiatives, incredibly late dawnings – I never understand how it takes all those really brainy people so long to twig, but it does – but they are happening and will be copied and multiplied and scaled up.

Beyond business there is a myriad of initiatives like Trillion Trees, Ark2030, Indigo or ReNature each with different ambitious plans to restore the natural world.

Share
This entry was posted in Climate change policy, Environment, society, politics and economics and tagged , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>