Is there a case for investing in ecosystem services?

Opening remarks at Cambridge Resilience Forum on Ecosystem Services on the topic “Is there a case for investing in ecosystem services?” by Martin de Wit 30 September 2010 It was not for nothing that Nelson Mandela fought for permission to grow a garden on Robben Island. In his words: “To plant a seed, watch it grow, to tend it and then harvest it, offered a simple but enduring satisfaction. The sense of being the custodian of this small patch of earth offered a small taste of freedom.” The simple act of gardening helped Nelson Mandela sustain his longer–term perspective, re‐emphasised a sense of responsibility beyond himself and provided a link to freedom. Powerful stuff! Nelson Mandela’s garden story is beautiful and gripping, but certainly not unique. The link between healthy nature and human wellbeing is well‐ documented. For urban centres, with the combination of many inhabitants and visitors, and the pressure on natural and environmental resources, the value of ecosystem services are even more important. With the supply of ecosystem goods and services limited and decreasing, and with the demand for ecosystem goods and services rising with urbanisation and income, economic theory predicts that the prices (as a measure of value) will start rising and we will make more sensible decisions to invest in nature’s services. In the real world, this is simply not the case. Many ecosystem goods and services are common goods or public goods. In such cases no person can be excluded from the consumption of these ecosystem service. Take for example the view of our own natural wonder, Table Mountain. Nature provides a free service to us, and these free services have great value. The problem comes in when Table Mountain is being degraded for various reasons and needs to be maintained. The services provided by the mountain are not exclusive enough to trade the full suite of benefits (such as the view) for the financial ability to maintain Table Mountain. This is why many ecosystem services are managed by governments, as custodians of the public good, or through cooperative rules in common ownership. For such institutions, a key question is how to maintain and expand

the free services provided to the users of these ecosystems , while ensuring adequate funding. Cape Town is no exception. In a recent study, the economic value of ecosystem goods and services within the boundaries of the City was estimated to be between R2‐6 billion pa. This figure is firstly based on estimates of willingness to pay based on existing choices by the City’s own residents and by vistors to the City. Choices made in travelling to Cape Town and visiting nature areas. Choices made by recreating in parks, nature reserves, open green spaces and beaches. Choices made by those deriving an income from nature‐based activities such as film‐making. We studied the literature and talked to various role‐players in estimating nature’s share of these values. Secondly, it is also based on damage costs avoided by the provision of buffering services in the case of flooding, fire, coastal storms and the risk of sea‐level rise. Thirdly, it is based on the cost of replacing certain ecosystem services, such as wetlands. (The full reports, including a documentation of methodology and results, are on the City’s website for those who are interested). It is the first time that such a figure was derived for the City as whole. Great care was taken to ensure a consistent economic valuation methodology, but limitations remain. The work is based on existing information; some studies already a few years old. Only those services that were prioritised by City decision makers were quantified. These values are not a comprehensive account of all economic values provided by ecosystems. Despite these limitations a clear story emerges. Ecosystem goods and services provide a stream of economic benefits to various users such as visitors, inhabitants, entrepreneurs and property owners. These economic activities are ongoing and rely on the continued provision of these services. An economic case is made to maintain the flow of these services. A pertinent question is whether enough is invested in such ecosystems services to maintain, and where possible enhance, the flow of these services. Given the public good nature of ecosystem services there is little to go on to answer this question. But, one can compare existing investments by governments in infrastructure such as housing, transport, education, with investments in ecosystems. That is what we have done for the City specifically. The first cautious results are out. For every one Rand spend by the City of Cape Town in 2008/9 (as measured by its actual expenditure), approx R7.30 of

economic value added was generated in the City economy. For every one Rand of expenditure by the City on the environment, almost R8.30 of ecosystem goods and services is generated. This is a conservative estimate and may be as high as R13.50 for every R1 when a higher value scenario of R6bn pa is taken into account. This means that the leverage of municipal expenditure on the environmental sector is considerably higher, i.e. between 1.2 and 2 times, than that of municipal expenditure on the City economy. One may dispute these numbers and uncertainties do remain. More work needs to be done on specific project level investments in the City’s ecosystems. What is more important from a policy making point of view is the public and common good nature of such services. This does not create an immediate incentive for private investors to invest in and maintain such services as the gains do not directly flow back to those who would have invested in it. This will remain an issue in desiging financial mechanisms to raise the funds for investment. It is no solution to commodify all of nature’s services and lose the benefits of equity associated with public goods. The City needs to find a way to let all users share the burden of investing in ecosystems. All options for raising revenue, such as taxes, fees and charges as well as options for raising capital, such as bonds, loans and grants, need to be evaluated. There is ample evidence on the economic value of ecosystems. To translate this value into real investment opportunities would require detailed case‐by‐case work on institutional and financial mechanisms. With the speed at which a large part of the world is turning towards greener and better quality solutions I am hopeful that such mechanisms will be developed and implemented sooner than later. In the mean time keep on gardening, tending and educating. The ethics of caring is a long term investment and is not measured in rates of return . Former Pres. Nelson Mandela will almost certainly agree.

Is there a case for investing in ecosystem services?

by martin de wit on Oct 01, 2010

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Is there a case for investing in ecosystem services? — Document Transcript