Why and how do we evaluate ecosystems, Nature is the source of much value to us every day, and yet it mostly bypasses markets, escapes pricing and defies valuation. This lack of valuation is an underlying cause for ecological degradation and loss of biodiversity. Globally, efforts are being made to assess impact of conservation or degradation of ecological resources and a new term Green Gross Domestic Product (GGDP) has also been coined to reflect the same.

1. The Economics of Ecosystem and
Biodiversity (TEEB)
A brief synthesis
Lalit Kumar
Associate Professor
Department of Business Economics,
Delhi University

2. A forest of questions…Why TEEB
• Is it actually ethical to reduce biodiversity,
which is about life, to mere economics ?
• And why should the complex web of life,
diverse and location-specific in character, lend
itself to global economic analysis and
modelling ?

3. • And isn’t the scientific understanding of
ecosystem dynamics, and of the link between
biodiversity and ecosystem resilience, too weak
to support a study of economic implications ?
• Is it appropriate to isolate ecosystem and
biodiversity benefits and value them individually
(as in a TEV approach), and assume the whole
does not exceed the sum of its parts ?

4. • We are still struggling to find the “value of nature”.
• Nature is the source of much value to us every day,
and yet it mostly bypasses markets, escapes pricing
and defies valuation.
• This lack of valuation is, we are discovering, an
underlying cause for the observed degradation of
ecosystems and the loss of biodiversity.

5. The Problem and its Root Causes
• The history of post-War economic growth has
been one of unsustainable development :
unsustainable for the planet’s ecosystems, for its
species diversity, and indeed for the human race.
• By some recent yardsticks of sustainability, our
global ecological footprint has doubled over the
last 40 years, and now stands at 30% higher than
the earth’s biological capacity to produce for our
needs.

6. • The ongoing degradation of ecosystems and
loss of biodiversity, especially observable in
the post-war era, is a well-documented reality.
• Several reports, culminating in the Millennium
Ecosystem Assessment, (2003 and 2005), have
presented the evidence of a 60% loss in
ecosystem services in the last 40 years (MA,
2005)

7. Direct
Drivers
Indirect
Drivers
Ecosystem
Services
Human
Well-being
Life on Earth:
Biodiversity
MA Conceptual Framework

8. Causes of Biodiversity loss
• Thus the root causes of biodiversity loss lie in the nature of
the human relationship with Nature. We have not widely
understood that our survival depends on co-existence, on
living in harmony with Nature.
• Our dominant economic model promotes and rewards
more versus better consumption, private versus public
wealth creation, man-made capital versus natural capital.
• This is the “triple-whammy” of self-reinforcing biases
which leads us to promote an economic model in which we
tend to extract without fear of limits, consume without
awareness of consequences, and produce without
responsibility for third-party costs, the so-called
‘externalities’ of business.

9. What to do…corrections
To include natural and human capital formation and
destruction in the accounts of society;
To expand the reach of markets in order to enable
payments for ecosystem services ;
To tax what we take (resources) and not what we
make (profits from goods and services); and so on.
These are all big changes, each of which would
address the “root causes” of biodiversity loss and
ecosystem degradation.

10. Economics for a Changing Society
• But of course, there are no markets for the largely
public goods and services that flow from
ecosystems and biodiversity, and no prices. The
traditional term for this is “market failure”.
• There is deep-seated, widespread and inherent
market-centric mindset (and our almost
unequivocal association of price with value).
• TEEB attempts to demonstrate significant value
flowing from nature to human society in terms of
welfare benefits, employment, and solutions to
poverty.

11. TEEB Approach
• Shadow prices can and should be calculated and presented,
in the proper context of different biomes and differing socio-
economic conditions, for a wide range of ecosystem services.
• TEEB’s view is that we should acknowledge the weaknesses
of valuation methodology in calculating such shadow prices
and not shy away from stating best available estimates of
value using the most appropriate of reviewed
methodologies, strictly to help decision- makers to take
better informed choices.
• This is because the alternative is in fact ethically worse : to
permit the continued absence of prices to seep even further
into human consciousness and behaviour as a “zero” price
and thus no value.

12. “you cannot manage what you do not measure”
Accounts for a Changing Society
• Society wishes to manage its development sustainably,
mitigate climate risks, reduce ecological scarcity, and arrest
the extinction of species.
• However, to be able to achieve any of that, society needs
appropriate measures of the underlying variables : the
sustainability of economic development, the quantum of
greenhouse gases, the extent and quality of our ecological
commons, and the richness and viability of species.
• Other than the total GHG levels and annual GHG emissions,
none of these underlying quantities has a widely accepted
standard measure.

13. Biodiversity, Ecosystems, and their
Services
Change in
Economic
Value
International
Policies
Change
in
Land use,
Climate,
Pollution,
Water use
OECD
Baseline
scenario
Change
In
Ecosystem
Services
Change
in
Biodiversity
Change
in
Ecosystem
functions
Change in
Economic
Value
International
Policies
Change
in
Land use,
Climate,
Pollution,
Water use
OECD
Baseline
scenario
Change
In
Ecosystem
Services
Change
in
Biodiversity
Change
in
Ecosystem
functions
Change in
Economic
Value
International
Policies
Change
in
Land use,
Climate,
Pollution,
Water use
OECD
Baseline
scenario
Change
In
Ecosystem
Services
Change
in
Biodiversity
Change
in
Ecosystem
functions

14. TEEB approach
TEEB valuation –
(1) Recognize value: a feature of all human
societies and communities
(2) Demonstrate value: in economic terms, to
support decision making
(3) Capture value: introduce mechanisms that
incorporate the values of eco-systems into decision
making.

15. A story of 50 year old TREE
 Provides oxygen worth USD 7,700 (INR 350,000)
 Facilitates recycling of water worth USD 10,000 (INR
450,000)
 Conserves soil worth USD 8,333 (INR 375,000)
 Controls pollution worth USD 17,700 (INR 750,000)
 Provide shelter for animals and birds worth USD 8,333 (INR
375000)
Cut the TREE and you will get USD 1,111
(INR 50,000) only!!

16. Few basic questions for Valuation
 What are the key ecosystem goods and services (EGS)
provided by natural resources?
 How does EGS support livelihoods?
 What is the consumptive and non-consumptive values of EGS
for rural/ urban/ national GDP?
 How do the provisioning of EGS impact and gets impacted by
market dynamics?
 What are the distributional aspects of EGS? Who benefits
most? How much? Why?
 What would be the economic cost for restoration of EGS and
its avoided destruction?

17. Valuation map
Challenges
– Uncertainty.
– Resilience
– Non linear changes
– Scaling-up value estimates.
– The possibilities for adjusting transferred values for differences
in ecosystem context
– Aggregation of bundled ecosystem values and double counting;
– Transfer of non-use values that are highly specific to social
context;
– Transferring and aggregating values for non-marginal changes
in ecosystem service provision.

18. Biomes:
• 1 Marine/open ocean
• 2 Coastal systems (Estuaries, Shelf sea, Sea grass beds etc)
• 3 Wetlands (Mangroves, Floodplains, Peat-wetlands, Tidal marsh
• 4 Fresh water bodies (Lakes, rivers)
• 5 Forests (Tropical, Temperate and Boreal)
• 6 Woodland / Shrubland
• 7 Grassland / Rangeland
• 8 Desert
• 9 Tundra / Taiga
• 10 Cold desert (Ice/Rock/Polar)
• 11 Cultivated
• 12 Urban

19. Valuation Methods and value type
• 1 Direct market pricing Direct
• 2 Factor Income Direct
• 3 Avoided Cost Indirect
• 4 Replacement cost Indirect
• 5 Mitigation and restoration Cost Indirect
• 6 Travel Cost Indirect
• 7 Hedonic Pricing Indirect
• 8 Contingent Valuation CVM
• 9 Group Valuation CVM
• 10 PES Indirect
• 11 Benefit transfer Direct
• 12 Total Economic Value Total

20. Ecosystem services considered
2017-02-23 20
A. Supporting
A1. Primary production
A2. Nutrient Cycling
A3. Water Cycling
C. Provisioning
C1. Food provision
C2. Water provision
C3. Energy provision
C4. Fiber production
C5. Biochemical provision
B. Regulating
B1. Climate regulation
B2. Disease regulation
B3. Water regulation
B 4. Protection from Hazard
B 5. Pollination
D. Cultural services
D 1. Spiritual
D2. Recreation

21. Values of Nature

22. 2/23/2017 22
Physical costsHuman preferences
SOCIAL AND
POLITICAL
SCIENCESMARKET THEORY /CHREMATISTICS
DIRCT
USE
INDIRECT
USE
OPTION OR
CUASI-OPTION
USE
VALUE
NON-USE
VALUE
LEGACY
EXISTENCE
Market
analysis.
Cost
methods
Market analysis.
Cost methods.
Hedonic pricing.
Contingent
valuation.
Contingent
election
Replacement
and avoided
cost methods
Contingent
valuation
Contingent election
VALUATION/VALUATION/
ACCOUNTINGSUBJECTACCOUNTINGSUBJECT
METHODS/TOOLS/METHODS/TOOLS/
MODELSMODELS
Group and
deliberative
valuation
Joint
analysis
CONCEPTUALCONCEPTUAL
APPROACHAPPROACH
Socio-
cultural
valuation
Economic valuation
NON
ECONOMIC
VALUES
SOCIAL
VALUE
Human preferences
SOCIAL AND
POLITICAL
SCIENCESMARKET THEORY /CHREMATISTICS
DIRCT
USE
INDIRECT
USE
OPTION OR
CUASI-OPTION
USE
VALUE
NON-USE
VALUE
LEGACY
EXISTENCE
Market
analysis.
Cost
methods
Market analysis.
Cost methods.
Hedonic pricing.
Contingent
valuation.
Contingent
election
Replacement
and avoided
cost methods
Contingent
valuation
Contingent election
VALUATION/VALUATION/
ACCOUNTINGSUBJECTACCOUNTINGSUBJECT
METHODS/TOOLS/METHODS/TOOLS/
MODELSMODELS
Group and
deliberative
valuation
Joint
analysis
CONCEPTUALCONCEPTUAL
APPROACHAPPROACH
Socio-
cultural
valuation
Economic valuation
NON
ECONOMIC
VALUES
SOCIAL
VALUE
INDUSTRIAL ECOLOGY
/ TERMODYNAMICS
MATERIALS /
SURFACE /
LAND COVER
ENERGY /
EXERGY /
EMERGY
Embodied Energy
Analysis
Exergy analysis
Emergy analysis
PHYSICAL
COST
Physical
accounts
Material flow
analysis
Input-Output a
Ecological footprint
Land-cover flow
INDUSTRIAL ECOLOGY
/ TERMODYNAMICS
MATERIALS /
SURFACE /
LAND COVER
ENERGY /
EXERGY /
EMERGY
Embodied Energy
Analysis
Exergy analysis
Emergy analysis
PHYSICAL
COST
Physical
accounts
Material flow
analysis
Input-Output a
Ecological footprint
Land-cover flow

23. Total Economic Value
Direct use
Indirect
use
Recreation,
spriritua/cultural
well-being,
reserach
education
Crops,
livestock,
fisheries, wild
foods,
aquaculture
Pest control,
pollination, water
regulation and
purification, soil
fertility
Actual
value
Altruist
value
Bequest
value
Philantropic
value
Altruism to
biodiversity
Existence
value
Satisfaction of
knowing that
a species or
ecosystem
exists
Satisfaction of
knowing that
future generations
will have acces to
nature’s benefits
Satisfaction of
knowing
thatother
people have
acces to
nature’s
benefits
Non-use values
Future use of
known
benefits
Option
value
Consumptive
Use values
Output value
Minimum provisioning of
healthy functioning
ecosystems
Infrastructure value
Rights that
species have
to exist
Intrinsic value
Value
Instrumental value
Non
consumptive
Source: Gómez-Baggethun, deGroot, et al. in progress

24. TEEB final average value per biome (Rs/ha/year), 2016
ESService Marine Coastal Wetlands Fresh water Forests Woodlands Grasslands Cultivated Average
1Food 658550 233892 54282 4962 7681 203342 2915 97974 157950
2Water 0 101710 451101 247248 10541 0 20614 12017 140538
3Raw materials 24027 558 42979 93 11500 38962 1485 4390 15060
4Genetic 1471253 0 829 0 14025 0 1 0 371527
5Medical 0 0 6648 0 4859 0 0 0 5754
6Ornamental 18984 0 722 0 0 898 0 0 6868
7Air quality 0 0 16638 0 16541 35764 7395 12247 14764
8Climate 25335 0 112293 4252 59487 15758 31687 55937 46293
9Extreme events 1814370 1811332 410224 0 2831 0 0 0 1009689
10Water flows 0 0 38510 0 96333 0 0 0 45343
11Waste 3037 0 373272 121393 3999 18889 9121 15959 77953
12Erosion 13641817 0 19331 0 25061 3971 3422 0 2738721
13Soil fertility 3159 1394500 30729 93 36568 0 18025 20266 214763
14Pollination 0 0 1236 0 11004 0 0 1581 4607
15BioControl 259 3929 1137 0 925 0 0 0 1562
16Life cycles 0 7760 9325 0 910 35957 0 0 13488
17Genetic Diversity 325273 5946 39808 23016 21535 39 3360 52254 58904
18Aesthetic 267285 0 0 0 0 268771 0 0 268028
19Recreation 1902045 992184 90845 46753 45152 0 271 3804 437152
20Inspiration 1 0 42824 0 4 0 0 0 14276
21Spiritual 0 0 0 0 0 0 0 0 0
22Cognitive 155058 2951 0 0 0 0 0 0 79004
Total 20310453 4554761 1742735 447808 368957 622352 98295 276429 0

25. TEEB final average value per biome ($/ha/year), 2007
1 2 3 4 5 6 7 11
ESService Marine Coastal Wetlands Fresh water Forests Woodlands Grasslands Cultivated Average
1Food 9,147 3,248 754 69 107 2,824 40 1,361 2,194
2Water 1,413 6,265 3,434 146 286 167 1,952
3
Raw
materials 334 8 597 1 160 541 21 61 209
4Genetic 20,434 12 195 0 5,160
5Medical 92 67 80
6Ornamental 264 10 12 95
7Air quality 231 0 230 497 103 170 205
8Climate 352 1,560 59 826 219 440 777 643
9
Extreme
events 25,200 25,157 5,698 39 14,023
10Water flows 535 1,338 630
11Waste 42 5,184 1,686 56 262 127 222 1,083
12Erosion 189,470 268 348 55 48 38,038
13Soil fertility 44 19,368 427 1 508 250 281 2,983
14Pollination 17 153 22 64
15BioControl 4 55 16 13 22
16Life cycles 108 130 13 499 187
17
Genetic
Diversity 4,518 83 553 320 299 1 47 726 818
18Aesthetic 3,712 3,733 3,723
19Recreation 26,417 13,780 1,262 649 627 4 53 6,072
20Inspiration 0 595 0 198
21Spiritual
22Cognitive 2,154 41 1,097
Total 282,090 63,261 24,205 6,220 5,124 8,644 1,365 3,839

26. GDP of the POOR
While the value of
forest services such as
fresh water, soil
nutrients, and non-
timber forest products
was only around 7% of
national GDP, it
amounted to some 57%
of the livelihood
incomes of India’s rural
poor

27. Ecosystem Losses and Poverty
“GDP of the Poor” is the most seriously hit by ecosystem losses
Indonesia India Brazil
99 million 352 million 20 millionEcosystem services
dependence
Ecosystem services as a
Percentage of classical
GDP
Ecosystem services as a
percentage of “GDP of the
Poor”
Ecosystem services Source: Gundimeda and Sukhdev, D1 TEEB
The Economics of Ecosystems and Biodiversity

28. The Economics of Ecosystem Services (TEEB):
some numbers
1. Conserving forests avoids greenhouse gas emissions
worth US$ 3.7 trillion.
2. Global fisheries underperform by US$ 50 billion annually.
3. The importance of coral reef ecosystem services:
Coral reefs are home to an estimated 1-3 million species,
including more than a quarter of all marine fish species.
Some 30 million people in coastal and island communities
are totally reliant on reef-based resources as their primary
means of food production, income and livelihood (Gomez
et al. 1994, Wilkinson 2004).

29. Contd......
4. Green products and services represent a new market
opportunity: Global sales of organic food and drink have been
increasing by over US$ 5 billion a year, reaching US $46 billion in
2007.
5. Ecotourism is the fastest-growing area of the tourism industry with
an estimated increase of global spending of 20% annually.
6. Bee keeping generates US$ 213 million annually in
Switzerland. The total economic value of insect pollination
worldwide is estimated at €153 billion, representing 9.5% of
world agricultural output in 2005.
7. Tree planting enhances urban life quality in Canberra,
Australia: These benefits are expected to amount to some US$ 20-
67 million over the period 2008-2012, in terms of the value generated
or savings realized for the city.

30. Shrimp Farm
private
profits less
subsidies Net of public
costs of
restoration
after 5 yrs
private
profits
Mangroves
0
10,000
US$/ha
private profits
5,000
PRIVATE PROFITS PUBLIC LOSSES
If public wealth is included, the “trade-off” choice
changes completely…..
$584ha
$1220ha
$9632ha
$584ha
-ve $11,172ha
$12,392ha
Source:Barbier2007
After adding public
benefits from
mangroves
The Economics of Ecosystems and Biodiversity

31. • Thanks