• GuyG

Ecosystem Services: Buyer-less Markets and Magic Money Trees

Why does Alberta seem stuck as we try to operationalize the ecosystem services concept

When I was in high school I had a huge crush on this girl. Unlike with most crushes, I actually worked up the courage to ask her out on a date. She ruined my whole system by saying, ‘yes.’ With other girls I had just imagined perfect dates; now here I was forced to actually ‘operationalize’ a real date.

‘Ecosystem services’ is kind of like that.

We all admire it from afar, but when faced with ‘operationalizing’ the concept (i.e., using it to protect nature), we struggle.

This is not a new struggle. Twenty years ago, after much global effort / debate / research, the the Millennium Ecosystem Assessment created a pretty standardized way of conceptualizing those services. By 2010, The Economics of Ecosystems and Biodiversity (TEEB) group had made great strides in operationalizing the concept. Numerous ecological economists had contributed and refined various methodologies, analyses, and practice guidelines.

While the concept has gained in stature and application around the world, in Alberta we are kind of stuck trying to figure how to use this weird little thing that at once seems to be a policy framework, a toolkit, an economic saviour/pariah, an ecological saviour/pariah, etc.

(in fairness, we are not the only jurisdiction that is stuck)

I think the challenge with the concept of ‘ecosystem services’ has been the tendency for people to take a little bit of the concept, then bend it to fit their own goals and programmatic structures. To a degree, that is natural, but in Alberta, we are dug in fairly hard. A presentation I saw given by Robert Costanza (ecosystem services guru) gave me some insight into this.

The myths of ecosystem services

In 1997, Robert Costanza and a dozen other economists and ecologists published a seminal article in Nature called “The value of the world’s ecosystem services and natural capital.” This was the first rigorous effort to calculate an economic value of all the things nature provides to us. When I met Dr Costanza, he told me that they got to set the title of their article, but not the title of issue of Nature in which it appeared. The cover was emblazoned in red with “Pricing the planet.”

So at its earliest stages, the seeds for some extremely pernicious myths about ecosystem services were sown. My sense is that Dr Costanza has spent as much time over the last couple of decades trying to bust these myths as he has refining his methodologies.

In his more recent presentations, he includes one simple slide called “Some mistaken identities concerning ecosystem services.” It says:

  • Economics ≠ “the market”

  • Valuation ≠ Privatization, Commodification, or Trading

  • Expressing values in monetary units ≠ Market or exchange values

I think this helps explain how we got stuck.

What does this all mean?

With that first bullet above, he is trying to remind people that ‘economics’ is concerned with the allocation of scarce resources and how wealth is produced, consumed, and transferred. It seeks to understand how general prosperity can be maximized. ’Markets’, on the other hand — especially in a market economy — deal only with the exchange, seeking to generate and maximize wealth. Remember, communism is an ‘economic’ system, too.

We often hear politicians exclaim they did it “for economic reasons” or “for the economy”, but in fact they did it to cut costs or increase revenues, or even to catalyze a market - all pieces on the chessboard, but not be mistaken for the board itself.

So it is important to understand (to Costanza's second bullet) that when an economist talks about valuation, we cannot make the assumption that that valuation is being made so as to commodify it, put it in a market, or facilitate its sale in a market. With their 1997 Nature article, Costanza et al were trying to show that ecosystem services had economic heft, an ability to support and influence markets at levels we were not previously full cognizant of.

And that brings us to Costanza’s third bullet, the myth that a dollar sign means something is for sale. In any system of valuation your need a common metric, especially if you plan to do any comparatives. Dollars provide that common metric, but don’t necessarily mean the item in question is headed for the store shelves. A colleague of mine once told me “it takes me 23 cows to buy a pick-up truck, but it only took my grandfather 7.” He had no intention of arriving at the local dealership with a full cattle liner, he was simply giving me a comparative picture of the economics of ranching in his day versus his grandfather’s; a comparative analysis of the economic value of a cow.

Why is this important? When an ecosystem service is given a dollar value, there is a popular tendency to assume this is merely a prelude to tossing that service (and the natural capital that produced it) into the meat grinder of a market, sucking all financial value out and discarding the now-ecologically-useless husk.

Rather, the reverse is true intent of ecosystem service valuation. This bad-case scenario has been the tragedy of the ‘economic externality’ - a lovely bit of jargon meaning that something of actual value gets ignored because the market has no way to price it, so the benefits it provides or the impacts it causes are not factored into market-based decision-making. A car that pollutes and a car that doesn’t pollute cost the same — and have the same ‘market value’ — because the costs of production are the same. However, if the manufacturer were charged for polluting cars, this ‘externality’ is ‘internalized.’

Costanza et al were trying to show that ecological losses and risks could be measured in more than just number of endangered species, translating to the more-common language of economic impacts.

Payment for Ecosystem Services

If Alberta is indeed stuck implementing the ‘ecosystem services’ concept, then the mud in that hole must be ‘payment for ecosystem services.’

One of Costanza’s subsequent slides explains that if you are just calculating the monetary value of ecosystem services for “Raising Awareness”, he deems the necessary precision of that valuation as “low,” and it is reasonable to calculate “total values.” To make your point about the economic heft of a parcel, you can talk about its ability to sequester carbon, provide habitat, support recreation, etc. Then you find some per-acre calculations and associated job numbers, and voila, that parcel is worth millions of dollars. And that is a valid assessment for that purpose.

However, down at the other end of the scale is the very specific or programmatic application, and this is generally where market-based applications exist. Costanza determined that if you are calculating ecosystem service values for something very specific and programmatic (like Payment for Ecosystem Services programs), your precision must be “medium to high”, and it is most appropriate to measure the “change in values.”

Those same eye-popping numbers are no longer appropriate here. I can tell you my land is worth millions of dollars, but if no one is ‘buying’ at that price, I am not in a ‘market.’ Markets need sellers and buyers — if either is missing it is not a market. Period.

A sustainable market also has some momentum, a constant inflow of new buyers and new sellers, a constant succession of new transactions. That is one of the powers we seek to harness when we look for ‘market-based instruments’ for conservation.

So if a government gives a one-time payment to an individual so that person will do something the government wants them to, that is a financial transaction, and may be a worthwhile investment, but it is not a ‘market-based instrument.’ Likewise, if a philanthropic foundation provides a similar kind of grant, it is financial, but not market-based.

Another way to think of this is that Costanza could also have reversed his equations and tracked back to say: $ ≠ a market. Just because you have a dollar value does not mean you have a market-worthy valuation.

Here is where Payment for Ecosystem Services programs have failed to deliver in Alberta, or in some cases even worked against the ecosystem service paradigm.

First, a large number of programs, pilots, and conversations have been overly comfortable with looking at only one side of the ledger - the payments. If you gather a group of agricultural producers in a room and ask them if they would like to get regular payments for things they mostly already do, what do you think will happen? If you do not have a solid, sustainable source of funding, and rely on special, one-time pots of money to pay a few landowners, you call that a windfall, not a program. Many landowners have come to equate “ecosystem services” with “new revenue streams” — and program managers have been too blasé in letting them make that one-to-one correlation.

Second, even when there is consideration of that ‘other side’ of the ledger, we generally offer theoretical frameworks and aspirational jingo-ism, making grandiose claims that ecosystem services are the key element of many ‘market-based instrument’ schemes. But a glass of lemonade is not a market-based instrument, it’s just a thing you want to sell until you connect with a buyer; likewise an ecosystem service.

Todd Gartner of the World Resources Institute has a great phrase to describe how to conceive a truly-functional PES program: “figure out who feels the pain” if that service were missing. Before you start promising upstream riparian landowners that truckloads of dollars will come from urban municipalities if those landowners make management changes, find out if that is true. If that downstream city (e.g.) already has tertiary water treatment in place, they may not be feeling any impact right now — let alone pain. The ‘market value’ of that ecosystem service (i.e., upstream riparian sediment and pollutant filtration) may be virtually nil in that context, even though the ‘economic value’ might be through the roof.

And this leads to the third failure: Payment for Ecosystem Services programs likely account for no more than a 10% sliver of potential policy applications of the ‘ecosystem service’ concept, but in Alberta, it currently takes up about 95% of the oxygen in the room. There is no malice in this, only poor awareness.

So What?

I actually think ‘ecosystem services’ as a concept is a bit magical.

It can reframe land use planning in innovative ways; it can support application of the ‘duty to care’ principle; it can underpin corporate impact disclosure guidelines; it can link human health and ecosystem health; it can help drive investment into an economy in need of diversification; it can help place humans mentally back into the ecosystem — so many, many ways the concept can be employed.

But none of this will happen if we keep believing in the existence of buyer-less markets and magic money trees, and that PES programs ares the primary application of the ecosystem services concept.

P.S. In case you were wondering, the date went terribly. On the way to the restaurant, I drove the wrong way down a one-way street. One the way home I hit the curb. And those were perhaps the highlights. We never went out again, and I went back to my tried-and-true “admiring from afar.” Happily, I have much higher hopes for ecosystem services …