The Price of Biodiversity

We humans do not only share the planet with a range of other species, including plants, animals, and even microbes; we also depend on them for our survival. Can we determine the economic value of protecting the natural world?

Some people will balk at the idea of putting a price tag on biodiversity, viewing its protection as an obvious imperative. But they would undoubtedly also agree that preventing human death and suffering, while providing food, water, and an education to all, is vital.
The reality is that there are simply not enough resources to do everything. Hard choices have to be made. Fortunately, economics can help us determine how to do the most good with the resources we have.

This is particularly relevant today, as the world's 193 national governments work to establish the Sustainable Development Goals to guide global development efforts for the next 15 years. The SDGs will be modeled on the Millennium Development Goals, which were agreed in 2000 and focused on objectives like lowering maternal and infant mortality, eradicating poverty, and improving access to primary education.

So far, a huge number of potential SDG targets have been proposed, some of which relate to biodiversity. But, though trillions of dollars will be spent on the SDGs, there are simply not enough resources to complete every project. That is why world leaders must focus on the targets that will have the greatest impact. My think tank, the Copenhagen Consensus, is working with more than 60 top economists and several Nobel laureates to identify which targets promise the highest return on investment.

Preserving biodiversity, it turns out, is not only desirable; according to three new studies by the economists Anil Markandya, Luke Brander, and Alistair McVittie, it also makes good financial sense, at least for some projects.

Protecting forests is a good place to start, with every dollar spent bringing benefits worth about $10. Some of the resources that forests provide – such as timber, firewood, and tourism – can be valuated relatively easily. But the value of others – such as the wide range of animal species they support and their intrinsic worth to people – is more difficult to quantify. In attempting to do so, economists have conducted surveys to find out how much people would be prepared to pay to protect forests and the animal species they support.

Forests also serve as an enormous “carbon sink," storing atmospheric carbon dioxide for many decades or centuries; thus, protecting forests would help to mitigate climate change. Moreover, forests absorb intense rainfall, thereby reducing the risk of flooding. The 2010 flooding in Pakistan, for example, would have been far less devastating if so many trees from upper slopes had not been felled.

The conclusion is thus that each dollar spent on conserving forests would yield $5-15 worth of social good, including tangible benefits, such as from logging or carbon capture, and “soft" gains, like preserving forests' intrinsic beauty. Conserving the world's wetlands – which also provide valuable services, including protection of coastal areas and river valleys from flooding – is also sensible, providing a tenfold return on each dollar spent.
But protecting coral reefs would bring the highest returns, amounting to an extraordinary $24 worth of benefits for every dollar spent. Like forests, coral reefs provide multiple services – including tourism and fish nurseries, which help to sustain commercial fishing – and have an intrinsic value to people. To reduce the loss of coral reefs by half would cost about $3 billion each year – and yield at least $72 billion in benefits.

Not all projects aimed at protecting biodiversity are a smart use of public resources. Creating additional nature reserves, for example, might sound like a great way to protect more species' natural habitats, but the economic benefits would not cover the nearly $1 trillion in costs. Doubling the area of protected coastal land and bringing substantial areas of open ocean into reserves is a particularly formidable task. Clearly, protecting coral reefs is a much better use of limited resources.

Though the SDGs will aim largely to improve daily life for the very poor, a cool-headed economic assessment suggests that there are also smart biodiversity targets that should be considered. If world leaders take advantage of cost-benefit analysis to separate the wheat from the chaff, the next 15 years could be a boon for global development – including the preservation of biodiversity.