A Pluralist Perspective on Ecosystem Service Valuation Introduction
Exploring Economics, 2021
A Pluralist Perspective on Ecosystem Service Valuation
The last 15 years have seen extensive research into ecosystem service valuation (ESV), spurred by the Millenium Ecosystem Assessment in 2005 (Baveye, Baveye & Gowdy, 2016). Ecosystem services are defined as “the benefits people obtain from ecosystems” (Millenium Ecosystem Assessment, p.V). For example, ecosystems provide the service of sequestering carbon which helps regulate the climate. Valuation means giving ecosystems or their services a monetary price, for example researchers have estimated that the carbon sequestration services of the Mediterranean Sea is between 100 and 1500 million euros per year. The idea of ESV was a response to the overuse of natural resources and degradation of ecosystems, allegedly due to their undervaluation and exclusion from the monetary economy. ESV can be used (1) for policy decision-making, for example allocating funding to a reforestation project (2) for setting payments to people who increase ecosystem services, for example a farmer increasing the organic carbon content of their soil, and (3) for determining fees for people who degrade ecosystem services, for example a company that causes deforestation.
While ESV has potential to protect natural systems, it has limitations and possible negative consequences. I address whether ESV is worth its costs from a pluralist perspective, using Neoclassical, Complexity Economics, and Marxist Political Economy lenses. These three perspectives are complementary because they reveal very different costs and benefits of ESV. The Neoclassical perspective first inspired ESV and logically entails support of ESV to protect the natural resources our economy depends on. Complexity economics leads to tentative support of ESV, with the caveat of recognizing that it is highly reductionist. A Marxist perspective reveals additional risks of commodifying natural resources. Thus the integration of these three seemingly contradictory perspectives allows us to move forward with ESV in a way that recognizes its limitations and provides safeguards against the identified risks. The insights from each of these perspectives is summarized in Table 1.
Potential Benefits of ESV
Risks and Limitations of ESV
Recommendations for ESV Implementation
Marxist Political Economy
Table 1: Summary of Insights on ESV from Neoclassical, Complexity Economics and Marxist Political Economy Perspectives
A neoclassical approach believes that valuation should occur organically by the forces of supply and demand in the free market. However, in the case of ecosystem services there is a market failure, meaning the free market fails to determine a price that leads to an equilibrium of equal supply and demand. Ecosystem services constitute both a public goods and externality type failure.
A public goods failure occurs when there is a resource that is non-excludable, meaning the use of the good cannot be restricted easily, and non-rivalrous, meaning one person using the good does not change someone else’s ability to use it. This causes a problem of free-riders, where there is demand for a good but no one pays to maintain it. Take the example of farmer soil stewardship providing climate regulation through carbon sequestration. Climate regulation is a public good because we cannot stop anyone from benefiting from climate regulation, and there is no competition for its use. In a perfect market, people would pay for the ecosystem service benefit, which would incentivize others to supply the ecosystem service. However since climate regulation is a public good, no one pays for it because they can enjoy predictable agricultural seasons for free. Since no one is willing to pay, there is less incentive for farmers to increase their soil carbon, and the resource is not supplied.
An externality type market failure occurs when public costs or benefits are greater than private costs or benefits. Say a farmer degrades the soil so there is less carbon sequestration. There is a negative externality because decreased carbon sequestration has negative consequences that are not accounted for in the monetary cost of the farming practice. This reduces the farmer’s incentive to maintain their soil carbon. Likewise, if a farmer increases their soil organic carbon, there is a positive externality because they provide a service that they are not paid for, so there is less incentive to provide the service.
Both of these market failures lead to overuse of ecosystems and a lack of resources put towards maintaining ecosystem services. ESV attempts to correct this failure by providing a tool to include ecosystem services in costs and payments, thus internalizing the externality. For example, the government may use ESV to determine the funding that they are willing to provide for a program that helps farmers increase soil carbon based on the value of the expected benefits in climate stability. This scenario also solves the public goods problem because people are no long free-riders - they are paying for maintaining the service through their taxes.
Neoclassical economics would support determining ecosystem service values through willingness-to-pay (WTP) and willingness-to-accept (WTA) approaches which attempt to approximate a free market. WTP is typically determined through surveys, for example asking people how much they would pay to sequester a tonne of carbon. WTA builds on this by asking how much someone would accept as compensation for releasing a tonne of carbon. Neoclassical theory traditionally posits that WTA and WTP should be equal, but loss aversion biases cause WTA to be higher on average (Hoffman & Spitzer, 1993). In practice, there are many difficulties with determining WTA and WTP, for example people must be well informed of the relevance of ES to their daily life. However, in theory WTP can approximate the free market ESV (Blomquis & Whitehead, 1998).
Although Neoclassical economics provided the logic that inspired ESV, it also reveals issues with some common implementations of ESV. Using fees to disincentivize degradation and payments to incentivize stewardship requires significant government intervention in the market, meaning the price will not change dynamically with free market forces. This upsets the theory of market equilibrium because supply will not react to a change in demand, so the market may provide more or less resources than needed. Payments and fees also entail high transaction costs that disrupt market forces. For example, a farmer may not get their payment because they do not fill out the needed paperwork, or a firm may not be charged for polluting because there is insufficient monitoring. However, the main use of ES valuation is for policy decision-making. In this context, it is consistent with neoclassical theory because it is a way for the government to determine its own willingness to pay.
Ladyman, Lambert and Wiesman (2020) define a complex system as an ensemble of many elements which are interacting in a disordered way, resulting in robust organisation and memory. Key characteristics of complex systems include:
1) Causation in complex systems is nonlinear - a small change in initial conditions can provoke a paradigm shift
2) System outcomes, called emergent properties, cannot be predicted from the sum of the system’s component parts (Bar-Yam, 2001).
When we attempt to reduce complex systems to linear models of causation, we fail to make accurate predictions. This is relevant to ESV because both ecosystems and economic systems are complex systems. ESV is inherently reductionist because it attempts to develop linear relationships between human actions, ecological outcomes, and benefits to humans.
Figure 1 shows the many levels of complexity involved in evaluating the ecosystem service value of a policy decision. Let’s return to climate regulation as an example ecosystem service provided by a farmer sequestering carbon in their soil. A policy to promote this ecosystem service might be grants for cover cropping. The government may want to predict the ecosystem service value derived from this policy. At the first level, we are predicting how this policy, offering grants, will translate into individual farmers’ actions. Human actions are emergent properties of both cognitive and social systems. On the social level, a cultural group’s attitude towards cover cropping emerges from many factors such as powerful figures endorsing the action. On the individual level, the farmer’s behavior is an emergent property of their own cognitive system (McClelland, 2010). The behavior is influenced by the attitudes of their social group, as well as factors like their previous experience with cover cropping.
At the next level, we must predict how the farmer’s actions affect the ecosystem. SOC is an emergent property of a soil ecosystem (Caruso et al., 2018). The effects of cover cropping on SOC will depend on other characteristics of the ecosystems like the microbial populations present. From SOC, we then predict how SOC translates in the target ecosystem service, climate regulation. Climate, meaning precipitation and temperature, are emergent properties which also depend on both biotic and abiotic ecological characteristics. Our target ecosystem service, climate regulation, is an emergent property of both biotic and abiotic global systems, (Harfoot et al., 2014) of which the SOC of a farm is but a tiny piece. There is significant spatiotemporal variation in the ecosystem service benefit derived from SOC on a particular farm, which makes predictions of benefits that are based on land types or other generalizations inaccurate (Eigenbrod et al., 2010).
Finally, we must put a price tag, in terms of measured ecosystem characteristics. How much is one tonne of SOC worth? This depends on the many benefits we derive from climate regulation, such as increasing crop yields since farmers can make plans based on more predictable weather patterns. If WTA or WTP strategies are used, the value of these benefits is subjective, depending on similar social and personal characteristics that determine farmers’ behavior such as cultural influences, the salience of the benefit, previous experience with valuations of similar goods, and the mood of the evaluator (van Riper et al., 2017).
To summarize, evaluation of the ecosystem service value of a policy requires prediction of complex causality from a policy decision, to conservation actions, to their effects on ecosystems, to the emergence of ecosystem services, to the subjective value of those services.
Figure 1: Levels of complexity in ESV. Blue boxes represent steps of reduction in determining the ecosystem service value of a policy decision. Solid lines show the complex causality between each step. Gray boxes show examples of external variables that influence the causal relationship between the steps.
Typical methods for ESV require reduction at each of these steps so we can develop a linear relationship between a human action and a monetary value (Nijnik & Miller, 2017). The many levels of complexity and strong dependence on local variables means that reductionist ESV predictions will be highly inaccurate (Hou, Burkhard, & Müller, 2013). Increasing accuracy would require scientific research to improve modelling at each level of complexity. The spatiotemporal variation means that ecosystem service values would have to be continually revised based on modelling (Hou, Burkhard, & Müller, 2013).
Despite these issues, complexity economists do not say we should abandon ESV, rather we should use it with recognition of its limitations. Evans (2019) says “If the ES approach is going to help solve global social-ecological problems, then assessors must be competent at reducing complexity to think through the problems, and building that complexity back out when applying findings to a real-world context.” This means we should design ESV tools with the explicit goal of increasing policy makers’ understanding. This conflicts with the typical goal of prediction accuracy which would desire maximum model complexity. Evans (2019) recommends adding model complexity only when there are benefits for policy-maker understanding, and impressing the reductionism of ESV on decision makers.
Marxist political economy
Marxist political economy (MPE) analyzes politics, society and the economy holistically through class struggle. While MPE is diverse, some of its most common principles includes:
- Society is split into two classes, Capitalists, who own capital and thus control the means of production, and the proletariat, who sell their labor (Engels & Marx, 1848).
- Commodification is the process of turning things of intrinsic worth, such as human labor, into goods that are bought and sold on the market (Marx, 1867)
- The distinction between use-value and market-value: The difference between the market valuation of a commodity and the value of the utility it generates is called surplus value. When labor is commodified, capitalists accumulate the surplus value of the proletariat’s labor, exacerbating the inequality between the classes (Marx, 1867).
- The proletariat capitalist relationship causes alienation, meaning the separation of workers from the products they create and the consumers of those products. Work is performed “merely as a means of satisfying a need – the need to maintain physical existence” which alienates man from himself and from other people (Marx, 1859).
ESV could be seen as the first step towards commodification if ESV is used to make ecosystem service markets, such as carbon markets. This would be problematic for three reasons. First, if ecosystem services have intrinsic value like human labor, then the market cannot properly value them. This challenge arises in the valuation of nonmaterial ecosystem services, such as cultural and spiritual services which have intrinsic, not instrumental, value. Nonmaterial services often rely on the relational value of ecosystems, meaning the way that people relate to nature (Durance, Munday, & Small, 2017). Since relational values are difficult, arguably impossible, to quantify, they are undervalued in market systems.
ESV commodification is also problematic because it would cause ecosystem service production to be optimized for the profits of capitalists, since commodity production is optimized based on market-value, not use-value. For example, carbon markets have become a common use of ESV (Newell, Pizer & Raimi, 2013). Because carbon sequestration is easier to quantify than other ecosystem services and thus more profitable, carbon is overemphasized in the mitigation of climate degradation (Suppan, 2013). Market values also do not consider the distribution of ecosystem services. One tonne of carbon in one location is not the same as the same amount in another place of time. Additionally, carbon credits are produced to optimize short-term quantity, neglecting traditional practices (Böhm, Misoczky, & Moog, 2012). This leads to unsustainable practices for short-term economic gains, for example in Brazil and Ecuador tree plantations were established for carbon credits, causing desertification due to the young trees’ high water demands (Nuñez & GenderCC, 2010). There are numerous similar examples (Böhm, Misoczky, & Moog, 2012), such as biogas factories in Thailand taking over the land of local residents, causing dangerous air pollution, and provoking farmers to use artificial fertilizers since the traditional use of rice husks was now unaffordable since the husks were in high demand for biogas (Gilbertson, 2010). These cases are not outliers. They are a product of the structure of carbon markets which promote production for profit rather than sustainability.
Finally, commodification integrates environmental stewardship into the existing system of class exploitation and labor alienation. Through carbon markets, “rights to emit carbon…and carbon reductions… become commodified and privatized, traded with transaction fees, and allocated and regulated by international and state institutions under conditions of unequal exchange between developed and developing countries” (Bumpus & Liverman, 2008, p. 142). Carbon credit projects are managed mostly by elites. For example, as of 2008, 50% of India’s 45,386 carbon reduction projects were owned by four companies (Ghosh & Yasmin, 2010). Any relationship where elites buy commodified labor leads to class exploitation since the surplus value of labor is funnelled to owners of the means of production. This type of labor also leads to alienation, where laborers are producing sequestered carbon for the sake of earning a wage, ignoring the relational value of the environment. Wealth becomes a “precondition for an encounter with material nature” (Robertson, 2012, p.12).
The Marxian critique of commodification through ESV is inseparable from a general critique of the capitalist system. The process of exploiting workers and generating profit by paying workers less than their use value exists in all cases of commodification. The cause of ecosystem degradation also lies in this process. The ability and desire to amass capital through exploitation gives some people the power and incentive to cause severe ecosystem damage. People who work closely with the land and depend directly on natural resources for their livelihood have a strong incentive to use natural resources sustainably. However capitalism takes power away from these individuals and gives it to a minority who control the means of production. The alienation of these people from natural resources disincentives sustainable use. We see this process occurring in soil degradation. There is a trend of land accumulation in the hands of a few, and an increasing number of landowners not participating in working the land (USDA, 2020). This decreases the incentive for landowners to protect their soil, while taking monetary power away from farmers. Because farmers control less of the means of production, their capital wealth is less, giving them less resources to steward the soil.
In an ideal world, MPE cautions against the commodification of public goods. However an ideal Marxist solution that abolishes the private ownership of nature and establishes communal labor requires drastic structural changes to the economy which take significant time. In the meantime, there is an urgent need to address ecosystem degradation. Environmental degradation hurts those with the least resources most since they have the least ability to adapt, so laws that protect natural resources would indirectly decrease inequality. Marx supports government regulation against exploitation as a partial victory towards a more equal economy. Addressing the metabolic rift created by industrial farming, Marx says we require “systematic restoration as a regulative law of social production” to make up for the harmful effects of capitalism on the environment (Marx, 1867). ESV can be part of systematic restoration. Although ESV avoids the larger structural causes that lead to class oppression and the exploitation of nature to begin with, MPE can support ESV as a temporary solution so long as it is leveraged for incremental changes towards equality (Burkett, 2006). ESV could also be used to recognize the full value of labor, by facilitating payments for ecosystem services. For example, smallholder farmers could be paid for their carbon sequestration services. This would give them the resources to use sustainable practices which is good for the environment while also decreasing their dependence on large agricultural companies.
In a nonideal world, MPE can guide us towards a cautious and fair use of ESV. In order to get the most social benefit from ESV and avoid the risks of commodification, ESV should be principally used to guide policy decisions, not for cap and trade markets. ESV should empower those most directly dependent on, and connected to natural resources, For example, payments to laborers for ecosystem service provision, or fining firms that degrade ecosystems people depend on. If ESV is used to charge fees, fees should be charged for the degradation of ecosystem services, not for the use of ecosystem services. For example, charging for a net depletion of SOC over time, but not charging for utilizing SOC to grow food sustainably. This prevents individuals from being charged for traditional and necessary use of ecosystems. We should additionally provide safeguards against the accumulation of the means of production due to ESV. For example, setting a minimum payment share for workers who are employed by larger companies to cultivate ecosystem services. We can encourage fair wages by performing valuation using objective measures, not only subjective measures. This means that labor towards ecosystem service provision will be paid at its use value based on predicted benefits for human well-being, instead of at its exchange value based on WTP. Complexity economists have called for a similar approach. Bartkowski, Lienhoop, & Hansjürgens (2015) suggest combining WTP valuation with instrumental value to better recognize the complex function of ecosystems. If these guidelines are followed, ESV has less risk of causing oppression and has potential to decrease class inequality.
Combining these perspectives leads to a supportive but careful stance towards ESV. All three frameworks recognize the potential benefits of valuation. Although ESV has significant limitations, it is a useful tool because it aligns with current decision making structures. Implementing economic theories beyond neoclassical economics to this originally neoclassical practice facilitates identification of potential issues that a neoclassical perspective neglects. Employing additional schools of thought beyond the three explored here could be fruitful to discover issues or benefits of ESV that have not been mentioned. This pluralist analysis from Neoclassical, Complexity Economics, MPE theories reveals a number of best practices to dictate effective and socially sustainable ESV policies:
1. Emphasize the limitations of ESV and the individuality of ecosystems when communicating with decision makers.
2. Increase research on complex systems modelling to improve predictive ability of ecosystem outcomes, but only add complexity to ecosystem models if it increases decision makers' understanding.
3. Include an objective component in ESV. Or, in Marxian terms, include the use-value of ecosystem services based on their predicted benefits for human well-being.
4. Use ESV to empower those most directly dependent on, and connected to, natural resources.
5. Avoid using ESV through a free market system, such as carbon markets.
6. If ESV is used to charge fees, fees should be charged for the degradation of ecosystem services, not for the use of ecosystem services.
Through observation of these principles, ESV can protect ecosystem services and the humans that depend on them while we continue to work towards structural change to fix the causes of ecosystem degradation.
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