The Market Force of Nature

Frontier / by Maywa Montenegro /

Putting the "invisible hand" to work for nature could reshape the values of capitalism.

Model by Alice Cho/Photograph by Mark Weiss

When international leaders met in Bali last December to begin hammering out a new global pact on climate change, they butted heads over many things but agreed on this: Conservation of the world’s tropical forests should play a critical role in the protocol that replaces Kyoto in 2012. The carbon dioxide released from deforestation accounts for roughly 20 percent of annual greenhouse gas emissions worldwide, and reducing that rate could be among the easiest and cheapest ways to slow global warming, according to experts. But with many of the planet’s remaining forests located in developing nations—where the economic pressures to clear land for agriculture, timber, minerals, and, increasingly, biofuels are substantial—how could these countries reasonably be expected to participate?

The solution they settled upon, though clunky in name (Reducing Emission from Deforestation and Degradation), is elegant in concept: REDD mechanisms will assign a carbon storage value to forests, and nations that forego razing their trees will receive credits, which can then be sold on the carbon market. “These plans have the potential to shift the balance of underlying economic market forces that currently favor deforestation,” said a team of researchers in Science. But REDDs will also test a much bigger idea: that it is possible to put a monetary value not just on nature’s goods—like oil and timber—but also on nature’s services; that we might begin accounting for the role an intact ecosystem plays as a carbon sink, a filter for water and air, a pollinator, and a home for biodiversity. As the first global experiment in this premise, REDDs will attempt to weave nature’s services into the fabric of a capitalist economy, and in so doing will test whether markets can begin to drive the protection of Earth’s resources, rather than their exploitation.

The carbon cap-and-trade market—a system already in place in Europe and soon to come to the US—provides the economic framework for the proposed REDD scheme. If a country exceeds its allotted carbon emissions allowance, it can buy extra credits to offset the balance. For example, if Spain emits 1.5 million tons of carbon dioxide but has allowances for only 1 million tons, it can buy 500,000 tons of reductions on the global carbon market, paying a country like Indonesia for credits it has earned through reducing deforestation. Although the price for REDD credits has not yet been fixed, avoided deforestation is expected to pump several billion dollars into the economies of developing nations each year.

The plan has received widespread support from the scientific community, leading conservation organizations and The World Bank. After rallying support from global leaders at the 2007 G8 summit, the Bank announced in Bali the launch of a new Forest Carbon Partnership Facility. This mega fund, which has received contributions of between $5 million and $40 million each from nearly a dozen nations, will begin piloting REDD schemes in five rainforested countries in 2008. And it is urging the global community to begin preparing 20 to 30 developing-country governments for full implementation of REDD incentives by 2012.

Response has been mixed among developing nations. The top-down implementation of REDD—with little input from either the recipient governments or from the forest communities—has been one major concern. Another is a long-standing criticism that carbon offsets merely provide a mechanism for industrialized nations to continue polluting. And in countries like Brazil, says William Laurance, a biologist at the Smithsonian Tropical Research Institute in Panama, “the concern is that in exchange for a one-time payment, they would essentially be promising not to deforest that land forever.”

These concerns complicate an issue that from a scientific perspective is a no-brainer. Tropical forests are the planet’s greatest carbon sinks. The total biomass of the Amazon basin, for example, represents about 86 billion metric tons of carbon (compared with 7.9 billion of human-produced carbon output in 2005). According to the highly influential 2006 Stern Review, which assessed the effects of climate change on the global economy, reducing emissions from deforestation by 70 percent would cost only around $5 billion per year—cheap compared with other types of mitigation. “It’s a low-hanging fruit,” says Laurance. The benefits of conservation, he says, are huge, while the costs are relatively small: “Not only are you salvaging carbon storage, you’re also protecting biodiversity and the hydrological cycle; you’re stabilizing soils and protecting the livelihoods of indigenous peoples.”

Indeed, some see credits-for-trees as just the beginning of a transformational shift in the capitalist paradigm. A system that has long valued only the products, not the processes of nature could be upended in coming years, with the growing understanding that nothing is sustainable without a healthy planet—not even Wall Street. The idea of mixing markets and Mother Nature first drew attention in 1997, when ecological economist Robert Costanza and colleagues published the first global-scale calculation of ecosystem goods and services. The net worth of Earth’s 16 biomes, they concluded: a staggering $33 trillion. “It was a very conservative estimate, and was still larger than global GNP,” says Costanza, noting that this is what intrigued people. “Natural capital is not a little marginal thing around the edges. It’s probably the major contributor to human welfare, and has always been.”

For acolytes of a more-traditional school of environmentalism, the very notion of pricing nature can be disturbing. How is it possible, even in theory, to monetize resources that are ultimately invaluable? But to a growing number of experts, a world where oil is valued at $100 a barrel, while water and the watersheds that filter it are free is more absurd, says Costanza. “The alternative is to put zero price on nature.”

Moreover, mechanisms like REDD, if implemented with the right controls, could skirt the social-inequity pitfalls that have raised concerns from the developing world. They would use market incentives to send the right signals about the costs of polluting or destroying the environment, while ensuring common ownership of—and common benefit from—its services. A community, says Costanza, would have the right to say, “You want to harvest trees? You’ve got to pay the external costs too, not just the costs of timber.”

The effects are two-pronged, according to Heather Tallis, a lead scientist at the Natural Capital Project, a program launched in 2006 by Stanford University, the World Wildlife Fund, and the Nature Conservancy: The strategy helps alleviate poverty while keeping people on the land “in a way that’s good for conservation.”

That’s the idea, at least. In practice, the logistics are fantastically complex, requiring a sophisticated understanding of the atmosphere, the hydrologic cycle, soil formation, the food web—and how it all might change in differing land-use scenarios. Building this kind of information network was the motivation for the Natural Capital Project and a growing number of collaborations between scientists, conservationists, and economists who see natural capital as the future of sustainability. They are developing computer-based toolkits with acronyms like INVEST and MIMES that model and map ecosystem services for the benefit of policymakers. “We’re trying to find ways to get information about the value of ecosystems and the benefits that they provide to governments, conservation organizations, and development banks,” says Tallis. “The whole underlying thinking is that with better information about these values, people will make better decisions.”

With the majority of the scientific community and international government leaders on board, REDD mechanisms will almost certainly move into the post-Kyoto protocol. Whether they will fulfill their intended purpose of staving off deforestation and reducing greenhouse gas emissions remains a question. Concerns range from “leakage” (logging operations moving elsewhere) to verifying that funds actually go toward forest preservation to ensuring its long-term viability. The answer will shed light on the wisdom of melding economics and environmentalism, indicating whether natural capital ultimately proves to be about profiting from nature or beginning to treat nature as if it had value.

Originally published April 21, 2008

Tags capitalism carbon decision making ecology policy

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