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«The Economic and Social Aspects of Biodiversity Benefits and Costs of Biodiversity in Ireland REPORT PREPARED BY: CRAIG BULLOCK, OPTIMIZE CONSULTANTS ...»

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12.1 THE BENEFITS OF BIODIVERSITY Fundamentally, biodiversity is so crucial to our own survival on this planet that efforts to place a value on it can never be sufficient. Nevertheless, water is crucial to our survival too, but we still price it for policy purposes. Just as with biodiversity, we cannot aim to demonstrate the absolute value of water. However, we do price water so as to manage supply and demand, and to ensure that it is used responsibly and not wasted.

The same considerations apply to biodiversity. If anything, biodiversity is more prone to market failure than water. Nobody supplies it as such. There are no costs to cover in the form of artificial reservoirs for its storage or pipes for its distribution. Rather the reservoir is provided by the natural environment, within soils, rivers, oceans, forests and the wider countryside. Biodiversity is simply all around us.

Or sometimes it is not! Where biodiversity has been diminished for any reason, for example from over-exploitation, pollution or through the introduction of alien species or disease, we begin to realise costs in terms of loss of ecosystem services. To pre-empt this situation, the best that we can do to rectify the market failure that applies to a non-market good like biodiversity is to provide examples of the benefits of ecosystem services. These benefits are best described as marginal values, as opposed to absolute values. Marginal values include the successive contribution of ecosystem services to plant yields, timber growth and quality, fish catches or water purity. Thus, the value of ecosystem services is revealed in terms of the marginal value of an extra unit of output.

This value can be interpreted as a marginal gain where we are seeking to restore the functioning of ecosystems, or as a marginal loss avoided through biodiversity protection.

The difficulty is identifying the precise contribution of ecosystem services to market goods compared with other inputs. In fact this is extremely difficult and, even where possible, we inevitably have to fall back on a limited range of examples. So it has proven to be the case of this report.

What we have tried to do is to use examples from each productive sector to demonstrate the importance of biodiversity. The benefit estimates at which we arrive amount to at least 2.6 billion per year. They are, of course, partial estimates and very imprecise at that. Fundamentally, they omit some key biodiversity contributions such as waste assimilation, maintenance of human health, or the full range of benefits that the soil biota provides to productivity and carbon recycling and storage.

Some of the benefits of ecosystem services can be substituted. We have been extracting as much productivity as we can from natural systems for thousands of years. In more recent times, we have begun to substitute for these natural systems through the application of artificial inputs. Agriculture and forestry provide the obvious examples through their use of fertilizers and pesticides. In fisheries, we have been developing aquaculture systems, while in water supply we can substitute natural purification with chemicals and other processes. However, we can only substitute to a finite extent. There is much uncertainty over both the nature of ecosystem services and their interaction with artificial processes. We have also found out to our cost that artificial processes often have unwanted external costs such as pollution and toxicity. We can propel productivity through artificial means as in the case of monocultural farming systems, but ultimately this leaves us more dependent on artificial inputs and more vulnerable to problems such as pests or disease.

Numerous studies have demonstrated that incomes are stabilised in the long-term by systems that produce diverse products or outputs and which protect the underlying natural diversity.

Such sustainable systems are not just good for the environment, but are also good for long-run productivity. The quality of output is often better as in cases where organic methods are used to produce food crops. Neither is gross productivity necessarily compromised even in the short-term.

The case of fishing provides an obvious example where over exploitation of the system and neglect of biodiversity has led to a collapse in fish stocks around the world. We know hardly anything about the functioning of the marine ecosystem, but it is obvious that far higher catches are possible in a well-managed marine environment. Biodiversity therefore has a sizeable option value. We do not understand all ecosystem processes, but it is possible to place a provisional value on the potential output.

The final contributions of biodiversity are in terms of its contribution to human welfare and to health. In terms of the former, we can value biodiversity through those activities to which it makes a direct contribution, such as angling, birdwatching or ecotourism.We can also value the indirect contribution in terms of all types of countryside recreation or water sports. Where biodiversity is misused, external costs are passed on to society. Sometimes these external costs impact on a distinct population or economic sector. On other occasions, they impact on all of us given the utility that we derive from having access to the natural environment.

Where human health is concerned the contribution of biodiversity is less discrete and often little understood. The value that we place on our physical health is considerable, noting the amounts that we are prepared to spend on our own well-being and healthcare. Consequently, the economic benefit of disease prevention is huge. As noted above, careful management of ecosystem services can contribute to high quality food and that, of course, is good for health. Biodiversity is also integral to some environments such as sand dunes, salt marshes, estuaries or wetlands that are vital for buffering the effect of storms and flooding. Each of these is vulnerable to the effects of climate change. However, it is the relationship between disease, wild populations and ourselves that is least understood and so difficult to demonstrate. We understand the significant impact of diseases spread from wild populations. The economic and social costs of AIDS or avian influenza are huge.





We know much less about how such risks are controlled within ecosystems that are not compromised by human interference.

12.2 BIODIVERSITY POLICIES Evidently, Government is spending very little on biodiversity in comparison with the benefits it provides. There is some direct expenditure on biodiversity protection, for example by the National Parks and Wildlife Service. There are also various policies which protect biodiversity indirectly, including any policies that aim to protect the environment, for example, by controlling pollution.

Typically these policies are reactive in that they are aiming to mitigate threats to the environment.

Often, the costs, or at least some of the costs, are borne by private companies and individuals in relation to the polluter pays principle. However, there are very few policies which aim to proactively protect biodiversity.

The chapter on benefits and costs identified policy costs of 370 million per year. Clearly, these are just a fraction of the benefits of the very limited range of ecosystem services that we have used as examples. It is clear that there are some sectors, such as the marine sector, where we obtain huge economic benefits from ecosystem services, and where we could be enjoying much greater benefits were biodiversity adequately managed. In other sectors, such as with agri-environmental policy, we are now spending significant amounts on policies that protect biodiversity, albeit indirectly.

However, these amounts are being spent largely in response to previous mismanagement and also with ulterior objectives, including social benefits and transfers. The general perception, in terms of the very limited data that most government departments either possess, or were able to impart, is that there is lamentably little appreciation of the economic benefits of biodiversity.

Policies are needed to correct market failure and to ensure that both the productive and social value of biodiversity is realised through the sustainable management of resources. Generally, economists encourage the use of economic instruments to achieve these ends rather than command and control approaches such as regulation. Taxes or charges are the preferred approach in that these provide market signals which influence behaviour without the implications that subsidies have for income transfers. The greater use of taxes or charges to encourage biodiversity protection also imposes less costs on government. If these methods were used more extensively, we would have been giving more attention to private costs, rather than public costs and expenditure, in the chapter on Benefits and Costs.

In practice, governments tend to prefer subsidies and transfer payments as means to cajole economic agents into behaving in particular, in more desirable ways. Indeed, market exchanges and prices within primary productive sectors such as agriculture, forestry and fisheries, have become largely determined by complex systems of market protection, subsidies and grants. On the one hand, these artificial systems makes it possible to inject additional economic incentives to protect biodiversity. On the other hand, these same incentives must compete - even compensate - for other policies, some of which are actually undermining biodiversity objectives.

In the short-run, there will be occasions when biodiversity protection requires that economic agents are given economic incentives that influence behaviour even in the face of numerous similar incentives. However, we can achieve at least as much by removing the incentives which act contrary to biodiversity or which underpin less sustainable systems of production. Ultimately, this will allow economic sectors to become more conscious of their reliance on the provisioning and regulating services provided by biodiversity and do so without huge outlays in terms of Government expenditure.

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