Opinion – Why? Economês in Portuguese: Nature is priceless, but we need one

Everyone hears that nature is priceless. After all, if we stop to think about all the benefits of ecosystem services, it seems that the value of the environment is incalculable. But as economists, we are all the time wanting to put a monetary value on their resources. In economics, this is called “environmental valuation” or “environmental valuation”.

Perhaps it is unethical to want to assign dollar signs to ecosystem services. What’s more, perhaps to do this is to reduce nature to the role of serving man, or, in other words, to have an anthropocentric view of the world. Individually, we are not able to understand the value for biodiversity, clean air, climate regulation, etc.

Still, let’s do it. In addition to the ethical discussion, giving a market value to nature is highly necessary. And that price, in many situations, needs to be monetary.

Let’s imagine that the government of a small town has a resource generated from tax collection, and it needs to decide how it is going to allocate it in the budget. Is it better to use this money to give credit to small entrepreneurs in the city and, with that, stimulate the economy; for the construction of a new school; or for the reforestation of an abandoned area?

It’s hard to compare these things. First, while we can imagine what the economic return of credit for entrepreneurship might be, comparing, for example, with the increase in GDP resulting from an analogous program in a neighboring municipality, or from investing in education – looking at a possible increase in the expectation of salary of students who complete their studies – we have no idea of ​​the value generated by the new trees. Of course, we know that they will sequester carbon and contribute to climate change mitigation. We also know that they can be greatly appreciated by locals, who will enjoy easier access to a park. If this area is between a road and a residential area, we can also imagine that it brings the benefit of reducing noise pollution in the city. But just listing the benefits of the forest is not enough to make it comparable with other alternatives. Giving a monetary value to these benefits is one way to do this. Thus, the government can know the benefit of each of the alternatives, compare it with its cost and choose the most cost-effective allocation alternative – the one that will generate the greatest benefit at the lowest cost.

Economics is the study of allocating scarce resources to external ends. Valuation can be understood as one of the tools of the economy, used to make external purposes comparable when we talk about natural resources and, with that, to decide how to allocate these resources in the best way.

It may seem contradictory, but putting a price on the environment can precisely help in its protection, maintenance and sustainability. If there is a monetary, commercialized, market value for a standing forest, there will be an economic incentive against deforestation. If there is a cost associated with pollution, companies will have economic incentives to emit less pollutants.

Giving a price to nature is also a way of generating income for preservation. To pay those who help in this, charge those who pollute and make it more profitable to preserve the environment than to exploit it. This can contribute to generating jobs and bringing economic growth, as we have commented in previous texts.

We have already talked about several economic instruments that have this logic behind them, such as taxes, subsidies and carbon credits. The question now is: how are economists going to decide that price? How are they going to say what value should be given to a tax on cars to reduce pollution? Or how much should be given as payment to farmers who plant trees? Or how much is a carbon credit worth?

Answering these questions is not an easy task and often involves the use of several different valuation techniques, such as cost-benefit analysis, travel costs, hedonic pricing models (stated preferences), between others. This month, IBES (Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services) is releasing a report on biodiversity valuation, with a chapter entirely dedicated to the different methods used to do so. Usually, the choice of which one to use depends on several factors, such as the type of environmental asset we are talking about, the type of instrument, the type of market, the location, etc. And there is not always a consensus on the methods, especially among economists and researchers from other areas. Furthermore, it is important to remember that many methods in general are underestimating the value of natural resources, as they hardly take into account non-tangible benefits, such as the spiritual value of a forest to an indigenous community.

Even so, some form of environmental valuation is preferable to not giving this price and, with that, causing environmental assets to be deprecated in relation to alternatives with recorded economic gains. Brazil, for example, has enormous biodiversity and an abundance of natural resources. With that, it could align environmental preservation and economic gain, by carrying out the valuation of environmental assets and integrating markets and initiatives that are already implemented around the world. By continually relinquishing this important strategic position, we bring environmental and economic damage to the country.