Environmental Services and Economics
When we drink water from a tap, we know that it quenches our thirst. But few of us fully appreciate what went into creating that glass of water. Depending on where you live, tap water may have been through water treatment to kill bacteria or remove other contaminants. It has likely been transported through ditches or pipes to where you receive it. If you pay for your water, you’re paying for the management of the water that allows you to access it.
What you are not paying for is a huge, hidden value, far greater than the cost of the infrastructure for transport and/or treatment where available. Where does your water really come from, and what investments keep it flowing?
Take a few minutes to think about that question because the answer is multi-faceted.
“Ecosystem services transform natural assets (soil, plants and animals, air and water) into things that we value.”
-EJOLT (Environmental Justice, Organizations, Liability and Trade), 2013
Water is one of the many resources that are naturally supplied by ecosystems. As it cycles from ocean to atmosphere to precipitation, vegetation, surface runoff, and underground supplies, water sustains the living cover on Earth. It’s one of the many “provisions” supplied for free by Earth, and it’s acted on by “services,” such as cycling and filtering, that are also supplied by Earth’s ecosystems. Looking closely at the graphic, which we will return to later in the module, how many of these natural ecosystem services do you personally benefit from? Are there any that are not relevant to your life?
Thinking about how natural systems supply us with goods and services we need, American ecologist Walter E. Westman formalized the term “ecosystem services” with his 1977 publication of a paper titled, “How Much Are Nature’s Services Worth? “. This paper was a call to evaluate the benefits of natural ecosystem functioning to human welfare and argued that ecosystems had been mostly valued for their provision of harvestable materials, such as trees and rocks, and not for other services (Westman, 1977).
The idea that ecosystem services support and sustain human life gained more traction over time and culminated in a four-year study (Milennium Ecosystem Assessment, 2005) that drew on the expertise of more than 1300 scientists. Its goal was to assess how the world’s ecosystems support human well-being and the implications for ecosystem conservation. The study found, for example, that wetlands supply a huge range of services, such as water purification, climate regulation, food provision, nutrient cycling, recreational opportunities, and soil formation, that directly benefit millions of people.
Many studies have since looked at how specific ecosystems supply services to people. For example, South African Emma Mandishona studied how farming communities in eastern Zimbabwe rely on wetlands. She chose six wetlands and, through interviews, conversations with village heads, and observations of daily life, Mandishona discovered that people rely on wetlands for a range of activities - watering fruits and vegetable crops, harvesting grasshoppers and other food sources, farming fish, reeds for weaving baskets - making wetlands a crucial economic hub (Mandishona and Knight, 2022).
Whether you live in rural Zimbabwe or New York City, ecosystems are important to your water supply. Huge reservoirs up in the Catskill Mountains and Hudson River Valley deliver more than a billion gallons of water daily to New York City residents. By protecting the natural filtration role of the watersheds around the reservoirs, the City has saved billions of dollars in the costs of building and running filtration plants. In addition, the more than 5000 acres of wetlands within New York City help reduce flood risks, filter pollution, and keep the local climate cooler.
Historically, attention to ecosystem services was mostly about _______.
Categories of Ecosystem Service
Looking again at the wheel graphic above, consider how you would group ecosystem services to take into account that some are things we consume, like drinking water or food, while others are jobs done by ecosystems, like filtering or regulating?
Ecosystem services are typically grouped into several categories like these:
Provisions and Supplies
“We get food for our physical needs from plants, trees and farm animals…Even the microorganisms are important in decomposing waste and are a source of medicines and vaccines. In a way, these life-forms support our sustenance.”
― Salman Ahmed Shaikh, Islamic Economics Project, 2020
Ecosystems provide a wealth of raw materials, such as water, minerals, fuels, wood, fibers, fruits, and other living or nonliving things. Materials such as soil, sand, and glass are naturally manufactured by ecosystems. We typically process those materials in some way to meet our needs, whether it's converting wood into paper, generating medicines from plant extracts, or fashioning minerals into gems.
Are all the materials supplied by ecosystems essential to our well-being?
Regulation and Maintenance
Ecosystems also provide regulation and maintenance services. Vegetation cleans the air, controls erosion, moderates water supply, and helps cycle minerals and nutrients through their biogeochemical cycles. Plants sequester carbon, a service that has become increasingly important in light of the ongoing climate change caused by the rise in atmospheric carbon dioxide. (See our Factors that Control Earth's Temperature module)
Portuguese ecologist Joana Vieira studied how vegetation structure relates to air purification. Her team selected a large (150 acre) park in Almada, Portugal with a mix of original woodland vegetation interspersed with plantings and lawns. Across types of vegetation, they measured lichen diversity. Lichens are considered good bioindicators because they are vulnerable to pollutants, given that they get all their nutrients from the air. The study also attached lichens raised in clean air conditions to trees, waited three months, and assayed the lichens for pollutants such as mercury and lead. The researchers found that less managed woodlands more effectively filtered pollutants than managed fields or plantations, demonstrating that at least in that case wilder ecosystems provide better services (Vieira et al. 2017).
Ecosystems also supply the service of supporting a diverse suite of living organisms by providing habitats for plants, animals, fungi, and microorganisms such as bacteria. Ecosystems are the engines that transfer energy from producers, such as plants, to consumers such as animals that eat plants, and on up through the food web.
Cultural and Spiritual Connections
Ecosystems are also recognized as supporting spiritual and cultural practices. Human evolution has mostly taken place in close association with natural habitats. As such, ecosystems serve humans not only for the harvest of goods, but also for cognitive development, spiritual practices, cultural events, recreation, inspiration, and other deep-seated needs.
As a Master’s student in environmental science, South African Peter De Lacy examined the services provided by gardens at sacred sites such as cemeteries. At 30 such sites, De Lacy inventoried shrubs and trees, coupled with a survey of people visiting each site to assess how valuable they deemed it from spiritual, ecological, and economic perspectives. The results showed that the gardens ecosystems provided primarily spiritual services with ecological services ranked second and economic services last (De Lacy and Shackleton 2017).
The supply of free-running rivers for salmon to swim upstream and spawn could be categorized as _______.
“And yet, in the inexorable quest to rationalize the activities of the civilization, policy-makers in Western societies have increasingly asked the monetary value of items and qualities formerly regarded as priceless: clean air and water, untamed wildlife, wilderness itself. Behind this search has been the hope that, by weighing the benefits to society of nature in the undeveloped state against the benefits of resource development, an objective basis for decision-making will be achieved.”
– Walter E. Westman in How Much are Nature’s Services Worth? 1977
If ecosystems have value for the services they provide, how do we quantify it, and should we all be paying for those services?
In 1997, American systems ecologist Robert Costanza and colleagues published one of the first estimates of the monetary value of ecosystem services across the globe. They combed the published research literature for estimates of the monetary value of particular services and then extrapolated to a global scale. Their research estimated (roughly!) the average yearly value of ecosystem services globally as $33 trillion USD. While they, admittedly, include caveats regarding the accuracy of the estimate, Costanza’s work was significant in recognizing that ecosystems provide tremendous economic value that should be taken into account in decision-making processes, helping launch a new field of study called “environmental economics.” (Costanza et al. 1997).
Thinking back to which services you personally use, do you think that we pay, as a society, for all the benefits provided to us by ecosystems?
Prior, the services provided by ecosystems had not been considered in financial markets and were thus mostly overlooked in decision-making. The field of environmental economics called out the relevance of ecosystems to the costs and benefits of human activities that alter landscapes. By grappling with how to put a price on these natural assets (also called natural capital), people were acknowledging their worth.
The value of natural assets includes direct, indirect, nonuse values, and option values:
- Direct: When we accrue value from using something directly, such as gathering honey from forest beehives.
- Indirect: When we accrue value from using something indirectly, such as our crops getting pollinated by wild bee populations.
- Nonuse: When we accrue value from less tangible aspects of ecosystems, such as joy we feel knowing that giant squids exist.
- Option: When we don’t accrue value in the present but are willing to pay for future value, such as the option of hiking on a national forest trail.
In Figure 3, what ecosystem services do you see in action? Categorize the value they provide as direct, indirect, nonuse, or option.
Estimating the value of ecosystem services in relation to the cost of maintaining them provides information needed to manage ecosystems.
For example, Spanish environmental economist Paola Ovando Pol and colleagues developed a comprehensive financial accounting system for ecosystem services. In looking at the value of things like mushrooms, water, and livestock, they included economic principles like private amenity and capital gain. Applying the system to 39 agroforestry farms in Andalusia, Spain, the researchers identified a difference between how forest types accrue value. Coniferous forests generate US$160/hectare from timber and other products, while hardwood forests generate US$400/hectare from natural growth of cork and other amenities (Ovando et al. 2016).
Based on their financial accounting system, if you had to choose between losing an acre of conifer forest or losing an acre of hardwood forest to development, which would it be?
Assigning value to different aspects of ecosystem services illuminates tradeoffs between maintaining one service versus another. For example, ecosystems services scientist Josh Goldstein and colleagues quantified values to help Kamehameha Schools, the largest private land-holding organization in Hawaii, plan its land use. The goal was to balance competing values, including food cropping, feedstocks for biofuel, and forestry. The study modeled the impacts of seven alternate land-use scenarios on carbon storage, water quality, and financial return. The results revealed tradeoffs; for example, a scenario with more biofuel production improved water quality but reduced carbon storage (Goldstein et al. 2012).
Paying for Ecosystem Services
"It of course goes without saying that economic feasibility limits the tether of what can or cannot be done for land. It always has and it always will."
-Conservationist Aldo Leopold, A Sand County Almanac (1970)
So, if ecosystem services have financial value to humans, who pays for them?
One way that ecosystem services get accounted for in today’s emerging ecosystem conservation plans is through “payment for ecosystem services” (PES) approaches. The idea is that landowners are compensated financially for the services their lands provide. The compensation is an incentive for keeping ecosystems intact and services therefore working.
For example, a Pay-for-Environmental-Services program in Florida financially compensates ranchers for managing their lands in a way that ensures ecosystem services. Intensive ranching may cause nutrient runoff into streams as well as reduce the water storage capacity of soils. In an outcome-based arrangement, cattle ranchers in the Everglades Region are paid by state agencies to reduce the amount of phosphorus running off their lands. Up-front funding to farmers pays for the conversion to new water management practices (Bohlen et al. 2009).
Payment-for-services approaches have been implemented for not only watershed protection, but also other services like biodiversity conservation. But, the challenge of payment-for-services approaches is that they require sustained financial and social capital.
Another approach to economically accounting for environmental services is market trading. Cap-and-trade has emerged as a global strategy to reduce the carbon emissions that are contributing to global climate change. Allowable greenhouse emissions are capped at a certain amount, but companies can buy and sell emissions allowances, which creates a supply and demand marketplace. (See our Factors that Control Earth's Temperature module)
For example, Mexico, a high emitter of CO2, was one of the early adopters of a cap-and-trade approach. Mexico implemented a carbon tax in 2013 that placed a value on carbon storage rather than release. In 2019, Mexico launched a pilot emissions trading scheme, in which carbon emitters must stay under the cap or purchase emissions permits from others. While emissions trading strategies are still evolving, evidence points to their effectiveness in reducing carbon emissions. Setting a price on carbon incentivizes companies to emit less and drives innovation for lower-carbon technologies.
Ecosystem services are free to produce and therefore should be free to their consumers.
Who are the beneficiaries of this payment for ecosystem services scheme in Figure 4?
The beneficiaries include the downstream users, who get a supply of water as well as other watershed services; the upstream community who takes care of the watershed and also reap services; and the other species who benefit from a healthy watershed.
With the recognition that ecosystems supply services that are valuable if not essential to humans, attention and funding are turning to “nature-based” solutions, an approach to harness natural processes to solve human problems. It recognizes both the capacity of nature to supply services and the capacity of human technology to sustain and harness them. The goal is to find solutions that are a win-win for ecosystem conservation and development.
For example, centuries of overgrazing have led to degraded soils in Iceland. For the past century, the Soil Conservation Service of Iceland has been restoring ecosystems. Icelandic environmental scientist David F. Finger led research on the Rangárvellir area in southern Iceland to see whether restoration efforts have made a difference in ecosystem services. Comparing across areas (still degraded, partly restored, and fully restored), he looked at how natural water-related services were functioning. Finger’s group found that restoration of ecosystems made for more groundwater storage, reduced bank erosion along rivers, and more stable flow patterns (Finger et al. 2016).
As more nature-based solutions at broader scales are tested and proved successful, we may improve in our societal ability to meet human demands while sustaining ecosystem services for ourselves and other species. The services that ecosystems supply are difficult to quantify and equally difficult to replace, especially on a global scale.
Ecosystems can either serve human values or conservation values, but not both.
This module explores the role ecosystems provide in supplying humans with a wealth of life-supporting resources like clean water, climate control, nutrient cycling, and many others. These are called ecosystem services. Further in the module, we’ll explore the financial value placed on ecosystem services and how this value helps guide decisions regarding use of land and water.
Ecosystems have long been recognized for their roles in naturally generating harvestable provisions, whether honey, timber, soils, or others.
Studies have found that ecosystems also supply a myriad of essential services, such as water filtration and climate regulation.
A full consideration of ecosystem services includes provisions (products), regulation of processes, support of biodiversity, and satisfaction of cultural needs.
Ascribing monetary value to ecosystem services positions them more effectively in the cost-benefit evaluations that guide decision-making about land use.