The Value of Nature’s Services to Modern Economies

Natural Resources

The Value of Nature’s Services to Modern Economies

For as long as we can remember, Mother Nature has been serving mankind as our major root source of livelihood. From the land that provides the nutrients for our crops, to the stone for our roads and buildings, to the oil for transport in our globalized world, we rely on these natural resources to maintain our modern way of life.

These factors of production from nature hold the core of all economies’ potential output, which therefore makes our economy dependent on the life-support systems of our planet. Even businesses seemingly removed from raw materials - like software-as-a-service companies - depend on power generated from natural sources. 

Yet, over the past few decades, economic theory has managed to fabricate the illusion that somehow we can get by without natural resources, or that they are insignificant to our modern world. We know that resources are finite, but apparently as a species we lack the feeling of urgency to realize their significance for the maintenance of our world and for the future generations that will follow us. National governments continue to focus on growing their economies, paying little heed to the consequences they may have on nature.

The services provided to us by nature take four main forms, as first identified by the UN Millennium Ecosystem Assessment’s 2003 “Ecosystems and Human Well-being: A Framework for Assessment” report. They are called provisioning services, regulating services, cultural services, and support services.

The value estimates for ecosystem services in the rest of this article are typically estimated by: the market value method, avoided damage cost method, replacement cost method, opportunity cost method, or by hedonic property models. These are some of the most prominent ecosystem valuation methods, but there are others as well.

Provisioning Services

Provisioning services are the ecosystem services provided to humans as products obtained directly from nature, such as:

  • Food from plant, animal and microbe sources.
  • Fuel, wood, and other sources of energy.
  • Fiber, cotton, wool, hemp and silk.
  • Genetic resources such as the genetic information used for biotechnology and animal and plant breeding.
  • Ornamental resources such as shells, animal skins and flowers.
  • Biochemicals, natural medicines and food additives.
  • Fresh water from sources such as rivers.

The value of every single provisioning service is enormous. In fact, each of these services comprises the core of some multi-million dollar industry, and when combined together, all of these industries make up a huge portion of most nations’ GDPs. In other words, these services make up an essential and irreplaceable part of the entire world economy. 

Here are some examples of provisioning services that contribute significantly to economic growth: 

  • In Switzerland, the pollination services provided by specific species of bees support the production of about 231 million dollars worth of agricultural sales per year (TEEB, 2010). Thus, pollination in this case is a provisioning service - allowing our crops to grow as normal. It is possible for natural services to fill more than one role; see the next section for how pollination can also be a regulating service.
  • Honey production worldwide generates a value of approximately 8 billion dollars annually (Statista, 2020).
  • Globally, more than 30 million people in coastal and island communities are entirely dependent on resources extracted from coral reefs as their main source of income, food, and livelihood (Wilkinson, 2004).

Accordingly, losing natural resources that compose or support these industries would entail serious economic losses. On the other hand, the optimal, sustainable utilization of such natural assets could boost economic growth, driving nations to prosperity. 

Regulating Services

Regulating services are the benefits provided by nature that moderate natural phenomena in order to improve the physical environment for specific human purposes.

Regulating services include the processes of erosion, pollination, water purification, decomposition and flood control, disease prevention, carbon storage, and climate regulation. However, the economic values of most regulating services are not calculated in terms of monetary valuation, despite their importance. This is because regulating services are not traded or sold. However, regulating ecosystem services are extremely beneficial because they could reduce the impact of climate change as well as aid in agricultural production, along with many other valuable benefits. 

In fact, the total global value of regulating ecosystem services is estimated to be worth approximately US$29.085 trillion (Balasubramanian, 2019). More specific examples include:

  • The regulating ecosystem services of the Tampere region in Finland amount to approximately 1 billion Euros in total, contributed annually (Tammi et al. 2017).
  • For Tampere city (in Finland) alone, ecosystem services such as carbon sequestration have an estimated value of 31 million Euros, pollination amounts to about 9.9 million Euros, and nutrient retention generates a value of roughly 54 million Euros (Tammi et al. 2017). In this case, pollination is a regulating service since it helps to stabilize the city’s ecosystem.
  • In the Netherlands, the economic value of air quality regulation services has been found to be worth approximately 2 million Euros (Remme et al. 2015).
  • The economic value of climate regulation (which includes natural services such as carbon sequestration and others) in the Czech Republic is worth approximately 267.32 million dollars (Balasubramanian, 2019).

Cultural Services

Over the years, the natural world has continued to guide our cultural and social advancement by being a constant force present in our lives. Cultural services that nature provides include recreation and aesthetic and spiritual values of nature, such as: 

  • Ecotourism, outdoor sports and all other types of recreation.
  • Therapeutics such as eco-therapy and social forestry.
  • Spiritual, historical, or religious value that people derive from nature.
  • Other cultural services include books, film, folklore, national symbols, advertising, different forms of art, etc. that nature supports, makes possible, or features in.

Despite the fact that cultural services provided by nature are usually immaterial, the annual revenue flow from ecotourism (as an example) could amount to an estimated US$29 billion. Egypt, Kenya, and Cambodia, among other countries, have recently started implementing ecotourism projects. Similarly, the spiritual, historical, or religious value attached to natural environments or natural phenomena also entails significant economic value.

There are many other economic growth opportunities that could be obtained through the utilization of nature's cultural services. For example, for countries rich in greenery and natural scenery, why not implement ecotherapy programs? With evidence of booming anxiety and depression, especially among younger generations, the opportunity to spend a vacation in a tranquil natural landscape may be an attractive opportunity for many. 

In many countries, ecotherapy has started to gain a foothold as a legitimate mental health treatment. Some of these programs include: The Song House (Ireland), The Ecotherapy Retreat (UK), and Go Into Nature (US), among many others.

Support Services

The natural world provides us with countless services, and sometimes we overlook the most fundamental of them. Ecosystems themselves couldn't be sustained without the consistency of underlying natural processes. These processes are known as supporting services, and they form the necessary core of the production of all other natural services. The provisioning, regulating, and cultural services discussed in this article themselves depend on support services.

These include processes such as photosynthesis, nutrient cycling, soil formation, and habitat provision. These processes allow the Earth to sustain the most basic forms of life, and thus to support whole ecosystems, humans, and economies. Without supporting services, the natural world would break down and so provisional, regulating, and cultural services would cease to exist.

Natural services are essential to the global economy’s functioning…

It is estimated that these natural services contribute a total global value of around $145 trillion per year to human society (Costanza et al. 2014). This figure was constructed as an estimate of “...the support of sustainable human well-being that ecosystems provide…The value of ecosystem services is therefore the relative contribution of ecosystems to that goal.”1 Putting that contribution to human well-being into perspective, this is more than seven times the GDP of the United States, and is much larger than total global GDP. In other words, nature’s contribution to our lives is much more than our total economic output.

To be clear, this is value that we freely receive from nature and don’t have to pay for. It underpins our economic system, but since we don’t pay for it, we don’t account for it in our GDP metric. Thus, markets and governments “ignore” the value provided and fail to protect them properly. Yet these are services - like the water cycle, or oxygen production - that we can’t live without. 

…but are being degraded and ignored, to our future detriment

Many government policies and corporations seem to behave as if there is a clash of interests between preserving the natural world and their bottom line. This seems extremely irrational, as they neglect the possibility that environmental degradation could shut down their markets entirely and put our economies at risk. Already, due to unsustainable and exploitative growth, global warming is increasingly causing economic damage. Additionally, the world has been experiencing a rapid decline in hundreds of plant and animal species that contribute to our ecosystems.  

The absence of clear environmental policy goals, poor enforcement of existing regulation, corruption, and lack of institutional capacity are some of the main reasons that lead to ecosystem degradation. This process of degradation could be considered a negative externality that is not properly accounted for by our economies’ markets, as again metrics like GDP don’t include them. 

Perhaps our limited capacity to deal with the potentially disastrous consequences of environmental degradation is aggravated by the absence of sufficient information. Governments and the public need more knowledge about ecosystem functions, the benefits they generate for economies, and the value they represent in and of themselves.

We don’t necessarily have to choose between protecting the environment and continuing our economic growth. Rather, we must choose to protect the environment to ensure our economic future. 

References:

Costanza, R. et al. Changes in the global value of ecosystem services. Global Environmental Change 26: 152-158, doi:10.1016/j.gloenvcha.2014.04.002 (2014).

TEEB, RECOMMENDATIONS OF. "Mainstreaming the Economics of Nature." (2010).

Wilkinson, Clive. "Status of coral reefs of the world: summary of threats and remedial action." Coral reef conservation 13 (2006): 3-39.

Tammi, Ilpo, Kaisa Mustajärvi, and Jussi Rasinmäki. "Integrating spatial valuation of ecosystem services into regional planning and development." Ecosystem Services 26 (2017): 329-344.

Remme, Roy P., Bram Edens, Matthias Schröter, and Lars Hein. "Monetary accounting of ecosystem services: A test case for Limburg province, the Netherlands." Ecological Economics 112 (2015): 116-128.

Balasubramanian, M. "Economic value of regulating ecosystem services: a comprehensive at the global level review." Environmental monitoring and assessment 191, no. 10 (2019): 1-27.