Every so often I get the opportunity to teach students about environmental economics. When I introduce the concept of natural capital – the idea that nature can be seen as providing value to humans – almost without fail the students look at me as if I’m stating the obvious.
However, when I segue from talking about how nature has value to how we can calculate that value, the class invariably divides into two camps: those who like the challenge of finding ways to find a value for an ecosystem good or service (as imperfect as it may be), and those who object very strongly to representing nature’s value with a number or a dollar sign. As the instructor, I love this point in the lecture because both camps are right, which leads to great discussion.
The anti-valuation camp is right because without doubt, efforts to value nature won’t get it exactly right.
Ecosystems are complex and we’re sure to be missing some aspect of their value; and the aspects that we do understand (such as the availability of natural resources like timber and the ability of nature to provide us with services like how a sandbar can shelter the coast from erosion) are hard to quantify.
At the same time, the camp that is pro-valuation is right. If we apply values to natural capital, as imperfect and simplified as they may be, we’ll at least have in our hands a new piece of information: our best approximation, with current knowledge, of some aspects of natural capital’s value. Without it, we risk not recognizing any value for nature.
So while simplified and imperfect, valuations for natural capital are critically important. And nowhere is that more apparent than in policy making.
Consider a municipality that has to decide how to develop a piece of land that includes a marsh. Let’s say there are 2 options being proposed: 1) Develop it for mixed use residential/commercial, or 2) Keep it natural and undeveloped.
If it’s developed, the value that marsh provides will be lost – purifying water, storing carbon, housing biodiversity and absorbing stormwater. If it’s left undeveloped, those values will be maintained, but the economic opportunity to house people and encourage business is lost. Ideally, when the decision is made, information about all those considerations would be factored in – economic considerations alongside environmental impacts. To do that, we need to value them, and in some cases, that means monetization (but not always).
In this generic example of development, considering natural capital in the decision-making process might lead to the development going ahead, the land being left undeveloped, or perhaps another option — like requiring low impact development (LID), an approach that uses on-site natural features to replicate the drainage of wetlands and watersheds, or leaving the most important natural capital untouched.
At Sustainable Prosperity (a green economy think tank housed at the University of Ottawa), we see so many ways that natural capital can be incorporated into decision-making:
- In municipal decision-making, like in the example above with stormwater (Sustainable Prosperity is working on a stormwater management project, which you can see an early glimpse of here), and regarding natural capital in cities more generally (like in this paper we wrote for the Metcalf Foundation, or this one on the power of pricing)
- Businesses can incorporate natural capital values directly into their operational and strategic decisions – which can work to their advantage (as Sustainable Prosperity showed here, and which you can read more about in Sarah’s blog), with tools like the Natural Capital Protocol.
- In natural resource development activities (see Sustainable Prosperity and partners’ SSHRC funded project on “Linking Natural Capital & Productivity,” which uses the forestry sector as a case study).
- By governments, who can measure and track their jurisdiction’s natural capital through a system of structured accounts, much like governments have economic accounts (you can read more on the accounts available at Statistics Canada here)
- By using markets to protect biodiversity (see Sustainable Prosperity’s policy brief on Biodiversity Offsets – a tool that, when combined with stringent environmental regulations, can help find ways for biodiversity and development to co-exist)
- Or in support of a number of other different “environmental markets” – from carbon pricing to water quality trading regimes (see a round-up of Ontario’s environmental markets here)
At Sustainable Prosperity, we think achieving a stronger, cleaner Canada requires us to value and conserve nature – and an important part of making that a reality can be achieved by seeing the value of nature, counting it (and often, monetizing it) and incorporating that value in our public policy.
To do this requires a big effort across a number of different groups – government policy makers, financial services companies, think tanks, academics, businesses and industry associations, and individual Canadians. That’s where we see the Natural Capital Lab playing a key role in bringing different groups together, so that at the end of the day, we’ll have natural capital included in our decision-making.
To go back to my classroom story, in essence, both camps of students are right. Valuing nature is hard, so let’s give it our best efforts and push for continual learning as we go. When we can get a hand on the value nature provides us, we can include it in decision-making, see if reflected in markets, and build a stronger, cleaner Canada.
Made up of business, environment, policy and academic leaders, Sustainable Prosperity (SP) is a national green economy think tank/do tank. SP harnesses leading-edge thinking to advance innovation in policy and markets, in the pursuit of a greener, more competitive Canadian economy. At the same time, SP actively helps broker real-world solutions by bringing public and private sector decision-makers to the table with expert researchers to both design and apply innovative policies and programs. SP believes that achieving the necessary innovation in policy and markets for a stronger, greener Canadian economy requires a new knowledge base and new conversations. SP’s approach is to promote both by generating policy-relevant, expert knowledge to inform smart policy solutions and foster innovative conversations and connections.
Michelle Brownlee has been with Sustainable Prosperity since 2013. Immediately before joining SP, Michelle taught Economics at Mount Royal University in Calgary. Prior to that she spent over 10 years in the federal government advising senior decision makers on energy, resource and climate change policy and programs. She holds an MA in Economics and has published peer-reviewed journal articles on climate change. Michelle is lifelong believer that individual consumer and voter actions make a meaningful difference.