[Blog] Apples and oranges: using green economics to make better decisions
The products and services nature provides us with often remain unmeasured, leaving us with blind spots in development planning and decision making processes. To accompany the release of our simple green economics and ecosystem valuation explainer, Mathew Parr explains how recognizing and filling these blind spots can help us to make better decisions.
Nature does a lot for us. It provides for our physical needs with air, food and water. It protects us from storms and floods and regulates our climate. It promotes general health and spiritual well-being. To name just a few things. And yet when we plan for our future and make large development decisions, to develop new agricultural areas, to extract valuable minerals and other resources, or to build new infrastructure, we forget half these things. Or rather we don’t forget them, we just don’t seem to have any means to measure and include them in the economics. Talking about nature and economics is a bit like talking about apples and oranges. You can’t compare them. Consequently half the benefits, real benefits that most of us recognize, just get left out of the calculations and planning. They become, to all intents and purposes, ‘economically invisible’.
How does this play out? A simple example. The Way Besai hydro-electric dam opened in early 2000 to provide electricity to two provinces in Sumatra in Indonesia: Lampung and Riau. At the time sedimentation in the Way Besai river was relatively low. The hydro company didn’t take ecosystem change, and the resultant changes in benefits provided by the upland forests in regulating sedimentation, into account when projecting operating costs and revenues. Land use change over the last ten years, forests converted to coffee and other crops, led to a significant increase in sediments in the river. The turbines had to be turned off and cleaned every day. This impacted the production capacity of the hydro dam and resulted in large increases in the operating costs.
Invisibility is not smart
Many economists, businesses and development planners have come to recognize that this invisibility is not smart. Not having a complete picture of the costs and benefits, the trade-offs, and alternative opportunities of different development scenarios is leading to 'inefficient', ‘risky’ and 'poor’ decisions. And yet we now have the knowledge, tools and data to ensure that we do this smarter. Green economics and natural capital accounting, measuring and valuing the benefits flowing from our natural capital and incorporating them into the economics, is now being adopted by many different public and private actors as a means to make nature visible in how decisions are made.
The Way Besai hydro company has solved the sedimentation problem by working with upland forest dwellers and utilising the upland forests and vegetation as natural capital. Upland communities maintain and restore forest and vegetation cover, thus reducing the sediments flowing into the river. The scheme provides either cash payment or microhydro for communities based on their performance in reducing soil sedimentation benefitting the Way Besai hydro-company.
Ensuring nature's values are made visible
Through our programs and projects, IUCN NL aims to ensure that nature's values are incorporated in all economic decision making. We work on capacity building and project support in ecosystem valuation, natural capital approaches, and green financing for our civil society partners in 9 eco-regions around the world, as well as working with the private sector on natural capital accounting.
Failing to include natural capital in measurements and accounts of economic activity or plans creates blind spots in identifying economic and corporate risk and opportunity. By learning about and integrating green economics and natural capital accounting, recognizing and measuring the benefits nature provides in economic terms, we can take these ‘economically invisible’ benefits into account and ultimately enable governments, businesses and local stakeholders to make more informed decisions.