What is the cost of nature?

By Damian Kahya
BBC News

Fags and booze are taxed for a reason

You pull into the petrol station to fill up, buy some cigarettes and a few beers.

On all three you will pay far more than they cost to produce and distribute. The tax on them is justified by the other costs they put on you and society as a whole.

But relatively few things we buy have these social and environmental costs built into them.

Tackling global warming and environmental damage could change that. Starting with an increase in the cost of our flights, it could end in an entirely new economy.

Those who are trying to create this economy say valuing nature could also bring economic growth.

Energy costs

Carbon dioxide emissions from fossil fuels are the main cause of climate change.

I keep wondering - are there two kinds of money, is there one kind of money used for bailing out banks and another, rare, kind of money which is used to save the earth and its living fabric Paven Sukhdev, head of the United Nation's Economics of Ecosystems and Biodiversity initiative

Until recently that "social cost" was not included in the price of most things that emitted CO2.

The Kyoto protocol established a cost for every tonne of CO2 emitted - decided through a global market.

The biggest impact is on energy.

The British Government estimates that by 2020 the impact of its low-carbon agenda will be an extra 8% on bills.

Energy regulator Ofgem, which has looked at four scenarios for 2020, predicts that energy bills will rise 15-23% within 10 years because of increased investment in clean energy and higher carbon prices.

One scenario - which assumes clean energy projects are delayed as fossil fuel and carbon prices rise - predicts that bills will rise 60% within six years.

Carbon pricing affects some forms of energy more than others.

The Committee on Climate Change estimates it would add 12-63% to the price of electricity from coal.

Getting around

The area where carbon is currently most heavily taxed is travel.

Energy costs now and in 2020 Coal: 57p/kwh: 79p/kwh Gas: 55p/kwh: 65p/kwh Nuclear: 50-55p/kwh: 49-55p/kwh Onshore wind: 67-100p/kwh: 58-86p/kwh Offshore wind: 115-135p/kwh: 86-94p/kwh Calculations based on an assumed £30 per tonne price of carbon. Source: Climate Change Committee & MIT (nuclear)

In the US, fuel is set to be included in a new cap and trade bill.

"Refineries will be expected to cover the carbon content of the fuels that they sell," explains Dirk Forester from US carbon trading firm Natsource.

The cost of fuel in the US would thus vary with the price of a permit to emit CO2.

In Europe, aviation will be included in the European carbon Trading System from 2012.

Initially, airlines will receive most of their permits for free.

Research by the Carbon Trust suggests the cost of a short haul flight to Europe will initially increase by 5- 6% .

But the Committee on Climate Change believes meeting the government's long-term targets for aviation would require the price of carbon to be many times higher - perhaps £200 a tonne, instead of £13 today.

The stuff we buy

CO2 is currently emitted in the production of almost everything.

According to economist Dieter Helm, including the "embedded" carbon on goods and food we import would mean the UK had actually increased its carbon dioxide output in the last five years.

The carbon dioxide produced by our consumption is simply being released somewhere else, he points out.

The government's chief scientist on climate change, Professor David Mackay, estimates that between 20-30% of the energy we consume every day is used to produce and transport our imports.

With global emissions caps, the price of such products - especially food - may also rise.

Beyond carbon

But carbon is not the only environmental factor economists want to value.

Paven Sukhdev used to be an investment banker with Deutsche Bank. He currently heads the United Nations' Economics of Ecosystems and Biodiversity initiative.

He says the economic benefits of ecosystems cannot be seen in prices because our economy is "consumption-led, production-driven and GDP-measured".

A reformed system would put a value on "ecosystem services" such as fresh water and food supply.

Mr Sukhdev's team has examined examples, such as Mangroves in Thailand.

The swamps' true value lies in its coastal protection capacity as well as in its wood and its fisheries. These assets are worth far more than the shrimp farms in the swamps.

But currently the market only rewards the shrimp farmer - who can sell his shrimp.

Firms such as Equator LLC are trying to profit by plugging the gap.

"The end goal would be to develop markets that perfectly recognise the true value of environmental assets," says Eron Bloomgarden, Equator's president of environmental markets.

Forests are likely to be given a value at Copenhagen, because of the carbon trapped in them.

Firms that emit CO2 will be able to offset some of their emissions by buying forests.

Mr Bloomgarden wants regulation to force companies that cause other kinds of environmental damage - to ecosystems or water for example - to do the same.

The US already has markets systems in place for wetlands and there are experiments in similar regional schemes for water.

Forests themselves could have more value because of the multiple environmental benefits they provide, especially for global water supply.

Mr Sukhdev supports using markets, but thinks "offsets" are limited beyond carbon.

Governments, he says, must also fund the long term economic benefits of protecting the environment, just as they do health and education.

"I keep wondering - are there two kinds of money, is there one kind of money used for bailing out banks and another, rare, kind of money which is used to save the earth and its living fabric," says the former investment banker ruefully.

Developing nations may well repeat the statement during the Copenhagen summit.