Time to invest in nature's capital

VIEWPOINT Andrew Mitchell

Amid the global financial crisis, it is time to recognise the wealth we enjoy from nature's capital, says Andrew Mitchell, director of the Global Canopy Programme. In this week's Green Room, he argues that there will be no government bailout if we fail to protect the vital services provided by the world's forests.

In global markets today, rainforests are worth more dead than alive

The world's largest gathering of conservation scientists and NGOs have been meeting in Barcelona to ask: "What price do we put on nature?"

In these extraordinary times of credit crunch and climate change, the world feels hitched to an uncertain roller coaster ride where we don't know what to value any more.

What investors thought was safe as houses has turned out to be nothing more than the property of the poor disguised in a silver wrapper, enabling bankers to pocket billions.

In a curious way, all this chaos may turn out to be a good thing because it will force the world to ask: "Are we creating wealth that's worth having?"

A wine broker said to me recently: "The thing about investing in a first growth is, the more the world drinks a good vintage, the more valuable it gets."

So could disappearing forests one day be a safer investment than houses.

Balancing the books

A major new theme of this Congress of the World Conservation Union (IUCN) is about how we value natural capital, which up to now has not appeared on company balance sheets.

Priceless - money cannot replace the services ecosystems perform Nature loss 'dwarfs bank crisis'

I believe the current financial crisis may force the global community to right that wrong, along with many others, because we all want a more stable economy.

However, in global markets today, rainforests are worth more dead than alive. Poor and often opaque governments, with little to sell, offer their rainforests to raise revenue, attracting largely risk capital with strings attached.

The only way to do this is to convert rainforests into something else, usually timber, beef, soy or palm oil that Westerners, and now prosperous Asians, have a burgeoning appetite for.

Most deforestation today is enterprise driven and funded by hedgefunds, pension funds, and other sources of liquidity from capitals often far from, and blind to, the forests they are destroying.

Billions in green dollars end up on investors' balance sheets, but there is a catch: billions of tonnes of carbon dioxide goes up in smoke from the trees burned in the process - and the risk to everyone is building up to a climate credit crisis.

The timetable on this issue is tight. In December 2006, at the UN in New York, Papua New Guinea invited rich countries to pay poor ones to stop deforestation.

In May 2007, London's Independent newspaper blew the whistle on "the hidden cause of global warming", the destruction of the world's rainforests.

And in September, political leaders, scientists, and NGOs rallied around the Global Canopy Programme's (GCP) Forests Now Declaration.

'Carbon crunch'

The global deal on climate change, due to be signed by the UN in 2012, will be inadequate if it does not include a means to curb emissions from forests.

Thin on top - losing tree cover will only lead to a "climate credit crunch"

Just one day of emissions from deforestation equates to 36 million people flying from London to New York.

Seven billion tonnes of carbon dioxide (CO2) annually places rainforests just second to energy as a source of global emissions and is more than the entire world's transport sector put together.

And it is not just about carbon. The world's rainforests are a giant "utility", providing services we all use but do not pay for.

The Amazon releases 20 billion tonnes of water into the atmosphere each day. This air-conditions the atmosphere, waters agri-business and underpins energy security from hydro to biofuels across Latin America on a gigantic scale.

Were it possible to build a machine to do this, every day it would consume the energy equivalent to the world's largest hydro dam running on full power for 135 years; and the Amazon does all this for free. Now that's natural capital and we are eroding it fast.

Pavan Sukhdevs' landmark report, The Economics of Ecosystems and Biodiversity, published by the EU earlier this year, estimated the annual losses of natural capital to be, at the low end, equivalent to the value of the Indian stock market and, at the high end, the entire London stock market.

If what biodiversity does for us is so valuable, why is this happening? The answer is in part ignorance and, in part, that the global economy may no longer be fit for purpose.

To keep global temperatures from rising more that 2C and at the same time feed nine billion people, we cannot go on as we are

The problem is that nature is priceless. What nature does for us is not valued economically. Whilst only financial and human capital drive human endeavour, and inputs from natural capital remain unrecognised, business proceeds on a false sense of security.

The economy, I believe, is at a truly historic tipping point where the global economy will rapidly need to incorporate the risks from the collision course that energy security, food security and environmental security are all on.

By 2050, to keep global temperatures from rising more that 2C and at the same time feed nine billion people, we cannot go on as we are.

Investing in natural capital may in time indeed turn out to be as safe as any other public utility but for that to happen we need the equivalent of an ecosystem services market with an environmental regulatory body that forces us to value the common goods that we continue to plunder at our peril.

The carbon market is such an invention by governments, valuing a commodity we cannot see, smell or touch but which is poisoning our world.

The Kyoto Protocol has jump-started the global market which could soon exceed $100bn per year.

Markets are by no means perfect but they are inventive. Who would believe 30 years ago that a bottle of fashionable mineral water would sell for more than petrol. But left to itself, the global market puts a value on bottled water of 70bn euros per year but nothing on vital rain from rainforests.

A scheme to value forest ecosystem services in global markets could deliver financial flows at scale, in addition to those provided by carbon markets.

Some understandably fear turning natural capital into bonds or equities because the market can be a beast, but government funds sourced from taxation are unlikely to meet the $30-50bn annual bill for halting deforestation.

Banking on change

Some industrialised nations have called for future investments in nuclear and carbon capture power stations to reduce their own emissions entering our atmosphere at a cost of between $250-150 a tonne of CO2 saved.

Yet they are failing to invest now, to maintain the existing sequestration service ancient forests provide, which might be preserved for perhaps a tenth of the cost per tonne.

If one day forests could be safer than houses, now that would be wealth worth having

To reduce emissions by 80% of 1990 levels will require us to use every means available. Arguing about emissions from factories or forests will not get us there.

Who should be paid and how raises other awkward questions. Who owns the tropical forest "utility" is often far from clear. Governments claim some 70%, but indigenous and other communities contest their view and landowners often argue over the rest.

Defining such landrights is a central prerequisite to equitable benefit sharing. Poor Governments are not always transparent. Responsibility needs proper incentives.

We need also to ask if GDP is the right way to measure human welfare and create such incentives. Pavan Sughdev has called for a GDP of the poor. They will suffer most from climate change, yet are least responsible for it. Incentivising them to use natural capital sustainably may not show up in current GDP figures, but could significantly improve their lives.

Rich nations, which have caused climate change, may have the financial muscle to help solve it and should find a way to recognise "real capitalism" inclusive not only of financial and human capital, but also natural capital.

If the global economy can, almost overnight, find two trillion dollars to cut the risk of Fannie May and Freddie Mac and the global banking community from going down the pan, surely it can find a fraction of that to cut the risk of forests going up in smoke.

If one day forests could be safer than houses, now that would be wealth worth having.

Andrew Mitchell is the founder and director of the Global Canopy Programme

The Green Room is a series of opinion articles on environmental topics running weekly on the BBC News website

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Do you agree with Andrew Mitchell? Are we failing to value the vital life supporting services provided by the world's forests? Is it time we put an economic value on "natural capital"? Or will this lead to even more problems than we face now?

Two things to consider. Firstly, the UK was once almost all forest, which we destroyed - how can we insist that developing countries protect their forests without starting to repair some of the damage to our own forests.

Secondly, if we want developing nations to protect their forests, we need to find viable jobs and income to replace those lost when deforestation is stopped. Providing money to a government is simple but ensuring that this money, and real meaningful occupations, flow down to the residents "on the ground" is far more difficult.
Paul D Smith, Enfield, UK

"Save nature save forest"
d. arul kumar, Coimbatore/Tamil nadu/India

Why do we not value something if it is for Free?

There are civilisations all over world varying from small tribes in the Amazon to tribes of people in the deserts of Africa, yes they might not have the latest computer or the latest trainers, but across the world we have done our best to educate and convert these cultures over the centuries because they do not share our god or have a different skin colour,

We did it to the North American Indians, The Aborigines, The Maris.

We sit back and say that this country and that are third world because they do not measure up to us in the West. I think the past couple of months have shown the ugliest side of our western economy and illustrates the fate of those so called third world counties if they still continue to follow in our footsteps, now is the time to wake up to this attitude, and embrace the diversity of cultures in the world and preserve it wherever it is on this planet rather than trying to get cultures and countries to be more developed and to respect and learn from the diverse range of cultures and civilisations and to help to preserve this ways of life.
Mark Miles, Swindon

I think we human being must not ignore any more the gradual degradation of nature capital (i.e. forests, rivers, ocean etc). The problem is that the process is gradual and is not immediate. It is not falling like the world stock market plunge, which prompted the EU and US to rescue immediately.

Within a few decades the environmental crises will be worse than the credit cruch. And you can't save the forests and rivers immediately by cutting interest rates and injecting money. Maybe it is good to NATIONALISE all the forests and rivers (to stop uncontrollable logging).

All governments must intervene and preserve nature capital. And all nations should stop human population growth (it eats up too much nature capital). The problem is : we should not keeping using "human rights" to go against the population policy. China is enforcing it now. China's one child policy is good and China is a responsible nation for containing population growth.

Now the governments nationalize so many troubled companies (Freddie Mac, AIG, RBS etc) and it seems that the "free market" and "free economy" do more harm than good (because those troubled companies are financially reckless). By the same analogy, why not nationalize the forests, rivers etc ?
Bernard, Hong Kong

I agree wholeheartedly. Forests and other natural ecosystems provide all of the world with services that we consume and take for granted everyday. We need to stop pointing the finger at who should pay and begin taking responsibility for the planet that gives us the most precious gift, life.
Nick Bisley, Wisconsin USA

Mitchell writes that "The problem is that nature is priceless." True, but the services it provides can be. He is also correct that "What nature does for us is not valued economically," but it certainly can be. Municipalities know how much it costs to purify our water for drinking. The US federal government knows how much it costs to provide flood insurance. Wine growing regions know how much it costs them when pollination is reduced. These are just three examples of ecosystem services that can be valued quite accurately on a local level, and thus could inform the valuation of those services once restored on a land.

The problem is not with whether or not the services can be measured and valued, it's having the political courage to enact the regulations which require people to pay for the services that they use.
Damon Hess, Portland, OR USA

I agree with what Andrew Mitchell is saying. I think that what we are dealing with is a Ester Island of the 21st century. For us to continue to consume resources and not think about what could happen in the future could have serious consequences. If we all continue to take for granted (all raw natural resources) what started this period since the industrial revolution then it could be a very bad thing for all of us.
Robert Corrigan, Towson, United States

I agree with what Andrew Mitchell is saying. I think that what we are dealing with is a Ester Island of the 21st century. For us to continue to consume resources and not think about what could happen in the future could have serious consequences. If we all continue to take for granted (all raw natural resources) what started this period since the industrial revolution then it could be a very bad thing for all of us.
Robert Corrigan, Towson, United States

Extraordinarily true...the lessons of today cry out that our natural capital needs to be locked down as part of a balanced world economy.
Michael Stemp, Hove UK

Think about what happened to Easter Island.

You are talking about the value of forests. I think forests are priceless. They are like the oxygen that we breath and the water that we drink.

United States lives on oil too. Many speculate how valuable oil is to US, not much works without oil. Sure we still have lots of forests left. But its only still, which is no guarantee of the future.

The future comes, thats for sure. But what kind of future will it be? Is it a future where the nature has been destroyed because nobody was in charge of living forests? Or will it be a bright green future?
Marko K., Tampere, Finland

Two erroneous assumptions in this article which this argument for carbon markets to protect forests is based on.

1: "Some understandably fear turning natural capital into bonds or equities because the market can be a beast, but government funds sourced from taxation are unlikely to meet the $30-50bn annual bill for halting deforestation."

There actually perfectly viable (if politically ambitious) alternatives to raise funds at scale. Carbon markets are not the only option, yet the strongest argument for their implementation is that it is 'better than doing nothing.' It is time for some intelligent debate ere, carbon markets are not the only way to save the forests and the risks they entail warrant that we seriously examine the alternatives. How secure, for example, is this flow of funds in light of the recent banking crisis. What would happen to the forests if the demand to purchase credits dried up halfway through govt implementation of expensive programs?

2:"If the global economy can, almost overnight, find two trillion dollars to cut the risk of Freddie Mae and Bertie Mac and the global banking community from going down the pan, surely it can find a fraction of that to cut the risk of forests going up in smoke." Yes indeed, the money is out there, it is a question of political will to direct the required amounts to forest conservation. This should not require selling the rights to forests to overseas investors and undermining the rights of local and indigenous communities.
Kate Dooley, Swansea, UK

Of course agree with Mitchell.But it is worse than that, all tropical forested countries must cease all use of natural forest remnants for anything other than climate control,watersheds,erosion control, etc..All wood based products, including fuel, must immediately be obtained only from man planted/seeded national or farmer areas-otherwise
john holmes, Ardrossan,Scotland

I have heard or read else where that there is no species like the human being that ultimately destroys itself. As a rule, parasites do not kill their hosts lest thet would extinct if they do!

But us, we human beings, the so called intelligent, did not yet understand this reality and are 'killing mother Nature - the Earth by overconsumption.
Alemu Behailu, Addis Ababa, Ethiopia

I wonder how much of his life he has lived in a poor tropical country?. In northern middle America the population has increased from 1900 till now about 15 fold. Was this done by the "rich" countries?. Did the brits in Kenya stand over the local population forcing them to have 8 + children per woman?. So let us be realalistic and stop putting out solutions that seem to not deal with real problems. The economists to almost every thing --" We need to outgrow the problem" The techno nerds --"give everyone a computer".

Now the newest is "save the tropical forest by creating a financial insentive". Yet much of the destruction is not by the large scale clearing for oil palm plantations it is by small subsistance farmers clearing by the slash and burn. The advancing agricultural frontier. How do you stop that?. The governments will love your program-- they will pocket the money (send it to Lichtenstien or another haven) and "fail" to enforce any agreements.

Without human population stabilization all the pretty paper progams will fail.
Peter Hubbell, Tucson,Az., U.S.A.

This hits the nail right on the head for me. This is what's missing from the discussion pertaining to the world financial crisis. I don't hear any of the US presidential candidates taking the "externalities" of the current global market into consideration.
Joel Herrera, USA

This hits the nail right on the head for me. This is what's missing from the discussion pertaining to the world financial crisis. I don't hear any of the US presidential candidates taking the "externalities" of the current global market into consideration. BTW, how've you been??
Andre Castillo,

I believe that we should invest in nature because of this global warming and disasters, that are happening all over the world.

If will not act now, it could be to late to save the Earth for our children.
Nauris, Ventspils, Latvia