(AFP PHOTO/NASA AMSRE-E)
by Nicholas Stern
Human populations across the world depend fundamentally on plants, animals and resources such as clean air and water for their lives and livelihoods.
Yet our economies consistently fail to take into account the enormous value of biodiversity and the environment. As a result, we have been degrading and destroying many of the finite resources which determine our prosperity and well-being. We have been living unsustainably.
The development of modern human beings, which began perhaps 250,000 years ago, has accelerated over the past 12,000 years since the last Ice Age primarily because of the relative stability of the global climate.
But our burning of fossil fuels and the destruction of forests since the beginning of industrialization is now fundamentally altering the climate. The amount of carbon dioxide, the most important greenhouse gas, in the atmosphere is now at its highest level for at least 800,000 years. If concentrations continue to rise at the current rate we risk a warming to temperatures not experienced on Earth for more than 30 million years.
Such a change would be profound, completely transforming coastlines and the habitability of most regions. Human populations would have to migrate in hundreds of millions, increasing the risk of widespread and continual conflict.
A number of market failures are responsible for climate change, with the primary failure arising because the price we pay for products and services which involve emissions of greenhouse gases do not take into account the costs they impose on everybody through the impacts of climate change.
This failure can be corrected by imposing a price on emissions, in line with the principle that the polluter pays. And by addressing all of the other market failures and making the transition away for unsustainable high-carbon economies towards clean low-carbon growth and development, we can avoid the worst risks of climate change.
To have a reasonable chance of avoiding global warming of more than 2°C, we need to reduce annual global emissions of greenhouse gases from the current level of about 50 billion tonnes of carbon-dioxide equivalent to less than 35 billion tonnes in 2030, and under 20 billion tonnes in 2050. Robust research and analysis has shown that this can be achieved for about 2 per cent of GDP.
But it would be wrong to think of this as a cost or a burden. It is an investment that not only avoids the immense risks of climate change and delivers many other co-benefits because low-carbon technologies and infrastructure are more energy efficient, cleaner, quieter, more secure, and less harmful to plants and animals.
Other market failures also need to be tackled to allow markets to efficiently promote the transition to low-carbon growth and development. One failure under-values the public nature of ideas that allows those who innovate and demonstrate to provide learning for others. Another failure arises from the limited ability of capital markets to manage the risks associated with investments in new technologies. And there is a failure that occurs from a lack of access to networks, and another due to limitations in the availability of information.
(AFP Photo/Daniel Mihailescu)
While we now understand how these failures lead markets to neglect the intrinsic value of the more stable climate that is offered by a low-carbon economy, we are less good at recognizing how and why our economies under-appreciate the importance of biological diversity and the ecosystems that support it.
The landmark report by Pavan Sukhdev and co-authors, which was published in 2010, pointed out that “the invisibility of many of nature’s services to the economy results in widespread neglect of natural capital, leading to decisions that degrade ecosystem services and biodiversity”.
As a result of this profound blindness to the precious wealth of the natural world, we have been destroying it at a ruinous rate, with some scientists comparing the current rate of species loss to catastrophic extinction events in the Earth’s geological history.
Markets generally fail to recognize the economic and social value of much of the services of ecosystems and biodiversity which are affected by human activities. There is an urgent need to deepen our understanding and strengthen our practice for methods for valuing ecosystems and biodiversity. In many cases we need methods that allow us to calculate the societal value of the services required, which can require some care and subtlety both in understanding the physical and biological effects of the ecosystem on, say, rainfall water supply or the spread of disease or pests, as well as how to value those effects in terms of impacts on well-being.
It is clear that there are great challenges in attempting to place a value on such a wide array of diverse, and often only partially understood, natural systems, many of which are public goods with no process or markets.
It would be a gross error, however, to suppose that because the challenges of valuation are difficult, we might as well suppose the costs are small or zero. Taking account of these costs in prices or regulations would change our economic and social relationship with the natural world.
Currently in all too many cases we behave as though ecosystem services and biodiversity have an economic value of zero. Consequently, their critical role in maintaining our well-being, economic activity and environmental, natural and social assets, remains unaccounted for leading to sever overuse, degradation and destruction.
The challenge for governments meeting in Rio de Janeiro at the United Nations summit on sustainable development is to find better ways of valuing the natural world on which we are so dependent and ensure that it taken into account not just as an environmental issue, but also as central to our societies and economies.
The main aims for the summit are to overcome poverty by promoting economic growth and development, to increase social justice by reducing inequality, and to protect the environment against further degradation and destruction. All countries must recognize that these goals reinforce and support each other, and that if we fail on one, we will fail on the others.
It would be an enormous mistake to believe that we can afford to delay or neglect the goal of protecting the planet. Our future well-being and prosperity fundamentally depends on it.
Nicholas Stern is I.G. Patel Professor of Economics and Government and Chair of the Grantham Research Institute on Climate Change and the Environment at London School of economics and Political Science.