Ecological Economics

Since the 1960’s and 70’s drawing on neoliberal ideals many attempts have been made to provide a valuation of biodiversity and ecosystems. Here ecosystem functions are defined as ‘the capacity of natural processes and components to provide goods and services that satisfy human needs, directly or indirectly’ and was estimated by the World Conservation Union to amount to US$33 trillion a year (Costanza et al, 1997). 

Ecosystem functions can be grouped into four primary categories: 

Regulation Functions- this relates to the capacity of ecosystems to regulate essential ecological processes and include the carbon cycle, water regulation and supply and waste treatment

Habitat Functions- natural ecosystems contribute to conservation of biological and genetic diversity and evolutionary processes

Production Functions- Photosynthesis and nutrient uptake by autotrophs creates carbohydrates which then produce a larger range of living biomass through secondary producers. This diversity provides many goods for humans including food to energy materials such as coal and gas to genetic material.

Information Functions- this is often harder to quantify but no less significant. Ecosystems provide opportunities for human cognitive development such as its aesthetic quality, cultural significance and scientific value (de Groot, 2003) . 

Economic valuation is commonly the primary focus in scenarios such as this although ecological and socio-cultural valuation are considered.

Economic valuation methods fall into four basic types, although in many cases for each ecosystem function several methods are applicable.

Direct market valuation is the exchange value in trade of ‘goods’, information and regulation functions.

Indirect market valuation is applied when their are no explicit markets and includes avoided costs, replacement costs, factor income, travel costs and hedonic pricing. 

Contingent Valuation can be defined as service demand elicited by considering alternatives.

Group Valuation draws on the principles of deliberative democracy and assumes public decision making should result from open public debate not individual preferences (de Groot, 2003). 

The table below from a study by Costanza et al. 1997 demonstrates economic valuation of a few ecosystem functions. 

Nitrogen fixing is a vital example of a bi-product of biodiversity that is vital to life through its regulatory functioning.  This is carried out by certain species of cyanobacteria that are either free living, the actinomycete Frankia that works in symbiosis with Legumes and rhizobia plants and heterotrophic fixation during the decomposition of plant litter. The plant bacteria symbiotic relationship is most efficient and can raise nitrogen fixing rates to as high as 100 kg N ha−1 y−1.  This demonstrates the need for maintaining soil health for maximum bacteria biodiversity and the importance of plant biodiversity  achieved through crop rotation. Alternatives involves the use of nitrogen fertiliser at greater cost to farmers. (Vitousek et al 2002)

Due to the nature of ecosystems, the processes involved as well as a degree of subjectivity, valuation is a complex if not impossible task as functions and valuation methods overlap and are interconnected.  Despite this complexity, I feel basic economic valuations are effective ways of influencing policy and management although more nuanced effects of ecosystems and biodiversity such as ecological and socio-cultural worth are equally important and should not be ignored. 

Updated 13.01.2015.

Sources: 

Costanza et al, 1997. The value of the world’s ecosystem services and natural capital. Nature. 387 (1). pp 253-260. 

de Groot, R. 2003. A typology for the classification, description and valuation of ecosystem functions, goods and services. Ecological Economics. 41 (3). pp 393-408

Vitousek, P. 2002.Towards an ecological understanding of biological
nitrogen fixation.Biogeochemistry. Vol. 57. pp 1-45.