Investor Alert

New York Markets Close in:

Best New Ideas in Money Archives | Email alerts

Oct. 28, 2021, 4:25 p.m. EDT

Every whale is worth $2 million? Why it’s time to add the value of nature to GDP

Watchlist Relevance

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

By Rachel Koning Beals

Whales lead long lives sequestering carbon dioxide in their bodies. At death the creatures sink to the bottom of the ocean, still holding that absorbed gas. Ultimately just one of those mammals is responsible on average for pulling 33 tons of heat-trapping CO2 out of the atmosphere for centuries. The estimated economic value of this service to slow climate change? A tidy $2 million per individual whale.

Readers of National Geographic may well be able to spout off a whale’s worth. College environmental programs certainly discuss it and all the benefits of healthy oceans. Even prestigious lending and aid institutions like the International Monetary Fund have reported on biodiverse ecosystems, sounding an alarm about what at-risk flora and fauna mean for economic health for the most vulnerable human populations. 

The problem is there’s never been an official global accounting of natural capital, not in gross domestic product (GDP), the calculation of goods and services, or any other broad economic measure.  

When GDP is growing, especially if inflation is not a problem, workers and businesses are generally better off than when it is not. That’s been the conventional thinking for generations. But what happens when the effects of that growth — pumping fossil fuels, converting forests to fields, allowing hotter oceans to shrink whale populations, or clearing mangrove stands for seaside condos — chew up future growth? An increasing chorus of economists and policy makers want us to literally value our natural capital. 

“We need to consider an expanded definition of GDP that doesn’t paint an artificially happy picture by excluding the natural capital we deplete,” says Justin Johnson, assistant professor in applied economics at the University of Minnesota, who is part of the school’s Institute on the Environment.

It’s not a few inconsequential pennies, either. The World Economic Forum says $44 trillion of global GDP, or around half its total, is highly or moderately dependent on nature, most prominently in agriculture, construction and the food and beverage industries.

For the big thinkers, natural capital has less to do with price per acre of corn or the premium for a balcony view of the Pacific Ocean, and everything to do with what sustainability scholars say is a miscalculation of how much the natural world — increasingly under threat from human activity and climate change — actually drives the global economy. And, they ask, if we’re not assigning real value, what’s the impetus to save it?

The World Bank offers a number and timeline for sobering consideration. It predicts global annual losses of $2.7 trillion by 2030 if ecological tipping points are breached without more investment to protect and restore nature.

Already, 14 of the 18 assessed ecosystem “services” to the global economy have declined since 1970. This means smaller fish catches, a reduced ability of nature to control disease-carrying pathogens , less protection for communities from extreme weather and more challenges in sequestering carbon, which can slow global warming, the World Bank warns in its report,

Even billionaire Jeff Bezos may see the light; the Amazon founder’s first significant distribution from his $10 billion Earth Fund is marked for biodiversity .

All creatures great and small

Back to those majestic whales and their almost unfathomable value. Preserving and restoring whale populations worldwide would remove as much heat-trapping carbon from the atmosphere as what two billion trees can absorb, some researchers say. But whales can’t contribute as much if rising ocean temperatures lead to dwindling numbers. 

Then there’s one of the tiniest creatures among us: a pesticide-stricken bee population. The money that farmers earn from selling crops is counted in GDP, true. Yet there is no formal value assigned to the services of the bees that pollinate the crops. (The wind does some work, too.) There is also no broad accounting for the quality of the soil. That is, until the bees die or the soil loses fertility, causing yields to fall. The loss of pollinators alone would equate to a drop in annual global agricultural output of about $217 billion, the WEF predicts. What if instead, GDP accounted for earlier factors?

In a worst-case scenario, if countries are unable to adapt to a shock to ecosystem services, say via lost pollinators or severe heat, the global economy would shrink by 2.3% a year, the WEF said. For comparison, the world economy contracted 3.3% last year due to the COVID-19 pandemic, the worst peacetime decline since the Great Depression.

Listen to more experts on the value of bees and other contributors to natural capital

Developing economies would particularly suffer because they’re more reliant on raw materials and the goods and services provided by nature. Sub-Saharan Africa and South Asia would see real gross domestic product shrink annually by 9.7% and 6.5%, respectively, the World Bank said.

“As an example, consider a family with modest savings who is living within their means. They are financially sustainable. But, if they chose to spend down their wealth, they could have a much more extravagant lifestyle, at least for a little bit. This might feel good in the short run, but many would not be happy if they know this choice means they will be evicted from their home the next year,” said Minnesota’s Johnson. “It’s the same thing with our natural capital. We can extract it or exploit it, and often in the short term, this can lead to increased GDP. But spending down our natural wealth means we will have much more serious problems later.”

Also see: How the U.S. could be smarter about insuring against extreme weather-related disasters

Johnson said the authoritative U.N.’s Intergovernmental Panel on Climate Change (IPCC) “red flag” report shows this very clearly for climate change, and that has drawn much of the focus. But other reports show similar risks to our rich biodiversity or just the general health of our ecosystems. 

  A GDP add-on: GEP

Johnson and colleague Stephen Polasky at University of Minnesota’s Institute on the Environment, for instance, have formulated what they call GEP, gross ecosystem product. It accounts for the pollinators or a tourism boost from a clean river in a way similar to adding up the value of cloud storage, washing machines or dining out.  

Published in the journal Proceedings of the National Academy of Sciences , GEP has been tested in China where, for instance, in Qinghai province, the Mekong, Yangtze and Yellow rivers provide a critical water supply to wealthier provinces downstream but receive no credit for this natural capital in a traditional GDP equation.  

Countries sometimes set up payment for river usage, but policy development can be slow or burdensome without better measurement of a river’s total value, said Gretchen Daily, faculty director of Stanford University’s Natural Capital project, which has also pushed for a GEP. China would, for instance, apply GEP in making a decision about damming rivers.

 “We see a potential future where GEP is reported alongside GDP in all economies,” Daily told the institution’s news service , adding that her group’s study has linked job creation and the restoration of critical ecosystems to the inclusion of GEP use.

Johnson’s University of Minnesota also wants users to think of the approach as pro-growth. His team created an economic model, called GTAP-InVEST, which aims to incorporate both how the economy affects nature and vice versa in how the economy gets fundamental, irreplaceable value from nature: clean water, reduced soil erosion or protecting coastal communities from storms. The acronym’s “invest” plug is no accident.

1 2
This Story has 0 Comments
Be the first to comment
More News In

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.