How do we put a price on nature? Sir Partha Dasgupta
- Published: 04 November 2015 04 November 2015
Part 2: Excerpt from the interview:
Nick Breeze: How do we put a true price on nature?
Partha Dasgupta: The question is really, given our proclivities, our aspirations, how would we prise out the various bits and pieces that comprise nature, even though they don’t have an official market?
Even if they did have an official market doesn’t mean that the values that would come out from those markets would be the ones we’d want to use for our calculations because the market can get it easily very wrong. In the case of much of nature there are no markets whatsoever, so you free ride. It’s free so we all go for it and we tend to over extend our incursion into nature.
So the question then is: how do we actually establish the values that we wish to use when we come to determine policies. Or, the policies could be household policies. The household could wish to decide “how much natural capital to use?” Now it seems a bit odd saying that when living in urban societies as we do. We don’t typically make such calculations. We have some prohibitions, we say don’t disturb nature unduly when we go for a walk…. but those are small conditions we attach to activities.
But suppose you base yourself instead in the position of a farmer in a village in Ghana. Now for him or her, Natural Capital is all embracing, its all around him or her. There whole life is built around it. There woods from which products are taken by the household on a daily basis. Water is collected, wood fuel is collected. Quite apart from the agricultural land that he uses to produce his products maybe marketed but many of the inputs that are going into the production are not priced, they are free. But that does not mean that the farmer is saying ‘I’ll just do what i like with the woodlands’, because he is not the only farmer, there are many farmers.
Societies have found ways to husband resources, husband nature, because they have realised that without doing it, there will not be much of a tomorrow. So in a way you may say they are valuing it, the stuff out there in the neighbourhood, the wetland, the woodland and so forth. There are now techniques that we economists have developed to try and tease out the value of these services that we receive from nature in comparison, in relationship to the value of commodities we purchase from the market.
These are early days yet and this will be a long-term research strategy. There are so many different pieces of nature. The value will very often be location specific. A tree in one place is not the same value as a tree in another place. It’ not just transport costs that makes the value different, they are different objects. So it is an unending quest for valuing nature. But nevertheless it has to be done because, otherwise, the future looks bleak.
So, I would say, for specific resources like carbon in the atmosphere… of course that is negative at the moment, because carbon concentration is too high. The flip side of it is that the atmosphere with less carbon is more valuable. It’s like looking at a sink and the stuff what goes into the sink. The pollutant that goes into the sink is a negative value and the sink is a positive value.
So typically when we say ‘carbon should be priced’ we mean that carbon has a negative value at the margin now because the concentration is too high relative to our concentration in the past. The promise is that things are going to be rougher. Typically now we are working with price values that people think of as something like $50 a tonne, $100 a tonne.
There is a big range, depending on the kind of model people use for forecasting how under certain scenarios carbon concentration will increase, and also what the damages are likely to be.
Nick Breeze: Is there a link between the products that we consume in urban environments and the natural capital that is used in far off places.
Partha Dasgupta: Imagine somebody is deforesting the highlands, Indonesia, Malaysia, it is happening as we speak. You are deforesting it because there is a demand for timber by say China or India. After all we export cars and other things, so why not timber? Fine, so you cut the timber and then sell it and there is an export price. That will include the cost of harvesting the timber, transport costs and so forth.
But when you deforest there are damages downstream that are being experienced by farmers, fisherman and so forth, because of water run off and all the protection that forests offer the downstream residents. But that damage, increased heightened risk of floods and landslides is not included in the price. That is why it is a free price, that part of it is free. So you are exporting at a lower price that you should, or than the inhabitants should.
Another way of looking at is that the country that is exporting the timber is actually passing on some of its wealth free of charge to the importing country. Now the irony here is that the people who are subsidising that transfer of wealth are among the poorest people in the exporting country.
So the people who are importing the timber should be asking: ‘are we paying the right price because what we are doing is to damage the peoples lives downstream in the exporting country because we’d like to have timber?’
Nick Breeze: Does this go against the nature of self interest in business?
Partha Dasgupta: This is something that has to come not from the importing country, it is the exporting country’s responsibility. If the government of exporting country says, ‘yes there are these unaccounted for effects, consequences to people in my nation, due to the export policy, the pricing policy we followed, and those unaccounted consequences should now be included.’
You could then go to the importing country to say, ‘We are going to raise the price because we are going to compensate the famers and the fishermen for the damage that has been done and the consequences maybe quite high.’
Here’s the problem. Other countries are also exporting timber. I’m using timber as a metaphor of course. Now, if you are one country exporting timber and you say, I want to protect my farmers so I am going to lift the price. If the others don’t then you are being undercut and you have other needs such as finance. Financing development or whatever. In which case there is a tendency to override these unaccounted for consequences and get as much as possible for developmental purposes but of course, you are taking a long route to development.