Is the Price Right?

Credit: National Geographic

Credit: National Geographic

In a recent post we highlighted commentary in Nature that calls for more complex, integrated models of the world’s ecosystems in the style of the global climate models. The authors lay out a convincing case for the ecological and scientific reasons that these types of models will be beneficial, but they ignore another strong argument for developing integrated, global models of ecosystems: the need for the data that these models could provide in economic and development decision-making.

The development of GEM models may be anathema to some ecologists because of the level of abstraction that comes with such models, as economists are well aware. However, even abstract models can be useful in guiding thinking and making policy.  In analyzing the trade-offs between multiple courses of action, which is at the heart of all economics and especially development economics, abstract cost/benefit models are essential.  A relatively common example illustrates the point: is an investment in the development of beach-side condos more valuable than preserving the beach in an undisturbed state as a tourist attraction?  As with many development questions, once the trade-off is made the decision is relatively irreversible.  It is difficult to imagine tearing down condos to restore the beach if it turns out that a nature reserve would have been more valuable.

The irreversible nature of decisions regarding the preservation or alteration of stocks of natural capital underline the importance of getting the cost/benefit model right.  In this case, the development of GEMs could augment the cost-benefit models of economists considering the utility of specific development projects.  Providing data on how the complex connections in a landscape affect the operation of an ecosystem is the first step towards both valuing the discrete aspects of that ecosystem and, in turn, assessing the costs of modifying elements of the ecosystem.  Knowing these costs is essential when considering the inevitable trade-offs inherent in development questions.

It is important to note, however, that building GEMs will not answer the question of whether we should or should not develop.  They simply provide additional data for the cost/benefit model and make it possible for that model to more accurately reflect the true costs and benefits of a project.  It is still necessary to examine these costs and benefits and decide of the project is worthwhile.  Unfortunately, there is not an agreed upon set of standards for deciding if projects should move forward.That is the realm of politics, not economics.  But a good rule of thumb might be the same used by doctors: first do no harm.  If a project would make local populations substantially, and irreversibly, worse off, then it may not be worth pursuing.

In some cases, the costs to local populations are immediate and obvious.  Siting pollution power plants or bus depots in low income areas is a clear and common environmental justice issue.  In these cases the local population is obviously made worse off – though perhaps not irreversibly so– with little or no direct benefits.  But many development questions, particularly when the direct cost is the destruction of an ecosystem, do not have such clearly defined effects on the well-being of local populations.

The current controversy over the development of the Pebble Mine in Alaska’s Bristol Bay is an excellent example.  On one side is the world’s largest and most productive single salmon fishery – bringing in $310 million annually to Alaska’s economy and the 7,500 residents of Bristol Bay.  On the other is the $500 billion worth of copper, gold, and molybdenum that lie under the headwaters of the salmon fishery.  Opponents of the project, which include Audubon, NRDC, and the native populations of Bristol Bay, claim that the development of the mine would destroy the salmon runs and the economic lifeblood of the region.  Proponents of the project, however, claim that the science around the salmon runs is questionable and the project stands to bring millions of dollars in economic growth to the region.

It is naïve to believe that a GEM of Bristol bay would provide uncontestable evidence of the impacts of the mine one way or the other.  What it could do, however, is provide a deeper understanding of how the ecosystem functions and suggest additional sources of value – other than the salmon runs – to be included in a cost/benefit analysis (CBA).  In the case of the Pebble Mine, such additional considerations would likely cause any CBA to show that the most sustainable development is no development.  Rather, the sustainable solution is the continuation of an economy based on the natural capital of the region.

In fact, developing and integrating GEMs into CBA analyses around the world might show that a great deal of development is not sustainable, particularly when the “do no harm” maxim is considered.  Given the irreversible aspects of most alteration of natural capital, this is not surprising.  But it is crucial that we develop a deeper understanding of the functioning of ecosystems in order to better integrate them into our economic decision-making.  Creating GEMs is a first step in this process towards a greater recognition of the total costs of development and the notion that sometimes sustainable development means no new development.