Encourage a Sustainable Relationship between the Economy and the Environment
"...what we need is an understanding that we can grow the economy and still preserve the environment."
William J. Clinton, 8 January 1998
" ...the new economy is more like an ecosystem, which depends for its health on diversity, nutrients, and its ability to change and evolve and learn and grow."
Albert Gore, Jr., 21 March 1994
Economic development must operate within the environment in a way that will allow us to live sustainably and provide our children with both prosperity and the intact natural heritage on which prosperity is founded. Much of America' s prosperity can be traced to its abundant endowment of natural wealth, a form of capital that the country is now drawing upon without replenishment. This depletion of natural capital, if continued, will have serious repercussions in terms of economic and environmental security that could jeopardize the well-being of current and future generations. As explained in the Introduction to this Report, natural capital in the form of ecosystems that provide services must be safeguarded. To achieve this, economic development and environmental conservation must be reconciled so that the people living within an ecosystem recognize the economic benefits it provides and take an active role in guarding it.
To gain the needed insights, research must be conducted at the intersection of sociology, economics, and ecology. We gave examples of some mechanisms by which a better relationship between the economy and the environment might be forged in the Introduction to this Report. Yet, there is still a great deal to learn about the manner in which sociological, economic and political behaviors can be redirected toward protecting natural capital without requiring a major shift in American lifestyle or philosophy. The research we recommend will enhance the Nation' s ability to manage the ecosystems that provide critical services, and thus help to alleviate economic losses currently resulting from mismanagement based on inadequate knowledge.
The economic losses caused by the degradation of ecosystem services already amount to billions of dollars per year, and are likely to grow exponentially in the absence of greatly improved tools for managing these systems. The research program recommended here will provide the understanding needed to stem these losses, and to improve our ability to sustainably manage America' s living capital. Failure to do the research needed to develop new economic and social mechanisms to promote stewardship will allow continuation of past practices that have led to loss of agricultural soils, public health problems of increasing severity, decline in the recreational value of the environment, and so on.
The research that we recommend here is novel and fundamental. It focuses on resources and services that are of immense social and economic value yet are hard to commercialize. This is also an area in which it is difficult to readily establish intellectual property rights, yet it is of great significance to all sectors of society. Therefore, the Federal government should provide the impetus and funding for such research, while forming public-private partnerships at every opportunity.
This topic is so fundamental to our society that almost every department of the Federal government and each of their agencies should be involved in conducting and contributing to the funding of this research. Many of these departments might not ordinarily be involved in "environmental" research, but in this case they are directly socially relevant. For example, the Departments of Housing and Urban Development, Education, Health and Human Services, Labor, Commerce, and State should all be included because of the social, economic, national security, and international implications of the realignment of economics and environment. These players in the social and economic arena should work together with those departments and agencies that have long cooperated in interagency activities concerning the environment (Agriculture, Interior, the Environmental Protection Agency, the National Aeronautics and Space Administration, and others) within the National Science and Technology Council framework. The matter of ecosystem services is so encompassing as to rightfully be of concern to the entire Administration.
The National Science and Technology Council should immediately focus on research to discover economic incentives for conservation, and remain committed to overseeing
the funding of an extramural grants program to involve academia, non-governmental organizations, and the private sector,
intragovernmental shifts in policies and attitudes that will help to institute new modes of economic thinking, and
the establishment of public-private partnerships that will ultimately enable changes in such areas as banking, stock markets, and securities as research indicates that these are needed.
The total amount of funding needed for the research recommended here is $24 million per year over a minimum of five years. This is a vanishingly small percentage of the Gross Domestic Product ($6.9 trillion in 1996), almost all of which has its origins in one way or another in our country' s natural wealth. The amount is likewise minuscule in comparison to the $112 billion of GDP generated by agriculture alone; it is tiny relative to the total science and technology R&D expenditures of the Federal government (currently approximately $76 billion). And yet, this modest investment will generate understanding of means by which we can sustain America' s productivity, while safeguarding the store of natural capital that makes this productivity possible.
Improve characterization and economic assessment of biodiversity and ecosystem services.
Research that will enable us to mobilize the full potential of market forces to conserve natural capital must include efforts to discover the best ways to estimate the social value of ecosystem services. The next step must be to devise means to convert that social value into economic (cash) value. To do that, we will have to understand more fully the processes through which ecosystem goods and services are produced, and how human activity impinges on these production processes. Key research issues are:
What are the relative impacts of alternative human activities upon the supply of services?
What are the relationships between the quantity or quality of services and the condition (e.g., pristine vs. heavily modified) and spatial extent of the ecosystem supplying them? Where do critical thresholds lie?
To what degree do ecosystem services depend upon the ecosystem being biodiverse (from the genetic to the landscape level)?
How interdependent are the services? How does exploiting or damaging one influence the functioning of others?
To what extent have various services already been impaired? How are impairment and risk of future impairment distributed geographically?
To what extent, and over what time scale, are ecosystem services amenable to repair?
How effectively, at how large a scale, and at what cost can existing or foreseeable human technologies substitute for ecosystem services?
Given the current state of technology and scale of the human enterprise, how much natural habitat and biodiversity are required to sustain the delivery of ecosystem services locally, regionally, and globally?
Can we cope with the "surprises" that are virtually guaranteed to occur when any complex system is heavily perturbed and be alerted while there is still time to prevent serious consequences?
How can ecosystems best be managed to preserve biodiversity?
Discover workable economic incentives for conservation of natural capital.
There are currently some offices within Federal agencies that deal to a certain extent with economic assessment and incentives for conservation, but only in a tangential way. For instance, the EPA Office of Policy Planning and Evaluation is collaborating with the World Resources Institute to work on natural resource accounting, and with The Nature Conservancy to develop Compatible Economic Development Centers through the Community-Based Environmental Protection program. The International Cooperative Biodiversity Groups program of the National Institutes of Health and the NSF is involved in the creation of mechanisms for putting a monetary value on natural resources for purposes of reimbursing people in areas from which those resources were derived. The NSF and EPA together have a grants program in Decision-Making and Valuation for Environmental Research, the Water and Watersheds program, which requires investigators to include sociological components within their ecological research, and the two new Urban Long-Term Ecological Research sites that will incorporate studies of demographic shifts and the effects of urban centers on ecosystems. None of these efforts is specifically geared toward the discovery of realistic methods of economic assessment of the value of ecosystem goods and services and the development of new economic incentives for conservation, which is why the program we recommend here is sorely needed.
We need to understand the kinds of investments that will be required to preserve or restore the functioning of ecosystems. We then need to discover mechanisms to make these investments attractive financially. This will involve realizing as a cash flow to the investors a part of the economic and societal value of the services of the ecosystems conserved. If the social value of the ecosystem services can be transformed into cash, part of which can be paid to those who conserve, then market forces can be harnessed to the goal of conserving our natural capital. The extent to which this is possible depends on the particular ecosystems involved and the characteristics of the goods and services supplied, in particular whether these are public or private goodsi.e., whether they are goods or services for which markets can readily yield to the seller a significant fraction of the social value of their product.
Many ecosystems provide several different goods and services to society. For example, a growing forest may purify water as a watershed, control floods, sustain biodiversity, sequester carbon, provide timber, or afford recreational opportunities. Its overall economic value is the sum of the values of all of these services, each of which could be rewarded through a separate market. As an illustration of this approach, the government of Costa Rica has recently initiated a system under which the agencies managing certain forests are compensated for the watershed and carbon sequestration roles of the forests on a per hectare basis, and the government plans to extend the compensation to cover other functions.
Where markets can be used to manage the provision of ecosystem goods and services, they will automatically indicate a value for these via market prices. These prices may not fully reflect the social values of the services, but will usually provide a good starting point in calculating social values. There will always remain some situations in which markets cannot be used and market prices for ecosystem services are not available. For such cases, we need ways of appraising the value of the services that are not based on market prices. Some such methods were mentioned in the Introduction, and need to be developed further.
As noted above, the National Science and Technology Council should stimulate intramural and extramural research in these two areas immediately. The first competition for extramural research should occur as soon as the guidelines can be formalized, and the program should be continued for at least five years but preferably indefinitely.
Successes of the research program can be measured by
the lessening of distrust between government and the private sector over living resource issues,
the increased ability of Federal and other agencies to complete tasks such as generating indicators of sustainable development,
the application of the results in economic and social institutions as they adopt strategies that are sustainable over the long term, and
an enhanced appreciation
by the public of the value of America'
s living capital and the services