Putting a price on nature
Posted by Rahul Chitrapu on Wed, Jan 20, 2010
There is an interesting debate going on amongst economists regarding environmental evaluations. The idea is simple: government/farmers/land owners should take a very long term view on environmental resources and try to put a price on it. This approach will help in the preservation of crucial natural resources that when depleted can have severe economic consequences. Such an approach to ecology and environment is being called
Ecological Economics, according to a recent article in The Economist.
For example, extracting wood from trees through deforestation can be helpful in creating jobs and wealth in a country like Tanzania. But, this leads to loss of river flows that ultimately leaves the people of the region with less drinking water and hydroelectricity. As a way around this, it is suggested that the government should estimate the cost of reduced drinking water and electricity, charge the companies that are causing deforestation a fee and use those funds to pay people of the region to plant trees in areas other than where the deforestation is taking place.
I think carbon offsets result in the same net effect. There are companies that will pay a price for increasing CO2 emissions and causing pollution. They pay the price by purchasing carbon offsets from individuals or companies that are involved in reducing CO2 by setting up wind turbines or solar farms or planting trees.
So what is so new about the idea of putting a price on nature? I guess there is some novelty to Ecological Economics because it tries to capture the value of environmental resources in a way that economists can come to grip with. GDP, it is being proposed, is not an accurate measure of progress because it does not take the value of a country's environmental resources into consideration.