Natural Capital

Business interests often encourage people to exploit the environment for profit. But sometimes conservation can boost profits. A conversation with biologist Gretchen Daily of Stanford University who wants to balance nature with economic productivity. For many years, she’s worked in Costa Rica examining the impact of farming on forest cover.

Gretchen Daily: We tend to think of forests unfortunately as being in the way of agriculture, that you’ve got to clear it in order to make room for coffee production or whatever . . . But it turns out that coffee yields are higher, and profits higher for farmers if little bees are going around transferring pollen from one coffee flower to the next.

Dr. Daily and her students captured around 700 species of tiny Costa Rican bees, and found out where they lived.

Gretchen Daily: And it turns out they do mainly live in the forest, and they’re not going to fly hundreds of miles from forest to coffee farm. So in fact, they like to fly only half a mile and no more. That means there is an economic incentive for farmers to keep some forest in and around their farms to maintain pollination services.

The forests also protect the coffee fields from erosion, ease any impact from flooding, and help stabilize the climate globally. Daily’s work suggests that the endless farm fields known today might evolve to include bits of nature sprinkled through the countryside — to provide a higher economic return.

In these notes you will find…

  • * More details about the idea of considering the environment a “capital asset.”
  • * Some fascinating governmental innovations in Costa Rica.
  • * Examples from the United States of these ideas being put into practice.
  • * What inspired Dr. Daily to pursue environmental science.

Capital asset

The thrust of Dr. Daily’s research centers around the idea that we should be managing natural resources in the same way we manage capital assets for business, that is, equipment, money, and human skills and labor. Here are some more of her comments:

Daily: 7 We can see ecosystems, the collections of organisms around us, whether it’s a grassland, or forest, or lake, or stream as capital assets. And by looking at them as capital assets that can, over time, supply society with a stream of benefits, we might come up with more clever ways of managing them.

Daily: We’re quite good now at managing other kinds of capital like physical capital or financial capital or even human capital. We’ve had thousands of years to develop pretty intricate institutions for investing in, monitoring, and carefully husbanding resources that fit into the other classes of capital. We all know how our cars are running, what repairs are needed on our house. We all know how much money we have in the bank, and we keep track of the stock exchange. In universities and companies, people are always measuring human capital, the knowledge and skills of the workforce or the student body. And yet we’ve done almost nothing to go out and assess our natural capital. And yet that’s the underpinnings of human well being and economic prosperity. Daily: We’ve done almost nothing to figure out where we get our water from, where it’s actually purified, and what ecosystems help maintain the balance of gasses in the atmosphere that keep climate stable. We don’t know what sort of ecosystems provide us with the precursors to certain medicinal and industrial products. Next to nothing do we know how about how much forest you need to retain in an area to prevent flooding. Forests are very good at soaking up water and meting it out gradually like a sponge.

Daily: 8 Just imagine going to the moon, and asking yourself well, what sorts of species and ecosystems would you want to bring with you on the space ship to set up a decent life up there. Basically no one knows how many species or which types of species or ecosystems are needed to sustain human life. And yet we’re wiping out species and ecosystems at an unprecedented rate.

Governmental innovations in Costa Rica

Costa Rica, the site of much of Gretchen Daily’s research, (although she also works in the U.S. and Mexico) is in the midst of a grand environmental experiment, trying to put the ideas of natural capital into practice.

In 1997, the Costa Rican government began a program, which encourages individuals to sign a contract with the government, pledging to protect the environment on the land they own. In exchange for this pledge, they receive 20 dollars an acre each year. More details …

Daily: The Costa Rica law involves paying private landowners for the ecosystem services derived from their private property. In Costa Rica, most of the services comes from forested land, and they are paying anybody who has forest on their property now, or who agrees to regrow forest on their property in the future can sign the contract. Now $20, that sounds like its nothing, and you wonder why anyone would go for that. But in Costa Rica, that’s a heck of a lot of money and it goes a long way.

People get paid for four different ecosystem services: one is watershed protection, both for maintaining drinking water quality and for hydroelectric power production, which requires very clean, sediment free water. They’re also being paid for biodiversity protection for pharmaceutical prospecting. There are a lot of companies that are looking for new drugs in Costa Rican rain forests. Third, they are getting paid for helping to mitigate global warming, by sequestering carbon. Finally, they’re getting paid for scenic beauty, and the attraction their country represents for eco-tourism and tourists in general. For these four services, people are getting paid on an annual basis. And it’s having a huge effect.

Since the enactment of these policies, Costa Rica has gone from having the highest deforestation rates in the world has gone to having a net increase in forest cover and essentially one of the lowest deforestation rates in the world. They are still clearing some primary forest, but overall, people are planting more forest than ever before.

And in the US you could easily imagine doing a similar thing and saying OK, around San Francisco, here’s where the water comes from. We’re going to pay people living in these key watersheds to help protect water quality, or help control floods. With the payments, people would have the obligation to help protect the key part of their land that was delivering that benefit to society. We are moving in that direction, but right now Costa Rica is the leader.

It’s also interesting to take a look at where the money comes from to fund the $20 per acre each year. Cities, power plants, and beer companies all contribute to the fund to help keep the water pure. On the carbon front, several European countries who are participating voluntarily in an effort to reduce greenhouse gases. They pay the Costa Ricans to plant forests to offset their own greenhouse gas production. One other source is a gas tax on the people, which the Costa Rican people chose to put in place.

Examples from the United States

These ideas aren’t just limited to Costa Rica. Other good examples of exploring the idea of natural capital can be found in the United States, too. When people talk about “putting a value on ecosystem services” they don’t mean we should stick price tags on forests or mountain ranges. Daily points out it would be impossible to calculate the value of the Catskill Mountains, a section of tropical rainforest, or the wetlands above a town. However, what people CAN do is figure out how the cost of conservation compares with the cost of building purely technological solutions to solve a certain problem.

Gretchen Daily: 18 No one will be able to calculate the full worth of nature. It’s like trying to calculate the worth of any given person. But what we are finding is that just a little bit of change in how things are valued can really tip the balance in favor of conservation.

Here are two examples from the United States of how one might put these ideas into practice.

New York City Water Supply

Daily: One really good example comes from New York City. New York City has about 9 million people drinking its water. It’s a huge water supply and the water has never been filtered. That’s really unusual in the developed world, to have such a clean unfiltered water supply. But the story is that the water comes out of the Catskills mountains, about 100 miles to the north of the city. We can think of this mountain region as a big hunk of natural capital. It’s got some towns in it, some forestry, some dairy production, some apple production. But overall it’s fairly natural and fairly intact. Until, that is, the eighties when there was quite a building boom up there, and the water quality being delivered to the city began to be compromised.

The city faced a choice. Water quality was going down, it was getting pretty risky health-wise, so they had to make some kind of investment in water purification. And they faced two options: one was to invest in physical capital by building a filtration plant, the other was to invest in natural capital and try and restore the natural purification sources of the Catskills watershed. It turned out that economically, it made much more sense to go for natural capital. The cost of a filtration plant were estimate at 6-8 billion dollars over 10 years, with 0.5 billion of annual operating expenses. By contrast, restoring the natural capital was expected to cost between 1-1.5 billion dollars. So New York opted for the natural approach.

Napa Valley Flood Control

Daily: 10 The town of Napa sits in the middle of the famous Napa Valley. And yet relatively few people have ever visited the town of Napa. And that’s in part because it’s often been underwater. It was really prone to flooding. Just over the past 30-40 years, there’s been 0.5 billion dollars in flood damages from the Napa river during peak rainy periods when it burst its seams and drowned the town. The town was relatively depressed, and tourists didn’t tend to go there.

A few years ago, residents of the town came up with some ways to manage flood control in the town better. They too, faced two options. One involved investing in physical capital that would have enhanced the system of dikes and levies that the army corps of engineers had installed to control flooding. The other possibility was to invest in natural capital and restore the wetlands that used to absorb the energies of the river safely and in a beautiful way. In this case it was estimated that the physical capital approach 200 million, whereas the natural capital approach would cost more, about 250 million. Yet local residents fought hard and voted to adopt the natural capital approach even though on a flood control it would cost more. And that’s basically because they asked themselves, do we want to live in a system of dikes and levies, or do we want to living in a beautiful town on a beautiful river, that’s more likely to attract tourists and other economic activity? So they went for that latter approach and actually removed over a hundred buildings, removed or moved nine different bridges, and restored these wetlands of 650 acres, with beautiful birds, fishing opportunities. And all that has paid off, revitalizing the town as they were hoping, and bringing many other benefits besides just the security from flooding. ** The bottom line is that if people feel an economic incentive to “do the right thing”, they will do the right thing. If, on the other hand, it’s more profitable to destroy the planet, collectively we will all destroy it. And that’s basically what we’re doing now: In pursuit of profit we’re at a race to the bottom. What we’ve got to do is find a way of finessing our economic system, and find a way of integrating the science, economics, and politics so that pursuit of profit or economic benefit, leads to social benefit, and not to the destruction we’re seeing rampant across the planet today.

Dr. Daily discussed these two examples in much greater detail and others in a book she co-authored, “The New Economy of Nature”.

How Dr. Daily got into this mix of environmental science.

Q: Was there a particular incident in your life that got you interested in environmental science?

Yes, there actually was! When I was a teenager, I lived in West Germany. And it was stunning to see all the demonstrations that occurred over acid rain, which was a new problem then — just being recognized widely. And it was amazing. I was American, but I’d never seen demonstrations on the scale that go on there, just hundreds of thousands of people out protesting this massive form of pollution that was killing off lakes and their really precious forest. And it made me realize then as a young teenager, that human impacts on the planet are absolutely staggering — that we could have acid falling from the sky and killing off these beautiful places — but also that people can bring about change. I was equally stunned by the social movements that were going on. Realizing how big the problem were, and realizing how us little individuals might bring about change if we worked collectively, made me think that while I entertain myself between birth and death, this would be a good thing to hook in to. To work on interesting, important problems — and things that involve bringing people together, since I think that’s where the action is.

When I came to Stanford as an undergrad, there was not really much at all on the environment. I started off dabbling in a bunch of fields, like biology, but that was mostly oriented for premed students. Then I dabbled in geology, in various other fields before finally settling back on biology at the end. But I’ve always departed quite a bit from traditional academic paths of study, and have tried to incorporate in my study and research perspectives and approaches from many other fields. And the reason I do that is that basically what you can see everywhere is that science alone is not going to get us anywhere. Sure, we can understand a problem, and that’s key — we have to understand its basic dimensions — but ideal solutions are never really solutions. To figure out ways of bringing about the needed social change, we have to understand the perspective of people, and institutions, corporations, governments, in many different ways, especially in the economics arena, to make any practical changes on the environmental front.

What you have in your mind?