Nature and the Marketplace: Capturing the Value of Ecosystem Services / Edition 1

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<p>In recent years, scientists have begun to focus on the idea that healthy, functioning ecosystems provide essential services to human populations, ranging from water purification to food and medicine to climate regulation. Lacking a healthy environment, these services would have to be provided through mechanical means, at a tremendous economic and social cost.<p>Nature and the Marketplace examines the controversial proposition that markets should be designed to capture the value of those services. Written by an economist with a background in business, it evaluates the real prospects for various of nature's marketable services to &quot;turn profits&quot; at levels that exceed the profits expected from alternative, ecologically destructive, business activities. The author: <ul> <li>describes the infrastructure that natural systems provide, how we depend on it, and how we are affecting it <li>explains the market mechanism and how it can lead to more efficient resource use <li>looks at key economic activities-such as ecotourism, bioprospecting, and carbon sequestration-where market forces can provide incentives for conservation <li>examines policy options other than the market, such as pollution credits and mitigation banking <li>considers the issue of sustainability and equity between generations </ul>.<p>Nature and the Marketplace presents an accessible introduction to the concept of ecosystem services and the economics of the environment. It offers a clear assessment of how market approaches can be used to protect the environment, and illustrates that with a number of cases in which the value of ecosystems has actually been captured by markets.<p>The book offers a straightforward business economic analysis of conservation issues, eschewing romantic notions about ecosystem preservation in favor of real-world economic solutions. It will be an eye-opening work for professionals, students, and scholars in conservation biology, ecology, environmental economics, environmental policy, and related fields.
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What People Are Saying

Kenneth J. Arrow
Kenneth J. Arrow, Stanford University:

Many environmentalists have distrusted economic analysis, feeling that it supported spoliation. Geoffrey Heal explains clearly, non-technically, and with the support of many examples drawn from real life, how economic principles not only maker clearer the environmental case but it can enhance the acceptance of conservation by reducing its adverse impacts. I consider this book essential for the environmental movement's further progress.

Gretchen Daily
Gretchen Daily, Stanford University:

Here, a world-class economist offers inspiring and compelling solutions to the major environmental concerns facing society. . . Engaging and insightful, and rich with examples from around the world, this book is a must-read for anyone interested in the human prospect.

Jane Lubchenco
Jane Lubchenco, Oregon State University:

Heal courageously tackles one of the central challenges of our day: How to make economic activities compatibile with protecting the natural environment on which societies depend. His treatment is enlightened, informed, and credible; his ideas are visionary yet practical. This book is the single best treatment of the economic aspects of ecosystem services to date. I strongly recommend it to anyone interested in the future of our planet.

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Product Details

  • ISBN-13: 9781559637961
  • Publisher: Island Press
  • Publication date: 10/28/2000
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 224
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.70 (d)

Meet the Author

Geoffrey Heal is the Paul Garrett Professor of Public Policy and Corporate Responsibility at the Columbia University Graduate School of Business in New York, and co-author of Economic Theory and Exhaustible Resources (Cambridge, 1980).

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Read an Excerpt

Nature and the Marketplace

Capturing the Value of Ecosystem Services

By Geoffrey Heal


Copyright © 2000 Island Press
All rights reserved.
ISBN: 978-1-55963-796-1


Infrastructure and Earthkeeping

The quality of our lives—indeed, even our existence—depends on the functioning of natural systems. Natural systems supply air, water, and food. They keep the climate habitable—not too hot or cold, not too wet or dry. They protect us from threats—both animate, such as crop-attacking insects, and inanimate, such as ultraviolet radiation. They cleanse the environment of wastes.

To our ancestors the importance of these systems was self-evident. They were, literally, deified. Each was associated with a god, like the wind god or the sun god or the god of lakes and rivers or the goddess of fertility. They were forces that exacted immediate costs in human suffering.

As we have developed more ways to mitigate the inhospitable aspects of life on Earth, we have become less aware of the environment's importance. To a population brought up on the Promethean achievements of human technologies and for whom space travel, nuclear power, and genetic engineering are no longer novel, nature only infrequently appears powerful. Our technologies seem to insulate us from the natural world. It appears that nature has always been there for us, and that it always will.

Biologists refer to the life-supporting and life-enhancing services of natural ecosystems as "ecosystem services." In an influential recent book, Nature's Services: Societal Dependence on Natural Ecosystems (1997), Gretchen Daily provides this definition:

Natural ecosystems perform critical life-support services, upon which the well-being of all societies depends. These include:

• purification of air and water

• mitigation of droughts and floods

• generation and preservation of soils and renewal of their fertility

• detoxification and decomposition of wastes

• pollination of crops and natural vegetation

• dispersal of seeds

• cycling and movement of nutrients

• control of the vast majority of potential agricultural pests

• maintenance of biodiversity

• protection of coastal shores from erosion by waves

• protection from the sun's harmful ultraviolet rays

• stabilization of the climate

• moderation of weather extremes and their impacts

• provision of aesthetic beauty and intellectual stimulation that lift the human spirit.

In more prosaic, economic terms, natural ecosystems provide critical infrastructure for human societies. The word infrastructure usually conveys images of essential built systems: drainage, sewage, electric power, gas, telephone systems, roads, bridges, and many other complex systems on which our lifestyle depends. Like natural systems, we tend to take these for granted—at least those of us in countries where they function well do. We appreciate their importance when we go to countries where they work erratically. We also come to realize their importance when we lose them, as in the aftermath of a disaster such as an earthquake or a serious storm. It is symptomatic of their importance that the first task after such a disaster is always the reconstruction of whatever basic infrastructure has been destroyed. If a region of the United States or another industrialized country is without any of these basic infrastructure systems for any length of time, this is headline news.

Natural ecosystems are the essential, low-level infrastructure upon which human activities and built systems rest. Fortunately they seem to be exceptionally robust so that to date we have little experience of doing without them. Natural ecosystems provide us with services that in many ways resemble those provided by conventional utilities. Think of the services provided by a house, many of which rely upon and extend those provided by utilities. A house provides local climate-control services, preventing us from being too hot or cold and controlling moisture and wind. In providing these services it draws on outside utilities and on its own structure. In heating or cooling it uses electricity or gas, and in keeping out wind and rain it uses its own structure. It may contain air purification systems. A house provides drainage and waste disposal services via its connections to local utilities or through its own disposal systems. It should ideally be a beautiful and cheerful place, one where we enjoy being and which provides spiritual uplift. It supplies us with drinking water, and with energy via electric power. It protects us from insects and other predators.

If we think about this list and the list given by Daily, we can see many parallels between them. In this sense it really is appropriate to think of the Earth and its natural systems as a home for humanity. It is not just a home in the obvious physical sense of the place where we reside, but also a home in the more basic sense of a place that provides us with much of what we need to be comfortable, to be secure, and to prosper. This is the real sense of the word home.

Natural systems provide all of these services, on a far larger scale, of course. They provide even more: a key group of natural services relate to the provision of food. These include pollination, seed dispersal, nutrient cycling, control of soil fertility, and pest control. Despite all the technology we bring to bear on our habitats, we cannot duplicate this: we cannot create environments in which food can be produced from its basic chemical constituents. A 1999 report on the importance of biodiversity in agriculture (Council for Agricultural Science and Technology) made this point well:

Humans don't produce food. Other species produce it for us. The essence of agriculture is the harnessing of numerous species of plants and animals for human benefit. Many of the advances in agriculture have come from the discovery of new crops and from genetic refinements in these crops.

Our homes provide several other services that are based on and extend those provided by natural systems. For example, a good home with no leaks controls the climate locally: it keeps its occupants warm, dry, and out of the wind. But it can only do this provided the external environment is within certain limits; if external winds rise to hurricane intensity, with corresponding levels of rainfall, most houses will no longer keep us warm and dry. If the external temperature were to rise to 120 degrees Fahrenheit or fall to 20 degrees below zero, most houses would be inadequate for keeping their inhabitants comfortable. If the climate were to change so that hurricanes or extreme temperatures were more common, much of our human-made infrastructure would be quite inadequate and would no longer perform its function of keeping us comfortable and secure.

To make the same point in a different context, a very basic requirement for any home is that it provide drinkable water. Home plumbing systems are linked to public water-supply systems that bring water from reservoirs or aquifers. If the climate were to change so that reservoirs did not refill and aquifers did not replenish, then again our own contribution to infrastructure would be valueless. So the infrastructure systems that we build depend on natural infrastructure. Indeed, the natural infrastructure is assumed. Without functioning climate systems and hydrological cycles, our built systems would be inadequate for their tasks.

Planetary Impacts of Human Activity

The scale of the human endeavor has grown so large that it is affecting even basic planetary systems that have been in existence for hundreds of millions of years. These are systems that have created the environment in which we evolved and upon which we depend in myriad ways. Protecting the environment at this level has only recently become a goal pursued by environmental policy. Going forward, it will be one of the main goals. The Montreal Protocol on Substances That Deplete the Ozone Layer and the Kyoto Protocol of the United Nations Framework Convention on Climate Change (Benedick 1998) are examples of recent or emerging policy measures directed at maintaining the integrity of global systems. Both address phenomena that could change global environmental systems central in supporting life on Earth.

What are these global systems upon which we depend and that we are now compromising? Typically they are complex interactions between biological, geological, and chemical systems. According to Daily (1997), the ecosystem services we depend on for daily life are produced

by a complex interplay of biological, geological and chemical cycles driven by solar energy and operating across a wide range of spatial and temporal scales. Soil fertility, for instance, is a product both of bacteria, whose fleeting lives may take place in a space smaller than the period at the end of this sentence, as well as of the aeonic, planet-wide cycles of major chemical elements such as carbon and nitrogen. Pest control is created by both natural enemies (e.g., birds; bats; parasitic wasps, ladybugs, spiders, and other predacious arthropods; fungi; viruses) and by climate patterns generated globally. The stratospheric ozone layer that shields Earth's surface from ultraviolet radiation was originally produced primarily by the photosynthetic activities of blue-green algae and by photochemical reactions occurring high in the atmosphere. Ecosystem services operate on such a grand scale and in such intricate and little-explored ways that most could not be replaced by technology.

It is these complex systems that human economic activity is now, for the first time, affecting significantly. Because they provide us with essential services, we need to develop institutions that manage our impacts and ensure the continuation of a natural environment that is supportive of human life. The challenges that this poses arise on many scales, from global to local. Atmospheric changes are the most global, and human activity is now driving three important atmospheric changes—in the carbon and nitrogen cycles and in the ozone layer.

The Global Carbon Cycle

The Earth's atmosphere is principally made up of nitrogen and oxygen with traces of other gases, the most important of which is carbon dioxide. Oxygen is essential for animals: we breathe it and use it to generate energy by oxidizing our food. Humans (along with other animals) breathe in oxygen and breathe out carbon dioxide, the product of burning carbohydrates in our food via the oxygen in our blood. One might expect our use of oxygen would lead to a drop in its content in the air and an increase in carbon dioxide, but this has not occurred because green plants and photosynthetic algae in the seas have the opposite effect. They take in carbon dioxide and emit oxygen, so that there is a natural cycle of oxygen and carbon dioxide.

In fact this process is a small part of a more complex global carbon cycle (see Figure 1.1). The production side involves the production of carbon dioxide by animals and by natural processes, such as the decay of vegetation and weathering of rocks. On the consumption side, carbon dioxide is dissolved in the oceans, absorbed by plants, and stored in the soil as a result of bacterial processes. Human activity is now affecting this cycle in many ways. One is the release of massive amounts of carbon dioxide from the burning of fossil fuels; another is changes to the vegetative cover of the planet. Climatic changes may be a byproduct of this process, hence current concerns about global warming. The carbon cycle is a good example of the complexity of natural life-support processes, involving oceans, plants, animals, soil, and rocks. It not only provides a gaseous environment in which plants and animals can thrive, but it also affects the Earth's climate and produces temperatures and humidity levels that are comfortable for plants and animals.

We can think of the carbon cycle as a core component of the Earth's HVAC (heating, ventilation, and air-conditioning) system. Until very recently its scale rendered it immune to human activity; that has now changed. The proportion of carbon dioxide in the atmosphere has increased by one-third since the Industrial Revolution, from 280 parts per million to 350, largely because of human activity. It is expected to reach 400 to 500 parts per million in the foreseeable future.

The Nitrogen Cycle

Another basic global chemical cycle is the nitrogen cycle. Plants need nitrogen to grow. There is nitrogen in abundance in the air, but most plants cannot use it in that form. They need nitrogen in chemical form. A small number of plants, such as legumes, can take nitrogen from the air, change its form, and use it for growth. These so-called nitrogen-fixing plants in fact do not directly fix nitrogen themselves; they do it with the assistance of microorganisms that live in colonies around their roots. These plants take in nitrogen, and when they die and are decomposed by the actions of microorganisms, nitrogen is released into the soil and enriches it, providing a better growing medium for other plants that lack the ability to fix nitrogen.

Nitrogen also finds its way into the soil along other pathways, such as the decomposition of dead animals and animal feces. Lightning can also generate fixed nitrogen. Eventually some of the nitrogen in the soil is released back into the atmosphere by microbial action, and some of the plant nitrogen is released into the air by decay. This constitutes the nitrogen cycle.

Human beings have had an even bigger impact on this cycle than on the carbon cycle. Many fertilizers are rich in nitrogen; the quantities of nitrogen added to the soil through fertilizers now exceed the totals fixed through natural processes (Daily, Matson, et al. 1997; Vitousek, Mooney, et al. 1997). We have doubled the scale of the nitrogen cycle. Typically less than half of the total nitrogen added as fertilizer is taken up by plants; nitrogen and its compounds are highly mobile, so the majority runs off into groundwater and ends up in lakes or the sea or seeps through the ground into aquifers. In all of these water bodies there are increasing levels of nitrogen as a result of human modification of the nitrogen cycle.

These modifications have effects on many other aspects of the natural environment. For example, increased nitrogen levels in the ocean lead to changes in marine vegetation and in fish populations. They have also been linked to outbreaks of algae in so-called algal blooms, which have killed millions of fish, damaged fisheries, and rendered beaches unusable for recreation. In tropical countries increased nitrogen levels in seawater are affecting coral reef systems, changing marine vegetation in a manner detrimental to the health of the reefs and the populations living around them. Coral reefs play an important role as spawning grounds for fish and as nurseries for immature fish, so that changes can damage valuable fisheries. Finally, nitrogen released from soil can be converted by bacterial action into oxides of nitrogen that, released into the atmosphere, act as powerful greenhouse gases.

The Ozone Layer

Research is also documenting apparent compromises to the ozone layer, the layer of chemically reactive oxygen high in the atmosphere that serves to screen out some of the ultraviolet radiation hitting the Earth from the sun. Unchecked, this radiation would cause cell damage to living organisms, leading to increased incidence of cancer among animals and lower productivity of plants. Biologists believe that life as we know it might not have evolved without the ozone layer. As is now common knowledge, chemicals used in refrigerators and aerosols are drifting high into the atmosphere and reacting with ozone to neutralize it, removing the protection that it has historically provided.

Impacts on Human Societies

What additional evidence is there that we are stressing the planet's capacity to support human activity, and how convincing is it? Books such as Extinctions (Ehrlich and Ehrlich 1981); Climate Change 1995: The Science of Climate Change (Houghton, Filho, et al. 1996); The Work of Nature (Baskin 1997); Nature's Services: Societal Dependence on Natural Ecosystems (Daily 1997); and Life in the Balance: Humanity and the Biodiversity Crisis (Eldridge 1998) provide authoritative treatment of these issues. Although there is disagreement regarding the effects, we can summarize the evidence. We've already looked at the impact of human activities on the atmosphere—the carbon cycle, the nitrogen cycle, and the ozone layer. Emissions of carbon dioxide will lead to a doubling of the atmospheric concentration of carbon dioxide within the lifetimes of the younger readers of this book (Houghton, Filho, et al. 1996). There is general agreement that this increase will have a significant impact on the Earth's climate, possibly seriously negative in many places. The numbers cited for possible temperature changes sound small—an increase of 2 to 6 degrees Fahrenheit in global mean temperature. In fact this is not small: it is almost of the same size as the change in temperature between an ice age and the periods that precede and follow it. In the last ice age, a glacier several thousand feet thick covered New York. Another perspective on such a change in climate is provided by the 1997–98 El Niño event, which led to massive weather-related damage. It was associated with an increase in global mean temperature of only about one-half of a degree Fahrenheit, yet in addition to damaging crops and causing widespread weather-induced damage to homes and roads and other infrastructure, it led to massive damage to many critical ecosystems. The dryness caused by the droughts associated with El Niño contributed to huge fires in the Amazon region and in parts of Indonesia, resulting in the loss of hundreds of thousands of acres of tropical forest. As observed earlier, tropical forests help remove carbon from the air; they also play what may be an even more important role in providing a habitat for species found in few other places.


Excerpted from Nature and the Marketplace by Geoffrey Heal. Copyright © 2000 Island Press. Excerpted by permission of ISLAND PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents


About Island Press,
Title Page,
Copyright Page,
Chapter 1 - Infrastructure and Earthkeeping,
Chapter 2 - Basic Economics,
Chapter 3 - Markets and Ecosystems,
Chapter 4 - Ecotourism,
Chapter 5 - Forests, Carbon, and Kyoto,
Chapter 6 - Biodiversity,
Chapter 7 - Valuation,
Chapter 8 - Policies and Institutions,
Chapter 9 - Sustainability,
Chapter 10 - Summary and Conclusions,
Island Press Board of Directors,

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