58165 Paper number 120 E N V I R O N M E N T D E PA R T M E N T PA P E R S Environmental Economics Series Biodiversity, Ecosystem Services, and Climate Change The Economic Problem November 2010 Sustainable Development Vice Presidency The World Bank environmenT deparTmenT Biodiversity, Ecosystem Services, and Climate Change The Economic Problem November 2010 Papers in this series are not formal publications of the World Bank. They are circulated to encourage thought and discussion. The use and citation of this paper should take this into account. The views expressed are those of the authors and should not be attributed to the World Bank. This book is available on-line from the Environment Department of the World Bank at: www.worldbank.org/environmentaleconomics © The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. Manufactured in the United States of America First published November 2010 Design: Jim Cantrell Cover photos: © Hidajet Delic-Degi / The World Bank Photo Library. Bosnia and Herzegovina; farm and forest land. Contents Acknowledgments v Executive Summary 1 Chapter 1 — Introduction 3 Chapter 2 — Biodiversity and Climate Change 5 Chapter 3 — Estimating the Value of Biodiversity-Related Changes in Ecosystem Services 11 Chapter 4 — Re-evaluating Biodiversity and Climate Change 15 Chapter 5 — Discussion and Conclusions 23 Appendix — Developments in the Economics of Biodiversity and Ecosystem Services 27 References 33 Figures 1 Impact of climate change on the invasibility of ecosystems 7 2 Quantile regression results for climate and the threatened status of birds, plants, reptiles and mammals showing the impact of quantiles (horizontal axis) on the climate coefficient (vertical axis) 17 3 The relation between outbreaks of notifiable animal diseases and value at risk, 1996–2004 20 Table 1 Economic losses to introduced pests in crops, pastures, and forests in the United States, United Kingdom, Australia, South Africa, India, and Brazil (billion dollars per year) 19 Environmental Economics Series iii Acknowledgments T his paper was written by Charles Perrings of by Francis Fragano, Habiba Gitay, Glenn-Marie Lange, the ecoSERVICES Group at Arizona State Georgina Mace, and Brian Walker. University, P.O. Box 874501, Tempe AZ 85287. Comments on an earlier version were provided Environmental Economics Series v Executive Summary C limate change is both a cause and an effect the cost of adaptation to climate change will be low. of biodiversity change. Climate change is Biodiversity loss increases both the severity of climate amongst the most important determinants of change and our ability to adapt to it. Neither effect is change in the distribution and abundance of signaled in current prices. Both are external to existing species in both managed ecosystems such as agriculture, markets. production forests, cities and many coastal zones, and natural terrestrial and marine ecosystems. Climate The economics of biodiversity-climate linkages deals change is also an effect of land uses that generate with these externalities. There are two tasks. One is greenhouse gases (CO2, CH4, N2O) and of alteration to identify the causal connections between biodiversity in biological stocks of carbon in terrestrial and marine change, climate change and the production of system (green and blue carbon). ecosystem services. A second is to identify the marginal value of climate-related changes in biodiversity. Biodiversity change affects the flow of ecosystem services—the benefits that people get from ecosystems. The role of living organisms in the production and These benefits include the Millennium Assessment’s sequestration of greenhouse gases is reasonably well provisioning services (production of foods, fuels, understood. The consequences for climate of changes in fibers, water, genetic resources), cultural services the extent of tropical forests, or phytoplankton in the (recreation, spiritual and aesthetic satisfaction, scientific oceans are already incorporated in general circulation information), and regulating services (controlling models. Ecologists also agree that climate change is variability in production, pests and pathogens, already changing the world’s biota. It is affecting environmental hazards, and many key environmental species distributions and abundance, the timing of processes). reproduction in animals and plants, animal and bird migration patterns, and the frequency and severity of Amongst the ecosystem services supported by pest and disease outbreaks. Species are moving from biodiversity is climate regulation. One effect of the lower to higher elevations, and from lower to higher conversion of forests to agricultural production, for latitudes. Species that are unable to move are at risk. At example, is an increase in carbon emissions from land the same time, changes in the world’s biota from other clearance and a decrease in sequestered carbon. Both causes are affecting the ability of ecosystems to adapt to effects increase the rate of climate change. At the same climate change. The simplification of many ecosystems time, our ability to adapt to climate change depends to make them more ‘useful’ to people reduces their on the diversity of species within functional groups. flexibility. By eliminating species that are ‘redundant’ If the species in a particular functional group (e.g., given current climatic conditions and current uses, domesticated grains) include some that are suited to we have reduced the capacity of many ecosystems to conditions expected to occur with climate change, function if climatic conditions change. Environmental Economics Series 1 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem Although science has made progress in understanding are strongly focused on enhancing rural incomes, and and modeling the linkages between the structure that this comes at a cost to biodiversity. The most of ecosystems, biodiversity and the production of recent research on the linkages between threats to ecosystem services, there are few studies of the two- biodiversity and income finds that once climate, land way interactions between biodiversity and climate area, population density (pressure) and the land area change. There are some studies of one-way linkages, under protection is controlled for, there is a strong and an increasing interest in the role of biodiversity positive relation between income and species under in adaptation to climate change. Understanding and threat amongst the poorest countries. This reflects the modeling the interactions between biodiversity and fact that the poorest countries are also strongly agrarian. climate change is one of the fundamental scientific In such countries, income growth depends both on challenges of the next decade. the extensive growth of agriculture (the expansion of agricultural lands into more ‘marginal’ areas that are For similar reasons we do not have good estimates otherwise habitat for wild species) and on agricultural of the marginal value of climate-related biodiversity intensification (the progressive simplification of change. The current assessment, TEEB, has used agroecosystems as pests, predators and competitors are existing studies to estimate the mean value of both the ‘weeded out’ of the system). macroclimatic regulation offered by terrestrial carbon sequestration, and the change in provisioning and The signing of the CBD’s ‘Nagoya Protocol on Access cultural services offered by forest systems. Although its to Genetic Resources and the Fair and Equitable findings are very preliminary, they are also instructive. Sharing of Benefits Arising from their Utilization’ is an TEEB suggests that the mean values of forest ecosystem important step towards equity in the distribution of the services, in US$/ha/year, are dominated by regulatory benefits of genetic resources and traditional knowledge. functions: specifically regulation of climate ($1,965), It does not, however, address the broader benefits— water flows ($1,360), and soil erosion ($694). The the ecosystem services—supported by biodiversity. mean value of other services combined—timber Where the ecosystem services at risk affect people in and non-timber forest products, food, water, genetic all countries, there are potential gains from trade in information, pharmaceuticals ($1,313) is less than the ecosystem services reflected in payments for ecosystem value of water flow regulation alone. services such as the REDD and REDD plus schemes. However, in order to estimate the benefits to be had This indicates the existence of substantial off-site from such schemes it will be important to develop benefits to forest conservation that are not currently more robust, probabilistic models of the longer term captured by forest landowners. We would expect these consequences of biodiversity change than are currently benefits to vary with the value at risk from climate available. It will also be important to develop the change, flooding, water-pollution or soil loss. Since observation, monitoring and reporting systems that will value at risk is closely linked to income, we would also enable us to keep track of changes in biodiversity and expect priorities to differ between low-income and its impact on the aggregates recorded in the national high-income countries. The evidence suggests that income accounts. for many of the poorest countries, current priorities 2 Environment Department Papers 1 Introduction C limate change is both a cause and an effect of This paper considers the connection between climate, biodiversity change. Along with anthropogenic biodiversity and ecosystem services. The impact of dispersion, climate change is the main driver climate change on human wellbeing is measured by of change in the geographical distribution of the change in ecosystem services caused by climate- both beneficial and harmful species—crops, livestock, related change in biodiversity. Similarly, the role of harvested wild species, pests, predators and pathogens. species richness and abundance in climate change And the capacity of ecosystems to adapt to climate mitigation or adaptation is measured by the change change depends on the diversity of species they in the climate-related services of biodiversity. The currently support. Climate change is also a consequence categories of ecosystem services are those applied in of the way which biological resources are converted the Millennium Ecosystem Assessment (Millennium into useful goods and services, and especially of the Ecosystem Assessment 2005a). The paper first considers way in which grasslands and forests are converted into how climate and biodiversity have been linked in recent croplands. The production of biological resources for attempts to link the two things. From the side of the foods, fuels and fibers, and the conversion of forests and natural sciences, this covers the consequences of climate grasslands for agriculture both directly affect emissions change for various dimensions of biodiversity. From of several greenhouse gases (GHGs). Changes in the side of the social sciences, it covers the value of stocks of biomass also affect the volume of sequestered biodiversity in the carbon cycle. It then uses insights carbon. It follows that options for the mitigation from the economic treatment of the relation between of climate change include the management of both biodiversity and ecosystem services to re-evaluate the GHG emissions from productive processes and carbon connection between biodiversity and climate change, sequestration, while options for adaptation to climate and to draw conclusions for climate policy. change center include the management of biodiversity for ecosystem resilience. Environmental Economics Series 3 2 Biodiversity and Climate Change T here is widespread recognition that climate From a conservation perspective, the critical feature change and biodiversity are linked. Most of climate change is that it differentially affects the obviously, by changing the environmental probability that species will be driven to extinction. It conditions within which species exist, climate has been argued that the risk of extinction is likely to change induces an adaptive response on the part increase for many species that are already vulnerable of species. An extensive literature over the last two (Thomas and others 2004), in part because of the time decades has described this effect on both species and it takes for many species to adjust to climate change ecosystems (Peters and Lovejoy 1994, Lovejoy and (Menéndez and others 2006). While the impact of Hannah 2006, Willis and Bhagwat 2009). Much of climate change on extinction probabilities remains this is summarized in the international biodiversity and contentious (Willis and Bhagwat 2009), this is the climate assessments at various scales (Gitay and others effect that motivates the conservation community most 2002, Steffen and others 2010, Karl and others 2009, strongly. Millennium Ecosystem Assessment 2005a, Millennium Ecosystem Assessment 2005b). Outside the conservation community there is greater concern for the potential impacts of climate change The broad conclusions of this literature are that climate on the species that most directly affect agriculture change is already inducing an adaptive response on (the production of foods, fuels and fibers) and health the part of the world’s biota. It includes changes in (of humans, animals and plants). In agroecosystems, species distributions and abundance, changes in the climate change is expected to have a number of direct timing of reproduction in animals and plants, changes effects. In the USA, although a number of crops are in animal and bird migration patterns, and changes expected to respond positively to higher levels of carbon in the frequency and severity of pest and disease dioxide and moderate increases in mean temperature, so outbreaks. Some of these effects are the direct result too will weeds, diseases and insect pests. More extreme of changes in temperature, precipitation, sea level or increases in mean temperature and rainfall variability storm surges. Others are the indirect effect of changes are both expected to reduce crop growth and yields. in, for example, the frequency of fire. In general, species Forage quality in rangelands is expected to decline with are moving from lower to higher elevations, and from increasing carbon dioxide concentration because of the lower to higher latitudes, although the rapidity of effects it has on plant nitrogen and protein content, the response varies very considerably. In any given while livestock are generally expected to be adversely ecosystem, changes in the frequency and intensity of affected by increased temperature, disease, and weather disturbances determine the rate at which plant and extremes (Karl and others 2009). animal assemblages will change. Environmental Economics Series 5 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem In other parts of the world the effect of climate change vectors have never been found in the past. Climate, in on agriculture are expected to be more severe. A recent association with land use change, has been associated attempt to simulate the consequences of two scenarios with global increases in morbidity and mortality from of climate change using a model of global agriculture emergent parasitic diseases. Other diseases affected by concluded that the net effects of climate change on climate change include leishmaniasis, cryptosporidiosis, agriculture would generally be negative, and would giardiasis, schistosomiasis, lariasis, onchocerciasis, and be strongly negative in many developing countries loiasis (Patz and others 2000, Jones and others 2008). (Nelson and others 2009). The authors argue that in developing countries, climate change will induce yield Changes in the distribution of diseases and disease declines for the most important crops especially in vectors are problematic because they involve a South Asia; that irrigated yields for all crops in South disassociation between the pathogen and its natural Asia will fall; that price increases for rice, wheat, maize, controllers. The disruption of the community of soybeans, and meat prices will reduce the growth in organisms that keeps a pathogen in check allows meat consumption slightly and cereals consumption it to spread rapidly. For the same reason, climate significantly; and that calorie availability in 2050 change is expected to increase the frequency with will decline relative to 2000 levels in all developing which species across a wide range of taxa are able to countries. Since around half of all economically spread outside their home range. A recent study of active people in developing countries are dependent the implications of climate change for the potential on agriculture, and since 75 percent of the world’s invasibility of all terrestrial ecosystems concluded that poor live in rural areas, this suggests that the effects a high proportion of existing ecosystems will become of climate change on agriculture are likely to have a vulnerable to invasion by species from elsewhere under disproportionate effect in developing countries. even moderate climate change scenarios. Using the Hadley HadCM3, B1 scenario, for example, (Thomas The impacts of climate induced biodiversity change and Ohlemüller 2010) identified the areas of the world on human animal and plant health are of concern sharing a common climate but not sharing the same because of the potentially high cost associated with pest controllers (being more than 1,000 km distant) both emerging zoonotic diseases, and changes in the in 1945 and 2045. The results, indicated in Figure 1, distribution of existing disease vectors. Changes in imply that under climate change virtually all ecosystems agricultural practices have been strongly implicated in will be vulnerable to invasion. the emergence of a number of zoonotic diseases (Daszak and others 2004, Daszak and others 2006). The IPCC’s Among marine systems, coral reefs are thought to be fourth assessment report highlighted the impact of particularly vulnerable to climate change. Temperature climate change on the distribution of a number of increases and ocean acidification are expected to infectious disease vectors, and the seasonal distribution compromise carbonate accretion putting corals of some allergenic pollen species (Confalonieri and increasingly at risk. They are also expected to exacerbate others 2007). For example, the climatic basis for the effects of other anthropogenic stresses (from changes in the distribution of the main dengue fever pollution and overexploitation) (Hoegh-Guldberg vector Stegomyia has been modeled, and turns out to and others 2007). Nor are coral reefs the only marine map well into the observed disease distribution (Hopp ecosystems likely to be affected by climate change. and Foley 2003). Diseases that were previously limited Experimental work combined with climate linked to low latitudes have spread to higher latitudes. Insect- models of ocean acidification suggests that significant borne diseases such as trypanosomosis and anaplasmosis changes in pterapod communities could occur in high are now found in parts of the world where their latitudes within decades (Orr and others 2005). 6 Environment Department Papers Biodiversity and Climate Change Figure 1 Impact of climate change on the invasibility of ecosystems Invasibility index 1945 Climate within 1000km 0.00 - 0.10 0.11 - 0.20 0.21 - 0.30 0.31 - 0.40 Invasibility index 2045 0.41 - 0.50 0.51 - 0.60 0.61 - 0.70 0.71 - 0.80 0.81 - 0.90 0.91 - 1.00 Most climates of this type occurred <1000 km away: RESISTANT Most climates of this type occurred >1000 km away: INVASIBLE Source: Adapted from Thomas and Ohlemüller 2010. To get a measure of the importance of these various Cultural services comprise a range of largely non- physical impacts, economists have attempted to consumptive uses of the environment including the estimate the value of the resulting change in ecosystem spiritual, religious, aesthetic and inspirational wellbeing services, using the classification of services suggested by that people derive from the ‘natural’ world; the value the Millennium Ecosystem Assessment (Millennium to science of the opportunity to study and learn from Ecosystem Assessment 2005a). The MA distinguished that world; and the market benefits of recreation and four broad benefit streams: provisioning services, tourism. While some of these activities—particularly cultural services, supporting services and regulating recreation and tourism—have significant implications services. for GHG emissions, many have relatively little impact. Provisioning services cover the products of renewable Supporting services comprise the main ecosystem biotic resources including foods, fibers, fuels, water, processes that underpin all other services such as biochemicals, medicines, pharmaceuticals, as well soil formation, photosynthesis, primary production, as the genetic material of interest to the CBD. The nutrient, and water cycling. The concern over climate production, processing and consumption of these change is primarily a concern over the atmospheric things all have consequences both for the net emission consequences of changes in the carbon cycle These of greenhouse gases, and for the capacity of the system services play out at very different spatial and temporal to accommodate the effects of climate change. scales, extending from the local to the global, and over Environmental Economics Series 7 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem time periods that range from seconds to hundreds of In addition to these direct sources of CO2 flux from years. biofuels, agriculture and forestry, many of the activities that add value to foods, fuels and fibers are associated Finally, the regulating services were defined by the MA with fossil fuels based energy use, and consequently to include air quality regulation, climate regulation, generate emissions as a by product. In the USA, hydrological regulation, erosion regulation or soil again, the largest single source of CO2 emissions from stabilization, water purification and waste treatment, fossil fuel combustion by end-use sector in 2008 was disease regulation, pest regulation and natural transport (1790 Tg CO2 Eq.), followed by industry hazard regulation. More generally, they comprise the (1511 Tg CO2 Eq), residential (1185 Tg CO2 Eq) benefits of biodiversity in moderating the effects of and commercial activity (1045 Tg CO2 Eq) (U.S. environmental variation on the production of those Environmental Protection Agency 2010). things that people care about directly. They limit the effect of stresses and shocks to the system. As with the The research problem in all cases is to identify supporting services they operate at widely differing the production functions that connect changes in spatial and temporal scales. So, for example, the biodiversity to changes in ecosystem services and morphological variety of plants in an alpine meadow human wellbeing. The Millennium Assessment’s offers strictly local benefits in terms of reduced soil evaluation of biodiversity through the services it offers erosion, while the genetic diversity of crops in global (Millennium Ecosystem Assessment 2005a) is the agriculture offers a global benefit in terms of a lower approach that economists have traditionally taken spatial correlation of the risks posed by climate or to the problem (Perrings and others 1992). In this disease. Both macro- and micro-climatic regulation are approach, biodiversity change is evaluated in terms examples of the regulating services. of its implications for: a) the production of foods, fuels, fibers, water, genetic material and chemical In principle, evaluation of the biological causes of compounds; b) human, animal and plant health; c) climate change requires estimation of the multiple ways recreation, renewal, aesthetic and spiritual satisfaction, in which the production, processing and consumption and d) its role in buffering many ecological processes of foods fuels and fibers are associated with climate and functions against the effects of environmental drivers—emissions of GHGs. Combustion of fossil variation. The approach recognizes that change in the fuels is the dominant source of CO2, but agriculture diversity of species is a source of both benefits and is a major source of CH4 and N2O. In the USA, costs. Many of the benefits that people derive from for example, agricultural activities were responsible ecosystems—especially managed productive systems— for emissions of 427.5 Tg CO2 Eq. in 2008, or 6.1 require reductions in the abundance of pests, predators, percent of total U.S. greenhouse gas emissions. CH4 pathogens and competitors. We wish to eliminate emissions from enteric fermentation and manure HIV AIDS and SARS, smallpox and rinderpest at the management accounted for one third of CH4 emissions same time as we wish to save the panda, the bald eagle, from all anthropogenic activities. Fertilizer application the ring-tailed lemur or the giant redwood. The mix accounted for around two thirds of N2O emissions. of species that maximizes delivery of one ecosystem Biofuels—biodiesel, bioethanol, wood, charcoal— service, seldom maximizes delivery of other services. accounted for 4.4 per cent of CO2 production from There are trade-offs involved. In particular, the energy. Partially offsetting these emissions, Net CO2 diversity of species that maximizes carbon sequestration Flux from land use and land use change, including can be much lower than the diversity of species that forestry, reduced net emissions by 13.5 percent (U.S. maximizes the flow of genetic information (Polasky and Environmental Protection Agency 2010). others 2005, Nelson and others 2008). 8 Environment Department Papers Biodiversity and Climate Change The way that economists have approached the problem people care about. Including climate change as either of modeling the effect of biodiversity change on the cause or effect of biodiversity change means including production of ecosystem services is described in an either the biodiversity effects of climate change or the appendix. In all cases the central challenge is to specify impact of biodiversity on climate change in the relevant an appropriate set of production functions that link set of production functions. While this may be hard to biodiversity—which one can think about as a set of do, the approach itself is quite straightforward. biological assets—to the production of the things that Environmental Economics Series 9 Estimating the Value of Biodiversity-Related Changes 3 in Ecosystem Services T he value of individual species in this approach relationships, competition, parasitism, facilitation and derives from the value of the goods and so on—that make them more or less complementary services they produce. Similarly, the value of in executing ecological functions (Thebault and Loreau biodiversity—the composition of species— 2006). derives from the complementarity and substitutability between species in the supply of ecosystem services over Understanding the value of species that support a range of environmental conditions. In other words, particular ecological functions requires an biodiversity has a portfolio effect on the risks attaching understanding of both their substitutability and the supply of ecosystem services. The approach complementarity in the performance of those accordingly requires specification of production functions. It also requires an understanding of the functions that embed the ecosystem processes and way in which the simplification of ecosystems for ecological functions that connect biodiversity and agriculture, forestry, fisheries etc affects both the ecosystem services. This has posed significant challenges functions they perform and the interactions between to both ecological and economic science. While the last functions. The simplification of agroecosystems to two decades have seen real advances in understanding of privilege particular crops or livestock strains necessarily biodiversity-ecological functioning-ecosystem services affects the array of services that system delivers, partly relationships, this is still very much work in progress. because the number of functions performed increases (Vitousek and Hooper 1993) speculative projection of with the number of species (Hector and Bagchi 2007), the impact on ecological functioning of biodiversity loss and partly because each species in a system typically has stimulated a whole new field of ecology, many of performs multiple functions (Díaz and others 2009). the results of which are reported in (Loreau and others Ecosystems are systems of ‘joint production’. Individual 2002) and (Naeem and others 2009). This has led to a systems generate multiple services. It follows that deeper understanding of the role of species in ecological part of the cost of simplification is the ecosystem functioning, and the relation between ecological services foregone as a result. Industrial agriculture functioning and the production of ecosystem services. has significantly increased yields per hectare, but has Species are related through functional traits that make also significantly reduced a range of other ecosystem them more or less ‘redundant’ in executing particular services including water supply, water quality, habitat ecological functions. Individual species are highly provision, pollination, soil erosion control (Millennium redundant (near perfect functional substitutes for Ecosystem Assessment 2005a). other species) if they share a full set of traits with those Superimposing the commodity-specific production other species, Conversely, they are ‘singular’ if they functions that relate output of marketed commodities possess a unique set of traits (Naeem 1998). Species are to both marketed inputs and the underlying ecological also related through ecological interactions—trophic processes adds another layer of complexity. Not Environmental Economics Series 11 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem surprisingly, the specification and estimation of on this system indicate that two types of benefit are ecological-economic production functions that capture dominant: one being tourism, recreation and amenity, both the jointness of the production of ecosystem the other being coastal protection. The mean marginal services, the interactions between services, and the value of ecosystem services in US$/ha/year generated impact of changes in the relative abundance of species is using this method was $86,524 for tourism, recreation still in its infancy. and amenity, and $25,200 for moderation of storm events. By contrast, the mean marginal value of food Evaluation of the impacts of climate change on production (fisheries) was only $470 (TEEB 2009). biological resources and biodiversity requires estimation While this disparity is almost certainly an artifact of of the consequential changes in the production of the approach adopted (it averages over studies rather ecosystem services. This includes changes induced by than systems) it does illustrate an important feature of alteration of environmental conditions reflected, for the value estimates attaching to all ecosystem services: example, in the changing costs of agriculture, forestry that measures of people’s marginal willingness to and fisheries. It also includes changes in a set of non- pay to acquire an ecosystem service reflect both their marketed ecosystem services. The current assessment preferences for that service relative to others, and their of the economics of ecosystems and biodiversity income level. Willingness to pay is as much a measure (TEEB) has addressed the problem of identifying of ability to pay as it is a measure of preference. The the biodiversity-mediated impact of climate change people who depend on coral reefs for fisheries are by developing a database of valuation studies, and not the same as the people who access coral reefs for reporting the distribution of the estimated values pleasure. They come from different countries, they associated with the ecosystem services affected by have fewer assets and they have lower income. An climate change. It is not the purpose of this paper to additional qualification noted by TEEB is that there review this material. It is sufficient to note that the may be discontinuities (threshold effects) in the impact value estimates reported are marginal, instrumental, of climate on systems like coral reefs. That is, small anthropocentric, individual-based and subjective, changes in temperature or acidity may induce the context and state-dependent (Goulder and Kennedy system to flip from one state to another (Hughes and 1997, Heal and others 2005). Moreover, for the most others 2003). In the neighborhood of such thresholds, part, ecosystem services are valued through their impact the marginal value of such changes may be substantial on the production of commodities or non-marketed (TEEB 2009). effects that are directly valued by people (Barbier 1994, Barbier 2007, Barbier 2000, Mäler 1974), and In the case of forests, TEEB (2009) includes a the value of ecosystems as natural assets derives from preliminary assessment of the value of a full set of the services they produce (Barbier 2008). The TEEB ecosystem services deriving from tropical forests. Once exercise is at an early stage, but for illustration has again, the methodology involves identification of mean taken two systems—coral reefs and forests—to provide and maximum values of ecosystem services in US$/ha/ preliminary estimates of the value of climate-related year derived from a set of valuation studies. Although ecosystem services. the results are preliminary, they are instructive. The 2007 value of tropical forests is dominated by In the case of coral reefs, for example, the consequences regulatory functions: specifically regulation of climate of climate change are measured by the benefits yielded ($1,965), water flows ($1,360), and soil erosion ($694). by these systems in terms of fisheries, tourism, shoreline The mean value of other services combined—timber protection and cultural (aesthetic) value at risk from and non-timber forest products, food, water, genetic climate change (TEEB 2009). Its interim conclusions 12 Environment Department Papers Estimating the Value of Biodiversity-Related Changes in Ecosystem Services information, pharmaceuticals ($1,313) is less than the to the provisioning and cultural services. It stems from value of water flow regulation alone (TEEB 2009). peoples’ aversion to risks—i.e., is higher the more risk averse people are. The dramatic difference between the estimates of the value of tropical forests and coral reefs is worrying, Within the ecological literature, the problem has been and signals the dangers inherent in the estimation approached through the stability of ecological processes method applied. But what is interesting about the (Griffin and others 2009). However, the issues are far TEEB estimates for tropical forests is the dominance from settled. There is consensus that species richness of regulatory services. These are services that confer enhances the mean magnitude of many ecosystem benefits on people at a range of different spatial scales, services (Hooper and others 2005, Balvanera and but almost always at scales that extend beyond the others 2006, Cardinale and others 2006), but the effect forest itself. While the regulation of soil erosion and of species richness on the stability of those services is water supply would be expected to benefit people contested (Hooper and others 2005). Two mechanisms within the same river basin, carbon sequestration have been proposed. One is statistical averaging (Doak benefits people everywhere. Just as is the case of coral and others 1998), which depends on the fact that the reefs, the low relative value of the provisioning and sum of many randomly and independently variable cultural services associated with tropical forests also phenomena is less variable than the average. The reflects differences in the income and endowments strength of this effect depends on how the variances of of people living inside and outside the forest. TEEB populations scale with their means (Tilman and others makes the point that some 90 percent of people defined 1998). The second is the ‘insurance hypothesis’, by to be in poverty by reference to one or other of the which interspecific niche differentiation causes species commonly used head count measures depend on to respond differently to environmental fluctuations tropical forests for their livelihood. (Mcnaughton 1977, Naeem and Li 1997). The insurance hypothesis requires functional redundancy Progress on understanding the role of biodiversity in by which loss of individual species within a functional securing the regulating services has been less certain group can occur without affecting performance of the than in the case of the provisioning and cultural function (Lavorel and Garnier 2002). services. One reason for this may be that the MA interpreted the regulating services in a rather restrictive The general point here is that wherever species or way. Perrings and others (1992) had reported the ecosystems (habitat) are identified in the functions that argument that biodiversity had a role to play in describe productive activity, it is possible to identify maintaining the stability and resilience of ecosystems, their marginal impact on output of valued goods and and hence that part of the value of biodiversity lay in services. While there is still a long way to go before its role in enabling the system to maintain functionality we have unified models of the biodiversity-ecological over a range of environmental conditions. In the MA functioning relationships used by ecologists and the (2005), this dimension of the value of biodiversity extended bioeconomic models used by economists, the was reflected in the identification of a set of buffering steps that have been taken during the last decade seem services that included, e.g., storm buffering, erosion to be in the right direction. control, flood control and so on, and the generic link between biodiversity and variability in the supply of There are two implications for the valuation of directly valued goods and services was lost. The value of biodiversity change. First, the marginal value of an biodiversity, in this respect, is the value of a portfolio of incremental change in the abundance of any species biological assets in managing the supply risks attaching other than those that are directly exploited is a derived Environmental Economics Series 13 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem value. Second, derivation of that value requires the value of a marginal change in the biodiversity specification of the production functions that connect that supports the directly valued good or service. indirectly exploited species to directly valued goods For example, (Allen and Loomis 2006) use estimates or services. Whether one uses market prices, revealed of willingness-to-pay for the conservation of higher or stated preference methods to obtain an estimate trophic-level species, obtained using stated preference of willingness to pay for the directly valued goods or methods, to derive estimates of implicit willingness-to- services is more or less irrelevant. The important point pay for the conservation of species lower down the food is that a production function is then needed to estimate chain. 14 Environment Department Papers Re-evaluating Biodiversity 4 and Climate Change T o estimate the value of climate-related Estimates of the long-term global damage cost biodiversity change, we need to understand associated with climate change vary significantly, (a) the impact of land use change on climate lying anywhere between zero to 11 percent of global and the other structural characteristics of the GDP. The damage estimates derive from the IPCC’s system that affect biodiversity, (b) the effect this has integrated assessment models, which are unable to on the functional diversity of species, and (c) the incorporate activity changes induced by feedbacks consequences of change in the functional diversity within the socio-economic system. Stern argued that of species for the ecosystem services that people care all models omitted potentially important impacts, and directly about—such as the supply of foods, fuels and that taking these into account would likely increase cost fibers, pharmaceuticals, scientific information, genetic estimates substantially. In particular, he estimated that resources, recreation, tourism, amenity and spiritual inclusion of non-market impacts on the environment satisfaction. The greater the diversity of species within and human health would increase the total cost of functional groups, the greater will be the capacity of the business as usual climate change from 5 percent to 11 system to continue to produce valuable services under percent of GDP, excluding ‘socially contingent’ impacts climate change. such as social and political instability (Stern 2006). One challenge in estimating the value of climate-related The Fourth Assessment Report of the IPCC reported biodiversity change, is that we do not have general significant improvements in the capacity to predict models of interactions between the biosphere, the changes in land cover and species richness associated hydrosphere and the atmosphere, and the social system. with climate change, appealing to results from climate The models developed by environmental economists envelope modeling (niche-based, or bioclimatic (described in the appendix) all focus on individual modeling) and dynamic global vegetation modeling components of the general system, and include only a (Parry and others 2007). However, the same limitations limited set of feedbacks. The models used to estimate on the capacity to model interactions between the social the economic impacts of climate change are similarly and biogeophysical system apply. It is not yet possible highly simplified, but they do attempt to capture at to use the integrated assessment modeling approaches least some of the biodiversity-mediated costs of climate of the IPCC to project, with confidence, the magnitude change. (Mendelsohn and others 1998) estimated of the global effects of biodiversity change as it impacts impacts for agriculture, forestry, energy, water and climate change, or of the effects of climate change on coastal zones. (Tol 2002) extended this to include biodiversity. Current models of the global economic impacts on other ecosystems, as well as mortality from impacts of climate change are useful in identifying areas vector-borne disease, and (Nordhaus and Boyer 2000) where impacts may be significant, but we are not able added, in addition, impacts of pollution and effects on to use them to estimate the value of climate-related recreation. biodiversity change. We are in a better position to Environmental Economics Series 15 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem undertake partial equilibrium analyses of the long run drinking water). For others still it has been found to consequences of climate change in particular sectors or have more than one turning point. Moreover, even biomes (TEEB 2009), but even here value estimates are where the best fit is given by a quadratic function—the highly uncertain. inverted ‘U’—there are wide differences in estimates of the value of per capita income at which further growth A second implication of the ecosystem services is associated with an improvement in the indicator. approach is that the extent to which the biodiversity The evidence is sufficiently ambiguous that few general effects of land use or climate are taken into account conclusions can be drawn, but Markandya (2000, depends on the value at risk—the expected marginal 2001) argued that even if poverty alleviation might not cost of changes in biodiversity. If the value at risk from enhance environmental quality, and may in fact increase a reduction in functional diversity is low, decision- stress on the environment, environmental protection makers will have little incentive to avoid it. It may well would frequently benefit the poor. be that the value at risk from the perspective of local communities is different from the value at risk from The relation between threats to biodiversity and income the perspective of more distant communities—that growth in this literature has generally been approached there are spatial externalities. But the general point still through deforestation, and has found little evidence holds. The costs of biodiversity change determine the for an inverted ‘U’ shaped relation between income weight given to it in the decision process. This fact is and that variable (Dietz and Adger 2003, Majumdar at the core of the interaction between climate change, and others 2006, Mills and Waite 2009). In order biodiversity and poverty. to test the relation between income and the threat to biodiversity without relying on forest area as a proxy, Since the Brundtland Report (World Commission Perrings and Halkos (2010) modeled the relation on Environment and Development 1987) argued between Gross National Income (GNI) per capita per that there existed a causal connection between capita and threats to each of four taxonomic groups— environmental change and a large literature has mammals, birds, plants and reptiles—while controlling examined the empirical relation between per capita for the effects of climate, population density, land area income (GDP or GNI) and a range of indicators of and protected area status. Using the number of species environmental change (Stern 1998, Stern 2004, Stern in each taxonomic group under threat (according to and Common 2001) for reviews of the literature and the 2004 IUCN Red List) as the response variable, the econometric methods it employs). An inverted ‘U’ they modeled the impact of GNI per capita in a sample shaped relation between per capita income and various of 73 countries. Controls included climate, total and measures of environmental quality was found using protected land area, and (human) population density. both cross-sectional and panel data (Cole and others Climate was measured by a dummy variable indicating 1997, Stern and Common 2001). whether a country fell wholly or partly in the Koppen- Geiger equatorial climates. Land area controlled for The implication of this is that economic growth in the effect of country size, and the percentage of land poor countries is associated with the worsening of area under protection controlled for the availability of the environmental conditions measured by those refugia. Population stress was proxied by population indicators. The relation does not, however, hold for density. all environmental indicators. For some indicators it is monotonically increasing in income (e.g., They found that once climate, land area, population carbon dioxide or municipal waste). For others it density (pressure) and the land area under protection, is monotonically decreasing (e.g., fecal coliform in the relation between income and species under threat 16 Environment Department Papers Re-evaluating Biodiversity and Climate Change turns out to be strongly quadratic for all terrestrial The general implication of their result is that in the species. The turning points are different for different poorest countries, income growth is strongly correlated taxonomic groups but all models provided a good fit to with increasing levels of threat to biodiversity. This the data, and satisfied a range of diagnostic tests. The reflects the fact that the poorest countries are also sensitivity of the climate effect to the degree of threat strongly agrarian. In such countries, income growth was then evaluated by estimating a set of quantile depends both on the extensive growth of agriculture regression models, the results of which are shown in (the expansion of agricultural lands into more Figure 2 which reports both quantile (shaded areas) ‘marginal’ areas that are otherwise habitat for wild and OLS estimates (lines) with 95 percent confidence species) and on agricultural intensification (the intervals for the effect of climate on all taxonomic progressive simplification of the agroecosystem as groups. For three of the four taxonomic groups— pests, predators and competitors are ‘weeded out’ of mammals, birds and reptiles—the quantile regression the system). While there is the potential to design models are consistent with the OLS models. However, agroecosystems in ways that reduce the biodiversity/ for plants, it is clear that the impact of climate on the agricultural output trade-off (Jackson and others 2007, threatened status of species is sensitive to the level of Brussaard and others 2010, Jackson and others 2010), threat. The effect of climate on the threatened status of the empirical evidence is that in low-income countries species is greater, the greater the level of threat (Perrings increasing agricultural output has the highest priority, and Halkos 2010). and that consequential impacts on wild species is regarded as a reasonable cost of that activity. Figure 2 Quantile regression results for climate and the threatened status of birds, plants, reptiles and mammals showing the impact of quantiles (horizontal axis) on the climate coefficient (vertical axis) Birds Plants (continued) Environmental Economics Series 17 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem Figure 2 Quantile regression results for climate and the threatened status of birds, plants, reptiles and mammals showing the impact of quantiles (horizontal axis) on the climate coefficient (vertical axis) (continued) rePtiles MaMMals Source: Perrings and Halkos (2010). In terms of the models of biodiversity described and pathogen risks, the fact that developed countries in the appendix (Brock and Xepapadeas 2002, have higher levels of imports means that they are more Brock and others 2010), these two trends imply the exposed to the risk of introductions. At the same time, homogenization of the system, a reduction in niche the likelihood that introduced species will establish differentiation, and hence a reduction in species and spread depends on the public health, sanitary and richness. The existence of a turning point indicates phytosanitary efforts undertaken by a country. Since that at some level of per capita incomes and at some public health, sanitary and phytosanitary effort will level of biodiversity threat the marginal value of land increase up to the point at which the marginal benefit committed to biodiversity conservation dominates (damage avoided) is equal to the marginal cost of the marginal value of land committed to agriculture, that effort, we would expect greater levels of effort in inducing a change in the allocation of land resources to countries where the value at risk is higher. So while allow greater niche differentiation. One dimension of developed countries are more exposed, they also invest this is the establishment of reserve areas characterized more in public health, sanitary and phytosanitary by high levels of heterogeneity (whether in a few large measures. heterogeneous areas or a number of smaller areas distributed across an ecological gradient). A second The result of this is that developing countries are dimension is the establishment of separate niches generally more exposed to damaging pests and within existing agroecosystems (through, for example, pathogens. For example, Pimentel’s (2001) estimates of the promotion of riparian corridors). the damage costs associated with introduced plant pests in a selection of developed and less developed countries The evidence on the biosecurity dimensions of the in the 1990s are reproduced in Table 1. Invasive species problem is similarly different in developed and caused estimated damage costs equal to 53 percent of developing countries. If we take trade-related pest agricultural GDP in the USA, 31 percent in the UK 18 Environment Department Papers Re-evaluating Biodiversity and Climate Change Table 1 Economic losses to introduced pests in crops, pastures, and forests in the United States, United Kingdom, Australia, South Africa, India, and Brazil (billion dollars per year) Introduced pest United States United Kingdom Australia South Africa India Brazil Total Weeds Crops 27.9 1.4 1.8 1.5 37.8 17.0a 87.4 Pastures 6.0 – 0.6 – 0.92 – 7.52 Vertebrates Crops 1.0b 1.2c 0.2d – – – 2.4 Arthropods Crops 15.9 0.96 0.94 1.0 16.8 8.5 44.1 Forests 2.1 – – – – – 2.1 Plant pathogens Crops 23.5 2.0 2.7 1.8 35.5 17.1 82.6 Forests 2.1 – – – – – 2.1 Total 78.5 5.56 6.24 4.3 91.02 42.6 228.72 Notes: a. Pasture losses included in crop losses. b. Losses due to English starlings and English sparrows (Pimentel and others 2000). c. Calculated damage losses from the European rabbit. d. Emmerson and McCulloch (1994). Source: Pimentel and others (2001). and 48 percent in Australia. By contrast damage costs increased with the volume of imports, outbreaks of in South Africa, India and Brazil were estimated to be, List A diseases decreased (Perrings and others 2010b) respectively, 96 percent, 78 percent and 112 percent of (also see Figure 3). The implication is that for these agricultural GDP. The different exposure is particularly classes of pests countries in which the value at risk is easy to see in the case of animal diseases, as is the high implement sufficiently stringent sanitary measures difference in response. to offset the pest risk associated with high levels of imports. Until recently the World Animal Health Organization (Office Internationale Epizootic – OIE) categorized Since the general perception (reported above) is that the species reported to it according to both their rate poor countries are more dependent on biodiversity, and of spread and potential damage. One category, List therefore more heavily impacted by climate induced A species, comprised transmissible diseases with the biodiversity change, these results raise important potential for very serious and rapid spread, significant questions. The general perception is reflected in recent damage costs and potentially major negative effects estimates of inclusive wealth (wealth inclusive of natural on public health. A second category, List B species, assets—including environmental assets not subject to comprised transmissible diseases with slightly less well defined property rights) (World Bank 2006). significant damage costs. Analysis of the relation between the number of outbreaks within each category By the World Bank wealth estimates, low-income of disease and the value at risk indicates that whereas countries are significantly more dependent on natural outbreaks of most diseases (i.e., List B diseases) capital than middle- and high-income countries. More Environmental Economics Series 19 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem Figure 3 The relation between outbreaks of notifiable animal diseases and value at risk, 1996–2004 List B disease outbreaks and value at risk, 1994−2004 List B diseases noti ed to the OIE Per capita agricultural GDP List A diseases and value at risk, 1994−2004 List A disease outbreaks noti ed to the OIE Per capita agricultural GDP Source: Data sourced from the OIE and COMTRADE data bases. 20 Environment Department Papers Re-evaluating Biodiversity and Climate Change particularly, natural capital is estimated to account arguing that conservation yields a range of benefits for 26 percent of per capita wealth in low-income in addition to the protection of the global gene pool. countries, but only 2 percent in high-income countries In particular, it supports ecosystem services that are (World Bank 2006). This reflects the relative share local public goods. These are less sensitive to species of agriculture, forestry and minerals in GDP, and richness or endemism, and more closely connected to the fact that assets designed to add value to natural the productivity and resilience of managed, productive resources are excluded. It also reflects the greater share ecosystems. They argued that any conservation strategy of the labor force employed in these sectors in low- ignoring the local public good potentially compromises income countries. Yet the value at risk from declining the capacity of local systems to support the people who functional diversity in agriculture reflects the value are most directly dependent on them. So, for example, added in industries based on processing of biological biodiversity conservation in agricultural systems implies resources. Similarly the value at risk from invasive pests protection of enough inter-specific and intra-specific and pathogens reflects both the value added in affected diversity to underwrite the productivity of the system. sectors and the incomes of people whose health and This involves a number of often quite localized services: livelihood is under threat. the operation of the hydrological cycle including flood control and water supply, waste assimilation, recycling In fact, the key climate-related ecosystem services of nutrients, conservation and regeneration of soils, supported by biodiversity are all regulating services, pollination of crops and so on. It follows that financial whose importance depends in part on the value at risk incentives to local landholders should reflect both the and in part on the factors threatening that value. They global and the local public goods secured through include: biodiversity conservation. • Macroclimatic regulation (through carbon seques- The best current indicator of our collective willingness- tration and the management of albedo effects) to-pay for environmental public goods are the systems • Microclimatic regulation (through local canopy of payments for ecosystem services (PES) being devised effects) to support a range of ecosystem services (Arriagada • Hydrological regulation (mitigation of the 2008, Arriagada and Perrings 2009, Engel and others hydrological impacts of climate change through 2008, Ferraro and Kiss 2007, Ferraro and Simpson watershed protection) 2002, Pagiola 2008, Swart 2003, Wunder 2007, • Soil regulation (mitigation of the consequences Wunder and others 2008). PES schemes are intended of climate change for erosion through vegetation to induce landowners to incorporate the marginal value cover) of changes in ecosystem services into their financial • Maintenance of adaptive capacity (through in decisions (Rojas and Aylward 2003). In parts of the situ conservation of the diversity of functional world they already have a long history. In Europe, for groups—including land races and wild relatives). example, the Common Agricultural Policy (CAP) began operating in 1962, and agro-environment schemes All these services are also jointly produced with have been supported under that policy since they were provisioning, cultural or supporting services. In fact, introduced in the CAP reforms of 1992. These schemes it is a characteristic feature of ecosystems, that the encourage farmers to conserve agricultural soil, improve biodiversity each supports offers an array of benefits at water quality, manage fisheries, and protect wilderness quite different spatial and temporal scales. (Perrings on private lands (European Commission Directorate- and Gadgil 2003) referred to the ‘layered’ public goods General for Agriculture and Rural Development 2007). supported by the biodiversity in any one location, Environmental Economics Series 21 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem Hundreds of PES schemes are currently being Tanzania, Zambia, Indonesia, Papua New Guinea, Viet implemented covering four main ecosystem services: Nam, Bolivia, Panama and Paraguay—it is expected to watershed protection, carbon sequestration, landscape be rolled out to all developing countries. amenity, and biodiversity conservation. Many current PES schemes are local level arrangements and derive In the initial phases of the scheme, however, the lack from the spontaneous emergence of private markets. of conditionality in payments makes it unlikely that Such schemes tend to be modest in scale, and to be it will be efficient. This is exacerbated by the fact focused on nature-based tourism and the protection that REDD is likely to include official development of small watersheds. Larger PES schemes tend to be assistance that will be independent of carbon emissions government driven, working at the state and provincial or sequestration (Dutschke and Angelsen 2008, Blom level (e.g., in Australia, Brazil, China, and USA), or and others 2010). The intention, however, is to at national level (e.g., Colombia, Costa Rica, China, move in phases towards a state where payments are and Mexico) (Arriagada and Perrings 2009). In Costa conditional on observed performance (Angelsen and Rica, for example, the Program of Payments for others 2009). Since climate related ecosystem services Environmental Services (PSA) is the oldest program do span a number of public goods at several scales, of payments for ecosystem services in the tropics. It is efficiency of the program will rest on its capacity to designed conserve forests in order to assure a range of accommodate more than just carbon emissions. It will, ecosystem services, and has had a statistically significant in particular, need to be able to address the institutional and positive effect on the establishment of new forest issues that lie behind the market failure it sets out to (i.e., positive effect on forest gain and net deforestation) address—especially the problem of property rights and (Arriagada 2008). It has also positive effect in areas the governance of common pool resources (Miles and not currently protected by the program (i.e., positive Kapos 2008, Phelps and others 2010). spillover effects) that have increased both carbon In the case of the REDD scheme, the original focus sequestration and soil stabilization. on carbon sequestration was problematic for exactly Because ecosystem services tend to be jointly produced, this reason. The expansion of the scheme to include PES schemes that are service-specific—i.e., that offer a range of other services—REDD plus—may reduce incentives to produce one of a number of non-marketed the risk that it will be inefficient, but in the absence of ecosystem services—are likely to be inefficient. Since mechanisms to convert REDD payments to a range of financial flows for greenhouse gas emission reductions service-specific incentives to land-users, this is not at from REDD could reach up to US$30 billion a year all certain. In other cases there are attempts to ‘bundle’ the scheme has the potential to achieve meaningful various services together for sale, or to combine reductions in carbon emissions/enhancement of payments from multiple buyers. In the forest sector, carbon sequestration whilst also generating ancillary for example, governments have initiated PES schemes services and maintaining the resilience of local systems that simultaneously protect biodiversity or landscape to climate shocks. While the scheme is being piloted beauty, watershed protection and carbon sequestration in nine countries—Democratic Republic of Congo, (Wunder and others 2008, Engel and others 2008). 22 Environment Department Papers 5 Discussion and Conclusions T he point was made in the introduction to this with particular services varies widely, but in almost all paper that climate change is both a cause and cases greater species diversity means that the supply an effect of biodiversity change. It is one of of ecosystem services may be maintained over a wider the main drivers of change in the distribution range of conditions. Hence, the value of functional of both beneficial and harmful species. It is also a diversity under climate change is the capacity it consequence of the way that people use biological gives to adapt successfully. This is well understood in resources, and structure ecosystems. The production sectors based on provisioning services, like agriculture, and use of biological resources for foods, fuels and horticulture, aquaculture and forestry, and is what fibers and the way in which the landscape is structured motivates the establishment of both ex situ germ plasm have direct impacts on carbon sources and sinks and, collections and in situ conservation of wild relatives, at the same time, indirect impacts on the capacity of landraces, and traditional breeds. It is much less well ecosystems to adapt to changes in climate. We do not understood in other sectors. Yet reducing the diversity yet have good measures of the value of biodiversity of the functional groups that underpin particular as either a cause or an effect of climate change. The ecosystem services necessarily reduces the capacity to Stern Review conjectured that the effects of climate supply those services over a range of environmental change on human health and ecosystems (other than conditions. agriculture, forest and coastal systems) may be as much as 6 percent of global GDP, raising the long-run annual Since climate change is expected to increase the cost to 11 percent of GDP. At the same time the variance in temperature and precipitation to the IPCC estimates that halting the reduction in carbon point where environmental conditions that are now sequestration in forests (green carbon), mangroves, extremely rare become commonplace, keeping the marshes, sea grasses and macroalgae (blue carbon) could crop genetic diversity, the pest predators, the pathogen reduce net-emissions by 25 percent (Metz and others controllers, and the watershed protectors in place 2007), yielding a benefit in terms of averted losses of provides insurance in conditions when commercial nearly 3 percent of global GDP by the Stern estimates. cover may fail. As agriculture becomes increasingly The point here is that however the economic losses of homogenized, for example, so the spatial correlation climate change are calculated, a very substantial part of of agricultural risks increases, while the capacity to those losses are biodiversity related. pool those risks reduces. The capacity to adapt to climate change is, however, critical to the costs it may The point has also been made that biodiversity is much be expected to impose. The biggest difference between more than the macro fauna and macro flora that attract the damage estimates deriving from the Mendelsohn, the attention of the conservation community. Every Tol and Nordhaus models, for example, stems from ecosystem service depends on some combination of Mendelsohn and others’ assumption that adaptation species. The number and diversity of species associated would compensate for almost all damage costs, Environmental Economics Series 23 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem implying a value of up to 5 percent of global GDP. As countries than others, including differences in discount Stern points out, however, this ignores difficulties that rates and differences in the share of the benefits of other ecosystems have in transitioning between states. conservation that can be captured within the country. The rapidity with which farmers are able to substitute But income differences are one important determinant crops in field is unlikely to be matched in the adaptive of this. Other things being equal, poor countries may responses of most taxa. Indeed, the expectation that be expected to commit fewer resources to biodiversity climate change will lead to an increase in extinction conservation than rich countries just because the value rates is driven almost entirely by estimates of the rate of the damage (the loss of income) avoided is lower. The of adaptive response. Nevertheless, Pearce’s estimates signing of the CBD’s ‘Nagoya Protocol on Access to of damage costs per ton of carbon with and without Genetic Resources and the Fair and Equitable Sharing adaptation (based on Mendelsohn) indicated that costs of Benefits Arising from their Utilization’ may be an could be reduced by a factor of up to ten at a 3 percent important step towards equity in the distribution of the discount rate, and could be completely reversed at a benefits of genetic resources and traditional knowledge. 5 percent discount rate (Pearce 2003). The potential It does not, however, address the broader benefits—the benefits of maintaining the biological capacity to adapt ecosystem services—supported by biodiversity. to climate change are substantial. Leaving aside the equity implications of a distribution Two other conclusions are important to highlight, of income that generates this as an outcome, if the both relating to the treatment of the feedback effects benefits of biodiversity conservation accrue to people of land use change mediated through the general elsewhere, it offers at least the potential for gains from circulation system. One concerns the effect of income trade in ecosystem services. Efficiency may then be differences on the treatment of feedbacks (often cast improved by creating markets for the distributed as an equity issue). The other concerns the role of benefits of local conservation. Of the many options incentives and market creation (an efficiency issue). currently being considered, the REDD scheme Both the climate and ecosystem assessments have may be best fitted to address the interdependence emphasized that current trends are likely to impact of biodiversity and climate change. However, it people in poor countries more than people in rich is critically important that the creation of markets countries (Pachauri and Reisinger 2007, Millennium to serve climate change mitigation and adaptation Ecosystem Assessment 2005a). This is partly because does not neglect the range of ecosystem services of the regional distribution of changes in temperature that are co-produced with carbon sequestration. and precipitation, but is more directly because people Focusing payments for ecosystem services on carbon in poor countries have fewer resources to support sequestration to the exclusion of other ecosystem adaptation. services would likely result in externalities no less damaging than those they are set up to address. The link between poverty, biodiversity and climate change identified in this paper is slightly different. It The interactions between climate and biodiversity is that decision-makers may be expected to invest in change pose significant challenges for science. Our current biodiversity conservation up to the point where capacity to model the feedbacks between biodiversity, the discounted value of future damage avoided offsets the structure of ecosystems and the production of the additional cost it involves. It therefore reflects the ecosystem services is quite limited. This is partly a value at risk. If the value at risk is low, then investment problem of scale, and partly a problem of process. in biodiversity conservation will also be low. There are Feedbacks operating through the general circulation many reasons why value at risk may be lower in some system operate at very different spatial and temporal 24 Environment Department Papers Discussion and Conclusions scales than feedbacks operating through the structure Since the observations need to be able to record and function of specific ecosystems. They are also less changes not only in the physical measures of system relevant to individual decision-makers, even though in performance but also in their importance for aggregate they drive the global process. In the absence people, they need to include observations on value. of a price mechanism, individual decision-makers Efforts to extend the system of national accounts to have little direct incentive to take the effects of their record changes in the value of ecosystems and their actions into account. But feedbacks operating through components (Lange 2007, Matete and Hassan 2006, the general circulation system still generate some Ferreira and others 2008, Perrings and Vincent 2003) signals—through collective environmental governance should accordingly be encouraged. mechanisms, multilateral environmental agreements and the like—and these do affect private behavior. Finally, it is worth underlining the fact that the climate and adaptive capacity externalities of biodiversity Modeling the problem requires specification of change are a very significant part of the climate change the social process just as it does specification of the problem. Despite the growing attention to adaptation, biophysical interactions. Moreover, the data required this has not been fully appreciated. Although it may to fit the models include not just observations on not currently be possible to put a reliable value on the atmosphere and biosphere (earth observations), the impact of functional diversity for the adaptive but also observations on the social system and what capacity of the system, it is certainly large—several may be termed the social precursors of environmental percentage points of global GDP. Maintenance of the change. Understanding and predicting anthropogenic functional diversity of pest and pathogen controllers environmental change depends on the capacity to is as important here as maintenance of the functional observe the phenomena that drive future changes in diversity of organisms supporting both the provisioning land use, ecosystem management and species dispersal. services and the more fundamental ecosystem processes These include the relative prices that determine private that underpin life support. This warrants a significantly resource allocation decisions, the evolution of the enhanced effort across sectors, both to estimate the regulatory framework, the social norms that direct future consequences of current activities that threaten individuals towards or away from particular choices, both sequestration and adaptive capacity and to identify and the technological developments that open up new instruments to address the problem. Since a number options. All have the capacity to generate field effects of the interactions that most affect human wellbeing that it is important to understand. involve transboundary flows, this is an argument both for supporting the proposed Intergovernmental There are also important implications for the Science-Policy Platform for Biodiversity and Ecosystem monitoring systems that need to be put in place, Services (IPBES), and for ensuring that the data it requiring extension of current efforts to generate gathers include observations on changes not just in interoperable earth observation systems to include biodiversity and ecosystems, but also in the social observations on the social dimensions of the system. precursors of environmental change. Environmental Economics Series 25 Appendix — Developments in the Economics of Biodiversity and Ecosystem Services T  n (h ) − ni (0 ) he canonical bioeconomic models developed 2 N by Clark to understand the exploitation of [1] s = s (h ) = − ∑  i  marine mammals and fisheries (Clark 1979)  i =1 n (0 ) i  clarified the conditions required for the optimal In which, s is a measure of deviation from the reference extraction of particular populations, establishing the point—‘natural’ biodiversity in this case, h is a vector capital theoretic basis for exploiting biological stocks. of consumption (effort that reduces the abundance of But they did not address the problem of biodiversity each species), N is the total number of species, ni(h) is change. The extension of this work to consider the population of species i as a function of consumptive the exploitation of multiple species has addressed use, and ni(0) is the ‘natural’ steady-state population one—albeit important—dimension of the biodiversity of species i. If there is no consumptive use, then h = problem. There is now a body of literature exploring 0 and s = 0. They assume that the desired value of this the optimal management of systems in which multiple measure is zero, and that this is independent native species of differing value are exploited directly or species richness. Society is assumed to have preferences indirectly (Tilman and others 2005, Eichner and over the reference state, along with manufactured goods Pethig 2005, Brock and Xepapadeas 2002, Perrings and and the consumption of species, implying a welfare Walker 1997, Perrings and Walker 2005). function of the form: The most general approach to the problem has been the work of Tschirhart and colleagues. They have used [2] ( W x,h,s h ( )) a modified computable general equilibrium (CGE) model of predator-prey and competitive relationships where x is a vector of manufactured goods, and other applied to an Alaskan marine food web and the Alaskan variables are as previously described. The general economy (Finnoff and Tschirhart 2003, Finnoff and equilibrium ecosystem model captures the interactive Tschirhart 2003a), an early twentieth century rodent effects of changes in the abundance of particular invasion in California (Kim and others 2007), invasions species. of sea lamprey in the Great Lakes, invasions of leafy spurge in the Western U.S., and plant competition In a variation on the same theme, Brock and generally (Finnoff and Tschirhart 2005). Within this Xepapapdeas (2002) identify the difference between work, the conservation problem has been modeled by the outcomes associated with the privately and socially identifying demand for the level of biodiversity in a optimal management of a system in which private system relative to some reference level. (Eichner and decision-makers focus on the management of individual Tschirhart 2007) for example, introduce a measure patches, but social welfare depends on the composition labeled the divergence from ‘natural biodiversity’—the of all patches. As in the Tschirhart problem, welfare reference point: Environmental Economics Series 27 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem derives both from harvesting and from the state of the The driving force behind changes in the abundance ecosystem. Unlike the Tschirhart problem, they take only of species is competitive exclusion. So if all species are resource-based interactions among species into account. e ranked according to their ric such that Their approach is as follows. Let i = 1,…,n species exist e e e r1c < r2c < ... < rnc , species one will displace all in a given patch of land, and suppose that their growth is other species in equilibrium. In an ecosystem with ( limited by resources j = 1,…,r. So rc (t ) = r1c (t ),..., rrc (t ) ) heterogeneous patches, the exclusion principle will is a vector of available resources in patch c at time provide a c-specific monoculture with a dominant t; s c (t ) = (s1c (t ),..., src (t )) is a vector of the biomass of species in the patch at the same time; and c-competitor. Environmental heterogeneity within ( ) s − c (t ) = s1− c (t ),..., sr − c (t ) is a vector of the biomass patches, on the other hand, will lead to the coexistence of species in all other patches. Competition for resources of species (higher levels of biodiversity) at equilibrium among species in each patch is described by the system of (Pacala and Tilman 1994). differential equations: In the private problem, agents are assumed to derive sic  [3] = fic (s c , s − c )gic (rc , dic ),bic (0 ) = bic > 0 0 utility from harvest alone, implying a utility function of sic the form: [4] rjc = k jc (rc , r− c )− d jc (s c , s − c , rc , r− c ), rjc (0 ) = ric > 0 U (x (t ), h (t )) 0  [5] In which [3] describes the net rate of growth of subject to the net growth rate of species and ‘resources’. the biomass of species i in patch c, and reflects the Maximization of [5] subject to [3]-[4] implies that dependence of the growth rate of each species on resource availability in all patches. In the steady state, management focuses only on species that can provide commercially valuable biomass for harvesting. In the s = 0 . The function gic (rc , dic ) captures the effects  social problem, welfare depends not only harvest, but of resource availability in the patch on a species’ rate also on the state of biodiversity in the system, i.e.: of growth, with dic being a natural mortality. The effect of growth a one of the on others is Here are hed, please find for your reviewby PDF speciesabove paper. described some questions I have and e help that need: [6] W (x (t ), h (t ), s (h,t )) by the function fic (s c , s − c ). Equation [4] describes Title page, see blue text at bottom, which URL should I put? the resource dynamics. k jc (rc , r− c ) is the amount That is, it age 19, Table1: in the Soth Africa column, the row that reads "-e". Is something missing?supposes that the flow of benefits depends of the resource supplied at time t in patch c and DROP the “e� so only “-“ remains on both consumptive (harvest) and non-consumptive −d jc (s c , s − c , rc , r− c ) is consumption of the resource by activities. Should "list A" is a generalization of multispecies age 20, Fig. 3:all species. Thisappear above "list B"?a What is the legend for the x-axis in the List B hart? Kolmogorov model (Murray 2002). The inclusion of The results in both cases converge on those of a more SAME legend in both figures the resource dynamics equation makes it possible to recent attempt to model the joint effects of ‘harvest’ analyze the effect blue ---- part of it overlaps resource age 28, left col., see equation in of species competition on and is illegible and landscape structure on species richness (Brock and availability. In equilibrium , at which others 2010). This work assumes a density-dependent point the biomass vector s e describes the equilibrium c growth function for each of m species, modified in two biodiversity in patch c and s describes 6. Any problem ages 28 and 29 --- there are two equations numberedthe equilibrium with renumbering the second is to include density-independent important ways. One biodiversity of the whole system. Tilman’s text)? to 7, and correcting all numbering thereafter (including in resource PLEASE Re-number additive terms to capture direct anthropogenic changes model (Tilman 1982, Tilman 1988, Pacala and Tilman in the biomass of species—both ‘harvest’ and ‘imports’ 1994) is a part overlaps this generalized age 29, equation in blue, special case ofand is illegible model. Note that each species affects all other species only through from outside the system or direct losses due to ‘imports’ its effects on the availability of the limiting resource. (sensu (Norberg and others 2001). The other is to There are no interactions among neighboring patches. include the effect of ecological heterogeneity in the density-dependent terms. Suppressing time arguments, age 29, second and third equations in blue, some symbols changed when placed into the 28 Environment Department Papers ypesetting software  K / �i m 3. page 20, Fig. 3: Should "list A" appear above "list B"? What is the legend for the x-axis in the List B chart? SAME legend in both figures 4. page 28, left col., see equation in blue ---- part of it overlaps and is illegible Discussion and Conclusions 5. pages 28 and 29 --- there are two equations numbered 6. Any problem with renumbering the seco 6 to 7, and correcting all numbering thereafter (including in text)? PLEASE Re-number the growth of the ith of m species in the system is the patch within which it is the competitive dominant described by: species. The share of the labor 6. page 29, equation in blue, part overlaps and is illegible force committed to harvest the ith species will be increasing in the natural [7] regeneration rate of the ith species and decreasing in the technical efficiency of harvest. For intermediate levels of heterogeneity, (0 < e < 1), the steady stock of species ith species at timepage 29, second PDF of the are competitive somesome questions I have and placed into the 7. symbols changed when where si is biomass of theAttached, please find t; ∑ i=1 si review a and third equations in blue, dominants in existing patches m for your =S that above paper. Here are typesetting software is please find for your of the PDF of the above paper. � m some help that need: some species need: K i of Title page, see ri is the  Attached, aggregate biomassreview a m help thatthat define / Here are some converge Ito their maximum potential biomass net of questions have and the natural resource base1. the economy;blue text at bottom, which‘harvest’, and otherwise will fall to zero. The social URL should I put? 1. Title page, see blue text at bottom, whichspecies; d the � meL  intrinsic rate of growth of the ith URL should I put? density 2. page 19, Table1: problem that reads "-e". Is something the net i in the Soth Africa column, the rowin this case is to maximize missing? benefits i independent mortality rate column,�thethe rate reads“-“ remains deriving from biodiversity by choice of row that only "-e". Is something missing? 2. page 19, Table1: in the Soth Africa and DROP the “e� soof a i i DROP the “e� so only “-“ remains 8. page 29, equation #7, one symbol did not convert and became a "d" in the superscript "-dt" 3. exploitation—a product of ‘harvest’ or depletion due topage 20, Fig. 3: Should "list A" appear above "list B"? What is the legend for the x-axis in the List B [8] 3. the share of available A" appear above "list B"? What is the page 20, Fig. 3: Should "list labor committed to that activity, legend for the x-axis in the List B chart? chart? SAME legend in both figures � i , and a measure of the effectiveness of ‘harvest’ effort, SAME legend in both figures 4. page 28, left col., see equation in blue ---- part of it overlaps and is illegible They show that the degree of environmental ai ∑ i =1 col., see ≤ L ≤ 1 is the share of it overlaps force illegible m 4. page.28, left � i = L , 0equation in blue ---- partof thepage 31, equation #10, overlapping letters 9. labor and is heterogeneity at the social optimum will be greater committed to exploitation of the natural resource base. than the degree of environmental heterogeneity at 5. capacity of 29 ecosystem K is the maximum carrying pages 28 andthe --- there are two equations numbered 6. Any problem with renumbering the second 5. 6 to 7, and correcting Any problem with the (including insecond pages 28 and 29 --- there are two equations numbered 6.all numbering thereafterprivate optimum if the marginal impact of labor renumbering the text)? L ) ≤ is an index 6 to 7,terms of biomass, and 0 ≤ e (PLEASE Re-numberof in and correcting all numbering thereafter1(including in text)? PLEASE Re-number on heterogeneity is positive, and will be less than environmental heterogeneity. 29, equation in blue, equation #11,the isone went environmental heterogeneity at the softeware 6. page this illegible 10. page 31, part overlaps and degree of totally awry when placed in typesetting 6. page 29, equation in blue, part overlaps and is illegible private optimum if the marginal impact of labor on If the system is perfectly homogeneous, then e = 0 and heterogeneity is positive. the equation of motion collapses to a standard logistic model in which the competitive dominant excludes all Declining environmental heterogeneity implies blue, also symbols into the 7. page 29, second and third equations in blue, some symbols changed when placed did not translate 7. 11. page 31, species. If it is perfectly heterogeneous, then small when placed into the other second and third equations in blue, some symbols changedequation just below #11 in for specialist species. Activities that page 29, typesetting software declining habitat typesetting softwareth species accesses K / � m of the e = 1 and the i make the environment more heterogeneous increase K / � i m i system-level carrying capacity. In general, the expression the level of species diversity, while activities that make �i meL  the environment less heterogeneous have the opposite �i meL  determines the share of carrying capacity effect. and became a "d" decisions that "-dt" accessed by the ith species8. a function of both the symbol did not convertLand users makein the superscript affect the as page 29, equation #7, one 8. page 29, equation #7, one symbol did not convert and became a "d" in the superscript "-dt" of the land under their control. This in heterogeneity degree of heterogeneity of the landscape and the number of competing species in the system. They turn affects the heterogeneity of the whole system, and show that the number of species that can coexist in in so doing affects the survival and growth potential of all the system is increasing in the degreeequation #10, overlapping letters species in the system. 9. page 31, of environmental 9. page 31, equation #10, overlapping letters heterogeneity. If the system is extremely homogeneous The value of biodiversity in all of these cases is an (e = 0), the steady state stock of the sole surviving instrumental value. It may involve the production species will converge to the maximum potential of awry when placed in typesetting softeware 10. page 31, equation #11, this one went totally commodities that are consumed (the provisioning biomass of that species net of harvest. All other species 10. page 31, equation #11, this one went totally awry when placed in typesetting services), non-consumptive activities such as softeware will be driven extinct. The share of the labor force conservation or recreation (the cultural services), or committed to harvest that species will be equal to control over the variability in the delivery of both L. If the system is extremely heterogeneous (e = 1), consumptive and non-consumptive benefits (the 11. ith species will converge the steady state stock of the page 31, small equation just below #11 in blue, also symbols did not translate 11. page 31, small equation just below #11 in blue, also symbols did not translate regulating services). Models that include the natural to the maximum potential biomass of that species in equilibrium as a reference state (such as Eichner and Environmental Economics Series 29 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem Tschirhart 2007, or Brock and Xepapadeas 2002) where M i = E (p − E (p ))i is the ith moment of the profit represent an attempt to model the conservationists’ distribution, and where r2 is the standard Arrow-Pratt problem directly. But it is also possible to see the coefficient of absolute risk aversion. Using this model conservation value of biodiversity as a service analogous they found a similarly negative relation between to the scientific, aesthetic or recreational value of diversity and the skewness of yields. They also found biodiversity. that the strength of the effect was inversely related to the level of pesticide use. That is, pesticides use offered In agroecosystems unsupported by formal insurance an alternative way to manage the risk of crop failure. markets, economic research on the same problem shows But other things being equal, the greater the variability that farmers opt to insure against output (or price) in environmental conditions recorded in the vector v, failure by increasing the genetic diversity of crops. For the greater the value of the crop genetic diversity in the example, (Smale and others 1998) found crop genetic vector s. diversity in wheat production in the Punjab to be positively correlated with mean yields and negatively It can be argued that the financial benefits of higher correlated with the variance of yields. (Di Falco and levels of in situ crop genetic diversity are likely to Perrings 2005, Di Falco and Perrings 2003) found be felt most strongly in developing countries, where a similar relation in a study of cereals production in there is little scope for insuring against crop failure, southern Italy—but also found that relation to be crop pests and crop diseases, or where there is little weakened by access to financial support from the scope to manage the variability in supply through European Union (Di Falco and Perrings 2005). In an the application of fertilizers and pesticides. In an extension of this work, (Di Falco and Chavas 2007) increasingly integrated global system the diversity considered the effect of crop genetic diversity on of the biological resources used to support many the skewness of yields in Sicily as a way of capturing production systems is frequently highly distributed, the downside risk. The general form of the problem held in ex situ collections in different locations, while addressed in this last paper is: plant and animal breeding processes or the genetic manipulation of plant material is separated from [9] Maxx,s E (pq (x, s, v ))− c (x, s ) − r (s ) process of production. Nevertheless, in both developed and developing countries, for many of the ecosystem where q (x, s, v ) describes agricultural output as a services produced jointly with foods, fuels and fibers function of marketed inputs, x, crop genetic diversity, alike—such as water supply, soil stabilization, habitat s, and a random set of environmental conditions, v. provision or pest predation—maintenance of in situ diversity can stabilize the delivery of those services in c (x, s ) is a cost function, and r (s ) is a risk premium similar ways to that modeled by di Falco and others. equal to the farmers’ willingness to pay to eliminate While the work has not been done to estimate the risk—i.e., to replace random profit by mean profit. In value of biodiversity to the delivery of uninsured or other words the maximand is the certainty equivalent uninsurable ecosystem services, it is transparent that it net benefit of agricultural production: the expected net too will be sensitive to the risk aversion of the affected return less the cost of private risk (Pratt 1964). The community. risk premium depends on all moments of the profit distribution, but is approximated by the following: A second dimension of the relation between biodiversity and risk is problem of pests and pathogens. [10] 1 1 r≈ r2 M 2 + r3 M 3 Not all species contribute positively to human 2 6 wellbeing. Just as the production of foods, fuels and 30 Environment Department Papers 1. Title page, see blue text at bottom, which URL should I put? 2. page 19, Table1: in the Soth Africa column, the row that reads "-e". Is something missing? DROP the “e� so only “-“ remains 7. page 29, second and third equations in blue, some symbols changed when placed into the 3. software typesettingpage 20, Fig. 3: Should "list A" appear above "list B"? What is the legend for the x-axis in the List B  chart? K / � i mSAME legend in both figures it overlaps and is Conclusions 4. page 28, left col., see equation in blue ---- part of Discussion andillegible �i meL  a "d" in the superscript "-dt" 8. page 29, equation #7, one symbol did not convert and became problem with renumbering the second 5. pages 28 and 29 --- there are two equations numbered 6. Any fibers depends on the simplification of ecosystems commodities or markets. In fact, changes in 6 to 7, and correcting all numbering thereafter (including in text)? EID risks PLEASE Re-number managed for that purpose, so the promotion of human, are frequently an incidental or unforeseen ‘external’ equation in blue, part overlaps and is illegible animal and plant health depends on the exclusion 6. page 29, consequence of private decisions or public policies on of harmful pathogens. Moreover, just as the closer emerging diseases (Gersovitz and Hammer 2003, Klein 9. page 31, equation #10, overlapping letters integration of world markets for foods, fuels and and others 2009, Horan and Wolf 2005, Horan and fibers has increased the dispersion rate of agricultural others 2008). 7. page 29, second and third equations in blue, some symbols changed when placed into the pests and pathogens (Mcneely 2001, Rweyemamu typesetting software and Astudillo 2002, Karesh and others 2005, Perrings K / � i m simplest (single pathogen) case individuals face a In the #11, this of went totally awry when placed in typesetting softeware 10. page 31, equation problem onethe form and others 2005, Fevre and others 2006), so the �i meL  development of tourism and the closer integration 8. page 29, [11] equation #7, one symbol did not convert and became a "d" in the superscript "-dt" of world markets for many services has increased the dispersion rate of human pathogens (Tatem and others subject to the disease dynamics specified by an SIR 11. the 2006, Smith 2008). Recent examples include page 31, small equation just below #11 in blue, also symbols did not translate model, emergence of diseases such as H5NI (Kilpatrick and 9. page 31, equation #10, overlapping letters others 2006), West Nile virus (Lanciotti and others [12] 1999), SARS (Guan and others 2003). Work to date has shown a positive relationship between the opening where ν and µ are per capita recovery and mortality 10. page 31, equation #11, this one went totally awry when placed in typesetting softeware of new markets or trade routes and the introduction of rates. The transmission rate, ß , is a time-varying new species, and between the growth in trade volumes function of the factors that drive the frequency of (the frequency of introduction) and the probability that contact between susceptible and infected individuals contact results in infection. introduced species will establish and spread (Cassey and page 31, and the likelihood that in blue, also symbols did not translate 11. small equation just below #11 others 2004, Semmens and others 2004, Dalmazzone More particularly is the product of two 2000, Vila and Pujadas 2001). Moreover, the volume functions. The contact function, c (⋅) , is the rate at 12. page 32, equation #13, some overlap of text occurs and direction of trade turn out to be good empirical which individuals make contacts. Those contacts are a predictors of which introduced species are likely to source of positive utility to the people concerned, but become invasive (Levine and D’antonio 2003, Costello will involve infected individuals with probability I/N. and others 2007), and which countries are the most The infection likelihood function b (⋅) is the probability 13. The author/date style of the References is not quite correct, but it is close enough. so in the interest likely sources of zoonoses (Pavlin and others 2009, of expediency, Ithatleaving them as is. an infectious agent will result in an am contact with Smith and others 2009a). OK infection. Within the literature as it has developed over the last As in many other cases where individual behavior decade, this problem has been modeled in two ways: by affects the risks confronting society, people typically extension of the compartmental Susceptible, Infected, choose less vaccination or treatment for themselves Recovered (SIR) models developed in epidemiology, than would be socially desirable. This is because they and by adaptation of the bioeconomic models neglect the impact that their behavior has on the health developed to explore the consequences of harvest. In risks to others (Gersovitz and Hammer 2004, Sandler the first approach, it is recognized that public responses 2004). The public optimization problem in such cases to the emergence of some pathogen will affect the involves the selection of measures to limit either contact dynamics of that disease directly (Ginsberg and others or the infection likelihood. Examples include social 2009), but by altering the cost of the activities involved, distancing through, for example, quarantine, imposed it will also change behavior in ways that alter the risks contact reductions, or travel restrictions (Nuno and of other activities (Smith and others 2009b). People others 2007, Smith and others 2009b). will switch travel destinations, exporters will switch Environmental Economics Series 31 Biodiversity, Ecosystem Services, and Climate Change — The Economic Problem A more widely used approach in the economic literature subject to [11]. δ , the discount rate, approximates involves an extension of the bioeconomic harvesting the opportunity cost or growth potential of capital. model in either an optimal control or dynamic They find that SPS effort is increasing in the potential programming framework (Olson and Roy 2002, Olson marginal damage avoided (the marginal benefit of SPS 2006, Lovell and others 2006, Sharov and others 1998, measures), and is decreasing in the marginal cost of Sharov and others 2002). Interventions include actions SPS effort. They also find SPS effort to be decreasing to prevent introductions (Horan and others 2002, in the relative marginal growth rate of the pathogen. Sumner and others 2005), to control established species Indeed, there will be a positive optimal (steady state) (Eisworth and Johnson 2002), or to undertake both level of inspection and interception only for pathogens prevention and control (Finnoff and Tschirhart 2005, that are ‘slow growing’ relative to the economy. If a Finnoff and Tschirhart 2007, Leung and others 2002, pathogen is not controllable through the SPS measures Olson and Roy 2005). (Polasky 2010) adds detection of applied to imports (because it is already established in established species that have not yet become a nuisance. the country) it will not be optimal to commit resources to SPS. While SPS effort will be greatest for species that There is no standard for models of this type, but are not yet established, but that are potentially highly the following example (from (Perrings and others damaging. 2010a) illustrates the general form of the problem. It is assumed that susceptible hosts (flaura or fauna) In all cases, the diversity of species that support one or are elements in the vector of species that describes a more ecosystem services is described by the diversity country’s resource base, s. The equation of motion of functional groups of species that have some role to for hosts infected with the ith of n potentially invasive play. These may be described in terms of a set of traits, pathogens in an importing country takes the form: rather than by the set of species involved, but the effect is the same. Given the set of species in the system and [13] ( ) ( ) s i = f i h (t ), s i (t ) + p i (t ) − qi (t ) M (t ) their relative abundance it is possible to identify the ecosystem services that may be produced. At the same where h(t) is harvest of the species, fi is the density- time, since the set of species in the system depends on dependent growth of the infected population in the structural characteristics that are either the intended or importing country; and (p i (t ) − qi (t ))M (t ) is the density unintended consequence of system ‘management’, it independent growth of the infected population through is possible to describe the implications of actions that imports. This is increasing in imports M, pij (t )M (t ) affect biodiversity through the structural characteristics being the probability that M units of imports will of the system. Such structural characteristics include introduce pathogen i, and decreasing in sanitary and both the heterogeneity that allows niche differentiation, phytosanitary (SPS) effort. Since SPS is an‘impure and the impact of greenhouse gas emissions and land public good’ (it gives the provider a direct benefit, but use change on climate. The value of anthropogenic also a non-exclusive indirect benefit to all others), it change in environmental conditions is therefore will typically be underprovided if left to the market. the impact it has on the functional diversity of The social problem is to choose the level of SPS for species, and hence on the flow of ecosystem services all potentially invasive pathogens so as to maximize such species support. This will depend both on the the expected present value of net benefits, E(W), from complementarity and substitutability between species page 32, equation #13, some overlap of text occurs harvest and imports: as inputs in the supply of ecosystem services, and on the impact of functional diversity on the capacity of the [14] system to produce ecosystem services over a range of environmental conditions. The author/date style of the References is not quite correct, but it is close enough. so in the interest of expediency, I am leaving them as is. 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