World is Green

Business works on the basis of costs and benefits. The same can be achieved in many cases for the services provided by nature to man. The important aspect of doing this is the concept of value and the common denomination to compare. The common denomination is usually money but the concept of value is generally the tougher one. It is not easy to ask questions like “What is the value of a tree?”; “What about an Elephant?” and provide an easy answer. The generic question is “What is the value of a natural resource?”.

Economics gives an answer. Economic valuation provides two types of value - Market value and non-market value. Market value is easy to find if it is possible to trade the resource. In environmental valuation there is an understanding that there is more to life then what its use are. For a lot of natural resources this is not possible and hence, there is a large emphasis on non-market value. The non-market value then breaks down into Use value (eg: hunting a deer) and non-use values (eg: photographing a deer).  Non-use values are further divided into existence value, option value, and bequest value.

Cost benefit analysis (Resource: NCEDR tool in relation to Environmental issues) provides a way to measure these benefits provided by nature and compare it. The NyTimes reports on carbon ranching; which values the rainforests of Madagascar and in doing that takes the step forward for actually saving them.

DEEP within Madagascar, more than 1,300 square miles of rainforest continue to breathe in carbon dioxide and breathe out oxygen every day, helping to keep the planet cool. That may not seem like a big achievement for a bunch of trees, but elsewhere around the world tropical forests like this one are being felled to make way for timber and mining operations, cattle ranches and, increasingly, sugar and palm oil plantations to fuel the world’s growing thirst for ethanol.

So how did this particular rainforest — a tropical paradise whose canopy teems with rare lemurs and serpent eagles — avoid destruction? Its survival is the fruit of one of the first experiments in carbon ranching: allowing polluters to make up for their greenhouse gas emissions by paying third world countries like Madagascar to preserve their tropical forests. Madagascar uses the money it gets from multinational corporations to safeguard the forest and pay for poverty reduction programs…

…Reversing tropical deforestation could be surprisingly cheap and easy because it can be driven by simple economics. Right now, it’s worth more to a logging company or a peasant to convert the rainforest to stumps or soybeans than it is to leave that rainforest intact. One hectare (about 2.5 acres) of forest cleared and converted to ranchland or crops produces a piece of land worth, on average, $200 to $500. But that’s nothing compared to the value of preserving the rainforest as a sponge for carbon dioxide…

…On European markets, the right to emit one ton of carbon dioxide trades today at more than $20. With each hectare of intact rainforest storing around 500 tons of carbon dioxide, that means that each hectare has a value of $10,000 as carbon dioxide storage, far more than the value of even the most productive tea or soy plantation.

The interesting thing in this case is that the natural benefit of carbon sequestration provided by the tropical rainforest has generally been a non-market use value. However, with the advent of the Kyoto protocol and the ability to create a price for carbon-di-oxide this non-market value has been transformed into a market value. Without even considering the other non-market values provided by a rainforest; the carbon price provides a easy way to value rainforests and then compare them to other market uses. This eventually makes a better case for saving the rainforest than the general discussion of its importance and benefits without providing a common comparison unit.