Putting a Price on Ecosystem Services

A flawed effort to quantify an economic rationale for conservation could backfire and undermine other compelling arguments for protecting nature.

Ecosystem services” are in vogue. When I first encountered the term a quarter century ago, only a small cadre of scientists and advocates was using it. Now ecosystem services seem to be standard jargon for environmental policymakers. In the United States, a recent memorandum from the President’s Council on Environmental Quality directs federal agencies to “develop and institutionalize policies to promote consideration of ecosystem services,” which they will use to “better integrate into federal decision making due consideration of the full range of benefits and tradeoffs among ecosystem services.” The United Kingdom has recently conducted an assessment of its ecosystem services, with the goal of better informing its land use practices. An alphabet soup of international organizations and undertakings is attempting to apply “the ecosystem service framework” in and across dozens of low- and high-income nations.

What is driving the interest in ecosystem services? The perception that the ecosystems providing them are in decline. Virgin forests, grasslands, wetlands, coral reefs, and the diverse ecological communities that constitute them are disappearing, replaced by human habitations, industry, or the greatly simplified ecosystems of modern agriculture. What do these changes mean for our own survival and well-being? Technological optimists might shrug the question off with a cavalier “Not much.” Yes, they might say, natural capital may be declining, but it is being replaced by other forms of capital—including altered ecosystems—that will prove sufficient to maintain, or even augment, our quality of life.

Those of a less sanguine persuasion fear we are tinkering with a complex planetary life support system whose workings we don’t understand and whose failure might occur too suddenly to allow corrective action. Others may be less worried about existential risks, but still troubled that we are failing in our obligation as stewards of creation. Yet much of the attention now devoted to ecosystem services does not focus on arguments that they are essential to our very existence or that we have a fundamental moral obligation to preserve the habitats that provide them. Rather, it is focused on the practical, and often local, value of ecosystems—on services such as pollination, pollution treatment, flood protection, and groundwater recharge.

Why is increasing emphasis being placed on these more tangible values? Because they are tangible, in ways that abstract appeals to preserve nature are not. People might be willing to forgo the benefits of development activities that require felling forests or draining wetlands if they can be convinced that the success of their crops or the supply of their drinking water depends on preserving the ecosystems. One might suppose that enthusiasm for ecosystem services arose because decision makers asked, “How can we best procure the services on which our constituents depend?” And natural scientists demonstrated to the decision makers’ satisfaction that the answer was, “By maintaining or restoring natural capital.” In my experience, however, it often works the other way around. Natural scientists have asked themselves, “What can we point to that will induce decision makers to conserve more?” And their answer has been, “We can tell them that ecosystem services are valuable.”

Of course the success of such claims ultimately depends on whether they are credible. The assertion that ecosystem services are undervalued is repeated so often, and so often uncritically, as to seem almost a mantra: if one totted up the real benefits of conservation and weighed them against the gains that would accrue if ecosystems were degraded or destroyed, advocates claim that conservation would dominate. After more than two decades of reading and contributing to the literature on ecosystem services, I’ve come to a skeptical, or at least nuanced, view of this claim. I can certainly point to instances in which areas of natural habitat provide enough goods and services to compensate local communities for the costs of maintaining them. But I would be surprised if this could be shown to be true on a large scale.

Two problems may arise if the local benefits of conservation do not justify their local costs. First, the appeal to ecosystem services may not then be an effective conservation strategy. Although imperiled ecosystems may provide a host of services, advocating policies on the basis of valuation claims that later turn out to be overstated or false may discredit conservation efforts more widely.

The second problem is that although there may be many good reasons to conserve ecosystems besides economic valuation, trying to convince people to do the right thing for the wrong reason may lead to unintended and undesired consequences. As I will describe in a moment, much of the initial impetus for an ecosystem services approach arose from the perceived need to convince poor people in the developing tropics to conserve biodiversity about which rich people were more concerned. Protecting nature may be an intrinsically desirable objective, but so is easing the plight of the poor. People nearby may derive some benefits from flood control, pollination, pollution treatment, and other local services ecosystems may supply. Natural ecosystems may, in some cases, provide services that are valuable enough to local communities to motivate their preservation. But balancing the global benefits of biodiversity conservation against local economic development is fraught with subjectivity and uncertainty.

Indeed, the very notion of ecosystem services valuation raises complicated questions about where value comes from, and what it actually means to conserve nature. Many appeals to ecosystem services emphasize the tangible services “natural” ecosystems can provide when they are closely integrated with decidedly unnatural systems that may benefit from them. Flood protection services may be most valuable when the wetlands providing them are close enough to concentrations of populations and built structures that such wetlands would likely intercept precipitation that would otherwise inundate the city. Wild insect pollinators are most valuable when they can flit over large expanses of monoculture crops that benefit from their fertilization services. If the pollution treatment services afforded by riparian buffers are valuable, it is because they are located downstream of concentrated pollution sources and upstream of sensitive receptors. It may be that some of these ecosystem services and the natural capital that provides them are valuable, but appeals to such values are, essentially, blueprints for constructing checkerboard landscapes in which bits of “nature” are shoehorned in among fields, homes, and factories.

Is this what we mean by conservation? It depends on who you ask. It’s not clear how much appeals to the tangible and instrumental values of ecosystem services are really going to motivate conservation of the types of ecosystems we care about for less tangible but perhaps more important reasons. As Yogi Berra famously put it, “If you don’t know where you’re going, you might not get there.”

Origin stories

The relationship between ecosystem services and biodiversity is the subject of some controversy. Based on my own experiences since the early 1990s, however, I side with a number of authors who trace the emergence of ecosystem services to efforts to motivate biodiversity conservation where biodiversity is both most plentiful and most imperiled—the developing world. The nations of the global South shelter a more-than-proportional fraction of the world’s living species. They account for a less-than-proportional fraction of the world’s wealth, however, and are home to the world’s fastest growing populations. This combination of factors is, from a conservation perspective, potentially disastrous.

To address this alarming convergence of stresses on nature, conservation advocates hit on the idea that they should convince the poor of the tropics—and those who fund development projects there—that conservation is in their own interest. If local people were to be given incentives to save biodiversity, they needed to see a reason to preserve the habitats on which its survival depended. As ecologist Paul Armsworth and his coauthors phrased the argument in a 2007 essay, “In the face of a sea of poverty, demonstrating the ignored links between nature and elements of well-being—safe drinking water, food, fuel, flood control, and aesthetic and cultural benefits that contribute to dignity and satisfaction—is the key to making conservation relevant.”

In this respect, the appeal to ecosystem services was an incremental innovation on earlier conservation strategies. In the 1980s, many conservation advocates shifted from the conservation-for-conservation’s-sake ethic that motivated the establishment of many parks and protected areas in both wealthy and developing nations for much of the nineteenth and twentieth centuries to an emphasis on the sustainable use of natural habitats. They began to tout “integrated conservation and development projects” (ICDPs) that would align conservation and development goals. The rationale for these ICDPs was essentially the same as what is now advanced for ecosystem services: nature could pay for itself. Natural areas might support sustainably harvested products, provide genetic models for new pharmaceutical compounds, offer recreational destinations for international eco-tourists, and deliver a host of other valuable goods and services.

Nature, however, didn’t necessarily cooperate. Often nature turned out to be, as Duke University biologist and passionate conservationist John Terborgh put it, “worth more dead than alive.” The economics of ICDPs often didn’t make sense. In some respects, nature is too generous. Some of the goods and services ICDPs were supposed to provide are so abundant that people aren’t willing to pay much for them. In other instances ancillary infrastructure was lacking. The world may be filled with natural wonders, but many are located in places that are too inaccessible and dangerous to attract many tourists. Moreover, low-intensity use of more-or-less natural systems can only compete with other economic development alternatives as long as the profits that arise from degrading nature are modest. As alternative uses become more attractive, natural assets do not pay a high enough rate of return to keep up.

Yet many of the staples of unsuccessful ICDPs reappear now in lists of ecosystem system services. What explains the perennial appeal of the idea that nature can be made to pay for itself? The appeal is that it might obviate the mismatch between conservationists’ goals and their means to achieve them. If local people cannot be persuaded that conservation is in their own interests, they would either have to be compensated for conserving the environment or prevented from taking actions that harm it. The claim that the poor benefit from conservation is problematic on a number of levels, however. Of course natural ecosystems provide clean water, natural products, and protection from wind and flood. But as Thomas Hobbes famously noted, life in the midst of ecosystems that function as nature may have intended them to also tends to be “solitary, poor, nasty, brutish, and short.” What is the evidence that the poor’s interests will be served by continued immersion into the nature from which wealthier people have largely distanced themselves?

What does the research show?

Whereas much of the early interest in ecosystem services was motivated by conservation concerns in developing countries, much of the research—and increasingly the policy proposals—on ecosystem services now comes from the wealthier countries. Despite the publication of thousands of papers on ecosystem services in rich and poor countries, however, results are inconclusive. In 2015 zoologist Anne Guerry and numerous coauthors found that interest from decision makers in ecosystem services “has created demand for information that has outstripped the supply from science.”

As time passes, the problem is not so much that the analyses have not been forthcoming as that what has been produced has often proved unconvincing. In 2004, Taylor Ricketts and his colleagues wrote that “although the societal benefits of native ecosystems are clearly immense, they remain largely unquantified.” Readers of their work might well have wondered how it is that benefits that “remain largely unquantified” could be described as “clearly immense.” Scholars who have reviewed research on the value of ecosystem services have often concluded that, their sheer volume notwithstanding, there is less there than meets the eye. One recent paper by Kate Brauman at the University of Minnesota surveyed nearly 400 peer-reviewed studies relating water to ecosystem services, and found that a majority established no link between environmental conditions and human welfare. Another review of ecosystem service studies more generally concluded that less than a third established a sound basis for their findings.

Looking more closely at the literature, one often finds methodological differences that affect the credibility, or at least the interpretation, of results. Ecosystem service valuation is generally phrased in the language of economic analysis. Oscar Wilde defined a cynic as one “who knows the price of everything and the value of nothing,” and there is no reason that people should not think of “value” in its ethical, behavioral, or other senses when considering ecosystem services. But such values are inherently subjective and not easily quantified. If a researcher purports to represent quantifiable economic values, however, the usage should be consistent with received economic theory. Often it is not.

Economists have recognized since the time of Adam Smith’s The Wealth of Nations that it is not the total value of something that determines its economic worth, but rather the marginal value: how much does the incremental unit of something add? For example, natural habitats sustain wild insects, and these insects may provide a service by pollinating crops. A great many papers have been written on this topic, and many have focused on the value of the crop pollinated by a particular insect. This is not, however, generally a valid approach to valuing a pollinator’s contribution. To see why not, consider the example of the southeastern blueberry bee. It has been estimated that one of these industrious workers may visit 50,000 blueberry flowers, and pollinate $20 worth of blueberries, in her lifetime. Does this represent her economic value? Probably not. So long as there are other bees available to pollinate the blueberries, her absence would make very little difference to the value of the blueberry crop.

A second example arises in “bioprospecting”: the search among wild organisms for chemicals that may be used in new industrial, agricultural, or pharmaceutical products. A 2009 report from the United Nations-supported project The Economics of Ecosystems and Biodiversity noted that a quarter or more of the hundreds of billions of dollars’ worth of pharmaceutical products sold worldwide each year are derived from natural sources. What does this tell us about the value of preserving species of unknown commercial potential in the wild? Very little. One would have to know by how much the loss of species reduces the probability of making a discovery in order to put a value on them. When two colleagues and I performed such an exercise, we found that even under the most optimistic assumptions, the value of the “marginal species” was generally not high enough to justify preserving the habitat that sustains it. There are far too many other potential research leads.

The importance of calculating values on the margin is also illustrated by the flaws of Robert Costanza and coauthors’ well-known 1997 paper in Nature on the value of the world’s ecosystem services. They assembled a set of estimates for the value of certain types of ecosystems in certain places. They then took these time- and place-specific estimates of value and extrapolated them to all areas of similar ecosystems around the globe. This procedure produced an estimate of about $33 trillion for the value of the world’s natural capital and ecosystem services.

Although the Costanza et al. work received great fanfare among environmentalists and in the media, the near-universal panning it received from those economists who deigned to comment on it got less attention. Regrettably, the critical drubbing has neither dissuaded some of the same authors from updating their earlier work without improving on its methodology, nor has it prevented others from emulating their flawed approach.

Economist Michael Toman observed that the astronomical figures reported by Costanza et al. were “a serious underestimate of infinity.” Toman was applying the conventional wisdom on economic valuation I summarized previously. The value of all the world’s ecosystem services is incalculable. Without at least some of them, human life would be impossible. But that doesn’t mean everything everywhere is equally important and valuable. Even if all the ecosystems around the world to which Costanza and his coauthors were extrapolating values were functionally identical to the ecosystems for which values were estimated, the exercise would still be invalid for reasons of scale: when there is only a little of something, a little more of it is worth a lot. Conversely, when there is already a lot of something, a little more of it may be worth very little. This principle of diminishing returns is closely related to the principle of marginal valuation, and it was significantly neglected in making the $33-trillion estimate.

Although imperiled ecosystems may provide a host of services, advocating policies on the basis of valuation claims that later turn out to be overstated or false may discredit conservation efforts more widely.

Another example, similar in spirit to the pollination and bioprospecting examples I offered earlier, underscores this point. Riparian buffers—areas of trees and natural vegetation maintained to intercept runoff that would otherwise enter streams–can provide prodigious pollution treatment services. Some researchers have found that buffers as narrow as 40 feet on each side of a stream can reduce the pollutants that enter the stream by 75% or more. If those pollutants were substantially affecting local water supplies, fisheries, or navigation, a 40-foot-wide riparian buffer might provide a very valuable service. It might well be worth it to maintain such a buffer, rather than clearing it for grazing, or widening a road to occupy it, or building houses on it.

If three quarters of pollution were removed after water traverses a 40-foot buffer, a wider buffer could do no better than to remove the remaining quarter of the initial load. Suppose three quarters of pollution were removed in the first 40 feet of buffer, and three quarters of what was still left were removed in the next 40 feet, and so on (such a constant-fraction-removed-per-unit is often depicted in the natural science literature on riparian buffers). Then after traversing a 200-foot-wide buffer, less than 0.1% of the initial load would remain, and the next 40 feet would remove less than one one-thousandth as much pollution as did the first. In short, if a riparian buffer is very effective in pollution removal, a little goes a long way. And if a little goes a long way, there’s little reason to set aside a lot. Extrapolating the value of a 40-foot-wide strip of forest to all areas of similar forests would be meaningless—yet this is the type of exercise Costanza and colleagues did to arrive at their valuation, and which some others continue to emulate.

This example reveals something of a paradox: ecosystem services may be most valuable when they can be used to justify the conservation of only relatively small areas. This paradox applies to many ecosystem services that have the same if-the-first-bit-does-a-lot, there’s-not-much-for-what’s-left-to-do character. Areas of native habitat may provide protection and alternative fodder for wild pollinators that fertilize crops. The more flowers one colony of bees can pollinate, though, the fewer will be left for others to fertilize. Wetlands and forests may retain water that might otherwise flood downstream communities when the rain is falling, and which will subsequently be available to them in the dry season. The more water such areas are capable of retaining, the less likely it is that precipitation will be heavy enough to require additional areas for storing more rain water. The work I referred to previously on “bioprospecting” provides another example. The more likely it is that a valuable compound will be discovered among organisms endemic to one area, the less likely that it would be necessary to continue searching for the compound in a different area.

Of course, it’s also possible that a little would not go a long way, and so the paradox would not arise. If this were the case, though, it would be because a little doesn’t do much at all. If natural ecosystems in a particular area do not serve as, say, prolific treaters of pollution or capacious reservoirs for floodwaters, such services might be more effectively provided by alternatives. Moreover, natural ecosystems would have to compete very effectively with artificial alternatives if the services they provide are to be valuable enough to justify setting very expensive land aside to provide them. In the riparian buffer example, if buffers were not very efficient, it would likely be more cost-effective to reduce pollutants at the source than to set aside large areas of expensive land that would accomplish little.

These economic arguments do not imply that ecosystem services cannot be valuable. They do suggest, though, that the circumstances under which ecosystems are providing very valuable tangible services also tend to be those in which diminishing returns set in quickly. Such services may provide economic incentives for some conservation, but they may not provide incentives for a lot of conservation.

Ecosystem services and conservation policy

One cannot read minds, or between lines, but I sometimes wonder if the conservation advocates who first championed ecosystem services really intended their appeals to be investigated as serious economic propositions. Others seem to have had the same question. Flipping through the pages of Ecological Economics, the journal of the Society for Ecological Economics, one can find a “History of Ecosystem Services” that asserts that the notion originated as “a pedagogical concept designed to raise public interest for biodiversity conservation,” but evolved “in directions that diverge significantly from the original purpose.” Another article’s title asks: “Ecosystem services concepts and approaches in conservation: Just a rhetorical tool?” A third concludes that, whereas ecosystem services began as “a humble metaphor to help us think about our relation to nature,” taking the metaphor literally now risks “blinding us to the ecological, economic, and political complexities of the challenges we actually face.”

Some conservationists in good standing believe the “pedagogical concept,” “rhetorical tool,” or “humble metaphor” of ecosystem services has now served its purpose and should be retired before it does more harm than good. Michael Soulé, a founder of the Society for Conservation Biology, warned about a calamity that “would hasten ecological collapse globally, eradicating thousands of kinds of plants and animals and causing inestimable harm to humankind in the long run.” The calamity he had in mind was the ecosystem-service-based conservation vision of Peter Kareiva, former chief scientist at the Nature Conservancy. In a recent paper, Kareiva and two colleagues suggested that in the future “conservation will measure its achievement in large part by its relevance to people, including city dwellers,” and presented a vision of “nature” as “a tangle of species and wildness amidst lands used for food production, mineral extraction, and urban life.” Kareiva’s utopia would be Soulé’s apocalypse. To Kareiva, nature provides services for the modern world; to Soulé, nature ought to be more “natural.”

Even Kareiva seems to have mixed emotions, however. Although he encourages efforts to value ecosystem services, he has also written that “Economic forces … will continue to drive land use in ways that are likely to override any ecosystem service valuation,” and so, “while ecosystem service can help make our cost-benefit analyses more rational, a strong sustainability ethic is also needed.” What, then, should we make of the current enthusiasm for ecosystem services? Are efforts to value them just heads-I-win/tails-you-lose propositions in which if the values that can be estimated turn out to be substantial, they’ll be touted, and if they don’t, advocates will appeal to the things that can’t be measured? Might such a strategy backfire by encouraging opponents of conservation projects to wield negative economic findings as evidence that the areas under study are not worth preserving? Could fear of such consequences encourage policy-driven evidence making, where researchers hoping to bolster the case for conservation employ dubious methods and concepts to reach desired conclusions about the value of ecosystem services? Whatever the answer to such questions, it will likely continue to be the case that the most defensible valuation research will provide only limited support for conservation, and the more compelling reasons for large-scale conservation will be those that cannot be reduced to monetary terms. Meanwhile, work on the valuation of ecosystem services is likely to continue. Hopefully, it will also grow more standardized, rigorous, and credible.

Recommended reading

P. R. Armsworth, K. M. A. Chan, G. C. Daily, P. R. Ehrlich, C. Kremen, M. A. Sanjayan, and T. R. Ricketts. “Ecosystem service science and the way forward for conservation,” Conservation Biology 21, no. 6 (2007): 1383-1384. 

N. Bockstael, A. M. Freeman, R. Kopp, P. Portney, and V. K. Smith. “On measuring economic values for nature,” Environmental Science and Technology 34 (2000): 1384-1389.

R. D. Simpson, “The simple but not-too-simple valuation of ecosystem services: Basic principles and an illustrative example,” Journal of Environmental Economics and Policy (forthcoming).

R. Seppelt, C.F. Dormann, F.V. Eppink, S. Lautenbach, and S. Schmidt. “A quantitative review of ecosystem services studies: Approaches, shortcomings, and the road ahead,” Journal of Applied Ecology 48, no. 3 (2011): 640-646. 

M. Soulé, “The new conservation,” Conservation Biology 27, no. 5 (2013): 895-897.

R. David Simpson is Director of Ecosystem Economic Studies in the National Center for Environmental Economics at the US Environmental Protection Agency

Cite this Article

Simpson, R. David. “Putting a Price on Ecosystem Services.” Issues in Science and Technology 32, no. 4 (Summer 2016).

Vol. XXXII, No. 4, Summer 2016