CUSPE Lecture: The economics of biodiversity – Professor Sir Partha Dasgupta

CUSPE Lecture: The economics of biodiversity – Professor Sir Partha Dasgupta

Reported by Josephine Anselin, Policy Intern, Centre for Science and Policy

Using global economic indicators, Professor Dasgupta highlighted the unprecedented economic growth that the world has experienced in the post-war period. For example, between 1950 and 2020, global GDP increased more than 15-fold, the world’s population more than tripled, and the proportion of people in extreme poverty declined from over 60% to less than 10%.

However, this unparalleled economic progress has been accompanied by a continual degradation of the natural environment. One example of this decline is the rate of species extinction, estimated today to be 100-1000 times larger than the expected background rate of extinction. These statistics reflect a separation between humans and Nature, with Nature considered to be a free good.

Professor Dasgupta then introduced the concepts of produced capital (e.g. roads, buildings), human capital (e.g. health, education), and natural capital (e.g. wetlands, forests, lakes, oceans, soils). The disconnect between human economy and environmental health was emphasised by a UN estimate indicating that while the per capita stocks of produced capital and human capital both increased by more than 20% in the period 1992-2014, the per capita stock of natural capital decreased by 40% over the same timeframe.

“I realised that what was bothering me about the literature that existed, and it’s a very good literature by the way, is that it saw the human economy as external to Nature”

One key objective of the review was therefore to create a shift in economic thinking by proposing a framework in which natural capital would appear in conjunction with the produced and human classes of assets that currently form the bedrock of economic valuations.

Inclusive wealth as an alternative to GDP

Having established the context in which the report was commissioned, Professor Dasgupta then introduced the notion of ‘inclusive wealth’. In contrast to GDP, which gives a measure of the health of an economy at a given moment in time, inclusive wealth accounts for the transfer of welfare across generations. Professor Dasgupta stressed this concept of intergenerational wellbeing as a key principle when it comes to incorporating natural capital into economic modelling.

Putting Nature at the core of economics

Building on the notion of inclusive wealth, Professor Dasgupta presented a framework to quantify the global impact of human activity on natural capital. The proposed framework considers Nature as an asset, able to supply humanity with ‘provisioning goods’ on the one hand, and to replenish via ‘regulating and maintenance services’ on the other hand. Provisioning goods refer to natural goods like water, timber, and coal, which humans have increasingly drawn on to fuel the economy. Regulating and maintenance services refer to all the processes that maintain Nature in a state of balance, including climate regulation, water purification, and soil regeneration. Using these concepts, humanity’s ecological footprint can then be measured based on global population, per capita global GDP, and the efficiency with which natural capital is transformed into produced and human capital. If the footprint exceeds Nature’s regeneration rate there is an imbalance, meaning that humanity is overreaching and creating a deficit in the natural capital account. By highlighting the factors that contribute to our excessive demand on natural capital (population numbers, per capita consumption demands, production efficiency), this formula points towards sustainable policy approaches, which would enhance biodiversity.

Policies that value Nature

Professor Dasgupta concluded the talk by proposing global policy options that would allow the biosphere to recover. One suggestion was to introduce a pricing system for Nature’s goods and services, forcing us to “pay for what we use”. In practice, this could mean enforcing charges for being allowed to use the ocean for various purposes, including transportation of goods or pleasure cruises. The revenue generated through these payments could then be used to finance tropical rainforests conservation. However, this type of scheme is not without its challenges, as it would require cross-border collaboration and major institutional change.

Image by Marek Okon on Unsplash.