PhD Qualifying Exam: Methods (Question 3)

Discuss the major challenges and opportunities in commodifying ecosystem services for watershed management.

Ecosystem services are the goods and services that ecosystems provide humans. They are valuable because we depend on them to survive (Daily 1997, Millennium Ecosystem Assessment 2005). Ecosystems produce the food we eat, purify our air and water, and regulate our climate. Ecosystem services are the basic life support systems for all human activity. Yet while their value has been widely recognized, these values have not been incorporated into decision making. The result has been widespread deterioration of these ecosystems, which threatens their capacity to meet our needs in the short run and threatens human survival in the long run (Millennium Ecosystem Assessment 2005).

What explains this contradiction? How can ecosystem services be essential for human survival and yet at the same time be constantly degraded? Many scholars believe that ecosystem services continue to deteriorate because they have been inappropriately valued, or commodified, by the public and private institutions that manage them. Without appropriate valuation, the contributions made by ecosystem services are not included in the decisions that accelerate their deterioration.

It follows then, that the appropriate valuation of ecosystem services can make huge strides in improving ecosystem management. New York City’s water supply is the most heralded example of how our understanding of the watershed dynamics allowed water managers to invest in an upstream protection scheme instead of building a filtration plant. This huge success has been widely celebrated as a successful adoption of ecosystem valuation that saved New York City billions of dollars (Heal, NRC).

Incorporating ecosystem services into an economic framework has many of the advantages that one might expect. It can improve resource efficiency, clarify tradeoffs, promote intergenerational equity, and ensure economic and ecologic sustainability of human and biological systems. In short, assessing and valuing ecosystem services is an essential step toward sustainability (Daily, Matson, Chan, Ricketts, Kareiva). This proposition is not entirely new, since early ecological economists such as Robert Costanza and Herman Daly, have supported the integration of economic and ecological systems for many years, and only now this approach has become widely accepted and mainstream.

There are clear opportunities associated with integrating ecosystem services into management decisions and yet considerable challenges remain. These challenges emerge from different disciplines and fields. First I will address two points of view who question the commodification process, either because they question anthropocentrism or because they question the underlying logic of market capitalism. Then I will proceed to discuss the challenges associated with valuing ecosystem services even when one accepts, at least temporarily, an anthropocentrist and capitalistic frame of reference. But first, a few thoughts on commodification and valuation.

Valuation has become a contested issue (Goulder and Kennedy 1997). It is important to clarify that economists only claim to measure economic values, and do not make claims on spiritual or moral values. These other values could be in addition to economic values, not replace them. Confusion on the scope of economic valuation has led to considerable confusion and virulent attacks against economists (NRC 2005).

I understand commodification to be a particular form of valuation that results in commercial values. I would argue that not all valuations imply commodification because many non-market valuations do not expect a commercial transaction to occur.

Commodification implies the transformation of a good so that it can be exchanged with another good of equal value. In short, it becomes substitutable. If a good is substitutable, this feature permits individuals to trade in order to improve individual utility or generate additional value. William Cronon has eloquently described the commodification of grain markets in Chicago. In his account, the commodification of grain was an essential institutional innovation that permitted the development of trade and commerce in the American West. Without commodification, farmers were attached to the precise kernels that came from their field. However when farmers could exchange grain-vouchers instead of grain, their product was commodified and could be rapidly traded between individuals or across continents without moving a single sack of wheat. This generated huge flexibility and wealth. Farmers could use grain vouchers to buy other goods such as land, or use the grain markets like a bank where they could trade their vouchers for gold when needed. This process depended merely on accepting that owning grain was not restricted to a particular physical entity, but rather to rights on a grain of the same quality.

In some ways, ecosystem service research is seeking to make equivalent efficiency improvements as those observed in the nineteenth century grain markets. However the commodification of ecosystem services, and the implication of substutibility remains controversial, especially those who hold a biocentrist view. Acknowledging the substitution of a good, such as an ecosystem service, may unnerve those who wish to protect it based on its intrinsic value. If one believes that certain things should have value even if no human believes so, then this position subscribes to biocentrism. This biocentrist position is difficult to reconcile with the anthropocentric field of economics. They would object to commodification of ecosystem services as an undervaluation of the true value of the ecosystems. Some biocentrists claim that priceless goods should not be valued at all because the process of valuation inherently de-values its infinite worth. Economists counter by asserting that not assigning any value permits a valuation in practice of zero.

To commodify assumes an anthropocentric framework, where all values are referenced to human preferences. However an anthropocentric view of economics approach can account for intrinsic values through the concept of existence values (NRC 2005). Existence value is the value that individuals derive from knowing that a particular species or place exists, even if they never obtain any instrumental benefits this environmental good (they never visit or see the species). Therefore the anthropocentric view has incorporated some flexibility to incorporate the values of those who care about the preservation of ecosystems even if they have not immediate instrumental value.

Anyone who questions the underlying logic of market capitalism is also likely to have problems with the commodification of ecosystem services. For many, including Marxists-environmentalists (Castree), the underlying logic of economic is seen as the culprit that is driving ecological deterioration. Therefore, it seems counterintuitive that more economic thinking can pull us out of ecological catastrophe. This position holds that what is needed is less economic commodification, not more (McCauley 2006).

In addition to these broader criticisms on the commodification of ecosystem services, there are still challenges for those who accept anthropocentrism and market capitalism. I will discuss only three additional challenges (a) scalar mismatch (b) dynamic systems and nonlinearity, and (c) permanence.

Scalar mismatch
Another central challenge to ecosystem service valuation is scalar mismatch. Ecosystem services operate at time and spatial scales that far exceed the scope of the institutions we have created to manage them (Costanza, Ostrom). This scalar mismatch crosses both time and space. It has been recognized that all valuations are contingent upon the scalar assumptions, and that useful valuation cannot be made without specifiying the time and spatial scales adopted (NRC 2005). Scalar mismatch also leads to problems of aggregation, as evident in the controversial piece Costanza et al. (1997), in which they multiplied average ecosystem values per hectare by total global hectares. It then ambitiously summed up the value of all ecosystems across the globe. This simplistic approach of multiplication and addition implied that ecosystems had uniform value across time and space. However we know that ecosystems are dynamic and nonlinear.

Dynamic Systems and Nonlinearity
The dynamic and nonlinear feature of ecosystems defies attempts at commodification and valuation. Ecosystem service provision has dynamic variations over seasons, elevations, or latitudes. Furthermore there are thresholds upon which certain ecosystems obtain or lose value. For example, a large wetland may metabolize wastewater from a small town and allow city managers to avoid investing in a wastewater treatment plant. However reduction in the wetland size may suddenly disrupt the capacity of the wetland to provide its service. Or, the same wetland in another town that already has a wastewater treatment plant would not ascribe the same value to the same wetland.

Koch et al. (2009) described how coastal vegetation provided nonlinear protection of coastal property that depended on tidal and seasonal fluctuations as well as geographic location. There was no doubt that the presence of the marine vegetation reduced wave impact on shore, and could mitigate the property damage produced by large storms. However the provision of this service fluctuated tremendously over time and space. Tidal fluctuations overlapped with seasonal changes and movements in ocean currents to provide nonlinear service provision. Even the same species with similar densities would offer less protection at lower latitudes that similar ecosystem in northern latitudes. This example exemplifies the over-simplification made in Costanza’s piece, since it is inaccurate to assume constant service provision over time and space. It also provides insight into the difficulties in valuing services that have so much fluctuation.

Permanence
Valuations have been criticized because they are embedded in social systems and markets that are volatile, and therefore cannot offer permanent protection. There is a fear that if we justify conservation based on economic reasons alone, this protection may not survive in the long run because of the whims of the markets. As we have seen with the current financial crises, changes in expectations can evaporate wealth. If conservation is based on economic values instead of moral values, it becomes vulnerable to sudden changes in the marketplace that can invert outcomes.

For example, in Costa Rica coffee producers depend on pollination services from nearby forest ecosystems. It has been shown that proximity to forests increases the economic output of coffee producing plantations as a result of pollination services. This justified additional forest protection. But then the market changed. Coffee prices dropped and pineapples were planted instead of coffee. The pineapples did not rely on pollination services, therefore the economic logic would then strip the forest of its value that justified protection, and potentially, the economic logic may recommend cutting the forests for its commercial value as timber (McCauley 2006). Therefore the commodification strategy associated with ecosystems services suffers from a lack of permanence because it is inherently embedded in social systems and perceptions which may change.

Those who criticize the commodification of ecosystem services raise valid questions. I agree that there are times when we must confront real tradeoffs between ecosystem protection and human needs. Ecosystems are not always benevolent nor will they always align themselves with human interests. We should not delude ourselves into believing that this compatibility is universal or constant. But at the same time, there are still many circumstances in which this compatibility has not been realized. Low hanging fruit awaits discovery, and I hypothesize that our disciplinary blinders has prevented us from uncovering them.

Furthermore, to exploit the benefits of ecosystem services it is not necessary to resolve all the controversial issues raised with valuation. Instead of investing resources into improving our valuation methods, some have suggested that valuation be sidestepped completely by instead focusing on cost-effectiveness of particular policy goals (Power et al.). In this way one can concentrate on cost-effective approaches with tangible benefits associated with particular outcomes. It is likely that my dissertation will follow this route, where I will use the ecosystem services framework to uncover new watershed management approaches with tangible benefits without having to answer all the questions regarding valuation and commodification.