The government initiated payments for forest ecosystem services in Costa Rica is one example of an economic instrument that is not market based. Photo: C. Ström/Azote


Valuation of nature

Six degrees of commodification

Economic instruments for biodiversity and ecosystem services need not rely on markets or monetary valuation

Story highlights

  • Much of the confusion in the discussion of commodification depends on misunderstandings
  • All ecosystem services policies are associated with some degree of commodification
  • The concept 'market-based instrument' should be replaced with 'economic instruments'

How do we assign value to biodiversity and ecosystem services – from crop pollination to carbon sequestration – so it can factor into policy decisions? Should we even try to do it in monetary terms?

These issues are part of a never-ending debate within the field of ecological economics around so-called commodification of nature.

This is why a recent study in Ecosystem Services seeks to clarify and distinguish between different purposes and degrees of commodification and to focus attention to the safeguards: the detailed institutional design and implementation procedures that aim to ensure good environmental and social outcomes.

"Much of the confusion in the discussion of commodification depends on the misunderstanding that economic instruments assumes monetary valuation," says centre researcher Thomas Hahn, first author of the study.

Among the co-authors are Claudia Ituarte-Lima, Maria Schultz, and Magnus Tuvendal from the centre.

The six degrees of commodification
To clarify the misunderstandings mentioned above the authors identify six degrees of commodification.

Defining the degree of commodification as the extent to which the value of biodiversity or an ecosystem service has become a tradable commodity, they conclude that all ecosystem services policies are associated with some degree of commodification.

0. Policy integration without commodification
Moral suasion and regulations justified by recognising social equity and nature’s intrinsic value, e.g. endangered species acts and nature reserves

1. Non-monetary regulations based on instrumental arguments
Nature reserves and other land-use plans focusing on nature’s value and use related to human wellbeing

2. Non-monetary regulations based on physical metrics
Ecological compensation (to counter-balance ecological values lost in the context of development or resource use) with no role for price signals or market transactions

3. Non-monetary regulations designed to maximise economic efficiency
E.g. a city park designed and managed to maximise calculated recreation values

4. Economic instruments (not traded)
Taxes and subsidies, including subsidy-like payment for ecosystem services by governments

5.  Economic instruments (voluntary market trade)
E.g. market-like Payment for Ecosystem Services or biodiversity offsets trading conservation credits

6. Financial instruments
E.g. forest bonds or biodiversity derivatives traded on the financial market

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Neoliberalisation of nature?
Though commodification runs through all degrees, only the two highest ones (5 and 6) can properly be associated with what the authors call "neoliberalisation of nature." Such neoliberal ecosystem services policies, they write, are defined as policy instruments designed on the premise that the market allocates scarce ecological resources more efficiently than regulations and treaties would.

The authors also discuss how the focus on biodiversity values has become very controversial within the work of UN’s convention on biological diversity, especially the use of economic instruments like payments for ecosystem services and biodiversity offsets (activities designed to give biodiversity benefits to compensate for losses).

"Without appropriate institutional arrangements that safeguard biodiversity and equity, there is a risk that economic instruments, as well as other types of policy instruments, will not contribute towards the biodiversity convention's objectives"

​Thomas Hahn, lead author

Institutional design is key
However, both proponents and critics to neoliberalism are making mistakes when they associate economic instruments with neoliberal frameworks, rather than looking more closely into the actual institutions and performance.

In reality, the authors explain, such economic instruments can be everything from a government-initiated nature reserve justified by its value for recreation to financial actors trading forest bonds in the market.

Again, it is the institutional design of a particular policy instrument that determines the degree of commodification.

"To avoid confusion we suggest replacing the concept 'market-based instrument' with 'economic instruments'," says Hahn.

Finally, the study's emphasises the importance of diversity in institutional design, valuation approaches and role of markets.

This provides flexibility and options for integration of the values of biodiversity and ecosystem services in policy in different countries according to their political and cultural context.

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Citation

Citation

Hahn, T., McDermott, C., Ituarte-Lima, C., Schultz, M., Green, T.L., Magnus, T. 2015. Purposes and degrees of commodification: Economic instruments for biodiversity and ecosystem services need not rely on markets or monetary valuation. Ecosystem Services. doi:10.1016/j.ecoser.2015.10.012

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The article has been inspired by the SwedBio/SRC organized Quito dialogues and related work on the concept of safeguards

Thomas Hahn is Assistant Professor and theme leader of the Stewardship research theme. His background is in agricultural, environmental, ecological, and institutional economics with long experience in teaching these subjects.

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