Air Date: Week of October 31, 2008

Forests provide clean water for drinking and irrigation-- currently a free commodity. (Courtesy of US Fish and Wildlife Service)

It’s difficult to put a price on the value of nature. But Deutsche Bank ecnomist Pavan Sukhdev has done just that. Pavan tells host Bruce Gellerman that he quantified the benefits of forests – looking at food, fuel, clean air and other so-called services -- and we’re paying a hefty cost for deforestation.

Transcript

GELLERMAN: How much is a mountain vista worth to you? How about the value of waves breaking on the shore? Pavan Sukhdev is putting a price tag on the wonders of nature for The European Commission and the German government. They wanted to find out the Economics of Ecosystems and Biodiversity…and called on Sukhdev to quantify them. Pavan Sukhdev is a Managing Director at Deutsche Bank. His first report deals with the cost of deforestation, costs he says dwarf the current global financial meltdown.

SUKHDEV: We found that the rate of the loss of the forest, and therefore the rate of loss of the services that forests deliver to people - that’s food, fiber, fuel, flood prevention, drought control, ecotourism, bio prospecting, etc., etc. - that came to something like two to four-and-a-half trillion dollars per year. Compare to that my estimates of the financial capital loss to the Wall Street banks and to the city banks here in London is of the order of one to one and a half trillion. So, you know – take your pick. Another way of looking at it is that if we let this carry on, then by 2050, every year we would be losing seven percent of GDP in terms of public welfare from these forests. And, of course, there will be more to come, because we are now looking at other biomes like the coastal mangroves, which we did not consider, and coral reefs, which we have not yet studied in detail, although we are collecting good information on that.

GELLERMAN: How do you quantify the economic benefits from a coral reef?

SUKHDEV: Yeah – that’s a very good question. Now take a couple of examples. Today we have got cures for Alzheimer’s disease and for cancer being explored respectively from a worm that is found on a coral reef and from a creature that lives on coral reefs. Now, we know what kind of potential benefits that would be. We know the nature of these markets. We also know the budget that pharmaceutical concerns spend on bioprospecting. So these two enable us to work out - alright, so how much of that budget would be spent going forward on coral reefs and how much of the potential income of those companies would be as a result out of new cures found – just imagine the scale and size of a cancer cure and a cure for Alzheimer’s disease. It’s huge, economically.

GELLERMAN: You know when bankers traditionally think of green, they think of, well, money, and I was looking at your background – you’re an economist. A managing director, the head of one of the world’s biggest banks, Deutsche Bank, and yet, I guess, you’re a tree hugger?

SUKHDEV: [LAUGHS] I think that’s a bit extreme, but, I’m certainly – you know, I sometimes get asked, “How the hell do you reconcile this? You know, how do you sort of reconcile the fact that you have these environmental leanings and at the same time you’re financial markets managing director? Well, are you a capitalist or are you not?” And my response usually is, “Yup, I’m a total capitalist.” But what I really mean by saying I’m a total capitalist is that I believe in all forms of capital. I believe in financial capital, I believe in human capital, and I believe in natural capital. I don’t discriminate one from the other. You’d be amused to hear there’s a friend of mine in Singapore, many, many years ago, fifteen years ago, asked me this very simple question “Look, you’re a banker and all that. Tell me, why are some things worth money and some things not? How come that I can watch a sunset for free and how come I have to pay for a movie?” And then I thought and thought about that and I said, “This is a deep and fundamental point. There is this aspect of ignoring value when it doesn’t transact in markets.” And that’s the key, because we have psychologically convinced ourselves that what’s valuable is what transacts for money, but very often what’s valuable is other things like friendship and law and order and education and enjoyment of nature and so on. We need to be a bit more holistic in the way we think about these things.

GELLERMAN: Well, I want you to put on your banker’s hat again, and talk money. What is it going to cost to conserve, to save this, you know, natural wealth?

SUKHDEV: It’s actually not that much. Now I’ll give you one example. You know that there are upwards of a hundred thousands conservation areas, protected areas as they’re called and they cover roughly eleven percent of the earth’s land mass. Now various studies that have been done on conservation areas are giving us the message that we are spending too little on making them effective. In other words, you may call them conservation areas, but the reality is, you’re still losing density, you’re still losing biodiversity. To make them effective, we need to spend something like 40 to 50 billion dollars per annum extra. Okay. Now how much is 40 to 50 billion dollars? Well, you know that the current size of the U.S. financial system bailout is 700 billion thereabouts, and that, maybe if we add up the bits and pieces in Europe and other places, it’s about a trillion. So we’re talking about a very small – relatively, a very small amount of money being spent to secure service which in utility terms are worth five trillion dollars. It’s worth doing, simply because the return on the investment is so good.

GELLERMAN: Well, Mr. Sukhdev, thank you very much. I appreciate it.

SUKHDEV: Thank you very much indeed. It’s been great talking to you.

GELLERMAN: Pavan Sukhdev is a managing director at Deutsche Bank and head of the project: The Economics of Ecosystems and Biodiversity.

[MUSIC: Easy All-Stars “Great Gig In The Sky” from Dub Side Of The Moon (Easy Star Records 2003)]

GELLERMAN: Just ahead, vitamin D…D for deficient. Keep listening to Living on Earth!

 

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