Sustaining Critical Natural
Capital in the Tropics:
Case Studies From Brazil,
the Philippines and
Ethiopia
Joshua Farley
Community Development and Applied Economics
Gund Institute of Ecological Economics
University of Vermont
joshua.farley@uvm.edu
Outline of Presentation
• Critical Natural Capital and its Economic
Value
• Case studies:
– Brazil's Atlantic Forest
– Palawan's mangrove ecosystems
– Ethiopia's rift valley
• Macro-allocation and the Tragedy of the
Non-commons
• Providing global public goods
Critical Natural Capital
• Components of natural capital that are
essential to human survival and for which
there are no adequate substitutes
• Ecological thresholds
• Ignorance and uncertainty
• Cuts across source, service, sink and site
– Function and location matter
• Interdependent elements of complex
system
Characteristics of CNC
• Uncertainty
– E.g. passenger pigeons,
sardines
– Sample size of one
• Thresholds
– E.g. Amazon,
passenger pigeons
• Time lags
– Cassowaries,
passenger pigeons
Valuing Natural Capital: The
Problem of Sustainable Scale
• Inelastic demand
– Resources that are essential and have no
substitutes, e.g. critical natural capital
– Small changes in quantity lead to large
changes in marginal value
– E.g. California’s energy crisis, rising food
prices
value
Marginal
Marginal Value
The Demand Curve for Natural
Capital
Critical:
Perfectly
inelastic demand
Marginal
valuation
meaningless
Important:
inelastic
Demand
Marginal
valuation
inappropriate
Valuable:
elastic demand
Marginal valuation
may be acceptable
Demand curve
for natural
capital
Natural
stocks
NaturalCapital
Capital Stocks
Perverse Nature of Monetary
Measurements
value
Marginal
Marginal Value
Critical:
P2 Perfectly
inelastic demand
Important:
inelastic
demand
Valuable:
elastic demand
Demand curve
for natural capital
P1
The loss of agriculture does matter even
if it’s only 3% of GNP
Q2 Q1
Natural
Capital Stocks
Natural
Capital
stocks
Valuing Natural Capital:
The Problem of Distribution
• Most monetary valuation techniques
based on estimating demand curve
• Demand = preferences weighted by
income
• Allocation principle: one dollar, one vote
• More desirable principle: one person, one
vote
Valuing Critical Natural Capital
• Makes no sense to estimate demand
curve for CNC
• Relevant value is determined from supply
curve—how much will it cost to restore
CNC to sustainable level?
Case Study 1: Brazil’s Atlantic Rainforest
•Project: Reforestation as a Watershed
Management Tool
•Conceição de Macabu, Rio de Janeiro
•Workshop/Field-course in partnership
with Pró-Natura, local university, local
government, local stakeholders
Highest Biodiversity Terrestrial
Ecosystem Known; 93% gone
Rule of thumb from Island Biogeography: Loss of
90% of Ecosystem eventually leads to 50% loss of
biodiversity
Without immediate action to restore ecosystem,
biodiversity may collapse; irreversible and
catastrophic change
•Forest Preserves water quality,
quantity
•Watershed supplies local
community with water
•Regulates water flow
•protects against flooding and drought
•Recent floods and droughts associated with
deforestation
•Protects against erosion
•Regulates the microclimate (local, global)
•Protects against disturbance, fire, etc.
•Nutrient cycling
•Many other services
•May be flipping to fire prone ecosystem,
threatening remaining forest
•Nearing irreversible and catastrophic
ecological threshold
•Marginal value infinite, marginal analysis
inappropriate.
-Converted to pasture for $20/ha/yr. Why?
-Tragedy of the non-commons: Private property
rights lead to unsustainable, unjust and inefficient
management
Case study 2: Conversion of
Mangrove Ecosystems to Shrimp
Aquaculture
The Tagabinet Community
Problem Definition 1




World Bank identifies inadequate GNP in
Philippines as problem
Export based growth is solution
Conversion of mangrove ecosystems to
shrimp Aquaculture provides high short
term profits
Conversion of natural capital to financial
capital
The Result: Conversion of Mangrove
Ecosystems to Shrimp Aquaculture
Values of Natural Capital:
Mangrove Ecosystems
•Structure, raw materials
•Building materials, charcoal, food
•Function, services
•Habitat, nursery for 80% of commercial
seafood species
•Storm, tsunami protection
•Waste absorption
•Climate stabilization
Shrimp Aquaculture
•High short term profits, heavily promoted by economists
•Shrimp and fish for 3-5 years
•Carnivorous, net reduction in food production
•Less protein than intact ecosystem
•Massive waste output
•Irreversible(?) destruction of ecosystem
Why Convert?
•Shrimp: high profit, short lived
•Intact mangroves produce more seafood than
ponds
•Benefits of conversion go to individual
•Benefits of preservation go to local, regional,
global community
•Conversion only occurs with private ownership
•Greedy self interest creates invisible foot
•Tragedy of the non-commons
The Result
• Remaining mangroves likely to constitute
critical natural capital
Problem Definition 2
• How much mangrove ecosystem should
be left intact to provide vital ecosystem
services, how much should be converted
to aquaculture?
• Private property rights and markets
systematically allocate mangroves towards
aquaculture.
• Mangrove restoration likely to be more
economic than conversion.
Analysis, synthesis and
communication …
… leads to action
… and a more
sustainable, just and
efficient allocation of
resources
Case study 3: Green Awassa:
Investing in Human and Natural
Capital in Ethiopia
Problem: Deforestation contributes to energy
shortage, food shortage and water shortage.
All are essential and non-substitutable
Deforestation leads to loss of built capital as
roads erode…
No trees = no firewood (biomass = 95% of energy use)
….Burning dung in absence of firewood deprives crops of
fertilizers
Deforestation destabilizes hillsides
…resulting in greater runoff, erosion and
erosion gullies…
…rising lake levels that encroach
on farmland
… less food production
…and the threat of hunger
• Riparian and gallery forests no longer filter
water, reducing quality
• Deforestation and soil compaction may
cause flooding, drought
• Forest loss may be affecting rainfall,
reducing quantity
Forest loss threatens biodiversity
Conventional solution
• More built capital
– Direct foreign investment and democracy
– DFI and instability
• Increase food production with tractors and
fertilizers
– Fossil fuel prices rising
– Constant repairs required
– Foreign exchange required
Alternative Solution
• Invest in human capital– create and disseminate
knowledge on
–
–
–
–
Sustainable farming
Efficient stoves
Non-wood building materials
Education on ecosystem services
• Invest natural capital
– Forest restoration to provide energy, food, water
• Local resources, self sustaining
Sustainable farming
Alternative building materials
Environmental education
And Restoration of CNC
The Economic Problem
• Macro-allocation: How do we allocate finite
ecosystem structure (forests) between:
– Economic production (conversion, timber)
– Production of life sustaining ecosystem goods
and services
• How should we distribute resources among
individuals?
– Who is entitled to ownership of ecosystem
goods?
– Is anyone entitled to ecosystem services?
The “Tragedy of the Non-Commons”
• Occurs when private ownership is
ecologically unsustainable, socially unjust,
and/or economically inefficient
• Any privately owned resource that
provides non-rival benefits
The Global Problem
• No global institutions that can mandate
provision of globally critical ecosystem
services
• Poorest nations cannot afford to invest in
maintaining natural capital
• Poor nations require both incentives and
resources to provide global ecosystem
services
The Solution
• Nations rich in built/financial capital pay those
rich in natural capital for its provision
• Poor nations ‘export’ carbon sequestration,
biodiversity conservation, etc.
• Valuation of demand for CNC a waste of time.
• We should value cost of restoring CNC, and
generate the money
• $.04/liter tax on gasoline in wealthy nations
would generate 100x current expenditures on
biodiversity conservation