Accounting for the increasing benefits from scarce ecosystems

Accounting for the increasing benefits from scarce ecosystems

2024 | Drupp, Moritz, Multiple Authors, and and Freeman, Mark Charles
The article "Accounting for the Increasing Benefits from Scarce Ecosystems" by M.A. Drupp et al. (2024) addresses the growing importance of integrating ecosystem service values into national planning processes, particularly in benefit-cost analyses of public policies. The authors highlight a key limitation in existing policy guidance, which assumes that benefits from ecosystem services remain unchanged as societies become wealthier. They propose a practical rule based on economic theory and evidence to address this issue: benefits from ecosystem services rise as societies get richer, and even more so when ecosystem services are declining. The authors argue that current estimates of future ecosystem service values systematically undervalue the ongoing contribution of ecosystems to society, leading to underinvestment in measures to safeguard nature. They introduce a relative price change (RPC) rule, which adjusts future willingness-to-pay (WTP) for ecosystem services based on the rate at which WTP changes with income and the growth rates of market consumption goods and ecosystem services. This rule helps correct the downward bias in current estimates and ensures that the increasing importance of ecosystems is accurately reflected in policy decisions. The RPC rule is designed to be simple and transparent, making it easier to incorporate into policy guidance and benefit-cost analyses. The authors recommend that governments immediately start accounting for the real income effect by proportionally increasing WTPs as real incomes grow, and integrate real scarcity effects whenever forecasts for ecosystem services are available. They also suggest periodic revisions to policy guidance as more evidence becomes available and the complexities of ecosystem services are better understood. Overall, the proposal aims to level the playing field by treating ecosystem services more consistently with other goods, ensuring that the importance of scarce ecosystems for future generations is appropriately reflected in public investments and regulatory decisions.The article "Accounting for the Increasing Benefits from Scarce Ecosystems" by M.A. Drupp et al. (2024) addresses the growing importance of integrating ecosystem service values into national planning processes, particularly in benefit-cost analyses of public policies. The authors highlight a key limitation in existing policy guidance, which assumes that benefits from ecosystem services remain unchanged as societies become wealthier. They propose a practical rule based on economic theory and evidence to address this issue: benefits from ecosystem services rise as societies get richer, and even more so when ecosystem services are declining. The authors argue that current estimates of future ecosystem service values systematically undervalue the ongoing contribution of ecosystems to society, leading to underinvestment in measures to safeguard nature. They introduce a relative price change (RPC) rule, which adjusts future willingness-to-pay (WTP) for ecosystem services based on the rate at which WTP changes with income and the growth rates of market consumption goods and ecosystem services. This rule helps correct the downward bias in current estimates and ensures that the increasing importance of ecosystems is accurately reflected in policy decisions. The RPC rule is designed to be simple and transparent, making it easier to incorporate into policy guidance and benefit-cost analyses. The authors recommend that governments immediately start accounting for the real income effect by proportionally increasing WTPs as real incomes grow, and integrate real scarcity effects whenever forecasts for ecosystem services are available. They also suggest periodic revisions to policy guidance as more evidence becomes available and the complexities of ecosystem services are better understood. Overall, the proposal aims to level the playing field by treating ecosystem services more consistently with other goods, ensuring that the importance of scarce ecosystems for future generations is appropriately reflected in public investments and regulatory decisions.
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