Please imagine levees that cost billions and then picture the coastal marshes, coral reefs and wetlands that naturally protect us from floods. Just like a levee has value, so too does an ecosystem. And just like we can price a levee, scientists have said the services from the world’s ecosystems are worth $142.7 trillion (in 2014 dollars).
Where are we going? To the value of a price.
Pricing a Rain Forest
In recent litigation, an Ecuadorian rain forest was given a dollar value.
Our story begins in 1967 when Texaco discovered oil in Ecuador’s Oriente region. At first using helicopters to airlift equipment, then machetes to hack paths, and finally building roads, a consortium of oil companies led by Texaco and the Ecuadorian government drilled for 23 years.
When Texaco arrived, Ecuador was a poor banana growing nation. Oil doubled its per capita GDP within 10 years and placed it second to Venezuela in South American oil production. But they also devastated the rain forest and (allegedly) left toxic drilling materials in unlined pits.
At first citing damages worth $19 billion and then reducing the amount to $8.6 billion, U.S. attorneys sought compensation for the local villagers. The Ecuadorian courts agreed but could not collect because Chevron (it acquired Texaco in 2001) had no assets there.
The next step was the U.S. court system where, yesterday, the U.S. Court of Appeals for the Second Circuit refused to carry out the Ecuadorian court’s directives. Their reason was not that the rain forest had no value. Instead, they said that because the villagers’ lead attorney had bribed the Ecuadorian judges and even co-wrote their opinion, the decision was tainted and therefore unenforceable.
Our Bottom Line: The Price System
As an environmental price tag, that $8.6 billion does what all prices do in a market economy. They give us information. After hearing a price, we might know more about that item’s popularity, its quality, and what we need to sacrifice if we buy it. Meanwhile, through prices, producers gain insight about the cost of production and profits.
So although the environment is priceless, quantifying what it provides helps many of us recognize its value.
My sources and more: This NY Times article was the ideal introduction to this academic paper on the value of ecosystem services. It provided a new lens for contemplating the rain forest decision in Bloomberg and a New Yorker article. Please note that several of today’s sentences came from previous econlife posts.