As the world is caught up in the collapse of the global financial industry, there is another, more costly collapse happening and it has been happening for decades. The BBC reported last month that "nature loss dwarfs bank crisis" according to a new EU commissioned Phase I study, The Economics of Ecosystems & Biodiversity (pdf), also known as the TEEB study.

As research leader Pavan Sukhdev explains in the introduction, nature loss is not easily monetized.

Not all that is very useful commands high value (water, for example) and not everything that has a high value is very useful (such as a diamond).

This example expresses not one but two major learning challenges that society faces today. Firstly, we are still learning the "nature of value", as we broaden our concept of "capital" to encompass human capital, social capital and natural capital. By recognizing and by seeking to grow or conserve these other "capitals" we are working our way towards sustainability.

Secondly, we are still struggling to find the "value of nature". Nature is the source of much value to us every day, and yet it mostly bypasses markets, escapes pricing and defies valuation. This lack of valuation is, we are discovering, an underlying cause for the observed degradation of ecosystems and the loss of biodiversity.

Yet, they are able to meet their goal of making a compelling economic case for conservation:

"So whereas Wall Street by various calculations has to date lost, within the financial sector, $1-$1.5 trillion, the reality is that at today's rate we are losing natural capital at least between $2-$5 trillion every year."  - BBC

Deforestation alone could be costing as much as 7% of GDP, because forest loss means less "ecosystem services" provided by nature for free. These ecosystem services include water and air purification, water reservoirs, flood protection, hurricane protection, food production, fisheries, timber, nutrient cycling, medicinal components and carbon sequestration, to name a few. As nature ceases to provide these processes for free, we must replace them with processes that require monetary investment.

Further, the report finds an inextricable link between ecosystem loss and poverty. In the last 300 years, forest land has decreased by 40%. Wetlands have shrunk by 50% since 1900 and 30% of coral reefs have been seriously damaged. Overall, 60% of the world's ecosystems have been degraded in the last 50 years.

They also found a disturbing trend in terms of ethics:

In most of the valuation studies we examined, discount rates used were in the range 3-5% and higher. Note that a 4% discount rate means that we value a natural service to our own grandchildren (50 years hence) at one-seventh the utility we derive from it, a difficult ethical standpoint to defend.

In essence, there is a willingness to deprive future generations of the benefits of ecosystem services that we have enjoyed. Their outlook on further losses by 2050, should current biodiversity loss continue unabated, is bleak:

• 11% of the natural areas remaining in 2000 could be lost, chiefly as a result of conversion for agriculture, the expansion of infrastructure, and climate change (already 35% of the earth's service is used for agriculture);
• almost 40% of the land currently under low-impact forms of agriculture could be converted to intensive agricultural use, with further biodiversity losses;
• 60% of coral reefs could be lost - even by 2030 - through fishing, pollution, diseases, invasive alien species and coral bleaching due to climate change.

This is bad news on so many fronts, not the least of which is our ability to treat and cure diseases. Consider that:

• Approximately half of synthetic drugs have a natural origin, including 10 of the 25 highest selling drugs in the United States of America.
• Of all the anti-cancer drugs available, 42% are natural and 34% semi-natural.
• In China, over 5,000 of the 30,000 recorded higher plant species are used for therapeutic purposes.
• Three quarters of the world's population depend on natural traditional remedies.
• The turnover for drugs derived from genetic resources was between US$ 75 billion and US$ 150 billion in the United States of America in 1997.
• The gingko tree led to the discovery of substances which are highly effective against cardiovascular diseases, accounting for a turnover of US$ 360 million per year.

As environmental degradation continues to adversely affect health, we can hardly afford to lose possible cures.

The study's prescription for policy makers is to stop thinking of ecosystems and biodiversity as public assets that have no price:

• rethink today's subsidies to reflect tomorrow's priorities;
• reward currently unrecognized ecosystem services and make sure that the costs of ecosystem damage are accounted for, by creating new markets and promoting appropriate policy instruments;
• share the benefits of conservation;
• measure the costs and benefits of ecosystem services.

The study authors explain:

Expressed in the language of finance, the global economy is "short an option" on climate change and on biodiversity and needs to pay a premium to buy protection. The Stern Review's most quoted result, that a 1% per annum cost would be needed to protect the world economy from a loss of up to 20% of global consumption, is an example of such an "option premium".

Phase II of TEEB will take place 2009 - 2010 and will include more targeted reports and assessments of how ecosystems may respond to various policy initiatives. It remains to be seen if governments will jump in to solve the biodiversity crisis as quickly, and with as much investment, as they did to solve the financial crisis.

Further Reading:

• UN Biodiversity Conference Part I: Highlighting Wildlife Loss Around the World
• UN Biodiversity Conference, Part II: Protective Steps and Future Plans