Policymakers should recognise and properly assess the economic risks posed by ecosystem ‘tipping points’ (ETPs) in order to preserve global financial stability, according to researchers.

A study released by the University College London (UCL) Institute for Innovation and Public Purpose and the Global Systems Institute at the University of Exeter examined the possible impacts of ETPs on the global economy.

“Stable natural ecosystems underpin all economic activity,” said Lydia Marsden, from UCL’s Institute for Innovation and Public Purpose.

“Pressures on nature from human activity – such as pollution, deforestation, and climate change – are increasing the risk of ecosystem tipping points … [that] would compromise the many vital services provided by these ecosystems to the economy.”

The concept of tipping points refers to irreversible and rapid changes that can occur rapidly and on a large scale, which would have catastrophic societal and economic impacts if crossed.

Such events can “reverberate globally”, researchers said, with effects including reduced food and energy security and damage to buildings, croplands, and infrastructure – with financial costs for households, businesses, and governments.

KEY ETPs

The study identified five key ETPs that could threaten Earth system stability, compromising the services provided by these ecosystems to the economy:

• The dieback of the Amazon rainforest into a non-forested state.
• Tropical peatlands collapse.
• Transitions in boreal forest cover.
• Coral reef die-off to marine deserts.
• Mangroves dying back to tidal flats.

For instance, water stress in the Amazon will lead large parts of the rainforest to collapse into a degraded or non-forested state, researchers said.

Once this happens, the lack of tree cover allows fires to spread more rapidly and likely prevents the ecosystem from recovering to forest.

“A partial collapse of the Amazon rainforest would reverberate across rainfall patterns globally, affecting sectors from hydropower to agriculture to global shipping, in fundamentally unpredictable and irreversible ways,” Marsden said.

Another key insight from the study is the effect that ETPs have on climate change.

As the researchers underlined, the Amazon rainforest, tropical peatlands, and mangroves sequester around 220 billion tonnes of carbon – the equivalent of around 20 years of global CO2 emissions based on the current rate. Without these ecosystem services, staying below global warming of 1.5C would be impossible.

SIGNIFICANTLY UNDERESTIMATED

“Preventing these changes from happening should be of utmost importance to any policymaker tasked with preserving economic and financial stability,” Marsden said.

Despite the importance of preserving natural systems, ETPs have largely received less attention than climate change.

According to the researchers, those critical thresholds are not well represented in economic models that aim to quantify the risks of environmental change, meaning financial risks are significantly underestimated and new approaches are needed.

“Policymakers need to prioritise these ecosystems when assessing nature-related risks,” said Jesse Abrams, from Exeter’s Global Systems Institute.

“Currently, the risks are underestimated, and action to prevent them isn’t happening on the necessary scale.”

Policymakers, including central banks and ministries of finance, should take action and step up where economic activity is involved in pressures on ecosystems.

“Policymakers should consider a wider range of economic models that can better represent the impacts of crossing tipping points, such as the fact key ecosystems cannot be replaced, and the role of shorter-term, high-magnitude shocks,” Abrams explained.

“Ultimately, a much more interventionist approach that prioritises eliminating the negative pressures on these critical ecosystems is needed.”

By Giada Ferraglioni – giada@carbon-pulse.com

** Click here to sign up to our twice-weekly biodiversity newsletter **