Economic policy assessments should incorporate the monetary value of the benefits that people derive from ecosystems, an EU Commission study has said, calling for establishing a separate indicator to complement the conventional gross domestic product (GDP).
Integrating this indicator, known as gross ecosystem product (GEP), in the decision-making processes would allow for better capturing nature’s contributions to the economy, according to the report by the EU Commission’s Joint Research Centre (JCR) and Netherlands’ Wageningen Economic Research institute.
“The supply of ecosystem services, such as crop pollination and water purification, are of great importance to any economy, both directly and indirectly. However, most assessments use GDP as the main economic development indicator,” said the study.
“The concept of GEP, which summarises the value that ecosystem services provide to the economy in monetary terms, is a way to overcome these shortcomings in policy assessments. It also allows assessing the impact of particular policies on the overall condition of ecosystems.”
Ecosystem services are widely recognised as extremely important to any economy because of the benefits they provide to businesses and society.
However, estimating their economic value can be challenging, as many of these services do not have well-established volumes, prices, or markets.
In light of that, the study developed a method to link ecosystem flows and their values to existing macroeconomic indicators.
MISSING PIECE
JRC researchers simulated a scenario in which the increase in consumption of proteins of plant origin leads to an overall decrease in livestock demand and changes in land use.
“The change in consumption patterns would record a positive, yet very small, economic impact on EU GDP: an increase of 0.01% in 2030 compared to the reference scenario,” the study said.
“In contrast, the GEP index would increase by 1.5%: this corresponds to 2.3 billion euros, a significant economic impact that GDP missed almost entirely.”
According to the study, this approach allows for examining the effects of different policies on both GDP and GEP, enabling decision-makers to integrate natural capital into broader economic strategies.
“The way we manage our natural capital will play a key role in determining how well our economies can prosper in the long run,” the authors said.
“To assure nature-inclusive policymaking, we need to introduce innovative measures and make ecological information an integral part of the decision-making process.”
Governments worldwide are taking steps to incorporate the value of ecosystem services into policy planning frameworks, as they implement the Kunming-Montreal Global Biodiversity Framework (GBF) and strive to achieve the UN Sustainable Development Goals.
China has recently become the first country to adopt GEP in economic planning, while the Netherlands and Iceland have decided to reflect the value of ecosystem services in national accounts.
The World Economic Forum calculated that more than half of the global GDP, equivalent to $44 trillion, relies to some extent on nature.
Yet, according to a separate study led by a University of Hamburg academic and published earlier this year in Science, governments have so far fallen short of assessing the actual monetary value of ecosystem services by up to 180%.
The EU has long sought to promote alternatives to GDP and started developing a new set of wealth and wellbeing indicators as early as 2007. Supporters of a wellbeing economy say this would require focusing on the long-term prosperity of all generations as well as promoting a healthy planet.
By Sergio Colombo – sergio@carbon-pulse.com
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