Economists are beginning to see the failure to properly value natural resources as one of the greatest missed opportunities in the movement to stop global warming.
Everyone recognizes that natural solutions are among the most effective ways to capture and store the greenhouse gas emissions that cause global warming, but unlike their technological counterparts, natural solutions are incredibly underpriced.
The billions spent on technological solutions to climate change that capture carbon from the atmosphere and reduce greenhouse gas emissions are necessary, but their counterparts like the natural carbon sinks of the lush Amazon Rainforest, tropical mangroves, marine seagrass, and kelp forests, and carbon capturing animals like the great whale and African elephant – are even more critical.
Why? Forests alone absorb not only twice as much carbon as they emit each year, but 1.5 times as much as the entire United States emits annually, a ratio that could be higher if not for deforestation and other disturbances that decimate carbon capturing flora.
Unlike our technological solutions to engineer the planet, the 83 million metric tons of CO2 global seagrass captures per year does not have a monetary value. Sequestering carbon for free, it's estimated that the labor of seagrass worldwide, could be worth $3 billion annually (at a price of $40 per metric ton).
For comparison, according to the U.S. Energy Information Administration, in 2019 the U.S. emitted 5,130 million metric tons of energy-related CO2, making up a fraction of the worldwide 33,621.5 million energy pot. In order to hit net-zero emissions by 2050, the Environmental Defense Fund says the nation may need to capture as much as 1,850 million tons of CO2 a year.
Technology like direct air capture charges hundreds of dollars per ton, with a current receipt of $3.5 billion set aside in Biden’s Infrastructure Package. Still, even with our most expansive initiatives, like the Department of Energy’s Carbon Negative Shot (which aims to drive down the price of CDR technologies like the direct air capture of carbon dioxide to $100 per ton), seagrass bests our mechanics.
Yet, due to human impacts such as air pollution, destructive coastal development, dredging, and fish removal, seagrass meadows have decimated by 10% every decade between 1970 and 2000.
In imagining how much carbon assets like seagrass could capture if conserved and protected properly, Geneva Macro Labs (Gemlabs), a self-described “Think-and-Do-Tank,” held a "Valuing Natural Capital" conference in September. In collaboration with the United Nations, key researchers from Harvard University's Department of Economics, and FootPrint Coalition, the conference aimed to promote scalable, tangible solutions for climate change at the intersection of climate and finance.
The key, the group determined, is natural capital, or rather, rethinking nature as a monetary asset.
What if seagrass – which has both a direct impact on the biodiversity of the ocean and an economic impact on maritime markets – was integrated into our supply chain? Or what if protecting it was a well-paid job? At present, this grassy underwater capture tech is diminishing by 1.5% each year. Nontheless, this “blue carbon sink” sequesters carbon in both their biomass and in the sediment below them, amounting to 40 times faster than sequestration on land.
According to the report, despite their nobility, attempts at saving it like the UK’s “underwater gardening” project have proven limited. But, what would conservation, restoration, and carbon sequestration look like if we could pay assets like seagrass for their (literally) world-changing services?
How much is nature worth?
For centuries, humanity viewed nature as the source of economic wealth. Six hundred years ago, the pre-Columbian Incan Empire in the Andes divided the Earth into three communities: the wild or natural world, the human and domesticated world, and the sacred world. This notion, which guided ancient economies, is still very much alive in modern Indigenous barter markets used to sustain both people and nature throughout the highlands of the Peruvian Andes.
And the U.S. may begin to take a page from these ancient civilizations. Earlier this year, the Biden Administration announced a new initiative – inspired by Indigenous and rural communities stewarding natural assets – aims to develop an economic model that puts nature “on the country’s balance sheet.”
Governance mechanisms that place a value on natural capital like the developing national strategy, are crucial if we are to see any significant change in global emissions, according to the Gemlabs report. The paper posits a harsh reality: many attempts to “engineer our climate” are still in scaling stages, and at present “none have managed to substantially lower global CO2 emissions.”
Techno-capture is vital, but a key focus should, in tandem, be on enhancing the planet’s natural capacity to absorb and sequester carbon dioxide. (Some new technology companies, like Living Carbon, are combining the two -- genetically modifying plants so that they sequester more carbon dioxide.)
In the most biodiverse region in the world, the Amazon basin can store 100 billion metric tons of carbon, more than ten times the annual global emissions from fossil fuels. But, it remains threatened by deforestation, because of the profits generated from destroying, rather than preserving the land).
Kelp forests, one of the most efficient absorbers of CO2 in the world, use carbon from the atmosphere to grow. In Australia alone, a study revealed they account for 30% of blue carbon (carbon captured by the ocean) sequestered throughout the island and 3% of the total blue carbon budget. Otters act as guardians for the kelp forests, protecting them from urchin overconsumption. These guardians help kelp forests absorb 12 times more carbon, totaling a value of $200-400 million.
Each great whale sequesters up to 33 tons of CO2, on average over its lifetime, which, when it dies, sinks to the ocean floor and remains sequestered there. Over the course of its life, the whale captures the equivalent of $2 million worth of carbon.
In addition, by increasing phytoplankton's productivity, whales capture another 37 billion tons of CO2 annually. Overall, whales by themselves, contribute carbon-capturing labor equal to the GDP of entire countries like Greece and Bulgaria. Yet, over the course of the Anthropocene, great whale populations have shrunk by millions.
Similar stories can be told for mangrove forests which capture 50 to 200 metric tons of carbon per acre. Over the last 40 years, human activities have reduced mangroves by a quarter. With each hectare estimated to be worth $57,000 of carbon sequestration, in the last 40 years, we’ve lost $228,000 worth of natural capture technology. In the numbers game, that’s double the price paid for sequestration systems we’ve engineered.
The same goes for African forest elephants, who are each 24% carbon. According to carbon market prices in 2019, the services provided by an individual elephant are worth $1.7 million. Even despite the vast deterioration of their species due to hunting and global warming, the current population of forest elephants, estimated at 400,000 amounts to an ecological wealth of $680 billion.
These are billion-dollar species. And while federal and local governments are no strangers to conservation and restoration initiatives, protection and cultivation of keystone species as assets, for example, is an alien concept in modern economics.
Simple conservation efforts, more often than not, collide with Western economic development goals and are often financed through philanthropic efforts.
Despite government regulations and individual species success stories of previously endangered species, the report from Gemlabs asserts that largely, natural reserves and protected areas have failed to make a significant dent in preventing their deterioration or expanding those ecosystems.
So to reduce emissions, we must enhance the capacity of the natural carbon sinks like the Amazon, mangrove forests, seagrass, elephants, and whales.
To do this, the authors assert that we need to answer the question: Can we reduce emissions by paying for natural carbon capture?
The paper proposes pathways through policy and private enterprise, and gives seven possibilities for preserving natural capital.
Increasing regulation includes reestablishing natural reserves and protected areas as economic assets, environmental taxation, payment for ecosystem services, and supply chain management for protection. Financial solutions range from integrating nature into the blockchain and creating a social climate fund, to establishing green bonds.
Some nations already are implementing these solutions.
Paying the ecosystem around the world
A key example is one of the smallest countries on the planet: Bhutan. Known officially as a Buddhist kingdom, Bhutan sits in the Eastern Himalayas with dramatic landscapes of subtropical plains, steep mountains, and valleys.
As one of the world’s 10-most biodiverse regions, the conservation of 60 percent of its land under forest cover is mandated by the Bhutanese constitution.
More than half of the country is legally protected – the most in all of Asia – and the majority of its intact forests are interwoven with free-flowing rivers. The small country provides water for one-fifth of the world’s population. That’s nearly 1.6 billion people, or rather, 10,000 times its own population.
With so much of the world dependent on it, in 2010, Bhutan established an innovative conservation program known as a “payment for ecosystem services” initiative or PES.
Essentially, a PES mechanism pays landholders for managing ecosystems in ways that benefit others, providing the landowners with an incentive to maintain ecosystems, now seen as a natural capital.
Despite challenges such as forest tenure and transaction and monitoring costs, the PES system in Bhutan has proven useful over the last 12 years and in 2020, was renewed for the next 5-10 years.
Initiated in 2010 in Yukpugang, under the agreement, community members were incentivized to protect the forest from excessive grazing and over-harvesting. Through the payment program, the community was not only able to protect their water source, but guarded against illegal logging and planted new forests to naturally remove CO2.
On the other side of the planet in South America, several types of natural capital government mechanisms have been implemented.
Belize’s Marine Protected Areas or MPA network delineates permitted and non-permitted zones for fishing, protecting 7.6% of their waters. If increased by 10% it would be considered a successful conservation effort of marine biodiversity.
Not only are the zones government-enforced, but Spatial Monitoring and Reporting Tool (SMART) has enabled patrollers to monitor hunting and fishing leading to an 85% decrease in infringement on protected marine areas.
Next door in both Costa Rica and Columbia environmental taxations are established for carbon and liquid fossil fuels respectively.
Costa Rica’s taxes, which have been implemented since 1997, has restored and protected a quarter of land across the country and generates 26.5 million Costa Rican Colóns of revenue each year. The revenue is then given to farmers and landowners to fund the restoration and protection of their property. In Columbia, tax revenue from fossil fuels is used to fund projects to protect forests.
While taxation programs have drawbacks like weak predictability for emissions reduction, it puts a direct price on carbon and raises the price of pollution, making it a popular option in North America, the European Union, and South America.
How can we finance natural capital preservation?
Protecting and leveraging natural capital doesn’t stop with regulatory innovation. It will require the development of both new private finance options and a well-developed market.
And unlike their government counterparts these financial vehicles are mostly theoretical at this point.
One potential solution could be through tokenization and decentralized finance. Tokenization creates a digital twin of an asset, like a virtual carbon-capturing elephant.
The right to this digital elephant or even the idea of it can be transferred and traded as a whole or in fractions. Working similarly to a blockchain, we would be able to identify individual species or entire ecosystems as possible recipients of conservation and restoration payments in exchange for carbon credits. A slew of startup companies and nonprofits (like EcoSapiens and Project Ark) are trying to link cryptocurrency based tokens to natural assets which can act as carbon sinks.
Carbon credit programs are controversial because they permit their owner to emit a certain amount of CO2 into the air. The goal is to allow companies and individuals to account for their unavoidable emissions by buying them. While carbon credits, in theory, account for ecosystem damage, that isn’t always the case.
The report outlines other challenges to DeFi solutions like that lack of an internationally accepted standard for Nature-Based Solutions and absence of regulatory oversight. In addition to being a risky investment, blockchain-based solutions raise issues of sustainability in themselves, considering the cost of blockchain mining, and their own carbon emissions through often their intensive use of electricity.
However, in the event that it's regulated properly, a DeFi solution could create an international exchange of carbon trading credits and carbon capture solutions, setting the stage for demand for investment into environmental welfare projects, according to the report.
Gemlabs also analyzes the viability of a social climate fund. Currently, money made from programs like carbon offsets and environmental taxation often goes to fund things other than conservation and restoration work. With a climate fund, the revenues from these programs could go back into the planet, creating a social climate fund used to finance preservation efforts like Belize’s MPA and Bhutan’s PES, as well as green transition efforts.
Key benefits would make carbon credits less volatile. However, the challenges are similar to those of DeFi solutions: risk for lack of return on investment. A social climate fund may also face political pressures, if the results don't meet the public’s expectations.
A lighter version of a social climate fund could be the expansion of green bonds to include direct financing towards restoration and preservation. In this option, there is an encouragement for bond issuers to change to greener business models. Much like a rewards system, the bonds offer issuers the opportunity to receive cheaper funding, in return for investing in sustainable projects.
The green bond market is huge. As of 2021, the size of the green bond market was roughly $1.6 trillion, growing annually by $523 billion. Over the past few years, the green bond market has been growing exponentially. In 2015, it was only worth $104 billion and is now targeting a $5 trillion market by 2025.
However, the lack of a governing body to protect against greenwashing, also holds green bonds back from reaching their full potential. According to Gemlabs, it raises the question of why no governing bodies have yet to step up and strengthen regulations.
The bottom line is that GDP is no longer a sufficient indicator of a nation’s wealth, and instead gross natural product needs to be a part of the equation. Harvard researcher Adam Wood refers to this equation as a “triple win:” a win for nation states, their constituencies, and the environments that we live in.
It will require a total reimagining of our economies with this triple bottom line in mind. Yet the rewards would be monumental.
Achieving it would protect the environment and regenerate biodiversity, all while reducing our carbon footprint and increasing the sequestration ability of nature. Accomplishing this requires government and private industry to work together, by mobilizing a workforce for both economic and ecological gains, financing an environment devoid of pollution, and regulating the finance options to prevent participants from greenwashing efforts.
"The inextricable link to every effort -- every opportunity -- must consider economic interdependencies between government and international organizations, industry, academia, and media," wrote Adam Wood, a researcher in Harvard's Department of Economics, in a text. "It is no longer sufficient for us to expect to achieve a sustainable future without dilating the aperture. Even if there was no discontinuity between the policies advocated and subsequent actions, the unit analyses have forever changed."
For Wood, adopting a broader view of wealth that includes nature is the means to create the "triple wins" for nations, their people, and the planet.