Pricing natural assets could spur green growth - World Bank

Declining stocks of forests, farmland, fish and other natural resources threaten to derail economic growth around the world and curb progress against poverty, the World Bank warned on Wednesday.

To prevent this, countries need to move toward more resource-efficient “green growth”, said Rachel Kyte, the bank’s vice president for sustainable development.

“For the past 250 years, growth has come largely at the expense of the environment,” the bank said in a report. But at the rate natural resources are being used, “we are in danger of undermining the basis on which growth has been achieved,” Kyte warned.

Changing that will require policy shifts, such as ending government subsidies that promote wasteful use of fuel and other resources, or investing more in green technologies and infrastructure like urban public transit systems, Kyte said.

Equally important will be transforming the way GDP is used to measure economic progress, to put a value for the first time on currently free natural assets, like clean water and standing forests, and the benefits they provide, Kyte said.

Coastal mangrove forests in Thailand, for example, are worth about $860 a hectare, the value of their wood. If that wood is cut down and the land turned over to shrimp farming, the value rises to some $9,500 a hectare, Kyte said.

But coastal mangroves play a big role in protecting vulnerable communities from coastal flooding, as they trap and slow floodwaters – a function with no economic value up to now.

Under a new pricing methodology recently approved by the United Nations, a hectare’s worth of standing mangroves in Thailand has a flood-control value of $16,000.

When it comes to determining what to do with coastal mangroves, “you make a different set of decisions with those numbers,” Kyte said.

‘GDP PLUS’

So-called “natural capital accounting” could also put a value on the functions of protected forests, including their role in curbing erosion, providing clean water to cities, supporting wildlife and regulating the rain cycle to ensure enough rainfall for crops.

Discussion of natural capital accounting - part of a system of proposed GDP changes called “GDP plus” - has been around for 40 years, Kyte said.

But it is now gaining a wide range of new backers, including insurers, who are trying to figure out how to respond to extreme weather, which is being exacerbated by climate change, and the disasters and insurance payouts that come with it.

Governments and aid agencies too are trying to find cost-effective ways to lessen the risks of weather and climate disasters – and cutting flooding by preserving mangroves rather than building dikes could be one of them.

“It’s folly to keep spending these amounts of money year on year if there was something we could do to make development more resilient in the first place,” Kyte said. That’s particularly true at a time when economies are flat or shrinking, she said.

Not all countries are eager to embrace natural capital accounting. Some are concerned that drawing up a balance sheet of natural assets could make them appear less attractive to investors than their competitors. 

Others argue that, even if a mangrove forest in Thailand earns a high societal value for providing flood protection, that may make little difference to a villager with a machete who’s more concerned about getting firewood for today than protecting her family from any future flood.

Nonetheless a number of countries – including Colombia, Costa Rica, Madagascar and the Philippines - are already experimenting with the new natural resource accounting, and a few – Botswana, Australia and Spain – have pilot programmes underway.

With its huge stores of natural resources, Africa in particular stands to benefit from tallying and protecting its assets, Kyte said.

GDP as a measure of economic growth was created during a time of crisis in 1939, as countries facing World War II were trying to figure out how to pay for it, Kyte said. Now, as climate change brings new threats and resources grow scarcer, “we think we’re in a crisis today, of natural resources,” she said.

With world leaders set to gather in Rio de Janeiro in June to discuss ways to promote green growth and make better use of the earth’s resources, promoting natural capital accounting may be a way “to move the ball forward”, Kyte said.