Man-made disasters: Economics of Ecosystems
View(s):Sri Lankans, more than two-three decades ago, didn’t hear a lot about disasters from floods and even earth-slips as we do today. Now, with just after a few days of rain, there are floods and earth-slips.
It is obvious that the frequency and intensity of these natural hazards have multiplied and, their negative impact on people has increased; almost every year, there are tragic deaths. The government has to spend millions and billions with greater frequency to provide relief to the victimised families.
I posed the question to some of my colleagues and friends in the relevant fields such as environmental scientists and public sector officials: Why have floods become so intensified and so frequent now?
Summaring the core of the answers in a few words it is “largely, man-made”. It means that the increased frequency and intensity of flood is a result of human activity.
eople are paying for the damages that they do or even their previous generation did for the ecological system of the country.
Thatched roof and a tiled roof
Before I move on to my usual subject area – economics, let me elaborate the “man-made” problem. According to what I learnt, people have damaged or blocked the natural water streams and caused land degradation over the years with their activities that are not guided by proper physical planning for land use practices.
Ajith de Silva, Director of Land Resources at the Ministry of Mahaweli Development and Environment whom I met a few days ago at a workshop, elaborated the issue with an interesting example: “Imagine a thatched roof covered with dry vegetation such as cadjan or straw and a modern roof covered with tiles or sheets; after a rain, it takes time for the water to drain from the thatched roof because it can retain water, but water flows out immediately from a modern roof as it cannot retain water.”
He continued: “Rain and flood issue is as same as that, but the scale is larger causing damage”.
“Just like the thatched roof, our ecological system can absorb and retain water during the rainy season and, release it gradually so that even during the dry season water streams continue to flow. But that ecological system has been destroyed now, so that even with little rain there will be immediate water flows which are large enough to cause flood and destruction; for the same reason, water streams get dried up in the dry season so that there will be severe droughts too”.
Economics of ecosystems
Ecological systems on earth are a stock of productive asset; just like other stock of assets such as capital stock or human resources, this particular stock of “natural assets” is also an essential input to both economic development and human survival.
When the stock of natural assets is used in the production process, it gets depreciated too so that its replacement or “conservation” is conditional not only for development but also for survival. Much more than that, when the natural capital is used in an irresponsible manner, it gets damaged and destroyed. Therefore, “sustainable use” is also conditional for development and survival.
The problem is, however, for other types of assets such as capital or human resources; there is a price to be paid. But for the natural assets there is no direct cash payment as such so that over-exploitation and unsustainable use can be an issue. However, such irresponsible use of the natural assets is not without a cost; as we have understood now, that cost can be high and painful.
Biodiversity “hotspot”
The topography of the island of Sri Lanka is very unique. According to Lasantha Manawadu, Professor of Geography at Colombo University, it is like a “crusted oil cake” (Konda Kewum), with an elevated hilly top in the centre and gradually sloping-down plains towards the coastal belt. As a result, it is very sensitive to human activity. All water streams originate from the central hills and form bigger streams and rivers flowing to the ocean all around the country. Therefore, any activity in the upper-streams affects people and their activities down-stream, and any activity down-stream affects the coastal belt and the ocean around the island.
Sri Lanka is categorised as a country with a “biodiversity hotspot”. This means that Sri Lanka has a high concentration of diverse species with a significant loss of original habitat. Apart from that, Sri Lanka is also located adjoining its Southern and Southwestern costal belt to the Indian Ocean Marine Hotspot. The criteria that classify the “hotspot” confirm the sensitive nature of the ecosystems that the country has inherited.
All these information on the sensitive character of the stock of natural assets in Sri Lanka points to the fact that the environmental impact of the human activities in the country, is high and painful.
Paying for externalities
Workers on a tea estate in central Sri Lanka which has many streams, rivers and reservoirs.
One of the traditional economic approaches to the conservation of the stock of natural assets is the government’s intervention through taxation. An economic activity has two types of costs; private cost and social cost. The magnitude of the latter may vary depending on the type of the production activity.
If soil degradation due to plantation or waste disposal by a factory up-stream affects people living down-stream or their economic activity, it is a social cost of the activities up-stream. But the problem is that the products of the plantation or the factory will not reflect the social cost, it would only be the private cost.
This issue of externalities justifies the intervention by the government to tax the product. However, the problem does not end there, because taxation is not a perfect solution to address the issue at source.
Paying for ecosystems services
A new economic approach to the management of natural assets is termed as payment for ecosystem services (PES). This is still new to Sri Lanka, even though there has been discussion on this. Even globally, PES is a new approach that received much attention especially after the UN publication of Millennium Ecosystem Assessment in 2005. However, it is progressing rapidly all around the world.
Ecosystem services are the flows of benefits that people, communities and, nations derive or receive from their ecological systems – the natural assets. PES is a voluntary contract between two parties – a buyer and a seller, to change the behaviour in conserving the ecosystems with a tangible win-win outcome.
Let me take the same example of a water stream: sustaining water quality and quantity of the stream is necessary for its down-stream users. This can be guaranteed only if the plantations, factories, and other economic activities up-stream conserve the ecosystems by changing their land-use patterns. They are the suppliers of ecosystems by conserving it to the users operating down-stream who buy such ecosystem services. The former will be paid by the latter for sustaining water quality and quantity.
This is very relevant for Sri Lanka where its water streams and reservoirs are used extensively for irrigation, agriculture, fishery, power generation, recreational activity, drinking water and many others. As Sri Lanka is expected to restore and conserve its stock of natural assets, PES is a market-based economic approach to that effort.
Not a panacea
PES is, however, not a medicine for all ills. The country needs to have its physical planning, regulatory mechanisms and, taxation policies in place. Rather, the PES requires strengthening of such traditional approaches in order to make the PES a viable economic approach to conservation and sustainable use of biological diversity and ecological systems.
The government has an active role to play in the PES approach too in serving as the mediator between the contracting parties. In addition, an effective and efficient application of PES also requires knowledge inputs to all three parties; the buyers, the sellers and the government who need to make their decisions on knowledge inputs.
(The writer is Professor of Economics at Colombo University)