Session summary

In Session 7, The Economics of NbS: moving from evidence to decision making in policy, finance and infrastructure investments, speakers discussed using economic valuation as a tool in motivating stakeholders and decision makers to action, helping them consider the benefits that nature can provide. Session chair Erin Gray introduced the session by calling for the need to shift to a new economic paradigm, and spoke to some key policy shifts required, including moving beyond GDP as the system goal, recognition and analysis of distributional impact, inclusion of a wider set of ecosystem services (eg. cultural), the need to look at qualitative aspects beyond cost-benefit analysis, and understanding that value systems and behaviours are motivated by more than cost and price.

Edward Barbier focused on how we can use economic valuation effectively to address the central issue: that nature is underpriced, undervalued, and underfunded.

“An issue with economically valuing nature is that you can’t value everything – it will always be undervalued. However, if you can value enough elements to flip the decision from e.g. deforesting to protecting mangroves, then such valuation can help bring change.”

He presented three important considerations when valuing NbS. First, valuation must be tailored to the local context and must be based on reliable, scientifically-valid economic methods. Currently, many valuation studies are still relying on ‘second-best’ valuation methodology, or often transfer costs from other contexts without properly adapting them. Second, we need to move beyond merely monetization of the loss of ecosystem services, and look at wider economic impacts including the effect on employment, distributional impacts, and multiplier effects in surrounding economies. Third, we must be explicit about who wins and who loses from NbS implementation and nature degradation. For example, in a case study assessing the costs and benefits of developing a shrimp farm in Thailand, which would require removing mangroves, the people who gain are commercial shrimp farm operators and investors outside the local community areas, whereas those who lose are the local communities.

Next we heard about a case study about a water supply crisis in Capetown, South Africa from Louise Stafford, where she explained how a water fund model was successfully put in place to address the challenge. Water funds are based on public-private partnerships around the common goal where NbS are used to invest in keeping watersheds healthy. Scenario modelling and economic valuation, both with sound scientific foundations, as well as stakeholder engagement were among the tools used to determine the optimal areas for investment. NbS were found to be more cost-effective than grey/engineered solutions for water augmentation, while providing more co-benefits. Critical factors in the success of the intervention include the blended finance model, including downstream beneficiaries, private finance, philanthropic funding and government funding, as well as the planning for long-term maintenance and a system for monitoring effectiveness and impact.

Madhu Verma showed us how, through multiple case studies across India, agroecological transitions employing NbS can provide multiple benefits and contribute to widespread policy goals in alignment with many other Sustainable Development Goals (SDGs). A range of interventions, such as community-managed natural farming and food forests, have demonstrated tangible benefits for crop yields, carbon sequestration, avoided emissions, water retention, erosion reduction, income diversification, nutrition, and biodiversity. This macro-level analysis of influential interventions revealed the importance of social capital, that community-led co-production is needed to ensure long-term sustainability of an intervention, and that the government has an important role to play in nudging agroecological transitions through policy, infrastructure and funding.

Lastly, Yadira Mori-Clement and Florencia Zapata presented the findings of a new study on the post-covid economic recovery potential of NbS in Peru. They looked at both short-term economic recovery potential (eg. job creation, income, livelihoods, productivity), as well as long-term development outcomes (eg. social capital, resilience, food and water security, climate change adaptation). The NbS cases they looked at showed high potential for green job creation and livelihood support, as well as mostly positive outcomes for climate adaptation and ecosystem resilience.

Key take-homes

• Economic failures result from under-pricing and underfunding nature. Proposed solutions include:
  – Phasing out environmentally harmful subsidies.
  – Taxing damaging activities.
  – Using revenue and savings to invest in nature.
• There is an enormous funding gap ($890 Bn) for nature. Measures (e.g. tropical carbon tax) can help bridge this gap, but need careful flows.
• Sending a signal nature has value means that wider markets will follow, encouraging further sources of finance. However, we need to ensure that that finance, when made available, gets to the people and projects that need it most. We do that by asking local communities what are the problems they are facing and asking them what the solutions are and working from there.
• Recognition and implementation of NbS will require a new economic paradigm.
• Broader valuation is needed, tailored to local contexts, but based on robust science and economics.