Sian Sullivan from Birkbeck University of London has a nice piece over at on whether we should price nature. The main points are that

 “[t]he current ‘green economy’ discourse on ‘valuing nature’ tends to mean the insertion of economic values for ‘nature’ so that calculated units of nature can become more visible in ‘the current economic paradigm’ and thus incentivise ‘greener’ economic preferences… A key question today, then, is whether or not the evaluative framework associated with the current economic paradigm is indeed the appropriate framework to use in attempting to resolve environmental and economic crisis.”

Sian Sullivan then goes to suggest that

“… by making the category of nature more and more legible to capital and market logics we may in fact be enhancing its exposure to market failures… because there is nothing intrinsic to capitalist market logics that encourages ethical behaviour.”

Furthermore, nature

“… can become a new source of monetary income (e.g. through Payments for Ecosystem Services and REDD+ carbon credits), and be leveraged as new forms of value-generating capital asset… it is very unclear how making nature even more legible as capital will counter, rather than intensify, the massive vested interests pulling the world towards greater inequity and environmental volatility.”

I like her discussion, somehow, because her blog makes an economist’s head spin! In a good way. Since it makes us think again about why we use markets or create them and whether that has always the desired effect. Basically, Sian suggests that we should be very careful when we create markets for nature, because these markets may have undesirable side-effects like reducing social norms/ethical behavior, and, by placing a price on nature, we may make it easier to sell nature. While I agree that there is some substitution effect with social norms/ethical behavior, I have a hard time buying (hehe) her second argument on selling out nature. So step-by-step.

Why do we create markets for nature if there were none before? Simply because there were market failures or an absence of property rights that make it necessary to price nature! Thus, if it was previously costless to dumb waste into the ocean and now we put a price on the impact of the waste on the ocean system, then this is raising the costs of the polluters. If this cost is sufficiently high (i.e. higher than e.g. recycling the waste) , then the valuing of nature helped to reduce the impact of waste dumping.

Similarly, if there was a forest and everyone could cut trees as much as one wanted, then a standard tragedy of the commons argument would apply and suggest that the forest will be fully cut down. In contrast, if we now create a market and place property rights on the trees, then we may solve this market failure and reduce the cutting down of the forest. That’s the way in which placing value on nature can enhance sustainability. Cap-and-trade is a similar point to note.

When is Sian right? Certainly if a market makes nature accessible where it was not. For example, for tourism, where a new tourist resorts gets opened up in a resort where there was no tourism before. But I do not believe this is a really relevant example for the valuation of nature that Sian discusses.

One point which I think partly supports Sian’s thoughts is if the valuation of nature is actually badly done. For example, the whole debate in the US on non-use versus use value and contingent evaluation following the Exxon-Valdez crash. However, a market, or a valuation of nature, in this case is still better than none, as it will lead the polluter to pay at least a part of the environmental costs that the polluter created.

Also, if nature turns out, for whatever possible reason, to be a sort of luxury good, meaning a good for which a price increase actually increases demand. I couldn’t come up with any examples though. Somone?

Conclusively, I am not entirely sure what Sian means when she writes that “… by making the category of nature more and more legible to capital and market logics we may in fact be enhancing its exposure to market failures.”

However, I can fully support her thought on the social norms/ethical behavior. This is a point that has been shown by a growing literature. For example, it was shown that asking parents to pay a fine if they pick their kids up late resulted in more parents showing up late since then they paid for it and there was no social norm attached anymore to coming late. Parents felt that they now deserved to come late since they pay for it. There are many, many more examples that point into this adverse reaction, where social norms get undermined once monetary valuations are introduced. But I also believe that sufficiently large monetary costs can more than substitute social norms.

It is also my opinion that, if society can solve problems through culture or social norms or ethical behavior, then this is much preferable than to try solving these problems through monetary incentives. The real problem, therefore, is to find out for which cases monetary incentives undermine social norms so strongly that they make matters worse. In this case, this then also requires that nature is mis-priced, since otherwise monetary incentives could fully substitute social norms. And then we are back to the start: What is a good price for nature? What do we want to achieve?