The Environment on Sale

In our rush for growth, the environment is frequently forgotten. Economists will point out that the environment is an externality, namely that we do not considered it in the price of an activity and is therefore not efficiently rationed. I do not disagree, but I can’t help but dwell on why the environment isn’t considered. Is it because we don’t value it and therefore disregard its destruction, or is it because we value it so much that we fail to put a price on it (which would be a grand irony)? Is it possible that we thought the environment would just regenerate itself?

If you asked the ghost of economics past, it might state that the environment is a commons, and therefore cannot be owned. Lacking ownership, the incentive of all is to use as much as possible, and thus end up at the scenario so aptly defined as “the tragedy of the commons”. Just a lazy way of saying a failure of pricing in my opinion (c’mon ghost). In these times, almost everything is owned, as the idea of the modern nation state has taken hold and we have all drawn borders. If it is owned, it should be valued, and by that I mean someone needs to either make it completely off limits (and thus remove it from the market altogether) or put a hard and fast price on it. An infinitely complicated issue is the atmosphere, but I’ll get to that another day.

Which brings us to Ecuador, which is in possession of 10,000 km2 of possibly the most biologically diverse real estate on the planet, called Yasuni National Park. To put things in scale, the breadth of just tree species in an average hectare* of Yasuni is equal to that for all of the US and Canada combined (putting us to bio-diverse shame if you will). But Yasuni doesn’t only have species galore, it also is resting upon an estimated 900 million barrels of heavy crude. Now we have proven quite good in the past at finding prices for heavy crude, a tradable commodity that the international community freely trades for. However, bio-diversity has a less stellar record, leaving Ecuador shouldering the environmental burden of Yasuni, and foregoing oil profits amounting to $7 bn (around 13% of GDP). Quite a heavy cross to bear.

But Ecuador has fought back with an innovative, and dare I say, wily plan. Under the government of Rafael Correa, a challenge has been issued to the international community to help save Yasuni, dubbed the Yasuni-ITT Proposal. The deal is this: Ecuador is willing to leave the national park intact in exchange for a cool $3.5 billion, essentially half of what the government would have recognized from drilling. Not the most irrational of positions, and by placing a price on the value of the intact park, Ecuador has shifted the burden outside its borders for the responsibility of this ecological preserve**.

Ecuador has taken an important first step, and time is yet to tell on what will happen. Will countries respond to this proposal, or look to it more as a threat, like the environment held hostage? Also, in all fairness, what guarantees are there that no drilling will be done, and what type of recourse is there? Results have been discouraging, with no country taking the lead on this position as the clock ticks down to 2012, the date the Ecuadorian government defined for the first $100 million.

In the end, it all comes down to money – our whole system is based on mechanisms that just plain ignore the value of the environment, and thus we should not be surprised that we are losing all the beauty around us. Ecuador has taken the first step to addressing – they have put a price on it, and I hope they will be fully transparent as to what exactly they are selling. Better yet, saving Yasuni could set the stage for international commitments to save the world’s most valuable ecological resources. And once we start truly pricing the environment, maybe then we might learn to truly value it.

* a little bit bigger than a soccer pitch

** For all of us climate change hawks out there, the deal gets spiced up by the easy 436 million tons of CO2 saved by not drilling as well.