Read This: The New Economy of Nature

For Christmas, among other things, my girlfriend gave me a book entitled: The New Economy of Nature by Gretchen C. Daily and Katherine Ellison.  I’m currently about halfway through the book, but so far, I’ve found it very interesting.

The book begs the question: how would the actions of firms, individuals, and governments change if we placed an explicit monetary value on nature’s services?  For example, what if a firm’s balance sheet explicitly included the value of water purification or carbon sequestration derived from preserving their land?  What if someone who valued clean water from a river passing through his property could offer to buy the rights to pollute from others upstream at a price clearly specified on an open market?

These and many other interesting topics are explored.  One of the most important topics in the book deals with New York City in the 1990s.  Due to an outbreak of cryptosporidium parvum, the city was forced to make serious changes to its water supply.  The first option they considered was building a new water filtration plant.  The expected cost of this plant neared $6 billion, plus yearly maintenance costs.  The second option, revolutionary at the time, was to revitalize the natural Catskill and Delaware watersheds by buying up land and ceasing human development in these watersheds.

Of course, the second option infuriated real estate developers and the like, who lobbied furiously for the first option, claiming the economy would be severely damaged by limiting development.  However, the second option was estimated to only cost around $1.5 billion, with smaller annual maintenance costs than the first option.

The conservation option won out, on economic grounds, and although at its completion cost around $2 billion, the savings from this option versus a new filtration plant were enormous: approximately $4 billion.  Even if you include opportunity costs from lost development, nature’s services are still much cheaper than building a new water filtration plant.

Personally, I believe it is very important to weigh the use of nature’s services against development in any applicable situation.  Furthermore, because values are determined by supply and demand, and the supply of nature is constantly being reduced while demand (due to human population growth) for services it can provide is constantly increasing, the marginal value of nature’s services is increasing every day.  Because nature’s services are sometimes cheaper than human services, and nature’s services are becoming more valuable every day, it is important to always consider using nature versus machines to solve our problems every day.