Book Review

The New Economy Of Nature, (2002, Washington DC: Island Press).
Written by: Gretchen C. Daily and Katherine Ellison

Reviewed By: Greg Buzzell, December 2008

In The New Economy of Nature, Gretchen C. Daily and Katherine Ellison take readers on a journey through several case studies; examples of how economics and business ideology can be used to help efforts of preservation and conservation of the earth’s natural resources.  They present stories of optimism and hope for two types of people.  First, they give hope to environmentalists and naturalists who may have become frustrated with the status quo and run into road blocks along the way; they give examples of unconventional ways of helping the earth to become more sustainable.  Second, they give hope to those who would like to profit from a business friendly conservation movement.  There are business interests waiting in the wings to profit from any movements in this arena.  There is a common theme throughout the case studies: people are attempting novel approaches to the conservation effort.  Whether this optimistic new approach to conservation will lead to actual concrete results is up for debate.  Does the earth have the luxury of waiting for the verdict?

Summary of Case Studies:

The New Economy of Nature is a series of case studies, or examples, of instances where advocates for the environment and nature have used economic reasoning and market incentives to accomplish their goals.  The book opens with a description of Adam Davis and his idea of the future of conservation efforts.  His ideas culminated at the first Katoomba Conference, held in Australia in April of 2000.  At this conference Davis presented his idea to potential advocates and investors, his idea to create a Conservation Exchange a new market-place where buyers and sellers could come together to trade conservation credits, or environmental service units (ESU) just like stocks on the NYSE; ESU’s are a measure of services provided by nature that are currently not part of the broader economy.  Buyers of services would be, for example, energy producers looking to buy carbon offsets for their pollution, and the sellers would be the landowners of forests that are able to capture the carbon through natural sequestration processes.  The trading of carbon credits attempts to put a value on services provided by forests; for example carbon sequestration.

One of the clearest studies in the book of profiting from nature is that of the New York Water Conservancy project.  This project involved taking steps to allow nature to filter water for the millions of people in New York City instead of building a massive water filtration facility.  New York City gets its drinking water from the Catskill Mountains which is filtered naturally through a complex system of reservoirs, lakes, marshes etc.  Only at the very end of the process are chlorine and fluoride added to kill any bacteria that remain.  However, as population north of NYC exploded, and more fertilizer and chemicals seeped into the water, something had to be done to preserve the purity of the drinking water for more than 8 million people.  After much analysis, the DEP allowed NYC to go about purchasing land in the water basin north of the City in order to preserve and use nature for its water filtration services.  The City bought up farm land to prevent use, paid existing farmers to refrain from using chemical fertilizer, and bought forests and acres of land surrounding the river basin that would help naturally filter the drinking water.  While the land purchases were expensive (a price tag of $1.5B), using nature’s resources were certainly less expensive than the new filtration treatment facility that was being proposed ($6-$8B).

In Australia, John Wamsley has been able to turn a profit while protecting nature at the same time.  He has set up a nature sanctuary that promotes biodiversity of native Australian flora and fauna.  He has found that tourists are willing to pay a cost of entry to witness nature as it was intended; Australia’s unique mix of animals and plants offer tourists an attraction that can’t be missed.  After a long process of purchasing land, replanting native trees, and ridding the land of non-native cats, Wamsley has enabled his Earth Sanctuaries Ltd (ESL) to make a profit and to be listed on the Australian Stock exchange.  While ESL provides tourism services that customers are willing to pay for, nature is providing services even for those who are not paying.  The native trees help with water absorption and runoff, carbon sequestration, and also provide a home for native animals.  The maintenance of biodiversity provides benefits that may be unseen and unheard, but are imperative nonetheless; natural pollination, fertilization, and filtration are often services that go unnoticed.  Assisting the Conservancy in its attempt to return to a more natural state has provided for John’s family, investors, as well as many others in the form of natural aesthetics and health benefits.

In Napa Valley California, severe flooding is a tragedy that is all too familiar and common.  Settlements built too close to the natural floodplain have caused millions of dollars of damage on a regular, recurring basis.  The question became how to deal with it.  Traditionally the U.S. Army Corps of Engineers proposes a complex system of levees and dams with high concrete walls to ‘contain’ the river.   While the walls and dams might temporarily alleviate flooding in Napa Valley, this only exacerbates the problem away from the flood prone area; plus it was definitely not natural or aesthetically pleasing to its residents.  The residents of the Valley spent over ten years lobbying and fighting to have nature’s true state considered in the flood protection design.  Finally, after a long fight with various bureaucracies, a plan was implemented to return the area near the river to its natural state.  This required relocation and compensation to the owners of many businesses and homes that were settled in the natural floodplain.  After moving many homes and businesses, the floodplain was turned into a natural ‘backyard’ of sorts onto which restaurants and bars could look out, and tourists and residents alike could go and visit.  Downtown’s natural beauty became an asset that Napa Valley could market, which ultimately increased property values, and attracted tourists willing to spend money while simultaneously returning the river to a more natural state.  Residents, business owners, and visitors to the area have all benefitted in the process.

Common Themes:
The most obvious common theme throughout all of the case studies in the book is that economics can play a role in nature’s conservation.  The supply and demand of nature’s services are coming into prominence more frequently.  Too often these services (such as clean air to breathe and pollination of crops among many others) are considered ‘public goods’.  The premise that nature’s services are not just ‘public goods’ anymore, but actually carry a monetary value, will have massive implications to the future of nature’s services.  What Daily and Ellison were trying to convey is that it is possible to capture nature’s inherent value for profit while simultaneously helping the environment.  The fact that these services provided by nature are becoming scarcer is the one of the reasons why the authors argue this will work.
Pros:
The New Economy of Nature does a few things well.  As previously stated, it gives clear examples of how combining economics and the environment are possible.  It is plausible to put a value on nature’s resources; it has been done.  If those values are properly determined and required payment like all other services in today’s economy, the earth would not be as exploited as it currently is.  It gives readers’ examples of how this can be done and hopes for the future.  The concrete, in depth background and personal stories make previous efforts tangible for readers.
Weaknesses:
Just as the authors correctly show how economics can play a role in conservation, they fail to address certain issues throughout the book.  First, they gloss over the fact that there is going to be a natural tension between a publicly owned company’s goal of maximizing profit, and preserving nature.  They do not address this nor mention how it could be remedied.  In the instance of the nature conservancy in Australia, what happens when investors believe that the company would be able to earn more profit if it built a hotel on the property, or put in a theme park for instance?  Will nature be sacrificed for profits?

Another issue they fail to address is that some of nature’s services are too intertwined or small to measure.  For example, how much is a single invertebrate worth in the grander scheme of biodiversity?  How much is someone willing to pay for an earthworm to aerate the soil?  Not only is it impossible to measure certain services that nature provides, but in order to properly value these services, ownership must be assigned.  The earth’s services are global phenomena.  How does one assign ownership for the atmosphere or clean air, or pollination that bees do that may cross property boundaries?  This book fails to address this.

One last issue that Daily and Ellison fail to address is the necessary role that government must play in regulating and monitoring both nature’s services as well as the value of them.  Because most of nature’s services are a global phenomenon and have a ‘public good’ virtue inherent in them, no single country, business or person can lay claim to them.  The role of government in regulating and requiring domestic industry is required.  For instance, without a government limit as to how much CO2 a factory may release into the atmosphere, there are no incentives for companies to place a value on the pollution because it will just be carried away by the wind.  Pollution can theoretically be infinite unless capped by a regulatory body.

Going Forward/Conclusion:
Ellison and Daily do a very good job of providing examples of how this new type of conservation could work.  While there are some shortcomings of the book, the overall message shines through.  There are other alternatives to conservation than traditional NGO’s and government agencies that have been in existence and seen limited progress, and there are parties willing to try them.  Perhaps this model of conservation is better than the government or NGO model.  Maybe there is a hybrid model out there that is better than anything.  Hopefully it isn’t too long before the earth benefits.

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