[Interview] Climate change talks do not take nature into consideration in its economics: Partha Dasgupta

The international climate change negotiations are built on a wrong economic construct, according to eminent environmental economist Professor Sir Partha Dasgupta, Frank Ramsey Professor Emeritus of Economics at the University of Cambridge in the U.K. Speaking at length to Mongabay-India, Sir Partha explained that the economic model being used for climate change negotiations is built on the conventional GDP-based growth model practised in countries across the globe. It adds the element of climate on top of this model and if enough money is spent to mitigate the emissions, then global economic growth can continue unabated. However, this is a flawed understanding, since it does not take into consideration the importance of biodiversity and ecosystem services provided by nature.

Sir Partha was invited by the Treasury Department of the UK Government to review nature’s contribution to economics. The Economics of Biodiversity, also known more famously as the Dasgupta Review, which was published in February 2021, has resulted in natural capital accounting being accepted by many countries – the UK, New Zealand, Canada and the United States. The Review also increased the awareness on taking natural capital into consideration in economic considerations. “The idea is to look beyond flow accounts – like the GDP – to stock accounts, looking at natural assets and ecosystem. The accounts will look at how these assets look like today when compared to a year ago, or 10 years ago,” he said.

The discipline of environmental and ecological economics has been growing across the world, and especially so in India and the South Asian region, according to Sir Partha. His regret – even though the researchers and research products are of high acumen, their ability to influence policy is still limited.

Sir Partha was named as one of the four Champions of Earth during 2022 by the United Nations Environment Programme. Excerpts from his interview with Mongabay India.

Mongabay: Sir Partha, we are having this conversation when the international community is preparing to meet in Dubai for the Climate Change Convention Conference of Parties. Again, this year, like the previous years, the issue of climate finance and loss and damage funds are going to take centre stage. While one can argue that these are environmental economics discussions, why is it that even after two decades from the Millennium Ecosystem Assessment Report, the TEEB (The Economics of Ecosystem and Biodiversity) report and more recently, your Dasgupta Review, the economic value of biodiversity and ecosystem services has not come into mainstream discussions?

Partha Dasgupta: Wow, that’s, that’s a tough question to answer and I can nibble at it at best and probably will be misguided but I will have a whack at it. Obviously, I’ve thought about it a lot. And that doesn’t mean I’ve come to any firm conclusions as to why.

Well, first of all, I should say that one reason I’m less than fully impressed with the discussions, with the way the economics of climate change has developed, is that it has seen Mother Nature’s regulation of climate as the one service that she offers us. So, the technique that’s been followed in developing the entire discussion, the debate on climate change, the economics of climate change – I’m talking about the economics of it now, not the science of climate change – is that it’s planted a climate model as being the sole service provider on to a conventional model of economic growth and development, which has no nature in it. So, the one piece of nature that occurs in the normal models, that is in the climate models, is the climate. And the reason I think that subject has taken off in the sense that at least people can discuss it, and you know, we’ve had many COPs on it. Now, our work by agreement may have been slow to take is a different matter, I’ll come to that in a minute. But the reason that nobody’s questioning the language in which the discussion is taking place, is that it also enables you to think of clean alternative energy sources.

So, the thought here is that if we spend enough money; and enough money could be, say, 2% of global GDP at best per year, then over a 10, 15 or 20-year period, you can transition to clean technology and the sense that your net emissions can become zero. Once you do that, then business can be as usual, you can grow indefinitely, because there’s no other service that Mother Nature offers us. This one service, if you can get and keep to the limits at 1.5 or 2 [degrees] or whatever. That, in some sense, is why I am less than impressed, because of course, climate regulation is tied up with many other regulatory services that Mother Nature offers us, for example, decomposition of waste, or soil regeneration, or water cleansing. So, these are all related services.

My Biodiversity Review was really addressing the sum of these interlinked services, which are not substitutes of each other, they’re complementary to one another. Which means that if you press against one heavily, the others will start unravelling as well. Because these are complementary, it’s a sort of a complex system that the earth system is.

So, I think that’s what makes the economics of biodiversity subsume the economics of climate change. And I think one reason people find it difficult to think about the economics of biodiversity is that it is complex. And many of these services, the people don’t have any perception of – I mean, the average member of the finance ministry will not know anything about soil regeneration. Ministries of finance don’t have ecologist there, or soil experts. They have economists, of course, but they are the last people you would go to, to have an appreciation of the inner workings of nature, what happens under our feet, what happens deep in the forests or what happens in the oceans.

These are the ones which are churning out the services, these totality of assets are churning out these services, which many of you don’t know, because you haven’t studied them, you certainly don’t see them. These are processes, you don’t see them. And most often you don’t hear them. So you have to be sensitive enough to recognise that they’re working away. And we are making use of them.

Our own lives depend on the workings of these. Imagine if the decomposition of waste stopped, we would just have piles and piles of waste, and it would be unliveable. But silently these services are being provided by almost invisible objects – fungi, bacteria and so forth. So, I think that may be something like an answer to your question as to why it’s falling behind.

The other reason is the standard one, each country wants to free ride on the others. So, unless you have some commitment device, you can agree at every COP but then go and get on with your life as usual. So it has been a failure. And we have now in a way even within climate, of course, we go to break the 1.5 degree without any sweat. And the question is, whether it would be three or four degrees. Now people are talking along that line, and that’s terribly dangerous. So, I think it’s two things.

As I said, there are two things. One is more fundamental. And the other is standard stuff about negotiation among parties in which each one is to free ride on the others, unless you can have agreements which are enforceable.

Mongabay: I have read your statement that one of the weaknesses of the climate change negotiations is that it looks only at carbon dioxide and greenhouse gases and not at the ecosystem services in totality. Since the Millennium Ecosystem Assessment has the growing discipline of environmental and ecological economics got enough strength to push its argument with something like climate change negotiations? Because part of the problem is some of these don’t have tangible, measurable arguments. We know about pollination, but how would you put an economic value that pollination contributes? Has the discipline grown in the past few decades to be able to be included in the climate change discussions?

Partha Dasgupta: Yes, I think there has been a great deal of progress. First of all, the measurement issue, which is I think you’re quite right to point to it. I think we economists have misled the public in thinking that if you can’t measure something, or if you find it very difficult, then you bypass it. And it’s almost like saying, If I can’t measure it, I’ll pretend it to be zero. Which is a very precise number, by the way. That’s a very common tendency on our part.

Remember, there’s another set of COPs that run parallel to the climate change. And that’s biodiversity. And I think they are making moves in the right direction. They’re not saying something silly, like, let’s conserve species. Of course, there’ll be some cases where you would say, for example, charismatic species, like the gorillas. You want to conserve them, because you can see them and they’re important, they are valuable to you, or you feel awful if a whole species like that disappears. So then you want to preserve the habitat in which that species exists.

But most species, you can’t even see, we don’t even know how many species there are. I mean, think of insects. We don’t know how many millions of insect types there are in terms of species. So the alternative is really the right one, which is to think in terms of land use.

I mean, after all, they’re somewhere – in the water, in the land. And the question is, you have some sort of notion of the prevalence of species in different types of land – in different types of ecosystems, whether it’s grasslands, or whether it’s wetlands, whether it’s coastal fisheries, or whatever. And I think the latest (biodiversity) COP was right in thinking in terms of preservation of the assets as measured in terms of space, conserving 30% of land and oceans by 2030 rule, which they is in there now, is in that direction. It’s not, it would be stupid to say, if we do that we will protect so much percentage of, insects, or other categories of species, because you don’t know where they’re located or how they’re distributed in the location. So, I think the preserving the habitats is a very good move. That’s the right move to make. So now the question is, then you say how do you value that habitat? Absolutely. Right. And it’s a good thing.

First question to ask, but I think it will be specious to think that we can value them easily. We can’t do that easily. We could talk to ecologists to talk about the physical consequences of habitat losses. We economists like to think that we have to give a value. And we’ve encouraged the public to think that we have to give a monetary value without which we cannot discuss anything. But typically, say if you go to a doctor, medical doctor with the health problem, if the diagnosis will be in terms of a characteristics of what will happen if you don’t do this, or if you don’t do that, so it will be in terms of the functions, your bodily functions, and you have to make an assessment of what the consequences of that are to your psyche, or your ability to earn money, or whatever the case might be. And I think the best thing we can do when it comes to, and I’ll come back to climate, by the way, because the same problem arises there is you instead of trying to value the, let’s say, the mangrove forest, or a wetland, although they can be valued by the way. The only trouble is that the value of a wetland in one place is different from the value of a wetland in another place, depending on where it’s located. So in a way, your indicators are going to be quantitative in terms of quality of the landscape itself as to whether it’s a healthy wetland or a not healthy wetland.

Now, let’s come back to say climate change. If you think about the discussion on it, you’re thinking of the temperature, which is a limit to which you are allowed to go or you think you shouldn’t bypass, it was used to be 1.5 degrees Celsius. Right? That argument was not given on the basis of price. Nobody said that at 1.5 degrees increase, the price of carbon, negative price of carbon would be so many dollars. I mean, lots of people have the estimate, trying to estimate the social cost of carbon, by the way. But that’s not how the discussions have been taking place in the COPs, they think in terms of limiting the concentration in the atmosphere, which is related to the mean temperature, and then you work backwards to see what kind of temperature mean temperature is tolerable that we can actually withstand, and then the costs and benefits of bringing it forward, reducing it or allowing it to be raised.

So, the discussion saying almost invariably, in terms of quantities, and quantities of the stock, in this case, carbon concentration, or in the case of ecological resources, assets, it will be about the health of the ecosystems and the variety of resource ecosystems that are there. Right. I mean, you destroy all the wetlands, but keep the coastal fisheries, you’re in trouble, or vice versa, because they’re interconnected. So, we have to do that, in the end, that kind of answer analysis can only come from the ecologists, the scientists themselves, they can give you a characterisation of what kind of services will be at risk, if too much pressure is put on a certain category of assets. So I think the discussion needs to be in that form. And that’s why I think the 30X30 kind of reasoning is probably the right one to go for.

Now, the problem with that, from my point of view is really that there wasn’t very much discussion, as far as I know, but I wasn’t privy to the discussions of what happens to the 70%. Because if you’re prohibited from entering the 30%, you might want to shift your resources for exploitation on the other side, greater burden on the 70% than you would otherwise do. Which would happen, for example, in the city planning you the larger chunk of stuff that that you say you cannot build up, you want to keep it green, the more people that will be in the places where it is there is no rule. And that needs to be I think that needs to be thought through more carefully. But the main problem I feel that I face, I feel exists, is the fact that ecologists and earth scientists have not been as accommodated in the economic discussions that they should have been, I think, I mean, although as you say, Millennium Ecosystem Assessment was is a pioneering piece of work of 2005 it alerted us to the services and, and gave a classification which I found very helpful when I was writing my Review, and tried to interpret it in a slightly different way. But I think that’s the way to go rather than worrying about can you put a monetary value.  You can by the way, in special cases you can.

Wetlands can be valued in terms of the services it provides. Take one simple case – one of the services it provides is cleansing of water, cleaning natural cleaning or water. Now one way of asking the question is, what happens if the wetland is destroyed – because, say, you’re building a housing estate, or roads and so forth – is to say, how much would it cost to have a filtration plant built, because now the wetland can’t offer you that service free of charges. Okay? Now, when if you look at that price, you can then say, well, at the minimum, that’s what it’s worth. Because if we don’t have the wetland, we’ll have to build a filtration plant. And that could be billions of dollars. And then you say, well, what else does a wetland do? You talk about pollination, let’s say. Well, you can value that because you can value the productivity losses in adjacent or neighbouring fields, farm fields, agricultural fields, in fact, there has been some very nice work in that direction. One work was to find that the nearer the farms were to forest at the edge of forests, the higher the productivity was, considering other things equal. The idea is pretty straightforward – the pollinators have a range, so they’re going to pollinate the neighbouring farms more than the ones which are farther distance. And that way you can work out the differences in the productivity, which will give an understanding of the value of these pollinators to the produce.

So, there are many, many, many alternative ways of trying to plot to tease out the productivity that would be the services in terms of monetary value of these services. And I should say that there is an excellent NGO called SANDEE (South Asian Network for Development in Environmental Economics), which is now currently based in Kathmandu. Now, they have been working for about 23 years or so on precisely these classes of questions. And they’ve done very, very nice work on valuing, for example, the damage that shrimp farms caused to adjacent mangrove forests. You can work the value in terms of loss of fisheries, and so forth. So, there are ways of trying to tease out the productivity benefits of preservation of ecological services. And another one coming out from SANDEE was the value of mangroves in protecting households against cyclones and storms. It was a very ingenious study, because what the investigator did was to look at a whole sequence of line of mangrove forests along the eastern seaboard of India, in Odisha, and looked at the status of the mangrove, the quality of the mangrove forest, and plotted that against the damages to households that took place under a cyclone condition. And she got a lovely fit to show how mangrove, you can work out from that, how the density of mangrove forests, protect against extreme weather events. So, there are many ways of doing it. You have to be ingenious, obviously. But it’s not not possible.

But finally, I suspect the reason these COPs don’t take this too seriously or do not absorb it, is that these are very location specific valuations. Obviously, a mangrove forest here has a different value from a mangrove forest somewhere else, because so many parameter variables are involved here. And so what do you do then? Well, all you do, what you have to do is just like anything else, you take as many case studies as you can and then notice how it’s specific to the location, that is to say, the latitude, longitude of the location, and other characteristics of you know, mean temperature and so forth. And then see whether you can use that for general discussions over global issues. But I don’t think we’re starting from zero. There’s a lot of work that’s already been done.

Mongabay: Sir, in your INSEE (Indian Society for Ecological Economics) conference lecture in December 2021, you had mentioned that export of primary produce from poor but biodiverse countries in the tropics – that is essentially developing countries – to the western countries are at prices that don’t necessarily reflect the true price of that. We have one step where there’s an inequality built in. Over the last few decades – much of manufacturing has moved from the developed countries to developing countries. And that’s the second step. But now that there is a third step – like how the European Union has declared this carbon border adjustment mechanism, which is basically a carbon tax, you know, so that they can load the carbon tax on steel from India, etc. Isn’t this some kind of a double whammy that’s coming in? One there is a loss for developing countries, and then they are loaded with barriers which are coming into the negotiations.

Partha Dasgupta: Coming into the latter part. That’s something that I’ve been much concerned about, because there hasn’t been much work done on it because it wasn’t noticed. I think the export of primary products does involve internal externalities, that is externalities within the exporting countries such that they are underpriced. That’s pretty straightforward. I mean, if you are, let’s say just for the sake of argument, exporting shrimps and from shrimp farms. Well, the damage that the shrimp farms are causing your local communities that’s not included in the price, by definition. And if it’s not included in the price, that means you’re underpricing it. And underpricing it means that attached to your export is a wealth transfer from the exporting country to the importing country. Nobody notices it, because your national accounts don’t include it. Nobody even notices that that’s happening. It’s a very silent subsidy that poor countries are making. It’s not even a subsidy. It’s just basically a wealth transfer. As simple as that.

Okay, once you know that something should happen. How and what will happen, I do not know. Because the particular country in question would say, well, look, we can’t afford to do this. Because if we do that, we lose the market. And our neighbouring country is going to export it. Let’s say Sri Lanka says it’s going to ban or, or if they raise the price of export, that would be the better thing naturally, they ought to necessarily ban it, but compensate the damages, and therefore raise the price when they export. If that happens, they might lose that market entirely, and somebody else will pick it up. That will be the argument. So, the answer really needs to be that these countries need to get together and have a coordinated tax policy, export tax policy, because they will all gain. Remember, the harm they’re doing is to themselves, not to outsiders. Once you notice the direction of harm, there is a policy staring at you in the face. So that’s one thing.

As regards the carbon thing, that’s a much trickier one. Either you buy the fact that there is a climate problem, and therefore we need to reduce the emission. If you do then either you say, well, we’re going to cut our emissions a lot more so that you can continue emitting and therefore we won’t impose a tax on your exports, because we are compensating ourselves for the harm you’re doing. So that the global emission doesn’t change, that will be the right thing to do, I think. Obviously should be the right thing to do. It’s not going to happen. So it’s not much point in complaining about it, because the UK or the United States or the EU are not going to say, well, look, we’re going to overcompensate – we have moved our production to your side, we’re going to be buying steel from you, you’re polluting at a higher rate than we would be if we were producing it. But we may be saving money by lower manufacturing costs. We will compensate by reducing our emissions so that the global emission adds up to the same amount. That would be the right solution. But I’m not sure that’s going to happen.

Mongabay: In the same lecture you had mentioned that in the process of transfer of wealth, and you said that the developing countries themselves are sort of destroying their own ecosystem. Some of these systems are global commons, you know the forests of Brazil, Amazon or Congo or the ice in the glaciers of the Himalayas of India are not just national properties any longer. I mean, they are global commons. So at one level, they don’t get paid for the loss that’s happening to their ecosystem and ecosystem services. But, at the other level, after the Paris Agreement, you know, every country has emissions trading. At least before Paris it was in that sense common but differentiated responsibilities. Developing countries didn’t have targets, Now every country has some kind of targets – self-imposed – but emission reduction targets. So isn’t this some kind of iniquitous situation? And is there any way that this can be corrected through economic interventions?

Partha Dasgupta: Yeah, that’s a very good question. I have gone into that quite a bit in the Review myself. The examples you’re talking about giving now about the say the rainforests of Brazil just take that as one country. The argument goes, even for obviously for Indonesia, the rest of Latin America, which house the Amazon forest. But let’s keep it to Brazil, just for the sake of argument. That case is different from the one we’ve been discussing just now – about shrimp farms. And the reason is that for the shrimp farms the externality is local. It’s affecting neighbouring mangrove and neighbouring nurseries that are being supported by the mangroves. Okay, so you’re damaging your local fisheries.

Now, in the case of the Amazon rainforest, there are many, many ills of deforestation there. But the key point is that – you’re mentioning that yourself – is that these rain forests are actually a global public good. They’re providing a service, which is not exclusive to Brazil, but to the world as a whole. But on the other hand, they are not like the atmosphere or the oceans, they’re within national jurisdiction. I mean, oceans beyond the exclusive economic zone. These forests are within national jurisdiction.

So, Brazil can rightly say that the incentive we have to protect the rainforest is smaller than the global incentives, because we will of course, lose, but will only lose a bit. The rest of you will also lose because it’s a global public good, everybody is enjoying the benefits of. So therefore, we have fewer incentives. I’m assuming that you’re having a rational discourse, okay. We’re not talking about the previous president of Brazil, who would say, you know, you wouldn’t trust a word of what he says. I am assuming that there is an honest broker, okay. And they’re saying, look, what might you do? What are we to do, we have to develop. You like beef, you like soybeans. And so, we were converting our forest into plantations and, and bee farms, and you are enjoying the benefits of that. And we are, of course, losing our rainforests.

But the price we are paying for the loss of the rainforest is lower than the price that the world is paying for the loss of the rainforest because of the global public good. So therefore, what’s the answer? The answer to me is absolutely transparent – the world ought to be paying Brazil not to deforest. It’s like paying for ecosystem services, which, within nations is becoming commonplace now. Governments pay farmers to leave land fallow, for example, to rejuvenate, or build hedgerows in order to attract birds to raise the biodiversity and so forth. And it’s happening now all over the world, actually. China’s practising it, England’s practising it. Now, United States, even Costa Rica is of course, very advanced in that. So, if water passes by my land and if I’m paid to husband it for my neighbours and I am paid because it’s on my property and I don’t quite have the incentive not to do what I wish to do, and I need to be paid for it.

So, this would be the clear way of doing it, which would be to compensate and pay Brazil as opposed to moaning about Brazil losing so much of forest – the size of Portugal – disappears every other year. It’s absolutely astonishing. We’re seeing it in our own life. It’s happening. But I think the policy there is pretty straightforward. It’s not happening. Obviously, it’s not happening, but it ought to happen.

Sometimes, some people or individuals buy up pieces of rainforest and then preserve them. But that’s small beer, this has to happen at a major level of scale of operation. I used to think that maybe the World Bank would be a mediator in that direction that you could actually negotiate with Brazil, let’s say, or any other country to see how to halt the degradation of the forest, and how much it will be. It will require negotiation, of course, there’ll be a lot of bargaining. That goes, that’s part of life, you have to do that. But that’s the way to go. That’s quite different from the shrimp farm case by the way.

Mongabay: Sir Partha, may I bring this discussion from somewhere in between the shrimp farm and Brazil’s rainforests at a slightly national scale. We just had this report from FAO on the State of Food and Agriculture this year, and then it talks about different countries, how much is the hidden cost in agriculture, and it says India had in 2020, $1.2 trillion as hidden cost. With a population of 1.4 billion, I mean, much of India’s food production is consumed domestically. You can’t raise food prices, because that’s a politically sensitive issue. If you were to get real prices for food, that would cause riots, you know. So how can you sort of balance this? Are there interventions possible, where the farmers also get a fair price and the food is affordable?

Partha Dasgupta: Sure, absolutely. It’s a hard answer. But I mean, you can’t escape it, which is, if you had your national accounts, in terms of the depreciation of natural capital which is accompanying food production. If you had that staring at you in the face, it is for India to decide how to handle it. I don’t think there is no use pretending that the problem doesn’t exist, the problem exists because it’s going to hit India. So, it’s a tension between the poor now and the rich now, the well off and the not well off. And the depreciating natural capital is going to be hurting the future, not today, just like any depreciation does. So, you have to make a decision as to how you make the trade-offs between tomorrow’s people, today’s people, and then within today’s people between the two types, or three types of people you have, and then there’ll be two or three types tomorrow as well, by the way.

So, any reasonable planning model, economic model of the food sector, should have time built in plus the quality of the assets built in, and recognise that you have a portfolio problem in which you manage the various assets in a way that you have managed to meet some of the problems today, and some of the problems tomorrow, and the problems between today and tomorrow and tomorrow. Because it’s one thing to say, well, we can’t afford to do anything because the farmers have to live, poor can’t be priced, and therefore what we do is to, in the next decade handover far worse land to the future. In a decade’s time, to the then future. If you do that, if you put it in stock, where you will have to find some method of financing these trade offs. What’s happening is that they don’t believe in these trade offs, because many of these assets are not reported in the statistics. It’s a hard choice. I know. But then that’s tough. That’s how it is. But it is a tough choice, all these choices are tough. But to you, I mean, the idea that you can’t hurt this group, you can’t hurt that group and you can’t hurt another group, but we want to continue with our production possibilities and without harming the land. That’s not on. That’s the wrong arithmetic.

It seems to me that these trade-offs need to be faced by the decision makers. But the models don’t give these trade-offs. Except that you’ve just now said that FAO has produced this figure. Just for the sake of argument, assume that that the figure is approximate, it’s a ballpark figure, at least is giving a magnitude or how much harm you’re doing to the aquifers and the amount of decline in the aquifers volume, capacity, as well as the land quality and so forth. Yeah, these are choices that we have to make. It is as simple as that. We happen to have a huge population – that’s a relic of the past. And these are choices that are to be faced. There’s no answer to it. There’s no magic bullet. There’s a trade off issue.

Mongabay: Sir Partha, thank you very much for your time. We really look forward to the discipline growing and we as journalists being able to do more and more writing on environmental economics.

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Banner image: Sir Partha Dasgupta. Photo by St. Gallen Symposium/Flickr