Since the turn of the millennium, the terms natural capital and ecosystem services have featured in all the important documents and negotiations linked to the environmental conventions of the United Nations (UN). Furthermore, they are increasingly reflected in the objectives and measures of the three Rio conventions on climate change, biological diversity and desertification that were adopted during the UN Earth Summit in Rio de Janeiro (Brazil) in 1992.
The enshrining of these approaches in UN documents and discourses has generated acceptance of a new language and concepts that describe nature primarily in terms of economic categories. In concert with conceptual debates, especially in environmental economics, this economic perspective on nature in the UN conventions has driven the development of market-based instruments such as the emissions trade or the principle of "no net loss" of biodiversity. The aim of these instruments is to achieve the objectives of the UN environmental conventions without compromising the primacy of economic growth.
UNEP as key player
The United Nations Environment Programme (UNEP) played a key role in establishing the idea of nature as natural capital. By organising events, producing publications and launching initiatives such as the UNEP Finance Initiative, in which more than 200 banks, insurers and investors are involved, UNEP promotes exchange among the supporters of an economic valuation of nature. These activities facilitate the translation of scientific concepts and methods into political instruments and (recommendations for) action.
Two studies headed by UNEP – the Millennium Ecosystem Assessment and the TEEB report – are widely regarded as milestones for political acceptance of an economic valuation of nature and the enshrining of market-based instruments in the UN's Rio conventions.
In 2001, the then Secretary-General of the United Nations, Kofi Annan, commissioned the Millennium Ecosystem Assessment, the most comprehensive study of the state of natural habitats and the risks that they face that has ever been produced. Governments demonstrated their support for the initiative when the conferences of the parties to the biodiversity and desertification conventions resolved to take into consideration the findings of the Millennium Ecosystem Assessment report when implementing the conventions. CBD guidelines published in 2004 state that the Millennium Ecosystem Assessment is the ‘principal framework’ for action under the CBD.
With financial support from institutions including the World Bank, the Millennium Ecosystem Assessment was produced in less than four years. In addition to an inventory of the state of natural habitats, it provides scenarios for possible developments by the year 2050 and recommendations for action in the policy areas involved, including the objectives of the three Rio conventions. It is noteworthy that the discourse is dominated by concepts that frame nature in line with human needs while not considering humans as a part of nature. Nature is described primarily in economic categories: the Millennium Ecosystem Assessment replaces, for example, the question of the ecosystem functions that fish perform in the marine habitat with the question of what services of what value marine fish provide for humans. The findings of the Assessment were published in March 2005. Numerous scientific studies and international initiatives to record and value habitats and ecosystem services and to develop methods and instruments – such as the trade in compensation credits – refer explicitly to the Millennium Ecosystem Assessment.
TEEB report takes up the concept of nature as natural capital
Two years later, the report entitled The Economics of Ecosystems and Biodiversity (known as the TEEB report) took up the concept of nature as natural capital. The TEEB initiative was launched at the G8 summit of Environment Ministers in Potsdam, Germany, in 2007. Here, too, UNEP hosted the study, which was coordinated by Pavan Sukhdev, an economist and former employee of Deutsche Bank. TEEB aims to make the economic value of nature visible for financial markets and political decision-makers and thus claims to contribute to achievement of the objectives of the CBD. The report assumes that the destruction of nature will end when the economic value of nature is made visible to businesses and policy-makers and the economic damage caused by biodiversity loss becomes apparent. Governments, UN organisations, the financial sector and the extraction industry have responded to the TEEB report and launched a number of initiatives guided by its basic assumptions. Several EU countries, including Germany, have produced national TEEB reports; significantly, TEEB Germany is entitled ‘Nature Capital Germany’.
TEEB has had a direct influence on the CBD. One example is the wording of the Aichi Targets of the CBD that were adopted in 2010. One of the targets (Target 2) states that by 2020 governments should incorporate the economic value of biodiversity into their national accounting. The wording of the target also reveals the implicit assumption that biological diversity – i.e. nature – can be captured in purely economic categories.
However, TEEB and the Millennium Ecosystem Assessment do not only perform an economic valuation of nature, framing the diversity and uniqueness of nature in economic categories such as capital and output. They also link this economic valuation to recommendations for action on market-based instruments in the UN’s environmental conventions – recommendations that UNEP and the initiatives that it coordinates convey to the UN negotiations. For UNEP the focus here is on the use of instruments relating to land use, such as compensation for biodiversity loss in mining, compensation for degraded agricultural land, or REDD. REDD+ is promoted as an instrument to finance reducing of emissions from forest loss in countries of the global South through the sale of carbon credits or results-based payments to countries that provide evidence for having reduced emissions from forest loss.
Green economy as new leitmotif
The "economic valuation of nature" approach also dominated the follow-up conference to the 1992 Earth Summit, the Rio+20 conference in Rio de Janeiro, Brazil, in 2012. Economic valuation of nature was to be an integral part of a green economy. UN Secretary-General Ban Ki-moon described the idea behind the Rio+20 conference as "an attempt to unite under one banner a broad suite of economic instruments relevant to sustainable development"; the World Bank declares that "putting a monetary value on natural ecosystems is a key step on the road to green economic growth." Numerous events at the Rio+20 conference discussed the findings of the TEEB report, and the Natural Capital Coalition, founded while the report was elaborated, published its Natural Capital Declaration. This in turn led to the term natural capital acquiring a firm standing in UN terminology.
The outcome document of the Rio+20 conference makes clear that the UN Convention to Combat Desertification – often regarded as the ‘little sister’ among the three Rio conventions – also focuses on the new approaches of economic valuation and compensation. Paragraph 206 of the Rio+20 outcome document states: "We recognize the need for urgent action to reverse land degradation. In view of this, we will strive to achieve a land degradation neutral world." The principle of compensation replaces the aim of halting the loss of fertile soil. Since then, land degradation neutrality (LDN) has become an idea that receives increasing attention in policy discussions. The proposal also is listed in the UN's catalogue of measures for more sustainable development, the Sustainable Development Goals (SDGs): SDG 15.3 describes the goal of a land degradation-neutral world – that is, a world in which land degradation is not prevented but merely neutralised.
Economic valuation dominates discourse, trade in compensation credits dominates practice
There is a remarkable discrepancy between the arguments most for the economic valuation of nature most prevalent in the documents and decisions of the UN and what is taken forward with priority in practice. In publications and statements the emphasis is on elaborating economic performance indicators and on the financing potential of market-based instruments such as the trade in compensation credits to leverage private sector finance for nature conservation and restoration. In practice, by contrast, the focus is on operationalizing the trade in compensation credits. The use of compensation credits as an accounting unit as evidence of a 'no net loss' target agreed in national or international law is advancing equally rapidly. This applies both to the trade in carbon credits from CDM projects and to the land degradation neutrality approach that is enshrined in the catalogue of measures of the UN Convention to Combat Desertification and in the UN's Sustainable Development Goals. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is not binding in international law, but it safeguards the special position of international aviation in climate negotiations: it ensures that international aviation will not in future be included in the commitments of the UN climate agreements while allowing nearly uninhibited growth of emissions from international aviation.
Fatheuer, T. (2014): New Economy of Nature: A Critical Introduction.
Flues, V. (2016): Spreading despite controversy: An investigation into the sciences and politics of biodiversity offsetting.
Emissions trading in UN climate policy
In 1997, the international community adopted the Kyoto Protocol. It was the first internationally binding treaty which committed industrialized countries to reducing their greenhouse gas emissions. At the same time, the Protocol permits countries and companies whose emissions are limited by the agreements to legally exceed this limit by purchasing emission credits. The providers of these emission credits are projects registered with one of the 'flexible mechanisms' of the Kyoto Protocol. Clean Development Mechanism (CDM) projects take place in countries of the global South whose greenhouse gas emissions are not restricted by the Kyoto Protocol; Joint Implementation projects are located in countries with greenhouse gas emission limits set by the Protocol. The CDM became a particularly popular but also controversial instrument. CDM projects must demonstrate that they contribute to sustainable development and have prevented emissions that would have been released if the project had not taken place.
However, the CDM provides very much more than tradable emission credits that enable businesses in industrialised countries to outsource at least some of the mitigation of greenhouse gas emissions to other countries. The recognition of the instrument by a UN convention noticeably facilitated the political acceptance of market-based instruments and established the trade in compensation credits at international level. Furthermore, the CDM enabled methods and institutions such as the CDM Board to be developed; despite their many inadequacies, these methods and institutions gained broad acceptance. For example, the CDM encouraged the introduction of certification standards and certification organisations, prompted scientific studies and university courses and sparked the interest of investors looking for new financial products in the environmental crisis business. In short, the CDM accelerated the implementation of a controversial instrument and diverted criticism so that the debate focused on improving the set of instruments that was being developed instead of querying whether the CDM's aims of contributing to sustainable development and providing evidence of genuine additional emissions reductions are actually achievable.
More than 80 percent of the implemented CDM projects don't save additional emissions
There is now evidence that many CDM projects cause environmental damage in the project region; for example, this occurs with gas-fired or coal-fired power plants, iron smelting and dam projects that meet the low CDM criteria for sustainable development. Furthermore, a study produced by the Oeko-Institut in 2016 concludes that the additionality of emissions reductions is likely in only two per cent of the CDM projects that supply emission credits for the EU emissions trading scheme. In more than 80 per cent of projects, this additionality is unlikely. However, every carbon credit that is not based on an additional reduction in greenhouse gas emissions increases the concentration of greenhouse gases in the atmosphere beyond the upper limit for industrialised countries specified in the Kyoto Protocol and thus contributes to climate change instead of mitigating it. This is because the additional release is not neutralized by an equally additional reduction.
Despite the demonstrable inadequacies of the CDM, the UN Paris Climate Agreement of 2015 did not distance itself from the trade in emission credits but actually extends the range of permissible measures. In theory the new instrument, the Sustainable Development Mechanism, also permits projects that generate credits via emissions reductions in agriculture or via forest conservation and use. The extent to which this theoretical possibility of an international trade in credits from such projects will be relevant to implementation of the Paris Climate Agreement depends on the negotiations on the rules under the Agreement, which are due to conclude by 2019. The future of the CDM and of carbon credits generated by CDM projects are also on the agenda of these negotiations.
The introduction of emissions trading by the Kyoto Protocol thus contributed to broad political acceptance of market-based instruments being introduced into environmental regulation. Many national environmental laws and international norms then introduced or expanded the trade in compensation credits. This acceptance also paved the way for the inclusion of forest use and agriculture in market-based instruments under the Paris Agreement. In this context it is remarkable that the Paris Climate Agreement recognised an instrument such as REDD+ and measures to increase carbon storage in the soil as possible suppliers of emission credits, despite the fact that many of the arguments and risks that led to these measures being excluded from the Kyoto Protocol still apply. A particular risk is the premature release of carbon which experts term non-permanence: forests, vegetation and soils store carbon only temporarily, but in the context of such market-based instruments they are allowed to justify the permanent release of fossil carbon.
FERN (2010): Trading Carbon. How it works and why it's controversial.
Carbon Market Watch (2017): Good-Bye Kyoto: Transitioning away from offsetting after 2020.
The Biodiversity Convention makes the new understanding of nature as natural capital an accepted paradigm
While the UN Climate Convention promoted acceptance of the trade in pollution rights by making carbon trading a component of the Kyoto Protocol, the Convention on Biological Diversity (CBD) emphasised economic valuation of biodiversity. This required new terms and economic metrics to be incorporated into official documents and resolutions of the Convention as a basis for measuring the economic value of nature. The Secretariat of the CBD stated in 2011 that the principal framework for expressing the 'usefulness' of biodiversity is the concept of ecosystem services.
From about 2006, there are increasingly frequent references in documents and resolutions to biodiversity offsets as a possible instrument of the Convention. To apply the instrument, the CBD relies on the private-sector Business and Biodiversity Offset Programme (BBOP). The BBOP is an international alliance of companies, banks, government representatives and nature conservation organisations. As a result of recognition by the CBD, the BBOP is becoming a reference for the further development of compensation credits. In 2012 it published a standard for biodiversity offsets that is used throughout the emerging industry.
As with the inadequacies of the CDM as an instrument for climate change mitigation, the acceptance of biodiversity offsets by the CBD causes a shift in the debate. While academics continue to dispute whether ecosystem functions can be quantified and turned into distinct units of "ecosystem services", the practical focus is on advancing and testing the standard for the trade in compensation credits developed by BBOP.
According to the Global Nature Fund and the German environmental organisation Deutsche Umwelthilfe, more than 30 countries already specify statutory biodiversity offsets, while international financial institutions such as the International Finance Corporation of the World Bank link financing to companies presenting compensation plans if their projects destroy critical habitat.
Fatheuer, T. (2016): Disputed Nature. Biodiversity and its Convention.
Flues, V. (2016): Spreading despite controversy: An investigation into the sciences and politics of biodiversity offsetting.
Suarez, D. (2013): Seizing Center Stage: Ecosystem Services, Live, at the Convention on Biological Diversity! Human Geography Volume 6 (1).
The International Civil Aviation Organization of the UN creates a market for (climate-damaging) credits
The aviation sector is the fastest-growing emitter of greenhouse gases worldwide. Yet emissions from international aviation (as well as emissions from shipping) are not covered by the Kyoto Protocol or the UN Paris Climate Agreement. This is justified by arguing that, because greenhouse gas emissions from international flights are not confined to national borders, it would be very difficult to allocate the emissions to particular countries. In October 2016, to avoid regulation by the UN Paris Climate Agreement (which was threatened if the sector failed to agree on self-regulation), the International Civil Aviation Organization (ICAO) adopted measures designed to guarantee that civil aviation growth would be carbon-neutral from 2020. However, it would be audacious to term this a contribution to emissions reduction, because at the heart of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is the purchase of emission credits such as those offered by CDM projects. The scheme is intended to make the predicted growth of up to 700 per cent in international aviation by 2050 carbon-neutral.
The details of CORSIA have yet to be worked out. However, providers of emission credits are pinning their hopes on the demand from the aviation sector, because the UN emissions trade collapsed some years ago and the voluntary market in emission credits has also stagnated. CORSIA could be a lifeline for the controversial trade in emission credits if, as is widely expected, a signification proportion of the emission credits will come from projects that originally sought CDM registration or are registered as CDM projects. This is particularly problematic in light of a study produced by the Oeko-Institut in 2016 that concludes that more than 80 per cent of the CDM projects that were investigated are highly likely not to have produced additional emission reductions. If credits from such projects are used in CORSIA, emissions caused by additional growth in international aviation will not be compensated by equally additional reductions. As a consequence, emissions from international aviation will continue to rise unabated post-2020, contrary to the promise of carbon-neutral growth.
International nature conservation organisations such as the Environmental Defense Fund, The Nature Conservancy, Conservation International and IUCN lobby for the recognition of emission credits from REDD+ projects by CORSIA. REDD+ stands for Reducing Emissions from Deforestation and Forest Degradation: since it was recognised by the UN climate negotiations in 2007 it has been one of the most controversial instruments in international forest conservation and climate change mitigation. Numerous reports and analyses warn that REDD+ is a false solution to the problem of climate change with serious consequences for peasants and forest peoples. In 2016 more than 80 organisations called on ICAO to explicitly exclude REDD+ projects as a supplier of emission credits for CORSIA.
Fuhr, L. (2016): Wachstum nach ICAO: 700 Prozent mehr fliegen – 0 Prozent mehr Emissionen! [Growth according to ICAO: 700 per cent more flying – 0 per cent more emissions!]
Federal Association of the German Aviation Industry BDL (2017): CORSIA: Global market-based climate protection instrument for international aviation in: Climate Protection Report 2017.
This article is part of our dossier "New Economy of Nature".