Leaders and laggards: The Dasgupta Review of Economics of Biodiversity

United Kingdom acts on biodiversity, while Australia says ‘Das who?’

By Peter Burnett

Author’s note: this is the first part of a two part blog.

In our colonial past (and, more recently, as a pre-World War II British ‘Dominion’), Australia used to look routinely to the United Kingdom for policy leadership.

For example, when we were hit by the Great Depression, the Australian Government invited Sir Otto Niemeyer, of the Bank of England, to visit and advise on how to respond to the crisis. Mind you, we owed the Brits a lot of money, which we were now struggling to pay, so in many respects the visit was a negotiation between debtor and creditor.

More relevant to the environment, Australia’s post-war planning laws were heavily influenced by British reforms such as their Town and Country Planning Act 1932.

These days, while Australia retains a strong affinity with Britain, the UK is just one among many countries whose policies we might consider as possible models.

In the case of biodiversity, it’s a pity we aren’t still a little tied to the old apron strings, as the British are leaders in this area while we are laggards. (As one recent example, Australia has been singled out for mammal extinction in a recent UN biodiversity report.)

Review and response

The Dasgupta Review on the Economics of Biodiversity was written by Sir Partha Dasgupta, a professor of economics at Cambridge. It was commissioned by the UK Chancellor of the Exchequer (ie, the Treasurer) and published in early 2021.

Within a few months, in July 2021, the UK Government published a formal response.

I know they were in a hurry, so as to leverage their hosting and thus chairing, two out of three major international meetings this year — the G7 Summit in Cornwall (June), the Biodiversity COP 15 in Kunming (this month, October) and the Glasgow Climate COP 26 (November) — but the speed and substance of this response are impressive nonetheless. This is especially true given the limited impact of an earlier report from 2010, The Economics of Ecosystems and Biodiversity (TEEB), an initiative of the G8 environment ministers.

What Dasgupta found

Some of Professor Dasgupta’s findings will not surprise readers of this blog:

  • Our economies, livelihoods and well-being all depend on our most precious asset: Nature. Nature is more than an economic good: many value its very existence and recognise its intrinsic worth too …
  • Biodiversity enables Nature to be productive, resilient and adaptable. Our demands far exceed its capacity to supply us with the goods and services we all rely on …
  • Our unsustainable engagement with Nature is endangering the prosperity of current and future generations …

Some of Dasgupta’s conclusions about existing policy will also have a familiar ring to many readers, though they bear a welcome clarity (remember, this is an economist advising a Treasury):

  • At the heart of the problem lies deep-rooted, widespread institutional failure …
  • Nature’s worth to society – the true value of the various goods and services it provides – is not reflected in market prices because much of it is open to all at no monetary charge …
  • These pricing distortions have led us to invest relatively more in other assets, such as produced capital, and underinvest in our natural assets …
  • Many of our institutions have proved unfit to manage the externalities …
  • Governments almost everywhere exacerbate the problem by paying people more to exploit Nature than to protect it … A conservative estimate of the total cost globally of subsidies that damage Nature is around US$4 to 6 trillion per year …

From this point, the narrative becomes less familiar and more enticing. Choosing a sustainable path, says Professor Dasgupta, will require transformative change, underpinned by levels of ambition, coordination, and political will akin to, or even greater than, those of the Marshall Plan*.

(*The Marshall Plan was a huge five year US program that invested in rebuilding Western Europe after World War II and which spawned the OECD and, in part, the EU itself.)

Although Dasgupta does not make specific policy recommendations, he does provide clear advice for change, geared towards three broad transitions:

(i) Ensure that our demands on Nature do not exceed its supply,
and that we increase Nature’s supply relative to its current level.

In this regard, he says we cannot rely on technology alone. Instead, we need to restructure our patterns of reduction and consumption, fundamentally.

Consistent with this strong advice, Dasgupta favours some types of policy that one might expect to find in a report on biodiversity policy, such as major investment in environmental restoration.

But nor does he hesitate to go into more controversial areas.

For example, many of Dasgupta’s economist colleagues, including those in government, will balk at his rejection of the economic truism that correct pricing will solve all problems:

  • In the face of significant risk and uncertainty about the consequences of degrading ecosystems, in many cases there is a strong economic rationale for quantity restrictions over pricing mechanisms.

(ii) Change our measures of economic success to guide us on a more sustainable path.

It is not new to argue that GDP does not account for the depreciation of assets, including Nature, and that an inclusive measure of wealth is needed.

Nor is Dasgupta breaking new ground in finding it critical that natural capital be incorporated into national accounting systems. In fact, the UK has been a leader in natural capital accounting.

Nevertheless, until governments really take policy integration to heart, especially by measuring and managing the natural capital impacts of every significant decision, it is good to see strong advice on this point going from an internationally-eminent economist direct to Treasury and government.

(iii) Transform our institutions and systems – in particular our finance and education systems – to enable these changes and sustain them for future generations.

Here, Dasgupta has again been brave enough to enter controversial territory. He says that ecosystems that are global public goods require supra-national institutional arrangements. This is indeed sensitive territory for a government that has just ‘Brexited’ from such a supra-national institution.

For those ecosystems or biomes located within national boundaries such as tropical rainforests, Dasgupta says we need a system of payments to nations for protecting the ecosystems on which we all rely.

Where ecosystems are beyond national boundaries, eg, the oceans beyond exclusive economic zones, he says there should either be globally-accepted charges for their use, eg, for fisheries or, in ecologically sensitive areas, prohibitions.

And this collective international action would not be confined to direct protection of the physical environment. Sustained collective action is needed to transform the systems that underpin our engagements with Nature, above all our financial and education systems.

The global financial system should channel public and private investment towards economic activities that enhance stocks of natural assets and encourage sustainable consumption and production.

Businesses and financial institutions could be required to measure and disclose, not only climate-related risks but Nature- related risks as well. And central banks and financial regulators could support increased understanding by assessing the systemic extent of Nature-related financial risks.

Ultimately, says the report, a set of global standards is needed, underpinned by credible, decision-grade data.

Finally, individual citizens could be empowered to make informed choices and demand the change that is needed. For example, citizens could be educated to insist that financiers invest their money sustainably and that firms disclose environmental conditions along their supply chains, and even to boycott products that do not meet standards.

This recommendation, too, will tread on many toes.

Where to next?

At the end of the day, Dasgupta acknowledges the enormous challenge of the biodiversity crisis but concludes that the same ingenuity that has led us to make such large and damaging demands on Nature can also be deployed to bring about the transformative change we need.

‘We and our descendants deserve nothing less,’ he says.

In other words, we know how we came to fall into this hole, and we have both the capacity and the duty to climb out.

Why then does the UK Government seem to be taking this challenge reasonably seriously while Australian Government makes our biodiversity crisis such a low priority? It’s a question I’ll attempt to answer in my next blog …

Banner image: Detail from the cover of the Dasgupta Report.

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