Original title: Feature | Paulson: We need a new asset class: healthy and fertile soil and vigorous pollinators
In response to a predictable global crisis, our ability to take collective action is still very limited. The global pandemic of the new crown pneumonia epidemic has fully exposed this problem. This should alert us, but we may still fall into another catastrophe—a catastrophe triggered by severe global biodiversity loss.
As governments rebuild and invest in the aftermath of this epidemic crisis, policymakers must learn to value nature and create the necessary policy conditions and incentive mechanisms to promote change. One of the important initiatives is the creation of a new asset class, including fertile soil, effective crop pollination and healthy watersheds. This may sound far-fetched, and the proposal came from a former U.S. Treasury secretary, even more so. However, attaching importance to the value of nature like traditional goods and services will create incentives for avoiding the destruction of biodiversity, coping with climate change, protecting people’s lives and sustaining livelihoods. Making good use of the power of the market can prevent damage to the ecological environment. At present, the global tropical forest area is declining, and the rate of extinction of biological species has reached 1,000 times that of the natural state. Nature’s ability to provide us with the ecological products and services that we depend on is being destroyed, which brings huge risks to the economic prosperity of human society. Take the “services” provided by pollinators as an example. They are vital to the production of fruits, nuts, and vegetables, but the number of their deaths is constantly breaking new records. The complete disappearance of these species may cause more than 200 billion U.S. dollars in annual losses to global agricultural output. If you include the secondary service of pollination for non-food crops (such as alfalfa used as cattle feed), this loss will exceed 500 billion U.S. dollars per year. Therefore, from a financial point of view, bats, bees and birds are all valuable assets.
River basins also provide important ecosystem services for mankind. For example, in the 1990s, New York City adopted a series of measures to improve the water purification capacity of the Catskills Basin to meet the city’s water needs. They provide funds to farmers, require them to produce organic products (reduce or eliminate the use of pesticides and fertilizers), widen the buffer zone between livestock breeding grounds and streams, improve sewage treatment facilities, and sign ecological protection agreements with them. Through these watershed protection measures, in the past two decades, New York City has achieved clean water supply with only US$1.5 billion in capital investment. In contrast, the construction of a water treatment plant costs 8 billion U.S. dollars.
Since various ecosystem services provided by nature are considered “free”, it is very difficult to price them in the market. In some cases, pricing is even unfeasible or unpredictable, and their value is often considered zero. . Therefore, the behavior of protecting the ecological environment will not receive sufficient financial rewards or economic returns, and those who damage the ecological environment will not be punished accordingly. This market failure has led to a serious shortage of funds needed to protect, maintain and restore biodiversity.
According to an important report released by the Paulson Institute, the funding gap for global biodiversity conservation will exceed US$700 billion per year in the next ten years. The report puts forward a series of policies and financial mechanisms that can help fill this gap. The core message is clear: We must develop innovative financial mechanisms to transform ecological products and services provided by nature into new asset classes.
This means that the way we look at nature must undergo a fundamental change. First, we need to reflect on how subsidies contribute to “bad behavior.” For example, the annual amount of subsidies that damage biodiversity (such as subsidies for the production and consumption of fossil energy as high as US$400 billion per year) is at least twice that of biodiversity conservation funds. Therefore, governments must initiate a politically challenging process to transfer public funds from activities that are harmful to the environment to activities that are beneficial to the protection of the ecosystem and the sustainable use of natural resources. This initiative alone can reduce the annual funding gap for biodiversity conservation by half.
Second, we need to pave the way to mobilize the private sector to take more actions and mobilize the huge amount of funds it has at its disposal. Companies will not invest capital in ecological protection projects that cannot produce clear economic returns, and we cannot expect them to do so. Therefore, the government needs to formulate corresponding policies and measures (such as tax reductions and exemptions, implementation of incentive mechanisms, and adjustment of regulatory requirements) to encourage private sector investment in nature protection.
Finally, we must strengthen collaboration at the global level. Increasing support for biodiversity conservation is in the economic interests of global financial institutions. For example, the cost of preventing and responding to the spread of an epidemic may be high, but it is far less than the losses caused by this epidemic. More importantly, investment in ecological protection will help prevent the outbreak of zoonotic diseases in the future. We need to make basic preparations to ensure that our various institutions can calmly deal with the various risks of the 21st century.
This cannot be achieved overnight. At present, there is great short-term pressure to deal with the economic shock caused by the epidemic. However, when governments are considering how to rejuvenate their own economies, it is best to take a long-term view and consider how to invest resources in projects and initiatives that not only create jobs and restart the economy, but also reduce the chance of future epidemics.
If we can learn the lessons of the epidemic, we may be able to avoid the worst outcome and tragedy when the next foreseeable crisis erupts. In order to meet the challenges of biodiversity crisis and climate change, it is time for us to show the sense of urgency, creativity and political will that we deserve, otherwise it will be too late.
(The author is the former Secretary of the Treasury of the United States and Chairman of the Paulson Foundation)
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