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Developing Tools for Valuing Natural Capital’s Contribution to Economic Well-Being: OPEN IEEM

September 11, 2019 por Onil Banerjee - Kenneth J Bagstad - Ferdinando Villa - Martin Cicowiez Leave a Comment


Valuing Natural Capital’s Contribution to Economic Well-Being

Government budgets are allocated according to the strength of political and economic arguments. Economic arguments to support public policy and investment in natural capital and ecosystem services are often weak due to the complexities involved in valuing these life support systems, especially in the terms that Ministries of Finance and Economics are concerned with. For the last four years, the IDB has worked to correct this situation with the development of the Integrated Economic-Environmental Modeling (IEEM) Platform described in previous posts and several journal articles (i), (ii)  and (iii).

The IEEM Platform’s value-added is its integration of rich environmental data organized under the System of Environmental-Economic Accounting, developed by the UN, EU, FAO, IMF, OECD and World Bank which enables assessment of economic impacts of public policy and investment in terms of gross domestic product and employment, but also on natural capital including forests, fisheries and water. The IEEM Platform generates indicators of intergenerational wealth that capture impacts on income, as well as stocks of natural capital and environmental quality which as indicated by the World Bank and the Stiglitz-Sen-Fitoussi Commission, are fundamental for measuring sustainable economic development. Assuring an equally or more prosperous future for the generations that follow is, after all, the foundation of sustainable development.

Linking the IEEM Platform with Ecosystem Services Values

We are excited by the advancements made in the last few years in improving integrated economic and environmental assessment methods and in quantifying natural capital’s contribution to economic well-being. Together, these new approaches shed light on the long-standing economic invisibility of natural capital. One key development has been linking the IEEM Platform with spatial ecosystem services modeling. This approach broadens the range of ecosystem services that can be considered in a consistent and robust economic analytical framework. A new application of the IEEM Platform linked with ecosystem services modeling is exploring the economic and ecosystem service impacts of strategies to achieve Sustainable Development Goal 15- Life on Land.

Reforestation and restoration of degraded areas have been chronically difficult to justify in economic terms using traditional methods of economic analysis. The linked IEEM and ecosystem services modeling Platform is powerful in that it quantitatively demonstrates the impacts of reforestation on not only marketed ecosystem services (e.g., timber, fuel and fiber) but also on non-market ecosystem services such as erosion mitigation, soil fertility and carbon sequestration. What is innovative in this approach is that values are not assigned to these services a priori. Instead, it is the interaction between ecosystem services and traditional economic sectors such as agriculture, energy, water and tourism, that effectively ascribe an economic value to these services.

The OPEN IEEM+ESM Platform

A tool such as the IEEM Platform is only good insofar as it is applied to real world decision making. For this reason, a collaboration is underway between the IDB and the ARIES Team (Artificial Intelligence for Ecosystem Services) to expand the user community of the IEEM Platform and ecosystem services modeling, and develop an online system that will eventually create access to IEEM and ecosystem services modeling tools customized for most countries in the Latin American and Caribbean region. Beginning with a pilot in Costa Rica and Uruguay, the purpose of OPEN IEEM is to reduce start-up costs, improve data reuse, and enhance robustness in the development and application of integrated economic-environmental and ecosystem service approaches for public policy and investment analysis. The OPEN IEEM Platform will make the data and models underpinning the system open and reusable. Through a user query, artificial intelligence will be applied to assemble the most suitable models and data for each country to respond to a broad range of public policy questions. Watch this space for developments of the OPEN IEEM Platform!


Filed Under: Ecosystems and Biodiversity

Onil Banerjee

Onil Banerjee is a Natural Resource Economist with the IDB. He's engaged in projects with an emphasis on integrated economic-environmental modeling and impact analysis. Onil has worked with NGOs, the private sector and government, in issues ranging from community forestry and land use planning, to labor and environmental standards. Prior to joining the IDB, he was an International Development Economist with Australia’s National Science Agency, CSIRO, where he explored domestic issues of water policy and ecosystem service supply while in South Asia, he provided advice on economic impacts of climate change and food security. Onil was awarded the Alumni Fellowship at the University of Florida where he earned a PhD in Natural Resource Economics and Policy in 2008.

Kenneth J Bagstad

Dr. Ken Bagstad is a Research Economist with the U.S. Geological Survey in Denver, CO. His primary interests are in ecosystem service modeling and natural capital accounting; he has collaborated with the World Bank and more recently with IDB to link IEEM to ecosystem service models. Ken has led applications of ARIES and other ecosystem services modeling tools in diverse contexts in the U.S. and globally.

Ferdinando Villa

Dr. Ferdinando Villa is an Ikerbasque Research Professor with the Basque Centre for Climate Change in Bilbao, Spain. Ferdinando is a computer scientist whose work spans theoretical ecology, economics, and linguistics. He leads the ARIES team, a project that aims to contribute to the science of coupled natural/human systems and to build effective technologies for decision makers that take sound science and “democratize” it by putting it at the fingertips of decision makers worldwide.

Martin Cicowiez

Dr. Martin Cicowiez is a researcher at the Center for Distributive, Labor and Social Studies, based at UNLP in Argentina, and Professor of International Economics and Computational Economics at UNLP. Martin is a core IEEM Team member since its beginning in 2014. Martin also teaches courses on the use of computational methods to assess public policy options in various countries. He has worked as a consultant for international organizations such as the World Bank, IDB, and agencies of the United Nations. Martin earned his Ph.D. in Economics from Universidad Nacional de La Plata.

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