## Good economics demands that we manage Nature better

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### The problem: prosperity built on depleted Nature
- Over the past 70 years humanity is "healthier, live longer, and enjoy higher income" on average, and "world economic output is 15 times higher."
- These gains rely on Nature—for food, air, waste decomposition, recreation, and spiritual fulfilment—but the biosphere has diminished concurrently.
- "Current extinction rates are about 100 to 1,000 times higher than the background rate" over the past several million years, "and they are accelerating."
- Living Planet Index: "Between 1970 and 2016, the population of species fell globally by 68 percent on average."
- "A recent report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services showed that 14 of the 18 global ecosystem services assessed were in decline."
- Human actions degrading Nature include extraction of natural resources, depleting soil nutrients, reducing fish stocks, and using Nature as a sink for waste (for example, burning fossil fuels); some ecosystems, such as coral reefs, "are at the point of collapse."
- The COVID-19 pandemic highlights links between illegal wildlife trade, land-use change, habitat loss, and emerging infectious diseases.

### Framework and three broad, interconnected transitions
- The Economics of Biodiversity: The Dasgupta Review offers a framework to include Nature in economic thinking and guides change through three transitions:

  1. Ensure demands on Nature do not exceed its supply
     - Our "ecological footprint" has for decades "far exceeded Nature's ability to meet those demands on a sustainable basis," causing biosphere degradation.
     - Technological innovations (for example, those geared toward sustainable food production) can help align demand with supply.
     - Fundamental restructuring of consumption and production patterns is required, including policies that change prices and behavioral norms, align environmental objectives along supply chains, and enforce standards for reuse, recycling, and sharing.
     - Human population growth affects future demands; "support for community-based family planning" and improving women's access to finance, information, and education can accelerate demographic transition.

  2. Change our measure of economic success to "inclusive wealth"
     - GDP is useful for short-term macroeconomic analysis but "is not an appropriate measure of long-term economic performance" because it omits changes in asset stocks, especially natural assets.
     - Inclusive wealth comprises produced capital, human capital, and natural capital, showing benefits from investing in natural assets and interactions between different asset investments.
     - Examples of steps toward a more complete picture: New Zealand's "wellbeing budget" and the use of "gross ecosystem product" in China.
     - Export revenues from natural resources fail to reflect social costs of extraction and long-term ecosystem consequences, causing a transfer of wealth from primary-product-exporting (often poorer) countries to importing (often richer) countries; international trade may have contributed to "a massive transfer of wealth from poor countries to rich countries, without its being recorded in official statistics."
     - Investment in Nature includes financial investments and also "simply waiting; when left alone, Nature grows and regenerates."

  3. Transform institutions to enable change
     - There is "profound institutional failure": Nature's worth is not reflected in market prices; open-access resources (open seas, atmosphere) suffer the tragedy of the commons.
     - Pricing distortions have led to overinvestment in produced capital and underinvestment in natural assets; many effects are hard to trace and give rise to widespread externalities.
     - "Governments almost everywhere pay people more to exploit Nature than to protect it." A conservative estimate of the total global cost of subsidies that damage Nature is about $4 to $6 trillion a year.
     - Biodiversity increases resilience: "diversity within a portfolio of natural assets—biodiversity—directly and indirectly increases Nature's resilience to shocks."
     - Financial institutions need greater awareness of Nature-related financial risks; central banks and financial supervisors can assess the systemic extent of these risks. The IMF can play a role in assessing and managing these risks in surveillance and in financial and technical assistance.

### Policy directions and next steps
- Transformative change requires sustained commitment from actors at all levels—from citizens to international financial institutions such as the IMF.
- Policies should:
  - Align prices and behavioral norms to reduce damaging consumption and production.
  - Channel public and private financial investments toward activities that enhance natural capital and encourage sustainable consumption and production.
  - Discontinue or reform subsidies that damage Nature (estimated at $4 to $6 trillion a year).
  - Incorporate inclusive wealth accounting—produced, human, and natural capital—into economic measurement and policy decisions.
  - Increase institutional capacity to measure, disclose, and manage Nature-related financial risks across the financial system.
  - Support community-based family planning and improve women's access to finance, information, and education to influence demographic transitions.

- Global political opportunities in the near term: world leaders will gather for the UN Convention on Biological Diversity (COP15) and the UN Climate Change Conference (COP26) to address climate change and biodiversity loss, which are "intrinsically linked."
- The pandemic has heightened awareness of Nature’s role and makes the year critical for reimagining economics and economic and financial decision-making.
- The Review highlights success stories showing the necessary transformation is possible; humanity must redeploy ingenuity to reimagine its relationship with Nature.

### Key statistics and comparative indicators
- "70 years" (period of notable human health, longevity, and income improvements).
- "world economic output is 15 times higher."
- "Current extinction rates are about 100 to 1,000 times higher than the background rate."
- Living Planet Index: "Between 1970 and 2016, the population of species fell globally by 68 percent on average."
- "14 of the 18 global ecosystem services assessed were in decline."
- Conservative estimate of global subsidies that damage Nature: "$4 to $6 trillion a year."
- Chart note: Global economic output increased "15-fold since 1950," species population sizes "have fallen by 68 percent on average since 1970."
- Chart metadata: "2011 prices. PPP = purchasing power parity." (real GDP, PPP, trillions of US dollars)

*Source: Partha Dasgupta, "Good economics demands that we manage Nature better," Finance & Development, September 2021.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2021/september/economics-and-nature-dasgupta.pdf_