Value of Earth
Encyclopedia
In green economics, value of Earth is the ultimate in ecosystem valuation
, and important to value of life
calculations. It begins with the simple problem that if the Earth
ceases to support life, and human life does not continue elsewhere, all economic activity will also cease.
As one might expect, these all produce quite high values for the entire Earth, usually at least in the hundreds of quadrillions of US dollars. This seems appropriate. However, even with this sum in hand, it seems unlikely that even experienced reconstruction subcontractors could complete the task of replacing Earth, certainly not without using Earth itself as a base. Rent for use of Earth and its orbit might then also have to be included, and it would be hard to price this without calculating the price of the Earth, again.
One way around this is to simply declare the Earth priceless or to be exactly and only as valuable as all financial capital
in circulation. This may be equivalent to declaring it worthless, however, as neo-classical economics deals very poorly with assets that are too valuable to trade actively in markets.
(Note: All the numbers in this section use the short scale, not the long scale
.)
In Biosphere 2, over $240 million was spent on developing the infrastructure to support eight people for two years. The project failed and fresh air had to be pumped in to save the lives of the participants. So Earth is worth at least: × 6.5 billion people on Earth = $195 quadrillion (that is, $1.95 × 1017).
This represents the minimum value of the Earth using today's technology. Because the project failed, the true value must be higher than this amount. However, economies of scale in biosphere production would obviously reduce this number significantly. Mass production of one billion biosphere units would reduce the per-unit cost by several orders of magnitude.
To put this into perspective, assuming the total value of the gross world product
is $30 trillion, that sum divided into $1.95 × 1017 = 6500 times the world's current gross product.
From this we can estimate the cost of cutting a tree or taking a single fish from the ocean if there is evidence that that yielded resource unit may not be replaced. The probability that the resource will be replaced reduces the cost, so a 50% chance that it will be replaced implies that the cost should be cut in half, since two of them can be taken, on average, before one is not replaced.
These estimates can be done using a linear method, for initial estimates, or using an exponential model to place greater value on the remaining elements of a declining resource.
Further calculation of the value of one tree (replaced or not), a metric ton of fish, or of soil carbon depends on these probabilities. The curve for replaced and unreplaced biomass will be relatively equivalent as long as the total biomass is relatively large. As the total biomass in a specific area becomes depleted to the point where the entire sustainability of the biomass is threatened, then the exponential part of the curve comes into play.
Ultimately, we are left with the question, how much are we prepared to pay in order to avert imminent death as individuals. That sum is relatively large. As resources are depleted to the point where the conflict over what remains begins to dominate the risk of taking it, it becomes more obvious due to costs of protection and securing property.
So, any calculation based on costs of replacing ecosystems tends to lead to a calculation based on costs of protecting ecosystems so that their yield can be controlled - but only at the tail end of the process, when it is too late to replace them.
There are implications for costs of national security
and climate change
, both of which may have to be counted as full factors of production
in such an analysis, if not full styles of capital
- a factor which if not present in tight parameters prevents all gains from all investment in production.
To give a contrived example, supposing a research project could yield a cure for a certain fatal disease, but there is a small risk that the experiment itself could accidentally (through incompetence, negligence or malicious intent say) spread the disease in a virulent form - with a remote chance of wiping out the planet (or at least life on earth). By assigning a value to the potential lives saved and to the potential loss of life in failure, it becomes simple to assess how much risk is too much risk.
When used in these situations the value used for the Earth could vary markedly, and have little bearing on real currency.
Other situations, however, may have more direct financial application, such as an asteroid
defence mechanism. There is a minute probability of an asteroid strike large enough to destroy the planet - what should we do about this? Clearly if we poured the entire GDP of the planet into protecting against this, we could minimise the risk, but might there be better things to spend it on? Instead, armed with a value for the planet, we can put in place systems that provide early warning and a good measure of the probability of asteroid impact. This knowledge itself reduces the average cost of a meteor impact to an "acceptable" level.
Ecosystem valuation
Ecosystem valuation is a widely used tool in determining the impact of human activities on an environmental system, by assigning an economic value to an ecosystem or its ecosystem services.-Value of ecosystem services:...
, and important to value of life
Value of life
The potency of life is an economic value assigned to life in general, or to specific living organisms. In social and political sciences, it is the marginal cost of death prevention in a certain class of circumstances. As such, it is a statistical term, the cost of reducing the number of deaths by...
calculations. It begins with the simple problem that if the Earth
Earth
Earth is the third planet from the Sun, and the densest and fifth-largest of the eight planets in the Solar System. It is also the largest of the Solar System's four terrestrial planets...
ceases to support life, and human life does not continue elsewhere, all economic activity will also cease.
Methods of estimation
There are several ways to estimate the value of Earth:- Estimate the value of lifeValue of lifeThe potency of life is an economic value assigned to life in general, or to specific living organisms. In social and political sciences, it is the marginal cost of death prevention in a certain class of circumstances. As such, it is a statistical term, the cost of reducing the number of deaths by...
for everything that lives on it, and assign the Earth, as a necessary component and home for that life, the natural capitalNatural capitalNatural capital is the extension of the economic notion of capital to goods and services relating to the natural environment. Natural capital is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future...
on which individual capitalIndividual capitalIndividual capital, also known as human capital, comprises inalienable or personal traits of persons, tied to their bodies and available only through their own free will, such as skill, creativity, enterprise, courage, capacity for moral example, non-communicable wisdom, invention or empathy,...
thrives, at least this much value. Since not all life is valued, and a very little is overvalued, there is high risk of under-estimation. One way to avoid this is to work continent by continent to see if there is systematic inflation of the price of life on some compared to the others. - Estimate the cost of replacing the Earth, which may include finding and colonizing another planet, or creating one artificially in a compatible orbit. What if the natural capital of a nearby planet, e.g. MarsMarsMars is the fourth planet from the Sun in the Solar System. The planet is named after the Roman god of war, Mars. It is often described as the "Red Planet", as the iron oxide prevalent on its surface gives it a reddish appearance...
, were to compete? What would be the cost of terraformingTerraformingTerraforming of a planet, moon, or other body is the hypothetical process of deliberately modifying its atmosphere, temperature, surface topography or ecology to be similar to those of Earth, in order to make it habitable by terrestrial organisms.The term is sometimes used more generally as a...
it to make it as comfortable as Tacos? Or even barely habitable? An issue is whether to count transport costs.- As a variation, estimate the cost of a smaller habitat, such as Biosphere 2Biosphere 2Biosphere 2 is a structure originally built to be an artificial, materially-closed ecological system in Oracle, Arizona by Space Biosphere Ventures, a joint venture whose principal officers were John P. Allen, inventor and Executive Director, and Margret Augustine, CEO...
, and multiply its cost by the ratio between the population of Earth and of that smaller habitat. This however is to rely on below-minimum cost figures, since Biosphere 2, although brilliantly ambitious and expensive, was a flop. This method yields only a floor value which Earth itself would vastly exceed. See below for more details. - As another variation, figure out every disaster that might occur due to failure of the biosphereBiosphereThe biosphere is the global sum of all ecosystems. It can also be called the zone of life on Earth, a closed and self-regulating system...
, to lesser or greater degree, and calculate the price of insuranceInsuranceIn law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
against all of it. The averted insurance payments are effectively a yield, and, this is one way to calculate the value of what Earth is doing for us, for as long as these averted failures do not occur.
- As a variation, estimate the cost of a smaller habitat, such as Biosphere 2
- Calculate the yield of natural capitalNatural capitalNatural capital is the extension of the economic notion of capital to goods and services relating to the natural environment. Natural capital is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future...
and use the size and consistency of this yield to calculate how much capital there must be. This method was pioneered by Robert CostanzaRobert CostanzaRobert Costanza is an American ecological economist is a University Professor of Sustainability at Portland State University in Oregon.- Biography :Robert Costanza was born in Pittsburgh, Pennsylvania....
and is promoted in Natural Capitalism: Creating the Next Industrial Revolution.
As one might expect, these all produce quite high values for the entire Earth, usually at least in the hundreds of quadrillions of US dollars. This seems appropriate. However, even with this sum in hand, it seems unlikely that even experienced reconstruction subcontractors could complete the task of replacing Earth, certainly not without using Earth itself as a base. Rent for use of Earth and its orbit might then also have to be included, and it would be hard to price this without calculating the price of the Earth, again.
One way around this is to simply declare the Earth priceless or to be exactly and only as valuable as all financial capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
in circulation. This may be equivalent to declaring it worthless, however, as neo-classical economics deals very poorly with assets that are too valuable to trade actively in markets.
Replacement methods
Returning to the calculation in terms of the replacement cost of Earth's biosystems:(Note: All the numbers in this section use the short scale, not the long scale
Long and short scales
The long and short scales are two of several different large-number naming systems used throughout the world for integer powers of ten. Many countries, including most in continental Europe, use the long scale whereas most English-speaking countries use the short scale...
.)
In Biosphere 2, over $240 million was spent on developing the infrastructure to support eight people for two years. The project failed and fresh air had to be pumped in to save the lives of the participants. So Earth is worth at least: × 6.5 billion people on Earth = $195 quadrillion (that is, $1.95 × 1017).
This represents the minimum value of the Earth using today's technology. Because the project failed, the true value must be higher than this amount. However, economies of scale in biosphere production would obviously reduce this number significantly. Mass production of one billion biosphere units would reduce the per-unit cost by several orders of magnitude.
To put this into perspective, assuming the total value of the gross world product
Gross world product
Gross world product is the total gross national product of all the countries in the world. This also equals the total gross domestic product. See measures of national income and output for more details...
is $30 trillion, that sum divided into $1.95 × 1017 = 6500 times the world's current gross product.
From this we can estimate the cost of cutting a tree or taking a single fish from the ocean if there is evidence that that yielded resource unit may not be replaced. The probability that the resource will be replaced reduces the cost, so a 50% chance that it will be replaced implies that the cost should be cut in half, since two of them can be taken, on average, before one is not replaced.
These estimates can be done using a linear method, for initial estimates, or using an exponential model to place greater value on the remaining elements of a declining resource.
Further calculation of the value of one tree (replaced or not), a metric ton of fish, or of soil carbon depends on these probabilities. The curve for replaced and unreplaced biomass will be relatively equivalent as long as the total biomass is relatively large. As the total biomass in a specific area becomes depleted to the point where the entire sustainability of the biomass is threatened, then the exponential part of the curve comes into play.
Ultimately, we are left with the question, how much are we prepared to pay in order to avert imminent death as individuals. That sum is relatively large. As resources are depleted to the point where the conflict over what remains begins to dominate the risk of taking it, it becomes more obvious due to costs of protection and securing property.
So, any calculation based on costs of replacing ecosystems tends to lead to a calculation based on costs of protecting ecosystems so that their yield can be controlled - but only at the tail end of the process, when it is too late to replace them.
There are implications for costs of national security
National security
National security is the requirement to maintain the survival of the state through the use of economic, diplomacy, power projection and political power. The concept developed mostly in the United States of America after World War II...
and climate change
Climate change
Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years. It may be a change in average weather conditions or the distribution of events around that average...
, both of which may have to be counted as full factors of production
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
in such an analysis, if not full styles of capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
- a factor which if not present in tight parameters prevents all gains from all investment in production.
Purpose in economic risk assessment
Although assigning a value to the entire Earth may seem whimsical, it is highly important in risk assessment. In the extreme view, absolutely nothing can be carried out without some risk that it will directly or indirectly exterminate life on earth, however usually the probability is so low as to be negligible. Another way of stating the value of the earth is the risk we are willing to take with it. And the amount of risk we are willing to take must be balanced against the possible reward. Such calculation will invariably use other moral or environmental assumptions for other outcomes, such as the value of human life.To give a contrived example, supposing a research project could yield a cure for a certain fatal disease, but there is a small risk that the experiment itself could accidentally (through incompetence, negligence or malicious intent say) spread the disease in a virulent form - with a remote chance of wiping out the planet (or at least life on earth). By assigning a value to the potential lives saved and to the potential loss of life in failure, it becomes simple to assess how much risk is too much risk.
When used in these situations the value used for the Earth could vary markedly, and have little bearing on real currency.
Other situations, however, may have more direct financial application, such as an asteroid
Asteroid
Asteroids are a class of small Solar System bodies in orbit around the Sun. They have also been called planetoids, especially the larger ones...
defence mechanism. There is a minute probability of an asteroid strike large enough to destroy the planet - what should we do about this? Clearly if we poured the entire GDP of the planet into protecting against this, we could minimise the risk, but might there be better things to spend it on? Instead, armed with a value for the planet, we can put in place systems that provide early warning and a good measure of the probability of asteroid impact. This knowledge itself reduces the average cost of a meteor impact to an "acceptable" level.
See also
- Earth DayEarth DayEarth Day is a day that is intended to inspire awareness and appreciation for the Earth's natural environment. The name and concept of Earth Day was allegedly pioneered by John McConnell in 1969 at a UNESCO Conference in San Francisco. The first Proclamation of Earth Day was by San Francisco, the...
- Ecosystem servicesEcosystem servicesHumankind benefits from a multitude of resources and processes that are supplied by natural ecosystems. Collectively, these benefits are known as ecosystem services and include products like clean drinking water and processes such as the decomposition of wastes...
- Existence valueExistence valueExistence values are an unusual and somewhat controversial class of economic value, reflecting the benefit people receive from knowing that a particular environmental resource, such as Antarctica, the Grand Canyon, endangered species, or any other organism or thing exists.Existence value is a...
- World Ocean DayWorld Ocean DayWorld Oceans Day, which had been unofficially celebrated every June 8 since its original proposal in 1992 by Canada at the Earth Summit in Rio de Janeiro, Brazil, was officially recognized by the United Nations in 2008...
- World Water Day