An Interview with Juha Siikamaki, Chief Economist for the IUCN

Working groups have been focusing on advancing the four research issues identified as priority areas for the SEEA Experimental Ecosystem Accounting revision – spatial areas, ecosystem condition, ecosystem services and valuation. Each of the groups drafted set of discussion papers to be used as input into the chapters of the revised SEEA EEA.

In advance of the 2019 Expert Forum in Glen Cove we sat down with Juha Siikamaki, the lead for Working Group 5 on valuation and accounting treatments.  Juha is the chief economist for the International Union for the Conservation of Nature (IUCN). Our discussion touched on a range of topics including Working Group 5’s activities, the importance of multidisciplinary collaboration, the role of economics in conservation and the Post-2020 Global Biodiversity Framework.  The interview has been edited for length and clarity.

What has the group been working on?

Our task is to develop guidance for the revision of ecosystem accounting on issues related to valuation of ecosystem services. We have been working on four discussion papers.  The first paper is related to methods for ecosystem services valuation, including what different methods should be used for different ecosystem services, different institutional arrangements, different property aspects, dynamic and static aspects, and different viewpoints on valuation.

The second paper specifically addresses issues related to the degradation of ecosystems. For instance, how should we measure and value that to incorporate it into accounting?

The third paper is about ecosystem asset valuation.  Ecosystem services are valued as a flow, but there is also a need to value the asset that provides the services, for instance it could the fish stock, a hectare of forest or a wetland. 

The final paper addresses the incorporation of ecosystem services into the accounts.  We are working to make sure that the valuation approaches used for ecosystem accounting are consistent with the rest of the System of National Accounts. For example, when we value capital depreciation it is important to treat produced capital and natural capital similarly in the accounts.  Also, the current System of National Accounts already indirectly includes some ecosystem services, but not all.  One objective is to make the contributions of ecosystems explicit. A second is to find a way to incorporate those benefits from ecosystem services that are not included in things like GDP.

An important feature of the group is that it has members from various backgrounds – about one third are accountants, another third are economists, and one third are people crossing different disciplines. You absolutely need this kind of group to make real progress. 

There must be a lot of interesting and challenging discussions as you try to bridge the different perspectives.

We have that, and that’s by design. It is fascinating and very exciting. I think the group has found that to be one of the most interesting aspects of working on this.  When we think of the revision, many of us are researchers and we like to generate new knowledge, but the task of the working group is not so much to generate new knowledge but rather to synthesize current knowledge and methods and in a way that provides practical guidance for developing accounts. 

There is this aspect of making linkages between different communities, including the accounting and economics communities. Sometimes we find that we speak the same language and use the same terms, and sometimes we find that the terms and language are different.  

You also see that research communities have a tendency to become slightly myopic – not on purpose, but there’s a lot of things that drive you to be slightly insular. It’s always good to push ourselves out to other communities and to broader audiences.

A lot of the academic research on valuing ecosystem services has been conducted by environmental economists, who typically employ a different paradigm than is used in national accounting.

That is a key challenge for us as economists, especially environmental economists. We do a lot of cost-benefit analysis and welfare analysis. But in accounting, the purpose is not to do a welfare analysis – it’s to look at transactions using exchange prices. For example, if I pay for a meal I really enjoy, I’ll likely get a lot more welfare from it than what I paid for it. The economic term for that additional benefit is consumer surplus.  But from an accounting perspective, what’s recorded is what I paid for the meal – the exchange price. And the same holds for accounting for ecosystem services. There’s an important conceptual difference there. I think that can be kind of frustrating for economists, but it’s also practical. 

One thing we’re finding in the revision is that in many cases the distinction between these two approaches is not as large as one might think. In some cases, the values you get from the different approaches diverge considerably, but in many cases there’s a lot of overlap and the two map reasonably well from one to another. In fact, there’s an argument made by Harvard economist Marty Weitzman that, even when using exchange prices, national accounting is a reasonable approximation for welfare.

What are the next steps for the group and the valuing ecosystem services research area more generally?

The next steps are going to be really important and interesting. We’re going to transition from conceptual issues to developing guidelines. The other thing that is going to be crucial is to move toward country implementation, and that’s going to require a lot of learning from experience and coming back to revisit things. But that’s to be expected. GDP and national accounts have been around since the 1930s and there has been a lot of refining and redevelopment along the way.

What’s your sense of how the conservation community views the role of economic analysis and accounting?

By and large there’s a general desire to incorporate economics more and more into the kind of work the conservation community does. One reason is that nature and economic systems are clearly interlinked, and you can’t understand one without understanding the other. We also recognize that to conserve nature effectively, we cannot ignore the economic drivers of degradation and nature loss.

That said, there is still some skepticism in certain quarters about economics as a discipline. While economics is largely seen as an important part of the solution, it is also seen as part of the problem in many people’s minds. That is a common thing I have to address – dispelling the misconception that economics is about commercializing nature or how to make the most money from nature.

Another issue that comes up is a discussion of values – economic values vs. intrinsic values and how much, if any, trade-offs we can accept. My response is that it’s not one or the other. We can think about economic valuations while also paying attention to the fundamental ethical values that people have. It’s a false dichotomy but it’s a pretty prevalent one. 

One thing I’ve learned is there’s a lot of chances to become polarized in the conservation community.  I am really focused on making sure that we become less polarized on these topics.

Looking ahead to the UN Convention on Biological Diversity (CBD) COP in Beijing in 2020, there is a growing sense of urgency and recognition of the need to couple targets with concrete action. How do you see economics fitting in?

It’s really important. There’s a need for a unified framework that can guide economic systems and policy frameworks to incentivize the conservation of nature. A good reference point is the whole climate policy framework. We need to create economic incentives, and for that we need a commitment or policy framework that puts some kind of cap on degradation. Unless there’s a cap, there’s not going to be any kind of price on degradation. And without a price, it will be very hard to mobilize private finance or any kind of finance for conservation at the levels we need.

How might that work in practice? So much of conservation is highly place-based, in contrast to the damage from greenhouse gas emissions which is the same, no matter where the emissions occur.

It’s a challenging translation. But it was challenging for climate change. There’s a whole range of greenhouse gases and now we compare them using CO2 equivalents. An obvious place to start is with species and species extinction risk. Having a consistent monitoring framework is important and accounting can really help play a role – not just at the national level, but at the regional level or even the city level.

One really interesting issue is around the question of biodiversity footprints. We have tended to look at biodiversity as only a local or national issue. There is of course a domestic footprint, but because we live in a global economy, a country like the U.S. or Finland uses a lot of inputs and products that come from abroad, and they have their own biodiversity footprint. Right now we just look at the domestic impacts without paying any attention to the full impacts. We’re looking at that more and more. I imagine that’s going to be a big topic of discussion leading up to Beijing.