Ecosystem economics: How the Biden administration is finally giving nature its due 

If a tree stands in the forest, and there’s no economist around to tabulate its benefits to humans, do those benefits still exist?  

For government agencies, the answer has long been, “No.” But the Biden administration is poised to change that. 

Every day our natural environment provides us with a steady supply of “ecosystem services” that enhance our lives and wellbeing. Examples include flood control for coastal communities provided by wetlands, pollination of commercial crops by bees, and culturally valued experiences that some indigenous communities derive from subsistence fishing. 

Critically, the healthier our natural environment, the more — and better — ecosystem services it can provide. 

Non-economists have long recognized this beneficial dynamic of our natural environment. But it wasn’t until the 1970s that modern social scientists began to fully grapple with the significance of ecosystem services for our economy. 

In the decades since, the economics profession has continued developing new and better tools to account for ecosystem services, but policymakers have been slow to pick them up. The harmful consequences of this omission have been particularly glaring for the process of regulatory analysis. 

Under a series of executive orders stretching back to the Reagan administration, agencies have been required to catalog and evaluate the potential consequences of their planned regulations using cost-benefit analysis. This technique is highly controversial among supporters of strong environmental and public health protections due to its methodological bias against such policies. The systematic failure of cost-benefit analysis to account for ecosystem services has been one of the major sources of this bias. 

Imagine that the Department of the Interior is considering a rule that would make it easier to harvest timber from public lands. Historically, the agency’s analysis for that rule would have accounted for the economic benefits of the harvested timber — namely, the commercial value of the products that they might generate and the jobs that might be created. Yet, this analysis likely would not have accounted for the value of all the ecosystem services that would flow from leaving the trees in place, such as their impact on drinking water supplies or their ability to sequester climate-destabilizing carbon pollution. 

When a cost-benefit analysis fails to account for important impacts like these, it’s tantamount to treating them as if they are worth nothing. And while we may not know exactly what a stand of forest’s drinking water or carbon sequestration services are worth, we can be sure they are worth something more than $0. 

The practical upshot is that the failure to account for ecosystem services in regulatory analysis contributes to a skewed overall picture of regulations. The Department of the Interior might still proceed with the hypothetical rule, even after accounting for the forest’s ecosystem services. But at least we would know what we’re giving up in exchange for the commercial products and jobs that might be created. 

It may come as no surprise that many agency economists have little or no experience accounting for the impact of their planned regulations on ecosystem services. But last month, as part of a broader effort to modernize regulatory analysis, the Biden administration published a proposed guidance to agencies with detailed instructions on how to do just that. 

One important part of the guidance is to help agencies recognize and understand the often-complex links between their regulations and the resulting impacts on ecosystem services. For instance, the guidance describes how a rule addressing road construction might affect the healthy air quality or recreational opportunities that forests provide. 

Another major component of the proposed guidance is focused on the mechanics of how to meaningfully analyze ecosystem-services impacts once they have been identified. In many cases, this will involve quantifying those impacts, but when valid economic tools exist, agencies may seek to place a monetary value there as well. So, for example, an agency could measure the added time spent enjoying recreational experiences in nature, and they could also calculate the economic value of those experiences. 

While there is much to like in the proposed guidance, important opportunities for improvement remain.  

First, the guidance rightly acknowledges that limited data may prevent agencies from obtaining a full quantitative or monetized accounting of ecosystem services. But it also fails to prepare agencies for the ethical challenges this analysis might raise: It would be ethically inappropriate, for instance, to try to capture something like the value that subsistence fishing provides to indigenous communities in dollars-and-cents terms. 

Second, the proposed guidance fails to forthrightly acknowledge the overall limits of what can be accomplished through accounting of rules’ ecosystem-services impacts. After all, the real value of an acre of wetland is much more than just the sum of the ecosystem services it happens to provide. Unless the guidance grapples with this limitation, it risks reinforcing the bias of cost-benefit analysis that it was meant to address. 

Now that the public comment period on the proposed guidance has ended, the Biden administration has an opportunity to correct these and other shortcomings. But agencies should not wait until the final guidance has been issued before they start accounting for the potential ecosystem-services impacts of their rules. The lessons the proposed guidance offers now are essential for providing a better analysis of those rules. 

James Goodwin is a senior policy analyst at the Center for Progressive Reform. 

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