Ecosystem services

Indian Economy glossary

Topic: Environment and Sustainable Development · NCERT: Beyond NCERT

Meaning

Ecosystem services are the benefits people get from ecosystems, such as forests, rivers, wetlands and soils. The Millennium Ecosystem Assessment (MEA, 2005) sorts them into four groups: provisioning, regulating, cultural and supporting.

They matter because markets put no price on most of them, so people treat them as free and use up too much. Valuing them in money lets the loss of nature show up in policy decisions and in national accounts.

Explanation

Stock and flow: where the services come from

  • Natural capital is the stock: soil, water, air, forests, minerals and biodiversity.
  • Ecosystem services are the flow this stock gives every year.
  • Think of a bank deposit. The stock is the deposit, and the services are the interest.
  • If you use only the flow, the stock stays safe.

  • If you eat into the stock (for example, cutting forests faster than they regrow), that is depletion. The flow of services then shrinks in future years.

  • Why they get overused:

  • No market price → people think the service is free → they use too much of it.
  • GDP counts a felled forest as income (the timber is sold). It does not count the loss of flood control or pollination from that forest.

The four types (MEA, 2005)

Type What it means Example
Provisioning Products we take directly food, timber, water
Regulating Nature keeping its own processes under control climate, flood control, pollination
Cultural Benefits that are not material recreation, spiritual value
Supporting Basic processes that make the other three possible soil formation, nutrient cycling
  • Exam trap: supporting services reach people only indirectly, through the other three.
  • Pollination is regulating, not supporting. Flood control is also regulating.

Putting a money value on the services

  • Total Economic Value (TEV) adds up everything an ecosystem is worth: TEV = Use values (direct + indirect + option) + Non-use values (existence + bequest)
  • Direct use: timber, fuelwood, tourism.
  • Indirect use: the services an ecosystem gives, such as watershed protection (keeping the water supply of an area clean and steady) and carbon storage.
  • Option value: the value of keeping the choice to use it later, for example a plant that may give a medicine in future. It is a use value.
  • Existence value: the value of just knowing it exists.

  • Bequest value: the value of passing it on to our children and grandchildren.

  • Worked example (from the note): a forest gives ₹40 crore a year in timber (direct use), ₹25 crore in flood control (indirect use) and ₹5 crore in option value. Surveys show ₹20 crore in existence value and ₹10 crore in bequest value.

  • Use value = 40 + 25 + 5 = ₹70 crore
  • Non-use value = 20 + 10 = ₹30 crore
  • TEV = ₹100 crore a year. If you look only at timber, you see ₹40 crore and undervalue the forest by 60%.

Methods for services that have no market price

Method Type How it works
Contingent valuation (CVM) Stated preference (people say what they value) Surveys ask for willingness to pay (WTP) for a benefit, or willingness to accept (WTA) money for a loss
Hedonic pricing Revealed preference (the value is read from what people actually do in markets) The value of clean air or a good view is worked out from differences in house prices
Travel-cost method Revealed preference A park's value is worked out from what visitors spend to reach it: fares, fuel and time
  • Hedonic example: two identical flats cost ₹80 lakh (clean-air area) and ₹72 lakh (polluted area). The ₹8 lakh gap is what buyers are paying for clean air.
  • Only CVM can capture non-use values, because existence and bequest values leave no trace in any market.
  • Weakness of CVM: people answer a made-up question, so what they say may differ from what they would really pay.

Paying for the services: PES

  • Payment for Ecosystem Services (PES) pays landowners or communities to manage land so that it keeps giving services such as watershed protection or carbon storage.
  • The people who benefit (downstream cities, the world) pay the people who provide the service (upstream farmers, forest dwellers).

  • This turns an externality (an effect on others that the market does not price) into an income.

  • Example: Costa Rica's PSA scheme (1997) pays landowners to keep their forests.

  • Research on the money value of nature:
  • TEEB (The Economics of Ecosystems and Biodiversity) shows the money value of ecosystem services and biodiversity.
  • The Dasgupta Review (2021), The Economics of Biodiversity, was written for the UK Treasury. It argues that nature is an asset, and that countries should measure "inclusive wealth" (produced + human + natural capital), not only GDP.

In India

  • Fiscal PES: the 15th Finance Commission gives a 10% weight to "forest and ecology" in the formula that shares central taxes among states (tax devolution).

  • More dense forest → a bigger share of central taxes → states are paid for protecting forests instead of clearing them.

  • NPV of forests: the same valuation idea sets the Net Present Value (NPV), the amount charged when forest land is diverted to non-forest use.

  • Measuring ecosystem services in the national statistics:
  • MoSPI / NSO (the National Statistical Office, under the Ministry of Statistics and Programme Implementation) began compiling environment accounts in the SEEA framework in 2018, in EnviStats India Vol. II: Environment Accounts [2].
  • India took part in the UN Statistics Division's NCAVES project (Natural Capital Accounting and Valuation of Ecosystem Services), launched in 2017 [2].
  • EnviStats India 2024: Environment Accounts, the 7th issue in a row, was released on 30 September 2024 [1].

  • It covers both SEEA-CF and SEEA-EA, and includes accounts of ecosystem extent, condition and services [2]. It added Ocean Accounts as a new area [2].

  • Global standard behind it: the UN Statistical Commission adopted SEEA Ecosystem Accounting (SEEA-EA) as an international statistical standard at its 52nd session in March 2021 [3]. It measures ecosystem services and changes in ecosystem assets, and links them to economic activity [3].

  • Partha Dasgupta Committee (2013): set up by MoSPI. It proposed a framework for green national accounts for India.

Don't confuse with

  • Natural capital: this is the stock (forests, soil, water). Ecosystem services are the yearly flow of benefits from that stock.
  • Supporting vs regulating services: soil formation and nutrient cycling are supporting and reach people only indirectly. Pollination and flood control are regulating.
  • Payment for Ecosystem Services (PES): PES is a policy tool that pays the people who provide a service. The service itself is the benefit.
  • Green GDP / green accounting: this subtracts resource depletion and pollution damage from national income. It is a way of accounting for the loss of natural capital and ecosystem services, not a type of service.

Prelims Hooks

  • The MEA (2005) gives four types: provisioning, regulating, cultural, supporting. Pollination and flood control = regulating. Soil formation and nutrient cycling = supporting.
  • TEV = use (direct + indirect + option) + non-use (existence + bequest). Option value is a use value, not a non-use value.
  • CVM = stated preference (WTP/WTA surveys). Hedonic pricing and travel cost = revealed preference. Only CVM can capture non-use values.
  • The UN Statistical Commission adopted SEEA-EA in March 2021 (52nd session) [3]. SEEA-CF (2012) was the first international standard.
  • EnviStats India is published by MoSPI/NSO, not MoEFCC or CPCB. The 2024 edition was the 7th issue and added Ocean Accounts [1][2].
  • Costa Rica's PSA (1997) is the classic PES scheme. India's fiscal version is the 15th Finance Commission's 10% weight for forest and ecology.

Mains Points

  • GDP hides the loss of services: GDP counts forest felling and mining as income but ignores the flood control, pollination and carbon storage that are lost. India's yearly SEEA-based EnviStats accounts of ecosystem extent, condition and services [1][2] are a base. The next step is to value this depletion in the main national accounts, as the Dasgupta Committee (2013) proposed.
  • Valuation as a policy tool, and its limits: TEV, CVM and hedonic methods give nature a price in cost-benefit analysis, for example in forest NPV for diverted land, in environmental impact assessments (EIA) and in setting PES payments. But money values can be unreliable (CVM answers are hypothetical), and some values, such as sacred groves or tribal cultural value, may not fit any price.
  • Paying the providers: Costa Rica's PSA (1997) and the 15th Finance Commission's 10% forest-and-ecology weight both reward those who provide ecosystem services. The debate is whether 10% makes up for the development that forest-rich states, such as those in the North-East and central India, give up.

Related concepts

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Sources

  1. 1Press Note on EnviStats India 2024: Environment Accounts (PIB)pib.gov.in · tier 1
  2. 2EnviStats India 2024: Environment Accounts (MoSPI)mospi.gov.in · tier 1
  3. 3SEEA Ecosystem Accounting is adopted! (UN SEEA)seea.un.org · tier 2