Economics Can Help Communities ‘Value’ Natural Resources
Most people understand that investing in the future is important, and that goes for conserving nature and natural resources, too. But in the case of investing in such “natural” assets as groundwater, forests and fish populations, it can be challenging to measure the return on that investment.
A multi-institution research team, including Michigan State University geological sciences graduate student Erin Haacker, has adapted traditional asset valuation approaches to measure the value of such natural capital assets, linking economic measurements of ecosystem services with models of natural dynamics and human behavior.
In a paper published in the Proceedings of the National Academy of Sciences, the group of scholars demonstrate how to price natural capital using the example of the Kansas High Plains’ Aquifer — a critical natural resource that supports the region’s agriculture-based economy.
According to their analysis, groundwater extraction and changes in aquifer management policies – driven largely by subsidizes and new technology – reduced the state’s total wealth held in groundwater by $110 million per year between 1996 and 2005. That’s a total of $1.1 billion.
The authors point out that the average annual losses in the value of western Kansas’s groundwater aquifer were roughly equal to the amount of the fiscal surplus projected in the state’s 2005 budget. So while the annual losses were significant, they say, they were in a range where Kansas could have offset the losses with investments in other areas, such as conservation, education, or infrastructure. The research provides means to make these types of comparisons.
Haacker, who is studying hydrogeology, was asked to collaborate on the paper because of her expertise on the High Plains Aquifer.
“Economics is very complicated, so economists try to simplify where possible — otherwise you would never be able to take a model or method from one location and apply it to another,” Haacker said. “But if you don’t have a strong foundational knowledge of groundwater, it would be very easy to oversimplify in ways that would make the resource evaluation less realistic, so my role was to ensure that our description of the aquifer was as true to life as possible.”
The researchers say that the framework is applicable to the full range of natural capital assets, and are currently working to apply it other forms of natural capital such as fish and forests. It can also be utilized at the project, regional, state, national and international levels.
In addition to MSU, the paper was written in collaboration with researchers from Yale University, Arizona State University, California State University, Chico, and the U.S. National Oceanic Atmospheric Administration.
This research was funded in part by the Knobloch Family Foundation.
- Val Osowski, Tom Oswald via MSU Today