Thresholds: better safe than valued

The US Dust Bowl in the 1930s – recorded so evocatively by the music of Woody Guthrie – is another instance where 

 the erosion of natural resilience by human activity had catastrophic consequences. 

Avid readers may remember this earlier post in which I introduced the concept of environmental wealth and described the collapse of southern Mesopotamian civilisation to show the severe consequences that result when environmental resilience is not adequately valued. However, if resilience is to be incorporated into comprehensive wealth accounting, simply stating that environmental resilience is ‘valuable’ is not enough as accounting frameworks require that all inputs are allocated an exact monetary value. This interesting paper by Walker et al (2010) attempts to address this considerable practical challenge, estimating a monetary value of agricultural resilience in the Goulburn-Broken Catchment to variation in the water table.

Walker et al define ecological resilience using Holling’s (1973) seminal interpretation that conceptualises resilience as the capacity of a system to remain in a particular state or ‘regime' despite temporary shocks. Holling argued that ecological systems move into alternate ‘regimes’ when a critical point is crossed and therefore resilience is primarily determined by the proximity of a given system to such a threshold. Anderies et al’s analysis of the Goulburn-Broken Catchment in South East Australia (Anderies et al 2006) found that when the region’s water table rose to 2m below the surface, natural processes drew saline groundwater upwards resulting in land salinisation and, therefore, Walker et al take this 2m level as a natural threshold.

By examining historical data on rainfall variability in the basin, Walker et al are able to estimate the probability that the 2m threshold will be exceeded, given any level of the water table in the previous period. This allows the authors to establish the level of resilience for a particular groundwater depth. The authors then use agricultural land value figures from Whish-Wilson and Shafron (1997) to attach a monetary value to the saline and non-saline states that, in turn, allows monetary values to be calculated for each resilience level. Applying their methodology, Walker et al find that between 1991 and 2001 unusually dry climate conditions caused the water table to fall from 3m to 3.5m achieving an increase in resilience worth roughly $23 million, which is equivalent to about 7% of the region’s conventional wealth.

This may seem a bit technical and abstract, but Walker et al’s experimental research is important. It’s all very well saying that environmental services should be included in national accounts but for this to be possible, methods of valuing these services need to be developed. However, I think that Walker et al’s paper also highlights a fundamental problem with resilience valuation.

The author’s entire valuation exercise relies on the knowledge of a precise environmental threshold – in this case the 2m water table level – and therefore application of their valuation methodology in other contexts is only possible if significant environmental thresholds can be identified. Environmental complexity means many different types of interdependent environmental resilience exist at a range of scales. For example, the population resilience of freshwater species influences the resilience of a freshwater body to nutrient enrichment and vice versa. This means that natural thresholds are numerous and extremely hard to determine, suggesting that the perfect knowledge required for resilience valuation is highly unrealistic. 

Because the resilience of ecosystems is such a complex and contingent phenomenon, I believe that resilience valuation is unfeasible, rendering the concept of environmental resilience incompatible with comprehensive wealth accounting. Rather than using wealth indicators to inform policy intervention, an alternative way of avoiding critical thresholds would be to establish ‘safe minimum standard’ policy targets for a series of environmental parameters. Although this doesn’t overcome the problem of threshold identification entirely – as determining a ‘safe minimum standard’ inevitably requires some knowledge of what is ‘unsafe’ – exact knowledge of thresholds isn’t necessary.

Attaching monetary values to environmental resilience may offer the empirical precision so beloved by contemporary economists, but the complexities of the real world make such an approach impractical. When it comes to incorporating environmental resilience into policy decisions, therefore, I reckon it’s better to be safe than valued.