Deforestation Costs to the World...Wow, Big $$$

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The BBC is reporting on a new study which estimated that current deforestation is costing the world $2-5 trillion per year.  Wow...that is a lot of dollars, euros, yen, or whatever you are using these days (don't ask me to convert it to the equivalent value for a mortgage backed security).

Of course, these kinds of estimates have always proven difficult to develop.  Economists have been trying to place a value on things that the market doesn't currently value.  How much value do we place on clean air, avoiding the worst impacts of climate change, biodiversity, and pristine forests?  Zero dollars?  Of course not, but it is hard to put an exact figure on it.  This study, headed by a Deutsche Bank economist, attempted to do just that.  (Note: I won't assess the merits of the underlying study...I'll let others assess it over the coming months).

So, the costs in this study attempt to account for the services that these forests provide, such as clean water, flood prevention, food production, and absorption of carbon dioxide which causes global warming.  It estimates the costs of replacing these services, such as "building reservoirs, building facilities to sequester carbon dioxide, or farming foods that were once naturally available".

The study points out that this is more than the current loss on the financial markets.  As quoted by the BBC, the author emphasized that: 

"It's not only greater but it's also continuous, it's been happening every year, year after year.  So whereas Wall Street by various calculations has to date lost, within the financial sector, $1-$1.5 trillion, the reality is that at today's rate we are losing natural capital at least between $2-$5 trillion every year."

So let me get this correct, deforestation which we know is bad for a lot of reasons (as Noble Prize winners Gore and Maathai pointed out) is costing us more than the current financial crisis.  This puts the need for incentives to reduce deforestation loss in perspective.  Here are a couple of additional factoids that will put the $2-5 trillion annual cost of deforestation in perspective as it is:

  • More than the $104 billion the world currently provides as aid to developing countries. This is all the money that is provided to help the less developed countries get out of poverty and meet basic development goals established as a part of the Millennium Development Goals. The worst irony is that many of the services that the world is trying to meet with this aid are being lost through forest destruction (e.g., clean water, food, etc.). Sort of like one step forward and two steps back (make that more like 20 to 50 steps back).
  • In the range of the combined $3.3 trillion gross domestic product (GDP) of all of the top 15 deforestation emitting countries. So, the total loss from forest destruction in the world is equivalent to almost the total GDP in the countries that account for over 80% of global deforestation. Talk about a financial loss if these statistics showed up in GDP values.
  • More than the total exported value of wood products, meat products, and palm oil of the top 15 deforestation emitting countries. These commodities are the main drivers of deforestation in a number of these countries.

All this "adds up" to an additional reason to preserve the world's intact tropical rainforests.  And, these costs are building year-by-year adding an accumulated bill that will be difficult to pay off.  Sounds like it is time to stop adding to our debt and develop the necessary strategies to address the global warming pollution from deforestation.  The good news is that this is on the agenda for the international agreement to be reached in Copenhagen in December 2009.