Wednesday, December 7, 2005

Climate Change Threatens the Wealth of Developing Countries

The World Bank released a report yesterday at the Montreal conference: Where is the Wealth of Nations? Measuring Capital for the 21st Century.

The report documented that the most important asset of most developing countries -- their land resources -- is at high risk from climate change.  Excluding oil states, natural resources amount to 25% of the wealth of low income countries, much more than the 16% share of produced capital.  The largest component of natural wealth in these countries is land.  Cropland and pastureland constitute 70 % of the value of natural capital in low-income countries.  Warren Evans, Director Environment Department, The World Bank, states: "The conclusion is clear - the most important natural asset for the poorest countries is agricultural soil.  How these soils are managed and their productivity enhanced and maintained will have a critical impact on rural poverty and economic growth."

The Bank points out that current indicators used to guide development  - national accounts figures, such as Gross Domestic Product (GDP) – ignore depletion of resources and damage to the environment.  In Where is the Wealth of Nations, the World Bank offers new estimates of total wealth, including produced capital, natural resources, and the value of human skills and capabilities, which show that many of the poorest countries in the world are not on a sustainable path.

The Bank explains:

Switzerland heads the list of the top-ten performers, the other nine being European countries, the United States, and Japan. Sub-Saharan Africa dominates the bottom-10 list, with Ethiopia having the lowest level of total wealth.  Canada has the seventeenth largest level of total capital in the world. Natural resources represent ten percent of total wealth in Canada, owing to sub-soil resources and forests.

The 7th Millennium Development Goal (MDG) – ensure environmental sustainability – calls on countries to “reverse the losses of environmental resources” by 2015. Achieving this goal has proven to be elusive for most countries, not least because of a lack of indicators of sustainable development.

“There is a shared sense of urgency about meeting the Millennium Development Goals,” added Evans. “However, it would be tragic if the achievements of 2015 are not sustained because soils have been mined, fisheries and forests depleted, and climate change erodes the assets of the poor.  Avoiding this outcome is the true seventh Millennium Development Goal.”

Where is the Wealth of Nations complements the report of the Millennium Ecosystem Assessment.  The MA played an important role in signaling the importance of environmental services to human wellbeing.  Where is the Wealth of Nations places an economic value on natural resources and argues that many of these values are underpinned by environmental services that may be at risk – for example, forest owners have no incentive to preserve watershed services that benefit water users; therefore, forests are overexploited and their worth unmeasured.

According to Atilio Savino, Secretary of Environment, Argentina, “Governments need to know the environmental costs so as to make informed decisions concerning development.  Frequently, we have difficulties in perceiving that the development policy cannot be broken away from the environmental policy.  It is only by the inclusion of the environmental dimension may we obtain an accurate measurement of the environmental cost of development, very often overlooked or undervalued.”

“This book,” he continued, “by considering the first assessments on the capacity of human resources, i.e. our capacity to work on our own welfare, together with natural resources, and by proposing as a conclusion that these are more important capitals than the assets produced or than finance, represents an enormous contribution to the policy of sustainable development.”

Savino added, “This theoretical and methodological construction allows then for the first time to use quantifiable factors to measure and weight the notion of sustainable development, which can be an ambiguous concept.” The value of environmental services can be significant, according to the report. Recent research has highlighted the value of services provided by natural forests in the Mediterranean region. These services, including sustainable harvest of timber and fuelwood, forage, other non-timber products, and recreational uses, amount to up to $350 per hectare per year.“Measuring the change in total wealth and the change in natural wealth,” said Kirk Hamilton, lead author of Where is the Wealth of Nations, “can contribute to a comprehensive measure of whether a development path is sustainable in the long term.  The indicators in ‘Where is the Wealth of Nations’ can guide countries toward a sustainable path.”

World Bank site 

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