ISET Economist Blog

Making Nature’s Value Visible as a Step Towards (Greater) Sustainable Development
Saturday, 24 June, 2017

After the Rose Revolution, in the name of of economic growth, the Georgian government set aside environmental issues and focused on a quick economic recovery. This is understandable, as the Georgian economy was still recovering from the collapse of the early 90’s, and the pressure to accelerate the process was high. At that time, the existing environmental regulations were perceived as an additional constraint to faster growth, and as potentially fertile ground for corruption. Getting rid of those regulations was perceived as the fastest and most effective policy – in the short term – to help the economy recover.

While this approach might have been justifiable in the specific context of the Rose Revolution – especially from a short-term perspective – this cannot (and should not) be a long-term approach to economic development. Goods and services provided by the environment (such as clean air and water, wood from the forests, or biodiversity), while not always exchanged for money on the market, do have a clear economic value, sometimes quite high. Not only does our individual well-being crucially depend on the state of the environment in which we live, but also, the success of many economic activities is affected by the quality of the surrounding environment. The environment (and the natural resources) of a country can be seen as a form of capital – natural capital – that (together with other factors) contributes to the well-being of the population. Unfortunately, this particular dimension is not captured by standard economic indicators, such as Gross Domestic Product (GDP). This becomes a problem when policies aiming at maximizing GDP growth are designed without taking into account the environmental costs associated with them (e.g. increased pollution, loss of biodiversity, depletion of natural resources), which can lead societies to sacrifice long-term growth for short-lived (apparent) gains obtained by consuming natural capital. A decade from the Rose Revolution, our country has the opportunity to rethink its strategic approach to sustainable development and incorporate environmental issues into policy making. We believe it should.

In 2012, Georgia joined the group of countries piloting the Economics of Ecosystems and Biodiversity (TEEB) global initiative, which focused on “making nature’s values visible.” This initiative seeks to set a price on natural capital, on biodiversity, and to demonstrate the value of nature in economic terms. Therefore, by agreeing to participate in the TEEB initiative, Georgia volunteered to study and assess its natural capital, with the ultimate objective of giving an economic value to all the goods and services provided by the country’s ecosystems. This process is crucial to helping policymakers and businesses make decisions that consider the full costs and benefits associated with the proposed use of an ecosystem, rather than considering just the financial impacts on private companies or on the public budget.

There are several challenges that characterize attempts to incorporate the environmental dimension in Georgian policy making. The most important ones are the following:

Natural resources are usually considered to be “free”. This is common to contemporary societies. “We use nature because it is valuable, we lose nature because it is free” – said Pavan Sukhdelov, TEEB study leader and UNEP Goodwill Ambassador, while talking about ecosystem problems. This problem – true all over the world – is exacerbated by the Soviet legacy of our country. For example, the habit of receiving irrigation water for free, acquired during Soviet times, generates strong resistance to attempts by companies to collect irrigation/drainage service fees and to encourage efficient use of the resource.

• The insufficient emphasis on identifying the correct economic value of environmental goods and services affects planning and decision-making processes and translates into distorted prices (e.g. pollution fees, water tariffs, etc.) and incentives. This, in turn, leads to the inefficient use of available natural resources and makes it harder to ensure sustainable use.

Lack of financial resources (and political will). The Ministry of Environment and Natural Resources Protection of Georgia (MENR) is chronically underfunded, and its funds have been steadily declining over the years. This of course makes it much harder for the Ministry to perform its functions properly and ensure proper management of the country’s natural resources. Currently, there is not even sufficient data to evaluate quantity and quality of the country’s natural resources. For example, there are no statistics about forest usage and composition. Also, our national environmental agency lacks the resources to properly monitor underground and surface water quality and quantity, and even air quality is only regularly monitored in 5 cities. Poor monitoring and scarce data availability translate into poor enforcement and more likely violations of existing legislation. A recent study produced by the Caucasus Environmental NGO Network (CENN) states that 4 out of 5 cut trees in Georgia are cut illegally. While one might argue that there is not a lot one can do, if the reason is an overall lack of resources, this point is a bit hard to maintain when one observes that the budget of the Ministry of Sport and Youth Affairs of Georgia is almost four times the size of that of MENR. This observation points to lack of political will to improve environmental management.

The lack of environmental awareness among decision makers and the public might be the best explanation for the current trends characterizing the Georgian economy. Recent developments, especially in urban areas, show that some government officials responsible for the management of natural resources are either not sufficiently aware of the negative impacts of their actions and decisions for society, or they choose to ignore them when faced with more “tangible” (and immediate) financial benefits. Tbilisi citizens are familiar with such cases in urban planning, when fresh air has been sacrificed for big developer projects, just because air quality was not valued enough by decision makers (this problem has been discussed in a previous blog). This is likely to continue while the overall environmental awareness of the public remains low, which reduces the pressures on policy makers to include environmental considerations in their plans. Luckily, we are observing a trend toward increasing awareness in this regard.

Based on our experience as experts working on environmental policy impact assessments in Georgia, we are convinced that “making nature’s values visible,” and properly assigning monetized values for different ecosystems, is vital for the country in its current stage of development. By assigning proper values to ecosystems, Georgia can more efficiently allocate its natural resources and promote the proper and sustainable use of nature. Natural capital is a critical asset, especially for developing countries like Georgia, and it urgently needs proper management in order to continue to provide its essential services to individuals and companies alike. Natural capital valuations can help countries rich in biodiversity design a management strategy that maximizes contributions to economic growth, while balancing tradeoffs among ecotourism, agriculture, subsistence livelihoods and other ecosystem services like flood protection and groundwater recharge. In addition, businesses will have more incentives to search for smarter solutions, use better technologies, pollute less and use natural resources more efficiently. Finally, this broader approach to development can be expected to stimulate new (and possibly higher value added) economic activities.

To sum up, Georgia can benefit significantly from incorporating environmental considerations (especially the protection of its natural capital endowment) into the policy-making process, as this allows for identifying and promoting genuine welfare-enhancing policies, and ensures their sustainability over time. The process of harmonization with the EU legislation has opened a window of opportunity for our country. Many changes are occurring in Georgia in order to harmonize institutions, legislation and policy implementation practices with the EU, and this gives us the possibility of making wise changes, in line with the TEEB approach. Our hope is that this chance is not missed, and that Georgian policy-makers will not just harmonize the letter of the Georgian legislation to that of the EU legislation, but will embrace the principles behind it and make sure those principles become an integral part of their future policy making efforts.

The views and analysis in this article belong solely to the author(s) and do not necessarily reflect the views of the international School of Economics at TSU (ISET) or ISET Policty Institute.