Ecosystem Services, and Putting a Price on Them
Chapter Eight
Syllabus topic 1, "Bio-diversity"
Pages 22 to 24 of 818
In one line
Ecosystem services are the things a living system does for people without being asked and without being paid.
In exam wording: ecosystem services are the benefits people obtain from ecosystems, conventionally grouped as provisioning services such as food and water, regulating services such as flood control and pollination, supporting services such as soil formation and nutrient cycling, and cultural services such as recreation and religious value; they are the content of the indirect use value of biodiversity and the reason a natural place is worth more than its produce.
Why the law has this at all
The law's problem is that nobody owns a service and nobody is billed for it. A wetland that absorbs a flood saves a town money, and the wetland's owner receives nothing for it. A forest that holds soil on a hillside protects a reservoir, and the irrigation department pays nothing. Because the benefit is unpriced, the land is converted to something that does produce a price, and the loss shows up somewhere else and in somebody else's accounts.
Indian law answers this in three ways: by protecting the place directly, by charging a project for the loss, and by treating the loss as a matter of constitutional right.
The four groups, broken down
1. Provisioning. What the system produces and people take: food, fresh water, fuelwood, fibre, timber, and the genetic material from which crops and medicines are bred.
2. Regulating. What the system prevents or moderates: pollination of crops, regulation of stream flow and flood, purification of water, breakdown of waste, control of pests, storage of carbon, moderation of local climate.
3. Supporting. The processes that make the others possible: soil formation, nutrient cycling, primary production. They benefit people indirectly and over long periods.
4. Cultural. Recreation, tourism, aesthetic value, scientific and educational value, and religious value. In India the last of these is legally important: sacred groves are among the oldest conserved areas in the country, and section 37 of the Biological Diversity Act 2002 gives a State Government power to notify a biodiversity heritage site, which is the provision most often used for them.
Where each one appears in Indian law
| Service | Where the law reaches it |
|---|---|
| Provisioning | Forest produce in section 2(4) of the Indian Forest Act 1927; minor forest produce in section 3(1)(c) of the Forest Rights Act 2006 |
| Regulating, water | Section 2 of the Van Adhiniyam 1980, which requires Central approval before forest land is used for a non-forest purpose |
| Regulating, carbon | The compensatory afforestation and net present value regime of the Compensatory Afforestation Fund Act 2016 |
| Supporting | Environmental impact assessment under the Notification of 2006, made under sections 3 and 6 of the Environment (Protection) Act 1986 |
| Cultural | Biodiversity heritage sites under section 37 of the Biological Diversity Act 2002 |
Ecosystem Services, and Putting a Price on Them
Net present value: the one place a rupee figure is actually charged
When forest land is diverted for a project, the user agency pays two things. It pays for compensatory afforestation, which is planting an equivalent area elsewhere, and it pays the net present value of the forest that is lost. Net present value is an attempt to price the stream of ecosystem services the forest would have produced over a period of years, discounted to a present figure.
The Compensatory Afforestation Fund Act 2016 is the statute that collects and applies those payments. Sections 3 and 4 establish the National Fund and the State Funds, sections 5 and 6 govern disbursement and use, and sections 8 to 12 constitute the authorities that administer them.
This is the clearest Indian example of an ecosystem service being converted into a legal obligation to pay.
Worked example
A hydroelectric project requires the diversion of one hundred and twenty hectares of reserved forest in a Himalayan valley. Work out what the law makes the project pay for and what it does not.
What is charged. Under section 2 of the Van Adhiniyam 1980 the project cannot proceed without prior approval of the Central Government. As a condition of approval the user agency must fund compensatory afforestation over an equivalent area of non-forest land, or twice the area of degraded forest land, and must deposit the net present value of the diverted forest. That money goes to the Funds under sections 3 and 4 of the Compensatory Afforestation Fund Act 2016 and may be used only for the purposes in sections 5 and 6.
What is assessed but not charged. The environmental impact assessment under the Notification of 2006 requires the project to describe its effects on biodiversity, and the Expert Appraisal Committee may impose conditions. It does not price the loss.
What is not counted at all. The value of the valley to downstream irrigation through regulated flow, the pollination services to orchards in the valley, and the cultural value of a grove within the diverted area. None of these has a separate legal head under which a payment is required.
The gap that follows. Net present value is a single figure fixed by a formula and applied across a category of forest. It does not vary with the particular services a particular forest performs. So a forest that regulates the water supply of a town and a forest of the same category that does not will be charged at the same rate, and this is the standing criticism of the scheme.
What beginners get wrong
Treating ecosystem services as a scientific classification with legal force. It is not. No Indian statute uses the phrase. It is an analytical tool that a court will accept as expert reasoning, and a good answer says which statutory provision actually does the work.
Ecosystem Services, and Putting a Price on Them
Confusing net present value with compensation for land. Compensation for land is paid to the owner for the land. Net present value is paid to the State for the loss of the forest's services and goes into a statutory fund.
Assuming the money restores the service. Compensatory afforestation produces a plantation, not the ecosystem that was diverted, and the services of the two are not the same.
Quick revision
- Four groups: provisioning, regulating, supporting, cultural.
- Ecosystem services are the content of indirect use value.
- Net present value under the Compensatory Afforestation Fund Act 2016 is the only place Indian law charges for them directly.
- Sections 3 and 4 of that Act create the Funds; sections 5 and 6 govern their use; sections 8 to 12 the authorities.
- Section 37 of the Biological Diversity Act 2002 is the provision most used for sacred groves.
- No Indian statute uses the phrase "ecosystem services".
Test yourself
1. Which of the four groups is a sacred grove protected under, and by what provision? Cultural services, and the provision is section 37 of the Biological Diversity Act 2002, under which a State Government may notify an area of biodiversity importance as a biodiversity heritage site.
2. What is net present value in forest diversion, and where does the money go? It is a payment representing the value of the ecosystem services the diverted forest would have produced over a period, charged as a condition of approval under section 2 of the Van Adhiniyam 1980. It is credited to the National Fund or the State Fund constituted under sections 3 and 4 of the Compensatory Afforestation Fund Act 2016.
3. Why do regulating services tend to be lost before anyone notices? Because they are unpriced and are enjoyed by people other than the landholder. The cost of losing them appears later, elsewhere, and in a different set of accounts from the one in which the decision to convert the land was taken.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.