[MUSIC] What is monetization? Whenever we engage a conversation on valuation, it would be unusual for us not to engage at the same time some discussion on monetization. But then we need to ask and answer the question, what is monetization because it has different meanings and different context. If you were a central banker, monetization means the process of printing legal tender, coins, bank notes. And demonetization means extracting them or removing them from circulation. If you are an entrepreneur, monetization probably means the process of taking a patent and converting it to something valuable, patent monetization. Or it might be making use of data, designing a process that gives you the ability to make profit from data, data monetization. Or it might be some form of monetization of public goods, which so far did not deliver profits, only delivered public value. And you have, for example, got yourself a mining license, which then enables you to have monetized a public good, which was earlier part of the government's wealth. So there are all of these different types of monetizations. But there's yet a third dimension, or a third definition, of monetization which is what comes into play when we talk valuation. And that's about ascribing monetary values, ascribing economic quantities to what natures deliver in terms of ecosystem services and biodiversity. That's the kind of monetization that we are talking about. When we talk about monetization, invariably there will be some discussion of some big number. And I often wonder why we are so obsessed with big numbers. Let me take an example. In 1997, Professor Bob Costanza and some scientists published in Nature an estimate of the monetary value of ecosystem services around the world. The answers were staggering. They were in the range of 18 to $61 trillion. And the mean was about $38 trillion, coming something like $24 trillion from ecosystem services and the ocean, another $14 trillion from ecosystems services on land. More recently, in 2014, Costanza and others put together a revised estimate, of course, accounting for the increased scarcity and the increases in inflation. No surprises, the numbers were even bigger. Now were talking about 125 trillion to $145 trillion of economic value every year from ecosystem services. But what does all this mean? Yes, it means that these values are delivered from nature to society are bigger than what we call GDP. Global GDP has been in the range of the 20s and the 60s of trillions of dollars during these periods. But what else does it mean because to be honest, there is no one at the global level who can make decisions about this valuation. There is no president of the planet. And trust me, I spent some time with the United Nations. It is hugely complex to get 193 nations to deliver a decision on anything, let alone something as complex as the value of global ecosystem services. So these big numbers can be interesting but not very useful sometimes. Another example of a large global number was the cost benefit analysis that was done by Andrew Balmford, a Cambridge scientist and some others in 2002. Balmford and his team estimated that the benefits of converting 15% of land into protected areas and 30% of the oceans into protected areas in terms of measurable valuable ecosystem services would be of the order of 4.4 to $5.2 trillion. And at the same time, they measured the cost of such a conversion into protected areas, which included, of course, the opportunity cost of the land that has preempted from other uses. They measured that cost as being $45 billion per annum. In other words, their conclusion was that the benefits exceeded the cost of such action by as much as a 100 to one. Now you might argue that's pretty remarkable for a big number and an amazing use of monetization. And yet it has taken more than a decade to reach through the convention on biological diversity to achieve smaller collective conservation targets, respectively 10 and 17% on land and on the oceans. So just the virtue of having a big global number doesn't necessarily translate into policy action or business decisions. And I think that's part of the challenge. For monetization to be truly useful, it needs to look much more at a local level, at a much more reflective level where communities, businesses, towns, cities are involved. Now, let us look at some of the issues surrounding monetization, which sometimes can become quite controversial. I find that the reason why there are concerns is because there are certain assumptions that we have made, perhaps reflecting our education, where we tend to equate valuation with pricing, pricing with commodification, and commodification with privatization. But the reality is that I think this is partly an educational defect because valuation is not pricing. A value is what you receive. A price is what you pay. If what you receive is from nature, the chances are that it's free. Therefore by definition, it's got no price. It hasn't been transacted in markets. Markets only transact private claims. That's the way it is. Markets are no good for transacting because you can't public goods. Another issue is when we look at pricing, does that necessarily mean immediately commodification? Let's take an example. Water pricing can be introduced. Any sensible government which is restricted in its resources for water would probably introduce three tiers of water pricing. One for drinking, which should be cheap and available to all. Another for agriculture, which should be perhaps more expensive but yet available largely, and maybe a third for industry and luxury such as swimming pools and factories where you can apply some kind of a market-related price. But that pricing is a very complex range of different prices of what is essentially a public good managed by the government on behalf of its citizens. It hasn't necessarily led to the commodification of the commodity so to speak, even though it is a commodity of fresh water, because of the way it's been managed. And it hasn't automatically led to the market. And even if something is commodified, you need to first privatize it in order for it to be traded in markets. And that's another choice that has to be made. So you see going from the language and the context of valuation to the language and context of pricing which could be public pricing or it could be private pricing, to go from there to commodification, and then from there to marketization and privatization because it's only private goods that trade in markets. These are discrete, separate steps. And the question to be asked is, who should take them? These are not individual choices. These are societal choices. And, once again, these are ethical choices. To go from one to the other to the other to the other, you need to make three or four separate ethical choices as a society or as a community. It's not where you can jump automatically from valuation to privatization. Measuring things in monetary terms actually adds to the complexity. And some of the aspects of the complexity can be forgotten in the overemphasis on measuring, and valuing, and creating numbers. So what we must not forget, let me identify five things we must not forget. The local ecology, because every valuation has to be context-specific and location-specific. Secondly, the dynamics of the ecosystem have to be accounted for. No ecosystem is static. It changes over time. And as climate changes and as usage changes, it will change even more. So we need to account for ecosystem dynamics. Thirdly, we need to recognize that beyond the certain point, the services of the ecosystem that are being delivered might change dramatically because you've managed through your usage or through depleting the system to push it into another phase. In other words, you tested the resilience of that ecosystem to such a point that it's crossed the threshold. And then bringing it back again is a hugely more complex exercise. Fourth, you've got to recognize that the monetary valuation that you are choosing depends on who you are. If you have a local community, you might have one yardstick. If you are a random visitor, another. If you are a government, yet a third. Let's take the university here. If you have a nice beautiful courtyard with trees, and you're the president of the university who would like to keep that, preserve that view for good, you might take one estimate of valuation in one kind of discount rate. If you happen to be the local government who is just concerned about preserving that area as one of many public spaces which have got trees, you might take a second discount rate. And if you're just passing a random visitor who likes the view but may not come back again, you might take a third. So these are aspects of the complexity, which do make a difference. And finally, and especially related to this idea of valuing by the locals and the agent, what about property rights? Depending on who you are, depending on what access rights you have, what user rights you have, what property rights you have over the location, which provides the ecosystem service, you would value differently. [MUSIC]
