Pricing and restoring natural capital: a case study on mining and vegetation

Natural resources often come for free to the companies that use them. Natural resources have a large economic value. For example, pollination enables between US$235 and US$577 billions of the global agricultural output and the total value of forests is estimated to be around US$4.7 trillion per year. However, most often companies are allowed free use of vegetation and other natural resources in their production processes. This is a problem, as we are currently consuming natural resources 1.75 times faster than the planet can regenerate, which endangers the ecological foundations of society.

Prof. Jean-Philippe Bonardi at HEC Lausanne, and scientific collaborator Edoardo Chiarotti, co-authors of the study, provide a centralized, satellite-based methodology to estimate the cost of vegetation loss for the mining sector. They show that by using satellite images that are publicly available, the impact of companies on natural resources and the associated cost can be assessed. To showcase how this system works, the focus centers on the case of the Antamina mining site in Peru and the associated loss of vegetation, with three main steps:

  1. The authors employ a well-established satellite-based approach to compute an index that tracks the type of light emitted by plants during photosynthesis to measure vegetation’s intensity.
  2. This index is linked to the mining activity in Antamina, as the impact of vegetation loss is evident and visible from space.
  3. The authors consider the amount of money that would be required to restore a similar amount of vegetation, and use it to value the vegetation loss in the Antamina site.

The outcome reveals that the “vegetation debt” of the Antamina site for the period 2000-2012 amounts to around US$5.7 million.

Current investments into nature restoration must increase, especially from the private sector. While funding reforestation is key to reach climate goals, funds are currently missing. Investments for nature preservation and restoration are currently in the range of US$ 124 – 143 billion a year, mostly coming from the public sector (86%). To reach these climate goals, these investments need to at least quadruple by 2050. This paper provides a mechanism for the private sector to step in and help closing this financing gap for nature.

The authors show how to use the proposed methodology to create a centralized, polluter-pays fund for the private sector to restore vegetation. In this system, companies would pay for both the past and present use of vegetation by transferring the due amounts into a fund, which would then be reinvested in restoration projects. Following the case study, the owner of the Antamina site could repay its vegetation debt by transferring US$ 5.7 million into this fund, and this sum would be used to fund new reforestation projects. This centralized system allows efficiency in restoration outcomes and the pursuit of pre-determined restoration objectives, which is the same approach followed with the Global Biodiversity Framework (GBF) Fund proposed by COP 15. Significantly, the authors’ methodology could also be used to regulate payments from the private sector into this and other existing centralized financing systems for nature restoration.

Source : Article published on E4S (Enterprise for Society) website, partner of HEC/UNIL along with EPFL and IMD. Prof. Jean-Philippe Bonardi at HEC Lausanne, and scientific collaborator Edoardo Chiarotti, are among the authors of this research work, with Jean-Pierre Danthine (EPFL), Dario Scalabrin (Zurich Insurance), et Filippo Trapanese (Quantis).

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