13 July 2008

Biodiversity or cheaper petrol?

How much is biodiversity worth? How is the avoidance of lost biodiversity to be weighed against people’s wish for cheaper fuel?

Social Policy Bonds cannot answer these questions, but they can help in two ways:

Bonds could be issued that target some index of biodiversity. The market prices of the bonds at flotation and thereafter generate estimates of the total and marginal costs of achieving targeted goals. The total cost estimates would be continuously refined and updated by a large pool of motivated observers. They would probably be better estimates than those calculated from the sort of estimates made nowadays: typically one-off calculations performed by a relatively small number of academics or government employees. The marginal costs derived from bond prices would also represent a big improvement over the information currently available to decision-makers, once they have decided which projects to support. So the cost of maintaining a given level of biodiversity can be calculated.

Ultimately, any decision as to whether it's worth maintaining that level against a few pennies off the price of petrol will have to be made on a political basis. But here again, a Social Policy Bond regime could help: a bond regime, because of its transparent targeting of meaningful outcomes would make it easier for more people to participate in policymaking generating more buy-in than current politics affords. If we want to trade off orang-utans, then, for biofuels, at we'd know whose responsibility it is - ours - rather than, as now, delude ourselves that it's the fault of corrupt third-world governments.

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