Environmental services, even when they arise without any human labour, are by no means cost-free. Every cost should be understood in terms of opportunity cost. For environmental services, the opportunity cost amounts to the net gain relinquished because the resources are no longer available for their second-best application. Whenever a resource has alternative uses, it cannot legitimately be deemed free.
For instance, a section of river might serve as a site used for either white-water canoeing or hydroelectric generation. Constructing a dam to produce electricity would flood the rapids, so this makes white-water canoeing here out of the question. The opportunity cost of preserving the river for canoeing equals the net benefit of the electricity that would otherwise have been produced, once the expenses of generation and distribution have been subtracted. By the same token, the opportunity cost of erecting the dam involves everything the river in its natural state would have provided – leisure activities, wildlife, scenic beauty, and whatever worth future generations might attach to experiencing the rapids.
This understanding carries considerable weight for planning development. [I] Numerous decisions initially appearing to be cost-free moves in favour of growth prove, when examined carefully, to be against something else. [II] Clearing a forest to make way for crops is hardly without cost; it is paid for through losses in carbon storage, biological diversity, and all the functions the forest once performed unnoticed. [III] Channelling a river for irrigation has its price – namely, whatever the river was doing before its course was altered. [IV] Even leaving a swathe of land alone exacts a cost, since the earnings that intensive exploitation might have produced are equally sacrificed.
From this perspective, economic development can never be reduced to whether a project delivers a positive return. Rather, what must be asked is whether that return outweighs the value of sacrifices. Policies considering this – by pricing scarce environmental services, or obliging those in charge to consider both sides – are not against development. What they demand is that development should be worth its true cost. The danger lies not in counting too much, but in counting too little.
(Adapted from Environmental Economics and Policy)