Some of our planet’s greatest wealth is contained in natural forests, mountains, wetlands, marine habitats and other ecosystems. But instead of conserving the environment, current processes of development often use ecological resources (natural capital or ecosystem services) at such a rate that they will be rendered essentially non-renewable. Market forces alone will not incorporate the value of nature into decision making because most environmental goods are not properly valued by markets. This means that, because all or some of their benefits and costs don’t enter the market, public and private decisions are made that do not reflect the value of nature, leading to overuse, degradation, and depletion.

A key problem is that some people earn short-term benefits from exploiting ecological resources without paying the full social and economic costs of resource depletion; instead, these costs (to be paid either now or in the future) are transferred to society as a whole. Further, the nations with the greatest biological diversity are frequently those with the fewest economic means to implement conservation programmes.

Economic valuation is the first step towards solving this problem. As opposed to financial valuation, economic valuation measures both the market and non-market values of a resource. In other words, it measures the total economic value of a resource, including direct use value (like food, fodder, and timber), indirect use value (like watershed protection and soil fertility), and non-use value (like existence value of biodiversity). Thus economic valuation can assess the true flow of benefits from a forest or wetland, as well as how these benefits impact the livelihoods of stakeholders.

Valuation is an important tool to influence policy, but it does not change anything on the ground. The challenge is to ensure that those who bear the cost of conserving an environmental resource also benefit from such conservation. The right incentive mechanisms must be in place so that the perceived benefits outweigh the perceived costs of conservation and / or sustainable use. 

An incentive for conservation is any inducement which is specifically intended to motivate governments, local people, and international organizations to conserve ecological resources. A perverse incentive is one that induces behavior that depletes ecological resources at a higher rate than society would prefer. IUCN’s Global Economics Programme uses valuation to first identify and quantify the benefits of nature and second to incorporate the values into innovative policy designs that create positive incentives for stakeholders to manage the wealth of nature in the best way possible.