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Economic losses

Human vulnerability to environmental change has an important economic dimension. Human well-being is inextricably linked to ecosystems through the goods and services that ecosystems provide. This includes both marketed goods and services, such as food or forest products, and non-marketed ones such as water flow regulation, so that any reduction or degradation supply leads to a loss of human welfare (see box below). In Japan, for example, the damage to agricultural crops caused by tropospheric ozone amounts to an estimated US$166.5 million yearly in the Kanto region alone (ECES 2001).

The cost of resource degradation in India
Economic development has been the watchword in India's march into the 21st century, but a conservative estimate of environmental damage put the figure at more than US$10 billion a year, or 4.5 per cent of GDP, in 1992. A breakdown of the estimated costs shows that urban air pollution costs India US$1.3 billion a year; and water degradation has associated health costs of US$5.7 billion a year, nearly three-fifths of total environmental costs. Land degradation causes productivity losses of around US$2.4 billion and deforestation leads to annual losses of US$214 million.
Source: Suchak 2002

'It is not so much that humanity is trying to sustain the natural world, but rather that humanity is trying to sustain itself. The precariousness of nature is our peril, our fragility.'

- Amartya Sen, Nobel Laureate Economist

The economic dimensions of vulnerability to environmental change often focus on the impact of natural disasters or other extreme events. While total losses may be highest in developed countries, with their expensive infrastructure, the impact on the economies of developing regions may be greater. For example, the 1991-92 drought that hit most of Southern Africa resulted in a decline of 62 per cent in the Zimbabwe Stock Market (Benson and Clay 1994).

The potential economic losses of non-marketed ecosystem goods and services and the impact on human vulnerability are likely to be even higher than for marketed goods and services. Equally, little attention is paid to the high economic cost of more gradual environmental degradation and loss of natural resource potential.