There are a number of broad and interrelated economic reasons why wetlands and other ecosystems continue to be lost and degraded even though benefits gained from maintaining them often are greater than the benefits associated with their conversion.
In some cases, the benefits of conversion exceed that of the maintenance of the wetland, such as in prime agricultural areas or on the borders of growing urban areas. As more and more wetlands are lost, however, the relative value of the conservation of the remaining wetlands increases and these situations should become increasingly rare.
The individuals who benefit most from the conservation of wetlands are often local residents, and these individuals have often been disenfranchised from decision-making processes. Decisions concerning wetlands are often made through processes that are unsympathetic to local needs or that lack transparency and accountability.
There is a lack of awareness of the connection between ecosystem services provided by natural systems and the impacts on humans. As a system degrades, so do the ecosystem services on which humans depend. While not widely evaluated or recognized or used in decision-making, it has been shown that even when only a few ecosystem services are considered, their loss upon conversion often outweighs any gains in marketed benefits. Although this is an understandable reflection of substantial technical difficulties in undertaking some evaluations, future work needs to focus on comparing delivery of multiple services across a range of competing land uses if it is to better inform policy decisions. Decision-making, however, is not independent of existing governance structure.
Many services delivered by wetlands are not marketed (such as flood mitigation, climate regulation, groundwater recharge, and prevention of erosion) and accrue to society at large at local and global scales. More degradation of these “public goods” takes place than is in society’s interests because no one person has an incentive to pay to maintain the service, and when an action results in the degradation of a service that harms other individuals, no market mechanism exists (nor, in many cases, could it exist) to ensure that the individuals harmed are compensated for the damages they suffer. Hence, conserving relatively intact habitats will often require compensatory mechanisms to mitigate the impact of private, local benefits foregone, especially in developing countries. The development of market instruments that capture at a private level the social and global values of relatively undisturbed ecosystems—for example, through carbon or biodiversity credits or through premium pricing for sustainably harvested wild-caught fish or timber—is a crucial step toward sustainability.
Finally, the private benefits of conversion are often exaggerated by perverse subsidies. The drainage of wetlands for agriculture in Canada, as for many other wetlands across the United States and Europe, has been driven by private benefits arising from government tax incentives and subsidies. While over the short term these programs may be rational with respect to public or private policy objectives, over the longer term many result in both economic inefficiency and the erosion of natural services. Globally, the subset of subsidies that are both economically and ecologically perverse totals between $950 billion and $1,950 billion each year (depending on whether the hidden subsidies of external costs are also factored in). Identifying and then working to remove these distortions would simultaneously reduce rates of habitat loss, free up public funds for investing in sustainable resource use, and save money.
Millenium Ecosystem Assessment, p.46&64