It is important to stress that environmental services have costs, even when they are produced without any human input. All costs ought to be measured as opportunity costs. The opportunity cost for environmental services is the net benefit forgone because the resources providing the service can no longer be used in the next most beneficial way. Resources are not free if they can be put to alternative uses.

Consider a stretch of river that can be used either for white-water canoeing or for electric power generation. Because the dam that generates the power would flood the rapids, the two uses are incompatible. The opportunity cost of saving the river for white-water canoeing is the net benefit taken out – after accounting for the cost of generation and distribution – for electricity. Conversely, the opportunity cost of building the dam is everything the unspoiled river would have produced: the recreation, the wildlife, the scenery, and whatever value future generations might place upon experiencing the rapids themselves.

This insight has far-reaching implications for development policy. [I] Many decisions that appear at first to be costless choices in favour of growth turn out, on closer inspection, to be choices against something else. [II] Cutting down a forest for cropland is not free; it is paid for in carbon storage, biodiversity, and the regulating services the forest performed silently. [III] Diverting a river to irrigate fields is not free; the price is whatever the river was doing before the diversion. [IV] Even leaving land untouched is not free, for the income that intensive use might have generated is traded off as well.

Economic development, in this view, is never simply a question of whether a project yields a positive return. It is a question of whether the return exceeds the value of what must be relinquished. Policies that recognise this – by attaching prices to scarce environmental services, or by requiring decision-makers to weigh both sides of the account – do not stand against development. They insist that the development chosen be worth what it truly costs. The danger lies not in counting too much, but in counting too little.

(Adapted from Environmental Economics and Policy)