#134 Part 2 Ralph Chami, Assistant Director in the ICD, IMF

Why putting a price on nature isn’t a bad thing. 

This is part two of an interview with Ralph Chami. Read the first part here.

After Ralph Chami calculated the value of living whales, people started coming out of the mangroves, asking him to do the same for other animals and parts of the ecosystem. 

As Ralph explains, the goal of these dollar values isn’t to put a price on nature but to prove the extraordinary value of protecting it. 

All opinions expressed during this conversation were from Ralph Chami and do not express the views of the International Monetary Fund, also known as the IMF.

Take me to the podcast.

From whale watching to carbon sequestration market building

This transcript has been edited for readability and brevity.

After whales came salt marshes

(2:17) I had met a very nice gentleman who works in the Environment Agency, UK Environment Agency. Roger Proudfoot is a scientist. And he was telling me about the salt marshes of England. And he explained to me, there’s only 10% left of the salt marshes of England. But the salt marshes also capture five tons of carbon dioxide per hectare per year. So he asked me whether I could help him value the salt marshes of England with the aim of protecting them. 

And in fact, I went to England in I think, July ’16, I gave a talk at the big conference they had on estuaries, about the whales. I then started to work on valuing the salt marshes of England. And so the salt marshes of England, there’s 10% left, they capture five tons of carbon dioxide per hectare per year. They live when they’re healthy, they live forever, then 500 years plus. And are also a great natural barrier against floods. 

So I worked with my colleagues. We got data on sea walls. Because when they don’t have salt marshes, they have to build sea walls. So you can calculate the opportunity cost of that. And we came up with a value for the 10% that is left about I think $4.2 billion. Just in carbon sequestration and flood control. 

(4:06) So that was an eye-opener because we didn’t even use data they had data on tourism, and data on fisheries, we didn’t even use those we just use the data we were kind of more sure of. And that’s just for England, not for all of the UK. 

Of course, when you build a model like that, you could also calculate “what if?” You can ask the question, “What if we were to regain the other 90% that we have lost?” 

And you’d be amazed that the 90% the UK has lost would have been enough probably to offset all of the carbon dioxide emission of the United Kingdom. 

It became an obsession. You can’t say no because you realize, climate calamity is upon us. And if we lose the fight on the climate, there’s no use doing anything else.

After salt marshes came…

(5:38) We did the work on the salt marshes. You do the salt marshes, then people tell you why not the mangroves?

 And you realize that the mangroves capture even more. Seagrass, coral reefs.

 And so I was getting requests, left and right from all kinds of scientists and outfits trying, saying, “Can you help us value? Because we need to save what’s left.” 

And of course, remember, this is all individual work. This is late at night. I can tell you this, I haven’t taken a vacation in four years, I have worked seven days a week, literally, nonstop my family thinks I’m completely berserk. 

It became an obsession. You can’t say no because you realize, climate calamity is upon us. And if we lose the fight on the climate, there’s no use doing anything else.

The moral obligations of being a nature appraiser

It’s worse than a slave, what we’ve done to our fellow creatures. We’ve taken them for granted, we’ve taken everything they’ve given us. And in return, we’ve killed them with impunity.

(6:28) So I figured, you know, my job is to bring awareness. I am talking to a crowd that has never been part of this conversation. So I’m not necessarily talking to the conservation people. Right? They’re already converts. 

I’m talking to the people who I call the “what’s in it for me” crowd? Why should I care? And my aim was to say, even if you don’t care for the animals themselves, do you care for yourself? They’re looking after you. They’re providing services that are valuable to humanity. And therefore, that’s why you should care. 

I was not appealing to an ethical argument, because my son is, an ethicist, every day he would come in. We had fights in the house because at one point, he almost deleted my whole document and he said, “You have no right to value life. Who are you?” 

And I kept assuring him that I wasn’t valuing life. I was valuing services that are being provided by a creature who has been treated so badly. I said “It’s worse than a slave. Because the slave you still have to feed.” 

It’s worse than a slave, what we’ve done to our fellow creatures. We’ve taken them for granted, we’ve taken everything they’ve given us. And in return, we’ve killed them with impunity. And this game has an end, and the end is going to be very ugly for our species. Finally, I was able to convince him.

The elephant in the news

(8:02) So Fabio calls me up and says, “Listen, I did this study, and it’s been covered by the New York Times, and so forth, I’m going to send it to you.”

I’d read it in the New York Times. That this gentleman, the scientist with a bunch of other scientists have uncovered that elephants, these are African forest elephants, not the savanna ones. And through their movement in the forest, the way they move, and the way they eat and forage, they provide more space for older trees, more space in terms of more soil and more sunlight, and the more food so that the older trees grow bigger, thicker, taller, and with deep roots. And they estimated that the movement of the elephants increased the carbon sequestration by trees by 6–7%. That’s published in peer-reviewed journals. 

So he said, “Can you help me value the elephant?” 

And keep in mind, you could do this for a lot of creatures, but the elephant and the whale are considered keystone species. They die, the whole ecosystem with it dies, you see. So I needed to choose where do I put my efforts because this is an individual effort. 

So I said yes.

Thom, Connell, and I work very closely with Fabio. And we went through his model. The paper is published. It’s freely downloadable from SSRN. And in it, you see all the mathematics in the appendix, the derivations, and all that stuff. And we looked at the forest elephant and we valued a forest elephant over its lifetime, at $1.75 million, just in carbon sequestration.

(10:16) One thing I always underscore when I discuss this, what I’m talking about is that value only accrues to us if the elephant is left alone to thrive freely in its environment, that’s how you get it. Because to get that value, what that value assumes that an elephant lives, let’s say 60 years and gives birth at some point if the elephant is a female, she’s an adult, she gives birth, their survival rate, death rate, all that stuff you have to calculate, and the next generation. 

So we got 150 years. And we use a logistic model, which means it tapers off because it doesn’t keep growing. And you then you discount all that work to the present. And what you get is a minimum of $1.75 million for the elephant.

The elephant in the room

(11:20) I remember I had an epiphany. I was like, wait a minute, wait a minute. So you know, I was trained in neoclassical economics. I was trained in it and I taught, I taught students for nine years. I practice that. In our paradigm, we say there is no free disposal. Meaning if something has value, its price cannot be zero.

But how then how do you explain the value of a whale is $2 million, but its price is zero? The elephant has a value of $1.75 million, but its price of a living elephant is zero. But a dead elephant fetches $40,000 for his tusks.

“…when you assume something has a price of zero, or it’s infinitely supplied, you basically abuse it. And that’s what we’ve done with nature. We assumed that it’s always there, and it’s free.”

(12:24) So I called my old professor, the famous Ali Khan at Johns Hopkins. I was very nervous because I thought if I sound stupid, they may rescind my PhD. I said, “Ali, can I come and see you? I need to ask you a question.”

So we went from 1:30 to 8:30 At night. We met at a friend’s house, and I posed the question. 

He said, “No, you’re right. What you have here is a missing market. It’s not an externality. What has happened is we have assumed free disposal. Meaning something has value, but we’ve priced it at zero. Which means the paradigm is a mistake. There’s a gap.”

(13:50) It’s a horrible mistake. Because at a very basic level, when you assume something has a price of zero, or it’s infinitely supplied, you basically abuse it. And that’s what we’ve done with nature. We assumed that it’s always there, and it’s free. 

And that assumption can be traced back to Francis Bacon and others who believed that humans were endowed, you know, they’re supposed to be the masters of the of nature and the beast, and that nature was always there for us. So we basically went on on this rampage of nature. And that’s why we are where we are.

(15:52) This is a fundamental mistake. We made a fundamental mistake. Anybody who’s taken economics, we all know about the theory of externality. But nature is not external to you. It’s the house in which you live, how can it be external to you? But that’s the way we’ve treated it theoretically. And in our work. So it’s not an externality, what you have is a missing market. That’s the proper way of putting it.

Owning nature can protect it

(19:31) There are many ways of understanding this. I can do it for you mathematically, I can do it for you philosophically. I’m not a philosopher. But as much as I understand, morally, there are many angles but it all boils down to the same thing. Nature is very valuable to us. 

My colleagues like to call it biodiversity, ecosystem services, whatever have you. And that value has never been captured. That’s why for me conservation is profitable, unlike how conservation, new conservation, if you read this stuff on conservation, you get the impression you either care about conservation, or you care about profits. Whereas my paradigm is a paradigm where conservation is profitable. And I can give you concrete examples of it.

The property law comes in very important. Anybody who studied corporate finance understands that any endeavor that yields benefit to be called an asset, and from asset to capital, you need to bring it under property law. Or you need to codify it in the law. Once it’s codified in the law, it gets endowed with four things right away. Priority, universality, convertibility, and there’s one more that I’m forgetting right now, four things.

Science tells us phytoplankton captures carbon dioxide, whales capture carbon dioxide. Elephants capture carbon dioxide, mangrove, seagrass salt marshes, all of these, have value to us. Now, how much is that value? You bring in finance and finance tells you this is a dollar amount. But to take all that knowledge and make it actionable, you need to take those assets and convert them into capital. You need a policy. You need to codify it in the law.

Ralph Chami’s win-win model

(23:45) Let me give you an example. I was told that in Palau, the sharks are very valuable and that Palau had valued the sharks, because of the tourism, you know, shark tourism and all the stuff at almost $2 million. One shark. 

But Palau had declared that its ocean is a marine protected area about 85% or 87% of it. They left about 12% open for tuna fishing. 

So what’s been happening is fishing boats come in to fish for tuna. And they see 10 sharks and one tuna and they throw the net and they capture the 10 sharks which they don’t need. They call it collateral catch. And they capture the tuna thereafter. 

The question was Rob, can you help us? And I said, “Well, this is akin to me telling you I’m your best friend. But when two goons descend on you, I look the other way.”

They said “How so?”

I said, “Well, are the sharks valuable?”


“You valued them at 2 million. So this ship that basically captures 10 sharks, do they pay 2 million per shark?”


I said “Therefore the value of the shark is zero. You got to put your money where your mouth is.”

They said, “Well, how would you do it?” 

I said “The government declares the shark national treasure. It will endow the shark with personhood, just like New Zealand did with its famous river. It conferred personhood on the river.”

In fact, New Zealand declared all animals to be sentient beings. So they’re way ahead of us. 

You confer personhood on the shark, or you just say the national asset, it’s an asset of the state. If you were to harm the shark, the penalty is 2 million. 

Now what would happen is now the next boat that comes in looking forward tuna is going to see the 10 sharks. And the tuna is going to say, wait a minute, if we capture those 10 sharks and the discovery that we did, so we’re gonna pay $2 million per head, that’s a lot of money. There’s some probability they may capture still, it’s a lot of money. It will change the behavior.

(26:58) But the game doesn’t stop here. Because once the government declares the assets, the sharks as assets with $2 million, guess who enters the market? 

The insurance companies, because the insurance company is going to look at this, say, wait a minute, here’s an asset. It has a value as enshrined in the law. I can insure it. So they’ll go to the owner of the fishing fleet and say, I will insure you, against you catching sharks by mistake. But what you got to do and, of course, you pay a premium, but you got to install this device that keeps the sharks away or this device that allows you to identify the sharks when they’re in the vicinity.

So one of the gentlemen at lunch said to me, “But that technology may not exist.”

I said, “The moment you declared an asset, you will find that that technology exists.” That’s innovation.

So we have the technology. But what you’re doing is, just in the case of the sharks, you start to create a market around protecting the sharks. 

Insurance companies come in, firms come in, private sector comes in. And suddenly the government starts to make money because you don’t create markets out of penalties, you create markets out of good incentives to bring in. 

So now you have the government, the private sector, you have the people. The local communities with benefit, because they can get guaranteed income from being involved in this effort. And what you’re creating is a market around a vibrant economy. And by doing so, the shark population grows, by diversity with it is helped you have a cleaner ocean. Everybody thrives. 

That’s what I call the win-win model.

Taking the win-win model to the next level

(30:01) Paris Accord says if you are subscribed to the Paris Accord, we cannot reach the 1.52 degrees, which means translates into, we need to go carbon neutral carbon negative carbon zero. We need to have the carbon emissions by 2030. And then we need commitments towards carbon zero on the part of the governments and then that translates into companies and, and firms and so forth and investors by 2050.

That means there’s going to be huge demand for carbon sequestration capture technology, right? I mean, how are you going to go carbon zero? You cannot stop doing what you’re doing. 

(30:64) You have two options. Either you find new technology that allows you to keep doing what you’re doing without any carbon emission, good luck. Or you’re going to have to find technology that will offset your carbon emission. And what I have discovered with my colleagues are such as the elephants, such as the whales, such as mangroves, seagrass salt marshes, all this, these are what we call nature-based solutions that help you capture carbon with no side effects. Because it’s not new technologies is this technology circa millions of years in development.

So we decided to apply this model in the Loango National Forest in Gabon where they have 1500 elephants. And the idea would be, why not go to companies like Microsoft or Google? We need a big company that will give hope to others like hey, “I’m doing it, why aren’t you doing it?” 

Some company that has made a commitment to offsetting its carbon footprint or to go and carbon neutral and say, how about if you buy up the services— remember, you’re not buying the weight of the elephant or the whale here— you’re buying the services. So the elephant belongs to Gabon, belongs to its forest. You don’t touch it, you don’t do anything to it. You just buying its services, and its services accrue to you just from the elephant conducting its own business. You know, eating poo-pooing having babies living its life. That’s how you get the $1.75 million, or the 9500 tons of carbon dioxide that it captures over its lifetime.

A full-on carbon sequestration economy

(33:25) So we’re going to sell you the service. not the elephant, the elephant belongs to the country. Microsoft would want to say, “Well, how do I ensure that the elephant is doing well?” So we need to the monitoring technology that is not invasive, that can monitor without invading their habitat, the wealth and health of the forest and of the elephants.

In return, Microsoft gets to write down its carbon sequestration, carbon emission. The money that they would pay would go to the local communities who would go from being potential poachers to potentially looking after those elephants and the habitat. And enjoying in return not only steady income and employment but also cleaner environment. 

Government would benefit from the expansion of the consumption base from having these people employed from the new businesses that would come in to benefit from the ancillary activities related to this. 

And the world benefits from a cleaner environment and a healthier forest.

Spillovers would be other countries that have lost their elephant communities because elephants used to be 1 million. There’s less than 100,000 now. About 90,000. And they’re dying very quickly. Other countries that have lost would look at Gabon say, I used to have those elephants. Why not reintroduce them?

So you end up protecting the stock of elephants that you have right now and allowing future generations of elephants to thrive. Nature would thrive. Because remember, this is what I’m doing is I’m valuing a thriving nature. So the moment you capture it, you do anything to it that value goes to zero.

(39:21) This issue needs a change in behavior, a paradigm shift and a new way of thinking. A new way of behaving along with the proper pricing of carbon, yes, but cannot be only the price. 

And back to the beauty of this is countries are going to find out that they thought they were poor, they’re gonna find out that they’re far richer than they thought because they may have oceans that are thriving with all kinds of creatures and cetaceans are non-cetaceans that are incredibly valuable from a market perspective which they would be able to take to the markets with no harm.

A one breath mindset

Tomorrow cannot be like today. Tomorrow, we need a new way of thinking, we need a new way we need a new paradigm. And that involves a change in our behavior. To go back to the natural world from which we came. Only then we’ll be able to live in a sustainable and prosperous way for all. That means all humans and all creatures big and small.

(41:41) We are all part of this one breath. That’s how I feel, I feel that we are all part of this one breath. 

Earth is a living organism. Each one of us is playing one or two roles, or maybe three roles, but we all have something to offer.

I feel that my role now is to share this good news with everyone in a concrete way. I mean I can be far more concrete, I can do it in dollars and cents, I can do it in mathematics, I can do it in words, I can draw pictures if you like. But the story is the same. We came of this world, we belong to this world, we have to behave as if we belong in this world. You cannot live in a village and pretend that you’re not part of it.

(43:59) Tomorrow cannot be like today. Tomorrow, we need a new way of thinking, we need a new way we need a new paradigm. And that involves a change in our behavior. To go back to the natural world from which we came. Only then we’ll be able to live in a sustainable and prosperous way for all. That means all humans and all creatures big and small.

About Ralph Chami

Ralph Chami is currently Assistant Director in the Institute for Capacity Development (ICD), International Monetary Fund, where he oversaw the development and implementation of the internal economics training program for all IMF economists as well as the revamping of the Institute’s external training program for officials from member countries.

Most recently, he was Assistant Director and Division Chief in the Middle East and Central Asia Department where he oversaw surveillance and program work on fragile states: Egypt, Libya, Somalia, Sudan, South Sudan, and Yemen, and was Mission Chief for Libya and Somalia. He is the recipient of the 2014 IMF Operational Excellence Award for his work on Libya.

Previously, he was the Chief of the Regional Studies Division, where he oversaw regional surveillance of 32 countries in the Middle East, North Africa and Central Asia regions, and the production of the Regional Economic Outlook. Prior to that, he was the Chief of the Middle Eastern Division of the IMF Institute where he oversaw capacity development in that region. He joined the IMF in 1999. From 1991 till 1999, he was on the faculty of Finance in the Department of Finance, University of Notre Dame in Indiana.

He also served as a consultant to the World Bank, and to the private sector in the US. Ralph Chami has a BS from the American University of Beirut, an MBA in Finance and Statistics from the University of Kansas, and a Ph.D. in Economics from the Johns Hopkins University. His areas of specialization are: banking regulation and supervision, financial markets, and remittances. His hobbies include music and yoga. Ralph was a semi-professional guitarist for over 40 years.

The Washington Post: Living Whales are Worth an Enormous Amount of Money

IMF: Nature’s Solution to Climate Change

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