Appraising Whales with Ralph Chami, Assistant Director in the ICD, IMF

The world population of whales currently is worth more than $1 trillion.

Ralph Chami was not an environmental economist. He was a financial economist. But a bucket list trip to see blue whales changed that.

Ralph joins us on episode 134 of Bigger Than Us to tell the story of how he ended up calculating the value of whales and their carbon sequestration. He is currently the Assistant Director in the Institute for Capacity Development (ICD), International Monetary Fund, but his work on whales has given long-needed proof to scientists who have long been concerned about the shrinking whale population.

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.

How Ralph Chami became a whale appraiser

This transcript has been edited for readability and brevity.

(10:00) About four years ago, on my bucket list, was that I wish to observe the blue whales, which are the largest creatures that have ever lived on this planet. And that includes the dinosaurs. And you can only, of course, see the blue whales in the open ocean, open sea.

A friend of mine who was connected to a research group, one day called me up and says, they may have an opening for one person, and the skipper will give you a call and see whether you would fit that.

Anyway, I got a phone call and I assured the person that I know how to swim. And I don’t get seasick. And beyond that, I had no knowledge of anything about whales or anything, you know, on marine life beyond just diving, some diving, so forth.

Anyway, I found myself on a boat in the Sea of Cortez, Baja, on the Mexican side with nine people whom I did not know. And we’d go out every day for about 11 hours of studying the blue whales. And literally, my first job was to I would hold the clock and the captain would say “Ralph”, and I would clock meaning when the blue whale came up to breathe, and then say “Ralph”, and then I’d hit it again, that’s when the blue whale would dive. That was my value-added.

But you know, the conversation at dinner would come back exhausted, and we would all cook together. And there was a very nice group of people. We became good friends over the years. I overheard a conversation about carbon sequestration by whales.

Now, of course, I knew from my science background, that we are all carbon units, and we all retain carbon, we have carbon in us. And I said, so what’s the big deal about the whales? And of course, I should have known because you have to understand the blue whale is can be between 90 and 120 feet long. And it’s not only the length of the blue whale, but it’s also the width. It’s the volume, which is massive. And you’re sitting in a boat, a 20-foot boat.

Let me just describe to you a blue whale, you can fit the largest African elephant inside the mouth of a blue whale, so you have an idea what we’re talking about here.

Picture the largest elephant. It would fit completely inside just the mouth of a blue whale. Okay, forget the rest of the body.

So one of them, one of the whale experts said to me, the carbon on whales is beyond anything you can imagine. And I said “I’m a researcher. I’m an economist researcher.”

And I said, “Is this your opinion?”

He said, “No, no, no, this is well known.”

The Pershing 2010, paper, famous papers, and talk about whale carbon sequestration by the whales. Because you see, whales are so massive that when they die, they’re negatively buoyant. So when they die, they sink to the bottom of the ocean. And their carbon that’s in their body does not interact with oxygen. So it doesn’t become CO2. So disintegrates over very, very, very long periods.

As a result, what happened is, that night I didn’t sleep, I sat in my room and downloading all of the documents. And I was reading and I’m like, oh, my goodness, you know, I discovered that these whales were capturing so much carbon.

They claimed that I was very quiet the next day. I didn’t say anything on the boat the whole day. I was digesting that information because I was trying to figure out how much does a whale on average capture. Because you have many sizes of the great whales and many types. You have about nine. And of course economists we all like to think of on average homeless, how much is a way of capturing carbon? I couldn’t find that in the articles that I was reading. Because these are scientists, so they’re talking about per tissue per kilogram per this with that.

A massive calculation

(14:22) So I had to build that matrix myself and calculated.

Basically, I found out that a great whale captures about on average nine tons of carbon on its body. And if you multiply that by 11 over 3, that’s 33 tonnes of carbon dioxide that’s being kept out of the atmosphere on the body of a great whale. So that was the first discovery which the scientists knew that it’s just we didn’t know that, or I didn’t know that.

And the next day or so, another story. They were talking about the whale pump. And I said, “What’s the whale pump?”

This is a dinner after my third glass of wine. “I keep hearing you guys talking about whale pump.”

So he said, “Well, you know, this great whale feeds on krill. And krill is much smaller than a shrimp. Right? Very, very small creature. And because these are Baleen whales, they don’t have teeth, so they swallow a lot of water and then they have like a sieve their, their teeth are like a sieve and the water gushes out, and they trap the krill inside.”

They said, “Well, the krill feeds on phytoplankton. And, you know, Ralph, the phytoplankton are viewed as the lungs of the planet because phytoplankton capture about 30% of all carbon dioxide out there. And they return in exchange, they return 50% plus of oxygen into the air, which means every other breath that you and I take, really, you should be thanking the phytoplankton.”

And they said, “The phytoplankton for it to survive. It needs phosphorus, nitrogen, and iron. And where do you think those exist?”

“Well, maybe runoff from rivers and wind movement.”

They said “Yes. But deep in the ocean, there isn’t any of that. Where do you think they’re getting those nutrients?”

I said, “Well, I don’t know.

They said, “From the poop of the whale.”

So it turns out that the great whales are very smart creatures. And their poop is full of it. In the Arctic and the Antarctic, it’s the iron that’s the limiting factor. And that’s found in abundance in their fecal plumes. And in the Atlantic, it’s the phosphorus and nitrogen that matter more, and that’s also found in their poop.

So what the whales are doing, in fact, and their satellite now imagery that shows you that that the phytoplankton really blossom where the whale activity is very evident. They’ve been able to capture that through satellite. So what the whales do, they release their fecal plumes, which fertilizes the phyto. And you get more productivity on the phyto which means more phyto, more phyto, more krill, more krill, more food for the whales. So there’s this virtuous cycle. And so the whales are fertilizing their own food if you like.

Now, for me, what was interesting for me is that the phyto capture carbon, so the whales are fertilizing the fighter, which means their waves are contributing indirectly to the capture of more carbon dioxide from the air.

And so I asked them, “Has anybody calculated the total impact of whales on carbon sequestration carbon dioxide sequence?”

And they were giving up, the scientists didn’t know what to do. So it occurred to me as this is a conversation over a weekend, that perhaps I can help them. So I offered to help them. And they said, “How could you help us?”

“…when you want to raise funds or awareness years, you’re preaching to the converts. You preach to those who are already on your side. But you’ve left out a huge segment of the society, or huge in terms of resources. Right? Those are the people with the money and the power and the policy ability that don’t understand what you do.”

— Ralph Chami

Why you would want to measure the value of whales

(19:22) So the cost of conservation is well understood. Because whenever you want to preserve something, the first question you always get is, “How much is this going to cost us?”

But the benefit that you get from a living whale, the fact that the whale captures so much carbon and creates so much positive spillovers in the oceans is only lit up until our work lived in the world of science.

So I said. “How about if I do the following? I translate your scientific knowledge into dollars and cents so that my world, the world that’s I call them ‘what’s in it for me world,’ would start to care?”

And of course, you know you when you say that to scientists, they don’t get you. They’re like, “But why would you want to do that?”

I said, “Because you guys, when you want to raise funds or awareness years, you’re preaching to the converts. You preach to those who are already on your side. But you’ve left out a huge segment of the society, or huge in terms of resources. Right? Those are the people with the money and the power and the policy ability that don’t understand what you do.”

“But I speak their language. I spent 22 years at the IMF negotiating all kinds of things with governments and ministers and prime ministers and presidents. I speak their language. And I come from the financial markets. So I know how they like to see the information. So why don’t I take your science and convert it into dollars and cents, so that now we can compare apples with apples?”

How to measure (and explain) the value of a whale

(20:59) So when you say we need money to protect the whales, the policymaker says, “How much is this going to cost me?” Or the budget person, you say “X dollars.”

“What do I get in return?” You say “Y dollars.”

That didn’t exist up until my work with the work that I’ve done with my colleagues. What you had was two groups speaking two different languages.

And so what I did, then, with the help of my colleagues, I took all the carbon that the whales captured on their body and indirectly through the fertilization of phyto. Plus what other things the whales did, for example, there are studies now showing that when you have a vibrant whale community, you have fisheries that are vibrant. So the positive spillovers there. We looked at also whale-watching industry, which is a multi-billion dollar industry. So we looked at all the benefits of a living whale. And then we calculate the present value of all of this.

Because you have to understand when you want to value the services of a whale, you have to take it over its lifetime. And some whales live 125 years, some of them 95 years, 75 years, I took 60 years a minimum. And whales give birth. Some of them give birth, the females give birth only when they’re adults. And some of the cows don’t survive. So we built a logistic model, a population growth model. And we go out 150 years and we you what you do, then you discount all of that.

“We came up with that the value of the services of a whale is a minimum of $2 million in current dollars…In some countries, the value of a dead whale would fetch about $40,000 or, between $40-$80,000, depending on the size.”

— Ralph Chami

So once we got the science down, we used financial techniques to basically calculate the value of the services, not the value of a whale, the value of the services that we’ll provide over its lifetime. And so there’s a part that belongs to the whale, part belongs to the growth aspect, the compounding aspect, which is based on whales giving birth, and some of them survive, and so forth. And you discount all of that to the present.

We came up with that the value of the services of a whale is a minimum of $2 million in current dollars. Now you have to compare that with the value of a dead whale. Because up until our work, the only value you had to a whale is when you killed it, chopped it into pieces served it as a steak. In some restaurants. In some countries, the value of a dead whale would fetch about $40,000 or, between $40-$80,000, depending on the size.

So $2 million dollars is the value of a living whale, alive, living whale alive, thriving, giving birth, frolicking freely in the oceans unhindered by human activity. And that’s a minimum.

With his reputation on the line, uncertainty crept in

(24:31) You have to understand I’m not an environmental economist. I’m a financial economist. I’m known at the IMF and in the research world as a guy who’s done work on banking regulation, financial markets, remittances, I’m an expert on remittances and Fragile States. I’ve never written a paper on environmental economics. So you have to have respect, you know, we respect each other’s fields and you don’t just decide to write a paper out of the blue.

What happened is, when I promised the scientists that I would help them, I came back, came back from a trip and this is over, you know, two years of doing this quietly in the background. And this is not IMF works. I was only doing this when I had any time for myself, which is late nights and at home. And the first calculations were back of the envelope calculations, and the number was huge. And I thought I made a mistake, I must have, you know, divided by, you know, .001, or something like that.

One Sunday, remember, I kept getting the same number, and I’m usually careful, but you know, we will make mistakes. So I went into the office one Sunday morning, early, early, and I sat down, I built this spreadsheet, and I put down all the numbers and all the assumptions, and I started doing simple calculations. The number came up. And I was convinced I had made a mistake. So I deleted it, deleted the whole spreadsheet, everything and started from scratch. Again, the same number came up.

I started to panic, literally panic, because what? Because I, you know, I have no benchmark. There’s no other papers for me to go look at and see I okay, yeah. Really, you’re out. And you know, you’re out there.

So I decided to go for a walk. And I started walking from my office on 19th Street, ended up on 17th Street went into St. Matthews. And my family is originally Catholic, and I haven’t been to church in 30 years. I don’t know what happened that morning. I just ended up there.

And I remember sitting in the pew and I thought to myself, I said, “Well, look, you and I haven’t seen eye to eye for a long time. But if you want to teach me a lesson, please don’t do it this way. Because, you know, whatever humble reputation I have, I have I worked hard for it. And if I publish a number that some person comes around says, Hey, you forgot, you know, you multiply by 1000 by mistake. I mean, I will. I’ll be the laughingstock for the rest of my life.”

And literally, I sat there and didn’t know what to do.

There was no mistake

And then I got up, I went and had lunch, and then went back to my office, early afternoon, I sat down again, deleted everything. So I don’t remember anything. Rebuilt this spreadsheet all over again. And lo and behold the same number. At that point, I think I started tearing because I had a decision to make. Either I tell the world or I keep my mouth shut, and pretend I couldn’t do the exercise. Literally, that was a decision.

There was no, no one was asking me about it. I mean, the scientists, surely every now and then they’ll say, “Any progress?” And I would say, “I’m very busy with the IMF work.”

And then I thought, okay, you know what I’m going to do, I’m going to change all the column titles to X’s and Y’s and Z’s, and I’m going to send it to two people that I trust blindly, whom I’ve known for 30 years, and with whom I’ve published many papers.

So, I sent Thom Cosimano and Connel Fullenkamp two separate emails. They didn’t know that the other was, what the other one was doing. And I asked each one of them to check my work.

And they said, “What is this all about?”

I said, “For now, just check the work. Here are the equations, here are the parameters, here’s everything and tell me, where’s the mistake?”

And each one of them separately came back and said, “There is no mistake here. What is this all about?”

So then I had to come clean. And then I said, “This is what this what I’ve discovered. And what do you guys think?”

The original was in a spreadsheet, and then we, you know, we develop the model. And now the model lives in MATLAB, and it’s in continuous time and is much more sophisticated, but at the time whenever you start these exercises, you always start simple, catching mistakes before you generalize.

But that’s the story of how we not only worked on it, but to convert Thom Cosimano, who was well known in terms of theoretical banking work, financial asset pricing, and Connel Fullenkamp, econometrician time series and also macroeconomists, financial economist. To convert them to work on the whales was not easy. But it’s well worth the effort. So that’s how we ended up writing that paper.

They had to determine how to explain the value of whales

(30:12) I remember telling Connell, as we’re finishing because we agonize over how to write the paper, you see? Because the where do you start this conversation? Do you want to tell the world that the value of the carbon sequestration services of the whales is worth $2 million? Where do you start at compensation?

“We need to tell the story, the story that the whales have been looking after us for millions of years. And, and the value of their services is gigantic. Yet we price a living whale or the services of a living whale to be zero.”

— Ralph Chami

So it took us a while to figure out how best to write the paper. And, I remember also, the agony was, I had to go and talk to the editor of finance and development magazine, whom I’ve known for many years, and I’ve published many articles in the magazine. So I had to leverage my reputation with them to say, I need you to write to publish this, which was not easy for them because they have never seen anything like this. This is not something they would write about.

And then I said, “We need to tell the story, the story that the whales have been looking after us for millions of years. And, and the value of their services is gigantic. Yet we price a living whale or the services of a living wage to be zero.”

That’s the enigma. Right? That right now if you have a ship that hits a whale, and kills the whale, you pay no penalty for it at all. You only value the whale when it’s dead.

Whereas the whale alive is producing services that are over $2 million in terms of value. So how can that be? Okay, that was the puzzle in my head, which I couldn’t solve at that point in time when we were writing the article. But I was in the back of my head as a theoretician, I was thinking about it.

Anyway, so we convinced the editor to publish the paper after it was reviewed, and all that stuff. And I remember telling Connell and Thom hold on to your seats, I think things will change. I think that was an understatement.

The paper triggered a massive response

(32:29) I think it came at the right time. Timing is everything. And it’s not that I picked the right time, it came at the right time. Awareness about the climate, awareness about our role in this world, how we relate to our natural world. Awareness about maybe the limitations and the gaps in our current economic paradigm, climate calamity upon us, all of this was coming together.

So when we wrote the paper, it just went viral. I mean, I can’t even tell you. It was written up in the Washington Post and the time in the National Geographic. I mean, it was just, it translated into so many languages and requests for interviews, and so forth.

But the idea was just to basically say, a vibrant nature is incredibly valuable to us. And it’s a newfound wealth, it’s not something that we knew about. And we all can benefit from it. And everyone can benefit from it. Every stakeholder in the society would benefit from this newfound wealth. But we have to change our behavior.

The real question

(34:40) The question for me was, what else is out there that we don’t know about?

Tune back in for part two of this interview on episode 135 of Bigger Than Us.

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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