Compose a complete detail on the following case study:
10 Fundamental assumptions, concepts, and theories of economics and ecology Case Study 1.1 Economic returns from the biosphere Garciela Chichiinisky and Geoffrey Heal . . . The environment's services are, without a doubt, valuable. The air we breathe, the water we drink and the food we eat are all available only because of services provided by the environment. How can we transform these values into income while conserving resources? We have to 'securitize' (sell shares in the return from) 'natural capital' and environ- mental goods and services, and enroll market forces in their conservation. This means assigning to corporations - possibly by public-private corporate partnerships - the obligation to manage and conserve natural capital in exchange for the right to the benefits from selling the services provided. In 1996, New York City invested between $1 billion and $1.5 billion in natural capital, in the expectation of producing cost savings of $6 billion-$8 billion over ten years, giving an internal rate of return of 90-170 per cent in a payback period of four to seven years. This return is an order of magnitude higher than is usually available, particularly on relatively risk-free investments. How did this come about? New York's water comes from a watershed in the Catskill Mountains. Until recently, water purification processes by root systems and soil micro-organisms, together with filtration and sedimentation during its flow through the soil, were sufficient to cleanse the water to the standards required by the US Environmental Protection Agency (EPA). But sewage fertilizer and pesticides in the soil reduced the efficacy of this process to the point where New York's water no longer met EPA standards, The city was faced with the choice of restoring the integrity of the Catskill ecosystems or of building a filtration plant at a capital cost of $6 billion-$8 billion, plus running costs of the order of $300 million annually. In other words, New York had to invest in natural capital or in physical capital, Which was more attractive? Investing in natural capital in this case meant buying land in and around the water- shed so that its use could be restricted, and subsidizing the construction of better sewage treatment plants. The total cost of restoring the watershed is expected to be $1 billion-$1.5 billion. . .. To address its water problem New York City has floated an environmental bond issue', and will use the proceeds to restore the functioning of the watershed ecosystems responsible for water purification. The cost of the bond issue will be met by the savings produced: avoidance of a capital investment of $6 billion-$8 billion, plus the $300 million annual running costs of the plant. The money that would otherwise have paid for these costs will pay the interest on the bonds. New York City could have 'securitized these savings by opening a 'watershed saving account" into which it paid a fraction of the costs avoided by not having to build and run a filtration plant. This account would then pay investors for the use of their capital. Source: Nature Vol. 391, February 12, 1998, pp. 629-30. Reprinted by permission
