Biodiversity loss is accelerating globally, driven not only by environmental pressures but also by economic market failures, harmful subsidies, and inadequate policies that undervalue nature and ecosystem services.
Key Takeaways:
Land-use change, overexploitation, climate change, pollution, and invasive species are major drivers, with agriculture, logging, mining, infrastructure, and urban development placing significant pressure on ecosystems.
Biodiversity and ecosystem services are often undervalued because their benefits are public goods and market prices do not fully reflect environmental damage. Harmful subsidies and weak environmental regulation can further incentivise activities that degrade ecosystems.
Key approaches include internalising environmental costs through taxes and biodiversity offsets, providing positive incentives such as payments for ecosystem services, strengthening protected-area management and land-use regulation, and creating markets for biodiversity-friendly activities such as ecotourism.
Background
Despite its crucial role, global biodiversity is increasingly deteriorating at an alarming rate of 10 to 1,000 times faster than the natural baseline extinction rate (which is equivalent to one to five species per year (P.Rafferty, 2025)), with at least 1.2 million flora and fauna forecasted to be under threat of extinction before 2100 (LSE, 2022). According to the WWF’s Living Planet Reports (2022) and (2024), the rate at which monitored wildlife populations have declined since 1970 rose from 69% in 2022 to 73% in 2024 (WWF, 2024) (Almond, 2022). Regionally, the most severe declines have occurred in Latin America and the Caribbean, with a staggering 95% drop, followed by Africa at 76% and Asia–Pacific at 60%. In Europe and Central Asia (35%) and North America (39%), the declines have been less extreme, partly because major environmental impacts had already taken place before 1970 (WWF, 2024).
The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) identified five major drivers behind the nature crisis, namely 1) change in land and sea use, (2) direct exploitation/overexploitation of natural resources, (3) climate change, (4) pollution, and (5) invasive alien species (IPBES, 2019). WWF’s 2024 report mentioned that land-use change or habitat fragmentation and loss, caused mainly by human food systems, is defined as the main driver of biodiversity decline. The decrease in biological diversity seriously affects economic systems and human society by limiting human access to food, shelter, medicines, and other goods and services that the diverse plants and animal species offer. Biodiversity loss is estimated to carry a worldwide economic toll of around US $10 trillion each year, factoring in rising healthcare expenses from greater disease spread (as in the case of the COVID-19 pandemic (Diversity, 2024)) and reduced agricultural output due to the loss of pollinators (WHO, 2025).
Economic Factors
From the economic perspective, biodiversity loss often stems from market failure, namely dealing with externalities. Human-induced environmental stressors (such as anthropogenic climate change, habitat loss and fragmentation) for biological diversity include negative externalities of agriculture, forestry, industrial production, infrastructural development, and urban growth (Perrings, May 2021). Various development projects and resource extraction activities such as agricultural expansion, timber logging, mining, infrastructure, and urban development impose costs on ecosystems that are not reflected in market prices, thereby contributing to under-valuing the biodiversity found in the ecosystems when making conventional market transactions. Markets often misprice biodiversity, making unsustainable resources and biodiversity-damaging products appear cheaper and more attractive than sustainable alternatives (Emerton, 2000). Sometimes, no market is available for biodiversity goods and services, or people have limited access to markets, resulting in biodiversity becoming undervalued, over-consumed, and under-conserved (Emerton, 2000). Examples of such distortions include charging little to nothing for the use of natural resources, allowing state-run enterprises or intermediaries to dominate local resource markets, keeping industrial and agricultural chemical prices artificially low, imposing minimal fines—or none at all—for environmental damage, and failing to establish prices or markets for many ecosystem services and biodiversity-friendly goods (Emerton, 2000).
Moreover, the public good nature of biodiversity, which is non-excludable and non-rival in many forms, makes it difficult for private markets to provide adequate protection. The free-rider problem of public goods may limit efforts to make sure the efficient provision of all tangible and intangible benefits associated with biodiversity conservation. The free-rider effect means biodiversity, as a public good, tends to be undervalued and insufficiently maintained (Caroline Flammer, November, 2023).
Looking at the political economy lens of the issues, the policy failure and subsidy misalignment are considered to be directly or indirectly contributing to this crisis of biodiversity loss. Governments’ policies and laws and their accompanying subsidies, taxes, fines, and other policy instruments frequently drive biodiversity loss by either promoting activities that harm ecosystems, neglecting to impose or enforce safeguards against environmental damage, or overlooking biodiversity concerns altogether in their design and implementation (Emerton, 2000). Agricultural, fisheries, or energy subsidies may incentivise habitat destruction. Other similar examples include farming policies encouraging input-heavy crop production, industrial and urban planning projects that promote construction and settlement in fragile ecosystems, environmental policies that overlook critical aspects of resource management, utilisation, and ownership rights (Emerton, 2000), policies encouraging industrial plantations or monoculture fields, and incentive programs aiming to increase foreign income through logging.
Overview of existing policies and initiatives to conserve biodiversity
Different governments have been developing and implementing policies and programs to ensure the systematic utilisation and conservation of biological diversity while addressing biodiversity loss and ecosystem degradation. The following are the major approaches:
Establishment of protected areas: A specific area is designated as a protected area to safeguard wildlife, natural resources, and associated ecosystems. They may cover national parks, wilderness reserves, wildlife sanctuaries, and the like. IUCN categorises protected areas into six different types. By offering secure habitats for species and intact environments, protected areas play a key role in conserving biodiversity and sustaining vital ecosystem functions. However, various challenges persist when it comes to managing protected areas. Based on the WWF’s analysis, some of them include lack of connectivity between protected areas, limited funding, poor management, and human activities (namely logging, poaching, mining, and encroachment by settlements and agriculture).
Ecosystem restoration: It refers to actively rehabilitating damaged ecosystems so they regain ecological health and functionality, which may involve revitalizing wetlands, reforesting degraded lands, or repairing other natural habitats altered by human actions (Ashok Kumar, January, 2024). Some of the restoration initiatives include the government-funded Myanmar Reforestation Restoration Program (MRRP) in Myanmar, RECOFTC’s FLOURISH project in Thailand and Vietnam, the National Greening Program (NGP) in the Philippines, the National Mission for a Green India, and the Zimbabwe Reforestation Initiative.
Sustainable agriculture: It consists of any farming practices that enhance sustainable land use, crop productivity, and biodiversity conservation. Some of the techniques include crop rotation, agroforestry, and integrated pest management (Ashok Kumar, January, 2024).
Policy Recommendation
Recognizing the market failures and misalignment of subsidies associated with the issue of biodiversity loss, the following policy measures are recommended accordingly-
(a) Internalize externalities: Taxes on habitat destruction, biodiversity offsets, or eco-certification premiums.
(b) Positive incentives: Pilot a payment for ecosystem services (PES), conservation subsidies, while strengthening the implementation of carbon credit schemes (e.g., REDD+).
(c) Regulation: Enforce protected areas management and land-use zoning.
(d) Market creation: Develop biodiversity-linked tourism (or ecotourism) practices such as elephant tours in Kuiburi National Park in Thailand.
Thet Oo is currently pursuing a Master of Arts in Public Policy at the School of Public Policy, Chiang Mai University, Thailand.
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