Eli Fenichel on nature as an economic asset
By Dawn Obot
What do declining bat populations have to do with the economy?
At first glance, very little: biodiversity loss is often viewed as a narrow environmental concern. But bats consume a vast amount amount of insects each day – possibly their own body weight. This can include many agricultural pests. When a fungal disease called white-nose syndrome devastated bat populations across North America, farmers experienced more crop damage and lower crop yields. This, in turn, reduced tax revenues for rural governments and ultimately increased their borrowing costs to finance public investments.
Such unexpected links between ecosystems and the economy are central to Eli Fenichel’s research. As the Knobloch Family Professor of Natural Resource Economics at the Yale School of the Environment and an Economic Growth Center (EGC) affiliate, Fenichel examines the complex and often overlooked relationship between nature and economic decision-making. His approach is to think of nature as a type of capital, often referred to as natural capital.
Fenichel has pursued questions about the connections between nature and the economy beyond academia. From 2021 to 2023, he served in the White House Office of Science and Technology Policy as Assistant Director of Natural Resource Economics and Accounting. In that role, he worked to bring the same principles into policy practice: that nature should be treated as an economic asset, and that better accounting can help make that possible.
“Lots of people care deeply about adaptation to climate change and biodiversity loss, but the question is: why?” said Fenichel in a recent interview with EGC. “Exactly what costs do they impose or what benefits do they enable, and to whom, and how do they connect to other economic processes in ways that create opportunities for cooperation?”
Geoff Brooks, Unsplash
From conservation to economics
Growing up in northwestern New Jersey, Fenichel developed an appreciation for the natural world long before he started studying it. Experiences like hiking and hunting with his grandfather helped spark an early interest in conservation, and as an undergraduate at the University of Maine, he majored in Wildlife Ecology and minored in Environmental Economics.
While serving as a US Peace Corps volunteer in Slovakia, Fenichel’s interest in economics deepened. He then earned a master’s in Agricultural Economics and a PhD in Fisheries and Wildlife, specializing in Resource and Environmental Economics, from Michigan State University. Rather than asking why many people and governments failed to appreciate nature, he became interested in why different people made such different choices about where nature sits in the list of priorities – and how to reconcile those differing perspectives.
"It's not that people don't understand that nature is important. It's that some people make different sets of tradeoffs." - Eli Fenichel
This perspective has shaped Fenichel’s work on environmental accounting and economic decision-making. Tradeoffs can be small, like whether to plant a garden or install a pool, or national – like whether a government decides to restore coastal marshes, construct sea walls, or simply let lands get flooded. Choices ultimately reflect values, preferences, and opportunity costs. But rather than trying to find the “right” answer, Fenichel’s research seeks, first, to clearly frame the choices that people are making with respect to nature and, second, to organize that information to improve purposeful decision-making.
The economics behind nature
Often, the relationships between healthy ecosystems and economic outcomes are not immediately obvious. How can planting trees reduce shipping costs in the Panama Canal? Can reducing the harvest of one fish species make harvesting another more profitable? Fenichel’s research carefully untangles these questions and others. He demonstrates how investing in healthy ecosystems can generate measurable economic returns – for communities and governments alike.
The recent study of bat population declines offers a useful example. While the ecological consequences, and some economic concerns, of white-nose syndrome were already well documented, Fenichel and his coauthors wanted to understand whether this biodiversity loss also carried financial consequences. Although environmentalists might argue for bat conservation on moral grounds, Fenichel and his colleagues’ research revealed a fiscal rationale: bat loss reduced farm incomes and weakened local tax bases, which in turn raised governments' borrowing costs and limited their ability to make public investments.
“The bats actually enable you to have more money coming in,” he explained. “It changes the equation.” Importantly, it is feasible to take action at the scale of government that may not be feasible at the scale of individual farms: if one farmer tries to protect bats, she might just help her neighbor. An individual farmer may not have much incentive to invest in bat conservation alone, but a county might.
This underscores a recurring theme in Fenichel’s work: focusing on nature’s economic benefits often aligns incentives. Not every public official is an environmentalist – but most are committed to prudent public financial management.
Viewed through Fenichel’s lens, bats are capital, and investing in them creates returns for the economy.
These dynamics raise a compelling question: how do we determine the value of nature? In Fenichel’s view, there is no objective, singular “true” value – for nature or anything else. Value is shaped by institutions, including markets, and individual preferences; accounting and trade rely on those shifting measures, rather than any fixed number.
"As a starting point, we need a value that's internally consistent with the way we're making tradeoffs for other things,” he said. “It doesn't have to capture every preference, because other measurement errors or imprecisions exist, and it doesn't have to align with my opinions of what I want. But I'd like to see a reasoned argument for doing something.”
During Fenichel’s time at the White House, he put this approach into practice. He played a key role in developing the Biden Administration’s National Strategy to Develop Statistics for Environmental-Economic Decisions, a 15-year plan to incorporate natural capital into federal economic statistics. He also helped update OMB Circular A-4, the federal government’s guidance for conducting cost-benefit analysis, to clarify and provide guidance on the existing consideration of environmental impacts and ecosystem services in policy evaluation. (The update was rescinded in early 2025, reverting to the 2003 guidance where similar standards exist.)
The experience in Washington also shaped Fenichel’s thinking on how economics is relevant to government. Most policy analysis, especially in environmental and development economics, relies on welfare theory: elegant and principled, but disconnected from how governments operate. In practice, US officials are rarely evaluated on whether they are improving welfare. The real incentives for policymakers are legal and fiscal: they are evaluated on whether they get rules and regulations passed, draft budgets, or manage public finances. Fenichel thinks welfare is important, but that economists may be overinvesting in theoretical exercises around it, while neglecting the practical needs of policymaking.
“We need economics to meet policymakers where they are – which is not always welfare maximization, but often welfare improvement with a bit of fiscal impact and incentive analysis mixed in.” - Eli Fenichel
Working across disciplines
Fenichel’s work sits at the intersection of environmental science and economics. He regularly engages with people who approach the same problems differently – ecologists, economists, policymakers – and brings those perspectives together to tackle complex challenges. Where economists may focus on incentives and markets, for example, ecologists may focus on biodiversity and ecosystem functions. By combining perspectives, researchers can uncover relationships and answer questions that no single discipline could identify on its own.
"It’s kind of like children playing with another kid’s toys – they get to do something new,” he reflected. “With interdisciplinary research, we get to explore something new and think about things differently.”
The bat study is a case in point: understanding the ecological mechanism required expertise in ecology, while economic analysis helped trace its effects on tax revenues and borrowing costs. One challenge of interdisciplinary research, Fenichel notes, is that it brings together experts who often communicate in very different ways. Before collaborators can answer complex questions together, they must first ensure they’re asking – and understanding – the same questions. “There’s a lot of upfront investment just in communication,” he noted.
Future research agenda
Increasingly, Fenichel’s research focus is turning toward the future. In partnership with Ecosystems, Finance, and Health (EFH) – an international research collaboration based in Nairobi – he explores how sustainable finance can help countries manage natural capital and human capital (in the form of public health) while supporting long-term economic growth. Through EFH, Fenichel collaborates with policymakers like Christine Magu, the Assistant Manager of National Accounts and of Environmental Economic Accounts at Kenya’s National Bureau of Statistics – who can attest to the real-world value of such research partnerships.
“In a country such as Kenya, this work can fundamentally change the policy conversation, from seeing investment in nature as an environmental expenditure to recognizing ecosystems as assets that support human health, productive capacity, and long-term development,” said Magu.
For Fenichel, the challenge extends beyond valuing ecosystems. It means helping governments and communities make informed decisions amid uncertainty and competing priorities. Effective policy and advocacy work, he argues, begins with recognizing the importance of tradeoffs. Too often, governments fail to compare the long-term public value of preserving natural resources with the short-term revenue generated by extracting them or believe that because something increases revenue for business it will also increase revenue for governments. In some cases, one perspective will win out; in other cases, the other will.
Fenichel asks, “Can I get a better revenue flow by not developing a gold mine, and just letting people bicycle or hike there? There are times when digging up a resource probably makes sense – but there are also many places where it doesn’t.”
