How do you put infinity on a balance sheet?

The weirdest thing about the hair-raising economic costs associated with biodiversity loss put forward by today's UN report is that they are all gross underestimates.

The estimates contained within The Economics of Ecosystems and Biodiversity report detailing how the world's top 3,000 listed companies have negative environmental impacts worth $2.2 trillion a year or how deforestation leads to annual economic losses of between $2 trillion and $4.5 trillion are extremely useful, but they are also based on a flawed assumption.

As TEEB's lead author Pavan Sukhdev observed at today's Global Business of Biodiversity (GBOB) Symposium in London, after all the maths is done the real value of nature is infinity, on the grounds that without it there is no global economy, or indeed no global biosphere.

This makes perfect sense. Human beings are, after all, an example of biodiversity and if all biodiversity is lost there is nothing left to value and no one left to do the valuations. The problem for Sukhdev and his colleagues is that infinity does not work very well on a balance sheet.

Even at a more practical level the value of many core ecosystem services, such as clean drinking water, fertile soil and functioning forests, is pretty much equivalent to the value of the entire global economy given that it could never function without these examples of biodiversity.

It is this reality that provides the tension at the heart of the TEEB project. The report is a hugely admirable piece of work that has garnered some much needed attention for the huge risks the global economy is taking when it damages the biosphere. But applying economic models to a natural world that repeatedly defies them can lead to some pretty perverse conclusions.

Take the assertion that biodiversity loss poses a larger and more immediate economic risk than climate change, for example.

Using economic models this is undoubtedly true; the immediate costs associated with deforestation, over fishing and soil degradation will soar over the next couple of decades, while the greatest costs associated with climate change are likely to be deferred until the second half of the century when temperature increases really begin to bite.

But trying to establish which poses the gravest threat is a futile exercise when the two trends are so inextricably linked. Climate change is one of the largest factors contributing to environmental degradation, while deforestation is both a major cause of biodiversity loss and one of the largest sources of greenhouse gases. To use a timely analogy, working out whether climate change or biodiversity loss poses the greatest threat is like trying to establish whether Xavi or Iniesta is the best player in the Spanish football team: from an opposition perspective the only hope is to try and stop both of them.

None of this matters at the esoteric level of theoretical macro-economics, but as soon as you start to apply it to the real world problems begin to emerge.

One of the reasons green groups are so ambivalent about the idea of putting a price on biodiversity is that it is an extremely high risk strategy that could end up fueling yet more biodiversity loss.

Proposals for conservation credits or biodiversity accounting are great in principle - you price the market externality and businesses respond accordingly - but how do you make sure the value placed on biodiversity is correct and stays correct?

What happens to a business that has put a value of £1m on a tract of rainforest when the company starts to make losses? Does it sell the rainforest and associated ecosystem services to another firm that places less value on it or chooses to absorb a £1m loss because it can make more money turning the site into a holiday resort?

Similarly, a company that funds a conservation project to offset the environmental impact of a new development may look good on paper, but what if the new development contributes to the loss of a species that can never be recovered. The balance sheet may add up, but the company is still contributing to biodiversity loss.

As with the carbon market where a lower than expected carbon price has inadvertently led some firms to increase carbon emissions or defer investments in clean technologies, it is possible to envisage a scenario where putting an incorrect price on biodiversity actually encourages firms to degrade valuable ecosystems. As Oscar Wilde observed it is possible to know the "price of everything and the value of nothing".

This is not to say that placing an economic value on biodiversity loss is pointless, far from it. The TEEB report will undoubtedly help firms to understand the economic impact of policies that damage ecosystems and should serve as a reminder that there are huge operational risks associated with biodiversity loss.

But putting an exact price on ecosystem services will only work if that price is accurate, which means that in many circumstances it will have to be eye-wateringly high - a fraction of infinity if you like. Equally, governments will have to put in place tough enforcement procedures to ensure ecosystems are valued appropriately and are not the victim of biodiversity accountancy fraud.

Such an accounting system will take years, if not decades, to develop and ultimately market mechanisms that price externalities can only ever be part of the solution (admittedly the TEEB report understands this fully). As with other areas where it is difficult to calculate the precise economic impact of an activity, such as discrimination or unsafe working conditions, robust regulations and even more robust policing are also required.

But most importantly political and business leaders must make it clear that damaging the biosphere is counter-productive, regardless of the precise economic costs you incur as a result. Plenty of businesses can absorb ecosystem-related costs that run to billions of pounds, as BP is now trying to prove, but no one can cope with a bill that runs to infinity.