Natural Capital: A Good Idea or the Path to Ruin?

by Alex Gaut, Conservation Council SA: http://conservationsa.wordpress.com/2012/11/23/natural-capital-a-good-idea-or-the-path-to-ruin/

Alex Gaut, Biodiversity Program Manager here at the Conservation Council of SA has been pondering economics and the environment. Here are some of her thoughts on the topic.

I have recently started a journey into the world of environmental economics.

I have no background and, I thought, no interest, in economics and started where most of us are at with having to manage my own finances and attempting to understand how the national and global economy affects that.

It is beginning to dawn on me just how powerful a driver the economy has become. Do you remember just a few years ago the term ‘triple bottom line’ was everywhere? Where is it now? It’s gone. Because all too quickly it was realised that it wasn’t a line but a triangle and the economy is at the top.

I credit Nicole Fosse with sparking my interest in this area via a presentation she gave in Adelaide last year. She was both eloquent and scary but how much of it was dramatisation I don’t know. What I do know is that some of her advice made a lot of sense, for example, decouple your finances from the global economy and try not to use credit.

However, I digress.

Today I read something that really made me stop: ‘biodiversity loss should be regarded as one of the greatest economic problems of this century’.

Just stop and think about that. Most of you reading this already know that biodiversity loss is a very serious problem but we think of it as an environmental problem. It is rarely phrased as an economic problem.

But more and more economists are working with ecologists and environmentalists try to put some kind of value onto ecosystem services - our ‘natural capital’. For example, see Natural Capital Initiative, The Economics of Ecosystems and Biodiversity and Wave Partnership. 

In what is known as ‘classical’ economics there were traditionally three factors: land, labour and capital. The ‘land’ factor included all natural services and resources that contributed to agricultural productivity but somewhere along the way ‘land’ got subsumed under ‘capital’ in ‘neoclassical’ economic models, thereby losing any value it might have otherwise been given.

Richard Heinberg, a Senior Fellow of the Post Carbon Institute, states that this ‘amounted to a declaration that Nature is merely a subset of the human economy - an endless pile of resources to be transformed into wealth’ and there the problem started.

It is extremely difficult to account for biodiversity and natural capital, let alone face the arguments for and against trying to do so. There are significant obstacles in trying to analyse the economics of biodiversity:

It has system properties that defy easy definition. It is more than the aggregate sum of species: some species play a vital role in the survival of ecosystems; some provide key ecosystem services to humans; some are positively harmful to humans; species depend upon each other; and policies aimed at biodiversity are often oblique, aimed at preserving habitats rather than particular species. Biodiversity is a series of overlapping public goods from the local to the global scale.¹

The subsuming of ‘land’ into the ‘capital’ factor meant that not only did it not get accounted for but that it could be ‘externalised’, it is an unpriced impact affecting another party but for which there is no accountability.

Externalities provide corporations with economic loopholes through which they can pass all the pollution and waste they produce, without having to account for it.

For many economists that’s what is so wonderful about the farce of GDP, which measures economic activity in the form of monetary transactions.

For example, any time there is a major natural disaster, all the activities associated with the recovery count towards an increase in GDP because houses have to be renovated or rebuilt, infrastructure has to be repaired, injured patients have to be cared for and it all costs money, therefore money has to be spent, products made, services rendered and thereby an increase in economic activity, leading to an increase in GDP. Didn’t you know? Climate change is going to mean more GDP!

Richard Heinberg explains it well in his latest book, ‘The End of Growth’:

If a country has happy families, the GDP won’t reflect that fact; but if the same country suffers a war or natural disaster monetary transactions will likely increase, leading to a bounce in the GDP.

Calculating a nation‘s overall health according to its GDP makes about as much sense as evaluating the quality of a piece of music solely by counting the number of notes it contains. There are some good arguments to support putting a financial value on ecosystem services and biodiversity but there are some good ones against it too.

Making large, powerful corporations incorporate ‘externalities’ into their accounting creates interesting results and may be able to significantly influence decision-making for the better.

Pavan Sukhdev is the Study Leader for The Economics of Ecosystems and Biodiversity program, and provides excellent examples of how it can change outcomes, financial and environmental. I highly recommend his TED talk.

The UK government has introduced ‘Whole of Government Accounts’ whereby they are going to attempt to account for natural capital alongside other forms of capital and the UK Natural Capital Committee has been established to work on this. Some of the benefits of attempting to do this are that:

• it can be used to consider whether and to what extent biodiversity is being preserved
• it can be used to estimate the required capital maintenance costs as a charge on current spending and to check whether the capital maintenance is being met by current spending
• natural assets can be treated as ‘assets-in-perpetuity’ rather than assets to be depreciated
• cost-benefit analyses can be conducted

However, the downsides of this approach are that market instruments such as offsets are beginning to be developed to commodify and trade nature.

Whilst carbon offsetting might not be such a bad idea (although it’s still a moot point), biodiversity offsetting sounds like a really bad idea because an ecosystem is more than the sum of the parts. And for some, taking such a human-centric perspective is far too narrow and ignores any intrinsic value.

Personally, I love the idea of intrinsic value. How is it possible to put a financial value on the sense of wonder I get from a vast stretch of wilderness, or from admiring the beauty of a leafy sea dragon? How do you put financial value on nature as artistic inspiration? How much value do you put on someone’s improved wellbeing because they were able to interact with nature?

George Monbiot has written a piece about the downsides of the commoditisation of nature, how once a resource is ‘commoditised’, then speculators and traders step in and start talking about return on investment, blended revenue streams and so on.

But it’s probably too late because even some well known environmentalists are now starting to discuss return on investment for biodiversity protection - spend a lot of money saving one species and let many others increase their risk of extinction?

Or do the unthinkable (to many of us) and let one species go so that money can be spent saving more species before their risk of extinction is so high that they can’t be saved?

By accounting for nature in economic models are we creating more of the same problem that got us to where we are today? Are we buying into economic growth (and corporate power) because it seems like there is no other way to make humans (and in particular corporations) value nature? Or is it one step closer to forcing business to face up to their impacts?