Thursday, April 18, 2013

The Gordion Knot of Modern Industrialism - Pricing Natural Capital


"Natural capital" comprises things from nature that belong to no one and to everyone - things like the atmosphere.   Other types of natural capital are considered national assets, like a country's groundwater.

Natural capital is what allows us to go for lovely walks through the forest or camping in national parks.  It is also what sustains almost all life on the planet.

Yet throughout the history of mankind and, particularly ever since the Industrial Revolution, industry has treated natural capital as its own and a freebie at that.

In a world in which the demand for natural capital is now rapidly outpacing supply there is a growing awareness that this should not be anyone's to access for free and especially not enterprises that use natural capital to generate wealth for their exclusive benefit.

In classical economics, natural capital is lumped into what are called "externalities."  It never finds its way onto corporation balance sheets.   New research shows that, if it did, the bottom line for even profitable companies would tank.   From David Roberts at Grist.com:

"...check out a recent report [PDF] done by environmental consultancy Trucost on behalf of The Economics of Ecosystems and Biodiversity (TEEB) program sponsored by United Nations Environmental Program. TEEB asked Trucost to tally up the total “unpriced natural capital” consumed by the world’s top industrial sectors. (“Natural capital” refers to ecological materials and services like, say, clean water or a stable atmosphere; “unpriced” means that businesses don’t pay to consume them.)

"Here’s how those costs break down:
The majority of unpriced natural capital costs are from greenhouse gas emissions (38%), followed by water use (25%), land use (24%), air pollution (7%), land and water pollution (5%), and waste (1%).
"So how much is that costing us? Trucost’s headline results are fairly stunning.
"First, the total unpriced natural capital consumed by the more than 1,000 “global primary production and primary processing region-sectors” amounts to $7.3 trillion dollars a year — 13 percent of 2009 global GDP."

And the biggest villain?  Of course, it's coal.


Trucost’s third big finding is the coup de grace. Of the top 20 region-sectors ranked by environmental impacts, none would be profitable if environmental costs were fully integrated. Ponder that for a moment. None of the world’s top industrial sectors would be profitable if they were paying their full freight. None!
That amounts to an entire global industrial system built on sleight of hand. As legendary environmentalist Paul Hawken put it, “We are stealing the future, selling it in the present, and calling it GDP.

"...the UNEP report makes clear that what’s going on today is more than a few accounting oversights here and there. The distance between today’s industrial systems and truly sustainable industrial systems — systems that do not spend down stored natural capital but instead integrate into current energy and material flows — is not one of degree, but one of kind. What we need is not just better accounting, it is a new global industrial system, a new way of providing for human wellbeing, a new way of relating to our planet. We need a revolution."

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