I’ve been concerned for many years about the approach of so-called economic rationalists, who generally believe in the “user pays” principle in relation to social services, but not in relation to products they purchase, for which the price may not incorporate the true cost.

Some current examples highlight this discrepancy. Conservative forces in the USA have campaigned vigorously against President Obama’s health care reforms. However, like their Australian counterparts, they are generally opposed to a price on carbon that would assist in realistically allocating environmental costs involved in producing goods and services.

Nevertheless, pressure is mounting to adequately account for what are currently economic externalities in relation to the environment.

Author Jane Gleeson-White discussed the issue in her “Numbers Rule the World“ presentation on ABC Radio National’s “Big Ideas” program on 3rd September, 2013.  Here’s an extract:

“Today, some economists, accountants, politicians and environmental activists are beginning to re-think this old way of valuing nature, and are re-conceiving it as natural capital. In 2012, the UN adopted a new international standard to give natural capital equal status to GDP. And next December, an international body will publish its guidelines for a new corporate accounting paradigm which includes natural capital.

So, if numbers and money are the most powerful language of our time, it seems we must use this language to account for nature.”

Gleeson-White cited the example of Costa Rica, where the former Energy and Environment Minister, Carlos Manuel Rodriguez, applied the concept in seeking to save his country’s forests. She explained:

” . . . now the economics of nature is institutionalised in Costa Rica, and as a result, not only were the forests protected, but large areas of degraded land were also restored. In the late 1980’s, Costa Rica had only 21% forest cover. It now has 52%.”

She also referred to Guardian journalist Jonathan Watts, who wrote in his 2010 article “Are accountants the last hope for the world’s ecosystems?“:

“So it has come to this. The global biodiversity crisis is so severe that brilliant scientists, political leaders, eco-warriors, and religious gurus can no longer save us from ourselves. The military are powerless. But there may be one last hope for life on earth: accountants.”

Gleeson-White explained: “What he means by this is that only accountants can translate the value of nature into the only language that counts in modern 21st Century business and government; numbers and money.”

The UN’s new approach on natural capital was also referred to in a Scientific American article of 30th August, 2013 headed, “Banks Put a Price on Earth’s Life Support“.  The Natural Capital Declaration defined natural capital as “the Earth’s natural assets (soil, air, water, flora and fauna), and the ecosystem services resulting from them, which make human life possible.”

As part of the UN exercise, forty-three of the world’s largest financial institutions have set up a working party to establish how best to account for natural capital, to assist banks in their financing decisions when considering loans to companies that may be acting unsustainably.

The article noted: “They want governments to force companies to disclose their dependence on natural capital and the impact they have on it by disclosures in annual financial reports. They also want penalties for companies not doing so and tax incentives for those who protect natural capital as part of their business.”

According to the article, the ultimate target date is 2020 “to get an international system up and running and recognized by all governments signed on to the UN Framework Climate Change Convention”.

It quoted Liesel Van Ast, project manager for the Natural Capital Declaration, who said, “Everyone believes they can get out before the resources run out and the crash occurs. We are hoping to change that attitude and get companies to pay a price for overuse of natural capital.”

The article concluded with the words, “It may be slow and difficult work, they acknowledge, but they believe this is vital to prevent the current economic system destroying the planet.“

Potential Resistance

Profound words indeed, but the new measures may be strongly resisted by conservative governments and vested interest groups.

As recently as 18th September, 2013, The Australian newspaper reported that the industry minister in the recently elected conservative Liberal/National Party government, Ian Macfarlane, had said (subject to environmental approval), “we’ve got to make sure that every molecule of gas that can come out of the ground does so” in order to boost exports and supply the domestic market.  He said, ” . . . we should develop everything we can”.

In July, 2012, the head of Exxon Mobil, Rex Tillerson was advocating adaptation to climate change, rather than the vastly more beneficial mitigation approach. The Guardian newspaper reported that Tillerson acknowledged that global temperatures are rising. He said, “clearly there is going to be an impact”, but also said that people would be able to adapt to rising sea levels and changing climates that may force agricultural production to shift.

In reporting Tillerson’s comments, the climate change website, Skeptical Science, stated:

“It’s true that if we had infinite resources, we could probably successfully adapt to the consequences of climate change, to a point.  However, in reality we don’t have infinite resources, and thus we generally try to utilize those resources most efficiently.  When it comes to climate change we have the option to choose our desired combination of mitigation, adaptation, and suffering. . . . As we recently examined, climate change consequences from carbon emissions are already costing our society hundreds of billions of dollars every year.  Research by the German Institute for Economic Research and Watkiss et al. 2005 have concluded that choosing mitigation above adaption would save us tens of trillions of dollars.”

The article used the following image to illustrate its point:

Figure 1: Approximate global costs of climate action (green) and inaction (red) in 2100 and 2200. Sources: German Institute for Economic Research and Watkiss et al. 2005 via Skeptical Science

Another Example

In July, 2013, a paper published in the journal Nature estimated that “the release of a single giant ‘pulse’ of methane from thawing Arctic permafrost beneath the East Siberian sea ‘could come with a $60 trillion global price tag'”.

To put that figure into perspective, global gross domestic product in 2012 was around US$70 trillion.

The researchers indicated that nearly 80 percent of the cost would be borne by the poorer regions of Africa, Asia and South America, in the form of extreme weather, poor health, and lost agricultural productivity.

Conclusion

Let’s hope the language of money can be used in positive ways to force corporations and governments to respond constructively to the crisis we’ve created before it’s too late.

In my next article, I will consider the related issue of quantifying the impact of animal agriculture.

References:

Gleeson-White, J., “Numbers Rule the World“, ABC Radio National, 3rd September, 2013, http://www.abc.net.au/radionational/programs/bigideas/numbers-rule-the-world/4881098

Brown, P and the Daily Climate, “Banks Put a Price on Earth’s Life Support“, Scientific American, 30 August, 2013, http://www.scientificamerican.com/article.cfm?id=banks-put-a-price-on-earths-life-support

Watts, J., “Are accountants the last hope for the world’s ecosystems?“, The Guardian Environment Blog, 28th September, 2010, http://www.theguardian.com/environment/2010/oct/28/accountants-hope-ecosystems

Crowe, D., “Use it or lose it, miners warned by Coalition“, The Australian, 18th September, 2013, http://www.theaustralian.com.au/national-affairs/use-it-or-lose-it-miners-warned-by-coalition/story-fn59niix-1226721368923

Associated Press, The Guardian, “Climate change fears overblown, says ExxonMobil boss“, 28 June, 2012, http://www.theguardian.com/environment/2012/jun/28/exxonmobil-climate-change-rex-tillerson

Skeptical Science, “Exxon-Mobil CEO Downplays the Global Warming Threat“, 13th July, 2012, http://www.skepticalscience.com/exxon-mobi-ceo-denies-climate-threat.html

Gail Whiteman, Chris Hope, & Peter Wadhams, “Climate science: Vast costs of Arctic change”, Nature 499, 401–403 (25 July 2013) doi:10.1038/499401a, published online 24 July 2013, http://www.nature.com/nature/journal/v499/n7459/full/499401a.html, cited in Environmental News Network, Institute for Governance & Sustainable Development, “Damage from Methane Release by Arctic Permafrost Could Cost $60 Trillion: World’s poorest would bear 80% of costs”, 26 July, 2013 and Vidal, J., “Rapid Arctic thawing could be economic timebomb, scientists say”, The Guardian, 25 July, 2013, http://www.theguardian.com/environment/2013/jul/24/arctic-thawing-permafrost-climate-change

Image:

Tranquil River  © Robyn Mackenzie | Dreamstime.com

Author:

Paul Mahony. Also on Twitter, Slideshare and Sribd.

Edited with the inclusion of “Another Example” and references on 13 October, 2013.

Opening paragraph modified slightly on 27th April, 2016