Showing posts with label economy of nature. Show all posts
Showing posts with label economy of nature. Show all posts

Market Based Green Growth: Natural Capital and Sustainable Economic Growth (Videos)

Green growth that factors natural capital can drive competitiveness and power innovation for generations. Resource productivity alone is a $3 trillion opportunity. We must start with the understanding that the  choice between the economy and the environment is a false choice. As demonstrated by countries like Germany, we can increase our productivity while decreasing our emissions. To green our economies we must determine the true economic value of our resources which means we must ensure that markets factor the environmental costs of a product or service.

Factoring the actual costs allows us to decouple environmental impacts from economic growth. Countries that use scarce resources more productively are more resilient and they can also export this knowledge globally. 


Natural capital is what nature provides to us for free. In the face of the global, local, and national destruction of biodiversity and ecosystems, economist Dieter Helm here offers a crucial set of strategies for establishing natural capital policy that is balanced, economically sustainable, and politically viable. Helm shows why the commonly held view that environmental protection poses obstacles to economic progress is false, and he explains why the environment must be at the very core of economic planning. He presents the first real attempt to calibrate, measure, and value natural capital from an economic perspective and goes on to outline a stable new framework for sustainable growth. Read more at www.naturalcapital.wix.com/dieterhelm


Researchers at the Arizona State and Yale are working to calculate the dollar value of nature in an effort to promote sustainability. Last June they published a landmark study that assigns monetary value to natural capital. The report was published in the Journal of the Association of Environmental and Resource Economists. The paper argues for the creation of asset markets for natural capital.

In theory natural capital valuation would increase conservation efforts. The idea is that what goes unmeasured often gets undervalued. For example, reef fish in the Gulf of Mexico were valued at around $3 a pound in 2004, but after policy makers implemented reforms that incentivize conservation the price jumped to $9 a pound. Elephants are another example as explained in an MNN article they are worth 76 times more alive than it is dead.

While the goal is to make human behavior less destructive to the environment, the actual outcome may be at odds with what is being sought. This dangers of turning nature into a commodity is reviewed in perspective in an article titled, "Rhino Horn Economics."

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The Monetary Value of Toronto's Trees

There is growing interest in efforts to assign a price to nature and a new report quantifies the dollar value of trees in the city of Toronto. According to a report from the TD Bank released on Monday June 9, trees in Canada's largest city are worth about $700 each. Together Toronto's 10 million trees are valued at around $7 billion.

"Urban forests do more than beautify the scenery," the TD bank's chief economist Craig Alexander said. "They represent an important investment in environmental condition, human health and the overall quality of life."

A total of 190 square kilometres or almost one third (30 percent) of Toronto is covered by shrubbery and 116 different species of trees.

Toronto's trees remove 19 million tons of air pollution which amounts to one quarter of all the city's industrial emissions. (the equivalent of the yearly pollution output of one million cars, or 100,000 homes). Trees also serve as carbon sinks. It is estimated at 1.1 million tonnes of carbon are stored in Toronto's trees (equivalent to the carbon emissions from 700,000 cars a year). In addition to the amount of carbon already stored in Toronto's trees, another 46,000 tonnes of carbon are sequestered each year (equivalent to the annual carbon emissions from 31,000 automobiles or 16,000 single-family homes).

In addition to reducing cold winds in the winter, trees keep the city cool in the summer. The TD report indicates that one tree is equivalent to 10 room-sized air conditioners, running 20 hours a day.

Some of the benefits of trees are less obvious. For example, trees help to manage precipitation. Every year, Toronto's trees intercept 25 million cubic metres of rain and snow saving the city $53 million.

Trees also enhance property valuations and therefore property taxes. Properties with trees rent for 7 percent more than locations without trees.

Overall the report convincingly makes the case that trees are a good investment. According to Alexander, "for every dollar spent on maintenance in Toronto's urban parks, trees return $3.20 to the community."

To Read TD's complete report click here.

© 2014, Richard Matthews. All rights reserved.

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UNEP's NCD Roadmap: Implementing the Four Commitments of the Natural Capital Declaration

In May, 2013, the United Nations Environment Program Finance Initiative (UNEP FI) released a plan for financial leadership in natural capital. The Natural Capital Declaration (NCD) Roadmap is titled "Implementing the Four Commitments of the Natural Capital Declaration." The Roadmap marks the start of Phase ll of the NCD.

The core objectives of Phase ll of the NCD are to

1. Stimulate Financial Institutions that have signed up to the NCD to show progress towards implementing the NCD commitments.

2. Develop practical tools and metrics to integrate natural capital in all asset calsses and rlevant financial products.

3. Increase the number of signatories so as to build a greater level of acknowledgement within the financial sector about the materiality of natural capital.

To access the Roadmap click here.

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UNEP's Natural Capital Declaration (NCD)

To help advance global sustainability efforts, the United Nations Environment Program (UNEP) launched the Natural Capital Declaration (NCD) in 2011. This initiative seeks to responsibly manage the Earths biodiversity by attaching a price to the elements of the natural world. It takes the form of a commitment intended for the financial sector which seeks to integrate financial capital criteria into financial products and services. See the text of the NCD below:

The Roadmap to a Green Economy

We the undersigned financial institutions wish to acknowledge and re-affirm the importance of natural capital in maintaining a sustainable global economy. This declaration calls upon the private and public sectors to work together to create the conditions necessary to maintain and enhance natural capital as a critical economic, ecological and social asset. We present this declaration to the world community at Rio+20*, as a private sector finance response to the conference theme of working towards a green economy. This declaration has been developed based on an extensive consultation process with the financial community over the course of 2010 and 2011, including meetings in London, Nagoya, Hong Kong, Munich, Washington D.C. and São Paulo.

The Importance of Natural Capital

Natural capital comprises Earth’s natural assets (soil, air, water, flora and fauna), and the ecosystem services resulting from them, which make human life possible. Ecosystem goods and services from natural capital underpin productivity and the global economy. They provide services worth trillions of US dollars per year in equivalent terms and constitute food, fibre, water, health, energy, climate security and other essential services for everyone. Neither these services, nor the stock of natural capital that provides them, are adequately valued in terms comparable to manufactured and financial capital. Despite being fundamental to our wellbeing, their daily use remains almost undetected within our economic system. Using natural capital this way is not sustainable. The private sector, governments, all of us, must understand and account for our use of natural capital and recognise its true value in maintaining economic growth and sustaining human wellbeing today and into the future.

Leadership from the Financial Sector

Financial institutions are an integral part of the economy and society. As the engine of global economic growth, the financial sector can provide some of the tools required to support a transition to sustainable development and eradicating poverty by providing loans, equity, insurance and other financial products and services needed by companies, governments, organizations and individuals that consider social and environmental externalities. Since virtually every economic activity can have an impact on natural capital either directly or indirectly, through a supply chain, financial institutions have considerable indirect ecological footprints through their customers and directly through their purchasing decisions. These impacts can lead to material financial risks, but also to relevant business opportunities.

At present many financial institutions do not sufficiently understand, account for and therefore value, the risks and opportunities related to natural capital in their financial products and services (loans, investments and insurance products) and in their supply chains. Building this knowledge, as well as appropriate valuation and risk management tools, to take natural capital into account within financial decision-making, are important early steps to be undertaken by the financial sector.

As members of the financial sector, we consider ourselves key stakeholders in future discussions about valuing and protecting natural capital and we recognise that we have a key role to play in the reforms needed to create a financial system that reports on and ultimately accounts for the use, maintenance, and restoration of natural capital in the global economy. However, we must do this in consultation with government and supported by appropriate legislation and regulation.

Why Government Action is Essential Now

Because natural capital is a part of the ‘global commons’ and is treated largely as a free ‘good’, governments must act to create a framework regulating and incentivizing the private sector – including the financial sector – to operate responsibly regarding its sustainable use. We therefore call upon governments to develop clear, credible, and long-term policy frameworks that support and incentivise organizations – including financial institutions – to value and report on their use of natural capital and thereby work towards internalizing environmental costs. This can be done by:

1. Requiring companies to disclose the nature of their dependence and impact on natural capital through transparent qualitative and quantitative reporting;

2. Using enforceable fiscal measures to discourage business from eroding natural capital, while at the same time offering incentives to companies that integrate, value and account for natural capital in their business model;

3. Endorsing and implementing international agreements, including but not limited to, those agreed through the Convention on Biological Diversity;

4. Setting an example through requiring public spending and procurement to report and eventually account for its use of natural capital;

We welcome the World Bank’s Wealth Accounting and Valuation of Ecosystem Services (WAVES) initiative and encourage governments to participate.

Our Commitment at the Rio+20 Earth Summit

Anticipating that such a framework will emerge, and noting that no methodology yet exists to adequately report or account for natural capital in the global financial system, we the endorsing financial institutions wish to demonstrate leadership by undertaking to collaborate globally through working groups and engagement with our customers, investee companies, suppliers, civil society, and other stakeholders as appropriate to:

1. Build an understanding of the impacts and dependencies of natural capital relevant to our operations, risk profiles, customer portfolios, supply chains and business opportunities;

2. Support the development of methodologies that can integrate natural capital considerations into the decision making process of all financial products and services – including in loans, investments and insurance policies. We recognise that given the diversity of the financial sector, embedding natural capital considerations will differ across asset classes and types of financial institutions. We therefore aim to build on work undertaken through other initiatives, such as the UN-backed Principles for Responsible Investment, the Equator Principles, the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Sustainable Insurance, and The Economics of Ecosystems and Biodiversity (TEEB), so that we can develop methodologies to:

A: Apply a holistic approach to evaluating bonds and equities through the integration of natural capital considerations in environmental, social and governance (ESG) risk analysis in short, medium and longterm growth forecasts of investee companies;

B: Systematically consider and value natural capital in the credit policies of specific sectors, including commodities, that may have a major impact on natural capital either directly or through the supply chain;

C: Systematically consider and value natural capital in core insurance business strategies and operations including risk management, risk underwriting, product and service development, claims management, sales and marketing, and investment management

3. Work towards building a global consensus for the integration of natural capital into private sector accounting and decisionmaking; supporting, when appropriate, the related work of the TEEB for Business Coalition, and other stakeholders.

4. Collaborate, when appropriate, with the International Integrated Reporting Committee and other stakeholders to build a global consensus around the development of Integrated Reporting, which includes natural capital as part of the wider definition of resources and relationships key to an organization’s success.

By endorsement of this declaration, we wish to demonstrate our commitment to the eventual integration of natural capital considerations into private sector reporting, accounting and decision-making, with standardization of measurement and disclosure of natural capital use by the private sector.

Click here to download the Roadmap Booklet, Financial Sector Leadership on Natural Capital. This concise booklet reviews the work the NCD sets out to achieve, what participating institutions commit to by Signing, and why signing is relevant for financial institutions around the world.

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Video - Pricing Nature is Far Harder than you Think


While there is a lot of interest in market based solutions to price nature, it is far harder in practice than it would appear in theory. This short animation from Joss Tantram, partner at UK sustainability strategy firm Terrafiniti, LLP, explains in very simple terms some of the problems associated with pricing ecosystems.

Titled “How Much is Your Mother Earth Worth?” this video uses the metaphor of assigning a monetary value to our mothers. While we can attempt to base her value on individual benefits she brings to our life, we will ultimately undervalue her.

“Value implies price, price implies sales, and sales imply markets — if we are not careful we will reduce everything to money and lose sight of the real value we started with,” he said. “The idea that: ‘If we can’t measure it we can’t manage it’ pervades much of our current ways of prioritising activity. However, there are many cases when it simply does not either apply or help. For instance, how do you quantify the love you feel for your children, your parents or partner? You don’t. You know the value without needing to know the quantity. Finding an exact figure is irrelevant and pointless.”

Tantram added, “In essence the trouble with pricing the priceless is that it implies fungibility (economic “swap-ability”); by putting a price on your mother, you are essentially saying that you’d be equally happy with a different one that cost the same.”

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Rhino Horn Economics: The Perils of Putting a Price on Nature

A number of market based solutions have been advanced to address dwindling biological diversity and the loss of healthy eco-systems. Efforts to save the rhino serve as a model to explore some of these approaches. Rhinos are one of the largest living land mammals and they symbolize humans’ deleterious impacts on the natural world.

Rhinos are being hunted to extinction for their horns, which are considered to be a magical cure-all in some traditional Asian cultures. The trade in rhino horn is currently illegal, but one approach to address this problem strives to indulge the demand by farming them. The advantage to this approach is that the horn can be removed without killing the animal, thereby protecting the animal from extinction.

Skyrocketing Rhino poaching


As reported by savetherhino.org, at the beginning of the 20th century there were 500,000 rhinos across Africa and Asia. This fell to 70,000 by 1970 and further to just 29,000 in the wild today. In Asia, the Sumatran and Javan rhinos are critically endangered. There are fewer than 100 Sumatran rhinos left in the wild and only 35 – 45 Javan rhinos left.

While deforestation, displacement by human settlements and the fragmentation of their habitats are threats to the rhinos, by far the greatest threat comes from poaching. While the numbers of some populations of rhinos have seen some modest increases, efforts to save these animals are being undermined by growing numbers of poachers lured by the lucrative demand.
As explained by the New York Times,
“After two decades of gains, the world’s population of rhinoceroses is being killed off by poachers at such a high rate that conservationists fear the deaths could soon surpass the number of rhinos that are born each year.”
The International Rhino Foundation says that two rhinos a day are being poached in South Africa alone, and that number is growing. Susie Ellis, the executive director of the foundation said economics is driving the destruction of rhinos.

Rhino horn economics


Clearly, prohibitions against the legal sale of rhino horns have not worked. In fact it has driven up the price on the black market. Rhino horns are now more valuable than gold. Advocates of rhino farming say that we may be able to preserve the species by creating a legal industry.

In response to the epidemic of poaching, Bloomberg reports that South Africa is considering legalizing the sale of rhino horn and authorizing commercial farming. They even suggest that rhino horn should be traded on the Johannesburg bourse. This approach was supported in a 2013 South African Department of Environmental Affairs report. Supporters believe that this is the best way of protecting animals and conserving the natural environment.
“Some viewed the lifting of the ban on trade in rhino horn as the panacea that would end poaching and save the rhino from otherwise inevitable extinction,”  the South African Department of Environmental Affairs report stated. “This view was supported by market theorists who argued that in a market where rhino horn could be traded freely, market forces would automatically drive horn prices down, obviating the need for syndicates to face risks associated with poaching.”
Some say that there are parallels for this approach in agriculture and the farming of livestock. We already plant forests of fruit bearing trees. We remove the fruit without killing the tree. We also breed a wide range of animal species for human use. From food to clothing, animals are raised for our use. For example, sheep are sheared so that we can use their wool to make clothes and cows are raised to provide milk.

Commoditizing nature


Advocates of pricing nature argue that we can use the profit incentive to protect the natural world. The “commoditization” or “financialisation” of nature suggests that this is a way to manage our rapacious consumer appetites. In the book People and Nature: An Introduction to Human Ecological Relations, Emilio F. Moran says,
“The solution to these environmental problems lies within us is closely tied to our choices. The solution must begin with the individual and a commitment to resist the forces of global consumerism in favor of a concern with the planet as our home — now at risk due to policies that fail to give value to environmental goods and services.”
This view that we need to put a price on nature is advocated by men like the Indian banker Pavan Sukhdev. He and his colleagues explored this approach in a report on The Economics of Ecosystems and Biodiversity (TEEB) which argues we need to assign a value to address the “economic invisibility of nature.”

A March, 2014, article titled Putting a Price on Nature, explained how the Global Economic Symposium, has proposed the concept of a “New Economy of Nature,” which advocates valuing natural resources.

Other variations of this approach are known as payment for ecosystem services (PES), or payments for environmental services (or benefits). One of the most ubiquitous is known as natural capital accounting (NCA). This approach is supported by the World Bank and as they explained in an April 18th 2013 press release, a group of more than 60 countries have committed themselves to NCA.

Some of the countries that support NCA include Australia, Canada, Colombia, Costa Rica, Denmark, Finland, France, Japan, Netherlands, Norway, Spain, Switzerland, and the United Kingdom.

The World Bank supports NCA through a global partnership called WAVES (Wealth Accounting and the Valuation of Ecosystem Services). The WAVES partnership includes the United Nations Environment Programme, the United Nations Development Program, and the United Nations Statistical Commission. Participating countries want NCA to be part of the discussion on Sustainable Development Goals post-2015.

These marketplace solutions to the unsustainable exploitation of the natural world have laudable objectives. The idea is to provide monetary incentives in exchange for managing aspects of the natural world. While the underlying aim of these approaches is to promote the conservation of natural resources and diminish environmental degradation, the actual impacts of such programs may not produce the ends they seek.

The problem of commoditizing nature


As explored in a Yale 360 article, titled Whats Wrong with Putting a Price on Nature, there are a number of problems associated with PES. According to Kent H. Redford, an environmental consultant, we should not assume that old-style conservation methods have failed. He points to successes like state-sponsored protected areas which now cover 25 percent of the land in Costa Rica, 27 percent in the United States (at the federal level alone), 30 percent in Tanzania and Guatemala, and 50 percent in Belize.

A study by Redford and William M. Adams, addresses the numerous difficulties associated with assigning a price to nature including what those values should be, who has the right to assign such values and who has the right to benefit.

UNEP’s support for commoditizing nature is criticized in a report by Mark Wilson at the Center for Sustainable Development, Uppsala University, Switzerland. The report is called The Green Economy: The Dangerous Path of Nature Commoditization, and it addresses UNEP’s proposal to price ecosystem services. This report cites five aspects of the green economy which could undermine the practical implementation as well as the social legitimacy of pricing nature:
  1.  Ecosystem services are inherently difficult to price.
  2. The consideration of the rebound effect is insufficient.
  3. The primacy of economics over the environment is ensured.
  4. Markets offer little protection for the poorest people.
  5. Existing market mechanisms aimed at safeguarding the environment have not succeeded. 
“The green economy relies upon the discursive power of ecological modernization and our faith in progress to uphold a failing strategy of unfettered economic growth,” Wilson says. “This discourse limits our capacity to conceive solutions outside the economic sphere. Achieving sustainable development will require a process of social change that could be facilitated by the acceptance that nature is more than just a form of capital.”

Artificial inflated value


The term, rhino horn economics encompasses maladaptive social constructs that drive insane levels of consumerism. It also deals with the psychology of assigning value to something that we really do not need. More specifically it focuses on the destructive ecological cost of unbridled demand. To bring it back to the rhino analogy, a living rhino has real value while the value of a harvested horn is entirely artificial (There is absolutely no evidence to indicate that they have any medicinal value or treat any disease or condition). While we attribute value to animal or plant byproducts that are essential for our survival, it becomes highly destructive when we attribute value to a product or service that does not meet real human needs.

Once a largely western vice, increasing standards of living in the developing world are now seeing rising rates of consumption. This type of consumption threatens the survival of a wide range of species and habitats. The growing demand for rhino horn is a case in point. It is a cancerous outgrowth of the rapidly proliferating global society of consumers. While a market for rhino horn has existed for centuries in Asia, that market is now increasing exponentially. The growing disposable incomes of people in places like China and Vietnam is driving the growing demand. As a consequence, Rhino horn is now a sought after luxury item.

Arguably our relationship to many goods and services are analogous to the demand for rhino horn. We are a global society of rapacious consumers who buy a great many things that we really need.

Addressing rampant consumerism


Consumerism is driven by a steady barrage of adverstising that creates a demand for what we do not need. Surely if a solution exists it starts with serious questions about our actual as opposed to our perceived needs. Rather than indulging our rampant consumerism we must pear down our consumption. Based on this model we have unsustainably consumed vast quantities of resources and the rarer they get the more desirable they become.

Rather than try to find ways of preserving current consumption patterns we need to question the underlying insane psychology of our unsustainable consumption patterns. This implies that we must also question the broken social constructs that feed into consumer behavior.

The path to destruction


As pointed out in the Redford and Adams study, when monetary values are assigned to nature they are likely to carry less weight when we reduce them to economics. In effect we are cheapening nature when we frame it as a service provider fit to be incorporated into the global capital markets.
As the Guardian, columnist and land rights activist George Monbiot wrote,
”When governments and PES proponents talk about employing marketplace solutions instead of traditional regulatory approaches, what they are really talking about is shrinking democracy, shrinking public involvement in decision making, shrinking transparency and accountability. By handing it over to the market you are in effect handing it over to corporations and the very rich…”
As the Yale 360 article points out, “It may be, as some argue, that we have no better way to save the world. But the danger in the process is that we may lose our souls.”

Nature cannot be reduced to a commodity. We cannot monitize nature any more than we can monitize all the things make life worth living. Anything we do that reduces the natural world to monetary values detracts from its priceless intrinsic value.

We need to understand that greed is at the crux of the environmental crises we face and we are doomed to fail if we premise our solutions on something so egregiously destructive. Now more than ever we need to rekindle our relationship to the natural world as the source of all value. Far from being our salvation, commoditizing nature is sure to divest us of the one thing that can save us from ourselves.

Source: Global Warming is Real

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