A mate of mine sent me an article just before Christmas. It was titled ‘None of the world’s top industries would be profitable if they paid for natural capital‘ and provides comment on the findings of a United Nations sponsored report by consultancy Trucost.
The author, David Roberts, makes a number of points:
(a) the use of the economic term externalities (costs or benefits that individuals ignore because they do not face them) is dangerous because it can have a ‘narcotizing effect’ that leads to ‘incrementalism’. Rather than acknowledge nature is capital by paying for its use, the author advocates a new industrial system that does not degrade nature.
(b) the headline results of the Trucost report (which I’ll discuss in another blog post) are:
- the primary industries and primary processing sectors produce externalities equal to 13% of GDP ($7.3 trillion in 2009)
- coal is a big culprit
- the top 20 sectors, ranked by size of externality, would not be profitable if they paid for the cost of their externalities
While I agree with the inspiration for the article, that nature is capital and it has a cost, I can not agree with the sentiment that economics is part of the problem and a no impact system is the solution.
Economics is an explanation of the many many interactions that occur through markets as we try satisfy our wants. It is not the reason we behave the way we do. The fact that economics recognises externalities does not explain why some fail to care about the costs others face but they do not (e.g. power plants that emit smog), it merely states that this is the case. Surely calling out such selfish behaviour is constructive.
Economists have a long history of advocating that nature is capital. Arthur Pigou (1877-1959) is often credited with suggesting that governments could do better for us and nature by addressing externalities. Indeed the taxes, regulation, property rights, and government coerced self-regulation used to address externalities have strong Pigouvian lineage.
Should we move to a no impact industrial system? No. If you read the article I am one of those economists that frustrate the author by arguing that the best way to acknowledge nature is capital is through paying for it. My view is based on one simple observation -no matter what we do we have an impact on nature. A low impact form of sustainability is therefore the best we can hope for. Sustainability is after all a human coined term. By paying for natural capital we accept we are part of not separate from nature.