In an earlier post I wrote about an article that discussed a Trucost report on natural capital. In this article I wanted to write about the report itself (the report can be found here). Given it’s an 80ish page report I thought what I’ll do is highlight what I found to be the 3 most interesting findings and explain why I chose them.
Here are my top 3 findings:
- lots of industry would be unprofitable if they had to pay for natural capital
- coal is a big culprit, but so too is agriculture
- costs vary considerably across the globe
Why are they interesting?
If lots of industry would be unprofitable if they had to pay for the degradation they cause the planet’s air, water, soils etc. then it seems that their profits are coming from nature, or more to the point, ignoring aspects of nature. This is not to say that it does not require intelligence or effort to make a mobile, for example. Of course there is a lot of effort behind making one. What the report implies is that there is not enough value from these efforts to offset the damage that making a mobile does to the environment and that there is a cost to this. For example, people lack a source of clean drinking water due to industrial pollution.
Changing the way we interact with nature is quite radical. As the report implies the system is set up around not paying for a lot of it. But then again change and the pain that goes along are readily accepted in the current system. The process of creative destruction articulated by Joseph Schumpeter is key to improvement in a capitalist economy. Paying for natural capital necessarily will imply using it less. However, applying some sort of constraints or boundaries is not always counterproductive. Necessity is the mother of innovation.
Coal is to environmentalist as what Trump is to feminists. So the fact that the TEEB report provides further weight to the anti-coal debate is not surprising. Many reports have placed the basis of unsustainable living at the bottom of a coal pit. What is perhaps less well acknowledged is that agriculture is also a big culprit. Land clearing and water use by cattle farmers and wheat farmers in South America and Southern Asia were among the 5 regional sectors with the largest use of unpaid for natural capital.
The costs identified by the report tend to be greatest in the developing world. Depending on which way you look at this you could say it is a problem for the developing world or you could say it is a problem for the whole world. The latter acknowledges the report’s finding (that is not all that surprising) that the damage caused in the developing world is derived from demand largely from the developed world and transmitted through supply chains.
So while the finger of blame is often pointed at large soulless corporations with profit incentives it would be more productive (but also fairer) to acknowledge our own role as consumers in degrading natural capital (but also as investors in these companies and if you are public servant remember where your taxes come from).
[As a footnote I thought I would address the elephant in the room, which is how credible is this report? I’ll start by saying there is a level of trust that goes with interpreting any work or even data unless you do it or collect it yourself and then someone else has to trust you. What reason do we have to give this work any credence? TEEB is a publicly listed company with over a decade worth of experience and was procured by the G8 and United Nations. To the extent that you might trust a KPMG or a Bain & Company report for the IMF you might be inclined to trust this. Regardless, rather than focus on questions that require precise measurement such as how big a problem is it, I have focused on less demanding questions such as is there a problem and relative rankings]