Posts Tagged ‘Sustainability’

Australia’s water market

Tuesday, January 11th, 2011

Despite the recent floods, Australia is still the driest continent on earth. If a long term investment is what you’re looking for, it might be worth taking a closer look at water. Business21C Weekly’s Gabby Greyem spoke to Richard Lourey, Tom Wilks and Andrew Gregson about the risks and opportunities in the world’s most advanced water market.

Edition 32: Water rights

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While retail reticulation (or city water use) is government owned in Australia, the 2007 Water Act triggered a watershed of investment in water assets in the Murray-Darling Basin.

Introduced by the Howard Government, the Water Act came with a financial commitment of $3.1 billion to buy back permanent water licenses from agricultural holders, to secure environmental flows and flush out the 1.5 million tonnes of salt the Basin exports every year.

The Act allows for the commercial trade of water licenses in the Murray-Darling Basin, effectively transforming agricultural water allocations into tradeable shares, where any investor can own and speculate on the value of water. But how do you set a fair price for water rights? And should we treat a non-renewable environmental resource as a market commodity?

The Murray-Darling Basin crosses three states and covers approximately 14 per cent of Australia. Its agricultural output is worth $9 billion a year to the Australian economy, employing 40 per cent of Australia’s farmers, directly affecting 3 million people and feeding 20 million.

According to Richard Lourey, Managing Director of Causeway Water Limited, the conservative value of water entitlements in the Murray-Darling Basin is $A20 billion, making it one of the most significant water trading markets in the world. But it’s a market that, until now, Australian interests have been slower to invest in.

“Themes of food security and soft commodity price inflation are influencing offshore investors more than they currently influence Australian investors.” While landholders, agricultural companies and the Government are still the largest owners of water in the Basin, international interests are investing sizeable sums, far outweighing investment from Australian funds.

In September 2010, the Sydney Morning Herald reported that Olam International, Guinness Peat Group and Summit Water Holdings together hold just under $200 million in permanent water rights in the Murray-Darling Basin. While this might seem a lot, it’s a very small fraction of the total, and for Lourey, the more participants in the market, the better it will operate.

Richard Lourey said the Murray-Darling Basin’s water trading scheme has seen 15 per cent compound annual growth in the last ten years. The price of water jumped dramatically after the introduction of the government buy-back scheme, from around $900 a megalitre for permanent water, to over $1,200 a megalitre.

This has been great for the vendors of water licenses, like Twynam Cotton, which sold 240 gigalitres of permanent water licenses to the Federal Government in 2009, for $303 million.

But recent rain and flood events, combined with the drying up of Government buy-back reserves, have seen returns on water reduced to a tenth of their value just two years ago.

Tom Wilks has been a water broker for over ten years. He said changing rules and a lack of clarity around how allocations are worked out leaves a lot of uncertainty in the market.

“They can change rules with the stroke of a pen … things are too uncertain for anyone to invest with any degree of confidence.”

And according to Richard Lourey, to create true price discovery for water, more investors are needed. “International investment in Australian water will increase the liquidity of the market.”

The investors he works with have styled their entire business around the water theme and see the Australian water market as a long-term opportunity.

“Australia is a dry continent, with an expanding population, [and] it has a very important role to play in terms of food security in the Asian region.

“The assumption we’re making is that we can generate a solid cash flow yield out of the investment on an annual basis; that there will be increasing demand for water, against supply, [and that] the static price of water will go up.” He said.

Chair of the NSW Irrigators’ Council, Andrew Gregson said one of the key aims of the Council was to establish water as a recognised property right.

“While this has mostly been achieved, the Council has some concerns about the potential for the water market to be cornered by single large players.”

Gregson said the Council supports a free water market with a range of market participants, but “we are asking for the Foreign Investment Review Board to be given the same powers over water as a property right, as they do over land.”

Lourey said FIRB guidelines requiring the Australian Government to consider acquisitions in excess of $231 million are appropriate and he sees no need for changes to the protocols as they relate to the water market.

“Whether that capital is coming from offshore or from onshore is not the issue.” What is more important is that the market is allowed to function properly. When water is undervalued, there can be negative consequences – overuse being one of them. But when prices are set by supply and demand, and there are enough participants in the market, both the environment and investors benefit.

Lourey said that while food security and soft commodity price inflation don’t get a lot of attention in Australia, they “get an enormous amount of attention offshore.

“I think it’s important for Australians, both institutional investors and down to the man in the street to understand that water is one way of playing those themes.”

Climate change, an epitome of reality – Personal Thoughts

Monday, January 3rd, 2011

The Cancun talks have all wrapped up now and the past two weeks have seen mixed reactions to the agreement that has been reached. Now that calm has settled and the information processed, global leaders and NGO’s have made their way back to their families joining for celebrations of the holiday season.

Good outcome, bad outcome? Reactions were mixed; still it wasn’t hard to anticipate that despite the initial publicity, something was accomplished in Cancun.

It seems that the debate is ongoing. Whilst some global leaders recognize the tremendous efforts made by the negotiators in uniting to address humanity’s biggest threat, others have pulverized the new agreement as a step backward, condemning its new loopholes and the World Bank’s role in administering the Climate fund as interim trustee.

I still share high hopes amongst the cohort for a more ambitious treaty next year. These talks were a great testimony to the capacity of political leaders and negotiators in agreeing and reaching consensus for a common cause.

Though I can’t help but adopt a food-based approach for the future. 2011 is promising. How will the decks play out on the international agenda amidst rising food speculations and increased natural disasters? Food prices are expected to rise and speculation has it that national conflicts can stream from this cause. Nonetheless, I look forward to witness the World Food Program’s new strategy in the wake of those newly forged alliances with the Millennium Challenge Corporation and Oxfam. As well as the World Watch Institute’s 2011 research report on the state of the world.

COP16 was my first attempt to grasp climate change negotiations at ground zero. Each individual I came across had his or her own equally fascinating journey to fight for this cause. I have come to meet great people and left with greater inspiration. It is their resilience, determination and hard work that will carry on to ensure COP17 in Durban South Africa is where a binding, ambitious and fair treaty will be signed by our global leaders.

I thank you all for this experience.

What is COP16?

Friday, November 26th, 2010

The United Nation Framework Convention on Climate Change is an international environmental treaty that was established at the Earth Summit in Rio de Janeiro back in 1992.

A Message to World Leaders from Global Youth

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The treaty aimed to address the rise in greenhouse gas emissions and its impact on the environment. However it never set out a specific limit for each country’s gas emissions and contains no enforcement mechanism.

Each year, members of the convention meet at the Conference of Parties (COP) to discuss progress in dealing with climate change as well as the Kyoto Protocol and starting this year, the Copenhagen accord.

At this year’s convention (COP16) 194 countries will be taking part in the negotiations at the sixteenth conference of parties in Cancun. The agenda will revolve around discussions of last year’s Copenhagen accord as well as an attempt to create a fair, ambitious and binding agreement that would see signatory countries limit their greenhouse gas emissions.

The Australian Youth Climate Coalition (AYCC) has been involved with the Conference of Parties (COP) since 2007. This year’s delegation comprises of twelve individuals selected from around Australia who will be pushing the international agenda and liaising with Australian governmental bodies to reach an agreement.

The goal is to avert the frustration and walkouts witnessed during COP15 in Copenhagen last year.

Creative Innovation 2010, the wrap

Friday, October 1st, 2010

What kind of man walks onto a stage in a foreign city – where he has few acquaintances and fewer friends – and declares the newly opened public building in which he is standing an architectural mish mash? What kind of a speaker at a creativity conference declares the ‘chucking around of paint around should be confined to nursery schools and universities but the bit in the middle is about learning what needs to be learned’.

The event was Creative Innovation 2010, hosted by leading members of Melbourne’s art and business community, headed by leading Soprano and social entrepreneur, Tania de Jong.

The speaker was Austin Williams, Director of the Future Cities Project, in the UK and author of The enemies of progress, (Societas, Exeter, 2008). For the first hour of deep conversation during which he shared a stage with Edward de Bono and Rufus Black, Rhodes Scholar and Master of Melbourne University’s Ormond College, the audience would have been forgiven for thinking Williams had walked on to the wrong stage at the wrong event.

‘Excuse me, sir, the conflict resolution course meets next door.’

I would venture to argue that Williams was in exactly the right place at exactly the right time, and indeed cleverly placed by the conference organisers.

Why? Well let’s start with the words ‘creativity’ and ‘innovation’. Put the two together, add the name of just about any industry, and you’ve got the title of at least ten conferences in Australia alone, this year – back of the envelope calculation, granted.

We’ve had creative innovation in design, in accounting, in management consulting, in education, in health, we’ve had regional innovation events, skills creativity events, innovation for the young, the old and the young at heart. Business21C can put its hand up for hosting its own creative and innovative event this year, innovatively disguised ‘funky thinking’.

In fact, there’s been so much talk about creativity and innovation since the GFC undermined our belief in the financial system, that quite possibly the least creative thing you can do right now is host an event with either of those words in the title.

But de Jong and her colleagues recklessly put the two words together and staged an creative innovation extravaganza at Melbourne’s newly built Recital Hall, last month. And they pulled it off with style.

CI2010 worked. More than that, in places it was fabulous. One session even got a standing ovation – and that doesn’t happen often when there’s a management consultant on the platform. I have been trying to fathom why. It was not the impressive list of speakers. After all, in 2010 event organisers have to compete with the likes of TED.com who provide brilliant speakers 24 hours a day to a broadband connection near you. It wasn’t the musical interludes that punctuated the proceedings gracefully, either. It was, I believe, how the speakers were put together on stage: the brilliant and the brilliantly bolshie, the creative and the critical. And kept there. Panel sessions were up to two and a half hours long. No whack-up-your-powerpoints,-say-your-piece-and-sneak-off. Speakers spoke, and the audience drilled. Uncompromisingly, sometimes less than coherently, but relentlessly, for three whole days.

During that time, more than 30 speakers covered topics as diverse as pig farming, mental health, responsible design, irresponsible design, education, play, meditation, neuroscience and brand building for cities. And, in some miraculously found moments between all that content, we were entertained and soothed by a variety of artistic pursuits rarely associated with business discussion, from cartooning to piano, singing and painting.

But why are innovation and creativity taking up so much airtime in business discourse?

Either we are determined to become socially and environmentally responsible all of a sudden, or developed economies are waking up to the thought that they have to come up with new ideas to remain globally competitive. (After all, Australia, you can’t keep digging stuff out the ground and flogging it on, forever.)

The two schools of thought on this go something like…

  1. Western economic nations have painted humanity into a tight corner with their focus on growth, consumption, more growth, more consumption. We are running out of just about everything we need to survive as a species: space, water, fuel, food, clean air. This is a big thorny problem, one that some say can only be tackled by new kinds of thinking.
  2. It’s a matter of economic competitiveness. Take a look at statistics on patent registration around the world. Now compare them to those on national economic growth. There is a correlation. China, India and Korea have shown five, three and two and a half fold growth in the number of patents registered per capita of population in recent years. In developed nations, patent registration is slowing. In the UK and in Japan there’s negative growth. It seems, perhaps, new ideas are drivers of economic growth.

Whatever the reason, creativity and innovation are without doubt the new business black. But does the constant picking over of what creates creativity and sparks innovative thinking work? Or is it mid-life crisis navel gazing of mature economies in search of meaning?

To Austin Williams our potential to innovate is massively restricted by risk averse, precautionary parameters about what innovation should look like: sustainable, responsible, socially acceptable, for starters. Creativity, he says is stifled from birth.

But that’s just what he says. Thirty other speakers gave their insights and thoughts on creative thinking and innovative thinking practice over the three days of Creative Innovation 2010. Some agreed with Williams, some didn’t. But it was the diversity of thought and the opportunity to challenge that set CI2010 apart. Without critical thought and the confidence to challenge, can there be true creativity or meaningful innovation?

Short summaries of some of speakers key points are below. Videos will be online shortly and we’ll link to them as soon as they are. Have a browse, and see what you think.

Professor Jonathan West, Australian Innovation Research Centre, The innovation myth

The myth of innovation is that it arises from creativity. Innovation results from a lot of hard work over a long time, testing, creating and commericialising. Innovation is about changing the system into which the innovation plays. The 3 most important innovations of 20th century are: fixing energy into nitrogen, the atomic bomb, and containerisation (the container system for transport). In common they have the creation of a large scale and complex system to support them. For containerisation, it was a matter of reengineering a whole international infrastructure: ships, ports, dockers, trains, trucks and so on, but once achieved, global trade exploded.

We live in a complex world, with complex systems. Innovation is inefficient because it is about system change and we design our systems to be impossible to change.

Andrew MacLeod, CEO, Committee for Melbourne, Melbourne Innovative City

Presented the concept that the branding for the city of Melbourne should be the new paradigm in internatonal aid – to foster private and public sector development for investment, and for Melbourne to become to private sector investment and administration of international aid, what Geneva is to public sector investment and administration of aid.

Edward de Bono, Rethinking the future

Climate change is not the biggest problem facing humanity – the poor quality of our thinking is. And the fact that we don’t understand just how poor it is. Creative thinking has been trained out of us, because it hasn’t been valued. Now we need a Palace of Thinking where new ideas can be looked at and explored. Only by improving our thinking can we improve the ways we deal with some of the big issues facing us.

Michael Smith, CEO, ANZ Bank, Innovation and the rise of Asia – new opportunities, new risks

The rise of Asia offers new opportunity and new risks for business. ANZ Bank is one of fastest growing banks in Asia. Any large business that does not have a strategy that engages in Asia is exposing itself to risk. Successful strategies to compete in the Asian market must be innovative.

What do you need to innovate:

  • Shared mindset
  • Shared logic
  • Shared discipline (how to collaborate and create new knowledge accross organisations, not just recreating existing knowledge.

Claire Penniceard, Pork farmer, Failure, farming and food security

Claire Penniceard bred and raised hardy independent self managing beef cattle, on a zero input enterprise – no supplements no hay, no fertilizers. She bred grand champions but it was not economically or environmentally sustainable. She was the best, but the best was not good enough.

Having explored issues of dietary energy and food security around the world within parameters like environmental sustainability and animal friendliness, she walked off her successful beef farm to go into pig farming. It takes 74 of best beef farms to equal in production what one great pig farm does. Now she produces nine million dollars worth of export quality pig. They are housed and managed to enact all their natural life.

Dr Peter Farrell AM, CEO, ResMed, Innovation and entrepreneurship, the engines of economic growth

Entrepreneurs are often considered to be risk takers. They are not. They are opportunity seekers. Innovation is not creativity but requires it. Innovation occurs when a concept is anointed by the marketplace, when someone writes you a cheque. When we apply a new technology to something we know it’s called productivity, but when we apply it to something new it’s called innovation.

Stefan Cassomenos, Pianist, conductor, composer, From improvisation to composition

Failure is part of the creative process, and Cassomenos believes his entire process of composition depends on failure in some way before creativity is born.

Professor Patrick McGorry, Executive Director, Orygen Youth Health, Australian of the Year, Mental health and mental wealth

Australia’s health is its greatest natural resource, yet mental health is seriously neglected. It effects four to five million Australians and is the greatest killer in Australians under the age of 40.

Yet in terms of mental health care, an apartheid system exists: compare the facilities provided, staff numbers, visitors even flowers delivered to a patient with breast cancer, to those someone hospitalised for a mental health problem receives.

Professor Stephen Heppell, Director, ULTRALAB, Playful learning and why we all need cheering up

Play in learning is joyful, it surprises, challenges and engages. It teaches us to cope with the unexpected. Yet we lose sight of playfulness on our learning journey through life. We have to put play back into the centre of learning if we are going to be flexible thinkers, able to cope with change and with the unexpected.

Professor Peter Shergold, AC, The Centre for Social Impact, Empowering communities to transform democracy

Exciting and innovative stuff happens at the margins often on poorly funded pilot programs, where needs are greatest. The challenge for Australia is to become a hot bed of social innovation – political innovation and community innovation, drawing on a history of such initiatives as bush nursing.

Mark Scott, Managing Director, ABC, Building the digital town square

Fifty people in rural Australia are taking production skills and facilities to the communities, teaching people to put their stories online. If we can collaborate and share our stories we will understand each other more and have a real national conversation recognising the choice and expertise of the community is just as interesting as anything the ABC has to offer.

The experience of the Q&A audience which is growing every week has shown the value of audience led current affairs.

The future is not a place we are going is a place we are making.

Austin Williams, Director, Future Cities Project, Constructing communities, a contradiction in terms?

What is it about communities that politicians are trying to capture and bottle and sell back to us as the elixir of new ways of living? Why is it the community motif which means local and parochial is becoming central to national agenda? Three key elements of a healthy community are: voluntarism, purposefulness and autonomy. Initiatives like the big lunch which funded neighbourhood lunch events in the UK, are corrosive and insular. Is the world around you your neighbourhood or is it a bigger place? Communities are things of flux and change and should transcend the merely local. We are being taught to be good citizens rather than to be educated citizens – but through education comes citizenship.

David Rock, CEO, Results Coaching Systems, The neuroscience of creativity

We have a very small capacity for solving problems in a linear way. Most of the problems we solve at work are too big for our conscious resources so we have to access the unconscious which, relative to the conscious area of the brain is like tapping into the Milky Way.

The neuroscience of insight is the culmination of five years of study on how we can have more insights.

The four faces of insight are:

1. Awareness of an impasse, you need to stop and focus on what is not working.

2. Reflection reflection is required for insight to occur, because insight requires low electrical activity. Insights like the ring of a quiet mobile phone at loud party. Anxiety stops insights because it creates electrical signals which can drowned out the quiet electrical signals of insight.

Reflection is internally focussed. It’s relaxed and low effort.

You only need about 2 seconds of quiet to have the insight

Even a tiny threat can inhibit problem solving and insight.

3. Insight, at the moment of insight, dopamine-like substances are released. Having an insight changes the brain and packs a lot of positive energy.

4. Action, insight brings short term urgency for action. Action increases attention density. Attention density deepens insight.

Michael Rennie, Managing Partner, McKinsey and Co, Necessity is the mother of invention

Working at McKinsey and Co is working with the crack troops of western capitalism. Yet Managing Partner, Michael Rennie talked about bringing love to business – a place where there is more likely to be fear. There are two parts to innovation – the creative idea and and making the idea useful and applied. We are all creative. We don’t allow for reflection at work and most of our insights don’t happen at work.

Business21C was a sponsor of Creative Innovation 2010.

Carbon capture and storage

Wednesday, September 15th, 2010

Carbon capture and storage (CCS) is the great hope of the fossil-fuel industry. If generators could capture and store the carbon dioxide (CO2) emitted from burning hydrocarbons such as coal, the fossil-fuel industry could continue to operate without paying a penalty price for the carbon it emits.

In 2009, the Australian Federal Government joined the long list of hopeful alchemists in pursuit of a viable CCS solution, committing $100 million to the grandly named Global Carbon Capture and Storage Institute. No-one doubts there is a multibillion dollar win waiting for the group that solves the CCS conundrum. But is CCS really viable? Here are some first-principle, back-of-a-napkin calculations examining the issues facing CCS in Australia.

Carbon capture and storage

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The fuel

Let’s look at the dominant carbon fuel: coal. Australia burns approximately 140 million tonnes of coal per year. When combusted, 1 tonne of coal creates about 2.4 tonnes of CO2. That’s because each released carbon molecule combines with two oxygen molecules and the atomic weight of oxygen is higher than that of carbon. So, calculation number one: Australia creates about 336 million tonnes of CO2 per year from the burning of coal.

The volume

One tonne of CO2 occupies approximately 550 cubic metres. How did I arrive at this figure?

  • 1 tonne = 1000 kilograms
  • 1 cubic metre = 1000 litres
  • 1 mole CO2 = 44 grams
  • 1 tonne contains 22,730 moles of CO2
  • 1 mole is 24.47 litres (at 25°C and ground level)
  • 1 tonne of CO2 = 22,730 moles × 24.47 litres/mole = 556,200 litres = 556.2 cubic metres

So, calculation number two: Australia emits 184 billion cubic metres of CO2 per year from the burning of coal.

Capture

Let’s imagine we wanted to capture and sequester, say, 20 percent of this – a reasonable target in line with European emissions-reduction targets. That’s 40 billion cubic metres or 67 million tonnes of CO2.

Transport

Transporting 40 billion litres of anything isn’t easy, especially gas. Let’s imagine all the storage facilities are on land. But let’s assume they’re too far away to build a pipeline, so that the CO2 needs to be transported by road.

This could be done using cryogenic road tankers. The CO2 would need to be cooled down to its liquefied state. This would require an estimated 20–40 percent extra energy.

But let’s ignore the extra energy requirement and assume that the CO2 politely freezes itself and forces itself into the waiting tankers. To my knowledge, the largest tankers available in Australia carry about 6 tonnes. We have to transport 67 million tonnes per year.

Calculation number three: we have to make approximately 11 million tanker trips per year. That’s one way. And the tankers use fuel, emitting carbon.

Storage

The idea is that we pump the CO2 down into underground reservoirs where it remains in perpetuity. We’re looking for 40 billion cubic metres of storage per year. That’s 40 trillion litres. To put that into context, my personal favourite unit of measure is the SydHarb: the volume of water contained within Sydney Harbour. One SydHarb is 500 gigalitres or 500 billion litres of water.

Calculation number four: we need to find eight Sydney Harbours’ worth of storage space, every year. And there must not be a single crack or leak in any of them.

It appears to me that even if we are able to develop a cost-effective method of capturing CO2, the logistics of transporting and storing the vast quantities produced represent an enormous challenge.

What’s the world worth?

Tuesday, September 14th, 2010

We cannot manage what we do not measure, says Pavan Sukhdev, special advisor to the United Nation’s Environment Program’s Green Economy Initiative. The first step is to end the economic invisibility of nature and its benefits by changing our antiquated economic compass.

In 2008, the Global Financial Crisis hit the headlines every day for over a year.

The International Monetary Fund estimated the loss of financial capital to Wall Street and City of London investment firms to be in the order of US$2.4 trillion.

At around the same time, our project ‘The Economics of Ecosystems and Biodiversity’ (TEEB) estimated the value of the earth’s natural-capital losses at US$2–4.5 trillion – in other words, up to twice the losses suffered through the financial crisis. Scarcely a headline featured this fact. Why?

Is it because natural capital losses are losses of ‘public wealth’ – of assets owned not individually but by all citizens, collectively – rather than losses of private wealth? Because natural capital is rarely quantified in monetary terms, making it difficult to assess the size of these losses? Or because we have an innate bias towards man-made over natural capital? Perhaps the answer is all three.

Biodiversity, or wild nature, is the living fabric of this planet. It is the whole gamut of the earth’s ecosystems, their extent and variety, the diversity and abundance of all species that inhabit them, and the amount and variability of genetic material. This living fabric provides many benefits, from food, fuel and fibres to services such as freshwater cycling and carbon capture and soil retention right through to leisure, happiness and wellbeing.

The value of wild nature

Our home is something to which we ascribe infinite value, but through the lens of economics, this value is not always factored in. At TEEB, we undertook a scenario analysis of the 50-year impact of ‘business as usual’. Our baseline was land-use change to support an OECD population forecast of 9.5 billion in 2050 (currently 6.7 billion) and world GDP growth from $US65 trillion to $US195 trillion (A$72.8 trillion to A$218.4 trillion).

Deforestation already destroys around 12 million hectares of forest every year. Through our modelling, we came to the conclusion that if we continue with business as usual, by 2050 we will have lost from wild nature a land area roughly the size of Australia (7.5 million square kilometres). This will dramatically and irreversibly affect the earth’s biodiversity and ecosystems.

The loss of this biodiversity would result in lost benefits of up to seven percent of global GDP on the horizon of 2050. These economic costs – in terms of lost human-welfare benefits – can be calculated by looking at the loss of ecosystem services every year from the natural areas lost.

We also expressed this in terms of lost ‘natural capital’. Calculating natural capital involves discounting and, at TEEB, we chose a range of discount rates from four percent to one percent. This choice of discount rates was not a result of economics – it was an ethical choice. If we use a discount rate of four percent, what we are saying is that we can trade off nature’s benefits to our grandchildren at one-seventh of what they are worth to us now. We are in effect leaving them with one-seventh of what we currently get from the planet. This is a somewhat odd ethical choice. Even using a one percent discount rate is not completely ethical, in my opinion, because you are then saying that your grandchild deserves only two-thirds of what you get from nature.

Even when we used these high discount rates, we came to the staggering answer that the natural capital being lost every year was in the order of US$2–4.5 trillion (roughly A$2.24–5 trillion).

The economic invisibility of nature is one of the key drivers of its destruction. This leads to its loss – by replacing natural areas with land uses that do have visible economic values, such as human habitation or agriculture. So first, we need to understand and appreciate the value of our collective environmental assets.

Second, we need to change from ‘business as usual’, through new national policies and more evolved business responses towards the environment. Third, we need > to recognise and address those weaknesses in our institutional infrastructure that exacerbate environmental problems.

Accounting for externalities

The Amazon rainforest is a vast store of carbon: it prevents the loss of economic value through climate change. We should also value the biodiversity and the water that is generated by this rainforest. It provides rainfall for the water supply to a trillion-dollar agricultural industry. If the economy is worth a trillion dollars, what value would you like to assign to the fresh-water component of this key resource input into that economy? Traditionally, it is seen as an externality and is not priced (that is, not assigned a value). Unaccounted-for negative impacts of economic activity, such as pollution, are also externalities.

To start accounting for the value of nature, we need to account for the value of these externalities, both positive and negative. A study undertaken by Trucost for the United Nations Principles for Responsible Investment estimated the externalities of about 3000 listed companies.

The study revealed the following:

  • The value of the externalities of these companies was close to US$2.25 trillion per annum.
  • The three largest contributors to corporate externalities were greenhouse-gas emissions, water extraction and air pollution.
  • Externalities accounted for seven percent of the companies’ turnover and a third of their profits.

These are significant numbers but the reality is that nobody really accounts for them. We need two transformations to make people aware of the true costs of externalities:

  • We have to measure the value of these externalities because if we don’t measure them, we are never going to manage them.
  • We have to look inside the corporations themselves. Change will happen; the question is how unsettling the transition will be.

Increasingly, corporate executives are aware of the value of natural services to their operations. Our recent TEEB report showed that company heads are aware in direct relation to the stress being placed on their own environments: over 50 percent of CEOs surveyed in Latin America and 45 percent of those in Africa see declines in biodiversity as a challenge to business growth. In contrast, less than 20 percent of their counterparts in western Europe share such concerns.

Companies are beginning to take steps in the right direction. Multinational mining giant Rio Tinto, for instance, is one company that has committed itself to achieving a net positive impact on biodiversity. Other companies with commitments on biodiversity include Walmart (Acres for America initiative) and BC Hydro (no net incremental ecological impact).

Economics is not just about numbers and estimating monetary values. It’s about assessing wellbeing and how humans are affected. We need to think of ecological infrastructure in the same way as we do economic infrastructure. It’s not about being ‘greenies’: it’s about making use of smart technologies to restore wealth to people.

As people become more comfortable with the idea of including natural capital in economics, we will move towards a society that not only makes a profit but can also live in harmony with nature.

A ballad of ecological awareness

The cost of building dams is always underestimated –
There’s erosion of the delta that the river has created,
There’s fertile soil below the dam that’s likely to be looted,
And the tangled mat of forest that has got to be uprooted.

There’s the breaking up of cultures with old haunts and habits loss,
There’s the education program that just doesn’t come across,
And the wasted fruits of progress that are seldom much enjoyed
By expelled subsistence farmers who are urban unemployed.

There’s disappointing yield of fish, beyond the first explosion;
There’s silting up, and drawing down, and watershed erosion.
Above the dam the water’s lost by sheer evaporation;
below, the river scours, and suffers dangerous alteration.

For engineers, however good, are likely to be guilty
of quietly forgetting that a river can be silty,
While the irrigation people too are frequently forgetting
That water poured upon the land is likely to be wetting.

The water in the lake, and what the lake releases,
Is crawling with infected snails and water-born diseases.
There’s a hideous locust breeding ground when water level’s low,
And a million ecological facts we really do not know.

There are benefits, of course, which may be countable, but which
Have a tendency to fall into the pockets of the rich,
While the costs are apt to fall upon the shoulders of the poor.
So cost-benefit analysis is nearly always sure,
To justify the building of a solid concrete fact,
While the Ecological Truth is left behind in the Abstract.

By Kenneth E. Boulding: economist, educator, peace activist, poet, religious mystic, devoted Quaker, systems scientist, and interdisciplinary philosopher.