Paradox of environmental economics :

Folly of putting a price on nature

by Andrew SIMMS

Putting a price on nature becomes meaningless if we treat the ecosystems upon which we depend as mere commodities with a price for trading.

The economy is no stranger to creating its own fantasy world with little or no relation to the real one. We witnessed the damage that can cause when the banks thought they had stumbled on financial alchemy and could transform bad debt into good - economic base metal into gold.

Now it's possible that a much bigger error is coming to light. The rise and rise of global corporations lifted on a wave of apparent productivity gains may have been little more than a mask for the reckless liquidation of natural capital. It's as if we've been so distracted by our impressive speed of economic travel that we forgot to look at the fuel gauge or the cloud of smog left in our wake.A new UN report estimates that accounting for the environmental damage of the world's 3,000 biggest companies would wipe out one-third of their profits. Any precise figure, however, is a matter of how risk is quantified and of where you draw the line. In 2006, for example, the New Economics Foundation (NEF), of which I am the policy director, looked at the oil companies BP and Shell, who together had recently reported profits of £25bn. By applying the Treasury's own estimates of the social and environmental cost of carbon emissions, we calculated that the total bill for those costs would reach £46.5bn, massively outweighing profits and plunging the companies into the red.

Yet in exercises like this, we quickly hit the paradox of environmental economics. By putting a price on nature, hopefully it makes it less likely that we will treat the world, and its natural resources, as if it were a business in liquidation. Yet there is a point when it becomes meaningless to treat the ecosystems upon which we depend as mere commodities with a price for trading. For example, what price would you put on the additional tonne of carbon which, when burned, triggers irreversible, catastrophic climate change? Who would have the right to even consider selling off the climate upon which civilisation depends? The avoidance of such damage is literally priceless.

If that sounds dramatic, consider that last September a large, international group of scientists published a paper in the journal Nature which identified nine key planetary boundaries for key biological systems upon which we depend. They found that we had already transgressed three of those, and were on the cusp of several others. All are potential points of no return as such complex systems begin interacting.

The huge advantage of the UN work is that it attempts to improve the feedback system between the economy and its ultimate parent company, the biosphere. Better risk assessment and value measurement is essential to help prevent what happened to banks happening to the planet.The concept of a balanced budget, so loved by conservatives in relation to finance and spending, seems to be an alien concept when the consumption of natural resources and the production of waste is concerned. Yet it is far more important to achieve a balanced environmental budget than an economic one. You can always print more money, but you can't print more planet. As John Ruskin put it, "There is no wealth but life."

Andrew Simms is policy director of the New Economics Foundation (NEF) and author of Ecological Debt.