Ross Gittins wrote an article (Valuing the environment a capital idea) a few days ago about the “natural capital declaration” made at the Rio+20 summit and efforts to create accounts that would track stocks and flows of natural capital. This idea is the holy grail of environmental economists because it aims to better connect environmental assets with our market economies and slow the rate of environmental degradation around the world. As Gittins put it:
…the very reason economists and business people have been taking too little notice of the environment for the past centuries is that, for the most part, it’s outside the market system – a ”free good”.
I’m not so positive that environmental accounts alone will solve our environmental issues. I think there is another issue at play here. Environmental accounts will definitely improve our understanding of how stocks and flows of ecosystem services are impacted by economic activity and vice-versa. Yet some of this information is already known and yet we continue to deplete natural capital.
In 2001, it was estimated that soil acidity affected 50 million hectares of surface layers and 23 million hectares of subsoil layers, estimated to cost $1.585 billion per year in lost agricultural production. (The State of the Environment report 2011)
I believe that solving incentive asymmetries is going to be the real challenge to protect and enhance ecosystem services. What do I mean by incentive asymmetry? I’m referring to the difference in incentives faced by different actors in the economy for a particular outcome. Here are some examples to highlight this point.
- Project proponents have a greater incentive to argue their case than millions of Australian’s (current and future generations) who may lose out if a particular project harms the environment.
- State or federal governments that will reap royalty revenue from projects may overlook longer term impacts of a project.
- With election terms of just 3 years, there is a disconnect between short term political and long-term environmental objectives.
- Current consumption is prioritised over future consumption because future generations don’t have a voice.
I agree that providing incentives to reduce pollution or other externality is important. Direct regulation and market-based mechanisms are all part of this and reforming them is an ongoing process.
I don’t see that as taking away from efforts like system of environmental-economic accounting (SEEA) though. I think development, adoption and public understanding of such concepts could play an important role in realigning some of the asymetries you point out, particularly in relation to political cycles.
Actually I think the two ideas – green national accounts and more micro-scale reform of project assessment, etc as being complimentary.
In fact, I’d love to see an Ecolarge blog post looking at the SEEA.