Estimating the Monetary Value of Environmental Damage (Report)

Please read article below my commentary for an interesting study that attempts to monetize environmental damage.   It is a contextual example for my commentary.  The link to the report itself is above.

It is an example of an approach to environmentalism that has been growing since the 70's.  After many a failed attempt at environmental advocacy in the face of economic gains, some suggested that environmentalists would do better to speak the language of economics and fight the good fight on economic grounds.  After all, if environmentally damaging projects or policies we moving forward because the economic gains to be had were irresistible, environmental protection might do well to demonstrate that these gains were false.

In general, the idea was that putting such damage in monetary terms would make the environmental losses somehow more real and communicable.  This is particularly interesting in light of the fact that monetary value is an abstraction that is currently based primarily on (thoroughly anthropocentric, perceived) value mediated through exchange relations between "self-interested" human transactors.  The irony is that we need abstractions (that are, by definition, very distant from the reality of ecological functioning and health) to make things more "real" to us (at least in the modern economically-oriented world).

The question remains as to how to internalize these costs into the economic system, for until we are able to do this, the concreteness of the abstraction in terms of influencing human behaviour is likely (as economics would also predict) to remain illusive.

As long as the ecological goods and services required in virtually every successful transaction (we cannot have an economy without an environment with which to ensconce, feed and sustain it) are not a party to the valuations and negotiations in human economic transactions, there is a need for a means to ensure that economic transactors are made to take these costs into account (i.e. pay them).

The only way to do this effectively according to economists is by way of a pricing mechanism that provides more complete information, signals and incentives that reflect the "real" (in this case, "real" = ecological) costs.  Economists remind us that If people had to pay the "full" costs of resource use, they would probably use them more judiciously (i.e. for higher valued uses) and there would be less waste.  The result would be that resources would be more likely to go to their most valued uses resulting in the maximization of value on a society-wide basis. 

"Market failure" as manifest in (especially) negative externalities.  The paradigm case of negative externalities is environmental pollution.  It is the example used to demonstrate that markets do "fail" in certain circumstances.  (Virtually every economics text provides pollution as an example of market failure.)  "Failure" means that markets fail to optimize value for society as a whole.  This coheres with Adam Smith's oft-cited statement that is thought to provide a perfect justification for markets.  He justifies it, not egoistic terms (since that would arguably be no truly ethical justification at all) but, in terms of societal wealth.  Those who quote him, (knowingly or not) align themselves with this foundation as their ethical justification for markets.  Conversely, their shared basis for applause (when markets succeed by providing maximal societal wealth) or lament (when markets result in suboptimal societal wealth).  This means that advocates from the entire ideological spectrum (from left to right) have a shared value about what economic and political systems are for.  Everyone seems to agree that they are about optimizing societal wealth.  The only disputed question is about how to best accomplish this shared objective either in individual situations or as a rule based generalized system.

The oft cited Smithian statement goes as follows,

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages"

This suggests that solely self-interestedly rational transactors in the market place lead to greater than intended social good (positive externalties).  What is generally glossed over by "free" market ideologues is that the reverse effect (with which Smith was well aware) is also true.  Free markets based on rationally self-interested transactors lead to both positive and negative externalities.  Most often a mixture of both is the result.

It is a problem in both cases.  When positive externalities result, it means that the producer is not being fully rewarded for the social value that her invention provides society.  This can lead to suboptimal levels of entrepreneurship and inventiveness and a consequent loss to the societal value that could have been created were the incentives more fulsome.  When negative externalities result, it is more obviously a problem.  Rather than the loss of positive value that could have been, we are faced with manifest negative value that IS.  Rather than the ailing person not having access to a drug that  otherwise might have been invented, they might be ailing as a result of toxins that have already been emitted. 

In either case, market failure suggests the need a tempering mechanism.  Until we decide on and implement this, the costs of market failure will accumulate in our biosphere to our detriment (and that of many other beings).

Where negative externalities are occurring in the case of, for example, anthropogenic global warming, carbon taxes are likely to provide price adjustments that will deter activities that are lesser valued that generate them.  Once we are more aware of the costs we currently choose to ignore and "externalize," societal value will indeed become more "real."

By the way, there is no "external" or "away" - as in the expression, "throw it away" - when it comes to planet earth.  We live it is a "closed system" for the purposes of material and energy exchange with outer space.  The sun is the only net "input" to earth and there are virtually no "outputs."  It all stays here in an all-ecompassing cycle of production, use and assimilation.  This means that, in spite of economic vocabulary like "externalities" there is, in ecological reality, really only "internalities."  So, while economic transactions may involve effects that go well beyond the transaction itself and the parties to it (e.g. buying a gallon of gasoline for your car), ecological vocabulary on a biospherical level has no such word or phenomenon.  This is perhaps where the shared roots of economics and ecology (manifest in the Greek root word "oikos" that is sometimes translated as "household"), show their starkest divergence.  There is no external to the ecological "household," even though there appears to be in the economic one.)

Yet our political system (i.e. the popularity contest we call "democracy") is ill-equipped to act on the evidence (i.e. "bad news") and generate foresighted action and policies that can increase societal value for the benefit of present and future generations.  While economic instruments such as carbon taxes may make both ecological and economic sense in terms of maximizing societal value (if only by reducing low value uses), there is almost no appetite for implementing such policies.

Thus, we may be justified in concluding that it is not economics that is driving unsustainable behaviour on a societal and global scale.  It is politics.

JRF
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DAILY NEWS Oct 25, 2010 12:00 PM - 0 comments

Global environmental damage could surpass $28 trillion by 2050: study

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Global environmental damage caused by human activity in 2008 represented a monetary value of $6.6 trillion, equivalent to 11 per cent of global GDP, according to a new study by the UN-backed Principles for Responsible Investment (PRI) and UNEP Finance Initiative. Those global costs are 20 per cent larger than the $5.4 trillion decline in the value of pension funds in developed countries caused by the global financial crisis in 2007 and 2008.
The study, an initial effort to quantify in monetary terms the environmental harm caused by business and the possible future consequences for investor portfolios and company earnings, estimates that, in 2008, the world's top 3,000 public companies were responsible for a third of all global environmental damage.
The study warns that as environmental damage and resource depletion increases, and as governments start applying a more vigorous "polluter pays" principle, the value of large portfolios will be affected through higher insurance premiums on companies, taxes, inflated input prices and the price tags for clean-ups.
The most environmentally damaging business sectors are utilities, oil and gas producers, and industrial metals and mining. Those three accounted for almost a trillion dollars' worth of environmental harm in 2008. The top 3,000 companies by market capitalization, which represent a large proportion of global equity markets, were responsible for $ 2.15 trillion worth of environmental damage in 2008.
Workers and retirees could see lower pension payments from funds invested in companies exposed to environmental costs, says the study, which was conducted by Trucost, the global environmental research company.
The study projects that the monetary value of annual environmental damage from water and air pollution, greenhouse gas emissions, general waste and depleted resources could reach $28.6 trillion in 2050, or 23 per cent lower if clean and resource-efficient technologies are introduced.
The study recommends investors should exercise their ownership rights, collaborate to encourage companies and policy-makers to reduce these environmental externalities, and request regular monitoring and reporting from investment managers on how they are addressing exposure to environmental risk.
"An increasing number of large investors are recognizing that environmental externalities generated by one company are likely to come back and hit their portfolios in another place or time," says James Gifford, executive director of Principles for Responsible Investment. "This report provides an important rationale why investors need to exercise leadership and responsible ownership by acting together to reduce corporate externalities."
For the full report please see:

Principles for Responsible Investment - Official Home

Political & Ecological "Impossibilities"

Faced with the need to integrate our economic system into the surrounding biophysical ecological context that makes it possible, we see more and more challenges to creating and implementing policy that is politically disagreeable to politicians because they perceive it to be politically disagreeable to the electorate. 

A carbon tax makes rather impressive economic and ecological sense, but we see little appetite for it.  The furthest we see it go is to the idea of a carbon trading "market."  This is an idea that is well considered by supporters of market economic principles.  But as a matter of practice it is still fledgling and rather nebulous.  Where it has been tried it is rather non transparent even nefarious as to its structure and function.  Those who emit the most are (predictably) strongly against it unless it is another name for the status quo.  Most of us are ignorant of what it really means or how it would work to reduce emissions (if at all). 

But even after the a carbon tax can be demonstrated to be superior to "permit trading," little movement on it takes place. Thus, we hear the sigh of the activist after years of advocating and cajoling something that makes rational, economic and ecological sense.  We also hear from many that to suggest (let alone implement) a carbon tax "would be political suicide." 

So we forge onward with an economic system which is almost entirely out of touch with the resource base that makes it possible and leave it to the "invisible hand" (a rather misleading phrase worthy of unpacking as soon as possible!) of market pricing to determine the fate (supply and demand) of the assimilative and productive capacity of nature (on which our demands are increasingly showing themselves to be far too onerous).

In the last 300 years, coincidental, by the way, with the invention of modern markets and economic theory, our population has increased ~10 fold to 6.5 billion people and our consumption of material and energy has increased ~100 fold.  We are now guzzling the last half of a 2 trillion barrel cache of oil made possible by millions of years of natural processes.  We consumed the first half in the last 125 years and are on track to consume the last half in the next 25-50 years.  This is the richest form of energy ever known to us.  It is one of a kind in its non-renewability and irreplaceability. 

On the other side of the barrel, we have introduced so much of it into our atmosphere in the form of entropy (the result of burning it), that our atmosphere is showing signs of reaching the end of its ability to absorb it at the current rate.  So, even if oil were renewable or infinite in supply, we have a fixed boundary in the ability of our atmosphere to assimilate the products of its combustion.  All of this is related to how we value it and how we value the ability of our atmosphere to assimilate it.  Once the oil is gone, we can try to develop alternatives.  Once the assimilative capacity is gone, we're gone.  At the very least, something is amiss in the connection between the way we price material and energy and the rate at which it is consumed.   

So, perhaps we have things rather severely inverted.  Is it not "natural suicide" to think that contingent pricing and anthropomorphic monetary incentives can be a reasonable guiding principle to the health of present and future generations? 

Perhaps it is more advisable to attempt what some think may be "the politically impossible" than to continue to do what we know is the biophysically and ecologically impossible.

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Geology and Democracy

Many Canadians are in dispair about democracy and their political agency because they increasingly recognize that Ottawa politicians are so deeply in robotic lock step with entrenched vested monetary interests that they are incapable of bringing about any meaningful change or even movement on issues.

Yesterday, a modicum of lost faith in democracy was restored when, just prior to the G20 and G8 Summits, Ottawa hosted the epicentre of a 5+ magnitude earthquake near the halls of Federal Power.

While it played hell on the restorative construction taking place around the historic relics known as "parliamentary buildings," it also suggested that Ottawa may actually have access to some of the levers of power and that they may actually have the ability to "shake things up" a little.

In the mean time, in spite of the many fault lines around the capital city, there are no plans for dealing with higher magnitude earthquakes...

Truth in Advertising: A Justifiable Expectation?

In June 2010 Bell sued Rogers for Roger's advertising/promotional claim that it is the "Fastest Most Reliable Network."  Some see it as ridiculous and others see it as a case about truth in advertising.

On the one hand we all know that advertising is loaded with puffery and to take promo claims with a grain of salt.  On the other, advertisers themselves claim that advertising is a legitimate way of getting information about products to the customer.  After all, who else will let them know the features and options available to them in the competitive marketplace?  Purchasing decisions are to be made on the basis of what fulfills your needs the best.  This is the bais of capitalism's primary to legitimacy.  Good products will prevail - goodness being defined as that which best improves the quality of people's lives by their own judgment. 

The question is not whether you are savvy enough to realize that these claims are self interested self serving, and to temper the influence they may have over you.  This would suggest a world where falsehood rather than truth is the dominant expectation.

Rather, it is whether public utterances of any kind (advertising or otherwise) are worth enough to try to maintain.  It is the question of whether it is naive to assume a general principle:  When someone says something, it bears some fairly reliiable relationship with "reality."  "Reality" may be a complex term but our everyday affairs suggest it has something to do with the ability to make decisions on the basis of things that hold sway in the world.  Everything from the weather to Internet blogging, facebook and twitter have elements of both pure entertainment and "truth."  The closer we get to things that the speaker tells us are true and we rely upon for decision-making, the closer we get to having a "right" to regard them as something we can rely upon.

What Bell has done with their law suit is obviously self-interested, but is also something in the line of faith restoring.  Their actions seems to suggest that they feel advertising should resemble truth as well.  Far from expecting Rogers or other self-promoters to say whatever gets them customers and their revenue, they seem to be suggesting that advertising should be something that can be supported by evidence.  How would Rogers know that their network is faster?  Is it not reasonable to ask them for the evidence?  If the slogan is true, it would be a great benefit to Rogers.  If not, it would seem reasonable to ask them to retract it and replace the claim with something bearing some more supportable relationship to reality.

On May 4, 2010 in Fredricton, Justice Judy Clendening of he Court of Queen's Bench in Fredericton ordered Rogers to stop claiming to have the "fastest speed," "most reliable speed," or "fastest and most reliable speed" because they could not support their claim in the absence of fuller information about the Bell Network.

Truth (and support for it) is important plain and simple.  Truth has always been regarded as one of the highest moral imperatives. While it would be nice to find it self-evident, self-generating and self manifesting, we all know that everyone is subject to overstating their value in the world.   While we like to see it in others, we are ourselves vulnerable to distorting it for personal gain.

While it is a complex concept, there is a simple and widely accepted convention about it.  "Because I said so," (or "ipse dixit" in Latin) is generally very suspect.  We increasingly prefer evidence and independent support for the "truth" of something.  

If we should all know that advertising is puffery and beyond the simple principle of the need for independent evidence and support, there is no justification for consuming so much of our valuable time, energy, psychic resources.  If there is one thing that is universally scarce and justifiably regarded as precious in life it is time.  Why should we allow our personal and public space and air waves to be clogged with statements telling us what we should already know is false.  So, if advertising is so obvious puffery and we are fools to take it as truth, then by all means let's get on with banning it outright as it does not advance anything but cynicism and disrespect truth itself.    

Does Advertising Influence Behaviour?

Usefully broken down into two questions:

1. Does advertising affect behaviour?

2. Does a particular ad affect behaviour?

On the first question the answer has to be an unequivocal YES.  Behaviour is directly linked to advertising and the (consumer) culture it creates in general and around given products.  It is probably the single largest driver of unsustainable material and energy consumption.  Businesses collectively spend billions on advertising per year and while there is an element of keeping up with the "din" of other ads, companies do not spend money if it does not make them more money.

Companies and advertisers gliibly tell us that they are merely in the business of improving people's lives by giving them what they want and need.  Do women want to be Anorexically (mortally?) slim?  Does relentless planned "New and Improved" obsolescence really improve the quality of our lives?  While "Lathering and Rinsing" are probably good advice, "Repeat" is probably not. 

On the second, of course some ads are more effective than others.  But at the very least they function to help us avoid thinking of the "pink elephant."  In other words, the worst of the worst ads create a memory and an association with a product.  They may not boost sales and consumption as much as hoped by the company but they certainly go beyond where it would have been without the ad.

Have I ever changed my behaviour as a result of an ad?  I would have to say yes - I certainly change my behaviour based on the latest "evidence" (i.e. research and documentaries such as "Food Inc.") but I also make purchasing inquiries based on ads and perhaps ultimately purchase a given product if their ads live up to reality on closer inspection compared to the competition.

I think the problem is that we have difficulty thinking outside the frame of the atomic individually rational economic actor.  It all seems innocent enough.  Consumers looking for solutions to their wants and needs and purveyers merely providing "information" about their product's ability to meet them.  Yet, can a rational and even well-educated person really compete with millions of dollars, strategies, memes, sound bytes, slogans and jingles carefully crafted by expert marketers and backed by psychologists?  Advertising is far more impactful to both our physical and mental environment than any of us will probably ever be able to comprehend.

This is precisely why campaigns against smoking and other harmful behaviour such as smoking are needed.  They are only required as an attempt to counter the effects of advertising that have promoted private profit over public "wealth."  While many are useful and "effective," they are a burden on scarce public resources, under-resourced relative to the original, and should not be required in the first place (even if paid for by the original mind invader).  Its a bit like BP's oil spill and the promise to make people "whole" (or was that "hole"!) again after a clean up.  Simple not possible.  Once the ideas and images are out there (like the oil), social ecology (like coastal ecology) has to deal with it and will be irretrievably "changed."

Advertising is replete with fantastic and laudable creativity and has produced many fascinating public discussions and even promoted self-discovery individually and collectively in some important ways.

However, this fantastic human creativity would be manifest in other areas were it not subsumed by the big money consumption promoters who teach us (at everyone's peril) to equate having with being.

Since the only true assets any of us have in life are, 1. Time 2. Space and 3. Energy.  I would heartily recommend that the single biggest thing any of us could do to promote sustainability and preserve both our creativity, sanity and our species is to avoid and prevent advertising from invading any one or all three of these as much as possible.


Turn off the TV, avert your stare, read stories instead of flyers.  Talk and listen.  Write poetry, music, verse, songs.  Make the most of the wondrous gift of mortality.  Eschew the clutter.  Own yourself.

Goals that transcend the means to fulfill them

The dilemma of all human economic systems is that they not only seek to, and promise to but, must satisfy needs and aspirations, that are themselves far beyond both human and economic.

Economics: a discipline that posits theoretical scarcity while assuming practical abundance. 

The Abundance of Scarcity

The irony of our time:  How it is that the central concept in modern mainstream economic theory is "scarcity," while the central operational assumption of modern economic practice is abundance.

(Mis) Leading Indicators

This most recent example from Statistics Canada is telling. Here is a summary of a “Leading Indicator” Report of April 22, 2010 (Earth Day!):

     "Leading indicators

     Economic Accounts: The composite leading index rose 1.0% in March, matching its average monthly increase since July 2009. However, the sources of growth continued to shift away from housing to other sectors of consumer demand and manufacturing.

The housing index rose by 0.2%, its smallest increase since its current upturn began in the spring of 2009. At its peak last summer, the housing index was rising over 5% a month. The recent slowdown originated in a retreat of existing home sales from their record posted late in 2009. Housing starts continued to increase.

     Elsewhere, consumer spending was mixed. Furniture and appliance sale rose 1.3%, their largest advance since June 2006. Spending on other durable goods declined 0.5% after eight months of strong growth. Services employment increased 0.6% with strength evident in both the personal and business sectors.

     Manufacturing demand continued to recover. New orders rose 3.2%, their third increase in four months. The increased ratio of shipments to inventories was driven mostly by higher sales. Export industries have led the rebound in sales, as demand for capital goods continued to languish. Factories remained restrained in hiring, and the average workweek fell again. The outlook for export demand was buoyed by further gains in the leading indicator for the United States."

“Consumer demand,” “manufacturing,” “housing index” (the cost of houses), “home sales,” “furniture and appliance sales,” “spending on durable goods,” “hiring” are all mentioned in the summary of “leading indicators” above. A few questions suggest the limits of these as adequate measures of the wealth of a society. What if consumer demand was for head ache medicine? What if manufacturing was for sandbags to hold back a flood? Why are more expensive houses considered a positive thing? Could more home sales indicate that people are moving to get away from something less desirable to them? Would it not be better for individual families and society overall if we spent less on “durable goods” so that money can go elsewhere (e.g. to education, skill development etc.)? What if hiring is in sectors that are associated with health risk, low income, or generally unsatisfying positions? It does not take much thought to realize that these “leading indicators” do not indicate very much except increases and decreases in transactions in the market. However, given the positive glow that usually surrounds news of increases in virtually any form of economic activity, these indicators might well be renamed: Mis-leading indicators.

Power and Understanding

As long as our pursuit of power exceeds our need and understanding, we will be misaligned with ourselves, our earth and our own sustainability.

Peril-ysis

It is becoming clearer by the day that our inability to act on what we know to be necessary is as urgent as it is elusive. 

Those who aspire to positions for social control are often genuine in their ambition to bring about change and even "contribute to society" in ways they believe to be positive.  But the boundaries of this ambition are restricted to making changes that never call into question the means by which they gained their power.

This is the essence of our modern dilemma.  Knowing what ails us while being powerless to quit.

The Fundamental Challenge of Change

The irony of power is that those who have it possess the strongest ability to bring about fundamental change combined with the weakest inclination to do so... especially when it comes to changing that which requires it most urgently:  The need to change the system by which they got there:  The need to change our ability to change.

"Development" in the Sustainable Sense

When will we finally savour the authentic challenge to ourselves that reaches beyond the ephemeral and ridiculous pursuit of amassing of slips of paper exchangeable for control over material goods?  How can we "develop" in such an environment?

Are we not yet bored with the idea that he who commands the most money wins?  Has this poorly designed and silly game not shown itself for what it really is: ethically contingent and irrelevant to the authentic pursuit of the good life?  At the very least, it is unchallenging to so many of the untapped realms of human skill.

We have seen what material and energy development does for us.  And, as proud as we have been at our many technical powers, we are now familiar with both the vaccuity and the real harm of the endeavour.

The challenge of our age will be the development of our subtlety and sophistication in the sublime faculties of life-enrichment on a personal and social scale: where listening for silence drowns the cacophony; where taste can discern the elements; where the nose can apprehend the flowers a field away; where the hand can see the patterns of the breeze; where musical, poetic, narrative, dance and relational creativity spellbounds; where we reserve our highest recognition and appreciation for each other and the simple and abundant gifts of life.

Demoneycracy

Most modern democracies hold themselves up as based on Jefferson's "self-evidence" of each person's equality and the idea of "one person - one vote."  Yet, we are all increasingly aware that it is much more like "one dollar - one vote."  Power resides primarily with those who can influence policy-makers with their money (the current proxy for power and control over others and the earth).  This is merely another form of the all-too-familiar exertion of one's will for its own sake.  It is self-evidently illegitimate power, based as it is on the contingent and ethically vacuous proxy we call money.

The urgent priority of our time is for those who have this power to divest themselves of it in favour of finally realizing the robust dream of democracy.

Ways Without Means

In this age of increasing distance from our social and ecological foundations, we have more and more good ideas (with solid supporting evidence) of how to better ourselves and our world.  Yet, these ideas remain frustratingly beyond our grasp to accomplish as a species. 

Just as "continuing to do the same thing while expecting different results" is one concise definition of insanity, to know what is better for us and NOT to do it suggests that there is something outdated in the way we govern ourselves. 

This is the ultimate challenge of our age: to resolve the means to collectively move forward on that which we know full well is both required of us and achievable.

What matters now?

What matters now?  What matters now remains the same as it always has been: to become what we are and can be...  rather than to remain what we have been.

Injustice: Always External

Fault and vampires share one feature, they are invisible in mirrors.

Injustice is ubiquitous, except in here.

The Essential Triad

Time, space and energy are the essential valuables we have to frame ourselves, our relationships, and our societies. One can usefully estimate "wealth" by the manner in which we allocate these three.

This triad provides a perspective on which well-being can discerned and nourished. Looking around us: Is time, space and energy squandered or is it distributed equitably, respectfully and lovingly? Do we use time with gratitude, space with respect, energy with foresight? These questions provide guidance toward well-lived lives with robust and resilient priorities.