Capital Gains

1
Chapter 8

• Capital Gains

2
Authors Observation

• To date, the connection between industry and
  living systems has been largely ignored natural
  capital has been for the most part irrelevant to
  business planning.

3
Limits To Growth

• The title of a 1972 book focusing on long-term
  consequences of current human patterns
  (production, consumption, population growth,
  industrial capacity, food production, pollution)
• Caused a public furor
• Attacked by business
• People now believe there is no energy crisis
• The idea of resource limits is scoffed at today

4
The word Resource

• Comes from the Latin resurgere, to rise again
• A true resource returns over and over again
• Part of a cyclical process

5
Lessons from Biosphere 2

• There are some resources no amount of money can
  buy
• Few, if any, made-made substitutes can supply
  benefits provided by nature
• Think in terms of integrity of systems (cannot
  interrupt or replace complex interrelations in
  ecosystems)
• A dynamic equilibrium can be maintained in the
  face of disruptions, but only up to a point

6
Environment Source of Quality

• In science there is no production, only
  transformation
• Sum of matter and energy remains essentially the
  same (under the Law of Conservation of Matter and
  Energy)
• What is consumed? Not matter or energy, but
  order or quality (the structure, concentration or
  purity of matter)

7
it is ultimately the capacity of the
photosynthetic world and its nutrient flows that
determine the quality and quantity of life on
earth.
8
Natural Capital

• Sum total of ecological systems that support life
• Cannot be produced by human activity

9
Some services invisibly provided by Natural
Capital that have no substitutes

• production of oxygen
• maintenance of biological genetic diversity
• purification of air water
• storage,cycling global distribution of
  freshwater
• regulation of chemical composition of the
  atmosphere oceans
• maintenance of migration and nursery habitats for
  wildlife
• decomposition of organic wastes
• detoxification of human industrial wastes

• Natural pest disease control
• fixation of solar energy conversion into raw
  materials
• soil erosion sediment control
• flood prevention regulation of runoff
• protection against harmful cosmic radiation
• regulation of climate
• formation of topsoil maintenance of fertility
• storage and recycling of nutrients

10
Scientists Agree

• Ecosystem services are essential to civilization
• The ways the ecosystem operates could not
  replaced by technology
• Human activities are impairing the flow of
  ecosystem services on a large scale
• Current trends will dramatically alter or destroy
  our remaining natural ecosystems within decades
• (Consensus paper from Spring 1997 Issues in
  Ecology)

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Scientists are frustrated by the fact that the
public does not understand the economic
implications of ecosystem services.So, they
began to shrewdly put price tags on ecosystem
services.
12
Annual value of 17 ecosystem services 36
trillion

• atmospheric regulation of gases 1.3 tril
• waste processing 2.3 tril
• nutrient flows 17 tril
• water storage purification 2.8 tril
• etc., etc.

13
Ecosystem Values

• Marine systems (esp. coastal) 20.9 tril
• Terrestrial systems 12.3 tril
• forests 4.7 tril
• wetlands 4.7 tril

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Valuable Acres

• Estuaries - highest annual value per acre 9240
• Primary value is not as a food source, but
  capacity to provide nutrient recycling for 40
  trillion cubic meters of river water each year.
• Wetlands floodplains - highest per acre value
  for land based services 7924
• Primary value is in flood control, storm
  protection, waste treatment, recycling water
  storage

15
Summary Valuing Natural Capital

• If annual income from nature is 36 trillion,
  nature would be roughly worth 500 trillion, an
  absurdly low figure
• Establishing values for natural capital is rough
  and difficult, but is a step towards
  incorporating the value of ecosystem services
  into planning, policy public behavior

16
Limiting Factors

• Prevents a system from surviving or growing if it
  is absent
• Economist Herman Daly, formerly of the World
  Bank, states for the first time, the limits to
  increased prosperity are due to the lack of
  natural capital.
• The limiting factor for humanity is the decline
  of living systems
• Investing in natural capital is a matter of
  common sense

17
Investing in Natural Capital

• Need to transform the sticks carrots that
  guide and motivate business
• Revise the tax subsidy system
• Abusers of ecosystem services impose cost on the
  rest of society
• A very large, money-saving, cost-free way to
  invest in natural capital eliminate perverse
  subsidies the practices they encourage that are
  heedless of the environment

18
Perverse Subsidies

• Subsidies are suppose to exert a positive outcome
• Perverse subsidies do the opposite, functioning
  as disincentives
• The economy environment are worse off than if
  they were never granted

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Examples of Perverse Subsidies

• Money donated to dying industries
• Federal insurance to floodplain coastal
  developers
• Cheap land leases to ski resorts
• Bailouts to savings loan felons
• Roads in National Forests for private companies
  to take wood at a fraction of its replacement
  cost

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Effects of Perverse Subsidies

• Inflate the cost of government
• Add to deficits that cause a raise in taxes
• Drive out scarce capital from markets where it is
  needed
• Confuse investors by sending distorted signals to
  markets
• Suppress innovation technological change
• Provide incentives for inefficiency consumption
• A powerful form of corporate welfare

21
Authors Observation

• While Americans subsidize environmental
  degradation . clean technologies that will lead
  to more jobs and innovation are often left to the
  market

22
Taxes Subsidies

• Taxes make something more expensive to buy
• Subsidies artificially lower prices
• Everyone acts on price information everyday
• When something is taxed, you buy less of it
• When you subsidize, you reduce prices stimulate
  consumption

23
U. S. Tax Policy

• Taxes labor heavily through personal income taxes
  and Social Security levies
• Encourages businesses not to employ people

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What if taxes were shifted?

• Would not redefine who pays the taxes, only what
  is taxed
• Shift taxes away from labor income, with the
  end goal of zero taxation on employees
• Shift taxes toward pollution, waste, carbon fuels
  resource exploitation
• Businesses could hire less expensive labor
  capital to save more expensive resources
• A positive feedback loop develops that
  incrementally generates more demand for labor
  while reducing demand for resources

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Taxing resources and waste

• gases that cause climate change
• non-renewable energy
• air traffic, vehicles, roads
• pesticides, synthetic fertilizers, phosphorous

• harvest of wild fish
• grazing rights
• irrigation water from public land
• depletion of topsoil
• pollution of aquifers
• ores and metals
• any landfill waste

26
Authors Observation

• As Europe and other countries move towards tax
  shifting, it will force the United States to
  follow, for the very simple reason that it will
  lower our competitors labor costs while spurring
  innovation.

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What would businesses do?

• Conserve existing natural capital
• Forgo corporate welfare
• Finds ways to invest in increasing the supply of
  its limiting factor natural capital
• Look at Interface, Inc.s experience