Home > The Economics Profession, The Economy and the Planet > Do we put a price on Nature, including the ecosystem, or not?

Do we put a price on Nature, including the ecosystem, or not?

from Edward Fullbrook

Two articles in today’s Guardian point to a major dilemma facing economics and every economist. Do we put a price on Nature, including the ecosystem, or not? One of the Guardian articles leaks an unpublished UN report which estimates that the world’s 3,000 biggest companies cause $2.2tr of environmental damage a year and if made to pay for it would lose one-third of their profits. More than half of this total is attributed to emissions of greenhouse gases. The same article anticipates the release of another UN report this summer which also will attempt to put a price on global environmental damage. The idea behind these reports is that the guilty companies might be made to “pay” for the damage they do.

The other Guradian article is by Andrew Simms of the New Economics Foundation. He argues that “Putting a price on nature becomes meaningless if we treat the ecosystems upon which we depend as mere commodities with a price for trading.” Like our profession’s recent romance with “financial innovation”, Simms sees this new enthusiasm as an economist’s fool’s-gold, but one that potentially is infinitely more damaging. He writes:

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.

This dilemma between wanting to make polluters pay and avoiding the ultimate category mistake urgently needs to be discussed. We must also learn not to tie ourselves in nonsensical knots when using side-by-side the terms “value”, “price” and “measurement”.

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  1. February 20, 2010 at 11:07 am | #1

    The solution to above problem may be alot easier than we might imagine. New money could be created electronically without resorting to its earned equivalent(ie. subsidies from taxation). This could be presented as a green contract, or make up for the loss of profit made by the relevant companies if they had to sort environmental damage caused by them.

    Morally, this seems objectionable at first sight. But ofcourse it would take time to legally try, and fully force companies to pay for environmental damage as this would require a global political effort.The big question is this…What is more important saving the environment through our present debt-based system, or trying to make the rich, and super-rich stand to account? The latter would again be morally correct….but is not the environment, and indeed, the survival of humanity the first priority?

  2. February 20, 2010 at 11:33 am | #2

    Clarification/ Second paragraph line 3/ It should read something like this…

    Is not the “quick fix” solution suggested more important for saving the environment rather than trying to make the rich, and super-rich stand to account all the time?

  3. February 23, 2010 at 11:18 pm | #3

    I think SImms is correct about the paradox of “environmental economics”, and it can be stated more clearly.

    Price is established during exchange. If something cannot be exchanged for something else, it is meaningless to try to put a price on it.

    The lumber in a forest could be exchanged, but the potential medical compounds it might contain, the spiritual value of nature and its biodiversity cannot be priced, each for a slightly different reason.

    Yet-unknown products cannot be priced, despite neoclassicists’ confidence that we can all foretell the future.

    Spiritual experience cannot be replaced by some other experience.

    Biodiversity is essential for the health of the biosphere, and we are totally and intimately dependent on the biosphere for our food, clean water and oxygen. Its health is our health. As we kill the biosphere, so we kill ourselves.

    The solution will be shocking to the neoclassical mainstream. It is to put up signs reading “Not For Sale”. It will mean restricting many destructive activities through regulation rather than pricing. There are grey areas, in which pricing might be used because it is much easier to administer, even though in principle something is not for sale, but I think we need to get our concepts clear before deciding on practical policies.

    Geoff Davies http://betternature.wordpress.com/

  4. February 28, 2010 at 10:11 am | #4

    With respect, I do find your points rather pointless (pardon the “pun”). It would be good if you could come up with a major solution.

    Regulation is admitedly one obvious approach which you suggest. But it would arguably take “too long” to implement in full, or even in part. The reason ofcourse being opposition from wealthy lobbyists who do not want extra costs to the businesses they represent.

    With TFE we have a different ball game as already indicated. It may be socially unacceptable but so is the destruction of the planet! Can we not understand this simple point?

    What is needed is a degree of fiscal easing (without leading to serious inflation, or worse) otherwise the task for change is hard, and”unnecessarily” difficult. When used correctly money is the great enabling power…though this is “too simple” for most economists to comprehend…

  5. rushcocoa
    April 22, 2010 at 6:17 pm | #5

    At least the problem is recognized & being widely talked about.

  6. May 6, 2010 at 3:18 pm | #6

    There are ridiculously small legal liability caps on financial damage ($75 million) and environmental damage ($500 million) from oil spills. Legislation has been introduced to raise the cap to $10 billion. Why have any cap? Caps just cater to industry lobbies.

    • Peter Radford
      May 6, 2010 at 7:36 pm | #7

      Fred: This is a problem throughout the economy. The penalties are never severe enough to eliminate behavior. Instead they add a layer of cost to the end product. So unethical behavior simply becomes an regular production input, and has a cost like all the other inputs. The imposition of fines in the millions does little to prevent a business whose income is in the billions. Instead of making the penalty only proportional to the damage, we should also make it proportional to the profits or balance sheet of the company. Shareholders need to feel pain before they awake from their slumber. The fear of outright loss tends to focus their attention on problems. Up to that point they treat trashing the environment as ‘just another cost of doing business’.

  7. Peter Radford
    May 6, 2010 at 7:29 pm | #8

    The issue maybe talked about but I don’t see a rush to solution. I think placing all the blame on the largest companies also evades a critical point. Consumers enable those companies. We purchase stuff and howl when the prices go up. Yet, at the same time we [some of us] want to ‘save’ the environment. Putting a price on the ecosystem is probably impossible since we have no idea what future technologies will do to alter our perspective of it. But as an interim and attention grabbing exercise it helps us allocate the cost of the damage. Connecting consumers, via prices, to the cost we do when we purchase stuff is one way we can raise consciousness.

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