Vermont Environmental Consortium

May 29, 2007
Natural Capitalism: Radical, common sense solutions
by
Daniel Hecht

To understand the reasoning behind the many environmental initiatives emerging all around us, I recommend reading Natural Capitalism, by Amory and Hunter Lovins and Paul Hawken. Since its publication in 1999, it has become something of a bible for the enterprise-based environmental movement.

Lovins et al present an optimistic vision of the potentials of new practices and technologies: a world of thriving forests and oceans, pollution-free transportation, energy-efficient and climate-neutral houses, and so on.

Technology plays a major role in this vision, but the book’s most important points concern economics, starting with a redefinition of “capital.” Traditionally, this has been defined as accumulated wealth in the form of investments, factories, and equipment -- generally, stuff someone can own and definitively quantify.

But the authors say we need to consider four types of capital, some of which can’t quite be “owned.” Collectively, these four form the new criteria for success in the “multiple bottom-line” business practices that more and more Vermont businesses are embracing.

Two are pretty familiar: financial capital such as cash, investments, and monetary instruments; and the manufactured capital of infrastructure, machines, and factories. Then there’s human capital, defined as labor and intelligence, culture, and organization. If human capital is not healthy and reasonably fulfilled, real wealth isn’t being created.

Finally, there’s natural capital, made up of resources, living systems, and “ecosystem services.” Incorporating natural capital into our economic thinking will revolutionize the way we live and do business.

In assigning value to nature’s gifts, we’ve goofed up in two important ways. First, we’ve tended to value only what’s “useful” for making goods – resources like wood, water, and minerals. A forest with 500,000 board feet of lumber in its trees has easily measured cash value.

But the authors say we need to accord worth to these things for other reasons in addition to their productivity, and to “useless” natural systems such as wetlands, coral reefs, and so on, because they actually provide many important services.

A wetland, for example, provides erosion and flooding prevention; contaminant filtration; habitat for animals that form crucial links in the larger chain of life; oxygen produced for our breathing pleasure. These are essential services, and there is no technological replacement for them; we need to value them accordingly.

Putting a dollar figure to this value has major ramifications. Including the true cost of draining a wetland in the cost of building a new parking lot, say, would change the project’s financial feasibility – probably discouraging construction.

This “true cost” pricing would require that the price of electricity from a nuclear plant cover not just the cost of building and operating the facility, but also eventually decommissioning it and storing radioactive wastes for thousands of years. That would drive up the cost of nuclear electricity – and drive down consumer appetite for it.

Paying more for parking or avoiding building nuclear plants would not hurt the larger economy, the authors insist, but simply redirect investment toward better alternatives – mass transit, say, or bioenergy. True laisse faire capitalists, they believe market forces will seek highest and best use of resources.

The other problem with the way we’ve done business is our historic assumption that natural resources are inexhaustible. Since the industrial revolution began, manufacturing has relied on ever-greater rates of resource consumption to produce higher profits. Now we’re facing serious resource depletion, despite nature’s marvelous regenerative powers.

“Humankind has inherited a 3.8 billion-year store of natural capital,” Lovins and co-authors say, but we’ve been mismanaging our inheritance. We’ve been drawing down the principal instead of living on the interest. Worse, the way we account material input functionally treats the money taken from our savings account as “income.” To arrive at our net profit, we don’t itemize the depletion of the resource in our “expense” column.

Most people now understand that when we use coal, oil, metals, minerals, we’re consuming a legacy resource, billions of years in the making -- once gone, it’s gone. But this is also true of living systems. Ecosystems of the complexity and abundance of coral reefs, rainforests, prairies, and wetlands take millennia to establish and exist in a complex web of interdependence and balance. It will take centuries to repopulate the oceans we’ve overfished – if indeed we don’t force fish population collapse and extinction.

So the way we calculate economic success must change. When we use resources, we have to account the value derived as income and account their depletion as an expense right alongside. A balanced account will look very different from what we have now. Profit must be calculated in different terms. Wealth will mean something else entirely.

Natural Capital proposes four strategies to put us on a sustainable economic track. Radical resource productivity squeezes maximum value out of every material; biomimicry creates production systems with the self-replenishing qualities of ecosystems; service and flow economy shifts emphasis from things to what things do for us. Investing in natural capital means restoring the former wealth in our inheritance – for example, rebuilding forest and marine ecosystems so they can sustainably provide their essential services.

Natural Capitalism is well worth reading for the scores of specific remedies, opportunities, and possibilities it suggests. It proposes a factual and theoretical foundation for a new economy in which business accommodates environmental reality and profits from it – in which, as they say, green is the new black.

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Daniel Hecht is a novelist and executive director of Vermont Environmental Consortium. For more information on any Green Grapevine topic, contact vec@norwich.edu.

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