The environment is a public good. We all share and depend on clean water, a stable atmosphere, and abundant biodiversity for survival, not to mention health and societal well-being. But under our current global economy, industries can often destroy and pollute the environment—degrading public health and communities—without paying adequate compensation to the public good. Economists call this process “externalizing costs,” i.e. the cost of environmental degradation in many cases is borne by society, instead of the companies that cause it. A new report from TEEB (The Economics of Ecosystems and Biodiversity), conducted by Trucost, highlights the scale of the problem: unpriced natural capital (i.e. that which is not taken into account by the global market) was worth $7.3 trillion in 2009, equal to 13 percent of that year’s global economic output. In other words, under our current economic system companies are forcing global society, their governments, and future generations to pick up a $7.3 trillion tab, and that was just in 2009. Just as importantly, the study found that none of the “high impact” industries would be profitable if they accounted for their natural capital.
The study, entitled Natural Capital at Risk: the Top 100 Externalities of Business, incorporates six major environmental impacts (land use, water consumption, greenhouse gas emissions, air pollution, land and water pollution, and waster) in 500 business sectors across the world. Of these, greenhouse gas emissions are the elephant in the room: accounting for 38 percent of the world’s unpriced natural capital. Water use and land use account for nearly a quarter each (25 percent and 24 percent respectively), while air pollution represents 7 percent, land and water pollution 5 percent, and waste 1 percent. But even the smaller percentages are still sizable: for example, land and water pollution cost global society $300 billion in 2009, while land use (such as deforestation and ecosystem loss) was valued at $1.8 trillion.
Herd of cattle in what once was the Brazilian Amazon. Photo by: Rhett A. Butler.
According to the report the five least sustainable industries (i.e. those that pay least for the natural capital they impact) are coal power in Eastern Asia (number one) and in North America (number three), cattle ranching in South America (number two), wheat farming in Southern Asia (number four), and rice farming in Southern Asia (five). Wheat and rice farming rises to the top due to their high consumption of water sources, while cattle ranching is leading to rainforest destruction, and coal energy is the worst in terms of carbon emissions.
“These sectors appear most frequently in the top 20 ranking of sectors on total costs from natural resource use, pollution and waste in different regions,” the authors note.
In fact, the report found that none of the industries in the top twenty would be profitable if environmental impacts were paid for.
“Average pre-tax profit margins for companies listed in the MSCI World Index before natural capital costs are included were found to range from 7 percent for iron and steel manufacturing, to 19 percent for crude petroleum and natural gas extraction. After natural capital costs are included, the range is -67 percent for cement manufacturing to -1 percent for crude oil petroleum and natural gas extraction,” the authors write.
While energy is the obvious major player in environmental degradation, the authors note that agriculture plays a major, often overlooked, role. Of the top 20 most highly-ranked sectors over all environmental impacts, half are related to agriculture.
Graph courtesy of Natural Capital at Risk: the Top 100 Externalities of Business.
“The extent to which agricultural sectors globally do not generate enough revenue to cover their environmental damage is particularly striking from a risk perspective,” the authors note. “Reducing damage from cattle ranching and crop production, for example, would help mitigate risk from volatile input costs. Severe price fluctuations make critical commodities unaffordable, slow growth, provoke public protest and increase geopolitical tension. However, the sector can adopt an ecosystems approach to increase resilience to adapt to climate change impacts, while reducing greenhouse gas emissions.”
Cattle ranching in South America, particularly by chopping down rainforests, is seen as agriculture’s most problematic industry. While the industry took in $16.6 billion in revenue in 2009, it ate up natural capital worth a shocking $353.8 billion or over 1,800 percent of its revenue.
“Due to both magnitude of land use for cattle ranching in Brazil, and the high value of ecosystem services of the virgin land used, the impact of cattle ranching in South America is especially significant (17% of global land use costs),” the authors write. While Brazil has taken recent steps, many of them successful, to counter deforestation, the Amazon continues to shrink.
Although palm oil production is not at the top of the list (number 64 overall), the authors signal out the industry due to its “comparatively large impact…given the relatively small area of land used.”
Palm oil, they write, “is driving forest clearance in the tropics, one of the most diverse terrestrial ecosystems and an important carbon stock.” For its part, palm oil cost $20.5 billion in natural capital in 2009, but only made $8.7 billion.
In addition to agriculture and energy, other industries that fall in the top 20 include iron and steel mills and cement manufacturing, both which produce hefty greenhouse gas emissions; water supply in Southern Asia, Western Asia, and Northern Africa also fall into the top 20 (numbers 10, 15, and 18 respectively); while global fishing is listed as number 16 on the study, devouring natural capital worth $80 billion that year.
Coal mine in Inner Mongolia, China. Photo by: Herry Lawford.
Surprisingly, logging is not seen as hugely problematic compared to other industries (logging in Eastern Asia is number 61), but largely because as the author’s admit, “the analysis only covers legal logging, most of which is of planted areas that are estimated to continue to provide some ecosystem services.” They note that worldwide “logging is responsible for only 14% of deforestation, while commercial agriculture is responsible for 32% and subsistence farming 42%. In Brazil, 70% of deforestation is due to livestock production.”
Incorporating natural capital in to the global economy would bring about an economic—and environmental—revolution. Some industries, such as coal, would likely be shelved altogether given that even company’s large profits cannot pay for their massive impact on the climate, not to mention air and water quality. While other industries would have to adapt and change: agriculture, in particular, would need to innovate to grow food with a smaller environmental footprint.
“The risk to agricultural commodity prices is particularly striking, where the natural capital cost is universally higher than the
revenue of the sectors,” the authors write. “However, within sectors, there is significant variation between countries based on energy mix, yields (impacting land use), fertilizer and irrigation rates.”
The Turkana people of Kenya and Ethiopia are facing existential threats from climate change and the Gibe III dam. Photo by: Rhett A. Butler.
But if the global economy took natural capital into account who would pay the higher prices?
“If unpriced natural capital costs are internalized, a large proportion would have to be passed on to consumers,” the authors write.
However, it must be remembered that ignoring the cost of natural capital doesn’t make it go away, these costs are already being paid by global society and will continue to be paid by future generations. Adding natural capital into the marketplace would shift the burden from those impacted by environmental damage to those consuming the goods. Such a change would mean industries would have to find more sustainable ways of doing business in order to become profitable. There would be new winners and losers like all shifts in economics, but now there would be a real impetus in the market for a sustainable economy, a shift that has not occurred yet despite the hype. As climate change worsens and ecological destruction continues to widen, the costs on society will only widen and deepen.
“As the recent U.S. drought shows, these impacts are likely to be increasingly internalized to producers and consumers through environmental events,” the authors write. “Therefore those companies that align business models with the sustainable use of natural capital on which they depend should achieve competitive advantage from greater resilience, reduced costs and improved security of supply.”
Graph courtesy of Natural Capital at Risk: the Top 100 Externalities of Business.
Graph courtesy of Natural Capital at Risk: the Top 100 Externalities of Business.
Graph courtesy of Natural Capital at Risk: the Top 100 Externalities of Business.
Graph courtesy of Natural Capital at Risk: the Top 100 Externalities of Business.
Graph courtesy of Natural Capital at Risk: the Top 100 Externalities of Business.
Graph courtesy of Natural Capital at Risk: the Top 100 Externalities of Business.
Related articles
Ten African nations pledge to transform their economies to take nature into account
(06/11/2012) Last month ten African nations, led by Botswana, pledged to incorporate “natural capital” into their economies. Natural capital, which seeks to measure the economic worth of the services provided by ecosystems and biodiversity—for example pollination, clean water, and carbon—is a nascent, but growing, method to curtail environmental damage and ensure more sustainable development. Dubbed the Gaborone Declaration, the pledge was signed by Botswana, Liberia, Namibia, Mozambique, Rwanda, Gabon, Ghana, Kenya, South Africa, and Tanzania following a two day summit.
China to phase out super greenhouse gas
(04/24/2013) Some eight billion tonnes of greenhouse gases could be kept out of the atmosphere if China sticks to a deal with the United Nation’s Montreal Protocol to eliminate the production of hydro-fluorocarbons (HCFCs). In return for phasing out HCFC production by 2030, the Multilateral Fund of the Montreal Protocol on Substances has promised China of funding up to $385 million.
‘Carbon bubble’ could cause next global financial crisis
(04/22/2013) The world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to leading economists. “The financial crisis has shown what happens when risks accumulate unnoticed,” said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was “very big indeed” and that almost all investors and regulators were failing to address it.
Last 30 years were the warmest in the last 1,400 years
(04/21/2013) From 1971 to 2000, the world’s land areas were the warmest they have been in at least 1,400 years, according to a new study in Nature Geoscience. The massive new study, involving 80 researchers from around the world with the Past Global Changes (PAGES) group, is the first to look at continental temperature changes over two thousand years, providing insights into regional climatic changes from the Roman Empire to the modern day. According to the data, Earth’s land masses were generally cooling until anthropogenic climate change reversed the long-term pattern in the late-19th Century.
Scientists find the ‘missing heat’ of global warming 700 meters below the sea
(03/28/2013) Critics of climate change often claim that warming has stopped since the late 1990s. While this is categorically false (the last decade was the warmest on record and 2005 and 2010 are generally considered tied for the warmest year), scientists do admit that warming hasn’t occurred over land as rapidly as predicted in the last ten years, especially given continually rising greenhouse gas emissions. But a recent study in Geophysical Research Letters has found this so-called missing heat: 700 meters below the surface of the ocean.
Warnings of global ecological tipping points may be overstated
(03/05/2013) There’s little evidence that the Earth is nearing a global ecological tipping point, according to a new Trends in Ecology and Evolution paper that is bound to be controversial. The authors argue that despite numerous warnings that the Earth is headed toward an ecological tipping point due to environmental stressors, such as habitat loss or climate change, it’s unlikely this will occur anytime soon—at least not on land. The paper comes with a number of caveats, including that a global tipping point could occur in marine ecosystems due to ocean acidification from burning fossil fuels. In addition, regional tipping points, such as the Arctic ice melt or the Amazon rainforest drying out, are still of great concern.
Scientists: stop treating population growth as a ‘given’ and empower women
(02/27/2013) Climate change, biodiversity loss, resource depletion, water scarcity, and land issues: almost all of the world’s environmental problems are underpinned by too many people inhabiting a finite planet. A new study in the Proceedings of the Royal Society B warns that overpopulation—combined with over-consumption—is threatening to push the entire globe into “a collapse of global civilization.” But cultural changes, especially more empowerment of women and access to contraceptives, may hold the key to reducing population growth and eventual sustainability.
Improving food and water efficiency a must for the next generation
(12/05/2012) This summer, while climate change silence reigned in the U.S. presidential race, the Stockholm International Water Institute’s conference for World Water Week focused on the global initiatives required in order to live with its effects. The report, titled “Feeding a Thirsty World,” garnered the most publicity with the assertion that agricultural water scarcity and an increasing population would force the world to reduce average meat and dairy consumption down to just 5% of all calories by 2050. At present, 20% of the average human diet is made up from animal proteins.
Animals dissolving due to carbon emissions
(12/03/2012) Marine snails, also known as sea butterflies, are dissolving in the Southern Seas due to anthropogenic carbon emissions, according to a new study in Nature GeoScience. Scientists have discovered that the snail’s shells are being corroded away as pH levels in the ocean drop due to carbon emissions, a phenomenon known as ocean acidification. The snails in question, Limacina helicina antarctica, play a vital role in the food chain, as prey for plankton, fish, birds, and even whales.
(12/03/2012) Global carbon dioxide (CO2) emissions from industrial sources are set to hit a new record high this year according to a new analysis by Global Carbon Project. The analysis in Nature Climate Changes predicts that CO2 emissions will rise another 2.6 percent, hitting 35.6 billion tonnes. The scientists warn that such steep climbs in global emissions year-after-year means that the door is rapidly closing on a global agreement to keep temperatures from rising 2 degree Celsius (3.6 degrees Fahrenheit) above pre-industrial levels.
World Bank: 4 degrees Celsius warming would be miserable
(11/20/2012) A new report by the World Bank paints a bleak picture of life on Earth in 80 years: global temperatures have risen by 4 degrees Celsius spurring rapidly rising sea levels and devastating droughts. Global agriculture is under constant threat; economies have been hampered; coastal cities are repeatedly flooded; coral reefs are dissolving from ocean acidification; and species worldwide are vanishing. This, according to the World Bank, is where we are headed even if all of the world’s nations meet their pledges on cutting greenhouse gas emissions. However, the report also notes that with swift, aggressive action it’s still possible to ensure that global temperatures don’t rise above 4 degrees Celsius.
Wealthy nations, excluding U.S., pledge to double funds for biodiversity
(10/22/2012) Although negotiations came down to the wire, nations finally brokered a new deal at the 11th meeting of the Convention on Biological Diversity (CBD) in Hyderabad, India; at its heart is a pledge to double resources from wealthier countries to the developing world by 2015 to conserve embattled species and ecosystems. While no numbers were put on the table, observers say a doubling of current resources would mean around $10-12 billion a year. However, this amount is still far short of what scientists and conservation groups say is necessary to stem current extinctions.
India pledges over $60 million for biodiversity, but experts say much more needed
(10/18/2012) The Prime Minister of India, Manmohan Singh, pledged around $50 million (Rs. 264 crore) for domestic biodiversity protection, reports the Hindu. The pledge came this week at the Convention on Biological Diversity (CBD) meeting in Hyderabad, India. The CBD has set bold goals on stemming the rate of extinction worldwide, but these have suffered from a lack of funding. India also said it had set aside another $10 million (Rs. 50 crore) for biodiversity projects abroad. Still, such funds are far below what scientists say is necessary to stem ongoing extinctions.
Will we need to pull carbon out of the atmosphere to save ourselves?
(10/17/2012) This year saw the Arctic sea ice extent fall to a new and shocking low, while the U.S. experienced it warmest month ever on record (July), beating even Dust Bowl temperatures. Meanwhile, a flood of new research has convincingly connected a rise in extreme weather events, especially droughts and heatwaves, to global climate change, and a recent report by the DARA Group and Climate Vulnerability Forum finds that climate change contributes to around 400,000 deaths a year and costs the world 1.6 percent of its GDP, or $1.2 trillion. All this and global temperatures have only risen about 0.8 degrees Celsius (1.44 degrees Fahrenheit) since the early Twentieth Century. Scientists predict that temperatures could rise between 1.1 degrees Celsius (2 degrees Fahrenheit) to a staggering 6.4 degrees Celsius (11.5 degrees Fahrenheit) by the end of the century.
Cowards at Rio?: organizations decry ‘pathetic’ agreement
(06/20/2012) As world leaders head to Rio de Janeiro for the UN Summit on Sustainable Development, environmental and poverty groups are denouncing the last-minute text agreed on by dignitaries as “pathetic,” (Greenpeace), a “damp squib” (Friends of the Earth), “a dead end” (Oxfam), and, if nothing changes, “a colossal waste of time” (WWF). “We were promised the ‘future we want’ but are now being presented with a ‘common vision’ of a polluter’s charter that will cook the planet, empty the oceans and wreck the rain forests,“ the head of Greenpeace, Kumi Naidoo, said. “This is not a foundation on which to grow economies or pull people out of poverty, it’s the last will and testament of a destructive twentieth century development model.”
Scientists give world leaders ‘Fs’ on climate change, biodiversity, and desertification
(06/19/2012) It seems world leaders may need to retake environmental studies. As the Rio+20 Summit on Sustainable Development opens, the scientific journal, Nature, has evaluated the progress made on three treaties signed at the Rio Earth Summit in 1992: climate change, biodiversity decline, and desertification. Unfortunately the publication gives progress on all three treaties an ‘F’, highlighting how little progress has been made on the global environmental crisis.