Forests clean our air, filter our drinking water, keep the local temperature cooler and prevent floods — but in our economy, these services have no financial value.
In contrast, the land a forest grows on does have a financial value, and so would the trees if they were logged.
Instinctively, we know it’s absurd that drinkable water and breathable air are worth less than paper, and yet, approximately 24% of the wood sourced from Tasmania’s native forests is used for paper products. Even more absurd, a 2014 study estimated that 60% of all logged biomass from Victoria’s mountain ash forests (that’s trunks, branches and leaves) was simply left on site to either rot or be burnt.
Forget paper, according to our economic models, breathable air is worth less than biowaste.
These trade-offs aren’t confined to our forests. All of nature’s ecosystems, from wetlands, mangrove forests, grasslands and desert savannahs to dry eucalypt forests, tundras, kelp forests and coral reefs, sit outside of the economy, without a financial value, where they are rarely considered in business decisions or on accounting ledgers.
In the last two decades, more and more people have been calling for nature to be incorporated into the economy — where it’s called ‘natural capital’, much like money is ‘financial capital’ and education is ‘human capital’. The theory is ‘what’s measured is managed’, so by measuring natural capital, and factoring it into government policy and business decision-making, we will have visibility over our natural capital gains and losses for the first time. If natural capital is incorporated into the economy, depleting this capital will be avoided where possible, and finance will flow toward conservation and restoration projects.
This is not fringe thinking. Incorporating nature into our economies is underway, and on many government’s agendas, which is why it's worth diving deeper into the concept itself.
How we got here
World War Two was the most destructive war in history. When it ended in 1945, much of Europe and Asia and parts of Africa lay in ruins. Combat and bombing had flattened cities and towns, destroyed bridges and railroads, and scorched the countryside.
Understandably, politicians and societies threw themselves into development and growth, focusing on the accumulation of produced capital (roads, machines, buildings, factories, and ports) and human capital (health and education).
In 1950, the world population was about 2.5 billion, and global GDP was about 9 trillion dollars PPP. By 2019, the global population had grown to over 7.7 billion, and GDP was about 120 trillion dollars PPP.
In 1950, life expectancy was 46, by 2019, it was about 73. In 1950, the proportion of the world’s population living in absolute poverty was nearly 60%, by 2019, it was 10%.
But this remarkable economic growth has been fuelled (literally) by our natural ecosystems.
Yes, we have roads and train lines and factories galore, but we only have 25% of our wild forests and 44% of our coral reefs left. Meanwhile, a 2018 report estimated the size of the Great Pacific Garbage Patch at 1.6 million km2 (that’s three times the size of France).
Today, humans and the livestock we rear for food constitute 96% of the mass of all mammals on the planet. Everything else — from elephants to bandicoots, from wombats to monkeys — makes up just 4%.
In his book Eating The Earth, Justyn Walsh writes: “Capitalism … is still anchored to a past in which human-made capital was scarce and natural capital was plentiful.
“The result of this outdated legacy is an economic system in which exponentially increasing production and consumption remains the chief metric of success while the damage inflicted on the natural world is largely uncounted, giving the appearance of wealth being created when in fact, much of it is being destroyed,” he continues.
“The form capitalism takes depends on what we define as ‘capital’, and to date, the focus has been on manufactured capital … rather than natural capital.”
When I read this, especially that last sentence, I was buoyed by a sense of relief and clarity.
Relief because it’s so easy to get hung up on all of capitalism’s shortcomings, question if the whole system is broken, and end up overwhelmed and discouraged because there’s no perfect alternative waiting in the wings. Clarity because there is a way forward.
The idea that we simply need to broaden the system’s definition of ‘capital’ is both manageable and energising.
Wilderlands Founder Paul Dettmann agrees. “We’re not going to be able to upend and reconstruct capitalism … without doing more damage to nature in the process. Revolutions, which we've seen a lot of in the last 100 years, where political systems are totally restructured, usually involve violence and have a really bad impact on nature too.”
“The system we've got is the system we've got.”
Why technology isn’t to the rescue
If you’re holding out hope that technology will save us, you’re not alone. We’re taught that, with the right incentives, human ingenuity will overcome the bounds of a finite Earth.
The idea that technology will allow us to have our cake and eat it too has given rise to a paradox: growing GDP is seen as necessary to provide the finance needed to protect and restore nature’s ecosystems, but GDP is grown by destroying nature’s ecosystems.
But technology alone won’t save us.
Yes, we need technology to halt and reverse nature’s destruction and decarbonise the economy. But, if all other things remain constant, and history is to be repeated, technology could worsen an already dire situation.
This is because entrepreneurs are innovating within capitalist systems that incentivise them to bring down costs. More specifically, to reduce the need for expensive inputs (such as human labour and financial capital), while either overlooking or increasing dependence on ‘cheaper’ inputs (such as nature’s products and resources).
Take chainsaws, for example. Before it was patented and developed in 1926, trees were felled using axes, saws, a lot of manpower and sheer determination, but the chainsaw significantly reduced the human labour (expensive input) required to cut down a tree (‘cheaper’ input).
Similarly, bulldozers, excavators and tractors reduced reliance on human labour and financial capital, and so did industrial fishing boats and pesticides.
There is nothing inherently good or bad about technology, of course — which means it adopts the values of the system in which it's built. If our economic ledgers don’t value forests, clean air, oceans, birds, lakes, mangroves, drinking water and grasslands, then technology won’t either.
So, should we put a price on nature?
In our opinion, yes. To us at Wedgetail, putting a price on nature means that we are not externalising an essential part of our economic models. Putting a price on nature is an essential building block in shifting how we do business and govern societies.
In 2013, a study revealed that the world's biggest industries burn through $7.3 trillion worth of free natural capital a year. What’s more, this reliance on natural capital is the only reason they are profitable.
“Industrial processes can put pollutants in the air that increase public health costs, but the public, not the polluting businesses, picks up the tab. In this way, businesses privatise profits and publicise costs,” Grist journalist David Roberts wrote at the time.
These industries are held up as the drivers of our economy, but when natural capital is added to the equation, it becomes clear big business is burning the candle at both ends.
Governments are due for a reckoning too.
Subsidies for agriculture, water, fossil fuels, fisheries, energy and fertilisers encourage over-extraction and harvesting. Recent estimates suggest that direct subsidies that are harmful to biodiversity total around US$500 billion per year. When taking into account environmental externalities, the conservative estimate of the total cost of subsidies is much larger, at around US$4 to US$6 trillion globally per year for the sectors mentioned above.
In contrast, governments collectively spend just US$68 billion per year on conservation and restoration activity.
It’s clear that something needs to change. We need transparency, accountability and more holistic decision-making — and working natural capital into our economies is our best path forward.
Of course, there are valid criticisms of pricing nature, many of which are rooted in the fact that nature is priceless.
In a piece for The Conversation, academic John Henneberry explains that, in an attempt to measure nature, we’ll need to abstract and simplify it, creating clearly defined categories (such as habitat type) to avoid double-counting, and dicing those categories into bits so we can value bits of those bits. It’s this process he has a problem with. Any attempt to pick a monetary value will fail to capture the “interconnectedness and holism of nature”, he writes.
And he’s correct.
Our lives are inextricably linked with that of the natural world, so no number will ever be big or meaningful enough.
But if the status quo is $0 — or less than $0 when you consider all the subsidies that incentivise nature’s destruction — then surely a price, even if it fails to capture nature’s interconnectedness, is a serious improvement?
“When people say that it's immoral to put a price on nature, I get confused, because the price has already been set on nature that’s not intact, that’s been felled”, says Simas Gradeckas, the Founder of Bloom Labs, a research-driven biodiversity finance newsletter and consultancy.
“In contrast, we’ve historically had no easy way to price intact ecosystems,” Simas continues.
“But it's theoretically possible, and we're finally seeing the early signs of it happening in practice, largely due to higher urgency, and better measurement, verification and reporting technology.”
“I get the criticisms,” says Ash Welch, an ecologist by training and AECOM’s Senior Biodiversity Specialist.
“There's a moral argument for protecting nature, where it wouldn't need to be monetarily valued. But capitalism doesn't act on morals.”
“Even if the people at the top of these big organisations that are driving economic growth have moral understandings of nature, money-making systems do not, and they’ll act on market principles,” he continues. “Until you start to embed other values into the capitalist system, things will never change.”
“I'm an ecologist by background. The whole reason I'm passionate about this stuff is because I have that innate understanding that nature is beyond financial value,” he adds.
“I think it’s sad that we have to do this, that we can't just have an ethical and moral reason to protect nature. But I think it's a start, right? It's better than what we had before, and it’s better than the status quo.”
