Money, utility and the environment

20th November 2015


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Author

Andrew Clark

Jiggy Lloyd looks back to discover how economics has been used to protect the environment

In the run-up to the chancellor's spending review announcement on 25 November, campaigners and policy shapers were busy putting their case for the environment and using economics to support it. Many talked about ecosystem services or natural capital, citing the monetary value of, for instance, more woodland or better green space or improved water management in pursuit of their objectives. In the past year, the environmentalist has reported on Yorkshire Water's use of environmental accounting, the pricing of carbon and the third report from the Natural Capital Committee (NCC), which set out in January what a future government needs to do to ensure proper consideration is given to natural capital assets.

It seems that economics is taking centre stage in the environmental debate. It is not just language, such as "living off the earth's interest, not its capital"; there is a feeling that every objective requires economic justification.

Uneasy bedfellows

Environmentalism and economics have always been uneasy bedfellows. Throughout history, in the western world at least, utilitarian, moral, spiritual and aesthetic perspectives have variously underpinned environmental efforts.

As far as we know, the ancient Romans valued the environment primarily for its utility as a source of food, medicines and materials. During the Enlightenment, there was a strong interest in the material benefits that newly discovered territories might generate. Hence it is common to speak of early natural historians (such as Mark Catesby and Joseph Banks) as "economic botanists". But towards the end of the period appreciation of nature for its own sake emerged. William Bartram was sufficiently inspired by his travels in North America (and European Romanticism) to convey in his writings the aesthetic qualities of what he saw. Alexander von Humboldt was a polymath and a scientist, yet managed to include an aesthetic appreciation of nature in his extensive and influential writing.

George Perkins Marsh was one of the first to advocate environmental conservation in America and argue against consumption or "profligate waste" of the earth. He did so in terms economists would have welcomed. In Man and nature, published in 1864, Marsh argued for resource management to secure "the future welfare of mankind". But his compatriot and near-contemporary Henry Thoreau celebrated the spiritual importance of the environment and argued for wilderness conservation to provide for "inspiration and our true recreation".

Economic arguments did not feature in the early British conservation movement. The movement emerged among those who witnessed the destruction caused by industrialisation, suffered the depression of the 1880s, and lost confidence in the culture of "improvement" prevalent in Victorian society. They rejected the economic liberalism of the times and proposed an alternative values system based on nature.

Curiously, John Stuart Mills, an early exponent of economic liberalism, played a key role in conservation. He espoused non-material wealth and argued that it was not just the quantity but the quality of pleasure that was important. It was Mills who, in 1865, joined others to found the Commons Preservation Society.

US conservation policy at the turn of the 19th century can be attributed to aesthetic or economic values, or both. Yosemite was safeguarded because John Muir, the Scottish-born naturalist and writer, heralded its beauty. Muir's advocacy, and his lobbying of congress to enact the first National Parks Bill, was based on aesthetic arguments and his belief in nature as the route to God. Yellowstone and the Grand Canyon similarly gained protection because writers and painters conveyed their beauty. But this did not persuade the majority in the US to set aside large tracts of land for conservation. This was a nation based on private entrepreneurship where the wilderness was a place to be exploited; early conservation efforts were seen as the work of idealists, nature lovers and socialists. It took a further 100 years for a convincing case for protection to be made to government, however. Gifford Pinchot, a forester and politician, argued that it was in the national interest for forests to be managed to limit waste and ensure efficiency. He advocated "progressivism" or "the greatest good of the greatest number in the long run". This approach, apparently using the dollar as the measure of success, secured the creation of the US Forest Service in 1905 with control over large parts of the US natural environment.

Blueprint for a green economy

Environmental economics did not feature strongly in Britain after the second world war. The conservation movement and policymakers focused on planning, accompanied, since the mid-1980s, by environmental assessment. What attempts there were to deploy environmental cost-benefit analyses did not invoke confidence. A cautionary anecdote featured a Dutch conservation group, which, to protect an estuary from development, estimated the "environmental value" of the site to be several million guilders. The developers responded by offering that sum of money for it!

It was the US that moved first to deploy environmental economics in practice. In the 1970s, tradeable permits were introduced to tackle America's pressing pollution problems from oxides of sulphur and nitrogen. But the academic birthplace of this approach was really the UK. Members of the environment profession may remember when in 1989, as secretary of state for the environment, Chris Patten appointed the environmental economist David Pearce as his adviser. Others will know that Pearce's work was not new; he had been developing this approach since the 1960s. There was a mixed reaction to Patten's enthusiasm for using economic tools, but Blueprint for a green economy, which was published in 1989, was hugely significant in making sustainable development a rational objective from an economic as well as a social or moral standpoint.

Is the current prevalence of environmental economics just a case of "here we go again"? Up to a point, yes. Earlier this year, RSPB conservation director Martin Harper welcomed publication of the Natural Capital Committee's third report but questioned whether environmental economists could ever capture the true "value" of the best bird-watching experiences. It sounded much like the sort of comment that accompanied the publication of the Pearce report in 1989.

But environmental economics is a huge field. Its applications may be discrete and relatively simple. The EU emissions trading system and the now-defunct aggregates levy are cases in point. The work of the NCC represents an all-encompassing approach in which monetary values are placed on attributes of the environment or ecosystem services to highlight their utility. Thanks to science, more attributes are recognised; thanks to the environmental economists, their valuation is more convincing.

When social reformer Octavia Hill advocated access to open spaces for the urban poor in the 1880s she described the benefits subjectively. The modern-day green infrastructure movement can cite National Health Service savings. These arguments are very powerful.

Former US vice-president Al Gore recently reminded an audience of UK environmental professionals that the country's greatest achievements, such as abolition of its trans-Atlantic slave trade and early leadership on climate change, were based on moral arguments. Environmental economist Michael Jacobs noted in his response that Gordon Brown used the economic case as chancellor to ensure his moral conviction could not be overridden.

Environment professionals will have their own views on this. Some may tend towards Pinchot's mantra. Some will note that the monetary system is only a mechanism for exchange and comparison. Others may feel they can make better decisions or make more convincing arguments with economic data to hand. But it would be a foolhardy professional who ignored environmental economics altogether.

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