joan martinez-alier icta, universitat autonoma de barcelona past-president, international society...

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Joan Martinez-Alier ICTA, Universitat Autonoma de Barcelona Past-president, International Society for Ecological Economics LANGUAGES OF VALUATION: Towards an Ecological Economy Greenaccord, Viterbo. 25-27 Nov. 2008

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Joan Martinez-Alier

ICTA, Universitat Autonoma de BarcelonaPast-president, International Society for Ecological Economics

LANGUAGES OF VALUATION:Towards an Ecological Economy

Greenaccord, Viterbo. 25-27 Nov. 2008

With the economic crisis, la décroissance est arrivée,

degrowth has arrived

For twenty years, the orthodox slogan was Sustainable Development (Brundtland Report, 1987), i.e. economic growth that is environmentally sustainable.

We know however that economic growth is not environmentally sustainable.

Socially sustainable economic degrowth

• Economic accounting does not properly count environmental damages and the exhaustibility of resources.

• The objective should be to live well without the imperative of economic growth.

• Now is the time in rich countries for socially sustainable economic de-growth, reinforced by an alliance with the “environmentalism of the poor” of the South. 

Soddy’s doctrine

• I remember Frederick Soddy's Wealth, Virtual Wealth and Debt published in 1926. He had a Nobel Prize in Chemistry and was a professor at Oxford. His main point was simple and applies today.

• It is easy for the financial system to increase the debts (private or public debts), and to mistake this expansion of credit for the creation of real wealth. However, in the industrial system, growth of production and growth of consumption imply growth in the extraction and final destruction of fossil fuels. Energy is dissipated, cannot be recycled. Real wealth would be instead the current flow of energy from the sun.

Soddy’s doctrine

• The obligation to pay debts at compound interest could be fulfilled by squeezing the debtors for a while. Other means of paying the debt are either inflation (debasement of the value of money), or economic growth - which is falsely measured because it is based on undervalued exhaustible resources and unvalued pollution. Soddy was certainly a precursor of ecological economics.

• Economic accounting was false because it mistook resource depletion and entropy increase for wealth creation.

Three levels of the economy

At the top there is the financial level that grows by loans made to the private sector or to the state, sometimes without any assurance of repayment as in the present crisis. Banks give credit much beyond what they have got as deposits, and this drives economic growth at least for a while. The financial system borrows against the future, on the expectation that indefinite economic growth will give the means to repay the interests and the debts.

Then there is what the economists describe as the (so-called) productive economy. When it grows, it indeed allows to pay back some or all the debt, when it does not grow enough, debts are defaulted.

Three levels of the economy

• Then, down below, underneath the economists’ real economy, there is the third level: the ecological economists’ real-real economy, the Social Metabolism, the flows of energy and materials whose growth depends partly on economic factors (types of markets, prices) and in part from physical limits.

• At present, there are not only resource limits but also sink limits. Climate change takes place because of the excessive burning of fossil fuels and it is a threat to biodiversity. But another immediate threat to biodiversity is the increase of the HANPP, the human appropriation of net primary production.

The economic crisis means a welcome change to the totally unsustainable increase of carbon dioxide emissions

In the five years before 2008 carbon dioxide emissions grew over 3 per cent per year. They should decrease at least 50 per cent as soon as possible.

The Kyoto objective of 1997 generously gave rich countries the property rights on the carbon sinks and atmosphere in exchange for a promised reduction of 5 per cent of their emissions relative to 1990.

The economic crisis means a welcome change to the totally unsustainable increase of carbon dioxide emissions

• The modest Kyoto objective will now be fulfilled more easily. The carbon trade will collapse unless lower caps are adopted, as they should.

• Air travel, housing starts are decreasing in the second half of 2008 in European countries and the USA. Motorists in the USA were buying 10 per cent less petrol in October 2008 than in October 2007.

Keynesian policies• To make the recession less painful, the State should

spend more. Thus in the eurozone the Maastricht limit of a maximum public deficit of 3% GDP will be allowed to increase.

• But expenditure in what?

• Car industry? More asphalt and cement? Or rather money for schools and universities, and for poor people? Basic income for all? Subsidies for house renting? Solar energy?

• Participatory budgets?

A Green New Deal?

• The New Deal refers to Roosevelt’s policies in the 1930s. State expenditure, state regulation… This is coming back, it is welcome.

• A GREEN New Deal implies focus on the environment. An energy transition. Is it compatible with support for the car industry?

• Are we aiming to go back to “normal” GDP growth trough green investments? Is this possible?

• Or to a new ecological economy, sustainable degrowth? What will a Green New Deal be?

Décroissance soutenable Socially sustainable economic de-growth

Indeed, an economic crisis affords an opportunity to put the economy of the rich countries on a different trajectory as regards material and energy flows. Now is the time in rich countries for a socio-ecological transition to lower levels of energy and materials use.

The crisis requires a restructuring of social institutions. Moreover, it seems that happiness is not related to income growth, above a certain level of income.

Critique of Economic Accounting

The critique of conventional economic accounting often emphasizes the forgotten current values of environmental services from ecosystems.

The environmental services from coral reefs, mangroves, tropical rainforest may be given a notional money value per hectare per year, and then the lost hectares are translated into virtual economic losses.

This approach is good in order to impress the public with the importance of environmental losses but it is certainly insufficient in order to grasp the relations between economy and environment.

Fossil fuels

• Our economy depends on the photosynthesis of millions of years ago for our main energy sources, it depends on ancient biochemical cycles for other mineral resources that we are squandering without replacement.

• In the case of oil, the extraction peak will be reached soon. We are now taking almost 87 mbd – in terms of calories, the world average is equivalent to about 20,000 kcal per person/day (ten times the food energy intake), and in the USA it is equivalent to 100,000 kcal per person/day. In exosomatic energy terms, oil is then far more important than biomass.

The financial crisis

The present economic crisis it is not caused only by a supply of new houses that exceeded the demand that could be financed sustainably. It was also caused by high oil prices.

The bankers apparently thought that economic growth would continue and would increase the value of the houses that were mortgaged. They “packaged” the mortgages and sold them to other banks who tried to sell them to innocent investors. Now the housing boom has ended. The private building industry has nearly stopped in some countries. The car industry is in difficulties.

OPEC and peak-oil

• Partial nationalization of banks in the EU and the USA will perhaps prevent sudden widespread bank failure at the cost of rising the public deficit. In any case, this does not address one root cause of the crisis, triggered by high oil prices due not only to the OPEC oligopoly but also to the approaching peak-oil.

• In fact, economic theory does not say that an exhaustible resource should be sold at the marginal cost of extraction. Oil at 140 US$ a barrel was cheap from the point of view of its fair inter-generational allocation and the externalities it produces. As the crisis deepens, the price of oil goes down but it will recover in real terms if and when the economy grows again. OPEC will try and reduce oil extraction during the crisis.

The high price of oil was also a cause of the crisis

• The decline in the number of cars and petrol being bought started already in the summer of 2007.

• In the EU we have high petrol prices because we tax oil imports so much. In USA, petrol at 4 $ a gallon looked far too expensive.

• The Economist (Nov 22, 2008): “The high price of oil is is now a memory, but a potent one. “People got scared”, says Terry Shaier, a Nissan dealer in Long Beach, California”.

Lower EROI

• There is a historic trend towards increasing energy costs of obtaining energy (a lower EROI). Coming down from the peak of the Hubbert curve will be politically and environmentally difficult. Not easy to get new oil, after peak oil. Conflicts arise in the Niger Delta and in the Amazonia of Peru and Ecuador. Appeal to energy sources like agrofuels and nuclear energy will compound the difficulties.

• Natural gas, wind, photovoltaic energy are increasing. They will partly compensate for the dwindling supplies of oil over the next few decades.

• Coal supplies are increasing (they already grew seven times in the 20th century) but coal is noxious locally and also globally because of carbon dioxide emissions.

An authomatic de-stabiliser

• A well-known economic “authomatic stabiliser” is the mechanism by which, when there is not growth and unemployment increases, the State spends more on unemployment benefits and this money goes to consumption.

• There is an authomatic de-stabiliser in the fact that when oil prices go down, less investment is made in new wells.

• So, if there is an economic recovery, we shall again have high oil prices (because of lack of investment, peak oil approaching, and OPEC oligopoly) that might choke the recovery.

“In the next 40 years, the world’s fleet of cars is expected to increase from around 700m today to nearly 3 billion” (The Economist, 14 Nov. 2008).

• While the United States have nearly one car for every person of driving age, China has less than three cars for every 100 people and India fewer still. “Once people have a roof over their heads, meat on the table and a good job, the next thing they want is a set of wheels” – pontificates The Economist, concluding that the prospect for today’s embattled carmakers in Detroit and elsewhere it is an exciting one.

• Exciting metaphysics indeed! How will the real economy impact on the real-real economy? How will the cars be fuelled? Electricity?  Hydrogen? What will the energy cost be?

The assets that take the form of claims to debts that will remain unpaid, have been given the funny name of Toxic Assets. In the balance sheet of banks, the value of such assets will have to be written off.

On the liability side of the balance sheet, accounting conventions do not deduct damages to the environment.

An enormous "carbon debt" is owed to future generations, and to poor people of the world who produced little greenhouse gases.

Toxic Assets and Poisonous Liabilities

Toxic Assets and Poisonous Liabilities

• Large environmental liabilities are also due by private firms. Chevron-Texaco is being asked to pay back 16 billion dollars in a court case in Ecuador. The Rio Tinto company left behind large liabilities since 1888 in Andalusia, in Bougainville, in Namibia, in West Papua together with Freeport McMoran... debts to poor or indigenous peoples.

• Shell in the Niger Delta.

• These poisonous debts are in the history books but not in the accounting books.

The environmentalism of the poor

• In National Income Accounting one could introduce valuations of ecosystem and biodiversity losses either in satellite accounts (physical and monetary) or in adjusted GDP accounts (“Green Accounts”). The economic valuation of losses might be compared to the economic gains of projects that destroy biodiversity. However, which groups of people suffer most by such losses?

• The direct beneficiaries of forest biodiversity and ecosystem services are the poor. Their poverty makes these losses more acute as a proportion of their “livelihood incomes” than is the case for the population at large. Hence the notion of "the GDP of the Poor“ (Sukhdev and Gundimedia).

The environmentalism of the poor

• When water in the local river or aquifer is polluted because of mining, the poor cannot afford to buy water in plastic bottles.

• When poor people see their chances of livelihood threatened by mining projects, dams, tree plantations, or large industrial areas, they complain not because they are professional environmentalists but because they need the services of the environment for their immediate survival.

Orissa: Vedanta bauxite mining and other conflicts

The price of aluminium has decreased by more than half since July 2008 as the economic crisis deepens. This might save the Niyamgiri hill. We may still ask: how many tones of bauxite is a tribe or a species on the edge of extinction worth? And how can you express such values in terms that a minister of finance or a Supreme Court judge can understand?

Against the economic logic of euros and cents, the peasant and tribal languages of valuation go unheeded. These include the language of territorial rights against external exploitation, the ILO convention 169 which guarantees prior consent for projects on indigenous land.

Appeal could be made to ecological and aesthetic values.

Refinery in Lanjigarh meant to refine the bauxite from nearby Niyamgiri. The refinery was built before environmental clearance was granted for the

mining project.

The Niyamgiri hill is sacred to the Dongria Kondh. We could ask them: How much for your God? How much for the services provided by your God?

Sal (Shorea robusta) Forest Niyamgiri Hill, Jan 07

Kalinganagar, 1st anniversary (2 Jan. 07)

Kalinganagar, martyrs’ memorial

The question is, who has the power to simplify complexity and impose a particular

language of valuation?

• The question is not whether economic value can only be determined in existing markets, inasmuch as economists have developed methods for the monetary valuation of environmental goods and services or of negative externalities outside the market.

• Rather, the question is: must all evaluations in a given conflict (e.g. on extraction of copper and gold in Peru, a hydel dam in the North-East of India, oil extraction in Ecuador, the determination of the suitable level of carbon dioxide emissions by the European Union), be reduced to a single dimension?

Pluralism of Values

Decisions may indeed be improved by giving money values to negative externalities and to environmental resources and services which are undervalued or not valued at all in conventional economic accounting.

But there are other considerations. First, don't forget our

uncertain knowledge about the working of ecosystems, and about the impact of technologies. Second, do not exclude non-monetary values from decision making processes.

Don't practice the fetishism of fictitious commodities.

ECUADOR: OIL IN THE AMAZON

Near Lago Agrio, Aug. 07

Pluralism of values

In decision-making processes, economics becomes a tool of power. This is the case when applying cost-benefit analysis to individual projects, and also at the level of the macro-economy where increases in GDP trump other dimensions.

We should favour instead the acceptance of a plurality of incommensurable values.

What will happen to commodity prices?

• The increase in commodity prices (helped also by misguided agrofuel subsidies and by the OPEC cartel) continued for some months after the decline in the stock exchange started in January 2008. However, in late 2008 commodity prices are going down.

• The exporting countries might irrationally increase the supply in an attempt to maintain revenues. Instead, this would be the moment for Latin America, Africa and other net energy-and-materials exporters, to think of endogenous development, moving towards an ecological economy.

Brazil’s strategy after 2008?

• More roads, pipelines, harbours and hidrovias, more imports and exports of oil, gas, coal, copper, iron ore, soybeans and ethanol, this was President Lula’s credo for Latin America.

• In late 2008, and in total opposition to the views of Via Campesina and the MST in Brazil, Lula is still preaching a general opening of world markets to agricultural exports. He went to India in October to try and increase the rate of farmers’ suicides by pushing for the liberalization of agricultural exports in the Doha round.

Brazil’s strategy after 2008?

True, the export boom gave Lula money for social purposes and increased his popularity. Petrobras became no less dangerous to the environment and to indigenous peoples of Latin America than Repsol or Oxy. Lula’s obsession with primary exports made him do nothing about deforestation of Amazonia and drove environment minister Marina Silva to resign in 2008.

Sustainable degrowth (in the North) and environmental justice everywhere

• With the economic crisis, la décroissance est arrivée in Europe, the United States, Japan at least for 2008 and 2009.

• At first sight, Southern countries have something to lose and little to gain from Degrowth in the North: fewer opportunities for commodity and manufactured exports, less availability of credits and donations.

• But, the movements for Environmental Justice of the South are the main allies of the Sustainable Degrowth movement of the North.

Sustainable degrowth (in the North) and environmental justice everywhere

These movements in the South complaint against disproportionate pollution (at local and global levels, including claims for repayment of the “carbon debt”), they complaint against waste exports from North to South, they complaint against biopiracy, and also against Raubwirtschaft, i.e. ecologically unequal exchange, and the destruction of nature and human livelihoods at the “commodity frontiers”. They also complain against the socio-environmental liabilities of Transnational Companies.

Against ecologically unequal exchange

• Imports of energy and materials must be relatively cheap for the social metabolism of rich countries to work properly. As Hornborg put it in 1998, “market prices are the means by which world system centres extract exergy (i.e. available energy) from the peripheries”, aided some times by military power.

• A refusal from the South to provide cheap commodities to the industrial economy, imposing eco-taxes, would help the North (including some parts of China) in its necessary path towards an economy that uses less materials and energy.

Against ecologically unequal exchange

• Export taxes (“retenciones ambientales”) should be imposed because of the local externalities and also as “natural capital depletion taxes”.

• The price of oil peaked in 2007-08. Things were so good for the oil exporting countries that when Ecuador rejoined OPEC in 2007, president Correa cleverly proposed to put an eco-tax on exports that would be recycled for social and environmental purposes, financing the necessary energy-transition. This eco-tax would show the concern of OPEC countries for the greenhouse effect.

Conclusion: After the crisis

• The international movements for environmental justice must have a clear objective: an economy that sustainably fulfils the food, health, education and housing needs for everybody and provides as much joie de vivre as possible to a world population that should decline a bit.

• Now is the time in rich countries for socially sustainable economic de-growth, reinforced by an alliance with the “environmentalism of the poor” of the South. 

Conclusion: After the crisis

• Conventional economic accounting is false, forgets the physical and biological aspects of the economy, forgets the value of unpaid domestic and voluntary work, does not measure the population’s welfare and happiness.

• What is needed is an Aristotelian buen vivir (as the World Social Forum proclaims) guided by oikonomia rather than chrematistics.