Ecological bankruptcy

Ecological bankruptcy

There may not be a single large-scale industry or multi-national corporation on Earth that is genuinely profitable if they had to account for their ecological impact. A recent UN-supported report shows that the world’s 3,000 largest publicly-traded companies alone caused US$2.15 trillion (€2 trillion) of environmental damage in 2008, that the total cost is much higher, and that companies and communities downstream in the global supply chain are at risk from the environmental impacts.

For centuries, businesses have cheated on this accounting by calling ecological impacts “externalities,” presumably not effecting the business. Thus, air and water pollution, toxins in the environment, or eradicated species were deemed “external” and not worth accounting for.

We now know that these ecological costs are not “external,” and that if businesses were obliged to account for ecological liabilities, almost no business on Earth would be profitable without dramatically raising prices for consumers.

Earth, © NASA

Industrial disasters

Part of these costs are the almost daily industrial disasters, toxic leaks, spills, waste dumping, and mechanical breakdowns. In certain industrial areas of China, for example, virtually every inhabitant of “cancer villages” suffers from cancer, birth defects, or other diseases from toxic waste.

For four decades, prior to the 1960s, the Chisso Chemical Corporation in Minimata, Japan dumped mercury into the bay, killing 1,784 people and leaving over 10,000 people suffering birth defects and disabilities. During that same era, Hooker Chemical Company in the US dumped dioxins on land that they sold to the School Board, causing birth defects, miscarriages, and a general health disaster zone.

In 1984, in Bhopal, India, Union Carbide Chemical Company leaked lethal methyl-isocyanate gas, killing some 8,000 people within weeks. Industrial disasters include Bovine Spongiform Encephalopathy (“mad cow disease,”) from overcrowded feed lots in the UK; the Chernobyl nuclear plant explosion; Exxon Valdez and other massive oil spills, the 1996 Marcopper Mining toxic dump in Calancan Bay, Philippines, that killed virtually all life in the Boac River system; the Baia Mare cyanide spill into the Someş River, killing fish in the the Tisza and Danube rivers from Hungary to Yugoslavia; the 2011, Fukushima nuclear plant meltdown; and the ongoing disaster of the Canadian Tar Sands, poisoning indigenous communities, who have lived in the region for centuries. The unpaid costs of modern industry include the honey bee collapse that effects global pollination, the massive health effects of endocrine disrupting chemicals from the hydrocarbon chemical industry, and of course, global warming that will impact humanity and all of nature into the future.

Noori Bi, Rajgarh Colony, Bhopal 2002 Noori Bi is a "gas widow" who lost her family in the first few days of the tragedy. 1 Jan, 2002 © Greenpeace / Raghu Rai Bhopal victim, Noori Bi, who lost home and family. © Greenpeace / Raghu Rai

These incidents have been dramatic, and the costs obvious, but, we now know that almost every enterprise in the modern, globalised economy is leaving behind an unpaid ecological cost.

Natural Capital At Risk

Three years ago, the United Nations Environment Programme, TEEB (The Economics of Ecosystems and Biodiversity), the World Business Council for Sustainable Development, and Trucost consulting firm produced the Natural Capital at Risk Report, showing that the world’s greatest ecological impacts are costing the global economy about US$4.7 trillion (€4.1 trillion) per year in health costs, social costs, lost ecosystem services, and pollution.

The research measured industrial impact on natural capital and suggested ways that companies could internalise these costs. The report concludes that many business activities do not generate sufficient profit to cover the costs of their own natural resource use, pollution, and destructive impact costs.

Even so, the report limits impact to the monetary value on resource depletion and the loss of ecosystem services, but does not necessarily consider the impact on other species or the systemic impacts on the ecosystem itself. Still, the report shows that most international business sectors are not profitable if they had to pay these costs.

Philippine Purse Seine Fishing Operation. © Alex Hofford / Greenpeace Ocean acidification, overfishing, and dead zones have undermine the fishing economy. © Alex Hofford / Greenpeace

The study investigated agriculture, forestry, fisheries, mining, utilities, and the production of hydrocarbons, cement, steel, paper, and petrochemicals. Each sector was further defined by region and by key environmental indicators. The data revealed region-sectors with high impacts, none of which generate sufficient profit to pay their environmental debts. In total, they represent an unpaid cost to natural capital equal to US$7.3 trillion (€6.2 trillion) per year, 13% of global economic output in 2009.

We will not be surprised by the most common environmental impacts: greenhouse gas emissions (38% of total), water use (25%), land use (24%), air pollution (7%), land and water pollution (5%) and waste (1%).

However, we might be surprised by the most ecologically destructive sectors. Hydrocarbon production appears obvious to ecologists, but food production for 7.4 billion humans is equally destructive. Cattle, wheat, and rice production all produce massive unpaid ecological impact.

Highest impact region-sectors (Tables 1, 2 in the report):

    1. Coal power generation, East Asia, N. America

    2. Cattle ranching, South America, S. Asia

    3. Iron, steel mills, E. Asia

    4. Wheat farming, Southern Asia

    5. Coal power generation, N. America

    6. Rice farming, S. Asia

The largest land use impacts come from agriculture and cattle ranching, in which high value, pristine ecosystems that supply the biosphere with services, are converted to single-purpose human food production. Modern agriculture depends heavily on hydrocarbons, fertilisers, and pesticides. These contribute to global warming, nutrient cycle disruption, and ecosystem toxicity, while soils are left depleted and polluted.

Dried up wheat field with damages of erosion near Doebeln, in Saxony, Germany. © Martin Jehnichen / Greenpeace Depleted soils, toxins, and disruption of nutrient cycles reduce crop yields. © Martin Jehnichen / Greenpeace

Agriculture, cattle raising, and industry also deplete water resources. Water use from surface or groundwater is rarely paid for, and water is further depleted by distribution losses. Rivers, lakes, and aquifers have been depleted world wide.

As we know, greenhouse gas emissions represent a massive impact on every ecosystem on Earth, and the report estimates that this damage already costs our global economies US$2.7 trillion (€2.5 trillion) annually. We also know the sources of these emissions: The production of thermal power, steel, and cement. Coal power is particularly destructive, but the report points out that every consumer item purchased includes an embedded and unpaid carbon cost. There is, for example, a considerable carbon cost to supply and treat water. Livestock methane emissions also prove significant.

The climate change costs include reduced crop yields, flooding, disease, ocean acidification, and biodiversity loss. According to the 2006 UK Stern report, adjusted for inflation, the social cost of global warming is now over US$100 per metric ton of CO2.

Industrial pollution of the air, land, and water, add another annual $800 billion in environmental and human health costs from sulfur dioxide, nitrogen oxides, particulates, and ocean dead zones that reduce biodiversity and undermine fisheries.

Consumption and Natural Asset Costs

Environmental costs are passed through supply chains to everything that we consume. Every item one buys leaves behind unpaid environmental costs. This is why reducing consumption is part of every genuine plan for sustainability.

The report shows that consumers in rich nations purchase goods and services from developing nations that endure the highest impacts of these ecological costs, and food processing produces some of the highest impacts along the supply chain, as this table shows:

Highest supply chain impacts, (Table 3 in Trucost report)

    1. Soybean, oilseed processing

    2. Animal slaughter, processing

    3. Poultry processing

    4. Corn milling

    5. Beet sugar manufacture

Consumers in rich nations enjoy “low” food costs only because, all along the supply chain, companies are not paying the full costs of production, leaving the environmental costs behind in poorer nations.

The report recommended that governments identify these natural capital costs and create policies that help businesses internalise them. They also warn governments and businesses to prepare for a resource-constrained world, in which all nations will face increasingly scarce natural capital, and environmental costs associated with harvesting those resources. Although often renewable, all resources are finite, and their consumption creates ecological costs.

According to a Munich Re insurance risk report, the recent US drought, for example, aggravated by global warming, led to corn and soybean crop losses of over $20 billion. In 2012, a two-day power outage in India was caused in part by drought which forced farmers to pump water for irrigation. The Trucost/UN report estimates an increased annual world cost to grain and soybean consumers of over $50 billion, plus secondary social impacts.

The alleged “profits” of modern industrial capitalism appear now as an illusion, conjured up by avoiding fundamental accounting principles. For centuries, humanity spent the assets, Earth’s bounty, and called it income. The industrial model of human enterprise may now be ecologically bankrupt. Fortunately, we possess a rich history of ecological economists – Herman Daly, Hazel Henderson, John Stuart Mill, Nicholas Georgescu-Roegen, Donella Meadows, Mark Anielski, and many others (see some links below) – who have already described the future economic system that recognises and pays its ecological costs.

Rex Weyler is an author, journalist and co-founder of Greenpeace International.

Ecological Economics links:

Daly, Ecological economics. © 2006 integral ventures, LLC. All Rights Reserved

John Stuart Mill (1806-1873), proposed a “stationary state” economy: J.S. Mill.

Thomas Malthus: An Essay on the Principle of Population, 1798; often dismissed but correct about ecological limits. If Malthus Was So Wrong, Why Is Our World In Trouble? William Catton, 1998; Malthus marginalized, Albert A. Bartlett, 1998.

Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process, (1971)

Frederick Soddy: Wealth, Virtual Wealth and Debt (1926)

Donella Meadows, et. al., Limits to Growth (D. H. Meadows, D. L. Meadows, J. Randers, W. Behrens, 1972; New American Library, 1977)

Herman Daly, Steady-State Economics (1977, 1991); Essay by Daly: From a Failed Growth Economy to a Steady-State Economy

Mark Anielski: Genuine Wealth website and book The Economics of Happiness.

Hazel Henderson, Paradigms in Progress, (1995)

Solutions magazine, Ida Kubiszewski, editor, forum for biophysical economics.

Gail Tverberg: Our Finite World

Degrowth economics, Serge Latouche, Le Monde diplomatique

Source: Green peace

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