Saturday, October 18, 2008

The loss of Natural Capital

Economist Pavan Sukhdev in a recent interview with Deutsche Welle (DW) provided some interesting numbers on the value of "natural capital" being lost compared with the financial capital lost during the current financial markets crisis.

While the losses to financial firms were estimated to be $1 Trillion to $1.5 Trillion, a task force called "The Economics of Ecosystems & Biodiversity" (TEEB) headed by Sukhdev has looked at the cost of deforestation and degradation of the environment and estimated the loss in human welfare as capital item to be $2 Trillion to $4.5 Trillion yearly for the past several years.

Sukhdev asks "Why is it that a one-off loss of $1.5 trillion in financial capital to a group of Wall Street firms attracts so much attention, whereas the ongoing loss per annum of twice this amount of natural capital is barely reported?" He offers two main reasons: First, natural capital is public property whereas financial capital is mostly private. Second, the losses in natural capital are ongoing and gradually increasing, so they're not as noticeable as a big loss over a short period of time.

TEEB has also estimated the investments needed to address the loss in natural capital. They seem quite modest when compared with the trillions of dollars invested in the bailout of the financial system. I liked Sukhdev's crisp way of presenting fundamental facts. He articulates what many people have been feeling instinctively around the world or have been attempting to put into perspective. The full text of the interview can be found here.

One dark thought that Sukhdev's data triggered in my mind was that unless something else forces change, it's going to take a catastrophic natural capital loss over a relatively short period of time for our governments to recognize the urgency and act as decisively as they're trying to do in the current financial crisis.

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