NLM Writer
“Cynics have a price for everything yet understand the value of nothing”
On average, a human adult consumes 40 litres of water in a day: 3 litres as drinking water, 20 for his bath and whatever remains for his meals and other sanitary needs. A 20-litre gallon of water goes for some Sh30 locally. Sh20 though isn’t enough to buy one a litter of clean bottled drinking water. As a result, many have resorted to boiling drinking water or, better yet, using purifying agents. Many still have simply resigned themselves to fate. They buy from the vendor and use it directly, hoping that Providence will protect them from whatever disease. For these people, the cost and hustle of purification is simply too much; it’s good enough that they have some water.
Then there is the small matter of the air we breathe. On average an adult inhales 550 litres of oxygen every day. We don’t buy air so we can’t quote its price with certainty. Yet if we were to line up for these natural goods on a daily basis as we do for bread, milk or to catch a bus, we would spend a fortune each day. And we haven’t even discussed the cost of sunlight or a cooling breeze. We wouldn’t have even paid the bees and the butterflies for pollination, the plants for ridding the air of carbon dioxide or the beetles for their demolition job. All we see are blossoming flowers and fruits and we are happy. In the evening we buy a coca cola on our way home, fill our bellies then usher the empty plastic can into a ditch.
A price on pollution
It was the late University of Chicago economist, Ronald Coase, who first proposed the idea of pricing pollution. For Coase, if pollution was priced as part of the process of production, market forces would eventually deter businesses from polluting the environment because it would become less and less cost-effective for them to do so. Of course, this is applied in limited instances, like motor vehicle manufacturing, but it needs to cover more. And not just corporations; the common man too would be hard pressed to protect the environment if there was a small fee attached to natural benefits (that we pay for water is clear indication that Coase logic is already here with us. The price of real estate varies as well depending on the environment. And in places like Cape Town, water and clean air have run out). Unfortunately, judging from our love for litter and charcoal, the cost seems a tad too low).
It is from Coase that the concepts of carbon trading and compensation credits, the central elements of green economy, arose and gained global credence. The signing and coming into effect of The Kyoto Protocol, the United Nations convention to reduce greenhouse gases, provided the idea for trade with compensation credits. It set targets for reducing greenhouse gas emissions in industrialised countries, while at the same time allowing them to buy their way out of their mitigation obligations at home.
Carbon trading is the process of buying and selling of quotas that allow the holder of the quota to emit the equivalent of one tonne of CO2. So if a company’s or a country’s emissions are lower than its quota, it can sell its surplus. If it exceeds its limits, on the other hand, it will have to buy additional quota on the market or cut its production.
A compensation credit on the other hand permits pollution or the destruction of nature in excess of a set limit. This additional pollution or destruction must be offset through a compensation project. The project must demonstrate that it is preserving a habitat that otherwise would not have been protected, or that emissions that would otherwise have been released were prevented. If, however, the protection or restoration measures had already been planned, then no additional habitat will have been preserved or restored.
Already companies are charging a fee for ecosystem services. There are also companies in the United States and Europe engaging in forest mitigation banking. Companies, for instance, identify a threatened species, protect it and charge a fee for anyone wishing to benefit from the services it provides. Its brisk business which, for the cynics, benefits all.
Although accenting to the Protocol, the Rio Principles, Agenda 21 and the Johannesburg Plan of Implementation and confirming green economy as its (Kenya’s) conservation strategy, implementation has not risen to the sophisticated levels of carbon trading, compensation credits and business conservation. While it could explain our struggles with conservation as earlier stated, perhaps it’s a good thing for, how effective are these strategies?
The problem with price
To start with, fewer things are as wrong as leaving the provision of natural goods to cynics. The best example is in the way neo classical economics has been applied to cause artificial shortages and multiply inequality in the modern world. Neo classical economy classifies land (a free natural resource to be enjoyed by all) as capital and promotes taxation on production. Unlike classical economy, land can be held on freehold, which introduces other toxic interests such as ownership by selling and speculation. Privatisation also allows the owners to manipulate the factors of production in their favour. For instance, by owning land and whatever is on it, they make it a scarce resource driving the cost of capital upwards and bringing down wages. Taxes can also be avoided tax by inflating the cost of production. Such is the view that has brought the domination of banks and concentrated wealth to a tiny minority. Imagine what it would be like if neo classism could be applied to air, water or wildlife!
What’s more, it’s impossible to state with certainty the price of nature. A 2015 study for instance placed the cost of emitting a tonne of carbon dioxide at 200 times the cost of what it does today. There is zero chance a country would place such a cost on its industries, let alone a developing one.
As one expert puts it, how high would prices have to be to cover not only the internalisation of local environmental costs but also – in the case of climate change, for example – preventing the Earth from reaching an ecological tipping point or ensuring that global ecological limits are not exceeded? There are methodological difficulties, too: what price should be put on the extinction of a species? How much for the salination of drinking water thousands of kilometres away from the coal mining area or the headquarters of the mining company? The sheer scale of the figures that would have to be allocated is highlighted in a study that puts an economic value on 17 selected ecosystem services in 16 habitats worldwide. That value is estimated at between $16 and $54 US dollars per year. Yet for a world economy that is based on unlimited growth, what is the relevance of a figure that is too huge to have practical relevance – and at the same time too low to reflect the actual damage?
Secondly, the call to “put a price on pollution and destruction of nature” such as greenhouse gas emissions and habitat destruction distracts from the core challenge, which is to address the structural causes of the problems. In the case of climate change, the focus on discussing prices and market-based instruments already means that more attention is paid to damage limitation (regulating greenhouse gas emissions by putting a price on them) than to tackling the real causes (leaving coal, petroleum and natural gas in the ground).
In reality, trade in compensation credits cannot prevent the destruction of primary forest or the increase of greenhouse gases in the atmosphere. The alleged mitigation of emissions or prevention of deforestation in one location permits the exploitation of resources or emissions exceeding limits established by law or social norms in another. At best, this is a zero-sum game. In addition, it is not possible to verify whether the allegedly mitigated greenhouse gases would have in fact been emitted, or whether the destruction of nature would indeed have occurred without the compensation project. Since compensation credits allow additional emissions or destruction, the result of the trading of compensation credits is frequently more, but never less destruction or pollution than would have occurred without the trading.
In the case of compensation credits for the loss of biodiversity, such limits can be the prohibition of mining in protected areas or particularly biodiverse forests; they can also arise from social norms, for example in the case of food companies promising to manufacture their products without deforestation. Compensation credits for loss of biodiversity facilitate the expansion of mining in protected areas, or the clearing of biodiverse forests for oil palm and soy plantations and industrial cattle farming. Corporations market the products of this exploitation as “deforestation-free”, “carbon-neutral” or as mining with a “net positive impact” on biodiversity. Globally, active food companies such as Unilever, Mars, Nestlé, Wilmar, Bunge and Monsanto combine the purchase of compensation credits for greenhouse gas emissions and deforestation and then market their products as carbon-neutral and deforestation-free despite rising emissions and continuing deforestation and when in reality they are not.
We could pay our way out of most troubles, but environmental destruction isn’t one of them. What is needed is a stop, not a refund. ^
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