Sustainable ecological value monetized will have profound four-fold global benefits. Creating sustainable ecological value is the easiest path toward quickly mitigating climate change, expanding ecological global economic growth, pursuing a radical reduction in pollution depletion and ecological damage, and sharply reducing rampant global inequality. It is the basis for the pursuit of the New Wealth of Nations.

Including ecological value in global market dynamics is the missing piece needed to enable the price system and the pursuit of profit to help radically diminish the attraction of externalities by making the market send price signals realistically valuing and rewarding sustainable conduct to increase profit. Regulatory schemes and taxes on polluters have not stopped the global march toward ecological catastrophe. Monetizing ecological value is both a recognition of the inescapable importance of the global ecosphere under catastrophic assault, and a crucial improvement in the incentives of the price system embracing ecological sanity in the name of profit as well as survival and justice.

Monetizing sustainable ecological value is a shockingly simple example of the globally transformative effects of simple changes in market rules. These changes will drive epochal global financial and business consequences. The common magic of banks is being able to lend and create 10 dollars for every dollar of their own assets which will result in trillions of new investment from monetizing ecological value.

These trillions of dollars of sustainable wealth can be created yearly based on new regulatory assets and simple changes in GAAP (Generally Accepted Accounting Principles ), FASBE ( Financial Accounting Standards Board), and ISA (International Accounting Standards ) rules reflecting the creation of ecological value as a new class of sustainable ecological property.

A corporation’s conduct can be booked and valued as goodwill. Its discoveries are valued as intellectual property. Its sustainable conduct is monetized on the basis of the negative consequences of pollution it prevents, and the positive ecological benefits it maintains and facilitates.

The value of so-called ecosystem services provided by the natural world for free is conservatively valued at $44 trillion per year according to the World Economic Forum Nature Risk Rising report. This price estimate is almost certainly too low since much of it is based on the economist's trope allowing the “willingness to pay” to determine the value of protecting the natural world. Saving a polar bear is valued much more, for example, than rescuing a mangrove swamp.

Economists have no trouble calculating the value of a human life from projected future income. Disaster mavens are well paid to determine that the worth of a janitor is much less than that of a lawyer killed in the World Trade Center on 911. Adam Smith would have considered both unproductive. The lawyer vastly overpaid.

Valuing the ecosphere is further compromised by the decision of economists to set a discount rate that diminishes the future value of preventing ecological damage now despite abundant evidence of the approaching destruction of the ecosphere and civilization.

The usual economic analysis is based on the bell curve and discounting the probability of so-called black swan events considered several standard deviations away from normal. This ignores the reality that the living world is driven not by bell curves but by logistic-shaped S curves. The mathematics of logistic curves in normal circumstances function to slow down population growth and maintain stable populations. However given a too rapid rise in population, S curves become subject to strange attractors and chaotic dynamics leading to sudden collapse and catastrophe. We cannot accurately forecast the final straw that breaks the camel back, or the final pound of carbon dioxide exhaust that unleashes geophysical forces to reduce entropy and radically alter the climate, finding a new balance decidedly unfriendly to our species and many many others. “Nature is beyond price,” cautions Donella Meadows. And there is no available healing quick fix.

Economic common sense is too often an encouragement for the continuation of pollution as usual and embracing, consciously or unconsciously, the protection of markets as externality machines to maintain unsustainable profit.

Dynamics of Ecological Value

Instead of pollution as usual, required is the healing embrace of ecological value by measuring the consequences and benefits of conduct preventing ecological damage.

A good example is the value of displacing one metric ton of carbon dioxide emissions from fossil fuels with renewable energy. The economic value has been studied by the Nation Academy of Sciences (NAS) and by the EPA and is valued presently at $150 a metric ton.

A regulatory asset, Sustainability Credits (SCs) is based on the value of displacing a metric ton of carbon dioxide emissions through renewable energy or increased efficiency. A ten-megawatt solar farm might produce 16,000 megawatt hours of electricity yearly. According to the EPA, the latest average fossil fuel emissions are 1,562.4 pounds of carbon dioxide per megawatt hour generated per year. 16,000-megawatt hour a year equals almost 25 million pounds of carbon dioxide emissions displaced a year or about 11,400 metric tons of carbon dioxide valued at more than $1.7 million dollars a year worth of carbon dioxide displacement credits. The solar system’s annual production is carefully measured and the system is given an identification number to prevent double counting by both regulators and banks.

The $1.7 million is monetized on the books of banks and credit unions as paid-in capital and as cash. The $1.7 million can be used for investment by banks of $17 million in additional renewable and ecological resources which can include further investments in the 10-megawatt solar developer. This can also encompass any equity needed to allow energy users to be energy owners once tax equity is exhausted in year six.

Displacing the global polluting 37 gigatons of annual carbon dioxide emissions can become the basis quickly for trillions of dollars of wealth to be reinvested in future sustainable activities. 37 gigatons of carbon dioxide emissions eliminated at $150 per metric ton is $55 trillion dollars annually for ongoing carbon dioxide displacement by renewables. The IPCC goal is a 50% reduction in carbon dioxide emissions by 2030. That would mean by 2030 a global potential yearly investment in sustainability of $27.5 trillion. That’s what can be on the table to help finance a global ecological transformation. The additional capital created by SCs is non-inflationary and productive. It is subject to normal central bank rules on interest and money supply.

Current economic “wisdom” instead is to levy a tax on fossil fuel generators to raise prices, send a market signal that will discourage consumers, and encourage polluters to change. This is a highly regressive tax on low income consumers that leads to organized resistance to be mitigated by plans to redistribute the tax revenue back to consumers.

Ecological value takes the opposite approach. This can be done swiftly by the creation of a regulatory asset for the displacement of each metric ton of carbon dioxide emissions by renewable energy or efficiency improvement. There are zero tax increases. Renewable energy and efficiency alternatives as their use expands become cheaper, more profitable, gain market share, and directly lead to a reduction in pollution and the creation of productive assets, more jobs, and more stable communities.

The total real value of sustainability is clearly transformative by progressively monetizing sustainable ecological value with the requirement that the cash monetized be reinvested in further ecologically sound projects.

Calculating and monetizing the complete range of ecosystem services is the next crucial step. These include such ecosystem services related to climate and energy as:

• Regulation of atmospheric chemical contribution including carbon dioxide/oxygen balance; Ozone for UVB projections; Sulphur dioxide regulation;

• Global temperature & climate regulation, precipitation and other biologically mediated climate processes including greenhouse gas regulation, and DMS anti-greenhouse gas production affecting cloud formation.

Robert Costanza et.al. 1997 article in Nature “The value of the world’s ecosystem services and natural capital”, is a good point from which to undertake this analysis.

Fundamental flaw of global industrial markets

The global ecological crisis is a result of a fundamental market failure that has permitted the massive practice of externalities to legally pollute, deplete and ecologically damage. The 37 gigatons of greenhouse gas emissions are typically in compliance with all legal requirements by environmental and ecological regulators. The damage is not just the burning of fossil fuels but is throughout the conduct of global fossil fuel production chains from extraction, transportation, refining, distribution, combustion, waste gas release, and waste product disposal.

Fossil fuels and nuclear energy will not be able to compete with zero-fuel-cost renewables and energy storage whose capital costs rapidly continue to decrease as their efficiency continues to increase. The process of making the trillions of dollars of fossil fuels and nuclear plants stranded assets, with fossil fuels and uranium left in the ground will be accelerated by valuing and monetizing the trillions of dollars of ecological value created by reducing or eliminating the negative consequences of pollution, depletion and ecological damage.

The monetization of trillions of dollars of ecological value can become a fundamental market driver sending clear, powerful, and unambiguous price signals that mean sustainable goods and services will be less expensive, gain market share and become more profitable. The high profit centers of the 21st and 22nd century must be guided and conditioned by the pursuit of sustainable ecological value. This will become part of smart business plans to be taught at the Harvard Business School, the London School of Economics, and Tsinghua University in Beijing.

This transformation is a fundamental expansion of Adam Smith’s 1776 The Wealth of Nations. The wealth of nations must now rest not simply on increases in GDP and capital, but by the parallel pursuit and maintenance of ecological value. The days of buccaneer industrialism maximizing profit and wealth at ecological expense must be supplanted by making ecological wealth a fundamental part of the business equation.

The new wealth of nations = (capital + labor + land) X ecological value.

In this simple calculation, sustainable ecological value is equal to one (1.0). The greater the amount of ecological damage, the lower the real wealth and lower the profit. If sustainable ecological value is reduced by 50%, wealth and profit reduced by 50% with a .5 multiplier.

Issues of pollution, resource depletion, ecological damage and their long term consequences had not yet attracted Smith’s concerns in his 1776 classic. Externalities, the unpaid negative effects of production on markets, on people, on all aspects of the living world were consciously or unconsciously, not seen or not yet sufficiently apparent. Smith’s utopia guided by an invisible hand of self-interest allegedly would be transmuted, by market competition to limitless economic growth and the greater good for all. Clearly economic growth is now only possible with countervailing reductions in ecological damage.

Smith’s focus was on the costs of inputs, of operations, and of land and labor and the increase in productivity and therefore profit and capital. The unspoken assumption is the almost limitless nature of inputs mediated, of course, by the price system where price rises with scarcity and falls as the market responds to produce more.

Smith was crystal clear in his discussions in Book Two Chapter 2 “Of Money.” Smith finds “The intension of the fixed capital is to increase the productive power of labor...to preform a much greater quantity of work. Followed in Chapter 3 “Of the Accumulation of Capital” where Smith savages non-productive expenses that fail to increase capital.

The labor of some of the most respectable orders in the society ...,unproductive of any value...the whole army and navy are unproductive labourers...In the same class...churchmen, lawyers, men of letters of all kinds, players, buffoons, musicians, opera singers...the work of all of them perishes in the very instant of its production.

Implications and next steps

The embrace and monetizing of ecological value will create a new sustainable gold rush and refocus consumption and investment when production plans are informed by the pursuit of ecological norms and by increases of paid in capital and cash on balance sheets.

The embrace of ecological value is a central global tool for all economies to stop ecological catastrophe and pursue sustainable ecological economic growth. This is crucial for both the current and any future reserve global currency, currently the dollar, as it’s being tested by the BRICS, Brazil, Russia, India, China and South Africa, with increasing settlement in commodity and trade particularly by the Yuan. Global leadership in determining and monetizing ecological value will be crucial in global financial leadership. Monetizing ecological value is more than a financial tool. It will emerge globally as central in the pursuit of sustainable economic growth, social, and ecological justice.

Fundamentally, the embrace of ecological value through measures such as sustainable regulatory assets is a reflection that sustainable business can and will create enormous new wealth that can be broadly shared and distributed.

This can include steps such as using tax equity to make energy users energy owners for affordable purchase when tax equity is exhausted in year six. This can be structured to enable a substantial portion of the $60 to 90 trillion to be spent on a global renewable energy transformation to be owned by energy users at all income levels, the purchase supported in part by the ongoing ecological value of carbon dioxide displacement in addition to energy sales.

Ecological wealth is also a tool that will help facilitate the ability globally of poor nations to make a successful transformation to non-polluting renewables as part of a global convergence on sustainable norms for all the worlds’ people. This includes a global convergence on total carbon dioxide emissions to remain below sustainable global norms based on 2 tons of carbon emissions per person per year with a global total of less than 21 gigatons. Poor nations are typically far below a 2 tons yearly per person carbon dioxide equivalent emissions. The United States is at 15.52 tons per person. As the United States reduces to 2 tons, poor nations must not follow the available ultra-polluting fossil fuel path, and instead build sustainable and just systems. The creation and monetization of ecological wealth is a prime tool to help fund and guide this transformation.

The potential of a global transformation driven by recognizing, valuing and monetizing ecological value is clearly a crucial healing step forward. The choice to embrace a global ecological turn and move markets toward the pursuit of profit through ecological sustainability is possible and available. We must seize the day.

References

Chunquan Zhu and Siyu Wang, 2023. ”Why measuring the economic value of ecosystems is important”. Wold Economic Forum.
Robert Costanza et.al. 1997. “The value of the world’s ecosystem services and natural capital”. Nature. VOL 387 | 15 May 1997.
Donella Meadows, 1996. “Ten Reasons to Wonder About the Cost of Saving Species.” Sustainability Institute. Donella Meadows Archives.
Adam Smith,1937 edition. The Wealth of Nations. NY: Modern Library, Random House. “Of Money” p.271. “Accumulation of Capital” p.315.
David Carlin, 2021.“The $100 Trillion Investment Opportunity In The Climate Transformation” Forbes Magazine.
Carbon Emissions Per Capita by Nation WorldOmeter “CO2 Emissions per Capita”.

Original published at Wall St. International magazine