Environmental and economic goals do not conflict and a healthy natural world is the foundation of a resilient, productive economy. Given recent extreme weather events in the UK and around the world, and the global scientific consensus that climate change will make such events more common, these words should by now be regarded by both left and right as a simple expression of common sense.
December’s Paris Agreement on CO2 emissions, supported by more than 200 nations – with the overwhelming backing of business – along with recent global agreement around a set of Sustainable Development Goals, surely marked the point at which green economics hit the mainstream.
Globally, I believe the transition is inevitable; it’s a question not of if, but when, it will happen. In the future, maintaining our natural capital – the natural organisms and systems that provide food, water and raw materials, remove pollution from the air, regulate the climate, and reduce the risk of natural disasters such as floods – will be an overarching policy objective against which all other government policy areas will be aligned.
Governments’ annual budgets will report on natural asset stocks and trends, take into account investment requirements to maintain them, and set out corrective measures to ensure that production and consumption are sustainable. Businesses will disclose environmental risks and costs, enabling banks and investors to evaluate investment options that deliver sustainable returns.
This is the only way we will achieve a resource efficient economic model that will be resilient to the changes in the global environment that are heading our way.
The sooner Britain gets on board, the greater the benefits – in terms of reduced future risks and costs, improved economic resilience and new opportunities for job creation, and competitiveness. In a globalised world, it’s better to lead than to follow.
But Britain is not leading. George Osborne recently spoke of an economic ‘cocktail of threats’ related to short-term falls in commodity prices and stock markets – and yet he’s said little about the trinity of longer-term risks posed by environmental degradation, resource scarcity and climate change. Just as an unsustainable financial system prompted the 2008-09 crash, unsustainable environmental policies could lead to even more devastating consequences.
While Amber Rudd and David Cameron deserve plaudits for backing an ambitious climate deal at COP21, a whole series of recent policy measures relating to climate and energy policy seem to have taken us in the opposite direction. The government has also failed to integrate natural capital into its National Infrastructure Plan, and is developing a 25 year plan for food and farming which appears to take little account of the impacts and dependence of a thriving agricultural sector on a healthy natural world.
In short, there’s a mismatch between the government’s stated long-term aims – including low carbon growth and a 25-year plan to restore nature – and the short-term effects of the domestic policies that it actually enacts.
This is a shame, as economic costs of ignoring natural capital impacts are really mounting up. Mismanagement of river catchments – such as loss of upstream wetlands and trees, river straightening and poor land-use practices – is a major contributing factor to flooding. With the cost of the winter 2015/16 floods estimated to be at least £5bn, and with extreme weather events predicted to become more frequent, it is vital that the government’s review of flood defences takes account of the crucial role that improved management of our natural capital can play in a cost-effective and future-proofed UK flood strategy.
And new estimates show that if the Government’s new 25 year plan for food and farming were to result in a 1% annual increase in agricultural output, after 25 years, the cost of soil degradation could amount to more than 70% of the additional annual output, offsetting a large proportion of the benefits, unless action is taken to reduce the negative impacts of agriculture on soil.
It doesn’t have to be this way. Other research conducted for the Natural Capital Committee shows a package of investments in natural capital including the adaptation of England’s farmland to provide a range of benefits from peatlands, forests, grasslands and other vital ecosystems as well as restoring fish stocks, would generate economic benefits worth as much as £9.2bn over 50 years – two to three times larger than the investment costs involved.
The land based investments would involve moving 13% of agricultural land out of production (or reducing the intensity of production) over a 25 year investment period, but WWF research shows the opportunity costs of this could be minimised through careful targeting, resulting in only a small loss in agricultural production of 4.5%. This would be substantially recouped in terms of reduced flooding costs, water filtration, carbon absorption, recreation opportunities, not to mention the creation of new jobs in natural resource management industries.
This kind of investment could be achieved through the Government’s new 25 year Plan for Nature, but within government, only the Treasury has the power to shift economic policy-making so that it is geared towards protecting and improving the natural asset base, and incentivising a shift in production and consumption towards resource-efficient, low-carbon pathways.
A recent report from WWF-UK outlined some of the things Mr Osborne could do now to bring this about. He could pledge to incorporate information on the state of the UK’s natural capital in annual Budget reports, given its crucial role in underpinning the economy. To back this up, a natural capital stress test could help to show the potential risks to the economy from ignoring natural capital depletion – such as the potential consequences for business productivity should water stress deepen in already parched areas of the UK such as the south east – and help prioritise remedial action from government departments.
The state can’t do everything, so the private sector must be galvanised to act too. I sense growing understanding from the business community that the days of business as usual are over. So a new Natural Capital Task Force could be established to identify how the private sector can best contribute towards natural capital goals, and how public policy can incentivise action, innovation and investment. And no Chancellor should baulk from wielding the stick where necessary: companies should be made to publish the climate and natural capital-related financial risks they face.
To date, George Osbourne has won few plaudits from the environmental movement. But as the world reaches a tipping point, not just in terms of environmental declines but in our common understanding of the potential economic risks this poses, this most canny of operators must have grasped that economic security can no longer be bought at the expense of the planet’s health. Taking a few crucial steps now could help ensure the ongoing prosperity he needs to sustain his own ambitions for a long-term economic plan that really does work.
Find out more about the Greener Budget Report 2016