Dieter Helm is Professor of Energy Policy at Oxford University and Professorial Research Fellow at the Smith School. He is the Chair of the Natural Capital Committee.
Rather than being a general review, the following lines develop several main arguments exposed in the book, based on the selection of the reader.
« This book sets out to explain how the failure to preserve and protect many of our natural assets can be turned around by thinking about the problem in terms of natural capital », Natural Capital, Valuing the Planet [1], (p.7).
Released in 2015, Dieter Helm’s book « Natural Capital, Valuing the Planet » offers new perspectives to tackle the crisis the world is experiencing in terms of global natural capital. If not politically easy to implement, Helm calls for a profound change in macroeconomic accounting rules to take into account natural capital. The latter comes together with a shift in terms of economic paradigm with respect to future generations (i.e. moving from utility-based perspectives to a right to possess approach).
As a starting point, Helm defines natural capital as « everything that nature gives for free » and sets up two distinct categories. On one hand, non-renewable natural capital that can only be used once (e.g. gas, North Sea oil etc.), and on the other hand, renewable capital representing natural ecosystems (e.g. river systems). Unlike any other form, renewable capital reproduces at zero cost and gives benefits forever, provided the stock is not driven below a certain threshold (e.g. herring stocks). In other words, if smartly managed, we will be able to enjoy it in perpetuity (value is open-ended !). This makes renewable capital highly valuable for humankind compared to others. As a result, environmental policies should target the maintenance of a scientifically determined stock such that the critical threshold of that capital is never crossed – and the renewable capital does not become non-renewable.
From that view, a workable approach to adopt is to consider natural capital as a range of assets per see. The latter would bring economists to focus on renewable capital as assets to preserve rather than capital aiming at producing an output – and subject to substitution with others (e.g. labour, machines etc.). With respect to the 20th century, it is a call for a radical change in terms of the economic paradigm.
Precisely, taking the definition of sustainable development defined in the Brundtland Report (1987) as « development that meets the needs of the present without compromising the ability of future generations to meet their own needs », Helm argues that policies should particularly (mainly) focus on assets at risk (close to the reproduction threshold) and ensure their associated maintenance in order to bequeath the capital to following generations (if not enhancing it). That supposes a second shift in the underlying economic paradigm. Namely, moving from the current utility-based approach to a capability-based approach (Sen) with respect to our future generations’ legacy. To put it in another way, shifting from focusing on the level of utility next generations should enjoy – which represents an output-based approach (eg. consumption) that, assuming substitutability between capitals, discards the questions of assets required to produce it – toward an asset-based perspective in which natural capital assets provide a framework within which people can exercise choices and are capable of participating in the economy and society (e.g. a decent climate etc.). As a result, our generation should provide a natural environment for subsequent generations so that they can exercise choices. That means bequeathing a natural capital at least as good as the one we have been enjoying. Whether the reader buys the argument or not, scientific research is telling us that current economic activity has led to a global natural capital crisis – emphasizing the unsustainable dimension of current economic systems.
Therefrom, how to translate this asset-based approach into policy?
As for markets, implementing policies is relevant if a well-defined rule/objective is followed/targeted. For natural capital, simple to state but anything but simple to implement, Helm’s underlying rule to follow is: « the aggregate level of natural capital should not decline ». If easy to understand, questions on practical implementations have generated two general approaches: weak aggregate natural capital rule and strong aggregate capital rule. The former postulates the level of renewable capital should be kept at least constant, and there should be general capital compensation for the depletion of non-renewable resources. The latter suggests that the aggregate level of renewable natural capital should be kept at least constant, and the value of economic rents from the depletion of non-renewable resources should be invested in renewable natural capital. As a result, the main difference is about what to do with the non-renewable economic rents. Invest in public services such as hospitals, schools? This is a weak sustainability approach. Alternatively, invest in renewable natural capital to restore natural capital and leave higher capital to future generations? This is a strong sustainability approach.
In any case, even if not everything can be preserved, each natural capital damage should be compensated for with gains elsewhere. As discussed, natural capital needs to be maintained and enhanced. With regards non-renewables, it is a matter of which generation enjoys it. However, when it is depleted, there needs to be compensation, and the surplus revenues should be used to protect and enhance renewable capital. Precisely, if you damage the environment (e.g. a company polluting soils), you must pay compensation so that no net loss is observed. This is intertwined with the concept of negative externalities and green taxes. An efficient tax on a ton of carbon is set at the level of the reflected social cost of carbon (e.g. health damages, climate degradation). From an economic perspective, the latter is efficient and allows to reduce taxes elsewhere in the economy (double dividend). In the same way, Helms suggests that rents from the depletion of non-renewables should provide funds for the restoration of natural capital. Then, a significant green investment could drive sustainable growth and therefore stop the decline in natural capital.
Overall, « Natural Capital, Valuing the Planet » provides a critical attempt to measure and value natural capital from an economic perspective. Rather than being opposite concepts, Dieter Helm demonstrates that the environment should be at the core of the economy, and it is only in such a way that sustainable growth is possible. This book looks at what precisely might be done to improve the balance sheet or to define natural capital policies from a specific economic accounting and investment perspective.
Côme Billard, Research Fellow on « Applying economic networks to the green transition: essays on diffusions and negociations »
[1], Helm, Dieter, (2015) Natural Capital, Valuing the Planet, Yale University Press, English, $17.00/15€