Chapter 8 Capital Gains

Download the entire chapter (PDF-168k)


How we ignore living systems -- The resource riddle -- Original quality provider -- One teaspoon of good grassland -- Nature's workers out of business -- $33 trillion and counting -- Substitutes or complements -- When the limiting factor changes -- Subsidizing global loss -- Taxing waste, not work -- The first sustainable corporation

Waste elimination in industry leads to a chain of events and processes that can form the basis for startling innovation in the business sphere. Ultimately, however, the chain leads back to biological systems, the sphere of life from which all prosperity is derived.

So far, the connection between industry and living systems has largely been ignored. The Wall Street Journal doesn't have a column devoted to the latest news about natural capital, because natural capital has been for the most part irrelevant to business planning. The exclusion of natural capital from balance sheets has been an understandable omission. There was so much of it available that it didn't seem worth taking into account. Throughout the Industrial Revolution, manufactured capital, money, factories, machinery, was the principal factor in industrial production, and natural capital was considered only a marginal input, one that rarely affected the economy save for during periods of war or famine, when scarcity could become a critical issue.

In 1972, a book commissioned by the Club of Rome entitled The Limits to Growth investigated the long-term consequences of existing patterns of consumption and production on factors like population growth, industrial capacity, food production, and pollution. Using the system dynamics model created by engineer Dr. Jay Forrester, professor at the Sloan School of Management at MIT, the authors predicted that, sometime in the next hundred years, if then-current trends in population growth, industrialization, and resource depletion continued unchanged, the world would face actual physical limits to growth. The shortages we would face would be tantamount to pouring sand into the gears of the industrial machine. Prosperity could be preserved, but only by changing the trends. Shortly after the publication of the book, it seemed as if its cautionary warnings were already coming true as the 1973 Arab oil embargo and subsequent energy crisis gripped the nation. Drivers fought to secure places in six-mile-long gas lines, while food prices rocketed. Overanxious survivalists hoarded toilet paper, lightbulbs, and nitrogen-packed containers of wheat and beans.

Nine million copies of The Limits to Growth were eventually sold in a total of thirteen languages. The book represents the very first systematic application of a comprehensive model to global futures. Although the methodology and terms used were not well understood, the book caused a furor. Businesspeople attacked it, arguing that the world had successfully adapted to previous shortages and that any future crises would be no exception. Robert Ayres, the inventor of the term "industrial metabolism," criticized the model because he thought it did not take into account the role prices would play in signaling shortages far enough in advance to precipitate innovation. Energy analysts like Daniel Yergin said that such innovations, especially energy efficiency measures, would offset shortages and correctly foresaw that the price of oil, over time, would come down instead of going up.

Twenty-seven years later, what many observers most remember of The Limits to Growth is that some of the more specific predictions of resource shortages that it was thought (wrongly) to have made have not occurred. Further, although the book described "present known reserves," and how they increase over time through fuller exploration and better technology, it didn't explicitly state that mining and oil companies have no financial incentive to prove out reserves much beyond the next thirty-odd years. Some readers therefore got the incorrect impression that the authors thought the reserves known in 1972 equaled the entire geological resource base. The authors didn't think that. Sure enough, reserves in 1972 turned out to be only a part of the resource base, so exploration and discoveries continued routinely to expand them. In 1970, estimated proven world reserves of oil were 455 billion barrels; by 1996, the proven figure had risen to 1,160 billion barrels. For natural gas, the figures are even more dramatic. In 1970, reserves were 1,140 trillion cubic feet; by 1996, they had increased to 5,177 trillion cubic feet. Most important, the annual compound growth in world demand for oil, which in 1972 was projected to stay around 4 percent a year indefinitely, turned negative in 1974 and then averaged only 0.9 percent for the next 20 years, greatly extending the reserves' useful life. In what will continue to be a durable equilibrium between price, availability, perception of scarcity, and energy efficiency, prices fell and stabilized. People now believe that there is no energy crisis, and Detroit now makes 8,000-pound-plus sport-utility vehicles for upper-middle-class suburbanites to pick their kids up at school. In other words, in the two and half decades that have passed since the publication of The Limits to Growth, we seem to have more "more" rather than less.

Because the book was widely perceived as an unfulfilled prediction of doom, which was emphatically not the intent of the authors, who sought rather to point out that using resources at a rate greater than they could be replenished would lead to trouble and could be advantageously avoided, the idea of resource limits is scoffed at today in many business and political circles and has fallen into disrepute. What has been lost, however, in that simplistic dismissal is the genuine understanding of what a resource really is. The word comes from the Latin resurgere, to rise again. A true resource, in other words, is something that returns over and over again, because it is part of a cyclical process. Of course, the definition has changed with time and now describes such nonrenewables as coal and oil. But even they could be recreated in a billion years or so, if we had the time to wait.

ECOSYSTEM SERVICES
Another way to assess the worth of ecosystem services is to consider the $200-million Biosphere 2 experiment. In 1991, eight scientists entered a sealed, glass-enclosed, 3.15-acre structure near Oracle, Arizona, where they remained for two years. Inside was a diversity of ecosystems, each built from scratch, including a desert, a tropical rainforest, a savanna, a wetland, a field for farming, and an ocean with a coral reef. The "bionauts" were accompanied into their habitat by insects, pollinators, fish, reptiles, and mammals that were selected to maintain ecosystem functions. They were to live entirely off the land inside the dome. All air, water, and nutrient recycling took place within the structure.

Biosphere 2 was the most ambitious project ever undertaken to study life within a closed system. Never before had so many living organisms been placed in a tightly sealed structure. Inside the dome, air quality steadily declined. While a rise in carbon dioxide was expected, scientists were surprised at the drop in oxygen levels. While the ecosystems maintained life and, in some cases, flourished, there were many ecological surprises. Cockroaches multiplied greatly but fortunately took on the role of de facto pollinators as many other insects died off. Of the original 25 small vertebrate species in the Biosphere 2 population, 19 became extinct. At the end of 17 months, because of the drops in oxygen levels, the humans were living in air whose composition was equivalent to a 17,500-foot altitude. The lesson for nonscientists is that it required $200 million and some of the best scientific minds in the world to construct a functioning ecosystem that had difficulty keeping eight people alive for 24 months. We are adding eight people to the planet every three seconds.

One of the primary lessons of Biosphere 2 is that there are some resources that no amount of money can buy. Few if any human-made substitutes can truly supply the diverse array of benefits that flow from nature. We can't manufacture watersheds, gene pools, topsoil, wetlands, riverine systems, pollinators, or tropospheres, let alone create an entire ecosystem. Aldo Leopold's famous dictum to "think like a mountain" was not just a poetic device but a plea to think in terms of the integrity of systems, because we cannot interrupt or replace the complex interrelationships in ecosystems with good results. What we do know about nonlinear systems is that they can maintain dynamic equilibrium in the face of disruptions, but only up to a point. Then, even small shifts in their balance can cause critical changes that throw the system into disequilibrium and rapid perturbation from which it may never return to its original pattern.

For example, a slight global warming may actually precipitate a sudden ice age rather than, as one would expect, a hothouse. At present, the North Atlantic Current, a flow of warm water equivalent to the mass of one hundred Amazon Rivers, maintains Europe and its farms at temperatures nine to eighteen Fahrenheit degrees higher than would otherwise be the case. London is at the same latitude as Calgary, but thanks to the way the Atlantic organizes itself, there are no snowmobiles or sled dogs in Hyde Park. Increased flows of freshwater melting off the Greenland icecap, however, could simply stop the North Atlantic Current in a matter of only a few years. When mixed with the current, the sweeter water of melted ice could prevent a downwelling, the process whereby the heavier North Atlantic Current sinks and returns eventually to the Equator. Such an event would be the equivalent of turning off the heat in Europe.

The real possibility of sudden, dramatic system changes is something we should be able to understand. Our lives are full of mechanisms for which a slight nudge or force can cause rapid changes or "flip-flops," from light switches to thermostats to fire sprinklers to gun triggers. Experience has taught us that ecosystems are laced with similar trigger mechanisms, and before our fingers get too itchy, we would do well to heed science's warnings about the possible outcomes of our actions.

(End of excerpt)

Download the entire chapter (PDF-168k)


To make comments or report problems with this site, please contact webmaster@rmi.org.

© All rights reserved. Published by Rocky Mountain Institute.
2317 Snowmass Creek Road  |  Snowmass, CO 81654-9199  |  Ph: 970.927.3851

Small


Powered by Intrcomm Technology's SMC