The Natural World and Economic System by Barbara Heinzen

Part 2 of The View from a Hudson River tributary, by Barbara Heinzen   Click here to view Part 1.

Cover photo shows Hannacroix Creek where it empties into the Hudson River, July 2016

Full post title: Where does the natural world belong in the economic system?

When I bought these twenty acres on the Hudson River in 2010, the house was ready to collapse. In rebuilding it, I did everything I could afford to reduce its environmental footprint – insulation, durable, long-lasting materials, and a ground-source heat pump for winter heating. The heat pump was an expensive item, but the New York State government shared the cost using money from selling pollution permits in a regional carbon trading system, RGGI. The government, in this instance, was paying me to avoid adding greenhouse gases to the atmosphere.

While this payment was helpful, it could not finance the removal of invasive trees, shrubs and vines from the swamp forest below the house. Once some of those were gone, another government department gave me native trees and shrubs to plant along the river and the creek, a third department provided free forest management advice, while a fourth department advised me on managing the beavers. Once nearly extinct in the Hudson Valley, this winter the beavers have been as keen to remove the older trees along the water as I have been to plant new ones.

These government departments are helpful, but do not address the core economic problem: environmental restoration here is a cost without an earned income to offset whatever gets spent. A business that operated on that basis would soon be bankrupt. What is the income I can earn on 20 acres of riparian land that might pay for the cost and time of clearing out the invasives and replanting with native species, or for wrapping wire fences around trees the beaver should not take down? Who pays me for living with the dynamics of the beaver so that beavers have a home? Beavers may be admirable dam-builders, but they cannot open a bank account or pay rent.

Beaver logic is valuable. They are a keystone species, but the financial logic of a household is also valuable and essential to the resilience of any family. What is lacking in this small Hudson River example is the means to integrate these two keystone logics to create wider systemic resilience.

For many centuries we have assumed the natural world would support us, no matter what we did to it. There would always be more trees to cut, more clean air to breathe, more fish to take from the rivers and seas. The rules of our modern economic system rely on that assumption. But if that assumption is wrong, what is the alternative?

The 20th century alternative gives governments the responsibility for environmental protection. However, the natural world is still a homeless “externality” with just a bed in the basement of the modern state. The better rooms of the house are reserved for the businesses and jobs of modern finance and industry, with the government settling any household quarrels. As the de facto guardians of the natural world, our governments negotiate the rules of the Paris Climate Agreement, protect our national parks and rare species, and regulate the local cement plant’s air emissions.

But is that the only option we have? What might it take to move environmental restoration and care upstairs to sit in the drawing room of debates as critical economic decisions are made? Can environmental care be so integrated into our economy that I can pay for the restoration of these few acres by charging people for our flood plain services, habitat restoration and carbon sequestration? How might we calculate and document what I would be owed for each service? It is easy to count shirts for sale, but how do I count the variety of life in the flood plain? To whom can I sell these services and why should they pay for what they have always had for free?

An 18th century Dutch colonial stone house sits on the north bank of the creek, while my flood plain forest is on the south bank. I sometimes joke with the owner and say that I should be charging her for flood plain services which bring the spring floods in here, rather than into her basement, but she has never brought out her check book.

Some ground-breaking research has been done on the value of ecosystem services, encouraging governments to protect the natural world. However, this research does not challenge the rules of the game or the current market logic which rewards the destruction of the natural world more often than its restoration and care. What is challenging that system is the emergence of new environmental markets, the most advanced of which are the carbon markets.

Many environmentalists don’t believe that markets can ever support ecosystems, given their destructive record so far. They also point to the unquantifiable spiritual value of landscapes or highlight the fact that cap-and-trade carbon markets are selling companies the right to pollute. I would argue that markets are more than a mechanism for generating profits. They are also a system of signals that guide a complex human system towards a desired goal. As our beliefs about what matters change, our goals should change and the signals we want the markets to use should also change. With the evolving carbon markets, we are learning how to set market signals to achieve the new goal of reducing greenhouse gas emissions. Getting the signals right will increase our systemic resilience by integrating human action with environmental care.

As a smallholder, today’s carbon markets are largely out of reach. Transactions costs are too high for me as a seller and too high for any buyer to bother. Remote sensing of forest cover might be able to track and measure carbon sequestration, but how do I access and pay for the information about my twenty acres and who will buy my carbon sequestration services? As things stand, the necessary infrastructure is not there.

Part 3 of this blog will look at why smallholders matter.




3 thoughts on “The Natural World and Economic System by Barbara Heinzen

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  1. Carbon markets as a challenge to market logic!? Are markets the solution to the problem of a landholder not being paid for the ecosystem services provided?

    Markets only work well as mechanisms for the equitable distribution of costs and benefits if they are sufficiently small and transparent for everyone to have equal access to relevant information. These conditions will not occur in large, highly structured and complex societies where transaction costs prohibit small-scale trading schemes.

    We need another approach. Taxing GHG polluters at the source so that the costs of pollution are captured for redistribution to landowners who can sequester carbon MIGHT be a viable alternative. GHG polluters will pass the tax cost on to consumers. Those who consume most pay most. Taxes, the prices of GHG creating goods and payments to landholders for sequestration can be adjusted to reduce atmospheric GHG. Corruption and kleptocratic governments will be a problem that can be reduced by keeping the redistribution system small enough for people to demand transparency.

    This might work, although I never cease to be amazed at how slippery some people can be and how adept at working the system to their own advantage. In addition to greater transparency, penalties for cheaters need to be prohibitive and applied. Ostrom’s design principles for managing the commons could be usefully applied.


  2. I think your comment, Mike, reads more into my reflections on carbon markets than I intended. I don’t see carbon markets challenging the system, but I do see them testing different market rules in order to create different signals that encourage behaviour that reduces greenhouse gases. They are not doing that very efficiently right now, but I also see these market evolving. As such they are important experiments in testing alternative ways to change damaging behaviour in our economic system.


    1. As you say Barbara, markets need to evolve if they are to make an effective contribution to resolving the problem of our need to increase carbon sequestration and improve the economic conditions for small landholders and family farmers.

      How would you as a small landowner create an experiment that enables you to sell the ecosystem service of carbon sequestration? Do you know of anybody who has managed to establish a successful scheme? Is there a road to follow, or an experiment that can be adapted to your situation? Evolution won’t happen unless people want it to happen and are motivated to make it happen.


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