Ecosystem Investing

A $2 Trillion Discovery that May Piss You Off

Written by Brian Hicks
Posted July 19, 2010

Over the weekend, I did an interview on a radio talk show.

Unfortunately, you'll never hear it.

It's my own fault though.  I dropped the "f bomb" a few too many times.

That's right — and I have no plans to stop using it, either...

Free Market!

I bet you thought I was going to say something else, didn't you?

Either way, "free market" must have been just as offensive as the other "f" word, because every time I started talking about how a real free market would validate the economic advantages of many energy alternatives, I was cut off.

You see, the guy who was interviewing me essentially just wanted to debate. And I was fine with that.

Happy to do it, actually...

The only problem is that he (and so many like him) don't really want to hear the truth about energy.

They're completely satisfied buying into the cheap energy illusion — feeding into the hype that alternatives can only survive with government support, never once acknowledging the massive subsidies that oil and coal receive every single year.

Truth be told, I'd be happy to do away with subsidies altogether. That means both alternatives and fossil fuels never see a single taxpayer dime ever again.

If you truly value a free market, then certainly such a suggestion shouldn't be a problem.

Now we've discussed the subsidy issue in these pages before, so I won't rehash it here.

(Though if you'd like to see how fossil fuels landed $72 billion in subsidies during the same time renewables received $29 billion between 2002 and 2008, you can see the analysis here.)

Of course, $72 billion is nothing compared to an additional...

$2 Trillion unaccounted for every single year!

I've been in the investment publishing game for 16 years now.

In that time, I've made a lot of friends (investors who made a ton of dough in alternative energy), and I've pissed off a lot people (folks who use my analysis of alternative energy as an excuse to spout off about liberals, socialism, and those pesky treehuggers).

If you're the latter, you may want to stop reading now.

Last week, U.N. States proposed the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), a new body that seeks to advise on valuing nature and conservation targets.

Now before you roll your eyes and write this off as some environmental rant, consider that the biodiversity and ecosystem services (what we define as natural capital) that are being discussed have more than just an aesthetic value.

This stuff has real economic value. According to U.N. reports, the world's natural capital is valued at $2 trillion-$4.5 trillion a year. And yet these are figures that are not being included in economic measurements or GDP.

If the liquidation of natural capital was figured into the equation when measuring performance (as it should be), how cheap would oil and coal really be?

The European Commission issued its Economics of Ecosystems and Biodiversity report (TEEB) last week in an effort to find a way to properly measure the value of natural capital.

Here's what Angela Cropper, Deputy Executive Director of the U.N. Environment Programme had to say at press conference for the launch of the TEEB:

Biodiversity is disappearing at up to 1,000 times the natural rate, and ecosystems are functioning less and less effectively.

About 60 per cent of ecosystems have been degraded or used unsustainably, including provisioning (food and fibre) and regulating services (climate, flood, water purification).

Around 50 countries face moderate or severe water stress.

By 2030, it is thought that water scarcity could cut agricultural harvests by 30 per cent.

If numbers or statistics we've heard today, either about biodiversity loss or the value of ecosystems seem at first too abstract or too distant, there can be no denying that we are already feeling the effects of biodiversity loss: rising food prices, a lack of once commonly available fish, some of the worst droughts in a decade affecting exports basic foods and in the worst cases, causing severe food shortages and widespread hunger.

Of course, we don't need a press release to tell us something that we're seeing in our own backyard right now...


Thanks for the case study, BP!

According to economist Pavan Sukhdev, the BP debacle underscores the need for a change in how natural capital is measured and valued. He argues that had a holistic economic assessment been required before drilling was allowed, the potential liability might have motivated BP to take more stringent safety measures.

Sukhdev also notes the $20 billion ponied up by BP for compensation and cleanup, but asks the question, "... what about the cost to the economy of lost utility — eco-tourism loss, fisheries stocks that represent future losses to industry, the inability to fish in the area?"

The economic loss caused from this single disaster will dwarf $20 billion.

From the death of mangroves which serve as nurseries for commercial marine species and protect against hurricane damage... To the health effects that will come to fruition as we are forced to remember that it's a long and nasty fall when you're at the top of the food chain... The grand total from this disaster will not be a small one.

Of course, it'll take decades before we'll really be able to get an honest assessment. So I can't even imagine how one could put a valid price tag on it now.

Hell, we still don't even know how this whole thing's going to play out. That whole area out there in the Gulf seems like a ticking time bomb.

We got confirmation this morning that a seep has been found near the well, and anomalies have been noticed at the well-head. Scientists also remained concerned about large amounts of methane escaping through cracks in the sea floor.

This is far from over, my friends.

So lets drop the partisan rhetoric, and consider, honestly... Is there an economic advantage to using alternatives to oil?

You better "f-ing" believe it!

To a new way of life, and a new generation of wealth...

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