Block’s Indicator of Sustainable Growth

by Ray Block

“My very strong belief is that we need to reorient our investments toward this transition to a clean energy economy. It will be the engine of growth for getting us out of the doldrums that we’ve gotten in right now.”

This was the start of a Reuters story October 9 2008) quoting Cathy Zoi, CEO of Al Gore’sAlliance for Climate Protection.

Zoi’s comments received prominent mention in the environmental media (www.enn.com)

The global financial crisis is so dire as to whether the financial system can be saved avoiding a meltdown, that energy solutions are being put on the backburner. But there is some hard reality in the environmental case.

As some prominent American enterprises have rightly foreseen that large scale renewable energies will become probably the largest single source of industrial growth in future years, now is the time to secure a prominent role, in what will become highly profitable industries.

Another way of looking at environmental costs can be gained from a report released this year. The economics of ecosystems and biodiversity (TEEB) is an interim report from a European Union commissioned study headed by Pavan Sukhdev, a senior executive of Deuthsche Bank, which was released on May 29 2008. Further reports will be released in 2009 and 2010. The study attempts to measure the economic costs of the loss in biodiversity and ecosystems. The interim report seeks to measure the loss of ecosystems in forest services.

“In the first years of the period 2000 to 2050, it is estimated that in the early years, we are losing forest ecosystem services with a value equivalent to around 28 billion euros each year, and the value increases over the period to 2050. Losses of the natural capital stock are felt not only in the year of the loss, as the reduction in the service flow continues over time.

“Taking these future losses into account, the net present value of services from forests ecosystems that we lose each year is estimated at between 1.3 trillion and 3.1 trillion euros, applying discount rates of respectively 4 per cent and 1 per cent. As indicated above, this is a conservative estimate: it is partial, excluding some ecosystem services, some negative feedback effects of these losses on GDP are not fully accounted for, and the values do not account for non-linearities and threshold effects in ecosystem functioning.”

So the international banking crisis is not the only game in town. There will be many more crises in the years to come. But the environmental loss cannot be disregarded. Our future life and that of our children is at stake.