Friday, 2 October 2015

Environmental Economics

photograph by the late Ern Mainka

Lecture to the RMIT School of Global, Urban and Social Sciences

31 March 2015

The different aspects of reality

Let us imagine we have with us in the lecture theatre a tree. Let’s make it a special tree.

Perhaps the rarest eucalypt is Eucalyptus recurva - discovered in the 1980s and also known as the Ice Age Gum or the Mongarlowe Mallee. It is a mallee, with many stems sprouting from a single lignotuber (underground root ball).

The species is known from only four sites on the southern tablelands of NSW - three of the sites having just a single individual, and the other having two. Some of these five individuals are genetically identical.

The oldest of these plants, near Windellama, south east of Goulburn, is considered to be 13,000 years old and a relic of the ice age. It is probably the oldest tree on Earth.

Because of the tree’s extreme rarity, the exact locations of each known specimen is a closely guarded secret - although all are on private property.

There are different ways of appreciating this tree. A physicist might be able to tell us (although it would be hard) all the atoms and compounds which make up this tree. A logger might be able to estimate the precise wood volume it would yield, and an economist the value of that timber. A poet or artist might see in the tree inspiration for art works. A botanist will be able to tell us some of the things I’ve already mentioned – the species of the tree, and what is unique about it. A zoologist to tell us what animals shelter in the tree, and perhaps something of the relationship between animal life and the tree. The tree might be a special meeting place – with a particular social importance. It might have legal significance, and a lawyer can tell you what the rules are that protect it. Or it might be in a water catchment, and have an important role in the production of clean water – something the hydrologist can tell us about.

Each of these perspectives is valid, but the reality of the tree cannot be reduced to any one of them.

If we try to reduce reality to one of its aspects, we lose a great deal. So a Freudian will have a particular take on human relationships, but it would be a distortion to think this is all there is. A behaviourist – same thing. A Marxist will see things in terms of the relationship between the factors of production and the production process, and this is a valuable insight – but it is only one aspect of reality.

Barry Lopez, the great nature writer, wrote this about our appreciation of land:
Whatever evaluation we finally make of a stretch of land, however, no matter how profound or accurate, we will find it inadequate. The land retains an identity of its own, still deeper and more subtle than we can know. Our obligation toward it then becomes simple: to approach with an uncalculating mind, with an attitude of regard. To try to sense the range and variety of its expression— its weather and colors and animals. To intend from the beginning to preserve some of the mystery within it as a kind of wisdom to be experienced, not questioned. And to be alert for its openings, for that moment when something sacred reveals itself within the mundane, and you know the land knows you are there.
            - Barry Lopez Arctic Dreams

Today we see the economic aspect of life dominant in discourse. The slightest change in economic indicators – the sharemarket level, the unemployment level, the inflation rate, the value of the dollar - is the subject of news.

According to the Australian Accounting Standards ‘fair value’ is:
9.    … the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
-       AASB Standard ‘Fair Value Measurement’ September 2011.

But how do we value our tree under that standard, when it is not allowed to be bought or sold?

Let’s focus this further. According to the Wildlife Act 1975 (Vic):

45 Acquiring etc. threatened wildlife
(1) A person must not buy, sell, acquire, receive, dispose of, keep, possess, control, breed, process, display, take samples from or experiment on threatened wildlife.

Penalty: 240 penalty units or 24 months imprisonment or both the fine and imprisonment and an additional penalty of 20 penalty units for every head of wildlife in respect of which an offence has been committed.

Since it is an offence to buy or sell threatened wildlife, it must follow that the price for such wildlife in the fair market would be nil.

Therefore, according to Australian accounting standards, protected wildlife has no value at all.

Yet many people in the community would regard it as having a value.

We are here meeting two different ways of viewing the value of something in the world. How is that language divide to be bridged?

The Courts

We have a Westminster system of government in Australia. Under this system, government is divided into three arms – parliament, executive and judiciary.

The judicial arm of the government comprises the courts.

Under the doctrine of separation of powers, the three powers are the legislative power to make laws; the executive power to carry out and enforce the laws; and the judicial power to interpret laws and to judge whether they apply in individual cases.

In the paper included in the course work, I have included a number of case studies of the judicial process being used to silence community groups.

There are also examples of the courts being used to make important advances in the law.


In 1992 the High Court delivered judgment in the Mabo case. This was a landmark decision which recognized native title. The court found, contrary to previous decisions of lower courts, that native title existed, and was based on the traditional connection to or occupation of the land, and rejected the doctrine of terra nullius, which had fantasized that Australia was empty and unoccupied when Europeans arrived and established settlement here.

Once this decision was made, parliamentary legislation to deal with the uncertainties which then arose was necessary – but the courts took the lead.

In 1996, the High Court extended the Mabo doctrine when it delivered the Wik decision, which held that the grant of a pastoral lease did not confer rights of exclusive possession, and would not necessarily extinguish native title.

This prompted the Howard government to introduce legislation which significantly wound back native title.

IN 2010 Warkworth Mining Limited – a subsidiary of Rio Tinto – sought to extend its mining operations near Bulga in the Hunter Valley. The proposal involved clearing 766 hectares of endangered ecological communities, remove an entire ridge, and undertake extensive open cut coal mining, which was to continue to 2031.

The NSW Minister approved the application on 3 February 2012.

The local residents then appealed the decision to the Land and Environment Court.

The appeal raised questions of biological diversity, of noise and dust, and social impacts. However, against this Warkworth argued that huge economic benefits would flow if the mine proceeded.

So far, this is a familiar scenario – two different types of argument, in different spheres, never quite meeting each other.

The economic benefits of the extension as projected in the Rio Tinto’s two economic assessments were huge: an input-output analysis (I-O analysis) put the figure at an additional $16.8 billion in output and 44,675 jobs in the Hunter Region (where jobs are defined as lasting for one year full-time) as compared to the base case.

A cost benefit analysis (CBA) concluded that the total net production benefit would be in the order of $1.97 billion, with Warkworth, its shareholders and the New South Wales and Commonwealth governments standing to benefit the most.

This kind of analysis had never been questioned by environmentalists in a case of this kind. The argument had been that the other losses were worth more.

At this point the opponents of the mine changed the game. They called economist Richard Denniss, the executive director of the Australia Institute, who pulled apart their analysis.

In the end the NSWLEC, relying on the expert evidence from Richard Denniss, determined that neither the I-O analysis nor the CBA adequately considered the principles of ecologically sustainable development, and severely criticised both economic models on their methodologies. Preston CJ concluded that both models were, at best, only a means of bringing to attention some of the relevant environmental, social and economic matters a decision-maker must weigh and balance when determining whether or not a project should be approved.

He rejected the application to extend the mine. The NSW government and Rio Tinto appealed to the Court of Appeal in NSW. That appeal was dismissed. The mine will not go ahead.

The New South Wales government has responded to the Warkworth decision by introducing amendments to the State Environment Planning Policy 2007 (SEPP) such that economic benefits – employment generation, expenditure, and royalties – must now be the principal consideration where mining developments are concerned.

But even this would not have saved the Warkworth mine – Rio Tinto had no credible evidence of the economic benefits they trumpeted.

Should we value the other factors?

Some groups have spent significant sums trying to place a dollar value on the loss of amenity and loss of biodiversity from developments of this kind. This is a very dangerous course, because many of these factors – like the endangered wildlife example – do not readily reduce themselves to a dollar value.

I think this is a dangerous course because it condemns you to argue only in dollar terms – when often we really want to uphold some values which are not readily measured in money.

So for example, the ACF have embarked on large projects to place an economic value on some natural assets – such as the Hattah Lakes, forests, and the like.

If we carry out this sort of study, the figures may or may not provide a greater money value to the protected asset than for any proposed development using that asset. If we are to use the higher value to argue that a development should not go ahead, are we not also conceding that if there is a lower money value for the national park or forest or alpine meadow left as it is than for any given development, than we concede the option with the greatest money value wins.

I think I would still like to protect our natural environment, even in the face of arguments that we could make more money destroying it.

I also think there are many in the community who simply will not believe the figures that we come up with for the value of these things in money terms – for their value is essentially not something reducible to mere finance.

How do we put a figure on love? On justice? On peace? On human rights? Any attempt to do so will be very flawed, and yet we all believe these things are valuable – even though war can generate economic activity, injustice and exploitation in violation of human rights can bring great profit, and most would give a great deal of money not to have Gina Rinehart’s family misery.

Courts often have real difficulty dealing with environmental issues, largely because there is no clear party who can advocate the interests of the Earth.

Should nature have its own legal rights?

If we only value things that can be exchanged for money, we will fail to value many things which are of importance.

At the same time, if the only measure of global good is the rights and welfare of our species, we have an inadequate standard. The countervailing considerations of prosperity from selling coal or from felling trees or from releasing dangerous chemicals may be all too readily utilized against the benefit of the Earth. Human wellbeing will have short term and long term perspectives. How do we decide which is more important? We can call for intergenerational equity – not leaving a mess for our children and grandchildren – but when they are not yet able to actively advocate their interests, this may not be sufficient when realpolitik interposes.

Today I believe it has become essential that our human rights discourse be informed by recognition of the rights of the Earth itself.

In fact, many countries[1] have begun to institute laws which give fundamental protection to the environment.

France has a Charter for the Environment, which was incorporated in the constitution in 2005. It is a significant document. Article 1 reads:
Art 1 – Each person has the right to live in a balanced environment which shows due respect for health.
It is still focused on the rights of humans, but it contains strong provisions of a kind we do not enjoy in Australia.

But Ecuador – a comparatively small Latin American country only slightly larger than Victoria and with a population of 15 million – has altered the entire international debate. In 2008 the people of Ecuador by an overwhelming 63% majority, voted for a new constitution - the first in the world to comprehensively recognise ecosystem rights and nature rights:

Nature or Pachamama, where life is reproduced and exists, has the right to exist, persist, maintain and regenerate its vital cycles, structure, functions and its processes in evolution.
Every person, people, community or nationality, will be able to demand the recognitions of rights for nature before the public organisms.

Much of the motivation for this came from widespread outrage at Chevron dumping millions of tonnes of toxic waste into the Amazon as part of its mining operations. The new document refers to “Pachamama” the indigenous Earth mother figure. In Spanish it is called la Ley de los Derechos de Madre Tierra – the Law of the Rights of Mother Earth[2].

Much of the thinking for this new constitution was done by the local indigenous community and NGOs. The process was remarkably rapid – from beginning work on this constitution to its passage took about 18 months.

Chevron reacted strongly. Its lobbyist told Newsweek:
The ultimate issue here is Ecuador has mistreated a U.S. company. We can't let little countries screw around with big companies like this - companies that have made big investments around the world.
It did not end there. Then Bolivia’s first indigenous president, Evo Morales, announced his country would follow suit with “The Law of Mother Earth” based on the indigenous belief that all the inhabitants of nature are created equal. As President Morales put it:
Either capitalism dies, or Mother Earth dies. We choose Pachamama, or death.
Bolivia’s Law of Mother Earth was passed on 22 April 2011. Other nations, such as Nepal, have expressed interest in following suit.

The law in Australia has frequently failed the environment. I think some bold vision is necessary. Legal recognition of the rights of Mother Earth would be a great step forward.

Protecting the environment calls forth all the different aspects of human civilization – amongst other things, philosophy, art, science, religion, architecture, economics and the law. It is for us, as humans who build our civilization, to ensure that each aspect values the things which we consider to be important.

[1] eg S 24 of the Constitution of South Africa (a right to have the environment protected), Article 24 of the Basic Law (ie the Constitution) of Germany (guarantee to the rights of animals), and UNESCO’s Earth Charter
[2] The relevant provisions are as follows:
Rights for Nature
Art. 1. Nature or Pachamama, where life is reproduced and exists, has the right to exist, persist, maintain and regenerate its vital cycles, structure, functions and its processes in evolution.
Every person, people, community or nationality, will be able to demand the recognitions of rights for nature before the public organisms. The application and interpretation of these rights will follow the related principles established in the Constitution.
The State will motivate natural and juridical persons as well as collectives to protect nature; it will promote respect towards all the elements that form an ecosystem.
Art. 2. Nature has the right to an integral restoration. This integral restoration is independent of the obligation on natural and juridical persons or the State to indemnify the people and the collectives that depend on the natural systems.
In the cases of severe or permanent environmental impact, including the ones caused by the exploitation on non renewable natural resources, the State will establish the most efficient mechanisms for the restoration, and will adopt the adequate measures to eliminate or mitigate the harmful environmental consequences.
Art. 3.  The State will apply precaution and restriction measures in all the activities that can lead to the extinction of species, the destruction of the ecosystems or the permanent alteration of the natural cycles.
The introduction of organisms and organic and inorganic material that can alter in a definitive way the national genetic patrimony is prohibited.
Art. 4.  The persons, people, communities and nationalities will have the right to benefit from the environment and form natural wealth that will allow well-being.
The environmental services cannot be appropriated; its production, provision, use and exploitation, will be regulated by the State.