Perspectives on New Accounting and New Economics for Sustainability
Challenging the prevalent mainstream concepts in accountancy and economics that perpetuate the myth that we can just grow our way out of difficulty. Look at what can be drawn from innovative work such as Natural Capital, environmental economics and steady state economics.
Between Zero and Infinity - a primer on accounting for sustainability at national and global levels
Introduction
The total value of all things on the Earth lies somewhere between zero and infinity. Knowing what that value is, and how it changes over time, might be the “eureka” moment for many people and could help them answer the ever-circling question “why should I do something about our collective stewardship of our planet, and what can I do?”. If the total value of everything is decreasing over time, things are not going in the right direction. If they are increasing, then (all other things being equal) we should be happy, shouldn’t we?
But I’m already racing ahead of myself and in danger of losing many readers in the space of one paragraph. I should slow down and explain why I’m writing this piece. Then, those readers might choose to continue to where my words will lead them.
I was, from my early twenties, an accountant by training, and even earlier than that I was someone who had a strong passion for creating a just and sustainable future. In more recent times, after a long career, I’ve applied my expertise to my passion and have set out, in a more extensive piece of work, some ideas for how a World Balance Sheet (and a world income and expenditure statement) could help us to do better at steering ourselves towards a sustainable future for all. More about that book later. But for now, here is the challenge I set myself – how to make these things (which are often seen as esoteric and beyond the understanding of an ordinary person) intelligible to the majority of people, without patronising them.
This comes down to addressing a few brief questions that popped into my head when ‘committing (electronic) pen to paper’, relating to the words and concepts I’ve already introduced into these first few paragraphs:
In essence, this paper is an attempt to answer these questions by setting out the story of current and future sustainability, or rather unsustainability, of the Earth in such a way that the vast majority of people will grasp it. I hope that they will find it intelligible and useful as a brief summary and guide, and that they can feel confident in reaching their own views on the matters it covers. This is indeed a challenge when they see and hear so much about this subject in the mainstream media, other media, online discussion channels, and in the pub, café or street protest. I will try not to tell them what to think. But I hope I will help provide them with some information and tools with which to make up their own minds. I hope that even those well-versed in the topics covered will gain something, as I have done, from reflecting on some of the things we take for granted in this story. It’s seldom a mistake to revisit some long-held assumptions, to deconstruct them into component parts, review what we think we “know” about them, look at the basic assumptions and go back to some basic principles to “see them” again as if we were seeing them through fresh eyes. Sometimes, great discoveries and insights are found that way. Think of Einstein and his thought experiments about “riding on light waves”. We all have a little Einstein inside us.
I’ve explained my main objective for this text. I might not always achieve it, and I might not achieve it at all for some people reading this. If I fail, partially or fully, that’s my fault, not yours. As well as my skills, I carry with me numerous deficiencies and inadequacies, unconscious biases, blind spots, habits and weaknesses that will tend to lead me to think and write in ways that will turn good intentions into poor execution. If such failure means that this work of literature doesn’t “do it for you” I apologise in advance and hope that you will forgive me for my shortcomings. I hope all readers will at least get something from this work; some piece of information or insight, or a new way of looking at something that they hadn’t appreciated before, or had taken for granted. Something that gives them a new perspective on some old and knotty problems.
I’ll try to start at a very simple level, and build increasing complexity and depth as I proceed. You can follow for as far as the level of complexity feels comfortable. That’s fine. But I’d encourage you to go even further than that – into a level of complexity that stretches you and makes you think hard, providing a learning opportunity. There isn’t enough hard thinking done on this topic by the people who make the most important decisions in the world. We are awash with poor, or simply sub-optimal, decisions, as a result. I’m sure you’ll be able to bring to mind several such examples, at local, regional, national and global scale, without much effort.
There are numerous books with titles along the lines of “Accounting for non-accountants” which are useful for people not already trained in accounting. I’ll try not to repeat materials found in such texts. However, at the same time, it’s inevitable there might be some overlapping, because I’ll need to talk about accounting and I won’t be able to remove from my conscious or unconscious mind some explanations that I’ll have picked up from such texts, as well as many new ones from my own imagination or experience. At the very least, if this current text proves interesting to readers, they might want to read one of those fuller resources to extend, expand or deepen their knowledge of accounting.
So, let’s make a start on a mental journey about understanding the Earth and all living things on it (which includes, of course, you and I) and work towards understanding what it means for all of it to be valued in an accountant’s balance sheet. I’ll quite quickly use climate change as an example, but then I’ll move on to other sustainability challenges relating to what some have called “planetary boundaries” or “planetary limits”.
But first and foremost, I should describe the Earth system, because this is a core concept running through the whole of this paper. The ‘Earth system’ comprises the planet, its atmosphere, its water, its rocks and other chemicals, living beings and wider ecosystems. It’s a closed system, with the exception of the energy entering it from the sun and the energy that escapes from it (eg radiated) out into space. For simplicity, I’m ignoring the comparatively tiny amount of space material that we humans send out into the solar system and beyond (spacecraft, probes, space debris and so on), which could be described by any far superior alien intelligence observing our behaviours as just so much insignificant “space flotsam and jetsam”.
There are important features of the closed Earth system that relate to the “planetary limits” I’ve already mentioned, but before we look at those, it’s worth straight away dealing with the topic of climate change in general and energy balance in particular, including the greenhouse effect.
If it wasn’t for the enhanced greenhouse effect in modern times, the energy balance would, essentially, be zero on a net basis, ie the energy leaving the earth system would be broadly the same as the energy arriving in it, and a steady energy level would exist. That’s what would happen in a closed system.
There are some more complex aspects which technically, it could be argued, make this closed-system-except-for-energy-net-input perspective invalid, for example cooling of the Earth’s hot core, cooling of the sun as part of its long lifecycle and so on, but for the time being I’ll just skip past those, or ask the reader to look them up in credible scientific sources if they’re interested. Suffice it to say that such effects are very long-term, operating on geological timescales, and the effects are numerically insignificant on the timescales of most importance to the ordinary person (eg perhaps their own lifetime or that of their most immediate ancestors and descendants). Such marginal effects can therefore safely be ignored in the simplest treatments of this subject. I might return to this aspect of the story later on or in separate texts if it seems relevant when more complexity is added to the simplest descriptions.
Almost everybody reading this will have heard of the greenhouse effect. For those who haven’t, and as a brief refresher for those who have, to summarise it in simple terms, the greenhouse effect is the most important phenomenon causing an otherwise closed Earth system to warm up currently. This is because, as described above, the system is to all intents and purposes closed, except for the energy arriving into it from the sun and the energy escaping from it into space. The greenhouse effect impacts how much energy escapes into space. Changes in the total atmospheric amount of greenhouse gases (which cause the greenhouse effect) change the amount of energy escaping into space. The greater the amount of greenhouse gases in the atmosphere, the smaller the amount of energy escaping. You might have heard of greenhouse gases being described as a sort of blanket around the Earth. It’s also very similar to the reason a greenhouse gets warm when the sun shines – much warmer than the air outside the greenhouse. That analogy is where the expression “greenhouse gas” comes from, but there is also a large weight of scientific evidence that supports it being a real and significant effect at global scale for the whole Earth system.
For a long time in the Earth’s history, humans did not exist. And for a long time in human history after humans did exist, nothing that any and all of the humans did had any significant impact on the amounts of greenhouse gases in the atmosphere at global scale.
That has changed, especially since the industrial revolution. In the last 150 years or so, the explosion in the worldwide human population, combined with a rapid expansion in the amounts of greenhouse gases emitted from our industrial processes (most notably from our burning of fossil fuels) combined with our use of the land (impacting the carbon cycle, about which I’ll say more later) has led to very significant amounts of greenhouse gases entering the atmosphere, enhancing the warming from the greenhouse effect. These days, you might hear this described as Anthropogenic Global Warming (“AGW”) or perhaps more simply as human-driven climate change, or the even simpler “climate change” by dropping the (for many people) implicit understanding that most of the change is driven by human activities currently.
A balanced energy – what’s your chakra?
The diagram below is a simple energy balance model for the Earth system.
Source: Energy Education - Created internally by a member of the Energy Education team. Adapted from: R. Wolfson, Figure 12.5 in Energy, Environment and Climate, 2nd ed. New York, U.S.A.: Norton, 2012, pp. 331. Reproduced under creative commons licence.
https://energyeducation.ca/encyclopedia/Earth%27s_energy_budget
The total value of all things on the Earth lies somewhere between zero and infinity. Knowing what that value is, and how it changes over time, might be the “eureka” moment for many people and could help them answer the ever-circling question “why should I do something about our collective stewardship of our planet, and what can I do?”. If the total value of everything is decreasing over time, things are not going in the right direction. If they are increasing, then (all other things being equal) we should be happy, shouldn’t we?
But I’m already racing ahead of myself and in danger of losing many readers in the space of one paragraph. I should slow down and explain why I’m writing this piece. Then, those readers might choose to continue to where my words will lead them.
I was, from my early twenties, an accountant by training, and even earlier than that I was someone who had a strong passion for creating a just and sustainable future. In more recent times, after a long career, I’ve applied my expertise to my passion and have set out, in a more extensive piece of work, some ideas for how a World Balance Sheet (and a world income and expenditure statement) could help us to do better at steering ourselves towards a sustainable future for all. More about that book later. But for now, here is the challenge I set myself – how to make these things (which are often seen as esoteric and beyond the understanding of an ordinary person) intelligible to the majority of people, without patronising them.
This comes down to addressing a few brief questions that popped into my head when ‘committing (electronic) pen to paper’, relating to the words and concepts I’ve already introduced into these first few paragraphs:
- How many people (apart from trained accountants) really understand what a balance sheet is, let alone a World Balance Sheet (which even many accountants will not have heard of until reading this page) and how can those who aren’t trained to understand balance sheets be helped to gain sufficient understanding to enable them to use such a balance sheet to make things change for the better?
- What does ‘that word’ (“sustainability”) actually mean to the ‘person on the Clapham Omnibus’?
- What does a better future “for all” mean for each person living here and now?
- How “relatable” are the things I’m writing about to an ordinary person?
In essence, this paper is an attempt to answer these questions by setting out the story of current and future sustainability, or rather unsustainability, of the Earth in such a way that the vast majority of people will grasp it. I hope that they will find it intelligible and useful as a brief summary and guide, and that they can feel confident in reaching their own views on the matters it covers. This is indeed a challenge when they see and hear so much about this subject in the mainstream media, other media, online discussion channels, and in the pub, café or street protest. I will try not to tell them what to think. But I hope I will help provide them with some information and tools with which to make up their own minds. I hope that even those well-versed in the topics covered will gain something, as I have done, from reflecting on some of the things we take for granted in this story. It’s seldom a mistake to revisit some long-held assumptions, to deconstruct them into component parts, review what we think we “know” about them, look at the basic assumptions and go back to some basic principles to “see them” again as if we were seeing them through fresh eyes. Sometimes, great discoveries and insights are found that way. Think of Einstein and his thought experiments about “riding on light waves”. We all have a little Einstein inside us.
I’ve explained my main objective for this text. I might not always achieve it, and I might not achieve it at all for some people reading this. If I fail, partially or fully, that’s my fault, not yours. As well as my skills, I carry with me numerous deficiencies and inadequacies, unconscious biases, blind spots, habits and weaknesses that will tend to lead me to think and write in ways that will turn good intentions into poor execution. If such failure means that this work of literature doesn’t “do it for you” I apologise in advance and hope that you will forgive me for my shortcomings. I hope all readers will at least get something from this work; some piece of information or insight, or a new way of looking at something that they hadn’t appreciated before, or had taken for granted. Something that gives them a new perspective on some old and knotty problems.
I’ll try to start at a very simple level, and build increasing complexity and depth as I proceed. You can follow for as far as the level of complexity feels comfortable. That’s fine. But I’d encourage you to go even further than that – into a level of complexity that stretches you and makes you think hard, providing a learning opportunity. There isn’t enough hard thinking done on this topic by the people who make the most important decisions in the world. We are awash with poor, or simply sub-optimal, decisions, as a result. I’m sure you’ll be able to bring to mind several such examples, at local, regional, national and global scale, without much effort.
There are numerous books with titles along the lines of “Accounting for non-accountants” which are useful for people not already trained in accounting. I’ll try not to repeat materials found in such texts. However, at the same time, it’s inevitable there might be some overlapping, because I’ll need to talk about accounting and I won’t be able to remove from my conscious or unconscious mind some explanations that I’ll have picked up from such texts, as well as many new ones from my own imagination or experience. At the very least, if this current text proves interesting to readers, they might want to read one of those fuller resources to extend, expand or deepen their knowledge of accounting.
So, let’s make a start on a mental journey about understanding the Earth and all living things on it (which includes, of course, you and I) and work towards understanding what it means for all of it to be valued in an accountant’s balance sheet. I’ll quite quickly use climate change as an example, but then I’ll move on to other sustainability challenges relating to what some have called “planetary boundaries” or “planetary limits”.
But first and foremost, I should describe the Earth system, because this is a core concept running through the whole of this paper. The ‘Earth system’ comprises the planet, its atmosphere, its water, its rocks and other chemicals, living beings and wider ecosystems. It’s a closed system, with the exception of the energy entering it from the sun and the energy that escapes from it (eg radiated) out into space. For simplicity, I’m ignoring the comparatively tiny amount of space material that we humans send out into the solar system and beyond (spacecraft, probes, space debris and so on), which could be described by any far superior alien intelligence observing our behaviours as just so much insignificant “space flotsam and jetsam”.
There are important features of the closed Earth system that relate to the “planetary limits” I’ve already mentioned, but before we look at those, it’s worth straight away dealing with the topic of climate change in general and energy balance in particular, including the greenhouse effect.
If it wasn’t for the enhanced greenhouse effect in modern times, the energy balance would, essentially, be zero on a net basis, ie the energy leaving the earth system would be broadly the same as the energy arriving in it, and a steady energy level would exist. That’s what would happen in a closed system.
There are some more complex aspects which technically, it could be argued, make this closed-system-except-for-energy-net-input perspective invalid, for example cooling of the Earth’s hot core, cooling of the sun as part of its long lifecycle and so on, but for the time being I’ll just skip past those, or ask the reader to look them up in credible scientific sources if they’re interested. Suffice it to say that such effects are very long-term, operating on geological timescales, and the effects are numerically insignificant on the timescales of most importance to the ordinary person (eg perhaps their own lifetime or that of their most immediate ancestors and descendants). Such marginal effects can therefore safely be ignored in the simplest treatments of this subject. I might return to this aspect of the story later on or in separate texts if it seems relevant when more complexity is added to the simplest descriptions.
Almost everybody reading this will have heard of the greenhouse effect. For those who haven’t, and as a brief refresher for those who have, to summarise it in simple terms, the greenhouse effect is the most important phenomenon causing an otherwise closed Earth system to warm up currently. This is because, as described above, the system is to all intents and purposes closed, except for the energy arriving into it from the sun and the energy escaping from it into space. The greenhouse effect impacts how much energy escapes into space. Changes in the total atmospheric amount of greenhouse gases (which cause the greenhouse effect) change the amount of energy escaping into space. The greater the amount of greenhouse gases in the atmosphere, the smaller the amount of energy escaping. You might have heard of greenhouse gases being described as a sort of blanket around the Earth. It’s also very similar to the reason a greenhouse gets warm when the sun shines – much warmer than the air outside the greenhouse. That analogy is where the expression “greenhouse gas” comes from, but there is also a large weight of scientific evidence that supports it being a real and significant effect at global scale for the whole Earth system.
For a long time in the Earth’s history, humans did not exist. And for a long time in human history after humans did exist, nothing that any and all of the humans did had any significant impact on the amounts of greenhouse gases in the atmosphere at global scale.
That has changed, especially since the industrial revolution. In the last 150 years or so, the explosion in the worldwide human population, combined with a rapid expansion in the amounts of greenhouse gases emitted from our industrial processes (most notably from our burning of fossil fuels) combined with our use of the land (impacting the carbon cycle, about which I’ll say more later) has led to very significant amounts of greenhouse gases entering the atmosphere, enhancing the warming from the greenhouse effect. These days, you might hear this described as Anthropogenic Global Warming (“AGW”) or perhaps more simply as human-driven climate change, or the even simpler “climate change” by dropping the (for many people) implicit understanding that most of the change is driven by human activities currently.
A balanced energy – what’s your chakra?
The diagram below is a simple energy balance model for the Earth system.
Source: Energy Education - Created internally by a member of the Energy Education team. Adapted from: R. Wolfson, Figure 12.5 in Energy, Environment and Climate, 2nd ed. New York, U.S.A.: Norton, 2012, pp. 331. Reproduced under creative commons licence.
https://energyeducation.ca/encyclopedia/Earth%27s_energy_budget
The arrow most affected by human activities is the one called “Infrared Radiation (Absorbed by surface)”, pointing from the atmosphere to the surface. Increasing concentrations of greenhouse gases in the atmosphere from human activities causes more radiation from the atmosphere absorbed by the surface. Although this human-driven effect is small in relation to the overall size of the energy flows in the diagram, it is large enough to make a significant difference over the months, years and decades it has been altering the energy balance and providing a net warming effect for the Earth system as a whole.
It’s important to appreciate that the scientific community is all but unanimous that most current warming and associated climate change is caused by humans (which is why this is an unwritten understanding in some everyday speech). Because of the confidence in the science behind this, it means we can be confident that we can do something about it; because we caused it, we could slow it down or reverse it. Sceptics and people dismissive of AGW are constantly trying to attack the commonly expressed or implied understanding that humans are causing most current warming and climate change, and the scientific consensus behind it, because they know how important that understanding is for anyone deciding whether they should act on it or not. You don’t act on something that you have significant doubts about. Many of those dismissive of AGW try to sow any fear, uncertainty or doubt (“FUD”) about it. See, for example Oreskes and Conway’s excellent book “Merchants of Doubt” if you’re interested in finding out more about FUD.
I’ve talked about the energy balance of the Earth system being affected by greenhouse gases, particularly from the burning of fossil fuels. The carbon cycle, which I mentioned above, is important context for this. In looking at the carbon cycle, as well as industrial-scale burning of fossil fuels, we also see other processes which also affect the amounts of greenhouse gases in the atmosphere.
I want to ride my Carbon Cycle – I want to ride it where I like …
The diagram below explains the main features of the carbon cycle. The significance of some of aspects of the cycle will become clear in subsequent sections that draw on knowledge of this context.
Source = Wikimedia commons
https://commons.wikimedia.org/wiki/File:Carbon_cycle-cute_diagram.svg
Carbon, unlike energy, cannot arrive on the Earth from elsewhere or escape into space. It’s trapped here and its fate is to circulate, most significantly via living beings, between the rocks and soil, the animal and plant kingdoms, the sky, and round again back to the rocks and soil to start the cycle again. In some parts of the carbon cycle the speed of movement is fast (measured in hours, days, weeks or months), in others it is slower and in yet more it is monumentally slow (measured in thousands of years, or even millions of years).
In the next section, I’ll introduce the accounting concepts of stocks and flows, and I’ll show how these can be applied to aspects of the Earth system, including the carbon cycle. This starts to marry Earth science and accountancy so that we can begin to build some progress towards properly valuing all things on the Earth, in appropriate balance sheets and income and expenditure statements.
Take stock and let the life force flow round the carbon cycle
A stock is an amount of something existing at a place and time.
In an accounting sense, a stock of something in a location (or alternatively in the whole world) can be measured. In the simplest of accounting, the amount of stock of something, multiplied by a unit value (the value for each individual unit of the something) gives the total value of all the stocks of that something in that location (or alternatively in the whole world).
In an even simpler example, a stock of money is the amount of money sitting in a bank account at a specific point in time.
In many cases, the end of a calendar year is the specific point in time used, as this is often the “balance sheet date” in use.
We can start to use this new (or existing) knowledge of accounting for stocks straight away and apply it to climate change.
An example might be to look at a stock of carbon in the ocean, or in all the soils around the world (or do both and add them together). For those unfamiliar with the relevant chemistry, the link between this and climate change is that carbon is a core chemical element found in all greenhouse gases, and the carbon that exists in those greenhouse gases came from various parts of the carbon cycle at other times in their existence. (Some of that carbon exists in chemicals comprising compounds other than greenhouse gases at other times in other parts of the carbon cycle).
The unit value of the carbon will vary depending on what chemical compounds the carbon is part of, and in what part of the carbon cycle it exists. Also, it’s worth knowing that it might have positive or negative value. I’ll explain this concept of positive or negative value a little further, as it is important to appreciate that the same chemical atom can have positive value at one point in time and yet have negative value even a short time later.
A unit of carbon might be beneficial and have positive unit value when it is part of a chemical compound in the “stock” of soil that farmers rely on to produce food. On the other hand, a unit of carbon might have negative value when it is part of a chemical compound in a “stock” of greenhouse gases in the atmosphere (eg if that unit of greenhouse gas was emitted from human activities such as energy generation, industry or farming).
That’s probably enough about stocks for the time being. Let’s move on to talking about flows.
A flow is a movement of something in a specific measured timespan. A simple example could be the amount of money flowing into a bank account over a single year, or the amount of money flowing out of the same bank account over a single year. Those are both flows, and accountants distinguish between the two types of flow by recording one of them as a positive number (incoming flow) and the other as a negative one (an outgoing flow).
This concept of flows can also be applied to climate change. An example might be the flow of carbon from the ocean or soils into the atmosphere over a single year, or the flow of carbon (from greenhouse gases) from the atmosphere into the ocean or soils over a single year.
It doesn’t take too much of an imaginary leap to see that, in theory at least, the stocks of all carbon in the world could be measured and valued. And the flows of all carbon units could also be measured and valued over specified timespans.
Accountants record stocks of things in balance sheets at a balance sheet date. They record flows (as positive and negatively valued flows) in an income and expenditure statement (or profit and loss, or similar) covering a timespan between two balance sheet dates. It will then be no surprise to hear that accountants can triangulate (check) their workings. This is because, for a specific something, the stocks at one balance sheet date plus the flows between that date and the date of the next balance sheet, should equal the stocks in that next balance sheet. The accountant has two ways of reaching that next balance sheet stock. One is the stock from the previous balance sheet plus the flows between the balance sheet dates. The other is to do a stocktake and valuation at the new balance sheet date. The stock value in the new balance sheet should be the same, whether calculated from the stock in previous balance sheet or arrived at from the stocktake. If there is a difference in stock value from the two calculation methods, then a mistake might have been made in one or both calculations. On the other hand, if the two calculation methods arrive at the same (or very similar) stock value in the new balance sheet, the accountant is usually happy.
There is complexity that can confound this triangulation. For example, it’s often only possible to do this triangulation with stock quantities, not the stock values. If some parts of the stock changed status, condition etc between the balance sheet dates (often a consequence of the “flow” that took place for that unit of stock) that would often change the unit value of that specific unit of stock between the two balance sheet dates. A simple stocktake at the second balance sheet date might not necessarily provide information about all the previous statuses of a particular unit of stock at all times throughout the timespan since the previous balance sheet date. One partial solution to this is to record separate categories for each status of that stock type, and, throughout the timespan, each change of stock status for each stock unit for which such status changes happened, and perform the calculations for each category of that stock, which can then provide some information to account for the changes of stock status for every relevant unit undergoing such changes through the timespan between the balance sheet dates.
This duality in accounting is an important strength. As a further example of this, if the total of all stocks of everything in a balance sheet is higher than in the previous balance sheet, then the increase in total value represents a “profit”. (Another consequence of the previous discussion about triangulation of stocks and flows is that the result at the end of an income and expenditure account between those two balance sheet dates will also show that same “profit”).
It becomes clear that the accuracy of calculations for stocks and flows is only as good as the mechanisms for recording (or estimating) either the stock amounts and values at the new balance sheet date or all relevant changes occurring as a result of flows occurring between that date and the date of the previous balance sheet.
As a short aside, there are some similarities between profit and loss for the whole world and global GDP (which is also a measure of flow). The similarity is not strong, however, because of signs used for some items appearing in GDP that would have an opposite sign in a proper accounting for the Earth system.
The bad news is that climate change is just one of a number of sustainability challenges we currently face on a worldwide level. So, although I’ve focussed almost exclusively on climate change so far, it’s worth while now taking a step back and briefly reviewing a wider perspective. Let’s set off in this section by describing what I mean by “sustainability”.
Sustainability would have us keeping within our limits
The UN Brundtland Commission definition from 1987 is a good place to start:
“Sustainable development was defined in the World Commission on Environment and Development's 1987 Brundtland report ´Our Common Future` as 'development that meets the needs of the present without compromising the ability of future generations to meet their own needs'.”
A simpler definition might be:
“Leaving the world in a better state than we inherited it, and so that future generations can do likewise, and so on, forever”.
There are several important issues that are pointing to current unsustainability of the way we humans are operating. Here are a few:
It’s important to appreciate that the scientific community is all but unanimous that most current warming and associated climate change is caused by humans (which is why this is an unwritten understanding in some everyday speech). Because of the confidence in the science behind this, it means we can be confident that we can do something about it; because we caused it, we could slow it down or reverse it. Sceptics and people dismissive of AGW are constantly trying to attack the commonly expressed or implied understanding that humans are causing most current warming and climate change, and the scientific consensus behind it, because they know how important that understanding is for anyone deciding whether they should act on it or not. You don’t act on something that you have significant doubts about. Many of those dismissive of AGW try to sow any fear, uncertainty or doubt (“FUD”) about it. See, for example Oreskes and Conway’s excellent book “Merchants of Doubt” if you’re interested in finding out more about FUD.
I’ve talked about the energy balance of the Earth system being affected by greenhouse gases, particularly from the burning of fossil fuels. The carbon cycle, which I mentioned above, is important context for this. In looking at the carbon cycle, as well as industrial-scale burning of fossil fuels, we also see other processes which also affect the amounts of greenhouse gases in the atmosphere.
I want to ride my Carbon Cycle – I want to ride it where I like …
The diagram below explains the main features of the carbon cycle. The significance of some of aspects of the cycle will become clear in subsequent sections that draw on knowledge of this context.
Source = Wikimedia commons
https://commons.wikimedia.org/wiki/File:Carbon_cycle-cute_diagram.svg
Carbon, unlike energy, cannot arrive on the Earth from elsewhere or escape into space. It’s trapped here and its fate is to circulate, most significantly via living beings, between the rocks and soil, the animal and plant kingdoms, the sky, and round again back to the rocks and soil to start the cycle again. In some parts of the carbon cycle the speed of movement is fast (measured in hours, days, weeks or months), in others it is slower and in yet more it is monumentally slow (measured in thousands of years, or even millions of years).
In the next section, I’ll introduce the accounting concepts of stocks and flows, and I’ll show how these can be applied to aspects of the Earth system, including the carbon cycle. This starts to marry Earth science and accountancy so that we can begin to build some progress towards properly valuing all things on the Earth, in appropriate balance sheets and income and expenditure statements.
Take stock and let the life force flow round the carbon cycle
A stock is an amount of something existing at a place and time.
In an accounting sense, a stock of something in a location (or alternatively in the whole world) can be measured. In the simplest of accounting, the amount of stock of something, multiplied by a unit value (the value for each individual unit of the something) gives the total value of all the stocks of that something in that location (or alternatively in the whole world).
In an even simpler example, a stock of money is the amount of money sitting in a bank account at a specific point in time.
In many cases, the end of a calendar year is the specific point in time used, as this is often the “balance sheet date” in use.
We can start to use this new (or existing) knowledge of accounting for stocks straight away and apply it to climate change.
An example might be to look at a stock of carbon in the ocean, or in all the soils around the world (or do both and add them together). For those unfamiliar with the relevant chemistry, the link between this and climate change is that carbon is a core chemical element found in all greenhouse gases, and the carbon that exists in those greenhouse gases came from various parts of the carbon cycle at other times in their existence. (Some of that carbon exists in chemicals comprising compounds other than greenhouse gases at other times in other parts of the carbon cycle).
The unit value of the carbon will vary depending on what chemical compounds the carbon is part of, and in what part of the carbon cycle it exists. Also, it’s worth knowing that it might have positive or negative value. I’ll explain this concept of positive or negative value a little further, as it is important to appreciate that the same chemical atom can have positive value at one point in time and yet have negative value even a short time later.
A unit of carbon might be beneficial and have positive unit value when it is part of a chemical compound in the “stock” of soil that farmers rely on to produce food. On the other hand, a unit of carbon might have negative value when it is part of a chemical compound in a “stock” of greenhouse gases in the atmosphere (eg if that unit of greenhouse gas was emitted from human activities such as energy generation, industry or farming).
That’s probably enough about stocks for the time being. Let’s move on to talking about flows.
A flow is a movement of something in a specific measured timespan. A simple example could be the amount of money flowing into a bank account over a single year, or the amount of money flowing out of the same bank account over a single year. Those are both flows, and accountants distinguish between the two types of flow by recording one of them as a positive number (incoming flow) and the other as a negative one (an outgoing flow).
This concept of flows can also be applied to climate change. An example might be the flow of carbon from the ocean or soils into the atmosphere over a single year, or the flow of carbon (from greenhouse gases) from the atmosphere into the ocean or soils over a single year.
It doesn’t take too much of an imaginary leap to see that, in theory at least, the stocks of all carbon in the world could be measured and valued. And the flows of all carbon units could also be measured and valued over specified timespans.
Accountants record stocks of things in balance sheets at a balance sheet date. They record flows (as positive and negatively valued flows) in an income and expenditure statement (or profit and loss, or similar) covering a timespan between two balance sheet dates. It will then be no surprise to hear that accountants can triangulate (check) their workings. This is because, for a specific something, the stocks at one balance sheet date plus the flows between that date and the date of the next balance sheet, should equal the stocks in that next balance sheet. The accountant has two ways of reaching that next balance sheet stock. One is the stock from the previous balance sheet plus the flows between the balance sheet dates. The other is to do a stocktake and valuation at the new balance sheet date. The stock value in the new balance sheet should be the same, whether calculated from the stock in previous balance sheet or arrived at from the stocktake. If there is a difference in stock value from the two calculation methods, then a mistake might have been made in one or both calculations. On the other hand, if the two calculation methods arrive at the same (or very similar) stock value in the new balance sheet, the accountant is usually happy.
There is complexity that can confound this triangulation. For example, it’s often only possible to do this triangulation with stock quantities, not the stock values. If some parts of the stock changed status, condition etc between the balance sheet dates (often a consequence of the “flow” that took place for that unit of stock) that would often change the unit value of that specific unit of stock between the two balance sheet dates. A simple stocktake at the second balance sheet date might not necessarily provide information about all the previous statuses of a particular unit of stock at all times throughout the timespan since the previous balance sheet date. One partial solution to this is to record separate categories for each status of that stock type, and, throughout the timespan, each change of stock status for each stock unit for which such status changes happened, and perform the calculations for each category of that stock, which can then provide some information to account for the changes of stock status for every relevant unit undergoing such changes through the timespan between the balance sheet dates.
This duality in accounting is an important strength. As a further example of this, if the total of all stocks of everything in a balance sheet is higher than in the previous balance sheet, then the increase in total value represents a “profit”. (Another consequence of the previous discussion about triangulation of stocks and flows is that the result at the end of an income and expenditure account between those two balance sheet dates will also show that same “profit”).
It becomes clear that the accuracy of calculations for stocks and flows is only as good as the mechanisms for recording (or estimating) either the stock amounts and values at the new balance sheet date or all relevant changes occurring as a result of flows occurring between that date and the date of the previous balance sheet.
As a short aside, there are some similarities between profit and loss for the whole world and global GDP (which is also a measure of flow). The similarity is not strong, however, because of signs used for some items appearing in GDP that would have an opposite sign in a proper accounting for the Earth system.
The bad news is that climate change is just one of a number of sustainability challenges we currently face on a worldwide level. So, although I’ve focussed almost exclusively on climate change so far, it’s worth while now taking a step back and briefly reviewing a wider perspective. Let’s set off in this section by describing what I mean by “sustainability”.
Sustainability would have us keeping within our limits
The UN Brundtland Commission definition from 1987 is a good place to start:
“Sustainable development was defined in the World Commission on Environment and Development's 1987 Brundtland report ´Our Common Future` as 'development that meets the needs of the present without compromising the ability of future generations to meet their own needs'.”
A simpler definition might be:
“Leaving the world in a better state than we inherited it, and so that future generations can do likewise, and so on, forever”.
There are several important issues that are pointing to current unsustainability of the way we humans are operating. Here are a few:
- Anthropogenic Global Warming, causing climate change
- Land use and land use change (eg deforestation, impacting the carbon cycle)
- Biogeochemical flows (eg Nitrogen and Phosphorus cycles)
- Biosphere integrity (Ecosystems breakdown eg harvest beyond Maximum Sustainable Yield)
- Novel entities (see explanation after the diagram)
The planetary boundaries model from SRI
Source = Stockholm Resilience Institute. J. Lokrantz/Azote based on Steffen et al. 2015. Reproduced under creative commons licence.
https://www.stockholmresilience.org/research/planetary-boundaries.html
As can be seen from the above ‘planetary boundaries’ diagram, several segments including climate change, are already outside what the SRI calls the safe operating space for humanity.
Although most of the labels in the diagram will be self-explanatory by now, it might help if I explain a little more about one or two of the expressions which might be unfamiliar to many people - “novel entities” “biosphere integrity - MSY” and “water”.
Novel entities
From Persson et al (2022) Outside the Safe Operating Space of the Planetary Boundary for Novel Entities”:
https://pubs.acs.org/doi/pdf/10.1021/acs.est.1c04158
“The novel entities boundary in the planetary boundaries framework refers to entities that are novel in a geological sense and that could have large-scale impacts that threaten the integrity of Earth system processes… ‘Novel Entities’ [is] defined as “new substances, new forms of existing substances and modified life forms”, including “chemicals and other new types of engineered materials or organisms not previously known to the Earth system as well as naturally occurring elements (for example, heavy metals) mobilized by anthropogenic activities””
In simpler terms, humanity is already inventing new chemical substances and modified life forms (eg Genetically Modified Organisms (crops)) that have the potential to create great damage to life on the planet when excessive amounts are allowed to pollute the Earth system.
Yield, sire, yield …
Something that appeared in the graphic above was “Biosphere integrity - MSY”, the abbreviation for Maximum Sustainable Yield. What does that mean?
It’s basically the amount of harvest that can be ‘taken’ and beyond which the populations harvested from (whether crops, animals or fish, for example) become seriously depleted, or even collapse. A good example of this is overfishing of cod in North Atlantic fisheries and the North Sea during the 1970s. Populations (“Stocks”) of codfish have only recently been recovering to healthy levels. This example illustrates how long-lasting the effects of over-exploitation of natural stocks (natural capital) can be.
Water, water everywhere …
Because of what you may have heard about “water stress” in various parts of the world, you might be surprised to see that freshwater use is not showing as an issue in the planetary boundaries framework described above. That’s because the main issue with water is a distributional one rather than an issue of overall amounts. In simple terms, water does not escape the Earth system, it just circulates between the ocean, the atmosphere and the land. As a result of global warming, overall, increasing amounts of water are circulating in this way each year. The issues are around where and when that water moves. There are significant changes in patterns of water movement, with some parts of the world becoming much drier, some becoming much wetter and some being increasingly affected by the frequency and/or severity of severe weather events such as storms.
Put your left foot in, your right foot out … what’s in and what’s out
How does the discussion of sustainability and planetary boundaries help us with our quest to properly value everything on the planet?
Well, the planetary boundaries framework has helped us realise that not all segments are breaching planetary boundaries, and some are in greater overshoot than others. That gives us clues about where to look first, when we know we can’t track, record and value everything.
When just starting out on such an adventure (and it is an adventure, because nobody has done it before) we clearly can’t include absolutely everything yet. A moment’s thought will reveal that not everything on the Earth is currently recorded, let alone tracked over time.
Just think of all wildlife. For sure, there are plenty of people studying all sorts of types of animals, fish, wriggly things smaller than the eye can see and so on. But they’re only recording information about a tiny proportion of all the life on the planet, and only for a relatively short proportion of the time they live for (in many cases).
Moreover, what there is (whether wildlife or non-living carbon in other parts of the carbon cycle) is in near-continuous flux. Living things are being born, maturing, dying all the time in a never-ending flow and cycle. Imagine trying to track all those myriad individual transitions in order to account for them.
And we don’t even have an accurate picture of how many species there are co-habiting with us on the planet. Almost every month we are being told that so many thousands of previously unseen and unrecorded species are being discovered (despite the fact that many more than these are becoming extinct at the same time).
Surely, it would be a near-impossible task to track all of this, not because of lack of sufficient technology to store and process all the information, but more because of the challenges of observing all living things simultaneously everywhere in the world for all required timespans. Seemingly impossible to do now, but an area where Artificial Intelligence, combined with remote sensing technology could make significant inroads in the decades to come?
A complete inventory of all life, even at just one point in time at a balance sheet date, is an ambition that will have to wait, for now. It might become feasible at some point in the future, but in the meantime, we’ll have to make do with partial information and extrapolations of some totals from that.
So, if we can’t track everything, what stocks and flows should we initially put into our world balance sheet and world income and expenditure statement?
I’ve started on that adventure myself, in my book entitled “Unbalanced World: The Asset Stewardship Shortfall” (2021):
https://www.amazon.co.uk/UNBALANCED-WORLD-asset-stewardship-shortfall/dp/B08VF8XLXH/ref=sr_1_1?qid=1670849062&refinements=p_27%3ADavid+Calver&s=books&sr=1-1
One first port of call, in selecting what to include in the world balance sheet, is to look at all of nature across the entirety of the world, but classifying it into broad collections such as forests, farms, oceans and so on. This involves making many simplifying assumptions and estimates, to avoid the necessity to track absolutely every living thing at a very detailed level of granularity.
In the book, I don’t just deal with all of nature. I also add in a number of other types of stocks and flows, in order to produce something capable of being called a proper world balance sheet, from which a number of important conclusions can be drawn about the state of the world and its ability to adequately support its human and other populations.
The book is merely a provocation. A stone thrown into the pond to cause ripples on its surface. A call to others to continue this adventure, bringing their own skills, networks and resources to bear. I don’t claim that everything in the book is “right” or that the World Balance Sheets I have produced are accurate. At this point, that would be, as explained above, a near-impossible task. It’s only a starting point for discussion, improvement, development and extension of the ideas within it.
Let’s start to look at our planetary accounting by discussing nature.
As I’ve said, in my book, I focussed mainly on Natural Capital (another phrase for ‘all of nature’). There – I’ve done it again, introducing a new expression some people will have heard of but many will not. For the unaware, Natural Capital is a concept that has been growing in popularity among accountants for a long time, but which has gained more prominence in the last decade or so. I’ll explain a bit more about it before we continue.
Keeping it natural
Most people will have heard of “capital”. Capital is usually understood as an amount of money or other assets devoted to a particular cause (eg charity) or business enterprise (eg company), or other organisation (eg government department) or, indeed, an individual (perhaps representing their total wealth).
Natural Capital is simply the same concept but applied to the natural world. It represents the wealth of the whole world’s stock of things ‘provided’ by nature. This can include dead things (eg fossil fuels, that are composed of compacted organic material that was alive at one time) as well as living things (eg stocks of all species). In most common usage, however, only the organic materials and living species that have the most direct impact on human flourishing are included, for practicality. Again, with better means of record keeping, it might be possible in future to expand the range of species and materials included in Natural Capital. But we accountants have to start somewhere. We cannot complete a journey unless we take a first step, even if we don’t yet know the final destination. Better to set out in roughly the right direction and modify our trajectory along the way than never to set out at all.
Now that we know what it is, a reasonable question is how to value it, because we need a value if we are to put Natural Capital into a balance sheet or income and expenditure account.
To share or not to share – that is a question – doughnut, anyone?
The moral and distributional dimension to this story is inescapable.
Many people will have heard of the controversies at the UNFCCC CoP meetings – about what’s called “loss and damages”. That is about all countries coming to an agreement about passing money from countries that have done the most to cause AGW and climate change, to those countries that have done the least to cause it (and that have suffered most as a consequence).
Kate Raworth puts a framework to this, which also brings in the planetary boundaries I spoke about earlier, which Kate calls the ecological ceiling. Kate brings to the table, to put alongside this, a minimum operating boundary, which she calls the social foundation, below which all people’s basic needs like food, water, shelter, safety from violence and support with ill-health, have not been provided. When you put that together with the planetary boundaries, you get the doughnut shaped framework as shown in Kate’s “Doughnut Economics” (2017).
Kate Raworth’s Doughnut
Source: Kate Raworth and Christian Guthier/The Lancet Planetary Health. Reproduced under creative commons licence
https://www.thelancet.com/journals/lanplh/article/PIIS2542-5196(17)30028-1/fulltext
When all countries are operating within the safe and just operating space for humanity, on the climate change segment, we will know that the “loss and damages” initiative within the UNFCCC CoP process will have been successful.
Obviously, there is also potential to do the same for all other segments as and when their reported assessments move outside the safe and just operating space.
Give me a value – any value - somewhere between zero and infinity – for a goldilocks moment?
For any balance sheet, and especially for our World Balance Sheet, the values of things in it need to “work”.
You might have heard the joke “an accountant knows the cost of everything but the value of nothing”.
Now is the time for accountants to cast off this slight and stand up for what people truly value.
But, what is it that people truly value?
Katharine Hayhoe, climate-scientist-turned-science-communicator explains (in “Saving Us”, 2022) that more productive conversations are to be had with AGW sceptics and dismissives by trying to find common ground about what such people value, rather than by starting with points of disagreement about the science.
More often than not, people will quickly share their thoughts and views about the aspects of the health of the natural world that impact on their nearest and dearest, their communities, their country and their world.
Colloquially, we say we value something when we recognise the good that comes from its having been in existence and in good health up to this point. And we suffer a sense of loss when it no longer exists or is in a poor state of health because of the fact it will no longer be available to provide that goodness until what would have been the end of its natural (or economic) life.
So, we can quickly see that this naturally suggests at least three different ways of valuing a thing.
One is the effort, resources and / or time that it took to acquire the thing so it can be used for some human-centric purpose – akin to the “cost” side of the joke I started this section with.
A second is the effort, resources and / or time that it took for the thing to come into existence and stay in existence and healthy up to this point (which also might indicate how much of these resources would be required to replace it, if that is even possible to do) – also akin to the “cost” side of the joke I started this section with, but mostly from nature’s perspective rather than a human exploiter’s one.
A third is the ‘future anticipated’ value of its loss, ie the loss that would be experienced (eg productive output, harvest, food, shelter, medicine etc) if it ceased to exist but which would have been available to the end of its life if it had continued to exist – more akin to the “value” side of the joke, perhaps.
There are several other popular methods of calculating and attributing a value to something, and I deal with these in my book, as a “theory of value”. For brevity, I’ll not go through them all here.
The three valuation methods I broadly set out above are usually the most commonly used ones, and this raises interesting dilemmas straight off the bat.
For example, if you value an old-growth forest using the first method, which can also be described as “historic cost”, then that cost might be zero or close to zero, especially if environmental regulations (and their policing) are weak, because in that scenario you can just go and get the wood from the forest by cutting the trees down. The cost of doing this is likely to be negligible compared with some of the values reached by other valuation methods. Bearing in mind the discussion of Maximum Sustainable Yield above, I’ll assume that the amount of wood removed is beyond the MSY, so that the forest is essentially destroyed (scrubbed out) by this process.
If, as an alternative, you value an old-growth forest using the second method, called “replacement cost”, wouldn’t that value be near infinity, because it would take an enormous amount of time, effort and resource to create a new old-growth forest, from scratch, to replace one that has been scrubbed out?
On the other hand, if you use the third method, might that give you a goldilocks moment? One hopes so, and one would be turning the implied weakness in the joke at the start of this section into a strength. Perhaps the last laugh will be from the accountants in the end. But I see I’ve been too hasty and for that happy ending to occur, I’d have to assume not that the forest was scrubbed out, but that the harvest was below the MSY, so that the forest can continue to provide wood (and other services) in perpetuity (ie forever). This way, there is at least some hope that the sensible stewardship of the Earth’s natural resources, allied with well-chosen valuation methods, will lead to long-term sustainability of humanity’s use of them, keeping us within the safe and just operating space of Raworth’s Doughnut.
Going national and international
The accountancy profession has been doing their bit to progress the uptake of progressive ideas such as Natural Capital.
In fact, in recent years, the UK’s own System of National Accounts (“SNA”), which is how the UK Office of National Statistics reports the financial state of the nation, has started to include Natural Capital in its balance sheets (albeit on an “experimental” basis). That’s a very exciting development, and in the latest UK SNA reports (2022) it is reported that the UK’s Natural Capital in 2020 was valued at over £1.8 trillion. To put this in context, in 2020 the UK's net worth was estimated to be £10.7 trillion (an average of £159,000 per person), so Natural Capital even at an initial valuation which is probably a gross underestimate, is about 15% of the net worth of the UK.
Sources:
UK 2020 National Accounts summary numbers:
https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/bulletins/nationalbalancesheet/2021
UK Office for National Statistics (ONS), released 10 November 2022, ONS website, bulletin, UK natural capital accounts: 2022:
https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/uknaturalcapitalaccounts/2022
In 2025, the next review of the international standards for SNAs is due. This will provide an opportunity for accountants to make Natural Capital accounting more mainstream and encourage as many countries as possible to adopt it.
Sources:
https://www.ons.gov.uk/aboutus/whatwedo/programmesandprojects/economicstatisticstransformation/systemofnationalaccountsupdate
https://unstats.un.org/unsd/nationalaccount/Towards2025.asp
https://unstats.un.org/unsd/nationalaccount/SNAUpdate/2025/chapters.asp
A brief excerpt from the internet materials about a new Chapter 35 in the SNA, expected to be part of the 2025 SNA update:
“Key topics for discussion include:
- Accounting for environmental flows (e.g., water, energy, waste, air emissions)
- Accounting for natural resources (e.g., minerals, land, soil, timber, fish, water)
- Accounting for ecosystems (e.g., forests, freshwater, marine, wetlands)
- Accounting for economic activity related to the environment (e.g., environmental taxes, environmental protection expenditure)”
Increasing numbers of countries are including concepts mentioned in this paper (eg natural capital) into their national accounts. There is some anticipation that the 2025 update to the SNA standards will accelerate this trend. Once sufficient numbers of countries have included such information (eg about natural capital and other sustainability measures) in at least their extended accounts, if not their core national accounts, then the information gaps impeding the compilation of an accurate and reliable World Balance Sheet each year will diminish.
Other relevant sources:
UN SEEA (system of environmental-economic accounting)
IFRS (International Financial Reporting Standards)
IAS (International Accounting Standards)
TEEB (the economics of ecosystems and biodiversity)
UK Blue Book
The doughnut and the balance sheet
My final task today is to tie together the Raworth Doughnut and the main concept I’ve introduced in this paper, namely the World Balance Sheet.
The relationship between them is quite simple in essence. The Raworth Doughnut tells us whether distributional equity has been achieved, country by country and in total for all countries, and the World Balance Sheet tells us whether, in aggregate, the “wealth” of the world is sufficient to provide that distributional equity for all of humanity, across all countries. The World Balance Sheet goes even further, by giving us a trajectory, from one balance sheet to the next, for whether things, in aggregate, are improving or getting worse, in terms of the amount and health of the assets making up that global wealth. This is a little like the relationship between balance sheets and income and expenditure accounts but that’s another story for another day.
Conclusion - this is just a start for the idea of a world balance sheet
Some ideas sound pretty crazy when they first appear, and this is probably one of them. Partly, that’s because of lack of familiarity. We tend to have an in-built bias that makes us think that things we haven’t seen before are somehow inherently riskier than things that “have a track record” and that we’ve seen before at least a few times. But that bias is not necessarily valid.
I could go on about “retrospective coherence” at this point, but instead, I’ll just point interested readers to Dave Snowden’s published work that covers this concept.
However, a simple example will make the point. Looking back now on, say, the history of space flight, we might take the view that it was almost inevitable that re-usable space shuttles would become the mainstay of the space programmes of the USA. We are so familiar with them now that it’s almost inconceivable that there would be any future space exploration without shuttles being a part of it. However, put yourselves for a moment back to a time before space shuttles existed. Before the first space shuttle flight, many disposable rockets had been successfully used for many years, and re-usable space shuttles were just a concept; an expensive, unknown and untested concept, with significant financial and technical risks. One of the challenges was to create a spacecraft capable of surviving the immense pressures and temperatures experienced during re-entry through the Earth’s atmosphere – something that hadn’t been necessary before except for very small re-entry capsules containing just the astronauts. Before it was achieved, there was no guarantee that these technical challenges would be overcome at reasonable cost for such large vehicles containing bulky, heavy, expensive and highly complex equipment in addition to astronauts.
For any such matter you might choose to look at, there are innumerable pathways of events, decisions, forks and branches through history. We can only ever experience one of these pathways as it occurs, with all the others falling by the wayside as ‘futures that might have been’. Any number of those futures might have been equally likely and equally successful (or even more so), but they only seem risky to us because of their lack of familiarity, compared with the pathway that has actually occurred and in which some things have become very familiar to us.
I hope that, one day, the world balance sheet will become as familiar a reality as space shuttles are today. But, as space shuttles were once, the world balance sheet is little more than a concept starting out on a drawing board, showing global net wealth of somewhere between zero and infinity.
World Balance Sheet
OK - here's a first stab at creating a template for the World Balance Sheet. A lot of numbers to be filled in before we'll know if it balances! "GSU" is an abbreviation for Global Sustainable Units. This could be the Globo (as per the next item on this page). I'm looking for a better term to use than "man-made" capital, to describe capital that is created by humanity rather than by nature - ideas about this are most welcome.
More about the World Balance Sheet at worldbalancesheet.com
A new global currency - the "Globo", perhaps?
Having an asset-backed currency with a unit of sustainably managed land as the asset backing (without using a fractionally backed approach), would generate an incentive for beneficial actions, because the creation (or conversion) of (privately owned) land to sustainably managed land would in itself be a good thing while at the same time being wealth-creating for the landowner. Of necessity, governments or central banks would need to own (or control) significant reserves of sustainably managed land in order to provide this asset backing to their currencies. Not a problem to achieve in practice – they already own much land and could always use compulsory purchase powers to create adequate levels of such reserves within a balanced economy and ecosystem.
This new form of currency, which one could call, for example, the "Globo" (drawing inspiration from the "Euro"), providing it was taken up by reputable governments and central banks, could provide all the benefits of being a medium of exchange and could also provide a store of value (overcoming some of the shortcomings of gold as a historical form of asset backing) while encouraging the maintenance (and expansion) of the stock of sustainable land which backs it. By the very nature of the finite supply of the asset backing, this currency would protect against the worst boom-and-bust cycles of existing economic cycles, by providing a stable and limited supply of the asset (and therefore of the money supply). It would also prevent a recurrence of the financial meltdown of circa 2008 and the fall of banks that happened at that time.
This new form of currency, which one could call, for example, the "Globo" (drawing inspiration from the "Euro"), providing it was taken up by reputable governments and central banks, could provide all the benefits of being a medium of exchange and could also provide a store of value (overcoming some of the shortcomings of gold as a historical form of asset backing) while encouraging the maintenance (and expansion) of the stock of sustainable land which backs it. By the very nature of the finite supply of the asset backing, this currency would protect against the worst boom-and-bust cycles of existing economic cycles, by providing a stable and limited supply of the asset (and therefore of the money supply). It would also prevent a recurrence of the financial meltdown of circa 2008 and the fall of banks that happened at that time.
Eco-taxes
Eco Taxes article (originally posted on an old blog of mine in about 2015, but still relevant today)
Eco-taxes (along similar lines to the way VAT works in the UK), could be used to both manage demand for eco-intensive goods and services and provide government revenues for investment in sustainability developments that otherwise wouldn't obtain investment funding because of market failures.
For example, if eco-taxes were levied on each distinct stage of the manufacturing and supply chain, the payment of eco-tax could be based on the difference between "input-eco-footprints" (ie footprints of all inputs) and "output-eco-footprints" (ie footprints of all outputs from that stage). Other (ie existing) taxes could be adjusted to prevent the effects of the eco-taxes falling disproportionately on the poor.
To avoid the accusation that "taxes are best suited to kill the middle class and starving the less favoured", in my view, it's extremely important that state welfare systems are adjusted alongside any changes in tax systems, so that the poorest and most vulnerable are protected from any financial impacts on a net basis.
For anyone who has concerns about VAT being a cost to the end-consumer rather than a cost to the polluters, this is because, in effect, the final seller is mandated (by law) to charge VAT to the end-consumer, who has not added any value but just consumes the product and pays (to the seller, not the government) the full VAT of the entire supply chain, thus reimbursing the supply chain for the VAT it (ie the supply chain) has had to pay over to the government. This is a weakness in the design of VAT.
However, I don't think VAT was designed on a 'polluter pays' principle, whereas an ecotax system could be designed for this. VAT has also been 'tweaked' over the years to achieve other objectives - for example to make children's clothes cheaper to help poor families - this was an example of mixing multiple objectives for political reasons and we have seen it again more recently in the UK in the mixing of measures to address energy efficiency in buildings and fuel poverty. In my view, a better way to have helped poor families would have been to increase welfare payments to poor families rather than fiddle with the VAT system.
The polluter pays principle could apply with a VAT-like ecotax. Some products and services don't have VAT applied to them (and, indeed, even where they do apply, there are various rates of VAT). An ecotax, on the other hand, could be related to the embedded eco-footprint at each stage in a supply chain where a product or service was passing from one entity to another. Even in VAT, the VAT is collected (by Government) from each entity in the supply chain in proportion to the material inputs the paying entity has put into that product or service, for example from the point it bought in components, applied heat, light, water and energy , to the point it sells the product to the next entity in the supply chain. At the earliest point in the supply chain, for example a farmer producing cotton as a raw material, the farmer pays to the government an amount of VAT on the cotton it sells, but can also claim against it the VAT on VAT-able inputs from other entities (eg a water company that sold the farmer water). The farmer only pays to Government the VAT on the 'value added' by the farmer. So, the VAT has been collected by government from each of the 'value-adders' to the extent that they have done something with the inputs they have turned into outputs. In the same way, an ecotax could be constructed so that it is collected from each entity in a supply chain based on the eco-print of its activities in turning inputs into outputs. I think where an ecotax could differ from (and improve on) VAT is just to take away the requirement to tax the final consumer (who doesn't add any further ecofootprint but just consumes the final product). This would then leave it totally free to the final seller to decide whether they pass on any of the 'pollution' costs to the end consumer.
Reflecting further on the above - the farmer is in a difficult position with an eco-tax, because many of his/her inputs have come from nature, or the global commons, and because they have not come from a 'tax-registered supplier', he/she could not claim much 'input-ecotax' as a deduction from the 'output-ecotax' payable to government on the sale of the agricultural produce to the next entity in the supply chain.
However, the farmer would have to reflect this in setting his/her selling prices. One way or another, in an economic, market-based system, the cost of externalities, if made transparent by an ecotax (or by carbon taxation, for example, on all carbon inputs to the supply chain) would be borne by members of the supply chain, and each would have to decide whether to pass those costs on to the end-consumer.
At the end of the day, the end-product would probably reflect the true cost, including all externalities. A future sustainable world might be a very expensive world, but this is not necessarily a bad thing - it would influence behaviours across the whole supply chain that bring the total human system within One Planet Living. If (as I say above) welfare systems adjust accordingly, then the poor can still be provided with the means of basic subsistence and the rest of society will be encouraged (through market mechanisms) to live a more eco-efficient life and cut down on the things that are carbon-profligate, like flying on foreign holidays etc.
The effects of ecotaxes on the poorest members of society could be addressed by adjusting welfare payments, and this could be paid for by adjusting income tax rates to provide a just and fair distribution of the tax burden on citizens.
Eco-taxes (along similar lines to the way VAT works in the UK), could be used to both manage demand for eco-intensive goods and services and provide government revenues for investment in sustainability developments that otherwise wouldn't obtain investment funding because of market failures.
For example, if eco-taxes were levied on each distinct stage of the manufacturing and supply chain, the payment of eco-tax could be based on the difference between "input-eco-footprints" (ie footprints of all inputs) and "output-eco-footprints" (ie footprints of all outputs from that stage). Other (ie existing) taxes could be adjusted to prevent the effects of the eco-taxes falling disproportionately on the poor.
To avoid the accusation that "taxes are best suited to kill the middle class and starving the less favoured", in my view, it's extremely important that state welfare systems are adjusted alongside any changes in tax systems, so that the poorest and most vulnerable are protected from any financial impacts on a net basis.
For anyone who has concerns about VAT being a cost to the end-consumer rather than a cost to the polluters, this is because, in effect, the final seller is mandated (by law) to charge VAT to the end-consumer, who has not added any value but just consumes the product and pays (to the seller, not the government) the full VAT of the entire supply chain, thus reimbursing the supply chain for the VAT it (ie the supply chain) has had to pay over to the government. This is a weakness in the design of VAT.
However, I don't think VAT was designed on a 'polluter pays' principle, whereas an ecotax system could be designed for this. VAT has also been 'tweaked' over the years to achieve other objectives - for example to make children's clothes cheaper to help poor families - this was an example of mixing multiple objectives for political reasons and we have seen it again more recently in the UK in the mixing of measures to address energy efficiency in buildings and fuel poverty. In my view, a better way to have helped poor families would have been to increase welfare payments to poor families rather than fiddle with the VAT system.
The polluter pays principle could apply with a VAT-like ecotax. Some products and services don't have VAT applied to them (and, indeed, even where they do apply, there are various rates of VAT). An ecotax, on the other hand, could be related to the embedded eco-footprint at each stage in a supply chain where a product or service was passing from one entity to another. Even in VAT, the VAT is collected (by Government) from each entity in the supply chain in proportion to the material inputs the paying entity has put into that product or service, for example from the point it bought in components, applied heat, light, water and energy , to the point it sells the product to the next entity in the supply chain. At the earliest point in the supply chain, for example a farmer producing cotton as a raw material, the farmer pays to the government an amount of VAT on the cotton it sells, but can also claim against it the VAT on VAT-able inputs from other entities (eg a water company that sold the farmer water). The farmer only pays to Government the VAT on the 'value added' by the farmer. So, the VAT has been collected by government from each of the 'value-adders' to the extent that they have done something with the inputs they have turned into outputs. In the same way, an ecotax could be constructed so that it is collected from each entity in a supply chain based on the eco-print of its activities in turning inputs into outputs. I think where an ecotax could differ from (and improve on) VAT is just to take away the requirement to tax the final consumer (who doesn't add any further ecofootprint but just consumes the final product). This would then leave it totally free to the final seller to decide whether they pass on any of the 'pollution' costs to the end consumer.
Reflecting further on the above - the farmer is in a difficult position with an eco-tax, because many of his/her inputs have come from nature, or the global commons, and because they have not come from a 'tax-registered supplier', he/she could not claim much 'input-ecotax' as a deduction from the 'output-ecotax' payable to government on the sale of the agricultural produce to the next entity in the supply chain.
However, the farmer would have to reflect this in setting his/her selling prices. One way or another, in an economic, market-based system, the cost of externalities, if made transparent by an ecotax (or by carbon taxation, for example, on all carbon inputs to the supply chain) would be borne by members of the supply chain, and each would have to decide whether to pass those costs on to the end-consumer.
At the end of the day, the end-product would probably reflect the true cost, including all externalities. A future sustainable world might be a very expensive world, but this is not necessarily a bad thing - it would influence behaviours across the whole supply chain that bring the total human system within One Planet Living. If (as I say above) welfare systems adjust accordingly, then the poor can still be provided with the means of basic subsistence and the rest of society will be encouraged (through market mechanisms) to live a more eco-efficient life and cut down on the things that are carbon-profligate, like flying on foreign holidays etc.
The effects of ecotaxes on the poorest members of society could be addressed by adjusting welfare payments, and this could be paid for by adjusting income tax rates to provide a just and fair distribution of the tax burden on citizens.
Global Welfare Insurance
The Planetary CFO says that one way to improve the situation for migrants is for each global citizen to be auto-enrolled into a Global Welfare Insurance policy at birth. The policy could be maintained by a global organisation such as the United Nations. Premiums could be collected from every country in the world. When any global citizen then moved between countries (for whatever reason) their entitlements to welfare under the policy would move with them. This basic entitlement would be physical safety, shelter, water, food and healthcare and other medical support.
This approach would eliminate many of the current problems being experienced between countries facing the influx of huge numbers of refugees (and some so-called 'economic migrants') from places such as Syria. One of the main difficulties being experienced by countries receiving migrants is the inability of their welfare systems to cope. Hence the current debate (2016) in the UK about so-called "health tourism". But if each citizen had the insurance cover, this problem would be all but eliminated. In fact, it wouldn't matter which country a particular migrant was in - the welfare provision would be funded anywhere. And without welfare being a discriminating factor between countries, this would remove one of the supposed main drivers for people to move between countries - lack of these basic essentials for survival in the countries they are fleeing from. What would be left as reasons to move would be the more advanced aims of finding a place to live where each person's life's aspirations and ambitions are most likely to be achievable.
This approach would eliminate many of the current problems being experienced between countries facing the influx of huge numbers of refugees (and some so-called 'economic migrants') from places such as Syria. One of the main difficulties being experienced by countries receiving migrants is the inability of their welfare systems to cope. Hence the current debate (2016) in the UK about so-called "health tourism". But if each citizen had the insurance cover, this problem would be all but eliminated. In fact, it wouldn't matter which country a particular migrant was in - the welfare provision would be funded anywhere. And without welfare being a discriminating factor between countries, this would remove one of the supposed main drivers for people to move between countries - lack of these basic essentials for survival in the countries they are fleeing from. What would be left as reasons to move would be the more advanced aims of finding a place to live where each person's life's aspirations and ambitions are most likely to be achievable.
THE TOP 50 SUSTAINABILITY BOOKS (as voted by the alumni of the Cambridge Programme for Sustainability Leadership circa 2015)
1 A Sand County Almanac Aldo Leopold (1949)
2 Silent Spring Rachel Carson (1962)
3 Unsafe At Any Speed Ralph Nader (1965)
4 The Population Bomb Paul L. Ehrlich (1968)
5 Operating Manual for Spaceship Earth R. Buckminster Fuller (1969)
6 The Limits to Growth Donella H. Meadows, Dennis L. Meadows, Jørgen Randers and William
W. Behrens III (1972)
7 Small Is Beautiful E.F. Schumacher (1973)
8 Gaia James Lovelock (1979)
9 The Turning Point Fritjof Capra (1982)
10 Our Common Future (‘The Brundtland Report’) World Commission onEnvironment and
Development (1987)
11 The Dream of the Earth Thomas Berry (1988)
12 A Fate Worse Than Debt Susan George (1988)
13 Staying Alive Vandana Shiva (1989)
14 Blueprint for a Green Economy David Pearce, Anil Markandya and Edward B. Barbier (1989)
15 For the Common Good Herman Daly and John B. Cobb Jr (1989)
16 Human Scale Development Manfred Max-Neef (1989)
17 Changing Course Stephan Schmidheiny and Business Council for Sustainable
Development (BCSD) (1992)
18 The Ecology of Commerce Paul Hawken (1993)
19 Maverick Ricardo Semler (1993)
20 When Corporations Rule the World David C. Korten (1995)
21 Biomimicry Janine M. Benyus (1997)
22 Cannibals with Forks John Elkington (1997)
23 The Hungry Spirit Charles Handy (1997)
24 Banker to the Poor Muhammad Yunus (1998)
25 The Crisis of Global Capitalism George Soros (1998)
26 Factor Four Ernst von Weizsäcker, Amory B. Lovins and L. Hunter Lovins (1998)
27 False Dawn John Gray (1998)
28 Development as Freedom Amartya Sen (1999)
29 No Logo Naomi Klein (1999)
30 Natural Capitalism Paul Hawken, Amory B. Lovins and L. Hunter Lovins (1999)
31 Business as Unusual Anita Roddick (2000)
32 The Mystery of Capital Hernando de Soto (2000)
33 The Civil Corporation Simon Zadek (2001)
34 Fast Food Nation Eric Schlosser (2001)
35 The Skeptical Environmentalist Bjørn Lomborg (2001)
36 Cradle to Cradle William McDonough and Michael Braungart (2002)
37 Globalization and its Discontents Joseph E. Stiglitz (2002)
38 The Corporation Joel Bakan (2004)
39 Presence Peter Senge, C. Otto Scharmer, Joseph Jaworski and Betty Sue Flowers (2004)
40 The Fortune at the Bottom of the Pyramid C.K. Prahalad (2004)
41 The River Runs Black Elizabeth C. Economy (2004)
42 Capitalism as if the World Matters Jonathon Porritt (2005)
43 Capitalism at the Crossroads Stuart L. Hart (2005)
44 Collapse Jared Diamond (2005)
45 The End of Poverty Jeffrey D. Sachs (2005)
46 The Chaos Point Ervin Laszlo (2006)
47 Heat George Monbiot (2006)
48 An Inconvenient Truth Al Gore (2006)
49 When the Rivers Run Dry Fred Pearce (2006)
50 The Economics of Climate Change Nicholas Stern (2007)
1 A Sand County Almanac Aldo Leopold (1949)
2 Silent Spring Rachel Carson (1962)
3 Unsafe At Any Speed Ralph Nader (1965)
4 The Population Bomb Paul L. Ehrlich (1968)
5 Operating Manual for Spaceship Earth R. Buckminster Fuller (1969)
6 The Limits to Growth Donella H. Meadows, Dennis L. Meadows, Jørgen Randers and William
W. Behrens III (1972)
7 Small Is Beautiful E.F. Schumacher (1973)
8 Gaia James Lovelock (1979)
9 The Turning Point Fritjof Capra (1982)
10 Our Common Future (‘The Brundtland Report’) World Commission onEnvironment and
Development (1987)
11 The Dream of the Earth Thomas Berry (1988)
12 A Fate Worse Than Debt Susan George (1988)
13 Staying Alive Vandana Shiva (1989)
14 Blueprint for a Green Economy David Pearce, Anil Markandya and Edward B. Barbier (1989)
15 For the Common Good Herman Daly and John B. Cobb Jr (1989)
16 Human Scale Development Manfred Max-Neef (1989)
17 Changing Course Stephan Schmidheiny and Business Council for Sustainable
Development (BCSD) (1992)
18 The Ecology of Commerce Paul Hawken (1993)
19 Maverick Ricardo Semler (1993)
20 When Corporations Rule the World David C. Korten (1995)
21 Biomimicry Janine M. Benyus (1997)
22 Cannibals with Forks John Elkington (1997)
23 The Hungry Spirit Charles Handy (1997)
24 Banker to the Poor Muhammad Yunus (1998)
25 The Crisis of Global Capitalism George Soros (1998)
26 Factor Four Ernst von Weizsäcker, Amory B. Lovins and L. Hunter Lovins (1998)
27 False Dawn John Gray (1998)
28 Development as Freedom Amartya Sen (1999)
29 No Logo Naomi Klein (1999)
30 Natural Capitalism Paul Hawken, Amory B. Lovins and L. Hunter Lovins (1999)
31 Business as Unusual Anita Roddick (2000)
32 The Mystery of Capital Hernando de Soto (2000)
33 The Civil Corporation Simon Zadek (2001)
34 Fast Food Nation Eric Schlosser (2001)
35 The Skeptical Environmentalist Bjørn Lomborg (2001)
36 Cradle to Cradle William McDonough and Michael Braungart (2002)
37 Globalization and its Discontents Joseph E. Stiglitz (2002)
38 The Corporation Joel Bakan (2004)
39 Presence Peter Senge, C. Otto Scharmer, Joseph Jaworski and Betty Sue Flowers (2004)
40 The Fortune at the Bottom of the Pyramid C.K. Prahalad (2004)
41 The River Runs Black Elizabeth C. Economy (2004)
42 Capitalism as if the World Matters Jonathon Porritt (2005)
43 Capitalism at the Crossroads Stuart L. Hart (2005)
44 Collapse Jared Diamond (2005)
45 The End of Poverty Jeffrey D. Sachs (2005)
46 The Chaos Point Ervin Laszlo (2006)
47 Heat George Monbiot (2006)
48 An Inconvenient Truth Al Gore (2006)
49 When the Rivers Run Dry Fred Pearce (2006)
50 The Economics of Climate Change Nicholas Stern (2007)
An idea for dealing with Orbital Debris
NASA (and many others) have been worried about debris orbiting the Earth. Not only does it pose a threat to the safety of astronauts, but much of it is human-generated and therefore is a sign we humans are littering and polluting parts of the Universe other than our actual planet. More info can be found on the NASA website.
I've recently heard some ideas about how to clear away such space junk, which included nets and scoops. However, it occurred to me there might be a very elegant and non-polluting way of tackling the problem.
Compressed air jets could be installed as secondary payloads in pairs on each side of spacecraft (or satellites) already planned for missions in orbits where there is significant space debris. As they pass near each piece, they could adjust their orbit ever so slightly to bring them close to each piece of debris but to pass by on the side further away from the Earth. Blowing the jets of air on both sides could push the debris towards the Earth, with an effect planned to be just large enough to alter the debris' trajectory so that it enters the atmosphere and burns up. Because the air jets are in pairs, the craft delivering the air blasts would not be moved out of its orbit. Even better would be for a planned imbalance in the jets to move the craft into a trajectory towards its next space junk target.
I've recently heard some ideas about how to clear away such space junk, which included nets and scoops. However, it occurred to me there might be a very elegant and non-polluting way of tackling the problem.
Compressed air jets could be installed as secondary payloads in pairs on each side of spacecraft (or satellites) already planned for missions in orbits where there is significant space debris. As they pass near each piece, they could adjust their orbit ever so slightly to bring them close to each piece of debris but to pass by on the side further away from the Earth. Blowing the jets of air on both sides could push the debris towards the Earth, with an effect planned to be just large enough to alter the debris' trajectory so that it enters the atmosphere and burns up. Because the air jets are in pairs, the craft delivering the air blasts would not be moved out of its orbit. Even better would be for a planned imbalance in the jets to move the craft into a trajectory towards its next space junk target.
