Ecological value

The catastrophic damage from hurricane Ian with 150 miles per hour sustained winds, storm surge and torrential rain is another experience of the new climate abnormal.

The NY Times reports that insured damage claims, not including flood insurance will reach $67 billion. Florida insurance costs now threaten to make Florida real estate affordable only for the super-rich. The choices are clear. Either subsidize insurance or build differently in a manner that can survive hurricanes and contribute to a global reduction in greenhouse gases.

What was also startling in Florida is that not far from devastated Fort Myers was Babcock Ranch, 30 miles from the coast. This is a purposely designed solar-powered community of 11,500 people on 17,000 acres, built to withstand hurricanes wind and floods. Elevation 33 feet above sea level. Houses built to tolerate prolonged 140-mile-an-hour winds. All power lines are underground. Roadways designed to channel flood waters into a nearby lake. The energy was supplied by an 870-acre solar farm that had zero storm damage. Power stayed on. A few shingles blew off, and a few trees were uprooted.

Business as usual must respond to the new and worsening climate realities, to become part of the solution and not just part of the problem. This is not only a matter of new building codes and accelerating the renewable energy transformation from fossil fuels. That is only part of the solution.

Beyond design and renewable portfolio standards mandating wind and solar, we must engage with deeper and fundamental choices about the ecological value and ecological price signals. We must get the prices right. We must go beyond a market exchange between a willing buyer and a willing seller to determine the price. Unfortunately, the current operation of global markets is still courting ecological destruction and collapse. The pursuit of economic growth in capitalist markets, planned economies, and cooperative social markets are not immune from market failure and ecological self-destruction. From Adam Smith on, the existence of externalities, and unpriced consequences was a threat to market systems. William Blake warned England, “And was Jerusalem built here,/Among these dark Satanic Mills?”

The central question is how can we make global market systems responsive to ecological signals and send clear price signals to make economic growth lead to ecological improvement and social and ecological justice. This is a matter of survival for our ecosphere, our civilization, and our markets.

Job one is not to abolish corporate capitalism. Existing self-destructive global behavior will take care of that by itself if it continues. Job one is to establish new market rules, laws, regulations, and values that allow market systems to survive and prosper for all, not just for billionaires. The goal is to transform the conduct of markets to pursue sustainability, global ecological economic growth and a global convergence on sustainable and just norms for all within the global market.

Ecological economic growth is focused on the consequences of growth and the distribution of surpluses. It challenges both the strong Marxian assertion that capitalist growth must lead to injustice and the degrowth advocates' passionate belief that capitalist growth must lead to ecological pillage. What matters is ecological consequences, not dollar growth. For example, are the global ecological and monetary benefits of a complete replacement of fossil fuels with zero-pollution renewables? What actually happens is a matter of ecological price signals, market rules, law, regulation and social behavior and ethics.

The goal is clear for a sustainable global market price system. Sustainable goods and services must become cheaper, gain market share, and become more profitable. Businesses do not have to be trained to want to make more money. The question is how to accomplish this.

The secret sauce we will consider is monetizing ecological value and making that a key part of the creation of wealth and the generation and investment of capital. The ecological value must become a key new asset class on balance sheets as paid-in capital and as cash. Like a corporation’s goodwill, or intellectual property, the ecological value must become a new class of assets created by positive conduct, for example, the displacement of tons of carbon dioxide emissions by renewables, or by the increase of energy efficiency displacing carbon.

The new asset class has aspects of intangible property. You can trade and sell the value of the ecological property, but you cannot transport, extract and consume ecological property. The ecological property represents a fundamental use value monetized on the basis of consequences and so-called ecological system services.

There are numerous regulatory agencies both national and international setting standards for intangible property for example the GASB (Government Accounting Standards Board) Statement No. 51, Accounting and Financial Reporting for Intangible Assets 2007, and the Australian Accounting Standards Board has issued AASB 138, Intangible Assets.

Australian accounting standards have 47 pages considering Intangible Assets. “... Common examples ... are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licenses, import quotas, franchises, customer or supplier relationships, customer loyalty, market share and marketing rights.”

Ecological assets will similarly need to be defined clearly by accounting rules providing a systemic guide of how these assets are measured, valued, capitalized, depreciated and taxed. Crucially, this new asset class of ecological value is designed to be a positive contribution to economic activity.

There is already an extensive menu of fees, fines and taxes to discourage pollution, depletion and ecological targeted at sources and sinks for pollution. That these so far have been ineffective in stopping the march toward self-destruction is noted.

It’s crucially important to recognize that this new ecological asset class is a benefit, not an expense.

Ecological value is certainly real as the Fort Myers and the Babcock Ranch experience illustrates in retrospect. An ecological value system is to reward Babcock Ranch for its investments in ecological improvements, for example, the installation of a 150-megawatt solar array. The array displaces thousands of metric tons of carbon dioxide that should be valued on the basis of the ecological value of carbon dioxide displacement, currently valued at $150 per metric ton. Such ecological value is monetized as Sustainability Credits (SCs) on the books of investment banks as paid-in capital and as cash to be invested in further carbon displacement activities.

The dollar potential for an ecological value system is enormous and can easily finance the trillions needed not just for $50 trillion or so estimated for a renewable energy transformation from fossil fuels. The potential for sustainable ecological value is broadly to finance the global transformation from an industrial to an ecological civilization. The creation and use of such ecological capital would be subject to normal financial and fiscal control and management by central banks and legislatures and channeled to meet productive ecological ends.

Building an ecological value system is best guided by the pragmatism of John Dewey whose term “valuation” encompasses both valuing and evaluation rooted in experience and therefore choice and not just philosophical imagining.

Existing conditions

Global markets are dominated by transnational corporations. Forbes 2022 reports that the leading 2000 global corporations account for $47.6 trillion in revenues, $5.0 trillion in profits, $233.7 trillion in assets and $76.5 trillion in market capitalization. 2,000 corporations have 50% of total global revenues ($96.2 trillion in 2021). Meanwhile, the 333 million + companies worldwide in 2021 share the remaining 50% of non-governmental global revenues.

McKinsey reports the growth of corporations over $1 billion in revenue, increased their global revenues by 60 percent since 1995, compared to their home country’s GDP. Globally, corporations represent around half of the 100 largest global economic entities. The conduct of a limited number of transnationals is crucial for the ability of the global market to respond to the challenge of onrushing climate disasters.

The global concentration of wealth, as the rich get richer, is an expression of the global growth of corporate transnational power and their dominance of markets and politics. This affects both the wealthy OECD nations and billions of the global poor. The concentration of wealth includes the realization that large asset owners can use their enormous assets and pursue rent-seeking behavior, for example, the purchase of homes to be converted to high-profit rental units and the further decrease in assets and increase in costs for the poor and shrinking middle class.

Globally, onrushing climate disasters, for example, the massive flooding in Pakistan and the failure to provide effective support and relief are, by necessity, leading to a global response. Marin Raiser of the World Bank visiting Pakistan pledged to provide emergency aid and financing $2 billion “to rebuild or repair infrastructure, housing and restore livelihoods, and to help strengthen Pakistan’s resilience to climate-related risks.” Pakistan, of course, had little to do with pouring carbon dioxide into the atmosphere which has resulted in monsoon flooding and heat wave-generated mountain ice melt.

The future of global markets facing climate disaster

The creation and monetization of ecological value are designed to help gradually shift the conduct of global markets from ecologically destructive pollution, depletion, and ecological damage to sustainable and profitable.

There are many paths toward ecological value to be explored. The displacement of metric tons of carbon dioxide by renewables is clear. So is chemical engineering to provide lower or zero carbon processes for producing concrete or smelting steel. Similarly, a recent development by Tesla in lithium extraction using salt and lithium-containing clay deposits replaces the ecologically damaging acid refining methods for lithium batteries. Industrial ecology will open the door wide for the development of new ecological value and increased business revenue.

The complementary measure is the universal adoption and expansion of the First Runner system developed by Japan. Under the First Runner rules, a company that develops a more efficient process or more ecologically sound process will have the new process become the regulatory basis for goals that competitors must meet. This is a reward for innovation and the creation of ecological wealth.

It’s unnecessary to start with a comprehensive design for so-called ecological systems services for the creation of ecological value. The 37 gigatons of global carbon dioxide emissions valued at $150 a metric ton, for example, is the potential basis for a total annual yearly ecological value of $5.6 trillion to be monetized as paid-in capital bank capital and as cash. Based on ten-to-one loan leverage for bank loans from its cash assets, this amounts to a potential yearly total for carbon dioxide displacement investment of $56 trillion. The carbon emissions reduction goals to net zero are focused on 2050 to 2060 from 28 to 38 years aline well with finance from ecological value.

Similarly, carbon dioxide sequestration to remove carbon from the atmosphere and oceans to return the atmosphere to preindustrial levels of below 300 parts per million at a rate of 2 ppm per year over fifty years, will amount to a similar multi-trillion dollars per year potential for productive investment. This can be manifest by natural sequestration in soil and biomass on land and sea from sustainable land agriculture and biochar sequestration to coastal kelp and Azolla plantations, to direct atmospheric carbon capture and sequestration. Revolutionary processes of chemical engineering and material science and engineering are underway to enable the use and assembly of molecules on molecular and nano levels.

The creation of ecological value used for ongoing productive investment in building an ecological civilization can provide the basis for the fair distribution of assets globally for a global convergence upon sustainable norms for all. This must mean more than the further enrichment of a tiny cohort of transnational corporations and billionaire owners who become trillionaires.

Large transnational entities will, of course, have the technical skills and monetary resources to take advantage of the creation of investment from ecological value. But a global transformation to an ecological civilization and escape from climate catastrophe to succeed must be rooted in global ecological and social justice and a fair and global sharing of assets.

The many trillions of dollars of investment in renewable transformation can follow paths to make energy users become energy owners. For example, I build solar farms. In the U.S the IRA (Inflation Reduction Act) provides tax benefits, or direct payments to owners, of 30% for building a solar system, rising to 40% if energy is sold to low and moderate-income people, and to 50% if the system is built by a non-profit.

The next logical step is for sales of renewable ownership from corporate builders to municipalities, cooperatives and associations at all scales. This includes major cities or states. The process is easy.

The system is built by independent developers, like me, with finance provided by a corporate partner with a tax credit appetite. The power is sold to a municipality or cooperative or community solar group. When tax equity is exhausted in year six, the solar system would, under contract, be sold to the energy users with finance provided by a green bank. Bank financing is supported by the stream of income from member energy purchases by the member-owners, and sometimes by local, state, or national low-interest revenue bonds. The owner-members would receive individually yearly payments for their share of profits that also represent their personal equity that can also be sold to other individuals.

If I build, with a corporate finance partner, a 5-megawatt dual-use agricultural solar system above a working farm pasture, the system combined with energy storage to provide both energies to the grid when needed, and continual AGC (automatic generation control) services to help maintain grid voltage and frequency. The system would cost an estimated $20 million to build.

If power was sold to a low and moderate-income community solar group the financial partner could receive, 70% of the 40% tax credit or $5.6 million. I would receive a 30% development fee of $2.4 million, and I would share $1 million with the farmer.

When corporate tax equity was exhausted in year six the system would be sold to the community solar group at the current market price, perhaps $5 million, with funds supplied by a green bank with the farmer receiving annual lease payments. Ownership and control end up in the hands of energy users not just in the coffers of giant asset holders, the farmer and the ecosphere does well.

Thus, the ecological future can be structured in a fashion in a global market order that is sustainable, richer and fairer, and juster. The devil and the ecological value are in the details.