SACRAMENTO — Conventional wisdom says the environment and economy are fundamentally at odds, that whatever we give to the economy--a barrel of oil, a ton of ore, a tree--we take from the environment. Because of this, it is impossible to have both a bountiful environment and a growing economy. We must sacrifice one for the other. But which to choose?
It's a dismal choice. But that's how most environmental groups and businesses think about our dilemma--as a trade-off. Choose a healthy, growing economy today, and you doom the environment tomorrow. Choose a healthy environment tomorrow, and give up affluence today.
To make the best of an impossible choice, most thinking people choose a middle road: Use up enough of the environment to be comfortable today, but leave enough for our children to use up tomorrow.
There is a better way. Not only can economic growth occur without harming the environment--it must occur in order to save the environment. An economy that does not grow will inevitably deplete and destroy the ecosystem that surrounds it. The reason we perceive growth as being in conflict with the environment is because we confuse growth with depletion. The best analogy may be to a bank account: To the extent we add to the account, our wealth grows; to the extent we make withdrawals, we grow poorer, until finally everything we had is gone. The only sensible path is to invest the money we withdraw in income-producing activities that will increase our wealth.
Similarly, when we withdraw resources from the crust of the Earth, we deplete our global wealth. To compensate for that depletion, we need to add to the Earth's resource base--for example, by using resources synergistically to produce wealth, such as by turning silica into a microchip or developing recycling systems that turn garbage into reusable resources.
Faced with this simple reality, why don't we simply stop wasting our global resources and start investing them?
The answer is simple: Our global economy is founded on faulty accounting systems. We value our natural resources according to their cost of extraction, rather than their cost of replacement. That's like valuing our life savings according to the cost of driving to the bank to withdraw them.
No bank in its right mind would make a sizable loan, then accept cab fare back as full payment. Yet that is precisely the way the globe's bankers loan out its assets. As a result, part of what we have called "growth" in the past is merely the depletion of global assets. We extract oil from the ground, burn it and count the work that gets done as income. But while we figure the costs of drilling in the expense category, we forget the biggest expenditure--the loss of the oil itself.
That leads to the overconsumption of capital assets--fossil fuels, non-renewable resources--and the overpricing of renewable energy, efficiency, durability and recycling.
The result is ultimately catastrophic: life-threatening levels of carbon dioxide in the atmosphere; poisonous chlorofluorocarbons devouring the ozone shield; plows and bulldozers tearing down rain forests because their importance to the biosphere is given no value by the economy.
Nearly all our global environmental challenges, then, stem from an accounting problem: We are depleting the environment because we vastly undervalue its resources.
Seen in this light, the solution seems relatively straightforward. People deplete the Earth because we let them keep the profits from depletion, but we don't charge them for the resources they deplete. If they had to pay for the resoures they borrow--if, for example, oil companies had to return to the Earth the same British-thermal-unit value of energy that they borrow--they would soon find that developing renewable energies would be their best investment. That, in turn, would reduce fossil fuel consumption. Carbon dioxide buildup would be reduced and the greenhouse threat would be reduced and ultimately eliminated.
But how can we know the true cost of an increment of depletion or pollution? And who do we charge?
The good news is that the job may not be as complex as we have imagined. By using simple incentive mechanisms, and adhering to basic environmental accounting principles, we can harness the natural forces of the economy to produce growth that nurtures the environment, rather than illusory "growth" that ravages it.
Only two overriding principles need be followed to solve most of our environmental problems. Once these are fully adopted in policy, all the technical, political and economic changes we need will follow automatically.
First, we must price natural resources at their true costs, by eliminating all the subsidies that keep prices artificially low, and valuing them according to their replacement cost.
Second, we must hold all businesses and individuals strictly liable for the restoration costs of any environmental disruptions they cause, legal or illegal. Economists call this the "polluter pays" principle.