Natural Capital and Ecological Economics

So, here we are now at a juncture where most of us; certainly those of us who have joined T. Boone in his quest to use the free market to help solve our energy crisis and wean the nation off of foreign oil, have embraced the notion that the environment has economic value, and worthy of being considered a factor of production.

Once upon a time in the early 1990s, I passionately embraced an emerging economic concept, that it and of itself was a new paradigm, which envisioned all of nature as having economic value. This concept was the basis of ‘natural capital’ and the foundation for what has become ecological economics and for a time, my Ph.D. focus. However, like many Americans who are capitalists and believe wholeheartedly in the free market system, I pursued other interests and found myself totally immersed in business. I became very frustrated with the reality of the time that the concept of natural capital was not gaining traction in the marketplace, and was associated with an idea opposed to free enterprise. I also found there were few if any opportunities to make a living in this field at the time. Now, fast forward to the summer of 2008 when our dependence on foreign oil and gasoline prices in excess of $3.50 a gallon; not too long ago well over $4.00 per gallon, has prompted a national shift towards thinking and viewing our environment differently from an economic perspective. The idea of natural capital and its application to economics was spearheaded by Dr. Robert Costanza whom I met when he was with the University of Maryland in the mid-1990s. Dr. Constanza answered all my questions about how and where you could apply economics to valuing nature as a means for the free enterprise system to participate wholly in conservation and environmental sustainability.

What is natural capital? Fundamentally, it is the valuing of all natural things in terms of its economic and market value. For instance, a tree has both a natural and an economic/market value. The tree left alone will absorb carbon dioxide produced by mankind, and emit oxygen needed by mankind and all living organisms. The tree also provides shelter and serves as a habitat for all kinds of critters; both large and small. From an economic perspective, the tree when harvested has commercial value for its timber, as well as its bark. The decision to harvest this tree in applying the concept of natural capital rests on determining its highest and best use under each market use. That is, does the economic value of harvesting the tree exceed the natural cost of removing the tree from the environment? Does harvesting the tree make more economic sense than maintaining it, or will harvesting result in a greater economic cost and loss in terms of its resource value. Equating an economic value to all things in nature, much like labor and capital, results in looking at nature as a limited resource to be carefully managed and used. From the ecological economics perspective, the factors of production become land, labor, capital and nature.

I believe we, as members of the Pickens Plan have the opportunity to fundamentally lead in the development of this concept as the underpinning of all we do in support of the Pickens Plan to move the country’s focus towards the enormous market potential in alternative energy; where the concept of natural capital as applied through ecological economics produces a brand new industry that promotes national security, environmental sustainability, job growth and financial prosperity simultaneously.

Gerald S. “Sandy” Graham, MBA, M. Economics.