Natural Capital (England and Wales)

Barry Gardiner Excerpts

Monday 21st October 2013 Commons Chamber

[Barry Gardiner (Brent North) (Lab)]

I refer Members to my declaration in the Register of Members’ Financial Interests.

I would normally congratulate the hon. Member for Beverley and Holderness (Mr Stuart) on securing the debate, but of course he spilled the beans and said that I was the one, when I was on the Back Benches, who went before the Backbench Business Committee. I congratulate him instead on his excellent speech. I also want to take this opportunity, which is the first I have had, to welcome the Minister to his new role and to pay tribute to his predecessor, the hon. Member for Newbury (Richard Benyon), who was not only unfailingly courteous but totally committed to this agenda.

Every society is defined by two things: what it creates and what it refuses to destroy. The only thing that sets us apart from our natural environment is our ability to reflect on our own place within it, but for all our cleverness we remain dependent on the extraordinary bounty that nature provides. The food and water that sustain us, the air that we breathe, the raw materials that we use as fuel and clothing or to construct our homes are only the most obvious of nature’s benefits. Equally important are the processes and services that purify our water, break down our waste, pollinate our crops and provide us with recreation and aesthetic or spiritual fulfilment. We have the right to use and enjoy the benefits of that natural capital, but that right gives us no licence to prevent our children from exercising a similar and equal use and enjoyment in the future.

It is one of the imperative responsibilities of Government to be good stewards of the present and even better guardians of the future, yet the facts show how far we are from being good stewards. In the UK our native flora and fauna have been in decline for over 50 years. Agricultural intensification in the 1970s is often pointed to as a key turning point, but the truth is that for more than 200 years, as we chopped down our forests and used coal to drive the world’s first industrial revolution, we moved from a pastoral agrarian society to an advanced city-based economy that has failed to value biodiversity. In that time hundreds of species of plant and animal have been lost from our country. We need a radically different approach not just to halt, but to reverse that decline.

One of the great advances in these two centuries is the progress we have made in classical economics. When Adam Smith wrote “The Wealth of Nations” or even when Karl Marx wrote “Das Kapital”, they understood capital to mean simply plant, machinery and money. But we have come to understand that there is such a thing as human, social and intellectual capital. We have come to realise that a well-functioning judicial system or an excellent education system are just as much a part of the wealth of a nation as its roads, its ports or its factories. The irony is that economists and economies have not yet caught up with the most important capital of all—natural capital. Virtually every other form of capital is derived in some way from natural capital and we can define it as the benefits that accrue to human society from the different species of life that inhabit the natural world.

The right hon. Member for Meriden (Mrs Spelman), to whom I pay tribute, spoke about pollination services. I remember that in 2006, when I was Minister with responsibility for biodiversity, I put £6 million into the Department’s budget submission for research into diseases in honey bees. When it came to agreeing DEFRA’s budget, the Treasury was not impressed. It insisted that times were hard and that with my £6 million it could create a new community hospital for people’s diseases, rather than worrying about bee diseases. I of course told the Treasury officials that I would be happy to cut the £6 million, but I asked them if they were aware that it would cost them £194 million a year. I explained that a recent National Audit Office report had pointed out that diseases in the honey bee population had reduced the pollination services that bees were able to carry out. This had reduced the yield from our arable crops, which in turn had reduced the revenue paid to the Exchequer by £200 million a year. The Treasury gave us the £6 million.

The thing about Treasury officials is that they are simple beasts. They do not want to know about the environment or ecosystem services, but show them a way to save money and they become entirely reasonable. Classical economics values things in a very simple way. Take forests, for example. Classical economics simply adds the sale price of the timber that can be harvested and the alternative use to which the land may be put and says that this is the value of the forest. What utter nonsense. The true value of a forest lies in far more than that. Forests stop soil erosion. They prevent flooding by absorbing moisture and they control climate, often regulating local as well as global weather patterns. They are a source of medicines and food and they have recreational and aesthetic value, and all that is before we even begin to consider sequestration.

In the millennium ecosystem assessment, 1,360 of the world’s top scientists showed that classical economics captured only one third of the actual value of the services that forests provide. The same is true for rivers, reefs, salt marshes, mangroves and all other natural ecosystems. We fail to factor their actual economic value into our policies and decision making, but because most of the other services that they provide are not bought or sold in markets, they are not normally taken into account, so the forests, reefs and rivers are lost or degraded.

Another important consideration is that those wider benefits, although immensely valuable, do not accrue to an individual property owner. The benefits are experienced by the community at large. They are regarded as free goods by the wider community and the wider economy. In classical economics such free goods are called externalities, and because they are not directly captured by the landowner they do not feature directly in the landowner’s decision of how and whether to dispose of them.

We use nature because it is valuable, but we abuse it because it is free. A nation’s GDP certainly increases every time money changes hands, but a growing GDP does not always create wealth. Many economic activities actually deplete wealth. The irony is that nations count that depletion as income, whereas they should see it as liquidation of capital. In fact, the TEEB—The Economics of Ecosystems and Biodiversity—report, edited by Pavan Sukhdev, has already shown that at current rates of decline the cumulative loss of ecosystem services from 2000 until 2050 will be equivalent to losing 7% of global GDP. Here is the challenge: how do we explain to those focused on GDP growth that they would make better economic decisions if they properly accounted for the very real value of natural capital?

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

I bow to the considerable knowledge of the hon. Gentleman, who has just left the Environment, Food and Rural Affairs Committee. This Government have been very clear, as indeed were his Government, about wanting to put natural capital at the heart of their economic thinking. With regard to climate change that is very obvious, but in some Departments it is less so, so how do we value the natural capital input?

[Barry Gardiner]

The hon. Lady, whose chairmanship of the Select Committee is redoubtable, is absolutely right that that is clear in certain Departments but not in others. The way we value the input, as a number of Members have already indicated, is precisely the way contained in the natural capital committee’s first report to Parliament. The first thing we have to do—I will move on to this in more detail a little later—is to get each Department to create an inventory stating what capital it owns, what capital it affects and what capital it influences. Once we get Departments to look at it in that way, they can feed that into the Treasury so that better cost-benefit analysis is done and better economic decisions and policies are made.

Some of our political colleagues act as if they are still living in the 19th century. They believe that economic prosperity and environmental protection are destined to be in conflict with each other, but in fact the opposite is true. In 2011 the green economy made up just 6% of the economy, but it accounted for 30% of all growth.

Those on the economic right fall into the trap of thinking that the environment is the enemy of growth, but it is not. Their conclusion is that we must sacrifice the environment in order to achieve growth. But for those of us on the economic left there is an equivalent trap. Some on the left actually seem to agree with the economic right. Their claim is simply put the other way around: that economic growth is the enemy of the environment. Their conclusion is that we must sacrifice growth to achieve environmental protection. Both are wrong, of course, and they are wrong because they are locked into the same language of economic growth and environmental protection. They have failed to move into the new paradigm of economic wealth and environmental sustainability. There is a reason for that: the new paradigm requires a proper understanding of the value of natural capital, and not just an understanding of it, but a proper accounting of it.

What competent business would fail to carry out a proper inventory of its assets? Yet that is precisely what we as a country have done. We have not looked at the stocks and flows of natural capital and properly assessed them. In the UK we are beginning to introduce a fundamental change in environmental policy. Instead of focusing on individual species or habitats, we are pioneering an approach based on whole ecosystems. We commissioned the UK’s national ecosystem assessment, which has established that 30% of the UK’s ecosystems are in decline and that many others are only just holding their own against an increasingly hostile background of rising population, consumption and pollution. However, the Government have not yet taken the important step of instructing all Departments to create an inventory of the natural capital assets they own, utilise and affect. The Minister should speak to his colleagues in Government to ensure that that happens.

Quantifying the problem is the beginning of a solution. In the national ecosystem assessment, we have begun to put a value on the contribution of ecosystem goods and services to human well-being. The market has long known how to exploit the benefits of nature, whether by dumping waste at sea or chopping down rainforests with no thought for the wider damage that it was doing. But now, the most progressive businesses are beginning to understand the importance of sustainable supply chains. They are beginning to see the business imperative to reduce their own corporate risk profile and are now seeing genuine advantage in being net positive for the environment.

The establishment of the natural capital committee in response to the United Nations convention to combat desertification conference of the parties in Nagoya in 2010 is a significant and positive move on the part of the Government. I welcome it. I pay tribute to the right hon. Member for Meriden for how she steered the issue through Government. She also established that the committee should report to the economic sub-committee of the Cabinet. Her officials had put to her that it should report to her as Secretary of State, but she decided that it should report elsewhere, knowing full well that a Secretary of State for Environment, Food and Rural Affairs was perhaps less powerful than the Chancellor of the Exchequer. She played a significant role in ensuring that the natural capital committee had the prospect of real success and traction. My hon. Friend the Member for Stoke-on-Trent North (Joan Walley) was entirely right to say that we should also have had a Treasury Minister on the Front Bench this evening.

[Mr Graham Stuart]

The hon. Gentleman no doubt anticipates what I am about to say. He agrees that there should have been a Treasury Minister on the Front Bench tonight. It would also have been extremely helpful if Her Majesty’s Opposition had managed to get a shadow Treasury Minister, who are a great deal less busy than actual Treasury Ministers, to join us.

[Barry Gardiner]

I heartily endorse that. I will ensure that all these remarks are conveyed to my colleagues on the shadow Treasury Front Bench. I give the hon. Gentleman the commitment that they will get copies of my speech.

Having a Treasury Minister here would have truly shown that the Government were not just paying lip service to the idea of natural capital but were listening to the recommendations of the natural capital committee— namely, that the Government should establish a framework to measure and account better for changes in natural capital assets, and to improve the valuation of those changes and how they are fed into policy decisions.

The natural capital committee points out that the Government need to establish a risk register for natural capital assets that will clearly identify potential resource constraints or tipping points that may arise from the further degradation of our biodiversity. It insists that the implications for business supply chains from the loss of key natural resources must become a fundamental part of national economic planning. It recommends that the Office for National Statistics should include natural capital fully in the UK’s environmental accounts and that we should be working with business to develop guidance on corporate natural capital accounting.

I pay particular tribute to the work conducted by the Prince of Wales’s accounting for sustainability project. A4S has worked with strategic corporate partners to identify $72 trillion of resources and environmental services that classically have been omitted from corporate balance sheets around the globe, to enable those businesses better to understand the risks to their own supply chains and ultimately their future sustainability unless they change their business model for one that respects and properly values natural capital.

The Government should follow the prince’s initiative in involving business in accounting for natural capital. Will the Minister say whether he agrees with the suggestion of asking companies to prepare annual corporate sustainability reports for shareholders as part of their reporting cycle, in line with the business-led corporate sustainability reporting coalition’s recommendations?

Let me say this loud and clear: some things are beyond price. Some values cannot be monetised. It is not just that the aesthetic and spiritual values of a mountain are difficult to quantify; we should not even try. We must recognise that those values should not be traded in any market. They are not directly comparable and we must not attempt to compare them on a like-for-like basis in any cost-benefit analysis. However, to recognise that is not to accede to the demands of the fundamentalists of both right and left that we should not sensibly ascribe a value to the mountain for the tourism benefits that it generates or the watershed services that it provides. These are real economic values and we conduct our policy decision making in wilful and deliberate ignorance if we ignore them. This is not to commoditise nature; it is to ensure that the true value of nature is not ignored and treated as a free good by those who for decades have peddled a false theory of value that has allowed them to trash the environment with impunity.

The proper valuation of our natural capital is a means to its better protection, not a tariff sheet of charges for its destruction. The Secretary of State recently made several remarks that are deeply worrying because they have implied precisely the opposite. In his speech to the Association of National Park Authorities last month, he suggested that the protection of our finest countryside could be traded away to the highest bidder. This is quite simply a disgrace, and an ignorant one at that. Anyone with the slightest understanding of biodiversity offsetting knows that there is a hierarchy of principles that it must follow, foremost among which is that offsetting cannot downgrade or amend the existing levels of protection for biodiversity. The Secretary of State, by his ignorant, unscientific and dogma-driven approach, has shown himself to be incapable of leading the Government’s important work on natural capital and has probably done more to undermine the undoubted benefits that could flow from a proper system of biodiversity offsetting than any of the open-toed-sandal anti-development campaigners whom he so clearly despises .

I am delighted that the hon. Member for Beverley and Holderness mentioned the work of the UN Statistical Commission on the system of environmental economic accounting. The UN has adopted SEEA as a new international accounting standard. It is important for the Minister to indicate to the House the Government’s commitment to develop the SEEA proposals and incorporate natural capital fully into their accounting framework by 2020.

I am also delighted that the hon. Gentleman mentioned the work of GLOBE International and its excellent natural capital initiative. I had the honour of chairing the national capital legislation summit that he mentioned which took place in the Bundestag this summer. I agree with the importance that he placed on incorporating natural capital into the first 2015 sustainable development goals. I should like to put on record my thanks and appreciation for the support of the German Government, who have consistently, and with great vision, understood the importance of this work in tackling global poverty as well as in addressing issues of climate change and biodiversity.

It has long been a fundamental principle that the polluter should pay. All too often, though, the polluter has got away with it because nobody has been able to answer the question, “How much?” In the UK we have set up the natural capital committee to ensure that the market and the non-market values of the public goods that nature provides are taken into account in all policy decision making. Our goal must be to incorporate these values into the standard Treasury method of cost-benefit analysis, our purpose being to stop those who seek to exploit the goods and services that nature provides by diminishing her continued ability to provide the essential ecosystem services and public goods that the rest of society needs.

The state of natural capital in the UK is at a critical point. Thirty per cent. of it is in decline, and action now is essential. The natural capital committee has produced an important report, but the Government must listen to what it says and implement its recommendations.