CSU's The Audit

Host Stacy Nick: Can you put a price on nature? Or maybe the better question is, should you put a price on nature?

It may sound like a bizarre concept, but it’s one that renowned environmental economist Ed Barbier says could be key to saving the planet.

Barbier is a University Distinguished Professor in the Department of Economics at Colorado State University and a Senior Scholar in the School of Global Environmental Sustainability. His main expertise is natural resource and development economics and the interface between economics and ecology. He’s also the author of several books, including “Economics for a Fragile Planet: Rethinking Markets, Institutions and Governance,” which offers a blueprint for a greener and more inclusive economy.

In that book, Barbier writes that managing an increasingly delicate ecosystem requires us to rethink the “underpricing” of nature, and to decouple wealth creation from environmental degradation through business, policy and financial actions aimed at better stewardship.

Today, I’m talking with Barbier about what a green economy looks like and how he believes we can get there.

Host Stacy Nick: First off, I'd like to have you define what we mean when we're talking about a green economy because what you're talking about goes beyond fossil fuels and forestry.

Ed Barbier: The green economy, in my view, is just another way of saying we want a more environmentally sustainable economy. Part of that is the transition from fossil fuels to other sorts of energy, because so many of our environmental problems come from burning fossil fuels, including the plastics problem.

So, when we want an environmentally sustainable economy, one of the things that we need to think about is what are the main global environmental risks to our economy and to our welfare. One is climate change. The other is water scarcity. Then there's land use change and biodiversity loss. And then the fourth is deterioration of our oceans and coasts. So, when we think about a greener economy, we want to be able to tackle these four problems and to do it in a way that is both inclusive and prosperous for our populations.

Host: How do we incorporate that into our economic thinking when our markets and our business decisions, and even our policies don't tend to put those factors in the forefront?

Barbier: So, one of the things I emphasize in my 2022 book, “Economics for a Fragile Planet,” is the fundamental problem is our underpricing of nature. And by that, what I mean is that we have developed our economic system where we take nature for granted, and we do that in two ways. One is that the things that nature does for us, that benefits us and our economy, those things are given very little value or no value in many of our market policy and business decisions.

The second way we undervalue or underprice the environment is that we often subsidize and encourage economic activities that are harmful to the environment. These two things have made a huge burden of costs that are hidden, because it happens to nature and it's outside of our economic system.

Host: How do we transition to a green or a greener economy?

Barbier: A greener economy would be an economy, as I said, that handles our various environmental risks. One aspect would be the transition away from fossil fuels to more sustainable and renewable energy that does less harm in terms of climate change. We know that fossil fuels are responsible for at least three quarters, if not more, of the greenhouse gas emissions that are accelerating climate change. And we know we need to transition away from these fossil fuels. So, we need to adopt policies, prices and regulations to help that transition over the next 20 or 30 years.

Another thing we need to do is to be mindful of the degree to which our economies depend on very scarce, and often increasingly poor-quality water resources. By that, I mean every activity in our economy requires water, and we unfortunately treat water as if it's a free good or it's a good that we don't pay much for. Yet it's so valuable to every activity and to, of course, human lives. And then, of course, pollution of water has diminished our water quality, which again affects our supply.

This is becoming a major problem particularly in the western United States, which is essentially an arid and semi-arid region. While 70% to 80% of our water is used for agriculture, only 3% of our economy in the West is agriculture. Now, agriculture is very important, and we need water for agriculture, but we also have growing populations and urban development and industries and services in the West that require more water. We need to figure out a way to manage our water supplies for these competing uses, and how do we also make sure that there's enough water available to our economies and people as our regions grow and our economies grow.

Host: It's one of those things people think of as you turn the tap on and have water, and they don't think much about it.

Barbier: That's exactly right. Often, we just expect the water to be there, and it's delivered to our houses or to our industries. Now, there are some changes here in Fort Collins. We're considered one of the brewing capitals of the United States, and the brewing industries are realizing water is an important input. How do we manage the scarce water that's around? How do we produce more beer with less water, or make sure that the water is recycled?

It involves a lot of different policy and business decisions. Businesses are increasingly, for example, for their own accounting purposes, putting a price on water within their practices even if there isn't a price on the water that they receive. They'll say, okay, it's expensive, it's scarce. So, we're going to put a price on it. That makes them rethink how they use water and look for opportunities to conserve and save. Increasingly, pricing of water at households is starting to have tiers or different block rates. And that means that if you use some of the water, you get a lower price. But as you increase your use of water, the cost and price rises. And so, you have to pay more. And that's good because it's getting households to think about conserving water. That is something we must deliberately put into place with policies, regulations and prices.

A third example is the concern over plastics. Now plastics are another byproduct of the fossil fuel industry and the chemical industry. They've become ubiquitous in our lives and certainly throughout our economies. And we're suddenly realizing that plastics don't break down too well in the environment. So, we have this microplastic pollution that's very, very tiny particles of plastic that are everywhere, particularly in our water system, and they're difficult to get rid of. So, we need to have policies in place to reduce our plastic use, improve our recycling, and how do we get the plastics out of the environment, because it's a health hazard and it's becoming a dangerous precedent in our economies.

Host: That made me think about the recent, or it feels still pretty recent, regulation in Fort Collins and throughout the state regarding plastic bags. No longer are we allowed to have plastic bags. And when you ask for a bag, you have a ten-cent charge. And so that seems like it's kind of one small step toward that.

Barbier: That's the type of thinking we need to start doing right now. And it's often at the local level or at the state level in this country, where we're starting to see some innovations like that, where plastic policies and regulations are being adopted. And it also does two things. It empowers local people. Local people will think, okay, we can now do something about a major environmental problem, at least locally, and if Fort Collins starts to do it and Colorado starts to do it, others will do it.

A major leader in climate and carbon policy has been, for example, California, which particularly with respect to cars and bringing in low emission vehicles, as well as eventually phasing out gas engine vehicles. And we're seeing Europe also bring in rules that first copied California. But the European Union then went one step further and said by this day, 2035, all new vehicles will have to be non-gasoline vehicles.

I think that's the type of thinking we have to have. We need more of it, quicker, because I think we're in this important window of 20 or 30 years where we need to accelerate these policies and these transitions. If I may say, one more thing is that these policies and regulations are important because they provide incentives for business to innovate. Businesses are the agents of change. And the less we get our market system and our business decisions working in the right direction, we're not going to see innovations feed on themselves.

There's also roles for government. So, in addition, for policies and regulations, government has to also jumpstart research and development. Businesses do innovate. They do come up with new ideas. But what's important is that government support for research and development, green innovations and new policy thinking must be part of the catalyst. Without those two working together, we won't see the change we need.

Host: To keep global warming to no more than 1.5°C, as it's been called for by the Paris Agreement emission needs to be reduced by 45% by 2030 and reach net zero by 2050. Based on our progress so far, is this deadline possible from an economic perspective? Can we realistically get enough buy-in to get there?

Barbier: Well, unfortunately, right now we have not achieved much progress in that direction. We have started to see elements of change, but there are two things that are going on that are a problem. One is that the 1.5 target is already out the window. So, what we really need to do is to try and keep global warming to a minimum, keep it between 1.5 and 2. That's still a realistic target by 2050. But we need substantial change even then with our global greenhouse gas emissions.

One of the concerns I have is that one country can't do it alone, that no matter what progress, let's say the European Union does, or the United States does or Japan does, that's not going to make a dent in the increase in global greenhouse gas emissions unless we get other countries to cooperate. I think it's not succeeding at the global level to do this, but I do think it can succeed if the United States works together with its closest partners, the group of seven countries plus the European Union.

If this group of countries work together, that is a large part of the world economy and of course, a large part of the greenhouse gas emissions. And then we can start to get other countries to cooperate with us. And that could be the Indias and possibly the Chinas of the world, the next level of countries and other possible democracies that also have a stake in the future that want to deal with climate change. And so, we need to build from this inner core to more and more cooperation and get more countries on board, doing the same policies, moving in the same direction and saying yes over the next 10 or 15, 20 years, what can we achieve?

Host: Is that going to require more punitive measures such as taxes and sanctions, or is this a time when it should be more about subsidies and incentives, kind of more carrot than stick?

Barbier: I think it has to be carrots and sticks. The first step would be, let's say, the group of seven countries to decide, okay, what do we have in common? What policies do we have? So, in the United States, we tend to use more regulations rather than taxes, regulations, subsidies rather than taxes.

In the European Union they tend to use more taxes, some regulations, some subsidies. So, the European Union, the United States, plus the other group of seven could get together and say, okay, what is a common goal? Let the U.S. do it their way. Let the European Union and UK do it their way. But how do we see that we're all achieving the same common goal? And then is that common goal, agreeing on a set of policies across these countries looks like it's going to succeed, we then have to say, okay, does that put us at a disadvantage to the rest of the world? For example, would our industries be less competitive against, let's say, China or India if we have these problems? So, let's then bring in these countries and say, look, we have adopted these set of policies. We're going in this direction. We would like you to join us by adopting a similar set. But if you don't, we're going to have to put tariffs on your goods that come into our economies, that compete with our industries, that are maybe at a disadvantage because of the common policy that we've adopted. And that kind of negotiation can take place. Already the European Union and India are working out such a deal. So, I'm optimistic that we can do it this way. But it needs to be done more systematically and from a perspective of thinking more in about ten, 20 years where we want to be.

Host: At least in the U.S., there's so much political divisiveness, how do we turn the tide and get that momentum going and keep it going? Given the gridlock that we have.

Barbier: That, I think, is a big question, and I'm actually now working on a research project and hopefully a new book. And one of the issues is what can the U.S. do given the political divisions in our economy? And that's led to gridlock at our national policy level, but it's not led to gridlock at the state level or local level. And there are a number of very important states, very economically important states, such as California, Colorado, the northeastern states that are moving forward with all sorts of green policies, particularly climate change policies. And I think other states are following, including states that are not necessarily blue states. And the reason is that attitudes towards climate change have evolved quickly in this country. I think it's no longer a case where a lot of people deny that climate change is a problem. They recognize now that climate change is not only a problem, but it's happening now. And so, the real issue is what's the cost of transition. And I think a lot of states are experimenting to try to say, okay, what's a cost-effective way, what can we do now, and what can we do relatively cheaply? The low hanging fruit of policies, regulations.

Host: The plastic bags.

Barbier: The plastic bags are a great example. Imposing a carbon tax just to see how it works, whether it can work and whether it causes any problems. Renewable resources use portfolio standards in electricity generation, where much of our electricity generation must come from renewables. Subsidizing or providing incentives for wind power and solar at the local and state level. Putting in charging stations for electric cars. Putting in research and development incentives for green innovation, water saving innovation by industries and local firms. That's starting to happen. Then finally just businesses. Businesses are moving fast because they're finding themselves either exposed to the risks of climate change and water scarcity, or they know more regulations to control water scarcity and climate problems are coming. And so, they are actually responding by doing something about these problems internally. And their investors and their shareholders and their consumers are asking for that change, too, particularly for the industries that are exposed to these risks. Business risk and environmental risks are converging, and businesses are starting to do something about it. And these actions are things that we should capitalize in our economy because we are a decentralized political and economic country. So, we're capable of taking decisions at the business level and at the state and local level. We don't have to rely just on national level, and hopefully we will have a trickle up as we see more businesses and more states and local governments push for and adopt reforms and practice and experiment with them. Maybe this will trickle up to the national level, and we'll start to see a bipartisan consensus on what we need to do to tackle these environmental problems.

Host: I love that concept of trickle up. It's not something that you hear very often.

Barbier: No, we think of our economy as being a trickle-down economy, where growth in GDP for our entire economy trickles down to benefit everybody down to the local level. But in the policy world, we have this potential for trickle up. And in fact, the whole change in attitude toward climate has occurred because tornadoes are devastating, just as much in red and blue states. And that has led people to realize we have got to do something at least about adapting to climate change, if not trying to mitigate and keep it as minimal as possible moving forward.

Host: For some, there can really be a feeling of hopelessness that the economy has been dictated one way for so long that it is almost impossible to turn things around, and to do so would maybe even be catastrophic economically. You always hear that the industries that have long been around that would devastate the economy. What would you say to that?

Barbier: Well, there's two different aspects to this problem. One problem is a misunderstanding about how economic systems work. Economic systems are always evolving, always developing, always innovating, and always trying to look for more productivity. If we look at the green industries as not just agents of change, but as agents of innovation and new sources of productivity, new markets that can grow and develop, then we can see that, as we've seen throughout our economy, the evolution of new industries and new services and new manufacturing capabilities, that can boost our economy. All we have to do is go back 20, 30 years and look at what's happened in the tech revolution. Those technologies that we so depend on today, such as the internet, laptop computers, these types of technologies didn't exist 20 or 30 years ago. Whole industries have come up. Whole sources of employment have come. A transition to a green economy is not necessarily bad for the economy. I would argue it actually can be good if we manage it correctly. That's one problem. The second problem is that sense of hopelessness is a real issue, because the risks that we're facing that we need to control and manage are very large-scale risks climate change, water scarcity, loss of biodiversity, land use change and deterring oceans and coasts. These are big challenges. And so, it is easy for the average individual to feel overwhelmed and hopeless and not seeing government do enough. And, if we focus on what's happening at our national level, we get frustrated. But if we look more closely locally and, in our states, not only can the average individual relate more to what's happening at that level, we can do more to influence what's going on. That's why we're seeing the policies in Colorado and Fort Collins in particular come about, is because it's local citizens that have been able to be active and influence policy, and policymakers have to respond. When your voters live next door to you, you tend to respond more than if they live 2,000 miles away.

Host: All right. So that kind of goes back to the think globally, act locally.

Barbier: I think it's a truism, but some truisms are actually true.

Host: Well, thank you so much for your time. I appreciate it.

Barbier: Thank you. Stacy.

Host outro: That was Colorado State University Distinguished Professor Ed Barbier speaking about how we can build a greener economy. I'm your host, Stacy Nick. And you're listening to CSU's The Audit.