How Valuing Natural Assets Might Solve the Climate Crisis

BIANNA GOLODRYGA, HOST: Well, we turn next to an innovative way to protect our planet. From wildfires to record breaking heat waves, the climate crisis is having a real cost, both to humans and wildlife. Growing carbon emissions are largely to blame. So, what is the solution? Writer Paula DiPerna argues in her new book, “Pricing the Priceless,” that the natural world is an invaluable asset and we need to start viewing it that way in order to prevent future pollution. She joins Hari Sreenivasan to discuss why this could be the key to spurring climate action.

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HARI SREENIVASAN, INTERNATIONAL CORRESPONDENT: Bianna, thanks. Paula DiPerna, thanks so much for being with us. First, what’s it mean? What does that mean to price the priceless?

PAULA DIPERNA, AUTHOR, “PRICING THE PRICELESS”: Well, it’s kind of to walk a metaphysical and financial line, really, to accept that we are dependent on invaluable priceless things. We all know love is priceless, health is priceless, but so is the atmosphere and so are the wildlife and so are the wetlands. And that if we don’t come around to figuring out how to price those values — priceless things, we will abuse them. And as we have seen, through history, what you don’t pay for, you tend to abuse. So, we are trying to figure out a way to reverse the abuse and move natural assets from, you know, sort of being constantly a cost centered to being an asset that you protect.

SREENIVASAN: So, you know, you point out that we have figured out how to price lots of abstract things, say, the entire sort of doc com boom comes to mind, because I’m old enough for that. But even today, how we look at the value of a company that’s technically not selling anything and not making a profit.

DIPERNA: Yes. I mean, the question came to my mind. I mean, I love Uber, it’s very convenient. But how can something like Uber or WeWork or any of these sharing economy businesses that are basically software, the markets, value them in the billions of dollars, and our atmosphere is valued at zero? That sort of doesn’t make sense to me and, you know, that’s kind of where this idea came from. And we also value our art, we value a lot of things that — you know, the value is in the eye of the beholder. So, that’s abstraction nature of it shouldn’t be holding us back particularly from a reasonable system of pricing.

SREENIVASAN: So, you know, let’s walk through some of the examples that you have. I think people understand, for example, that there is value in art, but usually they say, well, it just depends on what somebody is willing to pay for it. You know, you have a whole chapter on Detroit museums and the art that was in Detroit and what kind of value that we ultimately had to place on it. So, what do we take as a lesson from the valuation of art that we can apply to the climate?

DIPERNA: Well, so, if you think of the art collection in the Detroit Museum, art museum, which — you know, it was priceless, had all kinds of phenomenal works, Dezan (ph) and Mattis and the famous, famous Diego Rivera murals, when the City of Detroit was confronting bankruptcy, people there thought, oh, well, we’ll just sell the art and we use that money to pay off the debts. Well, you know, three or four different appraisers came in and they all had different valuations for that collection. The Diego Rivera, they couldn’t even price at all because it was really truly priceless, they couldn’t agree to a price. So, what happened was all this kind of, you know, different opinions kind of melded into a decision, which was, you know what, we can’t value this art. It’s beyond value. It’s so important that we actually cannot value it. So, let’s just stipulate a base number and some foundations came in and put that money forward, and that was used to pay off pension funds and other debts, and the art was taken off the table, never to be put on — potentially on an auction block ever again. A trust was created. So, that was a case where actually pricelessness saved a whole city, and it was the ability of the governments then and the foundations and eventually, the museum itself to assign itself a value that could never be stipulated. And so, the success was that everyone agreed that there was so much value, we couldn’t put a price on it, therefore, we better never squander it. It’s too important.

SREENIVASAN: So —

DIPERNA: And the atmosphere should be in the same category.

SREENIVASAN: Yes. So, let’s say that there are people who understand that there is value in the atmosphere, we would all be dead without our protection. But you’re going to have multiple countries lobbying in kind of different ways on how to price the atmosphere. So, how do we come to that compact, that agreement, that says, OK, this is in fact priceless and we shouldn’t really be bargaining with it?

DIPERNA: Well, you have some agreements now, obviously, you have — you know, the main way to price the atmosphere is through what are known as carbon markets and cap-and-trade in particular, which is basically a diet. You know, the emitters go on a diet and agree or are required to lose carbon weight, so to speak. Stop emitting. And, you know, the atmosphere is our cosmic penthouse, really. If you look up, if you could see 60 miles, you’d be seeing the end of the atmosphere. That’s all the little bit of space. I don’t know the last time you rub your face, but one of the astronauts said that the atmosphere was in relationship to the earth as peach buzzes to the peach. So, that’s a bit — you know, it’s of like the hair on your face, the skin of your face. And so, into that (INAUDIBLE) that’s a super scarce supply. So, supply and demand says, you can’t waste that supply for a low price, you have to make the price go up. So, the cap-and-trade really puts — stipulates a quantity of space that may still be used to pollute. And as that cost goes higher, those stipulated uses will become too expensive and therefore, pollution should drop. That’s the principle.

SREENIVASAN: When we talk about cap-and-trade and carbon markets, I mean, in a way, the United States gets close and it can’t pull the trigger. There are active lobbies across the federal government, as well as state governments, that are still very locked into their way of profits, which is to fossil fuels and the mineral extraction that happens on their lands. So, how can we get to a point where, well, without large-scale participation in a cap-and-trade market it becomes ineffective?

DIPERNA: Basically, what people forget is the cap-and-trade is not just like a penalty, it’s also an opportunity. So, the higher the price to pollute, the more incentive to invest in alternatives. So, if you invest in alternatives because, let’s say, the cap and the price on the atmosphere is $30 a ton, when it goes to $60 a ton, then it makes sense to invest in an alternative because you’ll make money on that. It’s the same with what is called green investing, in ESG investing. I mean, people think they’re going to lose money investing, you know, shipping capital from detrimental uses to productive environmental protection, that’s a moneymaker these days. It’s an old story that you have to accept a concessionary return if you invest in things that are more oriented to environmental protection. You make money in ESG. It is not — it is in no ways — some of the opposition to ESG has been that it’s not prudent, it’s not in the best shareholder interest, when in fact, actually, it is supremely in the shareholder’s interest. One, because it’s protecting shareholders from potential risks, many of which you don’t see yet, like wildfire and flood. And secondly, it’s a moneymaker. So, if you exclude investors and money managers from looking at ESG funds, you’re basically saying, don’t look at these funds that might make more money than other funds.

SREENIVASAN: You pepper the book with tons of examples. One of the examples, say for example, forests in Myanmar. Tell us a little bit about what that shows the rest of the world.

DIPERNA: So, Myanmar, notwithstanding all the disruption today, was one of the first countries to try to value its forest, it’s ecosystem, it’s wetland services, and they did what’s called an ecosystem service analysis. And that began to price, say for example, the value of the mangroves, which everybody thinks, oh, we can’t swim at the beach, there’s no beach there, you know, they’re just a bunch of wasteland, tangled route. Mangroves keep the ocean from banging into the coast. And so, there’s a value to that. But since we don’t value the mangroves, but we value the coastal property, we cut the mangroves down thinking, well, we’ll make more hotels there, when actually, overtime, those hotels get slammed by typhoons. And so, in Myanmar, this groundbreaking study was done, and they were even able to value the labor of elephants in pulling logs out of the forest and put a value on the elephant as a worker, not just as a cost center, oh, elephant, we have to feed it. No, this element is providing tremendous value to the country. Nature, you could say, is the most underpaid and unpaid worker in the history of the world. We don’t pay nature anything for its work. So, nature is subsidizing our economy very directly, and we don’t see that either. And the irony is that some numbers say that the value of nature’s work is larger than the GDP of the world.

SREENIVASAN: What would that number be?

DIPERNA: Well, the GDP of the world is somewhere between 100 trillion and the number that was started in terms of ecosystem services at one point was 125 trillion a year, which makes the economy a subsidiary of nature. So, you know, even if those numbers are wildly off say by $30 or $40 trillion a year, that’s still a very significant amount of subsidy that nature is providing the economy and we’ve to get it not to be subsidizing necessarily for free. And so, I think back to the individual, when you look around you see, well, there’s a swamp or there’s a tree and the branches are just beautifully blowing in the wind, you don’t think that they are actually performing a service for us. And so, that’s where I think a lot of our mental efforts should go, is to reconceptualizing ourselves as living in an economic environment when we’re nature, not just a beautiful pristine environment, even as though — as much as we love that.

SREENIVASAN: Paula, one of, the things that your book does is lay out the important role that insurers play and in how we price our risk. Just last week, State Farm Insurance said that they are no longer going to ensure new homeowners in California, they are citing, let me quote here, “rapidly growing catastrophe exposure.” Because 25,000 homes have been destroyed by wildfire there in just the past five years. But at the same time, there’s also something called the Forest Resilience Bond. Explain that for us.

DIPERNA: So, the Forest Resilience Bond is a fantastic invention, a financial invention a couple of years ago, some graduate students at the Haas Business School came up with it. And basically, you know, the shorthand is it’s a way to value, securitize, invest in environmental benefits that will be realized somewhere down the line. So, you take a forest, you think, OK, it’s just trees standing there. Well, forest tending, taking care of a forest, it’s kind of like gardening the forest. You have to take the brush out from the ground, you have to trim the trees, you have to try to somehow make sure a fire doesn’t jump from one tree to another. And of course, that requires water. And if there’s no water and no rain, the trees become very dry. So, it’s a terribly vicious cycle. And in the case of California, the government, the Wildlife Service, was spending a fortune putting forest fires out, wildfire forest out. And therefore, eating into its budget for preventing the fires. So, the Forest Resilience Bond brings together beneficiaries, that’s what they are called, of a resilient forest, who are, of course, obviously, the Wildlife Service, everybody benefits if the Wildlife Service can protect the forest, but also local insurers who don’t want to pay, and cannot pay, increasingly, homeowners who are burned out, let alone killed and hurt. Tourism operators who require, you know, forests be healthy so the tourists will come. And even hydro power plants. So, the bond quantifies all these benefits and secure investors, private investors, as well as public investors, who said, OK, quantitatively, a forest — this group of trees in Lake Tahoe, is an example, is worth X, and we’ll put several — we’ll put X into it, and the beneficiaries who had benefits later, pay the bond back. So, it’s kind of advancing time, in a way, and it’s very exciting. And they’ve gone from a couple of million to 25 or 30 million. I think there’s even two funds now, almost 50 million, where private investors have put money upfront to enable the forest to be tended properly to postpone wildfires and bring the benefits of resilient forest into the balance sheet. It’s just way you fund — it’s an infrastructure concept. And so, thinking of forest as infrastructure is a breakthrough because infrastructure, you have to maintain, it’s just like, you know, a cost.

SREENIVASAN: So, tell me about what companies, Fortune 500 companies or otherwise, especially public companies, can do actively to try to start pricing some of these things, to try to start putting it on the books. You talk a little bit about the global shoe company, Puma, and their kind of environmental P&L, what can we learn from that?

DIPERNA: Well, the Puma environmental P&L was a fantastic experiment. I mean, for example, they calculated all their environmental cost, you know, what it costs them to buy leather, not just the price of the leather, but the price of the land, if they had to pay for the land and the water value in the land. So, they had two columns, they had, you know, regular books that they filed financial returns and then, they did these environmental returns. And their environmental costs, if they had to pay for them, would have significantly eroded their profits. And so, it would have been a lot of, you know, red ink ode to nature. So, that illuminated for them this potential cost. Now, is that cost ever going to come to bear on them though regulation and scarcity? You know, if you can no longer count on being able to graze animals, therefore, because of drought and because of other conditions or even regulation, then you have to think about, well, where am I going to get those materials? So, it behooves a company like Puma to think ahead. And, you know, all companies really can start thinking about environmental profit and loss, and I think, you know, it’s a bit of a lobbying point for me but I think all companies would be served by level playing fields, a regulatory level playing field, and that includes a national — certainly in the United States, a national carbon price.

SREENIVASAN: How do you make sure that a company that starts taking some steps in this way isn’t greenwashing? By that, I mean, you know, OK, fine. You know what, I’m going to go ahead and pay for these carbon offsets, but it’s basically kind of a rounding error for us.

DIPERNA: Yes. That’s a tricky one. You know, I think the offsets question, which is where, you know, instead of making a direct reduction, people invest in say tree planting and other things that capture carbon, sequester carbon, if that’s what we’re talking about, I mean, those projects really need to be tied back to the diet. They need to really be tied back to the idea of an overall reduction. It’s also true though that constantly reducing emissions every year, especially if you are a power plant, how are you supposed to do that if you fix the power plant and it’s going to run for 20 years, you know, what other fixes can you make? So, the offset thing is complicated, but it’s not as controversial as some people like to think it is. We really need to break out of these themes that have — we’ve been plagued us for so long that prevent progress.

SREENIVASAN: Yes.

DIPERNA: There are a lot of people who want to do the good thing, and they should be encouraged. And the ones who are greenwashing will get caught sooner or later, especially if it’s in their financial filings, because, you know, if you lied to the SEC in your financial filings, it’s a criminal offense. So, you go to jail for that. That’s fraud.

SREENIVASAN: Yes. There have been reports that we, as a society, have been really kind of engineered to think about ideas like the carbon footprint as that we have of personal responsibility and that our personal impact, collectively, can add up. And I wonder whether that takes our eye off the ball in some ways from the largescale and institutional pollution that we collectively enable, where we aren’t asking more of our regulators or our corporations because we’re saying, hey, I get to buy, I don’t know, a hybrid, or an electric car and I’m doing my part?

DIPERNA: Yes. That’s a really important point, and I’ve given it a lot of thought too, because, you know, we do have an individual responsibility, but the scale of the problem now is such that we really do need to figure out where can we get the biggest impact and the fact for our efforts. And I’ve concluded that the little bit we do individually, it can’t hurt. But we have to figure out something that brings it together and institutionalize it, as you said, and one of the main things is how you spend your money, what you actually do by. But also, where you invest. Where you — you know, talk about — talk to your bank, even if it’s just a little checking account, ask the bank where they’re investing. And gradually, we need to up the whole thing so that it becomes a matter of economic security as opposed to individual responsibility. We really need to bump it up to, you know, the top of the line.

SREENIVASAN: The book is called “Pricing the Priceless.” Author Paula DiPerna, thanks so much for joining us.

DIPERNA: Thank you very much. Always a pleasure.

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