On Sunday October 5th, 2014 the Bay Area Rights of Nature Alliance convened the first Rights of Nature Tribunal in the US. I participated as witness expert on the economic system. The ruling of the Tribunal called for defining new economic models, social systems and governance structures to create a new path forward that recognize the interdependencies of humans and earth systems. Below is my testimony.

We are here today for Chevron’s trial conducted through the lens of the Rights of Nature and I have been asked to provide expert testimony as economist. We know our current system of laws is also on trial today and I feel the economic profession and the mainstream economic theory it relies upon should be on trial as well.

Mainstream Economics regards humans as economic agents that are exclusively self-regarding, insatiable and pursuing their individual satisfaction by maximizing their consumption of goods and services while being constrained by their income. Corporations are the other type of economic agents. They maximize their profit while being constrained by costs. The free market is the mechanism that coordinates the actions of all the economic agents through price signals and, according to Mainstream Economics, leads to the efficient allocation of resources, products and services in society.

According to Mainstream Economics, Chevron’s actions are the logical results of the incentives provided by the free market.

The problem is that the market does not see the value of the ecosystem services and the natural resources that Nature provides for free nor does it see the cost of pollution. Nature does not charge us for oxygen production, pollination services, water purification, soil fertility, waste absorption, photosynthesis etc. nor does it charge us for the oil in the ground, water in the aquifers or the lumber in its forests – we just have to pay for the cost of extracting those resources.

These invisible values and costs are called “Externalities” and a new branch of economics was developed to account for them called Environmental Economics. It attempts to quantify in monetary terms the cost of pollution and the economic value of ecosystem services and natural resources Nature provides us for free.

For example, the Stern Review on the Economics of Climate Change published in the UK in 2006, which uses the methods of Environmental Economics, assessed the price of carbon pollution at $100 per ton of CO2  reflecting the current and future economic damage caused by CO2 emissions. According to Chevron’s own website, Chevron produces 2.6 million barrels per day, for a total of 949 million barrels per year equivalent to 3 million tons of CO2 emission per year.  At $100 per ton, we are talking about $300M of economic damage for which Chevron is responsible and currently not paying for. This does not account for the health cost of air pollution due to the 1999 and 2007 refinery explosions or the 2012 Chevron Fire. Nor does it account for the pollution cost of more than 400,000 pounds of carcinogenic chemicals Chevron routinely releases into the air and water of the Bay Area on a yearly basis.

And yet, even Environmental Economics does not go far enough. It still believes in the characterization of humans made by Mainstream Economics and still believes in the primacy of the free market once prices are adjusted for externalities. Hence, the growth imperative remains in force. Quantifying externalities in monetary terms also requires the commodification of Nature and the belief that financial capital and human technology are substitute for natural capital. If we run out of forests, we’ll substitute wood with plastic, if we exhaust the fertility of the soil we will grow food in the lab, if we kill all the bees we’ll replace them with pollinator robots (already in development).

The type of economic theory we need to become mainstream is Ecological Economics. It recognizes the existence of hard limits on the size of the economy based on the sustainable harvesting of renewable natural resources. It also imposes limits on the overall amount of global pollution based on the absorbtive capacity of global ecosystems. Ecological Economics also brings to the fore distributional considerations based on intra and inter-generational justice and inter-species justice.

According to Ecological Economics we have already exceeded the biosphere’s ability to absorb CO2. Therefore, all CO2 emitting activities would need to end while at the same time we would need to accelerate activities that sequester carbon like reforestation, sustainable management of grasslands, and conversion of conventional farmland to organic and no-till agriculture in order to bring CO2 concentration in the atmosphere to the pre-industrial level of 280ppm. Viewed from the lens of ecological economics Chevron and all fossil fuel companies should cease all extractive and refining activities as a matter of inter-generational and inter-species justice.

Author: Marco Vangelisti

Marco Vangelisti, Chartered Financial Analyst (CFA) is a 100% Aware™ and No-Harm™ Investor with a longstanding commitment to Positive and Restorative Investing™.

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