1. Can markets save nature?
WWF One Planet Centre, 2nd July 2014
Tony Greenham ACA
Head of Finance and Business

2. Four systemic challenges
1. Unsustainable
2. Unfair
3. Unstable
4. Unhappy

3. Source: Rockstrom(2009) ‘A safe operating space for humanity’
Nine ecological boundaries
No limits?

4. Economics is not perfect (nor a science)
1. Market prices are always wrong
2. We confuse ends with means
3. Laws of thermodynamics
4. Odd view of human behaviour
5. Systems oversimplified
6. Misunderstanding of money

5. Heterodox approach is vital….
1. Market prices are always wrong
2. We confuse ends with means
3. Laws of thermodynamics
4. Odd view of human behaviour
5. Systems oversimplified
6. Misunderstanding of money
NB. Markets are socially constructed!
Environmental / SROI
Wellbeing / philosophy
Behavioural / sociology
Ecological economics
Complexity economics
Monetary economics

6. Gross National Product counts air
pollution, and cigarrette advertising
and…the destruction of the redwood
and the loss of our natural wonder in
chaotic sprawl.
It does not allow for the health of our
children, the quality of their education
or the joy or their play…the beauty of
our poetry or the strength of our
marriages.
It measures everything, in short,
except that which makes life
worthwhile.
Robert Kennedy, US Senator 1968
(2) We confuse ends with means

7. Inputs
Output
Current framing of progress
Resources Labour
Growth
Capital

8. Outputs
Thinking differently about progress
Resources
Inputs
Intermediating systems
Well-being
Social Justice
Socio-economic system

9. Measuring progress: Happy Planet Index
www.happyplanetindex.org
Turning Natural Resources into Human Wellbeing
Long and
happy lives
that don’t cost
the earth
3 components
Life expectancy
Life satisfaction
Ecological
footprint
What is the
measure of
economic
success?
NEF (2012) ‘Happy Planet Index: 2012 Report’

10. LINEX production function fits with different “energy” factor inputs
USA 1900-1998
Source: Ayres & Warr (2005), “Accounting for Growth: the role of physical work”. INSEAD
Exergy outputs}
Cobb-Douglas
Exergy inputs
The productivity of land,
capital and labour are
transformed by energy
Work by Ayres, Warr and
other has illuminated the link
between GDP & energy
GDP not explained by Cobb-
Douglas - ‘Solow residual’
Adding exergy (energy +
materials) + efficiency gives
a strong correlation
Supports ‘strong’ over ‘weak’
sustainability
(3) Thermodynamics: Production function

11. (4) Human behaviour: Money is not neutral
• Attempts to use incentives – especially
money – to often backfire
– can erode people’s intrinsic motivation
– reinforce a culture where people act in their own
self-interest
• Five potential impacts
– Crowding out, eg blood donation
– Sending the wrong signal - undervalue the task
– Changing enjoyment
– Changing behaviour
• “the very thought of money can make people less
willing to help others, give to charity, or even ask for
help themselves.”
– Shifting focus or shifting effort
• preoccupied with the reward, lose sight of the task

12. (6) Misunderstanding money
• Banks do NOT ‘take money
from savers and lend it to
borrowers’
• They create new money (bank
deposits) when they lend
• This process is inherently
unstable
• Incentives biased to short-
term asset speculation
NEF (2011) ‘Where Does
Money Come From?’

13. Distorted allocation of credit
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Totalstockofoutstandingloans(£trillion)
UK Bank Lending by Sector
Source: Bank of England
Personal
Secured
Commercial
Real Estate
Production
Personal
Unsecured
Ins. & Pens.
Other
Financial
Sector

14. Price of hydro, solar, wind, etc.
reduces from 14.5 to 7.00 c/kwh
Price of coal, oil, etc
reduces from 10.0 to 7.5 c/kwh
7 c/kwh
Interest
Interest costs
7.5 c/kwh
Amortisation
6.0 c/kwh
Operating Costs 1.0
c/kwh
Amortisation
2.0 c/kwh
Fuel
3.0 c/kwh
Operating Costs
2.5 c/kwh
Interest costs
2.5 c/kwh7.5 c/kwr
Source: Graham, Reedman, Coombes (2007:44) – Australian cents per Kilowatt Hour
Distortion: energy investment example

15. Financialisation begets speculation
• Origin of financial derivatives in solving real problems
• Chicago futures exchange – certainty for farmers
• Commodity trading implicated in volatility of food prices,
market manipulation and reinforcement of shortage
• Since 1995 the notional value of derivatives has
increased by a factor of over 30 times to $464 trn
• Forex: $18.2 trn trade vs $2,226.5 trn (0.8%)
“Speculators may do no harm as bubbles on a steady stream of enterprise.
But the position is serious when enterprise becomes the bubble on a whirlpool
of speculation. When the capital development of a country becomes a by-
product of the activities of a casino, the job is likely to be ill-done.”
Keynes, General Theory, Chapter 12. VI

16. Financial market speculation
Bank balance sheets have grown enormously... ...driven partly by derivatives trading

17. Green Financial Policy instruments
• Credit guidance
• Green Quantitative Easing
• Banking institutions – stakeholder banks
• Monetary innovation: complementary
currencies

18. Credit guidance
• Widespread before neo-liberal era
• Used successfully in SE Asia and Japan
• China’s Green Credit Policy, 2007/12
– banks incorporate social and environmental criteria in project financing
– “as a reference for regulatory rating, institutional access, business
access and the promotion of top executives"
– plants blacklisted from receiving loans because of their pollution record
– Example: by Mar 2012, Industrial Bank 2,857 green loans / value of 129
bn yuan ($20.3 billion).
• “equivalent to shutting down 146 thermal power stations that produce 100
trillion watts or halting the service of 70,000 taxis for 44 years,”
– 11 of 14 banks showed notable growth in loans to greener projects, as
well as better information disclosure

19. Strategic QE
• £375 bn of central bank reserves (25% of GDP or
£6000 per person)
• Almost all the money was used to buy government
debt (gilts)
• £100bn of gilts maturing in next 10 years
• Central bank acting like a bank! Perfectly feasible
– New Zealand (1936-1939) - NZ£30m to support
government (5-7% of GDP) including NZ£5m for
home building – GDP increased by 30%
– Canada (to 1960’s) 65,000 loans / $3 bn for 4,000
businesses

20. Banking diversity
Stakeholder banks
• Cooperative and mutual
banks
• Credit unions
• Public savings banks
• CDFIs
• Community banks (Brazil)
 Social purpose
 Defined geography
State investment banks
• SMEs
• Infrastructure
• GIB & BIB to the rescue?

21. Complementary currencies
• Not issued or enforced by the state – ‘common
tender’
• Connect spare resources with unmet needs
• Different instruments to suit different needs
– Social exchange, based on time
– Local exchange, backed by national currency
– Mutual credit for business
– Environmental exchanges
– Digital cryptocurrencies, eg Bitcoin

22. Summary
• ‘Orthodox’ economics
– ‘Blind’ to ecological constraints (and financial crises)
– New economics required (eg ecological, wellbeing)
• Financial system
– Ignores social and environmental good
– Tends to speculation and instability
• Alternatives to ‘marketisation’
– Credit guidance
– Strategic/Green QE
– Stakeholder banks
– Monetary innovation

23. Final thought…

24. Find out more
www.neweconomics.org
@TonyGreenham / @NEFmoney /
@NEF