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 andthe 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 playthe 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 dont 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 peoples 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 Chinas 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) - NZ30m to support government (5-7% of GDP) including NZ5m for home building GDP increased by 30% Canada (to 1960s) 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