Sustainable Growth, Natural Capital and the Balance Sheet - Dieter Helm (20.11.13)

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In this talk, Professor Dieter Helm, an economist specialising in utilities, infrastructure, regulation and the environment, and concentrating on the energy, water, communications and transport sectors primarily in Britain and Europe, covers the following topics:

• What is a sustainable economy?
• How should the national balance sheet be constructed?
• How should natural capital be taken into account?
• What is the cost of maintaining assets intact through time?
• What are the implications for consumption, savings and investments?
• How would environmental policy be affected?
• Where does the Natural Capital Committee fit?

Dieter is a Professor at the University of Oxford and a Fellow of New College, Oxford.
He holds a number of advisory board appointments in Britain and Europe. Current appointments include: Independent Chair of the Natural Capital Committee, and member of the Economics Advisory Group to the UK Secretary of State for Energy & Climate Change.

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Sustainable Growth, Natural Capital and the Balance Sheet - Dieter Helm (20.11.13)

  1. 1. Edinburgh Business School November 20th 2013 Sustainable Growth, Natural Capital and the Balance Sheet Dieter Helm University of Oxford Chairman, Natural Capital Committee Author of The Climate Crunch, Yale University Press
  2. 2. QUESTIONS • What is a sustainable economy? • How should the national balance sheet be constructed? • How should natural capital be taken into account? • What is the cost of maintaining assets intact through time? • What are the implications for consumption, savings and investments? • How would environmental policy be affected? • Where does the Natural Capital Committee fit? 2
  3. 3. WHAT IS A SUSTAINABLE ECONOMY? • Maximise social welfare through time subject to non-declining utility constraint • Price all externalities • Discount to reflect inter-generational equity and efficiency (cost of capital) ethical judgments and opportunity costs of capital Technical progress + investment  economic growth 3
  4. 4. GROWTH & THE FACTORS OF PRODUCTION Physical Capital + Human Capital + Natural Capital + Labour Economic Output
  5. 5. HOW SHOULD THE NATIONAL BALANCE SHEET BE CONSTRUCTED? Assets Physical capital V Liabilities Pensions Human capital Health costs Natural capital Welfare payments Environmental degradation National debt 5
  6. 6. HOW SHOULD NATURAL CAPITAL BE TAKEN INTO ACCOUNT? • • • • No such thing as a “priceless” asset Use of cost-benefit analysis Systems properties Options analysis 6
  7. 7. WHAT IS THE COST OF MAINTAINING ASSETS INTACT THROUGH TIME? • The Current Cost Accounting approach – assets in perpetuity • Capital maintenance, not depreciation • Physical vs financial capital maintenance £Taxes − £Expenditure − £Capital maintenance £Government budget So that: ⇉ total capital stock non-decreasing through time 7
  8. 8. IMPLICATIONS FOR SAVINGS, CONSUMPTION AND INVESTMENTS? Pensions Consumption Infrastructure Debt Savings Ratio Capital maintenance of natural assets Savings ratio Aging population Investing Health 8
  9. 9. THE NATURAL CAPITAL COMMITTEE Terms of reference • Identify assets which are being used unsustainably – Metrics, risk register & thresholds • National and corporate accounting • Research spending Outputs • Annual “State of Natural Capital” report • Work with ONS on green account by 2020 • Work with landowners & corporates on template for natural capital accounts • Advise on forestry, CAP & offsetting • Advice to research councils
  10. 10. CONCLUSIONS • Sustainable growth is net of capital maintenance of assets • Assets need to be growing through time • Assets and liabilities approach to budgets & deficits • Savings  ; consumption  ; deficits probably much bigger than currently reported • NCC kicks of the process
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  12. 12. www.dieterhelm.co.uk • Nature in the Balance Eds Helm and Hepburn, Oxford University Press forthcoming Spring 2014 • Labour's energy policies opinion piece October. http://www.dieterhelm.co.uk/sites/default/files/Labour’s%20energy%20policies%20 FINAL.pdf • The economic analysis of biodiversity: an assessment, with Cameron Hepburn, Oxford Review of Economic Policy (2012) 28(1): 1-21 • European Energy Policy, in: The Oxford Handbook of the European Union Edited by E Jones, A Menon, and S Weatherill, OUP, August 2012. • The UK’s new dash for gas, Prospect, September 2012. • Surprise – the oil price isn’t higher, Prospect, April 2012. • The sustainable borders of the state, Oxford Review of Economic Policy, Volume 27 no 4, winter 2012. • What next for EU energy policy?, in Green, safe, cheap: Where next for EU energy policy? edited by Katinka Barysch, Centre for European Reform, 2011. • The Economics and Politics of Climate Change, Helm, D. R. and Hepburn, C. (eds), (new edition 2011), Oxford University Press. 12

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