Sustainability - Where to from now?

1. Introduction

Green is the new black. To be green is to be trendy and hip and where it's happening. This is a good thing and I am waiting for the call from Vogue magazine to go on the front cover. So far they seem to prefer the Hollywood A list but I know my time is coming.

But, since green has become the new black, many people have said to me that we should revel in our new found popularity and don't cause so many waves. Stop being so strident, they sometimes say. We have been advised to tone down our demands and sit back to collect the votes at the 2008 election.

And there is a certain kind of attraction to that. Those baubles are alluring.

But here's the thing: The sustainability crisis is actually much greater than most people realise and it's going to get worse before it gets better; and it will only get better if we take quite radical action to change our ways. And if the Green Party doesn't point out these rather inconvenient truths then I'm not sure who in parliament will, because these messages aren't as easy to sell as, say, tax cuts.

So as alluring as respectability is, we can't stop being the fly in the ointment just yet. There are some challenging things that need to be said and some challenging things that need to be done.

The challenge in the title of this talk is 'where to now for sustainability': indeed, where to for those who want to live on the planet as if we plan to stay here for a few more generations; where to for those who don't want to have to write their grandchildren apology notes, apologies for spending the family silver in the greatest orgy of consumption since Nero.

My answer is that the focus of those who care about sustainability must be that we need to transform our economy. If we don't have a sustainable economy, then we don't have sustainability: period. Bill Clinton and Karl Marx were right — it is indeed the economy stupid.

So how do we do it? How do we change our economy from its current course towards environmental collapse?

I should start by saying that I have no intention of finding a balance between economic growth and the life support systems of the planet. My view is that ensuring the health of the life support systems of the planet is non-negotiable. If we destroy the environment then there will be no economy and no economic growth full stop.

But I also know that we have to work with what we've got — we have a market based capitalist economy and somehow we have find the ways and the means and the courage to transform it into something sustainable. They say that politics is the art of the possible, but given the profoundly unsustainable nature of our economy, I sometimes wonder if green politics is the art of the impossible rather than the possible! Perhaps green politics is best described as the art of the barely possible and the art of the absolutely necessary.

I have no blueprint but I do have few ideas that I'd like to share with you today. I'd like to talk about some general principles governing this economic transformation and then I want to look at the drivers for achieving this transformation.

2. Relationship between the economy and the environment

The first step is to properly understand the relationship between the economy and the environment.

The starting point for any kind of discussion of this relationship has to be with the fact that the economy is a subset of society and society is itself a subset of the environment. A healthy economy needs a healthy society which in turns needs a healthy environment. The economy is a consumer of the services, resources and energy coming out of the environment. The very water we drink is a result of the water filtration services provided by the natural world, humans may do some of the filtration themselves but mostly it's done for free by the soils, gravels and forests in our water catchments. The environment is the great provider: the soil that feeds us, the food we eat, the wood and fibre we need, the fossil fuel we depend upon, the climate regulation, the blocking of dangerous UV rays, the flood regulation, the absorption of our wastes, the biodiversity that provides the inputs to the pharmaceutical industry, and of course the minerals that we use every second of every day, all of these all resources, services and energy are supplied free of charge from the natural world to the economy and society. We have to expend energy to get these resources but most of the work is done for us already.

And the second point to make about the relationship between the economy and the environment is that not only is the economy entirely dependent on the environment, but the capacity of the environment to supply these resources, services and energy, is finite. To put it in broader terms, the planet is finite and we only have access to one of 'em. While the economy may be able to increase in its nominal dollar value ad infinitum, and humans may be able to invent new and ingenious ways to do more with the same, or preferably with less, the natural world that underpins the economy, that provides these resources, services and energy, is absolutely finite and limited. We've got one world only and we forget that at our peril.

So the starting point for me is that the economy is dependent on the natural world and that world is limited. Ignorance of this fundamental fact about the world, wilful or otherwise, has tripped up human civilisations throughout the ages as people have come to believe that they can have infinite growth.

The fallacy of infinite growth has led numerous civilisations to a dead end as they used all the resources available to them and then collapsed.

In a sense it's only natural. The evolutionary theorist Richard Dawkins argues that short term thinking is favoured by natural selection and that is part of the reason we struggle with long term consequences of our actions. We have many examples in nature of animals that multiply well beyond the capacity of their ecosystems to support them and then their populations collapse. They hunt their food sources to the point of extinction and then their population curve takes a big dive.

Our global society is as guilty of the fallacy of the infinite as many others, but we are perhaps particularly guilty because just like the ancient Easter Islanders we know exactly what we are doing. There is no excuse of ignorance, it's just that this time we are pushing global limits not just the limits on a small isolated island. We have the information at our fingertips about the impacts of our resource use and waste production on the limited capacity of the planet, and yet we are behaving as if the world has infinite resources.
Linked to the fallacy of the infinite, another conceptual mistake that we make is we struggle to understand exponential growth. I'm sure you are aware of the old puzzle which goes: if there is a pond with lilies on it and the lilies double the area of the pond they cover every day, and it takes 30 days for them to cover the entire pond, on which day will they cover half the pond? The answer of course is on the 29th day. But as a species when we look at lilies covering half the pond on the 29th day we probably figure that we've got quite a bit of time to fix the problem, when in fact we only have one day.

Exponential growth tricks us up but it is a feature of our economy, and in a finite world making mistakes about exponential growth can be fatal.

3. Climate change and water

These two great conceptual difficulties that we have, the belief in infinite growth and the failure to understand exponential growth, are clearly demonstrated when we examine the great environmental crisis that will define our species in the next century or two which is of course human caused climate change. Climate change is an example of the environmental limitations we are facing, it is a story about the limits of the planet to cope with our exponentially growing economic system.

Then there are the water wars of Canterbury. I sometimes feel that coming to the Canterbury plains is like visiting the frontline in the war of sustainability.

In Canterbury there has been a 6.5% average annual growth in consented irrigation over the last 20 years. 6.5% increase one year, followed by a 6.5% on the larger area of irrigation the following year. Looked at one year at a time, it's not a big jump but added together and you get unsustainable exponential growth. The result of this exponential growth is that in 1985 there was 150,000 hectares consented for irrigation increasing to 560,000 hectares in 2006 — a 270% increase in 21 years. I may have missed something but I suspect that there has not been a 270% increase in water resources in Canterbury over those 21 years. Of course just because land is consented for irrigation doesn't mean all of it is, but you get the drift.

As you well know this is not just about rivers but about groundwater abstraction. Effective allocation of groundwater resources now exceeds sustainable allocations in many red zones across the region. Attempts to restrict further groundwater allocations in these regions are being strongly contested, as I don't need to tell you.

Closely linked to this rise in irrigated land is the rise of the industrial milk solid mining industry. Dairy farming has a long tradition in New Zealand but in Canterbury the family dairy farm is being superseded by a new kind of industrial activity that is nothing like the family dairy farms of old. We are seeing dairy herds of thousands of cows under giant irrigators using vast quantities of electricity, industrial fertiliser and water. Dairy farming occupied 63,000ha of land in 1995 in Canterbury, but by 2006 we had milk solid mining occupying an area of 183,000ha — a 200% increase in eleven short years.

And closely linked to the rise of industrial dairy we have the out of control pollution of our rivers. In 1999 Environment Canterbury rated about a third of lowland streams as having very poor aquatic ecology. By 2005 it had risen to about three quarters of all lowland streams having very poor aquatic ecology.

Climate change, water abstraction and water pollution are examples in which the fallacy of infinite growth and the failure to understand exponential change are running up against environmental limits.

4. Lessons for the economy

So what are the lessons for those of us who want to make our society sustainable? What this means for the economy is that we need to scale down our resource use and waste production in absolute terms in order to work within the finite capacity of the planet. This doesn't just mean using less resources per unit GDP and producing less waste per unit of GDP, though it does mean that, it means actually using less resources and producing less pollution in total. For an economic system that has become accustomed, perhaps addicted, to using more resources and producing more waste year on year, there is no point downplaying the challenge this presents to us. If capitalism is to have a future, it's not going to be the kind of capitalism we have become accustomed to.

I often think that in some ways Greens and those who really care about sustainability find ourselves in a similar position to the social democrats and new dealers of the 1930s and 1940s. We are having to radically reform the economic system in spite of itself. The social democrats saved capitalism from its more destructive tendencies by introducing elements of the welfare state and controls on capital. The New Right revolution of the '80s and '90s was an attempt to roll back the welfare state and controls on capital, but that's another story. The green movement is finding itself in a similar position of having to transform capitalism to make it sustainable. If this economic system is to survive then it will need to go through a radical reform process of decoupling profits and GDP growth from energy use, resource use and waste production. This is no easy thing and is the greatest challenge to capitalism since the Great Depression.

5. What are the drivers for sustainable economics?

So if we are to transform our economic system into something that can sustain us into the next century, how will we do it? How do we change our economic system to stop non-linear growth in resource use, and hence avoid setting off non-linear destructive processes such as climate change? In this section I want to identify the five key drivers that I believe offer real hope of achieving this extraordinary transformation. The five key drivers of change will be individuals; communities; businesses; modified markets; and state regulation.

6. Individuals

The first level that the economy will be transformed is through individual action. People are rapidly educating themselves about the true nature of the problem in spite of the best efforts of the likes of Exxon in financing the climate denial industry. As we are now entering the age of consequences this is becoming increasingly easy. Once individuals become aware of the issues, things happen.

The first thing that happens is that people change their individual behaviours and start to try to find ways to reduce their impact on the planet. A great many of the talks and exhibits at this Expo are about precisely this. People seek to reduce their energy demands and seek to produce energy from renewable sources for themselves. People seek to reduce their waste and seek to reduce their throughput of resources. Of course not everyone does this but increasingly larger groups of people are taking their responsibilities seriously. Kaitiakitanga, or guardianship, is a universal language and all but the pathological will come to understand this language. These individual actions have a significant impact on our collective ecological footprint.

These actions are not enough by themselves but are essential to everything else changing.

These initial individual changes in behaviour have secondary impacts on markets and businesses. People look at the products they are buying and start to buy and demand products that have a reduced impact on the planet. This has a kick-on effect on creating markets for more sustainable products and services and decreasing the market for destructive products. Some economic activity is directed into more sustainable activities and away from less sustainable ones. This again makes an important but not sufficient contribution to sustainability.

Individual action is also starting to affect the supply of capital as people demand that their savings are invested in socially responsible ways. Already some of the biggest pension funds and financial institutions in the world are starting to withdraw from some of the most destructive activities. I was pleased recently when, under pressure from consumers, the German bank West LB pulled funding from a proposed gold mine in Sulawesi, Indonesia. The mining project would have been extremely harmful to the incredible biodiversity in the region — unfortunately it seems that ANZ banking group are still in there.
This, added to ANZ's financing of rainforest destruction in Papua New Guinea, makes it seem that ANZ are seeking a reputation for environmental destruction and if they continue in their ways I intend to assist them in this endeavour.

We are only beginning but we need to make it harder and more expensive for environmentally destructive companies to raise capital and easier for the good guys. Influencing capital markets through responsible investment policies will have an increasing impact on sustainability. Again, not sufficient in itself but a necessary part of the transformation puzzle.

The final thing that starts to happen once people become aware of the issue is that they start to demand that their politicians take the environmental limits of the planet more seriously. Politicians initial response to this is to increase their rhetoric but this will only suffice for a couple of electoral cycles and eventually individual voters will demand that politicians actually do something. I'll come back to that.

So the first part of the economic transformation to sustainability is individuals taking action, which reduces their own ecological footprint and then influences markets in goods and services and then influences capital markets and influences politicians and the state.

7. Communities

The next driver of the transformation towards sustainability will be community actions or civil society actions.

A lot of the sustainability issues faced by individuals can't be resolved at an individual level or can be resolved better at a community level. Small scale wind turbines don't always make a lot of difference to the individual household but if a community were to group together to purchase a few 500kW Windflow turbines they could be well on the way to energy independence.
Likewise farmers' markets are a key way for local communities to regain a modicum of sustainability with their food supply. Farmers' markets are not a laissez faire market of course but limited to food produced in the region and sold by the person who has produced it. Farmers' markets are growing like topsy all over the country — I counted 40 regular farmers markers on the farmers markets website yesterday. Food sold in these markets is displacing food transported over much longer distances before getting to the supermarket.
Many supermarkets won't accept locally grown food and insist that it be sent to central depots hundreds of kilometres away before being reshipped back to the supermarket down the road from where it was grown. Farmers markets are a way to circumvent that travel. Rod Donald would have been extremely satisfied to see the Buy Kiwi Made campaign that he initiated giving a $200,000 grant to assist Farmers Markets of New Zealand.

Building more resilient local economies based on more sustainable practices is another necessary but not sufficient part of making our society truly sustainable.

And of course local economies don't just build economies they build communities. When people meet each other at a farmers market they are reconnected with each other and strong communities are essential to a sustainable future.

A further contribution to economic transformation made by civil society is that it provides the medium in which non — government organisations can grow and agitate. The agitation of NGOs is vital to our ability to produce change. NGOs have been central to convincing people that sustainability is a vital issue and it is of course under the umbrella of a civil society NGO that we come together here today.

Community action is the second necessary driver of a sustainability transformation. Not enough by itself but a key part of the equation.

8. Businesses

The third driver of economic transformation is from within corporations or within business. Leading corporations are acting in the interests of the planet and in the interests of themselves to reduce their environmental impact.

The business case for sustainability, as Jonathan Porritt calls it, has four dimensions.

Firstly there is eco-efficiency. By doing things in a more ecologically friendly manner you can often simply reduce your costs. Energy efficiency is the obvious example. By doing the same job using less energy you can simply save money. I have seen many many examples of this as have you no doubt. This is the easy low-hanging fruit.

The second dimension of the business case for sustainability is that a focus on sustainability brings higher quality management. A business focussed on its ecological impact will provide better risk management and greater responsiveness in volatile market. A sustainable company provides better staff motivation and commitment in a tight labour market. A sustainability focus also provides opportunities to enhance intellectual capital by being an innovator in a field of expertise that will only increase.

The third dimension to the business case for sustainability revolves around the costs of what Jonathon Porritt calls the 'licence to operate'. All businesses operate in society and must receive permission from that society to carry out their business, whether that permission is implicit or explicit. A business that is actively seeking to be sustainable will face a reduced cost of compliance, it will have an enhanced reputation with stakeholders, and greater influence with government and regulators. Like it or not, the state is going to get involved more and more in sustainability and while Charlie Pederson thinks he can destroy the green movement in New Zealand and get National to repeal the Resource Management Act, I can assure him that green influence is actually spreading into other parties and National will gut the RMA at its peril. A business 'licence to operate' will increasingly involve
sustainability considerations.

The fourth dimension of the business case for sustainability is market advantage. This ties into individual action that I discussed earlier. A business that is genuinely trying to be more sustainable will have stronger brands, increased customer preference, lower costs of capital, and will attract talent.

The business case for sustainability is strong even if many businesses still are in denial about it. This is leading many businesses to move in a more sustainable direction. This is the third necessary part of the sustainability transformation, but not sufficient by itself.

9. Market modification

I've considered individual action, community action and business action. The fourth way to move our economy towards sustainability is through modifying markets - consumer markets, business to business markets, and capital markets.

There are two quite different and important ways that changes to the market will move us towards sustainability.

The first is driven by the kinds of individual, community and business changes that I have outlined above. Changes in consumer preferences and changes in the availability of capital depending on the sustainability of a firm's activity will drive change. We are already seeing this in a big way in Europe but it will spread globally as the sustainability crisis worsens. People will become increasingly intolerant of companies and products and services that are making the sustainability crisis worse. Corporations themselves are catching on by offering better products with a lower environmental footprint and they are demanding it of their suppliers, influencing business to business markets.

But there is a second very important dimension to changing markets and that is the role of the state in legislating to internalise environmental costs.

Businesses that produce pollution often pay no price for producing that pollution even though it may be a negative for many other people. Internalising the costs of these environmental externalities within the cost structure of business is at the core of ecological economics. Establishing relative prices that discourage behaviour that destroys the planet is vital — markets matter. That's why it is so important to get a price on greenhouse emissions.

We have seen the use of two kinds of policy instruments to put a price on greenhouse emissions. The first is the carbon tax and the second is the emission trading scheme. Looked at from one point of view, the carbon tax was not a market instrument, and the fact that it was called a tax seemed to upset a lot of people. But from the perspective of altering relative prices it didn't matter that much. The introduction of a carbon tax would have meant that high emissions goods and services would end up increasing in price compared to low emissions goods and services and this would lower their consumption. A carbon tax is a relatively simply instrument and it was Green policy and we were disappointed when the government dropped it at the end of 2005.

The second policy instrument to increase the relative prices of emission-dense goods and services is the emissions trading scheme, otherwise known as a cap and trade system. A cap is placed on total emissions and the permits to produce these emissions are either given out or auctioned off, and then those who have these emission permits are free to trade them. This is the path that we are currently going down in New Zealand. Now the Greens have some reservations about the ETS because it is not at all clear that it will actually reduce emissions because there will be so many exemptions, because emission permits may simply be given out for free, all sectors are not covered, and it's pretty complex to administer. But we have accepted the reality that this is where we are going so we'll do the best we can to improve the proposed system and make it workable.

But I did want to briefly compare the two policy instruments — carbon tax and emissions trading. I am doing this purely to initiate discussion and nothing I'm saying here about carbon tax versus ETS should be taken as Green Party policy.

A carbon tax fixes the price of carbon but leaves the level of emissions to vary in response to that fixed price. The level of the tax is set and businesses should reduce their greenhouse emissions in response to this price signal but by how much is not so clear. An ideal emission trading scheme, on the other hand, fixes the level of emissions and leaves the price to vary around that fixed level of emissions. The level of emissions is set and trading of emissions quotas determines the price of those emission quotas. It is unclear what the price of those quotas would be but we should know the level of emissions.

So from a purely theoretical perspective a trading scheme would seem to target emissions in a much more direct manner than a carbon tax which only targets emissions indirectly. If we could get the right cap on emissions, and have that cap sinking and enforced, then we may find that an ETS suits the environment movement better. We shall see. From a business point of view, a carbon tax delivers a predictable price on which to plan while an ETS delivers a more variable price which makes it harder to plan. This may be why the Economist magazine is now in favour of a carbon tax rather than an ETS. But is a carbon tax best for those concerned for the environment? It's a little unclear.

And consider the longer term political implications. If we are to use these mechanisms to reduce greenhouse emissions over time to meet even National's target of 50% reduction by 2050, then the greenhouse price will need to increase over time. In the case of the carbon tax, it will need to increase at some point to continue to get the kind of reductions we need. And, in the case of the ETS, the emissions cap will need to sink resulting in higher prices for emissions units. Now there will inevitably be considerable resistance to this from those who produce greenhouse emissions.

So which argument would the environment movement rather fight — an argument directly about the level of greenhouse emissions, that is the level of the cap in an ETS; or an argument that is at first glance about increasing taxes which indirectly does something about climate change, that is the argument about increasing carbon taxes. It seems to me that the better argument to have is one that is directly about the level of greenhouse emissions rather than an argument about increasing taxes. If the ETS can be made to really work, it may be that the environment movement is better off with a more market based mechanism.

Anyway, enough of that. Modifying the price signals in markets is the fourth driver of the sustainability transformation — a driver that will come from the demand for sustainable products from individuals, communities and businesses on one side, and from government intervention to internalise environmental costs on the other. This fourth driver is another necessary but not sufficient condition if we are to achieve our sustainability transformation.

10. State regulation

The fifth driver of the move towards a sustainable economy is good old-fashioned much-maligned state regulation. Aside from using the state to alter relative prices as discussed above, government also needs to simply regulate some activities in a command and administer method. Individuals, communities, businesses and market actors by themselves sometimes are insufficient.

For example I am currently engaged in a campaign to stop the sale of outdoor furniture made from the clearfelled rainforests of the Pacific and South East Asia. We are mobilising individuals to check out the source of the furniture they buy, NGOs are spreading the word amongst their networks, we have a number of businesses on board who are differentiating their product on the basis of sustainability to create a market for sustainable outdoor furniture. But until the government steps in to stop the import of this timber there will always be importers who will undercut the good companies with undiscerning buyers and the rainforest will continue to be destroyed. We need a bit of old fashioned regulation. And by the way we have a petition about this issue at our stall which I would ask you all to sign.

Instruments like the Building Code raise energy standards. Some builders left to their own devices will build crap cheap buildings with low energy efficiency that will lock in low energy efficiency for those who buy the building for the first occasion and all subsequent sales. Only state regulation can fix it.

An example close to home is water abstraction in Canterbury. While it's possible that market mechanisms will have a vital role in commercial water use, it's also true that eCan will be needed to regulate water.

In writing this section I was reminded of the story of the legendary New Zealand conservationist Don Merton and the invasion of Big South Cape by rats in 1964. Big South Cape is an island off Stewart Island which was the home of the rare South Island saddleback, the tiny bush wren and the Stewart Island snipe. The orthodoxy of the day was laissez faire and non-interventionist - let the rats do their thing. However Merton and friends refused to heed the advice and went and rescued 36 South Island saddlebacks and took them to a nearby rat-free island. Sadly they were unable to rescue the bush wren and the Stewart Island snipe and they were driven to extinction by the rats and are no longer with us. Sometimes sustainability means that you have eliminate the rats by direct intervention.

I could go on with examples where state regulation is by far the most efficient way to achieve sustainability transformation.

State regulation is the fifth and final driver of the sustainability transformation.

11. Conclusion

In summary, my view of 'where to now for sustainability' is that we need to radically transform our economy because the current economic system is driving us over the cliff like a bunch of lemmings. This transformation will make our economic order look pretty different to the one we have now though not completely unrecognisable. Resource and energy use and waste production will be dramatically lower but businesses will still make money. If we play our cards right our communities will be stronger and we will have better quality of life if not as much stuff.

I believe that the drivers to make this change exist in individual, community, business, market and state actions. Together these five drivers should be barely sufficient to make the change needed to make our economy sustainable. It is I believe just possible that we can make the changes we need to make.

If we prove unwilling or unable to make these changes then we should get out our writing paper now and start writing our apology letters to future generations, to our children and our children's children.

But if we have the courage to face the truth about the precarious state of the
environment on planet earth and to act on it then we no longer need to apologise to our grandchildren but we must become their voice. We must use our voice to speak for those who cannot speak for themselves because they are too young or indeed as yet unborn. Let us start living in these beautiful islands as if we plan to stay here and pass them on. Let us start doing that today.

Thank you