Natural Capital by Dieter Helm

Author:Dieter Helm
Language: eng
Format: epub, azw3, mobi
ISBN: 9780300210989
Publisher: Yale University Press

Compensation for the Depletion of Non-renewables

The non-renewables are, from a compensation perspective, a pure intergenerational equity problem. One generation uses the resources, and therefore another cannot. The question is how to compensate the future generations for the fact that the asset will no longer be there for them to use – how much compensation should be paid, and for what?

The economics of the ‘how much’ question is pretty straightforward. The depletion of the resource could take place now, or it could be spread in equal amounts over all future generations. In the latter case, each would then get the total amount divided by the number of generations. To make the maths tractable it cannot be completely open-ended, so the number of generations has to be finite. To make it even more tractable, the problem can be distilled down to one between this generation and the next.

In a two-generation game, this generation could deplete half of the North Sea reserves of oil and gas. But instead of leaving half in the ground, another way of thinking about this is that the current generation could extract all the oil and gas, and invest the proceeds in a fund that would yield a return in perpetuity. This fund is likely to be organized at the national level (a sovereign wealth fund), but it could also be at a regional or global level. Global funds have already begun to be explored to help address climate change and rainforest depletion (though neither is non-renewable).4 In the North Sea example, the amount of the value of the oil and gas reserves that each generation should consume is its share of the total net of the economic rents plus the real return on the fund – in other words, only that amount which leaves the fund intact for the future so all future generations can enjoy that real return. The fund approach is a neat way of doing the intergenerational bit, although it still leaves out who gets the asset value itself within each generation. Each generation gets the return plus a bit of the capital itself. It then sorts out how to distribute it – the equity bit.

The practicalities of defining and enforcing rules to ensure the fund is credible and maintained over time are difficult. Future people do not vote, and current people always have the option of being opportunistic. Democracies based on pure majority voting do not enshrine in their constitutions the responsibilities to future generations who cannot vote. Indeed, the experience of countries rich in non-renewable resources is quite the contrary. They tend not even to be democracies respecting the wishes of current voters, and to be subject to the ‘resource curse’ as elites fight for control of the economic rents.5 Think of the asset-strippers who run Russia, and the super-rich Middle Eastern princes and rulers. Think of the Russian leaders Boris Yeltsin and Vladimir Putin, the Libyan Colonel Gaddafi, the Venezuelan Hugo Chávez, the Shah of Iran and generations of Nigerian political leaders.

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