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09/03/2017

Capital gains: An interview with Dieter Helm

Words: Simon Wicks
Dieter Helm by Peter Searle

If we want to save the environment, we need to incorporate it into corporate and national accounting systems, Dieter Helm tells Simon Wicks

“I’m half East German, so I’m almost allergic to grand plans. But I do not believe we will preserve and enhance our natural environment by treating it as a discrete set of marginal choices without thinking of it in terms of systems. Our economy totally depends on those systems.”

Dieter Helm, Oxford University economics professor and chair of the government’s Natural Capital Committee (NCC), is in full flow.

“What would happen if you were deprived of this asset? The economy would collapse. Where would your water come from? What do you think the air quality in London would be like without regulation and controls? What do you think your food would be like with the declining quality of the soils? Take all these things away what would be left? Nothing.”

Helm talks for an hour, more or less exactly, barely giving space for an edgewise word. It’s not unlike being given a private lecture – and appropriately enough we’re in his office at New College. I find myself struggling to formulate questions before he’s moved on.

He’s forthright and somewhat fastidious, more than once stressing his political independence and the distinction between his views and those of the committee he chairs. Occasionally the cool veneer gives way as Helm leans forward to expound a point with greater passion. His attachment to the topic of natural capital feels personal and by the end of the interview I’m sure that it is.

"I do not believe we will preserve and enhance our natural environment by treating it as a discrete set of marginal choices without thinking of it in terms of systems"

We’re supposed to be talking about the newly published NCC annual report to government on the state of the nation’s natural capital. Improving Natural Capital (PDF) carries 16 recommendations to government which form a “coherent framework” for the shaping and delivery of its anticipated 25-year environment plan.

We hardly mention the report per se, but everything Helm says pertains to the broader aim of maintaining and developing the UK’s biodiversity, while making rich green space more accessible to everyone.

“The central object is to leave the natural environment in a better place for the next generation and the 2011 white paper [The Natural Choice (PDF) white paper which led to the creation of the Natural Capital Committee] is now six years ago,” he observes. “Here we are, nearly halfway through this Parliament and very little has happened – and this is a manifesto commitment by the Conservative Party, the Labour Party and the Liberal Democrats. It’s time to get a move on.”

What is natural capital accounting?

Natural capital, according to the report, is “the elements of the natural environment which provide valuable goods and services to people”. Value can be direct or indirect, and natural capital includes ecosystems, species, freshwater, land, minerals, the air and oceans.

Natural capital accounting – which embeds the natural world into accounting, and thus economic, systems –  is controversial to some since it can be said to undermine the almost sacred idea that nature has an intrinsic, unquantifiable value.

Proponents of natural capital accounting, however, would say that all current efforts to preserve biodiversity are failing; only by getting it onto balance sheets can we catalogue what we’re losing and give governments and businesses an incentive to maintain it and invest in it, as they would any other asset. This, Helm insists, is the “only model” open to us to save the environment within our economic and social structures.

"Does it matter what the water system costs? All you need to know is what the cost is to maintain it intact”

But valuing nature is far from simple. Indeed, putting an explicit value on a park is missing the point somewhat. “Why do you want to know what the value of the asset is?” asks Helm. “Suppose I say to you ‘Look, we need clean water in perpetuity’. Does it matter what the water system costs? All you need to know is what the cost is to maintain it intact.

“Issues arise if you are going to damage a capital asset. The practical question is: ‘Is it worth it? Should you destroy this asset? Are the gains from building the houses so great as to offset the damage you are doing?”

He cites the case of Twyford Down in southern England, effectively spliced by the M3 motorway in the early 1990s in order to reduce pressure on the Winchester bypass.

“You can carry on with the traffic you originally had without doing this. And all you are saying is that the down is worth more than the cost of the traffic,” Helm explains. “For example if it cost £300m a year in lost time in traffic all you are asking is: ‘Is the down worth £300m a year?’.

“You could put a tunnel through it. Costs are completely different now. A tunnel would have cost £90m and we didn’t put a tunnel through it, so you decided that the down was not worth £90m or more.”

Helm insists that natural capital accounting is a “hard” – a concrete – concept. “It’s about assets, it’s about accounts, it’s about capital maintenance, science, threshold safe limits, economics and economic valuation of benefits.”

He argues that ‘historic cost’ accounting used by most businesses to account for traditional assets is inadequate to account for natural capital.

“You acquire an asset, depreciate it and get your money back,” he pronounces. “But most natural capital assets are more like water company assets. They are assets that we want, effectively, in perpetuity.

“In current cost accounts you don’t depreciate an asset, you just want to maintain it,” he continues. “Instead of depreciation, you pay capital maintenance – the amount of money required to keep an asset in a state for service.”

“There’s a right way to do this and there are wrong ways of doing it. What worries me is the speed with which everyone is coming up with their own ways of doing it"

Helm says that we should employ current cost accounting for natural capital at a national level, and his committee is working with the Office for National Statistics to develop national natural capital accounts. A template has been provided to businesses and a ‘how to do it’ manual is in the offing to help meet the demand from “community groups, water companies, cities”. In late 2016/early 2017, four unfunded natural capital 'pioneer' projects were launched by government - in Macnhester, Devon, Cumbria and East Anglia. Each is operating within a different environmental context.

Helm worries that if rigorous practice isn’t promoted from the outset, natural capital accounting will go the way of sustainability and become a “woolly concept” for which everyone has their own definition.

“There’s a right way to do this and there are wrong ways of doing it. What worries me is the speed with which everyone is coming up with their own ways of doing it,” he says, leaning forward.

“We cannot have nice woolly concepts in the situation in which we find ourselves. Environmentalists need to be every bit as good as business men and people dealing with other assets. The environment is too serious to leave [solely] to amateurs. It has to go up another intellectual gear. It has to go with economics and economic benefits.”

He continues: “We seem to think that nature exists somewhere out in National Parks and that people should have to go out to the National Parks to enjoy nature. There’s tonnes of evidence that this contributes to welfare, and that poor air quality damaged people’s working ability.

“There’s a lot to do and big economic benefits come from this. There are also considerable benefits in the sense that if you look at how we spend environmental money we don’t get much for our bucks. We spend £3 billion on agriculture, most of which is paying people to own land. Just think what you could get for that or even a smidgeon of that.”

Bang.


Q&A: Manchester's urban natural capital pioneer

 

“We have to try and see what we can do differently in planning. The valuation of natural capital isn’t enough. It’s the systems and policies that make a difference. I think you are starting with duty to cooperate, and education and support to struggling planning teams. Our politicians have to be aligned with it as well."

“I think it’s going to be a game changer if the government is serious about the 25-year environment  plan. I think that whole biodiversity net gain target is going to shake people up. I think there’s an acknowledgement that you can’t keep trashing it [the environment] and a lot of people don’t know how bad it’s got.

“As soon as you start putting this down into something that’s measurable and achievable, it’s moving from something that’s a bit intangible to ‘Let’s get this on the ground’. That’s what we are exploring."

Read the Q&A with Anne Selby, chair of the Greater Manchester Natural Capital Group


The benefit of Brexit

“If you go back to the great planning acts after the second world war, people asked a big broad question: ‘What kind of country do we want? What kind of land use do we want?’

“When we joined the EEC in the 1970s, we never asked ourselves whether we really want the land use that goes with EEC membership and we ushered in a decade of enormous destruction to our landscape for almost no economic benefit.”

Born in 1956, Helm grew up the grandson of an Essex farmer and son of a farm worker in the years between the end of rationing and the UK’s entry into the European Economic Community.

“My father was a prisoner of war,” he recalls. “They were sent to work on the farms in Britain. My background in Essex is a world in which nobody went to university. It’s all about agriculture, and most people left school at 15.

“I spent my childhood in the Essex marshes, among Brent geese and elm trees, on my grandfather’s farm with its 350 acres set on hard Essex clay and divided into 15 fields.

“All my life I have been passionately interested in the natural world and environment. But I became an economist"

“In the 70s I watched it being sold, and all the hedgerows being denuded and it all destroyed and made into a field.”

“All my life I have been passionately interested in the natural world and environment. But I became an economist. It’s all about the allocation of scarce resources ¬– and there’s no scarcer resource than the environment.”

Helm developed expertise in infrastructure, energy, transport and water. He became a respected academic, thinker and writer, an adviser to governments. “In the last ten years,” he explains, “having thought about climate change, I moved on to the natural capital territory where I think hard economics has a lot to offer.”

Like the campaigning environmental journalist George Monbiot, Helm rails against the Common Agricultural Policy and its system of rewarding farmers for denuding land of its biodiversity and allowing it to sit fallow, useless.

Brexit, Helm argues, is a “massive discontinuity” that offers us a powerful motive to ask the most important of questions: “What kind of country do we want? What kind of land use do we want?”

Like Monbiot, Helm advocates a switch from CAP to a system of paying landowners to act as guardians of natural capital. We spend £3 billion on agricultural subsidies each year for an industry that generates just £7 billion in revenue, he points out. It’s a drop in the ocean of GDP, and the subsidy would be better spent investing in natural capital.

This is where Helm seems to part from Monbiot, who has objected to the idea of regarding nature as a capital asset. But natural capital accounting is, in Helm's view of the world, one element in a system-wide transformation of the way we view and manage land - and it is perhaps the means by which we open the door to this transformation.

Reflecting the NCC report, he argues that we need to reconsider the “functions, objectives and duties” of National Parks, not least by widening their environmental remit and creating new ones. We must “do something about the environmental performance of agriculture” and work with the National Infrastructure Commission to have natural capital impacts properly considered in infrastructure plans. We must create new wildlife corridors in collaboration with National Parks, landowners, local authorities, developers and infrastructure providers.

We must also tackle the green belt.


Green belt

“What’s the green belt worth?” Helm muses. “Much more interesting is ‘What are the alternative things that land could be used for?’ One thing is to build houses all over it. A second option is to leave it in its current state. It’s basically a planning mechanism so there’s no requirement to use it usefully. Or you could make it accessible to anybody.”

This, he says, is the “sensible” answer. “What happens if you thought about not having houses on it, but investing in its natural capital? It’s in exactly the right locale, right next to people. Of all the places you would invest to enhance natural capital we want it right in the middle of people. Land on the periphery of cities is a huge resource.”

"What an inheritance! Isn’t it wonderful that someone once decided not to build on St James’s Park?"

The problem with the planning system as currently administered, however, is that it allows for a series of “marginal decisions” to chip away at what we value. “Quite a lot of this natural capital is systems and the traditional marginal analysis ignores the most important question. If you made a sequence of marginal decisions like that [building a single house on green belt land], you would no longer have the asset itself.”

He goes on: “Green belt. What an inheritance! Isn’t it wonderful that someone once decided not to build on St James’s Park? I fear that in the rush to build lots of houses we are not making system choices. To be fair there is some sensible stuff going on – thinking about whether we want new settlements is a serious question to ask. We can do that in a way that enhances natural capital or a way that’s to its detriment.

“For example, Milton Keynes: if you really wanted to create that community would you have done it like that?”

The urgent pressures of climate change and population growth mean that we now have to make difficult system choices. There is no time to dither.


The natural capital report and the 25-year plan

Improving Natural Capital hints at a systemic framework in which these choices can be made. “My vision is that the 25 year plan is the overarching framework within which Brexit, the environmental plan and agriculture should be set,” says Helm. “The government needs an overarching framework to think about what it’s doing.”

But the level of the current government’s commitment to environmental issues and climate change mitigation is uncertain. Brexit is a huge distraction and potentially a threat to existing environmental protections.

“There’s obviously a hiatus over Brexit; not much progress has been made so far and the jury’s out. If politicians decide not to do this or not to prioritise the 25 year plan, that’s democracy,” Helm concedes. “But they won’t do it in ignorance of the economic benefits they will forgo by not doing it, because we will give them clear independent advice.”

The report recommends that the 25-year environment plan should be statutory and its governance “assigned to a specific lead institution”, also statutory.

Leadership is critical. “It’s a question of putting in place a proper legal framework to take this forward. In that regard, we say that someone has to be in charge of the plan itself.

“In respect of the planners, someone has to be in charge of this. It needs to be done. I think that’s the big headline about the overarching framework.”

"To find a comparative point in recent history where there are so many substantive points on the table in one, you have to go back to the period after the Second World War”

So, despite his “allergy” to grand plans we talk about plans. “It’s become an unfashionable word, the word ‘plan’. But actually there is a series of systems involved here: local ecosystems, broader ecosystems, the national ecosystem.”

Systems management requires a coherent plan, one able to break down “siloed” responsibilities to move towards a holistic vision of the natural world and its role in our lives. Helm cites water management as an example: “We provide water in a silo. So we never really thought about catchment system operators.”

He demurs when I ask if he is advocating for the return of regional planning. Regional planning doesn’t really work, he points out, because of the “very big agglomeration of regional effects”.

He goes on: “If you want to a world class bank you really do have to be in the city of London. There really are huge advantages which London in particular has. In the last Parliament up to the referendum there was a much more nuanced view that it was no good trying to do a bit of regional development everywhere, that you needed to build a real alternative to London.

“That’s a planning concept one could take seriously. If you are going to have these subterranean structural changes in the economy you need an overarching objective to put it in.”

We are in a context, he says, in which we have “massive structural changes” forthcoming and then we’re back to the postwar that looms large in Helm’s imagination.  “To find a comparative point in recent history where there are so many substantive points on the table in one, you have to go back to the period after the Second World War,” he says.

“We need more creative considerations for thinking nationally and longer term. We have to stop thinking about the environment as a constraint and start thinking about it as a part of the economy.”


Recent CV Highlights

Professor Dieter Helm CBE

Born: 11 November 1956

Degree: DPhil, University of Oxford

1993 Worked on the DTI's Energy Advisory Panel from until 2003

2002 Member of the DTI's Sustainable Energy Policy Advisory Board

2004 Appointed to the Prime Minister's Council of Science and Technology

2007 Awarded CBE for services to energy policy

2011 Appointed to assist the European Commission in preparing the Energy Roadmap 2050. Previous appointments include Chairman of the Academic Panel, Department for Environment, Food and Rural Affairs until 2012

2012 Appointed Chair of new Natural Capital Committee to ind-ependently  advise government on state of England's natural capital. Three State of Natural Capital reports published in 2013, 2014 and 2015

2015 Natural Capital: Valuing the Planet and The Carbon crunch: Revised and Updated are published

2015 Reappointed as Independent Chair of the Natural Capital Committee

2017 NCC publishes Improving Natural Capital, the fourth State of Natural Capital report

This is an extended version of an article published in The Planner in March 2017

Photography | Peter Searle


Read more

Download Improving Natural Capital, the fourth State of Natural Capital report (PDF)

Q&A: Manchester's urban natural capital pioneer

Green belt is key natural capital asset, says Helm

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