By Walter Borden

“The conservation of natural resources is the fundamental problem. Unless we solve that problem it will avail us little to solve all others.”  Theodore Roosevelt

What’s In a Petrodollar?
Fossil Fuel producing nations should extract their resources consistent with the health needs of their people, air, land, and water.  History shows us that regulation plays an essential role in this mandate. Energy marketers insist regulations are counterproductive. Implied though not often stated, nations like Russia and China can more easily form capital and drive labor demand from fossil fuel exploitation because they can act largely unencumbered by regulation. This unproven assumption ignores the escalating costs of unconstrained fossil fuel extraction to present and future generations. Should we be more concerned about poisoning our planet for future generations than leaving large amounts of debt for them? I argue yes. Does the regulation of fossil fuel extraction impede aggregate labor demand? The evidence indicates no. The earth is the source of all money so worrying about debt instead of planetary health puts the cart before the horse. A sick, weakened planet will create less value, profit, and wealth.  Concurrently, as oil supplies wane, systemic risk will form around basing currencies on fossil fuels, oil in particular. Searches for fossil fuel resources will grow into fierce and destabilizing conflicts. Increasingly scarce tracts of clean, fertile land can only deepen them.

Unregulated Nations and Quality of Air, Water, Land and Life
Russia and its oil country exemplify the realities of unregulated, petrodollar capitalism. Its oil producing areas constitute what experts describe as our planet’s worst ecological oil catastrophe. Based on reporting from the Associated Press, estimates are that roughly one Deepwater Horizon-scale leakage occurs about every two months. Outdated infrastructure, minimal and unenforced regulation allow for oil to contaminate soil, kill plant life, and damage habitats for mammals and birds. State-funded research shows 10-15 percent of Russian oil leakage enters rivers with nearly 500,000 tons flowing into the Arctic.

Source: Bureau of Labor Statistics

From Chernobyl to more recent paper mill pollution seeping into Siberia’s Lake Baikal, which holds one-fifth of the world’s supply of fresh water, Russia’s lax regulatory posture renders great swaths of territory uninhabitable and fallow. Russian oil spills are more numerous than in any other oil-producing nation. “Oil gets spilled literally every day,” said Dr. Grigory Barenboim, senior researcher at the Russian Academy of Sciences’ Institute of Water Problems. His is not alone. And by all accounts the estimate is conservative since under Russian law, leaks less than 8 tons rate as “incidents” and can thus go unreported. By contrast, the U.S., the world’s third-largest oil producer, logged 341 pipeline ruptures in 2010 — compared to Russia’s 18,000 — according to the U.S. Department of Transportation.

The republic of Komi, just south of the Arctic Circle, is the scene of Russia’s largest oil spill. Up to 40 kilometers of two local rivers were polluted, killing thousands of fish. Respiratory diseases rose by over 28 percent in the year following the leak. Komi’s officials blamed neglected infrastructure and oil companies reporting that “companies that extract hydrocarbons focus on making profits rather than how to use the resources rationally.”

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Mainstream media coverage of the critical depletion of key fish populations – and the serious economic threat it represents – echoes a key refrain at Fund Balance. Time Magazine covers how climate change is warming oceans and thus reducing their ability to support life, and CNN.com has a post by Fedele Bauccio addressing ways to halt overfishing.

Blue Fin Tuna

In addition the U.N. recently released new findings and recommendations for how humanity can decelerate the rapid depletion of the ocean’s biological capital.  Some key points:

• Blue Fin Tuna populations have dropped by 83% in the past 30 years.
• The annual 27 billion dollars in government subsidies to fishing, mostly in rich countries, is misguided since the entire value of fish caught is only 85 billion dollars.
• As a result, fishing fleet capacity is 50 to 60 percent higher than it should be.
• About 20 million workers will be displaced by ending these subsidies and thus retraining will be required.
• Fish populations can rebound quickly if no-fishing zones are expanded and their limits enforced; for example, by allowing tuna to live twice as long as they currently do, they are able on average to produce twice as many eggs.

We hope that the ongoing Gulf Coast disaster heralds a new time – one where:

• The false dichotomy between ecology and economy in the public mind is finally eliminated.
• Government and industry realize that an environment where pollution and unchecked exploitation are controlled and tightly regulated is an environment that supports healthy economic growth.
• People and governments vigorously address the fact that Climate Change is not the only impact of fossil fuel extraction and combustion, and that “market-based” strategies like cap and trade must be combined with other, precautionary and complementary policies.
• The public consciousness is imprinted permanently with the understanding that drawing down capital at a rate that exceeds one’s ability to replace it is economic and biological folly at best and suicide at worst, whether of banks or fisheries.

Fund Balance has been examining the Dead Zones occurring in coastal and estuarial zones over the last year. Their magnitude is striking. Their damage to ocean ecosystems, seafood supplies and business is severe. And they are connected to vital food supply economies in the Midwest. Nitrogenous run-off from fertilizer used in large scale agriculture binds up and removes oxygen in the Gulf.

Does it have to be one set of regional American economic interests over another? The answer is no. For example, research performed at Dauphin Island Sea Lab off the coast of Alabama develops “resource management strategies which will foster the wise stewardship of diminishing natural resources”. There are ways that such principles are being applied in the Midwest along the Mississippi river. The book, “From the Corn Belt to the Gulf” (Nassauer, Santelmann, and Scavia, eds., Resources for the Future Press), details how farmers and industrial agricultural operations could reduce the amount of nitrogen flowing into the Gulf of Mexico by 40 percent. And it is increasingly clear that by planting specific types of grasses and engineering buffers, grain production in the great American Midwest does not have to contract in order for coastal economies to thrive.

Scientists and policy-makers in the Midwest have been at the forefront on this work. The Science Museum of Minnesota has produced an excellent presentation on the Deadzone in the Gulf of Mexico.  Fund Balance is working with policy-makers and bankers on our capital markets strategy for dealing with this issue in Washington, DC.

This past week, countries meeting in Doha at the United Nations Convention on International Trade in Endangered Species voted down a proposal by Monaco and the United States to ban international trade in Atlantic bluefin tuna. The species, Thunnus Thynnus, is spiraling toward extinction, and is listed as endangered by the U.N. and every major international conservancy group.

This outcome underscores the need for policy makers and those charged with execution of policy to factor in the serious crisis that the world’s oceans and riverine systems face: our Blue Economy in peril.

Dead Zone Remote Sensing Imagery: Sannich Inlet off coast of Vancouver, British Columbia

A major issue for the world’ s coastal regions are the rise of Dead Zones. These vast expanses of ocean contain oxygen levels that are too low to support life outside of algal blooms. The Gulf of Mexico Dead

Zone is the size of New Jersey, or approximately 22, 608 square kilometers. The hypoxic state of these dead zones is caused by run-off from fertilizers used in industrial agriculture. Some recent informal polling at i-say.com conducted by Fund Balance gives some hope that the issue registers with the public. In addition, Fund Balance learned from several Iowan farm ope

rators about their efforts to reduce their run off: from  relocating feed lots farther away from rivers, to applying buffers made of specific nitrogen loving indigenous plants and compounds of gravel and sand. Many have realized economic gains from reducing nitrogen application to crops and benefited from increased production. Informative coverage on these Dead Zones can be found at Link TV.

Demarcation from living to dead zone off the coast of North Carolina

Such activity makes important steps forward. These actions require increased attention from agronomists, urban planners, policy makers and consumers. Just last week major media expanded its coverage of Dead Zones off the coasts of California, Oregon and Washington. Such man-made disasters unfold daily in the Chesapeake Bay as well as in within coastal regions across the globe.

by Leland Lehrman

This cartoon, from the front cover of the February 2010 issue of Funny Times, describes the Fund Balance position with respect to Climate Change. We acknowledge that there remains uncertainty in the scientific community about the extent to which anthropogenic CO2 emissions drive global temperature increases. We also regret the polarization of the discussion and the slide into judgmental invective that has accompanied the debate on both sides.

However, we cannot deny the observation that modern mankind does have adverse macroimpacts on the environment. The evidence on this subject is not open to question. From the Pacific Garbage Patch to acid rain to Chernobyl to the dead zone in the Gulf of Mexico, human pollution has damaged Mother Earth in catastrophic ways. It is not difficult to understand global climate change as the emergent property of the various regional macro changes that are already well-known.

Therefore, as the cartoon suggests, the issue of CO2 and anthropogenic warming may well be an esoteric, even moot point. The precautionary principle will require most well-intentioned people to acknowledge the need to restrict global pollution, and not just CO2. Furthermore, the principles guiding the global environmental community, vulnerable as they may be to subversion, are good in and of themselves, and do not require scientific consensus on anthropogenic global warming to warrant action.

It is regrettable that the international scientific community has chosen to focus on CO2 to the exclusion of all the other major impacts of modern techno-industrial civilization. The overemphasis on this one often innocuous molecule has allowed the proponents of global climate action to appear simplistic, propagandistic and even self-interested. Those who overly focus on a cap and trade system that would personally enrich themselves must be recruited to a more holistic regulatory and capital markets strategy that is based on holistic science and balanced capital markets incentivization. Such a system would include taxes, policies and accounting rules on an equal footing with capital markets strategies like cap and trade.

To this end, we call upon the international political, financial and scientific community to reframe the global climate change debate in more holistic terms. A successful regulatory regime will adequately account for the role of other global warming gases, other toxins and other adverse aspects of human ecological impact. Only a holistic approach – which also acknowledges the impact of solar cycles – will achieve a scientific consensus and produce the kind of international system which takes into account all externalities. All “externalities” must be put back on the balance sheet of global industry and investment,  such that capital and trade flows move naturally towards truly clean and green businesses.