With the Financial Tsunami bearing down on us it’s easy to turn a blind eye to ecological concerns (or even human right for that matter). But really it’s all the same stuff: a loss of our centre, of who we are.

It’s just reflected in different ways.

Peak Oil is still a major problem and that is bearing down on us more quickly than we would probably care to know.

The monetisation of ecological damage has been estimated at around $3trln, plenty more than current losses in financial markets (though maybe not when the final bill comes in). It would come as no surprise that the two are interconnected. Consumption drives production and production requires ecological resources. When many ecological costs are externalised then we have a problem.

Who pays the bill in the end? Just as we are seeing who pays the bill for excess consumption of financial resources.

The answer: We all pay.

I’ve mentioned Agflation previously and we’re starting to see more concern expressed at the official level. The UK Government’s Chief Scientific Adviser, Professor John Beddington, has weighed into the debate calling food shortages a problem that was as immediate as climate change. The driver of agflation is two fold: increased demand driven by population growth and increasing development and supply shortages caused by deforestation to grow biofuels.

These two drivers are causing major price rises in all food groups. This creates what might be called “real” inflation, a price rise in the cost of real goods as opposed to asset inflation which is more of a monetary phenomenon.

This is a real problem because it can’t be solved by the hammer of monetary policy though the myopists in their central bank ivory towers seem to think so.

I can imagine their conversation: “let’s raise interest rates so people eat less”.

In many countries people are exhorted to have more children especially in developed economies where birth rates among the middle classes have fallen. So how can we stop the population expanding and how are we going to feed all these people and do it in a manner than the ecosystem can cope with.

It’s a tricky question. One could argue that food shortages, famine, disease and natural disasters regulate populations. That may still be the case. But can we rely on that and should we given we are more enlightened, well supposedly.

Population growth was for a long time a favourite topic for policymakers but has only recently come back onto the mainstream agenda. There is no doubt that the growth in biofuels has played a major part in this and that governments who have set targets for biofuel supply may well need to go back and think more carefully about how the unintended consequences of this feel good policy will play out.

It’s good that the water debate is starting to take more shape. In the main we have struggled with the idea that we should pay for it and how to construct proper markets around it. Some places meter water and some don’t but as we know it’s hard to manage a resource if you can’t measure it use.

So it’s refreshing to see a piece in The Press  on the need for a water market to be constructed to provide an efficient allocation of this precious resource. As I’ve discussed many times, a resource with no price will be treated as if it is free. For many people water is free and always has been but now there are competing claims on water. In New Zealand this is primarily from agriculture with huge demands for irrigation from the dairy industry, which converts water into milk on an enormous scale.

Initial objections are alway around the issue that water is a necessity for life and should therefore be free.  Well so is food and shelter and they aren’t. We have lived with the false notion that water will always be plentiful and is a constant renewable resource. Tell that to Australian farmers who have suffered a 5 year drought in many areas. Water availability is subject to climatic variation and to overuse. Just look at the state of NZ rivers and lakes which are well known to have experienced a serious decline in quality over the last 20 years of intensive farming.

It’s fairly simple to make sure people are allocated a fair supply of free water to assuage those who believe they shouldn’t pay for it but anything above a basic amount should be paid for just like our energy.

It’s only through the pain of payment that we really focus our efforts on conservation, efficiency and alternatives.

It’s time we got on with this whilst we still have water to charge for.

Finally some research has been done on the effects of bio-fuel crops on the ecosystem. As widely expected the research has shown that bio-fuels can be highly destructive on the environment as well as actually adding carbon into the atmosphere.

So much for being the replacement to fossil fuels.

This a prime example of doing something because it looks like the right or a good thing to be doing. Those people with prescriptive views on how we should live our lives rarely take the trouble to do the sums and that’s where the problem arises.

Until we start to price up environmental externalities and let them flow through the price mechanism we will not get to see the true cost. So we will keep doing things because they feel good to us or they remove some embedded guilt about the way we use the environment.

The market is working in an inefficient manner and the environment continues to suffer because of it. Many environmentalists have a big grudge against the market perceiving it to be a monstrous creation of the capitalist machine. They are sadly mistaken. The market is how we show the real value of the environment to everyone not just those who think humans are a stain upon it.

Now I don’t want to tar all bio-fuels with the same brush. Bio-diesel from algae for example is using a waste stream and an easily grown input. Large swathes of forest don’t need to be cut down for this process.

But until we see the costs flow through the system we just don’t know.

A couple of weeks ago I attended a PM forum in Christchurch. It was a chance to hear Helen Clark and her Ministers talk about the new Emissions Trading Scheme that they had just put out. I’ve tried to wean myself off climate change conferences because in the end they are all pretty boring and generally say the same thing: the world may end in a flood of seawater and we need to get cracking by x% right now.

What always surprises me is that no matter how many calls for action there are very little has been done to really restrain emissions. Why is this? Well quite simply this is a very tricky issue. Economic growth is not going to be sacrificed on the altar of environmentalism or, more to the point, an outcome where there is uncertainty. So it drags on. China continues to expand its economy at a fierce pace and shows little interest in reining in its emissions insisting that it’s full steam ahead.

So in come emissions trading schemes: carry on as normal but buy your way to heaven via a piece of paper saying “1 tonne of carbon”. If it sounds like a papal remission that’s because it’s pretty close.  It’s a piece of paper you get for money which blesses your wins away.

The problem is quantifying and packaging a tonne of carbon or equivalent. How can we be sure that people will get what they pay for. This is where certification comes in. We need an agreed international standard and a single market. After all there’s only one type of carbon just like there is one type of gold. Its not like crude oil where there are different prices for different types.

Another issue is the changing science. For example, if forests are used as credit generators because of their ability to sequestrate carbon, there is a possibility that the amount the sequestrate may change over time either due to ecological reasons or a change in the understanding of how and how much they actually lock up and over what time period.

As a business having to purchase carbon credits on paper I would be crossing my fingers and hoping it all works out otherwise i might be out of business.

There is also a concern about the over issuance of paper credits. As readers will know they fractional reserve money system we have started life in a similar fashion: an underlying quantity of a commodity on which paper bills were issued. We know the outcome of that, a money system with no control.

From what i have seen this issues haven’t been covered in enough detail. I can still envisage a scenario where the carbon credit market takes off but overall emissions are not reduced. The goal of all this is to reduce emissions not create a huge market in carbon. But for now its the easy way out and politically more acceptable. Trees can take the slack for now and maybe technology can takeover at a later date.

Leo Hickman, a Guardian columnist, published an interesting book called “Final Call – In search of the True Cost of our Holidays”. Its reviewed here and I’ve made a few comments on it.

Eco tourism is all the rage these days and rightly so. We should always consider the impact of where we go and what we do. But as consumers of goods, services and exotic holidays we expect the price to reflect the cost of what we are paying for. If it doesn’t is that our fault or problem?

Well that’s where the consideration or “ethics” of your decision comes into play. I’m in favour of travel as it expands the mind. body and soul. It allows us to gain a different and newer perspective on the world. But do we dare look beneath the surface as Leo has done?

I’m reminded of the excellent Stephen Frears film “Dirty Pretty Things” about the  immigrant workers who keep London going at night whilst people sleep easy. Crap working conditions for service staff are nothing new so why should it be any different on holiday?

What should happen is that people get paid proper wages and work in decent conditions. Then it’s up to them whether to take a job or not. Madeleine Bunting deals with this issue quite well in her book “Willing Slaves” which also looks at the guest worker phenomenon.

My interest is more in the environmental sphere. Simply put we should be paying the Trucost of our activities. How we get that is a bit trickier but doable.  I’ve looked at this before and having been to the UK recently its clear that this issue is center stage.

We must move quickly to connect external environmental costs with the pricing mechanism. Once a cost has been calculated (carbon, nitrogen runoff, water) then that cost gets added in at the point of extraction, abstraction or manufacture. The EC (external cost) flows back to an Environmental Contingency Fund where it sits (in sovereign bonds) until it can be put towards paying for the exact cost that was incurred, whether that is planting some forests to sequester carbon, cleaning a river or fencing land or implementing new water management processes.

As much as we would like it to be, it isn’t (as yet) an exact science. But it will alert consumers to the true cost of the good and allow them to make more accurate purchasing decisions.

Then maybe we can actually enjoy our holiday instead of worrying about how much damage we’re doing to “the planet”.