Recovery of NNRR through life cycles resulting in positive flows of environmental assets from economy to nature – an Economic Model

Recovery of NNRR through life cycles resulting in positive flows of environmental assets from economy to nature – an Economic Model

by: Lorena del Pilar Munoz (presenting author)

Universidad Vina del Mar, Chile

The actual consecution of human activities has a significant ecological footprint. The planet faces a major environmental crisis. Humankind needs 1,7 planets every year, representing an increasing pressure over natural resources and energy use. OCDE perspectives indicate a need to reduce GHG emissions in order to keep climate change under safe boundaries, 30% by 2030 and 50% by 2050. Actions have a potential impact on Global GDP of 5,5% by 2050.

Considering this scenario, we need new economical models allowing us to evolve from a linear to a circular economy, and eventually a green economy. This would recovery of NNRR through flows of environmental assets from the economy to the environment. It is difficult to calculate environmental leverage due lack of direct models to value environmental assets/liabilities. Indirect estimations are impossible to transform into management indicators in the implementation of a corporate strategy.

New economical models need to include transaction costs associated with environment (liabilities and assets). As Coase Theorem describes, “optimal externality” needs to be achieved. Evidenced the literature gap, I consider significant the study of these aspects from the point of view of the firm and its interaction with the market. A methodology of calculation has been developed and applied to plastics life cycle.

As result of including environmental liabilities and assets, transaction costs and transfer prices of each step of the life cycle, I was allowed to unveil:

– Environmental leverage actually can fund sustainable investment.

– Non-sustainable investments have hidden cost and socialized externalities without including transaction costs.

The methodology developed can be applied to all sectors of the economy. Transaction costs and transfer prices resulting from this valuation demonstrate lack of complete contracts of un-sustainable world. However, they also show new firm scenarios and the need for a new equilibrium between a firm and its environment.