This is part two of a two-part article investigating True Cost Accounting (TCA). Part one, which gives some background and reports on a recent meeting on the mechanism held in Parliament, is available here.

True cost analysis relies on the contentious concept of ecosystem services, which rose to prominence with the publication of the UK government's Natural Ecosystem Assessment in 2011.

image expired

A key criticism is that such a system of measurement is essentially reliant on an outdated philosophy that sees natural processes as existing for the benefit of humans (anthropocentrism). Critics have also suggested that by accepting the notions of ecosystem services or natural capital, and trying to protect and catalogue the environment by framing important aspects in ways that marketers can understand, subscribers to the new religion are unwittingly undermining what they're trying to save. Many believe that the capitalist system and market economy are inherently unsustainable, relying as they do on growth and acquisition, meaning measures designed to protect the environment should not be framed in entrepreneurial terms.

Even if TCA or some other mechanism reliant on these ideas is successful in greening food production, they argue, the business case for TCA does not challenge the hierarchies and power structures that have created this level of degradation or the massive social cost of the food system.

At a talk for think tank SPERI in the spring, writer and environmentalist George Monbiot was highly critical of the ecosystem services concept that underpins TCA. He said, "What we're talking about is giving the natural world to the city to look after."

Speaking about the potential pitfalls of market driven measures, including their failure to address where power lies in society, Monbiot used the example of the European emissions trading scheme. He cautioned that, while in theory this was supposed to lead to a gradual decarbonisation of society, "An effective price for carbon begins at around £30 per tonne; that’s the point at which we begin to see serious industrial change, disinvestment in fossil fuels, investment instead in low carbon technologies [but] throughout the history of the European Emissions Trading Scheme the price of carbon has hovered around €5."

Negative externalities can you cost them?

image expired

Elaborating on TCA and the ideas that underpin it, Lampkin explained, "This is portrayed as a new discipline, when it's existed for a long time. Environmental economists have been estimating financial prices for social or environmental externalities for the past 30 to 50 years.

"TCA assumes that if you can work out pricing of negative externalities, you can factor them into buyers' costs but I'm not convinced as an economist that pricing can work [as True Cost Accounting] suggests. Food occupies a special place in that, when it's cheap, consumers don't necessarily buy more of it, but changes in supply relative to fixed demand – be they reductions or increases – will have rapid effects on price."

Lampkin said that those considering the implications of TCA should also bear in mind that value is a relatively fluid concept, which can change, often quite rapidly. He added, "There are other ways to deal with negative externalities, but these have met with limited success. For example Denmark has introduced higher taxes on pesticide, but these measures haven't affected farmer practice.

"Not charging VAT on foods produced using environmentally friendly methods is another market-based strategy, though this wouldn't work in Britain, as most food is exempt from this kind of tax. If [this measure were] applied in other countries where VAT is charged on food, retailers would still capitalise on consumer willingness to pay, and pocket some or even all of the benefit themselves."

Aniol Esteban, the New Economics Foundation speaker who addressed MPs in June, offered a more nuanced critique than Monbiot's. He elaborated on the caveats to his support for TCA.

Speaking to Farming Online Esteban said that, simply put, "Estimating the benefits and costs of ecosystem services helps to identify who created these costs, who pays, who benefits from them and who loses. More information on where costs and benefits are accruing can help rebalance the system."

However, the head of the NEF's environment programme cautioned, "It's a double-edged sword and while I'm positive overall about true cost accounting you need to be aware of when and how you use it. Many people within a market-driven economy might misread or misuse the system. Using TCA you need to be aware that you are not looking at the whole set of values, just those that are easiest to monetise – intrinsic values that are more difficult to assess are often not taken into account due to the high degree of uncertainty involved and should not be placed within a cost-benefit analysis framework."

He also elaborated on the limitations to his support, "We have certain social contracts for things that exist outside a cost benefit analysis – biodiversity should be included in this moral agreement. For example, there is no cost-benefit analysis for wheelchair access to buildings or ramps on buses, because ease of access is a right upon which there is a moral agreement in our society. We should be careful what we include in this system of valuation.

"In this way, by embracing ecosystem valuation without recognising the moral aspects, businesses or decision makers could assess things that they shouldn't. One danger is that by valuing some natural services, people will see them as commodities not a valuation with outside benefits."

Where could TCA be applied?

Giving his overall assessment, Esteban concluded, "Some say this kind of analysis shouldn't be done at all. I think this criticism is misplaced – it's not the technique or work that environmental economists do, but its position within a system that is not fit for purpose."

"There are aspects that can readily be applied to the food system – to ascertain where costs occur and who benefits. It could be used for working out tax cuts and subsidy support for people who are producing in line with our goals – to reinforce benefits for society and the environment.

"For example, if a farmer doesn't use as much [synthetic] nitrogen they create fewer costs to society and biodiversity, so they should be given more favourable fiscal and subsidy support for their efforts."

The UK government's actions in the Common Agricultural Policy reform process have been roundly criticised by environmental campaigners, save for moves to redirect CAP funds to Pillar Two through the 'modulation' process. Explaining his decision at the Cereals event in June, as part of a speech announcing the government’s plans for CAP Greening measures, Environment Secretary Owen Paterson expressed support for some of the ideas that lie behind true cost accounting. He said, "I believe there is merit in funding farmers to protect the environment, for which there is no market mechanism, but on which a £70bn tourism industry relies."

However, the reality of the reformed CAP is set to be very different. Experts have rejected the policy as "A missed opportunity" that is "far too weak to have any positive impact upon the continent's shrinking biodiversity" and warned that "Allowing land use to be determined purely by an agricultural market, which is distorted by multi-billion pound subsidies," as it does, represents "poor value for society."

As with the critique delivered in Westminster, Aniol Esteban also cautioned that, even with the best of intentions, a mechanism such as TCA would not address power relationships that drive much of the environmental and social injustices it seeks to address. He said, "People may have placed too much faith in this – just because this information is presented to decision makers doesn't mean they will act on it. There is already evidence of the economic costs climate change will bring, and of the economic benefits of marine protection areas, for example, yet there has been no meaningful action in either of these areas.

"We shouldn't believe that information will lead to change within a context where there's a very cosy relationship between big corporations and decision makers."

He added that companies faced with TCA analysis, or even governments (due to the pressure of international finance) would cherry pick the findings that suit their business model and could be integrated within their operations. This is because radical steps to make food greener would affect their viability and stability in a market-driven system. "Sooner or later we will still hit a wall," Esteban said, "That wall is the economic system that forces us to grow or deliver profits to shareholders on a short-term basis."