DOGE urged to probe Biden’s natural capital accounts
As a new administration and Congress take the reins, Republicans are eager to address several problematic regulations enacted during the Biden era. One of the most scrutinized programs is the complex system of natural capital accounts. These accounts assign financial values to environmental assets that are currently not traded in markets. While the intention behind natural capital accounts is to highlight important environmental aspects that are often overlooked by investors, their approach fails to adequately consider the intrinsic value of public benefits from ecosystem services like clean air and water.
An intriguing proposal by the New York Stock Exchange (NYSE) introduced the idea of Natural Asset Companies (NACs). These entities were designed to exclusively focus on the conservation of public lands and natural resources, marking a stark departure from traditional business models. Instead of measuring financial performance, NACs would prioritize maximizing ecological performance for the natural assets under their management. The NYSE even proposed that federal agencies could list public lands as tradable NAC securities on the exchange for investors to purchase.
Had the NAC proposal been successful, companies would have shifted from financial reporting to “Ecological Performance Reports” based on the United Nations’ System of Environmental Economic Accounting framework (SEEA). This shift would require disclosing ecosystem service values in a manner that prioritizes natural assets over financial gains. However, critics like CEI’s James Broughel argued that the SEEA approach lacks economic validity and cannot transform ecosystem services into viable financial instruments.
Furthermore, forcing NACs to adhere to standards that prioritize ecological performance over traditional financial metrics may lead to financial instability. These companies could only be profitable if the government artificially supported their assets through subsidies. State-level efforts to artificially boost demand for carbon offsets are a prime example of how governments can manipulate markets to promote certain assets. Additionally, NACs’ violation of the NYSE’s listing standards, interference with the state incorporation process, and disregard for congressional oversight further challenged their viability as sustainable financial entities.
Ultimately, the public widely rejected the NAC proposal, prompting the NYSE to withdraw it amidst overwhelming negative feedback. Similarly, the US Securities and Exchange Commission (SEC) faced intense public backlash and had to rescind a controversial rulemaking proposal linked to NACs. While proponents argue that NACs could address the tragedy of the commons by preventing resource overexploitation, critics contend that these models would only exacerbate existing ecological challenges.
Fred L. Smith, founder of CEI, warned that government programs aimed at regulating land usage often have unintended consequences. For instance, subsidies intended to reduce soil erosion paradoxically lead to increased land degradation. Likewise, the restrictions imposed by the NAC proposal on commercial land usage may inadvertently diminish land value and reduce agricultural productivity over time. By limiting land development, NACs could inadvertently contribute to a decline in land usability and overall value.
In conclusion, the rejection of the NAC proposal highlights the complexities of intertwining ecological preservation with financial interests. While the concept aimed to revolutionize the valuation of natural assets, its overarching impact on the financial sector and public lands management raised significant concerns among policymakers and industry experts.