Natural Capitalism: The Next Industrial Revolution

Amory LovinsBy Amory Lovins

Capitalism is supposed to be the productive use of and reinvestment in capital. But what is capital? There are several kinds, but industrial capitalism deals only with two: money and goods. There are at least two more, namely people and nature. Without people, there is no economy; without nature, there are no people – indeed there is no life – so leaving these two out is a very material omission.

The end of the twentieth century saw two great shifts in political economy. The one that historians noticed was the collapse of communism and the apparent victory of market economics or of capitalism (they’re not the same thing, and we’re not sure yet which one was the winner). Perhaps less noticed was the beginning of the end of the war against the earth and the rise of this different way of doing business that we call natural capitalism. Paul Hawken chose that phrase as the title partly to indicate that this kind of capitalism plays with a full deck, dealing with all four kinds of capital, particularly emphasizing natural capital. It turns out that you make more money with four kinds than with two. I think Paul also wished to indicate that industrial capitalism is a temporary aberration, is unnatural—not because it’s capitalist but because it defies its own logic by liquidating and not valuing its own largest source of capital, the natural world.

We are too well aware of the erosion of living systems. Everywhere in the world every major ecosystem is in decline. This matters to business. The importance of natural capital was re-emphasized almost a decade ago when a $200 million investment and a lot of good science went into Biosphere Two, a structure in the Arizona desert. Yet it failed to provide breathable air for eight people—one of the many nifty services that Biosphere One, outside those walls, provides free every day for six billion of us. All the bio-geo-chemical cycles of Biosphere One are vital to our existence. Scientists trying to figure out an economic value for these cycles typically come up with numbers at least as big as the Gross World Product. But whatever the right number is, we know it’s not zero, and as Peter Bradford reminds us, it’s better to be approximately right than precisely wrong.

No doubt one could spend decades, especially in the academy, debating what the right number is, and then more decades in Congress debating how best to signal that value in prices. I think it makes a lot more sense, especially given the present urgency, to figure out a way of doing business as if nature and people were properly valued, but without needing to know exactly what they’re worth or how that value would be signaled in the market. This is what natural capitalism does, and it is very profitable even today, when nature and people are valued at approximately zero.

Nature’s value comes less from resources than from ecosystem services, the dozens of services that we can’t live without and that are very mysterious, such as regulating the composition of the atmosphere and regulating the climate (until we started experimenting with it), cycling nutrients, and controlling pests and pathogens. We have no idea how to replicate these services, with very few exceptions. We do know, for example, how to pollinate plants—that’s good, because bees are dying around the world—but if you try hand-pollinating the world’s plants, you’ll find that it does become tedious. And then there’s the matter of assimilating and detoxifying society’s wastes, and so on. The trouble is that as these ecosystems go into decline, they fall behind on their delivery of the services we need to live. The human prospect is therefore becoming limited not by boats and nets, but by fish in the sea; not by plows but by fertile land; not by pumps but by fresh water; not by chainsaws but by forests.

The last time people in an industrialized country were seriously limited by a shortage of something was a quarter of a millennium ago at the dawn of the first Industrial Revolution. At that time, to oversimplify a bit, there weren’t enough people in England weaving cloth, for example, to make it affordable for most customers. Yet the notion of increasing labor productivity was unknown then. If anyone had gone into Parliament around 1750 and said, “Don’t worry, we’ll just make weavers a hundred times more productive,” nobody would have understood this idea, let alone thought it was possible. But that is exactly what happened as profit-maximizing capitalists teamed up with technological innovators, and soon a Lancashire spinner could produce the cloth that had previously required two hundred weavers. As that capability spread through one sector after another, creating a middle class and affordable mass goods and purchasing power and all the artifacts we see around us, we came to call it, rightly, the Industrial Revolution. Its logic was simple and correct, at a time when the relative scarcity of people was limiting progress in exploiting seemingly boundless nature, the obvious answer was to make people a hundred times more productive.

That logic of economizing on the scarcest resource remains perennially valid, but meanwhile the pattern of scarcity has quietly reversed. In the next Industrial Revolution, now underway, we’re dealing with abundant people and scarce nature. It is no longer people but nature we need to be using far more productively, wringing four or ten or a hundred times the work from each unit of energy, water, materials, topsoil, or whatever we’re borrowing from the planet.

That radical increase in resource productivity is the first of the four interlinked principles of natural capitalism. The second is the redesign of production along biological lines—with closed loops, no waste, and no toxicity. The third is the new business model that shifts commerce from intermittently making and selling things to providing a continuous flow of value and service in relationships that reward following the first two steps. Fourthly, you make a lot of money this way; so what do you do with the profit? Well, a capitalist is supposed to invest profit into productive capital, and the most productive kind of capital to reinvest in is typically the kind you’re shortest of—in this case, nature (and indeed human culture and community)—so that is something any prudent capitalist would know to do.

The First Principle of Natural Capitalism

Let’s start with the first principle—radically increased resource productivity. You’d think that after centuries or millennia of wringing out waste, there wouldn’t be much left. But fortunately we have learned that waste is an expanding and almost infinite source. In this country the amount of material we dig up and move around and process and use and throw away amounts to about twenty times one’s body weight per person per day, and that includes only water that’s returned contaminated, not water that’s returned clean. Worldwide, this flow, which is doing such harm to nature, is close to a half trillion tons per year—and yet only 1% of it is going into durable products; the other 99% is waste.

We’ve already cut out $300 billion a year’s worth of energy waste in the United States, but we’re still wasting $300 billion a year’s worth. The efficiency of converting fuel at the power plant into light in a room is about 3%; our cars use 1% of their fuel energy to move the driver; our power plants throw away as waste heat the same amount of energy that Japan uses for everything, and even their economy is not yet one-tenth as energy-efficient as the laws of physics permit. Fortunately, we now have very powerful techniques that can triple or quadruple the energy and water efficiency of existing buildings, while in new buildings the energy usage can be reduced by 90%, and the building then not only works better, it costs less to build.

We’ve already done quite a lot to reduce energy waste, but there is much more that can be done. For example, in 1976 I published an article in Foreign Affairs called “Energy Strategy: The Road Not Taken?”— so named thanks partly to my Amherst exposure to Robert Frost. In that article I contrasted with the official forecast, heading toward the northeast corner, the notion that U.S. energy use might actually stabilize and decline over the next half-century as we used less energy and enjoyed it more by wringing out a lot of the waste in converting, distributing, and using it. We would get the same or better services with less money, more brains, and smarter technology. That heretical prediction is what has actually happened so far. We’re not doing badly, and we now know how to do a great deal better than that original target and do it much more profitably.

Now let me give you a few examples of where the state of the art is. In fact, I’ll take you back a bit, to 1983 technology. I live in a passive-solar banana farm, 7100 feet up in the Rockies. There are basically two seasons: winter and July. The temperature there can on occasion go down to –47°F. You can get frost any day of the year, and we’ve had as long as 39 continuous days of midwinter cloud. Nonetheless, if you come in out of the snowstorm into the atrium in the middle of the building, you find yourself amidst the bananas and jasmine and bougainvillea. You then realize that there isn’t a heating system, because we don’t need one, and it’s cheaper up front not to have one. Our household electric bill would be $5 a month for 4000 square feet if we bought it all instead of making more than that with solar power.

If you were to ask most engineers how thick your insulation should be in a very cold place, you’d probably be told, “Just as much as will pay for itself over the years in saved heating fuel.” That seems to make sense—you don’t want to pay more than it’s worth, do you?—but it’s wrong, because it leaves out something important. I don’t mean the environment, though it leaves that out too. It leaves out the capital cost of the heating system: not just the furnace but the ducts and fans and pipes and pumps and wires and controls and fuel supply that have to be paid for before you can get any heat, and yet none of that is counted in the normal calculation. But when you put in enough superinsulation and superwindows and air-to-air heat exchangers, you don’t need the furnace any more, and these other features cost less to install than a heating system would have cost. This means we had money left over, which we reinvested, along with an extra $1.50 a square foot, to save half of the water use (we were not very ambitious in those days), 99% of the water-heating energy, and 90% of the household electricity—that’s how you get down to $5 a month. And by the way, the house had a perfectly normal construction cost for our area. All the efficiency improvements had a ten-month payback in 1983; today’s technology is much better.

With lower construction cost and better comfort, we’ve gotten rid of cooling equipment in houses in climates where the temperature goes up to 115° F. For example, we helped design an experimental house in California, near Sacramento, where the outdoor temperature can peak at 113° F. It’s an ordinary-looking house and even has a dark roof, required by the homeowners’ association. It was originally designed to use 82% less energy than those built according to the strictest standards in the country (California Title 24, 1992). Yet Pacific Gas & Electric Co. figured that if this design were widely built rather than a one-time experiment, it would be $1,800 cheaper than normal to build and $1,600 cheaper in present value to maintain, because it doesn’t have a heating or cooling system. Still, at the end of a three-day heat wave the neighbors were coming over from their houses, whose three- and five-ton air conditioners couldn’t cope, to take refuge in this one, which had good design and no air conditioner. The last seven improvements that got rid of the air conditioner, by the way, were justified by the savings in capital as well as energy costs, not by the savings in energy alone, so it’s the same methodology that I described earlier.

Similarly, architecture professor Suntoorn Boonyatikarn in Bangkok got rid of 90% of his air-conditioning energy in a very nice house at exactly normal cost. We know how to save 80% to 90% of the energy used by big new office buildings that build faster and cheaper and get better human and market performance. We’ve shown how to save three-quarters of the energy used by one of those big all-glass-and-no-windows office towers in Chicago by fixing it up at no more cost than the regular renovation that saves nothing. Our record so far is designing improvements to an office air-conditioning system in California that would save 97% of the energy with improved comfort and good economics.

Thus there is obviously something wrong with the economic theory of diminishing returns, which says that the more you save, the more and more steeply the cost of the next unit of savings goes up until it costs too much and you have to stop. This is sometimes true at the level of components, but it’s also often untrue at the level of components: for the most common kind of motor, for example, up to at least 300 horsepower there is no correlation whatever between efficiency and price. There should be, because the more efficient motors have more and better copper and iron, but even if they cost more to make, they’re not priced accordingly. I don’t know why, but I’ll take it. The same is true for many other kinds of equipment. Do not assume from economic theory that efficient products must cost more; if you shop around, they often don’t, so our motto is: “In God we trust; all others bring data.”

The way to make the diminishing-returns notion definitely untrue is by combining components artfully into systems, because then if you keep going and save some more, you can often make the cost come down to less than you started with, as when you get rid of the furnace. Then you have very big savings that actually cost less than small savings or no savings. Of course, instead of getting there the long way around, why don’t we just tunnel straight through the cost barrier to our design destination? Then we can profitably get rid of a great deal of muda, a wonderful Japanese word embracing all kinds of waste.

There are two basic ways to tunnel through the cost barrier. The first is to get multiple benefits from single expenditures. There are many opportunities to do this; in fact, the arch that holds up the middle of my house does twelve different things, yet I pay for it only once.

The second way is to take advantage of improvements you’re making anyway for some other reason, as illustrated by that big Chicago office tower I mentioned. The building is twenty years old, so the seals around the windows are failing. All that glass needs to be replaced, and normally you would use the same kind of glass that’s already there, which is so dark that only 9% of the light comes in. We found we could let in almost six times as much light and a tenth less unwanted heat by using a special kind of superwindow that would block the flow of noise and heat four times better. Then we could bounce daylight all the way into the building and use very efficient lights and office equipment, cutting the cooling load fourfold. The cooling system could be made four times smaller and four times more efficient for $200,000 less than renovating the big old one. This saving would pay for the better windows and the lighting retrofit, so you would end up saving three-quarters of the energy at no extra cost.

In industry the opportunities are, if anything, more impressive. There are 35 things you can do to a typical motor system to save about half its energy, not counting the machinery it’s turning. Typically, the after-tax return on investment approaches 200% a year. The reason it’s so inexpensive is that if you pay for the correct seven improvements first, you get 28 more as free by-products. We’ve gained similarly high returns on investment by fixing up microchip fabrication plants to save over half the energy they use to make chilled water and clean air. Other high-return examples include designs to save two-fifths of the energy cost in an already efficient refinery and 70% to 90% in a new supermarket. All these examples markedly improve operational performance.

There have also been radical changes in process design—for example, in microfluidics, an art that can fairly often shrink a large chemical plant to the size of a watermelon! Then there is the revolution in materials durability, longevity, re-use, and frugality: for 37 years I’ve carried in my pocket a little L. L. Bean folding cup of stainless steel, which by now has displaced a great many paper and plastic throw-away cups, and I suspect it will keep on doing so long after I’m gone.

There are often valuable side benefits to efficiency. When a typical office is made more efficient, people will be able to see better what they’re doing, hear themselves think, feel more comfortable, and breathe cleaner air. As a result they will do more and better work, by about 6% to 16%. A typical office pays 100 times as much for people as for energy, so a 1% gain in labor productivity would have the same bottom-line effect as making the energy bill go away, and we are actually seeing an effect from 6 to 16 times that big. There are similar gains in industry, such as 40% higher sales per square foot in well-daylit stores, as well as in education, such as 20% to 26% faster learning in well-daylit schools (we’re trying that now in Brazil). These kinds of benefits are typically one and sometimes two orders of magnitude more valuable than the direct energy or resource savings, and can be marketed accordingly.

When we start putting efficiency techniques together, they interbreed and make new ones. I drive a two-seat Honda Insight hybrid-electric car that gets 67 miles per gallon, but that’s just the beginning of an automotive revolution that can reach all market segments. A typical mid-size suburban assault vehicle recently designed by a little firm I chair, which you will find on the web at www.hypercar.com, is illustrative: the car could be any size, shape, and style you want, but Hypercar, Inc. just happened to start with a mid-size SUV. Unlike most concept cars, this one, called the Revolution, is manufacturable and production-costed. It can accommodate five adults in comfort, up to 69 cubic feet of cargo, or two adults and two kayaks. It can haul half a ton up a 44% grade, yet it weighs less than half as much as a normal car of this class, such as a Lexus RX 300, because it’s made of carbon fiber. This is so strong you could run the car into a wall at 35 miles an hour with no damage to the passenger compartment, or you could run it head-on into a Ford Explorer twice its weight, each going 30 miles an hour, and still be protected from serious injury. It also bounces off a six-mile-an-hour fender-bender with nothing bent.

This car can go from zero to 60 miles an hour in 8.2 seconds, and it gets the equivalent of 99 miles a gallon, which is from five to five-and-a-half times normal efficiency for cars of this class, but it doesn’t actually use any gasoline; it runs electric wheel motors on power from a hydrogen fuel cell, storing the hydrogen safely compressed in tanks that are on the market. It can go 330 miles on just seven and a half pounds of hydrogen. The reason it takes that little is not only that the fuel cell is several times more efficient than an engine, but also that the car is so light, and has so little drag in moving through the air and along the road, that it can cruise at 55 miles an hour on the same power to the wheels that the Lexus RX 300 uses on a hot day to run its air conditioner.

The only emission coming out of this vehicle is water, which tempts me to put a coffee machine in the dashboard. It has a very stiff body, fast all-wheel digital traction control, and a smart semi-active suspension, so it should be very sporty. It can be designed to have none of the top twenty causes of breakdowns in today’s cars, but all of the flexibility and customizability of a “computer with wheels,” where the functionality is in the software and you could do the diagnostics, tune-ups, and upgrades wirelessly in the background. The car can be designed for a 200,000-mile warranty; its body does not rust or fatigue. We believe it can be made at a competitive cost at mid-volume, using dramatically—even up to tenfold—less capital, space, assembly, and parts. So early adopters win.

Why does all this matter? First of all, such vehicles of all shapes and sizes worldwide will ultimately save as much oil as OPEC now sells, giving the United States the potential to save as much oil as Saudi Arabia currently sells to everyone. It’s like drilling in the Detroit Formation and finding an eight-million-barrel-a-day gusher. Such vehicles will also decouple driving from its present impact on both climate and air quality, although not from congestion, and it permits a rapid transition to a climate-safe hydrogen economy in a way that is profitable at each step, starting now. It also enables you to use your car when it’s parked, which is normally about 96% of the time, as a plug-in power plant on wheels that sells back to the grid enough power to pay for half or more of the cost of owning the car. It doesn’t take too many people doing that to put the coal and nuclear plants out of business, because a full fleet of such vehicles would ultimately have five or ten times as much generating capacity as all the power companies now own. About $10 billion has been committed to this line of development since I sneakily put the general approach into the public domain in 1993 and got the auto makers fighting over it.

If aggressively taken up by manufacturers, such cars could enter production in five years, dominate in ten, and put the old way of making cars out of business in twenty. This could be the beginning of the end for the car, oil, steel, aluminum, nuclear, coal, and electricity industries as we know them—but also the beginning of successor industries that are more benign and profitable and fun.

Of course, instead of running out of air, oil, and climate we would then run out of roads, land, and patience. This is a major problem unless we also drive less, which calls for real competition, at honest prices, between all ways of getting around or of not needing to—for example, already being where you want to be so that you needn’t go somewhere else.

The Second Principle of Natural Capitalism

Let me turn to the second principle of natural capitalism—to design production along biological lines, with closed loops, no waste, and no toxicity. The green architect Bill McDonough tells a nice story about this. A division of Steelcase asked him to redesign a cloth, used to cover the backs of office chairs, whose edge trimmings had just been declared by the Swiss government to be a toxic waste because of heavy metals and other toxins used in treating and dyeing the cloth. (That must be why it’s called “dyeing.”) Bill reports assessing 8,000 chemicals used in the cloth business, and rejecting any that could cause cancer, mutations, birth defects, endocrine disruption, persistent toxicity, or bio-accumulation. This left only 38 chemicals that were deemed safe! But those 38 made it possible to produce from natural fibers a cloth that looks better, feels better in your hand, lasts longer, and costs 20% less to produce. That’s because you are using ordinary, not exotic, chemicals, and with nothing left in the process that can hurt the workers and the neighbors, there are no longer any embarrassing conversations with regulatory agencies.

When the Swiss inspectors came back to the factory, they thought their measuring equipment must be broken, because it showed that the water coming out was a bit cleaner than the Swiss drinking water going in. That is because the cloth product was acting as an additional filter. This is an example of what happens, as Bill puts it, when the filters are taken out of the pipes and put where they belong—in the designers’ heads. This is also closed-loop production, because when you’re through with the cloth, you can compost it in your vegetable garden, or if you have a fiber deficiency, you can eat it.

At the University of Zurich, the introductory chemistry laboratory course was annually turning $6,000 of pure simple chemicals into $16,000 of hazardous waste disposal costs. Professor Hanns Fischer came up with the elegant idea of using the same lab techniques but turning some of the exercises around backwards: Why not separate the nasty toxic goo we made in the previous experiment back into the pure simple chemicals we started with? The students thought this was really neat; they volunteered so many nights and weekends to separate waste that they ran out of waste to separate. Waste went down 99%; cost went down $20,000 a year just in that one course. And those students will be very much in demand, because what they were learning from this new pedagogy was not once-through linear thinking but closed-loop cycle thinking, so now they can go out and save the chemical industry.

Another example is DuPont’s films division. Once almost bankrupt, it is now leading its market because the company gets back about $1 billion a year of used film from customers, using reverse logistics. It is made into fresh film cheaper than it could be from virgin materials. In addition, those clever chemists are dematerializing their product: every year they make the film a little bit thinner and stronger. Thinner means fewer molecules and lower production cost; stronger means higher value and higher price. With the cost going down and the price going up, profits go way up. Their then Chairman, Jack Krol, said, “We see no end to this process [of dematerialization].” Krol thought this trick could be kept up “indefinitely”—until, I suppose, DuPont is ultimately selling almost nothing but ideas.

What these various “bioneers” are doing is learning from the 3.8 billion years of Biosphere One design experience—a time of zany experimentation and rigorous testing in which the roughly 99% that didn’t work got recalled by the Manufacturer. There’s a wonderful book about this by RMI’s Director, Janine Benyus, called Biomimicry: Innovations Inspired by Nature, in which she asks, for example, “How do spiders make silk?” Spider silk can be stronger than steel and tougher than the Kevlar in bulletproof vests. Yet making Kevlar requires vats of boiling sulfuric acid and high-pressure extruders. Spiders don’t need that: they make silk in their bellies, at ambient temperature and pressure, out of digested crickets and flies. How do they do that? How do trees turn air and water and soil and sunlight into a sugar called cellulose, as strong as nylon but three times lighter? And then they turn that cellulose into a natural composite called wood, which can actually be stiffer and stronger than steel, aluminum alloy, or concrete—yet trees do not have blast furnaces, smelters, or kilns. How do they do that?

How does the abalone, in seawater at 4°C, self-assemble an inner shell twice as tough as our best ceramics? (The folks at Sandia National Laboratory have recently figured that one out. Now they can dip a silicon wafer into their magic goo for a few seconds, let it dry, and presto! It’s coated with hundreds or thousands of self-assembled clear layers up to seven times as tough as silica.)

Bioneering and biomimetic design are taking us to a world where the successful businesses take their designs from nature, their values from their customers, and their discipline from the marketplace. (This is exactly what the producers of genetically modified crops forgot to do, which is why their products failed in the market.) It’s a world in which conventional environmental regulation starts to look anachronistic, because so many of the firms that need it will already be out of business, having spent too much money and time making things that nobody wants—things that in the twentieth century we called waste and emissions. We now have a better name: we call them “unsaleable production,” which focuses us on the question, “Why are we making something that nobody wants?” Let’s stop producing it! Let’s design it out. That leads to very powerful innovation.

We typically achieve such innovation faster if we have good feedback. Systems without feedback are stupid by definition; but feedback is simple and powerful. For example, how clean a car would you insist on buying if its exhaust pipe, instead of being aimed at pedestrians, were plumbed back into the passenger compartment? How safe would you build your explosives factory if you also built your house next to it? (That’s what Mr. DuPont did in the old days, and his company has led in industrial safety ever since.) How do you suppose Admiral Rickover solved the problem of ensuring that welders would make extremely high-quality welds in the hulls of nuclear submarines? He told the welders and their bosses that they would all be aboard for the maiden dive.

The Third Principle of Natural Capitalism

The third principle of natural capitalism—the most interesting and powerful one, I think, which Jim Womack calls the “solutions economy”—provides the strongest kind of feedback by changing what we reward, changing the business model so that both the provider and the customer make money in exactly the same way—by doing more and better with less for longer. To do this, the “solutions economy” business model shifts from occasionally making and selling things to providing a continuous flow of value and service.

Examples are popping up everywhere. If you go to Europe or Asia, you’ll notice elevators made by Schindler, a Swiss company that is experimenting with not selling its elevators. Because the firm believes its elevators require less energy and maintenance than competing ones, if Schindler retains ownership of the elevators and pays the running cost itself, it can more cheaply and profitably provide customers with what they want, which isn’t an elevator; it is the service of being moved up and down. Instead of selling you an elevator, the firm leases you a vertical transportation service.

Similarly, Dow would rather not sell you a solvent. It’s a much better deal for both of you to lease you a dissolving service, after which Dow takes back the solvent and repurifies it. The more times it can be re-used and the less is lost on each cycle, the more money you both make. Dow can charge less, gaining market share. You pay less, yet Dow has more profit. In fact, if Dow can keep your parts from getting greasy in the first place, then no solvent is needed, and they can get paid for that too.

This takes us to a world in which, when a company tries to sell people a product whose use will deliver the service they really wanted in the first place, a smart customer will probably ask: “Why are you trying to sell me this product? If it had the operational benefits you claim for it, you’d want to get those benefits yourself by keeping it and just leasing me the service it provides. So why do you want to sell me this thing? There must be something wrong with it!”

The Fourth Principle of Natural Capitalism

The fourth principle of natural capitalism is to reinvest in natural capital. This is the easiest of the four because nature does the production; all we need to do is get out of the way and let life flourish wherever it wants to—it’s very good at that. Typically, those who learn to treat nature as model and measure and mentor, not as a nuisance to be evaded, are those whose business success depends directly on the health of nature around them—such as farmers, foresters, fishers, and ranchers. Allan Savory, the Rhodesian wildlife biologist, showed that the arid, brittle Western rangeland we thought was overgrazed is typically undergrazed, but it’s grazed in the wrong way. If the grazing pattern is carefully changed to mimic the natural co-evolution of grass and grazing animals, the result is actually more grass, more animals, and everything working much better. Then there is Wes Jackson’s work at The Land Institute on the high plains in Salina, Kansas, where he is trying to change agriculture from a monoculture of annuals to a polyculture of perennials that will look like a prairie, because that’s what works best there.

The rice farmers in California used to burn straw after the dry-rice harvest. Then they tried flooding the rice fields into a seasonal wetland instead, inviting in millions of ducks and geese, which provided free fertilizer and cultivation plus lucrative hunting licenses. The farmers harvested the previously burned silica-rich rice straw as a valuable building material. They are also paid for recharging the ground water. Although they are still selling rice, it’s merely a coproduct of these other activities, so the system is far more profitable. Thirty percent of the rice growing has been switched over to this system, which imitates some of the extraordinarily productive Asian and African coproduction systems.

I want to add the example of Gunter Pauli’s Zero Emission Research Initiative (www.zeri.org), because it shows how to reinvest in and with natural capital in the South. He points out that a billion people worldwide have poor housing or no housing, even though many of them live in places where bamboo, a grass that can be stronger than steel, grows prolifically. The Colombian architect Simon Veléz has figured out how to turn a hundred pieces of bamboo five meters long into a strong and beautiful 65-square-meter house. The bamboo grows in 100 square meters of bamboo thicket every five years. Including a cement slab and other amenities, the cash cost of the house is $1,700. Smoking the bamboo as a preservative method also yields a by-product of charcoal for cooking, which saves trees, and because the smoke brings acid to the bamboo’s surface, bugs won’t eat it, so it can last for 500 years. Growing the bamboo for structure and smoking sequesters enough carbon to sell to a broker for about $1,700, which means you just grew your own house, made it self-financing, and protected the climate—a nice example of what you can accomplish with integrated design.

You can achieve the same design integration and entrepreneurship at the level of a whole society. My favorite chapter in our book Natural Capitalism is the one about Curitiba, a Brazilian city the size of Houston or Philadelphia. Its population has quadrupled to two and a half million people in the past twenty years, and the city’s budget per person is 15 times smaller than that of Detroit. This doesn’t make it sound like a nice place to live. Yet, although it’s not paradise, the city has the highest quality of life in South America and has solved its problems better than any North American city I know. That’s because the people have treated their formidable social and economic and ecological needs not as competing priorities to be traded off among government departments fighting over budget, but rather as integrated, interlinked design elements with synergies to be captured. A brilliant design process, led largely by architects and by women, integrated from the start hydrology and landform, nutrient and waste flows, education and health, transport and land use, participation and dignity—and thus created one of the world’s great cities.

The heavy lifting was done largely by the private sector. In what’s widely considered the best public transport system in the world, for example, ten competing private bus companies are rewarded not for carrying more people, but for serving more kilometers of route, so they spread out and serve the whole city fairly.

Let me now illustrate how the four principles of natural capitalism fit together. Think about carpets. Carpet is typically made of oil. After ten or fifteen years it looks worn, so you have to shut down your operation, move out all the furniture, roll up the only-partly-worn carpet, and get rid of it. Each year millions of tons of carpets are sent to landfills, where they sit for ten or twenty thousand years—not a great use of oil or money or land. Meanwhile you lay down fresh carpet, glue it in, move back in, resume operations, and perhaps get sick from the fumes in the carpet glue. Does this sound like an intelligent design? Ray Anderson didn’t think so. As a result he’s been making Interface—a $1.5-billion company that makes carpet and interior-finish materials—into a natural capitalist company.

During 1994–2000, he added $165 million to the bottom line, gaining over a quarter of his total operating profit by wringing out waste through better resource productivity. He also developed Solenium®, a new product with unusual attributes. It contains no chlorine and nothing toxic. All climate impact of making, delivering, and maintaining it is certified to have been offset before it’s delivered. You can wash Solenium with a garden hose. It doesn’t stain, it doesn’t mildew, and it has excellent aesthetic and acoustic qualities. It also is four times more durable than a regular carpet but uses one-third less material, so seven times less carpet but uses one-third less material, so seven times less flow of material is needed to cover a square yard for a year—and then it can be completely remanufactured into an identical product, with no loss of quality.

This raises the obvious question, “Who wants to own a carpet anyway?” Don’t people just want to walk on it and look at it? If so, shouldn’t the manufacturer be leasing a floor-covering service instead of selling a carpet? That way there is mutual benefit from this durability and dematerialization. The answer is yes, and the way to do it is to deliver the carpet in the European fashion, as carpet tiles, under a service lease. Every month, the little elves come in the night and take away the worn carpet tiles, but only those that are worn, which are about one-fifth of the total. The worn ones are instantly replaced with new ones, so your floor always looks fresh, but now you’re replacing only one-fifth as much carpet. Multiply that by the previous factor seven saving, and you have 97% less material use. When enough of the worn tiles have come back, you remanufacture them, saving 99.9% of the raw materials originally used in the once-through carpet-selling model.

Now imagine that you’re a normal carpet maker, selling rolls of carpet. How are you going to compete with this company that uses a thousand times less raw material than you do, and ten times less capital, to produce a better service at a lower cost and a higher margin, and provides a tax-deductible operating lease to the customer? Answer: you’re not. This is an example of the sort of breakthrough competitive advantage that natural capitalists can gain. In addition, even though Interface manufactures less carpet, it employs more people to deliver the service than were displaced at the factory—substituting abundant people for scarce nature.

The next step, now underway at Interface and illustrating principle four of natural capitalism, is to reinvest in natural and human capital. The way Interface will do this could be to make its product out of corncobs derived from organic corn grown by poor black farmers in the deep South in a way that restores soil fertility. The farmers will also get paid for taking carbon out of the air and putting it back in humus where it belongs. It’s a reinvestment back into rural culture, economy, and community.

These innovations are good business: in the first four years on this new tack, Interface more than doubled its revenues, more than tripled its operating profits, and nearly doubled its jobs, all at the same time. And the workers are much more excited, because they no longer feel any contradiction between what they’re doing on the job and what they want for their kids when they go home. When that happens, neither the managers nor the competitors can keep up.

I was there when the designer of this remarkable Solenium product, David Oakey, wandered in with a dreamy expression, having just figured out how to do this impossible thing. He said: “You know, God must be an environmentalist. As soon as we figured out what questions to ask, it all fell into place, and we got every attribute we wanted, none we didn’t want, and a lot of cool stuff we never thought to ask for.” This is a typical outcome when you finally get the statement of the design problem right. It’s worth waiting for.

To sum up the prevalent practice that Interface is transforming: We take out of the earth, out of natural capital, substances that are grown or mined, and from that extracted flow we make a mixture of products and wastes. After the products are used, they are either thrown away or brought back to create value as what Dr. Michael Braungart calls a “technical nutrient,” or as compost to feed nature.

The trouble is that in this country, about 83% of what we extract is mined, and we grow only 17%, much of it unsustainably. The resulting flow of material, twenty times our body weight per person per day, is then about 93% wasted, either in extraction or in manufacturing, with only 7% going into products, of which about six-sevenths is consumer ephemerals, promptly thrown away after one use or no use. The remaining 1% ends up in durable products, 98% of which then are thrown away and 2% recycled or remanufactured. This system is thus approximately 99.98% pure waste—a huge business opportunity. Moreover, a lot of the waste is toxic, so when it goes back into nature, there being no other place for it to go, it harms the regenerative capacity we need in order to keep having the biotic resources and ecosystem services we can’t live without. This is a bad design. Let’s change it.

In a natural capitalist industrial system, we would grow more and mine less of what we take from nature. We would also extract a great deal less because of comprehensively improved resource productivity. This includes closing loops, recapturing resources in and after manufacturing, making products more durable, and dematerializing products—all of the activities that are rewarded by the “solutions economy” business model, which pays everyone for doing more and better with less for longer. As we design out waste, we also rigorously design out toxicity, so the small amount of remaining waste going back into nature is no longer harming regenerative capacity—which, on the contrary, we deliberately improve by reinvesting the financial profits that come from getting rid of the waste in the first place. That is how the four principles all link together.

Natural capitalism is consistent with orthodox market economics; it just takes economics seriously rather than literally. It rests not on environmental economics, which treats the earth as a minor external factor of production, but on ecological economics, which holds that (as Herman Daly puts it) “the environment is the envelope that contains, sustains, and provisions the economy.” Subject to that shift, natural capitalism uses all the methods and tools economists have developed; it just uses them correctly.

I use markets a lot. Creatively applied, markets are nifty. But they are meant only for the short-term allocation of scarce resources, and were never meant to be fair or wise. Markets make a wonderful servant, a bad master, and a worse religion. If we think they can substitute for faith or ethics or politics, we’re really in trouble. But properly used, markets can be very effective if they’re restricted to what they do well and not applied to things they can’t do at all.

We’re fortunate to live in a world in which over half of the one hundred or two hundred biggest economic entities are no longer countries but companies. Companies often have the leadership, management, skills, speed, resources, initiative, innovation, integration, and motivation to solve tough problems in a hurry. The companies we write about in our book are early adopters of the four operational principles of natural capitalism, and as a result they are gaining stunning competitive advantage and better short-term profits as well as happier customers and workers. They are proving what Edgar Woolard suspected when he chaired DuPont: he said, “Companies that take such opportunities seriously will do very well”—while, he added, “Those that don’t won’t be a problem, because ultimately they won’t be around.”

Maybe the biggest problem with capitalism—this extraordinary system of wealth creation built on the productive use of and reinvestment in capital, all four forms of capital—is that we’re only just starting to try it. But the early returns are very encouraging. I hope you will not only visit us at www.naturalcapitalism.org or www.natcap.org, but also send us your stories of what worked and what didn’t work, so that we can speed up our learning together about this new way of doing business as if nature and people were properly valued.

Amory Lovins, a MacArthur Fellow and consultant physicist, has advised the energy and other industries for nearly four decades as well as the U.S. Departments of Energy and Defense. Published in 29 books and hundreds of papers, his work in about 50 countries has been recognized by the “Alternative Nobel,” Blue Planet, Volvo, Onassis, Nissan, Shingo, and Mitchell Prizes, the Happold and Benjamin Franklin Medals, nine honorary doctorates, honorary membership of the American Institute of Architects, and the Heinz, Lindbergh, Time Hero for the Planet, and World Technology Awards. He advises industries and governments worldwide and has briefed 19 heads of state. He co-founded and serves as Chairman and Chief Scientist of Rocky Mountain Institute (www.rmi.org), an independent, market-oriented, entrepreneurial, nonprofit think-and-do tank. Much of its work is synthesized in Natural Capitalism (www.natcap.org). RMI spun off E SOURCE (www.esource.com) in 1992 and Fiberforge, Inc. (www.fiberforge.com), which he chaired until 2007, in 1999.

Amory Lovins may be reached through Rocky Mountain Institute.

Rocky Mountain Institute is an independent, nonpartisan, entrepreneurial, nonprofit think-and-do tank in Old Snowmass, Colorado, founded in 1982. Its diverse staff of ~80 foster the efficient and restorative use of resources to make the world secure, just, prosperous, and life-sustaining. Half of the Institute’s $10 million budget is earned through programmatic enterprise, chiefly consultancy for the private sector—an effort that advances the goals, refines the content, and spreads the concepts of natural capitalism. The remaining revenue comes from foundation grants and tax-deductible donations. RMI’s work is noted for technical depth, vision across boundaries, creative use of market forces, and engagement with commerce and community (far more than with government; RMI doesn’t lobby or litigate). In seeking new solutions to old problems, its people strive for faith, hope, and clarity; their hierarchy of needs is typically to save the world, have fun, and make money, in that order. RMI’s Annual Report, thrice-a-year Newsletter, and hundreds of popular and technical publications (many free) are available from:

Rocky Mountain Institute
1739 Snowmass Creek Road
Snowmass, Colorado 81654-9199
(970) 927-3851
www.rmi.org

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One Response to Natural Capitalism: The Next Industrial Revolution

  1. John Wasko says:

    Gee, how one article can change a person’s outlook on growth. As a resident of a small island in the pacific I’m already doing the calculations of electrical vehicles versus the gas guzzlers running on the streets today. And that’s just the beginning. We live in nature. Surely the world we see value in that. Just what is the carbon sequestration value of an square foot of virgin rainforest?

    From American Samoa

    John Wasko

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