NATURAL CAPITALISM

This report chapter argues that while market economies are powerful tools for resource allocation, they are frequently dysfunctional due to theoretical misconceptions, capital misallocation, and organizational or regulatory failures. It proposes 'natural capitalism' as a framework to extend market principles to all forms of material value, including natural capital, by identifying and turning market imperfections into business opportunities for resource efficiency.

• The theoretical 'perfect free market' described in economics textbooks relies on 18 unrealistic assumptions, such as perfect information about the future, no externalities, and no transaction costs, which do not reflect real-world economic behavior.
• Capital is frequently misallocated toward energy supply rather than efficiency because firms often use 'simple payback' periods (with a median of 1.9 years) rather than long-term net-present-value calculations, creating a hurdle rate that is roughly ten times higher for saving energy than for producing it.
• Organizational failures, such as 'infectious repetitis' (copying old designs) and 'satisficing' (doing just enough to get by), prevent the adoption of resource-efficient technologies even when they are more profitable.
• Regulatory frameworks often create perverse incentives; for example, many utilities are rewarded for increasing energy sales and penalized for reducing customer bills, though some U.S. states have successfully decoupled earnings from sales volumes.
• Informational barriers and value-chain risks hinder the adoption of efficient products; solutions include mandatory efficiency labels, 'golden carrot' procurement contests, and subsidies for distributors to stock premium-efficiency inventory.
• The author proposes creating markets for 'negawatts' (saved electricity) and other 'antiresources' (avoided depletion or pollution), allowing efficiency to bid against new supply in 'all-source bidding' auctions.
• The insurance and reinsurance industry is emerging as a powerful force for climate protection after recognizing the link between climatic volatility and rising casualty claims.

APA

RMI (n.d.). NATURAL CAPITALISM. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_NCchapter13.pdf

Chicago

RMI. NATURAL CAPITALISM. n.d. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_NCchapter13.pdf.

Wikipedia

{{cite report |author=RMI |title=NATURAL CAPITALISM |url=https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_NCchapter13.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rmindnatural, author = {{RMI}}, title = {{NATURAL CAPITALISM}}, institution = {RMI}, url = {https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_NCchapter13.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }