NATURAL CAPITALISM

The text examines the gap between theoretical 'perfect' markets and real-world economic behavior, specifically regarding the under-investment in energy and resource efficiency. It identifies failures in capital allocation, organizational inertia, and perverse regulatory incentives that discourage sustainability. The author proposes solutions such as 'negawatt' markets, decoupled utility earnings, and improved informational feedback loops to align profit motives with the preservation of natural capital.

• Theoretical models of perfect free markets rely on 18 unrealistic assumptions, such as perfect information and the absence of externalities, which do not reflect actual market behavior.
• Significant profit opportunities in energy efficiency remain untapped because firms often prioritize initial capital costs over long-term returns or use overly restrictive 'simple payback' periods, typically averaging 1.9 years.
• A systemic distortion exists where society requires roughly ten times higher returns for energy-saving investments than for energy-production investments, leading to an over-investment in supply and under-investment in efficiency.
• Organizational failures, such as 'infectious repetitis' (copying old designs) and 'satisficing' (doing just enough to get by), prevent the adoption of more efficient technologies even when they are proven to be cheaper and better.
• Regulated energy utilities often face perverse incentives where they are rewarded for increasing energy sales and penalized for reducing customer bills.
• Decoupling retail electricity distributors' earnings from sales volumes has proven effective in rewarding efficiency; for example, Pacific Gas and Electric Company added over $40 million in riskless return in 1992 while saving customers nine times that amount.
• The lack of markets for 'negawatts' (saved electricity) and other 'antiresources' prevents the efficient arbitrage of resource savings against new supply.
• The International Performance Measurement and Verification Protocol, created in 1997, allows energy and water savings to be standardized and securitized, enabling external financing for efficiency without using a firm's own capital.
• Informational barriers and value-chain risks, such as distributors refusing to stock non-standard efficient equipment, hinder adoption; however, temporary subsidies to retailers can rapidly increase market share for efficient products.
• The European insurance and reinsurance industry is increasingly investing in climate protection and renewable energy due to 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} }