By Rahul Basu, Research Director, Goa Foundation. This post originally appeared on Intergenerational Foundation on July 8, 2019.
The principle of intergenerational equity is, at its heart, quite simple. We must ensure that future generations inherit at least as much as we did. Only after that do we have a right to consume the fruits of our inheritance. Any loss is a loss to the people and all future generations.
If we implement this rule successfully, our children will be at least as well off as we are. If we leave a bequest as well, they will be better off than us, improving their evolutionary fitness. It is natural to want our children to be richer than us.
Without intergenerational equity (IE), humans are doomed. Everyone will want to consume their inheritance, leaving the next generation poorer. Any group/society that adopts this path will be ruined in no time, like an addict selling the family silver.
Many fields incorporate the IE principle
The IE principle has deep roots in our civilization, but unfortunately it has been obscured over time.
Consider inheritance law: the idea is that inheritors of property are simply custodians for future generations (especially if the inheritance involves entailment, which constrains the present heir from consuming the inheritance by recognizing the rights of subsequent heirs). But in most cultures, there is the rich good-for-nothing heir who lives by selling off the family silver, unfairly impoverishing his future generations.
Consider endowment funds, where the capital is conserved and only the income used. The deepest rationale for accounting is the idea of stewardship, the idea that capital must first be conserved. In fact, accounting and economics define income as the residual after we ensure that the capital is held constant.
Environmental economics has the sustainable yield principle – we can only consume that amount which doesn’t endanger the capital.
IE and the Public Trust Doctrine
In most countries, natural resources – including forests, streams, beaches, oceans, the atmosphere and minerals – are owned by the state as a trustee on behalf of the people and especially future generations. This is the Public Trust Doctrine (PTD), often derived from natural law and considered more fundamental than the Constitution. For the trustees, the foremost obligation is to ensure the corpus of the trust is kept whole. And there is a duty to treat all the beneficiaries equally.
In a remarkable judgment (Pennsylvania Environmental Defense Foundation, 2017), the Supreme Court of Pennsylvania interpreted the section on rights to natural resources and ruled that the state must deal with natural resources as a trustee, not as a proprietor, and therefore must put the proceeds from extracting oil and gas towards restoring the environment instead of general government expenditure.
IE and PTD applied to inherited mineral wealth
The consumption of mineral wealth is a prominent example where we have failed to implement intergenerational equity. Consider the UK. From the 1700s till today, the UK has consumed a large part of its coal and North Sea oil and gas inheritances. Yet the IMF estimates that the UK government has a negative net worth (i.e. the value of its liabilities in excess of its assets) of 125% of GDP. How will the future generations of the UK see this profligacy?
The extraction of oil, gas and minerals is effectively the sale of these assets, with royalties and other proceeds being the consideration paid in exchange for the mineral wealth extracted. Unfortunately, governments all over the world treat the proceeds from selling their mineral wealth as revenue or income, a crucial error.
As this hides the real transaction – a sale of inherited wealth – it results in governments selling minerals at prices significantly lower than what they are worth. This is driven by lobbying, political contributions and corruption. For example, official statistics indicate that Australia lost 82% of the value of its minerals extracted over the decade 2000-10.
And what is received by the government is treated as a windfall and happily spent, leaving neither the minerals nor their value for future generations to inherit.
Worse still, we pollute our world with carbon, fertilizers, pesticides and plastic, thereby damaging other inheritances.
The pioneering work of the Goa Foundation
The Goa Foundation, an environmental non-profit organisation (full disclosure: I am Research Director) has developed a general framework to implement intergenerational equity. The Future We Need is a global movement whose work is based on the practical work of the Goa Foundation; it asks for natural resources (starting first with minerals, including oil and gas) to be viewed as a shared inheritance that we hold as custodians for future generations. The Goenchi Mati Movement is advocating these principles for all mining in Goa.
We recognize that we have inherited minerals because all our ancestors left them underground. If we follow their example and leave the minerals in the ground, our children will inherit the minerals like we did. We will have done our duty.
If we do decide to extract, IE calls for first identifying critical assets, such special mineral deposits or eco-sensitive areas where extraction would not be permitted. Following that, if extraction is permitted, then a moderate pace of extraction is required to ensure that the impacts are not excessive, and minerals and the work of extracting them are available to future generations.
Finally, since extraction is the sale of our inherited wealth, we must ensure
(a) zero waste and zero loss when selling our minerals
(b) that, like Norway, we save the entire proceeds, ideally in a future generations’ fund, also as part of the public trust
(c) that we distribute the real income only as a citizen’s dividend, equally to all as owners
(d) that we protect the corpus of the fund indefinitely.
India’s National Mineral Policy 2019 takes some initial steps towards implementing IE in this fashion. And India’s Supreme Court has ordered the creation of a Goa Iron Ore Permanent Fund as well as caps on extraction of iron ore on grounds of intergenerational equity, a global judicial precedent.
Some other approaches to IE
There are a number of interesting approaches being tried.
PM Theresa May writes in the foreword to the UK’s 25 year Environmental Plan: “Our natural environment is our most precious inheritance. … We hold our natural environment in trust for the next generation. By implementing the measures in this ambitious plan, ours can become the first generation to leave that environment in a better state than we found it and pass on to the next generation a natural environment protected and enhanced for the future.”
The plan by the UK’s Natural Capital Committee has a goal of leaving the environment for our future generations in a better condition than today. Physical offsets is a key mechanism used – forests, if they must be cut down, would best be offset by new forests. And the goal is to increase the area covered by forests.
The Future Generations Commissioner for Wales, created under the Well-being for Future Generations Act, is another notable implementation of the intergenerational equity principle.
The US-based organisation Our Children’s Trust argues that the Earth’s atmosphere is part of the public trust, and rising carbon levels have created a responsibility on governments to act to reduce carbon levels in order to leave for future generations an atmosphere with carbon levels that do not create climate change impacts.
The intergenerational equity principle deals not just with fairness between living generations, but looks forward to many many future generations that also have a right to what we have inherited.
We are now reaching the conclusion that the intergenerational equity principle must be a foundational principle of our civilization and economy. If it isn’t, we will simply consume our natural capital, leaving a wasted planet for future generations, cheating them of their rightful inheritance.
Let us be the generation that changes the course of history, not the generation that consumed the planet.
The Goa Foundation, an environmental NGO in India, has had a remarkable impact. Their clear perspective on intergenerational equity, and practical path to implementation, have scored major wins in Goa and India, especially on mineral policy (a permanent fund and caps), and helped to bring about groundbreaking interpretations of the Constitution to protect and conserve the natural resources nationally. Rahul Basu, Research Director of the Goa Foundation, explains how this approach can be rolled out more widely for the benefit of future generations.
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