i-Tree Calculator: A Tool For Creating Convergence On Natural Capital Financing
A Circular Bio-Economy requires three things:
1. Reuse of materials
2. Focus on ecology and biology
3. Economic models that work (which by default means financial models that work)
Even in a Circular Bio-Economy, the circulation of money is the driver for transactions and economic growth. Replanting trees costs money, turning waste into energy / fertiliser / textiles / specialty chemicals costs money, training people for circular bioeconomy skills costs money, spreading awareness costs money...
Financial models start with banking principles. The first banking principle is the valuation of assets. Without assets there is no financial transaction. Banks don't accept love as an asset because we don't have a valuation for love. Goodwill is accepted as a valuation if goodwill can be translated into an asset. Time spent working can be given a valuation based on the local standard of compensation for a similar service given the skill level of the person providing the service.
It is important to note that valuations are not immutable laws of physics and chemistry. We negotiate valuations based on our perceived value and utility. A computer may have a high perceived value, but, without a source of electricity it has no utility. Until recently, we have not bothered to create a negotiated consensus on the value of our natural assets. This is changing. We can use the concept of ecosystem services to create a valuation model for natural capital. C02 reduction can be performed with scrubbers and filters (mechanical) or CO2 reduction can be performed using trees. We can calculate the value of both methods. If you are like me, the goal is to use both methods and decide when ROI will be achieved.
CREATING A CIRCULAR BIO-ECONOMY BUSINESS MODEL USING FINANCIAL VALUATIONS FOR NATURAL ASSETS
Let is take a hypothetical scenario using real data. I have chosen Borrego Springs California because climate temperatures and land conditions are similar to northern parts of Kenya (areas commonly known as desert with some trees). Average high temperature during June in Borrego Springs, California USA is 39.2C (103F). Average high temperature in Lodwar, Turkana County Kenya is 34.1C (93.4F). Yes, people actually live in both places and seem to like it despite the bewilderment of the rest of us.
In addition to scorching temperatures, the types of trees that will grow are similar.
I selected Acacia, Eucalyptus (gum species so we can get a gum chemical industry started), Bottlebrush (weeping species that looks like a weeping willow because Kenyans love the look of these trees, flowers are good for pollination, and, they littre a lot which creates badly needed ground cover in arid areas - we want moss and worms to start to grow so that the soil is fertilised), Mesquite (honey species because mesquite, locally known in Kenya as mathenge, is the bane of everyone's existence since it grows like a weed/is very invasive).
Now let us say I want to plant a one acre small woodlot and I want a valuation for the above selected trees. Here are the assumptions of the model (the i-Tree Calculator has the flexibility to change these parameters):
Location: Borrego Springs, California 92004
Electricity Emissions Factor: 252.40 kilograms CO2 equivalent/MWh
Fuel Emissions Factor: 52.00 kilograms CO2 equivalent/MMBtu
Lifetime: 15 years
Tree Mortality: 10%
CO2 Sequestration is the Ecosystem Service I want to provide using trees. The value of each tree / natural asset is as follows (species names in parentheses) :
Acacia (Acacia species) at 1 inch DBH: $25.79
Bottlebrush, Weeping (Callistemon viminalis) at 1 inch DBH: $4.53
Eucalyptus, Desert gum (Eucalyptus rudis) at 1 inch DBH: $51.26
Mesquite, Honey (Prosopis glandulosa) at 1 inch DBH: $18.44
Immediately I can see the Bottle brush is beautiful but does not have a high business value for my CO2 Sequestration service delivery. I should plant Eucalyptus the most, then Acacia, then Mesquite. Now I can plan my corollary businesses of gum production (eucalyptus), food preservatives (acacia), and honey making (mesquite / mathenge). I will have to look for a different plant to create ground cover. One or two Weeping Bottlebrush trees will make my property beautiful so I will put them at the entrance. We will still have to buy scrubbers and filters for our factory flues. No sense overworking the trees already growing in a harsh climate, I want my investment to grow. We can also use the production waste as fertiliser for the soil. If we still have biomass waste left we can use it for pellet fuels / renewable energy.
From a sustainable business perspective, the reason I want my scrubbers and filters on the factory flues is that none of the trees remove a significant amount of sulfur dioxide (SO2), volatile organic compounds (VOC), or particulate matter (PM). Run the i-Tree calculator with the above parameters to see the results. I know my factory operations will generate more of these air pollutants than the trees can remove so I will need to use mechanical tools to reduce the environmental impact of my operations.
I am also worried about water scarcity so I check. The selected trees that capture the most rainfall are:
Acacia (Acacia species) at 1 inch DBH: 3,445.9 gallons
Bottlebrush, Weeping (Callistemon viminalis) at 1 inch DBH: 337.7
Eucalyptus, Desert gum (Eucalyptus rudis) at 1 inch DBH: 1,512.9 gallons
Mesquite, Honey (Prosopis glandulosa) at 1 inch DBH: 3,328.9
Mathenge (Mesquite) might not be so useless afterall. My beautiful Bottlebrush is very pretty but very useless for doing anything. I am glad I decided to only buy two.
Now to see if these trees can help me with those insane electricity bills. I turn on one machine and my profits just disappear with every production batch. Then workers start complaining that I don't treat them with respect because they work hard to improve my products and I don't give them more money. Let me see if I can find some savings and surprise them with salary increases. On electricity, I don't know how these savings are achieved but I will ask around, each tree will save me on my bills:
Acacia (Acacia species) at 1 inch DBH $47.34
Bottlebrush, Weeping (Callistemon viminalis) at 1 inch DBH $49.46
Eucalyptus, Desert gum (Eucalyptus rudis) at 1 inch DBH $90.69
Mesquite, Honey (Prosopis glandulosa) at 1 inch DBH $47.35
Finally that Bottlebrush does something useful! I am now happy to plant two in the front.
So you see, circular bioeconomy business models are not fundamentally different from traditional business models. You just need to think about different things and include natural capital assets in your valuations.
The i-Tree calculator is FREE. Yes as in GRATIS. You can always reward (compensate / pay) people who give you free tools that enable you to make money.
The i-Tree calculator and other tools are developed by the USDA Forest Service and several partners who make the tools freely available for global use
Now you can talk to investors using real numbers and they can be proud of your sustainable business offering...