If there are too few bakers, bread becomes expensive. As a result, more people open bakeries, and bread prices drop again. Adam Smith called this the “invisible hand” of markets. But when it comes to the biosphere, this invisible hand is failing completely. The overuse of Earth’s biological capacity isn’t being corrected—it’s a massive market failure. So what does this mean?
The planet has a limited amount of biocapacity available. But prices for biocapacity products are so low that demand is stimulated. The result is large-scale overuse. Humanity’s resource use today is equivalent to 1.8 Earths. And the market fails to correct this overuse.
We’ve been in global overshoot since the early 1970s. Yet, to maintain biodiversity and ecological stability, our use would need to be closer to 0.5 Earths or 3.6 times less.
This raises a critical question: how much higher would the prices of raw materials need to be to reduce demand from 1.8 Earths to 0.5? The required price might be so high that our economies could no longer function as they currently do, highlighting just how far out of balance we are. Still, failing to adapt to a 0.5-Earth world would be far more costly. It would erode the regenerative capacity of the planet, on which all value chains depend. We may not be paying the full cost now, but it’s on the balance sheet. Delaying the transition only turns today’s neglect into tomorrow’s liabilities.
This leads to an essential economic question: what is the clearing price that would reduce biocapacity demand to robust, regenerative levels, i.e., from 1.8 to 0.5 Earths? Economists might refer to this as the “overshoot clearing price.” It could be very high, especially if demand is largely inelastic, meaning that even as prices rise, the demand doesn’t drop significantly. The clearing price could be an order of magnitude higher than what is currently paid for biocapacity-based goods and services.
Consider oil: it is now a pervasive energy source for road, maritime and air transport. If supply drops by just one percent, prices may rise by 3-20 percent [note 1]. This reflects highly inelastic: economies lack ready alternatives due to insufficient preparation. Our dependence on biocapacity may be even more rigid, leading to even greater price inelasticity. In other words, for demand for biocapacity’s products to decline, prices for biocapacity-derived products would need to rise substantially.
By “products of biocapacity”, we mean: crops, fruits, animal products, fish, timber, fibers, flowers, freshwater, and carbon sequestration.
The implication is clear: if we do want to end overshoot by design rather than by disaster, we need to correct this market failure. Specifically, demand for biocapacity must fall, and for that to happen, prices will need to rise. While this adjustment may be painful for many, it is also a necessity for all, if we want to ensure long-term availability of vital biocapacity resources.
This also reveals a deeper issue: the stewards of biocapacity are being vastly underpaid. The global economy poorly compensates farmers, foresters, fishing folks, park rangers, and conservation/restoration workers. This underpayment is not just unjust, it also fuels the depletion of humanity’s most vital asset and represents a systemic risk to the global economy. Fixing this market failure is not just about fairness; it’s essential for building a resilient and viable future for everyone.
How would you estimate the “overshoot clearing price”? We’d love to hear from you!
Notes
[1] Prof. Jeffrey Parker from Reed College states that “[t]he price elasticity of US demand for oil is often estimated to be around -0.05 in the short run and in the neighborhood of -0.3 or perhaps higher in the long run”, meaning 3% increase in price in the long run, and 20% increase in price in the short run for every 1% decrease in oil availability.