5. Natural capital accounting

Natural capital is the stock of renewable (e.g. fish, plants, water, wind) and non-renewable resources (e.g. minerals, aggregate, natural gas) that can be used to yield a flow of benefits to people. The benefits provided by natural capital include food, water, energy, recreation, climate regulation, biodiversity, natural flood defence and many raw materials that are used in the production of products that people consume. Natural capital is one of several other forms of capital (e.g. financial, manufactured, social and human capital) that can be combined to produce goods and services for consumption.

Natural capital accounting frameworks aim to provide a structured way of measuring the economic significance of nature that is consistent with existing macro-economic accounts. They can help to identify trends and drivers of ecosystem change within the wider economy and society. By linking to the System of National Accounts (SNA) they can provide comprehensive, integrated and consistent data sets to support national decision-making.

In the context of LMEs, natural capital accounting can be used to quantify the contribution of relevant marine and coastal ecosystem services (e.g. fisheries, coastal protection) to the national or regional economy.

5.1 System of Environmental-Economic Accounting (SEEA)

The System of Environmental-Economic Accounting (SEEA) provides detailed methodological guidance on how to prepare environmental-economic accounts. The SEEA includes three volumes: the Central Framework, Experimental Ecosystem Accounts, and Applications and Extensions.

The SEEA ‘Central Framework’ (SEEA-CF) was adopted as an international statistical standard for environmental- economic accounting by the United Nations Statistical Commission at its 43rd session in 2012. It has been prepared jointly by the United Nations, the European Commission, FAO, International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD) and the World Bank. It provides an accounting framework that is consistent and can be integrated with the structure, classifications, definitions and accounting rules of the System of National Accounts (SNA), thereby enabling the analysis of the changes in natural capital, its contribution to the economy and the impacts of economic activities on it. SEEA-CF focuses on the stock of natural resources and the flows that cross the interface between the economy and the environment.

The SEEA ‘Experimental Ecosystem Accounting’ (SEEA-EEA) has been published as a white cover publication in 2013. It aims to measure ecosystem conditions (with a particular focus on carbon and biodiversity) and the flows of ecosystem services into the economy and other human activities. SEEA-EEA offers a synthesis of the current knowledge of ecosystem accounting and serves as a platform for its development at national and sub-national levels. It provides a common set of terms, concepts, accounting principles and classifications, and an integrated accounting structure for ecosystem services and characteristics of ecosystem condition, in both physical and monetary terms. It also includes a chapter on the main challenges and methodological options for the monetary valuation of ecosystems and ecosystem services.

The SEEA ‘Applications and Extensions’ is currently under development. It will provide compilers and users of SEEA-based environmental-economic accounts with examples showing how the collected information can be used in decision-making, policy review and design, analysis and research.

Furthermore, TEEB Secretariat at UNEP and UN Statistics Division, in collaboration with the CBD Secretariat, have been implementing a project entitled, “Advancing SEEA-EEA in pilot countries”, funded by the Norwegian Government, which aims at supporting selected Governments in initiating the testing of SEEA-EEA. The national level activities focus on the assessment of policy priorities, data availability and tools used for ecosystem accounting, stakeholder meetings, the preparation of reports outlining national programmes of work on the advancement of the testing of the SEEA-EEA, as well as relevant national stakeholders to be engaged in the processes. In addition to these national level activities, the project also focuses on facilitating a forum of experts in ecosystem accounting, the preparation of guidance training material and a global strategy for testing the SEEA-EEA, as well as outreach and communication.

5.2 Wealth Accounting and Valuation of Ecosystem Services (WAVES)

WAVES is an initiative of the World Bank to implement green accounting in a critical mass of countries, both developed and developing. The project was launched in October 2010 at the CBD meeting in Nagoya and will last five years. The first two years are the preparation phase to establish the global partnership, to establish a Policy and Technical Experts Committee, and conduct feasibility and planning studies in pilot countries. The implementation phase of the project is from 2012 through 2015. Partner countries currently include: Botswana, Colombia, Costa Rica, Madagascar, the Philippines, Australia. The partners want to take natural capital accounting beyond the SEEA-approved material resources, such as timber and minerals, to include ecosystem services and other natural resources that are not traded or marketed and are therefore harder to measure. That includes the “regulating” services of ecosystems, such as forests for pollination and wetlands for reducing the impact of floods. A Policy and Technical Experts Committee, working closely with the processes set up by the UN Statistical Commission, has been established to take this forward. (Work Bank, 2016)

The country plans are driven by the countries’ needs and preferences. Each partner country is developing a road map to take the initiative further. For Botswana and Madagascar, the road map includes developing and implementing macro-indicators such as the Adjusted Net National Income and the Adjusted Net Savings. In addition, the focus in Botswana is on energy resources and energy use, ecosystem-based tourism, and water accounts. In Madagascar the additional focus is on mining, river basins, ecotourism, coastal zone management, and fishery accounts. The other countries have also presented progress reports on the recent second WAVES partnership meeting Washington D.C.: http://go.worldbank.org/O3A2TJSP30

The approach towards the valuation of non-marketed goods and services is spatially-explicit and demand-based. The challenge to use spatially-specific and demand-based value estimates for national accounting is best described In TEEB (2010):

“The power of the national accounting approach is to provide an economy-wide picture of the value of ecosystem services. There are many challenges to incorporating natural capital in a national accounting framework, due to the unique characteristics of natural capital. Many case studies of ecosystem services have been done, but there remain many gaps where services are not covered. In some cases, these gaps can be filled by scaling out or borrowing values from other studies. But the value of many ecosystem services is highly site-specific, which makes gap filling and scaling out a potentially complex undertaking. To address this, country implementation teams will be encouraged to seek and use values from local or sub-national case studies for ecosystem services, and identify reasonable methods for scaling up local value to fill data gaps. Technical advice will also be provided to draw on meta-data analyses, and ecosystem models such as InVEST from the Natural Capital project, ARIES or local models to do this.” .

It is also one of the tasks of the Policy and Technical Experts Committee to think about how case study value data can be aggregated, scaled-up and reported in National Accounts (Lange, 2011).

It is also one of the tasks of the Policy and Technical Experts Committee to think about how case study value data can be aggregated, scaled-up and reported in National Accounts (Pittini, 2011).

The WAVES report “Managing Coasts with Natural Solutions: Guidelines for Measuring and Valuing the Coastal Protection Services of Mangroves and Coral Reefs” (World Bank, 2016) specifically provides guidance and recommendations on how the protective services of mangroves and coral reefs can be measured and valued in a manner consistent with national economic accounts and included in other decision-making processes to support planning for development, disaster risk, and coastal zone management.

5.3 Integrated system for Natural Capital and ecosystem services Accounting (INCA)

The European Commission has launched an internal initiative on natural capital accounting (Knowledge Innovation Project: Integrated system for Natural Capital and ecosystem services Accounting – KIP-INCA), in line with the objectives of the 7th Environment Action Programme (EAP) and the EU Biodiversity Strategy. The project aims to design and implement an integrated accounting system for ecosystems and their services in the EU by connecting relevant existing projects and data collection exercises to build up a shared platform of geo-referenced information on ecosystems and their services. This system will be used to derive indicators and assess the economic importance and value of ecosystems and their services, in a manner that is consistent with UN standards on environmental accounting (SEEA-EEA). An innovative outcome of the project is that bio-physical and economic data related to the extent and condition of ecosystems can be integrated in a systematic way, so that they can be aggregated and disaggregated at the required scale, including at national level, to complement figures of economic performance.

The project is structured in two main phases, a feasibility and design phase (until May 2016) and a follow-up implementation phase (running until 2020). The project focuses on establishing an accounting system for the EU level, primarily using EU-wide data sources, thereby contributing the EU layer to the MAES initiative. Member States will be able to link into this system. The main project partners are Eurostat, the European Environment Agency, DG Environment, the Joint Research Centre and DG Research and Innovation.

The KIP will connect relevant existing projects (in particular ESMERALDA) and data collection exercises (such as LUCAS – land use/cover statistics) to enable them to contribute more information about the ecosystem components of natural capital. JRC will be responsible for feeding outputs of ESMERALDA into the KIP. In particular tier-3 physical and economic mapping approaches of ecosystems, ecosystem condition and ecosystem services would be relevant input of ESMERALDA to INCA.

►http://ec.europa.eu/eurostat/web/lucas/overview

The ecosystem accounting system will provide maps, tables and accounts and will be designed to support and inform policy development and implementation in the EU and will be established on the basis of MAES, the SEEA EEA and other relevant methodological guidance. The system will be designed so that its data layers and other information outcomes are fit for purpose for policy-makers, analysts and researchers as they prepare various policy evaluations and decisions. It will contribute to better planning and implementation, as well as monitoring of progress towards achieving objectives and meeting communication goals. Examples range from UK work on forest spatially disaggregated accounts, which helped support forest management decisions, to the publication of national natural wealth figures in Canada and Australia to complement economic performance figures. By focussing on ecosystems and their services, this KIP addresses an important gap in terms of knowledge, data and tools, for national accounting and related indicators.

Example Box 6: European Environment Agency (EEA) Simplified Ecosystem Capital Accounts (SECA)

The European Environment Agency has developed a framework for Simplified Ecosystem Capital Accounts (SECA) (Weber, 2011). The basic statistical unit is the Socio-Ecological Landscape Unit (SELU), derived from the Corine land cover maps and additional geo-environmental information on a 1km grid. The main division of landscape units is between mountains, highlands, lowlands, coasts, and rivers. The terrestrial landscapes are subdivided in urban areas, broad pattern agriculture, agricultural associations and mosaics, pastures and natural grasslands, forest tree cover, other dominant natural land cover, and composite land cover.

Within these landscape units, SECA focuses on three groups of services: biomass/carbon production, freshwater production and functional services. The latter measure the capacity or potential of ecosystems to deliver ecosystem services in a sustainable way. A final composite index is the Ecosystem Potential Unit Equivalent (EPUE).

The monetaryvaluation approach of SECA is related to the concept of Consumption of Fixed Capital (CFC). Translated to ecosystems this refers to the depreciation ofecosystem capital. The EEA gives a fewexamples ofthis depreciation: “the cost of keeping below the maximum of 2 degrees global warming target”, “REDD (Reducing Emissions from Deforestation and forest Degradation) payments”, and “the costs of remediation measures to restore or maintain ‘good environmental quality of the river basins’ under the Water Framework Directive”. Unit costs per EPUE are to be derived by experts from the analysis of real expenditures or costs of restoration programs . “Estimates of unitary costs have to be carried out by ecosystem types/issues/regions” (Weber, 2011).

5.4 Natural Capital Protocol

The Natural Capital Protocol is a framework specifically designed for private sector business managers to generate actionable information to inform their decisions. The Protocol provides a standardized framework to identify, measure, and value business impacts and dependencies on natural capital. The Protocol is designed to be applicable to any business sector, operating in any geography. It provides a standard framework that covers four stages: “Why”, “What”, “How” and “What Next”, which are further broken down into nine steps that contain specific questions to be answered when integrating natural capital into business processes. The Protocol is iterative to allows users to adjust and adapt their approach as they work through the framework.

Recognising that there are many existing approaches that businesses use to measure and value their impacts and dependencies, develop strategy and engage with stakeholders, The Natural Capital Protocol aims to be complementary to these and provides a standardized framework to help include natural capital in decision-making.

Accounting initiatives such as the UN System of Environmental Economic Accounting (SEEA) are generally implemented by governments or international organisations at the level of political jurisdictions. The Natural Capital Protocol on the other hand is focused at a business decision-making level and can be implemented across multiple political boundaries.

►https://naturalcapitalcoalition.org/