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Understanding Natural Capital Accounting

May 21, 2015 por Onil Banerjee Leave a Comment


The earth’s natural resources, biodiversity and ecosystems collectively make up our planet’s Natural Capital, which is the foundation of socioeconomic development of current and future generations. Natural capital generates ecosystem services which make a direct contribution to human well-being.

Ecosystem services are classified in four groups:

Provisioning services
are outputs of ecosystem services which include food, fuel and water. Regulating services help make the planet livable for humans, and include carbon sequestration of forests and the moderation of extreme events such as the role of mangroves in flood and storm surge mitigation. Cultural and aesthetic services are the recreation, tourism and spiritual benefits humans derive from natural spaces. Finally, supporting services enable the functioning of all ecosystem services and include habitat and genetic diversity.

All of these services that nature provides, which we often take for granted, are in various stages of degradation and they continue to be at risk.

NATURE’S VALUE IS OFTEN INVISIBLE TO SOCIETY

The fundamental problem is that the benefits provided by natural capital remain largely invisible to society, including decision makers, leading to inappropriate use and inadequate environmental management.

Have you ever heard the phrase:

“You can’t manage what you don’t measure”?

This notion is at the very core of initiatives worldwide, such as the Natural Capital Project and the WAVES Partnership, which aim to stem the tide of natural capital degradation, and mainstream of nature into all of our important decisions. While some may object to the economic valuation of natural capital, contesting that this implies the commodification of nature, what is most critical is that we count nature’s contribution to the economy and how our economies affect the wealth or stock and condition of this natural capital.

David Pearce expressed this sharply: “Economic valuation is always implicit or explicit; it cannot fail to happen at all.”

HIGHLIGHTING THE ECONOMIC VALUE OF BIODIVERSITY AND ECOSYSTEM SERVICES

The persistent invisibility of natural capital results, in large part, from the fact that ecosystems services and biodiversity benefits have historically not been quantified according to dollar values and it can be extremely challenging to value these benefits in such terms. As a result, natural capital is often undervalued or neglected in decision-making, which contributes to more biodiversity loss, and ultimately impacts human well-being. For example, infrastructure and road development projects have historically been carried out with little to no attention to the short- or long-term impacts of these activities on natural ecosystems and biodiversity.

To ensure long-term human well-being, decision-makers across all economic sectors, such as transportation, agriculture, and energy, must recognize the linkages between economic activities and ecosystems. The importance of integrating natural capital values is even highlighted in global strategies and goals for development and biodiversity. These include the Sustainable Development Goals, which are currently being elaborated, and the Aichi Targets.

EMERGING METHODS ARE HELPING US TO OVERCOME THE INVISIBILITY OF NATURE 

Significant strides have been made in recent years toward quantifying and incorporating the value of natural resources and ecosystems services in decision-making.  Key developments include:

  • Adoption of the System of Environmental-Economic Accounting (SEEA) Central Framework
  • Development of Experimental Ecosystem Accounting (EEA).

SEEA represents the leading tool to support environmental policy and analysis and the relation between the environment and economic and human activities. The SEEA is complemented by the new and developing accounting approach of the EEA, in addition to sector-specific SEEAs such as SEEA-Water and SEEA-Energy.

A practical application of natural capital valuation could entail determining where ecosystem services could be provided at lower cost than man-made alternatives.  Essential services include water regulation and purification, carbon storage or flood control provided by forests, and fish nursery grounds provided by mangroves.

Recent applications of ecosystem accounting and incorporation of natural capital values can be observed in initiatives such as TEEB’s Natural Capital Accounting, the Natural Capital Project, the Project for Ecosystem Services, and the WAVES partnership.

IDB CONTRIBUTES TO NATURAL CAPITAL ACCOUNTING DEVELOPMENT IN LATIN AMERICA AND THE CARIBBEAN 

Natural Capital Accounting (NCA) is a budding scientific approach, undergoing significant development and experimentation throughout the globe. IDB is joining the effort through various projects in Latin America and the Caribbean. Stay tuned to learn more about these activities in future BIO blogs.

Photos
Title: by ©enciktepstudio,
Text: Ecuador, a Woman Harvest Cocoa Beans, by Satre Comunicaciones, ©CC BY-NC-SA 2.0

 


Filed Under: Ecosystems and Biodiversity, Uncategorized

Onil Banerjee

Onil Banerjee is a Natural Resource Economist with the IDB. He's engaged in projects with an emphasis on integrated economic-environmental modeling and impact analysis. Onil has worked with NGOs, the private sector and government, in issues ranging from community forestry and land use planning, to labor and environmental standards. Prior to joining the IDB, he was an International Development Economist with Australia’s National Science Agency, CSIRO, where he explored domestic issues of water policy and ecosystem service supply while in South Asia, he provided advice on economic impacts of climate change and food security. Onil was awarded the Alumni Fellowship at the University of Florida where he earned a PhD in Natural Resource Economics and Policy in 2008.

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This blog is a space to reflect about the challenges, opportunities and the progress made by Latin American and Caribbean countries on the path towards the region’s sustainable development.

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