Natural Capital

Science has provided an understanding of the environment, the dynamics of ecological processes, the irreplaceability of many ecological resources and contributed the understanding essential to making economic decisions.

Natural Capital

Natural capital is the stock of ecological systems that exists at a point in time—the structure and diversity of habitats and ecosystems. Natural capital consists of both renewable ecosystem resources (vegetation, animals and water) and non-renewable resources (ie. oil and gas reserves and minerals). Natural Capital can increase through improved management of ecosystems.

Ecological assets and services have value. Wealth is the combination of natural, built, human and social capital as increased by investment. Wealth can increase through improved management of ecosystems (both restoration and renewal).

Planning and investing in natural capital benefits producers and populations both socially and economically. Well-maintained farms, forests and rivers can provide an indefinitely sustainable flow of food and timber.

The Value of Natural Capital

What We Learn by Valuing Ecological Systems

Attempting to determine the value or the services of ecosystems has the following benefits for resource managers:

• Wealth Management : Knowledge about the value of Earth’s ecological systems provides clarity that assists us to anticipate problems and develop strategies.
• Loss Assessment : Knowledge about the value of assets identifies the extent of loss occurring when ecosystems become stressed and scarce.
• Dependency : Knowledge about the value of what has been lost, identifies the extent to which humanity is dependent on ecological services.
• Cost-Benefit Analysis : Identification of the value of ecological services assists the processes of decision making—what should be conserved? The more ecological services are conserved, the more resources continue to be available.
• Measuring Success : Knowledge of the value of ecological systems identifies what has been gained by conserving ecological systems.
• Methodology : Developing and applying methodology for measuring and representing the value of earth’s assets furthers our ability to understand the value of these assets.

What We Gain by Developing a Capacity to Value Ecosystem Services

Development of the capacity to value ecosystem services provides:

• natural capital can be improved or degraded by the actions of people over time:  identification of natural capital gives us the ability to measure whether certain practices degrade ecological services or contributes to resilience and allows us to measure increases or decreases in wealth.
• a robust evidence base for identifying services that contribute to economic growth and jobs, and identifying viable strategies
• a way to assess the utility of economic schemes for subsidizing sustainability programs (for example, ways to assess the benefits of subsidizing research into the development of renewable energy sources such as solar cells and subsidizing scientific efforts into nuclear fusion, ie. the low contamination form of nuclear energy
• an understanding of the value of ecosystem services helps build a global consensus on the importance of proper management of these assets

If ecosystem services were valued by their contribution to the global economy, the pricing system for resources would be different from what it is today.

The Value of Nature’s Capital

Nature supplies provisioning services (food, fibre and fuel) and services which ensure long-term productivity of these provisioning services (support and regulatory services such as climate and erosion control and crop pollination). See Sustainability.

Ecosystem services consist of flows of materials and energy from natural capital stocks which, when combined with manufactured and human capital, serves to provide for human welfare. Sustainability, meeting human needs, requires that the total capital (the productive base required to support well-being) be maintained and increased over time. If the productive base of a system is sustained, future generations can make their own choices about how best to meet their needs. Each form of capital stock may be used to transform materials so as to enhance the welfare of humans. The continuous supply of services from the available natural capital assets is dependent upon a healthy, functioning environment.

How Do We Measure Value

In March 2021, the United Nations Statistical Commission adopted the System of Integrated Environmental and Economic Accounting (SEEA) setting out internationally agreed concepts, definitions, classifications, accounting rules and tables for calculating the value of ecological services.

The value of ecosystems might be derived using the following appraisal methods:

• Cost of production
  1. Measuring the value of extraction and processing units (mines, farms, food processing), factories and businesses
  2. Measuring the impact of the loss of services on the quantity of goods and services produced by these units
• Replacement cost
  1. The cost to replicate services using technology (the cost of an artificial biosphere)
  2. The costs avoided by retaining the eco-services
• Market Value as determined by supply and demand, measuring the value of nature’s capital and goods being produced, what are people willing to pay for goods and services
• Establishment of assessment values for taxation purposes: stumpage rates, tax rates, mineral royalties, licensing fees

In order to estimate the total value of ecosystem services, we need sound ecological information and estimates of the total global extent of the ecosystems.

Other Forms of Capital

The capacity to produce goods and services from ecological resources depends on a number of factors in addition to natural capital:

• Human Capital : the accumulated knowledge, education, experience, and skills people rely on to produce goods and services for human consumption.
• Built Capital/Infrastructure : man-made assets (homes, factories, farms, mines) used as habitation and physical means of production of goods and services
• Social Capital : the capacity of people to act together and collectively solve problems and maintain sustainability

The Degrading and Conversion of Natural Capital

The best current estimates suggest that built and human capital have increased in the last 50 years in most countries, but that natural capital has declined as a result of depletion of both natural capital and non renewable resources—for example, over-utilization, climate change, pollution and loss of the functional benefits of biodiversity.

Human activities have an impact on the environment. Wealth is lost when ecosystems (natural capital) are degraded. As natural capital and ecosystem services become more stressed and scarce, their value decreased. The value of remaining services increases because of increased competition for the resources.

Examples of value losses

Coral reefs provide habitat for fish. They are valued because they increase and concentrate fish stocks. Their value can be determined by measuring the volume of harvest in commercial and recreational fisheries. This approach to valuing coral reefs does not account for the value of recreational diving, which is measured by valuing the tourism generated.

Forests provide timber and paper which is valued in terms of revenue earned through established markets. The recreational value can be measured in terms of tourism. The value of moisture and soil retention is more difficult to measure.

The value of biodiversity is more difficult to measure.

Conversion of Natural Capital

The conversion of natural capital to different forms has impact. Some of the effects of conversion of natural capital is set out in the following table.

What happens when services/species/systems crash?

Overuse, misuse or human disturbance of resources can alter the functioning of ecosystems and lead to degradation and permanent decline in productivity. Similar to the impact of changing use, the impact of overuse is:

• decline in the capacity of watersheds to purify water, leading to higher water-treatment costs
• decimation of populations of insect pollinators, reducing crop yields
• degradation and loss of wetlands leading to increased damage from floods, reduction of water purification, loss of habitat
• introduction and invasions of non-native species such as zebra mussels, rats (and other mammals), killer bees, fire ants and other insects, all of which cause damage to living resources, some of which threaten human health and the well-being of important species

The benefit of harvesting may be offset by the benefits of maintaining a resource, and avoidance of the cost of replacement and restoration of an area. The protection of highly valued and well understood services through the protection of ecosystems is increasingly being viewed as a wise alternative

The effect of losses of ecosystems services is cumulative, the loss of multiple services has a combined effect on the well-being of species.