Essential Elements of the Economy• Produced or manufactured capital– (roads, buildings, machines)

• Human (and social) capital – (health, knowledge, culture and institutions),

• Natural capital– Environment and natural resources

• Green Economy• The Economics of Ecosystem and Biodiversity• Natural Capital Initiative• Natural Capital Accounting• Wealth Accounting and Valuation of Ecosystem

Services• System and Environmental and Economic

Accounting• Millennium Ecosystem Assessment• The Economics of Climate Change• Corporate Ecosystem Services Valuation• Corporate Ecosystem Services Review• Intergovernmental Science-Policy Platform on

Biodiversity and Ecosystem Services (IPBES)

Global Programs on Economy and Environment

What is Natural Capital?“Natural capital refers to the elements of nature that produce value or benefits to people (directly and indirectly)”

Includes stock of forests, rivers, land, minerals and oceans, as well as the natural processes and functions that underpin their operation”. (NCC 2013)

Environmental and Natural Resources Economy

Environment and Natural Resources

Economic Production

With Manufactured

CapitalHuman Capital

Well-being/

Sustainability (U)

Con-sumption/

Benefits

Ecosystem Services and Goods Flow

Forests

Agri-culture

Urban Envi

Coastal/Marine

Renewable Resources stock

Exhaustible Resources stock

H>Y H<Y(-) (+)

H>Y(-)

Waste (w)

Assimilation (a)

w<,>aw>a

Negative Amenity

Waste Sink:w<a = neutralw>a = environ damage

Recycling

H = Harvest/ExtractioonY = Regrowth/Yield = flow of materials/energy = Utility flow

Natural Capital

Sub-soil

Biotic and Abiotic Assets

NATURAL CAPITAL AND ECONOMY FRAMEWORK

Key Concepts• Renewable/Non-Renewable

• Substitutability

• Sustainability– Weak

• human or other capital can substitute natural capital– Strong

• human and natural capital are complementary but not interchangeable

• Intergenerational equity

Two Important Phases of Natural Capital and Economy• Accounting

– Natural assets in decline pose a potential risk to society

– Information on the status, trends and costs of recovery and/or replacement of natural assets are therefore of importance to governments, society and businesses

• Valuation– To inform decision making natural capital should be

assigned a value– Depreciation of natural capital is not covered by

national accounts

Natural Capital Must be Measured NC Accounting and valuation require measurement (and identification)• There is a set of natural capital stocks

• Each natural capital stock may provide one or more services; – these are outputs or features of each stock

• Services, often combined with ‘other capital inputs’, – can be used to produce goods.

• ‘Goods’ are consumed / used and provide benefits (to people) which can be valued (often in monetary terms).

Practical Difficulties• natural capital are dispersed, interconnected

and dynamic

• natural capital have different functions, and to function differently under changed circumstances

• Natural capital stocks provide multiple values that are interdependent and interacting

Nat

ural

Ca

pita

l Ass

et

Land

-use

, Ow

ners

hip

and

Prop

erty

Rig

hts

Arra

ngem

ent

Ecos

yste

m S

ervi

ces

Good

s

Bene

fits (

Valu

es)

Measurement Framework Challenges

Elem

ents

to

Mea

sure

Concepts of Degradation and Deterioration• Threshold

asset is not self-sustaining. can lead to abrupt and

persistent change• Safe Limit• Beyond the ‘safe limit’, the risks of

crossing a threshold are greatly increased

• Reference Point• of an asset measured at some

point in the past.• Resilience• ability of disturbed systems to

recover to their former state

Concepts of Degradation and Deterioration• Resilience• ability of disturbed systems to

recover to their former state

• Target (defined through policy)• socially desirable’ level of some

benefits to which we aspire through the more effective management of natural capital

• E.g. carbon under REDD, target species under Convention on Biodiversity (CBD)

Monetary and Non-Monetary Valuation Methods for NC

(a) Monetary valuation Methods

• Qualitative and quantitative methods

• Use of focus group discussions or juries

(b) Non-Monetary valuation Methods

Taxonomy of Direct and Indirect Methods of Valuation

R&D must respond to demands for evidence-based policy and decision-making …

Source: Reference material will be provided

Evidence and Science-based

Interest/ values-based

Cooperation Confrontation

Advising Advocacy

Lobbying Activism

Policy Briefing Environmental Petitioning

Direct ActionCompany Lobbying

Valuation of NC can aid policy and planning for environmental change• Local policy and planning

– Local zoning and land use planning, land allocation– Urban development– Expansion of settlements

• Sub-national policy and planning– Integrated area development planning– River basin, economic zones establishment e.i.

need for green space

• National Policy and Planning– Review of protocols i.e., EIA especially mining policy

– Economic growth targets taking into account impact on NC degradation

– Target for biodiversity conservation and protected areas

– Climate change mitigation i.e., flood management

– Governance

– Outcome-based budgeting

• Corporate Engagements– Corporate ecosystem services review

– Corporate ecosystem services valuation

– Target for biodiversity conservation and protected areas

– Incentive mechanisms

– Regulatory compliance

Challenges• Technical aspect of measuring documenting thresholds,

setting safe limits or reference point of NC, e.g. extent of mangroves rehabilitation, fish pens to remove

• Agreeing on NC to account and corresponding targets for each NC

• Regularizing or instituting the NCA, financing

• Compiling data from different producing agencies, bureaus and institutions, (e.g. FOI implementation)

22

• Adam Smith 1776. o An Inquiry into the Nature and Causes of the Wealth of Nations. Univ. of Chicago

Press.• Hicks, J.R. 1939, 1940o 1939 Value and Capital. U.K.: Clarendon Press; “The valuation of social income.”

Economica.• Kuznets , S. series 1948. o “On the valuation of social income – reflections on Professor Hicks’ article, parts

I and II.” Economica, Vol 57, 58.o “National Income: A new version”. Review of Economics and Statistics. Vol 30.• Leontief, W. 1970o “Environmental repercussions and the economic structure: An input-output

approach.” Review of Econ. and Stat.. Vol 52. • Nordaus and Tobin 1972.o Is Economic Growth Obsolete? In Moss 1973.• Moss, M. ed 1973. o The Measurement of Economic and Social Performance, Studies in Income and

Wealth, vol 38. USA: National Bureau of Economic Research. • Japan, Economic Council of 1973. o Measuring Net National Welfare of Japan. Japan: Ministry of Finance• Hartwick, J.M. 1977.o “Intergenerational equity and the investing of rents from exhaustible

resources.” American Econ. Review. Vol. 66

Pre-1980’s: economic growth, welfare, wealth; developed countries

23

1980s-1990’s: economic growth, welfare, various countries • Peskin, H.M. 1981.

o “National Income Accounts and the Environment.” in Peskin, Porney and Kneese. Environmental Regulation and the U.S. Economy. Resources for the Future. Baltimore & London: Johns Hopkins Univ. Press.

• Zolotas, X. 1981.o Economic Growth and Declining Social Welfare. Athens: Bank of Greece

• Repetto R. et. al. 1986. o Wasting Assets: Natural Resources in the National Income Accounts. World Resources Institute. (Indonesia,..)

• El Serafy, and E. Lutz, eds. 1989. o Environmental Accounting for Sustainable Development. Washington DC. The World Bank

• Keuning, S.J. 1993.o “An information system for environmental indicators in relation to the national accounts.” In. de Vries et al,

eds. The Value Added of Matioal Accounting. Netherlands Bureau of Statistics. • Duchin, F. and G. Lange 1993.

o “Development and the Environment in Indonesia: An input-output analysis of natural resource issues.” Final report to the Canadian International Development Agency.

• European Union 1994.o “Directions for the European Union on Envi’l Indicators and Green National Accounting”. Luxembourg

• Young, C.E.F. and R. Seroa da Motta 1995o Measuring Sustainable Income from Mineral Extraction in Brazil. Resource Policy Vol 21.

• Crowards, T.M. 1996.o “Natural resource accounting: A case study of Zimbabwe.” Environmental and Resource Economics. Vol 7.

• Vincent, J. 1997. o “Resource depletion and economic sustainability in Malaysia.” Envrionment and Devpt Econnomics

24

1990’s: economic growth, wealth, various countries • World Bank 1997.

o Expanding the Measure of Wealth: Indicators of Environmentally Sustainable Development. Washington DC.• Statistics Canada. 1997.

o Eco-connections: Linking the Environment and the Economy. Ottawa.• Kunte A. , K. Hamilton, J. Dixon and M. Clemens. 1998

o “Estimating national wealth: methology and results”. WB Environment Department Paper no. 57.• Haripriya, G.S. 1998.

o “Forest Resource Accounting: Preliminary Estimates for the State of Maharashtra”. Devpy Policy Review. • Jensen, H.V. and O.G. Pedersen 1998

o Danish NAMEA 1980-1992. Copenhagen: Statistics Denmark• Smil V. and M. Yshi. 1998.

o The Economic Costs of China’s Environmental Degradation. Cambridge, MA: Amer. Acad. of Arts and Sciences.• Nordhaus W.D. and E.C. Kokkelenberg (eds).

o Nature’s Numbers. Expanding the Nat’l Econ Accounts to Include the Environment. WDC. Academic Press• Uni and Bartelmus eds. 1998.

o Environmental Accounting in Theory and Practice. Dordrech: Kluwer• Korea Environment Institute, UNDP and UNSD. 1998.

o Pilot compilation of environmental-economic accounts. Seoul: KEI.• Hellsten, E.,S. Ribacke, and G. Wickbom. 1999.

o “SWEEA --- Swedish environmental and economic accounts.” Structural Change and Economic Dynamics. • Department of Environment and Natural Resources, Philippines. 1999. The Philippine Environmental and Natural

Resources Accounting Project (ENRAP). ENRAP-SHELF CD-ROM contains all accounts and technical reports. Manila.

25

Origins2000’s: engagement of statistics, regional and global institutions

• Eurostat. 2000.o Accounts for Subsoil Asets: Results of pilot studies in European countries. Luxembourg: Eurostat.

• Statistics Norway. 2000.o Data on resource rent, taxes and subsidies for petroleum, forestry, and fisheries in Norway: Oslo.

• National Statistical Coordination Board, Philippines. 2000o Environmental Degradation Due to Selected Economic Activities. Manila

• Dasgupata, P. amd K-G Maler. 2000.o “Net National Product, Wealth, and Social Well-Being.” Environment and Development Economics. Vol 5.

• O’Connor, M. 2000. o “Toward a typology of environmentally-adjusted national sustainability indicators.” Paper prepared for the

London Group.• Eurostat. 2002.

o Natural Resource Accounts for Forests. Luxembourg: Office of the European Communities.• G.M. Lange 2003.

o “Policy applications of environmental accounting.” Environment Department paper No. 88. The World Bank

• World Bank 2006.o Where is the Wealth of Nations? Measuring Capital for the 21st Century. Washington D.C.

• UN Statistics Division. 2006.o “System of Environmental-Economic Accounting for Water.” N.Y.

• Stiglitz, J.E., A. Sen, and J-P Fitoussi. 2009.o Report by the Commission on the Measurement of Economic Performance and Social Progress. Paris.

26

Lessons from Past Experience• Various one-off efforts on environmental

statistics and indicators• Similarly, one-off efforts on environmental

accounting• Slow uptake, or stop-and-go efforts due to:– Lack of policy uses– Disagreements on methodology– Insufficient data and inadequate capacity

History of SEEA

Integration of these concerns required development of a statistical framework that combined the System of National Accounts — an economic tool — with appropriate environmental and social indicators

•Rio Conference (1992)

•Agenda 21 proposed 'a program to develop national systems of integrated environmental and economic accounting in all countries'.

In 1993, the United Nations endorsed the link between GDP and the environment:• Publication of Interim version (SEEA-1993)• Established the London Group

• Forum for sharing international and national expertise• Encourage adoption of best practices

• 1993 SNA included a chapter on satellite accounts

History of the SEEA• 2003 Publication of SEEA-2003

● 2005 Creation of the UN Committee of Experts on Environmental-Economic Accounting (UNCEEA) by the UN Statistical Commission (UNSC)

– Coordination of working groups– Elevation of the SEEA to international standard– Collaboration with London group on methodology development etc.

● 2006 UNSC established the mechanisms to elevate SEEA to status of an international statistical standard

• At RIO + 20, the System of Environmental-Economic Accounting – Central Framework (SEEA-2012) was adopted as an international standard at the United Nations Statistical Commission (UNSC) o environmental concerns to be integrated into mainstream economic reporting by

member countrieso SEEA as satellite accounts