Natural capital accounting has attracted considerable attention both in the UK and internationally. In 2011, the UK’s ‘Natural Environment’ White Paper, The natural choice:
securing the value of nature promised to place ‘natural capital at the heart of Government accounting’ (HM Government, 2011) and a series of papers and reports from the UK Office for National Statistics and the Natural Capital Committee (NCC) have set out guidance and provided initial examples of natural capital accounts for the UK (Khan, 2012; Khan, Greene and Hoo, 2013; NCC, 2013, 2014, 2015; Khan, Greene and Johnson, 2014; Eftec, 2015; Office for National Statistics, 2015b). Globally, the United Nations adopted the System of Environmental-Economic Accounting – Central Framework (SEEA-CF) as a UN statistical standard in 2012, and the World Bank’s initiative on Wealth Accounting and the Valuation of Ecosystem Services (WAVES) is developing initial natural capital accounts for Botswana, Colombia, Costa Rica, Guatemala, Indonesia, Madagascar, Rwanda and the Philippines. Table 13.1 offers a brief overview of
international progress to date. This table lists countries and This poses a challenge to incorporating FEGS into the
national accounts: because exchange and welfare values are not identical, incorporating both into the SNA would introduce an inconsistency. The extent to which this difference should be allowed to prevent inclusion of both natural capital and FEGS in the national accounts is hotly debated. However, by now it should be clear that what we include and what we exclude from the national accounts is, and always has been, a choice based on what information is considered desirable at a particular point in time. UK policy objectives set out in the ‘Natural Environment’ White Paper are at least compatible with the idea that including FEGS in the national accounts is an option worth considering (HM Government, 2011). Some authors argue that given the number of adjustments already contained within the SNA, there is no strong basis for excluding FEGS simply because they are valued using welfare rather than exchange values (Agarwala et al., in preparation).
Although the SNA focuses on exchange values, there is precedent within the current SNA for estimating values of goods and services when there is no observed exchange value. For instance, not every house is sold every year, but national accounts must nonetheless include the value of housing services in the economy, meaning national accountants must impute values for non-traded housing services on the basis of observable transaction data for similar, traded housing services. To accomplish this, they assume a notional transaction in which homeowners effectively rent housing services to themselves and impute values for these services by examining prices of similar rental properties. While imputed values for non-traded housing services are not strictly speaking ‘pure’ exchange values, they are at least consistent with the SNA because they are based on observed exchanges (SNA, 2008;
Lequiller and Blades, 2014; Obst, 2015). Similarly, because most produced capital (e.g. plant and equipment, heavy machinery) is not bought and sold every year, its value must also be estimated. Here, assets are typically valued at their replacement cost, with an adjustment made to reflect the degree of depreciation (wear and tear) on the machine (Obst, 2015). For pragmatic reasons, depreciation is typically calculated using an arbitrary, fixed formula rather than a detailed inspection of each piece of machinery or asset (OECD, 2009). Finally, national accountants may value some capital assets (especially non-renewable resources) at the net present value of the future flow of goods and services they generate. The main point is that the SNA already contains a number of adjustments to enable the valuation of goods, services and assets for which direct market exchange values are not available at a particular point in time.
Table 13.1 Countries with established environmental accounting programmes.
Source: Adapted from Agarwala et al. (2014b) and Lange (2014).
Note: The lighter grey tick marks in the Botswana row indicate works currently in progress.
* Asset accounts in physical and monetary terms.
** EU states are required to report greenhouse gas emissions, material flow accounts and environmental protection expenditures. Accounts for water and asset accounts for oil and gas, and forests are widely implemented.
*** Pilot member of World Bank WAVES Partnership.
formal market transaction takes place). In contrast, physical accounts within the SEEA-CF adopt a broader asset boundary, encompassing all natural resources and land within an economic territory (not just those with economic value recognised in the SNA).
Whereas the SEEA-CF measures ‘individual environmental assets’ (e.g. timber resources, land, mineral and energy resources, and water resources), the SEEA-EEA considers ecosystems defined as ‘a dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit’. Because not all FEGS are parts of ecosystems (e.g. minerals and fossil fuels), both the SEEA-CF and SEEA-EEA are needed to ensure the full range of FEGS is appropriately accounted.
Within the SEEA-EEA, forest ecosystems can be accounted for in terms of their spatial extent and ecological condition, or in terms of expected ecosystem service flows (Khan, Powell and Harwood, 2011; SEEA-EEA, 2014; Eftec, 2015).
The first approach – accounting for an ecosystem as a whole – has obvious benefits in that it helps capture the systemic nature of environmental service provision. However, this should not be confused with accounting for specific elements of an ecosystem such as trees or water.
Based on the National Forest Inventory for Great Britain, Eftec (2015) presents a set of woodland ecosystem accounts that is consistent with the SEEA-EEA guidance. Table 13.2 presents a physical ecosystem stock account for 2012, containing estimated total extent of woodland, extent of broadleaved and coniferous species, timber volumes (by species and age), biomass (measured in terms of estimated oven dry biomass), carbon biomass stock, extent of woodland under Site of Special Scientific Interest (SSSI) designation and area of woodland in flood risk zones.
Table 13.3 shows aggregate data on estimated physical flows of ecosystem services generated by British woodland. The table also shows the estimated number of recreational visits to British woodland, based on Sen et al. (2014).
Table 13.4 shows estimated monetary values for these stocks and flows. Using a willingness to pay of GBP 3.47 per person per trip (based on Sen et al., 2012), it shows that estimated recreation values (GBP 1.7 billion, annually) dominate, as is consistent with other studies (Bateman et al., 2014).
regions with established programmes to account for environmental assets in monetary and physical terms, physical and monetary flows of pollutants and materials, and expenditures on environmental protection.
Of these international initiatives, the most relevant to the UK is the SEEA-CF. SEEA-CF is not a set of accounts, but rather a standardised framework for countries to use in developing sets of accounts. It is intentionally modular, in that not all components need to be developed simultaneously:
countries can develop SEEA-CF compatible accounts for specific elements of natural capital that may be of particular interest or for which relevant data are most readily available.
In addition to the Central Framework, the SEEA also contains guidance for Experimental Ecosystem Accounting (SEEA-EEA), which is not formally a UN statistical standard, but has been endorsed by the United Nations Statistical Commission (UNSC) as international guidance.
Combined, the various components of the SEEA integrate information on water, minerals, energy, timber, fish, soil, land and ecosystems, pollution and waste, production, consumption and accumulation within a single
measurement system. It specifically excludes oceans and the atmosphere (these stocks and values would be too large to be meaningful to potential users), but includes ocean fish stocks as environmental assets (where countries possess property rights due to international agreements). The SEEA contains two distinct, but complementary accounting approaches: the first focuses on the measurement of individual natural resources, cultivated biological resources and land, while the second focuses on the measurement of ecosystems. The SEEA-CF covers:
1. Physical flows of materials and energy within the economy and between the economy and the environment.
2. The stocks of environmental assets and changes in these.
3. Economic activity and transactions related to the environment. (SEEA-CF, 2012, p. 11).
SEEA-CF sets out guidance for developing physical flow accounts, physical asset accounts, monetary flow accounts and monetary stock accounts. Monetary accounts within the SEEA-CF adopt the same asset boundary as the SNA (2008), meaning that ‘only those assets – including natural resources and land – that have an economic value following the valuation principles of the SNA are included’ (SEEA-CF, 2012). As far as possible, the SEEA-CF adopts the same exchange price approach as set out in the SNA, but notes that for many FEGS41 these cannot be observed (as no
41 Note: the SNA and SEEA systems do not adopt the terminology (e.g. FEGS) set out in Section 1 and used throughout this report.
Ecosystem: woodland
Ecosystem extentCharacteristics of ecosystem condition Total areaSpecies typeAge (years) Biomass stockCarbon stockWoodland in flood risk areas Woodland SSSI BroadleavedConiferousBroadleavedConiferous0–4041–6061–80>80BiomassSoilFZ1FZ2FZ3 (million hectares)Extent (million hectares)Volume (million m3)Age by volume (million m3)Million tonnes (Mt) oven dryMtCO2Extent (million hectares)Extent (million hectares) Coverage (countries/ regions)GBGBGBGBGBGBE&WE&WE&WGB Closing stock2.781.271.51239375163251105109426780133---0.243
Table 13.2 Physical stock account of ecosystem condition and extent at close of accounting period 2012 (Source: Eftec, 2015). Note: DECC (2014) non-traded carbon price projections starting with £GBP 56.78/ per tCO2e for 2012, are used to estimate annual carbon sequestration services. Timber unit values of £GBP 14.74/ per m3 (broadleaved) and £GBP 14.03/ per m3 (coniferous) are used to value annual flows.