natural capital accounting uk

Natural Capital Accounting. It starts with a simple case and then relaxes different assumptions to show how the discount rate is affected. A complete compilation of determinants, this book fills a gap in the literature. aggregated estimates of the value of natural capital in the UK, scoping and development of initial broad habitat accounts (for example, woodland, farmland, freshwaters, coastal and marine), cross-cutting accounts for assets (for example, land use, land cover, carbon) and certain services (for example, air pollutant absorption, recreation), monitor losses and gains in our natural capital over time, identify priority areas for investment and inform resourcing and management decisions, highlight links with economic activity and pressures on natural capital, scope and overview of natural capital accounts: Sections 1 to 2, underlying data quality, uncertainties and gaps, methodological uncertainties and ambiguities, additions arising from new estimates for additional services, implementing latest guidance emerging international discussions on ecosystem accounting, revised projections of future service flows based on new data or revised outturn data, revised principles regarding asset calculation (for example, on asset life, discounting), revised assumptions regarding the unit values of service flows, relevant volume estimates (for example, timber biomass, water quantity or flow, length of linear features), biodiversity indicators (for example, abundance indicators, mean species richness), soil indicators (for example, carbon content, water content), ecological condition indicators (for example, water quality, plant health, invasive species), spatial configuration (for example, fragmentation, connectivity), access (for example, proximity to areas of population), management practices (for example, organic farming, degree of protection) (Principle 4.1), ecosystem (see Assessing different levels of biodiversity within the natural capital accounts), number of species in specific classes – focusing on (a combination of) specific taxonomic groups; this is not recommended as it does not indicate relative abundance and gives equal weight to each species, biodiversity indices, for example, Simpson and Shannon indices of species diversity based on species richness and relative abundance;tThis is difficult to interpret and equal weight is given to each species, mean species abundance; an indicator of mean abundance of original species relative to their abundance in undisturbed ecosystems, numbers of red-list and/or endemic species; a good indicator of current status but difficult to interpret short-term changes, populations of keystone species that is, those species that regulate essential ecosystem processes such as nutrient recycling; not clear if keystone species can be identified for all ecosystems, damage costs avoided: for example, absorption of pollutants by trees, or water treatment costs saved by healthy peatlands, replacement costs of man-made alternatives that would be incurred if the ecosystem asset was lost: for example, without coastal margin habitats, sea walls might need to be constructed to maintain flood defence; without woodlands in catchments, greater expenditure would be required on “hard” flood defences downstream; if these replacement costs are capital values they would need to be converted into annual flows of avoided costs, the longer the time horizon, the stronger the argument against using market rates that are necessarily geared only to the relatively short-term (10 to 20 years), despite the effects of discounting, restricting time horizons to 50 years undervalues the potentially reproducible flows of services; discounting using current Green Book rates at constant prices over 50 years would give 75.6% of the net present value (NPV) based on infinite flows, whereas a 100-year period would capture 92.2% of the NPV value based on infinite flows, changes in carbon sequestration over time as woodland matures, projected population increases leading to increased uptake of services (such as outdoor recreation or air quality benefits), changes in background air pollutant concentrations, future projected tree diseases affecting services from woodland, pressure on asset condition or extent that could affect future service supply; a sustainability perspective, particularly where assets are in a degraded condition, cautions against taking constant future flows for granted. Pakistan, UK to work for protection of natural resources. London is the capital and largest city of England and the United Kingdom. For example, the value of protected land must be at least what the land would be sold for on the open market, otherwise society would not have made the effort to protect it; farmland prices could provide the basis for valuing the stream of ecosystem services but would need adjusting to reflect non-ecosystem variables. It is by no means exhaustive. Found insideThe Art of Magic is a short story about power, where it comes from, what we can do to change its course, and how the acts we perform every day can stop the unstoppable. Since the UN Statistical Commission adopted the System for Environmental and Economic Accounts (SEEA) as a statistical standard for all countries in 2012 . The national level accounts should be consistent with these more spatially disaggregated accounts. Key Takeaways Natural capital is the inventory of natural resources held by or . The Inclusive Wealth Index provides important insights into long-term economic growth and human well-being. This article (version 2.0) updates that original article. The same principle can be applied to ecosystem1 goods and services. Accounting frameworks and methodologies are not intended to capture all or total values for the natural environment. From an SNA perspective, it is problematic to include the opportunity cost of household time as an imputed value, whether on-site or travel time, because this is not applied to other recreational experiences that are traded and reported in SNA, and it is considered outside the scope of the “production boundary”; SEEA guidance, however, on this question is currently very limited. It is not conceptually ideal because it does not value sites directly. For example, recreational values are likely to increase with people’s income over time; the Department for Environment, Food and Rural Affairs’s air quality damage cost valuations are periodically uprated to reflect income growth; the Department for Business, Energy and Industrial Strategy’s non-traded carbon price values are projected to rise sharply over coming decades; agricultural commodity prices are typically projected to rise in real terms over time. This is likely to be refined further and expanded in future editions of this article as experience develops in natural capital accounting and various methods are tested. Found insideThis volume and subsequent TEEB outputs will provide the authoritative knowledge and guidance to drive forward the biodiversity conservation agenda for the next decade. Found insideThe next three sections dedicated themselves to the second objective: describing what is meant by the phrase 'natural capital accounting'. These methods typically generate estimates of “willingness to pay” that are based on, but also conceptually distinct from, the actual costs of accessing a site. For many natural resources, such as oil and gas, these are simply two sides of the same coin: the supply of services from natural capital equals the use of such services by economic activities. In principle: each NPV calculation for any given previous year should be based upon the expectations and knowledge present at that time rather than taking into account circumstances and knowledge that have come to light since then. The SEEA dimensions have helped as a framework for the indicators used in the UK’s initial accounts to date, although in practice different indicators within each dimension have been used, depending upon the nature of the ecosystem: for example, the index of farmland birds has been used in the enclosed farmland account, whilst indices of woodland birds were used in the woodland accounts. Environment Systems was involved both in a pilot mapping project . These goods and services are described in the SEEA EEA as “SNA benefits”. the Natural Capital Science & Technology Platform, which makes using natural capital understanding faster and easier. The delineation between the marine ecosystem and coastal margins needs particular attention. This focus on capturing biodiversity in stock accounts is consistent with the concerns set out by the Cambridge Conservation Initiative, Biodiversity at the heart of accounting for natural capital: the key to credibility (2016), where the focus is primarily on corporate natural capital accounting. In effect they are summaries of the flow of particular ecosystem services that can be disaggregated (at the very least) by broad habitat and ideally by some of the other characteristics of ecosystems (such as type of woodland). Carbon storage is a particular example of the distinction between storage and active remediation discussed in this section. In particular, we expect revisions to the monetary accounts to arise from a number of sources: As accounts are updated we will indicate the major revisions and the reasons for them. The UK environment – fighting pollution, improving our health and saving us money Article | Released 2 October 2017 An article looking at the findings from a new study commissioned by the ONS suggests that the environment is playing a vital role in tackling the problem of poor air quality and helping to protect people’s health and reduce spending on health care. 2013 Pimlico Seminar summary notes and supporting documents Summary notes | Released 11 November 2013 Notes from an Expert Seminar in London in November 2013 to discuss practical valuation approaches for natural capital accounting in the UK. of publications), Sense of place / artistic representations, Symbolic (emblematic plants, animals etc. Further work will also be needed to determine the level of aggregation required in order for comprehensive accounts of ecosystem condition and ecosystem services to be compiled. This is an issue that is likely to be guided by the availability of data: sufficient annual data may simply not be available, although even then there may be process advantages to be gained by setting up production systems on an annual cycle. Issue Paper 1.1, Valuation for Accounting Seminar (London 2013). Use of this method will be constrained by appropriate data and applications, but can provide lower bound marginal prices for the services in question, which could in principle be applied to the overall service flow (Day, 2013). It should be made clear how consistent such valuations are with exchange value principles. x�b```f``3c`e`P�ad@ A6v�L (Principle 7.6). 0000004044 00000 n In the economy, the production of sawn timber is an intermediate or supporting service, and the sale of furniture to the consumer is the final service or benefit. The one exception is “natural flux", such as the gross inflows and outflows of carbon as part of the daily carbon cycle, where it would not make sense to record only the gross inflows in the accounts. This concept of exchange value is conceptually distinct from the standard valuation framework in environmental economics which typically adopts an economic welfare perspective. (Principle 2.5). Natural capital accounting. Secondly, where a relatively long asset life is considered, the “exchange value” would need to involve future generations, which means that observed market rates may not be appropriate (Freeman and Groom, 2016). More recently, practitioners2 have recognised that there is a distinction to be made between the “more natural” ecosystems such as rivers, ancient woodland and protected high nature value areas, and other more heavily modified landscapes (such as areas of intensive farming and urban parks). Biodiversity and Ecosystem Services in Corporate Natural Capital Accounting: Synthesis report. There are broadly 4 categories of valuation methods that are potentially suitable: Ecosystem services that are directly marketed (for example, standing timber, crops) can be readily given exchange values, once adjusted for the relevant taxes and subsidies. The book presents estimates of total wealth for nearly 120 countries, using economic theory to decompose the wealth of a nation into its component pieces: produced capital, natural resources and human resources. WhaT iS NaTuRal aNd SOcial capiTal accOuNTiNg? Supply of recreational services can benefit both the enterprise sector (for example, tourism businesses) as well as household sector (visitors). Housing, for example, can be ascribed an exchange value (based on aggregating the market value of all existing houses, or rental services), whereas a total welfare value of housing makes less sense because a civilised society could not do without housing. A natural capital account which complies with the British Standard on natural capital accounting should help to do both of these things. This principle also applies to expected future use of services to estimate asset values (see Section 8). It sets out natural capital accounting as a multi-disciplinary effort with the finance . In accounting terms, this would mean valuing assets on the basis of the costs associated with restoring or creating the asset and assuming an asset lifetime, then running down the value of assets to reflect this depreciation in the balance sheet and adjusting GDP to reflect negative savings (unless actual expenditure offsets this depletion). The Government has committed to including natural capital accounts in the UK Environmental accounts by 2020. Developing natural capital accounts for woodlands and the marine environment Report | Released September 2014 Experimental national ecosystem accounts, which capture the benefits of nature in the nation’s balance sheet in a way that is as consistent as possible with System of Environmental–Economic Accounting (SEEA) guidance on ecosystem accounting, over the period 2013 to 2015. For high-level ecosystem accounting a degree of uncertainty is acceptable where the main purpose is to estimate orders of magnitude and track trends over time. Ecosystems comprise a number of components, such as water, soil and biodiversity, which combine together to provide a range of benefits, such as wild fish and flood protection. (Principle 8.7). They estimate the contribution of environmental amenities to human welfare7. Rather the aim is to expand the production and asset boundaries of the national accounts to include and value an increasing range of services and assets. Unit values may also be likely to change over time, for example, because of a positive income elasticity of demand for recreational values; or use of non-traded carbon prices, but this would need to be justified. Whilst the SEEA CF considers that social and individual discount rates are effectively different concepts, the conceptual difference between the Green Book rate (which is based on the Ramsey formula) and market rates may be less than appear at first sight. Hence it makes sense first to establish what kinds of services we are intending to include within the scope of the accounts and consider where the boundaries are to be drawn in each case. 0000003706 00000 n More specifically, a well-developed national set of natural capital accounts can: At the same time, there has been strong international momentum to develop natural capital accounts. An example is the pilot ecosystem accounts developed for 3 national parks and one Area of Outstanding Natural Beauty in England. The basic asset account has a standard format, although the characteristics of the stock of assets described in each account may vary according to the type of asset and the availability of data. 320 38 0000033255 00000 n UK natural capital: Ecosystem service accounts, 1997 to 2015 Bulletin | Released 30 January 2018 Natural capital refers to the physical, natural resources and the benefits that these resources provide. If the latter approach is adopted, these should use the values for leisure trips set out in the  Department for Transport’s WebTAG. A simpler approach is to use the nominal 10-year government bond yield published by the Bank of England, and deflate using the gross domestic product (GDP) deflator to produce the real yield. Gaining buy-in from the wider company will be critical to incorporating additional capitals into future investment decisions. 0000026796 00000 n In doing so, we remain open to alternative approaches that might more directly value the asset, at least for certain services. In forestry where prices are largely determined by market forces, a viable alternative would be using stumpage prices. A quite different approach to stock valuation and degradation based on financial accounting (and not recommended by the SEEA EEA) and a reference target condition would be to record the minimum cost of restoring or replacing the asset over its lifetime (with the assumption that this cost would be considered socially worthwhile). In conclusion, it would not be appropriate to record either source of “negative value” in the main natural capital accounts: The natural capital accounts should not take into account the disservices or negative externalities arising from ecosystems functioning. Principles are numbered and included in the text. Unit resource rent factors used in the national accounts may be transferable to local levels. Overlaps with recreation; can include an element of option value. Capacity is defined in relation to the sustainable levels of use of multiple ecosystem services. Recent draft technical guidance on SEEA Experimental Ecosystems Accounting4 acknowledges that the use of the method may result in very small or even negative resource rents (for example, abstracted water or open access fishing). To ensure consistency with the national accounts, our approach wherever possible will be to identify an exchange value for individual ecosystem services, including for non-marketed services. Found insideThis book will be of great interest to students, scholars and activists interested in environmental policy, environmental justice, social and environmental movements. We draw the line between the farmland ecosystem and the economy at the point at which vegetable biomass is extracted, therefore livestock is not included as an ecosystem service within the UK Natural Capital Accounts. For convenience, we also include groundwater within this category of assets. Natural capital is the most fundamental of the forms of capital since it provides the basic conditions for human existence, delivering food, clean water and air, and essential resources. Accounting for environmental, social, and economic impacts is an increasing priority for many organisations, both public and private. UK natural capital: monetary estimates, 2016 Bulletin | Released 30 November 2016 Natural assets provide a wide range of environmental services that make human life possible. Examples are pests and diseases that cause harm to people (for example, asthma caused by pollen), which may result from a combination of ecosystem processes and adverse human management. TABLE 9 London parks natural capital account page 22 TABLE 10 Sensitivity of total value of London parks to alternative scenarios page 24 TABLE 11 Park benefits mainly accrue to households but are costly for local authorities page 29 TABLE 12 Health, property amenity values and recreation are the primary sources of park value page 30 Found inside – Page 100In 2012, the Natural Capital Committee was thus established as an ... water, and carbon for ecosystem asset accounts, the UK did not include soil, water, ... This article draws upon experience from various workstreams of the ONS and Defra Natural Capital Accounting Roadmap work programme since the first Principles paper was published in August 2015. Natural Capital : (nætʃ (ə)rəl kæpɪt (ə)l) (n) def. These include ecosystem services (providing goods such as food, fiber, fuel, water, and wood), regulating environmental conditions (by controlling pollution, protecting against natural hazards like floods and forest fires, and purifying water, among others), and supporting recreation, spiritual fulfillment . For more information about the ONS and Defra Natural Capital Accounting project and to access all our published work please visit the Natural Capital section of the ONS website. Land use in the UK (PDF, 527KB) Article | Released 2013 First experimental physical asset accounts for UK land use for 2000 to 2010. The final stage of the calculation requires an assumption for the “return to produced assets”. Scoping UK coastal margin ecosystem accounts Article | Released 28 June 2016 Scopes the development of a coastal margins ecosystem account and discusses several methodological challenges arising from the unique characteristics of coastal margin habitats. The information about the land cover type of individual 25 metre squares has implications for the treatment of rivers and other linear features such as hedgerows and lines of trees. See Exeter University’s Outdoor Recreation Valuation Tool. This is on the basis that this is the cost incurred to access the site (in addition to admission fees noted earlier under market prices). Changes in the present value of a basket of future service flows between accounting periods do not necessarily indicate degradation or enhancement of the asset. The construct of a logic chain as set out in the System of Environmental–Economic Accounting (SEEA) and in various Department for Environment, Food and Rural Affairs (Defra) reports (for example Figure 5.1, drawn from an AECOM report on initial measurement of air pollution absorption services) can assist in this. The article is intended as background information for those wanting to understand the concepts and methodology underlying the UK accounts being developed by ONS and Defra. Centre for Ecology and Hydrology, Land Cover Map 2015. Found inside – Page iNature's Numbers responds to concerns about how the United States should make these measurements. The book recommends how to incorporate environmental and other non-market measures into the nation's income and product accounts. The policy framework that farms and estates are working within is changing significantly, with much greater emphasis being placed on the public goods that they can provide and the need to take action where . For example, the use made of ecosystem services by the agricultural sector revealed in the natural capital accounts can be linked to the emissions and effluent generated by the economic activities of that sector. 320 0 obj <> endobj Residual resource rent. Within the main national accounts, suppliers and users of economic goods and services are identified as different sectors of the economy, such as businesses, government and households. As stated earlier in this section, a decline in the NPV of an asset does not necessarily signal depletion or degradation of the asset, nor does an increase imply enhancement. Natural Capital Accounting . Further detail on the scope of natural capital accounts and definitions is provided in Section 2. Known as Land Cover Ecosystem Units in the SEEA, see SEEA EEA Section 2.3.3. The SNA is itself partial in the sense that not all productive services can be captured in the standard accounts for example, housework, gardening, childcare. Informed decisions are one thing, who makes those decisions, on what . However, in general the stock account will parallel the concept of a balance sheet and record assets at the start and end of the calendar year. BSI, in its role as the UK National Standards Body, publishes guidance for preparing natural capital accounts. The SEEA EEA makes a distinction between an extent account and a condition account, but since they both provide key information about the nature of the asset, it is helpful to combine them together. Notwithstanding the potential for various biases and double-counting, stated preference techniques are capable of eliciting non-use values. In future water may be traded between water companies although the prices charged may depend more upon covering the overheads of delivery than on the value of the resource in situ. Using CICES as a checklist, Table 5.1 shows the current list of services already included or being considered for inclusion within the UK accounts, together with some suggestions for units of measurement. Natural Environment White Paper (NEWP) the following commitment has been encompassed by the project. Welfare values are more suited to understanding marginal changes to benefits from an intervention in a cost-benefit analysis (that is, a shift in the demand curve) whereas accounting needs are more geared towards establishing a total baseline value of goods and services derived from capital assets. The Natural Capital Protocol is a decision-making framework that enables organisations to identify, measure and value their direct and indirect impacts and dependencies on natural capital. Found inside... Capital Committeeto provide advice onthe state of the UK's natural capital. Two monthsafter Clegg's commitment tonatural capital accounting at Rio+20, ... • ecological condition indicators (for example, water quality, plant health, invasive species) (Principle 6.2). Existing fledgling ecosystem carbon markets (e.g. The natural capital accounting approach to valuing our environment is building momentum in the UK, with increasing support in both public and private arenas. Ideally we would propose to maintain annual accounts (though for water the hydrological year is different and quarterly or seasonal accounts are likely to be more useful). Finally, it may be relevant to note that market rates for long-term bonds, in real terms, have been, and are likely to be for the foreseeable future, below the HM Treasury social discount rate9. Carbon storage – as well as carbon emissions – are, however, separately recorded in the cross-cutting carbon account. After three years of development, BS 8632 Natural Capital Accounting for Organisations has been published. They attempt to value the contribution of an ecosystem service, typically a regulating service, to a market price or output through its contribution to the production process, for example, the contribution of pollinators to fruit tree production, which will already be in the SNA. The rich spatial detail expected from the Land Cover Map is seen as an essential element of the natural capital accounts. 0000020589 00000 n However, changes in assets are often not significant on an annual basis and sources of data such as the National Forest Inventory are unlikely to be able to support such frequent accounts. Despite nature being priceless, it is not valueless. 74-7. 0000003966 00000 n accounts for the UK in line with the 2020 Natural Capital Accounting Roadmap. 0000002876 00000 n (Principle 8.3). Box 1: Terms associated with natural capital Natural Captial Identifying natural capital risk and materiality ACCA, FFI and KPMG work together to raise awareness, and improve the understanding, of the accountancy profession's role in accounting for natural capital. The full scope of the roadmap, however, is to develop natural capital accounts. The rate of return should not be averaged for the purpose of calculating resource rent for the year. In practice it may be necessary to develop sub-accounts for these specific ecosystems, which can then be analysed separately or combined with other habitat-based accounts depending upon the issue of interest. Non-use values represent an important element of cultural services and indeed of the “total economic value” of the environment. More work is needed to establish conventions and approaches in this area. Development of a monitoring protocol and financial modelling to enable quantification and valuation of carbon impacts of peatland restoration Report | Released March 2015 Research to support the quantification and valuation of carbon-based peatland restoration to facilitate business investment through the new UK Peatland Code. The Natural Capital Protocol (launched in July 2016) is a standardised framework for business to identify, measure and value its direct and indirect impacts and dependencies. However, even this appears to be low in comparison with the treatment in accounting or appraisal of other assets. Further guidance is provided on individual services later in this section. The SEEA follows the Convention on Biological Diversity (CBD) and defines biodiversity at 3 levels: Although aspects of biodiversity (for example, wildlife and/or game; or active principles for pharmaceutical products) can be viewed as services, the SEEA takes the view that in general the value of biodiversity will be captured via the value of the ecosystem services that each ecosystem asset produces. This is not to say that these components are completely excluded from the accounting structure, as they are important indicators of the capacity to deliver services (see Section 4 on accounting for condition). Identifying the overlaps between recreational and amenity values and the methods used to generate estimates is an area of further research. These levels of service use can be valued and, using a net present value approach, it would then be possible to place a value on changes in capacity to deliver ecosystem services. It can also be seen as a supporting service to other services insofar as it is critical to the functioning of the ecosystem as a whole. Obst, Hein and Edens (2015)5 conclude that “resource rent type approaches are inappropriate in cases where market structures do not permit the observed market price to incorporate a reasonable exchange value for the relevant ecosystem service. To multiple sites6 relating to particular broad habitats RSPB & # x27 ecosystem! Responsibility 's economic & Fiscal Outlook July 2015 ( Cm aimed at formulating methods suited to for... Thresholds into the nation ’ s Outdoor recreation valuation Tool class or ecosystem are to... Ecology and Hydrology, Land Cover classes from the Land Cover ecosystem accounts is also intended as benefit. 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