In 2012, the 'System for Environmental-Economic Accounts - Central Framework' (SEEA-CF) was published and approved by the UN Statistical Commission, becoming the international standard for Natural Capital Accounting (NCA). Today, work is underway to standardise an additional set of 'Experimental Ecosystem Accounts' that consider biodiversity and habitats.
SEEA uses concepts, definitions, classifications and accounting rules that are consistent with Systems of National Accounts, and therefore are internationally comparable. In recent years, a number of other initiatives have emerged that aim to measure, value and account for natural capital. These include the Natural Capital Protocol, launched in 2015 by the Natural Capital Coalition and aimed at the private sector, and methodologies such as Corporate Natural Capital Accounting, led by the UK’s Natural Capital Committee. Today, efforts to harmonise this work are underway to progress a joint approach to recognising, valuing, protecting and restoring natural capital.
Carl Obst (IDEEA Group) is one of the architects of the SEEA Central Framework and the Experimental Ecosystem Accounts, and earlier this year, he joined us for a workshop at Trinity College Dublin to help us get to grips with the concepts and the methodology. This blog is a synopsis of his talk, but you can watch the video below and download the slides in PDF form.
Types of Natural Capital Accounts
Natural Capital Accounting (NCA) is a tool to measure the changes in the stock of natural capital at a variety of scales and to integrate the value of ecosystem services into accounting and reporting systems at a variety of levels. Accounting for natural capital is seen as an important step in ensuring integrated economic and political decision-making, supporting inclusive development and improving economic management. It is said to add value to macro-economic policy and the development of macro-indicators alongside GDP, sectoral policies, responsible business practices and a globally consistent approach to accounting for ecosystems and their value.
The EU’s 7th Environmental Action Programme (EAP) defines natural capital as biodiversity, including ecosystems that provide goods and services. The SEEA however takes a broader view, defining “environmental assets” as biotic and abiotic components of the Earth, which may provide benefits to humanity. It does not specifically define natural capital.
SEEA enables effective and internationally comparable NCA by offering an organising framework for information that falls outside the production boundary of the economy. Typically, such information consists of environmental goods and services that are not traded in markets. SEEA captures the flows of ecosystem goods and benefits (i.e. ecosystem services) entering the economy, the residuals coming out, as well as residuals that may stay within the economy (for instance through recycling), and in doing so, supports a conceptualisation of the economy as a system within the environmental system, as opposed to outside it.
SEEA’s Central Framework comprises three main types of accounts:
- Environmental Flow Accounts for physical assets like water, energy, waste and GHG emissions, which record information and link it to economic activity, allowing - for instance - resource use to be mapped through economic supply chains.
- Natural Resource Accounts that assess stocks and use of ecosystem goods that have market value, such as timber, fish or minerals. These assets can be valued in either biophysical units, or in monetary units using the Net Present Value of individual resources.
- Environmental Transaction Accounts, which comprise information on resource management expenditure, environmental taxes, subsidies and environmental protection expenditures. These transactions are already recorded in standard economic accounts but this account separates them out and facilitates connection to areas such as green jobs and green economy.
In 2014, the SEEA Experimental Ecosystem Accounts (SEEA-EEA) guidelines were published. An emerging area of statistics, this fourth type of account focuses on ecosystem assets and services to integrate biophysical data and track changes in their stocks and flows, and link them to economic activity. The asset, for example a forest, is measured in terms of its health (condition) and size (extent), which informs understanding of the state of the asset, how that state changes over time, which flows of services we get from which assets, the extent of their contribution to the economy and society, as well as the groups that benefit from those flows. Such information can support the analysis of competing policy outcomes and inform management decisions on investment in and/or exploitation of the asset.
Unlike the other three types of accounts within the SEEA that are done at national level, ecosystem accounts are done at a spatial level and can therefore be applied to a country, a county, a catchment, or a land parcel. Within each area, there will potentially be a number of types of ecosystem asset (stocks) delivering different sets of services (flows) that can be mapped and valued. This can be done using biophysical data and/or financial metrics: accounting for any type of stock and flow is essentially a quantitative description of relationships that emerge through transactions between economic units. Traditionally, these economic units have included businesses, households and Governments, etc. By creating a new set of economic units based on ecosystem assets, it is possible to map the transactions between them and existing economic units. How these relationships are defined (i.e. monetarily or biophysically) is a choice that depends on the type of decision that the analysis seeks to inform.
Ireland's progress in implementing the SEEA approach
In Ireland, the Central Statistics Office (CSO) is required to submit data for six environmental economic accounts on an annual basis, as per Regulation (EU) 691/2011, including include air emissions, environmental taxes, material flow, environmental protection expenditure, environmental goods and services, and physical energy flows. Other accounts are compiled on a voluntary basis, and it is expected that these will gradually move to a statutory footing. Currently, the CSO is developing voluntary accounts on environmental subsidies, forests, water, land cover and land use, and resource management expenditure, and many of these are only partially completed. Gerry Brady explains the challenges and opportunities of accounting for natural capital in Ireland in the video above.
- http://www.unesco.org/education/pdf/RIO_E.PDF: https://seea.un.org/sites/seea.un.org/files/websitedocs/seea_briefing.pdf
- Holub et al. (1999) Some remarks on the `System of Integrated Environmental and Economic Accounting' of the United Nations. Ecological Economics 29, 329-336.
- Pedersen, O. G. & Haan, M. (2006), The System of Environmental and Economic Accounts—2003 and the Economic Relevance of Physical Flow Accounting. Journal of Industrial Ecology, 10: 19-42
- Guerry et al. (2015) Natural capital informing decisions. Proceedings of the National Academy of Sciences 112: 7348-7355
- https://www.wavespartnership.org/en/frequently-asked-questions-natural-capital-accounting-nca; https://seea.un.org/sites/seea.un.org/files/websitedocs/seea_briefing.pdf
- http://ec.europa.eu/environment/nature/capital_accounting/index_en.htm; https://seea.un.org/sites/seea.un.org/files/websitedocs/seea_briefing.pdf; https://seea.un.org/sites/seea.un.org/files/websitedocs/seeaeea_briefing.pdf
- Hein et al. (2015) Progress and challenges in the development of ecosystem accounting as a tool to analyse ecosystem capital. Current Opinion in Environmental Sustainability 14, 86-92.
- Lyons S., & Tol R.S.J. (2010) Ireland's Sustainable Development Model. Final Report for the ERTDI-funded project: 2006-SDM-LS-11-M2