All countries maintain national accounts as a means of recording economic activity in terms of the manufacture and trade in goods and services. Although natural capital is an input to the manufacture of goods, only those products that are traded in markets get recorded. Unfortunately, many flows of natural goods of benefit to human beings, including ecosystem services, are not traded in markets and so are not priced. As a consequence, neither the flows of these goods, or the stock of natural capital on which they depend, are recorded.
Consequently, our dependence on natural capital is under-reported by national accounts despite its obvious importance for sustainable development and, indeed, for sustaining life. Neither do national accounts record the degradation of natural capital, e.g. losses of biodiversity, which often follows from the use of natural resources that are vulnerable to over-exploitation or poor management.
"Our dependence on natural capital is under-reported by national accounts despite its obvious importance for sustainable development and, indeed, for sustaining life"
Biophysical indicators of environmental quality are maintained by many countries, but are not presented alongside national accounts. However, various initiatives have commenced at EU and international level to introduce natural capital Accounting. For example, the Convention on Biological Diversity (CBD) is requiring signatory countries to maintain records of biodiversity expenditure (Aichi Target 2) and is developing Ecosystem Natural Capital Accounts. The UN has also been advancing The System of Environmental Economic Accounting (SEEA) reinforced by commitments made following the Rio 20+ Conference on Sustainable Development.
In the EU, Member States accounts have been required since 2013 to present alongside national accounts records of pollution, environmental taxes and physical measures of biophysical material flows. These requirements have been followed by records of spending on environmental protection, environmental goods and services, and energy use. Under the 7th Environmental Action Programme and the Biodiversity Strategy 2020, Member States are being asked to map and assess ecosystem services (MAES), a process that should in time be followed by measures of their economic and social importance. (For an update on Ireland's progress in mapping and assessing its ecosystem services, see here.) Meanwhile, the European Environmental Agency (EEA) is working to establish standard methods to integrate these records into national accounts.
Many challenges and omissions remain. For example, although it is possible to record some aspects of natural capital, such as the changes in the physical extent of land uses, carbon stocks or water quality, many other aspects of the quality or condition of natural capital are not easily captured. This includes, as yet, the true value of natural capital to economic or social well-being, values that are exceed, or not captured purely, by areal extent or levels of use and expenditure.
The EU OPERAs FP7 research project has produced a report on the state of natural capital accounting. See a full list of the project reports here.