This document provides an overview of key concepts related to natural capital and the economy. It discusses different types of capital (produced, human, natural), frameworks for integrating natural capital into economic analysis, challenges in measurement and valuation of natural capital, and various global programs and initiatives aimed at mainstreaming natural capital accounting. The history section outlines the development of natural capital accounting from early concepts in the 1970s to the establishment of the UN System of Environmental-Economic Accounting as an international statistical standard.

2. 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

3. • 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

4. 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)

5. Environmental and Natural Resources Economy
Environment
and Natural
Resources
Economic
Production
With
Manufactured
Capital
Human Capital
Well-
being/Susta
inability (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<,>a
w>a
Negative
Amenity
Waste Sink:
w<a = neutral
w>a = environ damage
Recycling
H = Harvest/Extractioon
Y = Regrowth/Yield
= flow of materials/energy
= Utility flow
Natural Capital
Sub-soil
Biotic and Abiotic Assets
NATURAL CAPITAL AND ECONOMY FRAMEWORK

6. 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

7. 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

8. 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).

9. 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

10. NaturalCapital
Asset
Land-use,Ownership
andPropertyRights
Arrangement
EcosystemServices
Goods
Benefits(Values)
Measurement Framework Challenges

11. ElementstoMeasure

12. 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

13. 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)

14. 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

15. Taxonomy of Direct and Indirect
Methods of Valuation

16. 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

17. 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

18. • 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

19. • Corporate Engagements
– Corporate ecosystem services review
– Corporate ecosystem services valuation
– Target for biodiversity conservation and
protected areas
– Incentive mechanisms
– Regulatory compliance

20. 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, 1940
o 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. 1970
o “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
22
Pre-1980’s: economic growth, welfare, wealth; developed
countries

23. 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 1995
o 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. 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. 25
Origins
2000’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. 2000
o 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. 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

27. 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

28. 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 countries
o SEEA as satellite accounts