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US introduces natural capital accounting strategy

© Shutterstock / Nomad_SoulNatural capital.

From fish, food, timber to the water purifying and carbon absorption services that soil and trees provide, the US has realised that absenting environmental benefits from economic decisions has had adverse consequences and needs to be redressed. It has introduced a strategy to incorporate ‘natural capital’ into official statistical accounting and methodologies.

The strategy charts a course to measure natural capital noting that the current absence of these important economic metrics in the national balance sheet is an economic mistake, given the foundational value that nature gives to the economy.

Public sector economic decision-making may put greater emphasis on the intrinsic value of forests and water sources, leading to greater protection, and climate change mitigation.

The US blueprint on applying economic metrics to environmental goods and services comes a year after the Dasgupta Review on the Economics of Biodiversity which the UK treasury commissioned to inform the government’s approach to economic analysis.

Natural capital accounting

The total value of nature can never be put in monetary terms, but connecting nature and the economy is possible. The White House says the intention is that such an approach will help America prosper as it addresses and overcomes 21st-century economic challenges, including those linked to climate change, biodiversity loss, air and water pollution, and environmental injustice.

This follows the release of the UN’s own approach to natural capital accounting, the System for Economic Environmental Accounting (SEEA) released in 2021, otherwise known as ecosystem accounting. It was designed as a means of organising data about habitats and landscapes and has informed policy making in 34 countries to date. It is used for measuring ecosystem services, tracking changes in ecosystem assets, and linking this information to economic and other human activity.

Natural capital accounting addresses the fact that “nature provides people with important services and economic opportunities,” and the fact that all economic activity is rooted within the environment. As the White House puts it: “Despite how the health of nature drives the health of the economy, implementation of the national economic accounts is disconnected from our understanding of nature”

Measuring natural capital in official US statistics

The National Strategy to Develop Statistics for Environmental-Economic Decision Making charts a course to measure natural capital in official US economic statistics.

The current absence of these important economic metrics and the omission of nature from the national balance sheet leads to erosion of current and future economic opportunities.

A long-term strategy is proposed to include new information in the national economic accounting system in order to capture links between nature and the economy.

The strategy has a build-up approach of firstly coordinating across Federal agencies to make use of expertise within them to develop the system of natural capital accounts and environmental-economic statistics in an efficient manner.

Transitioning to integration of natural capital and financial accounts

The strategy proposes that the US Government should use a 15-year phased approach to transition from research grade environmental-economic statistics and natural capital accounts to Core Statistical Products.

A phased approach enables new information to be made available early in the process and undergo rigorous and iterative development to meet high statistical standards and produce a durable set of statistics to complement the national economic accounts.

The Plan recommends that natural capital accounts produce a new forward-looking headline measure focused on the change in wealth held in nature or the ‘Change in Natural Asset Wealth’. The role of nature in economic opportunity could be captured this way.

The final recommendation is that the US Government should embed the system of natural capital accounts and associated environmental-economic statistics in the broader US economic statistical system, and guides this process with three sub-recommendations:

  • Build on and implement the internationally-agreed standards of the UN System of Environmental Economic Accounting, where those standards are relevant to the United States and robustly developed. This includes following the standard supply-use framework that structures national economic accounts.
  • Establish a small number of clearly-defined accounting boundaries to organize natural capital accounts in a way that can accommodate many of the different uses and perspectives on value.
  • Apply rigorous and established economic science for monetizing the value of natural assets.

The UK’s Economics of Biodiversity: The Dasgupta Review

The Economics of Biodiversity: The Dasgupta Review, commissioned by the UK Treasury, was published in August 2021 providing an independent review of ecosystem accounting led by Professor Sir Partha Dasgupta.

It presented a deep analysis of ecosystem processes and effects of economic activity, exploring the link between economic growth and biodiversity.  The review called for changes in how we think, act and measure economic success to protect and enhance our prosperity and the natural world.

Little though has translated into action on the ground when we consider for example that all of UK rivers are polluted and the government allows sewage to be released into UK rivers without requiring monitoring from water companies.

The task and outcomes of incorporating natural capital into economic methodologies to inform decision-making cannot be under-estimated.

As Inger Andersen, UN Under-Secretary-General and Executive Director of the UN Environment Programme, said of the Dasgupta Review on the Economics of Biodiversity: “we must fix our relationship with the natural world or destroy human prosperity, well-being and our future … we must seek to join up the climate and nature agendas, and arrive at an ambitious, measurable and accountable post-2020 global biodiversity framework. To secure nature is to invest in our own self-preservation.”

Akinwumi Adesina, President, African Development Bank Group, said “ The conventional approach of using GDP to measure wealth has spurred significant growth, but at the expense of the environment and the quality of life. Nobody breathes or eats GDP. We must change our wealth construct to take nature into account.

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