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HELM TALKS: Natural Capital Lecture 4


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Dieter Helm's lecture series on Natural Capital

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HELM TALKS: Natural Capital Lecture 4

  1. 1. QUESTIONS What are natural capital accounts for? Traditional historic cost accounts The current cost approach Modern equivalent assets Capital maintenance The balance sheet How to do it?
  2. 2. WHAT ARE THE NATURAL CAPITAL ACCOUNTS FOR? • Getting the questions right • Tax, cash and EBITDA • Profit and loss • Stewardship and valuation • Accounting for future generations
  3. 3. TRADITIONAL HISTORIC COST ACCOUNTING • Value at cost • What was paid • Treatment of inflation • Depreciation and the return of capital value • Misleading numbers £0.00?
  4. 4. THE CURRENT COST APPROACH • Value driven by market prices • CBA and distorted and missing markets • Assets-in-perpetuity • No depreciation • Incorporating inflation in real prices
  5. 5. MODERN EQUIVALENT ASSETS • The distinction between assets and utility • Physical operations versus economic operations • Treatment of uncertainty over time • Environmental assets change in value • Impact on discounting • Example: carbon sequestration
  6. 6. CAPITAL MAINTENANCE • Maintain value of asset intact • Capital maintenance as an opportunity cost • no return of capital value • Estimating capital maintenance for exciting assets • Units for capital maintenance • systems versus discrete assets • Incorporating capital maintenance in profit and loss
  7. 7. THE BALANCE SHEET Assets – liabilities Cash = income (pq) – costs (including capital maintenance) National balance sheet and budget – Capital maintenance Enhancements +
  8. 8. HOW TO DO IT • Survey assets – asset list • Identify assets-at-risk • Determine thresholds and safe limits • Calculate capital maintenance • Deduct capital maintenance from revenue • Determine restated profit and loss • Calculate rate of return • Define sustainable post capital revenue line ASSETS