The document discusses natural capital and the natural capital approach to environmental decision making. It provides background on natural capital, outlines some of the work that has been done so far including developing natural capital accounts, and discusses some issues and ideas for the future, including focusing on priority decisions and the dangers of excessive monetization given limitations in valuing ecosystem services. If the natural capital approach leads to improved decision making, better reporting, demonstrating societal value, and understanding new markets, it could help prioritize investments in natural capital assets most at risk. However, more work is still needed.

1. Natural Capital And Environmental
Decision Making
What is it, what's new and what's next?
Dr Dan Marsh
on sabbatical from
Seminar presented at the Countryside and Community
Research Institute at the University of Gloucestershire
2 February 2017

2. Natural capital is the latest show in town …
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3. But what is it?
• “Natural Capital is the endowment
of environmental and natural
resources” (Tietenberg and Lewis, 2011)
• Natural resources – anything provided
by nature
• Environmental resources – provided by
nature and indivisible e.g. ecosystem,
estuary.
• “Natural capital refers to the
elements of nature that produce
value to people”
• Measuring and valuing the full range of benefits will help
improve decisions ….
(Natural Capital Committee, 2013)
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4. Harold Hotelling in
Journal of Political
Economy (1931)
A founder of modern
natural resource economics
4
… the world’s .. disappearing ..
minerals and forests …
many … products are now too
cheap for the good of future
generations,
and they are being selfishly
exploited at too rapid a rate …
concerns about natural resources are not new – even in economics(!)

5. Natural capital and sustainable development
Natural Capital
Human, Social and
Cultural Capital

6. GDP and ES are only part of the picture
GDP
Ecosystem
Services
E
S
Natural Capital
Human, Social and
Cultural Capital

7. Natural Capital and Sustainability
• Strong Sustainability
• The stock of all forms of capital must be maintained
intact independent of one another
• Strong sustainability is achieved when the nation’s
stock of natural capital is not decreasing
• Strong sustainability is required to meet the government
objective of “being the first generation to leave the
natural environment in England in a better state than
that in which we found it”
• Offsetting and biodiversity net gain
• Weak Sustainability
• All forms of capital are more or less substitutes for one
another

8. “Huge interest in Natural
Capital”. Why now?
• Millennium Ecosystem Assessment → UK
Ecosystem Assessment → White Paper →
Natural Capital Committee (NCC)
• “It is all about
• the business case for environmental spending”
• “talking other people’s language to get
influence”
• “Leveraging funding, experimenting with
resource pooling”, “natural capital projects that
generate a return”
• “providing a common lens to enable different
stakeholders to talk about ‘their place’ ”
• Better decision making ….
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The NCC’s
main advice to
government
was
to develop a
long-term (25
year) plan to
meet its goal of
improving the
environment
within a
generation.

9. Four drivers of natural capital approach
1. Improved decision making that takes full account of
the value of our stocks of natural capital and the
benefits we obtain from them.
2. Improving reporting on environmental outcomes;
3. Demonstrating the overall societal value delivered by
(environmental) investments, and
4. Understanding the potential for the development of
new markets and revenue streams,
• including funding for natural capital maintenance;

10. It’s all about better decision making
Natural capital is enormously important to the economy
and yet it is largely omitted from national economic
indicators as well as from most corporate and
government policy decisions.
The consequence is that resources are not being
allocated efficiently within the economy and
opportunities for significant gains in wellbeing and
future growth are being lost.
(Natural Capital Committee, 2013)
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Similar message
from ES approach

11. Foundations and the prioritisation framework should
inform the investment programme for natural capital
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Reproduced from Figure 4 (Natural Capital Committee, 2015b)

12. WHAT HAS BEEN DONE?
What’s new?
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13. Corporate Natural Capital Accounting
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• Commissioned from eftec by Natural Capital Committee
• designed to produce a set of reporting statements that can be used by an
organisation to monitor and measure the health and value of natural
capital it owns or manages.

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15. Natural capital asset register (FEE)
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16. Asset register extract (farm pilot study) (eftec 2015)
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17. Physical flow account
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18. Monetary account
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63%
35%
98% of the quantified annual benefits from PFE
are from recreation and carbon sequestration
(and bogs are liability causing net losses ….)

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Net asset value £11.5 b’n based on
expected value of timber, carbon
sequestration, recreation, plants,
seeds, wild game and minerals
produced from PFE into the future
Annual Cost of maintaining
these natural capital assets
£600 m. BUT ….
95% of the value of the PFE is
attributable to the external value
provided to society – recreation and
CO2 sequestration
Slight increase
in natural
capital asset
value (1%)

20. Developing ecosystem accounts for
protected areas
• Aims
• to test spatially disaggregated accounting –
(development of natural capital accounting)
• To provide a valuable tool to help inform
ecosystem resource management decisions
within the pilot areas.
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21. Natural capital assets – Dorset AONB
Semi- natural grasslands
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22. Ecosystem service supply across the six
pilot areas in 2013
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23. Ecosystem service supply across the six
pilot areas in 2013
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24. Aggregate ecosystem service values
across 6 protected areas
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Aecom (2015)

25. Quantified ecosystem service values
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Lake District Dorset New Forest The Broads Aberdeen
shire
The Borders Total for six PA's
Crops Resource rent £27,244 £444,960 £40,230 £220,393 £2,969,795 £1,442,288
£5,144,910 0%
Livestock Resource rent £1,130,989 £1,305,683 £77,121 £83,159 £2,436,724 £1,741,315
£6,774,991 1%
Wild foods Market value £5,739 £20,551 £917 - £319,354 £102,298
£448,859 0%
Drinking water Resource rent £37,663,631 £2,417,582 £105,472 £2,939,062 - -
£43,125,747 4%
Timber Stumpage
price
£951,856 £184,777 £398,117 £17,706 £4,860,012 £5,153,762
£11,566,230 1%
Other water
uses
- - - - - - -
Energy Resource rent £112,436 £28,275 £55,012 £6,269 £424,522 £440,897
£1,067,411 0%
Air quality Avoided cost £75,094,729 £31,648,651 £45,480,279 £7,360,001 £322,911,146 £291,446,007
£773,940,813 70%
Flood
protection
- - - - - - -
Climate
regulation
Abatement
cost
£20,520,799 £5,409,809 £9,158,052 £1,108,920 £69,720,608 £68,252,453
£174,170,641 16%
Recreation Willingness-to-
pay
£43,758,083 £20,763,573 £10,393,924 £16,103,030 - -
£91,018,610 8%
Education - - - - - - -
Heritage - - - - - - -
Aesthetic - - - - - - -
Existence - - - - - - -
Total value £, 2013 £179,265,507 £62,223,861 £65,709,124 £27,838,540 £403,642,162 £368,579,021
£1,107,258,215 100%
Total area ha 225,606 107,926 54,077 28,742 622,466 470,451
Value per
hectare
£, 2013/ha £795 £577 £1,215 £969 £648 £783
Provisioning
Regulating
Cultural
98% of the
quantified
annual benefits
from PAs are
from PM10
absorption,
carbon
sequestration,
recreation &
water supply.

26. A lot has been achieved
• Incorporating natural capital in national
accounts (ONS)
• Development of Corporate Natural
Capital Accounting Methodology
• Application of CNCA in pilots, FEE, Duchy of
Cornwall etc
• Ecosystem Accounts of Protected Areas
• MEBIE (microeconomic benefits of ...
• Environmental Value Look-Up Tool
• Outdoor Recreation Valuation Tool
(ORVal)
• and much more ….
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27. ISSUES & IDEAS
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What’s next?

28. Will NC acounts assist decision makers?
• Maybe eventually, but ....
• FEE - Little evidence of anything new
• Most of the social benefits from PFE are from recreation and
carbon sequestration
• 95% of these benefits are externalities
• CNCA not required to tell us this ....
• Protected areas
• Not possible to estimate trends in ES extent and condition
• Little evidence of anything new – except for PM10
• Potentially misleading
• Should decision makes assume that 70% of the benefits of PA’s
are from PM10 absorbtion?
• How should they react when diesels are phased out and there is
no more PM10 to absorb?
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29. The dangers of top down analysis
• We should ask the decision
makers
• Which decisionmakers/
decisions? About what? How
can we assist?
• Priorities must be informed
by local preferences
• Local communities must be
involved in the prioitisation
process if they are to “take
ownership” of the
management of their
natural capital
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30. Focus on the decisions ... keep it simple
... and prioritise
• Sandunes
• What decisions are FEE taking? What options
are being considered in protected areas?
• Development of natural capital accounts is likely
to be very time consuming and data intensive
• Even so these accounts will be very partial
• So it is essential that we focus our analysis on
priority areas in a way that will assist with priority
decisions
• Remote sensing
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31. the prioritisation framework should inform our
investment in foundations
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Reproduced from Figure 4 (Natural Capital Committee, 2015b)

32. Dangers of excessive monetisation
• In spite of all of our efforts it remains true that:-
• The values of [most] ecosystem services have not yet been
estimated with any generality or precision (Simpson, 2011).
• There are many reasons why valuing ecosystem
services remains a daunting exercise
• Paradox of valuation
• it would be most useful to estimate the value of ecosystem
services that are dispersed over a very broad public, but it is
precisely under these circumstances that it is most difficult to use
the tools of economic value estimation.
• e.g. value of biodiversity, non-use values, existence value etc
• Limitations of the valuation toolbox
• Stated and revealed preference methods, benefit transfer
• So we must look beyond the numbers
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33. WRAP UP
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34. A broader perspective
• “How does adopting the “ecosystem service
framework” alter the ways in which we think about
conservation policy?
• If the point is simply that we ought to regard natural
ecosystems as assets that provide value to society and
should, therefore, compete with alternative land uses as
we make choices about how to allocate the earth’s
surface among our wants and needs, the argument is
unexceptionable [at least to economists!]
• evidence of ecosystem service values will only motivate
different conservation decisions if such values outweigh
costs”. (Simpson, 2011)
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“natural capital approach”
{

35. If the natural capital approach results in
1. Improved decision making that takes
full account of the value of our
stocks of natural capital and the
benefits we obtain from them;
2. Improving reporting on
environmental outcomes;
3. Demonstrating the overall societal
value delivered by (environmental)
investments, and
4. Understanding the potential for the
development of new markets and
revenue streams
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And this results in priority investments in natural capital
(taking account of net benefits and assets at greatest risk)
– then it will surely be a good thing

36. Work in progress ….
I look forward to your comments feedback and
questions
dkvmarsh@gmail.com
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37. References
• Simpson, D. R. (2011). The "Ecosystem Service
Framework": A Critical Assessment. United Nations
Environment Programme
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