Natural Capital: Counting it in by Alice Joan G. Ferrer

Natural Capital: Counting It In
Alice Joan G. Ferrer
University of the Philippines Visayas
PPI SEMINAR WORKSHOP ON ENVIRONMENTAL REPORTING
WITH FOCUS ON VALUATION OF NATURAL CAPITAL
in partnership with NICKEL ASIA CORP.
Hotel Alejandro, Tacloban City
February 8-10, 2017

Outline
1. Development challenges
2. Defining natural capital ecosystem
services
3. Interdependence of nature and
people
4. Valuing Nature
• Ecosystem service valuation
• Natural capital accounting
5. Environmental issues in the
Visayas region Photos by A. Ferrer
2

Economic expansion
at the cost of
degrading the
environment
future is
uncertain!
Development Challenges
Development challenges nature and people VN-Ecosystem service valuation VN – NCA Envi issuesNatural capital
3

1. improving living standards of the
people, particularly the poor
2. achieving a sustainable population
3. ensuring sustainability of the
ecosystem
4

production of
marketed
commodities
sustainable use
of natural capital
necessary to
sustain human
well-being
Fundamental asymmetry at
the heart of economic
systems
5

sustainable
use of natural
capital
production
of marketed
commodities
sustainable
use of natural
capital
production of
marketed
commodities
integrating this
information into
decision and
policy contexts,
transforming the use of
natural capital through
better understanding of
the role that natural
capital plays in sustaining
human well-being
and changing
institutions, policies,
and incentives to
reward long-term
stewardship
+ +
6

sustainable use
of natural
capital
production of
marketed
commodities
invisibility of natural capital
and ecosystem services in
policies, decision-making
- micro, market prices
- macro levels, national
capital accounts
Degraded
natural capital
and
underprovided
ecosystem
services 7

Natural capital
Essential Elements of the Economy
https://www.forumforthefuture.org/proj
ect/five-capitals/overview. Downlooaded
6/2/2017
buildings and machines
knowledge,
skills,
experience,
and health
plants, animals, soil
and minerals,
ecosystem services
trust, norms,
relationships
and institutions
monetary wealth
8

Capital interact to
generate goods and
services
Availability
of fish
stocks
high-quality
habitat
Boat fishing gear
Fisher
RA 10654
Photo by A. Ferrer
9

Natural capital
“ ‘Natural capital’ refers to the living and
nonliving components of ecosystems—other
than people and what they manufacture— that
contribute to the generation of goods and
services of value for people” (Guerry et al 2015)
Ecosystem
the biological
community that occurs
in some locale, and the
physical and chemical
factors that make up its
non-living or abiotic
environment.
minusNC =
Fisher, boat,
gear
10

Ecosystem services
“Ecosystem services are the conditions and
processes of ecosystems that generate—or help
generate— benefits for people” (Guerry et al 2015)
• Final - produce benefits directly, such as seafood
• Intermediate - underpinning final services; e.g.,
the generation of habitats that support fish
populations
11

Types of ecosystem services
12

• the products that
can be extracted
from or harvested
in ecosystems
• those that provide
basic provisions
such as food,
water, fuel, and
fiber.
13

• those that regulate
natural processes
such as climate
control, air and
water circulation
and purification,
waste
decomposition,
and disease
mitigation.
14

• those that provide intellectual,
recreational, and spiritual benefits
to people, including outdoor
recreation and scientific discovery
• the non-material benefits from
ecosystem
Photos by A. Ferrer
15

• Ecosystem services that are
necessary for the
production of all other
ecosystem services or those
that provide support to
provisioning and regulating
services such as nutrient
cycling, plant pollination,
production of atmospheric
oxygen, and provisioning of
habitat.
Photos by A. Ferrer
16

Interdependence of nature and people
MA 2005
17

18

Valuing nature
• Values are not readily
captured in markets.
• Regulating and
supporting services
flowing from natural
ecosystems are
undervalued by society
• Full value is not reflected
in policy trade-offs and
economic choices.
• Many human-initiated
disruptions of ecosystems are
difficult to reverse on a
“human relevant” timescale
• A continued lack of
awareness will dramatically
alter the Earth’s remaining
natural ecosystems within a
few decades.
• Poorly managed Natural
Capital –an ecological, social
and economic liability .
19

Valuing nature
Ecosystem goods and services
Private goods and services
• For private goods, prices
reflect relative scarcity and
people’s willingness to pay
• Prices for environmental
goods do not exist or do
not reflect full value of
resource
• Economic values
need to be derived
20

Valuing nature
• It is the latter view that justifies the use of economics when
discussing the value of the environment.
• Economics is inherently anthropocentric in its focus: it deals
with how and why people behave.
Intrinsic
value
instrumental
value
nature has
value in its own
right
nature has value
only to the extent
that (some) people
value it
21

Valuing nature
Economic value – (instrumental value)
(Freeman, 2003)
• The economic value of something is a
measure of its contribution to human
wellbeing.
• The economic value of resource-environment
systems resides in the contribution that the
ecosystem functions and services make to
human well-being.
22

Valuing Nature --- Ecosystem service Valuation
• Total economic value (TEV)
(Croitoru, 2007).
http://www.mdpi.com/2073-445X/3/3/557/htm
23

Valuing Nature
• Total economic value (TEV)
• Direct Use Value
• Output/services can be consumed directly
• Market prices are available for quantification and
monetization
Extractive uses
• Fisheries
• Aquaculture
• Mariculture
• Fuelwood, charcoal
• Aquarium trade
• Construction materials
• Curio trade
• Pharmaceutical
• Genetic material
Non-extractive uses
• Tourism
• Recreation
• Research
• Education
• Aesthetic
24

Indirect Use Value
• Functional
benefits that are
enjoyed
indirectly
• There are no
direct market
prices since these
values are
provided outside
the market
system.
Biological support to:
• fish
• marine mammals
• sea birds
• turtles, marine reptiles
• other ecosystems
Physical protection to:
• coastline
• navigation
• other ecosystems
• Global life-support
• -carbon storage
25

Option Value
• This is the potential future direct and indirect
uses of a natural system.
• If there is uncertainty regarding future use,
then the option value is the ‘risk premium’
paid to avoid irreversible damage.
• The premium is the additional amount that an
individual would be willing to pay above the
current ‘price’ to keep the option available for
possible future use.
26

Non-use Value
• Quasi-option value
– Avoiding irreversible future damage bestows value
today, e.g., expected new information.
• Bequest value
– This is related to the value derived from preserving the
natural heritage for use by future generations.
• Existence value
– It arises from the satisfaction of merely knowing that an
ecosystem or species exist, regardless of whether they
will be used.
27

TEV of mangroves
Direct use
–charcoal and poles
–fish and prawns (pukat surung)
–mud crabs
–tourism
–wildlife
–traditional, non-traded use
Indirect use
–nursery role (offshore fish and prawns)
–carbon sequestration
–protection from erosion
•Option value
–biodiversity
•Non-use value
Photos by A. Ferrer
28

TEV of wetlands
Direct Use Indirect Use Option Existence
Fish Nutrient
retention
Potential future
uses
Biodiversity
Agriculture Flood control Future value of
information
Heritage
Fuel/Wood Storm
protection
Bequest
Recreation Groundwater
recharge
Wildlife Microclimatic
Harvesting Shoreline
protection
Heat/energy Stabilization
https://www.epa.gov/wetlands
29

TEV of coral reefs
• Direct use
– Fisheries
– Tourism
– Research
• Indirect use
– Shoreline protection
– Carbon sequestration
• Option value
– –Biodiversity value
30

Ecosystem Valuation Methods
31

Sample: Common valuation techniques for
goods and services of coral reefs
Technique Goods and Services
Directly applicable market techniques
Loss of earnings/human capital approach (HC) Tourism/recreation
Change in productivity/Effect of production Fisheries/ornamental
use/tourism
Stock (houses, infrastructure, land) at risk Coastal protection
Preventive expenditures Coastal protection
Damage Cost Coastal protection
Replacement Cost Coastal protection
Revealed preference techniques
Travel cost approaches Tourism/recreation
Hedonic pricing method Amenity value
Stated Preference Techniques
Contingent valuation methods Cultural services, biodiversity
Choice experiments
NOAA Coral Reef Conservation Program, 2013
32

Valuing Nature – Natural Capital Account
• an important additional tool for informing
sustainable development.
– Highlight areas of developing “natural capital
deficit” that may require policy intervention
• Accounting frameworks
– Inclusive wealth – attempts to value all forms of
capital assets – human, manufactured, social,
natural capital.
• Means that future generations are endowed with a
larger “productive base” to support human well-being.
– Can be used as gauge of sustainability, although accurate
measurement of the value of capital assets is challenging.
33

Recent advances - SEEA
• Internationally agreed
statistical framework to
measure environment and its
interactions with economy
• Adopted as international
statistical standard by UN
Statistical Commission in 2012
• Developed through inter-
governmental process
• Published by UN, EU, FAO,
IMF, OECD, WB
34

SEEA: A Statistical Standard
• Countries are “encouraged to implement the
standard”
• International organizations have obligations to
assist countries in implementation
• Implementation strategy adopted by
Statistical Commission in March 2013
• Data reporting mechanism will be established
35

• SEEA framework
– Information is vital …and it needs to be integrated
– The economy impacts on the environment and the
environment impacts on the economy
• To understand these linkages we need to
integrate environmental and economic
information
• This is the explicit purpose of the SEEA
SEEA: A Statistical Standard
36

37
Territory of reference
Environment
Natural Capital (stocks)
-Land
-Water
-Ecosystems
-Soil
-Etc.
Services & Resource flows
-Materials
-Energy
-Water
-Ecosystem services
-Etc.
Economy
Activities
-Production
-Consumption
-Accumulation
Instruments
-Financial/Monetary
-Taxes/subsidies
-Financing
-Resource rent
-Permits
Actors
-Enterprises
-Households
-Government
-Non-profit institutions
37
The SEEA Framework
Outside
territory of
reference
Outside
territory of
reference
Analytical and Policy
Frameworks
-Productivity analysis
-Natural resource management
-Climate change
-Green Growth/Green Economy
Land/
Resource use/
Ecosystems
Emissions/
waste

Land account
SEEA-EEA integration framework
Integration of ecosystem services in
macroeconomic aggregates, like
GDP and NDP
Raw data collection, processing
and harmonization
Consistent physical and
monetary asset accounts
Land cover/use
Accounting units
Administrative reg.,
habitats, ecoregions
Ecosystem services in
monetary and physical terms
Amenity
Risks
38

What are the uses of natural capital
accounts?
• Linking environmental and socio-economic data is
essential for policymakers
• Enables analysis of the impact of economic policies
on the environment and vice versa
• Provides a quantitative basis for policy design
• Identifies the socio-economic drivers, pressures,
impacts and responses affecting the environment
• Supports environmental regulations and resource
management strategies
• Provides indicators that express the relationships
between the environment and the economy
39

Photo by A. Ferrer
Closed fishing season for sardines in the Visayan Sea
(Nov 15-Feb 15)

References
• Anne D. Guerrya, Stephen Polasky, Jane Lubchencof, Rebecca Chaplin-Kramer,
Gretchen C. Daily, Robert Griffin, Mary Ruckelshaus, Ian J. Bateman, Anantha
Duraiappah, Thomas Elmqvist, Marcus W. Feldmanm, Carl Folkein, Jon Hoekstra,
Peter M. Kareiva, Bonnie L. Keeler, Shuzhuo Li, Emily McKenzie, Zhiyun Ouyang,
Belinda Reyer, Taylor H. Rickett, Johan Rockström, Heather Tallis, and Bhaskar
Vira.2015. Natural capital and ecosystem services informing decisions: From .
promise to practice. PNAS. 112 (24). 7348-7355.
• Croitoru, L. 2007. Valuing the non-timber forest products in the Mediterranean
region. Ecological Economics 63:768-775.
• Freeman, Myrick A. 2003. The measurement of Environmental and Resource
values. Second Edition. USA: Resources for the Future.
• Forum for the Future. The Five Capitals.
https://www.forumforthefuture.org/project/five-capitals/overview
• Millennium Ecosystem Assessment 2005.
54

Natural Capital: Counting it in by Alice Joan G. Ferrer

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