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

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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 issues Natural capital

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1. improving living standards of the people, particularly the poor

2. achieving a sustainable population

3. ensuring sustainability of the ecosystem


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production of marketed commodities

sustainable use of natural capital necessary to sustain human well-being

Fundamental asymmetry at the heart of economic systems


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sustainable use of natural capital




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

+ +


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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/project/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


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https://www.forumforthefuture.org/project/five-capitals/overview





Capital interact to generate goods and services

Availability of fish stocks

high-quality habitat

Boat fishing gear

Fisher

RA 10654

Photo by A. Ferrer


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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.

minus NC =

Fisher, boat, gear


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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


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Types of ecosystem services


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• the products that can be extracted from or harvested in ecosystems

• those that provide basic provisions such as food, water, fuel, and fiber.


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


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• 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


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• 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


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Interdependence of nature and people


MA 2005 17


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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 .


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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


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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

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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.


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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


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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


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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.


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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.


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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

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TEV of coral reefs • Direct use

– Fisheries

– Tourism

– Research

• Indirect use

– Shoreline protection

– Carbon sequestration

• Option value

– –Biodiversity value


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Ecosystem Valuation Methods


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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


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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.


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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


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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


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• 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

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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

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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

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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


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Environmental issues

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Photo by A. Ferrer

Closed fishing season for sardines in the Visayan Sea (Nov 15-Feb 15)



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Photo by A. Ferrer 47

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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.

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