Natural Capital Accounts

ENCA stands for “Ecosystem Natural Capital Accounts”. Although the term “natural capital” was first used in 1973, it was in 2013 that the United Nations Statistical Commission endorsed the System of Environmental-Economic Accounting.

Natural capital is the stock of all natural resources in a given spatial area (usually a region with specific ecosystem such as a river-delta or a politically delimited area like a state or country), that provide ecosystem services, enabling livelihood at large, from which societies and economies stem. Without ecosystem services such as unpolluted water or fertile soils, no specific or global societies and economies would not ever exist.

Ecosystem services

Ecosystem services are classified into four functions (or categories):
– Supporting services (e.g. soil formation) are the contributors to the ecosystem itself.
– Provisioning services (e.g. food, water, fuel) are direct contributors to human livelihood.
– Regulating services (e.g. climate regulation, water purification) contribute to the maintenance of the ecosystem itself.
– Cultural services (e.g. recreational facilities, aesthetic contributions) are non-tangible contributions to human-beings’ security, health or social cohesion.

With the introduction of The Economics of Ecosystems & Biodiversity (TEEB); see below, the supporting and regulating categories tend to be merged.

While ecosystem services have the capacity of maintaining themselves in a natural balance, human activity, (especially economic activity for its livelihood), consumes such services and as the reduction of their ability to provide such services is noticeable, it has become necessary to perform “stock-takings” of natural capitals, evaluate them and calculate their depletion (or accretion). It has been found necessary to evaluate the consumption by the various activities or behaviours in the aim of establishing more precise control on those which over-consume and (are likely to) deplete a given region’s natural capital.

Why ENCA?

One of the biggest challenges to sustainability is to change the mindset by which ecosystems and their services are taken for granted. It is generally assumed that they are abundant in quantities and that their capacities to assimilate pollutants are unlimited. Thus, the “mistake” of not accounting the values of ecosystem services in economic decision making. A global partnership led by the World Bank known as Wealth Accounting and Valuation of Ecosystem Services (WAVES) aims at promoting sustainable development by the introduction of natural capital in development planning and Systems of National Accounting, (SNA) using similar accounting structure as the System of environment economic accounting (SEEA).

System of environment economic accounting (SEEA)

The United Nations Security Council defined standards of ecosystem accounting. The System of Environmental-Economic Accounting – Central Framework (SEEA-CF) and the System of Environmental-Economic Accounting – Experimental Ecosystem Accounts (SEEA-EEA). In a nutshell, the Central Framework is an international statistical standard that measures “individual environmental assets”, such as water resources, fish stocks etc, how these flow into the economy as well as the inflows and outflows generated by economic activities related to the environment, in monetary terms. The inflows being the direct contributions from nature to economic activities, the outflows being the investments and expenditures incurred in the protection and / or restoration of such ecosystem services.

The System of Environmental Economic Accounting-Central Framework (SEEA-CF) covers the provisioning and recreational services which can be included in the SNA’s since they have measurable market values. The challenge remained for the accounting of services under the “supporting” and “regulating” services. For this reason, a complementary framework, the System of Environmental Economic Accounting-Experimental Ecosystem Accounting (SEEA-EEA) was launched in 2006 as a best practice manual.

Ecosystem assets in the EEA are an explicit, spatially determined area containing biotic and abiotic components that function as a unit. In the EEA, ecosystem assets are measured by their extent and condition, and the expected flows of the full basket of “final” ecosystem services in the future. (Source “Managing Coasts with Natural Solutions” technical report January 2016).

The SEEA at large can demonstrate how economic activities impact the environment through the consumption of resources such as energy, water and materials used in production, and whether this consumption occurs in a sustainable manner. The overall activities would be considered sustainable as long as the ecosystems can be maintained or regenerated, naturally (may it be by contributions from other ecosystems) or by compensating human actions. Where ecosystem services come to be depleted or deteriorated by improper or excessive usage to the point that the ecosystems will themselves be depleted or deteriorated, the model would be found to be unsustainable by natural-accounting standards.

Incorporating Ecosystem Natural Capital Accounts

Ecosystem Natural accounting can apply to an activity, a region or both. It allows the evaluation of net contributions:
– of a whole activity (e.g. coal extraction for the producing of electricity in the whole world) in such cases the Production Function Method may be best adapted,
– of a specific region or ecosystem (e.g. the Pichavaram mangrove forest in India),
– of a specific project (e.g. the building of an additional dam on the Mekong). In such case, the Replacement Cost Method may be used to evaluate the costs of replacing the services of the impaired ecosystems and these costs will be offset from the “benefits” of the dam.
– in a much wider scope, using the SNA & SEEA frameworks, it allows a much better evaluation of a nation’s economic performance than the regular GDP. In 2010, the Convention on Biological Diversity (CBD) stated that the ecosystem and biodiversity values should be incorporated in all national accounts by 2020.

Economics of Ecosystems & Biodiversity (TEEB)

The Economics of Ecosystems & Biodiversity (TEEB) whose “…principal objective is to mainstream the values of biodiversity and ecosystem services into decision-making at all levels”, revealed in a 2013 study that the global primary production and processing (conversion of the sun’s energy into organic matter through photosynthesis followed by the production by these organisms) is estimated to have unpriced natural capital costs totalling US$7.3 trillion annually. In 2014 another study revealed that the total value of the World’s ecosystem services amounted to twice as much as global aggregate GDP – as much as $124.8 trillion per year. (Source: https://naturalcapitalforum.com/about/)

ENCA in Mauritius

Mauritius has the pride of counting among its citizens a figure in the sphere of natural capital accounting in the person of Mr. Sanju Deenapanray of Ecological Living In Action Ltd.

With the participation of peer experts, Ecological Living In Action has developed its own methodology in natural accounting allowing the evaluation of (losses of) natural capitals by calculating the costs of restoring “damaged” ecosystems or compensating for the deterioration or depletion of specific ecosystem services. For instance, the costs of a hotel project requiring the filling of a coastal wetland would amount not only to the direct costs of filling the wetlands and building the hotel, the ones of building the necessary extra drains for the canalization of water, and/or the risk evaluation of flooding, plus the costs of the degradation of the marine ecosystem and its induced costs, namely:
– the compensation for the reduced outputs from fishing in that lagoon and / or the costs for restoration of the fish stock,
– the necessary engineering works for preventing future erosion,
– the loss in tourism attractiveness of the region or the destination,
– the reduced contribution to the local population’s well-being due to the aesthetic degradation.

Ecological Living In Action had carried-out a case study for an experimental ecosystems natural capital accounting where the initial “stock-taking” was made in year 2010 and a re-evaluation in 2014 which highlighted degradation, mainly through land conversion (to residential/urban functions).

mru2025 is the proud sponsor and patron of the 2020 re-evaluation of which preliminary results are expected by September 2020. mru2025 established an ENCA Technical Working Group (TWG) with the task to oversee and guide the development and use of second generation ENCA in Mauritius. This structure will also serve to build the capacity of mru2025 on the use of results in its actions towards the management, conservation and restoration of the coastal regions of Mauritius. mru2025 is reaching out to outside key experts who have an interest and expertise in managing ecosystems to form the ENCA TWG.

More about past ENCA works in Mauritius

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