OECD WGEIO meeting, Paris 17-18 November 2009 Ecosystem Capital Accounting: towards a fast track implementation in Europe ? Jean-Louis Weber Senior adviser.

OECDWGEIO meeting, Paris 17-18 November 2009

Ecosystem Capital Accounting:

towards a fast track implementation in Europe ?

Jean-Louis WeberSenior adviser economic-environmental accounting

European Environment Agency

“The same rule of self-destructive financial calculation governs every walk of life. We destroy the beauty of the countryside because the unappropriated splendours of nature have no economic value. We are capable of shutting off the sun and the stars because they do not pay a dividend.” John Maynard Keynes 1933

“ Because National Accounts are based on financial transactions, they account for nothing Nature, to which we don’t owe anything in terms of payments but to which we owe everything in terms of livelihood.” Bertrand de Jouvenel 1968

2 approaches to ecosystem economics:maximisation of benefits (the financial value of nature)

vs. maintenance of options (the quantity*quality of nature)

• Maximisation of benefits from nature measurement of benefits & losses (e.g. TEEB’s COPI study) or of ecosystem services value entangled into commodities or real estates (WB current proposal for SEEA revision). Requires measurement and valuation of ecosystem services & ecosystem assets. Ecosystem depreciation calculated as the difference in ecosystem asset value at two dates. Accounting prices: depends on services and purposes (market prices, production functions, contingent values, assets as NPV of future benefits = financial approach) relevant for planning, project impacts assessments (CBA).

• Maintenance of options (ecosystems potential of delivering services) measurement of ecosystem capital degradation in physical units (quantity*quality) & valuation limited to remediation costs. Equivalent to the calculation of capital maintenance cost (Consumption of Fixed Capital). No valuation of ecosystem services nor of ecosystem assets. Accounting prices: derived from observed remediation costs (statistics) relevant for National Accounts, as well as for business accounting (options and risks)… and for CBA in addition.

3 – Public Good: non-transferable rights on ecosystem good state (health, sustainable potential), non-rival,

non-exclusive use

Services valuation,

payments forservices [PES,

purchase]

1 – Produced & Non produced Assets/SNA: mostly private goods

Ecosystem resources, services and values: 3 components

2 - Non produced Assets/ Other Services: mostly

common goods

Reg

ulat

ing R

ecreating

Provisioning

Payments forrestoring

ecosystem potential

(permits, taxes)

Ecosystem Accounting: Green National Accounts vs. Costs-Benefits Analysis

National Accounts =the macro-economic picture

adjusted for natural capital depreciation

Benefits & Costs Assessments =extended accounts for projects,

sectors…

Operation costs E.S n

Operation costs E.S 5

Operation costs E.S 4

Operation costs E.S 3

Operation costs E.S 2

Operation costs E.S 1

+

Consumption of Natural Capital & Adjustment of National Accounts for “under-investment” and “over-consumption”

Final Consumption at Full Cost of

Goods & Services

=Final Consumption

at Purchaser’s Price +

Virtual Consumption of Ecosystem Capital

in Imports (minus in Exports)

+

–

Depletion of Sub-soil Assets

=Adjusted Disposable (Real)

National Income

Gross Domestic Product

Transfers with the Rest of World– or +

=

– Consumption of Fixed Capital

National Income (NI or NNP)=

–

Gross National Income

Depreciationof (domestic)

Ecosystem Capital

Sustainable Development & Ecosystem Capital Depreciation:1 aggregate for 3 pillars

Remediation Remediation costs of costs of

ecosystem ecosystem capital capital

depreciationdepreciation

Economy: capital maintenance

Real disposable Income, net savings, true prices, liabilities, development of green jobs, economic resource

Social: sustainable consumption

Full price of consumption, consumption patterns, equity, new jobs

Environment: alleviation/mitigation of nature degradation

Sustainable use of natural resource & public good

“Double” decoupling, the second indicator

Sustainable Development = Thriving ecosystems producing altogether:• economic resources• carbon• biodiversity• clean air, clean water• options for the future (“development as freedom” – A.S.)

Final Consumption [purchaser price] Final Consumption [full cost]

Adjusted Disposable National Income National Income

Ecosystem Adjusted Net Savings Net Savings

Consumption of Ecosystem Capital GDP

Consumption of Material/Energy GDP

Ecosystem Capital Depreciation, Remediation Costs& EU environmental policies

Water Framework Directive “full recovery of costs”

EU Climate change programme offset costs of carbon emission

Environmental Liability Directive impacts remediation costs

Natura2000 (as application of ELD 2004): restoration or replacement of degraded sites costs

Make it happen? Make it simple! : a “Cubist” Approach

Multi-criteriarating

Ge

orges B

raqu

e – H

arbou

r in

No

rman

dy, 1909

Water Index(exergy loss

from evaporation & pollution)

Bio-productivity Index

(carbon, biomass, diversion from

Nature)

Biodiversity Index

(rarefaction,loss of

adaptability)

Dependency Index

(land, soil, energy,water, N,P,K...)

Landscape Index

(the LandscapeEcological Potential)

Health Index (human, wildlife

and plants populations)

Total Ecological Potential (terrestrial

ecosystems)

Total Ecological Potential (terrestrial

ecosystems)

Total Ecological Potential (terrestrial

ecosystems)

Health Index (human, wildlife

and plants populations)

Health Index (human, wildlife

and plants populations)

Water Index(exergy loss

from evaporation & pollution)

Water Index(exergy loss

from evaporation & pollution)

Landscape Index

(the LandscapeEcological Potential)

Landscape Index

(the LandscapeEcological Potential)

Bio-productivity Index

(carbon, biomass, diversion from

Nature)

Bio-productivity Index

(carbon, biomass, diversion from

Nature)

Biodiversity Index

(rarefaction,loss of

adaptability)

Biodiversity Index

(rarefaction,loss of

adaptability)

Dependency Index

(land, soil, energy,water, N,P,K...)

Dependency Index

(land, soil, energy,water, N,P,K...)

Depreciation of Ecosystem Capital = Change in TEP * €No valuation of ecosystem services or assets is needed

Change in Total

Ecological Potential

Change in Total

Ecological Potential

Ser

vic

es

Sec

tors

Sp

ati

al

Un

its

Ba

sic

ph

ys

ica

l b

ala

nc

es

Sp

ati

al

Un

its

He

alt

h

coun

ts

Water resource,

supply & use

Land Use (surfaces

& commodities)

Carbon/ biomass resource,

supply & use

Water functions & ecosystem services

Land functions & ecosystem

services

Carbon/ biomass

functions & ecosystem services

Water bodies resource & abstraction

Land cover stocks & change

Carbon/ biomass

resource and extraction/ harvesting

Water quantity & quality

Landscape patterns

Carbon/ Biomass,

productivity

Human morbidity/

environment & food security

Dependency from

regulating ecosystem

services

Biodiversity related

ecosystem services

Distribution of critical areas

for health

Natural and semi-natural habitats & species

distribution

Water, C, energy, NPK,

subsidies

Ecosystem health factors

Biodiversity factors

Net external balances by

socio-ecosystems

LCA: impacts of chemical,,

on human and wildlife health

Fishing, hunting,

harvesting of wild species

(non cultivated)

Sec

tors

Expe

nditu

re

acco

unts Water

protection & management

Land protection & management

Carbon/ biomass

Protection & management

Health protection

Biodiversity protection

Agriculture & fishery

subsidies

Virtual land, water, and carbon use

(domestic and in imports)

Sp

ati

al

Un

its

Ind

ex

es Water Index

(exergy lossfrom evaporation

& pollution)

Landscape Index

(the LandscapeEcological Potential)

Carbon/ biomass

Index(carbon, biomass,

diversion fromNature)

Health Index

(human, wildlife and plants

populations)

Biodiversity Index

(rarefaction,loss of

adaptability)

Dependency Index

(land, soil, energy,water, N,P,K...)

Ecosystem capital

depreciation

Maintenance/ Restoration

Costs

degradation

mean

€

Implementation priorities

Accounts & Indexes : e.g. Carbon Ecosystem Accounts

Opening stocks by ecosystems• Formation of bio-C (Net Ecosystem

Production)

• Withdrawals by activities• Net transfers between ecosystems• Returns from activities• Imports/Exports• Storage in the user system• Consumption/combustion of bio-C

• Changes due to natural & multiple causes

• In situ bio-C storage

Final stocks by ecosystems

• Withdrawal of bio-C• Input-Output between sectors• Returns of bio-C• Imports/Exports• Storage in the user system• Consumption/combustion of bio-C

• Consumption/combustion of bio-C• Combustion of fossil fuel• CO2/CH4 emissions

Ecosystem Asset Account (Bio-C balances)

• NPP trends

• NPP perturbation

• Change in NPP profiles

Consumption of C / Emissions of CO2 CH4

Net Carbon Offset Expenditures

• C taxes and subsidies• Net purchase of C permits

Ecosystem C-Productivity Counts

Sector Accounts (Supply & Use, MFA, NAMEA, Expenditures)

Virtual C embodied in Import-Export

• Virtual C by products

Carbon/biomass indexes (parts)

Trends in NPP and cumulated annual change 2000-2008

+-

Standard deviation of NPP trend 2000-2008

High variability

Low variability

Corine land cover map (CLC is derived from satellite images)

Green Landscape Index (derived from CLC)

Nature Value (Naturilis, derived from Natura2000 designated areas)

Fragmentation (Effective Mesh Size (MEFF) derived from TeleAtlas Roads and CLC)

Landscape Ecological Potential (LEP) 2000, by 1km² grid cell

LEP 2000 by NUTS 2/3

Land Index: Landscape Ecological Potential

1990Change 1990-2000

• LEAC/ Landscape Ecological Potential 1990-2000, 1km² grid (Source: Ecosystem Accounting for Mediterranean Wetlands, an EEA feasibility study for TEEB)

Land Index: LEP, state and change by 1 km² grid

Legend

Camargue Regional Park, France

Change in net LEP 1990 to 2000

1 km² grid, range : -100 to +100

Improvement/ Highest : 47

Degradation/ Lowest : -33

Natural Park of Camargue (France)Natural Park of Camargue (France)

Water accounts meeting WFD requirements

Cost for mitigating impacts of useover water bodies

CMI

Cost of ecosystem restoration CER

Cost of water supply including sewage & treatment (service)

CWS

Restoration

PHYSICAL COSTS MONETARY COSTS

Degradation ofwater quality

Water use

Impacts onecosystems

Physico-chemicalobjectives

Biological &hydro-morphological objectives

Full recovery of water costs of the WFD = CWS + CMI + CER

Cost of the “effective measures” for meeting the objective of the WFD considered in the Program me of Measures of River Basin Management Plan

JLW adapted from: Joan Escriù, Jose Manuel Naredo, Antonio Valero 2007

Input from “conventional” environment and resource accounts

• Physical accounts– MFA (particular interest to impacts, linkage to LCA…)– Input-Output Tables, Hybrid accounts (NAMEA)

• Environmental protection and resource management expenditures– Statistical source for calculating mean remediation costs

+ broad use of socio-economic statistics: – Socio-demography, health – Agriculture, forestry, fisheries– Energy– Trade…

Ex. Use of agriculture statistics: Virtual Land Use & Agriculture Footprints (input to Dependency Index)

Trends in EU virtual land flows: EU agricultural land use through international trade between 1995-2005. Manel van der Sleen, EEA 2009

Net virtual land use between EU and major trade partners

-2

0

2

4

6

8

10

12

14

16

18

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Milj

oe

ne

n

Years

La

nd

us

e i

n h

ec

tare

s

UNITED STATES

UKRAINE

SAUDI ARABIA

RUSSIAN FEDERATION(RUSSIA)INDONESIA (ID+TP from77,excl. TP -> 2001)GHANA

COTE D'IVOIRE

CANADA

BRAZIL

ARGENTINA

Conclusive remarks

• Simplified accounts, outcome oriented: measurement of ecosystem capital depreciation

• Multicriteria diagnosis of ecosystem state from a small set of indexes based on physical accounts: measurement of ecosystem degradation (resource quantity and ecosystem health altogether)

• Priority integration of land (terrestrial atmosphere) assessment• No valuation of ecosystem capital and services; only valuation of

remediation costs• Messages for green economy (green growth, beyond GDP…):

ecosystems), water (inland and sea) and carbon (bio-C, – Reinvestment for maintaining ecosystem capital Adjusted Disposable National

Income as performance indicator– Real price of final consumption FC at full cost (environmentally sustainable)– Real price of imports and exports trade at full cost– Environmental liabilities created when full costs are not paid