Ecosystem Capital Accounting: Fast-track Implementation in Europe?

1. OECDWGEIO meeting, Paris 17-18 November 2009Ecosystem Capital Accounting:towards a fast track implementation in Europe ? Jean-Louis Weber Senior 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. 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. 3 – Public Good: non-transferable rights on ecosystem good state (health, sustainable potential), non-rival, non-exclusive use Ecosystem resources, services and values: 3 components Services valuation, payments for services [PES, purchase] 2 - Non produced Assets/ Other Services: mostly common goods 1 – Produced & Non produced Assets/SNA: mostly private goods Provisioning Regulating Recreating Payments for restoring ecosystem potential (permits, taxes)

4. + 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…

5. Gross Domestic Product – or + Transfers with the Rest of World = Gross National Income – Consumption of Fixed Capital = National Income (NI or NNP) – Depletion of Sub-soil Assets – Final Consumption at Full Cost of Goods & Services Virtual Consumption of Ecosystem Capital in Imports (minus in Exports) Final Consumption at Purchaser’s Price Depreciation of (domestic) Ecosystem Capital + + = = Adjusted Disposable (Real) National Income Consumption of Natural Capital & Adjustment of National Accounts for “under-investment” and “over-consumption” 

6. Consumption of Material/Energy GDP Remediation costs of ecosystem capital depreciation Consumption of Ecosystem Capital GDP Sustainable Development & Ecosystem Capital Depreciation:1 aggregate for 3 pillars Economy: capital maintenance Real disposable Income, net savings, true prices, liabilities, development of green jobs, economic resource Environment: alleviation/mitigation of nature degradation Sustainable use of natural resource & public good “Double” decoupling, the second indicator Adjusted Disposable National Income National Income Ecosystem Adjusted Net Savings Net Savings • 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] Social: sustainable consumption Full price of consumption, consumption patterns, equity, new jobs

7. 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

8. Georges Braque – Harbour in Normandy, 1909 Dependency Index (land, soil, energy, water, N,P,K...) Dependency Index (land, soil, energy, water, N,P,K...) Total Ecological Potential (terrestrial ecosystems) Total Ecological Potential (terrestrial ecosystems) Biodiversity Index (rarefaction, loss of adaptability) Bio-productivity Index (carbon, biomass, diversion from Nature) Landscape Index (the Landscape Ecological Potential) Health Index (human, wildlife and plants populations) Health Index (human, wildlife and plants populations) Biodiversity Index (rarefaction, loss of adaptability) Bio-productivity Index (carbon, biomass, diversion from Nature) Landscape Index (the Landscape Ecological Potential) Water Index (exergy loss from evaporation & pollution) Water Index (exergy loss from evaporation & pollution) Make it happen? Make it simple! : a “Cubist” Approach Multi-criteria rating Depreciation of Ecosystem Capital = Change in TEP * € No valuation of ecosystem services or assets is needed

9. Implementation priorities Landscape Index (the Landscape Ecological Potential) Water Index (exergy loss from evaporation & pollution) Carbon/ biomass Index (carbon, biomass, diversion from Nature) Biodiversity Index (rarefaction, loss of adaptability) Health Index (human, wildlife and plants populations) Dependency Index (land, soil, energy, water, N,P,K...) Indexes Spatial Units Maintenance/ Restoration Costs Land protection & management Water protection & management Carbon/ biomass Protection & management Biodiversity protection Health protection Agriculture & fishery subsidies Expenditure accounts Sectors Land Use (surfaces & commodities) Water resource, supply & use Carbon/ biomass resource, supply & use Fishing, hunting, harvesting of wild species (non cultivated) LCA: impacts of chemical,, on human and wildlife health Virtual land, water, and carbon use (domestic and in imports) mean € Sectors Land functions & ecosystem services Biodiversity related ecosystem services Carbon/ biomass functions & ecosystem services Human morbidity/ environment & food security Dependency from regulating ecosystem services Water functions & ecosystem services Basic physical balances Services Ecosystem capital depreciation Land cover stocks & change Carbon/ biomass resource and extraction/ harvesting Natural and semi-natural habitats & species distribution Water, C, energy, NPK, subsidies Water bodies resource & abstraction Distribution of critical areas for health Spatial Units F degradation Landscape patterns Water quantity & quality Carbon/ Biomass, productivity Biodiversity factors Ecosystem health factors Net external balances by socio-ecosystems Health counts Spatial Units Change in Total Ecological Potential

10. Ecosystem Asset Account (Bio-C balances) 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 Sector Accounts (Supply & Use, MFA, NAMEA, Expenditures) • 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 of C / Emissions of CO2 CH4 • Consumption/combustion of bio-C • Combustion of fossil fuel • CO2/CH4 emissions Net Carbon Offset Expenditures Ecosystem C-Productivity Counts • C taxes and subsidies • Net purchase of C permits • NPP trends • NPP perturbation • Change in NPP profiles Virtual C embodied in Import-Export • Virtual C by products

11. Trends in NPP and cumulated annual change 2000-2008 High variability + Low variability - Standard deviation of NPP trend 2000-2008 Carbon/biomass indexes (parts)

12. Land Index: Landscape Ecological Potential 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

13. Land Index: LEP, state and change by 1 km² grid Natural Park of Camargue (France) 1990 Change 1990-2000 • LEAC/ Landscape Ecological Potential1990-2000, 1km² grid (Source: Ecosystem Accounting for Mediterranean Wetlands, an EEA feasibility study for TEEB)

14. Water accounts meeting WFD requirements PHYSICAL COSTS MONETARY COSTS Water use Cost of water supply including sewage & treatment (service) CWS Physico- chemical objectives Degradation of water quality Restoration Cost for mitigating impacts of use over water bodies CMI Biological & hydro-morphological objectives Impacts on ecosystems Cost of ecosystem restoration CER 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

15. 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…

16. 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

17. 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