Ecosystem Capital Accounts for Measuring Progress Towards Green Economy & Green Growth

1. Towards Green Economy (GE) & Green Growth (GG) EEA/Scientific Committee Workshop: 5 October 2011; EEA, Copenhagen Presentation-6: Measuring Progress of the Green Economy Ecosystem Capital Accounts for Measuring Progress Towards Green Economy & Green Growth Jean-Louis Weber Special Adviser on Economic-Environmental Accounting European Environment Agency jean-louis.weber@eea.europa.eu

2. Towards Green Economy (GE) & Green Growth (GG) EEA/Scientific Committee Workshop: 5 October 2011; EEA, Copenhagen Presentation-6: Measuring Progress of the Green Economy • 1. How can ecosystem accounting help on measuring progress? • 2. Why a simplified approach? • 3. What are the most relevant indicators that can be derived from the accounts? • 4. How can we make the links between ecosystem capital and ecosystem services? • 5. How to relate back to the system of national accounts and GDP?

3. Recurrent demands for improved economic indicators and aggregates • Historical pioneer “green accounting” projects: Norway, Canada, France, Philippines, Indonesia, the Netherlands, Spain… • Rio1992, Agenda 21 • UN SEEA1993 to “adjust” the UN System of National Accounts. SEEA revised in 2003 • New SEEA revision by2012/13, including now a special volume on ecosystem accounts and valuation • Recent initiatives: • Beyond GDP Conference 2008 • Potsdam 2008 G8+5 initiative and TEEB • Stiglitz/ Sen/ Fitoussi report on the measurement of economic performance 2009 • New CBD Aishi-Nagoya Strategy 2010: demand for the inclusion of biodiversity and ecosystem value into national accounts • World Bank’s WAVES Global Partnership for “Green Accounting” and Ecosystem Valuation • References to environmental accounts for measuring progress in Green Economy, Green Growth, Resource Efficiency… • Initiative(s) in preparation for Rio+20 • In Europe, new Regulation on Environmental Accounts: Eurostat (the economy-environment interface) and the EEA (ecosystem capital accounts)

4. UN manual for environmental-economic accounting: SEEA2003Enlargement of the System of National Accounts RM HASSAN - UN The System of Environmental and Economic Accounting (UN 2003) - RANESA Workshop June 12-16, 2005 Maputo Revision  SEEA2012/13 Impacts on ecosystem capacity of delivering services/benefits Volume 1 The SNA satellite accounts for the environment expenditure, taxes, hybrid accounts, physical flows, sub-soil, energy, water, land, economic assets depletion Volume 2 Ecosystem capital accounts Ecosystem stocks and quality, ecosystem services, benefits and maintenance costs… Negative feedbacks of ecosystem degradation on production and wellbeing

5. Accounting for the performance(s) of 2 co-evolving systems: resources, productivity and health Economic system Economy performance Economic growth Trade Value-added, income, profit… Consumption Investment Wealth (non-financial and financial assets) Economic health (net savings, assets and debt quality, accountability, prices, well-being, knowledge) Use of natural resources Products & economic assets Fossil energy & materials Biomass/carbon Water Land functional services Ecosystem Ecosystem potential (capacity to deliver services) Ecosystem productivity Flows Accumulation Stocks Ecosystem health (biodiversity, integrity, resilience, interdependence) Capital maintenance (to remediate degradation)

6. The narrative behind Ecosystem Capital Accounts: 1- Ecosystems deliver altogether multiple services Source: Gilbert Long, 1972 A propos du diagnostic écologique appliqué au milieu de vie de l'homme. Options Méditerranéennes, 13 , CHIEAM, Montpellier, Juin 1972

7. Non-basic eco-product Surplus accessible for harvest/abstraction Basic eco-product Necessary for ecosystem reproduction (conservation of ecosystem health, integrity, functions & services) The narrative behind Ecosystem Capital Accounts: 2- Only a surplus is accessible for human use Ecoproduct (of cycling and reproductive systems/ capital) are produced by means of other ecoproducts. The ecosystem production function includes a surplus ecoproduct that can be used by the economy. (from Anthony Friend 2004) Economy Sources: Kling/U Michigan_2005 & Friend/ISEE_2004

8. Non-basic eco-product Basic eco-product The narrative behind Ecosystem Capital Accounts: 2- Only a surplus is accessible for human use Challenge = maximise yields while maintaining natural functions and biodiversity Possible compensation = artificial input (irrigation, energy, fertilizers, infrastructures…) Surplus accessible for harvest/abstraction Economy Necessary for ecosystem reproduction (conservation of ecosystem health, integrity, functions & services) Non-sustainable harvest/abstraction Sources: Kling/U Michigan_2005 & Friend/ISEE_2004

9. Natural resource: availability, appropriation, accessibility • Available resource: the total resource (actual stocks and flows) which can be used in principle (but should to be shared between economy and nature…). • Appropriated resource: the share of the total potential resource flows (flows which would be available in an ecosystem in the absence of human activities or flows from managed ecosystems) which is used (abstracted, harvested or destroyed during harvest). N.B.: Once used, the resource is considered as appropriated in total, even though one part is returned to the ecosystem. • Accessible resource: the surplus (actual stocks and flows) which can be used considering 1) physical constraints (timeliness and location, cyclical risks, bio-chemical quality) & 2) the amount to be left to nature for ecosystem reproduction. N.B.:When returned to the ecosystem (leftovers in agriculture or forestry, water returns…) the resource destroyed or modified during the production process becomes accessible again. Ecosystem capital accounts refer to accessible resource and intensity of use.

10. Accessible resource: carbon/biomass, freshwater, functional services Accessible resource = Stocks (soil, forests, aquifers, reservoirs, landscapes…) Plus/minus change in stocks (from the previous year) Minus inaccessible stocks Physical inaccessibility (deep aquifers …) Inappropriate quality (salted or polluted water, non arable land…) Plus flows (NPP, effective rainfall…) Minus inaccessible flows Physical inaccessibility (most of flood water, distance, non transportable resource, timeliness issues, water evaporated by irrigation…) Inappropriate quality (polluted water) Maintenance of stocks (soil carbon, forests, aquifer level, dilution of pollutants in rivers…) Plus/minus adjustment for stress, risk

11. Example of accessible water adjustment: occurrence of soil water stressNumber of days when no water was available for plants in 2001, 1 km^2 grid Provisionalresults Source: Blaz Kurnik, EEA, 2011

12. The narrative behind Ecosystem Capital Accounts: 3 – Ecosystem capital produces altogether 3 broad types of services between which there is no compensation nor tradeoff: biomass/carbonAND freshwater AND functional services. Ecosystem capital potential (& degradation) can be measured by combining measurements of these 3 broad services (accessible resources). Accessible carbon surplus Total Ecosystem Capital Potential & Ecosystem Capital Degradation Accessible ecosystem functional services Accessible water surplus Ecosystem Capital Depreciation (€)

13. The narrative behind Ecosystem Capital Accounts: 4 – The simplified ecosystem capital accounting circuit GDP, National Income, Final Consumption at Purchasers’ price • Adjusted macro economic aggregates •  Adjusted capital consumption • Final demand at full price • Adjusted net domestic product (or net national income) Non-paid costs needed to remediate ecosystem degradation (€) Ecosystem degraded by over-use (j) j ES based economic benefits (€) Healthy ecosystem deliver services to the economy & to the public well-being j ES based economic benefits (€) j ES based economic benefits (€) Economic system (including natural assets & ecosystem services Ecosystem assets/capital (j) (jand€) EEA Scientific Committee Workshop 5 October 2011

14. Estimation of ecosystem capital depreciation: 2 possible ways t1 t2 j j t2 - t1 j Degradation of ecosystem capital (-) j j Assessment of remediation costs by issues € € Estimation of ecosystem capital depreciation… & addition …based on remediation costs € …based on assets values j Assets j Physical accounts of E-services Account of pressures responsible of degradation Physical accounts of E-services Calculation of unit costs Flows Valuation of E-services Valuation of E-services € NPV & addition NPV & addition € € (-) Assets € € t2 - t1 EEA Scientific Committee Workshop 5 October 2011

15. From theory to statistics and accounts Theoretical background (very incomplete…): • Georgescu-Roegen (The Entropy Law and the Economic Process (1971), • Odum (emergy) • Resource depletion: Hotelling, El Serafy • System approach : Joel de Rosnay (The macroscope, 1975) • Dissipative structures: Prigogine (The New Alliance, 1986) • L'économique et le vivant: René Passet (1977) • Natural resource economy: Naredo (1987) • Urban metabolism: Duvignaud • Global biotic regulation: Gorshkov • Co-evolving systems: Norgaard • Ecosystem services: Long (1972), Costanza and De Groot, Millennium Ecosystem Assessment (2003) • Interaction between scales: Hollin (“panarchy”) • Landscape ecology (UK) • Ecosystem units: socio-ecological systems (Gallopin, Carpenter, Rockström, MA2003…) • Ecosystem health (D. J. Rapport), resilience (the Resilience Alliance) • from economic-ecological theory to statistical practice and accounts : statistical units and classifications

16. From economic-ecological theory to statistical practice and accounts statistical units & classifications Source: Joel de Rosnay, The Macroscope http://pespmc1.vub.ac.be/MACRBOOK.html

17. Main relations between classifications & statistical units in the revised SEEA (from UNCEEA 2009 – EEA & FAO)

18. SNA & SEEA: economic and ecosystem assets Adapted from Ivo Havinga and Daniel Clarke, 2011

19. Common International Classification of Ecosystem Services (draft EEA, UNEP & UNSD) CICES: Table E.2: Proposed Thematic, Class and Group Structure – source: EEA & Roy Haines-Young, Presented at UNCEEA 2010

20. Land cover classification based on FAO LCCS3Land Cover Types (SEEA vol. 1) and derived Land Cover Functional Units (SEEA vol.2) zoning provisional Source: FAO (DiGregorio and Ramaschielo) & EEA (Steenmans & Weber) 2011 sampling, questionnaires

21. Ecosystem accounting and statistical units (continued) SNA’s statistical units don’t record ecosystem degradation  need for other units… Theoretical units vs. observation units (proxies for collecting data) • Theoretical units: characteristic systems into which natural and socioeconomic elements interact to transform ecosystem functions into goods and services: • Functional units producing elementary services • “Socio-ecological systems”, “socio ecosystems” or “Socio-ecological production landscapes” (the Japanese satoyama and satoumi)  • Observation units: • For which we can collect data in a systematic way • Mostly surface units: “geo-systems”, land cover units, functional administrative units, ownership units… Japan Satoyama Satoumi Assessment, 2010. Satoyama-Satoumi Ecosystems and Human Well-being: Socio-ecological Production Landscapes of Japan – Summary for Decision Makers. United Nations University, Tokyo, Japan.

22. Ecosystem statistical units for land: LCFU and SELU Land coverfunctionalunits (LCFU) & Socio-ecologicallandscapeunits (SELU)

23. ZOOM: SELU in Central Europe

24. ZOOM: Land cover functional units by SELU

25. Ecosystem-Economy integrated accounts SEEA Part 2 SEEA Part 1

26. The draft framework Basic accounts Synthesis tables in physical units Monetary accounts

27. The basic accounts by ecosystem units by economic sectors

28. The synthesis tables by ecosystem units by economic sectors

29. The monetary accounts by ecosystem units by economic sectors

30. About ecological debts… Bertrand de Jouvenel 1968: “Because National Accounts are based on financial transactions, they account nothing for Nature, to which we don’t owe anything in terms of payments but to which we owe everything in terms of livelihood.” • Territorial CEC is a debt to national future generations, it is not transferable • CEC Embedded into imports and exports are both debts and should not be consolidated • Gross Domestic CEC = Territorial CEC + Imported CEC [meaning: CEC of Production] • Net Domestic CEC = Gross Domestic CEC – Exported CEC [meaning: CEC of Final Consumption] • Physical Debts and Monetary Debts are recorded separately • Consolidation rules for debts: • Physical debts are not transferable • When created by physical debts, monetary debts are not mechanically extinguished by repayment but by the extinction (remediation) of the physical debt itself; • Because physical ecosystem capital assets are not valued, monetary debts cannot be consolidated with monetary ecosystem non-financial assets; • Monetary debts can be consolidated with financial ecosystem capital assets in the context of international mitigation systems if they include initial allocations of (non transferable) ecosystem capital rights and/or recording systems for ecosystem improvement and consolidation rules. • The physical counterparts (units: Ecosystem Potential Unit-Equivalents) of approved allocations and improvement s are not transferable. However they can be leased to ecological debtors (countries, business…)

31. Simplified ecosystem capital accounts in Europe • Make it feasible NOW – keep it simple • Don’t miss important issues: need a good checklist • All ecosystems: land/sea/atmosphere, and for land: urban, agriculture, forest, other natural and soil. • 6 accounts/indexes for 1 diagnosis: • 1-Biomass-Carbon // 2-Water // 3-Land-landscape // 4-Biodiversity // 5-Dependency // 6-Disease prevalence • Diagnosis (instead of mere additions) and quantification: the “ecosystem distress syndrome” approach combined with basic balances… • Physical accounts first, followed by valuation of selected flows and of ecosystem depreciation (on the basis of physical degradation and restoration costs – no valuation of stocks) • Annual accounts (t-1 and time series) to meet the policy agenda • For EU27…

32. Global scale: International Conventions monitoring International comparisons Markets framing & regulation Simplified accounts Global trade of ecosystem permits Programmes assessment (e.g. REDD+) International financial standards (for loans, SDR…) Contribution to international organisations National & regional government: Ministries of economy, Environmental agencies, Strategic planning, Statistical offices, Courts SEEA 2012/13 Framework Beyond GDP Accounting Measurement of progress towards Green Economy/ Green Growth/ Sustainable Development/ Resource efficiency Sector accounts Green taxes Action level: Local scale, management, Site level, case studies, Projects, Business Accounting guidelines, norms Impacts assessments, costs & benefits Local government, Agencies assessment Corporate accounting results, rating, trade Markets of specific ecosystem services, PES Tiered approach to ecosystem capital accounting Scales Methodologies Expected outcomes

33. Total ecosystem capital potential & change t0 t1 Degradation Improvement

34. Ecosystem physical degradation, sustainable benefits from ecosystem services and non-paid maintenance costs Consumption of ecosystem capital (non-paid costs) Degradation Mean restoration prices Improvement Economic statistics & national accounts Sustainable use coefficients Sustainable benefits (income from key ecosystem services) Sustainable benefits (Value Added from key ecosystem services)

35. Integration of resource efficiency indicators, ecosystem capital accounts & national accounts Total Material Input Conventional DMI/DMC Integrated Carbon Accounts CO2 Fossilenergy Atmosphere/ carbon assimilation Sea/ carbon assimilation DMI Carbon Sea/fisheries Biomass/ carbon Biomass/ carbon DMI Sand/ gravel Sand, gravel… Inland Ecosystems DMI/ other Metals,chemicals Land/ Landscape Integrated water accounts Freshwater DMI Water Water Biodiversity 1st decoupling: from material/energy inputs 2nddecoupling: from environmental impacts GDP

36. Adjustment of National Accounts • from • Consumption of Ecosystem Capital •  • Adjusted Net Domestic Product // Adjusted Net National Income • Final Consumption at Full Price Gross Domestic Product (GDP) – or + Transfers with the Rest of World = Gross National Income (GNI) _ Consumption of Fixed Capital = National Income (NI or NNP) -- Depletion of subsoil assets -- Consumption of (domestic) ecosystem capital = Final Consumption at Full Price of Commodities Final Consumption at Purchaser’s Price Consumption of ecosystem capital embedded in Imports (minus in Exports) = + + Adjsuted Net Domestic Product // Adjusted Net National Income Jean-Louis Weber EEA Scientific Committee Workshop 5 October 2011

37. Is there a Green Multiplier for Green Growth/Green Economy? or Progress must be measured anyway… Jean-Louis Weber EEA Scientific Committee Workshop 5 October 2011

38. Key Indicators and Aggregates from Ecosystem Capital Accounts • Net Ecosystem Accessible Carbon Surplus (Use/NEACS reflects intensity of use; it integrates resource efficiency and ecosystem) • Net Ecosystem Accessible Fresh Water Surplus • Green Accessible Landscape Infrastructure (and demand of services in the Neighbourhood of human settlement (GINES)) • Net Total Ecosystem Capital Potential and Ecosystem Capital Degradation (integrates accessible carbon, water and landscape and biodiversity rating ; ECD is decomposed by stress factors basis to calculate Consumption of Ecosystem Capital in €) • Final Consumption at Full Price (the full cost of commodities in € integrates purchasers’ prices and non-paid domestic consumption of ecosystem capital (CEC), and relates to unfair trade and ecological debts) • Imports at Full Price (total of imports at CIF price and Ecosystem capital depreciation virtually embedded into imports) • GDCEC Adjusted Net Domestic Product (or/and Net National Income, or/and Net Savings) (complete adjustment of Net Product, Net Income or Savings includes in addition the depletion of subsoil resource.

39. Thank you! Jean-Louis Weber jean-louis.weber@eea.europa.eu jlweber45@gmail.com