Moving beyond GDP – explaining natural capital

At the beginning of the year, the government revealed its 25 year environment plan, the central aim of which is to protect and preserve the UK environment. ONS has a role to play in developing a full set of ‘natural capital’ accounts. Ashley Ward explains the concept of natural capital and what it brings to environmental policy making.    

Natural capital is the term encompassing all of the UK’s natural assets which form the environment in which we live. It’s about the air we breathe, the water we drink, the woodland we walk our dogs in and everything in between.

Let’s pause for a second to think about the UK’s woodland. An accountant might value woodland through the value of the timber it produces. However, a climate expert might focus on a woodland’s properties in terms of carbon sequestration – the natural storage of carbon dioxide in the environment – and pollution removal. Then again, a member of the public might be more interested in the value they receive from using the woodland recreationally. The natural capital accounting approach to measuring our environment is about bringing all of these types of ecosystem services together – provisioning, regulatory, and cultural – in order to paint a fuller picture of the value to society yielding from our natural environment.

This is part of our programme to look beyond standard measures of an economy such as GDP. There is increasing recognition from both government and the private sector that GDP does not encapsulate all of the things that are important to a country and its citizens. A more complete accounting needs to include indicators of wellbeing, inequality and sustainability –this is where natural capital accounting comes to the fore.

What do natural capital accounts look like?

Since 2012, in collaboration with Defra, we have made substantial progress in accounting for natural capital. Currently we have only partial UK accounts but together with Defra we are working towards a full set of ecosystem accounts which, when pieced together, will paint a more complete picture of ecosystem services for the UK. We plan to have this fully functional system of natural capital accounting completed by 2020.

Our work to date falls into three categories. First, is the UK aggregate accounts which provides an annual update on our measurement of the wide range of environmental services that make human life possible. Second, “broad habitat” accounts which detail several ecosystem services disaggregated into the eight broad categories of land cover present in the UK. So far, we have published experimental accounts for freshwater, farmland and woodland and are currently producing scoping studies for the remaining five broad habitats. Finally, the cross-cutting accounts tackle individual services supplied by all habitats, such as recreation and carbon storage. Taken together these work streams help us to understand the value of our natural capital and how this is changing across time.

How does this tie in with the government’s 25 year environment plan?

The natural capital accounting approach to valuing our environment is building momentum in the UK, with increasing support in both public and private arenas. The government’s new 25 year environment plan reinforces this trend. It cites various estimates from the accounts published to-date, and more generally adopts a natural capital approach throughout, with real thought given to the importance and value of all of the services provided by our natural surroundings.

The plan pledges the government’s continued support for the development of UK natural capital accounts “that are widely understood and shared internationally”. They should complement and support the monitoring framework being developed for the plan so as to “provide a much richer picture of changes to the environment over time”. Transparent reporting of progress is crucial to the success of the various goals in the plan and together with Defra – the holders of the plan on behalf of the government –we will continue to work to provide measures to help assess the effectiveness of policies developed under the plan.  A full set of natural capital accounts should be able to inform decisions during the 25 year journey and beyond.

For more information about our work with Defra on measuring natural capital, please click here.

Ashley Ward is an Assistant Economist and member of the ONS Defra Natural Capital project