Natural Capital Accounting
Since a number of decades now the unsustainable nature of our industrial economic infrastructure has been made acutely evident. It is becoming increasingly clear that the linear model to industrial age systems of organization creates many negative externalities that render them unsustainable. Value intrinsic to society and ecosystem is not accounted for, resulting in negative externalities which accumulate to make the system unsustainable as it develops. A central part of the challenge to sustainable economic development is really in building platforms that can quantify and account for these various forms of value and then build them back into the system, thus changing the incentives that actors are under and working to reduce natural resource consumption and reduce externalities.
Two factors are currently driving the emergence of natural capital accounting, one is quite simply that we are bumping up against the limits of the natural environment, the finite nature of natural resources is becoming increasingly clear. Those limitations are being felt for example in commodity prices, whereas during most of the nineteenth and twentieth centuries, commodity prices had a tendency of declining, the recent development of massively increased demand have caused the reverse, and prices have become much more volatile, the volatility of food prices, for example, increased to 22.4 percent in 2000-2012 compared to 7.7 percent in the previous decade according to the UNEP. With ecosystems degradation we are beginning to appreciate the value of ecosystems services, unfortunately, it is happening the hard way. In the industrial revolution we had scarcity of people and capital and abundance of natural capital. Today we have an abundance of people and goods but scarcity of natural capital. So it is now not industry and people that need to be economized but natural capital that we need to be using more efficiently.
But the other side of this demand-supply equation is the consumer whose values have changed somewhat. Data shows quite clearly that above around ten thousand or so dollars per capita GDP life satisfaction doesn’t really improve much with additional consumption. At a certain level, material throughput becomes essentially decoupled from well-being and moves on to other things, what we might call quality of life that is a product of a number of different value sources. There is certainly a strong relationship between consumption and well-being at a lower end of income but at the upper level of the income bracket it pretty much flattens out and in, for example, the USA people are not really any happier than the person in New Zealand, Ireland or Portugal with lower material consumption patterns. We have been kind of slow to recognize the profound implications of this.