Mainstreaming Natural Capital and Ecosystem Services into Development Policy

Pushpam Kumar

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781315531199
• Edition: 1
• Topic: Economia
• Subtopic: Economia ambientale

This book highlights the latest advances in the science and practice of using ecosystem services to inform decisions for economic development in the context of the developing countries.

The development of the ecosystem services paradigm has enhanced our understanding of natural capital as an indispensable form of capital asset along with produced and human capital. This book addresses what could be the possible pathways to mainstream natural capital assets into development policies and what is currently known about the economic values of ecosystem services. A series of innovative tools to help policy makers and planners account for natural capital and ecosystem services in sectoral and macroeconomic policies have been explored and their application at the national and regional scale has been demonstrated. Several detailed case studies are presented in which the understanding of ecosystem services values has successfully informed decisions, including examples from Chile, South Africa, Tanzania, Trinidad and Tobago, Vietnam and the Aral Sea in Central Asia. These provide the critically important insights, lessons learned and means and mechanisms for policy makers to incentivize protection and discourage degradation of ecosystems and the services they provide.

Mainstreaming Natural Capital and Ecosystem Services into Development Policy is designed to help decision makers at all levels, including governments, businesses, multilevel development banks and individuals to integrate ecosystems and their services into their decision making.

1
Introduction

Pushpam Kumar

Nothing is more powerful than an idea whose time has come.

Victor Hugo

When the 19th century French novelist Victor Hugo wrote this, he was simply trying to convey the potency and universality of a relevant idea in the era of industrial revolution, which was characterized by mechanized production.

The measurement and management of “natural capital” is one such idea whose time has come in the fourth industrial revolution, which is characterized by the digital world, genetics, robotics, the Internet and 5G networks. If anything, the concept of natural capital is more relevant than ever in 2019, when we are devising the means to achieve the Sustainable Development Goals.

“Natural capital” refers to assets that occur in nature and can be used for economic production or consumption. Naturally occurring assets provide use-benefits through the provision of energy and raw materials that are used, or that one day could be used, in economic activity. They are subject to depletion through human use. Natural assets fall into four categories: mineral and energy resources, soil resources, water resources and biological resources.

The need for a new economics for sustainable development exclusively focusses on the prosperity of people and planet. This calls for mainstreaming various elements of natural capital into economic and decisions of the society and economy.

There are various pathways through which mainstreaming can be understood better. The quintessential features of this mainstreaming run through following (Polasky et al., 2019):

1. Valuation of Natural Capital
2. Recognizing uncertainty
3. Capturing uncertainty and long-term consequences
4. Recognising the inertia and drivers of behavioural changes
5. Relevance of methodological pluralism
6. Role of innovation and equity in the approach and tools used

To date, society has not developed an indicator comprehensive enough to capture the change in natural capital over time. Many elements of natural capital are downward trend in their natural capital over the past two decades. Forest resources are declining in 85 countries. Renewable resources in general are declining in more than 100 countries (Managi and Kumar, 2018).

A measure of national wealth that excludes natural capital depreciation likely exaggerates the actual increase in an economy’s wealth over time, especially in those countries where accumulation of other forms of wealth is failing to compensate for diminishing natural capital. This suggests that income and wealth inequality may be worsening in rich countries and in the global economy in general.

It is not surprising that at the UN Environment Assembly in May 2016, the nations of the world, in an unprecedented move, unanimously passed a resolution calling for the sustainable management of natural capital for sustainable development and poverty eradication. This was due to the culmination of the urgency expressed by global communities over the last decade.

Today we are in the fourth stage of the industrial revolution, which has driven productivity and efficiency to a new level. Unfortunately, this revolution does not reduce the burden on natural capital, especially in the poorest parts of the world – sub-Saharan Africa, Amazonia and South Asia – where 896 million people still face extreme poverty and rely on common water bodies, grazing land and biodiversity to survive. On an everyday basis, cities are flooding and schools are being closed due to air pollution. If we continue with business as usual, plastics will soon exceed the fish stock in our oceans.

Global and national modelling studies suggest that yields of major cereals will decline if temperatures continue to rise, especially in tropical countries. Water scarcity threatens agricultural growth in large parts of the world. Declines in natural capital – especially the loss of biodiversity, including critical crop pollinators, and a reduction in soil quality – will have substantial impacts on global food security.

We need better measurement and credible valuation of natural capital in order to integrate these natural assets into our everyday production and consumption decisions.

Global consensus is emerging on the need to measure and value natural capital. This can be seen in the following declarations and decisions worldwide.

Gaborone Declaration 2012, in which ten African countries undertook the pledge to “ensure that the contributions of natural capital to sustainable economic growth, maintenance and improvement of social capital and human well-being are quantified and integrated into development and business practice”.

African ministers of the environment (in AMCEN under Decision 15/1 – Sustainably harnessing Africa’s natural capital in the context of Agenda 2013) agreed to take measures at the national, regional and international levels to combat the illicit trade of Africa’s natural resources, reverse illicit flows, and ensure the restitution of such resources to their countries of origin.

They agreed to put in place appropriate policies and institutional measures, taking into consideration the findings of the report entitled Africa’s Adaptation Gap 2: Bridging the Gap – Mobilizing Sources, so as to: harness the full potential of Africa’s rich natural resource endowments; ensure that the use of natural resources benefits the countries that possess them in an inclusive manner; create value addition in sustainably managing natural resources while ensuring the protection of ecosystems and minimizing environmental degradation; and promote sustainable consumption and production patterns; finally, they also agreed to strengthen international cooperation to promote research and development and technological innovations, as well as capacity development for sustainably harnessing the continent’s natural resources.

The Fourth Environment Ministers’ Meeting in Asia in 2015 (attended by China, Lao PDR, Myanmar, Thailand and Vietnam) stressed the need for assessment, measurement, accounting and developing linkages of natural capital with economic policies of governments, business and industry.

The Sustainable Development Goals will appear as the common thread but some core issues in measurement and accounting of natural capital will also get significant attention. In addition, other issues such as natural capital and equity and the possibility of substitution of natural capital by other types of capital will be discussed.

There will be engaging discussions on how to measure wealth and use it as a complement to conventional progress measurement.

Sustainability is mainly meeting the needs of the present without compromising the ability of future generations to meet their own needs (Brundtland et al., 1987), and degradation of natural capital affects sustainability adversely and places a growing burden on human well-being and development. Natural capital is an important share of total wealth which is determinant of development. Natural capital is of direct/indirect use or of use in both. The worth of a natural resource could be based on what is extracted from it or on its presence as a stock offering service.

Effectiveness of development can be affected significantly by degrading natural capital. Development is either directly or indirectly linked to natural capital, yet limited attention has been given by decision makers in discerning the role of healthy ecosystems in providing sustainable livelihoods and the importance of environmental governance in empowering the poor. UNEP’s Inclusive Wealth Accounts initiative, implemented in partnership with IHDP-UNU, published the second inclusive wealth report. The report gives an overview of the evolution of some categories of natural capital for some countries. It indicated that over the period assessed, natural resources per capita declined by 33% in South Africa. If measured by GDP, the economies South Africa grew by 24% between 1992 and 2012. However, when South Africa’s performance is assessed in terms of inclusive wealth it decreased by 1% UNU-IHDP and UNEP (2012, 2014).

The interactions between environmental change and human societies have a long, complex history spanning many millennia, but these have changed fundamentally in the last century. Ocean, coastal, climate and terrestrial ecosystems have degraded significantly. Global fisheries have been either fully exploited, overfished or collapsed. Coastal zones have been significantly altered and tropical rainforest and woodland have been lost. Especially over the last 60 years, humans have rapidly and extensively changed ecosystems mainly to meet rapidly growing demands for food, freshwater, timber, fiber and fuel (MA 2005). This trend is mainly driven by expanding flows of goods, services, capital, people, technologies, information, ideas and labor taking place in an increasingly globalized, urbanized and industrialized world.

The Millennium Ecosystem Assessment (MA) provides an elaborate conceptual framework using the common denominator ecosystem services to describe all goods and services provided by natural capital. The MA defines ecosystem services as “the benefits that people obtain from ecosystems”. Ecosystem services influence human well-being, and thus represent a value for society. The concept of ecosystem services is a strong tool to translate unnoticed benefits of nature into aspects of human well-being, which can be taken into account in decision making on proposed projects, programs, plans or policies.

Extrapolations for a range of indicators suggest that based on current trends, human pressure on ecosystems continues to increase, and that the degradation of ecosystem services could grow significantly worse during the first half of this century. This creates a barrier to achieving the Sustainable Development Goals, particularly those aimed at reducing hunger and poverty, improving human health and ensuring a sustainable supply of energy, food and clean water. How ecosystems are managed locally to globally would significantly impact the way in which water, food security and other ecosystem services are affected.

Based on the available evidence, public awareness of biodiversity has increased in both the developed and developing countries. Integration of values into planning process has been achieved in some countries. Current responses are not sufficient relative to pressures; therefore they may not overcome the growing impacts of the drivers of losses. However, governments still provide subsidies harmful to the environment. Policies and plans are needed for the removal, phasing out or reform of harmful subsidies. In addition to their adverse environmental effects, subsidies also have significant fiscal burden on the national budget. For instance, fossil fuel subsidies cost governments about US$410 billion in 2010. Removing environmentally harmful subsidies could boost the global economy by around 0.3%. In addition to the potential fiscal benefits, the removal of subsidies in developing and emerging economies might bring additional environmental benefits (OECD, 2006). Moreover, energy subsidies perform poorly as a means of supporting the incomes of poor social groups, considering that only 7% of the subsidies go to the bottom quintile in developing countries. By reforming fossil fuel subsidies, countries can redirect those subsidies to support low-income households. However, the removal of subsidies alone is not likely to be sufficient to ensure a sustainable policy; taxing “bad behavior” is also needed to direct the incentives to greener investments. Environmental taxes have proven to generally be more effective in addressing environmental externalities than other more indirect taxes. Environmental taxes are cost effective tools in shifting technologies since they equate incremental costs of reducing emissions across firms, and sectors (OECD). The findings indicate that an emission tax is always welfare dominant over a subsidy on consumer purchases of the clean product because of its contribution to a reduction in environmental damage. It does this by both inducing firms to improve the environmental qualities of their products and by constraining consumer usage of these products (Matsukawa, 2012).

There is a need for further compilation of environmental statistics and building environmental-economic accounts, including developing and maintaining national accounts of ecosystem services. Developing policies to address habitat loss and degradation, incentives and effective protected area networks are some key interventions needed to tackle with the fragmentation and degradation of habitats. However, it is important to diagnose the problems and potentialities of linked ecosystems and habitats, which requires serious study of complex, multivariable, nonlinear, cross-scale and changing systems and link these attributes with larger socioeconomic, political and ecological settings in which they are embedded (Ostrom, 2007). The most important policy decisions affecting ecosystems are often made in policy arenas other than those related to protecting ecosystems. For instance, development and diffusion of technologies designed to increase the efficiency of resource use or reduce the impacts of drivers such as climate change and nutrient loading will enhance provision of ecosystem services. For sustaining well-being, there is a need for factoring natural capital in development decisions.

Mainstreaming natural capital

Nature has been ill-served by 20th century economics. When asked, economists acknowledge nature’s existence, but most would appear to deny that she is worth much. If ecologists worry about the contemporary nexus between population size (and growth), the standard of living and the natural environment, economists point to the accumulation of capital and technological progress and say Malthus got it wrong.

In a broad sense, mainstreaming of natural capital into development policy is designed to help decision makers at all levels (governments, businesses, multilevel development banks, individuals, etc.) integrate ecosystems and their services into their decision making (e.g. see Maes et al., 2013; Cowling et al., 2008). It follows that mainstreaming requires decision makers to consider both the positive and negative impacts of their choices on ecosystems and their services during the design and implementation of policies. Mainstreaming delivers on this objective by providing information and tools that can facilitate the connection of healthy ecosystems and sustainable well-being.

Mainstreaming facilitates policy to recognize the links between nature and development, considering the environmental and economic trade-offs associated with development measures and incorporating ES-related opportunities and risks into the implementation of strategies. This would require the integration of natural capital with other forms of capital into development policy which will eventually help assessment of the sustainability and effectiveness of development options. Mainstreaming natural capital into development decisions recognizes the missing link between economic and environmental policies.

An economic approach to ecosystem management is essential to analyse and assess the dynamics of human well-being and constituents of ecosystems, which have been elucidated by the Millennium Ecosystem Assessment (MA). The insights gathered from environmental economic analyses are critical for decision makers confronted with resource constraints and conflicting choices while designing and implementing development policies. Trade-offs between ecosystem services and human well-being can be better reconciled by adopting a quantitative and credible approach. The development of the ecosystem services paradigm has enhanced our understanding of the fact that natural capital is an indispensable form of capital asset along with produced and human capital. As Dasgupta argues, ecosystems are capital assets. Like man-made capital assets (e.g. buildings, and machinery), ecosystems depreciate if they are misused or are overused. But they differ from reproducible capital assets in three ways: (1) depreciation of natural capital is frequently irreversible (or at best the systems take a long time to recover); (2) except in a very limited sense, it isn’t possible to replace a depleted or degraded ecosystem by a new one, and (3) ecosystems can collapse abruptly, without much prior warning (Dasgupta, 2008).

Arrow and Fisher (1974) first examined the public policy implications of the environmental costs of some economic activities. An accurate determination of the comparative economics of preservation versus development of a pristine natural area is often rendered difficult because of the uncertainty involved in the estimates of environmental costs (Arrow, and Fishe 1974). The value of a provisioning service is often embedded in measures of gross domestic product (GDP), but often ignored. For example, the water used in agricultural production contributes to economic value, but is seldom recognized as a separate component of GDP. Regulating services can also have direct values that are directly or embedded in GDP, but will usually provide benefits that have value, but not the type that ends up in GDP (Managi and Kumar, 2018).

Some studies have shown that macroeconomic policies, which are especially called as structural adjustment policies, might have a significant impact on ecosystem services. The devaluation, liberalization and interest rate adjustment policies might create different incentives on producers or the consumers which might cause adverse effects on land (soil/terrain) and water use and biodiversity. In Cameroon, for example, after the devaluation decision, producers prices increased which caus...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of figures
• List of tables
• List of contributors
• Acknowledgements
• 1 Introduction
• 2 Strategic Environmental Assessment as a tool to mainstream ecosystem services in planning
• 3 Lessons for mainstreaming ecosystem services into policy and practice from South Africa
• 4 Linking growth and natural capital in the Republic of Kazakhstan
• 5 Mapping the cultural services of ecosystems and heritage sites in the Usumacinta floodplain in Mexico
• 6 Building consensus through assessment evidence from San Pedro de Atacama, Chile
• 7 Integrating natural capital and ecosystem services into policy and decision making in Trinidad and Tobago
• 8 Nature’s services facilitate National Green Growth Strategy: Vietnam 2025
• 9 The contribution of forest ecosystems to the Tanzanian economy
• 10 Natural capital and GDP of the poor in Vietnam
• 11 Natural capital and the rate of discount
• Index