Ecosystem Accounting: A Novel Approach for Measuring Growth

Ecosystem Accounting: A Novel Approach for Measuring Growth

On March 10 2021, the UN Statistical Commission adopted a new framework for measuring economic prosperity. Formally known as the System of Environmental-Economic Accounting — Ecosystem Accounting (SEEA EA, or ecosystem accounting), this new framework recognizes natural capital as an economic asset and prescribes monetary value to the contributions of nature. UN Secretary-General Antonio Guterres cited the adoption of this new framework as a  ‘historic step forward towards transforming how we view and value nature’, arguing that with it, environmental destruction can no longer be synonymous with economic progress. 

Ecosystem accounting is based on the idea that the goods and services provided by our natural ecosystems — such as carbon storage, climate regulation, and access to fresh water — are just as important as man-made goods and services. Up until now, common measures of economic growth, such as Gross Domestic Product (GDP), have only taken into account the contributions of man-made goods and services. As a result, the economic incentives for preserving natural resources remained sparse. In adopting a framework that prescribes economic value to the services provided by our ecosystems, the UN hopes that nations will be incentivized to preserve their natural resources. 

In order to prescribe economic value to natural goods and services, ecosystem accounting utilizes a series of core measurements, known as ecosystem accounts. These core accounts include ecosystem extent (the total area of an ecosystem), ecosystem condition (the health of an ecosystem), ecosystem service flows (the physical and monetary value provided over time by an ecosystem service, such as carbon storage), and ecosystem assets (the physical and monetary value of a natural asset, such as a forest). While there is no single approach for determining the monetary value of a certain natural asset or service, one method of valuation involves opportunity cost analyses. For example, researchers may estimate the foregone agricultural revenue caused by a lack of water in order to estimate the value of a certain water supply. 

In the past, similar attempts have been made to try and quantify the benefits of nature. In 1997, Professor Robert Costanza at the University of Oregon became the first to estimate the economic value of earth’s ecosystem services, arriving at an annual valuation of USD $33 trillion. Since the 1980s, payments for ecosystem services (PES) have prescribed monetary value to natural resources as a means to incentivize conservation; from Costa Rica paying landowners monthly sums to preserve forest cover, to Norway providing Indonesia with USD $1 billion to preserve its rainforest for carbon storage. In 2012, the United Nations Environment Programme released ‘The Inclusive Wealth Report’; the first of its kind to measure growth via measures of human and natural capital in addition to manufactured capital. In spite of all this, the recent adoption of the ecosystem accounting framework by the UN Statistical Commission stands out amongst past measures, as it represents the first internationally recognized framework for ecosystem valuation. 

While the benefits of saving a forest or a biodiversity hotspot may seem evident, preservation is often falsely portrayed as being at odds with economic growth. Ecosystem accounting can help dispel this fallacy and provide the necessary economic analysis to justify environmental protection. In 2017, researchers in Uganda used ecosystem accounting to help quantify the economic benefits that could be achieved through wildlife tourism in several biodiversity hotspots currently not under protection. In 2020, the World Bank used ecosystem accounting to quantify the various services offered by Cambodia’s forests, ranging from hydropower to carbon storage. Through this, the World Bank was able to demonstrate that the economic gains from preserving its forests were 5 times greater than cutting them down for farming or charcoal production. 

As of now, the challenge remains to develop more robust techniques for valuing diverse ecosystem goods and services. At the UN statistical commission on March 10, several countries raised concerns over the existing state of valuation methodologies. Some argued that the benefits of nature cannot truly be quantified in economic terms, while others argued that valuing nature in such a way invites complicated arguments over natural resource ownership. While there are indeed further discussions to be held, the recognition of ecosystem accounting as an international standard by the world’s top statisticians represents an important step towards viewing our ecosystems as something worth preserving. 

Edited by Ines Navarre

Leave a Reply

%d bloggers like this: