Natural capital and ecosystem services
Europe's natural capital is under growing cumulative pressure from intensive agriculture, fisheries and forestry, and urban sprawl. A substantial volume of relevant EU legislation already exists but lacks adequate integration in sectoral policies. Mismanagement of natural capital also persists because its full value is not reflected in socio-economic policies and choices despite its fundamental importance for society's welfare. Sustained efforts are needed globally to integrate it into national accounts.
The emergence of the concept of 'natural capital' in recent decades reflects a recognition that environmental systems play a fundamental role in determining a country's economic output and social well-being — providing resources and services, and absorbing emissions and wastes.
According to this way of thinking, a nation's wealth is grounded in four core stocks of capital: manufactured capital (e.g. machines and buildings), human capital (e.g. people, their skills and knowledge), social capital (e.g. trust, norms and institutions) and natural capital (e.g. minerals and ecosystem services). In addition, financial capital plays an important role as a medium of exchange between the four underlying capital stocks and, sometimes, as a source of economic imbalances and instability.
Natural capital is the most fundamental of the forms of capital since it provides the basic conditions for human existence, delivering food, clean water and air, and essential resources. It sets the ecological limits for our socio-economic systems, which require continuous flows of material inputs and ecosystem services (Figure 1 and Box 1). Yet, it is not accounted for in nations' wealth accounting systems.
Many aspects of natural capital such as biodiversity, clean air, land, and water are both limited and vulnerable. The complexity of natural systems and irreversibility of much environmental change mean that replacing natural capital with other forms of capital is often impossible or carries significant risks.
Mismanagement of natural capital often occurs because its full value is not reflected in policy trade-offs and economic choices. This problem pervades decision-making at all scales, from the microeconomic (e.g. via market prices that fail to reflect a product's full costs and benefits), up to the macroeconomic (e.g. in excluding environmental values from national accounts and shifting environmental impacts to other countries).
The European Union (EU) and many neighbouring countries have introduced a substantial volume of legislation to protect, conserve and enhance ecosystems and their services. Examples include the Water Framework Directive, the Marine Strategy Framework Directive, the Air Quality Directive, the Habitats and Birds Directives and the Landscape Convention. A wider range of European policies affect natural capital and ecosystem services including the Common Agricultural Policy, the Common Fisheries Policy, cohesion policy and rural development policies.
Source: based on EEA Multiannual Work Programme 2014–2018
Box 1: Natural capital and ecosystem services
Natural capital comprises two major components:
- Abiotic natural capital comprises subsoil assets (e.g. fossil fuels, minerals, metals) and abiotic flows (e.g. wind and solar energy).
- Biotic natural capital or ecosystem capital consists of ecosystems, which deliver a wide range of valuable services that are essential for human well-being.
Ecosystem capital is normally renewable if managed sustainably but can be depleted or degraded if mismanaged. A Common International Classification of Ecosystem Services (CICES) has been developed to support environmental accounting. CICES takes the Millennium Ecosystem Assessment classification of ecosystem services as a starting point but modifies the approach to reflect more recent research and does not include supporting services to reduce the risk of double-counting of benefits.
The three main ecosystem service categories under CICES are provisioning services (e.g. biomass, water, fibre); regulating and maintenance services (e.g. soil formation and composition, pest and disease control, climate regulation); and cultural services (the physical, intellectual, spiritual and symbolic interactions of humans with ecosystems, lands and seascapes).
Assessing the status and trends of natural capital, in particular ecosystem services, is a significant challenge in view of the enormous scale and diversity of environmental stocks and flows. The EU Biodiversity Strategy to 2020 is an important policy driver of improved knowledge of ecosystems and their services. Key actions include mapping and assessing ecosystems and their services by 2014, assessing the economic value of such services, and promoting the integration of these values into accounting and reporting systems at the EU and national levels by 2020.
Trends in ecosystems and their services
While a comprehensive assessment of the state and trends of Europe's ecosystems and related services has not yet been undertaken, important progress has been made. For example, the work under the Mapping and Assessment of Ecosystems and their Services (MAES) initiative will improve the knowledge base on ecosystems and their services in Europe (Figure 2).
Source: Maes et al.
Information is already available for many ecosystem types and services. For example:
- 30% of the EU's land is highly fragmented affecting the connectivity and health of ecosystems and their ability to provide services as well as viable habitats for species;
- only 53% of Europe's surface water bodies are likely to achieve good ecological status by 2015;
- despite progress in reducing pollution, more than 40% of rivers and coastal water bodies are affected by diffuse pollution from agriculture;
- emissions of air pollution have declined but the magnitude and risk of ecosystem eutrophication has only diminished slightly and transboundary effects remain a challenge;
- in the marine environment, the improving status of some commercially exploited fish stocks has enhanced provisioning services, yet many fisheries remain unassessed.
Climate change has already affected ecosystems and their services in Europe in diverse ways, including ocean acidification, increasing water temperatures, shifts in the timing of biological processes and increases in the frequency and intensity of droughts. Ecosystem service flows are mostly projected to decline in response to climate change although this varies by European sub-region.
Integrating the value of natural capital and ecosystem services into decision making
The UN System of Environmental Economic Accounting (SEEA) provides an international framework for developing integrated physical and monetary environmental-economic accounts. Within this context, the EU Regulation on European environmental-economic accounts provides a legal basis for harmonised collection of comparable data from countries.
The Regulation was amended in 2014 and accounting modules now include both physical accounts (addressing air emissions, material flows and physical energy flows) and monetary accounts (addressing environmental taxes, environmental protection expenditure and environmental goods and services sectors).
There is not yet an agreed methodology or statistical standard for ecosystem accounting — although a framework for experimental ecosystem accounting has been developed as part of the UN system (SEEA). Within this context the EEA is developing Ecosystem Capital Accounts, which are foreseen as the approach to delivering ecosystem accounts for Europe. They record changes in the extent and condition of ecosystems and some of the services they provide, as indicated by physical land, biomass carbon and water accounts.
In terms of monetary valuation of ecosystem services and the underlying natural capital stocks, a diverse mixture of techniques exists for estimating values. Approaches are also available to enable values generated in one location to be applied elsewhere or at broader scales. While there are many uncertainties and difficulties in applying these valuation methods, they can offer insights and play a role in communicating the value of nature and in designing environmental policy and tools.
While Europe has undoubtedly made progress in preserving and enhancing its natural capital in certain areas, overall degradation of ecosystems persists. In addition, abiotic resources and ecosystem capital are under significant pressure across the world and demographic and economic projections suggest that these pressures are likely to grow.
Policy and management
In recent years, EU environmental policies such as the 7th Environment Action Programme (7th EAP) and the Biodiversity Strategy to 2020 have shifted towards a more systemic perspective on the managing the environment, explicitly addressing natural capital. For example, a priority objective of the 7th EAP is 'to protect, conserve and enhance the Union's natural capital'. There are many synergies and co-benefits to a more integrated management approach. Implementation of ecosystem-based management approaches that consider the entire ecosystem, including humans, offers much potential. Adopting this approach in the management of human activities in the aquatic environment and in developing green infrastructure development will provide important evidence and learning.
Natural capital accounting
The 7th EAP states that 'further efforts to measure the value of ecosystems and the cost of their depletion, together with corresponding incentives, will be needed to inform policy and investment decisions. Work to develop a system of environmental accounts, including physical and monetary accounts for natural capital and ecosystem services, will need to be stepped up. This supports the outcome of Rio+20, which recognises the need for broader measures of progress to measure well-being and sustainability to complement GDP.'
EU bodies, Member States and researchers are responding to this challenge and developing more comprehensive environmental accounting systems, including approaches for measuring the condition of ecosystems and their services. This supports the EU's current efforts to develop new more inclusive indicators of social, economic and environment progress via the 'Beyond GDP' initiative.
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 EEA (2010), Scaling up ecosystem benefits — a contribution to The Economics of Ecosystems and Biodiversity (TEEB) study, EEA Report No 4/2010, European Environment Agency, Copenhagen.
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SOER 2015 European briefings present the state, recent trends and prospects in 25 key environmental themes. They are part of the EEA's report SOER 2015, addressing the state of, trends in and prospects for the environment in Europe. The EEA's task is to provide timely, targeted, relevant and reliable information on Europe's environment.
For references, see www.eea.europa.eu/soer or scan the QR code.
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