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The GLOBE Natural Capital Legislation Study



The natural environment provides goods and services that are essential for our well-being and development. Every part of the natural environment that is capable of contributing to human well-being is a capital asset – part of our ‘natural capital’.

Introducing the GLOBE Natural Capital Initiative from GLOBE International on Vimeo.

Human activity has substantially degraded the natural environment. The global stock of natural capital and valuable goods and services that it provides are being rapidly depleted, in some cases irreversibly. However the status of natural capital is not captured comprehensively by conventional wealth accounting frameworks such as the UN System of National Accounts, or by economic activity measures such as GDP. Therefore there is an urgent need to implement effective methods and measures for natural capital accounting and to embed these within relevant legal and policy frameworks.

This Study is designed to inform efforts by legislators to address these needs.

The Study highlights experiences developing legal and policy frameworks for natural capital accounting, challenges and lessons learned in twenty-one countries and outlines a vision for future action to improve the global knowledge-base concerning legal and policy options for managing natural capital.

This Study's three key conclusions are:

  1. Efforts to develop laws and policies for natural capital accounting rely on continued cooperation and diverse forms of support. This entails international effort – accounting standards such as UN–SEEA; commitments and goals such as the post-2015 SDGs and Convention on Biological Diversity; capacity-building and research partnerships such as WAVES. It also entails national efforts – across various parts of government and diverse stakeholders, including communities and the private sector.

  2. There is no ‘best practice’ approach to legal and policy reform for natural capital accounting. The task is complex and specific to national circumstances, cutting across many policies, institutions and sectors. Frameworks may involve combinations of new legislation, and new action under old laws. Practical national approaches that may prove useful for others are outlined.

  3. A key future challenge for legislators is to develop and share innovative approaches for sustainably managing natural capital. Accounting is an important step towards that goal – others are needed. This Study highlights initial steps that countries have taken to link natural capital accounting with broader strategies for natural capital management

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Results in the 1st edition of the Study show that:

  • All eight countries are moving beyond thinking and experimentation towards the proper integration of natural capital into national accounting and policy making process.

  • However none of the countries is advancing comprehensively on all the necessary fronts - wealth accounting, development of national ecosystem assessments, valuation of ecosystem services and institutional and legislative reform.

  • The most comprehensive natural capital-specific legislation and policies are to be found in developed countries, although these are nonetheless failing to carry out a comprehensive overhaul of policies affecting natural capital, i.e. the unsuccessful 'structural greening' of the EU Common Agricultural Policy.

  • Substantive progress is taking place in emerging economies, which shows how natural capital accounting is increasingly understood as an indispensable instrument supporting decision-making towards sustainable and inclusive socioeconomic development. In particular the popularity of payment per ecosystem services programmes in developing countries is a testament to the increased awareness of the linkages between environmental protection and sustainable economic development.

Countries included in the 1st Natural Capital Legislation Study:

Click on the pins on the world map above to access country-specific extracts from the study.

The GLOBE Natural Capital Legislation Study was produced with the support of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf the German Federal Ministry for Economic Cooperation and Development (BMZ).

 

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Foreword

 

Natural capital is wealth.

"Nothing" is precisely the value that wealth accounting procedures have placed on Natural Capital. As a consequence, governments are still failing to take proper account of the threats and opportunities that natural capital represents to our countries' economies. Any erosion of nature's capacity to deliver ecosystem products and services has an immediate and damaging effect on our economic progress. A decline in forest cover can affect everything from food security to our flood protection; a decline in insect populations can affect the yield of our crops as we lose the pollination service they provide.

Were economists and governments to apply conventional economics to the loss of these services, they would amount to several percentage points of GDP. If we were to take account of their impact on the delivery of major public policy goals – such as job creation and economic growth, climate change mitigation and adaptation, energy security, and health and wellbeing – the urgency with which we should be acting to reduce such losses would become all too clear.

The Economics of Ecosystems and Biodiversity (TEEB) recently estimated that the costs of cumulative losses of ecosystem services in the 50-year period to 2050 will be equivalent to 7% of GDP. It is clear therefore that the protection and enhance-ment of nature can no longer remain the preoccupation of environment ministries. The state of natural capital must be of utmost importance to finance ministers as well.

As the recently published Report of the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda has highlighted, natural capital must also be at the heart of the post-2015 development agenda. The Post-2015 Development Goals and Sustainable Development Goals should clearly articulate the importance of natural capital to prosperity and poverty reduction. This will help ensure that the use of natural resources in the pursuit of economic development does not lead to perverse outcomes that undermine the human economic well-being we are striving to create.

At the 1st World Summit of Legislators held in Rio de Janeiro in 2012, 300 legislators from 86 countries adopted the GLOBE Natural Capital Action Plan, which outlined a number of practical steps that legislators can follow to ensure that the value of ecosystem services is integrated into policy-making procedures across all government departments. Importantly, the Action Plan recognised the crucial role that legislators can play in creating the sustainable structures necessary to support natural capital accounting, as well as ensuring that the information produced is integrated into decision-making processes.

One of the advantages of the natural capital approach is that each country can develop their own national system without the need for complex international nego¬tiations or financial transfers. Over time, it will be important to develop com-mon approaches and standards for the valuation of ecosystem services. This is an agenda that can be controlled nationally through policy and legislation appro¬priate to the circumstances of each country. This is why legislators are uniquely placed to advance it.

The concept of accounting for nature has been around for decades. However, as we can see from this 1st GLOBE Natural Capital Legislation study, progress with implementation is slow. While the technical and academic understanding of how to value the natural world continues to improve, the political and economic structures necessary for integrating these values into national accounting and policy-making processes remain weak although improving in the study countries.

The missing link is political leadership. That is why we have planned the publication of this study to coincide with the launch of an important new policy process – the GLOBE Natural Capital Initiative (GNCI). The first phase of the GNCI will work with legislators in a leadership group of 20 countries participating in the launch in Berlin, including the eight study countries of Botswana, Colombia, Costa Rica, Georgia, Germany, Peru, the Philippines and the United Kingdom, to support the integration of natural capital into national accounting and policy-making processes.

It will also provide a valuable platform for legislators to discuss the challenges and opportunities associated with integrating natural capital into national accounting and policy-making processes, and its implications for long-term economic growth. Through the GNCI legislators will have an opportunity to share ideas about how their legislative, oversight and budgetary functions can be used most effectively to advance the natural capital approach.

Incorporating the value of natural capital into the framework of national account-ing will help governments identify, reduce and mitigate the real economic risks associated with the depletion of natural resources. It will help them identify opportunities for the protection and restoration of the natural environment that are crucial if present and future generations are to enjoy continued economic growth.

 

Barry Gardiner MP
Chairman of the Board
GLOBE International
 
Michael Kauch MdB
President of GLOBE Europe
and GLOBE Germany 
Deputy María Isabel Ortiz Mantilla
President GLOBE Mexico
 
Deputy Alfonso Pérez Gómez
President of GLOBE Costa Rica
Senator (Dr.) Abubakar Bukola Saraki
President of GLOBE Nigeria
 
Hon Cedric Frolick MP
President GLOBE South Africa
 
Deputy Alenka Jeraj
President of GLOBE Slovenia
 
Hon David McGuinty MP
President GLOBE Canada
 
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Executive Summary

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Over 20 years ago, at the 1992 Earth Summit in Rio de Janeiro, 178 governments adopted a programme of action for sustainable development. Recognising the crucial role of the environment as a source of natural capital, governments agreed to establish systems of integrated environmental and economic accounting. Whereas for most of the last 20 years progress has been slow, this study shows that significant steps have been taken, both at the international and national level, during the last decade.

This study introduces natural capital as the basis for all economic activity. It summarises the benefits and methods of valuing natural assets in their crucial role of providing natural resource inputs and environmental services for economic production. This study reviews international efforts towards valuing ecosystem services, followed by an account of the measures taken by eight countries towards natural capital accounting. As the first such assessment of national approaches to natural capital accounting, the study provides legislators with a wealth of informa-tion about how governments around the world are responding to the challenge of natural resource depletion. Making use of its findings, legislators have a better opportunity than ever to mobilise national support for the implementation of natural capital accounting.

The concept of accounting for natural capital has been around for more than 30 years. However, progress in moving beyond conceptual thinking and experi-mentation toward implementation has been slow. The Millennium Ecosystem Assessment, a landmark study published in 2005, documented the largely declining state of global ecosystem services, noting their past benefits for people and current unsustainable use and degradation. The subsequent TEEB reports in 2009, which document the economic benefits of biodiversity and the cost of ecosystem degradation, along with the 2009 Stiglitz Report, the 2010 GLOBE Natural Capital Action Plan and the 2010 CBDs Aichi Targets, all urged governments to include the value of natural capital in national accounts.

Natural capital is a critical asset, especially for low-income countries where it makes up a significant share (36%) of total wealth. It is important that legislators can explain natural capital accounting as a way of providing detailed information for better management of the economy. This needs to be done in a way that is coherent internationally but also resonates at home with a public concerned about seeing the more immediate benefits of economic growth.

Over the last three years international agencies have began to respond to this challenge. The World Bank WAVES programme launched in 2010, the adoption in the EU of regulations on environmental-economic accounting in 2011, the approval of System of Environmental-Economic Accounting (SEEA) as an international standard, and the creation of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) in 2012 all point to a growing global commitment to better understand and value the benefits of nature to human well-being and economic development. This was reinforced by declarations on natural capital accounting by countries, legislators, financial institutions and NGOs in Rio and Gaborone in 2012.

The eight countries reviewed in this study have all made significant strides towards recognising the value of the natural environment in policy and economic decision-making. The history of payments for ecosystem services (PES) schemes in Colombia will provide a strong foundation for work that is underway to develop sets of sat-ellite environmental accounts. Similarly, the government of Peru recently produced a first version of a guide to implementing satellite environmental accounts. Peru also require that all Environmental Impact Assessments (EIA) include ecosystem service valuations, which is a positive example of how to embed environmental value into the making of policy.

As one of the first countries to create natural resource accounts, Costa Rica is now planning to produce pilot natural capital accounts. The Costa Rican Government has also integrated its Ministry of Environment with water, forests and mining to ensure that formerly competitive departments co-operate better. As with Colombia and Peru, Costa Rica also has a number of successful PES projects.

During the 1990s and early 2000s, the Philippines were one of only a few countries working to develop environmental accounts. With little implementation over the last decade, the Philippine government is now working to strengthen the institu-tionalisation of economic-environmental and natural resource accounting, as well as developing ecosystem accounts for fisheries, coastal and marine eco¬systems and minerals.

If projected growth rates of 4.8% in 2013 and 5.3% in 2014 are to be maintained, Africa will need to protect and enhance its natural resource base. Botswana is one of the continent's best examples of how to harness natural resources effectively. Since becoming one of the first countries to pilot national environmental and natural resource accounting in the 1990s and early 2000s, Botswana is now work-ing on natural capital accounts in a number of priority sectors, including energy and minerals, water and land/ecosystems. This is also true in Georgia, where the environment and natural resources are part of the national accounting system.

The UK National Ecosystem Assessment is notable as one of the first national studies of the benefits that nature provides to society and economic prosperity. The subsequent Natural Capital White Paper includes a commitment to reform national accounts so that, by 2020, they also reflect the country's natural wealth. Germany is also recognised as an international leader, both through the EU and support for programmes and studies such as TEEB reports, and through the integration of ecosystem values into national sustainable development policy since 2002.

While it is clear that all eight countries assessed have made strong commitments towards natural capital accounting, no one country has as yet successfully inte-grated the true value of natural capital into national accounts and economic policy making. Having completed an assessment of national approaches to natural capital accounting, we have reached the following conclusions:

  • All eight countries are moving beyond thinking and experimentation towards the proper integration of natural capital into national accounting and policy making process.
  • None of the countries is advancing comprehensively on all the necessary fronts – wealth accounting, development of national ecosystem assess-ments, valuation of ecosystem services and institutional and legislative reform.
  • The most comprehensive natural capital-specific policies are to be found in developed countries, although these are nonetheless failing to carry out a comprehensive overhaul of policies affecting natural capital. The unsuccessful "structural greening" of the EU Common Agricultural Policy is one such example.
  • Substantive progress is taking place in emerging economies, which shows how natural capital accounting is increasingly understood as an indispen-sable instrument supporting decision-making towards sustainable and inclusive socioeconomic development. In particular, the popularity of pay-ment per ecosystem services programmes in developing countries is a testament to the increased awareness of the linkages between environ-mental protection and sustainable economic development.

A thorough understanding of how current and potential policies impact on the environmental services upon which well-being and economic prosperity depend is essential for long-term sustainable growth. Natural capital accounting is a useful and globally recognised tool.

To this end, GLOBE makes the following recommendations based on the findings of the study:

  • Legislatures should begin to develop natural capital accounting legislation;
  • All government departments should prepare inventories of the natural capital and ecosystems that fall within their remit or are affected by their policy decisions;
  • A ministerial position should be created within the Finance Ministry to work with the department of environment in assessing the value of natural capital in departmental inventories and regulating the use of the country's natural wealth;
  • The national Finance Ministry should develop a set of Natural Capital Accounts that is accompanied by an annual report that outlines the status of biodiversity, ecosystem services and natural capital, as appropriate, and National audit offices should adopt the natural capital approach when examining the effectiveness and efficiency by which government depart-ments use their resources and apply cost–benefit analyses.

Unquestionably, there is still a long way to go before natural capital is main-streamed within our national accounting across the world. However, as this study shows, the direction of travel is clear and the eight countries covered in this study are helping to lead the way.

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Introduction

The Global Legislators Organisation, known as GLOBE International, launched the GLOBE Natural Capital Initiative (GNCI) in September 2012 working with a group of legislators from seven countries to help promote the understanding and imple-mentation of the Natural Capital concept by national governments and across government departments. This initiative was part of the implementation of the Legislators' Protocol agreed by the 1st World Summit of Legislators in Rio de Janeiro in 2010. The initiative also hopes to work towards establishing an inter-national process for national legislators to support the development and imple-mentation of natural capital accounting.

The first phase of the GNCI runs from September 2012 to June 2013, and includes the production of this study, the first GLOBE Natural Capital Legislation Study. It aims to outline baseline legislation and policy in eight countries and to identify policy gaps, highlight good practice and encourage peer-to-peer learning. The study was prepared by the GLOBE International Secretariat, in consultation with country partners, with the exception of the Georgia chapter which was prepared by in-country partners.

In order to maximise the synergies of this work, the GNCI will primarily engage with parliaments from countries participating in the World Bank's Wealth Accounting and the Valuation of Ecosystem Services (WAVES) Programme. These countries include Botswana, Colombia, Costa Rica and the Philippines. Peru and Georgia will also be involved in the GNCI, along with the United Kingdom and Germany, two of the leading developed countries on this subject. These eight countries represent a wide range of geographies and development levels in order to highlight the global relevance of natural capital accounting and demonstrate the importance of early and effective engagement with legislators in order to improve the awareness about natural capital issues within national parliaments.

The failure to value the many benefits that ecosystems provide humans has been identified as a major contributing factor to the deterioration of global ecosystems and consequently their capacity to support human well-being and sustainable economic growth. Natural capital accounting is a tool to help recognise and monitor the value of our ecosystems to humans, and to ensure that value is inte-grated into government decision-making.

To do this, three things are necessary:

  • Scientific information regarding the status and trends of natural capital;
  • Economic valuation methodologies to assign accurate values to natural capital;
  • Political leadership to ensure the integration of this value into policy processes.

The GNCI focuses on the last part of this process. The first two parts, while not yet complete or perfect, are sufficiently developed to make preliminary assessments of the real value of natural capital, particularly given the recent adoption of the SEEA in 2012 as an international statistical standard. The onus is now on political leader-ship to take the crucial steps towards an economy which recognises and takes into account the role of ecosystem services.

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What is Natural Capital?

Natural capital comprises Earth’s natural assets (soil, air, flora and fauna), and the ecosystem services resulting from them, which make human life possible. [The Natural Capital Declaration]

Natural capital can be defined as the stock of our natural physical assets (such as soil, forests, water and biodiversity) which provide value through flows of goods and services that benefit people. These goods and services are collectively known as ecosystem services and include material and non-material benefits such as crops, timber, water, climate regulation, natural hazard protection, soil function, mental health benefits from contact with nature, and biodiversity. Some ecosystem services can be valued economi-cally, while others have a non-economic value.

See the following box for more information on types of ecosystem services:

Categorising ecosystems services

The Millennium Ecosystem Assessment (MA) in 2005 defined four categories of ecosystem service:

  1. Provisioning services are the products obtained from ecosystems, such as food, water, timber and fibre.
  2. Regulating services that affect climate, floods, disease, wastes and water quality, such as climate regulation, water purification, air quality regulation, natural hazard protection, pollination and erosion regulation.
  3. Cultural services are non-material benefits that ecosystems provide to people through spiritual enrichment, cognitive development, reflection, recreation and aesthetic experiences (e.g. landscapes and the mental health benefits of contact with nature).
  4. Supporting services are those necessary to maintain all other ecosystem services. They may not feature in accounts but information on these services will be needed in order to understand changes in the stock of ecosystem assets. Supporting services differ from other types of services because their impacts on humans are often indirect or occur over a very long time. They include soil formation, photosynthesis, primary production (the assimilation or accumulation of energy and nutrients by organisms), nutrient cycling and water cycling.

Some services such as soil erosion can be categorised as both a regulating and a supporting service, depending on the time scale of the impact on people.