Everything about Natural Capital totally explained
Natural capital is the resources of a natural
ecosystem that yields a flow of valuable ecosystem
goods and services in the future. It is the extension of economic
capital to environmental goods and services. Natural capital also refers to the most basic resources and building blocks of an
economy, resources that people can't create more of, but instead can only extract from our existing "bank" and change from one form to another.
Background
Natural capital is described in the book
Natural Capitalism as a
metaphor for the
mineral,
plant, and
animal formations of the Earth's
biosphere when viewed as a
means of production of
oxygen,
water filter,
erosion preventer, or provider of other
ecosystem services. It is one approach to
ecosystem valuation, an alternative to the traditional view of all non-human life as passive
natural resources, and to the idea of
ecological health. However, human knowledge and understanding of the natural environment is never complete, and therefore the boundaries of natural capital expand or contract as knowledge is gained or lost.
In a traditional economic analysis of the
factors of production, natural capital would usually be classified as "
land" distinct from "
capital" in its original sense. The historical distinction between "land" and "capital" was that land is naturally occurring and its supply is assumed to be fixed, whereas
capital as originally defined referred only to man-made goods. It has been argued that it's useful to view many natural systems as capital because they can be improved or degraded by the actions of man over time (see
Tragedy of the commons), so that to view them as if their productive capacity is fixed by nature alone is misleading. Moreover, they yield benefits naturally which are harvested by humans, those being
nature's services, 17 of which were closely analyzed by
Robert Costanza. These benefits are in some ways similar to those realized by owners of
infrastructural capital which yields more goods, for example a factory which produces automobiles just as an apple tree produces apples.
The term was most closely identified with
Herman Daly, Robert Costanza, the
Biosphere 2 project, and the
Natural Capitalism economic model of
Paul Hawken,
Amory Lovins, and
Hunter Lovins until recently, when it began to be used by politicians, notably
Ralph Nader,
Paul Martin Jr., and agencies of the UK government including the
London Health Observatory. Some economists and politicians, including Martin, believe natural capital measures play a key role in
money supply and
inflation measurements in a modern economy. They point to
uneconomic growth and a lack of any direct connection between
measuring well-being and such indicators as
GDP.
Indicators adopted by
United Nations Environment Programme's
World Conservation Monitoring Centre and the
Organisation for Economic Co-operation and Development (OECD) to measure natural
biodiversity use the term in a slightly more specific way. However, all users of the term differentiate natural from man-made
manufactured capital or
infrastructural capital in some way. It doesn't appear that the basic principle is controversial, although there's much controversy on
ecological health indicators, value of
nature's services and
Earth itself, consistent methods of
ecosystem valuation,
biodiversity metrics and methods of
audit that might apply to these services, systems and
biomes.
Full cost accounting,
triple bottom line,
measuring well-being and other proposals for
accounting reform often include proposals to measure an "ecological deficit" or "natural deficit" alongside a social deficit and
financial deficit. It is hard to measure such a deficit without some agreement on methods of valuating and auditing at least the global forms of natural capital (for example value of air, water, soil).
The concept of natural capital implies that the savings rate of an economy is an imperfect measure of what the country is actually saving, because it measures only investment in man-made capital. The
World Bank now calculates the genuine savings rate of a country, taking into account the extraction of natural resources and the ecological damage caused by CO
2 emissions.
Further Information
Get more info on 'Natural Capital'.
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