3.2. 1: Natural capital

May 22nd, 2011

Natural capital

The IB defines Natural capital as: A term sometimes used by economists for natural resources that, if appropriately managed, can produce a “natural income” of goods and services. The natural capital of a forest might provide a continuing natural

income of timber, game, water and recreation.

A fuller definition might be:

‘Natural capital is the extension of the economic notion of capital (manufactured means of production) to environmental goods and services. A functional definition of capital in general is: “a stock that yields a flow of valuable goods or services into the future”. Natural capital is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future. For example, a stock of trees or fish provides a flow of new trees or fish, a flow which can be sustainable indefinitely. Natural capital may also provide services like recycling wastes or water catchment and erosion control. Since the flow of services from ecosystems requires that they function as whole systems, the structure and diversity of the system are important components of natural capital.’

Source: ‘Natural Capital’ (Costanza, R) in Encyclopedia of Earth, Eds. Cutler J. Cleveland, Washington, DC: Environmental Information Coalition, National Council for Science and the Environment, 2007

Traditionally man made products and human services have been given an economic value while the little or no economic value has been placed “natural resources and services”. The Forestry industry for instance has regarded natural forests almost as a free resources that could be exploited. We now know that removing this natural vegetation has a “cost”: Loss of carbon uptake, disruption of water and nutrient cycles and even just the loss of the aesthetic value all have a cost.

The difficult part of natural capital is prescribing a “value” in economic terms to the goods and services the biosphere provides. It is very difficult to give a monetary value to the oxygen provided by photosynthesis, yet our entire existence is dependent upon it. The removal of massive areas of natural rainforest in South East Asia and Indonesia mainly for pulp and low grade furniture timber has also removed the the absorption potential that those forests had. The result is an dramatic increase in  flooding and mudslides which then impact on local communities with often devastating economic cost.

During the 2004 Asian tsunami coastal areas that were fringed with intact mangrove swamps were affect less dramatically than neighboring areas which had lost this protective shield. In these extreme cases the value of natural capital can be measured by the economic costs elsewhere. In one post event study it was found that mangroves had in many areas lowered the damage caused by the tsunami by as much as 90%. Whilst these costs are large they are the easiest to calculate. Much more problematic is adding the value that the same rainforest and mangroves areas have as wildlife habitat which preserves biodiversity.

The loss of rainforest does not just remove a flood buffer but also extinguishes the niche of Orangutans and Gorillas for example. this is a much harder concept to turn into a cost value.

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