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Sustainability and Natural Capital

Sustainability and Natural Capital. GEOFFREY HEAL COLUMBIA BUSINESS SCHOOL INET BERLIN APRIL 2012. History. Theodore Roosevelt presciently said in 1907

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Sustainability and Natural Capital

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  1. Sustainability and Natural Capital GEOFFREY HEAL COLUMBIA BUSINESS SCHOOL INET BERLIN APRIL 2012

  2. History • Theodore Roosevelt presciently said in 1907 • “The nation behaves well if it treats the natural resources as assets which it must turn over to the next generation increased and not impaired in value.” • On the wall of the entrance hall of the American Museum of Natural History.

  3. Economics and Ecosystems • Witnessing emergence of new paradigm • Society’s capital – physical, human, intellectual, social and natural. • All are assets that yield a return and in which one can make an investment

  4. Natural Capital • Natural capital – • Mineral resources • Systems – • lakes and rivers generate hydropower and are natural capital • Watersheds, soils, forests, fisheries, ….. • Ecosystems are assets and are part of natural capital • They provide valuable services – ecosystemservices – return on natural capital

  5. Natural Capital • Two concepts coming together– • Naturalcapital (economics) and • Ecosystemservices (ecology) • Ecologists characterize value of ecosystems to society in terms of services rendered – climate stabilization, pollination, food production, waste decomposition, recreation etc.

  6. Natural Capital • These services can be seen by economists as the return on natural capital • The economic value of natural capital is the present value of the ecosystem services it provides • (May be other sources and categories of value – intrinsic values etc.)

  7. GDP misleads • Indian farmers lower water table 3m/yr, have to work harder to irrigate • Leads to an increase in GDP as they spend more on pumping • But really this is a disaster in the making, depletion of natural capital

  8. GDP misleads • Greenhouse gases raise sea level – communities work hard to build sea walls • Raises GDP and so appears beneficial – but again is a disaster in the making – depletion of natural capital

  9. Alternatives …. • Need a sustainably-oriented measure • UNDP’s HDI is more broadly-based, widely cited but doesn’t grapple with sustainability • World Bank’s ANS or Adjusted Net Savings is a good starting point – change in total capital stock, physical, intellectual, human and natural

  10. GDP for selected countries 1980 - 2010

  11. HDI for selected countries 1980 - 2010

  12. ANS for selected countries 1990 - 2008

  13. Ecosystem Services • Frequently public goods • Frequently non-market goods • So far conventional in environmental economics • Frequently uncertainty about functional relationships between state of an ecosystem and services it provides

  14. TABLE 4-1 Classification of Total Economic Values for Ecosystem Services SOURCE: Adapted from Barbier et al., (1997) and Barbier (1994).

  15. TABLE 4-2 Classification of Valuation Approaches SOURCE: Adapted from Freeman (1993a).

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