Recording Ecological Debts in the National Accounts: Possibilities Open by the Development of Ecosystem Capital Accounts in Europe Jean-Louis Weber Former Special Adviser on Economic-Environmental Accounting of the European Environment Agency Honorary Professor, University of Nottingham Ecole normale supérieure de Lyon, 27 et 28 September 2012 « Parce que les comptes nationaux sont fondés sur des transactions financières, ils ne comptent pour rien la Nature, à qui nous ne devons rien en termes de paiements mais à qui nous devons tout en termes de moyens d’existence. » “Because National Accounts are based on financial transactions, they account nothing for Nature, to which we don’t owe anything in terms of payments but to which we owe everything in terms of livelihood.” Bertrand de Jouvenel, Arcadie, 1968

Jean-Louis Weber National Accounts: Recurrent demands for improved economic indicators and aggregates Historical pioneer “green accounting” projects: Norway, Canada, France, Philippines, Indonesia, the Netherlands, Spain… Rio1992, Agenda 21 UN SEEA1993 to “adjust” the UN System of National Accounts. SEEA revised in 2003 New SEEA revision 2012/13, including now a special volume on ecosystem accounts and valuation Recent initiatives: –Beyond GDP Conference 2008 –Potsdam 2008 G8+5 initiative and TEEB –Stiglitz/ Sen/ Fitoussi report on the measurement of economic performance 2009 –New CBD Aishi-Nagoya Strategy 2010: demand for the inclusion of biodiversity and ecosystem value into national accounts –World Bank’s new Global Partnership for “Green Accounting” and Ecosystem Valuation (WAVES) –References to environmental accounts for measuring progress in Green Economy, Green Growth, Resource Efficiency… Launch of the SEEA Part 1 at Rio+20 In Europe, new Regulation on Environmental Accounts: Eurostat (the economy-environment interface) and the EEA (ecosystem capital accounts)

UN manual for environmental-economic accounting: SEEA2012/13 On pair with the System of National Accounts (SNA) since February 2012 RM HASSAN - UN The System of Environmental and Economic Accounting (UN 2003) - RANESA Workshop June 12-16, 2005 Maputo Part 1 “Central framework” and SNA satellite accounts for the environment Expenditures, taxes, hybrid accounts, physical flows, sub-soil, energy, water, land, economic assets depletion Part 2 Ecosystem capital accounts Ecosystem capital (stocks and Quality), ecosystem services, benefits and maintenance costs… Revision of the SEEA2003  SEEA2012/13, steered by the UNCEEA Negative feedbacks of ecosystem degradation on production and wellbeing Impacts on ecosystem capability of delivering services/benefits

An experimental framework for ecosystem capital accounting in Europe EEA Technical report No 13/ experimental-framework-for-ecosystem Land cover accounts for Europe (26 countries), 2006 Updated for year 2006 (34 countries), next update: for year 2012 Ecosystem accounting and the cost of biodiversity losses — the case of coastal Mediterranean wetlands, 2010, a report for TEEB Activities within SEEA revision process Fast Track implementation of ecosystem capital accounts, (with Eurostat) Fast Track implementation of ecosystem capital accounts, (with Eurostat) EEA’s involvement in ecosystem accounting Activities within thematic processes: UNEP/water JRC/ES mapping WB/WAVES … Activities within thematic processes: UNEP/water JRC/ES mapping WB/WAVES …

Jean-Louis Weber The fast track implementation of simplified ecosystem capital accounts in Europe Based on: –European experience –Current development of ecosystem accounts in the UN SEEA revision Objectives: –Meet the policy demand (What, Beyond GDP?) –Accounts for 27 EU countries –Use of existing data –Best use of geographical information (e.g. when possible, 1 km x 1km grid) –Use of official statistics for socio-economic data (e.g. harvests…) –Annual accounts –Physical accounts first, by 2012, followed by monetary accounts  make it relevant but simple (feasible, transparent, verifiable…)

Source: Roy Haines-Young The basic questions when accounting

Jean-Louis Weber The narrative behind ecosystem capital accounts Summary: Ecosystems reproduce life on Earth and are resources for humankind (they deliver services...) Ecosystems are altogether appropriable assets and public goods. As appropriated assets, they can be owned and managed in view of benefits. As public good, they are “non-exclusive, non-rival”: everyone has the same right to use them (“we are all participants in the ecosystem” – Richard Mount, 2012).  When an economic agent degrades ecosystems by its activity, it depreciates a capital. This is unpaid consumption and creation of debt to victimized communities, to future generations or to those countries from which commodities produced under unsustainable conditions are imported.  Debts can be measured in physical units, not only in money. Debts have to be repaid some day; accumulating debts in balance sheets is risk taking …

Products & economic assets Fossil energy & materials Biomass/carbon Water Land systemic services Economy performance Economic growth Trade Value-added, income, profit… Consumption Investment Wealth (non-financial and financial assets) Economic health (net savings, assets and debt quality, accountability, prices, well-being, knowledge) Ecosystem capability to deliver services in sustainable way Ecosystem productivity Flows Accumulation Stocks Ecosystem health (condition) (biodiversity, integrity, resilience, interdependence) Capital maintenance (needed to remediate degradation) Economic system Ecosystem Use of natural resources The narrative behind Ecosystem Capital Accounts: 1 - Accounting for the performance(s) of 2 co-evolving systems: resources, productivity and health

The narrative behind Ecosystem Capital Accounts: 2 - Only a surplus is accessible for human use Ecoproduct (of cycling and reproductive systems/ capital) are produced by means of other ecoproducts. The ecosystem production function includes a surplus ecoproduct that can be used by the economy. (from Anthony Friend 2004) Economy Basic eco- product Non-basic eco- product Sources: Kling/U Michigan_2005 & Friend/ISEE_2004 Necessary for ecosystem reproduction (conservation of ecosystem health, integrity, functions & services) Surplus accessible for harvest/abstraction

Basic eco- product Non-basic eco- product Sources: Kling/U Michigan_2005 & Friend/ISEE_2004 Possible compensation = artificial input (irrigation, energy, fertilizers, infrastructures…) Challenge = maximise yields while maintaining natural functions and biodiversity Necessary for ecosystem reproduction (conservation of ecosystem health, integrity, functions & services) Surplus accessible for harvest/abstraction Non-sustainable harvest/abstraction Economy The narrative behind Ecosystem Capital Accounts: 3 - Only a surplus is accessible for human use

Jean-Louis Weber Ecosystem resource: availability vs. accessibility Available resource: the total resource (actual stocks and flows) which can be used in principle. Accessible resource: the surplus (actual stocks and flows) which can be used in practice considering 1.physical constraints (timeliness and location, cyclical risks, bio-chemical quality) 2.the amount to be left to nature for ecosystem reproduction 3.side or indirect impacts on ecosystem health (biodiversity, resilience, dependency from artificial inputs…) Ecosystem capital accounts refer to intensity of use of accessible resources (ecological sustainability), to ecosystem capability to continue delivering services in the future…

Jean-Louis Weber The narrative behind Ecosystem Capital Accounts: 3 - Ecosystems deliver altogether multiple services Source: Gilbert Long, 1972 A propos du diagnostic écologique appliqué au milieu de vie de l'homme. Options Méditerranéennes, 13, CHIEAM, Montpellier, Juin 1972

3 – Ecosystem healthy state: public good, non-rival, non-exclusive use, non-transferable ownership rights (green taxes as general source for maintenance, but offset certificates could be traded or leased) 1 – SNA produced & non produced assets: mostly for commodities (private goods & govt services) Economic assets, public goods, services and values multiple dimensions of a same ecosystem Regulating Recreating 2 - Non produced assets/ non priced services: mostly common goods, could be traded Provisioning

Operation costs E.S n Operation costs E.S 5 Operation costs E.S 4 Operation costs E.S 3 Operation costs E.S 2 Operation costs E.S 1 Stocks & flows surplus Health Landscapes, Soil Biomass/Carbon Biodiversity Water Sea Atmosphere Vigour Organisation Resilience Autonomy Healthy populations Ecosystem / public good protection (all services) Service 1: e.g. timber provision Service 3: e.g. eco-tourism Service 4: e.g. water regulation Service 2: e.g. fish provision Service 5: e.g. existence Service n Service 1 value Service 4 value Service 3 value Service 2 value Service 5 value ? Service n value ?? Ecosystem Capital and Ecosystem Services National Accounts = the macro-economic picture adjusted for natural capital depreciation Benefits & Costs Assessments = accounts for projects, sectors… micro- level, poorly additive Ecological Taxes, Subsidies, Tradable Offset Certificates / Depreciation... Ecosystem services valuation Bottom-up, individual preferences, market and shadow prices, Costs-Benefits Analysis, General Equilibrium model Top-Down, collective preferences, multi-criteria decision (economic & social values, long term targets…), Consumption of Ecosystem Capital Ecosystem degradation & restoration costs Ecosystem capital n Service 2: e.g. fish provision 2

Jean-Louis Weber The narrative behind Ecosystem Capital Accounts: 4 – A very simplified model: As a capital, ecosystems produce altogether 3 broad types of services between which there is little possible compensation or tradeoff: biomass/carbon AND freshwater AND systemic services. Ecosystem capital capability (& degradation) can be measured by combining measurements of these 3 broad services (accessible resources). 1 - Accessible carbon surplus 2 - Accessible water surplus 3 - Accessible ecosystem systemic services Overall Ecosystem Capital Capability & Ecosystem Capital Degradation Measurement with a new physical currency: ECU for ‘Ecosystem Capability Unit’

Jean-Louis Weber Economic value vs. Ecological value Ecological value = quantity x “price” Ecosystem capital accounts: values need to be calculated on behalf of ecosystems, knowing quantities and defining an overall “quality” index equivalent to a “price”. Ecological value is based on limited substitutability between ecosystem assets (where compensation is possible) and the maintenance of the overall ecosystem capability).  need of a specific currency  General equivalence within the ecosystem, measurement of stores of various ecosystem capabilities and their change (degradation, improvement)  Conventional but transparent and verifiable measurement and recording of ecological debts  Targets stated by society democratic institutions (exists in regulations, laws, International conventions…): annual maintenance (the common accounting rule), historical restoration Economic value = quantity x price Financial & national accounts: values are established by the market; prices are decided by the transactors, they relate to production costs, to the capacity for the seller to make profit, to the quality for the buyer, its capacity to negotiate a discount… Shadow prices of free ecosystem services and assets (in € or $...) are “guestimates” of market prices. They imply accepting general substitutability between economic and ecological assets (the “weak sustainability” paradigm). They express the view of the economy only, not all values…

Jean-Louis Weber ‘Ecosystem Capability Unit’ (ECU): a composite currency to measure ecosystem capability, degradation and improvement, ecological debts and credits… The price in ECU of one physical unit (e.g. 1 ton of biomass) expresses at the same time the intensity of use of the resource in terms of maximum sustainable yield and the direct and indirect impacts on ecosystem condition (e.g. contamination or biodiversity loss). Loss of ecosystem capability resulting from human activity is a measurement of ecological debt (in ECU). François 1st ( ), Ecu d'or au soleil du Dauphiné, Source : Münzen & Medaillen GmbH (DE) There is no exchange rate between ECU and $ or €. 1 ECU = 1 unit of accessible ecosystem resource

Resource Accessibility & Use, Ecosystem Capital Capability & Degradation Accounts by ecosystems Water Hydro- systems, Sea Socio- Stock/flow of Resource, Basic surplus & Use (tons, joules) Stock/flow of Resource, Basic surplus & Use (m3, joules) Stock/flow of Resource Basic surplus & Use (weighted ha or km) Non additive Basic balances Use index = Surplus/Use Non additive Indexes of ecosystem state & current price in ECU, year (t) Ecosystem capability in ECU Accessible resource surplus (in ECU at current prices), Ecosystem capability and degradation (in ECU at current prices) = Calculation of ecological values in ECU Condition index Non additive Implicit price (C), year (t)Implicit price (W) year (t)Implicit price (S) year (t) Average of (C+W+S) = price in ECU, year (t) Ecosystem Capability Accounts (in ECU) Accessible Resource Surplus in ECU, at prices of year (t-1) Accessible Resource Surplus in ECU, at prices of year (t-1) Accessible Resource Surplus in ECU, at prices of year (t-1) Non additive Carbon/Biomass (C)Water (W)Systemic services (S) Ecosystem Accessible resource surplus (in ECU at constant prices = previous year) Accessible Resource Surplus in ECU, at current prices (t-1) Accessible Resource Surplus in ECU, at current prices (t-1) Accessible Resource Surplus in ECU, at current prices (t-1) Price in ECU (Ecosystem Capability Unit), previous year (t-1) Price in ECU (Ecosystem Capability Unit), current year (t)

Accounts of zones (islands, mountains, coasts…), regions, administrative or business units… Resource Accessibility & Use, Ecosystem Capital Capability & Degradation Accounts by ecosystems Resource Use Accounts by economic sectors/ resource use Accounts by economic sectors/ degradation Ecosystem Capital Degradation, Debts Detailed, comprehensive or thematic accounts Calculation of ecological values in ECU by sectors, regions etc…

t0 Physical accounts: Total ecosystem capability & change t1 Improvement Degradation

From ecosystem physical degradation to the measurement of sustainability of the benefits obtained from ecosystem services and unpaid maintenance costs Consumption of ecosystem capital (unpaid costs) Sustainable benefits (income from key ecosystem services) Sustainable use coefficients National accounts: Adjusted Income & Final consumption Mean restoration prices Improvement Degradation Sustainable benefits (Value Added from key ecosystem services)

Jean-Louis Weber About ecological debts… Measuring ecological debts and credits is a pre-condition of action. Two different targets should be considered: -Annual maintenance of the ecosystem capital (the general accounting rule) -Recovery from historical degradation (as stated in Conventions, Regulations, Laws…) When created by physical debts, monetary debts are not mechanically extinguished by repayment but by the extinction (remediation) of the physical debt itself. There are ecological debts embedded into international trade… Ecological debts and credits in ECU can be new financial instruments, embedded in portfolios of governments and companies. They can be taken into accounts in a range of trade and financial mechanisms.

Jean-Louis Weber First results of simplified ecosystem capital accounts in Europe

Jean-Louis Weber The Net Ecosystem Carbon Balance 2000 (provisional results – 5 June 2012) Tree felling, 1999 Xmas storm Greenhouses, plastic sheets Intensive agriculture Mixed agriculture Forest NB: over- estimation of NPP in the South

Jean-Louis Weber Water Accessibility by river catchments: taking into account limiting factors Conventional water balances adjusted from various limiting factors  calculation of resource accessibility & use intensity on the basis of what can be safely used without degrading ecosystems For part based on continuous monitoring (e.g. dry days with no water for vegetation…)

Jean-Louis Weber Accessible water adjustment for risks of water stress (« dry days index ») based on the number of days when no water was available for plants in 2001, 1 km 2 grid Source: Blaz Kurnik, EEA, 2011

Fast track implementation of ecosystem capital accounts in Europe Landscape/biodiversity capacity accounts preliminary results , version 2 Jean-Louis Weber, Emil D. Ivanov, Rania Syropoulou, Oscar G. Prieto 4 June 2012

Net landscape ecological potential, nlep 2000 (observed)

Net landscape ecological potential, nlep 2010 (nowcast)

Ecosystem Capital Accounts: Landscape/Biodiversity Capacity Account Change in Net Landscape Ecological Potential and

Art17 “Populations trend” biodiversity index, by sub-basins

Art17 “Future prospect” biodiversity index, by sub-basins

Ecosystem Capital Accounts: Landscape/Biodiversity Capacity Account Species/biodiversity change mean indexes pre- and post 2006, by countries

Ecosystem Capital Accounts: Landscape/Biodiversity Capacity Account Species/biodiversity change mean indexes pre- and post 2006, by ecosystems

Landscape/biodiversity capacity 2000 by sub-basins

Landscape/biodiversity capacity 2006 by sub-basins

Landscape/biodiversity capacity 2010 by sub-basins

Ecosystem Capital Accounts: Landscape/Biodiversity Capacity Account

Change in landscape/biodiversity capacity , by sub-basins

Ecosystem Capital Accounts: Landscape/Biodiversity Capacity Account Change in Landscape/Biodiversity Capacity and

Landscape ecosystem potential (integrity): the EEA nlep indicator –

Change in nlep, 2000 – 2010, scale

Species biodiversity index: “Art.17” reporting to the EC on Populations past/present trends (up to 2006)

Species biodiversity index: “Art.17” reporting to the EC on Future prospects (after 2006)

Landscape/biodiversity capacity 2000 by 1 x 1 km grid cells

Landscape/biodiversity capacity 2010 by 1 x 1 km grid cells

Jean-Louis Weber Next step From preliminary to first operational results: –Validation & improvements by EEA and ETCs –Open to review by EEA partners (JRC, Eurostat, DGENV…) –International review, SEEA revision context, tests with Australia… –We need EIONET’s comments… Country applications: –On a case by case basis – e.g., Slovakia, Finland, Czech Rep, Turkey, Scotland… –Starting from national or regional priorities: detailed, more accurate accounts under the umbrella of the EU broad picture for biomass/carbon/freshwater/landscape/biodiversity –According to existing data in countries…