Ecosystem Capital Accounts for Measuring Progress Towards Green Economy & Green Growth Jean-Louis Weber Special Adviser on Economic-Environmental Accounting European Environment Agency Towards Green Economy (GE) & Green Growth (GG) EEA/Scientific Committee Workshop: 5 October 2011; EEA, Copenhagen Presentation-6: Measuring Progress of the Green Economy

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Presentation-6: Measuring Progress of the Green Economy 1. How can ecosystem accounting help on measuring progress? 2. Why a simplified approach? 3. What are the most relevant indicators that can be derived from the accounts? 4. How can we make the links between ecosystem capital and ecosystem services? 5. How to relate back to the system of national accounts and GDP? Towards Green Economy (GE) & Green Growth (GG) EEA/Scientific Committee Workshop: 5 October 2011; EEA, Copenhagen

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 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 by2012/13, 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 WAVES Global Partnership for “Green Accounting” and Ecosystem Valuation –References to environmental accounts for measuring progress in Green Economy, Green Growth, Resource Efficiency… Initiative(s) in preparation for 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: SEEA2003 Enlargement of the System of National Accounts RM HASSAN - UN The System of Environmental and Economic Accounting (UN 2003) - RANESA Workshop June 12-16, 2005 Maputo Volume 1 The SNA satellite accounts for the environment expenditure, taxes, hybrid accounts, physical flows, sub-soil, energy, water, land, economic assets depletion Volume 2 Ecosystem capital accounts Ecosystem stocks and quality, ecosystem services, benefits and maintenance costs… Revision  SEEA2012/13 Negative feedbacks of ecosystem degradation on production and wellbeing Impacts on ecosystem capacity of delivering services/benefits

Products & economic assets Fossil energy & materials Biomass/carbon Water Land functional 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 potential (capacity to deliver services) Ecosystem productivity Flows Accumulation Stocks Ecosystem health (biodiversity, integrity, resilience, interdependence) Capital maintenance (to remediate degradation) Accounting for the performance(s) of 2 co-evolving systems: resources, productivity and health Economic system Ecosystem Use of natural resources

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 The narrative behind Ecosystem Capital Accounts: 1- 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

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

The narrative behind Ecosystem Capital Accounts: 2- Only a surplus is accessible for human use 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

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Natural resource: availability, appropriation, accessibility Available resource: the total resource (actual stocks and flows) which can be used in principle (but should to be shared between economy and nature…). Appropriated resource: the share of the total potential resource flows (flows which would be available in an ecosystem in the absence of human activities or flows from managed ecosystems) which is used (abstracted, harvested or destroyed during harvest). N.B.: Once used, the resource is considered as appropriated in total, even though one part is returned to the ecosystem. Accessible resource: the surplus (actual stocks and flows) which can be used considering 1) physical constraints (timeliness and location, cyclical risks, bio- chemical quality) & 2) the amount to be left to nature for ecosystem reproduction. N.B.: When returned to the ecosystem (leftovers in agriculture or forestry, water returns…) the resource destroyed or modified during the production process becomes accessible again. Ecosystem capital accounts refer to accessible resource and intensity of use.

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Accessible resource: carbon/biomass, freshwater, functional services Accessible resource = Stocks (soil, forests, aquifers, reservoirs, landscapes…) Plus/minus change in stocks (from the previous year) Minus inaccessible stocks Physical inaccessibility (deep aquifers …) Inappropriate quality (salted or polluted water, non arable land…) Plus flows (NPP, effective rainfall…) Minus inaccessible flows Physical inaccessibility (most of flood water, distance, non transportable resource, timeliness issues, water evaporated by irrigation…) Inappropriate quality (polluted water) Maintenance of stocks (soil carbon, forests, aquifer level, dilution of pollutants in rivers…) Plus/minus adjustment for stress, risk

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Example of accessible water adjustment: occurrence of soil water stress Number of days when no water was available for plants in 2001, 1 km^2 grid Provisional results Source: Blaz Kurnik, EEA, 2011

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 The narrative behind Ecosystem Capital Accounts: 3 – Ecosystem capital produces altogether 3 broad types of services between which there is no compensation nor tradeoff: biomass/carbon AND freshwater AND functional services. Ecosystem capital potential (& degradation) can be measured by combining measurements of these 3 broad services (accessible resources). Accessible carbon surplus Accessible water surplus Accessible ecosystem functional services Total Ecosystem Capital Potential & Ecosystem Capital Degradation Ecosystem Capital Depreciation (€)

GDP, National Income, Final Consumption at Purchasers’ price Healthy ecosystem deliver services to the economy & to the public well-being Ecosystem assets/capital (  ) The narrative behind Ecosystem Capital Accounts: 4 – The simplified ecosystem capital accounting circuit Adjusted macro economic aggregates  Adjusted capital consumption  Final demand at full price  Adjusted net domestic product (or net national income)  ES based economic benefits (€)   Ecosystem degraded by over-use (  ) Economic system (including natural assets & ecosystem services (   and € ) Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Non-paid costs needed to remediate ecosystem degradation ( € )

Estimation of ecosystem capital depreciation… Physical accounts of E-services  t1  t2 ()()  t2  t1 Degradation of ecosystem capital …based on remediation costs …based on assets values   & addition € t2  t1 € Valuation of E-services € € € Assessment of remediation costs by issues Assets  Flows ()() Estimation of ecosystem capital depreciation: 2 possible ways NPV & addition € € Assets €  Calculation of unit costs Account of pressures responsible of degradation Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 From theory to statistics and accounts Theoretical background (very incomplete…): –Georgescu-Roegen (The Entropy Law and the Economic Process (1971), –Odum (emergy) –Resource depletion: Hotelling, El Serafy –System approach : Joel de Rosnay (The macroscope, 1975) –Dissipative structures: Prigogine (The New Alliance, 1986) –L'économique et le vivant: René Passet (1977) –Natural resource economy: Naredo (1987) –Urban metabolism: Duvignaud –Global biotic regulation: Gorshkov –Co-evolving systems: Norgaard –Ecosystem services: Long (1972), Costanza and De Groot, Millennium Ecosystem Assessment (2003) – Interaction between scales: Hollin (“panarchy”) –Landscape ecology (UK) –Ecosystem units: socio-ecological systems (Gallopin, Carpenter, Rockström, MA2003…) –Ecosystem health (D. J. Rapport), resilience (the Resilience Alliance)  from economic-ecological theory to statistical practice and accounts : statistical units and classifications

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 From economic-ecological theory to statistical practice and accounts statistical units & classifications Source: Joel de Rosnay, The Macroscope

Main relations between classifications & statistical units in the revised SEEA (from UNCEEA 2009 – EEA & FAO)

SNA & SEEA: economic and ecosystem assets Adapted from Ivo Havinga and Daniel Clarke, 2011

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Common International Classification of Ecosystem Services (draft EEA, UNEP & UNSD) CICES: Table E.2: Proposed Thematic, Class and Group Structure – source: EEA & Roy Haines-Young, Presented at UNCEEA 2010

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 sampling, questionnaires Land cover classification based on FAO LCCS3 Land Cover Types (SEEA vol. 1) zoning and derived Land Cover Functional Units (SEEA vol.2) Source: FAO (DiGregorio and Ramaschielo) & EEA (Steenmans & Weber) 2011 provisional

Ecosystem accounting and statistical units (continued) SNA’s statistical units don’t record ecosystem degradation  need for other units… Theoretical units vs. observation units (proxies for collecting data) Theoretical units: characteristic systems into which natural and socioeconomic elements interact to transform ecosystem functions into goods and services: –Functional units producing elementary services –“Socio-ecological systems”, “socio ecosystems” or “Socio-ecological production landscapes” (the Japanese satoyama and satoumi)  Observation units: –For which we can collect data in a systematic way –Mostly surface units: “geo-systems”, land cover units, functional administrative units, ownership units… Japan Satoyama Satoumi Assessment, Satoyama-Satoumi Ecosystems and Human Well-being: Socio-ecological Production Landscapes of Japan – Summary for Decision Makers. United Nations University, Tokyo, Japan.

Land cover functional units (LCFU) & Socio-ecological landscape units (SELU) Ecosystem statistical units for land: LCFU and SELU

ZOOM: SELU in Central Europe

ZOOM: Land cover functional units by SELU

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Ecosystem-Economy integrated accounts SEEA Part 2 SEEA Part 1

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 The draft framework Basic accounts Synthesis tables in physical units Monetary accounts

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 The basic accounts by ecosystem unitsby economic sectors

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 The synthesis tables by ecosystem unitsby economic sectors

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 The monetary accounts by ecosystem unitsby economic sectors

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 About ecological debts… Territorial CEC is a debt to national future generations, it is not transferable CEC Embedded into imports and exports are both debts and should not be consolidated Gross Domestic CEC = Territorial CEC + Imported CEC [meaning: CEC of Production] Net Domestic CEC = Gross Domestic CEC – Exported CEC [meaning: CEC of Final Consumption] Physical Debts and Monetary Debts are recorded separately Consolidation rules for debts: –Physical debts are not transferable –When created by physical debts, monetary debts are not mechanically extinguished by repayment but by the extinction (remediation) of the physical debt itself; –Because physical ecosystem capital assets are not valued, monetary debts cannot be consolidated with monetary ecosystem non-financial assets; –Monetary debts can be consolidated with financial ecosystem capital assets in the context of international mitigation systems if they include initial allocations of (non transferable) ecosystem capital rights and/or recording systems for ecosystem improvement and consolidation rules. –The physical counterparts (units: Ecosystem Potential Unit-Equivalents) of approved allocations and improvement s are not transferable. However they can be leased to ecological debtors (countries, business…) Bertrand de Jouvenel 1968: “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.”

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Simplified ecosystem capital accounts in Europe Make it feasible NOW – keep it simple Don’t miss important issues: need a good checklist All ecosystems: land/sea/atmosphere, and for land: urban, agriculture, forest, other natural and soil. 6 accounts/indexes for 1 diagnosis: –1-Biomass-Carbon // 2-Water // 3-Land-landscape // 4-Biodiversity // 5- Dependency // 6-Disease prevalence –Diagnosis (instead of mere additions) and quantification: the “ecosystem distress syndrome” approach combined with basic balances… Physical accounts first, followed by valuation of selected flows and of ecosystem depreciation (on the basis of physical degradation and restoration costs – no valuation of stocks) Annual accounts (t-1 and time series) to meet the policy agenda For EU27…

Tiered approach to ecosystem capital accounting Impacts assessments, costs & benefits Local government, Agencies assessment Corporate accounting results, rating, trade Markets of specific ecosystem services, PES Accounting guidelines, norms Action level: Local scale, management, Site level, case studies, Projects, Business Beyond GDP Accounting Measurement of progress towards Green Economy/ Green Growth/ Sustainable Development/ Resource efficiency Sector accounts Green taxes SEEA 2012/13 Framework National & regional government: Ministries of economy, Environmental agencies, Strategic planning, Statistical offices, Courts Global trade of ecosystem permits Programmes assessment (e.g. REDD+) International financial standards (for loans, SDR…) Contribution to international organisations Simplified accounts Global scale: International Conventions monitoring International comparisons Markets framing & regulation Scales Methodologies Expected outcomes

t0 Total ecosystem capital potential & change t1 Improvement Degradation

Ecosystem physical degradation, sustainable benefits from ecosystem services and non-paid maintenance costs Consumption of ecosystem capital (non- paid costs) Sustainable benefits (income from key ecosystem services) Sustainable use coefficients Economic statistics & national accounts Mean restoration prices Improvement Degradation Sustainable benefits (Value Added from key ecosystem services)

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Integration of resource efficiency indicators, ecosystem capital accounts & national accounts Total Material Input GDP Fossil energy Sand, gravel… Biomass/ carbon Freshwater Land/ Landscape Biodiversity Atmosphere/ carbon assimilation Biomass/ carbon Sea/ carbon assimilation CO2 DMI Sand/ gravel DMI Water Metals,chemicals DMI/ other Conventional DMI/DMC 1st decoupling: from material/energy inputs 2 nd decoupling: from environmental impacts Sea/fisheries Inland Ecosystems DMI Carbon Integrated Carbon Accounts Water Integrated water accounts

Final Consumption at Full Price of Commodities Adjsuted Net Domestic Product // Adjusted Net National Income Adjustment of National Accounts from Consumption of Ecosystem Capital  Adjusted Net Domestic Product // Adjusted Net National Income Final Consumption at Full Price Gross Domestic Product (GDP) – or + Transfers with the Rest of World = Gross National Income (GNI) _ Consumption of Fixed Capital = National Income (NI or NNP) -- Depletion of subsoil assets -- Consumption of (domestic) ecosystem capital = Gross Domestic Product (GDP) – or + Transfers with the Rest of World = Gross National Income (GNI) _ Consumption of Fixed Capital = National Income (NI or NNP) -- Depletion of subsoil assets -- Consumption of (domestic) ecosystem capital = Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011

or Is there a Green Multiplier for Green Growth/Green Economy? Progress must be measured anyway … Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Key Indicators and Aggregates from Ecosystem Capital Accounts Net Ecosystem Accessible Carbon Surplus (Use/NEACS reflects intensity of use; it integrates resource efficiency and ecosystem) Net Ecosystem Accessible Fresh Water Surplus Green Accessible Landscape Infrastructure (and demand of services in the Neighbourhood of human settlement (GINES)) Net Total Ecosystem Capital Potential and Ecosystem Capital Degradation (integrates accessible carbon, water and landscape and biodiversity rating ; ECD is decomposed by stress factors  basis to calculate Consumption of Ecosystem Capital in €) Final Consumption at Full Price (the full cost of commodities in € integrates purchasers’ prices and non-paid domestic consumption of ecosystem capital (CEC), and relates to unfair trade and ecological debts) Imports at Full Price (total of imports at CIF price and Ecosystem capital depreciation virtually embedded into imports) GDCEC Adjusted Net Domestic Product (or/and Net National Income, or/and Net Savings) (complete adjustment of Net Product, Net Income or Savings includes in addition the depletion of subsoil resource.

Jean-Louis WeberEEA Scientific Committee Workshop 5 October 2011 Thank you! Jean-Louis Weber