BY KATIE - MYGREENPOD, 17 February '16

Research team develops an equation to calculate the value of natural capital

Joshua Abbott, an economist and sustainability professor at Arizona State University, believes he can calculate a dollar value for natural capital using an interdisciplinary equation he developed with his research team.

Using the equation, the team – comprising lead author Eli Fenichel of Yale and colleagues from California State University at Chico, Michigan State University and the National Oceanic and Atmospheric Administration – believes the current monetary value of natural resources such as standing forests, healthy aquifers and living organisms can be estimated.

Natural vs traditional assets

Abbott states that we need to start with the same economic principles used to value traditional assets, then factor in changes in ecosystems and human behaviour that influence the appreciation or depreciation of that natural resource.

The result is a figure that can be compared on a balance sheet with traditional assets like real estate, factory machinery and infrastructure.

‘Without an apples-to-apples valuation approach, the value of natural capital cannot be measured against other assets and expenses. Our work can help governments and businesses track the sustainable use of natural resources.’

Joshua Abbott, economist and sustainability professor at Arizona State University

The authors’ quantitative framework suggests natural capital can be valued in a way that’s grounded in economic theory, accounts for biophysical and economic feedbacks and can guide interdisciplinary efforts to measure sustainability.

Applying the theory

To illustrate their framework, the authors applied it to the value of groundwater in the Kansas High Plains Aquifer. The aquifer is rapidly depleting as farmers use the water to support food production.

Over the decade of 1996 to 2005, according to the authors’ calculations, Kansas lost approximately $110 million per year (2005 USD) of capital value. By depleting groundwater and changing the way they managed the aquifer, Kansas created an annual loss in wealth approximately equal to the state’s 2005 budget surplus.

‘Kansas can improve the sustainability of its agricultural system through careful groundwater management, such as policies that truly foster water-efficient agriculture, and investments in other natural and traditional assets to help offset its lost water wealth.’

Eli Fenichel, lead author

Measuring sustainability

Globally, groundwater supports 40% of the world’s food production. Abbott says the framework they have published would apply to any groundwater supply, not just the Kansas aquifer. It can also be applied to other natural resources.

Previously, the authors calculated the value of fish in the water compared with fish sold at market.
The authors’ framework can help policy makers develop better measures of local, regional or even national sustainability – a need expressed by prominent agencies such as the World Bank and United Nations Environment Programme.

‘Sustainability is ultimately about making sure that the portfolio of assets we give future generations – including natural capital, but also our knowledge and physical infrastructure – is at least as valuable as the one we inherited.

‘Our research helps us do a better job of bringing nature into the balance sheet of society, so that policy makers and business leaders can do a better job of evaluating tradeoffs.’

Joshua Abbott, economist and sustainability professor at Arizona State University

The research was published in the Proceedings of the National Academy of Sciences.