Natural Capital Valuation
The Asian Development Bank (ADB) releases a report on the natural capital valuation in China, aiming to provide jurisdictions with practical experience in natural capital accounting.
After the Millennium Ecosystem Assessment conducted in 2005, market participants have gradually recognized the value of biodiversity and natural resources in economic growth, and the monetary value of ecosystem products and services has been gradually incorporated into economic accounting, becoming an important component of economic growth and social development.
Related Post: EU Council Officially Approves Nature Restoration Law
Natural Capital Valuation and Accounting
The Natural Capital Coalition defines natural capital as the stock of renewable and non renewable resources that can bring benefits to humanity. The United Nations Sustainable Development Goals have included natural capital in national accounting systems for the first time, stating that jurisdictions should develop sustainable development measurement. Natural capital is considered an asset and is measured alongside financial capital, human capital, and social capital.
Natural Capital Accounting can quantify the economic value of natural resources in order to measure and report on the stock and development of natural capital. The System of Environmental Economic Accounting, released by the United Nations Statistical Commission in 2012, provides a comparative standard for different natural capital accounting methods to standardize accounting methods in various jurisdictions.
Introduction to Natural Capital Valuation in China
In 2004, the Chinese Academy of Environmental Planning introduced the green GDP accounting method to quantify the environmental costs of economic growth. The green GDP accounting method is based on the United Nations System of Environmental and Economic Accounting, and subsequently incorporates the values of ecosystem products and services. In 2014, China completed its first National Ecosystem Assessment, and developed natural capital valuation methods in 2015.
In 2017, China officially proposed the concept of Gross Ecosystem Product (GEP) to measure the total monetary value of ecosystem products and services. The GEP concept also refers to the United Nations System of Environmental Economic Accounting, covering three types of ecosystem services: provisioning services, regulating services, and cultural services. The gross domestic product of an ecosystem is the sum of the economic values of three services, and its calculation steps are as follows:
The first step is to calculate the biophysical value of ecosystem products and services. This step requires calculating the physical quantities of three ecosystem services and converting them into a single unit of measurement through a modeling system.
The second step is to price ecosystem products and services. There are three main methods for pricing, namely direct market method, alternative market method, and simulated market method. The direct market approach refers to international pricing of goods and services, the alternative market approach estimates the cost of substitution for goods, and the simulated market approach refers to consumers’ willingness to pay for goods.
The third step is to summarize the total value of ecosystem products and services, that is, to add up the total value of supply services, regulation services, and cultural services, and finally obtain the ecosystem gross domestic product.
Application of Natural Capital Valuation in China
China is developing a platform to promote the digitization of ecosystem gross domestic product accounting, in order to facilitate the application of natural capital valuation. At present, the valuation of natural capital has involved 300 million stakeholders and serves as the basis for the formulation of multiple environmental and economic policies. For example, the gross domestic product of ecosystems has been included in ecological compensation policies and ecological product value assessments, providing assistance in establishing compensation payment schemes.
Currently, among the three ecosystem services, the economic value of cultural services is relatively small, which may be due to existing research underestimating the position of cultural services or lack of appropriate accounting methods. In the future, researches on cultural services will become an important part of updating natural capital valuation methods.
Reference:
Integrating Natural Capital Valuation into Policy and Investment Decisions
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