Natural Capital – Value for Money

Jan 24, 2020

‘Natural capital’ was a key feature of the government’s long awaited 25-year plan for the environment.

Natural capital describes both stocks of assets (such as soil, biodiversity, trees, air and water) and the flow of ecosystem services from those natural capital assets. In the case of soil, for example, these services include food production, carbon sequestration and water regulation. 

In some respects, these terms are purely a change in language – farmers already do and have done lots to build natural capital and provide valuable ecosystem services through years of participation in agri-environment schemes and other environmental schemes.

Monetary values are also now being assigned to natural capital assets and ecosystem services and a natural capital ‘approach’ is where these monetary valuations can be taken into consideration in policy decisions.

On this, the government’s Environment Plan states that over the next 25 years policy choices will be better-informed with a natural capital approach.

The thinking is that just as a tractor, for example, provides you with a range of benefits, nature also provides beneficial services. However, although your tractor has a market value, nature’s services are not generally traded, therefore, do not have a market value and are considered to be delivered ‘free’.

But these are vitally important to our wellbeing. Despite its importance, the value of natural capital and its services does not often feature in economic analysis, which drives decision making for policy design or informs business decisions.

It is still an emerging concept but organisations like the Forestry Commission have developed their own, albeit initial, organisational accounts and the Office of National Statistics is also beginning to compile a series of natural capital accounts for the UK, including farmland accounts, alongside the GDP, as a broader indicator of our economic wealth.

Back to the Plan – it quite clearly states that the natural capital approach will be ‘a feature’ in any new environmental land management system post-Brexit, setting out quite a clear direction of travel.

So, we can expect that monetary values will be assigned to natural capital assets of soil, trees, water and air based on the many benefits provided to both agriculture, but also to the broader society. These benefits are public goods and by valuing the role farmers play in safeguarding or enhancing our natural capital, there is a justification to pay farmers for their personal and financial investment as guardians of the environment.

The challenge will be in ensuring that this approach can go hand in hand with food production and allow farmers to remain responsive to market demands but also delivering a fair financial payment for the services provided.


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