Natural capital, national performance and the economy

Saturday, 1st July 2017

On 28 June an ESCom Scotland event presented work by SNH, the Fraser of Allander Institute, SRUC and the James Hutton Institute assessing Scotland's natural capital and its impacts on the wellbeing and the economy

Natural capital underpins and supports human society. But that relationship is often difficult to measure and nature may be invisible in our decision making tools and models. There is growing interest in how we can both measure changes in natural capital and develop our understanding of how those changes then impact on society. This societal impact can be considered in terms of our wellbeing and in the impact on the economy.

An ESCom event ‘Natural capital, national performance and the economy’ on 28 June introduced some of the different strands of work taking place in Scotland that aim to understand how natural capital contributes to our national wellbeing and the economy. Developing this understanding may help us to determine how sustainable our use of natural capital is, and where important opportunities or risks exist.

Scottish Natural Heritage has been at the forefront of natural capital assessment through the development of its Natural Capital Asset Index (NCAI) SNH’s Paul Watkinson opened proceedings with a presentation on the NCAI including its recent revision. Paul explained how the index builds on the potential for Scotland’s habitat to deliver a range of ecosystem services through interactions with 38 environmental indicators. Although Scotland’s natural capital has declined, particularly between 1950 and the 1980s due to habitat and land use change, recent trends have shown an overall stabilisation. There remains some variation across habitats with inland and coastal waters and woodland showing improvements since 2000. However, agricultural habitats and upland habitats such as heathlands and bogs have shown declining natural capital.

The NCAI has also been adopted as one of 55 indicators in Scotland’s National Performance Framework. These indicators cover a range of economic, environmental and social outcomes and provide a broad measure of Scotland’s national wellbeing.

Discussion following Paul’s talk focussed on the role of expert judgement in developing the links between natural capital assets such as habitats and indicators of the ecosystem services that provide societal benefits. The NCAI is subject to revision and will respond to improvements in indicators and knowledge.

A question was also asked about whether economic values might be applied to the NCAI, this lead on to Alistair McVittie from SRUC’s presentation on developing natural capital accounts for Scotland.

Alistair explained that whilst such accounts can simply include biophysical information on the stocks of natural capital assets such as habitats, the Scottish Government’s Strategic Research Programme is funding research to understand how those assets deliver ecosystem services, how those services might change and how the benefits they provide can be valued. The presentation included an overview of UK level work on farmland and forest accounts by the Office of National Statistics, and noted that when considering Scotland level data there are some interesting trends in land use change that warrant further investigation. For example, CAP reform in 2014-15 prompted some counterintuitive changes in grassland cover that may affect ecosystem service benefits. Understanding the spatial aspects of such changes at appropriate scales is a key ambition of the accounting work.

Alistair also discussed current research in Scotland to value ecosystem services from both farmland and forests and woodland. This included valuation of the biodiversity and water quality impact of farmland management, and the recreational benefits of woodland. Preliminary results from the latter highlight the importance of both large forests and smaller woodland patches for recreation.

Discussion following this presentation covered the potential to look at very detailed farm data to understand the changes in management observed in regional data. This will be important to help understand how policy influences management and in turn what the impacts on ecosystem services might be.

The final presentation was by David Comerford from the Fraser of Allander Institute and covered their work on incorporating natural capital into models of the wider Scottish economy (also funded under the Strategic Research Programme). The aim of this work is to understand how changes in natural capital can have impacts on Scotland’s GDP and employment, and how changes in economic activity impact upon Scotland's natural capital. David explained that natural capital inputs are implicit within the existing economic models but the challenge is to identify how changes in the quantity or quality of natural capital impact the economy particularly where prices can obscure those changes. Aims of this work include identifying the wider impacts of changes in red meat consumption including greenhouse gas emissions.

Discussion on the wider economic impacts of natural capital noted the particular difficulties of teasing out the role of natural capital. It cannot be identified as a distinct sector; instead it is pervasive throughout the economy both as an input but also playing a key role our general wellbeing with impacts on our health and productivity.