Natural capital

In economics, capital is one of the main factors of production . The concept of capital refers to the set of assets that can be used to produce multiple goods and services.

Generally, the measurement of capital includes goods such as tools or work equipment, machinery, buildings, roads, etc. Since the sum of these different types of goods is almost impossible, economists have opted for monetary valuation and aggregation.

The concept and empirical measurement of capital has been extended to the economic valuation of human abilities (human capital), as well as the benefits of nature (natural capital).

Daly Costanza and Herman Daly in their article "Natural Capital and Sustainable Development" (1992) defined natural capital as any stock that generates a flow of natural goods and services over time.

This natural stock includes the mineral-energy reserves, the diversity of plants and animals in a region; as well as soil fertility, fresh water availability, air quality, maintenance of biogeochemical cycles (carbon, nitrogen, etc.) and climatic stability.

Quantification of natural capital

According to Gómez-Baggethun and de Groot (2007), the different approaches used to quantify natural capital are:

• Approaches based on human preferences:
  • The market value seeks to determine the monetary price of each good or service in the market. Related to the concept of externalities.
  • Sociocultural perception includes sociological aspects such as the identification of a culture or society with the territory (orography and hydrography) where it lives.
  • Group deliberation points to a social choice that adds the preferences of the population. Many people can be taken into account, but that makes decision making even more difficult.
• Approaches based on physical costs:
  • The land or sea surface that will be used for different economic projects is measured in order to estimate the amount of plants and animals present in the area.
  • The quantification of the energy cost of the different production, distribution and consumption processes helps to find moments in which there is a greater expenditure of energy and it can be saved.
  • The biogeophysical value approach relates ecology, biology and geology. With different measurements, scientists are discussing whether we are already in a new geological era that could be called the Anthropocene or Capitalocene.

Degradation of natural capital

In the last 50 years there have been various reports that emphasize the environmental unsustainability of the capitalist economic system. Here we will not enter into discussions of anthropological, sociological, physical-chemical or geological issues; but eminently economic.

In the Inclusive Wealth Report, prepared by a UN agency, it is found that despite the fact that manufactured capital (as a proxy variable for GDP) has been increasing, natural capital has decreased over time.

These results indicate and highlight a profound problem: the economic growth that has been promoted for many decades has deteriorated natural resources. In some areas of the world this devastation is remarkable.

The main causes are due to the overexploitation of natural resources, the expansion of the agricultural-livestock-fishing frontier, the recurrent use of fossil fuels (coal, oil and gas).

The main consequences are erosion, desertification, water and air pollution, accelerated loss of biodiversity, melting glaciers, rising sea levels, and altering biogeochemical cycles.

For these reasons, for many people the outlook seems very bleak. However, it should be noted that the member countries of the United Nations have made efforts to agree on common goals. The Sustainable Development Goals insist on caring for terrestrial and marine ecosystems, and therefore, on the conservation of natural capital.

References

Gómez-Baggethun, E. and de Groot, R. (2007). Natural capital and ecosystem functions:
exploring the ecological foundations of the economy. Ecosystems. Vol. 3, pp. 4-14.