8th April 2020 By Tom McKenna
Background: GDP and beyond
Since the Second World War a country’s success has usually been measured by its Gross Domestic Product (GDP). The logic being that as a nation’s citizens become better-off, they are able to meet more of their basic human needs, and ultimately this improves their wellbeing. However, as nations have developed and basic needs are more commonly being met, the link between GDP and wellbeing becomes less obvious. GDP also struggles to account for benefits that can’t be monetised and traded on markets – community values, social values and environmental benefits - these benefits often fall under the umbrella of Social Capital and Natural Capital. GDP also doesn’t account for unpaid work, such as social care and housework, as I write this in the middle of the COVID-19 pandemic, the value of social care and volunteers is huge and immeasurable. Furthermore, GDP increases due to events that have a large expenditure, including environmental disasters or war. Bobby Kennedy described GDP by saying “it measures everything in short, except that which makes life worthwhile.” It is clear that GDP is no longer a suitable proxy for wellbeing, and a wider approach needs to be taken.
Natural capital is our ‘stock’ of land, air, water and biodiversity. This stock underpins the economy by producing value for people, both directly and indirectly. These natural assets (habitats and ecosystems) are valuable to people because of the benefits they provide. These benefits, or ecosystem services, can be sorted into three broad categories;
Most of the benefits provided by nature can’t be traded (e.g. how can you trade aesthetic values?) and therefore don’t have a ‘market-value’ or monetary values. In essence this means that these benefits aren’t taken into account in economic decision making. These benefits aren’t captured in Gross Domestic Product (GDP), the traditional metric for understanding human wellbeing, this is despite the large, obvious and direct contribution of the environment to human wellbeing.
What is the Natural Capital Asset Index?
An indicator was required to more directly track the contribution of Scotland’s natural habitats to the wellbeing of Scotland’s citizens. In 2015 Scottish Natural Heritage developed its Natural Capital Asset Index (NCAI). The NCAI is a change indicator and tracks changes in natural capital since the year 2000; unlike other national natural capital accounts the NCAI does not use monetary figures and instead shows relative changes. It forms part of the Scottish Government National Performance Framework (NPF) focussed on sustainable and inclusive growth.
The NCAI works on the premise that if we know the type and extent of habitats in Scotland, what benefits these habitats can provide, and how people value these benefits, we can attribute a relative value of ecosystem services to human wellbeing. This calculation can be repeated over time (annually) to understand whether our natural capital is creating more or less benefits over time. It also allows us to understand the types of benefits we are getting from the land, and can help decision making. The NCAI uses EUNIS classification (EUropean Nature Information System), this is used to differentiate different habitats in Scotland into clear categories. By using these categories, we can gain a better understanding of the benefits we will gain from these habitats (e.g. timber from forests, water retention from peat bogs).
Figure 1: Flowchart of inputs and weighting processes behind the NCAI.
Habitats that are in better condition are able to function better, and are able to provide more, better quality ecosystem services. The NCAI uses 38 environmental indicators to assess the quality of habitats across Scotland. Indicators may represent a specific ecosystem service flow across several habitats, other indicators will provide information about specific habitats.
Data is then combined through a series of weighting processes; the final output value is tracked in relation to the year 2000 benchmark. Annual changes are reflected as a percentage change relative to the 2000 value (100).
Results of the 2020 update
The 2020 update of the NCAI includes data from the last available year, 2018. The headline figure shows the natural capital continues to increase at a slow rate (0.1%), underlying data has shown a mix of increases, decreases and no-change.
The index has increased for the last six years and is now at the highest this century. Increases of 1.4% over the past mean that natural capital is classed as being in a ‘maintaining’ state according to the National Performance Framework. Despite recent improving trends, the potential of Scotland's habitats to contribute to human wellbeing remain a long way below historic levels.
2018 represented a difficult year for Scotland’s environment, a cold winter typified by the ‘Beast from the East’ was followed by an unusually hot and dry early summer. The mixed results of the index was typified by the 36 quality indicators used in the index; 11 increased, 13 decreased and two stayed the same. We were unable to obtain update data for 12 of these indicators in time for this update. Climate change could mean that these unusual weather events could become more common – Scotland’s nature can help to mitigate the impacts of these events – by slowing water flow and reducing flooding or providing cooling in cities are two examples. Scotland’s nature will also sequester and store greenhouse gases, reducing the warming in the future.
Tom McKenna is an Economist with Scottish Natural Heritage, and Project Manager of the Natural Capital Asset Index. Tom is on twitter: @tommckenna_