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The natural capital revolution

By Dieter Helm
The decline of the natural environment has been one of the constants for the last century. As population has gone up, the intensification of agriculture, housing and infrastructure development has crowded in on a diminishing inheritance. The twentieth century is a story of cars, tractors, chemicals, airports, roads, factories, power stations and buildings. These dominate our landscape now.

Natural capital is a hard concept. Whereas sustainable development can mean almost anything, natural capital is about assets, which can be measured. Failing to maintain natural capital, by not doing enough capital maintenance, is hard to hide.

The economy cannot get by any more with less nature: natural capital has moved from being part of the economy to a core component. It is time to stop the rot for the sake of the economy. This is what the coalition government decided, when it committed in the 2011 White Paper, The Natural Choice, to leave the natural environment in a better state for future generations.

The 25 year plan is the means to this end. The Conservatives, the Liberal Democrats and the Labour Party all supported it in their manifestos at the 2015 general election. To break the task down into manageable pieces, the government announced in summer 2016 that there would be four ‘pioneers’ – a river catchment, an urban area, a landscape restoration area, and a couple of marine zones. This is sensible, provided that these are not just case studies, but rather provide templates for the rest of the country. The catchment pioneer in Cumbria needs to inform all the other catchments, and the urban pioneer in Manchester needs to be carried over to all the other urban areas.

So far so good. But there are now formidable challenges to turn these early initiatives into a credible 25 year plan. First, there needs to be a clear conception of what the ‘prize’ looks like in 25 years’ time. What exactly will be better? And, where damage continues to be done, what compensating improvements will be made? 
 
It is not hard to predict what will get worse, and therefore what will need to be compensated for. HS2 takes out ancient woodlands. 200,000 houses per year take up a lot of land. The Green Belt is under threat – indeed it is currently being built on. The perhaps 10 million more people over the next 25 years will need to live somewhere, have more roads to drive on, and presumably will want airports and energy and water to underpin their consumption. Land will be needed and will be used.
 
With these pressures in mind, it is imperative to identify the compensating improvements, and to make sure they are targeted on those natural capital assets which add most to people’s lives and opportunities, and hence to the economy. These are multiple – from health, leisure and recreation, to green spaces and education and the biodiversity that supports them. The opportunities are enormous: think of the polluted air of our cities, the poor health that results and the obesity from lack of exercise that confront our economy. Think of the declining quality of the soils, the loss of pollinators and the pollution of our water systems. Dealing with all of these will make us healthier and wealthier.
 
Natural capital, like other forms of capital, lends itself to accounting and measurement. The starting point is to list out the assets, and create asset registers. The really important natural capital assets are renewable ones – the things nature gives us for free, and then keeps on giving us for free. 

Think of herring stocks in the North Sea. Provided they are not overfished, nature will provide free herring for us forever. But overfish, and drive the herring to the limits below which they cannot reproduce themselves, and then all those future benefits are lost – forever. The value of what is, in effect, an infinite stream of benefits to us is a big thing to lose, and economically stupid. 
  
Other sorts of natural capital – the non-renewables – are just that. They can be used once. Think of North Sea oil and gas, think of minerals. We should not just consume them for our current benefit without regard to the future. My generation has had all the benefits, and left nothing for the future. The right way to account for these sorts of assets is to spread the benefits into the future, and therefore create a natural capital fund (a sort of sovereign wealth fund) – as the Norwegians have done.
 
This accounting is radical. If the aggregate of natural capital is not to decline, capital maintenance is required. This should be the first claim on the economy – and on the Chancellor’s budget. To be fair, some of this is provided for. The National Parks get budgets, as does Natural England to look after assets, and a small part of the Common Agricultural Policy provides for the maintenance of some of the rural landscapes. The trouble is that it is very inefficiently spent, and there is not enough.
  
What follows are two big questions for the 25 year plan. The first is, how is it going to be governed? The second is, how it is going to be funded? Unsurprisingly there is a bandwagon around natural capital, which has (rightly) become the next ‘big idea’.

All the current agencies and public bodies think they have a role. Then there are new and existing NGOs, which want to capture the agenda with protocols and other frameworks. 

The danger in all this is that it goes the way of sustainability, and the hard concepts, the capital maintenance and the asset registers, get lost in the blitz of special interests and lobbying. It cannot be stressed strongly enough that there are right ways to identify, measure, value and maintain natural capital assets. Anything does not go. The 25-year plan needs someone to be in charge, and someone to deliver. Just who this is, and what their statutory role is, remains a crucial agenda item.
  
The second task – funding – is both more and less challenging than some would suggest. Currently a great deal is spent on maintaining and enhancing natural capital. It is just that it is done very badly in most cases. In a typical river catchment for example, there are large agricultural subsidies, water companies spend a lot on cleaning up the water systems, there are nature reserves and protected areas, SSSI and so on. We do not start with nothing.

What is missing is a coherent and credible framework for funding on a generational basis, grounded in proper natural capital accounts. In my book, Natural Capital, I suggest a Nature Fund and set out how the revenues might be channelled and directed. 

Our time could be the turning point, from decline to stabilisation and then enhancement of our natural capital. This is the prize within our grasp. 

Or it could be the point where we fail, and the damage starts to make really big impacts on our economy and our wellbeing. The 25-year plan is the chance to regain the initiative.

Professor Dieter Helm is Fellow in Economics at New College, Oxford, chairman of the Natural Capital Committee and author of Natural Capital: valuing the planet, published by Yale University Press in paperback in 2016.

Natural Capital: reflections by the President
We are very grateful to Dieter Helm for taking the time to give us his insight into the deliberations of his Natural Capital Committee. Dieter and I shared a platform and he kindly mentioned that many organisations were now turning their attention to the topic of Natural Capital, offering to collaborate on taking it forward.

The Natural Capital Committee has now released its latest report. One of its key recommendations is that the new National Infrastructure Commission (NIC) should incorporate natural capital, including its maintenance, restoration and recovery, into long-term infrastructure plans.

Placing an objective value on the elements that support life will be a real achievement but to restore the natural state of air, water, soil and biological systems will have huge implications for the economy, accepting absolutely the argument that failing to restore them is something we cannot afford to do. We are keen for a common, evidence-based approach to be developed collaboratively by the combination of professions working across the natural environment. The challenge of course is whether the Government really can see beyond the short term of both political and financial horizons to the longer-term horizons our natural assets deliver for. Let us hope so.

What will success look like? Living in our cities will be transformed, breathing might even be good for you! We might even turn the corner on our commitments to reducing greenhouse gases and as a small island we might start to produce food sustainably. 

On 8 February I met the Natural Capital Committee in Westminster and offered the services of Landscape Institute members to help deliver its agenda. Was this is a reckless offer? Not at all because on every commission our starting point has to be pursuing clean air, clean water and restored soils to sustain any quality of life. We should be transforming every landscape for the health and wellbeing of the nation, ensuring that every landscape is teeming with wildlife in both town and country.

Merrick Denton-Thompson 
President

Read the full report at
https://www.gov.uk/government/publications/natural-capital-committees-fourth-state-of-natural-capital-report

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