Scottish Natural Capital Accounts 2022

Annex A: The Natural Capital Asset Index and the Natural Capital Accounts – How Do They Compare?

An alternative appraisal of Scottish natural capital is available through NatureScot's Natural Capital Asset Index (NCAI). The NCAI is a composite index which analyses the relative potential of nature to contribute to the wellbeing of Scotland's citizens. The NCAI and national natural capital accounts provide complimentary information about natural capital in Scotland. This annex provides information on the similarities and differences between the NCAI and the Scottish natural capital accounts.

NatureScot has been producing the NCAI since 2007, and it is now part of the National Performance Framework as an economic indicator. The 2021 NCAI update was published on 26th May 2021. Adapted from the existing UK-wide accounts by the ONS in 2021, the Scottish natural capital accounts presented for the first time estimates of the value of Scotland's natural capital in monetary terms and has subsequently been updated on an annual basis. This will make it easier to incorporate natural capital into decision-making and helps demonstrate the vast contributions that the environment makes to the economy and society in terms that are more comparable to other economic indicators.

The main difference between the NCAI and the accounts is the representation of value; the accounts look to measure nature's contribution to society and the economy through commeasurable monetary terms, whereas the NCAI seeks to demonstrate the contribution of nature to the citizens of Scotland more directly. The accounts are able to demonstrate the contribution of select assets comparatively and in absolute values, which is vital for demonstrating value when compared with other types of capital. The NCAI instead looks at the contributions provided by Scotland's terrestrial ecosystems relative to each other, in doing so it is able to include a wider range of benefits and habitats.

The accounts include some abiotic benefits such as renewable energy, mineral and oil and gas deposits in their valuations; the NCAI focusses instead on living ecosystems and habitats. It is impossible to wholly accurately model the full range of benefits derived from the environment and neither the accounts nor the NCAI claims to be fully successful in doing so. Both models make considerable contributions to our understanding of the total benefits Scotland obtains from the environment and can be seen as complimentary to each other.

How they represent value

The NCAI tracks the changes in the potential of the natural environment to provide benefits to people. The accounts seek to measure these benefits directly through market and hypothetical market values and express them mainly as monetary values.

Many benefits cannot be accounted for or valued because of their intangible nature, even in hypothetical markets, as a result many of these benefits remain unaccounted for in the accounts. As the NCAI does not measure benefits directly and seeks to assess the ability of habitats to provide benefits it is therefore better able to account for more intangible benefits.

There are issues surrounding value with both the NCAI and the accounts. The NCAI has value weightings within it based on academic studies and surveys of the Scottish public. These weightings are not updated annually and don't reflect changing attitudes within the Scottish public to inform valuation. The NCAI outputs are relative to themselves and cannot be directly compared with other forms of capital such as human or produced, meaning that comparison between them is difficult. The accounts use up to date valuation of benefits. However, they often use current value to project expected benefits into the future; future values are also impacted by changing attitudes as well as by market forces which may change (for example, oil prices).

The accounts value the stock of natural capital by forecasting the benefits and use into the future. There are issues here surrounding policy changes (for example, banning sale of petrol/diesel cars and other climate change policies that would affect the projected demand of oil and gas, or increased woodland planting etc.) and how these will affect future value flows.

Abiotic services

The NCAI accounts only for biotic ecosystem services (i.e., those produced by habitats) with the exception of the provision and quality of water which is strongly influenced by ecosystem functions. The accounts on the other hand include many abiotic services, that is, services that are still provided by nature but do not require organic input. These include renewable energy and non-renewable mineral, oil and gas reserves.

The accounts do not include livestock as they consider them to be produced or man-made capital. The NCAI uses livestock numbers as one of its indicators, as a proxy for potential to supply provisioning services (i.e., food).

Biodiversity

Biodiversity can be found at many points along the value chain: it supports the ability of habitats to function effectively, contributes directly to the benefits and is valued as a benefit in itself. As a result it has always been difficult to value within the natural capital concept and complementary indicators are often used to ensure that biodiversity is not overlooked. In 2021, the UK treasury published a global review on the economics of biodiversity, known as 'The Dasgupta Review'. The review advocated for incorporating natural capital into decision making to improve outcomes for biodiversity.

The review highlighted the benefits in valuing national natural capital for the inclusion in national accounts and in tracking the changes in portfolios of natural capital stocks, as the NCAI does. The NCAI includes some broad biodiversity indicators: bird and butterfly indicators. The accounts do not currently account for biodiversity either as inputs or outputs.

Timeframes involved

The NCAI tracks changes since the year 2000; the 2021 update provides results up to 2019. A more rudimental version of the NCAI is able to demonstrate trends back to 1950 although detailed data becomes less reliable prior to 2000. The accounts, where available, provide monetary estimates of ecosystem service flows between 1997 and 2020. Historical values are deflated using the HM Treasury June 2021 GDP deflators.

What is covered

The NCAI only accounts for terrestrial habitats and assets (to the high-water mark). While marine habitats were considered during the initial development of the NCAI, a lack of data meant it was not possible to include marine habitats. A recent feasibility study suggested a marine version of the NCAI is possible but may still be limited by data availability. The accounts include terrestrial and some marine assets in the form of fish capture from the sea.

Ecosystem disservices / costs

The Scottish natural capital accounts account only for benefits flowing from different habitats; they currently do not account for disbenefits arising from changes in the environment. While the NCAI does not measure these disbenefits, it does use stress indicators to highlight negative changes to habitats (for example, increases in fertiliser and pesticide use) which can be attributed to losses of habitats and places pressure on assets to provide benefits into the future.