Integrating distributional concerns into natural capital accounts

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The natural capital concept is gaining traction in political and economic discourses in Scotland. For instance, Scotland’s Economic Strategy deems natural capital enhancement and ensuring sustainability as fundamental to a healthy and resilient economy. Some months ago, the Scottish Government published a regional set of natural capital accounts. These accounts intend to reflect the contribution of nature to relevant economic sectors and industries in Scotland, such as agriculture, forestry, fishery, water, mining, oil and gas or renewable energy. These accounts also include the natural capital contribution to society achieved by removing air pollutants, providing recreational opportunities and mitigating climate change. In this blog, I use recent natural capital developments in Scotland to promote the relevance of making the distribution of natural capital ownership (e.g. soil, water, ecosystem, energy and mineral resources) and the benefits these assets provide more explicit in natural capital metrics.

Distributional concerns regarding natural capital and their services

The distribution of income, consumption and wealth is important in relation to equity as well as for economic efficiency. As Stiglitz and coauthors advocate , unequal distribution of economic resources lessens the impact of economic growth on reducing extreme poverty. Distributional issues involving natural capital and ecosystem services have yet to be properly analysed, even though deep concerns on how benefits arising from nature are distributed are at the heart of the Convention on Biological Diversity. Knowing how the property rights of natural assets are assigned is critical for understanding the distribution of both the economic rents (i.e., returns to natural assets or the surplus value the owner or user of a natural asset gets from its use) and public goods derived from natural capital. This knowledge deficit also concerns the estimation of the part of the economic rent taken by the agents holding the use rights for natural capital, and the part transferred to the government through taxes to natural resources extraction.

The distribution of wealth and income in Scotland is acknowledged to be unequal , with 10% of wealthiest households owning 43% of total net wealth. This also holds for rural land ownership, which is highly concentrated in comparison to other countries. According to Elliot and coathors (2014 ) less than a thousand landowners hold 60% of total private rural land in Scotland. As many natural capital use rights are attached to land, a concentration of ownership necessarily implies a relatively small number of households taking a large part of the economic rents derived from using natural capital to produce private goods such as food, timber, energy or minerals. Carbon sequestration, air pollution removal, water abstraction and recreation, in contrast, are public goods that exhibit non-excludable features. As a result, these latter ecosystem services are expected to have a beneficial effect on the welfare of a larger number of individuals in Scotland and beyond. A relevant practical aspect that I find crucial to consider here, is that ecosystem services displaying public good features can be at risk, when more profitable and less environmentally-friendly land management practices are adopted as strategies to increase revenues from land, especially when the provision of many public goods may depend on mantaining good environmental conditions.

Final reflection

Natural capital accounting opens up a new dimension for monitoring and addressing inclusive growth objectives in Scotland. The analysis of wealth and income distribution in connection to natural capital is a research line yet to be properly analysed, which promises to provide a better idea on how natural capital is contributing to welfare and income generation across different societal groups, in turn potentially leading to more inclusive environmental and sustainable development policies.

References

Elliot, A., Watt, J., Cooke, I., Tabor, P., 2014. The Land of Scotland and the Common Good. Report of the Land Reform Review Group. Scottish Government.
ONS, 2018. UK natural capital: Ecosystem service accounts , 1997 to 2015. Office for National Statistics.
Scottish Government, 2017. Wealth and Assets in Scotland 2006-2014. Communities Analysis Division.
Scottish Government, 2019. Scottish natural capital: Ecosystem Service Accounts, 2019. Edinburgh.
Stiglitz, J.E., Fitoussi, J.-P., Durand, M. (eds), 2018. For Good Measure: Advancing Research on Well-being Metrics Beyond GDP. OECD.

Contact details:

Paola Ovando Pol, is an environmental economist, and Macaulay Development Trust Fellow in Natural Capital at the The James Hutton Institute in Aberdeen. Contact: Paola.OvandoPol@hutton.ac.uk
 

Disclaimer: The views expressed in this blog post are the views of the author(s), and not an official position of the institute or funder.