Q: How Do We Put a Value on Nature? A: With the Right Accounting System

Q: How Do We Put a Value on Nature?

A: The short answer is, “with the right accounting system.”

I’m not sure if that is too snarky of an answer but it is essentially addresses the dilemma, we — humanity — are in. When I am asked that question, I usually assume it is being asked from a philosophical or ethical perspective, rather than an economic perspective. It is akin to someone asking how we put a value on the lifetime of a person. Most everyone views their children as priceless, yet other people divide your children’s life into years, weeks, days, and hours and puts a value on those increments of time that the person, perhaps your child, has on this earth. Not everyone views this as ethical, but it is a common socio-economic norm.

The result is that society has taken a person, whose life you view as priceless, and applied an accounting system to that life and then prices out their life increments and makes a payment based on the time and what the person does with their time.

And so, the question of “How do you put a value on a person’s life?”, is answered with “a time-based accounting system”.

The Earth is Not for Sale

Nature is also priceless. Nature just isn’t something on Earth, nature is Earth. It is far more correct to say that planets are alive or not alive, than to say there is life on a planet or not on a planet. Life is what makes a planet what it is. Life’s output is infused into the composition of rocks, soil, water, atmosphere, and all the spheres of a living planet. Life changes the business of the planet. Massive pools of hydrocarbons exist within the planet because of life and the atmosphere composition is dictated by life. The question is not “can life on a planet change the business of the planet”, the question is “how is life changing the business of the planet”.

Humans are Changing the Earth’s Business Model

It is pretty hard to speak for Earth, but it appears the business model of Earth as we know it is to generate life — as many life forms in as many places as Earthly possible. And then to take all the outputs of life and store all that carbon-based material in as many places as possible. Underground as oils, coals, and tars, in the soils and peats, under the oceans, in sedimentary rocks, and in the air. Under this business model, a lot of variety of life exists within customized ecosystems in a fairly comfortable climate range and a hydrological cycle that supports reserves of freshwaters on the surface and within the Earth’s layers.

As a predominate life form, humans are changing the Earth’s business model to un-sequester carbon, revamp ecosystems, reduce niches and species, and use, reuse, and discharge freshwater reserves from surface and aquifer waters that fundamentally changes the input and outputs of Earth’s business.

The disparity between the two versions of these business models was made most apparent when Europeans brought their industrial business model to the America’s ecological business model a couple hundred years ago. At breakneck speed, even relative to a human timescale, we undid the Earth’s work.

The result of directing as much human capital to employ as much physical capital to convert as much natural capital into as much financial capital as humanly possible was the creation of the largest group of wealthy people — or barons — in the history of human kind.

And during this 200 years or so, the natural capital ledger never officially changed. The economists could clearly see that someone had to pay for their lunch as they dined on trains heading back east, but could not see that someone is going to have to pay for the natural capital that was being consumed. They put the lunch bill on their ledger, because one existed, and did not put the natural capital bill on their ledger because one does not exist.

Nature is Magical, but not Magic

Nature is wonderful, but it is not magic. It follows the same physical and biological laws as the rest of Earth and Earthlings do. Natural capital, the economic term for nature’s capabilities, has structure, processes, and functions that can be compared to the physical capital of a human-built factory. If the factory is degraded, its output is decreased. If improvements are made, the reverse often happens. If you inherited a brand new factory, you could invest little in it over a couple of decades and make millions while it degrades. When you are old and wealthy, someone else could inherit it or buy it and figure out what can be done with it or depreciate the remaining value. That strategies does get employed, but more often people maintain their physical capital because it is on the ledger and the socio-economic system recognizes the value of it. Natural capital has no functioning or coherent accounting system and so liquidation rather than investment are both seemingly rational economic strategies.

Q: How do you put a Value on Nature? A: With a Geo-Spatial Accounting System.

The question of how did humanity reach its point in history without accounting for natural capital is fairly easy to answer. The difficult question is how will humanity get to where it wants to go without accounting for natural capital.

It is reasonable to say that humanity won’t get to where people want to be in 50 years if we don’t create and adopt a natural capital accounting system. If economists can collectively understand there is no such thing as free lunch, I would assume the idea that free natural capital would begin to seem absurd to them.

The concept is relatively simple. Natural capital has structure, processes, and functions just like a factory and the natural factory has outputs we refer to as ecosystem services. Of course, the natural factory is alive and so ecologists and biologists are needed rather than mechanical engineers.

The functional layers identified in the graphic are contained in a NCU (natural capital unit) which forms the basis of the accounting system. NCUs support vertical accounting such that is used to manage for productivity and horizontal accounting that supports data transactions with entities interested in specific ecosystem service outputs.

To participate or invest in the EcoCommerce Marketplace and the NCU Platform, please connect and contact.

Tim Gieseke manages natural capital and is the author of three books that outline the environmental, socio-economics, and governance of instituting a natural capital accounting system and employing EcoCommerce.

Collaborative Environmental Governance Frameworks: A Practical Guide (2019)

Shared Governance for Sustainable Working Landscapes (2016)

EcoCommerce 101: Adding an ecological dimension to the economy (2011)