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Accounting for Natural Capital - Breaking the Carbon Budget

Winter 2020

Objective

To explore how rethinking natural and human capital accounting can inform fairer and more sustainable global carbon budget policies, highlighting the need for equitable climate action through better asset valuation and policy alignment.

Key Concepts

  • Carbon Budget: Global limit of 850–1550 GtCO₂ to stay below 2°C warming.
  • Natural Capital: Earth’s stock of resources and ecosystems (e.g. air, water, land, biodiversity).
  • Human Capital: Educated, healthy, skilled populations driving sustainable development.
  • Disparity: Only a few of the 195 Paris Agreement signatories are on track to meet targets.

Data & References

  • Reports Cited:
    • World Bank’s Changing Wealth of Nations 2018
    • McKinsey Global Institute’s Reduced Dividends on Natural Capital
    • Nationally Determined Contributions (NDCs) from Morocco, Costa Rica, The Gambia
    • Climate Action Tracker (CAT)

Capital Stock Analysis

  • Natural Capital undervalued → exploited beyond replenishment (Tragedy of the Commons).
  • Accounting Frameworks:
    • EVA (Ecosystem Valuation & Accounting) by Conservation International.
    • SEEA (System of Environmental-Economic Accounting) – harmonized with GDP.
  • World Bank Findings:
    • Global wealth ↑ 66% from 1995–2014; human capital = 2/3 of global wealth.
    • Natural capital = 9% globally, but nearly 50% of low-income countries' wealth.

Country Comparisons & Leadership

  • Top Performers:

    • Morocco: 42–52% renewable energy by 2030; Noor solar plant = global model.
    • The Gambia: Massive forest restoration + solar PV expansion.
    • Costa Rica: 98% renewable electricity; moratorium on oil drilling.

  • Lagging Nations: Developed countries with high historical emissions.

Policy & Effort-Sharing Frameworks

  • Equity Principles Used for Carbon Budget Allocation:

    • Grandfathering (GF)
    • Per Capita Convergence (PCC, IEPC)
    • Equal Cumulative Per Capita Emissions (ECPC)
    • Ability to Pay (AP)
    • Greenhouse Development Rights (GDR)
    • Cost-Optimal (CO)

  • Conclusion: Equity-driven models often result in negative budgets for wealthy nations, implying the need for urgent and ambitious policy reform.

Case Studies & Models

  • Three Gorges Reservoir (China): Demonstrated negative decoupling between land use and sustainability; emphasized need for stronger ecological policies.
  • Zhang et al.: Introduced a formula to measure sustainability via land capital utilization ratio (stock vs. flow).
  • van den Berg et al.: Compared seven effort-sharing models; illustrated massive implications on fair carbon budget distribution.

Recommendations

  • Recognize natural capital as core to wealth and development.
  • Encourage mainstreaming of natural capital accounting in government and business decisions.
  • Use Natural Capital Protocol to help businesses balance growth with ecological impact.
  • Invest globally in ecosystem services (e.g. coral insurance, mangrove protection).
  • Pursue coordinated international response, particularly for climate-vulnerable regions.

Conclusion

  • Rethinking economic progress by incorporating natural capital valuation is critical.
  • Equity, transparency, and long-term vision must guide global carbon budget negotiations.
  • Collaborative leadership from both developed and developing countries is key to climate resilience.

Full report available here.