NO.305 JUNE2024 KEYPOINTS •Seriousdegradationofecosystemassetsandserviceshasledto thedevelopmentofanenvironmentalrelatedindicatorfornationalaccountingalongsidegrossdomesticproduct. ADBBRIEFS IntegratingNaturalCapitalValuationintoPolicyandInvestmentDecisions:LessonsfromthePeople’sRepublicofChina •Naturalcapitalaccounting(NCA)usesbiophysicalandmonetarymetricstomeasureandreportthestatusandeconomicvalueofnaturalresourcesandecosystemservices. •ThePeople’sRepublicofChina(PRC)hasalonghistoryofdevelopingandpromotingthegross ecosystemproduct(GEP)indicator,adaptingNCAstandardstofititscontext. •GEPpilotprojectshave LeLan EnvironmentalEconomistAgriculture,Food,Nature,and RuralDevelopmentSectorOffice(SG-AFNR) AsianDevelopmentBank(ADB) ChristianFischer SG-AFNRConsultant,ADB SilviaCardascia WaterResourcesSpecialistSG-AFNR,ADB AuShionYee PrincipalWaterResourcesSpecialistSG-AFNR,ADB ThomasPanellaDirector,SG-AFNRADB beenconductedinmultipleprovinces,butitspolicyandpracticalimplicationsremainlimited. •RecommendationsareprovidedbasedonthePRC’sexperienceandlessons fromcountrieswithmoreadvancedNCApractices. ISBN978-92-9270-788-0(print) ISBN978-92-9270-789-7(PDF) ISSN2071-7202(print) ISSN2218-2675(PDF) PublicationStockNo.BRF240345-2 DOI:http://dx.doi.org/10.22617/BRF240345-2 GLOBALDEGRADATIONOFECOSYSTEMSANDTHERISEOFNATURALCAPITALACCOUNTING Fordecades,ecologistsandenvironmentalscientistshaveraisedconcernsaboutthelossanddegradationofecosystemassetsasaresultofeconomicgrowth.Atthesametime,economistshaveincreasinglyputeffortsintomeasuringthemonetaryvalueofecosystemgoodsandservicestoemphasizetheeconomiccontributionofecosystemstohumanwell-being.1 TheMillenniumEcosystemAssessment2005hasintensifiedthewidespreadrecognitionamonggovernmentsofthefundamentalrolethatnaturalresourcesandbiodiversityplayinoursocietyandeconomicgrowth.2Thereisconsensusthatup-to-dateinformationonthestateanduseofglobalecosystems,aswellastheir Notes:Inthispublication,“$”referstoUnitedStatesdollars.ADBrecognizes“China”asthePeople’sRepublicofChina. Theauthorsaregratefulforinputsviaprojectandtechnicalassistancework,cases,discussion,andpeerreviewfrom,amongothersNarayanIyer,MarkBezuijen,DongmeiGuo,andYuFang. 1R.Costanzaetal.1997.TheValueoftheWorld’sEcosystemServicesandNaturalCapital.Nature.387.pp.253–260. 2MillenniumEcosystemAssessment.OverviewoftheMillenniumEcosystemAssessment. Figure1:GrossEcosystemProductAccountinginthePeople’sRepublicofChina Equivalentfactorsmethodforecologicalserviceevaluationareproposed 2003 EcologicaldeteriorationcostwithGEPincludedinCEEA 2008 EnvironmentalBenefitandGEPAccounting(GreenGDP2.0) 2015 QuaternaryIndustryforEcologicalProducts 2021 2004 ChinaSystemofEnvironmentalandEconomicAccounting(CEEA)(GreenGDP1.0) 2013 GEPaccountingframeworkproposed 2017 GrossEcologicalandGrossEconomicProductionAccounting(GreenGDP3.0) CEEA=ChinaSystemofEnvironmentalandEconomicAccounting,GDP=grossdomesticproduct,GEP=grossecosystemproduct. Source:Authors’elaborationbasedongovernment’sdocumentsandstakeholders’consultation. economicvalues,isessentialtomitigatingandeventuallyrecoveringthedegradationofnaturalresources.Thishasgivenrisetotheconceptof“naturalcapital,”whichrefersto“thestockofrenewableandnon-renewableresourcesthatcombinetoyieldaflowofbenefitstopeople.”3 TheneedtointegratenaturalcapitalassetsintothenationalaccountingsystemwasfirstintroducedintheUnitedNations’SustainableDevelopmentGoalscallingforthedevelopmentof“measurementsofprogressonsustainabledevelopmentthatcomplementGrossDomesticProduct(GDP).”4Thisemphasizesthatnaturalcapitalneedstobeconsideredasanassetandmeasuredalongwithfinancial,human,andsocialcapital—allareinterconnectedandcannotbeseparatedfromoneanother. Naturalcapitalaccounting(NCA)offersasystematicapproachthatquantifiestheeconomicvalueofnaturalresourcestomeasureandreportstocksandconditionsofnaturalcapitalforabroaderpictureofcountries’wealthanddevelopmentprogresscomparedtostandardmeasuressuchasGDP.NCAcanincludebothbiophysical andmonetarymetricsusingastandardizedandreplicableapproach.Thereareseveralapproachestomeasuringthevalueofnaturalcapital.Toensurecomparabilityamongdifferentapproaches toNCAandacrosscountriesandtime,in2012,theSystemofEnvironmental-EconomicAccounting(SEEA)wasadoptedbytheUnitedNationsStatisticalCommission.NCAcanprovidethefoundationfordialogueacrosssectorsabouttheroleofnatural capital.Assuch,itcaninformthedesignofpoliciesandinvestments,andenableevaluationoftheirimpacts. AlthoughtheconceptofNCAisrelativelynew,itsrelevanceforpolicymakingandeconomicdevelopmentplanninghasbeenincreasinglyrecognizedoverthepastfewyears.ThePeople’sRepublicofChina(PRC)pilotsNCApractices,whilegradually mainstreamingitintopolicies,decisions,andinvestments.ThisbriefpresentsthePRC’sprogressinNCAandrespectivelessonslearned.ItofferspossibleavenuesforimprovingtheconceptandintegratingitintopolicydecisionsforbettermanagementofnaturalresourcesandsustainabledevelopmentforthePRC.LessonscanbeusefulforothercountriesintheAsiaandPacificregion. NATURALCAPITALACCOUNTINGPRACTI