What price nature? Looking at the NEWP

15th July 2011


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IEMA

The natural environment white paper for England has quickly followed publication of the national ecosystem assessment. Paul Suff examines the implications for business

Economic growth and the natural environment are mutually compatible, claims the government’s natural environment white paper (NEWP). “A healthy, properly functioning natural environment is the foundation of sustained economic growth, prospering communities and personal wellbeing,” it states.

However, the national ecosystem assessment (NEA) found that much of the natural environment in the UK is declining or in a reduced or degraded state. “The UK’s ecosystems are currently delivering some services well, but others are still in long-term decline,” it concluded.

In part, that is because nature is generally taken for granted and undervalued. “Too many of the benefits we derive from nature are not properly valued. The value of natural capital is not fully captured in the prices customers pay, in the operations of our markets or in the accounts of government or business. When nature is undervalued, bad choices can be made,” explains the NEWP.

The lack of a proper way of valuing ecosystems services is what the NEA – which covers the whole of the UK – addresses, providing a way of assessing more accurately the value of the natural world. The NEWP – although it applies only to England – sets out how the government aims to translate the work of the more than 500 academics that contributed to the NEA into actions to mend existing damage to the natural environment, while maintaining economic growth.

It sees a key role for business in improving and protecting ecosystems. Defra says that the NEWP aims to help businesses take practical action to protect and improve natural capital.

The state we’re in

The NEA looks back 60 years to map how ecosystems have changed in the UK, and forecasts how – through six scenarios – they might alter again over the next half-century or so. It warns that continued population growth and climate change are likely to put additional pressure on ecosystems, and that actions taken now will have consequences far into the future.

The analysis reveals that more than 30% of the services derived from the UK’s ecosystems are declining, while others, including marine fisheries, urban ecosystems, wild species diversity, pollination, enclosed farmland and soil quality, are degraded.

Soil quality, for example, has suffered from atmospheric deposition and inappropriate management, and although there is ongoing recovery due to large decreases in sulphur deposits since the 1980s, there is continuing loss of soil carbon in arable systems and little or no decline in elevated levels of contaminants from industry and transport.

Atmospheric pollution and poor land management may also be causing a decline in pollinating insects, which provide ecosystem services estimated to be worth hundreds of millions of pounds annually.

Parts of the UK fare better than others (see panel, p.28). Ecosystems in industrial areas or in those with an industrial legacy tend to be in a poor state. Welsh freshwater ecosystems are still suffering from the country’s history of coal mining, although there is evidence of improvement following remediation interventions, while sulphur emissions from industry and power plants, which peaked in the 1980s, have resulted in the acidification of soils in many areas – 54% of semi-natural areas remain at risk of damage despite major reductions in emissions.

Heavy metals emissions from a range of industrial uses and transport are generally not declining in the UK, and while contamination by a range of hazardous substances has been lessened through reductions in industrial effluent and improvements in sewage treatment infrastructure, new concerns are emerging, including the recent introduction of chemicals, such as nanoparticles and pharmaceuticals, which pass through sewage treatment plants.

Monetary value

Putting a value on natural capital is key to ensuring it is properly considered by policy makers and business leaders, encouraging them to use it in a sustainable way. “In the past we have undervalued what our natural environment gives us. This white paper changes that, because we cannot afford to make the same mistakes again,” said the environment secretary, Caroline Spelman, unveiling the NEWP.

Lead NEA author and economist Professor Ian Bateman emphasises this point. “Why would we want to put economic values on environmental goods and services? It’s very simple: it’s to ensure their incorporation on equal footing with the market-priced goods, which currently dominate decision making. Without such representation, we will get a persistence of the situation where we have these services being used as if they were free and had no value,” he said at the launch of the report.

The NEA is a first attempt to assess the UK’s natural ecosystem resources and, where possible, assign an economic value. According to the study, the contribution that ecosystem services make to the national economy in terms of a sustained flow of income is very substantial. It also acknowledges that the continued maintenance of this natural capital stock is critically important for the future prospects of a future thriving “green” economy.

It is not possible to put a total value on ecosystem services in the UK, as Bateman acknowledged. “Without the environment, we’re all dead – so the total value is infinite,” he said. “What is important is the value of feasible, policy-relevant changes – and those you can put numbers on.”

The analysis did, however, estimate that pollination by bees (and hoverflies) contributes £430 million a year to the UK economy and that the total annual value of net carbon sequestered by UK woodlands is £680 million. And it calculates what the benefits that inland wetlands bring to water quality are worth in monetary terms, putting the figure at about £1.5 billion a year.

The NEA also calculates the cost of the depletion of ecosystem services. For example, the value of climate-change-induced loss of water availability could be as high as £490 million a year, while the annual cost of more frequent and intense flooding – a likely impact of climate change – may be more than £20 billion (in 2010 prices) by 2060.

Business reality

The NEA underpins the NEWP and many of its proposed actions. Indeed, the NEWP is entitled The natural choice: Securing the value of nature.

The government makes it clear in the NEWP that, so they can identify priorities for action, there is scope for businesses to improve their performance in relation to managing their impacts on natural capital. It says sustainable management of resources is central to environmental protection, pointing out that UK businesses could save about £23 billion a year by reducing waste and minimising resource use.

It also highlights how the use of some natural materials causes serious problems, either because of extreme pressure on their availability or because the commodity causes huge environmental damage where it is sourced. Disruption or degradation of the natural environment comes at a cost and poses a risk to the security of supply for natural resources, requiring businesses to switch to more costly alternatives or deal with the damage to corporate reputations, explains Defra.

Improving the management of ecosystems can also provide opportunities, and the proposals in the NEWP aim to expand and accelerate new UK business opportunities for green products and services that enhance nature.

The proposals to ensure businesses better manage natural capital (see below) include: developing an action plan to expand markets and schemes in which payments are made by the beneficiary of a natural service to the provider of that service; and encouraging businesses to measure and report their environmental impacts.

Businesses will also be affected by many of the other plans set out in the NEWP. Water is one area that will see a higher profile. The government is planning to launch a water footprinting tool by December 2012 to help businesses better measure their water impacts, so that they can identify priorities for action.

The NEWP acknowledges that the value of water will differ across the country, depending on supply and demand. “For example, the natural capital cost of water taken from southeast England during a drought is greater than that for water taken from northern Scotland in a wet winter,” it explains.

Planning is another area that will attract further attention. The NEWP claims that the natural environment will be protected by its intended changes to the planning process.

The system will continue to facilitate coherent and resilient ecological networks in association with local partners and reflect the value of natural systems, it states. Measures include establishing the national planning policy framework (NPPF), which will set out the environmental, social and economic objectives for the planning system document.

The top priority for the NPPF will be to support long-term sustainable economic growth, with a new presumption in favour of sustainable development. However, there is concern that this “presumption” may place economic growth higher than environmental protection (see p.4).

Corporate response

Some businesses are already pursuing strategies that value ecosystem services and are designed to prevent disruption and degradation.

Sportswear company Puma, for instance, uniquely calculates the value of its impact on the natural environment, putting a monetary value on its carbon emissions and water use. The environmental cost of its carbon discharges and water use in 2010 – from raw materials to production – had an economic value of €94.4 million, says the firm’s first “environmental profit and loss” account.

Puma worked with PwC and Trucost to estimate the cost of these impacts across its supply chain, and they calculated a tonne of carbon dioxide (equivalent) at £57 and each cubic metre of water at 69p.

According to its chief executive, Jochen Zeitz, Puma’s environmental profit and loss account is crucial to its sustainability. “Gaining a better understanding of the source of the natural goods and services Puma relies on and the declining availability of the basic resources required for our business growth will help Puma build a more resilient and sustainable business model and ultimately better manage its impacts on the environment,” he says.

Others have set ambitious targets to reduce their impacts on the natural environment. Marks & Spencer (M&S) is one such company. The retailer’s Plan A strategy, first adopted in 2007 and updated in 2010, contains 20 commitments to sustainable sourcing, for example.

Among its targets are sourcing six vulnerable raw materials – palm oil, soy, cocoa, beef, leather and coffee – from sources that do not contribute to deforestation by 2015; ensuring that by 2012 all of its wood is sourced responsibly, which means that it is either Forest Stewardship Council certified, recycled or from sources that “otherwise protect forests and communities”; and, also by 2012, that all of its wild fish products will come from the most sustainable sources available, such as those certified by the Marine Stewardship Council.

Such examples are too rare, however. The NEWP wants more companies to follow Puma, M&S and other leading businesses and identify their use of natural capital and take measures to rein in any adverse impacts. Those that fail to take into account the value of nature are likely to recognise that they are using natural resources beyond their capacity for renewal only when these become scarce, by which time it may be too late – both for them and for the natural environment.

The UK picture: A snapshot

The national ecosystems assessment adopts a similar approach to that of the 2005 millennium ecosystems assessment, applying the same broad definition of ecosystem services and their classification to provisioning, regulating, supporting and cultural services. It also applies more recent methodology, such as that used by The Economics of Ecosystems and Biodiversity study to evaluate ecosystem services (the results of which were published in 2010).

England

Biodiversity – 26% of species are still depleted or on the UK list of priority species and habitats.

Climate change – England is a net source of greenhouse gases, but this trend is diminishing.

Coastal/marine – 30% of the coasts are subject to erosion and 46% are protected by engineering.

Landscape – natural cover of mountains, moorlands and heaths has significantly decreased over the last 60 years.

Water – biological and chemical classification of what were formerly the most polluted rivers in England has improved since 1990.

Northern Ireland

Biodiversity – generally a lower level of terrestrial species diversity than in Great Britain, although marine biodiversity is rich.

Coastal/marine – about 75% of the coast is protected, much of it by multiple designations; however, the quality of individual sites is highly variable.

Landscape – mountains, moorlands and heaths cover just 17% of the land area.

Water – levels of pollutants and changing patterns of temperature and rainfall are all having impacts on water bodies.

Scotland

Biodiversity – 39% of species were stable or increasing, 21% were declining, but trends were unclear for 40% of species.

Climate change – peatlands store about 1,620 megatonnes of carbon, vitally important for the UK’s soil carbon storage.

Coastal/marine – many marine habitats are of bad and deteriorating status, damage being caused by climate change, human activities, pollution and infrastructure development.

Landscape – mountains, moorlands and heaths account for 44% of the land.

Water – the quality of the water environment is generally good.

Wales

Biodiversity – 59% of priority habitats declined in 2005, compared with 46% in 2002.

Climate change – the total carbon stored in Welsh forests and their soils is equivalent to more than 10 times the annual emissions from industry and services.

Coastal/marine – 23% of the Welsh coastline is eroding; marine habitats exhibit the greatest deterioration.

Landscape – 60% of upland habitats (mountains, moorlands and heaths) are in an unfavourable condition.

Water – Welsh freshwater ecosystems continue to suffer from their industrial legacy.

Business plans:

The government’s natural environment white paper (NEWP) – the first such document for 20 years – includes the following measures to improve how businesses interact with ecosystems and the natural environment.

Payments – Environmental stewardship schemes already exist, where, for example, the government pays farmers on behalf of the public for the benefits that environmentally friendly farming generates. The NEWP says there are now real opportunities for land managers to gain by protecting nature’s services, and trading nature’s benefits with businesses and others. Payments for nature’s services are also a means of opening up markets and establishing a better market value for ecosystem services. The NEWP offers the example of a water company paying a farmer for protecting the ability of uplands to naturally clean and filter water. This provides a cheaper option to the water company and the customer than building an expensive water-cleaning plant downstream, says Defra.

Reporting – The NEWP says businesses need to measure their environmental impacts in order to compete. Defra will publish new guidance for businesses next year on how companies can measure and report corporate environmental impacts. It will follow the same step-by-step approach as the environment department’s existing guidance on reporting greenhouse-gas emissions to ensure consistency and encourage those not already reporting.

Defra believes that once businesses have measured their own, and their supply chain’s, impacts on natural capital, they will be in a better position to take action, harnessing, for example, their purchasing power to demand higher environmental standards from suppliers. The government also plans to update the Business Link website to provide information on natural capital, including guidance on tools, such as the Corporate Ecosystem Services Review, and resources businesses can use to assess their dependencies on environmental assets and services and identify growth opportunities. Also, an agreed approach to water footprinting will be established by December 2012.

Taskforce – The government is to create a business-led ecosystem markets taskforce, headed by Ian Cheshire, chair of Kingfisher, to review the opportunities for UK business from expanding the trade in green goods and the market for sustainable natural services. Examples of its focus include examining the potential for the financial sector to market new products that invest in natural capital and services to provide a return for both investors and nature.

It will report back in 2012/13 via the Green Business Council, which was established in February to advise the government on green growth policy initiatives and includes business leaders from a cross-section of industries and sectors, including Ford, Centrica and IBM. A separate, and independent, Natural Capital Committee, reporting to the Cabinet’s Economic Affairs Committee, which is chaired by the chancellor, is also being established. It will advise the government on the state of England’s natural capital.

Taxes and regulation – Greater use of environmental taxation and further regulation to deliver improved environmental outcomes is under consideration. The NEWP says market-based instruments, such as taxes and trading systems, are an efficient and cost-effective way of pricing in the value of environmental resources. However, when the environmental risks are large, or when options for tackling a problem are limited or the problem is fairly specific, regulation might be the preferred option. Voluntary agreements will also be explored.


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