Experimental ecosystem accounts – valuation of assets London Group conference October 2017 Emily Connors and Rocky Harris ONS and Defra, UK

Ecosystem Asset Valuation Net Present Value (NPV) of future flow of ecosystem services – as advocated in the SEEA National level Used in all publications, but especially important in our aggregate UK accounts Source: ONS UK Natural Capital Accounts, £billion

Why we have developed asset accounts? Demand from our independent Natural Capital Committee Has the potential to tell us a lot about ecosystem health in one number Popular with the media and public Problems to be wary of: The ‘one number’ can change greatly with revisions Can take a lot of time With limited knowledge about future flows, what do they really tell us?

What does NPV require? A best estimate of the future or expected pattern of services flows ideally in both physical and monetary terms A specified length of time Appropriate discount rate Each calculation requires consistent assumptions - For each service - For each type of asset

What does NPV require? A best estimate of the future or expected pattern of services flows ideally in both physical and monetary terms 5 year average if no information about flows is available A specified length of time -100 years Appropriate discount rate - declining from 3.5% Each calculation requires consistent assumptions - For each service - For each type of asset

Factors to take into account The Technical Recommendations emphasise ecosystem condition as the key determinant of the future pattern of services Although does go on to suggest other factors, such as future environmental condition (e.g. air pollution concentrations) may be relevant What are the main changes we should be taking into account? Some changes are reasonably certain at national level Population growth, increase in urban extent Some changes are expected but impact not certain Climate change Some changes may be implicit in Government projections Income growth

The assumptions are important Illustrative UK woodland asset values1 1. Using Social discount rate, which embodies an income growth assumption The effect if different assumptions at national level USD billion 2015 prices Recreation services - constant 2015 flows 15.2 As above, with allowance for population growth 17.4 As above, with allowance for 2% income growth and 50% income elasticity 24.3 Air filtration services – constant 2015 flows 29.2 As above, with projected emissions reductions to 2030 16.4 18.5 As above, with allowance for 2% income growth 35.5

Asset valuation - questions for discussion Is a default assumption of a 100 year asset life something that should be advocated in the revised SEEA? What advice should the SEEA give about taking population change, climate change or other drivers of land cover change into account in projecting asset lives and future service flows? To what extent can such assumptions and projections reasonably be applied at more detailed spatial levels?