Natural capital is the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future. It is the extension of the economic notion of capital (manufactured means of production) to goods and services relating to the natural environment. For example, a stock of trees or fish provides a flow of new trees or fish, a flow which can be indefinitely sustainable. Natural capital may also provide services like recycling wastes or water catchment and erosion control. Since the flow of services from ecosystems requires that they function as whole systems, the structure and diversity of the system are important components of natural capital."^[1]

Background

Natural capital is one approach to ecosystem valuation (which is a type of natural capital accounting), an alternative to the traditional view of all non-human life as passive natural resources, and to the idea of ecological health. In Natural Capitalism: Creating the Next Industrial Revolution^[2] the world economy is presented as being within the larger economy of natural resources and ecosystem services that sustain us. It is only through recognizing this essential relationship with the Earth's valuable resources can businesses, and the people they support, continue to exist.[3] This suggests a need to attribute value to human intelligence and cultures as well as products yielded from natural systems based on their interactions and importance to one another in order for businesses to yield the greatest profit for their efforts. According to the authors, the "next industrial revolution" depends on the espousal of four central strategies: "the conservation of resources through more effective manufacturing processes, the reuse of materials as found in natural systems, a change in values from quantity to quality, and investing in natural capital, or restoring and sustaining natural resources."^[3]

In a traditional economic analysis of the factors of production, natural capital would usually be classified as "land" distinct from "capital" in its original sense. The historical distinction between "land" and "capital" defined “land” as naturally occurring and its supply fixed, whereas “capital” as originally defined referred only to man-made goods (e.g., Georgism^[4][5]) It has been argued that it is misleading to view them as if their productive capacity is fixed by nature alone because natural capital can be improved or degraded by the actions of man over time (see Tragedy of the Commons). Moreover, they yield benefits naturally which are harvested by humans, those being nature's services, 17 of which were closely analyzed by Robert Costanza. These benefits are similar to those realized by owners of infrastructural capital which yields more goods, e.g. a factory which produces automobiles just as an apple tree produces apples.

The term was first used by in 1973 by E.F. Schumacher in his book Small Is Beautiful^[6] and is closely identified with Herman Daly, Robert Costanza, the Biosphere 2 project, and the Natural Capitalism economic model of Paul Hawken, Amory Lovins, and Hunter Lovins. Recently, it began to be used by politicians, notably Ralph Nader, Paul Martin Jr., and agencies of the UK government, including the London Health Observatory. All users of the term differentiate natural from man-made manufactured capital or infrastructural capital in some way. Indicators adopted by United Nations Environment Programme's World Conservation Monitoring Centre and the Organisation for Economic Co-operation and Development (OECD) to measure natural biodiversity use the term in a slightly more specific way. According to the OECD, natural capital is “are natural assets in their role of providing natural resource inputs and environmental services for economic production” and is “generally considered to comprise three principal categories: natural resources stocks, land and ecosystems.”

Indicators adopted by United Nations Environment Programme's World Conservation Monitoring Centre and the Organisation for Economic Co-operation and Development (OECD) to measure natural biodiversity use the term in a slightly more specific way. However, all users of the term differentiate natural from man-made manufactured capital or infrastructural capital in some way. It does not appear that the basic principle is controversial, although there is much controversy on ecological health indicators, value of nature's services and Earth itself, consistent methods of ecosystem valuation, biodiversity metrics and methods of audit that might apply to these services, systems and biomes.

Full cost accounting, triple bottom line, measuring well-being and other proposals for accounting reform often include proposals to measure an "ecological deficit" or "natural deficit" alongside a social deficit and financial deficit. It is difficult to measure such a deficit without some agreement on methods of valuating and auditing at least the global forms of natural capital (e.g. value of air, water, soil).

Ecologists are teaming up with economists to measure and express values of the wealth of ecosystems as a way of finding solutions to the biodiversity crisis.^[7][8][9] Some researchers have attempted to place a dollar figure on ecosystem services such as the value that the Canadian boreal forest's contribution to global ecosystem services. If ecologically intact, the boreal forest has an estimated value of US$3.7 trillion. The boreal forest ecosystem is one of the planet's great atmospheric regulators and it stores more carbon than any other biome on the planet.^[10] The annual value for ecological services of the Boreal Forest is estimated at US$93.2 billion, or 2.5 greater than the annual value of resource extraction. The economic value of 17 ecosystem services for the entire biosphere (calculated in 1997) has an estimated average value of US$33 trillion per year.^[11] These ecological economic values are not currently included in calculations of national income accounts, the GDP and they have no price attributes because they exist mostly outside of the global markets.^[12][13] The loss of natural capital continues to accelerate and goes undetected or ignored by mainstream monetary analysis.^[14]