Environmental and natural capital
A2.2 Where potential effects on natural capital are identified by the screening questions in Chapter 6, the 4-step approach in Box 19 can be used to identify whether and how an intervention may affect stocks of natural capital and the benefits they provide. Further guidance can be provided by Department for Environment Food and Rural Affairs (DEFRA) at EnvironmentAnalysis@defra.gsi.gov.uk.
A2.3 In addition to the process in Box 19, further points relevant to the natural capital approach include:
an understanding of biological and physical changes in natural assets is the starting point of the appraisal and associated economic valuation (for example, understanding the impacts of a woodland creation and carbon sequestration project).
environmental effects and associated values are often geographically specific. The recreational value of new or destroyed woodlands, publicly accessible green space or changes in air quality may be greater in or near densely populated locations than more remote areas. Recreational values may be greater where there are fewer alternative sites.
the sustainable use of natural assets should also be considered. In addition to the marginal valuation of a loss in services, the degradation of a renewable asset should be assessed, such as the exploitation of a fishery or a loss in condition of the underlying biodiversity. Non-marginal effects such as reaching ecological tipping points might lead to dramatic or irreversible loss in the asset under consideration. This would result in a loss of environmental services and welfare. Cumulative effects of multiple investment decisions upon the underpinning stocks of natural capital should also be considered.
future scarcity values for goods and services are likely to rise over time. This is due to the rising demand for goods and services which depend on natural capital and the services it provides, combined with limited, and in some cases diminishing, underlying stocks. This is not a problem easily addressed through the appraisal of individual interventions, as diminishing underlying stocks may involve non-marginal effects. In addition, if assumptions about future prices exceed the long term growth of per-capita real income, this must be agreed with HM Treasury.
Box 19. Identifying whether an intervention may affect Natural Capital
The four steps to consider whether and how and intervention may affect stocks of natural capital are:
O identify scale, location, outputs and spatial reach of the intervention. O what types of land cover and natural system will the proposal affect, directly or indirectly (e.g. farmland, urban green space, woodland, freshwaters, moorland, coastal margins)?
O which natural assets (such as land use, water bodies, species, wildlife habitats and soils) are specifically likely to be affected? O this step facilitates the assessment of relevant welfare effects in Step 3, as well as informing on the physical sustainability of natural stocks.
O how are environmental goods and services to society affected by the changes to the assets? These goods and services may be classified as: i "provisioning" services such as supply of food, fuel, fibre and water which typically have market values. ii "regulating" services such as water quality and quantity regulation, climate regulation, pollination, air quality regulation. iii "cultural" services such as landscape and environmental spaces for recreation amenity, and cultural heritage. O "regulating" and "cultural" services do not typically have direct market values. The effects should be identified as far as possible and proportionately quantified and monetised. Unmonetised factors should be treated as recommended for all interventions.
O environmental effects may be uncertain. Therefore, consideration needs to be given to quantifying these uncertainties as risks that must be costed and managed, so that they can be minimised, mitigated or where possible avoided. O critical factors should be identified and arrangements for monitoring included as part of intervention proposals in order to manage risks and optimise outcomes. See Annex 5 on risk management. O identification of mitigating measures is particularly important so that risks to natural assets can be minimised and benefits maximised. |
A2.4 Multiple impacts may need to be measured and valued. For example, the costs of a proposal that would destroy woodland could include the loss of the following: timber value, carbon sequestration, recreational value, biodiversity and "non-use" values, as well as direct externalities such as noise and air quality. Care should be taken to avoid double-counting where impacts overlap.