Critical Natural Capital
How Much to Use? How Much to Preserve?
There is no doubt that both using, and preserving, natural capital (see 
Natural Capital and Income) are essential to human well being. But how much is needed? What aspects are critical? These questions are less easily answered, and engender considerable debate. At one extreme are the economists who argue that financial capital can replace all natural capital (ref). At the other extreme are those deep ecologists who argue that no natural capital can be replaced by any other type of capital (ref).
Weak vs Strong Sustainability
The concept of weak sustainability holds that all or most forms of natural capital are substitutable by human-derived capital. The concept of strong sustainability holds that little or no forms of natural capital have human-derived substitutes. Those who believe in weak sustainability are sometimes referred to as “technical optimists,” because they believe that technology and human ingenuity will somehow exceed limits imposed by nature. Both logic and the limited information now available support the notion of strong sustainability; technical ingenuity generally serves to increase material and energy throughputs rather than expand the biophysical limits of ecosystems. And it is clear that there are many life supporting ecosystem functions for which there are no substitutes; any substitution that is possible is likely to be marginal.
The Virtues of Strong Sustainability
Strong sustainability states that natural and man-made capitals are fundamentally complements rather than substitutes; it states that some natural capital is “critical,” in that it consists of assets that are irreplaceable and cannot be substituted by anything else. For example, protection against excessive ultraviolet radiation provided by the atmospheric ozone layer (see Ozone), could theoretically be substituted for by manufactured goods consisting of hats, sun-glasses and suitable clothing. Even if such a substitution would allow human beings to survive, there are no other manufactured goods to prevent the damaging effects on other living creatures, or ecosystem functioning, upon which we depend. The atmospheric ozone layer is an example of “critical natural capital”. Similarly, there are other forms of natural capital that face similar substitution difficulties: the global atmosphere, the world’s storage capacity or biological diversity, for example.
Critical Natural Capital: Another Term for Sustainable Scale?
One answer to the question of how much natural capital is “critical” to human well being is the definition of sustainable scale – throughput less than regeneration (see Scale Categories). The concept of critical natural capital (or CNC) is somewhat broader than this definition, and has been the focus of a collaborative international effort to define and operationalize the concept of CNC for application to policy (the CRITINC project). The team has designed a matrix that evaluates different categories of CNC based on seven sustainability principles. These are: maintenance of global environmental processes; protection of biodiversity, critical ecosystems and ecological features; regeneration of renewable resources; prudent use of non-renewable resources; respect for human health standards and critical loads for ecosystems; conservation of landscapes for other human welfare values (aesthetic, spiritual, etc); application of the precautionary principle. It is intended to provide a positive, as opposed to a normative, evaluation of sustainability.
CRITINC: A Conceptual Approach
This approach identifies the characteristics of natural capital in the ecosystem being investigated, and relates these characteristics to ecosystem functions that derive from them. An economic Input-Output (I-O) evaluation is then incorporated, describing the impacts of different dimensions of economic activity on ecosystem functions. This gives an estimation of the current status of different types of natural capital, in terms of quantity and/or quality.
This assessment is then compared to the sustainability standards mentioned above, expressed as either state or pressure indicators. A state indicator describes the minimum quantity of natural capital necessary for continued functioning, while a pressure indicator explains the maximum pressure that the natural capital stock can tolerate and still maintain its functions. The difference between the actual and sustainable levels is termed the “Sustainability Gap” (SGAP), and provides targets for policy. Evaluation of the least cost method currently available to bring the SGAP to zero through abatement, avoidance or restoration of CNC is also useful for policy design. This can be used to weigh tradeoffs between policy options and evaluate their effectiveness over time.
The CRITINC framework is comprehensive in a similar sense to current systems of national accounting. As a composite measure, it can be used to direct policy for overall environmental sustainability, and to weigh the benefits of alternative policy choices that may be made at the expense of environmental sustainability. It can be used to direct policy on a sectoral or regional level by identifying specific sources and results of natural capital depletion.
CRITINC: An Empirical Approach
In a study of water resources in the Brittany region of France, for example, CRITNIC investigators used this method to identify the role of water-related CNC both ecologically and in the particular societal context of Brittany. This was used to then draft various alternative scenarios that considered uncertainties and incorporated different interests and demands in the local context. This is an important application of the concept of CNC, as it links various indicators to concrete measures used to negotiate between many demands, interests and stakeholders. Beyond determining where a critical level is or would be breached, the framework incorporates economic and social variables to suggest alternative policy choices relevant to local conditions.
The framework has been comprehensively applied at local and regional levels, and is also designed for application at the national level. In some countries adequate data now exists on physical inputs and outputs of economic activity to conduct such an analysis. In 1993 the UN Statistical Office advocated the development of physical I-O tables by individual nations, and countries such as Denmark, Germany and the UK have compiled physical I-O tables that are compatible for use with the CRITINC framework (Ekins et al, 2003). The existence of adequate sustainability indicator and I-O data would enable the application of this tool to national policy design in the future.
However, use of CNC accounting and analysis is generally lacking at a government level. In Canada for example, natural capital is given recognition as “a critical foundation of our economy” in the 2004 Greening the Budget Submission; however, the assessment only implicitly refers to CNC. The report makes useful suggestions such as improving the availability of environmental information and incorporating natural capital into national accounts. However, its recommendations lack components necessary to link this information with causes and effects related to the economy. The application of the CNC framework, on the other hand, can serve to operationalize ideas and indicators of sustainability, through the application of a structural modeling approach.
Strengths of the Critical Natural Capital Approach
Thinking about sustainable scale in terms of the critical natural capital framework developed by CRITINC has demonstrated its usefulness at some regional and locals levels, although applications to date are somewhat limited. It incorporates concepts of both biophysical limits of ecosystems, and the socio-political issues of ethics and social values (see Scale Categories). It also has the advantage of connecting with national input/output accounting systems now being developed by some nations concerned with the sustainability of their own economies.
CNC analysis allows for a clearly defined estimation of the environmental impact of human economic activity relative to sustainable scale. Within this framework sustainable scale is a baseline set by sustainability principles, defined as the minimum quantity and quality of CNC needed to perform critical ecosystem functions. It is both a measure of overshoot and a measure of what level is sustainable. This target can then be used to monitor change over time, assessing whether human economies are closer or further from a sustainable state.
This framework maps out what natural capital is critically important to humans, gives a method for estimating the discrepancy between what is needed and where we are, and translates this to policy application by assigning cost where possible, of reducing that gap to zero. It provides a direction for policy on environmental sustainability, but also a way to measure and recognize tradeoffs between environmental sustainability and other policy goals, where this is the case.
Limitations of the Approach
The major limitation in applying this approach, and testing more aspects of its conceptual framework, involve:
- the lack of data regarding economic input/out tables for all nations
- the lack of information about ecosystem functions and limits
- the socio-political challenge of identifying what aspects of natural capital are critical from ethical and social perspectives.
These limitations are not unique to the CRITINC approach; the conceptual clarity of the approach which allows it to be empirically examined is a real strength. The lack of data makes empirical examinations of global CNC a continuing challenge.
Relation to Sustainable Scale The concept of critical natural capital identifies a level of sustainable scale, and relates the actual scale of economic activity to this level. By providing an empirical approach, the work of the CRITINC group provides a technique for measuring sustainable scale where the data are available, and contributing to policy development to achieve sustainable scale.
This approach can also be used to explore optimal scale (see Scale Categories). The framework begins from the premise that a certain level of CNC is necessary to support the economy and other aspects of human health and well-being. An optimal scale of economic activity can then be evaluated in terms of support for human health and welfare in a cost-effective manner, after satisfying the requirements for ecological sustainability
References
Czech, B., P. Krausman and P. Devers. "Economic Associations among the causes of species endangerment in the United States." Bioscience, 50.7 (2000): 593-601.
Ekins, P. A four-capital model of wealth creation. In: Ekins, P., M. Max-Neef (Eds.), Real-Life Economics: Understanding Wealth Creation. Routledge:, London/New York, 1992: 147-155.
Ekins, Paul, S. Simon, L. Deutsch, C. Folke and R. de Groot. “A framework for the practical application of the concepts of critical natural capital and strong sustainability.” Ecological Economics 44 (2003): 165–185.
NRTEE. "Natural Capital: A Critical Foundation of Our Economy." 2004 Greening of the Budget Submission by the National Round Table on the Environment and the Economy. Ottawa, Canada, 2004
"Special Issue: Identifying Critical Natural Capital." Ecological Economics, 44(2-3): March 2003.
Douguet, J-M., P. Schembri. "Sustainable Agriculture and Water Quality Control: A structural approach to the evaluation of public environmental policies applied to the Brittany region in France." Working Paper 13, CRITINC Project, 2000
http://www.keele.ac.uk/depts/spire/Working_Papers/CRITINC/CRITINC_Working_Papers.htm