National Gross domestic product (GDP) has been a standard or traditional measure for economic performance – income – but does not give insight on the underlying wealth and the assets that sustain the income, or the trends in their use or performance.
However, this could change soon as the government is set to start measuring the contribution of natural resources to the National Gross domestic product (GDP).
The measure to integrate natural capital in economic reporting is known as ‘Natural Capital Accounting’.
This measure would ensure that natural capital—forests, land, water, mineral, wetlands and other ecosystems—are recognized in economic reporting.
The new framework dubbed " the System of Environmental-Economic Accounting—Ecosystem Accounting (SEEA EA) " was recently adopted by the UN Statistical Commission and marks a major step forward that goes beyond the commonly used statistic of gross domestic product (GDP) that has dominated economic reporting since the end of World War II.
Experts say that while statistics such as GDP does a good job of showing the value of goods and services exchanged in markets, it does not reflect the dependency of the economy on nature, nor its impacts on nature, such as the deterioration of water quality or the loss of a forest.
Natural capital accounting is expected to allow countries to aspire to go beyond GDP as the standard measure of economic performance and to integrate understanding about the underlying natural resource wealth and assets that sustain countries’ income as well as trends in their use and performance.
Yusuf Murangwa, the National Institute of Statistics of Rwanda director general told The New Times that the adopted framework will help Rwanda to start integrating natural capital accounting in measuring GDP.
"This is the process that will take time to adopt the methodology. It has phases and the framework will help to know how it can be used, how it can help in planning, research and others.
We used to report economic performance by considering added value and services that reach the market without valuing the environment in the GDP. We are going to count the contribution of natural resources such as forests, minerals, water to GDP,” he said.
He said that the methodology will also help to assess if natural resources are over-exploited and are losing value.
"It will guide the country on how the resources can be well exploited,” he added
According to the World Bank publication dubbed "The Changing Wealth of Nations 2018” low income countries depend on natural capital for 47 percent of their wealth.
And yet, in several of these countries, natural capital is being depleted without any corresponding investments leading to an overall decrease in wealth and a failure to improve standards of living among the poor.
The World Bank says that measuring and valuing the environment leads to better decisions for development and provides detailed statistics for better management of natural resources that contribute to economic development and ensures that natural resources are mainstreamed into development planning and national economic accounts.
The essence of the framework
UN Secretary-General António Guterres welcomed the adoption of the new economic and environmental framework.
"This is a historic step forward towards transforming how we view and value nature. We will no longer be heedlessly allowing environmental destruction and degradation to be considered economic progress,” he said.
The new framework can also underpin decision-making at two crucial conferences later this year—COP15 on Biodiversity in Kunming and the Glasgow Climate Conference, COP 26.
According to a new UNEP report, "Making Peace with Nature,” the global economy has grown nearly fivefold over the last 50 years, largely due to a tripling in extraction of natural resources and energy that has fuelled growth in production and consumption.
Over the same time, the world population has increased by a factor of two, to 7.8 billion people, and though on average prosperity has also doubled, about 1.3 billion people still live in poverty and some 700 million are hungry.
"This is a major step forward,” said Inger Andersen, UNEP Executive Director adding: "The new framework can be a game changer in decision-making. By highlighting the contribution of nature, we now have a tool that allows us to properly view and value nature. It can help us bring about a rapid and lasting shift toward sustainability for both people and the environment.”
The adoption comes at a time when climate change continues its relentless march and the world is on track to reach new highs of warming, climbing to at least 3°C above pre-industrial levels by 2100.
According to the World Meteorological Organization, 2020 was in a dead-heat to be one of the three warmest years on record, and 2011-2020 was the warmest decade on record, with the warmest six years all being since 2015.
And the loss of biodiversity and ecosystem integrity, together with climate change and pollution will undermine our efforts on 80 per cent of the Sustainable Development Goal targets.
And yet countries continue to make decisions on the economy without consideration to environmental impacts.
Governments are still directing more than US$5 trillion in annual subsidies to fossil fuels, non-sustainable agriculture and fishing, non-renewable energy, mining, and transportation.
"As governments to the Convention on Biological Diversity get ready to agree and implement a framework that will recraft our relationship with nature, this new framework will provide an impetus for an accurate accounting of the value of biodiversity” said Elizabeth Maruma Mrema, Executive Secretary of the Convention on Biological Diversity.
"In doing so, it is a step towards sustainable development,” she added.
The new framework recognizes that ecosystems deliver important services that generate benefits for people.
In essence, they are assets to be maintained, similar to economic assets.
For example, forests play a role in providing communities with clean water, serving as natural water filters with trees, plants and other characteristics, such as soil depth, that help absorb nutrient pollution like nitrogen and phosphorus before it can flow into streams, rivers and lakes.
More than 34 countries are compiling ecosystem accounts on an experimental basis.
With the adoption of the new accounting recommendations, many more countries are expected to begin implementing the system, though a significant number of countries will require assistance and additional resources for statistical data collection.