Initial Observations from the Australian Regional Environmental Asset Condition Accounts Trials November 2013 Australian Regional Proof of Concept Trials Environmental Asset Condition Accounts Peter Cosier and Carla Sbrocchi Wentworth Group of Concerned Scientists Sydney, Australia. Initial Observations on the Australian Regional Environmental Asset Condition Trials, 2013 Acknowledgements This paper is a synthesis of the work of the many people who have contributed to the development of the regional proof of concept accounts listed in the Appendix, and draws on two primary sources: Accounting for Nature: A Model for Building the National Environmental Accounts of Australia, 2008,1 and A Common Currency for Building Environmental (Ecosystem) Accounts, 2010,2 and the interim results from Regional Proof of Concept Accounts.3 We gratefully acknowledge the financial support of the Purves Environmental Fund and the Ian Potter Foundation. The authors also acknowledge the assistance of Carley Bartlett, Dr Celine Steinfeld, Dr Ian Ball, Professor Bruce Thom AM, and Jane McDonald in the preparation of material for this paper. NOVEMBER 2013 PAGE 2 Initial Observations on the Australian Regional Environmental Asset Condition Trials, 2013 1. Introduction The industrial revolution has led to dramatic improvements in living standards for many people across many parts of the world, but it has also resulted in the depletion of natural capital at a scale that is approaching, and in many cases has already exceeded, the ability of biophysical systems to meet future demands on them.4 Our challenge is that “economic activity may degrade environmental assets such that they are not able to deliver the same range, quantity or quality of ecosystem services on an ongoing basis.”5 It is not possible to make decisions that will lead to a healthy and productive environment unless we have a system of environmental accounts that measures the condition of environmental assets (rivers, soil, native vegetation, groundwater, etc) appropriate to the scales at which economic and policy decisions are made.6 In 2008, the Wentworth Group of Concerned Scientists and other experts in science, economics, statistics and public policy in Australia, developed the Accounting for Nature model to place scientific information about the condition of our environment into an accounting framework.7 The purpose of the Accounting for Nature model is to provide a consistent framework for tracking the change in condition of assets through time, at any scale, using a single unit of measure. This ‘common currency’ enables policy makers to synthesise disparate sources of information so that it is possible to compare the condition of different assets, in different locations, at all scales at which policy and investment decisions are made. We call this common unit of measure an Econd. Over the past three years, Australia’s Regional Natural Resource Management authorities, in cooperation with scientists, economists and statisticians in universities, Commonwealth and State government agencies have undertaken an Australia-wide trial to test the practical application of the Accounting for Nature model. The ten regions that took part in the proof of concept trials reflect different landscapes (forests, savannahs, rangelands, woodlands, urban), they are subject to different environmental pressures, and have different levels of resourcing and access to information. These trials are now in the process of formal evaluation and peer review. In this paper we describe how the Accounting for Nature model uses the disciplines of science and statistics to create a common unit of measure for environmental asset condition accounting, we present some initial results from these trials, and describe how these accounts can be used to make policy and investment decisions at a landscape (catchment) scale. Whilst there are still questions to be resolved, they serve to demonstrate that it is practical and feasible to create asset condition accounts using a common environmental currency to simplify nature’s complexity without reducing the rigour of scientific measurement, and to then use these accounts to inform the cost-effectiveness of policy and investment decisions. NOVEMBER 2013 PAGE 3 Initial Observations on the Australian Regional Environmental Asset Condition Trials, 2013 2. Environmental assets “The first step towards the integration of sustainability into economic development is the establishment of better measurement of the crucial role of the environment as a source of natural capital and as a sink for by-products generated during the production of man-made capital and other human activities.”8 The environmental asset approach to measuring degradation to the environment is a practical way of describing, understanding and making better decisions in managing the environment.9 It is an accepted measure internationally (e.g. the System of Environmental Economic Accounts (SEEA) Central Framework10, the Convention on Biological Diversity11), and nationally in Australia (e.g. regional natural resource management plans12,13 national and state government investment programs,14,15 and state and national State of the Environment reports16). In this paper we define environmental assets as biophysical features in the landscape that are measurable in time and space,17 and condition as a scientific measure of the capacity of an environmental asset to continue to provide benefits to society.18 It must incorporate elements of both the quantity of an asset (for example, the area of a forest) and the quality of that asset (for example, the diversity of plant and animal species that inhabit that forest). An environmental asset can be an ecosystem such as a forest or a river or an estuary, it can be an individual species of mammal or bird, or it can be any other feature in nature, such as a fishery, agricultural soil, or a groundwater resource. This is consistent with the SEEA Central Framework which defines environmental assets as the naturally occurring living and non-living components of the Earth, together comprising the biophysical environment that may provide benefits to humanity.19 The SEEA Central Framework also describes the relationship between environmental assets and ecosystem services as “the interactions between different environmental assets within a given area that generate ecosystem services”.20 To illustrate this relationship, the following diagram (Figure 1) shows that an environmental asset, such as an estuary, provide some services and goods to people (blue) and but also produce services by maintaining themselves through regulating processes (green). Figure 1: Environmental Assets comprise the physical form of both ecosystems and other natural resources which provide goods and ecosystem services. (Adapted from CSIRO, 2001)21 NOVEMBER 2013 PAGE 4 Initial Observations on the Australian Regional Environmental Asset Condition Trials, 2013 3. A common currency for measuring the condition of environmental assets The SEEA Central Framework provides methods for accounting for those environmental assets which produce market-based goods and services. It identifies the need to measure the quality of environmental assets to fully address degradation.22 The Accounting for Nature model is underpinned by two important concepts: 1. Environmental asset condition needs to be measured both at scales where biophysical processes operate, and at scales where economic and policy decisions are made; and 2. Asset condition accounts need to be constructed using a common unit of measure - a common currency - so that the relative condition of different assets can be compared: in different places, at different scales, at any time, and when using different indicators. This common currency is called an Econd. An Econd is a scientific measure of the condition of an environmental asset. It does not imply a monetary value, nor does it describe a desired state. An Econd describes the condition of an environmental asset against a scientific estimate of the condition of that asset in the absence of significant post-industrial human alteration (the reference benchmark. An Econd is a number between 0 and 100, where 100 indicates the asset is in the same condition as it was prior to significant post-industrial human alteration, and 0 indicates system function is absent.23 The reference benchmark acts as a normalising factor by setting the upper boundary for the measurement of an environmental asset. Its purpose is to provide a reference point, or baseline, by which both past and future changes in the condition of any environmental asset can be measured and the relative condition of the asset can be compared with other assets across time and space. This reference benchmark does not have to mean a pre-industrial date, although that is often the most convenient way to describe it. Another option is to measure an asset that is known to be in an undisturbed condition - what science calls a reference site. Another option is for science to estimate this biophysical condition using models. For more information on the science behind reference benchmarking see Cosier and McDonald (2010)24. The benefit of using this reference benchmark method is that it creates a standardised numerical unit that is capable of comparison and aggregation, at any scale where policy and economic decisions that affect the environment are being made. The Econd is calculated by combining a number of individual indicator condition scores (e.g. pH and salinity in rivers