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Natural capital

Natural capital refers to the earth's natural resources and systems that support life. As such, it encompasses both non-renewable natural resources (such as land, coal, oil, gas and minerals) and conditionally-renewable resources (such as forests, fish and water) (Statistics New Zealand, 2009).

Natural capital provides a flow of environmental services.[14] For example, the natural environment absorbs waste products, up to its absorptive capacity, which would otherwise cause pollution damage and endanger people's health (WGSSD, 2008). In addition, natural capital provides services that contribute to economic activity. This is especially true in New Zealand, where the primary sector (which includes agriculture, mining, forestry and fisheries) accounts directly for about 7% of New Zealand's GDP, while tourism, which trades off New Zealand's '100% Pure' image, accounts for another 10%. Furthermore, consumers in New Zealand and overseas are placing a higher value on environmentally-friendly production technologies and in some markets, environmental sustainability is becoming the price of entry for New Zealand's exports (Treasury, 2010g).

Natural capital also provides amenity value and contributes to New Zealand's cultural identity, with both the rural and urban environments being fundamental to people's lifestyles. In addition, natural capital has a high importance for Māori as tāngata whenua (people of the land), with local geographical features playing an important role in narratives of community origins. Treasury has a responsibility to recognise this cultural relationship in accordance with the principles of the Treaty of Waitangi.

In New Zealand, stocks of natural capital, in particular, the atmosphere, freshwater, soil, fish stocks and biodiversity, are of particular importance to living standards:

  • The earth's atmosphere makes life on earth possible. It also helps determine the climate, which in turn supports primary industries. Increasing concentrations of carbon dioxide and other greenhouse gases in the atmosphere are affecting the climate and leading to rising sea levels, changes in wind and rainfall patterns, and increases in temperatures, floods and droughts. These effects will significantly affect New Zealand's primary production sector (MFE, 2008).
  • As well as being crucial to sustaining life, stocks of freshwater are a key input to many of New Zealand's industries. For example, 77% of the national water allocation is used on irrigation. New Zealanders are used to having an abundance of freshwater, and on average, use an estimated two to three times more water per person than the inhabitants of most other OECD countries (MFE, 2008).
  • A significant amount of New Zealand's GDP depends on the top 15 centimetres of soil, making topsoil another important input to the primary sector. Since the mid-1980s, intensified land use in the agricultural sector has resulted in increasing amounts of nitrogen in the soil, which has negative effects on freshwater stocks (MFE, 2008).
  • Amounting to nearly 3% of GDP, the fishing industry is another important part of New Zealand's economy. However, in 2008, approximately 29% of New Zealand's assessed fish stocks were below target levels, up from 15% in 2006 (Statistics New Zealand, 2009).
  • Biodiversity - stocks of flora and fauna - helps sustain the ecosystems that support life and provides flows of services that contribute to economic production. Protecting biodiversity is a challenge. In spite of efforts to do so, between 2002 and 2005, more native species saw deterioration in their threat status than an improvement (Statistics New Zealand, 2009).

It is critical that governments efficiently allocate and properly account for the depreciation of stocks of natural capital, to ensure their sustainability and the sustainability of the flows of services and amenities they generate.

Notes

  • [14]The intrinsic value of the environment is also an important aspect of natural capital, but is not a central part of our Framework as is not a common concern in policy issues that the Treasury advises on.
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