PNAS – Proceedings of the National Academy of Sciences of the United States of America
http://www.pnas.org/content/early/
(Accessed 13 February 2016)

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Social Sciences – Sustainability Science:
Measuring the value of groundwater and other forms of natural capital
Eli P. Fenichel, Joshua K. Abbott, Jude Bayham, Whitney Boone, Erin M. K. Haacker, and Lisa Pfeiffer
PNAS 2016 ; published ahead of print February 8, 2016, doi:10.1073/pnas.1513779113
Significance
Economists have long argued, with recent acceptance from the science and policy community, that natural resources are capital assets. Pricing of natural capital has remained elusive, with the result that its value is often ignored, and expenditures on conservation are treated as costs rather than investments. This neglect stems from a lack of a valuation framework to enable apples to apples comparisons with traditional forms of capital. We develop such an approach and demonstrate it on Kansas’ groundwater stock. Between 1996 and 2005, groundwater withdrawal reduced Kansas’ wealth approximately $110 million per year. Wealth lost through groundwater depletion in Kansas is large, but in a range where offsetting investments may be feasible.
Abstract
Valuing natural capital is fundamental to measuring sustainability. The United Nations Environment Programme, World Bank, and other agencies have called for inclusion of the value of natural capital in sustainability metrics, such as inclusive wealth. Much has been written about the importance of natural capital, but consistent, rigorous valuation approaches compatible with the pricing of traditional forms of capital have remained elusive. We present a guiding quantitative framework enabling natural capital valuation that is fully consistent with capital theory, accounts for biophysical and economic feedbacks, and can guide interdisciplinary efforts to measure sustainability. We illustrate this framework with an application to groundwater in the Kansas High Plains Aquifer, a rapidly depleting asset supporting significant food production. We develop a 10-y time series (1996−2005) of natural capital asset prices that accounts for technological, institutional, and physical changes. Kansas lost approximately $110 million per year (2005 US dollars) of capital value through groundwater withdrawal and changes in aquifer management during the decade spanning 1996–2005. This annual loss in wealth is approximately equal to the state’s 2005 budget surplus, and is substantially more than investments in schools over this period. Furthermore, real investment in agricultural capital also declined over this period. Although Kansas’ depletion of water wealth is substantial, it may be tractably managed through careful groundwater management and compensating investments in other natural and traditional assets. Measurement of natural capital value is required to inform management and ongoing investments in natural assets.