Natural capital

Definition

Natural capital refers to the world's stocks of natural assets, including geology, soil, air, water, and all living things. This concept highlights the importance of nature as an economic resource that provides essential ecosystem services like clean water, pollination, and climate regulation. Understanding natural capital is crucial for promoting sustainable development and environmental economics, as it emphasizes the need to manage natural resources responsibly to ensure they continue to provide benefits for future generations.

5 Must Know Facts For Your Next Test

1. Natural capital is often quantified in terms of monetary value, helping to assess the economic impact of natural resource depletion or degradation.
2. Healthy ecosystems contribute significantly to human welfare by providing clean air and water, fertile soil, and biodiversity.
3. Investing in natural capital can lead to long-term economic benefits by reducing costs associated with environmental damage and enhancing resilience against climate change.
4. Natural capital is closely linked to social equity; marginalized communities often rely more heavily on natural resources for their livelihoods.
5. Policies that promote the conservation and restoration of natural capital can create green jobs and stimulate sustainable economic growth.

Review Questions

• How does understanding natural capital contribute to making better decisions in environmental economics?
  • Understanding natural capital allows policymakers and economists to recognize the intrinsic value of natural resources and ecosystem services. By incorporating this perspective into decision-making processes, they can design policies that promote sustainable use of resources, prevent degradation, and invest in restoration efforts. This leads to a more comprehensive approach to economic planning that aligns economic growth with environmental protection.
• Discuss how investing in natural capital can drive sustainable development in both developed and developing countries.
  • Investing in natural capital supports sustainable development by ensuring that ecosystems remain healthy and productive. In developed countries, this may involve restoring degraded landscapes or protecting biodiversity hotspots. In developing countries, it often means integrating sustainable practices into agriculture or fisheries to enhance food security. Such investments not only provide immediate economic benefits but also ensure that future generations have access to essential resources.
• Evaluate the role of natural capital in shaping policies aimed at addressing climate change and its related challenges.
  • Natural capital plays a crucial role in shaping climate change policies because healthy ecosystems can mitigate climate impacts through carbon sequestration, flood regulation, and temperature moderation. Policymakers need to evaluate how preserving and enhancing natural capital can be integrated into climate strategies. This might include investing in reforestation projects or restoring wetlands that act as natural buffers against climate-related disasters. Ultimately, effective climate policies must recognize the interconnectedness of economic systems and natural environments to achieve long-term sustainability.

Related terms

ecosystem services: The benefits that humans receive from ecosystems, including provisioning, regulating, supporting, and cultural services.

sustainable development:

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

environmental economics: A subfield of economics that focuses on the relationship between economic activities and the environment, including the valuation of natural resources and environmental impacts.