University of Kiel, Ecology Centre, Msc Environmental Science, a seminar paper
Status: completed (2008)

Bridging concepts: Multifunctionality – Ecosystem Services – Environmental Accounting

Olga Kolychalow

The UN Conference on Environment and Development in 1992 declared Sustainable Development to become a conceptual approach to meet the demands of present and future generations while integrating environmental policy into decision making. There are several concepts trying to connect the human activities with their consequences to the environment to achieve sustainable development. Three of these are the concepts of Multifunctionality, Ecosystem Services and Environmental Accounting.

This article deals with the Multifunctionality of rural areas and an ex-ante impact assessment of land use changes by using the SENSOR approach. Further it is about the Environmental Accounting in general and a special attempt of Land and Ecosystem Accounts including land use accounts resulting as a consequence of several limitations by aggregated statistics.

Multifunctionality

Ecosystems offer important services which have live support functions. They are the main resources for major activities of human beings like agriculture or industry, besides e.g. climate regulation, nutrient cycling or biodiversity. The state of an ecosystem is coupled to economic growth and human interactions. To achieve sustainable development an investigation of land use to link social and economic issues with environmental protection shall be done (Helming et al., 2008b).

The concept of Multifunctionality describes the jointness and externalities (Mann and Wüstemann, 2008) of commodity and non-commodity outputs produced by agricultural activity considering social, economic and environmental effects. Countryside benefits increase reaching a maximum by increasing agricultural products, while intensive land use leads to biodiversity loss and degradation of an ecosystem (figure 1). For instance, biodiversity on grassland is mostly achieved by husbandry. An increasing number of animals leads to increasing commodity outputs and higher biodiversity (x₁ – x₂). Beyond x₂ the number of animals would pollute the area and reduce biodiversity again (x₂ – x₃). Due to lack of space and fodder, a large number of animals would influence the own population in a negative way (x₃) (Mann and Wüstemann, 2007). By the analysis of Multifunctionality market failure and instruments to provide positive externalities by quasi-markets can be investigated (Zander, 2007).

Figure 1: Jointness of agricultural commodity and non-commodity outputs (Mann and Wüstemann, 2007)

This concept can be used as a tool for accounting for many externalities that are connected to the economy (Mann and Wüstemann, 2008).

Valuation of Services and Multifunctionality of Ecosystems

Quite a number of non-commodities are externalities i.e. uncompensated impacts of one person’s actions on the well-being of a bystander, or public goods i.e. not privately owned, which are therefore not traded on real markets and have to be subsidised. However, price mechanism only works on competitive markets. Thus, it is difficult to valuate cultural services to give them a money value. Vejre and Brandt (2008) used two methods to valuate the beauty of a landscape: (i) people selected “beautiful” areas to protect, afterwards the money spent on protection of theses areas was calculated, (ii) settled land was bought to rebuild houses to get an open a view to a seaside, landscape prices increase with the number of visitors of the specific region per year.

An attempt to valuate the underlying ecosystem processes, resulting ecosystem functions and services or trade-offs between ecosystem functions and services is done by modelling. Three different models were used to valuate patterns in the Wetterau (Hessen, SFB 299): The ProLand-Model is made for the valuation of agricultural and semi-cultural land use patterns. It endpoints where the result depends on the price. ProF is about patterns of occurrence and CHOISE valuates the landscape on the willingness to pay by interviewing and estimating the prices for landscape change. The real value of Multifunctionality is not known (Waldthardt, 2008).

Klug (2008) suggests to identify processes set of by human beings which have large negative impacts on products and other resources, e.g. toxins, pollutants, human waste. Alterations caused by using landscape resources in a different way as well as consequences of changing the European subsidy system, e.g. depending on ecosystem goods and services and their values based on market demands and tourism shall be tested by modelling to improve the European subsidy system.

Impact assessment of land use change

Land use policy tries to decouple economic growth from environmental degradation to achieve sustainable development. The EU project SENSOR (Sustainability Impact Assessment: Tools for Environmental, Social and Economic Effects on Multifunctional Land Use in European Regions) is based on a concept of ‘Land Use Functions’ (LUF). It is predominantly suitable for rural areasneglecting other land use types and their interactions (Helming et al., 2008b). SENSOR combines the concept of Multifunctionality and the Millennium Ecosystem Assessment, which has to be adapted to landscapes mainly use by the economy, because (i) it was predominantly developed for natural and semi-natural ecosystems and (ii) social and economic issues are addressed indirectly as a consequence of environmental changes. (Helming et al., 2008a)

SENSOR is used for macroeconomic and sector models (for agriculture, forestry, transport, energy, infrastructure, rural tourism and nature conservation) to simulate future economic reference conditions for land use in the year 2025. The reference scenarios were developed as a part of several studies on environmental change like OECD Environmental Outlook (OECD, 2001), Millennium Ecosystem Assessment (MEA, 2003), United Nations Environment Programme GEO-3 (UNEP, 2002), and others.

Tree questions have to be answered by SENSOR: (i) what kind of land use change will take place due to policy intervention, and (ii) where, (iii) will these changes possibly induce an impact on the sustainability of affected regions? (Helming et al., 2008a)

Analytical chain of SENSOR

The DPSIR-model is widely applied to the concept of Multifunctionality. It builds the analytical chain for SENSOR impact assessment (figure 2). Future socio-economic and technological reference situations or policy Drivers (D) lead to land use changes (Pressure, P) which affect the State (S) of social, environmental and economic issues. The different States estimates the sustainability of Impacts (I).

SENSOR analytic chain

Figure 2: Simplified analytical scheme of impact assessement in SENSOR integrating top-down modelling with bottom-up participatory approaches and extending on the DRSIR-model of the EEA. (D=Drivers, P=Pressures, S=States, I=Impact) after Helming et al., 2008a

Several Models are used to translate Drivers into Pressures. Till 2025 the European economy will be dominantly affected by: (i) demographic changes in Europe, (ii) participation rate in the labour force in Europe, (iii) growth of world demand, (iv) oil prices at the world market, and (v) expenditure on research and development to simulate technological advances. Climate change was not identified to be significant in this period of time (IPCC, 2001). Based on these driving forces three scenarios were constructed as bench marks for decision making: business as usual, high growth and low growth scenarios (Kuhlman, 2008).

Four Impact steps are use to translate Pressures into Impacts. First step I₁ (figure 2) the analyses alterations of the environmental, social and economic states, as well as impacts of scenario assumptions and land use based on indicators.

Impact step 2 includes a valuation of indicator changes. Their monetary valuation is based on an accoounting framwork for externalities and shows the magnitude of external benefits and costs associated with observed indicator changes at regional scale (Ortiz et al., 2007). The non-monetary valuation method includes internet-based and group valuation to reveal stakeholder targets and preferences with respect to impacts on land use cahnge (Romano and Ferrini, 2007). The changes in impact indicators in relation to regional or national standard and threshold values are analysed in Impect step 3.

Finally, the results of 40 indicators are reduced into nine categories of Land Use Functions (LUF). These combine the concepts of Ecosystem Goods and Services and Multifunctionality. “LUFs are services or functions produced through land use in its interaction with the geophysical and socio-cultural capital of the landscape” (Helming et al., 2008a). Alternative policy options can be compared by displaying changes of Land Use Functions due to land use policy.

Responses (R) are not included in the SENSOR approach, they are covered by policy decisions. (Helming et al., 2008a).

Environmental Accounting

The exploitation of natural resources and the increasing biodiversity loss due to economic growth undermines the capacity of self-organisation of ecosystems. Therefore, Environmental Accounting is used to analyse and quantify the use of the environment, resources traded on a market as well as services not presently internalised by the economy in national income accounts. The purpose is to assess public and private costs and benefits, and to optimise the consumption of environmental resources on the long-term. “A complete analysis of ecosystem accounts would address all aspects that influence the value of ecosystems to society, including changes in functionality, spatial and temporal heterogeneity, diversity and values associated with intrinsic, option and bequest values, in addition to direct use market values. Furthermore it would include an assessment of changes in resilience, i.e. the capacity of an ecosystem to buffer disturbance to undergo change while still maintaining the same structure, to continued human use” (Walker and Pearson, 2007).

National Accounts

Environmental Economic Accounts are made for one nation, space and period of time. The attention is lead to the stocks and flows regarding the imports and exports as well as the depreciation and investment, although stocks are generally difficult to measure. The quality of statistics used is decisive for making good policy. This depends on the Theoretical Consistency, Empirical Measurability and Political Relevance. National income accounts constitute the primary source of information about the economy and are widely used for the assessment of economic performance and policy analysis in all countries (Rademacher, 2008). The recording takes place as a gain or loss in capital, usually by changing prices (Weber, 2007).

There is a multiple-dimensional indicator system for social, environmental and economic accountings consisting of 42 indicators concentrated on the communication between scientists and politicians. Different levels of aggregation allow to get more detailed information or an overview. Holistic measures on different levels of aggregation can be extended to national accounts, e.g. SEEA (System of integrated Environmental Economic Accounting, investigated by the United Nations); indicators and indicator sets, e.g. EU structural indicators, EU sustainable indicators; composite indicators on environment, well-being or quality of life. Green accounting or green GDP is difficult to calculate. The Gross Domestic Product (GDP) designates the domestic output measured in the value terms minus costs associated with inputs of goods and services. “Green GDP” includes the depletion of non-renewable resources, as well as environment degradation caused by human activities and sometimes the loss of ecosystem services (Alfsen and Greaker, 2007). However, it fails to integrate nature and household production (Rademacher, 2008).

Several indicators like GPI, , Ecological Footprint, Happy Planet Index exist without being comparable between different countries due to missing standards (Rademacher, 2008). Alfsen and Greaker (2007) argue that non of these indicators can be successfully used to indicate sustainable development, neither on professional basis, nor on the basis of their influence on practical policy. They fail due to their missing theoretical background (Vačkář, 2008) as long as they are not integrated into a formal analytical framework that could guide an integrated quantitative analysis. Furthermore they do not effectively address socio-economic developments and feed-back mechanisms (Weber, 2007). Since many ecosystem services, e.g. cultural services (Rademacher, 2008), are generally not included in the existing accountings and indicators, ecosystem degradation is not measured (Vačkář, 2008). Indicators of landscape structure have to be optimised to improve biodiversity (Syrbe, 2008). Besides, only a small number of indicators is considered by decision makers (Weber, 2007). This may lead to wrong economic signals about economic growth and development. On the other hand, the methodology of aggregation is not satisfactory due to the difficulty to judge the individual weight of information. As a result it reduces the confidence and usefulness of such indicators (Alfsen and Greaker, 2007).

SEEA

The System of Integrated Environmental and Economic Accounting (SEEA) became the dominat approach including national income accounts and most common macroeconomic indicators. SEEA 2003 consists of three parts, the first part includes the Material (Physical) Flow Accounts, Environmental related activities and products, Balance sheets for natural resources and Environmental expenditures. It will become international standard by 2011. The second and third part deal with valuation techniques, applications and policy uses. These parts will not become standard, and will not be comparable among different countries. (Rademacher, 2008)

Land and Ecosystem Accounts developed by the EEA

The EEA has created the Corine Land Cover (CLC or "Corine") which monitores land cover changes in a standardised way. The CLC database shall be used for land cover accounts framework of Land and Ecosystem Accounts, which aim to structure ecosystem accounts and bridge land use, biodiversity and water. The framework is to connect two sets of accounts. Land use accounts concern economic and social functions, consumption of ecosystem services and the intensity and artificail change of land. For the accounts geographical information with socio-economic statistics is needed including the sectors of production, consumption, natural assets, infrastructure, technologies and population. The second part is built up by the Ecosystem Accounts. They measure the supply of Ecosystem Goods and Services, assess the ecosystem potentials and integrity, health and viability. Therefore geographical information, as well as monitoring data of climate and atmosphere, the water system, flora, fauna and of soils is needed. Furthermore land cover monitoring has to be linked to datasets concerning processes taking place, their resulting effects and their dagree of importance for policy and trade-offs for each European country till 2012. For a better integration of quality aspects on the basis of indicators attached to the balance of ecosystems, Weber from EEA supports accounts of ecosystem state, that are "supplemented accounts" connected with "basic accounts" of land use. To get a comprehensive assessment it is necessary to analyse functions of land and ecosystems, the demand for services and the land input to the generation of services. (Weber, 2007)

Conclusions

The Concepts of Multifunctionality and Environmental Accounting do not include every service provided by ecosystems or give them the “real” value they have. The SENSOR-project might be a good tool to predict land use change caused by human beings, allowing decision makers to select from different options.

Due to missing standards in valuation methods Environmental Accounts can hardly be compared among different countries. Since Sustainable Development and Ecosystem Protection should be achieved on the global scale indicators ought to be comparable and provide environmental policy globally. A set of global indicators for sustainable development should be developed (Alfsen and Greaker, 2007). As statistics alone fail to represent the state of the environment correctly it is necessary to introduce Environmental Accounts into theoretically based and comprehensive frameworks like Land and Ecosystem Accounts. Land use change or alteration of the atmosphere as a consequence of human or economic activity is more representative for human impacts than indicators limited in their function. Therefore comprehensive frameworks might be more suitable for a good environmental policy to reach sustainable development. Since Land and Ecosystem Accounts are wide-ranged it could be sufficient to reduce the amount of information to a decisive manner. However, there are still lacks in knowledge about ecosystem functioning, so it is difficult to judge how to aggregate the information. Therefore relevant issues on the long-term have to be identified first.

Issues to work on the future

Find indicators that link the environment to human activities and include embodied services.
Improve the theoretical background of indicators.
Further development of accounting frameworks that show changes by human beings before degration of Ecosystem Services becomes irreversible.

References

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Klug H., (2008). Valuating ecosystem services as a contribution to maintain and further develop landscapes. Salzau Workshop – Ecosystems Services

Mann S., Wüstemann H. (2008). Multifunctionality and a new focus on externalities. The Journal of Socio-Economics 37, 293-307

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http://lis4.zalf.de/home_sensor/modul0/SENSOR_del_2.3.4_month54_Externalities-V7%20final.pdf , ZALF, Germany

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Useful Links

Sustainable Development

http://portal.unesco.org/en/ev.php-URL_ID=2963&URL_DO=DO_TOPIC&URL_SECTION=201.html

http://www.uwsp.edu/cnr/GEM/ambassador/What_is_sustainability.htm

Multifunctionality of Agriculture

http://www.oecd.org/document/34/0,3343,en_2649_33773_40789602_1_1_1_1,00.html

http://www.livingreviews.org/lrlr-2007-3

IP-SENSOR

http://www.zalf.de/home_ip-sensor/products/indicators/indicator.htm

Environmental Economic Accounting (EEA)

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/Environment/EnvironmentalEconomicAccounting/Content75/InfoUGR,templateId=renderPrint.psmlEnvironmentalEconomicAccounting/Content75/InfoUGR,templateId=renderPrint.psml

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Publikationen/SpecializedPublications/EnvironmentEconomicAccounting/EEA,templateId=renderPrint.psmlSpecializedPublications/EnvironmentEconomicAccounting/EEA,templateId=renderPrint.psml