National accounts—which measure a country’s aggregate economic activity, including Gross Domestic Product (GDP)—largely ignore natural capital and ecosystem services. This omission occurs because national accounts heavily rely on market transactions to identify and value economic activity, whereas ecosystems’ contributions occur most commonly outside markets. This leads governments, businesses, and decisionmakers to ignore or misidentify some sources and uses of their income and wealth, skewing their decisionmaking.
Recognizing these shortcomings, many countries, including the United States, are increasingly moving towards Natural Capital Accounting (NCA), a system of measuring natural capital and ecosystem services in a way that allows for their integration with national accounts.
NCA will better represent connections between economic activity and nature in national accounts. Countries’ and businesses’ balance sheets will be more accurate, better reflecting nature’s uses and value and ultimately leading to better decisionmaking. NCA also supports the construction of alternatives to GDP that economists have long been advocating for, such as Net Domestic Product (NDP), as they better represent changes in well-being and sustainability.
In this report, we provide an overview of NCA for non-economists. We primarily focus on the United States’ effort to integrate natural capital into national accounts, though we place it in the greater context of similar global efforts and the UN’s SEEA. In doing so, we discuss some of the factors that motivate this endeavor, describe the conceptual underpinnings of NCA, highlight some of its potential uses, and document current efforts to develop natural capital accounts. In our concluding section, we discuss challenges to their implementation as well as areas for future research.