Genuine Savings and Sustainability

Hanley, Nick; and, Louis Dupuy; McLaughlin, Eoin

doi:10.1002/9781119158424.ch8

Cited by 16 publications

(34 citation statements)

References 92 publications

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“…requires an assessment of the changes in value of all types of capital." Hanley et al (9) review the theory of natural capital prices in wealth indices, and note the dearth of theory for measuring them. Moving beyond rhetoric to valuing natural capital is imperative for reforming national accounting and developing sustainability measures (2,(10)(11)(12)(13), tracking the sustainable use of specific socioecological systems (14), and mainstreaming natural capital in a way that makes it comparable to other fiscal goals for policy analysis (15,16).…”

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confidence: 99%

Measuring the value of groundwater and other forms of natural capital

Fenichel

Abbott

Bayham

et al. 2016

Proc. Natl. Acad. Sci. U.S.A.

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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.

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confidence: 99%

Measuring the value of groundwater and other forms of natural capital

Fenichel

Abbott

Bayham

et al. 2016

Proc. Natl. Acad. Sci. U.S.A.

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“…The focus of this study is the economic approach to SD. This paper draws on a well-established theoretical literaturesee Hanley et al (2015) for an extensive review. 6 The Genuine Savings approach follows the weak sustainability paradigm, as it assumes a high degree of substitutability between the different assets which make up a country's stock of comprehensive wealth.…”

Section: The Economics Of Sustainable Developmentmentioning

confidence: 99%

“…10. See Hanley et al (2015) for a review of the empirical literature changes in total capital for Germany over time. We construct the following indicators:…”

Section: German Gs Estimates 1850-2000mentioning

confidence: 99%

“…We only find two negative values over the 30 year horizon (1914 and 1915) Gollier, 2013 for a thorough discussion). However, due to the lack of reliable and meaningful discount rate for Germany over the long-run we decided to follow the lead of pioneer studies (see Greasley et al, 2014;Hanley et al, 2015Hanley et al, , 2016.…”

Section: Well-being Indicators Over Timementioning

confidence: 99%

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Accounting for Sustainable Development over the Long-Run: Lessons from Germany

Blum

McLaughlin

Hanley

2019

German Economic Review

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We construct long‐run sustainability indicators based on changes in Comprehensive Wealth – which we refer to as Genuine Savings (GS) – for Germany over the period 1850–2000. We find that German sustainability indicators are positive for the most part, although they are negative during and after the two World Wars and also the Great Depression. We also test the relationship between these wealth changes and a number of measures of well‐being over the long‐run: changes in consumption as well as changes in average height and infant mortality rates. We find a positive relationship between GS and our well‐being indicators over different time horizons, however, the relationship breaks down during WWII. We also test if the GS/Comprehensive Wealth framework is able to cope with massive disinvestment at the end of the Second World War due to war‐related destructions and dismantlement. We find that negative rates of GS were by and large avoided due to the accumulation of technology and growth‐friendly institutions. We demonstrate the importance of broader measures of capital, including measures of technological progress, and its role in the process of economic development; and the limits of conventional measures of investment to understand why future German consumption did not collapse.

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“…2 Using total wealth as an indicator for sustainability implies optimal resource allocation and unlimited substitutability in monetary terms between different forms of capital. These form underlying assumptions within the economic model of weak sustainability (Pearce et al 1989;Hanley et al 2015;Hamilton and Hepburn 2014). The adequacy of these assumptions fundamentally depends on adequate monetary valuation or pricing of a good to indicate scarcity, the rate of technical progress and the possibilities of substitution between forms of capital (Lecomber 1975;Neumayer 2013;Hediger 2006;Hanley et al 2013).…”

Section: The Substitutability Assumption and Limits To Substitutionmentioning

confidence: 99%

Substituting freshwater: Can ocean desalination and water recycling capacities substitute for groundwater depletion in California?

Badiuzzaman

McLaughlin

McCauley

2017

Journal of Environmental Management

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While the sustainability of resource depletion is a longstanding environmental concern, wider attention has recently been given to growing water scarcity and groundwater depletion. This study seeks to test the substitutability assumption embedded in weak sustainability indicators using a case study of Californian water supply. The volume of groundwater depletion is used as a proxy for unsustainable water consumption, and defined by synthesising existing research estimates into low, medium and high depletion baselines. These are compared against projected water supply increases from ocean desalination and water recycling by 2035, to determine whether new, drought-proof water sources can substitute for currently unsustainable groundwater consumption. Results show that the maximum projected supply of new water, 2.47 million acre-feet per year (MAF/yr), is sufficient to meet low depletion estimates of 2.02 MAF/yr, but fails to come near the high depletion estimate of 3.44 MAF/yr. This does not necessarily indicate physical limitations of substitutability, but more so socio-economic limitations influenced by high comparative costs. By including capacities in demand-substitutability via urban water conservation, maximum predicted capacities reach 5.57 MAF/yr, indicating wide room for substitution. Based on these results, investment in social and institutional capital is an important factor to enhance demand-side substitutability of water and other natural resources, which has been somewhat neglected by the literature on the substitutability of natural resources.

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Genuine Savings and Sustainability

Cited by 16 publications

References 92 publications

Measuring the value of groundwater and other forms of natural capital

Measuring the value of groundwater and other forms of natural capital

Accounting for Sustainable Development over the Long-Run: Lessons from Germany

Substituting freshwater: Can ocean desalination and water recycling capacities substitute for groundwater depletion in California?

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