By Paul Ekins, Silvia Ferrini and Joe Grice
Water is vital for drinking, cooking, washing, and maintaining hygiene. It’s also a critical input for various sectors including agriculture and industry and sustains ecosystems and environments that provide essential services to human societies and economies.
Globally, both the quantity and quality of water resources are under great pressure from the demands of human activities and resulting pollution; pressures that are exacerbated by the increasing challenge of climate change. Given its critical role in economies, ecosystems and the quality of life, the measurement and monitoring of water quantity and quality has never been more essential for policymakers, scientists and the public.
A new ESCoE discussion paper by Paul Ekins, Silvia Ferrini, and Joe Grice examines water and water ecosystem service accounting in the UK. It outlines the current System of Environmental Economic Accounting for water and offers recommendations to improve UK water accounting.
Systematic monitoring of water flows and stocks is key
While there is a long history to environmental and economic data, the System of Environmental and Ecosystem Accounting (SEEA) is the first international statistical standard that systematically maps the relationship between the economy and the environmental resources it uses, including water. Methods were agreed at the United Nations level and are set out in the 2012 SEEA Central Framework (SEEA CF) and the 2021 SEEA Ecosystem Accounting (SEEA EA).
SEEA CF is principally concerned with the quantitative stocks and flows of resources, including water, through the economy. SEEA EA accounts for the broader services these resources provide. The quantitative and qualitative dimensions of water can be brought together through the concept of “ecosystem services”. This encompasses both the direct services from the use of water for households and businesses and the benefits derived from water’s interaction with ecosystems (e.g., flood control, purification, recreation).
Figure 1 shows how the SEEA sets out the process of accounting for ecosystem services.
Establishing SEEA accounts involves several steps:
- Calculating the extent of the relevant ecosystem: In the case of water, this includes lakes, rivers, wetlands and groundwater, measured in terms of hectares or the volume of water these ecosystems contain. In addition to the ecosystem extent, the condition – or quality – of these ecosystems is also measured, because this crucially affects the services which the water resources can provide.
- Measuring, in physical terms, the annual flow of services to which the stock of water ecosystems give rise: One of the most important of these is the ‘provisioning’ service – the supply of water either directly to households or to companies that may purify and then distribute the water to households and businesses. Water also provides numerous other “regulating” and “cultural” services through its environmental interactions.
- Conversion into monetary values: If these physical measures of stocks of water and its associated ecosystems, and the resulting flows of services, are to be compared with other goods and services in the national accounts, they need to be converted into monetary values. The SEEA EA describes a wide range of valuation methods, depending on the nature of the ecosystem service, the available data and the purpose of measurement. For instance, for comparison of the values of water ecosystems with those in the national accounts for other goods and services, they should reflect exchange values, as if the water ecosystem services had been supplied through a market. Given that these markets rarely exist for ecosystem services, arriving at water ecosystem values can be challenging. However, approximate estimates may usually be calculated.
- Valuation of stock: The valuation of ecosystem service flows allows us to determine the present value of the underlying resource (the “stock”) using the standard economic technique of discounting. This stock changes over time, both physically (due to rainfall and withdrawals) and monetarily, impacting the ecosystem services it provides.
To date, water accounting remains patchy, but work has started
Our paper discusses the European and UK experience of compiling water accounts and finds that it is patchy and in considerable need of further development to bring it in line with the accounting approach set out in the SEEA.
The Office for National Statistics (ONS) has made a start with compiling accounts in line with the SEEA. This ESCoE work aims to build on ONS work to produce SEEA-consistent water accounts on a timely basis.
We hope to provide a tool that can help policy-makers and other decision-makers manage both water quantity and quality. We also hope to provide a firm basis for public debate around these ecosystem services that are so important for human economic activities and quality of life.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.