Natural Capital and Natural Income: Definition and Examples

Natural capital is everything living and nonliving, besides people and manufactured items, that produces value or benefits to people. Natural income is the monetary value of natural capital that can be consumed and is closely related to the concept of sustainable yield. In order for an environmental practice to be sustainable, the natural capital has to be able to renew itself within a certain amount of time. If people use too much natural capital too quickly, the process isn’t sustainable. This can lead to ecosystem damage and eventually collapse.

By learning how to value and manage natural capital, people can work to slow down and eventually reverse the unsustainable practices that have led to the destruction of ecosystems around the world. Including natural income and ecosystem services in the cost of economic policy and development can help authorities and consumers make better decisions about protecting the well-being of people and the planet both now and in the future.

Natural Capital Definition

There are many types of natural capital that provide goods and services for people. Examples include water, land, air, minerals, fishing stocks, forests, and biodiversity. Natural capital can also include the different processes and functions that take place within an ecosystem that benefit people.

The International Institute for Sustainable Development considers these goods and services essential for human health and survival. Along with other types of capital like human, financial, manufactured, and social capital, natural capital is a critical piece of our human economy. In low-income countries, natural capital tends to be depleted quickly, but wealth and standard of living among the lowest income people do not improve.

Unfortunately, natural capital has almost always been considered free or undervalued. To make good environmental policies, governments need to include the real value of natural capital in their calculations. For example, the government of the United Kingdom has put together guidance for policymakers to include the value of natural capital in their decision-making. Conservation International also helped develop the Natural Capital Protocol, which shows businesses how to identify and value the natural capital that they use.

Many times, the value of natural capital isn’t represented by a price, because putting a monetary value on nature can be difficult and controversial since everyone values natural resources differently. Measurements like how much pollution wetlands can absorb or the amount of carbon a forest can store are often used to show the value of natural capital.     

Natural Income Definition

Natural income is the value of the natural capital that humans consume. For something to be a sustainable practice, the amount of natural income has to stay at an amount that allows the natural capital to renew itself in time to be used again. If natural income is too high, the result is damage to the ecosystem. For example, if there is a certain amount of trees in a forest and too many of them are logged to use for making paper, the trees will not have enough time to grow back before they need to be harvested again.

To calculate natural income, the value of natural capital is calculated. Then the amount taken is measured. Other calculations like ecosystem services may be considered when calculating natural income. 

Ecosystem Services

Cultural Services

Human interaction with ecosystems and nature is as old as humans themselves. Nature is a part of every culture and helps inform how we live our lives. The creativity that comes from interacting with nature, like producing music and art, is a non-material service. Recreation and tourism in nature are other important ways that we benefit from different ecosystems. 

Provisioning Services

Most people probably think of material goods when they think of ecosystem services. Food and fresh water are two of the most important provisioning services, along with fuel, timber, plants, and livestock. Any other provisions that come from nature would fall under this category, too.

Regulating Services

Any natural service that helps make it possible for people to live would be considered a regulating service. Pollination is critical for food to grow, while purification of water as it moves through layers of soil makes clean drinking water available. When different regulating services work together, ecosystems can function and stay healthy. 

Supporting Services

The most basic ecosystem services might just be the most important. Without natural processes like the water cycle, nutrient cycle, or photosynthesis, ecosystems would quickly collapse. And without healthy ecosystems, humans cannot survive. 

Challenges of Creating Sustainable Policy

Finding common ground on how to value ecosystems is more urgent than ever. As the climate continues to warm, the devastation of air pollution, drought, overfishing, and deforestation only increases. Deciding on a price tag for the environment through the lens of what natural goods and services are worth to humans has its own problems.

However, creating good environmental policy means putting a price on things that people often take for granted. It’s likely that in order to achieve conditions that can sustain human life on Earth, governments will need to find ways to balance multiple views of what ecosystems and the natural capital they hold are worth.