The Driving Forces of Natural Capital Wealth : A Decomposition Analysis

This paper applies a novel approach to decompose measures of natural capital wealth. It looks ‘under the hood’ of wealth accounts to analyse whether changes in the value of natural capital are driven by price, volume, cost, or time horizon effects. We apply the approach to global World Bank data, between 1995 – 2018, for 11 different types of natural capital including fossil fuels, metals and minerals, and forests. The results show production effects from fossil fuels were worth $7.3bn and resource rent effects $4.3bn. For nonharvested forests, volume effects were worth $1.1bn, and rents effects $3.3bn. Decompositon expands the policy toolkit for wealth accounting and bridges the gap between economic and physical changes in the natural environment. However, it also raises issues for the use of non-renewable wealth as a sustainability indicator. Several methodological refinements are suggested. The approach could be replicated for other wealth accounting endeavors around the world, or be applied to human capital