WAVES Forest accounts May 2016 Image credit: Heather/Creative Commons via Flickr Natural capital accounting: forests Counting beyond the trees Forest accounts provide a more complete way to measure the forest assets and flows of forest-related services in a country, and how they change through time. They show physical and monetary information (hectares, m3 of wood, US$) linked to traditional indicators such as GDP. They can be extended to include other forest products such as fuelwood and ecosystem services. The information produced can help design and monitor strategies for implementing SDG 15 (sustainable forest management), SDG 7 (sustainable energy from fuelwood) and reduction of climate change threats. Potential benefits • Forest accounts provide an ‘umbrella’ framework to collect information about forests — canopy cover, timber extraction and species diversity, for example • They help to reveal how forests are a direct source of wealth in a country, allowing for better policymaking • They can be used to estimate other ecosystem services such as carbon capture • Showing a higher value of forest contribution to GDP may enable the forest sector to negotiate a larger share of the government budget. www.wavespartnership.org Wealth Accounting and the Valuation of Ecosystem Services “ It is important to highlight the extent of uncontrolled timber extraction that the accounts reveal. There is no institutional control, and evidently an important part of it is illegal.” Guillermo Alejandro Gándara, Universidad Rafael Landívar, Guatemala Forests provide many benefits to people. Nations to ensure these data are comparable Some of them, such as timber, fodder and and replicable. Importantly, they are linked to fuelwood, have direct uses. Forests are also the System of National Accounts and its spaces for recreation and appreciating traditional indicators of economic performance, cultural values. They support ecosystem such as GDP. This means that results from functions: sequestering carbon, helping to forest accounts can be used by economic stabilize soils and providing habitats for groups beyond the forestry sector, including biodiversity. Despite this, forests are agriculture, manufacturing and trade. destroyed. The reasons are many, but an Forest accounts also introduce a better underlying problem is a lack of data to recording framework, to understand stocks understand the drivers and impacts of the (eg total forests available in a country) and destruction. For example, what are the flows or changes during a period of time (see economic gains and losses from this action? Figure 1). Understanding this change in stock is What is the overall change in forest cover very important to the country’s wealth. over time, and what effect can this have on Traditional accounts focus on flows, reflecting the economy and the environment? additions to the economy each time forests are harvested: through jobs created along value What are forest accounts? chains, timber sold, and revenues to Forest accounts are a systematic framework governments through permits, licenses and for collating data on forest assets and activities, VAT. But traditional accounts are more limited in using methodologies approved by the United terms of accounting reductions. For example, Figure 1. Basic framework for forest assets account What is the area under What are the main changes to forest cover (hectares)? forests in the timeframe? How much timber exists (m3), Changes (+): natural growth, reclassification from what type of forests ons and what is their diti (-): removals, natural or agricultural land agricultural land value (US$)? Ad catastrophic loss, flows urban land urban land forest land forest land Trees from Trees from Trees from Trees from Trees from Trees from Re out of the country, d residuals and waste uc tio ns Initial stock Final stock Link to system of How sustainable are these Validated national accounts reductions? data from and indicators And what are the effects Land (eg GDP) on other forest values Accounts Economy and ecosystem services? Environment c ng et What is the annual impact on s e uri s, old Fis ltur s m rie Ec fact What is the proportion the economy as a whole te eh g u he nin ys ric (% of GDP), and on us of forest with respect nu os Ag Mi ho Ma to other land uses, and different sectors like eg how is it changing tourism and services, through time? or manufacturing? Intermediate users Final users How do the benefits from forests compare to the costs of sustainable forest management? Note: SEEA provides guidance to understand forests from two inter-related perspectives: focusing on assets (resource-based accounts) or ecosystems (ecosystem-based accounts). This note discusses the first perspective. Source: adapted from WAVES (2016) and United Nations (2015). Natural capital accounting: forests Image credit: garycycles8/Creative Commons via Flickr they do not reflect how much natural forest accounts framework considers production and cover is lost during harvest. A country can be consumption, which allows for disaggregation of depleting its natural forest wealth while use by household type and income levels, and experiencing rapid economic growth and intermediate consumption by other industries higher GDP. — for example, the furniture industry. Forest accounts fill in this gap by monitoring the How is monetary value estimated? sustainability of forest activities and making the impacts on forest stocks evident. Additional Monetary value is estimated in relation to the steps can be taken after this to provide physical value of forestry land, timber assets or information for other forest products — cork, ecosystem services. The SEEA framework fuelwood and some ecosystem services like underpinning the accounts provides specific carbon sequestration, for example. rules on how to estimate these values. For example, for timber assets the process How are forest accounts disaggregates by type of timber and how it will constructed? be used (construction, furniture, fuelwood). There is information on calculation of stumpage Forests accounts follow the approved System of value (paid to the owner of the timber, or as the Environmental-Economic Accounting (SEEA), right to harvest trees), net present value and expanding on information from the land how to account for different values of land once accounts. The first step is usually accounting for timber is removed. It is important to clarify that timber resources and forest land, following a monetary values of timber are linked to ‘resource-based’ approach (Figure 1). These potential harvest where extraction is allowed. accounts show biophysical data for cover The technical timber value of trees in national (hectares) and volume (m3 of timber) for existing parks for example is zero, because they cannot stock at the beginning of a period, the changes be harvested. during the period (natural growth, harvest, losses) and how much is available at the end of the period. Once that ‘basic block’ is ready — and if information exists — countries may decide to account for other forest benefits, such as Download more information at non-timber forest products (eg fuelwood) and www.wavespartnership.org some forest ecosystems services such as carbon sequestration. Furthermore, the forest Wealth Accounting and the Valuation of Ecosystem Services www.wavespartnership.org Case study: forest accounts in Guatemala Figure 2. Forest accounts in Guatemala Image credit: Adam Jones/Creative Commons via Flickr Volume of timber in Guatemala Timber: millions of cubic meters 800 16,000 Monetary value of timber 750 14,000 700 (millions US$) 12,000 650 600 10,000 550 8,000 500 6,000 450 400 4,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Timber Monetary value (million m3) (million US$) Proportion of use not registered in economy 100 99 98 97 96 95 94 93 92 2001 2002 2003 2004 2006 2007 2008 2009 2010 2005 Forest accounts in Guatemala show that the country is 2.5 per cent of GDP, higher than the 1 per cent currently rapidly losing a valuable asset and that little of the value recorded by the (traditional) national accounts. But the from forests is properly reflected in the economy (see massive disparity between reported activities and Figure 2). This leads to a cycle where forestry actual forest change shows that as much as 96 per cent institutions are underfunded and unable to prevent of forest use is illegal. The accounts also show that 64 further losses. per cent of households depend on firewood as their main energy source and much of the forest clearing The country has lost nearly half of its forest cover in comes from private sector wood brokers. The accounts 60 years. Between 2006 and 2010 the deforestation are helping the government design the National Forest rate was 1.4 per cent — significantly higher than the 0.4 Policy of Guatemala, with a special focus on per cent average for all of South America. The instruments to deal with illegal logging. accounts show that forestry activities contribute References: United Nations (2015) System of Environmental-Economic Accounting 2012. Central Framework. United Nations, New York. Waves Partnership (2015) Guatemala country report 2015. Instituto Nacional de Estadística (2013) Sistema de contabilidad ambiental y económica de Guatemala 2001-2010: compendio estadístico. WAVES Partnership (2016) Forest accounting sourcebook. Policy applications and basic compilation (draft). Wealth Accounting and the Valuation of Ecosystem Services Wealth Accounting and the Valuation of Ecosystem Services (WAVES) is a global partnership led by the World Bank that aims to promote sustainable development by ensuring that natural resources are mainstreamed in development planning and national economic accounts. www.wavespartnership.org 1818 H Street, NW, Washington, DC 20433 USA