Natural Capital Accounting for Water Resources

Finding appropriate mechanisms by which to value the environment and incorporate it into economics remains a sizeable challenge for researchers in the field. Attributes of natural resources feasibly align with an economist’s notion of ‘capital’. But once nature is defined as capital, there is a crucial distinction between stocks and flows, and as a result there are both opportunities and difficulties of incorporating them within the national accounts. This reasoning can be applied specifically to hydrological capital, as is shown by three real-world case studies. Hydrological capital is uniquely difficult to value, and that field is still in its infancy. But examples demonstrate that water accounts can be used to inform policy, and that it is possible to acknowledge and account for water as a capital asset.