Making Nature Count: Why you need natural capital accounting in mining [Part 1]

Mining can significantly impact the natural environment, including the destruction or degradation of natural habitats, the contamination of air and water, and the disruption of ecosystem processes. These impacts can have long-term consequences for the health and functioning of the natural environment and the ecosystem services it provides, such as the regulation of water and air quality, the support of biodiversity, and the provision of recreational and aesthetic benefits. One way to assess the environmental impacts of mining is through using Natural Capital Accounting (NCA), which involves quantifying the value of the natural environment and the ecosystem services it provides. This can help to identify the impacts of mining on the natural environment and to provide a more comprehensive understanding of the social, economic and environmental costs of mining and its “Post Mining Land Use” (PMLU).

TLDR: NCA is a valuable tool that contributes to quantifying the environmental impacts of mining by assigning monetary values to ecosystem services and natural resources. By measuring natural capital and integrating it into a Triple Bottom Line strategy, businesses can better assess long-term consequences and trade-offs associated with mining activities. Advances in technology, such as remote sensing and data analysis methods, make it easier than ever to monitor and evaluate the environmental impact of mining, promoting sustainable resource management.

What is natural capital accounting?

Natural capital accounting is the process of quantifying changes in the stock and condition of natural capital. It is used to integrate the flow and value of ecosystem services into an ‘accounting’ and reporting systems in a standard way. One way to do this is by developing “natural capital accounts”, which consider the environmental costs of mining. These can be calculated to identify and assess the impacts on the natural environment due to mining activities and to provide information that supports a triple-bottom-line (TBL) approach when evaluating projects. This can help decision-makers make better-informed decisions about whether to allow mining activities in a location.

Quite often, environmental economics and NCA are talked about synonymously. They are different; however, semantics may change over time. Primarily NCA is the standardisation of quantifying natural capital and ecosystem services it provides to generate reports. Today NCA is the use of data to quantify biophysical attributes to generate reports, such as carbon sequestration rates; in addition to placing monetary values on the quantified attributes. In contrast, environmental economics specifically helps you allocate a monetary value to the estimated ecosystem service stocks and flows such as the amount of carbon sequestered, in addition to other benefits such as habitat for wildlife and recreation.

Simply the two components are:

1)???To collect and report data in a standard way (natural capital accounts)

2)???To attribute values to the ecosystem service data using market and non-market valuation techniques (environmental economics)

The first component is useful as it can be objectively measured annually – this is what most organisations use to report their Carbon Neutrality. The second part, however, is more challenging as the dollar values are based on the associated ecosystem services. These services often include non-market values such as nursery/habitat for wildlife, coastal protection, water quality regulation, air quality regulation, temperature regulation, aesthetic views, etc. Assigning dollar values to these ecosystem services is challenging and requires expertise in environmental economics. Many companies reporting is mostly on the biophysical component of NCA, to promote their ‘carbon neutral’ status or ‘positive impact’ on the environment. Despite the reforested offset having the same amount of tree species per hectare as the pre-disturbed site. It may not provide the same value as the original site due to lacking services.

As it's a challenge to develop a comprehensive assessment of ecosystem services and their value. Many companies focus on the quantification component and create offsets that aim to be greater than the disturbance. For example, for every tree you remove, you plant two trees. However, it’s important to consider where these trees used the offset are being planted as it may result in a negative ecological impact. It would be counter-productive to destroy native grassland which provides its own necessary ecosystem services and replace it with planted trees for an offset. The trees for the offset would best be planted in a degraded site to provide additional value. Note that I say degraded and not barren. A naturally barren environment is still a habitat that has its own niche species and ecosystem services.

What can be measured in natural capital accounting?

Natural Capital Accounting is a valuable tool for understanding the ecological significance of a region, but it is not designed to directly inform decisions regarding the comparative value of different projects. Instead, NCA is akin to estimating a country or region's Gross Domestic Product (GDP), which is used to track economic growth when used appropriately. To make informed decisions about which projects to fund or approve, decision-makers must consider various perspectives. From a governmental standpoint, a Cost-Benefit Analysis (CBA) is necessary, taking into account the TBL of economic, social, and environmental factors. Businesses, on the other hand, may focus on economic feasibility studies or CBAs that emphasise financial outcomes. Depending on what the shareholders prioritise.

However, for the purpose of lowering barriers and improving accessibility by translating the literature to something better suited for business and communicating environmental impacts. It is my hope that we develop methodologies that make it easier to do TBL CBA. For a lack of a better term, data generation and dollar value are used together to describe NCA outputs and may be used as so throughout the remainder of this article.

Natural capital accounting can help you develop a holistic understanding of the impacts of mining on the environment. For example, natural capital accounting can identify how land transformation impacts biodiversity and ecosystem services such as water and air quality regulation. Moreover, this framework can help to understand better the long-term consequences and trade-offs associated with mining activities and develop a robust progressive rehabilitation and PMLU strategy.

An example of natural capital accounting calculation:

ACME Resources Corp (“A Company that Mines Everything”) is developing a new mine on a piece of land that is currently forested. To determine the value of the natural capital present on the land, an assessment is conducted to determine the extent, function and value of the forest in terms of its ecological services, such as carbon sequestration, water regulation, and biodiversity.

Initially, a comprehensive survey is undertaken to characterise a forest that gauges tree abundance and coverage. In addition, soil characterisation is performed using maps and samples, which are assessed in the lab. Lastly, water bodies are mapped, and an extensive survey of the fauna and flora is carried out.

The assessment might find that the forest can sequestrate $20 per hectare per year of carbon and provides $10 per hectare per year worth of water regulation services. Additionally, the forest provides habitat for endangered species worth $5000 per hectare.

So, the total value of the natural capital of the land is $20 + $10 + $5000 = $5030 per hectare per year. And that value can be used as a baseline to use when calculating the project costs of the mine.

Additional steps would include analysing the economic cost of mining; such as extraction, transportation, and processing. These are monetary costs relatively easy to source and typically calculated for the extraction phase of a mining project; the direct cost of mine rehabilitation would include soil movement and the cost of planting stems per hectare. But most sites would not take into account the ecosystem complexity required or ecosystem services lost or gained.

Due to the nature of mining, it will have a negative impact on the environment which can last for many years (10-100 years); and a TBL CBA be done to reflect the life of the mine. Suitable offsets to account for the natural capital loss previously calculated may help negate the ecological cost of mining. In addition, the ecological deficit calculation can help to develop a suitable PMLU and progressive rehabilitation strategy.

When ACME Resources Corp is considering a new project that will degrade natural capital or increase environmental risks, it may identify that the ecological deficit is too great and rehabilitating the land to a condition that provides equal or greater ecosystem services may result in significant losses (or even bankruptcy!). ACME Resources Corp may want to opt for an alternative strategy or explore alternative locations.

Simple enough, is that all it takes?

Obviously not. This is an example to explain the concept and real-world calculations are usually more complex, involving more extensive data collection, analysis and incorporating more environmental components. Natural capital accounting can help assess the value of natural assets and the ecosystem services these assets provide. The value is estimated by measuring the market price and non-market values for ecosystem services that would have been consumed even if mining had not occurred, and the cost of restoring a degraded ecosystem.

There are several types of environmental costs in natural capital accounting, including direct and indirect costs.

Direct costs include short-term impacts on human health, such as those related to air and water pollution.

Indirect costs include long-term ones, such as those related to ecosystem disruption.

It is challenging to quantify the cost of environmental impacts associated with mining to develop a feasibility assessment and rehabilitation strategy. However, another way to use natural capital accounting is to assess the value of ecosystem services provided by different scenarios of post-mined use. Natural capital accounting will make it easier to consider alternative post-mine land use than grazing land.

Data for natural capital accounts

Measuring natural capital accounts involves collecting data on the stocks and flows of natural resources over time, as well as information on the services and benefits they provide. In mining, it's crucial to identify how much natural capital has been removed (the disturbed area) and how it will be restored. This can be achieved through offsets and/or progressive rehabilitation over the mine's lifetime, with a suitable PMLU identified for closure.

The types of data used to measure natural capital accounts can vary depending on the specific resource being assessed and the size of the land. In the case of mining and pasture, the land can be quite large. The types of data include:

• Biophysical data include species population distribution, land cover, and soil characteristics.
• Economic data include market prices, costs, revenues associated with resource use, and the value of ecosystem services.
• Social data include human well-being, access, and use of resources.

Data collection can be performed using various methods, broadly categorised into active, semi-active, and passive methods.

Active methods involve human resources who actively go to sites or engage with stakeholders to collect data manually. While this method can be time-consuming, it provides high-quality, granular data for specific projects. This includes using tried and tested methods to collect environmental data, often requiring on-site expertise. For example, collecting data on human well-being, access, and use of resources is often best done through active methods.

Semi-active methods include using remote sensing technology, such as satellites, planes and drones, to collect data over large areas. These data can then be processed and analysed by organisations such as Envirometrics.io to generate insights. This method is effective for generating personalised, actionable data for specific sites, but the data may not be as precise as active methods. Economic data, such as market prices, costs, and revenues associated with resource use, may also fall into this category.

Passive methods involve utilising open-source data that has either not been treated or has undergone minimal treatment to derive data for natural capital accounts. This can be useful for generating new insights and can cover many resources. However, the data is typically high-level and at the country scale for ecological data.

It's important to note that we do not suggest one method is superior, and a combination of all methods is needed to create a robust assessment of natural capital accounts, which will depend on the specific site.

Unlocking the Power of Data for Making Impactful Environmental Decisions in Mining

As the world's population and standard of living continue to rise, the demand for resources such as copper will increase. We require these materials to power our homes, run our computers, and fuel our transition to renewable energy. In fact, meeting our renewable energy targets for 2050 will require 2-3 times the amount of copper that has been mined in human history, a staggering 50-60 million tonnes of copper per year. However, extracting these resources comes at a cost, as copper waste already constitutes nearly 50% of the world's tailings, amounting to a staggering 130 billion tonnes. With decreasing ore grades contributing to the increasing waste generated, the need for sustainable mining practices, such as natural capital accounting, has never been more vital. By considering the full ecological cost of mining, we can ensure that our resource extraction efforts are not only meeting our current needs but also preserving our natural resources for future generations.

By implementing natural capital accounting, companies such as ACME Resources Corp can ensure that their resource allocation and reporting efforts are not only efficient but also in line with the latest standards. Informing decisions prioritising economic and ecological sustainability, potentially avoiding future environmental disasters. The advent of advanced technologies such as remote sensing data collection and improvements in sensors, combined with on-the-ground data, makes it easier than ever before to continuously monitor and assess the environmental impact of mining. By staying informed and up to date with the latest developments, your company can stay ahead of the curve and make sure it is meeting its sustainability goals. To learn more about natural capital accounting, and the tools available to you, please contact [email protected] today and take the first step in sustainable resource management.

Acknowledgement

I wanted to thank my friend Dr Buyani Thomy , an economist specialising in environmental economics, who indulged me in answering my questions on the topic.

Read more about organisations in this space:

1.????Capitals Coalition

2.????The Economics of Ecosystems and Biodiversity

3.????Natural Capital Project

4.????Accounting for Nature

5.????Taskforce on Nature-related Financial Disclosures

#NaturalCapitalAccounting #biodiversity #ecology #environment #sustainability #policy #mining #EnvironmentalManagement #ESG #finance #ecosystems #wildlife #plants #NaturalResources #standards #science #economics