Valuing and accounting for water-related ecosystem services for water pricing and management: An Australian case study

By demonstrating the value of ecosystem services (ES), ecosystem accounting addresses the water crises by providing insights from both supply and demand perspectives. This requires ES valuation and an understanding of how valuation methods, accounting treatments, and water availability affect ES values. Using the System of Environmental-Economic Accounting (SEEA), we valued water-related ES using multiple methods, two accounting treatments, and produced monetary ES accounts for the Australian Capital Territory (ACT) to evaluate how accounting can support water pricing and management. We found that ES values varied significantly across valuation methods, accounting treatments, and water availability, ranging from AUD −10 to 998 million in the ACT. The huge range highlights the importance of selecting appropriate methods and accounting treatments when using the SEEA. Our approaches to ES valuation were: (1) ES value is embedded within economic transactions and ES value is a subset of these, and (2) ES value is unrecognised in economic transactions and proxy methods are used. Using the second approach, methods that use prices from similar markets and replacement cost extend the production boundary of the System of National Accounts (SNA) and provide additional information on economic value. Using ACT data, we demonstrate how ES valuation and accounting can be applied to current water pricing to better reflect ES use, water scarcity, and to spread costs overtime. Accounting for ES value may justify price increases to limit short-term demand, and fund catchment management activities (‘nature-based solutions’) as well as water supply infrastructure. Together, these tools and actions can mitigate the challenges of sustainably meeting water demands within socio-ecological constraints.