Deflators and Ecosystem Services

Natural capital accounting frameworks, such as the System of Environmental–Economic Accounting–Ecosystem Accounting (SEEA EA), require deflators to separate price changes from changes in the real volume of ecosystem services over time. Yet no established methodology exists for constructing such deflators, and current practice typically applies the GDP deflator to natural capital estimates. This paper proposes both a theoretical framework and an empirical approach to build ecosystem service-specific price deflators for natural capital assets, consistent with standard national accounting practices. We focus on two key freshwater related ecosystem services in England, water provisioning and water-based recreation and tourism, constructing individual deflators for each service as well as a composite deflator. We acknowledge that this only partially cover the range of fundamental ecosystem, services provided by freshwater ecosystems. However, the framework is readily extendable to other ecosystem services and natural assets, offering a principled alternative to the use of the GDP deflator for natural capital valuation.