Evaluating the potential for natural capital investment to reverse soil degradation: a dynamic simulation approach exploring connections between soil health and money in England

Soils are a form of natural capital that support economic activity and human well-being. However, in England, national soil resources have been degrading over the last two centuries. The total annual economic cost of soil degradation is significant, making the issue a national policy priority. A government advisory committee has recommended that investment in natural capital is needed to restore natural capital stocks such as soils. However, the dynamic interactions between soil health and systems of financial incentives are not clear, meaning that natural capital investments could produce unintended effects. In this thesis, secondary data were used to build a quantitative system dynamics model capable of reproducing historically declining trends in the soil health and natural capital indicator soil organic carbon (SOC). The model built on a pre-existing SOC model to operationalise the relationships between the indicator, the economic value of soil ecosystem services and land management decision processes. The model was used to clarify the structural mechanisms behind soil degradation and identify leverage points at which natural capital investments could be targeted to reverse the trend. The work confirmed that stocks of SOC are declining because the inflows of carbon from organic matter have historically been smaller than the outflows of organic matter decay. Analyses revealed the absence of a feedback mechanism by which land managers could account for the improvements or losses of soil ecosystem services in their business decisions, suggesting that there is no incentive to alter land management choices based on SOC levels. The model thus provided a quantified, operational representation of a hypothesis posed by earlier research that soil degradation is happening because its economic impact is an externality for the land user. On this basis the study identified land managers’ accounting and decision-making processes as leverage points for natural capital investment. The model was used to design and test two types of investments that would introduce feedback mechanisms: a farm advisory service to enable land managers to account for the onsite ecosystem services value to their business of improving SOC stocks, and a payment for ecosystem services (PES) whereby offsite beneficiaries pay land managers for the economic benefits they experience when SOC loss is reversed. The study found that the policies’ effectiveness differed depending on the initial SOC stock level of the land plot to which the investment was targeted. The reasons behind these findings were determined to be the slow and non-linear rate of SOC accumulation originating in biophysical stock and flow structures, and the high sensitivity of land management decisions to price and supply variables for organic materials. These findings can be generalised to inform the discussion on how natural capital investment could be used to improve other soil health indicators, as well as other types of natural assets. Further work is proposed for using the simulation model as a facilitation tool to explore the issue with policy stakeholders and as a natural capital investment appraisal tool for investors and suppliers