Why nature belongs on America's balance sheet

Ken Bagstad has spent decades trying to get the world to pay attention to something most balance sheets ignore: the economic value of nature. As a research economist with the U.S. Geological Survey, he led a landmark Biden-era effort, including 27 federal agencies, to create the first government-wide effort to measure and track the economic value of America's natural assets. As a recent participant in the Visiting Policy Fellows Program at the Stanford Woods Institute for the Environment, he worked with Stanford scholars, including researchers at the Natural Capital Alliance, to explore a similar potential in California.

"The content we’d emphasize in a natural capital account for California is very different from what it would look like for Wyoming or Hawaii," Bagstad said. "States need to develop the data that matters most to them — and scientists need to communicate why it matters."

Launched this past February, the institute’s Visiting Policy Fellows Program brings experts with deep federal and state agency experience to mentor Stanford students, collaborate with faculty, and connect the university's research community to real-world policy challenges. 

Below, Bagstad discusses why America's economic ledger is missing trillions in natural assets, what a grove of trees has to do with your borrowing costs, and why some promising forms of AI are far gentler on the planet than the ones making headlines.

What's the core idea behind natural capital accounting?

Think about a university campus. There are buildings, vehicles, and facilities. They are all assets on the books. But so are the trees, open space, and the watershed supplying clean water to the campus and surrounding community. Natural capital accounting applies the same rules we use for economic assets to nature itself, so everyone understands what they have and what they stand to lose if it degrades.

Who's paying attention to this idea?

More people than you might expect, and from across the political spectrum. Interior Secretary Doug Burgum has talked about this as "America's Balance Sheet." Senators, including conservatives like Mike Lee of Utah, have noted that this information would underpin better-informed decision making around public lands management. Researchers and state governments in Wyoming and Hawaii, two very different places, are partnering to build natural capital accounts for their states, and explore how they can support better decision making.

What does this mean for an ordinary city or town?

The clearest example is water: investing in an upstream watershed is almost always cheaper than building more expensive treatment plants downstream. There are other surprising angles too – for instance, A Yale researcher has found that communities with greater natural capital loss face higher municipal bond spreads, meaning taxpayers pay more to borrow money. When a wildfire, drought, or flood hits a community with less resilience built in, the costs show up on everyone's bill.

AI is reshaping almost every field. Where does it fit in with natural capital accounting?

When most people hear "AI" they think of large language models (LLMs) like ChatGPT, which are energy-intensive and have a big environmental footprint. But there are older, far less resource-hungry forms. One called symbolic AI, which I've worked with for nearly 20 years that can actually make LLMs more accurate and efficient when paired together. What matters most for natural capital work is getting the data and models produced by scientists, agencies, and governments around the world to work together seamlessly.

What would success look like in 10 or 20 years?

Success means the real costs of environmental degradation become visible to ordinary people, not just scientists and economists. Inflation and affordability are on everyone's mind, and there's growing research, including a recent Bank of France study, connecting ecosystem loss to higher food prices. Those green hills in the distance aren't just pretty to look at. They slow runoff, filter pollutants, and recharge groundwater we depend on. Those wetlands along the river are your flood buffer. If we make those connections clear, we make a much stronger case for protecting them.

What insight or valuable experience did you gain from your time at Stanford?

Economists often note that California is the world's fourth largest economy: if it were an independent nation, its GDP would fall between Germany and Japan's. Understanding and representing California's role in the environmental-economic system is thus critical for understanding that of the whole U.S. I greatly enjoyed and appreciated the many deep and nuanced discussions with Stanford faculty and grad students about the complex intersection between California's ecosystems, economy, and the challenges climate change and natural hazards pose to both.