Similarities between Physical Capital and Natural Capital

There are certain similarities between physical capital and natural capital. First, both physical capital and natural capital are durable in nature in the sense that they do not get exhausted in a single use. Rather they provide certain services (inputs), which depend upon the quantity and quality of capital stock. Second, depreciation to physical capital accelerates if it is over-utilized. Similarly the stock of natural capital is depleted faster in case excessive resources are extracted from the environment.

Environment retains the capacity to regenerate itself in certain aspects and to some extent. If extraction from the environment is within its regeneration capacity, there is no depletion to the stock of natural capital. For example, if harvesting of forest products from forests is less than its regeneration capacity, the quality of forests as well as the area under forests will not be adversely affected, On the other hand, excessive withdrawal of forest resources would result in a decline in supply of forest resources available to the economy in the long run. In a similar manner, depletion in the stock of natural capital in general would adversely affect the flow of environmental services.