The cost of natural capital consumption: Accounting for a sustainable world economy

The System for integrated Environmental and Economic Accounting (SEEA) has been criticized in this journal for ignoring the benefits of ecosystem services for human well-being. This paper argues that extended national accounts should not attempt measuring economic welfare. Rather, they could and should assess the environmental sustainability of economic activity as the cost of natural capital consumption. The global application of SEEA concepts and methods demonstrates the feasibility of international green accounting. For the world economy, sustainability costs run to about 3 trillion US$ or 6% of world GDP. Large variations at national and regional levels suggest that conventional economic indicators may significantly overstate economic progress in some parts of the world. Data gaps and lack of data comparability affect these first estimates. National and international statistical services should be more aggressive in greening the national accounts. More prudent and more sustainable economic policies might be the result.     

MISUSE AND USE OF NATIONAL ACCOUNTS AS A WELFARE INDICATOR: SELECTED ANALYTICAL AND MEASUREMENT ISSUES

Few economic relationships have been as scrutinized as that between SNA measures of national product, investment and consumption, and welfare. The present paper contrasts SNA economic production and welfare to total production and welfare within the Walrasian framework of usefulness and costliness. An evaluation of deductions and additions to the SNA made by Nordhaus-Tobin, Zolotas, Richard and Nancy Ruggles, Kendrick, Eisner and Jorgenson-Fraumeni, in their research on extended product and income accounts and improved indicators of welfare reveals numerous unresolved analytical and measurement issues; and reaffirms the usefulness of the SNA as a fundamental, initial, welfare indicator.     

Environmental–Economic Accounting: Progress and Digression in the SEEA Revisions

The 1992 Earth Summit and its message of sustainable development drove the launching of a System for integrated Environmental and Economic Accounting, the SEEA. Since then, sustainable development and the SEEA have given way to green growth and green economy indicators in the latest 2012 Summit. A lengthy revision process has now produced a curtailed “SEEA central framework.” The new framework focuses on expenditures for environmental protection and resource management, and stocks and flows of “economic” resources; both are covered by the conventional national accounts. Environmental degradation, notably from pollution, is left to “experimental” ecosystem accounts. Further revision of the SEEA should reverse this retrenchment from integrative environmental–economic accounting. A comprehensive satellite system, rather than a limited statistical standard, might put the SEEA back on the policy agenda.     

ENVIRONMENTAL ISSUES AND THE SNA

The concept of environmental accounting is developing as the system of national accounts (SNA) is being revised. A basic difference at present is that environmentalists regard natural resources as assets analogous to man-made capital, whereas they are treated as free gifts of nature in the national accounts. In this paper the author examines the consequences for the SNA of adopting the environmentalists approach to capital.     

REFLECTIONS ON ENVIRONMENTAL ACCOUNTING ISSUES

The paper studies how, in the future, certain environmental concerns could possibly be addressed in the central framework of the System of National Accounts. Considering only economic (market-type) valuation and not ecological valuation. the position is taken that a number of changes to the SNA central framework may be envisaged. For example, accounting for the depletion of both renewable and non-renewable natural resources. The issue of the degradation of natural resources due to their use for disposal services and the joint loss of consumption services is more complex, volume aspects should be considered rather than simple adjustments in current value.     

ENRAP与SEEA体系中环境服务核算的比较分析

ENRAP和SEEA都设法扩展传统国民经济核算的范围,以更好地反映经济和自然环境的交互影响.ENRAP明确把自然环境作为一个生产性经济部门,采用大量虚拟技术测算环境服务的价值;SEEA采用SNA的生产部门定义与核算准则,但忽略了对许多有价值的自然环境服务的核算.这两大核算体系在环境服务核算的内容、核算方法和核算的结果等方面存在差异.     

Towards a consistent approach for ecosystem accounting

In spite of an increasing interest in environmental economic accounting, there is still very limited experience with the integration of ecosystem services and ecosystem capital in national accounts. This paper identifies four key methodological challenges in developing ecosystem accounts: the definition of ecosystem services in the context of accounting, their allocation to institutional sectors; the treatment of degradation and rehabilitation, and valuing ecosystem services consistent with SNA principles. We analyze the different perspectives taken on these challenges and present a number of proposals to deal with the challenges in developing ecosystem accounts. These proposals comprise several novel aspects, including (i) presenting an accounting approach that recognizes that most ecosystems are strongly influenced by people and that ecosystem services depend on natural processes as well as human ecosystem management; and, (ii) recording ecosystem services as either contributions of a private land owner or as generated by a sector ’Ecosystems’ depending on the type of ecosystem service. We also present a consistent approach for recording degradation, and for applying monetary valuation approaches in the context of accounting.     

TAKING THE ENVIRONMENT INTO ACCOUNT: THE NAMEA APPROACH

The National Accounting Matrix including Environmental Accounts (NAMEA) shows environmental burdens that are consistent with the economic figures in the national accounts. In the NAMEA, the existing national accounts matrix has been extended with accounts in physical units. On the basis of the expected contribution of each polluting substance to a particular environmental problem, emissions are converted to theme equivalents. This results in six summary environmental indicators that are directly comparable to the conventional economic aggregates. In addition, this meso-level information system can be used as the core data framework for integrated analyses and forecasts of economic and environmental changes.     

Accounting for Environmental Services: Contrasting the SEEA and the ENRAP Approaches

Both the System of Integrated Environment and Economic Accounting (SEEA) and the Environmental and Natural Resources Accounting Project (ENRAP) are efforts to expand conventional national economic accounts in order to better reflect interactions between the market economy and the natural environment. In order to maintain a close relationship to the System of National Accounts (SNA) accounting standards, SEEA adopts conventional definitions of productive sectors. However, SEEA fails to account for many valuable services of the natural environment and encourages the use of techniques that provide misleading and poor estimates of depreciation and damage to the environment. ENRAP addresses these deficiencies by explicitly recognizing that the natural environment is a productive economic sector. ENRAP encourages the use of imputation approaches that draw on techniques common in the environmental economics literature. These approaches are consistent with definitions of depreciation and environmental damage widely accepted in economic theory. The principles that underlie the ENRAP approach provide a basis for contrasting ENRAP and SEEA empirically. Using Philippine data, SEEA-type estimates are compared with those of ENRAP.     

Integrated Environmental and Economic Accounting: An Application to the Forest Resources in India

Forests contribute to the economy in several ways. While forests are a source of timber with market values, they also influence local and regional climate, preserve soil cover on site, and in the case of watersheds, protect soil downstream from floods –functions, which are not in the production boundary of SNA. Further, the net value added in forestry sector does not reflect sustainability of forest resources, because it ignores the consumption of natural capital (depletion) that occurs when forests are harvested or converted to other uses. The only costs of depletion considered in the national accounts are the extraction costs and records the potential loss in forest wealth as other changes in assets that have no effect on Gross Domestic Product (GDP). The study tries to incorporate forest resources into the national accounts and adjust the Gross Domestic Product (GDP) for the depletion of forest capital, using the Satellite System of Integrated Environmental and Economic Accounting (SEEA). The value of net accumulation (positive or negative) of forests is calculated and the net Domestic Product is adjusted for the depletion of the forest resources to get Environment adjusted Domestic Product (EDP). The results show that the EDP equals 98.4% of the adjusted net domestic product in 1993–1994. A proper accounting framework would better reflect not only the long term value of the state's natural wealth but also its immediate contribution to the state economy in the current accounts.     

The Netherlands’ NAMEA; presentation,usage and future extensions

The national accounting matrix including environmental accounts (NAMEA) contains figures on environmental burdens in relation to economic developments as reflected in the national accounts. In the NAMEA, existing national accounts matrices have been extended with accounts in physical units. Since 1994, the NAMEA is a regular part of the annual Dutch national accounts. In this article, an aggregate NAMEA will be described. Next, the contribution of economic activities to economic indicators is compared with their contribution to environmental themes, both based on the information in the NAMEA. In addition, the cumulative contribution of economic activities to economic and environmental indicators are also given, thus taking into account the relations between the production activities. Finally, a number of recent applications and extensions of the NAMEA in the Netherlands are described.     

Natural resource accounting for Indian states — Illustrating the case of forest resources

Our main objective is to set out and apply a SEEA-based methodology to reflect the true value of forest resources in India's national and state accounts. We establish that a “top-down” approach using available national databases is both feasible and desirable from a policy perspective. In this paper, we address four components of value creation in forests: timber production, carbon storage, fuelwood usage, and the harvesting of non-timber forest products. The results of our analysis suggest that prevailing measures of national income in India underestimate the contribution of forests to income. The income accounts of the Northeastern states in particular are significantly understated by these traditional (GDP/GSDP) measures. We are also able to identify some states which performed poorly in the context of our sustainability framework, reflecting natural capital losses due to degradation and deforestation. Our results highlight the need to integrate natural resource accounting into the national accounting framework in order to generate appropriate signals for sustainable forest management and for the conservation of forest resources which are widely used by the poor in India, as well as being significant stores of national wealth.     

中国住户生产核算:基本范畴与核算方法

住户部门是国民经济活动的重要参与者,住户生产核算是国民经济核算重要内容之一。本文依据SNA1993,结合中国的具体国情,界定了中国住户生产核算的主体和生产范围,在此基础上构建出住户生产核算简单账户、综合账户和投入产出矩阵范式,并延伸出相应的指标和分析方法。     

BEYOND GDP—NEW APPROACHES TO APPLIED STATISTICS

New social concerns and priorities–beyond the economic growth paradigm–pose a challenge to the established statistical systems. The initial response of developing overall welfare measures and social indicators of the human quality of life had little impact on official statistics. Environment statistics, on the other hand, has become accepted as a new branch of applied statistics, maturing from exclusive pollution monitoring to cover various aspects of natural resources and the man-made environment. Still, a rather artificial separation between ecological monitoring and modeling and anthropocentric environmental statistics and accounting persists. The assessment of complex and interrelated socioeconomic and environmental concerns requires comparable inter-disciplinary information. The provision of such information should be facilitated by a flexible framework approach to statistical coordination and integration.     

ACCOUNTING FOR EXHAUSTIBLE RESOURCES IN THE CANADIAN SYSTEM OF NATIONAL ACCOUNTS: FLOWS, STOCKS AND PRODUCTIVITY MEASURES

The paper shows that the Canadian System of National Accounts includes exhaustible resources but treats them as if they were produced goods. Thus, the claim that conventional accounts ignore the contribution of exhaustible natural resources is partly true. To fully account for exhaustible resources, we present an alternative national accounting framework that incorporates natural resource flows and stocks. The framework modifies the measure of the net domestic product by a factor that differs from the Hartwick-Solow-Weitzman rule and leads to different estimates of GDP, national wealth, and productivity growth. An application to the Canadian oil and gas industry shows order-of-magnitude effects.     

SOCIAL MATRICES AND INDICATORS IN THE TRADITIONAL AFRICAN ECONOMY

This paper discusses the relevance of the conventional national accounts systems to the traditional African economy and concludes that they contribute little because they omit certain economic activities and fail to recognise the reciprocity between social and economic activities. Social accounting is thus more relevant. Lack of statistical data may make it necessary to conduct special surveys and in some cases a tribe or village or economic region may be a more useful accounting unit than a nation. A modified system of accounts is suggested, based on the frame work of the four consolidated accounts of the SNA. It provides linkages to many more nonmonetised activities. Other linkages would be provided through supporting tables emphasising social activities and transfers. A system of transactor accounts in matrix form is also suggested. In the case of communities smaller than the nation several external transactor sectors could be included. It is recognised that the problem of evaluation of social activities and a number of economic activities remains to be solved and it is concluded that "time spent" may be the only common unit or value to equate such activities.
The final section deals with investment in human resources and proposes a balance sheet approach to indicative planning. This exercise would be related to demographic projections in several variants. Other factors to be analysed dynamically would be education and health status, public finance and, ultimately, distribution of income and wealth since it is noted that the process of monetisation is having an impact which may have important welfare implications.     

Assessment of the theory of comprehensive national accounting with data for Portugal

We present time-series tests of the quality of genuine savings and green net national income for predicting welfare changes. These tests check the validity of the theory of comprehensive national accounting, and more broadly of the theory of economic growth. The value of technological progress is included, as well as the effects of business cycles. We use estimates for Portugal as inputs. Overall, our results indicate that both genuine savings and changes in green net national income have the same sign as changes in welfare, but reject the hypothesis that the estimated comprehensive national accounting measures coincide with the theoretical expressions. The results also suggest that comprehensive accounting indicators perform better than conventional national accounting indicators, implying that, in general, the corrections proposed by the comprehensive accounting theory add explanatory power to conventional measures. The exception is the inclusion of education expenditures and technological progress, which decrease explanatory power. Excluding business cycles from green net national income increases the agreement with the theory. Comparing both indicators, in general, genuine savings presents better results.