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Why and How Should We Account For the Environment?

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  • Peter J. Stauvermann

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    (University of Twente, Enschede, The Netherlands)

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    Abstract

    As a guide to economic policy many countries nowadays have a system of national accounts. The basic system was developed in the post World War II period, and was the outcome of a truly international effort. Involving the United Nations and other international organizations, it has been very successful in developing an international bookkeeping system, nowadays accepted and introduced by all developed and many developing countries. National accounts basically are compiled because policy-makers wish to have an overview of the economic performance of their country. The most well-known indicator for this is Gross Domestic Product. Other important indicators are those for industrial production, investments, consumption and the trade figures. Basically we are dealing with a system where the quantity of goods is measured in physical units valued at market prices. The rise in public sector administration has complicated matters, because of missing market prices. However, here good approximations have been developed. A fundamental problem arose when the wish originated to include nature into this accounting system. The idea was quite clear, i.e. to lend support to policy making when natural functions are included and/or affected. However, a problem that did not go away was which properties to attribute to nature or its functions. The present paper aims to show, first, that environmental accounts are a necessary prerequisite for environmental policy, and second, to explain what kind of environmental accounting system is the most preferable one. In principle, economists have developed two different approaches to account for the environment. One approach is based on the vision that the environment should be valued in monetary terms. The other one is to relate the environment, measured in physical units, to economic variables. The question then is what kind of environmental system should the preferred one. In a certain sense the discussions in the Netherlands concerning environmental accounting are the mirror image of the discussions which have taken place in the rest internationally. In the Netherlands, however, the discussion got a particular twist. In fact, two systems have been discussed and developed in statistical bureaus. In essence, the Dutch discussion reflects the discussion between the two main strands of thought. The decisive difference between both goes back to the question: "Is it possible to value natural functions in monetary units?" If yes, it is possible to calculate something like a Green National Income (GNI), which was proposed by the Dutch national accountant Roefie Hueting (1969, 1974) atfirst. His operationalization of the basic idea was to value all environmental damages in monetary units and then to subtract these numbers from the net national income (NNI). He called this figure the Sustainable National Income (SNI). Only if the difference between NNI and SNI would be zero, the economy would be environmental sustainable. If it is not possible to value the nature in monetary terms, it is impossible to calculate a Green National Income. During the 1990s, the Dutch national accountant Steven Keuning developed an alternative system (the National Accounting Matrix including Environmental Accounts - the so-called NAMEA system), where he related quantities of emissions measured in physical units to figures of the conventional accounting system, e.g. CO2 emissions to GDP. The question then is which system should be preferred to inform policy-makers and the public about the state of the economy concerning the environment. The paper will go into these issues, and come to a conclusion

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    Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0606.

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    Date of creation: Mar 2006
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    Handle: RePEc:rpi:rpiwpe:0606

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    1. Bartelmus, Peter, 1999. "Sustainable development: Paradigm or paranoia?," Wuppertal Papers 93, Wuppertal Institute for Climate, Environment and Energy.
    2. Aaheim, Asbjorn & Nyborg, Karine, 1995. "On the Interpretation and Applicability of a "Green National Product."," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 41(1), pages 57-71, March.
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