accounting for sustainabillly · national income accounting governments throughout the world use...

CHAPTER 10

ACCOUNTING FOR SUSTAINABILllY:THE ENVIRONMENT AND NATURAL RESOURCES

IN THE NATIONAL INCOME ACCOUNTS

A country can cut down its forests, erode its soils, poUute its aquifers and hunt its wildlife and fisheries toextinction, but its measured income is not affected as these assets disappear 8y failing to recognize the

asset value of natural resources, the accounting framework that underlies the principol tools of economic analysismisrepresents the policy c/wices nations face. (Repetto, 1992, pp. 94.95)

NATIONAL INCOME ACCOUNTING

Governments throughout the world usenational income accounting as a means ofmonitoring their econ-omic progress. Nationalincome accounting orig-inated in the UnitedKingdomin the 1930s tomeet the needs of gov-ernment decision makersforstatistical informationwith which to assesspol-icy responses to theGreat Depression. TheUnited Nations Statistical Office (UNSO)hasestablished a frameworkof recommendationsand principles on procedures for calculatingnational accounts. This framework is referredto as the System of National Accounts (SNA).The first officialSNAwas developed by UNSOin 1953. The current SNArecords a nation'sproduction, consumption, and capital accu-mulation, and the final distribution of goodsand services among households, businesses,institutions, government, and fureigners, aUin terms of monetary flows. Most nationsfuUow the UNSO guidelines to a certaindegree, although few compile their accountsto the fuUextent of the current SNAmodel.

National accounts, and the economic

indicators that they spawn, are very powerfultools for decision makers in setting national-

level policies and planningfor the future. These pol-icies, in turn, influenceeconomic and social deci-sions throughout aUlevelsof society. Indicators areselective combinations ofdata, designed to showboth states and trends interms understandable tothe audience. Economic

indicators came into existence in theDepressionyears, alongwith national incomeaccounting. They are used to monitor thelevel of shorr-term economic activity and itsvariations from year to year, the size ofsavingsand investment, industrial structure,comparative performance, and many otherthings (El Serafy and Lutz, 1989). Govern-ments use indicators to help decide when tostimulate or slowdown the economy, to alterinterest rates, or to change the money sup-ply, and private investors use them to decideif and when to make major capital invest-ments. The most widely used indicator isGross Domestic (or National) Product (GDPor GNP).

Environmental Accounting: Any account-ing procedure that incorporates environ-mental costs and benefits; a sub-disci-pline of accounting and economicsfocussing on the problems inherent inintegrating statistical information on thevalue and status of all aspects of thephysical environment into the SNA.

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THE CHALLENGE OF SUSTAINABILIlY

A Definition of "Income"

"The entire debate about the relationship betWeen the environment andnational economic aggregates may be said to revolve around theconceptualization of a single term: income" (Porvin, 1989). The classicaleconomists originally defined income as the return on three types of assets:

. land, i.e., natural resources;

. labor, i.e., human resources;and

. capital,i.e., investment.

In the 1930s, when national income accounting was first developing, pricesofland and raw materials were extremely low, and it probably seemed to econ-omists that resource scarcity would never be a concern. "The neo-classicaleconomists virtually dropped natural resources from their model and concen-trated on labour and invested capital. When these theories were applied afterWorld War II to problems of economic development in the Third World,human resources were also left out on the grounds that labour was always'surplus,' and development was seen almost entirely as a matter of savings andinvestment in physical capital" (Repettoet al., 1989).

Approaches to the practice of nationalaccounting have changed over the years inresponse to evolving policy needs and pre-vailing economic development theories. Forexample, in 1964 the United Nations askeda group of economists to update the SNA,with the specific aim of providing morecomprehensive information for policy makers.Development theory at the time stressedlarge-scale industrial growth, which requiresextensive statistical and informational sup-port. The revised SNA (completed in 1968,the basic framework still in use today)reflected these needs. It encompassed avariety of new features, including sectoralbalance sheets, inter-industry transactions,and tables tailored for application to condi-tions in developing countries (Potvin, 1989).But even though the SNA is modified andupdated periodically, its basic framework is50 years old, and it reflects the Keynesian

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macroeconomic model that was dominant at

the time it was first set up. "Unfortunately,as Keynesian analysis for the most partignored the productive role of naturalresources, so does the current system ofnational accounts" (Repetto, 1992, p. 94).

Traditionally, environmental impacts -if considered at all - have been treated as

externalities in the SNA, and environmentalprotection has been considered inhibitive tothe growth of income. By the 1960s or early1970s, however, it had become clear toeconomists as well as to the public that theomission of information on the loss or degra-dation of the environment and naturalresource base had caused conventional mon-

etary indicators to overstate the rate ofprogress. In a sense, the traditional approachled to a general misinterpretation or misap-plication of the term "progress." Conven-tional indicators are designed to represent

only one type of progress - the level ofeconomic activity - and therefore do notadequately represent real net societal gain. In1974, a study by UNSOfocused on some ofthe weaknesses in conventional accountingprocedures. The study acknowledged a num-ber of problem areas, but it specifically ident-ified the development of a system of environ-mental statistics as the main priority forfuture work. A framework for such a systemwas presented in 1984, the output of a seriesof Environmental Accounting Workshopsthat stressed the need to represent interac-tions among environmental, economic, andsocial factors.

There is widespread acknowledgementamong economists of the need for some typeof adjustment to the national incomeaccounting procedures, in order that theyencompass a wider range of environmentalgoods and services. The current UnitedNations SNA does, in fact, include accountsfor a variety of reproducible (i.e., renewableor replaceable) assets, such as tree planta-tions, and nonreproducible (i.e., nonrenew-able or nonreplaceable) assets, such as agri-cultural land and mineral resources. It is

significant, however, that "the criterion forinclusion in the SNAis whether the assets are

privately owned and used in the commercialproduction of goods and services so that econ-omic values can be established. Natural

resources in the public domain, such assurface waters, armosphere, and wilderness,are excluded on the grounds that the SNAdeals with the market economy and that theeconomic values of natural resources outside themarket system cannot readily be established"(Repetto et al., 1989, p. 10, emphasis added).

Policy makers, as well, are beginning torecognize the need for a planning tool thatreflects both environmental opportunitiesand constraints, and more effectively inte-grates economic, environmental, and humanwelfare concerns. The need is particularly

ACCOUNTING FOR SUSTAINABILITY

critical in countries with a strong economicdependence on the natural resource base.Environmental accounting and naturalresource accounting are emerging sub-disci-plines of accounting and economics, withvaluable inputs from geography and ecology.This chapter focuses on the problemsinvolved in integrating into the SNAstatisticalinformation on the value and status of all

aspects of the physical environment.

NATURALRESOURCESAND THEENVIRONMENTIN THECURRENTSNA

All productiveactivities - including humanwelfare in its broadest sense - rely on thematerial goods provided in the naturalresource base. In addition, an entire range ofphysical,biological,chemical, and even socialfunctions is supported by the environment.These include:

. productive functions, such as food andfiber production;

. carrier functions, such as the provisionof habitat or fresh water;

. bufferingfunctions, such as the ability tocleanse pollutants or to absorb andneutralize toxins; and

. information and social functions, such asthe ability to educate or provide spiritualexperiences (after deGroot, 1986).

All of these functions have intrinsic value in

their own rights, as well as in a humancontext. They are the sources of the prod-ucts, services, and experiences needed by allof the inhabitants of this planet. Why, then,are they not appropriately represented andadequately valued in conventional nationalaccounting methods?

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THE CHAllENGE OF SUSTAINABIUTY

Accounting for Damages from an Oil Spill

A supertanker full of crude oil runs aground causing the largest oil spill inhistory and fouling an important fishing and wildlife habitat. How does thisshow up in the economic accounts of the nation involved?

. With the production and transport of the oil to the site of the accident,real national income already increased by the value of wages paid and

equipment purchased.

. National income didnot decreasewhen the oil was depleted ffom ingroundreserves.

. In cleaning up the spill, real national income will alsoincreasewith thewages paid to those involved and the money spent on equipment.Government expenditures on supervising the clean-up would also add toGDP.

. The national accounts will reflect no change as a result of negativeimpacts on ecological productiviry.

. Contributions to future national income ffom fishing will probablydecrease in the amount of lossesto what would have otherwise beenearned during subsequent fishing seasons.

. Negative effects of tourism in the region will have no effect on nationalincome if tourist spending is redirected to other areas of the country.

. . If market response to the accident causes a temporary rise in oil prices,so that profits across the petroleum industry become higher than theywould otherwise have been, then nominal national income will alsoincrease. Real national income (i.e., corrected for inflation) would not

increase, but the proportional contribution of this sector to real nationalincome would expand.

. While national income increased when the ship was built, there will beno decrease as a result of the loss or damage of the two-year-old vessel. In

fact, income will increase further as repairs are carried out, as well as ifthe ship were to be scrapped and replaced by a new one.

Quite possibly, the increasesin the conventional measure of national incomewill outweigh the decreases shown above - certainly a counter-intuitive result.However, new recommendations ffom the United Nations on national

accounting procedures will contain options to fundamentally change the waysuch losses are recorded (modifiedhorn Potvin, 1989, p. 1).

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From an economic perspective, the omissionof natural resources and the environmental

impacts of production and consumption fromnational accounting is based on severalassumptions. It is tacitly or explicitlyassumed that:

. natural resources are so abundant that

they have no marginal value;

. environmental goods and services are"free gifts of nature";

. natural environments have infinite resil-ience and absorptive capacities; and

. if resources become depleted, techno-logical substitutes will continuouslyevolve to meet human needs.

These assumptions are not valid. With esca-lating pressures from exponential economicand population growth, it has become pain-fully clear that there are limitations on thesupply of environmental goods and on thecapacities of natural systems to provideservices and to perform their natural func-tions. Natural resources are sometimes

assumed to be "free gifts of nature," becausetheir users have made no capital investmentin their creation. The costs associated with

their depletion are often hidden or deferred,so that there is no apparent opportunity costof use. This is an incorrect assumption; thecosts of using natural goods and services arereal and ultimately must be reckoned with,even though they may be deferred to afuture generation.

The current system for national incomeaccounting does not represent sustainableincome, in the true sense of the term,because of three broad categories of itemsthat are not dealt with effectively:

. defensive protect,expenditures to


restore, or enhance the environment;

. depletion of natural resource capital;and

. degradation or damage to the naturalenvironment.

A series of UNEP/World Bank expertworkshops on natural resources in the SNAidentified these three categories as the mainenvironmental concerns to target in pro-posed changes to the national incomeaccounting system (Bartelmus, 1989). Typi-cally, the issues of depletion and degradationof natural resources are of greatest concernin countries that base their economies on the

exploitation of natural resources, whereas so-called defensive spending tends to increase insignificance in countries with more industrialdevelopment. The current approach to eachof these categories will be considered in turn.

Defensive Expenditures

Economists use the terms "defensive" or"regrettable" expenditures to refer to costsarising from preventive, corrective, orrestorative actions. In the context of naturalresource accounting, the term encompassesexpenses incurred in defending the environ-ment from encroachment by economic activ-ity (El Serafy and Lutz, 1989), as well asrestoration and compensation for environ-mental damage. This might include, forexample, the costs of pollution abatement,the construction of windbreaks to preventsoil erosion, the cleanup after an oil spill,side effectsof urbanization (such as increasedcommuter expenses), or even the indirectcosts arising from unhealthy working condi-tions, among many other possibleexamples.

In the currentSNA,such actions are con-sidered to be income generating; in otherwords, the money spent on a preventive,

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THE CHALLENGEOF SUSTAINABIUlY

What ;s #Susta;nable Income"?

The central defining characteristic of income is sustainability."The term'sustainable income' ought therefore to be considered a redundancy. The factthat it is not is a measure of how far we have strayed from the central mean-ing of income and, consequently, of the need for cotrection" (Daly, 1989 p.8). In the 1940s,Sir John Hicks defined the fundamental principle of incomeas follows.

The purpose of income ca\culations in practical affairs is to give people anindication of the amount which they can consume without impoverishingthemselves. Followingout this idea, it would seem that we ought to definea man's income as the maximum value which he can consume during aweek, and still expect to be as well off at the end of the week as he was atthe beginning Remembering that the practical purpose of income is toserve as a guide for prudent conduct, I think it is fairly clear that this iswhat the central meaning must be. (Hicks, 1946, p. 172)

Although this definition pertained to household or personal income, it isequally applicable at the national level. Early definitions of "income" bearobvious similarities to the concepts of sustainable development andintergenerational equity that have recently become guiding principles foreconomic development. In principle, a nation - and by extension the globalcommunity - should meet the needs of the present generation in such amanner that "at the end of the week" the welfare and natural legacy of futuregenerations will not have been compromised. In 1989 the UNSOCoordinatingGroup on Revision of the SNA (CGRSNA)confirmed this concept, at least intheory, by recommending that the definition of income ensconced in the SNAshould be the maximum amount that can be consumed in a period whilemaintaining initial capital and net capital transfers received in that period intact(CGRSNA,1989).

restorative, or environmental enhancementproject is treated as the provision of servicesand it therefore counts as income, adding tofinal (or sometimes intermediate) consump-tion, and contributing to the nation's eco-nomic growth as measured by GDP. Currentmethods of dealing with defensive expendi-tures can therefore lead to some apparentlyillogical situations, as in the followingexample.

If toxic substances leak from a

dumpsite to pollute soils and aquifers,measured income does not go down,despite possibly severe impairment ofvital natural resources. If the govern-ment spends millions of dollars to cleanup the mess, measured income rises,other things equal, because such gov-ernment expenditures are considered tobe purchases of final goods and ser-vices. If industry itself undertakes thecleanup, even if under court order,

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income does not rise because the same

expenditures are considered to be inter-mediate production costs if carried ourby enterprises. If the site is not cleanedup, and nearby households sufferincreased medical expenses, measuredincome again rises because householdmedical expenses are also defined asfinal consumption expenditures in thenational income accounts. (Repetto etal., 1989, p. 16)

Drawing the line on what counts as adefensive expenditure is extremely difficultand is an area of ongoing controversy.

Depletion of Natural Resource Stocks

Physical assets such as buildings and equip-ment are valued monetarily as productivecapital, but natural resources, in general, arenot. In current accounting practices, thecosts of depreciation of manufactured assetsare usually subtracted from, or "written offagainst," the value of production as theassets depreciate with age. "This practicerecognizes that a consumption level main-tained by drawing down the stock of capitalexceeds the sustainable level of income.Natural resource assets are not so valued.

Their loss entails no debit charge againstcurrent income that would account for the

decrease in potential future production"(Repetto et al., 1989, p. 2). For example:

Should a farmer cut and sell the timberin his woods to raise money for a newbarn, his private accounts would reflectthe acquisition of a new income-pro-ducing asset, the barn, and the loss ofan old one, the woodlot. He thinkshimself better off because the barn isworth more to him than the timber. Inthe national accounts, however, incomeand investment rise as the barn is built,and income also rises as the wood is


cut. Nowhere is the loss of a valuable

asset reflected. Even worse, if thefarmer used the proceeds from histimber sale to finance a winter vaca-

tion, he would be poorer on his returnand unable to afford the barn. But

national income would still register again. (Repetto, 1992, p. 96)

In fact, the complete model balance sheet ofthe United Nations SNAdoes represent tim-ber, land, and sub-soil mineral resources asnational capital assets, but the income andproduct accounts do not. This approach isinconsistent; if a capital stock (e.g., a forest)has been depleted from one year to the next,the income and product accounts shouldshow some type of depreciation charge forthis depletion (Repetto, 1992, amongothers). One of the most heated topics ofdebate in the area of environmental account-ing concerns how to assign a monetary valueto present and future use of natural resourcesfor this purpose. This is discussed in furtherdetail below, and elsewhere in this book.

Environmental Degradation

The value of environmental services and the

actual costs resulting from environmentaldamage may have no relationship to defen-sive expenditures. Ideally, national accountswould show the value, status, and trends inthe capacity of the environment to provideservices like waste disposal, cooling, andprovision of oxygen and nutrients, as well asthe costs involved in degradation of thenatural environment, especially costs associ-ated with pollution. These costs are at leastpartially distinct from the defensive expendi-tures described above; for example, theactual value of damage to a natural environ-ment may be higher than the costs associ-ated with repairing it. Furthermore, environ-mental degradation or pollution is connected

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THE CHALLENGE OF SUSTAINABILITY

both with the benefits of using nature's"free" disposal and absorption services, andwith the negative effects resulting from theloss or deterioration of these and other

services that benefit consumers directly(Bartelmus, 1989). Unlike defensive expendi-tures (which are represented in the presentsystem as either intermediate or final con-sumption), such costs do not appear at all inthe current SNA.

Aside from irreversible loss, pollution isthe main factor affecting the quality andproductivity of environmental resources.Pollution, which is a common side effect ofboth production and consumption, can benarrowly defined as "the discharge of wastesin ways that raise the cost of later activities,harm people, or reduce the enjoyment theyget from their surroundings" (El Serafy andLutz, 1989, p. 2). From an accounting per-spective, the important aspects of pollutioninclude:

. the benefits derived from abatement(Blades, 1989).

None of the above aspects of environmentaldeterioration (or amelioration) is satisfactor-ily represented in the current SNA.Some, likeabatement costs, fall partially into the cat-egory of defensive expenditures. Others, suchas output of pollutants, are amenable tomeasurement in physical units but wouldrequire large amounts of data that may notexist. Still others, such as the costs incurredthrough the loss of "free" environmentalservices, or benefits derived from pollutionabatement, are very difficult to define inpractice.

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Overall Human Welfare

Natural resources and environmental services

are not the only aspects of human welfarethat are not adequately represented by con-ventional indicators in the current SNA.

Economic productivity is just one of manyfactors that influence human welfare, butgrowth in national income is often equatedwith economic success and improved overallwelfare. Aside from explicitly environmentalconcerns, other significant omissions fromthe SNA include the distribution of income,the relationship of income to health andeducation, and the health costs of environ-mental degradation. Activities such as house-hold labor and parenting, subsistence agricul-ture, volunteer activities, leisure time, barter-ing and other non-monetary exchanges, andseveral other categories of goods and(especially) services that are not explicitlymarket activities are also excluded. Because

of these omissions, the SNAis not particularlygood at spawning indicators of either humanhealth and welfare or the state of the envi-ronment. There has been considerable inter-

est recently in the development of newindicators through which to portray theinterrelationships of economic activity withhuman health and overall welfare, and withthe state of the environment.

NATURAL RESOURCE ACCOUNTING ASA POLICY TOOL

Whether used at the national level or tomeasure more local costs and benefits, aframework of economic accounting hasbecome the central support mechanism forthe majority of decision makers. As men-tioned above, the most widely used economicindicator is GDP,which is the sum of all grossvalue added by each sector of the economy.In other words, it is a measure of production,most useful for monitoring short-to medium-

. the output of pollutants;

. the damages of pollution;

. the costs of abatement; and


Figure 10.1 - ~DPand NDP in Constant 1973 Rupiah

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From: R, Repetto, W. McGrath, M. Wells, C. Beer and F. Rossini, Wasting As'ets: Natural Re,ource, in the National Income Account,(Washington: WRI, 1969), p, 7, Reprinted by permission of the World Resources Institute.

term economic growth. In standard account-ing, when an amount is subtracted from GDPto represent depreciation of fixed capitalassets such as buildings and machinery, theresulting indicator is referred to as NetDomestic (or National) Product (NDP orNNP), or the aggregate net value added byeach sector. Because it takes into account

the depreciation of physical assets, NDP is amore accurate indicator of sustainable pro-duction than GDP, but it is less oftenemployed because it is difficult to estimateand verify the costs of depreciation of fixedcapital assets (Potvin, 1989). Figure 10.1, forexample, shows the change when GDP isadjusted for depreciation of environmentalassets yielding NDP in Indonesia.

The omission of natural resource infor-mation from the current SNA significantlyaffects the utility of either of these conven-tional indicators for long-term, sustainabledevelopment planning. Experience of the lastfew decades suggests that a more compre-hensive indicator or set of indicators of netincome and overall social welfare wouldsignificantly alter the policy messages fromthose of conventional GDP(Potvin, 1989, p.21). In relying solely on GDP,a decisionmaker is missing significant parts of thepuzzle, and may be receiving misleadingmessages with respect to the relationshipsbetween resourceutilization, economic devel-opment, environmental degradation, andhuman welfare.

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Codified in the United Nations systemof national accounts closely followed bymost countries, [the] difference in thetreatment of natural resources and

other tangible assets provides falsesignals to policymakers. It reinforcesthe false dichotomy between the econ-omy and the "environment" that leadspolicymakers to ignore or destroy thelatter in the name of economic devel-

opment. It confuses the depletion ofvaluable assets with the generation ofincome. Thus it promotes and seems tovalidate the idea that rapid rates ofeconomic growth can be achieved andsustained by exploiting the resourcebase. The result can be illusory gains inincome and permanent losses inwealth. (Repetto et al., 1989, p. 3).

The environment is endangered by a strictpolicy emphasis on GDP-defined productiveactivity; but it is fundamentally important torecognize that future economic growth, inturn, will be compromised if the naturalre~ource base on which it depends is dam-aged or depleted.

It can be particularly risky for decisionmakers in countries with resource-basedeconomies to use conventional national

accounting methods for policy guidance. "Forsuch economies, current accounting practicesexaggerate income, encourage unsustainablelevels of consumption, and obscure thenecessity to implement greatly needed policyadjustment The problem is relevant tonearly all countries where nonrenewableresources are being exploited and whererenewable resources are being run downwithout being restored. But it is most acutewhere such resources are being exploited inthe public sector" (El Serafy, 1989, p. 10).For countries with resource-based economies,relying on GDPas an indicator of growth anda basis for policy making can pose a numberof problems.

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. GDP can sometimes portray economicperformance in a deceptively favorablelight, for example, if growth has beenbased on depletion of a natural resource.

. GDP, which is designed to representshort- to medium-term income gains, isan inadequate indicator of long-term,sustainable economic activity.

. Strict reliance on GDP can misdirect

policy decisions by showing only thebenefits, not the costs, of developmentprograms based on resource depletion.

. It is problematic to rely on GDPor NDPgrowth as an indicator of overall welfare,especially if income distribution isuneven or skewed.

. Perhaps most importantly, GDP canunderrepresent the principal nationalassets, which may be heavily concen-trated in the category of naturalresources.

Many resource-dependent countries in thedeveloping world are also heavily debt-ladentoday, in some cases as the result of unsus-tainable patterns of consumption of naturalresources during years of relative - or

apparent - prosperity. In the case of inter-national debt, a "national accounting systemthat drew attention to their deterioratingasset positions might have alerted policy-makers to the need for policy changes andinternational lenders to the growing risks offurther exposure" (Repetto et aI., 1989, p. 4).

MEASUREMENT AND VALUATION OFTHE NATURALENVIRONMENT

The goods and services provided by naturalenvironmental systems can be extremelydifficult to identify and delineate, much less

to evaluate in a market context. Two main

categories of problems must be addressed apriori in attempting to account for environ-mental goods and services:

. determining which aspects of the naturalenvironment should be measured oraccounted for; and

. deciding in what units they should berepresented.

The first has been covered in some detail inthe two preceding sections. The latter prob-lem is generally approached from one of twovery different perspectives:

. representing flowsand stocks of naturalresources in physical units; or

. assigning a monetary value to environ-mental goods and services.

These problems and the approaches to themare, of course, interrelated, as they are alsointimately related to the question of exactlyhow and to what extent environmentalconcerns should be integrated into the SNA.

PhysicalAccounting Methods

Physical accounting procedures use data orinformation expressed in physical units topottray material and energystocks and flows,in an extension of standard input-outputanalysis.In resource accounting, for example,withdrawals from the stock can be treatedlike "deliveries from" or "imports from" theenvironment or resource stock to producingand consuming sectors. The most straightfor-ward type of withdrawal would be in theform of deliveries of raw materials - timber,minerals, etc. - from the natural resourcestock to the industrial sector. Natural pro-cesses, such as forest fires or landslides, can

ACCOUNTING FOR SUSTAINABILIlY

also contribute to the diminishment of aparticular resource. By the same token,physical accounting can be used to representvarious types of inputs or additions into astock; in the case of a woodlot, for example,replenishment might occur through naturalgrowth and regeneration, or through refores-tation and afforestation programs. It wouldalso be desirable to extend physical account-ing to cover other types of inputs and out-puts (other than flowsof raw materials) thatmight diminish (or contribute to) the qualityor productivity of a stock. This mightinclude, for example, erosion, salinization, oracidification of soils, degradation of a fishhabitat through siltation or water pollution,conversion of agricultural or forested land forurbanization, or a reduction or resurgence inwildlife populations, among many otherpossible examples.

The advantage of physical accounting isthat it makes it possible to account for boththe current status and trends of depletion (orrenewal) of a physical resource using avail-able environmental or ecologicalinformationwithout translating into other units or deriv-ing a monetary value for the resource. Envi-ronmental information is diverse and hetero-geneous, particularly in terms of the units ofmeasurement employed - geological infor-mation on oil and mineral resources mightbe measured in barrels or tonnes, biologicalinformation on wood stocks in cubic metersor hectares, chemical information on wasteoutput in parts per million, and so on. Theself-contained nature of physical accountsmakes it possible to keep track of the statusof a particular resource using an input-outputapproach, as described above.

The main disadvantage to physicalaccounting is that it is difficult - indeed,impossible- to integrate physical informa-tion completely into the existing SNA,because of the differences in units ofmeasurement. This limits the degree to

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which they can be compared with traditionalaccounts and indicators in order to assessthesustainability of economic growth. An addi-tional concern, even in industrialized coun-tries, is the lack of comprehensive, availablephysical data on some natural systems. Fur-thermore, accounts that monitor only thephysical flows of materials cannot, in them-selves, represent the positive or negativeimpacts of these flowson the environment oron overall human welfare; "...accounts main-tained in physical units do not enable econ-omic policy-makersto understand the impactof economic policies on a nation's naturalresources and thereby to integrate resourceand environmental considerations into econ-omic decisions - presumably, the mainpoint of the exercise" (Repetto et al., 1989,p. 15). However, many environmental econ-omists feel that a strong set of indicatorsbased on physical accounts would go a longway towards informing both decision makersand the public about the status of the envi-ronment and natural resources.

Valuation Methods for MonetaryEnvironmental Accounting

An alternative or, more precisely,an adjunctto the physical accounting approach involvesassigning monetary values to environmentalgoods and services. This approach has theadvantage that the accounts for both envi-ronmental functions and market functionswould be expressed in terms of a commondenominator - money - so that they couldbe fully integrated with one another. How-ever, in practical terms the approach isproblematic for a number of reasons. Themain challenge is how to represent non-market transactions. This involves establish-ing monetary values - "shadow prices" -for the goods and services of the environ-ment, that are directly comparable with theprices of goods and services produced for the

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market. Shadow pricing is theoreticallypossible, but it is a complicated and contro-versial procedure. "Assessing environmentalcosts and benefits is not easy. There is nomarket in which the prices of environmentalgoods, such as clean water or beautiful views,can be readily discovered. Instead, suchprices have to be estimated in ways that areboth difficult and controversial... .Worse, thecosts often arise far into the future" (Econ-omics Focus, 1992, p. 87).

Different types of environmental func-tions and resources require different valu-ation approaches. If a physical resourcesupplies raw materials directly or evenindirectly to a productive sector, it is rela-tively straightforward to establish a monetaryvalue for at least some of the functions of

that resource. For example, forests and fishstocks are, in principle, renewable physicalresources that can be depreciated as they aredrawn down, in much the same way asmanufactured capital assets are depreciated.In principle, capital assets in the form ofphysical natural resource stocks can also bemaintained or even augmented. "Where...replanting or restocking is effected at tech-nologically acceptable rates that would keepcapital intact, these activities could becharged against the gross returns from thenatural resource to obtain the net value

added generated; this is similar to the waycapital consumption (or depreciation) istreated in national accounts" (El Serafy,1989, p. 11). If restocking, preservation, orrestoration did not proceed at such a rate asto sustain the level of productivity and valueof the resource, a capital consumption chargecould be input in order to obtain the trueincome from utilization of the resource. Even

for renewable or reproducible resources, how-ever, there are many factors beyond thephysical supply of raw materials that may beexceedingly difficult to quantify, such as thespecies diversity, erosion-inhibiting prop-

erties, or recreational potential of a forest.For physical natural resources that enter

more or less directly into market transac-tions, there are three principal methods ofassigning a monetary value. These estimatescan be based on:

. the present value of future net revenues;

. the net price, economic rent, or unitrent of the resource multiplied by therelevant quantity of the reserve; or

. the transaction value of market pur-chases and sales of the resource in situ(Landefeld and Hines, 1985).

All of these methods have the limitationthat they rely on market indicators ofresource scarcity.

"Present value" method. This requiresforecasting net revenues, i.e., total revenueless all extraction costs, for the entire esti-mated life of the resource. This involvesestimating all future prices, interest rates,production levels, and operating costs for thelife of the resource extraction operation, andthen calculating net future revenue at pres-ent-day values. This is obviously a verydifficult endeavor. In the case of an oil fieldor a mineral reserve, for example, suchestimates involve not only gathering detailedgeological information about the resourceitself, but predicting new discoveries,antici-pating new extraction technologies, and evenforecasting any legislativeor political turn ofevents that might influence the future pro-ductivity of the resource.

"Net price" or "economic rent" method.This method multiplies the present averagenet price per unit of the resource (that is, .

current revenues minus current productioncosts) by the physical quantities of proven


reserves. Economists use the term "rent" torefer to the profit that can be earned /Tomaproductive unit (like a natural resourcestock), over the normal supply costs. "Forexample, if a barrel of crude oil can be soldfor $10 and costs a total of $6 to discover,extract, and bring to market, a rent of $4can be assigned to each barrel" (Repetto etal., 1989,p. 17). Economic rent is essentiallyequivalent to net price, i.e., the internationalcommodity price minus normal supply costs.This approach has the advantage of requiringonly current information on prices andextraction and processing costs, rather thannecessitating complicated speculations onfuture costs and prices.

"Transadionvalue"method.This is based

upon the value in current market transac-tions of natural resources in situ, such as incompetitive salesof rights to extract mineralsor timber, or the sale of fishing permits. Infact, all three of these pricing methods tendto yield the same results as time goes by,because owners or holders of rights to theresource can usually hold the resources instock or bring them to market immediately,so current rents and competitive transactionsales tend to reflect the present value offuture net income that can be derived /Tomthem (discussionof valuation methods basedon Repetto et al., 1989, pp. 19-21).

Valuation of Nonrenewable and CommonPropertyResources

Nonrenewable or nonreproducible resourcespose additional difficulties, although theirmarket contribution can still be valuated. Allgeologicalresources (minerals, oil, soils, andsometimes even groundwater) are essentiallynonrenewable on a human time scale. Esti-mating the true dimensions of geologicalreserves like mineral deposits, oil fields, andgroundwater aquifersis notoriously difficult.

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Environmental Concernsand Discount Rates

Atopic of central importance in the economic valuation of investments is theconcept of discounting. Present investment is essentially a proxy for futureconsumption - a small amount of real resources not consumed today can beput to productive use so that it will yield more than its own value in thefuture. It is a fact of human nature that if a person is offered a given amountof money today and the same amount (or even more) in the future - say, 50years hence - the overwhelming response will be to take the money today.Economists call this a "positive personal rate of time preference." The amountthat would be required in order to convince that person to put off consump-tion of the benefits until the future is essentially equivalent to the totalamount of discounting required; this can be calculated in terms of an annualrate - the discount rate.

In most investment projects there are relatively more costs incurred in theearlier years and relatively more benefits obtained in the later years. In orderto evaluate the investment, costs, and benefits in different years are put intoa common unit of measurement. This involves discounting future costs andbenefits by a "discount factor." Then, all the discounted costs and all thediscounted benefits are added to obtain the "discounted present value" of thecosts and benefits respectively. The difference is the "net present value" of theproject and it is this value that has to be positive for the project to be econ-omically justifiable.

The central problem is which discount rate to choose for the appraisal ofpublic projects. One of the implications of a high discount rate is that futurecosts and benefits are given less weight than present ones. A high discountrate also biases investment choices away /Tom projects with long-term pay-offsand high initial costs, in favor of smaller projects with short-term pay-offs.

For environmental concerns, the choice of a discount rate can sometimeswork in contradictory directions. With a high discount rate, fewer projects areundertaken, particularly investments with long-term pay-offs and large initialcosts (such as hydroelectric projects). This means that the preservation of aparticular natural area, such as a wetland, may be more likely to be achieveddue to the development disincentives associated with high discount rates.However, many projects with environmental benefits also have very longgestational periods, such as forestry or soil restoration projects; these may bedifficult to justify if discount rates are high. Furthermore, high discount ratesimply more immediate development of exhaustible resources, as well as shorterrotation periods and smaller stocks of renewable resources - it makes more

sense to exploit the resources in the present than to wait until the future,when they will be worth less.

ji,)

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-- --


Another problem with high discount rates is that potentially catastrophicconsequences (Le., future environmental risks) may not get a fair "hearing"with positive discounting. For example, suppose that a particular programinvolves a a significant probability of a major catastrophe through soilcontamination in 100 years' time. The cost of this contamination is estimated,in today's prices, to be $100 million, and the probability that it would occuris 0.5. Then the expected cost in 100 years is $50 million. Discounted at 10percent per annum this amounts to $36, at 5 percent it amounts to $3,802,and at 2 percent it amounts to $69,016. Although the discount rate makes aconsiderable difference to the discounted present value of the cost,none ofthese figures is likely to sway the decision on the justifiability of the project.

Hence there is a genuine concern that, with discounting, catastrophic futurecosts are not given their true importance. If the expected event is a catas-trophe of nature - such as, for example, a 100-year flood, costing $100million - it becomes even more difficult to predict and account for the costsof the event. Even if the flood pattern of a river is known quite well, a floodof a certain magnitude may be expected to occur sometime duting the next100 years - but when? If it were to occur next year, its cost in terms ofpresent value would be essentially the entire $100 million; on the other hand,if it were to occur in 99 years, its present cost would be substantiallydiscounted. How can we best account for such an eventuality?

Still another type of environmental impact that requires special attention inthe choice of discount rates is that of irreversibility. Some investments involvethe permanent destruction of certain species and habitat, or the loss ofirreplaceable environmental facilities. Should this irreversible loss receive aspecial weight? If so, how is it to be calculated? And what are its implica-tions for the discount rate to be used?

Intergenerational equity - concern for the well-being of future generations- is central to the debate about the appropriate discount rate; it is alsosomething that is very much influenced by current environmental policies. Auseful guideline might be to consider whether a cost-benefit analysis done inthe year 2030 would yield the same results and lead to the same decisionsconcerning project design and policy implementation.

(Based substantially on Markandya and Pearce. 1988.)

Furthermore, reserves can often be extendedby new discoveries, new information, newextraction technologies, and even (in thecase of soils or water, for example) by resto-ration projects. In spite of these difficulties,a capital consumption or depreciationapproach, analogous to that used for manu-factured capital assets, can sometimes beapplied to these resources. Some economists,however, prefer to treat the exploitation of

nonrenewable resourceslike asset liquidation.This is sometimes called a "user cost"approach, because the net revenue from thesale of the natural resource is split into acapital element, equivalent to a user cost,and a value added element, representing"true income." The capital element repre-sents erosion of the asset. In the user costmethod, a value is not applied to the wholereserve; the method is concerned only with

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that portion of the reserve that is currentlybeing liquidated (El Serafy, 1989, p. 12). Inprinciple, revenues from the liquidation ofone's assets should be productively re-invested, in order to maintain an incomestream in the future. It is worth noting thatcertain aspects of biological resources, suchas species diversity, or the integrity of acomplex ecosystemlike an old-growth forest,are also effectively nonrenewable since theycan be irreversibly damaged or lost; it mightalso be possible to apply an asset liquidationmethod to these resources.

Finally,some aspectsof the environmentare not only nonreproducible, but also veryremote from market processes and thereforedifficult or impossible to price in a marketcontext. Many of these have already beenmentioned; they include, for example:

~ certain physical resources, particularlythose held in common, like the air, theozone layer, or ocean waters;

~ many environmental functions and qual-ities, like buffering capacity, speciesdiversity, or water quality; and

~ most aesthetic resources, like a beautifulview or a sunset.

Environmental resources and functions canbe remote from market transactions throughthe indirectness of their contribution to the

market, as well as through distance in time.To further confuse the issue, such

resources can have the additional complica-tion of communal ownership. The impacts ofair quality, for example, can be so indirectthat in many cases its contribution is verydifficult to define, and virtually impossible toquantify or to attribute to a particularaccounting unit. "In principle, the damagesto individuals from increasing pollution,congestion, and noise can be estimated by

200

measuring willingnessto pay, lost productiv-ity, or needed defensive expenditures. Des-pite a large body of research literature onmethodological and statistical problems, thetask would be formidable if attempted on anational scale and remains in the realm ofresearch rather than accounting" (Repetto etal., 1989, p. 17). The effects of air pollutionon the productive status of a particularresource stock would be equally difficult toquantify - what is the effect of ozone

depletion on the future productivity of anagricultural soil or a forest? Biodiversity isanother example of an environmental char-acteristic or function with great potentialeconomic impact - but it is impossible topredict which species will have value, howmuch, for whom, and when. In the case ofaesthetic qualities like the beauty or sacred-ness of a natural setting, it is generallyimpossible - and perhaps inappropriate - todetermine a market value.

LINKING OR INTEGRATINGNRA AND SNA

A major concern in establishing environ-mental accounting systems is how and towhat extent natural resource and environ-

mental accounts should be integrated intothe SNA,if at all. Three possible approachesto this problem are:

~ fully incorporating natural resourceaccounts into the SNA;

~ employing satellite accounts that feedinto the SNA; or

~ establishing parallel accounts with awhole new set of environmental indica-tors.

By extension, these discussions also focus onthe relative utility of existing indicators, such

as GDPand NDP, and whether they should bemodified to some extent or remain intact.

Some economists propose the full inte-gration of natural resource accounts into thecore of the SNA. In this scenario, rhe actualcore structure of the SNA would be funda-

mentally altered to accommodate environ-mental information. This would requireassigning a monetary value to naturalresources and environmental services, achallenging and controversial process at best,as discussed above. However, many naturalresource economists feel strongly that envi-ronmental accounting will not have thedesired effect unless the accounts are mone-

tized and fully integrated into the SNA. Afurther consideration is that national

accountants, who are typically short of finan-cial resources and personnel, simply will nothave the means to prepare accounts fornatural resources unless they become anintegral part of the core system (Repetto,1992).

Alternative approaches to environmentalaccounting involve the use of satellite orparallel accounts. A satellite account is onethat is ancillary to the main framework ofthe SNA.The purpose of satellite accounts isto represent various types of information andeconomic activity that are not adequatelycaptured in the SNA. In the case of naturalresource accounting, the satellite accountswould not be directly integrated into the SNA.Rather, they would provide supplementaryinformation that could be used to produce aset of modified indicators, extending therange and applicability of the conventionalindicators (see discussion of the current UNSOposition, below). Parallel accounts are separ-ate accounts of natural resource stocks andflowsbased on physical data sets. These arecomplete in themselves and would not belinked in any direct way to the SNAor to theconventional indicators. Instead, an entirelynew set of indicators would be established,


based primarily on information and trendsgleaned from the parallel accounts. In otherwords, the SNA, GDP,and NDPwould still bein use and would remain intact, but theywould be accompanied or supplemented by arange of other indicators covering environ-mental and social welfare concerns.

It is interesting that economists whosupport the use of satellite or parallelaccounts present a variety of reasons for thisposition. Some economists favor satelliteaccounts because of the myriad difficulties inintegrating environmental and naturalresource information into the existing SNA,and the controversies surrounding the valu-ation of natural resources; these economiststypically advocate the use of totally distinctphysical accounts, which are more straight-forward to prepare. Others are not convincedthat it would be useful for environmental

concerns to acquire a special position in theSNA framework. Still others are concerned

about the possibility of redundancy - someenvironmental impacts that are alreadypartially represented in the current SNAmightactually be overvalued if they were to receiveexplicit valuation. Furthermore, economistsand policy makers alike are interested inpreserving the integrity and utility of thecurrent SNA and indicators, especially GDP,which has been a particularly useful indicatorover the years when applied in the propercontext. On the other side of the coin, someeconomists prefer satellite accounts becauseof the possibility that environmental con-cerns would be slighted or undervalued ifattempts were made to integrate them intothe existing SNA;with satellite accounts, thefull range of information on environmentaland resource concerns could be made avail-

able to policy makers. Finally, some econom-ists argue that GDPis fundamentally flawed asan indicator, and that it would be impossibleto correct all the problems and fill all thegaps in the existing SNA to produce one

201

THE CHALLENGE OF SUSTAINABIUTY

monetary aggregate indicator that wouldaccurately represent environmental concerns.

A number of countries have proposed orhave already established some form of envi-ronmental accounting system. These includeNorway, Canada, Japan, the Netherlands,the United States, and France. Naturalresource accounting is stressed in the Norwe-gian model, while pollution and environ-mental quality are the focus in Japan and theUnited States. The approaches of Canada,France, and the Netherlands combine someelements of each (Repetto et al., 1989).Preliminary resource accounts have also beencreated in several developing countries,primarily as non-governmental researchefforts. Examples include the co-operativeefforts of The World Resources Institute

with the Ministry for Environment andPopulation and a consortium of universitiesin Indonesia (Repetto et al., 1987), and withthe Tropical Resources Center in Costa Rica(Repetto, 1992), as well as a recent projectadministered by The World Bank in Papua,New Guinea (Bartelmus et al., 1992).

The CUlTent UNSO Position

The use of satellite accounts - with some

adjustments but no major conceptualchanges to the existing SNAframework - isthe position currently advocated by UNSO.Itis the view of the group of experts workingon the current revision of the SNA that it

would be premature to introduce radicalchanges into a well-established system ofdata collection and accounting thatadequately serves many different purposes insocioeconomic analysis (Bartelmus, 1989).The joint UNEP/World Bank Expert GroupMeetings made the following recommenda-tions to UNSOconcerning a draft of the SNAFramework for Environmental Satellite

Accounting.

202

~ The revised SNAshould provide a placefor environmental accounts within the

overall system and should discuss thefact that conventional income and prod-uct measures do not reflect environ-

mental degradation and depletion ofnatural resources.

~ Environmental accounting should bepresented as satellite accounts and notin the SNAitself.

~ Functional classifications should bedeveloped that identify separately envi-ronmental goods and services.

~ Environmental resources that cannot bevalued as stocks should be listed in the

form of an inventory that may includephysical quantity and quality indicators.

~ A first step toward measuring sustain-able income and product should be todeduct the depletion and degradation ofenvironmental assets; further researchon deducting defensive expenditures isrequired (Bartelmus, 1989, p. 86).

The deductions mentioned in the latter pointcould be deducted from NOP,yielding fourseparate indicators, as follows.

~ GOPis the sum of:. compensation to employees;. operating surplus from property and

entrepreneurship;. consumption of fixed capital; and~ indirect taxes, less subsidies.

~ Nopl (i.e., the conventional NOP)deducts:

. consumption of fixed capital.

~ Nop2 further deducts:. depletion and degradation of environ-

mental assets (calculated either as assetliquidation or depreciation).

. NOP) further deducts:. expenditures on environmental protec-

tion and restoration (Potvin, 1989, p.22).

This type of approach would leave the con-ventional GOPand NOPindicators intact tofulfilltheir traditional purposes,whilemakingnew, easily understood, more comprehensiveindicators of sustainable economic growthavailable to both policy makers and thegeneral public. It is worth noting, however,that a range of important but controversialfactors in overall welfare would still remainunaccounted for in the SNA.

DIFFERENT APPROACHES, SAME GOALS

Although it would be an exceedingly rarecircumstance for economists to reach ageneral consensus, this much appears to havebeen more or less agreed upon: "In theirpresent form the guidelinesfor income calcu-lation under the SNAleave out importantaspects of economic development that shouldbe brought into the accounts. Theseguidelines now produce readings of levels ofactivity and growth over time that can leadto faulty policy advice" (EI Serafy and Lutz,1989, p. 6). It is clear that GOPand NOPintheir conventional forms are very powerfulpolicy analysis tools, and that they fulfillimportant roles in their current forms. How-ever, there are significant omissions andserious flaws with respect to their portrayalof long-term, sustainable economic develop-ment and overall human welfare.

Most analysts would also agree that acritical first step is to establish physicalaccounts and balance sheets for naturalresources and, where possible,environmentalservices. This, at any rate, would be a


necessary precursor to the establishment ofany type of monetary environmentalaccounting system. It is broadly agreed uponthat the general areas of concern, from thepoint of view of environmental economics,are the depletion of natural resources, thedegradation of natural environments, anddefensive expenditures for the maintenance,protection, or restoration of the environ-ment, although the best way to deal withthese concerns is still being hotly debated.Furthermore, it is clear that there is not aconsensus concerning the approach thatshould be taken in linking or integratingthese accounts into the current SNA,and thedegree (if any) to which the core of theexisting framework should be modified.

It is encouraging that economists andpolicy makers appear to have a commongoal, which is to find the most accurate,most comprehensive, and most practical wayof representing the full range of costs andbenefits in economic growth and develop-ment. The current SNA and conventionalindicators were not designed with the limita-tions of the natural environment in mind,nor were they intended for the purpose ofportraying human welfare in its broadestsense.

Environmentalists have brought atten-tion back to the question of howpeople live and the quality of life,which is associated with an under-

standing that respect for life is inti-mately and inevitably bound up withrespect for the environment. In statisti-cal terms this gives a new opportunityto bridge the present separationbetween economic and social statistics

by articulating the interaction betweenenvironmental development andhuman development through the econ-omic production process. It is thisintegration of natural, man-made, andhuman resources that provides the

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THE CHAllENGE OF SUSTAINABIUTY

framework for defining sustainabledevelopment. (Harrison, 1989, p. 23)

Recognition is steadily growing that thethree aspects of human welfare - environ-mental, social, and economic - are overlap-ping and inextricably linked, and that theglobal community would perhaps be betterserved in the long run by indicators thatencompass all three.

204


Questions for Review1. What is the historical basis for the omission of natural resources from the

system of national income accounting?

2. What are the assumptions that are commonly made concerning the valueof environmental goods and services?

3. What does it mean to say that the central defining characteristic of theconcept of income is sustainability? What is the definition of income asadopted by the UNSOCoordinating Group on Revisions to the SNA?

4. What is the difference betweenGDP and NDP? Conceptually, how mightNDPbe modified in order to represent more accurately the status of theenvironment and the natural resource base?

5. Besides environmental goods and services, what are some of the othertypes of transactions that are not adequately represented by the currentSNA?

Questions for Discussion and Research

1. List as many environmental goods and services as you can.

2. Which of the goods and services on your list enter into market transac-tions fairly directly (e.g., in the provision of raw materials such as timberor minerals)? Which of them enter into the market only indirectly (e.g.,replenishment of soil fertility)? Which of the things on your list would bevery difficult to price in a market economy (e.g., a beautiful sunset)?

3. Investigate some of the current approaches to natural resource accounting,such as the Norwegian model, and some of the ongoing research efforts inthis field, such as those in Indonesia and Costa Rica.

4. What is the status of natural resource accounting in your country? Doyour national accountants and economists favor integrating environmentalconcerns directly into the SNA, or do they favor an approach that makesuse of satellite accounts?

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THECHAllENGE OF SUSTAINABIUTY

5. Have there been any particular problems in your country with regard toreliance on traditional economic indicators, i.e., are there specificinstancesin which GDPor NDPmay have been misleading as policy indicators? Whouses these indicators, and in what specific applications?

6. What do you feel should be the main focus of natural resource accountingin your country or region (e.g., stocks and flows of nonrenewableresources, output of pollutants, impacts of environmental degradation onhuman welfare, etc.)?

7. What do you need to know concerning links between the environmentand the economy, and in what form should the information be pre-sented,in order for it to influence and assist your decision making?

8. What are some of the practical impediments to the implementation ofnatural resource accounting in your country (e.g., lack of trainedpersonnel, lack of financial resources, lack of data on natural resources,etc.)?

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REFERENCES

Barrelmus, P. 1989. Environmental accounting andthe system of national accounts. In EnvironmentalAccounting for Sustainable Development, ed. Y.J.Ahmad, S. El Serafy, and E. Lutz. Washington, D.C.:World Bank.

Bartelmus, P., E. Lutz, and S. Schweinfest. 1992."Integrated Environmental and EconomicAccounting:A Case Study for Papua New Guinea." EnvironmentWorking Paper No. 54. Washington, D.C.: WorldBank.

Blades, D.W. 1989. Measuring pollution within theframework of the national accounts. In EnvironmentalAccounting for SuStainable Development, ed. Y.J.Ahmad, S. El Serafy, and E. Lutz. Washington, D.C.:World Bank.

CGRSNA.1989. Draft Report of the FirSt Meeting of theCoordinating Group on Revision of the SNA: Summaryand Conclusions. Luxembourg: United Nations Statis-tical Office.

Daly, H.E. 1989. Toward a sustainable measure ofsustainable social net national product. In Environ-mentalAccountingfor SuStainableDevelopmented. Y.J.Ahmad, S. El Serafy, and E. Lutz. Washington, D.C.:The World Bank.

deGroot, R. 1986. A Functional Ecosystem EvaluationMethod as a Tool in Environmental Planning and Deci-sion-making. Wageningen, Netherlands: Nature Con-servation Department, Wageningen AgticulturalUniversity.

Economics Focus. 1992. The price of green. TheEconomist,May 9.

El Serafy, S. 1989. The proper calculation of incomefrom depletable natural resources. In EnvironmentalAccounting for Sustainable Development, ed. Y.J.Ahmad, S. El Serafy, and E. Lutz. Washington, D.C.:World Bank.

El Serafy, S., and E. Lutz. 1989. Environmental andresource accounting: An overview. In EnvironmentalAccounting for Sustainable Development, ed. Y.J.Ahmad, S. El Serafy, and E. Lutz. Washington, D.C.:World Bank.

Harrison, A. 1989. Introducing natural capital intothe SNA.In EnvironmentalAccounting for SustainableDevelopment,ed. Y.J. Ahmad, S. El Serafy, and E.Lutz. W~shington, D.C.: World Bank.

Hicks, J.R. (Sir). 1946. Value and Capital. 2nd ed.Oxford, U.K.: Oxford University Press.

Landefeld, J.S., and J.R. Hines. 1985. Nationalaccounting for non-renewable natural resources in themining industries. Reviewof Incomeand Wealth 31(I).

Markandya, A., and D. Pearce. 1988. EnvironmentalConsiderations and the Choice of the Discount Rate inDeveloPing Countries. Environment DepartmentWorking Paper No.3. Washington, D.C.: World BankPolicy Planning and Research Staff.

Potvin, J. 1989. Economic-Environmental Accounts: AConspectus on Current Developments. Ottawa, Canada:Rawson Academy of Aquatic Sciences.

Repetto, R. 1992. Accounting for environmentalassets. ScientificAmerican June.

Repetto, R., W. Magrath, M. Wells, C. Beer, and F.Rossini. 1987. WastingAssets:Natural Resourcesin theNational IncomeAccounts. Washington, D.C.: WorldResources Institute.

Repetto, R., M. Wells, C. Beer, and F. Rossini. 1987.NaturalResourceAccountingfor Indonesia.Washington,D.C.: World Resources Institute.

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