Environmental Accounting

Abstract

Environmental accounting is an attempt to broaden the scope of the accounting frameworks used to assess economic performance, to take stock of elements that are not recorded in public or private accounting books. These gaps occur because the various costs of using nature are not captured, being considered, in many cases, as externalities that can be forwarded to others or postponed. Positive externalities—the natural resource—are depleted with no recording in National Accounts (while companies do record them as depreciation elements). Depletion of renewable resource results in degradation of the environment, which adds to negative externalities resulting from pollution and fragmentation of cyclic and living systems. Degradation, or its financial counterpart in depreciation, is not recorded at all. Therefore, the indicators of production, income, consumption, saving, investment, and debts on which many economic decisions are taken are flawed, or at least incomplete and sometimes misleading, when immediate benefits are in fact losses in the long run, when we consume the reproductive functions of our capital. Although national accounting has been an important driving force in change, environmental accounting encompasses all accounting frameworks including national accounts, financial accounting standards, and accounts established to assess the costs and benefits of plans and projects. There are several approaches to economic environmental accounting at the national level. Of these approaches, one purpose is the calculation of genuine economic welfare by taking into account losses from environmental damage caused by economic activity and gains from unrecorded services provided by Nature. Here, particular attention is given to the calculation of a “Green GDP” or “Adjusted National Income” and/or “Genuine Savings” as well as natural assets value and depletion. A different view considers the damages caused to renewable natural capital and the resulting maintenance and restoration costs. Besides approaches based on benefits and costs, more descriptive accounts in physical units are produced with the purpose of assessing resource use efficiency. With regard to natural assets, the focus can be on assets directly used by the economy, or more broadly, on ecosystem capacity to deliver services, ecosystem resilience, and its possible degradation. These different approaches are not necessarily contradictory, although controversies can be noted in the literature. The discussion focuses on issues such as the legitimacy of combining values obtained with shadow prices (needed to value the elements that are not priced by the market) with the transaction values recorded in the national accounts, the relative importance of accounts in monetary vs. physical units, and ultimately, the goals for environmental accounting. These goals include assessing the sustainability of the economy in terms of conservation (or increase) of the net income flow and total economic wealth (the weak sustainability paradigm), in relation to the sustainability of the ecosystem, which supports livelihoods and well-being in the broader sense (strong sustainability). In 2012, the UN Statistical Commission adopted an international statistical standard called, the “System of Environmental-Economic Accounting Central Framework” (SEEA CF). The SEEA CF covers only items for which enough experience exists to be proposed for implementation by national statistical offices. A second volume on SEEA-Experimental Ecosystem Accounting (SEEA-EEA) was added in 2013 to supplement the SEEA CF with a research agenda and the development of tests. Experiments of the SEEA-EEA are developing at the initiative of the World Bank (WAVES), UN Environment Programme (VANTAGE, ProEcoServ), or the UN Convention on Biological Diversity (CBD) (SEEA-Ecosystem Natural Capital Accounts-Quick Start Package [ENCA-QSP]). Beside the SEEA and in relation to it, other environmental accounting frameworks have been developed for specific purposes, including material flow accounting (MFA), which is now a regular framework at the Organisation for Economic Co-operation and Development (OECD) to report on the Green Growth strategy, the Intergovernmental Panel on Climate Change (IPCC) guidelines for the UN Framework Convention on Climate Change (UNFCCC), reporting greenhouse gas emissions and carbon sequestration. Can be considered as well the Ecological Footprint accounts, which aim at raising awareness that our resource use is above what the planet can deliver, or the Millennium Ecosystem Assessment of 2005, which presents tables and an overall assessment in an accounting style. Environmental accounting is also a subject of interest for business, both as a way to assess impacts—costs and benefits of projects—and to define new accounting standards to assess their long term performance and risks.

Global Resources and Resource Justice – Lost in Frameworks and the Way Forward

“…The accellerating degradation of socioecosystems during the past decades means acknowledging the existence of unpaid costs corresponding to socioecological debts (Weber, 2018). The accumulation of such debts over time remains virtual as long as they are not measured and recorded in balance-sheets in order to be offset so as to anticipate and avoid economic and political risks.…”

“…The reported landscape of competing concepts, instruments, and variables has led to a heterogeneity that generates confusion. For example, environmental evaluation methodologies (Weber, 2018) in use operate via (1) Pressure based indicators (reference value or limits, e.g., planetary boundaries and quotas), (2) Ecosystem services assessment and valuation (albeit confronted with the limits of monetary valuation), and (3) Ecosystem maintenance (systemic) approaches that evaluate ecosystem health and degradation costs that can translate in compensation versus restoration strategies. In the spirit of the present analysis, choices should be dictated by the respective capacity of such methodologies to inform the common interest, while implementing good practices in public policies and economic activities (see also Ostrom, 2007).…”

Ecosystem natural capital accounting: The landscape approach at a territorial watershed scale

“…While in national accounts the statistic units are essentially legal in nature, the accounting units in ENCA are essentially geographical-spatial areas, where information is collected, 2013;Walker, 2005;Weber, 2018). The value of the ecosystem capital is considered an alternative to the use value, the latter being directed by utility and profit maximisation.…”

“…Environmental evaluations, essential tools to socio-ecological system approaches (Bourgeron et al, 2018; Li et al, 2020; World Wildlife Fund, 2019), are being developed to assess the direct or indirect impacts of externalities on ecological systems and their productivity. These developments have contributed to the emergence of a broad range of approaches, methodologies and environmental evaluation instruments (Mazza et al, 2013; Organisation for Economic Co-operation and Development, 2012; United Nations Environment Programme, 2014; Weber, 2014; West, 2015), aimed to integrate the environment and natural resources into economics-based national accounting frameworks (Caldecott et al, 2013; Weber, 2018). Despite such accomplishments, a recent survey concluded that ‘there is very little use of natural capital accounts for public policy decisions and, more so, in developing countries’ (Recuero Virto et al, 2018).…”

Detecting the short term impact of soil and water conservation practices using stage as a proxy for discharge—A case‐study from the Tana sub‐basin, Ethiopia

“…SWC practices are traditionally implemented through regulatory and investment mechanisms (Christensen & Norris, 1983; de Graaff, Aklilu, Ouessar, Asins‐Velis, & Kessler, 2013) funded by Governments and Non‐Governmental Organizations such as USAID, World Bank, FAO/UNDP and WRI (de Graaff et al, 2013; Graaff, 1996; Sinukaban, 1999; World Bank, 2010), but interest in market‐based approaches (Wunder, Engel, & Pagiola, 2008) is growing. Market‐based approaches apply a price to SWC practices, using techniques such as 'environmental accounting' (Veiga, Calvache, & Benitez, 2015; Weber, 2018) or 'beneficiary pays' schemes (Boisvert, Méral, & Froger, 2013) that depend fundamentally on evaluating the effectiveness and monetary value of SWC implementation. Although market‐based approaches may be essential to upscaling SWC, missing, incomplete or low quality monitoring of SWC performance remains a pervasive barrier to their adoption (Dile et al, 2018; Kassie, Köhlin, Bluffstone, & Holden, 2011; MEA, 2005; Mekuriaw, Heinimann, Zeleke, & Hurni, 2018; Zimale et al, 2017) and upscaling (Naeem et al, 2015).…”