money TreeAccounting for Environmental Assets,”

Robert Repetto

Scientific American, June 1992, pp. 94 - 100.

introduction | accounting table | Keynesian analysis of nature | ignored assets | marginal utility | deforestation | Conclusion

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warnings about conveying data

“Impoverishment is taken for progress.”

problem with the UN System of National Accounts (SNA)

“completely ignores the crucial environmental changes of our times: the marked degradation of natural resources in much of the the developing world and the growing pressures on global life support systems such as climate and biological diversity.

“By failing to recognize the asset value of natural resources, the accounting framework that underlies the principle tools of economic analysis misrepresents the policy choices nations face.”

accounting table | Keynesian analysis of nature | ignored assets | marginal utility | deforestation | Conclusion

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Accounting table of costly and beneficial activities

category debit credit earth capital
Examples red line
1
deforestation reforestation < genetic variety
2
soil erosion mulching > nutrients
3
aquifer pollution wetland creation > wildlife
4
surface pollution sewage treatment > fish
5
wildlife extinction hunting reserves
ecotourism
6
fisheries depletion hatcheries < genetic variety
7
air pollution scrubbers > respiratory health

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introduction | accounting table | Keynesian analysis of nature | ignored assets | marginal utility | deforestation | Conclusion

§§§


How is nature a free good?


“Keynesian analysis for the most part ignored the productive role of natural resources, so does the current system of national accounts.” (94)

“there is a dangerous asymmetry in the way economists measure, and hence the way they think about the value of natural resources.”

“Buildings, equipment and other manufactured assets are valued as income producing capital, and their depreciation is written off as a charge against the value of production. This practice recognizes that consumption cannot be maintained indefinitely simply by drawing down the stock of capital without replenishing it. Natural resource assets, however, are not so valued. Their loss, even though it may lead to a significant decrease in future production, entails no charge against current income.” (96)


Natural resources are economic goods but are treated as ignored assets.

“Although the model balance sheet in the U.N. SNA recognizes land, minerals, and timber as economic assets to be included in a nation’s capital stock, the SNA income and product accounts do not.” (96)

“Ironically, low-income countries, which are typically most dependent on natural resources for employment, revenues and foreign exchange earnings, are instructed to use a national accounting system that almost completely ignores their principle assets.”

dunes

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introduction | accounting table | Keynesian analysis of nature | ignored assets | marginal utility | deforestation | Conclusion | start


marginal value


“Behind this anomaly is the mistaken assumption that natural resources are so abundant that they have no marginal value.”

“Another misunderstanding is that natural resources are ‘free gifts of nature,’ so that there are no investment costs to be written off per se. The value of an asset, however, is not its investment cost but the present value of its income potential.”

“The true measure of depreciation is the capitalized present value of the reduction in future income from the asset because of its decay or obsolescence. In the same way that a machine depreciates as it wears out, soils depreciate as their fertility is diminished, since they can produce the same crop yield only at higher cost.” (96)

Deforestation is the loss of forests.


deforestation“One of the hemisphere’s highest rates of deforestation (Costa Rica) has led to the loss of 30% of the country’s forests. Furthermore, most of the forest was simply burned to clear land for relatively unproductive pastures and hill farms, sacrificing both valuable tropical timber and myriad plant, animal and insect species. Because most of the area converted from forest was unusable for agriculture, its soil eroded in torrents. Losses averaged more than 300 tons per hectare from land use to grow annual crops and nearly 50 tons per hectare from pastures.” (96-97)

“Because forests, fisheries, farming and mining directly account for 17 percent of Costa Rica’s national income, 25 percent of its employment and 55% of its export earnings, this destruction caused severe economic losses....Yet nothing in Costa Rica’s national economic accounts records these economic losses.” (97)

“The experience of other developing countries for which natural resource accounts have been compiled parallels that of Costa Rica. In the Philippines, for example, annual losses resulting from deforestation averaged 3.3 percent of the GDP between 1970 and 1987....This pollution, together with over fishing, wiped out all profits by 1984. Although the nation’s accounts showed a mounting external debt, they gave no sign of destruction in productive capacity that made paying back that debt more unlikely.” (98)

Oregon

Oregon coastal road exposes clear cutting of a private forest.

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graphExisting accounting methods hide significant facts and increase our risks from failing to protect necesary water, soil, forests, and fisheries–all significant expensive resources needed for subsistence.

“Indonesia’s natural resource accounts fernshow that between 1977 and 1984 the depletion of natural resources totaled 19 percent of GDP.... Once again, conventional accounting methods show no sign of this impending danger.” (100)

  1. The current dominant means used to determine national wealth entirely ignores or discounts the importance of natural resources.
  2. Nature is not a free good and its services are costly in that thet require reinvestment.
  3. By not accounting for the depreciating value of soils, forests or water the future losses of valuable assets is underestimated.
  4. The loss of forests is just one example, but a key factor, or central example of how poor countries assets are not accounted for and they disappear,
  5. When natural resources disappear the cost of replacing the ecosystem services that produced them is often more costly than countries can afford to replace.

end

Nature is wealth transformed by cultures into assets.

 

introduction | accounting table | Keynesian analysis of nature | ignored assets | marginal utility | deforestation | Conclusion | start

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population

warnings about conveying data

Natural Capital | Accounting for natural assets | Worth of ecosystem services

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