Accounting for Environmental Assets,
Scientific American, June 1992, pp. 94 - 100.
Impoverishment is taken for progress.
A model of the foundations of wealth from an ecological perspective.
There is a 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.
Impact of Externalities losses assets value of assets in terms of debit credit earth capital deforestation reforestation < genetic variety soil erosion mulching > nutrients aquifer pollution wetland creation > wildlife surface pollution sewage treatment > fish wildlife extinction hunting reserves ecotourism fisheries depletion hatcheries < genetic variety air pollution scrubbers respiratory health flooding marshland restoration > fish & wildlife
legend: >, increase of; <, decrease of
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)
Although the model balance sheet in the U.N. SNA recognizes
land, minerals, and timber as economic assets to be included in a nations
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.
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)
One of the hemispheres highest rates of deforestation (Costa Rica) has led to the loss of 30% of the countrys 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 Ricas national income, 25 percent of its employment and
55% of its export earnings, this destruction caused severe economic losses . . . . Yet
nothing in Costa Ricas national economic accounts records these economic
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 overfishing, wiped out all profits by 1984. Although the nations accounts showed a mounting external debt, they gave no sign of destruction in productive capacity that made paying back that debt more unlikely. (98)
Indonesias natural resource accounts show 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.
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Scientific American, June 1992, pp. 94 - 100.