World maps of physical quality of life [PQL] index and another map of the location of the worlds great forests.

“Accounting 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

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

Cotapaxi Volcano, by Frederick Church, nineteenth century American artist.

Accounting table of costly and beneficial activities

category	debit	credit	earth capital
Examples
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	eco-tourism
6	fisheries depletion	hatcheries	< genetic variety
7	air pollution	scrubbers	> respiratory health

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.

Deforestation is the loss of forests.

“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)

Deforestation

Oregon coastal road exposes clear cutting of a private forest.

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

“Indonesia’s 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.” (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 they 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.

The costs of environmental degradation, damage or disturbance.