Environmental accounting refers to the modification of the System of National Accounts to incorporate in it the use or depletion of natural resources
The inclusion of the environmental issue within the new organizational models has worried many scholars in the economic-accounting area about the impact that this important issue has on society, but above all the measurement that must be made of it, which, being a very difficult variable If measured or even assigned a specific value, the analysis of this new variable has taken a lot of strength.
IUCN has been one of the entities that has been most concerned with the environmental issue and its measurement within the System of National Accounts of the countries, conducting studies that make us reflect on its importance within the nations of Latin America.
Environmental accounting
Environmental accounting is based on a set of aggregated national data linking the environment to the economy, which will have a long-term impact on both economic and environmental policy development
In the IUCN Environmental Accounting Initiative this becomes an important tool to understand the role of the natural environment in the national economy.
Environmental accounts provide data that highlights both the contribution of natural resources to economic well-being and the costs imposed by pollution or their depletion.
In this sense, the IUCN Environmental Accounting Initiative seeks to help its members understand how this tool can help them improve environmental management; explaining what it is; because it is important; How is it done; who works on the subject and how to start applying it.
This article aims to show some of the contributions that have been made to try to clarify issues of this nature.
Environmental accounting and the national accounts system
Environmental accounting refers to the modification of the System of National Accounts to incorporate in it the use or depletion of natural resources.
The System of National Accounts is the set of accounts that the governments of each country collect periodically to record the activity of their economies.
Data from the System of National Accounts is used to calculate the main economic indicators including gross domestic product (GDP), gross national product (GNP), savings rates, and figures for the trade balance. The data that make up these aggregate indicators are also used for a broad range of equally valuable but less well-known policy analyzes and for economic monitoring purposes.
These economic accounts are calculated for all countries using a standard format, which has been developed, supported, and disseminated by the United Nations Statistics Division (UNSTAT).
The fact that all the countries carry out these calculations, in more or less the same way, adds great value to the data, for decision-making at the national and international levels, since it enables comparisons and allows each country in the context of global trends.
In the same way, the periodic calculation of these accounts allows us to understand how the world is evolving, and where each country is located within this pattern of change. This provides a valuable basis for defining public policies aimed at guiding countries and the entire world towards desired patterns of growth and development.
A trend has been developed that demands the reformulation of the System of National Accounts because the accounts, as currently defined, do not include the full economic value of environmental resources or the role they play in productive activity. Some of the missing elements in the National Accounts are:
Environmental expenses
Expenditures to protect the environment from abuse, or to mitigate such damage, cannot currently be identified in the national accounts data. Such expenses include the cost incurred to prevent environmental damage, such as equipping factories to control pollution, or catalytic converters installed in cars.
They also include the costs of remedying such damage, medical expenses, the replacement of property destroyed in landslides caused by deforestation, or the necessary filtration of drinking water because it is highly sedimented.
These expenses are included in the income accounts, along with all intermediate or final consumption, however, they cannot be disaggregated to distinguish the costs incurred to prevent or mitigate environmental degradation.
Goods not marketed
The environment provides many goods that are not sold but have value; for example, firewood and construction materials collected from forests, meat and fish captured for self-consumption, and medicinal plants.
Some countries include these goods in their national income accounts, calculating total consumption, and then use the market prices of comparable products as an approximation to calculate the value of non-commercial goods. However, such calculations are incomplete, and cannot always be separated from the products being sold.
Non-commercialized services
Likewise, the environment provides unsold services, such as the protection provided by forests to watersheds, or the retention of water seepage provided by underwater vegetation. These items are not included in the National Accounts System.
It would be very difficult to calculate their economic value, although this is sometimes done by calculating the cost of obtaining equivalent services in the market.
Natural capital consumption
In accordance with conventional commercial accounting principles, the SNA treats the gradual use of physical capital - machinery and other equipment - as depreciation rather than income. However, the depletion of natural capital - of forests, in particular - settles as income. Thus, the accounts of a country that harvests trees very quickly will show a fairly high income for a few years, but will not show the destruction of the productive good, the forest.
Most experts in environmental accounting agree that the depletion of natural capital should be accounted for in the same way as other productive assets.
A trend has been developed that demands the reformulation of the System of National Accounts because the accounts, as currently defined, do not include the full economic value of environmental resources
Changes to the national accounts system
The System of National Accounts is a complex system, which follows a number of widely accepted accounting rules.
These rules ensure logical uniformity across the different elements of the accounts, ensuring that a given type of accounting entry has the same meaning in all contexts and in all countries.
This standardization is essential for accounts to be a reliable source of comparable data between the economies of different countries.
At the same time, this standardization makes it difficult to switch to the System of National Accounts to introduce products as different as the goods and services provided by the environment. The main difficulty arises because most of the environmental goods and services are not traded in conventional markets. It is therefore difficult to define individual products and assign them a monetary value.
Because this task is so complicated, there have been considerable discussions over the past twenty years about strategies to modify the SNA.
Although the questions have not been fully answered, considerable progress has been made and further progress is expected in the next five years. Some of the most important discussions have focused on the following issues:
Physical accounts versus monetary accounts
Physical accounts only include information about the natural characteristics of the environment and its use; forest size or mineral reserves, water or air quality; the depth of the fertile soil layer, etc.
In contrast, monetary accounts assign an economic value to these characteristics or to their use, in order to understand their function in the economy. Due to the difficulty of calculating the monetary value of certain aspects of the environment, some individuals (and countries) advocate the development of physical accounts only.
Integrated accounts versus satellite accounts
Integrated accounts change the calculation of GDP, GNP, and other key national indicators. The satellite accounts (of which the physical accounts are part) are linked to the System of National Accounts, but neither the calculation of key indicators nor the central framework of the accounts change.
The advantage of satellite accounts is that they allow accountants to violate some rules of the National Accounts System in a useful way for environmental data, without compromising the uniformity of information in conventional accounts.
However, because GDP or GNP do not change, they do not correct the distortions inherent in those indicators.
Net profit vs. user cost method to calculate depletion
These are two different methods to calculate the depletion of natural capital.
The net profit method is much simpler than the user cost method, and has therefore been more widely used.
Economists consider it technically incorrect; however, those who use it feel that despite its inaccuracy it offers an acceptable approximation of the value of exhaustion.
Inclusion of "maintenance costs"
"Maintenance costs" are the expenses that a country would have to do to make its use of the environment sustainable.
Some environmental accounting experts believe that these should be deducted from the accounts to arrive at a correct level of "green" economic activity.
Others argue that calculating such costs is highly subjective and that subtracting them from indicators such as GDP is misleading.
Valuation of non-commercialized environmental services
Most approaches to environmental accounting do not include this item, because the required assessment is subjective and difficult to perform.
However, assigning values to environmental services is of great interest to environmentalists in many countries, so their inclusion deserves serious consideration.
These are not simply arcane statistical matters. The solutions found will determine how the environmental accounts will be used to support policy development.
Furthermore, if the international community could reach a consensus - no matter what methods are chosen - their agreement on a set of standard accounting principles will encourage many governments, now in doubt, to enter this new field.
