Green Accounting

1
Green Accounting
2
EU Policy Context

• Lisbon (economic and social)
• Gothenburg (environment)
• Climate change 
• Sustainable transport 
• Public health
• Resource management
• Green accounting links economic and environmental
  objectives

3
Overview of Presentation

• Green (environmental) accounting
• Rationale
• Elements of Green Accounting Theoretical
  conceptual basis
• Empirical progress in different contexts
• Conclusions for research and practical
  applications.

4
Rationale for conventional accounting

• Measurement of economic activity - production
  GDP
• Often used as indicator of welfare
• Two elements of accounts
• Changes in Stocks of Capital - Investment
• Measurement of production/output Flows -
  Consumption

5
Standard National Accounts (SNA) framework

• NNP C I D X M
• Where
• NNP Net National Product
• C Consumption
• I Investment
• D Depreciation
• X Exports
• M Imports
• Misleadingly used as measure of welfare welfare
  not proportionate to consumption of produced goods

6
Green accounting rationale

• The effect of mankinds activity upon the
  environment has been an important policy issue
  throughout the last part of the twentieth
  century.
• increasing recognition that continuing economic
  growth and human welfare are dependent upon the
  services provided by the environment
• Source The United Nations Handbook of National
  Accounting - Integrated Environmental and
  Economic Accounting
• Economic Environmental linkages have
  implications for meso- and macro-economic
  management
• Meso/macro-economic management more responsive to
  environment if environmental indicators exist

7
Elements of Green Accounting - Outline

• Environmental services
• Ecosystem life support systems
• Landscape
• Environmental damages
• Pollution flows e.g air water quality
• Defensive (environmental protection) expenditures
  
• e.g. noise reducing windows IPPC technologies
• Resource depletion
• Non-renewables renewables

8
Empirical progress in Environmental Accounting in
different contexts some evidence
9

• UN initiative on Green Accounting UNSEEA (1993,
  2000, 2003)

• System of integrated Environmental and Economic
  Accounting (SEEA) complements SNA method for
  measuring economic activity
• Adds environmental information to existing
  Input-Output economic data
• Physical stock and flow tables
• Hybrid (physical monetary) stock and flow
  tables
• Methodological guidance on resource depletion,
  degradation, defensive expenditures

10
Physical monetary stock and flow tables

• Often known as NAMEAs (National Accounting Matrix
  including Environmental Accounts).
• Physical flow accounts include four types of
  flow
• products (produced in the economic sphere and
  used within it),
• natural resources (mineral, energy, biological),
• ecosystem inputs (air and water) and
• residuals (solid, effluent, emissions).
• Each of these accounts is expressed in terms of
  supply to, and use by, the economy.
• i.e. tables represent the flows between the
  economy and the environment.

11
An indicator of weak sustainability genuine
savings

• Genuine Savings monetary savings less the
  depreciation on manmade capital less the
  depletion of natural capital. (From S Iv
  identity)
• Value of changes in economys overall capital
  stocks.
• Negative genuine saving corresponds to
  unsustainability, since if depleting capital
  stock, can receive lower welfare from it in
  future
• Genuine Savings rates low or negative for
  Sub-Saharan Africa and for Middle East and North
  Africa.
• Assumes all capital is substitutable

12
Genuine savings for Tunisia, as of GDP
13
The Index of Sustainable Economic Welfare (ISEW)

• ISEW (Daly and Cobb (1989))
• current welfare should be measured as the current
  flow of services from all sources, rather than
  current output of marketed goods
• E.g.
• value for leisure time to correct for the fact
  that welfare could increase while NNP decreases
  if people choose to work less
• higher incomes of urban residents are
  compensation for externalities connected with
  urbanisation and congestion, ? proportion of
  income should not be included as welfare

14

• The Index of Sustainable Economic Welfare (ISEW)

• ISEW
• Consumption Investment Extra-Market services
  Consumer Durables Services Services of Roads
  Public Health Education Consumer Durables
  Expenditure Private Defensive Expenditure on
  Health /Education Advertising Commuting
  costs Pollution costs cost of loss of
  ecosystems resource depletion costs Long
  term environmental damage
• Applications at national level UK, Sweden,
  Netherlands, Italy, Poland, Austria
• Applications at local level Siena (Pulselli et.
  al. 2006)
• Problem mixes sustainability and
  welfare issues in single measure

15

Index of Consumption Corrected for Environmental
Damage (ICCED)- EC Greensense project

• ICCED developed
• to demonstrate how well-being changes over time
  if sustainability standards imposed and effects
  of environmental damage are accounted for.
• corrects for environmental damage and expenditure
  incurred under sustainability policies
  (similarities with local EcoBudget initiatives
  e.g. Roma)

16
Sustainability targets analysed under the
GREENSENSE project
17
Greensense Environmental impacts on welfare (UK)
18
Greensense ICCED Measures - UK
19
Summary of Empirical initiatives

• NAMEA includes environmental issues within
  standard accounting framework
• Genuine savings sustainability-related decision
  rule
• ISEW broader interpretation of welfare
• ICCED includes welfare effects of meeting
  sustainability targets

20
Conclusions on Green Accounting

• Recognition of need to address both current
  welfare and sustainability issues from
  macro-perspective
• National and international initiatives (e.g. UN
  SEEA, 2003) are developing improved methodologies
• Variety of initiatives reflects lack of consensus
  on priorities and methods
• Local applications of methods can reflect
  regulatory responsibilities but may be difficult
  to define sustainability at this scale?
• Applications very data-hungry and modelling
  intensive