Green accounting is a type of
accounting that attempts to factor
environmental cost
Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied subject due to growing environmental concerns in the twenty-first century. Environmental economics "undertakes theoretical o ...
s into the financial results of operations. It has been argued that
gross domestic product
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is oft ...
ignores the environment and therefore policymakers need a revised model that incorporates green accounting. The major purpose of green accounting is to help businesses understand and manage the potential
quid pro quo between traditional economics goals and environmental goals. It also increases the important information available for analyzing policy issues, especially when those vital pieces of information are often overlooked.
Green accounting is said to only ensure
weak sustainability, which should be considered as a step toward ultimately a
strong sustainability.
It is a controversial practice however, since
depletion may be already factored into accounting for the extraction industries and the accounting for externalities may be arbitrary. It is obvious therefore that a standard practice would need to be established in order for it to gain both credibility and use. Depletion is not the whole of environmental accounting however, with
pollution
Pollution is the introduction of contaminants into the natural environment that cause adverse change. Pollution can take the form of any substance (solid, liquid, or gas) or energy (such as radioactivity, heat, sound, or light). Pollutants, the ...
being but one factor of business that is almost never accounted for specifically.
Julian Lincoln Simon
Julian Lincoln Simon (February 12, 1932 – February 8, 1998) was an American professor of business administration at the University of Maryland and a Senior Fellow at the Cato Institute at the time of his death, after previously serving as a ...
, a professor of business administration at the University of Maryland and a Senior Fellow at the
Cato Institute
The Cato Institute is an American libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Ed Crane, Murray Rothbard, and Charles Koch, chairman of the board and chief executive officer of Koch Industries.Koch Ind ...
, argued that use of
natural resource
Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest and cultural value. ...
s results in greater wealth, as evidenced by the falling prices over time of virtually all nonrenewable resources.
Etymology
The term was first brought into common usage by economist and professor Peter Wood in the 1980s.
[Schaltegger, S. & Burritt, R.: Contemporary Environmental Accounting: Issues, Concept and Practice. Sheffield: Greenleaf, 2000 ]
Practice
Environmental responsibility is a potent issue among businesses in this modern age. It has become necessary for corporation to formulate methods of promoting green causes for the present and the future. Green accounting helps promote a sustainable future for businesses as it brings green public procurement and green
research and development into the big picture. Penalties for polluters and incentives (such as tax breaks, polluting permits, etc.) are also a crucial part of this type of accounting.
The
System of National Accounts (SNA) defines
Net Domestic Product (NDP) as:
NDP = Net Exports + Final Consumption (C) + Net Investment (I)
This is also a typical formula found in articles and texts about accounting.
Green Accounting, however, uses the
System of Environmental Economic Accounting (SEEA), which focuses on the depletion of scarce natural resources and measures the costs of
environmental degradation along with its prevention.
Thus, the NDP is newly defined as Green NDP, or also known as
EDP. The green accounting formula is:
EDP = Net Exports + C + NAp. ec + (NAnp.ec - NAnp.n)
Where:
''EDP = Environmental Domestic Product,''
''C = Final Consumption,''
''NApec = Net Accumulation of Produced Economic Assets,''
''NAnp.ec = Net Accumulation of Non-produced Economic Assets,''
''NAnp.n = Net Accumulation of Non-produced Natural Assets.''
Challenges
Environmental protection and economic growth
The effect of environmental policies on the economy has always been a controversial topic. Many economists argue that sanctioned limits on pollution curtail economic growth.
For instance, between 1973 and 1982, the United States imposed stricter regulations on pollution, which led to a 0.09% decrease per year in the national output growth.
A study conducted in 1990 also analyzed the economic growth with during the time period between 1973 and 1980s. The result indicated that the government regulation reduced the annual
GNP
The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...
by 0.19% per year.
Other researchers argue that those number is insignificant compared to protecting and sustaining the priceless environment.
Distributional impacts of environmental and natural resource policies
Not all industries pollute the same amount; chemical and paper manufacturing industries, for example, tend to pollute more than others. It is difficult to accurately measure the pollution level of each industry in order to categorize and to set up a fair set of policies. In particular, improved water quality might highly favor the higher income groups due to the fact that most improvements are done in the urban areas.
Links between trade and environmental and natural resource policies
During the time of globalization and the rapid expansion of the international market, the US policymakers have come to realize the importance of what is happening in other countries. Before making any decision and submitting the final draft to
Congress
A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...
, the policymakers were concerned about the effects of the
North American Free Trade Agreement on the environment.
National accounting systems that include environmental and natural resources could provide useful information during negotiations over the nations' commitments to restore or maintain natural capital.
Trade restrictions have not been used when a country's production and processing methods result in excessive discharges of pollutants (
carbon
Carbon () is a chemical element with the symbol C and atomic number 6. It is nonmetallic and tetravalent—its atom making four electrons available to form covalent chemical bonds. It belongs to group 14 of the periodic table. Carbon mak ...
,
sulfur,
nitrogen oxides,
chlorofluorocarbons
Chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs) are fully or partly halogenated hydrocarbons that contain carbon (C), hydrogen (H), chlorine (Cl), and fluorine (F), produced as volatile derivatives of methane, ethane, and propa ...
) across national boundaries. The difficulty comes in when determining the effects of trans-boundary pollutants on industry costs.
See also
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Anthropogenic metabolism Anthropogenic metabolism, also referred to as metabolism of the anthroposphere, is a term used in industrial ecology, material flow analysis, and waste management to describe the material and energy turnover of human society. It emerges from the ap ...
*
Earth economics
Earth Economics is a 501(c)(3) non-profit headquartered in Tacoma, Washington, United States. The organization uses natural capital valuation to help decision makers and local stakeholders understand the value of natural capital assets. By iden ...
(policy think tank)
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Environmental protection
Environmental protection is the practice of protecting the natural environment by individuals, organizations and governments. Its objectives are to conserve natural resources and the existing natural environment and, where possible, to repair dam ...
*
Environmentalism
Environmentalism or environmental rights is a broad philosophy, ideology, and social movement regarding concerns for environmental protection and improvement of the health of the environment, particularly as the measure for this health seeks ...
*
Industrial metabolism Industrial metabolism is a concept to describe the material and energy turnover of industrial systems. It was proposed by Robert Ayres in analogy to the biological metabolism as "the whole integrated collection of physical processes that convert ra ...
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National accounts
National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry ...
*
Natural capital
Natural capital is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. Some natural capital assets provide people with free goods and services, often called ecosystem services. All of t ...
*
Renewable resource
A renewable resource, also known as a flow resource, is a natural resource which will replenish to replace the portion depleted by usage and consumption, either through natural reproduction or other recurring processes in a finite amount of ti ...
*
Social metabolism
Social metabolism or socioeconomic metabolism is the set of flows of materials and energy that occur between nature and society, between different societies, and within societies. These human-controlled material and energy flows are a basic featu ...
*
Total economic value
*
Urban metabolism Urban metabolism is a model to facilitate the description and analysis of the flows of the materials and energy within cities, such as undertaken in a material flow analysis of a city. It provides researchers with a metaphorical framework to study ...
References
External links
Green Budget
Environmental economics