Environmental and Natural Resource Accounting

Environmental and Natural Resource Accounting This unpublished prĂŠcis sheds light on the United Nations System of National Accounts and highlights opportunities for physical accounting and resource management, notably though remote sensing, as well as integrated economic and environmental planning.

Olivier Serrat 15/07/1993

1 Introduction 1.

The major aggregates of national income accounts are compiled in accordance with the United Nations System of National Accounts (SNA). At a time when more and more countries are adopting the policies and institutions of the market economy, and to keep pace with economic, social, financial and other developments, this methodological model has recently been revised (United Nations, 1993).

2.

Under the 1968 version, calculations of gross domestic product, the most commonly used indicator of national economic performance, ignored the degradation of the natural resource base and treated the sale of non-renewable resources as income. From the early 1980s, recognition that pressures for development can result in long-term damage to the environment and the natural resource base underscored the need to define a better measurement of income to guide economic policies and encourage a more sustainable use of natural resources.

3.

The 1993 version, however, does not correct the basic inconsistency in the SNA's treatment of natural resources and still misrepresents the policy choices nations face. This paper identifies the shortcomings of the SNA and, in the absence of an accounting framework that accurately and effectively integrates economic and environmental values, suggests ways to promote environmental and natural resource accounting.

The United Nations System of National Accounts 4.

From the point of view of certain environmental and natural resource issues, the 1968 version of the SNA had several shortcomings. These included: (i) the neglect of natural resource depletion and degradation, which threaten the sustained productivity of the economy; (ii) the limited extent to which environmental quality effects on human health and welfare are accounted for; and (iii) the treatment of defensive expenditures against the unwanted side-effects of production and consumption, e.g., the cost of environment protection activities, as increases in national product.

5.

The revision of the SNA adopted by the United Nations Statistical Commission in February 1993, however, was mandated by the Commission to simplify and clarify the existing system rather than propose radical changes. As an interim measure, a set of environmental satellite accounts was created to accompany the revised SNA. Satellite accounts incorporate the links between economic activity and the use of natural and environmental resources and represent a compromise that does not change the core of the SNA, its production boundary and the relevant time series. Nevertheless, it encourages the collection of relevant information and compilation in the area of natural resources and the environment.

6.

Satellite accounts permit further progress towards the computation of modified macroeconomic aggregates such as an environmentally adjusted net domestic product and an environmentally adjusted net income. Such measures would help to better capture environmental services, account for depreciation of both man-made and natural capital, exclude relevant categories of defensive environmental expenditures and estimate damages as a result of economic activities. To determine how such accounts can be prepared, the United Nations Statistical Office proposes a System of Integrated Environmental and Economic Accounting; it attempts to integrate environmental data sets with existing national accounts information while maintaining SNA concepts and principles to the extent possible. Environmental costs, benefits and natural resource assets, as well as expenditures for environmental protection are presented in flow accounts and balance sheets in a consistent manner and maintain the accounting identities

of the SNA. Other Approaches 7.

At a conceptual level, the need for an accounting framework that integrates man-made and natural capital has met with international agreement. At the practical level, national approaches to the accounting problem are varied and reflect national needs, institutions and culture. Some national approaches advocate environmental and natural resource accounting in physical terms. Others hold that environmental accounting will not have an adequate effect unless natural resource assets are monetized and integrated into the SNA.1 Bank Initiatives 8.

The Asian Development Bank recognizes that monetization, to the extent possible, is important and that a linkage with the SNA and an adjustment of conventional measures of economic activity is urgently needed. Consequently, the Bank supports efforts to promote the implementation of the revised SNA, noting however that more conceptual and empirical work is necessary given the current state of the art. At the same time, the Bank believes that environmental accounting in physical terms is essential to indicate the direction or quality of a resource. In addition, there is scope for greater application of integrated economic and environmental planning.

A.

Physical Accounting and Resource Management

9.

An important characteristic of developing countries is the large amount of economic activity that occurs outside organized markets. Given the poor representativeness of monetary assessments in some of these countries, it may be necessary, at least initially, to concentrate on physical accounting of one or two environmental assets, such as water and natural forests, and explore changes in their quantity and quality, as well as linkages to monetary accounting.

10.

Remote sensing is well adapted to evaluating natural resources. It is relatively inexpensive and allows analysis of a large number of variables simultaneously, furnishing qualitative as well as quantitative information. It enables the rapid processing of large and inaccessible areas and is particularly suitable for repeated use, which is important for taking periodic measurements of differences in the state of the environment. Its application with geographic information systems (GIS) makes it a powerful management tool for resource managers and planners that can be used extensively for natural resource management, e.g., land use planning, forest inventory, mapping, monitoring and management, soil inventories, watershed delimitation and management, surface water detection, geological resource detection and mapping.

B.

Integrated Economic and Environmental Planning

11.

The Bank has been an important force in the promotion of environmental planning as an integral part of economic development planning. Integrated economic and environmental development plans are not simply a compilation of separate economic and environmental plans.

1

The approaches followed reflect several planning concerns and objectives. They are: (i) to diagnose the current or foreseeable state of the environment (Canada, France, and Norway); (ii) to analyze the impact of environmental policies on economic performance and welfare (Japan and the United States); (iii) to assess the value of resources that can be exploited and the conditions of their regeneration (France and Norway); and (iv) to identify possible options among the social, economic and ecological objectives of development with a view to global negotiation (France and the Netherlands).

They must show the linkages between economic development, resource use, production of residuals, impacts on environmental quality and communities. Examples of Bank-supported environmental planning projects, with varying degrees of integration, are the Palawan Integrated Area Development Project in the Philippines, the Han River Basin Environmental Master Plan in the Republic of Korea, and the Songkhla Lake Basin Planning Study in Thailand.

The views expressed in this prĂŠcis are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank, or its Board of Governors or the governments they represent.