Environmental accounting
A key to sustainable development
Environmentally idyllic Bengal.
THE concept that every nation might acknowledge the economic role of the environment in its income accounts is neither a hasty shift nor a quick practice; it has been under discussion globally since the 1960s. Unfortunately in Bangladesh the contribution of the environmental goods and services in the national economy has been ignored for a long time. In the changing circumstances of global climate it is high time that we wake up and recognize the contribution of the environment to sustain our economy. For a long time, conventional indicators like Gross Domestic Product (GDP), Gross National Product (GNP) and Net Domestic Product (NDP) were used around the world to construct national accounts and as a measure of the economic progress of a country and standard of living. However, these traditional measures of economic activity failed to be responsive because of the fact that economy cannot operate without the support of the natural environment. National accounts allow depreciation allowance for manufactured assets, while the contributions of environmental assets to economy are not valued and hence no depreciation allowance is made for these assets. Thus, in Bangladesh, omission of the degradation and depletion of the country's natural capital will lead to over estimation of the national income figures. Why we will change Governments all over the world develop economic data systems familiar as System of National Accounts (SNA) to calculate macroeconomic indicators like GDP, GNP, savings rates, and trade balance figures, using a framework developed, supported, and disseminated by the United Nations Statistical Division (UNSTAT). The time to reform the SNA has arisen because the accounts as now defined do not include the full economic value of environmental resources or the economic value of natural ecosystem services, which they play in productive economic activity. Some of the elements missing are: Environmental expenditures: Environmental expenditures like the cost of the pollution control equipment purchased by factories, catalytic converters installed in cars, medical expenses for diseases caused by pollution, high-tech treatment of drinking water due to excessive water pollution, cleaning up of rivers etc. are misleadingly reflected in the traditional SNA. These expenditures are already included in the income accounts, along with all other intermediate or final consumption. As a result, the expenditures incurred in restoring the environmental quality are accounted as increases in national income and product, and therefore all expenditures are shown as increases in GDP. Environmental goods and services: The traditional measures of SNA are focused mainly on goods and services that are bought and sold in markets and ignore the non-marketed services provided by nature. The environment provides many goods which are not sold but which are nevertheless of value. For example, fuel wood and building materials consumed by forest dwellers, fish and medicinal plants consumed by the villagers. Similarly, the environment provides many unsold services, such as flood control, protection of soil erosion and watershed by forests, crop fertilization by insects, carbon sequestration and the waste assimilative capacity of the environment, which are not recorded in the national accounts. Exhaustion of natural assets: The SNA conflictingly treats the man-made and natural assets, because national income accounts treat the depreciation of manufactured capital and natural capital differently. Physical capital, a building or a machine, for instance, is depreciated in accordance with conventional business accounting principles to adjust against the income generated by this particular asset. Natural capital is not accounted so rather all the consumption of natural capital is treated as income. Thus the accounts of a country that harvests its forests unsustainably will show high and misleading income for a few years and will not reflect the destruction of the productive forest asset. Again, when forested land use are transferred to non-forested land use, the national accounts record only the expenditure incurred in clear-felling of the forests, and do not account the loss incurred to society as a result of this relocation. Hence, this outmoded system of accounting infers that the environmental assets like air, water etc. may be despoiled due to economic activity, whereas corresponding adjustment need not be made in the accounts resulting in a lessening of social welfare. Further, overlooking the contribution of non-market value of environmental goods and services as well as natural resource depletion will result in twisting the current well-being and distorts the economy's production and substitution possibilities. What other countries are doing Bureaucrats, researchers and other protagonists of some twenty-five countries have commenced and been doing environmental accounting activities over the past few decades. One of the first countries to build environmental accounts is Norway, which began collecting data on energy sources, fisheries, forests, and minerals in the 1970s to address resource scarcity. They use these data as an input into a macro-economic model with which they explore the environmental and economic feasibility of different growth strategies. The Netherlands routinely constructs the "National Accounting Matrix Including Environmental Accounts (NAMEA)”, an extended form of the national accounts input-output matrix, which tracks pollution emissions by economic sector. More recently, a number of resource-dependent developing countries have become interested in measuring depreciation of their natural assets and adjusting their GDPs environmentally. Indonesia was the first country for which forest depletion was calculated and integrated into a "green GDP." Chile's Central Bank undertook a project to develop environmental accounts focusing on the forest and minerals sectors. Costa Rica undertook a forest depletion exercise similar to that of Indonesia. Namibia began work on resource accounts in 1994, addressing such questions as whether the government has been able to capture rents from the minerals and fisheries sectors, how to allocate scarce water supplies, and how rangeland degradation affects the value of livestock. The Philippines has been working on environmental accounts since 1993. Their work applies a method, which treats the environment as a productive sector in the economy, and integrates the valuation of pollution impacts, non-marketed goods and services, and other economic aspects of the environment into the conventional accounts. It is widely accepted that Bangladesh will be the hardest hit of the global warming induced natural resource depletion, but still our policy makers are not aware and active to construct a true natural resource portfolio similar to those developing countries cited here. How we can change A number of ways has been developed, for environmental accounting, which diverges from one another in different aspects, remarkably depending upon the magnitude of the speculation required, the impartiality of the data, the aptitude to associate different kinds of environmental impacts, and the brands of policy drives to which they may be realistic. Here are some of the methods currently in use: Natural resource accounts: We can expand the conventional economic accounts with physical statistics about the natural environment and its status. These basically embrace data on stocks of natural resources and changes in them caused by either natural routes or human use. Such accounts may characteristically cover physical statistics of agricultural land, fisheries, forests, minerals and petroleum, and water. For example the relevant ministry can provide portfolio on physical indicators for forests like the area under dense forests, open forests, volume of stock of timber, area disturbed by fire etc. Such type of information can also be arranged in conventional input-output type of matrices, like the Netherlands has used. Emissions accounting: This system may identify pollutants emitted from different economic sector of Bangladesh. Eurostat, the statistical arm of the European Union, is ministering EU members to put on this approach as part of its environmental accounting program. In case of Bangladesh, data can also be separated by type of emitted pollutants to understand the impact on domestic, trans-border, or global environments. If pollutant emissions are valued in monetary terms, these values can be also be used to determine the economic cost of avoiding environmental degradation, as well as to compare costs and benefits of environmental protection. Disaggregation of conventional national accounts: Sometime data in the conventional accounts are taken apart to detect expenditures specifically related to the environment, such as those acquired to prevent or mitigate harm, to buy and install protection equipment, or to pay for charges and subsidies. Over time, revelation of these data makes it conceivable to observe links between changes in environmental policy and costs of environmental protection. Value of non-marketed environmental goods and services: Non-marketed environmental goods and services, such as the benefits of an unpolluted lake or a scenic panorama, are ignored in the traditional SNA, so they can be incorporated. The value of these items is crucial to assess trade offs between economic and environmental goals. Green GDP: We can go for a green GDP or some other economic index to replace the conventional GDP or NDP. This green GDP can be accomplished by subtracting pollution expenditures from the conventional GDP or adding the factors like negative costs of urbanization etc. We can also provide depletion for natural assets like forests, mineral stocks, fish stocks and soils in order to ensure equal treatment of natural capital in the computation of net income. Concluding remarks Greening the national accounts is necessary specially in the developing countries like Bangladesh both for economic and environmental policy formulation. Bangladesh is centered generally on natural resource based economy and characterized by high population growth and pressure on natural resources. Thus, in Bangladesh, oversight or the missuse and exhaustion of the country's natural capital will lead to extended valuation of the national income figures. This gives a false illusion that our economy is growing when in fact natural wealth the future wealth) is declining. By having some green indicators like environment adjusted domestic product (EDP), green GDP, our policies can be designed to enhance economic growth without extensive depletion of natural resources.
For all latest news, follow The Daily Star's Google News channel.
Comments