Accounting and the environment

One of the most pronounced weaknesses identified with the current economic system worldwide has been the lack of measuring or attempting to measure, the externalities of environmental assets required for the production of goods and services. Two newer schools of thought in the economics profession which have evolved, now attempt to address this situation - environmental economics and ecological economics specifically are concerned with including these 'externalities' vis the environmental goods and services (rivers and water, forests, arrable land, and other natural resources) on which we all depend.

Without these externalities, the economics system would collapse and yet, until recent years, Neoclassical, Keynesian and later schools never included these finite resources in their models, so the environment was left to be plundered and exhausted with little recognition of its actual true worth (known in environmental circles as the 'Tragedy of the Commons'). But change has come with the United Nations and some Member States, including the European Union, adopting the 'System of Environmental-Economic Accounts (SEEA). This has occured only this year and Australia has followed suit. SEEA has four types of accounts in its framework and in summary these are:

Physical flow accounts record flows of natural inputs from the environment to the economy, flows of products within the economy and flows of residuals generated by the economy. These flows include water and energy used in production (e.g. of agricultural commodities) and waste flows to the environment (e.g. solid waste to landfill).

Functional accounts for environmental transactions record the many transactions between different economic units (i.e. industries, households, governments) that concern the environment. The relevant transactions are identified by first defining the set of environmental activities - i.e. those activities that reduce or eliminate pressures on the environment and that aim to make more efficient use of natural resources. Examples include investing in technologies designed to prevent or reduce pollution, restoring the environment after it has been polluted, recycling, conservation and resource management. Environmental activities are classified as being either environmental protection activities or resource management activities.

Asset accounts in physical and monetary terms measure the natural resources available and changes in the amount available. Asset accounts focus on the key individual components of the environment: mineral and energy resources; timber resources; fish/aquatic resources; other biological resources; soil resources; water resources; and land. They include measures of the stock of each environmental asset at the beginning and end of an accounting period and record the various changes in the stock due to extraction, natural growth, discovery, catastrophic loss or other reasons.

Ecosystem accounts are a developing area and not yet part of the international statistical standard. Ecosystems are areas containing a dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit. Ecosystem accounts are structured to summarise information about these areas, their changing capacity to operate as a functional unit and their delivery of benefits to humanity.

The benefits received by humanity are known as ecosystem services. They are delivered in different forms and are grouped into three broad categories. The first category of ecosystem services is provisioning services. These are the benefits received from the natural inputs provided by the environment such as water, timber, fish and energy resources. The second category is regulatory services. These include the benefits provided when an ecosystem operates as a sink for emissions and other residuals, when an ecosystem provides flood mitigation services or when an ecosystem provides pollination services to agriculture. The third category is cultural services. These are the benefits provided when an ecosystem such as a forest, provides recreational, spiritual or other benefits to people.

These measures are long overdue but whether Governments and private industry take heed and utilise the data produced is another question.