green national accounting: goals, methods, and practical ...bdavids/uau101/readings/costanza.pdf ·...
TRANSCRIPT
Green National Accounting: Goals, Methods, and Practical
Solutions
Participants:
Robert Costanza, Max Ag~ler-o. Edward Barbier, Peter Bartelmus, Beatriz Castaneda, Gerardo Castro, Clovis Cavalcanti, Marcel Claude, Herman Daly, John Dixon, Salah El Serafy, Steve Farber, Monica Grasso, Kirk
Hamilton, Roefie H ueting, Mark Kenber, Ernst Lu tz, Manfred Max-Neef, Peter May, Hans Opbchoor, Olga Perez, Charles Perrings, Rodrigo Pizarro
DRAFT as of March 6, 1997
Do not cite or quote
- - , - - - - - - - -
There is fairly broad consensus that the current System of National Accounts
(SNA), used by almost all countries around the world for measuring their economic
performance, needs to be improved. Changes need to be made to account for the nonL
marketed services of the environment and the "natural capital" stocks which produce them,
among a host of other corrections (Bartelmus and van Tongeren 1994, Lutz 1993, van
Dieren 1995. Hamilton and Lutz 1996). But there is much confusion and disagreement
over both the appropriare "green accounting" framework itself and appropriate practical
methods for the valuation of ecosystem services within that framework. Appropriate policy
decisions depend on a clear understanding of the different goals being served by different
accounting frameworks. This paper attempts to clarify some of this c o n f ~ ~ s i o n by
describing the range of goals for green accounting and the corresponding frameworks and
methods which are. most appropriate for each goal.
Income vs. Welfare Fig~ire 1 and Table 1 lay out the range of goals and methods that are important in
green accounting. The fisst important distinction in goals is between economic income,
economic welfare, and human welfare. The first three columns in Table I refer to
econcimic income. W ~ I C ! ~ is a IneilSLlre of the production and use of goods and services.
Variations between ccjlu~nns 1-3 havc to do with how environmental services, natural
capital, and other non-nlnrketed items are dealt with. Figure 1 makes clear that economic
income is senerated fsom the stocl~s of both human-made and natural capital, and that this
income includes both n~al.~l<eted and non-marketed items. Service flows of freely provided
natural capital become i~icorportated into marketed gods and services, hence incomes, even
though the prices of these goods and services may not reflect natural capital scarcities.
But increases in economic income may not correlate with increases in economic
welfare, especially if the income measures do not adequately distinguish costs from
benefits. The fourth column in Table 1 attempts to look at not just how much income is
generated. but also at how much economic welfare is produced. As shown in figure 1,
these measures generally ~~cijust income to better reflect which items in the income measures
are costs and benefi~s. They do this by subtracting costs (such as natural capital depletion
and pollution). imputing values to missing benefits (such as household labor), and
adjusting for income dis~~.ibution effects using indices of income distribution.
L u l l C ; l ~ t ~ M , ~ L ~ I U V C I L ~ I I I J C I I J I ~ ~ I I w c l l c l ~ c , ~ I I I C C I I I ~ ~ I I Y IluIIiiln neeas are not relatea to
consumption of economic products or services. The fifth column looks directly at the
degree to which human needs are being met, the economic production involved being only
one of many possible nleans to that end. These distinctions are further elaborated below.
Measuring Economic Income Witllin the ecollo~nic incolnc goal, one can distinguish three sub-goals: marketed
income, weakly sustainable income, and strongly sustainable income. Column 1 deals
mainly with marketed goods and services and includes measures such as Gross National
Product (GNP) and Gross Domestic Product (GDP). GNP can be measured on either the
output or input side. It is either ( I ) the net flow in money terms from businesses to
households, governrnenl. investment, and the rest of the world, or, (2) the value added by
labor, govcrnment. resources. and profits. The definition of GNP has remained fairly
consistent o\>er the yea1.s and the long historical data record is a large part of its appeal.
GDP is GNP excluding production accomplished with foreign capital.
By subtracting clrpreciation of human-made capital from GNP one arrives at net
g' +'&tional prwluct (NNPI. As shown in Table I . NNP is usually defined by subtracting only 4 @ ;q; - p produced" capital drpl-cciation. If "non-produced"'capital depreciation (i.e. the marketed
, ' , # p1 timber valric of forest loss) is also subtracted then an alternate "environmentally adjusted
cc (-(:\ . version of N N P (1abelt.cl I\I'NP1 in Table 1 ) is produced (el Serafy 1989).
Weak v \ . Strong S~~slainability
Hou one deals with the .ru.stoirzabiliry and .rubstitutubility of natural capital is the
second majol distinction within the economic income measures. Weak sustainability refers d
to maintaince of the total capital stock, which implies a high degree of substitutability k MZS = L between hul-rlan-made :~nd natural capital (Costanza and Daly 1992, Pearce 1993, el Serafy oCrqw 0 j
(~;hhb\'k'P'\/1996). Strong susta~nabllity presumes limited substitutability between human-made and
A,, c/M3t'= natural cap~la l and ~Iier-efore requires the maintaince of both types of capital stock s d 9 605- *Keparately. Strong su51.ninability implies that at least some natural capital is essential and 3sjSt , b r c t m i - 4 cannot be s~~bstituteci for. In Table 1 both versions of sustainability imply (in addition to r? (bc& ( L u n l k t .
the adjustnlents alre~~cly discussed for NNP) a broadening of the basic framework to
include non-marketed soods and services produced by natural capital. Column 2 (weak
s~~stainahil i i~i) i m n l i ~ \ \ i ; l l ~ ~ i n o thpcp <PI.\I;PPC n c v l ~ r n i n m thpxr r o n he r ~ r h r t ; t ~ . t ~ r l h.r h ~ r r n n -
1 / 1 1. *̂ .. ...-- -.-.. -..- - -. .
Accounts (SEEA - 13clstelmus 1994) are both measures which account for weak
sustainability. This implies valuation using the cost to return the natural capital to its
original conclition <tIuc:ing 1989). The Sustainable National Income (SNI - Hueting 1995).
and some \w-sion.; o i the SEEA incorporate this perspective. We will return to these
valuation isqires la~er .
Measuril~g Ecol~omic Welfare Colunln 4 of l'able I moves from the goal of economic income assessment to the
goal of economic well'iire assessment. 'This goal is more complex and requires clearly
distinguishi~lg between costs and benefits - a task which is not always easy. Nordhaus and
Tobin (1972) proc!uced an early version of this kind of indicator in their Measure of
Economic Wclfare (MEW). MEW starts with GNP and makes three types of adjustments:
"Reclassific:~tion of G X P expenditures as consumption, investment, and intermediate;
imputation ('or the sei-v~ces of consumer capital, for leisure, and for the product of
household \rL.ork; correction for some of the disamenities of urbanization" (Nordhaus and
Tobin 1972. 11. 5 ) . S L ) I ~ ; C expenclitures are regrettable necessities rather than contributions
to welfare. MEW sub~l.ircts thc c o s ~ s of commuting to work, police services, sanitation
services. ~ .c , ; r c l main~en;ince, and niilional defense from GNP. All of these costs lead to
increases i l l GNP but 111cy do not Incan t h a ~ more human wants are being satisfied. MEW
then makc:, ; ipprop~ia~c 111lputations for capital services. leisure, and nonmarket work.
Finally, ME\/\/ recogniz~b.; that there are negative "externalities" connected with economic
growth and ! l~at thexe a1.Y [nost appal-cnt in urban life. "Some portion of the higher earnings
of urban rexidents may be simply compensation for the disamenities of urban life and
work. If so we s h o ~ ~ l d not count as a sign of welfare the full increments of NNP that result
from movi~is 3 man fronl farm or small town to city" (Nordhaus and Tobin 1972, p. 13).
But MEW does not include any ad.justments for environmental costs or
distributional effects. Daly and Cobb ( 1989) developed an Index of Sustainable Economic
Welfare (ISEW) which takes the MEW as a starting point, but incorporates the
environmental and disr~.ihutional issues that MEW ignores. To summarize these changes,
ISEW:
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incomc adds more 10 the welfare of LI poor family than a rich one.
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includes 1nol.e th:111 econorinic inco~ilz by adding the other three elements, it is still based on
"means" a>,sessmc;it. Manfred M;i?c-Neef ( 1992) has developed a matrix of human needs
and has begun to ;lcltirehs well-bein; 1'1-om the "ends" perspective by involving people in an
interactive d ~ a l o g ~ ~ c to pel-form a I-1111nan Needs Assessment (HNA). The key idea here is
that huma~is iio n ) I I~a\:r primary nccds for the products of the economy. The economy is
only a means to 1117 enif. The end i., [he satisfaction of primary human needs. Food and
shelter arc ways oi' sa~ibfying the need for subsistence. Insurance systems are ways to
meet the nerd for psotecr ion. Religion is a way to meet the need for identity. And so on.
Mas-Neei' ;nm~~ial-izes as:
"Havins estai>li\heecl ;I diflesence between the concepts of needs and satisf ies it is
possil>le lo s t<~ l e twii liostulate.\;: l'il'st, fundamental human needs are finite. few and
classil'iable; .;ccond. ! 'undamrn~i~l Ii~11n~un needs (such as those contained in the
system ~:i-(>pc:hct.i ~11.c ~ l l e salnc in all cultures and in all historical periods. What
change>. both o\ l i ' l . !lllie and ~Iirc~i~gh cultures, is the way or the means by which the
needs ;IJ .L sat15 i'icd 1 jlp. 199-200 I"
T h ~ h I S a :I:I! cii i I t,rcnt co~li.cplu;~I f~.amework from columns 1-4 of Table 1 . which
assumes ~ l i a ~ I I L I ~ ~ ; : ~ 3c>, 1 1 cs are inl'r n !LC a11cI that, all else being equal, more consumption is
always ber:~.;.. A;\:;~r.iii ny LO this ai rc.snative conceptual framework, we should be directly
measur in~ iiow u c.11 I X I . ~ I L . humall 11icil~ :Ire bcing satisfied since overall human well-being
and consu~ilprior: :ise necessa~.i!)/ correlated and may in fact be going in opposite
directions.
Valuation :,f Ecosystem Services Ah ~ntiica~::ti in 'I":~l>le 1, the appropriate valuation methods for ecosystem services
are directly 1elatt.41 l o illc goals o n e is pursuing and the basic framework of the accounting
system. Colum~i I ~ . e l l e mainly on market values (including some "imputed" market
values. for cuaml>le illc I-cntal vnluc of owner-occupied housing). Columns 2-5 go beyond
market vi~luc> and I - ; I I S ~ . 11i;lny comlilcs non-market valuation issues. The basic framework
of Table I l1e11ss ra so1.t out sollle of ~ h e s e issues. Weak sustainability implies
substitutability be~jveen ~ ~ a t u r a l and human-made capital and thus can rely on fairly well
developed "willingness-[()-pay" baseci methods of non-market valuation.(e.g. Mitchell and
Carson 19XIC). Costa~iza c ~ . al. 1989. Dixon and Hufschmidt 1986, Barde and Pearce 1991,
Aylward ancl Ba[.l~izr 1002, Pearce 1993, Goulder and Kennedy 1996). These largely
include [lie estinla~ion oi (a) PI-e\,entive/mi~igative expenditures for health effects and
changes i n productivity 01' produccd mi rlatural assets (b) hedonic approaches of assessing
propertyllancl value changes due to cilanges in productivity and environmental quality; (c)
travel cos! (~ricrcasi.) due to enviro~imental deterioration and (d) contingent valuation .-
sample sul-veys of pi-ef~.rc~ices for e~i\:ironmental goods and services (Dixon et al. 1994).
Stsong s~rslainabili ty brings up other valuation issues however, and implies
differenr ~al i~ar ion 11~r1io;lh.
Substitutable vs. Essential Sel-vices A 1.;~) distiricli~~i. 11s we li:~\;e already mentioned, is the degree of substitutability of
natural v h . Ii~~rnan-11iacli.c capital. I 1 sonic nalural capital provides essential, irreplaceable
services i l l i i ~ e t 'u i~ct ior~ir :~ of ttie ov~.r.all system, then trade-offs are inappropriate, as is
reliance on hypo~1ictic:il 11:arkets in a:hich to evaluate these trade-offs. In these cases more
"objective" \::iluations ~ . h ; ~ t use ckiniage f~~nct ions to assess the physical damage caused by
offendins ~i<~\ivitich mil). more ~ppropriate. These include direct measurement of the
effects i l l 1 ci:i.)svhtc:ii ,cr vices pr-ocli~ction and the replacement and restoration costs of
maint.ai~~i~i;i rilebe \ ~ I . V I C : ~ . I ~ . FOI. e.xa[nl)le, Figure 3 represents such a damage function,
showing ; L (I;!-eshoid \\.i:cl.e inci-ea:,cd Impact causes rapid loss of ecosystem services.
Under thcic: . I > S L I I ~ I ~ I ~ O ~ ~ S . ,ome L I I . ~ I ! ( : [ h ~ ~ t the value of the service can be roughly estimated
as the c o ~ t i t I i.e~uln I r io :ipproxili~::!:.ly 100%: of ils function. These valuation techniques
make up I.~IL, l1i111, 01' tilt inethocis ; ( ) I - r~on-~na~.ltel valuation that go into the Sustainable
National 11:c.orn~. ; SN I ) !Ileasur.c: : . ~ ~ r r ~ r l l l y being developed by the Dutch Bureau of
Statistics !,I lacling I C)80. i 995).
Dialogue, Consenzsus Building, and Valuation C o i ~ ~ ~ n n s 1 2nd 5 o f Table 1 . which attempt to measure welfare, incorporate all the
previou!, \ ~ ~ ~ l u ~ ~ t i o r : ~ n e ~ h o d s where appropriate, but also need to bring in an element of
dialogue anit conselihu.; I~uilding. The xepnration of benefits from costs and means from
ends thar il1c3c mea\LIrcs I equire 11i\:olves some "arbitrary" elements and cannot adequately
take place wr[liour ,ci~ilc itiscu~sii)r~. The method of "constructed preferences" (Gregory et
al. 1993) i x one esan~ple . where people are not presumed to have well-formed preferences
for many cn\.i~-onnicniaI I'LI nctions ~ 1 1 ~ 1 1 1 . Rather, their preferences must be "constructed" in
an intesacti \ ;: ~sJoI.I<:I.Io~I ii:tting \ ~ , h i i : h exposes them to both scientific information about the
i l l i c l a C L i \ ~ C L O I I > C I I \ L . I . \ I J L I I I C I I I I ~ U I L L I C ~ ~ L I L . ~ IULU.)QU ~ 1 1 1 V V L L U L yb\IyIC. ., LUV Ul.u .." .. .. -.. they are bei~ig Inel.
Practical Limitations, Case Studies, and Uncertainty Sevci-;II coun~~.ies :trountl the world have begun implementation of various versions
of the indiciirors mcntioncd in Table 1 . The ISEW has been calculated for the US, the
UK, thc Nc~11ierlanc.l~. !?ustri;~. Gesniany, and Sweden. The UN's SEEA is being
implemcnrccl in sr\:el.:il iountrics including Mexico, Chile, Papua New Guinea, Japan.
Korea, Ind(.~:lcsia. C'oli~~~il>ia, l'liaila~id. the Philippines, and Costa Rica. In addition to
conceptual Il~clltel..;, p ~ . ~ ~ c : ~ c a l l i~ll i la[ion~ and dala availability limit what can be done. In
Chile, as i l l I ) I lies C O L I I I I irjc'., where t l i ~ S EE.4 is bcing implemented, the program consists of
four coixl?o~-;i~n~s: ! I j cic;~!ion o l ~nan-made ~ ln t l natural capital balance sheets; (2) creation
of matrlcc?; $ . t i c n \ . ~ ~ . o ~ ~ r ; ~ ~ i ~ i a l es~cr'r:.aillrcs of economic activities and mitigation costs; (3)
identificatic t r i ( ~ i ' c l i . i t ~ i I \ .: expend11 LI : .L \ ; and (-4 j economic valuation of natural resources
and the en\,: I :11lnic;.l-1i. 111 I ! : 21 itnpie11 lell[:itic?n Soc~ised on the forestry, mining and fisheries
sectors. 7'11~.,-~~: thl-ce t x i c li-s accounl tor 50% of' total exports, 34% of which are mineral
exports. ~ t r i i i !oger:icr l i l ~ ' \ * . conl~.~bu!e 10%. to total value added (Claude, M & Pizarro. R.
1995). Iniliiii dat;~ rll: the <.hangcs i n the volume of native forest indicate that Chile has lost
between 30(.~.000 ii~!il \)0(;.000 iu. of' narive fosest in the period 1985-1994 due mainly to
the substi!~l: lo~l oi' i ~ l ~ ~ ~ ~ p e ~ i l ' ~ : ~>li~l;tations i)f' pine and eucalyptus for native forest,
clearing l'o~. : , : I - ~ ~ L ~ ~ I L I I . : ; . ii!..l fire\. The n:ilivr fo~.est is expected to be completely depleted in
20-25 ye;ll. I i curl.c.~l [ ! I C I 1 ~ 1 s con[ inue. E\ ,cn this sclatively straightforward physically-based
resource ah:\i..ihnlenr c,;i:~!..;.d sonll. n.-alor shake-ups. largely because it exposed information
about deple!~i)n TJIC' , , 1 ' 1 ;larive I '~)L.CSIS. which wo~lld affect exports of forest products to
developecl i : ~ l l n t l - l ~ ~ ~ . '1 :;z inctic.atori in Table I involve more controversial valuation
ass~~mptio~l . > ~ n d ~~ncev!:~!:i[ies arid will he even mure difficult to implement in the existing
institutioni~l e l tin; ol' ii.l;:ny colulltsleh. What is needed are clear goals at the policy level
taking accolillt of [he cli>!inctio~ls in Ti~ble I , and a much more collaborative approach
which can involvc ~ I I I I I ? C rnm;ljol. ~li l l i~llolder gl.oups in a truly "integrated assessment"
(Costanza ; i r ~ c l Tognrrii 1996). This approach can illuminate and communicate the huge
uncertainties involved. 1.a11ier than ig~iosing them. and ultimately can help to build a broad
consensus ;ri,o~~t llir go;ils ot' grcen accounting, the appropriate data collection and
valua~ion ri~c~l?otls. ;lricl :IIL. pracric.al sreps towal-d implementation.
By ;.il.:xlying rllc l.iillge o l possible goals for green national accounting against the
various f r~ i .~ :~wol . i i> ;Inti valua~ion techniques which have been suggested, we have
hopefully clar.il'ied lli~li:ll the confus~on over these issues. All of the goals listed in Table
1 ace imporr~iiir. b~it O H C l!iLlst be clear about which goal one is pursuing. Economic income
measuses c~un certai:ll! i-)u impl-~\~ecl. and sorne ~11-gue that this should be our first priority.
As one mo\c'\ 10 11lc risl!~ i n 1:ihle I , [he sugsested changes become more controversial
anil ancertalj!. hu: ;~ l \o . Iij:lny M 11~ild 111,gue. IIIOSC relevant. We can make better decisions
about our cui.i.cnt stdru., :,lid ~ L I ~ L I I . ~ directions as a society using the whole array of green
accounting iriciicaroi.~ lih~ccl in Table I i l l an informed and intelligent way, being fully aware
of the range of goals, ~i~c,!hods, :rnd practical solutions. It must also be remembered that
national incornc, ncco~.i~lr;rlg itself is only a static and retrospective picture of where the
economy hax been. 11 :nLl,t be w e d i n conjunction with Inore prospective techniques like
cost benefit iin~llysi5 ai;ll iivnami; n-loileling in order to make intelligent choices about our
conilnon fiit L I I . ~ .
Acknov-ledplzir nts This :,:;ll,rl' ;i ;I !;I ;.luct . . ) I a u ; ~i.l;sIiop Ilcl(i at the World Bank in Washington DC,
Ma1.cl1 20-32. 1990 ' i ' , ~ , . : /ork,~l!op \L :I.. Joirilly \~>olisored by the International Society for
Ecological E ~ ~ i ! i ~ ~ i l ~ ~ i : I ~ I : Inificcl~ol'> ;111d E~i\/il .olli~~ei~al Valuation Unit of the Environment
Del);!rtment . ) ! the 'A'; :! !. . B;lrlI,. 1112 U n i vcrsity of Maryland Institute for Ecological
Econdrnicsl :!\ i th f ~ ~ r ; : l i , l ; ,irppo~.i h-cil;~ [he MacXrthul- Foundation.
h'i,~! keted \\ r,tk Strong t ~ ~ b i 1 1 Sustainability
G o a l I?co~)omic Economic Inc , )me Welfare
Basic Framework
Human Welfare
value of marlie~ed gooti5 and sesviccs psocl~ii.ed and con>;!lncd i n an t.c tinomy
1 + 11011- 2 + preserve value of the ~n;u.kt.~cd essential wefare effects goods we lid natural capital of income and sei.vicc\ other factors C ~ I ~ S L : I ~ I ~ I L I O I I (including
distribution, household work, loss of natural capital etc.)
No n - Gh'? en\ ironmentall \ . (Gri~k ' < L ~ ~ ~ o ~ ~ : ~ l
adjusted P S O C I I I . :
measures GI);' ,Groi . 1 )olnc\lic Prod~i.:: 1
Env~~.onmental!y N N .'I adjusted (Nel ~ . ! i ~ o n : ~ t mellsures Proilt~,: ~nclutl~ng
n o n - ~ I I ~ ~ l u c e i l assel; .
MEW (Measure of Economic Welfare)
S N I ISEW 1 Sc~.sra~nable (Index of Nauonal Income) Sustainable
Economic SEEA welfare) (System of E ~ ~ v ~ r o ~ ~ l n e n t a l Economic Accounts)
assessment of the degree to which human needs are fulfilled
HDI (Human Development Index)
H N A (Human Needs Assessment)
Appropriate Marlier values 1 + 2 + 3 + Valuation M: 111 i n~nes s Replacement Constructed Methods ro Pay Rased Costs,+ Preferences
Values i see Production . > 1 ~iblc. 5 J Values
4 + Consensus Building Dialogue
Erosion control Local flood reduction Regulation of s t re~~~nflows
Cleansing air and w,lter !r:\tlt. off games, cost effective analysis, i~l~!:lzement cost
Species p~.o~cction
Economlc Adjustments Income to Income Account
Economic Welfare Account
>-made ~ i ta l ;ical +
Presumed Correlation
4- - +
L 4
Marketed Income
- - - - -
Non-Marketed Income
Services &
Materials
Figure 1. Distinctions between economic income, economic welfare, and human welfare.
ian)
ural ~ i ta l
dire assess
of the d, to which needs arc
fulfill r - costs of natural capital depletion. pollr~tion, etc.
k dislribution effects
+ imputed values lor household labor, etc.
Hum Welfr
Assess
r
indices of the
net value of economic income
Netherlands
OGNPlodu 0 Ism lmex
Austria
Price (S)
0% I
%Resource Remaining I I
Sustainable standard
AvailabiIity of environmental function
Verlag. New Y ,.!! I \
Lurz. E. (ed). 1993. To\., ;ll-d impro\lc.!l ;~(c:)ilnling for the environment. The World Bank, Washiiigton, DC'.
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