From Scientific American
Climatewire | Energy & Sustainability
World Bank Pushes for ‘Green Accounting’ by Nations
Many nations are part of an effort to account for the economic goods provided for free by nature–but not the U.S.
By ClimateWire and Lisa Friedman | April 9, 2012 | 6
NATURAL VALUE: The World Bank is pushing an effort to account for the economic value of natural goods, such as the Great Barrier Reef.Image: Wikimedia Commons/NASA
Botswana’s diamond mining sector accounts for 31 percent of the country’s economic output — and a glistening De Beers five-diamond bracelet sells online for $1,500. But how much does depleting diamond mines cut into Botswana’s overall economic health?
The Philippines’ untapped gold and nickel is valued at nearly $1 trillion, but the mines and refining process needed to tap them will require a great deal of water. If climate change leads to reduced rainfall in the country, how much would be lost by diverting water from agriculture?
And in Australia, the government has found that pesticides used in farming are causing significant damage to the Great Barrier Reef. But how much might that damage affect the tourist economy that thrives around the World Heritage site?
Those countries and a handful of others have been trying to answer precisely those kinds of questions as they develop some of the world’s first “green” accounting systems. Known formally as natural capital accounting, the idea of measuring the economic value of clean water, clean air, forests and ecosystems in addition to traditional measures of the market value of a country’s goods and services has been gaining traction since the 1980s.
In February, the U.N. Statistical Commission adopted a standardized accounting method, which advocates called a major step, essentially helping environmentalists use the same language and tools that finance ministers and economists use to measure strictly in terms of national accounts. Now, with the approach in June of the U.N. Conference on Sustainable Development in Rio de Janeiro, activists hope that green accounting’s time has finally come.
“When it comes to natural capital accounting, we have been talking about it for 30, maybe even more years. This is something it is time to stop talking about and it is time to start implementing,” Rachel Kyte, the World Bank’s vice president for sustainable development, said recently.
The World Bank is pushing for countries at the Rio summit, commonly called Rio+20, to commit to implementing natural accounting systems alongside their gross domestic product measurements. Kyte acknowledged that questions remain about green accounting but said countries can “learn while we’re doing,” and argued that the data gleaned by valuing ecosystems are critical to help governments make more sustainable decisions.
Not all assets are given a value
“The lack of valuation for natural resources in the environment is one of the major reasons for the continuing decline of ecosystems,” said Glenn-Marie Lange, a senior environmental economist at the World Bank who leads a partnership known as WAVES (Wealth Accounting and Valuation of Ecosystem Services) aimed at helping countries develop and implement natural accounting systems.
“For decades, GDP has been growing and growing in many countries, but a large segment of society hasn’t been getting any better off,” said John Talberth, a senior economist at the World Resources Institute. “I think we’ve reached a critical threshold where international consensus said we really need to move in a more deliberate and systematic manner to get better accounts up and running that reflect the true state of the economy.”
Those who are already trying it say natural capital accounting is slow going but they expect it to be rewarding. Australia, for example, already has a program of annual environmental accounts for water, energy, natural resources and timber, as well as subsoil assets like coal. Now it’s starting to look at assets like the Great Barrier Reef to better understand what degradation caused by agriculture or climate change might mean for the country as a whole.
“The Great Barrier Reef is a natural ecosystem and supports a huge tourism industry. But what is the value of the Great Barrier Reef? We’re not really sure,” said Michael Vardon, director of the Australian Bureau of Statistics Centre of Environment and Energy Statistics. Upstream, he noted, farmers are making decisions that are rational for their livelihoods — using pesticides and fertilizer, for example — and it’s clear that those decisions are corroding the world’s largest coral reef system.
Passing Through . . . . 
Accounting for externalities in the production of goods is way overdue. The dogma of economists with regard to the availability of non-renewable natural resources is that they will always be available, and their lack will never crimp the world’s economy, but this depends on four assumptions, of which three concern open markets, and the fourth is that the price of non-renewable resources includes all of their costs, including the external costs (“natural capital costs” in the jargon of this article). Mining engineers and geologists have typically taken the opposite view, that we will eventually run out of many resources.
If the external costs are not accounted for, a resource sells for much less than its true cost, and the tendency is to over use it until either it, or some other resource that is being damaged by its production, becomes scarce, usually suddenly. Thus, the whole basis for the traditional rosy economists’ view of the future is undercut. If external costs are included in the prices of resources, then all resources would cost a lot more (our standard of living would inevitably take a dive if this were done suddenly), and would rise as external effects rose, thus leading to economies in usage, to substition, or to technological changes that ameliorate the problem. Our society would evolve in more sustainable directions and we would eventually be better off.
The big problems, of course, are the facts that (1) no industry or nation has ever paid all of its external costs, and thus generally views them as “the other feller’s problem” (e.g. farm pesticide run off killing larval fish in the Gulf of Mexico) or as a communist plot (see the discussions on the original Scientific American article), (2) even after 30 years we have no good way to place a dollar value on many resources (e.g. the Gt.Barrier Reef), (3) we have no agreed way to charge for external costs (taxes? regulations? cap and trade schemes? direct transfers? (e.g. from Iowa farmers to Louisiana fishermen),
I, personally, have another, ethical problem with putting a dollar value on all external resources. I feel that we have already put a dollar value on too many aspects of our lives, and accounting for externalities will increase that monetization, or de-spiritualisation if you want to call it that, of life.
It seems that to put the physical survival of our civilisation on a firmer footing, we will have to give up many of the non-physical values we hold most dear.
John
I agree that it is long overdue. I first read about this issue in an article from the Journal of Accountancy years ago, but nothing happened. I think clients of auditing firms must have been all over the AICPA about this. So now the driver is the bureaucratic World Bank. Go figure.