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Natural resources have been considered priceless, they were and are being sacrificed, and not conserved, as the example of transport shows. Since the oil crisis, the price of oil has not followed the price index, on the contrary. Had it done so, then a barrel of oil would not cost some 170 US dollars. Other resources and commodities have been dropping in price continuously since 1973 as well, making the resources delivering Third World ever poorer (the total debt now being 1650 billion US dollars), and sacrificing this world to an ever increasing exploitation.
According to UN Secretariat data, the US dollar combined price index of non-fuel primary commodities exported by developing countries has fallen from 171 in 1980 to 100 in the index's base year 1985 to 114 in 1992. In the same three reference years,. the price index of manufactures exported by developed market economies had moved from 116 to 100 and then risen to 164. As a result of these movements (the fall in commodity prices and the rise in prices of manufactures), the terms of trade of commodities vis-à-vis manufactures (or the real prices of commodities) had declined very substantially from 147 in 1980 to 100 in 1985 to 80 in 1990 and further to 71 in 1992.
These figures are so alarming that it would be difficult to exaggerate the sharpness of the decline and the seriousness of the losses for the South. Between 1980 and 1992, nonfuel commodity prices had fallen on average by 52 per cent. In other words, on average, whilst in 1980, 100 units of a Southern country commodity export could buy 100 units of manufactured product imported from the North, the same 100 units of commodity export could only pay for 48 units of the same imported manufactured product in 1992. There is thus a loss of real income amounting to 52 units of imports for every 100 units of exports, so a great loss of real economic resources for the South.
The UNCED's Agenda 21 agrees to slow down resource depletion and to do so by global economic instruments coupled with lower consumption in the rich North. However, the Western economy is becoming ever more wasteful. The amount of 'energy and environmental volume per unit food in the North is doubling every nine years, a dangerous development no-one seems to care about: The protagonists of the free market should explain what kind of sustainable income is to be derived from a trade which brings Uganda coffee to Côte d'lvoire and Ivorian coffee to Uganda, or what the benefit is of transporting dairy milk from Europe to African countries specialized in livestock, from Côte d'lvoire to Mali, from Sudan to Ethiopia, why Cameroon alumina should be transformed into aluminium in Guinea - the price of all this being unemployed citizens, thousands of deserted villages in the less "endowed" part of African countries, dying forests, drought, desertification, inundations, destroyed infrastructure, cracking buildings, and in the end, climate. change.
The causes of this non-system are the idea that exports are, by definition, good, the conviction that the GDP economy is a goal in itself, the fact that transport is too cheap, because energy is priced too low, and that the destroyed goods, including the environment, have no price at all, and - in the end - that political decisions stretching over more than a few years are rare because of the "carpediem" behaviour of politicians.
What has emerged from this, as the driving force, is a new trend, which can be called "profitonomics", instead of "economics": money flowing to the margins of the globe, where the quick buck is.
In order to understand the paradoxes of growth and trade, and to correct the GDP for environmental losses and related decline, economists Herman Daly and John Cobb developed the Index of Sustainable Economic Welfare (ISEW, 1989), now favourably called the Genuine Progress Indicator (GPI). They followed earlier efforts of among others Nordhaus and Tobin (1972) who researched the relationship between added (production) value and the creation of wealth and welfare. In the ISEW, this creation is central to the economy. The indicators of Daly and Cobb are household labour, government spending such as education, services from household and government capital, loss of leisure time, costs of underemployment, costs of commuting, costs of car accidents, costs of air, water and noise pollution, loss of wetlands, farmland and forest, depletion of non-renewable resources, long term environmental damage, cost of ozone depletion, net capital investment, net foreign lending or borrowing. They are being weighted against their potential contribution to income generation or loss of income. Consumption, employment, disposable income, leisure, all add to welfare obviously, but involuntary leisure does not, and neither does an increase in unequal income distribution or a decrease in environmental quality or health. Totalling the various indicators and their behaviour, an ISEW on an economy's achievement can be made up. In spite of the methodological weaknesses inherently belonging to such science development, the Index is giving illuminating and shocking new insights and could be adapted to the case of any African country or subregion.
First ISEWs have teen made for the US, the UK, Germany, Denmark, the Netherlands and Austria. They all point at a similar pattern: indeed, production growth has created a parallel increase in wealth and welfare between 1950 and 1975, but thereafter, the relationship lines begin either to level off or to decline. In some cases this divergence is a function of growing differences in income distribution, coupled with rising unemployment and environmental deterioration. In other cases, the phenomenon is due to other emphasis, such as drawbacks in education, social care, coupled with unemployment and environmental collapse. The overall conclusion is dramatic: since the mid-seventies, in these countries, things are getting worse. The old economic model is no longer working. We have perhaps assumed it, but the statistics of growth, such as the GDP, did not tell us the right story. The Delors Whitebook in its Chapter 10 is therefore asking the right question.
National income measurements straddle the disciplines of economics and accounting. In the current critical phase of reviewing the methods used for national income accounting, experts are bringing to the discussion the perspectives of their differing specializations, and there is much confusion in what is being written about the subject. In time, such confusion is bound to recede in the light of debate and informed discussion. It is worth stressing, however, that-accountants and economists normally have different perspectives, with economists tending to be forward looking, and inclined to view resources as a medium for optimization of decisions. They concern themselves with such aspects as pricing, market forms, as well as with ideal rates of resource depletion. Accountants, on the other hand, hardly ever look forward. They are in effect economic historians, seeking to describe, in accounting language, what had taken place in a period that has already ended. Keeping capital intact has remained a pillar of accounting methods since the profession was born. Capital and its depreciation are not easily measured, and have presented the accountants with problems of estimation no less formidable than those that have confronted the economists. This is because the life of capital, by definition, extends well beyond one accounting period, and the accountant is forced to look forward to ascertain how long a piece of capital will last. More so than the economist who, with the help of assumptions, is able to build airtight compartments within which relevant analyses can be conducted, the accountant has to produce rough and ready answers that must serve the practical purpose of guarding against capital consumption. Capital, after all, is needed for the sustainability of future income, and where there is doubt, the accountant would rather err on the side of caution, under-estimating income rather than exaggerating it. In doing this, the accountant plays an invaluable role as a guardian of sustainability.
Politicians, advisors, and ecologically conscious scientists that work for. an environment-oriented change in economic policy need a measure of economic production/growth that is deflated by natural resources and environmental costs (degradation) induced by production/growth.
This task is politically (and scientifically, too) so important that we have to accept imperfect solutions. We have to teach the public that the currently prevailing production, income and growth concepts and calculations are only seemingly objective, seemingly valid and seemingly "modern". They profit from the fact that the produced goods and services are valued with market prices which seems to be self-evident. But the market prices of today are determined really without the external environmental costs of production and consumption and are therefore increasingly distant from the economic-ecological "truth".
The assumptions behind the calculation of an economic production/growth figure are "conventions". Their character as conventions will be more evident in the future because a calculation of an environmentally adjusted national product figure lacks the self-evidence of the current accounting systems based on market prices. But this change corresponds with the increase of complexity in the economic discourse in the era of environmental scarcity. The collective/public value of economic (private/micro-economic/firm) activities depends from the environmental requirements and environmental effects of that activities. The societal uncertainties implied with this new phenomenon cannot be overcome by monetarizing the environmental losses by a seemingly correct valuation method.
An environmentally adjusted national income (net national product) means that it will be adjusted by environmental costs of production and income spending which are not being counted for till now. The criterion for calculating annual net national income "Keep Capital Intact" has to be enlarged by an additional capital dimension "scarce environmental potentials/assets". This enlarged cost accounting of the annual production/income returns is an important step to a timely welfare interpretation of the current environmentally deteriorating production/consumption style. But its construction is not intended as the comprehensive economic welfare measure in the tradition of the "Net National Welfare" - line of thought.
The revision of the System of National Accounts (SNA, United Nations, 1994) afforded a unique opportunity to examine how the various concepts, definition's, classifications and tabulations of environmental and natural resource accounting can be linked to the SNA. Such linkage was originally proposed in a framework for a SNA satellite system of integrated environmental and economic accounting. Considering the knowledge currently available on environmental accounting and the divergent views on a number of conceptual and practical issues, it was not possible to reach an international consensus at that time for a fundamental change in the SNA. Nevertheless, there was agreement that the SNA should address the issue of its links to environmental concerns. Therefore, the 1993 SNA devotes a separate section (Chapter XXI, section D) to integrated environmental-economic satellite accounts and introduces refinements into the cost, capital and valuation concepts of the central framework that deal with natural assets. This will also facilitate using the SNA at a point of departure in the development of environmental accounts.
The satellite approach to environmental accounting expands the analytical capacity of national accounts without overburdening the central framework of the SNA. The Statistical Commission, as indicated in its report on its twenty-sixth session (United Nations, 1991), endorsed the satellite approach and requested that the concepts and methods of integrated economic and environmental accounting be developed by means of satellite accounts. This approach was confirmed by the United Nations Conference on Environment and Development (UNCED), which recommended in Agenda 21 that systems of integrated environmental accounting, to be established in all member States at the earliest date, should be seen as a complement to, rather than a substitute for, traditional national accounting practices for the foreseeable future (United Nations, 1992, resolution 1, annex 11, pare. 8.42).
As a conceptual basis for implementing an SNA (satellite) System for integrated Environmental and Economic Accounting (SEEA), a handbook of national accounting was published by the United Nations (United Nations, 1993). The Handbook states that:
"It is not the aim of this handbook to present just another approach to environmental accounting; rather, it reflects as far as possible the different concepts and methodologies that have been discussed and applied in the past few years. The main task of the handbook is to effect a synthesis of the approaches of the different schools of thought in the fields of natural resource and environmental accounting. A thorough analysis of those approaches indicates that they are often complementary rather than mutually exclusive. This is true not only with regard to physical and monetary accounting but also with respect to valuing the economic use of the natural environment. Different analytical aims imply different valuating methods. The absence of a general approach seems to be due more to missing linkages among the different approaches than to the existence of contradictory concepts. The handbook therefore does not intend to replace existing cats systems like the natural resource accounts for the System of National Accounts {SNA), but rather to incorporate their elements as far as possible in order to establish a comprehensive data system. "
There has already been a long and partly hot debate on how national accounting should be extended towards environmental accounting.
Recently, the UN Handbook on Integrated Economic and Environmental Accounting has been published, which provides guidelines for a general framework for environmental accounting for national statistical offices.
In recent years, many national statistical offices have also gained experience with environmental accounting, mainly regarding the systematic recording and linking of physical data on the stocks and flows of natural resources and emissions to air, water and soil to monetary data of economic activity on a sectoral and national level as recorded in the System of National Accounts. Environmental accounting in physical units provides important information on the use of natural resources and the pressure on and the state of the environment.
However, physical environmental accounting as such does not enable policy makers to make a trade off between economic and environmental gains and losses and obviously does not solve the fundamental flaws in the calculation of GDP. The UN Handbook on Integrated Economic and Environmental Accounting acknowledges this. As a consequence, it states that physical data are needed to describe the state of the environment and to provide a solid basis for any attempt to value the changes of natural assets in monetary units. The central question is: How to value the observed and recorded changes?
A lot of work has been done in order to develop methodologies to value natural resources and the environment in monetary terms. Most academic textbooks on environmental economics contain a description of well-known valuation methodologies like the Contingent Valuation Method, hedonic pricing and the travel-cost method.
These valuation methods provide insights which can be used for environmental decision making, but mainly in rather specific situations. Case studies are carried out to estimate the recreational value of lakes, forests or the property value of houses, building and land. The described methods are object-, project- or micro-oriented. Another important feature is the focus on the revealed preferences of people. This can be an advantage in the sense that it is a more or less democratic approach. The direct involvement of people can also be a disadvantage for reasons like the ones mentioned earlier (limited knowledge and the introduction of bias).
From the above it is easy to understand that these valuation methodologies can hardly be applied in the context of the environmental adjustment of GDP and the system of National Accounts (SNA), which is sectoral and macro-oriented. The estimation of value changes in the quality and quantity of natural assets requires another, meso- and macro-oriented type of valuation methodology.
Different ways of valuing the natural resources and environmental degradation costs of economic activities have been suggested. There are two approaches which differ fundamentally:
In this case, the imputed environmental costs borne by enterprises, the government and households are estimated and deducted from the net value added of the economic units affected by environmental deterioration. Only the deterioration of the domestic natural environment is taken into account.
In this second case, the imputed environmental costs caused by economic activities are deducted from the net value added of the economic units responsible. The impacts on nature abroad are also recorded as far as they are caused by domestic economic activities. Thus, valuation refers only to domestic welfare in the first case, whereas, in the second case, the leading valuation principle is oriented towards responsibility for all countries.
The concept of environmental costs caused is based on the principle of responsibility for the long-term development of our continent. This attitude recognizes the same rights for ail African living beings irrespective of whether they live in their countries or abroad, and is based on the ethical postulate that we should act in a way that does not adversely affect other African living beings now and in the future. This principle represents a strong sustainability concept: Our economic activities should be limited to those which will not entail a decrease in the natural capital. This concept allows the substitution of a type of natural capital for another but no replacing of natural by man-made capital.
It seems to be more and more difficult to link the two types of environmental costs. Only if economic activities cause environmental deterioration in the same country as well as in the same time-period are such linkages possible at all. It is typical of most of the environmental impacts of economic activities that they cause long-term and international problems. The traditional cost-benefit analysis which refers to such linkages is nowadays increasingly restricted to specific regional environmental problems (e.g. noise, changes of land use). In the SEEA, no attempt is made to link the approaches of environmental costs borne and environmental costs caused. The optimistic attempt to compare benefits and costs of economic activities in a specific country and specific time-period seems to have been abandoned after observing the long-term and global problems of environmental deterioration caused by economic activities.
It seems to be very important that the environmental impacts of international trade are also taken into account in calculating the eco domestic products of the importing and exporting countries. It is said that the importing country has to bear responsibility for the environmental deterioration caused by the production of the imported goods in the delivering (exporting) country. A rich country could "export" its environmental problems by importing all goods whose production causes environmental problems. In a similar way, a rich country could export its dangerous wastes in order to store them in poorer countries.
One could also state with confidence that, for the North-South poverty gap, a related conclusion can be drawn. The concept of development by following the Northern model is probably a wrong one. It may well be true that most of the developing countries do not develop, but follow a path of decline altogether. Presently, the Southern debt of 1650 billion US dollars cannot be reimbursed, only there is an effort to pay interest over interest rates, generally by the export of low priced commodities and natural resources. Even the Asian Tigers, the so-called successful economies of Indonesia, Malaysia, Singapore, Thailand and Taiwan, South Korea, Hong Kong, would probably score badly in an Index of Sustainable Economic Welfare (ISEW) effort. World trade with footloose industries, absent social contracts and failing international treaties is a cruel game. One has to put hope on the recent Uruguay Round Agreement and the newly established World Trade Organization (WTO ) .
As already stated, the concept of environmental costs caused by economic activities is based on the principle of strong sustainability. Our economic activities should be limited to those which will not entail a decrease in the natural capital. The suitable valuation concept for such an attitude is the avoidance (prevention) cost approach. We measure the decrease in the level of economic activities by the additional cost necessary for achieving sustainable development and interpret this decrease as the value of the natural environment which reduces the net domestic product.
The strategies to avoid negative environmental impacts of economic activities differ with regard to the types of economic use of the nature/ environment:
It should be stressed that the necessary prevention costs are only calculated for the impacts of domestic economic activities of the reporting period. Thus, prevention costs comprise the costs of activities which prevent at least further negative impacts of present activities (in the own country or abroad). It could happen that the environmental quality would decrease even if no additional negative effects of present activities were added. In this case, the negative development of the natural environment in the reporting period was already recorded in the past by calculating prevention costs for the economic activities of previous periods.
The calculation of avoidance (prevention) costs is only possible on the basis of modelling. In the process of thinking about alternative and more sustainable ways of economic performance, the comparison between the actual and the desirable development can only be a hypothetical one. The necessary modelling work can be more micro- or more macro-oriented.
In the first case, each economic activity is studied with regard to its environmental impacts. In a second step, alternatives are developed which avoid possible negative environmental effects of the actual activities. The difference between the net value added of the two types of activities is treated as (imputed) environmental costs. By adding the differences of all economic activities studied we obtain the total of environmental costs which is subtracted form the net domestic product. The main problem of this approach consists in the dependencies between the economic activities and their impacts on the natural environment which allow only a restricted additivity of the environmental costs calculated at the micro-level.
An alternative way of calculating avoidance costs is to introduce limits (standards) of environmental effects of economic activities first and to calculate in a macroeconomic model a sustainable level of economic activities (especially of final consumption of products). The difference between the actual net domestic product and the hypothetical net domestic product could be interpreted as the necessary environmental costs. In this case, the eco domestic product would be the net domestic product of the hypothetical economy without negative impacts on the natural environment.
A crucial point of all estimates of avoidance (prevention) costs is the determination of the level of economic activities whose effects on the natural environment could be assimilated by the nature without long-term negative impacts. This determination is especially difficult because we have to take into account effects which could be both long-term and widespread. If knowledge about these effects is limited a risk-averse attitude should be applied. Furthermore, setting sustainability standards also means solving distribution problems. If, for example, global limits for producing carbon dioxide have been set, it will have to be decided which proportion of the globally allowed pollution of carbon dioxide is accepted for the individual countries. Theoretically, the principle that pollution per head should be equal worldwide, seems to be acceptable. If especially developing countries accept a lower level of pollution they should receive a compensation from the (normally richer) countries whose pollution per head exceeds the average.
The strategies to avoid negative environmental impacts of economic activities differ with regard to the types of economic use of the natural environment:
Modelling connected with the avoidance cost approach implies a variety of assumptions which do not fit into the traditional national accounting system. It exceeds the traditional scope of work of statistical offices. This fact should not be interpreted as a disadvantage of this method. Urgent environmental problems necessitate a close cooperation between statisticians and model builders. Improved knowledge in environmental analyses can only be achieved if specialization is given up and interfaces of different disciplines are defined.
The different types of economic use of the environment can be specified in terms of environmental problems. Based on these specific environmental problems a so-called elimination cost curve can be constructed. All these aspects are only summarized here to show the importance of accounting for natural resources and environmental degradation in building National Accounting.