Because of the diversity of approaches and controversies about alternative methodologies, however, no international consensus has been reached on the appropriate model for establishing a uniform system of environmental accounts. Therefore, we sum up the total amount of money people and organisations spend in buying things. As is discussed in Chapter 3, for example, the appropriate valuation of depletion of petroleum stocks is the change in the market value of oil in the ground. Likewise, consuming stocks of valuable subsoil assets such as fossil fuels or water or cutting first-growth forests is just as much a drawdown on the national wealth as is consuming aboveground stocks of wheat, cutting commercially managed forests, or driving a truck. One is the exclusion of illegal activities such as drugs, prostitution, and illegal gambling; thus GDP will rise as gambling moves into the legal market sector. Thus, the use of restoration costs as a measure of pollution control benefits (or damages) can lead to a significant overestimate of benefits. One of the most serious weaknesses in the U.S. environmental database is the lack of comprehensive and reliable data on actual human exposures to major pollutants. The recent switch in emphasis from national to domestic product occurred because domestic product is more closely related to domestic output and employment. A final set of scorekeeping measures relates to what is called "sustainable income." Since version IV has received the most international attention, it is the focus of the discussion here. The idea of including natural-resource and environmental assets and services in the economic accounts is part of a movement to develop broader economic indicators. + They also fail to provide business, citizens, and policy makers with the full and accurate assessment of the state of economic activity that is needed for economic policy and rational environmental management. The book recommends how to incorporate environmental and other non-market measures into the nation's income and product accounts. Additionally, when environmental assets have multiple uses, as in the case of forests, the units of the indicators are different (acres, cubic feet, number of species, cords of firewood, and miles of streams). These augmented accounts give a more balanced view of the trends. While scorekeeping indices may tell a business whether it is profitable, details of accounts and budgets are necessary to help the business make better decisions and improve its profitability. There are many examples of the benefits of comprehensive eco-. For a comprehensive review of these analyses, see Eisner (1988). (1997). Work on augmented accounting by official statistical agencies, as well as by individual scholars, has provided estimates for a wide variety of nonmarket activities for experimental augmented national accounts (see Eisner, 1988, for a comprehensive review of augmented accounting). PERSONAL INCOME Therefore C + S = C + I. Moreover, many pollution abatement activities are voluntary and are not in response to policy. Their sum gives an alternative way of calculating the value of final output. Methods of Measuring National Income A. This proposition dates back to Weitzman (1976). The federal government currently makes a substantial investment in collecting, analyzing, and distributing statistical data on the nation's economy. These results emphasize the difficulties of ensuring precision when moving beyond the traditional boundaries of the marketplace. One study has shown that about 20 percent of reported pollution abatement expenditures in the United States did not originate in federal regulatory policy. Version II is a restatement of the expenditure-accounting approaches describing the monetary and physical flows and stocks. accurately (1) if the list of consumption and asset categories is incomplete, (2) if there are technological changes or similar processes that are not captured in investment data, (3) if there are revaluation effects not calculated in the accounts, or (4) if there are market imperfections such as imperfect foresight. In contrast, natural. In addition, extensive work in other areas has been undertaken by private research institutes. For example, the usual approach to aggregating greenhouse gases is to take their contribution to global warming over 100 or 200 years, but not to discount them; this approach is generally flawed and may lead to inappropriate decisions (Reilly and Richards, 1993). Most physical accounting efforts do not embed the information in an. This underestimation is due to expanding the measures of investment to include acquisition of tangible nonhuman capital by households, acquisition or development of land, expenditures for research and development, expenditures for education, opportunity costs of students' time, expenditures for health, and revaluations of existing assets and liabilities. At a more detailed level, the data help businesses track their own sectors and forecast their sales and profits, and are useful for a wide variety of economic activities. Preliminary work on augmented accounting exclusive of the environment indicates that broadening the accounts to include comprehensive consumption and investment could easily double the reported net income and output and might increase reported net investment by a large factor.3 Similarly, as discussed in Chapter 4, corrections for environmental flows, particularly those involving nonmarket impacts on the health and safety of the population, could have major impacts on measured income. Comprehensive approaches are useful supplements to the conventional national accounts in that they can sketch the evolution of broad measures of economic activity. Moreover, they provide rich physical and intuitive measures of environmental impacts. Improved accounting systems for the environment could help refine our estimates and regulatory tools so that our pollution control investments might be more effectively allocated. Of course, national accounting systems are also enormous data systemsbut most of the vast data iceberg is under water, and only the monetary aggregates are visible in the published numbers. From the perspective of environmental accounting, the major point to recognize is that GDP is conceptually defined to include the final output of marketed goods and servicesthat is, goods and services that are bought and sold in market transactions. Other approaches emphasize physical indicators, stressing the development of detailed information on physical flows and human exposures and impacts. ( A comprehensive set of physical and economic accounts would provide the information base needed to estimate the carbon sequestration in forests. The expenditure approach is basically an output accounting method. It was decided at the outset to focus primarily on an accounting framework whose boundary encompassed market transactions. However, because most of the comprehensive approaches to measuring national output and income treat natural-resource and environmental measures in a broad-brush fashion, they do not provide many of the important details about particular sectors, environmental activities and assets, and interactions between the environment and the economy. Such comprehensive accounts need to include natural-resource and environmental accounting. (a) 2 he boundaries of a nation. These adjustments are quite large (about 8 percent of GDP), primarily because of the use of restoration costs to measure environmental damages. WebThe Nature of the Problem The delimitation of economic activitythe separation of those pursuits that represent economic activity from those that constitute the rest of The reductions are to include not only reduced emissions from industrial sources, but also the reductions resulting from carbon sequestration in forests. Countries with a skewed income distribution may have a relatively high per-capita GDP while the majority of its citizens have a relatively low level of income, due to concentration of wealth in the hands of a small fraction of the population. How should our national economic accounts recognize the increasing interest in and importance of the environment? Expenditure Method (Spending Approach) The expenditure method measures GDP as the aggregate of all the final Economists have developed a new view of the role of data collection, in which data are valuable because they allow better decisions to be made by both the public and private sectors. To search the entire text of this book, type in your search term here and press Enter. As envisioned by BEA, the work plan would have three phases: Phase I, which involved establishing the overall framework and developing prototype satellite accounts for subsoil assets such as petroleum, gas, and nonfuel minerals; Phase II, which would extend the accounts to renewable natural-resource assets, such as trees on timberland, fish stocks, and water resources; and Phase III, which would extend the effort to issues associated with a broader range of environmental assets, including the economic value of the degradation of clear air and water and the value of recreational assets such as lakes and national forests. The second major issue is how to measure nonmarket activities. But many other valuable servicessuch as those associated with recreation, drinking water, and waste disposalare not marketed, even though they have significant economic value. Several activities were initiated to support the planned pollution abatement expenditure series. Comparison of GDP from one country to another may be distorted by movements in exchange rates. Suppose that the environment is initially clean and that the market and nonmarket damages from emitting a few grams of dust are very small. Managers and stockholders want to know the unpriced environmental costs of their actions because society may eventually make them pay those costs. This conventional picture omits the much larger intangible and human investments in education, training, research and development, health, and the environment. That is, the value of bottled water is not the average value, but the value of the last unit drunk, which will be significantly lower than the average; the difference between average and marginal value is called consumer surplus. This leads to distortions; for example, a paid nanny's income contributes to GDP, but an unpaid parent's time spent caring for children will not, even though they are both carrying out the same economic activity. The development of improved environmental indicators is an important priority if the United States is to enhance its ability to evaluate and analyze environmental trends and to understand the interaction between the environment and the economy. A useful survey of valuation issues for environmental resources is provided in Smith (1996). It should be emphasized that the definition of sustainability used here is chosen because it is particularly appropriate in the context of designing comprehensive national income accounts. Therefore, it was decided for the 1993 SNA to treat environmental ac-. The principles and practices of environmental and natural-resource accounting are well developed. However, this approach is seldom sensible because the environmental impacts per unit of physical measure differ by orders of magnitude according to the substance and the pathway of human exposure. The slow development of economic measures is due to two major factors. Even though investments in. Or should the accounts extend to all private goods, such as educational investments and the value of visits to Yellowstone National Park? GDP per capita (per person) is often used as a measure of a person's welfare. The federal government today reaps substantial revenues from timber harvesting, mining, and leasing of rangelands. A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income (NNI adjusted for natural resource depletion also called as NNI at factor cost). By neglecting nonmarket assets and services, the SEEA also limits the coverage of household production. Important examples are information on the state of the environment (e.g., ambient pollution levels and forest cover), the status of natural resources (e.g., reserves and resources of petroleum and natural gas), and the impacts of changing environmental conditions on human and ecosystem health (e.g., human exposures to different pollutants or pH levels in lakes). Augmented NDP will fail to measure sustainable income. Over the last quarter-century, official statistical agencies and individual researchers have responded to the deficiencies in current accounting approaches by developing alternative approaches and novel systems of accounts. Two major issues arise in the design of augmented accounts. In addition, it subtracted an estimate of the environmental disamenities associated with urban activities. The principal reason for growing interest in natural-resource and environmental accounting is the belief that improved accounting for the contribution of natural capital will enhance the ability of the conventional accounts to serve both of these functions. This is acceptable to economists, because, like income, the total value of all goods is equal to the total amount of money spent on goods. Sometimes, the aggregation includes hidden economic assumptions. G Criticisms of the CPI revolve primarily around the difficulty of measuring nonmarket services. In particular, BEA added a number of questions on pollution abatement to the November 1973 Plant and Equipment Survey of companies, and in 1974 the Census Bureau began surveying about 19,000 manufacturing establishments with regard to their pollution abatement expenditures. Another area that has been intensively studied is the value of better information about the science and economics of climate change. In response to the congressional mandate, the Commerce Department asked the National Academy of Sciences to undertake a review of environmental accounting, and this report is a response to that request. BEA has studied augmented accounting since the early 1980s. Another potentially valuable application of environmental accounting relates to management of the nation's public lands. Those who originally constructed national income accounts were understandably concerned with obtaining accurate production-based measures of national output and income because much of their work took place in the shadow of the Great Depression. in the SEEA framework, this value comes only from the commercial products of the forest, such as timber, and not from other forest services, such as watershed protection, recreational services, and carbon sequestration. What are the environmental and economic implications of continuing ''business as usual"? For example, better weather forecasting allows farmers to harvest their crops so as to reduce damage from frost. 2 The National Income and Product Accounts: History and Commercial laundry services are reckoned as part of GDP, while parents' laundry services are not; the value of downhill skiing at a ski area is captured by GDP, while the value of cross-country skiing in a national park is not. A great deal of work outside the United States has been devoted to developing physical and monetary accounts for natural resources and the environment (see for example Uno and Bartelmus, 1998). Better information on the value of minerals on federal lands would be useful in determining appropriate royalty rates and leasing policies for resources not allocated through competitive auctions. At that time, BEA was not inclined to develop augmented accounts because it believed that imputations of the volume and values of nonmarket activities would be subjective and based on unproven methodologies and would lead to a deterioration in the accuracy of the national accounts. Should a forest, for example, be measured in terms of its acreage, the volume of its timber, the variety of its biota (as evidenced by the number of available species), the stock of nontimber resources such as firewood and grasses, or the number of miles and acres of fishable waters? There are two fundamental facts that can be concluded with the concept of 5 Clearly, as the United States and other countries grapple with the conflict between their international commitments and the domestic costs of emission reductions, improved information on the economic costs and benefits involved could greatly benefit the analysis. In 1977, BEA established the Nonmarket Economics Division, which consisting of three branchesthe Abatement and Control Expenditures Branch, the Unit Costs and Emissions Branch, and the Measures of Economic Well-Being Branch (Bureau of Economic Analysis, 1987). This is one of the most dramatic examples of the benefits of establishing comprehensive nonmarket physical and economic accounts. Limiting the national accounts to market sectors can produce misleading information on overall economic trends. The intuitive idea behind the desire to broaden the U.S. national accounts is straightforward. As in the United States, these augmented accounts represent an attempt to cast light on the interactions between the economy and the environment. The commission collected a wide variety of studies and investigated whether the CPI accurately measures the trend in the cost of living. In other cases, abatement expenditures overstate true opportunity costs because of the difficulty of separating accounting costs into pollution abatement and other costs. The national accounts have a close relationship with measures of sustainable income, since the usual measure of NDP corresponds to the highest sustainable level of per capita consumption under idealized conditions. Some household productionsuch as the production of nonmarketed firewoodhas both substantial economic value to households and serious environmental consequences due to the pollution from the smoke.
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