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date: 22 February 2018

Environmental Accounting

This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Environmental Science. Please check back later for the full article.

Environmental accounting is an attempt to broaden the scope of the accounting frameworks used to assess economic performance in order to take stock of elements that are not adequately recorded in books. Although national accounting has been the driving force, environmental accounting encompasses all accounting frameworks, including national accounts, financial accounting standards, and accounts established to assess the costs and benefits of plans and projects.

There are several approaches to economic environmental accounting at the national level. One purpose is the calculation of the genuine economic welfare, by taking into account the losses from environmental damages caused by economic activity and the gains from unrecorded services provided by nature. Particular attention is given here to the calculation of a “Green GDP” or “Adjusted National Income” and/or “Genuine Savings,” as well as natural assets value and depletion. A different view considers the damages caused to renewable natural capital and the resulting maintenance and restoration costs. Beside approaches of benefits and costs, more descriptive accounts in physical units are produced with the purpose of assessing resource use efficiency. With regard to natural assets, the focus can be on the ones directly used by the economy, or more broadly on the ecosystem capacity to deliver services, ecosystem resilience, and its possible degradation.

These different approaches are not necessarily contradictory, although controversies are noted in the literature. The discussion focuses on issues such as the legitimacy of combining values obtained with shadow prices (needed to value the elements that are not priced by the market) with the transaction values recorded in the national accounts, the relative importance of accounts in monetary vs. physical units, and ultimately, the goals for environmental accounting. These goals include assessing the sustainability of the economy in terms of conservation (or increase) of the net income flow and total economic wealth (the weak sustainability paradigm) in relation to the sustainability of the ecosystem, which supports livelihoods and well-being in the broader sense (strong sustainability).

In 2012, the UN Statistical Commission adopted an international statistical standard called SEEA-CF (System of Environmental-Economic Accounting Central Framework). The SEEA-CF covers only items that are mature enough to be proposed for implementation by national statistical offices. A second volume on SEEA-Experimental Ecosystem Accounting (EEA) was added in 2013, to supplement the SEEA-CF with a research agenda and the development of tests. Experiments of the SEEA-EEA are developing at the initiative of the World Bank (WAVES), UNEP (VANTAGE, ProEcoServ), or the CBD (SEEA-ENCA-QSP).

Beside the SEEA, and in relation to it, we can mention other environmental accounting frameworks, developed for specific purposes: “material flow accounting” (MFA), which is now a regular framework at the OECD; the IPCC guidelines for UNFCCC reporting; the Ecological Footprint; and the Millennium Ecosystem Assessment of 2005. Environmental accounting is also a subject of interest for business, both as a way to assess impacts, costs, and benefits of projects and to define new accounting standards to assess long-term performance and risks.