Accounting for Renewable and Environmental Resources - Statistical Data Included

Survey of Current Business, March, 2000 by William D. Nordhaus, Edward C. Kokkenlenberg

[Figure 4-1 ILLUSTRATION OMITTED]

Whether from natural sources or human activities, environmental variables can affect economic well-being in three general ways, as illustrated in Figure 4-1: (1) direct effects on consumption or income of households, industry, and government; (2) accumulation in the environment of stocks of residuals that then affect economic activities or economic assets; and (3) effects on the service flows of economic assets (capital stock, natural resources, or human resources), such as recreation, clean air to breathe, and navigable river channels free of sedimentary deposits.

Direct Effects

Environmental variables affect human and natural systems directly. Urban smog, whose concentrations change daily or even hourly, is an obvious example. Sulfate and nitrate aerosols, pollutants contributing to acid precipitation, remain in the atmosphere for a matter of days. These pollutants have short-term health effects, reduce visibility, interfere with recreational activities, affect crop growth, and present their own set of problems for accounting. In many cases, the substances emitted are precursor emissions; that is, they react chemically in the atmosphere with other substances to form the substance that is ultimately damaging to humans or ecosystems. There are also complex nonlinearities because the formation of the damaging substance depends on the level of precursor emissions, weather conditions, and the presence of other substances with which the precursor emissions react. All of these processes vary on an hourly, daily, and seasonal basis. Emissions, concentrations, and impacts of damaging substances also vary spatially, and there may be important threshold effects as well. Above all, there is the "weed syndrome"--the fact that the same substance may be beneficial or harmful depending on where it is, how much of it there is, the time and duration of exposure, and what organism is absorbing it. Virtually every substance on earth, from water to plutonium, can be an economic good or an economic weed depending on the circumstances.

One of the most important difficulties is that the physical measurements used are often inaccurate indicators of actual human exposures. Average emissions of the precursor pollutant, average concentrations over the year, or concentration data for limited sites are generally not representative of concentrations to which the population is exposed and may be a misleading basis for developing damage estimates. For example, tropospheric ozone forms mainly in warm weather. Thus total annual hydrocarbon emissions, the precursor to tropospheric ozone, are a poor indicator of potential levels of tropospheric ozone. Tropospheric ozone levels also vary significantly over the distance of a few city blocks. One of the major challenges both for better environmental policy and for the construction of environmental accounts is to obtain better measures of direct human exposure to the important harmful substances among a representative sample of people.