Accounting for Renewable and Environmental Resources - Statistical Data Included

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

Production and Income Accounts

A complete set of production accounts would identify all the cross-relationships among industry, household, government, and natural sources of emissions or residuals, as well as the nonmarketed current account input services provided by nature and the productive contribution of nature to final demand. Current-year activities would include production of residuals, just as traditional economic accounts include production accounts. A complete set of accounts would incorporate flows of residuals from abroad, similar to imports of goods and services. It would also be necessary to calculate the "price"--negative or positive--indicating whether the effect was adverse or beneficial. The accounting for current-year activities would include final uses of residuals, identifying effects on final consumption, flows abroad, and contributions to capital stocks, just as traditional accounting frameworks identify final consumption of goods and services, exports, and gross capital accumulation.

Accounting for Capital Assets

It is important to measure the volumes and values of the nation's natural assets for many reasons. One purpose is simply to determine general trends. Another, illustrated in Table 4-1, is to determine the relative magnitudes of different assets. A further reason arises in the context of sustainable economic growth. As discussed in Chapter 2, one can calculate measures of sustainable income if one corrects conventional measures of national income by including the value of the change in the stocks of natural and other assets.

For all of these reasons, we would ideally like to have measures of the value and volume of the nation's natural assets; thus we must include measures not only of "made assets," such as houses and computers, but also renewable resources, such as timber or the fertility of land, and nonrenewable assets, such as oil and mineral resources. It is important to know whether the economy is generating an ever-growing stock of damaging environmental residuals that will pose a large economic burden on future generations. We want to know whether the economic value of investments in tangible, human, and technological capital is more than offsetting whatever depletion of natural assets is occurring.

There is a close connection between the production accounts and the asset accounts (see Chapter 2). As noted above, measures of comprehensive income or of sustainable income include not only current consumption flows, but also the value of the change in the stocks of assets. Hence augmented accounting requires careful and accurate measurement of both assets and consumption flows. Such measurement is currently undertaken within the boundary of the marketplace, but augmented accounting would require extending that boundary for both assets and consumption in a consistent manner. The conceptual basis for asset valuation in environmental accounts parallels closely that in the conventional accounts. Depletion and degradation of natural resources is conceptually similar to depreciation of produced capital assets. Stocks of residuals can decay or dissipate, a process that is again conceptually similar to depreciation of produced assets. Natural growth of biological resources, recharge of groundwater resources, and accumulation of residuals are conceptually similar to gross capital formation or investment. Net accumulation of assets is equal to the value of the change in stocks. Many of the issues involved in constructing chain indexes of values and volumes translate directly into measurement of resource and environmental stocks.