Environmental Accounting: Valuing Natural Resources
Environmental accounting
Environmental accounting (also called green accounting) is the process of assigning economic value to natural resources, environmental degradation, and ecosystem services.
Purpose:
- Helps governments, businesses, and policymakers make informed sustainable decisions.
- Highlights the cost of environmental damage and resource depletion in economic planning.
- Supports the idea that economic growth should include environmental impact assessments.
Types of Environmental Accounting
Corporate Environmental Accounting
Companies track their environmental impact (e.g., pollution levels, resource use).
A factory calculates the cost of air and water pollution it generates.
National Environmental Accounting
Countries integrate natural resource depletion into GDP calculations.
The Genuine Progress Indicator (GPI) adjusts GDP by subtracting environmental costs.
Natural Capital Accounting
Evaluates ecosystem services (e.g., clean air, water, biodiversity) as economic assets.
Forests are valued not just for timber, but also for carbon sequestration and oxygen production.
Challenges in Environmental Accounting
Difficulty in Valuing Natural Resources
- Some ecosystem services (e.g., clean air, biodiversity) don’t have clear market prices.
- Stakeholders (governments, corporations, and local communities) disagree on valuation methods.
Lack of Standardized Accounting Methods
- There is no global consensus on how to measure environmental costs accurately.
- Different countries and industries use different frameworks, making comparisons difficult.
Conflicts Between Economic & Environmental Goals
- Short-term economic gains often overshadow long-term sustainability.
- Industries may resist environmental regulations due to cost concerns.
Political & Corporate Resistance
- Some businesses greenwash environmental accounting to appear sustainable without real change.
- Governments may underreport environmental degradation to maintain economic growth figure
Use vs. Non-Use Values in Environmental Economics
Environmental resources and ecosystems can have economic value based on their use (direct or indirect) or non-use (intrinsic, future, or legacy value).
Use Value (Direct or Indirect)
Direct Use Value
Benefits from consuming or extracting resources.
Forests provide timber, fuelwood, and medicinal plants.
Indirect Use Value
Benefits from ecosystem services without directly extracting them.
Wetlands regulate floods and purify water, benefiting communities.
Non-Use Value (Difficult to Measure)
The value of a resource that exists independent of its direct use.
Intrinsic Value
Nature has value regardless of human use.
A rare species has value even if no one interacts with it.
Option Value
The potential future use of a resource.
A rainforest may contain undiscovered medicinal plants.
Bequest Value (Intergenerational Value)
The value of leaving nature intact for future generations.
Protecting national parks for descendants to enjoy.
Measuring Non-Use Value: Willingness to Pay & Compensation
Since non-use value is not tied to direct consumption, economists use survey-based valuation methods:
Contingent Valuation Method (CVM)
- Surveys ask people how much they would pay to protect an environmental resource.
- OR, how much compensation they’d require to accept its loss.
Exxon Valdez Oil Spill (1989)
- One of the worst environmental disasters in U.S. history.
- Polluted 1,300 miles of Alaskan coastline and killed thousands of seabirds and marine animals.
- Non-use value assessment showed that Americans were willing to pay billions to prevent similar disasters.
