Environmental accounting is the attempt to assign economic value to natural resources and their depletion, so environmental gains and losses enter economic decision-making. Resources may be valued through markets, ecosystem services, replacement costs, use values, and non-use values. However, money cannot capture every ecological or ethical value.
The Reasoning and Mechanism
Conventional economic accounts, including gross domestic product (GDP), record market production but may overlook changes in natural capital, the stock of natural resources available on Earth. Logging raises GDP through timber sales, but may also reduce carbon storage, habitats, soil protection, and water regulation without subtracting those environmental losses.
Environmental accounting records benefits from natural capital alongside depletion or degradation. It can therefore show that short-term income reduces long-term natural income, meaning the goods and services generated by natural capital. This evidence can support decisions about conservation, taxation, compensation, and investment.
| Value or method | What it measures | Example |
|---|---|---|
| Market value | Market price | Commercial timber sales |
| Direct use value | Direct benefit | Food or recreation |
| Indirect use value | Ecosystem service | Natural flood control |
| Replacement cost | Replacement expense | Artificial flood barriers |
| Non-use value | Value without use | Continued species existence |
Costa Rica's Payments for Environmental Services programme illustrates valuation in practice. Landowners receive payments for carbon sequestration, biodiversity protection, water regulation, and scenic beauty provided by forests.
A key misconception is that a resource's economic price equals its total value. It does not: intrinsic value, cultural significance, uncertainty, unequal access, and the interests of future generations may be excluded. Valuation also raises environmental justice questions about who receives benefits and who bears costs.
Exam Technique
This is HL-only content from HL.b Environmental economics. For an evaluate question, explain the decision-making benefits, balance them against measurement and ethical limitations, and reach a supported conclusion using a named example such as Costa Rica.
