1. Inter-Regional GROW Conference: Bologna, 20th June, 2007
Bridging Economy and Environment: Use of Environmental Accounting in Local & Regional contexts
Alistair Hunt
University of Bath, UK
Inter-Regional GROW Conference: Bologna, 20th June, 2007

2. EU Policy Context Lisbon (economic and social)
Gothenburg (environment)
Climate change 
Sustainable transport 
Public health
Resource management
Green accounting links economic and environmental objectives

3. Overview of Presentation
Green (environmental) accounting
Rationale
Elements of Green Accounting: Theoretical & conceptual basis
Empirical progress in different contexts
Conclusions for research and practical applications.

4. Rationale for conventional accounting
Measurement of economic activity - production = GDP
Often used as indicator of welfare
Two elements of accounts
Changes in Stocks of Capital - Investment
Measurement of production/output – Flows - Consumption

5. Standard National Accounts (SNA) framework
NNP = C + I – D + X – M
Where:
NNP = Net National Product
C = Consumption
I = Investment
D = Depreciation
X = Exports
M = Imports
Misleadingly used as measure of welfare: welfare not proportionate to consumption of produced goods

6. Green accounting – rationale
“The effect of mankind’s activity upon the environment has been an important policy issue throughout the last part of the twentieth century….
increasing recognition that continuing economic growth and human welfare are dependent upon the services provided by the environment”
Source: The United Nations Handbook of National Accounting - Integrated Environmental and Economic Accounting
Economic – Environmental linkages have implications for meso- and macro-economic management
Meso/macro-economic management more responsive to environment if environmental indicators exist
(raw materials and energy used to produce goods and services, the absorption of waste from human activities, basic roles in life support and provision of other amenities such as landscape.”

7. Economic activity and environmental impact

8. Elements of Green Accounting - Outline
Environmental services
Ecosystem life support systems
Landscape
Environmental damages
Pollution flows e.g air & water quality
Defensive (environmental protection) expenditures
e.g. noise reducing windows & IPPC technologies
Resource depletion
Non-renewables; renewables

9. Weak and Strong Sustainability
Different types of capital:
Manmade capital - K
Human Capital (Intellectual capital) - H
Social capital - SC
Natural capital - N
Stocks of natural resources including oil, gas forests and fisheries
The earth’s life-support system

10. Weak and Strong Sustainability
Weak sustainability: The sum of the values of changes in capital stocks must be positive. E.g. the Hartwick rule
Strong sustainability: Each type of capital stock must be maintained in its own right.

11. Empirical progress in Environmental Accounting in different contexts – some evidence

12. UN initiative on Green Accounting – UNSEEA (1993, 2000, 2003)
System of integrated Environmental and Economic Accounting (SEEA) – complements SNA method for measuring economic activity
Adds environmental information to existing Input-Output economic data
Physical stock and flow tables
Hybrid (physical & monetary) stock and flow tables
Methodological guidance on resource depletion, degradation, defensive expenditures

13. Physical & monetary stock and flow tables
Often known as NAMEAs (National Accounting Matrix including Environmental Accounts).
Physical flow accounts include four types of flow:
products (produced in the economic sphere and used within it),
natural resources (mineral, energy, biological),
ecosystem inputs (air and water) and
residuals (solid, effluent, emissions).
Each of these accounts is expressed in terms of supply to, and use by, the economy.
i.e. tables represent the flows between the economy and the environment.

14. Simple hybrid supply and use table – Use in RAMEA/NAMEA

15. An indicator of weak sustainability: genuine savings
Genuine Savings = monetary savings less the depreciation on manmade capital less the depletion of natural capital. (From S = Iv identity)
Value of changes in economy’s overall capital stocks.
Negative genuine saving corresponds to unsustainability, since if depleting capital stock, can receive lower welfare from it in future
Genuine Savings rates low or negative for Sub-Saharan Africa and for Middle East and North Africa.
Assumes all capital is substitutable

16. Genuine savings for Tunisia, as % of GDP

17. The Index of Sustainable Economic Welfare (ISEW)
ISEW (Daly and Cobb (1989))
current welfare should be measured as the current flow of services from all sources, rather than current output of marketed goods
E.g.
value for leisure time to correct for the fact that welfare could increase while NNP decreases if people choose to work less;
higher incomes of urban residents are compensation for externalities connected with urbanisation and congestion,  proportion of income should not be included as welfare

18. The Index of Sustainable Economic Welfare (ISEW)
Consumption + Investment + Extra-Market services + Consumer Durables Services + Services of Roads + Public Health & Education – Consumer Durables Expenditure – Private Defensive Expenditure on Health /Education – Advertising – Commuting costs – Pollution costs – cost of loss of ecosystems – resource depletion costs – Long term environmental damage
Applications at national level: UK, Sweden, Netherlands, Italy, Poland, Austria
Applications at local level: Siena (Pulselli et. al. 2006)
Problem – mixes sustainability and welfare issues in single measure

19. Index of Consumption Corrected for
Environmental Damage (ICCED) - EC Greensense project
ICCED developed:
to demonstrate how well-being changes over time if sustainability standards imposed and effects of environmental damage are accounted for.
corrects for environmental damage and expenditure incurred under sustainability policies (similarities with local EcoBudget initiatives e.g. Roma)

20. Sustainability targets analysed under the GREENSENSE project

21. Greensense: Environmental impacts on welfare (UK)

22. Greensense: ICCED Measures - UK

23. Summary of Empirical initiatives
NAMEA: includes environmental issues within standard accounting framework
Genuine savings – sustainability-related decision rule
ISEW – broader interpretation of welfare
ICCED – includes welfare effects of meeting sustainability targets

24. Conclusions on Green Accounting
Recognition of need to address both current welfare and sustainability issues from macro-perspective
National and international initiatives (e.g. UN SEEA, 2003) are developing improved methodologies
Variety of initiatives reflects lack of consensus on priorities and methods
Local applications of methods can reflect regulatory responsibilities but may be difficult to define sustainability at this scale?
Applications very data-hungry and modelling intensive