18 Environment and Economic Accounting

18.1 INTRODUCTION Environment and Economic Accounting has many meanings and uses. It can support national income accounting, financial accounting, or internal business managerial accounting. Environment and Economic Accounting refers to the use of data about environmental costs and performances in various operations (projects, business etc.). Why do environmental accounting? As indicated in the discussion on Main Approaches to Monitor the Environment earlier on in the course, Economic and Environment Accounting tries to show the interrelationship between the economy and the environment as detailed and as complete as possible. EEA as an integrative concept that tries to integrate all physical flows coming into the economy and going out of an economy into the environment. Environmental costs are some of the many different types of costs businesses, companies, industries and so forth, incur as they provide goods and services to their customers. Environmental performance is one of the important measures of success in different operations such as industry, business, companies, and different projects. The discussion about the need to quantify the cost of human activities (particularly the economic activities) on the environment and ways to do so was done throughout the course under the topics of Main Approaches to Monitor the Environment and in Quantitative Aspects of Sustainable Development. The System of National Accounts (SNA) and the System of Integrated Environmental and Economic Accounts (SEEA) were reviewed under these topics. This session discussed different methods of accounting for and evaluating the environment in projects. There are two fundamental problems with the existing interpretation of the basic supply-and-demand identity as implemented in the system of National Accounts. Firstly, products are measured at cost and not at their worth. Secondly, many goods and services that are crucial to well being are invisible in the accounts because they do not have money values ascribed to them (Harrison 1993). Furthermore, there is concern from the environmental policy makers that the SNA is unable to capture sustainability and does not provide information necessary for assessing substitutability in a straightforward manner. That is, the quest to reduce demands on natural resources to a sustainable level implies examining which natural resources need to be sustained (and how this might be achieved) and which may be substituted by another form of capital. Environmental assets may be accounted for in self-contained sets of natural resource accounts and material energy balances. Economic production can not be measured independently of the physical environment …