NATURAL VALUE: The World Bank is pushing an effort to account for the economic value of natural goods, such as the Great Barrier Reef.
Image: Wikimedia Commons/NASA
Botswana's diamond mining sector accounts for 31 percent of the country's economic output -- and a glistening De Beers five-diamond bracelet sells online for $1,500. But how much does depleting diamond mines cut into Botswana's overall economic health?
The Philippines' untapped gold and nickel is valued at nearly $1 trillion, but the mines and refining process needed to tap them will require a great deal of water. If climate change leads to reduced rainfall in the country, how much would be lost by diverting water from agriculture?
And in Australia, the government has found that pesticides used in farming are causing significant damage to the Great Barrier Reef. But how much might that damage affect the tourist economy that thrives around the World Heritage site?
Those countries and a handful of others have been trying to answer precisely those kinds of questions as they develop some of the world's first "green" accounting systems. Known formally as natural capital accounting, the idea of measuring the economic value of clean water, clean air, forests and ecosystems in addition to traditional measures of the market value of a country's goods and services has been gaining traction since the 1980s.
In February, the U.N. Statistical Commission adopted a standardized accounting method, which advocates called a major step, essentially helping environmentalists use the same language and tools that finance ministers and economists use to measure strictly in terms of national accounts. Now, with the approach in June of the U.N. Conference on Sustainable Development in Rio de Janeiro, activists hope that green accounting's time has finally come.
"When it comes to natural capital accounting, we have been talking about it for 30, maybe even more years. This is something it is time to stop talking about and it is time to start implementing," Rachel Kyte, the World Bank's vice president for sustainable development, said recently.
The World Bank is pushing for countries at the Rio summit, commonly called Rio+20, to commit to implementing natural accounting systems alongside their gross domestic product measurements. Kyte acknowledged that questions remain about green accounting but said countries can "learn while we're doing," and argued that the data gleaned by valuing ecosystems are critical to help governments make more sustainable decisions.
Not all assets are given a value
"The lack of valuation for natural resources in the environment is one of the major reasons for the continuing decline of ecosystems," said Glenn-Marie Lange, a senior environmental economist at the World Bank who leads a partnership known as WAVES (Wealth Accounting and Valuation of Ecosystem Services) aimed at helping countries develop and implement natural accounting systems.
"For decades, GDP has been growing and growing in many countries, but a large segment of society hasn't been getting any better off," said John Talberth, a senior economist at the World Resources Institute. "I think we've reached a critical threshold where international consensus said we really need to move in a more deliberate and systematic manner to get better accounts up and running that reflect the true state of the economy."
Those who are already trying it say natural capital accounting is slow going but they expect it to be rewarding. Australia, for example, already has a program of annual environmental accounts for water, energy, natural resources and timber, as well as subsoil assets like coal. Now it's starting to look at assets like the Great Barrier Reef to better understand what degradation caused by agriculture or climate change might mean for the country as a whole.
"The Great Barrier Reef is a natural ecosystem and supports a huge tourism industry. But what is the value of the Great Barrier Reef? We're not really sure," said Michael Vardon, director of the Australian Bureau of Statistics Centre of Environment and Energy Statistics. Upstream, he noted, farmers are making decisions that are rational for their livelihoods -- using pesticides and fertilizer, for example -- and it's clear that those decisions are corroding the world's largest coral reef system.
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Add CommentTwo immediate possibilities come to mind for this great new way to establish a new global tax.
Reply | Report Abuse | Link to thisLet the U.N. establish the value of a country’s green assets, let the U.N. make an assessment of the damage done to the established green value, let the U.N. levy a tax on the nations causing the impossible to verify damage to the value of the impossible to verify asset, to mitigate the damages caused by global development.
One nation, one vote in the U.N.. I wonder how that will turn out for the U.S.A and other developed nations?
Another possibility of this fuzzy accounting would be to allow nations with high value green assets to use potential U. N. credits as collateral for national debt. Presto! The balance sheets of the world’s underdeveloped and mismanaged nations could be made whole without ever turning a spade of earth to develop their resources, tilling another acre of soil to feed their populations, or doing much of anything to make the policies of their own governments more responsible and sustainable.
This is a really bad idea.
Right, it is 'nonsense accounting' when say someone grows a crop that contributes $1m to GDP but has environmental costs of $2m to GDP. I guess you think it would be "stupid accounting" then if someone told you it was a dumb idea to burn diamonds in your stove simply because you have some instead of wood, which is much cheaper and more sensible.
Reply | Report Abuse | Link to thisWhat kind of idiotic rationale is this?
Clearly one of the problem we see is that we're being penny wise and pound foolish all over the place. It makes not the slightest bit of sense to carry out an economic activity who's net result is a negative number. Whatever type of accounting you need to do in order to capture that in numbers is not 'nonsense accounting' it is GOOD ACCOUNTING and anyone who spends a minute to think about it would realize that.
So much for the peanut gallery...
Of course, if you were foolish enough to burn diamonds, you would be pretty unlikely to have any extra laying around to burn.
Reply | Report Abuse | Link to thisEthanol production, using grain as the bio-feedstock, is kind of like burning diamonds. Produces an incredible amount of CO2 in the manufacture process, takes as much energy to produce as you recapture from the end use in vehicles, drives the cost of food way up, depletes the the topsoil(a green asset?).
Reply | Report Abuse | Link to thisEthanol for fuel does result in considerable pork coming home to select politician's home districts, ensuring that the golden leadership of our current group of idiots in Washington get to keep on doing what they do so well; campaigning, soliciting donations, and trading favors and future influence for pork barrel projects. So they can keep doing what they do so well...
sorry, i am getting a little off topic.
" Ethanol production, using grain as the bio-feedstock, is kind of like burning diamonds. Produces an incredible amount of CO2 in the manufacture process, takes as much energy to produce as you recapture from the end use in vehicles, drives the cost of food way up, depletes the the topsoil(a green asset?).
Reply | Report Abuse | Link to thisEthanol for fuel does result in considerable pork coming home to select politician's home districts, ensuring that the golden leadership of our current group of idiots in Washington get to keep on doing what they do so well; campaigning, soliciting donations, and trading favors and future influence for pork barrel projects. So they can keep doing what they do so well...
sorry, i am getting a little off topic."
Heh, yeah, ethanol is dumb. At least as it is currently being pursued. Of course I doubt it makes any kind of economic sense except to a few people who are lapping at the government trough.
The thing is, there are perfectly economically sensible things we can do. There are perfectly good things that the government COULD do to provide useful assistance in sane economic policy. At some level, in some way, we really need to factor externalities into the economy. FAILING to do so is what distorts the marketplace and leads to bad decisions. Good accounting is one piece of doing things right. As any successful business leader will tell you, you cannot succeed without understanding your balance of accounts and where the money goes.
The problem with assigning dollar value to assets that have no clearly defined intrinsic monetary value is that the assessment becomes subject to the politician-of-the-day’s political ambition.
Reply | Report Abuse | Link to thisPoliticians, viewed as a whole, routinely sacrifice their nations’ welfare for their own carrier advancement. They no longer pretend to do otherwise, with any degree of enthusiasm, unless they are campaigning for reelection.
Letting them manipulate values of green assets, and using those assessments to direct business activities to fit the needs of their own political agendas, just gives them more power over the citizenry they used to serve. Their management skills are not up to the task of governing at that level, and a steady degradation of the global economy would likely result.
It's not accounting the ressources that will help, it's accounting the pollution per head that would be necessary. Know how much a country pollutes and where is what is important. Use the same framework for all countries and you can easily compare who does worst.
Reply | Report Abuse | Link to thisWhat I do miss in this article: it says World Bank pushes for "green accounting" but it does not say what service or who supervises that push. It's too general, makes the World Bank look good, but is of no practical help.