Early efforts to link economic and environmental accounting focused on the
measurement of "a
green GDP," motivated by the genuine concern that the traditional
measure of gross domestic product (GDP) provides only a partial picture of
changes in welfare-capturing mainly, if not exclusively, elements transacted in
markets (only a few imputed services, such as owner-occupied housing, are
included). Many environmental assets-especially those that function as "sinks"
receiving pollution and waste, and those supporting life-do not operate in
markets and are therefore excluded.
These early environmental accounting efforts tried to modify national accounts
to include environmental damages, environmental services, and changes in stocks
of natural capital. But that proved problematic mainly because of valuation
difficulties and some conceptual issues. For example, should expenditure for
environmental protection be treated as intermediate or final consumption?
Later efforts have been directed toward constructing "satellite accounts" that
try to link environmental datasets with (unmodified) national accounts
information. In principle, environmental costs and benefits, natural resource
assets, and environmental protection are all presented in flow accounts and
balance sheets. But in practice, given the difficulty in valuation, the
emphasis has often been on using information on physical quantities from
environmental accounts. The drawback of this approach is the difficulty in
making comparisons across accounts in different units to evaluate priorities or
tradeoffs.
