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Green Economics Sci Am July 94

The U.S. makes a foray into sustainable accounting

At the United Nations Conference on Environment and Developent held in Rio de Janeiro in 1992, governments agreed to develop a system of accounting that would better reflect exploitation of natural resources. With traditional methods, activities such as logging, fishing and mining can only add to the gross national product. Such accounting fails to reflect the fact that exploitation reduces the value of natural assets-forests, fish and minerals-and affects their ability to provide income in future years. Exploitation that exceeds replacement is unsustainable. The U.N. published recommendations on enviromnental accounting last year, and in May of tills year the U.S. made its first attempt to comply. The end product, published by the Department of Commerce's Bureau of Economic Analysis, is known as the Integrated Economic and Environmental Satellite Accounts. The result, pleasantly surprising to the uninitiated but predictable to economists, seems to suggest that as far as oil, gas, coal and some minerals are concemed, the U.S. measures up wen. The new accounts try to put a value on the U.S.'s most important belowground natural resources during the period between 1958 and 1991. The bureau used various methods to measure the value of "proved" reserves in tills sector, reserves that are economically exploitable. The outcome was that the aggregated stock of proved reserves increased in value from between $103 billion and $182 billion in 1958 to between $471 billion and $916 billion in 1991. In constant dollars the real stock slipped, but by an insignificant amount, from between $544 billion and $1,077 t billion in 1958 to between $530 billion and $1,030 bilhon in 1991. Anyone who has looked into the Bingham copper pit near Salt Lake City WHI wonder what kind of legerdemain can explain these numbers. The invisible hand at work is that of technology, not that of Adam Smith. The figures show little change because the value of reserves used has almost been compensated for by the increase in reserves that can profitably be exploited. Advances in mining and extraction capabilities have turned reserves that were not worth using 30 years ago into valuable resources. Prospecting has also led to some new finds. So incorporating the depletion of mineral resources into U.S. economic statistics would have little effect. is the constancy of mineral resources, then, an argument for ignoring sustainability and continuing business as usual? "Absolutely not," replies Robert Repetto, a prominent researcher in envirom-nental economics at the World Resources histitute in Washington, D.C. Repetto points out that although improvements in technology bave allowed the niine tailings, or waste material, of 30 years ago to become a profitable source of ores today, the change has not taken place without a toll on the envirom,nent. Wastes are now produced in larger amounts, for example. Moreover, consumption has increased, so the ratio of reserves to consumption has gone down. The constant value of mineral reserves in the U.S. does, however, confirm what experts already knew, Repetto says: that whatever other environmental problems it may have, the U.S. is not in inuninent danger of running out of minerals. If accounts were prepared that valued fish stocks, on the other hand, they might well lead to better management of that resource. Environmental accounts may have a sharper message in developing countries, which generate more of their gross national product by selling raw materials and exploiting other natural resources, notes Kirk Hamilton, an economist at the World Bank. David W. Pearce, an economist at University College London, has estimated "green" economic statistics that incorporate natural resources for a selection of countries. Although Costa Rica, Germany, Japan, the U.S. and several other countries are likely to be sustainable economies, by Pearce's reckoning, many developing countries, including Papua New Guinea, Ethiopia and Mali, have a decreasing level of total capital and so are unsustainable. For unsustainable economies, developing green accounts may lead to wiser policies, Hamilton says. Even countries such as Mexico and the Philippines are only marginally sustainable, according to Pearce. Putting a value on tangible natural resources that are sold and so have a market value can be a complicated exercise, but it is at least conceptually straightforward. Yet it is only the first step to truly green economics, which would include all significant interactions with the environment. When green accounting is extended to include factors such as the value of damage caused by pollution, however, things become more complex. Economic theorists have not come to a consensus on the value to industry of the atmcisphere as a repository for unwanted gases, for example. The counting gets more comphcated still if entirely intangible values are to be included-which, arguably, they should be for some purposes. Econoniists have been unable to agree even in principle on how exactly to measure the value of assets such as the beauty of a wilderness or the splendor of a blue whale. "I don't see us trying to put aesthetic values into economic accounts," comments Carol S. Carson, director of the Bureau of Economic Analysis. When it comes down to hard numbers, sustainability remains an imprecise idea. Economists may be getting greener, but they will not anytime soon be able to lead the way to a sustainable future. Difficulties arise above and beyond the measurement challenges, Hamilton argues. Many govermnents would probably not look after the long-term interests of their people even if green accounts showed them how to do so. Environmental accounts are unlikely to have much influence on leaders who do not want to hear. -Tim Beardsley