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4 Accounting for Reknewable and Environmental Resources
Pages 106-152

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From page 106...
... , on timber, on fisheries, and on agricultural assets such as grain stocks and livestock. Phase III would address environmental resources, including, for example, air, uncultivated biological resources, and water.
From page 107...
... The third section examines issues involved in accounting for renewable and environmental resources. The chapter then turns to general issues associated with the physical data requirements of environmental accounting and with valuation.
From page 108...
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From page 110...
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From page 111...
... The panel finds that the data on pollution abatement expenditures are valuable and, as noted in the final section of this chapter, recommends that funds be provided to improve the design and recommence collecting these data. Other Sectors of the Proposed Accounts As reported by BEA, the quality of actual entries in published supplemental accounts for Phase II and III assets ranges from relatively good to conceptually defective.]
From page 112...
... . Production of market goods and services from these natural assets e.g., timber, agricultural crops, fish is already in the core production accounts.
From page 113...
... effects on the service flows of economic assets (capital stock, natural resources, or human resources) , such as recreation, clean air to breathe, and navigable river channels free of sedimentary deposits.
From page 114...
... In many cases, the substances emitted are precursor emissions; that is, they react chemically in the atmosphere with other substances to form the substance that is ultimately damaging to humans or ecosystems. There are also complex nonlinearities because the formation of the damaging substance depends on the level of precursor emissions, weather conditions, and the presence of other substances with which the precursor emissions react.
From page 115...
... Environmental accounting therefore needs to develop and include appropriate methods to account for those persistent pollutants, such as heavy metals that accumulate in the environment and last for many years. Each year's emissions or production of residuals adds to the stock in the environment, and it is necessary to understand the processes by which these stocks decay or dissipate.
From page 116...
... Current-year activities would include production of residuals, just as traditional economic accounts include production accounts. A complete set of accounts would incorporate flows of residuals from abroad, similar to imports of goods and services.
From page 117...
... There is a close connection between the production accounts and the asset accounts (see Chapter 2~. As noted above, measures of comprehensive income or of sustainable income include not only current consumption flows, but also the value of the change in the stocks of assets.
From page 118...
... Thus, a potentially useful alternative to considering the holistic value of assets is to consider how changes in air quality affect the value of agricultural land, forests, residential property, and human capital. Thus, fundamental nonhuman assets might include forests, lakes, rivers, estuaries, coastal regions, wetlands, farmland, and residential property.
From page 119...
... It addresses the questions of trends in the values of environmental assets and whether current consumption is sustainable. If scorekeeping of this type is the purpose of supplemental environmental accounts, it will simplify the enterprise because there will be no need to consider intermediate interactions between production sectors.
From page 120...
... Thus, if the supplemental accounts are meant to support environmental management decisions, knowing the sources of pollutants and the specific causes of changes in asset quality are essential. Analogy with Economic Accounts The discussion in this section has emphasized the complexity involved in constructing environmental accounts.
From page 121...
... PHYSICAL DATA REQUIREMENTS: GENERAL ISSUES Some of the analytical questions involved in environmental accounting have been analyzed in the previous section. To construct actual accounts requires both obtaining accurate physical data (discussed in this section)
From page 122...
... Extensive data on the fate and transport of emissions and concentrations of pollutants are a lower priority if the goal is scorekeeping; even dose-response relationships may be secondary to more direct measurement of consumption flows or changes in important capital and environmental assets and human health status. If one is interested primarily in measuring the sustainability of economic activity, understanding the health status of human and natural systems is more important than understanding why conditions have changed.
From page 123...
... Without valuation, however, physical data alone have serious limitations for both scorekeeping and environmental management. Aggregate physical measures, such as areas of agricultural land, forest, or wetlands or tons of sulfur, toxic wastes, or particulate emissions, provide incomplete evidence on the effects of these chemicals on economic well-being or economic sustainability over time.
From page 124...
... For example, exposure to ozone or particulate matter results in wheat-yield loss or lost work-days due to respiratory illness; using the market price of wheat or of labor, an estimate of economic value can be made. The valuation techniques in this approach are consistent with prices used in the economic accounts.
From page 125...
... For example, many estimates used in environmental management rely on average value (including consumer surplus) , rather than the prices or marginal values that are the convention in national income accounting.4 In a competitive economy, market prices measure both the incremental value to the economy of consuming another unit of the good and the incremental cost to the economy of producing that unit.
From page 127...
... 127 X X X ~X X ~X X X X X CD CD o x x x ~x CD ~ U ^, ~ ~o E C C - A A O C u ~ ~ ~ c o :^ :^ it.
From page 128...
... For example, travel costs can provide the average value of a recreational service, but the marginal value of the resource for an open-access beach or forest with no fee may be zero. This discussion illustrates the importance of ensuring comparability in estimating values in the construction of nonmarket economic accounts.
From page 129...
... For the above reasons, constructing environmental accounts will necessarily be different for private and public goods. For private goods, particularly near-market goods that have close relatives in the market economy, valuation appears feasible and has a level of reliability that approaches that of the current national income accounts.
From page 130...
... The first is the service flow from a natural resource. Here, as in the case of timber from forests or crops from farmland, the service flow is already in the core accounts, and the returns to these assets appear as profits and/or returns to other assets, but the accounting is incomplete because it omits the nonmarket activities.
From page 131...
... As discussed above, the hypothetical nature of the valuation makes these methods quite different from other methods that are based on actual market transactions. For these reasons, while CV is sometimes useful for other purposes, the panel has determined that it is currently of limited value for environmental accounting.
From page 132...
... These goods can affect both the national asset accounts and the NIPA.6 These three classes of forest goods and services are discussed in decreasing order of availability of data and of accepted analysis required to include them in the national economic accounts. 6The following discussion focuses primarily on issues pertinent to the United States.
From page 133...
... Forests produce many public goods, including aesthetically pleasing landscapes, a carbon sink, and a store of biological diversity. Given data on changes in forest inventories, it may be possible to value some of these services (e.g., the value of carbon sequestration)
From page 134...
... national economic accounts first for the production accounts and then for the asset accounts. Adjustments to Production Accounts A full treatment of forests in the production accounts would involve the following adjustments to national income and product.
From page 135...
... However, if there is uncongested, open access to the forest-based inputs needed for household production, the contribution of these inputs to household value on the margin is zero. Current practice often uses average rather than marginal values, so care must be taken, particularly for open-access forests, to ensure consistent valuation in order to prevent overvaluation of nonmarket activities.
From page 136...
... While adjustments in an asset account are conceptually similar to net investment of "made assets," for forests it is more precise to call the change in asset values net accumulation to reflect the fact that, even at constant prices, the asset value of a forest can either increase or decrease. Most generally, net accumulation is defined as the change in an asset 9USDA Forest Service (1995)
From page 137...
... While the Hotelling model may be appropriate for the case of pure depreciation under the assumption of perfect capital markets,l° it misses several important aspects of the forest sector, includ 1OThe Hotelling model assumes perfect capital markets in which the rate of return in the mining or old-forest sector equals the rate of return in alternative economic activities. In countries, especially developing countries, where both forest and mining activities earn disproportionally high returns because of special favors and licenses, the Hotelling model is not appropriate.
From page 138...
... Transition models account in part for these problems by recognizing that forest growth offsets harvests. Assuming constant prices and a forest inventory recognized only by total net growth, this model suggests net accumulation is given by the difference between price and marginal harvesting cost times growth minus harvesting (rather than simply minus harvesting in the Hotelling model)
From page 139...
... to derive closing stocks. Each year's closing stock estimate became the following year's opening stocks (except in the Forest Service inventory years, when inventory estimates of standing timber were used)
From page 140...
... . References in original A Recommended Approach for Measuring Net Accumulation of Timber The three alternative approaches to accounting for changes in asset values of forests discussed above incorporate many restrictive assumptions.
From page 141...
... Forest Service in developing annual estimates of net timber accumulation using these data. This work could also be related to other important values of the forest, particularly recreation and other nonmarket activities.
From page 142...
... The fourth subsection addresses the relevance of these damage estimates to environmental accounting. The section ends with the panel's conclusions on accounting for air quality.
From page 143...
... Environmental Protection Agency (1996~. monoxide, ground-level ozone, lead, nitrogen dioxide, particulate matter, and sulfur dioxide.
From page 144...
... Exposure to air pollution has a wide range of impacts, including respiratory illnesses (which result from ground-level ozone, sulfur dioxide, nitrogen dioxide, particulate matter, and air toxins) ; child IQ loss, infant mortality, strokes, and heart attacks (which result from lead)
From page 145...
... Based on these measurements, estimated airborne concentrations of lead have fallen by 78 percent since 1986, while concentrations of airborne carbon monoxide, sulfur dioxide, and particulate matter have fallen by 37, 37, and 22 percent, respectively. Smaller declines occurred for ground-level ozone and nitrogen dioxide (6 and 14 percent, respectively)
From page 146...
... The EPA study includes no physical or monetary assessments of the impacts of changes in air quality on ecosystem health, physical capital, or global public goods, such as slowing climate change and preventing ozone depletion. Moreover, many of the estimates of benefits, particularly those involving the valuation of health benefits and the discount rate, have been the subject of major criticism (see Clean Air Act Council on Compliance, 1997~.
From page 147...
... As discussed earlier, air pollution affects production activities, assets, and nonmarket activities. Most of the estimates from the EPA study refer to the production accounts: days of work lost, shortness of breath and acute bronchitis, loss of visibility, and crop losses are effects on production activities.
From page 148...
... While EPA's estimates of benefits of $1.2 trillion per year due to reduced air pollution are highly uncertain, do not include all effects, and measure a somewhat different concept than would be appropriate for the accounts, it is likely that a realistic assessment of reduced damages due to improved air quality would yield a much larger figure than the $27.1 billion in air pollution control expenditures used by BEA as a placeholder. In the panel's view, no other area of natural-resource and environmental accounting would have as great an impact as the potential correction from air quality.
From page 149...
... . Third, there is a need for reliable and objective physical and monetary damage estimates associated with exposure to air pollutants, including air toxins, ozone depleters, and greenhouse gases.
From page 150...
... Contingent valuation, while sometimes useful for other purposes, is currently of limited value for environmental accounting in the context of the economic accounts. Valuing environmental goods and services requires distinguishing between private and public goods.
From page 151...
... Data Collection 4.5 The panel encourages BEA to help mount a concerted federal effort to identify the data needed for measuring changes in the quantity and quality of natural-resource and environmental assets and associated nonmarket service flows. Many different federal agencies collect data or have expertise that will be essential to BEA, particularly as its efforts expand to include Phase III assets and associated flows.
From page 152...
... The United States has much of the data needed for such an effort, and the analytical techniques are relatively well developed. 4.10 Based on available information, the economic impacts of air quality are likely to be the most significant element in the environmental accounts; development of such accounts is a central task for environmental accounting.


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