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Environmental Accounting Essay

1683 words - 7 pages

Saturday, July 24, 2010Environment
Environmental accounting
A key to sustainable development
Environmentally idyllic Bengal.
K. M. Nazmul Islam and Dr. Ahmed Kamruzzaman Majumder

THE concept that every nation might acknowledge the economic role of the environment in its income accounts is neither a hasty shift nor a quick practice; it has been under discussion globally since the 1960s. Unfortunately in Bangladesh the contribution of the environmental goods and services in the national economy has been ignored for a long time. In the changing circumstances of global climate it is high time that we wake up and recognize the contribution of the environment to sustain our economy.

For a long ...view middle of the document...

Some of the elements missing are:

Environmental expenditures: Environmental expenditures like the cost of the pollution control equipment purchased by factories, catalytic converters installed in cars, medical expenses for diseases caused by pollution, high-tech treatment of drinking water due to excessive water pollution, cleaning up of rivers etc. are misleadingly reflected in the traditional SNA. These expenditures are already included in the income accounts, along with all other intermediate or final consumption. As a result, the expenditures incurred in restoring the environmental quality are accounted as increases in national income and product, and therefore all expenditures are shown as increases in GDP.

Environmental goods and services: The traditional measures of SNA are focused mainly on goods and services that are bought and sold in markets and ignore the non-marketed services provided by nature. The environment provides many goods which are not sold but which are nevertheless of value. For example, fuel wood and building materials consumed by forest dwellers, fish and medicinal plants consumed by the villagers. Similarly, the environment provides many unsold services, such as flood control, protection of soil erosion and watershed by forests, crop fertilization by insects, carbon sequestration and the waste assimilative capacity of the environment, which are not recorded in the national accounts.

Exhaustion of natural assets: The SNA conflictingly treats the man-made and natural assets, because national income accounts treat the depreciation of manufactured capital and natural capital differently. Physical capital, a building or a machine, for instance, is depreciated in accordance with conventional business accounting principles to adjust against the income generated by this particular asset. Natural capital is not accounted so rather all the consumption of natural capital is treated as income. Thus the accounts of a country that harvests its forests unsustainably will show high and misleading income for a few years and will not reflect the destruction of the productive forest asset. Again, when forested land use are transferred to non-forested land use, the national accounts record only the expenditure incurred in clear-felling of the forests, and do not account the loss incurred to society as a result of this relocation.

Hence, this outmoded system of accounting infers that the environmental assets like air, water etc. may be despoiled due to economic activity, whereas corresponding adjustment need not be made in the accounts resulting in a lessening of social welfare. Further, overlooking the contribution of non-market value of environmental goods and services as well as natural resource depletion will result in twisting the current well-being and distorts the economy's production and substitution possibilities.

What other countries are doing

Bureaucrats, researchers and other protagonists of some twenty-five countries...

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