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Accounting for environmental decision making:

Chapter 1



1. Introduction

With a few exceptions, current accounting methods do not include environmental values. This results in decisions based on information from these accounting systems undervaluing environmental contributions to the economy and society. Indices purporting to measure human welfare and economic success, such as gross national product (GNP), have become irrelevant to their supposed function (Daly & Cobb 1990, van Dieren 1995). The disregard of the input of environment functions can lead to degradation of environmental capital. disruption of life-support functions, and undermine the basis for our economic and technological advances.

In recent years there has been a recognition of this fact. Various valuation methods have been proposed that include more environmental information. Accounting systems are meant to provide relevant information, either to produce information for decisions (Arnold & Hope 1990, Drury 1990), or to provide accountability for actions (Gray et al. 1996). New systems for including environmental information or accountability generally take one of two approaches:

I will take a brief look at some of the systems that have been proposed in these areas.

Adapting current systems

The most active area in this field has been the adaptation of the System of National Accounts (SNA) (
Costanza 1991, U.N. 1993, van Dieren 1995), and indices based on these accounts (Daly & Cobb 1990). SNA provides "a quantitative description of the economic process a given country" (Oomes & Janssen 1995). Indices taken from these accounts, such as GNP and gross domestic product (GDP) are often used as indicators of economic success or failure by governments and financial markets (Anderson 1996). However, SNA's are limited in the areas of the economy that they can measure and often miscount environmental or social inputs. For example, household production is not included in the accounts, so that switching child-care from the home to nurseries increases GNP, but may not increase welfare (Ekins 1995).

Various methods have been proposed make SNA's more realistic as a measure of success and welfare (El Serafy 1991, 1995, El Serafy & Lutz 1989, Hueting 1991, Leipert 1995, Peskin 1991, UN 1993). Attempts have also been made to find better indices of welfare, such as Sustainable National Income (SNI) (Hueting et. al. 1995) and the Index of Sustainable Economic Welfare (ISEW) (Daly & Cobb 1990).

New systems of valuation

Among the most interesting of the new systems of valuation has been Odum's idea of EMERGY (
1996). This is based on the idea that all resources need energy to transform them into useful resources. Therefore energy, or embodied energy, should be used to measure the value of a object. It is similar to Marx's Labour Theory of Value, that value in production is added by the work carried out by labour.

These systems general try to reduce all functions of the environment down into a single concept of value. Månsson and McGlade (1993) criticise this approach for failing to take adequate account of the nature of the eco-systems they trying to value. These systems are generally complex and uncertain. The main part of this thesis will look at different types of uncertainty and the ways systems can response {respond} to uncertainty.

[Chapter 2 - Decision making]

Finished 13/9/96
Created 18/9/98
Modified 28/9/98