Accounting for natural wealth gains world traction

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NEW DELHI — What is a sip of clean water worth? Is there economic value in the shade of a tree? And how much would you pay for a breath of fresh air?

Putting a price on a natural bounty long taken for granted as free may sound impossible, even ridiculous.

But after three decades on the fringes of serious policymaking, the idea is gaining traction, from the vividly clear waters of the Maldives to the sober, suited reaches of the World Bank.

As traditional measures of economic progress such as gross domestic product are criticized for ignoring downsides including pollution or diminishment of resources such as fresh water or fossil fuels, there has been an increased urgency to arguments for a more balanced and accurate reckoning of costs.

That is particularly so as rapidly developing nations such as India and China jostle with rich nations for access to those resources and insist on their own right to pollute on a path toward growth.

Proponents of so-called “green accounting” - gathered in Rio de Janeiro this week for the Rio Earth Summit - hope that putting dollar values on resources will slam the brakes on unfettered development.

Environmental depreciation

A mentality of growth at any cost already is blamed for disasters such as the chronic floods that hit deforested Haiti and the raging sandstorms that have swept regions of China, worsening desertification.

Environmental economists argue that redefining nature in stark monetary terms would offer better information for making economic and development decisions.

That, they say, would make governments and corporations less likely to jeopardize future stocks of natural assets or environmental systems that, mostly unseen, make the planet habitable. These systems include forests filtering water and frogs keeping swarming insects in check.

If the value of an asset like a machine is reduced as it wears out, proponents say, the same accounting principle should apply to a dwindling natural resource.

“Environmental arguments come from the heart. But in today’s world based on economics, it’s hard for arguments of the heart to win,” said Pavan Sukhdev, a former banker now leading a project that was proposed by the Group of Eight major industrialized nations to study monetary values for the environment.

That study, started in 2007, has estimated that the world economy suffers roughly $2.5 trillion to $4 trillion in losses every year as a result of environmental degradation. That is up to 7 percent of global GDP.

“We need to understand what we’re losing in order to save it,” Mr. Sukhdev said. “You cannot manage what you do not measure.”

No ecosystem markets

Using the same accounting principles, some countries already are changing policy.

The Maldives recently banned fishing gray reef sharks after working out that each was worth $3,300 a year in tourism revenue, versus $32 paid per catch.

Ugandans spared a Kampala wetland from agricultural development after calculating that it would cost $2 million a year to run a sewage treatment facility - the same job the swamp does free of charge.

But environmental accounting still faces many detractors and obstacles.

Among them is resistance from governments that might lack the resources and expertise to publish a “greened” set of national accounts alongside those measuring economic growth.

Particularly in the developing world, many still struggle to produce even traditional statistics that are timely and credible.

Practitioners are riven by debates on how to put a price on a vast range of natural resources and systems such as pollination by bees or the erosion prevented by mangroves in an estuary.

The single largest difficulty is that markets, the easiest way to value goods and services, don’t exist for ecosystems.

“Since many things don’t formally have a market price, how do you value them? Almost all the debate and discussion really hinges around valuation issues, and that is where it can get flaky,” said former Indian chief statistician Pronab Sen.

At one extreme, said Mr. Sen, are people who say natural resources should get a zero value because we don’t know how to value them.

Others argue that the values for such resources should be infinite, meaning they can’t be touched because no one has an infinite amount of money.

Opposition also is expected from parts of the corporate world because green accounting could make doing business or buying products more expensive.

Cost-benefit analysis

A forest once valued by what its trees fetch on the timber exchange might be valued instead according to the carbon dioxide it absorbs, the animals it supports, the water it filters and the firewood it provides.

Or it could be revalued with future generations in mind. That might lead to higher felling fees, pricey replanting requirements or more expensive wood. Some might rethink the economic benefit of cutting down the trees.

Science would become a more important factor in economic decision-making.

Some businesses, however, are embracing the idea to appeal to consumers demanding more accountability. Supermarkets such as Britain’s Tesco now offer carbon footprints on packaging alongside calorie counts.

Some governments at a national level are embracing green accounting, even if still in piecemeal fashion.

India in April announced plans for green national accounts by 2015, though it’s unclear whether the country’s chaotic bureaucracy can reach that target.

Australia will soon begin taxing carbon dioxide emissions, which Costa Rica has been doing for a decade to fund forest preservation.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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