Internalizing environmental assets : an environmental accounting perspective

Increases in national income are usually treated as economic growth. If large enough to produce increases in per capita income, they are generally considered as welfare enhancing. Yet, at the same time, these increases in national income might be accompanied by severe destructions of the most fundamentally scarce resource at man's disposal, the environment. Traditional economics has overwhelmingly treated such destructions as external to its analysis, models and information systems. Conventional methods of national accounting are no exception, in that only market transactions are recorded. With the growing awareness that long-term sustainability is now under threat (as a result of the current abuse of environmental resources), a large number of social scientists are now calling for rethinking traditional economic analysis of the relationship between the environment and the economy. In particular, there have been attempts by "green economists" to establish a new tradition of national acccounting, "green accounting", which advocates including environmental and resource considerations as part of income measurement and variations of assets. This paper discusses an extension to the conventional economic accounts. In this paper, we take a similar stand and propose a framework of GDP measurement which treats consumption of environmental stocks as any other type of private capital consumption.