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date: 07 December 2023

Environmental Accountingfree

Environmental Accountingfree

  • Jean-Louis WeberJean-Louis WeberInternational Consultant on Economic-Environmental Accounting


Environmental accounting is an attempt to broaden the scope of the accounting frameworks used to assess economic performance, to take stock of elements that are not recorded in public or private accounting books. These gaps occur because the various costs of using nature are not captured, being considered, in many cases, as externalities that can be forwarded to others or postponed. Positive externalities—the natural resource—are depleted with no recording in National Accounts (while companies do record them as depreciation elements). Depletion of renewable resource results in degradation of the environment, which adds to negative externalities resulting from pollution and fragmentation of cyclic and living systems. Degradation, or its financial counterpart in depreciation, is not recorded at all. Therefore, the indicators of production, income, consumption, saving, investment, and debts on which many economic decisions are taken are flawed, or at least incomplete and sometimes misleading, when immediate benefits are in fact losses in the long run, when we consume the reproductive functions of our capital. Although national accounting has been an important driving force in change, environmental accounting encompasses all accounting frameworks including national accounts, financial accounting standards, and accounts established to assess the costs and benefits of plans and projects.

There are several approaches to economic environmental accounting at the national level. Of these approaches, one purpose is the calculation of genuine economic welfare by taking into account losses from environmental damage caused by economic activity and gains from unrecorded services provided by Nature. Here, particular attention is given to the calculation of a “Green GDP” or “Adjusted National Income” and/or “Genuine Savings” as well as natural assets value and depletion. A different view considers the damages caused to renewable natural capital and the resulting maintenance and restoration costs. Besides approaches based on benefits and costs, more descriptive accounts in physical units are produced with the purpose of assessing resource use efficiency. With regard to natural assets, the focus can be on assets directly used by the economy, or more broadly, on ecosystem capacity to deliver services, ecosystem resilience, and its possible degradation. These different approaches are not necessarily contradictory, although controversies can be noted in the literature.

The discussion focuses on issues such as the legitimacy of combining values obtained with shadow prices (needed to value the elements that are not priced by the market) with the transaction values recorded in the national accounts, the relative importance of accounts in monetary vs. physical units, and ultimately, the goals for environmental accounting. These goals include assessing the sustainability of the economy in terms of conservation (or increase) of the net income flow and total economic wealth (the weak sustainability paradigm), in relation to the sustainability of the ecosystem, which supports livelihoods and well-being in the broader sense (strong sustainability).

In 2012, the UN Statistical Commission adopted an international statistical standard called, the “System of Environmental-Economic Accounting Central Framework” (SEEA CF). The SEEA CF covers only items for which enough experience exists to be proposed for implementation by national statistical offices. A second volume on SEEA-Experimental Ecosystem Accounting (SEEA-EEA) was added in 2013 to supplement the SEEA CF with a research agenda and the development of tests. Experiments of the SEEA-EEA are developing at the initiative of the World Bank (WAVES), UN Environment Programme (VANTAGE, ProEcoServ), or the UN Convention on Biological Diversity (CBD) (SEEA-Ecosystem Natural Capital Accounts-Quick Start Package [ENCA-QSP]).

Beside the SEEA and in relation to it, other environmental accounting frameworks have been developed for specific purposes, including material flow accounting (MFA), which is now a regular framework at the Organisation for Economic Co-operation and Development (OECD) to report on the Green Growth strategy, the Intergovernmental Panel on Climate Change (IPCC) guidelines for the the UN Framework Convention on Climate Change (UNFCCC), reporting greenhouse gas emissions and carbon sequestration. Can be considered as well the Ecological Footprint accounts, which aim at raising awareness that our resource use is above what the planet can deliver, or the Millennium Ecosystem Assessment of 2005, which presents tables and an overall assessment in an accounting style. Environmental accounting is also a subject of interest for business, both as a way to assess impacts—costs and benefits of projects—and to define new accounting standards to assess their long term performance and risks.


  • Framing Concepts in Environmental Science
  • Quantitative Analysis and Tools


Environmental accounting is an attempt to broaden the scope of the accounting frameworks used to assess economic performance, to take stock of elements that are not recorded in public or private accounting books. These gaps occur because the various costs of using nature are not captured, being considered in many cases as externalities that can be forwarded to others or postponed. Positive externalities—the natural resource—are depleted with no recording in national accounts (while companies do record them as a depreciation element). Depletion of renewable resources results in degradation, which adds to negative externalities resulting from pollution and fragmentation of cyclic and living systems. Degradation or its financial counterpart in depreciation is not recorded at all. Therefore, the indicators of production—income, consumption, saving, investment, and debts—on which many economic decisions are taken are flawed, at least incomplete, and sometimes misleading when immediate benefits are in fact losses in the long run, when we consume the reproductive functions of our capital. Although national accounting has been an important driving force in change, environmental accounting encompasses all accounting frameworks, including national accounts, financial accounting standards, and accounts established to assess the costs and benefits of plans and projects.


Environmental accounting can be traced back to preclassical economics, when natural resources were acknowledged as key elements of a nation’s wealth in works by William Pitt in England, and by Sébastien Le Prestre de Vauban and François Quesnay in France, who, at the end of the 18th century, designed what is considered to be the first national accounting framework, a model based on the “government of Nature” equal to the so-called biens fonds (agricultural land). Economists have continued to pay attention to the natural resources in terms of land rent, subsoil, or forest resource management, and to the social cost of negative externalities due to environmental degradation (Pigou, 1920). However, economic-environmental accounts in the modern sense, related to national accounts, began to appear after the 1972 Stockholm Conference and the subsequent debate on limits on growth. In following years, similar attempts to build and refine economic-environmental accounts were carried out in various countries following different rationales.

Finally, in 1992, the United Nations Conference on Environment & Development, held in Rio de Janeiro, adopted “Agenda 21,” which recommends: “Developing and promoting the use of such techniques as natural resource accounting and environmental economics” (UNSD, 1992, sec. 38.22).

The UN System of Environmental-Economic Accounting (SEEA)

In 1993, the UN Statistical Division (UNSD) published a Handbook of Environmental and Integrated Economic Accounting (SEEA, 1993), commonly referred to as a “system of environmental-economic accounting.” The drafting of this handbook involved other agencies such as the UN Environment Programme (UNEP), the World Bank, the Organisation of Economic Development (OECD), and the European Commission Statistical Office (Eurostat). It took stock of work carried out in countries since the mid-1970s by public agencies (mostly national statistical offices) and research institutes, such as the World Resource Institute. Because of difficulties in implementation, the SEEA 1993 was revised and the SEEA 2003 was issued with more practical guidelines. In 2008, the newly created UN Committee of Experts on Environmental-Economic Accounting (UNCEEA) decided to raise to an international statistical standard those parts of the SEEA for which sufficient experience exists. During the process of revision, the need for progress on ecosystem accounting resulted in the drafting of a second volume dedicated to the subject. The SEEA Central Framework (SEEA CF) was issued in 2012 and the SEEA-Experimental Ecosystem Accounting (SEEA-EEA) in 2013.

In 2012, the UN Statistical Commission adopted the international statistical standard called SEEA CF (SEEA CF 2012, 2014). As a statistical standard, implementation of the SEEA CF by national statistical offices is sought and supported by the UN Regional Commissions. The second volume on SEEA-Experimental Ecosystem Accounting (SEEA-EEA 2012, 2014) was published in 2014 to support a research agenda and the development of tests in voluntary countries. Experiments of the SEEA-EEA are developing at the initiative of the World Bank (WAVES), UNEP (VANTAGE, ProEcoServ), the UN Statistical Division (UNSD Advancing EEA project), and the CBD (SEEA-Ecosystem Natural Capital Accounts-Quick Start Package [ENCA-QSP]).

Beside the SEEA

Beside the SEEA and in relation to it, other environmental accounting frameworks have been developed for specific purposes. Material flow accounting (MFA) is now a regular framework at the OECD. The Intergovernmental Panel on Climate Change (IPCC) guidelines for UN Framework Convention on Climate Change (UNFCCC) reporting, and the Ecological Footprint and the Millennium Ecosystem Assessment of 2005 are other examples. Environmental accounting is also a subject of interest for business, both as a way to assess impacts, costs, and benefits of projects and to define new accounting standards to assess their long-term performance and risks.

Environmental Accounting: A Broad Range of Methodologies and Goals

Environmental accounting refers to a broad range of issues related to interactions of the economy and society with the environment. It aims to deliver the policy tools needed for sustainable development, either for maintaining income and wealth or for maintaining the natural systems on which our livelihoods and those of future generations rely. The various environmental applications carried out in recent decades can be described by a group of goals and measurement techniques. Nonetheless, there are two main approaches. First, there is an attempt to modify the production boundaries of conventional accounts to better integrate environment and natural resources into the economic national accounting framework. Second, there is the acknowledgment of two interacting systems (economic and natural)—with the purpose of assessing the sustainability of the natural system, which supports the economy as well as broader social functions. In the first approach, maintaining benefits is the focus. In the second approach, maintaining the biophysical system is the focus. Technically, accounts can be established in monetary and/or physical units, with different possible methodologies for support. The SEEA process is a general attempt to streamline the domain—a result still to be achieved.

Goals for accounting are many and sometimes contradictory. They include:

Extracting data entangled in existing national accounts to provide more detailed information to policymakers. This includes first assessing the value of the asset depletion, which is embedded in resource rent, to estimate the provisions needed to maintain income in the future. Another disentanglement consists of isolating the actual public and private expenditures for environmental protection and management, which are scattered throughout various flows (including taxes, subsidies, and other transfers), sectors, and activities. This information on expenditures is reported in a satellite account, as proposed in the System of National Accounts of 1993. It is important for public policies, as well as for the assessment of the market for environmental services, the term used for the services provided by companies in waste and water management sectors. It allows for computing of the National Expenditure for the Environment and comparing it with similar aggregates for health, education or other areas of societal concern, and GDP.

Providing information to policymakers with additional data in physical units on natural resource supply, as well as data on use and stocks to assess resource depletion and resource use efficiency. This includes flows of materials use and pollutants disposal (in particular, pollutants in water, solid wastes, and greenhouse gases) by economic sectors and information on the life cycle of products to assess decoupling of economic growth from resource use.

Calculating the social cost(s) of environmental degradation and damages and correcting the (misleading) Gross Domestic (or National) Product and national income broadly used by economic policymakers by deducting those elements that do not correspond to positive welfare values, such as so-called defensive expenditure, and by doing so, bringing concepts of national accounting closer to those used in welfare economics.

Expanding the limits of production as defined and measured in conventional national accounts to integrate the environment and natural resources more completely within economic decision-making. This refers to taking stock of remote or pristine natural stocks that are not considered economic assets because they do not meet the double criteria of being owned and managed in view of a benefit. Pristine forests or fish stocks in international waters can be mentioned here. Expansion of production boundaries includes assessment and valuation of the services supplied by the ecosystem, given that they are not adequately captured by economic transactions and, therefore, are neglected. This comprises those ecosystem services that are of the utmost importance for the poor. In measuring the success of development programs against poverty, it is important to assess whether services have been degraded by new activities and subtract them accordingly from the newly created income.

Enlarging the conventional approach to capital by integrating economic capital with natural capital. The goal is to assess the wealth of nations supplied by the total or inclusive capital made up of produced, human, social, and natural capital. In this perspective, the value of ecosystem capital is derived from the net present value of ecosystem services according to the standard model of capital. The purpose is to justify (from an economic point of view) the importance of conserving natural capital as part of total capital. Because of substitutability of the various forms of capital, the perspective gained is of weak sustainability, as opposed to a strong sustainability perspective where ecosystem functions must be maintained.

Measuring the ecological value of ecosystems from physical assessments to compute ecosystem degradation or improvement attributable to the economy, and establishing ecological balance sheets for all economic sectors and agents. In this case, the perspective is of strong sustainability defined in reference to historical or social target values. In the first case, the benchmark is a theoretical potential corresponding to a natural situation anterior to industrial development or even to human presence. In the second case, the benchmark is stated clearly in reference to the planetary boundaries acknowledged in various regulations, laws, or conventions, including the CBD targets, the UNFCCC Conference of the Parties (COP21) objective for the climate, the UN Convention to Combat Desertification objective of “land degradation neutral development,” all incorporated in the Sustainable Development Goals approved by the UN General Assembly. This target implies offsetting nature degradation and incorporating ecosystem capital depreciation (in the broader sense, including the oceans and the atmosphere ecosystems) in all accounting standards to finance restoration when needed. To this baseline can be added the objective of restoration from historical degradation. Although physical costs needed to maintain or restore ecosystem capital can be converted to money by analogy with observed restoration costs, they do not allow for calculating the monetary wealth of ecosystems.

Adjusting conventional macroeconomic indicators. “Advocates of environmentally adjusted macroeconomic indicators have proposed several distinct ways to modify the conventional national accounting measures: (a) deduct the depletion of natural resources; (b) deduct the value of asset degradation due to pollution; (c) deduct the value of other harms caused by pollution; (d) incorporate the value of non-marketed flows of goods and services derived from the environment; and (e) deduct defensive expenditures” (Hecht, 2005). To these historical proposals for green accounting should be added the attempts to record the asset value of nonmarketed ecosystem services in assessments of total wealth (World Bank, 2011a) or inclusive wealth (UNU-International Human Dimension Programme [IHDP] & UNEP, 2012). From a different angle, the measurement of ecosystem restoration costs suggests that there is an unpaid cost (Vanoli, 2014) corresponding to the measurement of the consumption of ecosystem capital (Weber, 2014), which should accrue to the final demand aggregate of the System of National Accounts (SNA) to calculate final demand at full cost.

Environmental accounting at the micro level: projects, local government, and enterprises. Environmental accounting is not simply a tool for macroeconomic policies. It is a tool for assessing the costs and benefits of projects considering their environmental impact and is broadly used in that context. For local governments, it is an element of their own assessment as well as a tool to appraise them in the broader national context. For nature protection policies, environmental accounts are tools for assessing the effectiveness and efficiency of protected areas management. For companies, there is greater interest, as the accumulation of unknown or ignored environmental costs can turn into risks. Initiatives by companies to promote self-assessment regarding climate change or natural capital degradation can multiply.

Although these various subjects have been discussed at length for decades, they are still significant, and they still provoke discussion. Extensive arguments on environmental accounting can be found in the three versions of the UN SEEA 1993, 2003 and 2012, in the documents and minutes of the UN London Group on Environmental Accounting (which assists the UNSD and the UNCEEA), in reports by international organizations involved in the process (in particular the OECD, the World Bank, in Europe by Eurostat, the statistical office of the European Commission, and the European Environmental Agency), and by countries.

The Account of (Actual) Environmental Protection Expenditure

The account of environmental protection expenditure has been part of the enlarged framework of national accounts since the SNA 1993. This type of account is called a satellite account by reference to SNA core tables. The purpose of a satellite account is to compile in one single statement data related to a given domain, such as education, health, social protection, or the environment. All these data are in principle recorded within the core account, but they are scattered throughout multiple classifications and standard items, which makes them difficult to find. For a given domain, the satellite account compiles all the expenditures related to characteristic production activities, current spending, and investments, as well as related transfers between institutional sectors, including taxes and subsidies. Its typical aggregate is the National Expenditure (NE). As long as satellite accounts are tightly connected to the core accounts’ rules and classifications, NE of one domain can be compared with GDP as well as with NE of other domains. The classification of environmental protection activities and expenditures (Eurostat, 2000) at the highest level distinguishes the following areas: protection of ambient air and climate; wastewater management; waste management; protection and remediation of soil, groundwater, and surface water; noise and vibration abatement (excluding workplace protection); protection of biodiversity and landscapes; protection against radiation (excluding external safety); research and development; and other environmental protection activities (including government expenditure).

Environmental protection expenditure is compiled in several countries on a regular basis.

Accounting for Weak or Strong Sustainability

In considering environmental accounting goals, another overlapping issue—pricing —refers to sustainable development and the paradigms of weak and strong sustainability.

Accounting for Weak Sustainability

The conservation (or increase) of net income flow and total economic wealth is called “weak sustainability”—as it considers only monetary values with the explicit or implicit assumption of the broad or total substitutability of the assets that compose total capital and that support development: produced, human, and natural. The concept of total capital has been developed, in particular, by John Hartwick (1978), who established that an economy on a given growth path would remain on this path if total capital is maintained. Subsequently, this theorem was interpreted as a condition for sustainable development in its “weak” form, as it did not require maintaining each of its components, particularly natural capital. This is formulated most clearly in the Inclusive Wealth Report (UNU-IHDP & UNEP, 2012):

The inclusive wealth framework allows substitution across the different forms of capital and refrains from asserting any specific interest of any particular constituency. Therefore, natural capital is not preserved for its own sake, but for its contribution to the overall productive base of a country. For example, a country with extensive commercially available forest stocks will, according to the inclusive wealth measure, be able to convert some of these forest stocks to other forms of capital assets that it might need to increase the well-being of its citizens and to maintain a sustainable path. The degree of substitutability is determined by the ratio of the shadow prices of the capitals in question.

As a consequence, environmental accounting for nature and ecosystem services in monetary units involves the acceptance of a broad substitutability between natural and other capitals and the weak sustainability paradigm.

Accounting for Strong Sustainability

In terms of cycling and living, another position on renewable natural capital (the ecosystem) holds that it should be maintained for its own sake as its functions to support livelihoods and well-being in the broader sense and in the long run promotes strong sustainability. The argument is that irreversible ecosystem degradation should be avoided. Strong sustainability has been frequently caricatured as the expression of hard conservationism and a static vision of the world. A different formulation has emphasized the value of critical natural capital as necessary to secure the reproduction of the earth’s ecosystems. A more recent formulation (Ekins, Simon, Deutsch, Folke, & De Groot, 2003) of the strong sustainability paradigm defines it as the conservation of the overall or total potential of nature including its reproductive capacity. This approach allows consideration of compensations between different ecosystems under certain conditions—but not between ecosystems and other forms of capital.

In practical terms, weak sustainability leads to paying more attention to services and benefits, while strong sustainability leads to paying more attention to the resilience of the systems that are able to deliver those services.

Resource Depletion and Environmental Degradation

Assessing Natural Resource Rent and Depletion

Assessing natural resource rent and depletion is current practice in resource management. Its purpose is to optimize resource use over a period of time. The emergence of the sustainable development paradigm has stimulated the development of methods to account for the depletion of the stock of natural resources. “Since the extraction of any of this stock enriches the generation using it while reducing the quantity available to future generations, sustainable development requires either that no generation use the stock, or that users compensate future generations in some manner for the depletion of the stock.” And “future generations could be compensated for this loss if investments were made to ensure the maintenance of the flow of goods and services from the stock of productive capital, or of some more direct measure of human welfare” (Santopietro, 1998, p. 39).

In theory, the price of a depletable resource includes two components: production cost (capital and labor), and resource rent. The SEEA describes it this way: “The measurement of resource rent provides a gross measure of the return to environmental assets. As for produced assets, it is also relevant to consider the derivation of a net measure of the return by deducting depletion from resource rent, i.e., depletion-adjusted resource rent” (SEEA CF 2012, 2014, 5.116) “Depletion relates to the physical using up of natural resources through extraction. In monetary terms, it represents the decline in future income that can be earned from a resource due to extraction”[SEEA CF 2012, 5.69]. “Depletion [. . .] reflects the change in the value of an environmental asset that is due to extraction in excess of regeneration” [SEEA CF 2012, 5.116]. Depletion is equal to the difference between values at two dates of the environmental asset, which is not due to discoveries or catastrophic losses. As for many environmental assets there are no relevant market transactions or set of acquisition prices, the SEEA recommends calculating the value of environmental assets as the net present value (NPV) of future returns. The methodology is described in much detail in the SEEA CF Chapter 5 (SEEA CF 2012, 2014).

Most assessments of environmental assets follow this approach to the valuation of assets and the calculation of resource depletion. As this calculation is considered by the SEEA to conform to SNA principles, aggregates net of depletion can be presented.

Historical Applications

In the 1980s, a simplified method was used by Robert Repetto (1989) in Indonesia and Costa Rica for the purpose of delivering assessments of rents and depletion using existing data. The so-called Net Price method is based on the difference between the average price of a resource and the production costs needed to obtain it. Net price is used to assess the value of assets. All the rent calculated in that way is assumed to be depletion. The method was tested in other places with refinements such as the deduction of returns to fixed capital from the resource rent.

A somewhat different way of calculating depletion has been proposed by Salah El Serafy, under the name user cost approach (El Serafy, 1989). The purpose is to distinguish within the resource rent a true income component that can be consumed and a depletion cost. The depletion cost is the amount that needs to be reinvested to sustain the economy’s ability to provide future generations with the capacity to enjoy a nondeclining level of consumption. The message is particularly important for assessing the sustainability of the development of countries where natural resources are an important source of income. The El Serafy method does not necessitate any valuation of natural assets, only their life expectancy, but it requires agreeing on a discount rate corresponding to the return expected from the alternative investment.

Depletion and Degradation

As stated in the SEEA CF [5.103], “The approaches described in the SEEA, in particular the net present value approach, provide reasonable proxies for observable market prices and consistency with the SNA, but do not take into account the full range of benefits (and costs) that might be considered relevant.” Environment degradation is another possible negative consequence of human activities. According to the SEEA (1993, p. 36):

The use of natural assets can affect their temporary or permanent depletion (quantitative use) or leave nature unchanged quantitatively while possibly affecting the quality of the environment (qualitative use). In the first case, the flow of quantities from the natural environment to the economy is viewed as a flow of environmental goods. In the second case, the use of natural assets is interpreted as involving a flow of environmental services from the natural environment to the economy. The use of environmental goods may thus lead to depletion of natural assets, and the use of environmental services may cause degradation (qualitative deterioration) of natural assets.

It is important to note when considering the national accounts that depletion and degradation cannot be considered at the same level. Depletion of an asset is a reduction of its economic value. Here, adjusting national accounts involves subtracting an element of economic value as recorded in the SNA. Degradation is an external effect which results from uses of environmental services or functions that are not recorded as such (including the indirect impacts of resource depletion on ecosystem services or functions). Environmental degradation is an unpaid cost that is not part of GDP. Thus, subtracting it from a total (GDP) does not clarify its significance, which remains uncertain. Another solution (Vanoli, 2014) is to consider that ignoring this unpaid cost results in undervaluing the SNA’s Final Demand (composed of Final Consumption and Gross Formation of Fixed Capital), presently measured at purchasers’ price. Comparing Final Demand at full cost with GDP and with national income would highlight a gap in critical sustainability. In the SEEA CF, degradation is not addressed but is forwarded to the SEEA EEA, where it is defined as loss of future ecosystem services and valued in money. The CBD Ecosystem Natural Capital Accounts: A Quick Start Package (ENCA-QSP) framework (Weber, 2014) recommends measuring ecosystem physical degradation and valuing it on the basis of avoidance and restoration costs.

Adjust or Supplement GDP?

For many, environmental accounting is equivalent to correcting the headline, the aggregated indicator of national accounting, Gross Domestic Product (GDP), from flaws that would otherwise make it a misleading policy tool. A commonly used metaphor is “Green GDP.” Arguments are that GDP does not record adequately or at all the elements contributing positively or negatively to present or future welfare. Rents on nature are confused with true income, costs of environmental damages are not recorded as loss of welfare, and even worse, their reparation is accounted as positive value added. In the same way, expenditures to protect people against a potential or a actual decline in their environmental quality (defensive expenditures) are positively recorded in the final consumption when they should be considered as an intermediate cost and therefore subtracted from GDP. Others recommend taking into account the ecosystem services that are not included in GDP. Another approach is to consider the unpaid costs of maintaining the ecosystems considered as assets or as capital supplying free services. The costs resulting from ecosystem degradation by economic agents should be added to the value of the final demand to compute it at the full cost.

The traditional position of national accountants is to insist that GDP is a comprehensive measure of transactions, not of welfare. The subjective value of production, income, and consumption is not appraised in national accounts. Defensive expenditures (Leipert, 1989) cannot be deducted from GDP as they contribute to the final demand (e.g., through the salaries paid). Regarding positive or negative values not recorded as transactions (the externalities), the issue for incorporating them into GDP is related to prices. National accounts are based on observed transaction prices (which reflect what has actually been paid), which are in essence very different from welfare prices that reflect a willingness to pay—an amount that is always higher than what we actually pay (the difference being called consumer surplus). As a consequence, national accountants dismiss attempts to adjust aggregates from values computed with welfare prices. However, regarding monetary values related to the environment or the natural resource, two types of accounts are, so far, part of the national accounts: environmental protection expenditures and calculations of resource depletion.

In 2007, the Beyond GDP Conference on Measuring Progress, True Wealth, and the Well-Being of Nations—convened in Brussels by the European Commission (EC, 2007–2016)—concluded that, due to its broad use in economic policy-making, GDP should not be changed but instead should be supplemented with other indicators more inclusive of environmental and social aspects of progress. This position was subsequently confirmed by the Report of the Stiglitz-Sen-Fitoussi Commission on the Measurement of Economic Performance and Social Progress (Stiglitz, Sen, & Fitoussi, 2009).

This is not the end of the debate on the meaning of GDP and national income, a debate that has lasted since the origin of modern national accounting in the 20th century via opposing interpretations of aggregates in terms of production, income, and related variables (Keynes, Hicks), and in terms of goals of the economy, that is, the true social welfare measurement (Kuznets) (Vanoli, 2005, 2014). It has strongly marked the genesis of economic-environmental accounting in terms of methodologies and purposes. For those who consider that the mere purpose of accounting is to measure the true welfare supplied by the economy, imperfect measurement of shadow prices should not be an obstacle to adjusting the SNA aggregates.

Examples of Adjustments of the SNA Aggregates

Adjustments of GDP (or GNP) and national income have primarily focused on eliminating negative values from standard SNA calculations. A distinction has to be made between adjustments for natural assets depletion, a broadly accepted concept (Vanoli, 2005, SEEA CF 2012, 2014), adjustment for environmental damages or degradation, and subjective adjustments of GNP from negative welfare components, in particular, defensive expenditure.

Adjustments in the SEEA Context

In the SEEA (1993), the additional recording of imputed environmental costs leads, other things being equal, to a decrease in the net domestic product (NDP) of the economy. The net domestic product diminished by the imputed environmental costs of industries is called the environmentally adjusted domestic product or, for short, the eco-domestic product (EDP). Different main versions of EDP can be distinguished according to the valuation methods applied to environmental costs:


EDP version 1 at market values (only). The market valuation concept used in that version is consistent with the valuation concepts used in the conventional SNA under the category “other volume changes.”


EDP version 2 at maintenance costs. The compilation of EDP v2 takes into account imputed environmental costs at maintenance values, reflecting the cost-caused concept. It includes a wider range of (nonmarket) phenomena in the field of the environment and is particularly significant in the elaboration of strategies of sustainable development.


EDP version 3 takes into account imputed environmental costs with a combination of market and contingent valuation, reflecting the cost-borne concept. However, the application of contingent valuation methods in national accounting is controversial, as it uses techniques of valuation that are based on the revealed preferences of individuals (section D). Such techniques have been applied with (limited) success in project or program evaluation, and it remains to be seen whether they can be extended to the assessment of environmental costs and benefits for the whole economy.

In the SEEA (2003), adjustments for degradation are forwarded to a specific chapter 9, and are still not fully integrated. The SEEA CF 2012 (2014) Central Framework limits proposed adjustment of aggregates to assets depletion; degradation is forwarded to the experimental volume on ecosystem accounting.

Adjustments out of the SEEA

A stream of welfare-oriented adjustments to national accounts of product and income aggregates starts from the measure of economic welfare (MEW), as proposed by Nordhaus and Tobin (1972), which focuses on consumption as the main goal of the economy. The method consists of reclassifications of GNP final expenditure, imputations for capital services, leisure, and nonmarket work, and deductions for disamenities of urbanization (Nordhaus & Tobin, 1972). The Index of Sustainable Economic Welfare (ISEW), developed by Daly and Cobb (1989), estimated for the United States for each year from 1950 to 1990 and tested in different countries, is a variant of MEW, with similar adjustments and differences; in particular, more emphasis is given to environmental issues (Hecht, 2005, p. 217, ss).

The Genuine Progress Indicator (GPI) (Anielski, 2001; Costanza et al., 2014, pp. 149–150) and ISEW are essentially equivalent measures. Both divide economic transactions into those transactions that make a positive contribution to human welfare and those transactions that make a negative contribution. In principle, they refer to a corrected concept of Hicksian income: “To summarize, let us define our corrected income concept, Hicksian income (HI), as net national product (NNP) minus defensive expenditures (DE) and depreciation of natural capital (DNC). Thus, HI = NNP - DE - DNC” (Costanza et al., 2014, p. 141). This extension aims at identifying the quality of income according to expenditure purposes:

These indicators deduct some evaluations of the costs of water, air and noise pollution from consumption and also try to account for the loss of wetlands, farmland, and primary forests, and for other natural resource depletion, and for CO2 damage and ozone depletion. Natural resources depletion is valued by measuring the investment necessary to generate a perpetual equivalent stream of renewable substitutes.

(Stiglitz et al., 2009, p. 66)

This is agrees, in part, with trends in national accounting, where household income is analyzed according to its availability and to beneficiary social groups, as for example in the Report by the Commission on the Measurement of Economic Performance and Social Progress (Stiglitz et al., 2009). It also meets concerns related to the meaning of the mean consumption index price when groups of components (e.g., food and electronic products) vary in opposite ways, with different consequences for households with different levels of income. However, as shown in the various formulas used for these kinds of indexes, subjectivity and arbitrariness are difficult to avoid.

Besides the character of the choice, whether good or bad, other criticism exists regarding the appropriateness of adding subjective values to national accounts. The first argument is that national accounts record observed prices, which are what has really been paid, while subjective welfare values record the willingness to pay, which is always superior or equal to the former (the difference being the consumer surplus).

Accounting for the Past vs. Modeling Future Prospects

A second argument is that such adjustments do not simply affect the final totals but result in changes to the consumption structure (quantities and prices) that underlies GDP or national income. Yet national accounts look at the past as it actually happened, and changing quantities and prices is not relevant. Instead, such calculation can be meaningful in the context of modeling the future under environmental constraints. Such an approach was followed by Roofie Hueting for the calculation of “sustainable national income” (Hueting, 1980). The logic behind his approach is that an implicit set of consumption preferences underlies the calculation of conventional national income, and that these preferences are currently biased. Sustainable national income is estimated on the assumption that people would prefer a sustainable economy defined as transferring all environmental functions to future generations without depleting any of them in the present. Similarly, the GREENSTAMP report of the EC recommends the “estimation of a ‘greened GDP’ and, by extension, of a sustainable national income (SNI) based directly on empirically calibrated modeling of a national economy in order to calculate feasible economic output subject to respect for environmental quality (ecological-economic sustainability) norms” (Brouwer, O’Connor, & Radermacher, 1999). As with Hueting, the reference standard is a physical measurement (e.g., pollution level), not a welfare value. But the difference is that the GREENSTAMP model does not refer to welfare economic theory. This means, in particular, that the subtraction by Hueting of defensive expenditures and avoidance costs of meeting standards from national income is not relevant in GREENSTAMP. Instead, multi-sector national economic models are used to assess avoidance costs and calculate “possible” environmentally adjusted national (future) income(s).

Adjusted Net Savings

Genuine or Adjusted Net Savings (ANS) are synonymous terms given to an indicator proposed by Kirk Hamilton and computed by the World Bank:

In standard national accounting, only the formation of fixed, produced capital is counted as an investment in the future and thus as an increase in the value of the assets available to society. Likewise, standard calculation of net saving rates includes only depreciation in the value of human-made capital as a decrease in the value of a nation’s assets. The adjusted net savings framework takes the broader view that natural and human capitals are assets upon which the productivity and therefore the well-being of a nation rest. Since depletion of a non-renewable resource (or over-exploitation of a renewable one) decreases the value of that resource stock as an asset, such activity represents a disinvestment in future productivity and well being. In the same way, the creation of an educated populace and a skilled workforce—a nation’s human capital—increase the value of that resource and might better be seen as an investment

(Bolt et al., 2002, p. 4)

Genuine savings is a requalification of investment flows, which does not require changes in product and income. As quoted on the World Bank web page where ANS results are disseminated:

Adjusted net savings are equal to net national savings plus education expenditure and minus energy depletion, mineral depletion, net forest depletion, and carbon dioxide and particulate emissions damage.

(World Bank, 2011a)

ANS are discussed in detail in the Stiglitz Report of 2009:

The relevance of the ANS approach crucially depends on what is counted (the different forms of capital passed on to future generations), namely, what is included in “extended wealth,” and on the price used to count and aggregate in a context of imperfect or indeed nonexistent valuation by markets.

(Stiglitz et al., 2009, p. 67)

Other ANS criticism is that environmental degradation is captured only by damages due to CO2 and particulate matter (PM10) emissions (with no consideration for water, soil, or biodiversity) and that prices obtained by modeling are “accounting prices.” Depletion of an exhaustible resource (like oil) is based on market prices. These prices would be acceptable in the context of a perfect market, which is not the case. In addition, they are very volatile, which limits the practical usefulness of the adjustment. From a global perspective, resource depletion is imputed to producers only, the overconsumption by the buyers (developed countries in many cases) being ignored. The consumption of the producers is therefore not sustainable, while that of the consumers seems to be, even if it is made of products manufactured in unsustainable conditions.

Adjustments for Environmental Benefits

Henry Peskin (1976) and Roefie Hueting (1980) worked on more comprehensive approaches to account for environmental benefits as well as costs.

In 1976, Peskin developed a framework known as the Philippine Environmental and Natural Resources Accounting Project (ENRAP). The ENRAP framework includes (a) consumption of waste disposal services (an input supplied by air and water); (b) environmental damages as a result of consumption of waste disposal services; and (c) final consumption of environmental quality services or “environmental benefits” (recreation, watershed protection, and existence values). Peskin then defined a net environmental benefit (or disbenefit) as (a) − (b+c). In accounting for nonmarketed services in addition to the natural resources recorded by the SNA, depreciation can be defined more broadly than in the SEEA. The Peskin approach was recommended in the United States by the Panel on Integrated Environmental and Economic Accounting of the National Research Council (Nordhaus & Kokkelenberg, 1999).

Techniques for valuing these kinds of non-marketed environmental services developed slowly, but today Peskin’s approach to environmental benefits can be considered a precursor of the ongoing work on ecosystem services.

Hueting’s vision of the “environment as a scarcity”—a scarce resource as a whole—is also a step to take into account the value of nature, although in a different way than Peskin. For Hueting, the sustainable national income (SNI) in a given year is an estimate of the production level at which—with the technology in the year of calculation—environmental functions remain available “for ever.” This value is established in relation to socially established targets in laws, regulation, or conventions.

Accounting for Ecosystem Services

Ecosystem Accounting

Accounting for ecosystems has gained attention since the early publications of Rapport, Daily, and Costanza in the 1990s, the first classification of ecosystem services by De Groot and Costanza, the Millennium Ecosystem Assessment of 2005, The Economics of Ecosystems and Biodiversity (TEEB) (Ten Brink, 2011), and applications such as the Land and Ecosystem Accounts of the European Environment Agency. In this context, the UN Statistical Commission has accepted that the SEEA under revision will be supplemented by an experimental volume that brings together the best experience to support experiments in voluntary countries. Such experiments are going on with noticeable actions steered by the UN Statistical Division, UNEP, the Convention on Biological Diversity, the World Bank, and the Indian Ocean Commission.

At this stage, two visions underlie the development of ecosystem accounting: the extension of the scope of the economy to give a better recognition of ecosystems and their services vs. multiple interacting (co-evolving) systems, where the maintenance of the ecosystem potential to deliver services is at the core.

In the first approach, degradation is understood as a loss of services. As aggregation of physical ecosystem services is difficult due to the variety and multiple units used for their measurement, valuation in money with market prices or shadow prices is seen as the only way to assess all services, to aggregate them, and to calculate the wealth of ecosystem assets.

In the second approach, degradation is the loss of functions and resilience. The aggregate relates to the ecosystem itself, measured according to the sustainability of its overall performance at delivering services, not according to the services themselves. Therefore, services do not need to be recorded exhaustively and valued in money (which can be done, however, at the bottom of the accounts), and no valuation of ecosystem wealth is foreseen besides the value of economic natural assets presently recorded in the SNA. Valuation is foreseen only for restoration costs of ecosystem functions.

Although approaches by services valuation, in money and by measurement of functions and resilience of systems in physical terms are different and to some extent opposed, some convergence can be seen in practice, because physical accounts are needed for valuation exercises. The point is particularly clear for those services that require quantitative geographical assessment prior to valuation. As ecosystems are typically described as geographical entities (Weber, 2014; SEEA-EEA 2012, 2014), data collected and assimilated for physical accounting can be useful input for the valuation of ecosystem services assessed with similar geographical patterns. In addition, assessment of ecosystem monetary values can benefit from indicators of ecosystem condition, which adds additional information on sustainability to their results.

Ecosystem Services Definition and Classification

Accounting for ecosystem services is a concept whose roots can be found in Peskin (1976). In the 1990s, the concept was developed by the economist Gretchen Daily (Daily, 1997) and thereafter enhanced by De Groot and Costanza (Costanza et al., 1997). It came to the forefront of natural accounting discussions with the MA2005 and TEEB 2007. A historical perspective on the emergence of this concept in economic theory is given in Gómez-Baggethun, De Groot, Lomas, and Montes (2009). Ecosystem services are an essential element of the UN SEEA-EEA, which proposes a provisional classification called CICES (Common International Classification of Ecosystem Services) (SEEA-EEA 2012, 2014) derived from that of the MA2005—which defines four categories: support, provision, regulation, and sociocultural services.

The discussion on ecosystem services classification is, however, continuing, due in particular to ambiguities in the definition of what a service is. Different opinions relate to the inclusion of those services that are a joint production of economy and nature, namely, in agriculture, forestry, and fishery. One position is that only the so-called final ecosystem services (which value is not captured in the production of SNA) should be recorded. This position is that of the U.S. EPA National Ecosystem Services Classification System (NESCS). NESCS is based on the Final Ecosystem Goods and Services Classification System (FEGS-CS):

NESCS draws a key distinction between intermediate and final services. For both economic and environmental accounting, this distinction is essential to avoid double counting services. Consequently, the NESCS focuses on flows of final ecosystem services (FFES), which it defines as the direct contributions made by nature to human production processes or to human well-being.

(U.S. EPA, 2015, p. xiii)

This distinction between final services and services that are input to production is important when aggregating values to the National Accounts. The point is less clear in terms of physical measurements, as it may lead to excluding intermediate services, which are essential contributions of ecosystems (e. g., to food security). The SEEA-EEA recommends following the final service approach in the case of cultivated biological resources (SEEA-EEA 2012, 2014 [3.26]), having in view consistency with the SNA boundary of production. It acknowledges as well that definition of services from harvests is what is done in MA2005 and TEEB, or in the Mapping and Assessment of Ecosystem Services (MAES) project of the European Union and warns of risks of double-counting in that case.

Valuing Ecosystem Services

According to Hecht (2005), valuing ecosystem services and assets refers implicitly or explicitly to the paradigm of Total Economic Value (TEV), made up of use values and non-use values. TEV = direct use value + indirect use value + existence value + option value + quasi-option value + bequest value. Direct use is that of marketed products, such as timber or food, and of nonmarketed products, such as wood gathered for fuel or water. Note that, in principle, all goods are accounted for in the SNA, including produce for one’s own consumption, such as vegetables from family gardens or berries and mushrooms picked in public forests, or fish caught by anglers in a river. They are measured at market prices of similar goods. Indirect uses include waste disposal, amenities such as recreation or scenic vistas, flood protection, and water filtration by wetlands. Indirect uses generally are not marketed, though they can be reflected in asset values (in the case of flood protection) or recreational and/or tourism services for which payments are purposely done, directly or indirectly (e.g., transportation costs). Non-use values of the environment capture our willingness to pay simply to know that the resource exists, even though we do not expect to use it. Option and quasi-option values relate to our interest that the resource will exist in the future. Bequest value is the willingness to pay to ensure that future generations will be able to enjoy the service.

Addition of use and non-use values in cost–benefit assessments where the public is asked to state its preferences makes sense; aggregation in the context of national accounting is controversial because of price inconsistencies.

Valuation of ecosystem services has a particular importance for comparisons between social groups, especially in terms of the rural poor. Many ecosystem services benefiting the rural poor account for little or nothing in GDP. Byproducts of forestry (wood for fuel, non-timber forest products), and non-commercial fisheries can be underestimated in statistics. Functional ecosystem services such as water quality and regulation, soil fertility, fish stocks regulation, aesthetic and cultural elements of quality of life, and attraction for tourists can be ignored by national accounts. However, in case of ecosystem degradation and loss of services, a loss of one dollar would hurt poor people more than it would the rich. The poor also have few possibilities of replacing free ecosystem services with commercial services. These issues have led to assessment of the “GDP of the Poor” (Gundimeda & Sukhdev, 2009).

Methodologies for Ecosystem Services Valuation

Methodologies for ES valuation are well documented in the literature. A recent and comprehensive presentation of the various techniques used can be found in (UNEP, 2014). It covers the following:

the production function technique;

the market price technique;

the travel cost technique;

hedonic pricing;

replacement cost and avoided damage cost;

contingent valuation;

the choice experiment technique;

the value transfer technique;

Accounting for Natural Capital in National Accounting Context

Valuing Natural Capital in the National Accounting Context

[In the SNA] the ideal sources for asset prices are values observed in markets, in which each asset traded is completely homogeneous, is often traded in considerable volume, and has its market price listed at regular intervals. . . . For some assets, including many environmental assets, there are no relevant market transactions or set of acquisition prices that would permit the use of the previous approaches. Thus, no values for the asset itself, in situ, are available. In this situation, the discounted value of the future returns approach, commonly referred to as the net present value (NPV) approach, uses projections of the future returns from the use (usually by extraction or harvest) of the asset.

SEEA-EEA (2014, sec. 5.4.4, Valuation of assets)

This SEEA-EEA proposal corresponds to the standard capital model of conventional economic theory. The equivalence between the value of capital and the net present value of future returns is commonly used in comparative cost–benefit analysis of projects that are assessed over common life duration. In financial accounting, the identity is used as a surrogate of the actual market value when the market is too narrow to provide a correct price for an economic asset; the method is called fair value, as it informs on the capital value of prospective income. This standard capital model is considered by many as relevant at the macro scale for the produced capital, and a special chapter of the System of National Accounts (UN SNA, 2008) is devoted to “Capital Services and the National Accounts.” This chapter is different in style from the rest of the SNA, as it brings proposals (and not recommendations) to improve capital assessment, in particular regarding productivity analysis, to those statistical offices interested in doing so. Natural capital is part of the discussion, with an exclusive focus on the natural resources that are considered in the SNA, the economic assets that are owned and managed in view of a benefit. The possibility of recording natural capital consumption is acknowledged but no adjustment of GDP or national income is proposed within the SNA, the task being forwarded to the SEEA, where the methodology is developed. This prudence can be understood as a consequence of the difficulties in calculating natural consumption and of the volatility of natural resource prices, which may result in unstable aggregates adjustments, likely to be much more important at some moments than their core variation.

The approaches to natural capital assessment, alongside the welfare economics theory, have considerably focused in the last decades on ecosystem services and their monetary valuation. Driven by the academic world and institutions such as the World Bank, they have paid more attention to accounting, at the micro level or at the national or global levels, under the influence of David Pearce, Kirk Hamilton, Salah El Serafy, Partha Dasgupta, Karl-Goran Mäler, Charles Perrings, Robert Costanza, Pavan Sukhdev, and many others. In this approach, monetary valuation with “shadow prices” is considered to be the only way to incorporate dimensions ignored by the economy into the broad picture. Green economics and the systematic valuation of it is a way to force neoclassical economic theory to take nature into account (as well as human and social capital) and achieve sustainable development. At the global level, noticeable outcomes are the Total Wealth of Nations (World Bank, 2011b) and the Inclusive Wealth Report (UNU-IHDP & UNEP, 2012). TEEB, The Economics of Ecosystems and Biodiversity program launched at the G8+5 in Potsdam (2007) by the German government and the European Commission pays great attention to environmental accounting in a broad view, including physical accounting, but with particular attention to the value of nature (Ten Brink, 2011). Recent developments of monetary assessments of ecosystem services and/or assets are taking place in countries in the context of the World Bank’s WAVES initiative or UNEP lead programs (VANTAGE, ProEcoServ).

Criticism of Natural Capital Valuation and Accounting

There is, however, a lively debate on the feasibility of natural capital valuation and its relevance to addressing sustainable development issues. In a recent paper, Walter Radermacher and Anton Steurer (2015), after highlighting the frontier of possible monetization, define natural capital valued in money as a narrow capital approach, which is not meaningful for (most) natural capital and sustainability assessments. One argument is that transposing the micro-economic view to the macro level reduces the complexity of decisions to a one-dimensional choice based on the optimal allocation of scarce resource only, which implicitly means considering marginal or progressive change while irreversibility is at the core of natural processes. Considering in addition that property rights are not clearly enforced for all assets, such optimal allocation is defined de facto by “the invisible hand of the market” and corresponds to a weak sustainability perspective. Accounting for ecosystem natural capital in physical units is an approach to strong sustainability.

Accounting at the Micro and Macro Levels

Accounting is a technique aimed at calculating the income and wealth of companies, institutions, households, or countries. Accounting frameworks at the micro- and macroeconomic levels are related, in principle. National accounts are, to some degree, the sum total of individual accounts, only to some degree, however, because limitations exist due to statistical difficulties that require the use of estimations as well as differences in perspectives. Corporate (or financial) accounts rule the internal life of the company as well as its relations with its clients, shareholders, and the fiscal authority. Financial accounts are legal documents submitted to strict control. National accounts are macroeconomic tools that feed models used for policy-making. Their soundness is the product of the consistency and completeness of their methodological framework and of the quality of the statistics on which they are based.

An example of a discrepancy is the estimation of capital depreciation, the way of sharing out over time the cost of using goods that last more than one year. According to the famous definition of income by John Hicks (2001, p. 176), “a man’s income [is] the maximum value which he can consume during a week, and still expect to be as well of at the end of period as he was at the beginning.” Income should, therefore, be accounted net of capital depreciation (or capital consumption). Regarding environmental accounting, László Drechsler (1976) pointed out the importance of the “input asymmetry” problem linked to the fact that man-made capital is depreciated in the national accounts to arrive at net domestic product, while depreciation of natural capital has been ignored. In corporate accounts, the values of only natural assets of subsoil, forests, timber, and fish stocks are depreciated; ecosystem assets are not.

The way depreciation is measured by corporations highly influences the net amount of profit to be distributed to shareholders after being submitted to tax levy. It is submitted to strict regulations. In national accounting, the equivalent amount is called consumption of fixed capital and is used to “net” the gross domestic product from the cost needed to maintain industrial assets as well as buildings or roads and come to a measurement of income in line with the Hicksian definition:

Consumption of fixed capital is the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage. The term depreciation is . . . avoided in the SNA because in commercial accounting the term depreciation is often used in the context of writing off historic costs whereas in the SNA consumption of fixed capital is dependent on the current value of the asset.

(UN SNA, 2008, 6.240, p. 123)

This example is one through several of differences between micro observations and what statistics can record.

Other discrepancies between micro and macro level assessments relate in particular to price systems and have led to multiple approaches, often partial and associated in different ways in various documents. This continuous debate overlaps to some extent with approaches by official national accountants thinking in terms of statistics and academic researchers paying primary attention to theories and models, and the interpretation of accounting aggregates. This opposition is reinforced by the fact that researchers can test their models on the basis of their own assessment practice, which generally relates to cost–benefit analysis, a methodology developed for assessing projects. When prices need to be estimated, national accounts recommend using similar prices, which can be observed on the market. Being forward looking, cost–benefit analyses are more open to other prices such as the amount that stakeholders are willing to pay for this or that option (such as welfare or shadow prices).

The United Kingdom National Ecosystem Assessment (2014) (UK NEA) is an attempt to generalize the use of cost–benefit analysis to support policy decisions. It is the “application of economic analysis techniques to assessments of the ecosystem service flows generated by a range of land use change scenarios” (Bateman et al., 2013, p. 292). The aim is “incorporating natural science information within economic analyses in a manner which allows more thorough and spatially explicit CBA assessments of decision possibilities” (Bateman et al., 2013, p. 294). A spatially explicit approach to modeling each welfare stream is followed by monetizing all value streams. Issues of double counting are addressed on a case-by-case basis. However, “where this [monetization of welfare streams] cannot be reliably achieved, here in the case of biodiversity . . ., a straightforward constraints-based approach [is] designed to ensure species sustainability” (Bateman et al., 2013, p. 292).

Environmental Accounts in Physical Units

Environmental accounts in physical units can be considered as a support to valuation or as assessments in themselves, or both. An issue with physical accounts relates to aggregation.

Early Accounting Frameworks in Physical Units

The first accounts to be published were the Natural Resource Accounts (NRA) of Norway in 1974. The purpose was to supplement the conventional national accounts with tables on important national resources such as fish stocks (cod stocks in the North Sea had been severely depleted at that time) or water (as a resource for hydroelectricity) with the purpose of enlarging macroeconomic models to incorporate these data. In 1979, Statistics Canada published a report on the Stress-Response System (Rapport & Friend, 1979), a comprehensive framework where data on material flows were combined with data on the condition of environmental systems. This model was not implemented as such but was adopted by the OECD to frame the first State of Environment reports, under the name of Pressure-State-Response (PSR). As such or with variants, the PSR model has been used very widely and is still in use. A few years later, similar approaches were implemented in France and Spain under the name of Natural Patrimony Accounts (NPA). Natural patrimony accounting is another attempt to integrate accounts of stocks and flows of components (material resources, water, fauna, and flora) and systems (water systems, ecosystems). Monetary accounts are foreseen in NPA, but not as a general means for integration. They include the valuation of some natural assets such as timber or the recording of environmental protection expenditure, but there is no attempt to compute damage costs.

Natural resource accounting emerged at the time of intense reflection on the limits of materials and energy available for economic development, of which Georgescu-Roegen’s book, The Entropy Law and the Economic Process (Georgescu-Roegen, 1971) is an essential milestone. Important developments took place—and are continuing—in terms of materials and energy accounting. They include the life cycle analysis of products, approaches to industrial metabolism, and energy accounts in thermodynamic terms, where the influence of Robert Ayres should be noted.

Accounting for Material Flows

Early works by Ayres and others resulted in the publication by the United Nations of Draft Guidelines on Materials/Energy Balances (United Nations, 1976). It inspired national experiments in material balances for selected products, life cycle analysis, and later, for the development of economy-wide material flow analysis and accounts (EW-MFA), where all materials are measured in tons. EW-MFA was developed during the 1990s by various organizations, principally the World Resources Institute; the German Wuppertal Institute for Climate, Environment, and Energy; the Netherlands Ministry of Housing, Planning, and Environment; the University of Klagenfurt in Austria; and the Japanese National Institute for Environmental Studies (Adriaanse et al., 1997). The purpose is to measure key indicators of the “industrial metabolism,” using the ton as the equivalent unit for all materials.

MFA, “Decoupling,” and Resource Efficiency

In recent years, MFAs have been applied more broadly and standardized in methodological guides by Eurostat (Eurostat, 2000, 2013) and the OECD (OECD, 2002, 2008) with the purpose of producing aggregated indicators measuring production “decoupling” from its material base and measuring progress in resource use efficiency. Material flows include materials from/to the domestic environment and exchanges of materials with the rest of the world. It will be noted that water and air (O2, N2, CO2 . . .) are not included in the recorded material input. Also, land (which has no weight) is excluded from resource use assessment with MFA. Material inputs consist of raw and processed products: biomass, metal ores and concentrates, non-metallic minerals (including sand and gravel), fossil energy, and waste imported for final treatment and disposal. Material outputs are made of emissions to air (including CO2 emissions, which represent an important part of the total), landfill waste, emissions in water, the dissipative use of products, and dissipative losses.

Typical EW-MFA aggregates are:

Domestic Extraction Used (DEU): material inputs from the natural environment into the economy.

Imports and exports of materials and the Physical Trade Balance (PTB), which is their difference.

Domestic Processed Output (DPO): the total weight of materials that are released back to the environment after having been used in the domestic economy. DPO does not include exported products.

Domestic Material Input (DMI): the total of domestic extraction of resources and imports.

Direct Material Consumption (DMC): DMI minus exports.

Total Material Requirement (TMR): DMI plus the indirect flows caused by and associated with the domestic extraction (called “Hidden Flows”). This indicator corresponds to the theory of the “rucksack” of products.

MFA and Carbon Accounting

One extension of the MFA is the use of so-called carbon balances or budgets for reporting to the UNFCCC. These accounts seem more consistent than conventional MFAs, as the measurement unit used, the CO2 equivalent, is clearly defined in relation to global warming. They are extended to carbon stocks or pools and their depletion and renewal (carbon sequestration). MFAs in carbon have also been developed to measure the pressure of human activities on the renewable flow of carbon defined as the biomass. This is the so-called Human Appropriation of Net Primary Production (HANPP), where appropriation means consumption (in the conventional accounting sense) and the losses of NPP due to land use degradation, such as soil sealing or deforestation, measured in reference to an absolute potential corresponding to natural conditions (Haberl et al., 2007; Vitousek, Ehrlich, Ehrlich, & Matson, 1986). Although expressed in hectares to emphasize the limitation of our consumption patterns, the Ecological Footprint Accounts can be considered as an offshoot of MFA in carbon, the conversion of tons to biocapacity being done through conventional yields.

MFA in the SEEA

The UN System of Environmental-Economic Accounting (SEEA) includes material flow accounts as an important component. In the 1993 SEEA, material flows in particular were addressed in terms of input-output (I-O) analysis, mirroring with physical data the monetary I-O tables (I-OTs) of the SNA. I-OTs are tools created by Wassily Leontieff to analyze the internal exchanges of commodities between industries. Compiling I-OTs in physical units has been proposed by Carsten Stahmer, in the SEEA (1993). In subsequent SEEA versions (SEEA, 2003, 2014), the ambition has been reduced to Physical-Supply and Use Tables (PSUT) only, because not all countries around the globe compile I-OTs in monetary units. PSUTs are easier to compute but do not have the same analytical power as I-OTs.


Important developments of national account I-OTs in monetary units integrated with physical flows are the so-called “hybrid accounts” or “joint presentations” of the SEEA. They are the summary of the National Accounting Matrixes with Environmental Accounts (NAMEA), developed in the Netherlands in the 1980s for the purpose of assessing the effects of economic growth on resource use and waste generation, as well as of environmental regulations on economic growth. On the basis of the expected contribution of each polluting substance to a particular environmental problem, emissions are converted to theme equivalents (De Haan & Keuning, 1996).

NAMEA is an efficient support for macro-economic modeling. It has been extensively tested in Europe, Japan, and other OECD countries, in particular regarding emissions of greenhouse gases. NAMEA can easily be connected to environmental protection expenditure accounts.

Accounting Based on Thermodynamic Principles

Although energy balances are regularly produced and a volume on the SEEA-Energy is under preparation, they are limited to the energy sector and products. In a different context, comprehensive energy accounts integrating the whole earth system in the way pioneered by Georgescu-Roegen have continued to be developed, but they are still limited in their applications. Main approaches are those focusing on available solar energy and the conversion of all economic and natural flows into Emergy (embodied energy), and those calculating all costs in terms of loss of Exergy (the energy of the system which can be used).

Emergy Accounting

According to Howard T. Odum (1996), emergy is the available solar energy used up directly and indirectly to make a service or product. Indirect use means embodied in the various inputs to the given service or product. Conversion into a common emergy unit (solar emjoule or sej) is done using “solar transformity values” for each energy category of a process described in a pathway analysis. All the source emergy of a process is therefore assigned to the output(s) of the process. Recent developments relate to the measurement of ecosystem services in emergy units (Brown et al., 2015).

Exergy Costs Accounting

Exergy, in thermodynamics, is the maximum energy of a system that is available to be used. After the system and its surroundings reach equilibrium, the exergy is zero. “The consumption of natural resources implies destruction of organized systems and dispersion, which is in fact generation of entropy (or exergy destruction)” (Valero et al., 2006). “Exergoecology is the application of the exergy analysis in the evaluation of natural fluxes and resources on earth” (Exergoecology Portal, 2016). Experience has been gained in Spain since the early 1990s and has led to the publication of water accounts in exergy integrating into one single measurement of quantitative and qualitative characteristics (Naredo, 1997).

Accounting Frameworks Based on System Analysis

The Stress-Response System

Other approaches to system analysis have been developed. One is known as the Stress-Response System (Rapport & Friend, 1979), developed at Statistics Canada. It articulates the description of ecological systems and their response to various stresses due to resource overextraction or overharvesting, to contamination by pollution, and to disruptions due to urban or agricultural land use. Attention is paid to habitats and ecosystem mapping as a priority task for implementing “ecological capital accounts comprising size and spatial distribution of ecological zones and their rates of transformation” (Rapport & Friend, 1979, p. 25). The Stress-Response approach paved the way for the development of the ecosystem health assessment approach, which is explicitly or implicitly referred to in various ecosystem accounting frameworks.

The Natural Patrimony Accounts

In a different context, Natural Patrimony Accounts were developed in France (CICPN, 1986) and Spain in the 1980s. Here again, the need to supplement material balances with system accounting is strongly emphasized. In Spain, natural patrimony accounting allowed for testing the exergo-ecological methodology for rivers and, in the same measurement, assessing water availability and use in quantitative and qualitative terms. In France, it led to the proposal of ecosystem accounting and the definition of an ambitious program of land cover mapping to create a directory of all land ecosystems. The land cover mapping methodology has been adopted by the European Union under the name of CORINE Land Cover and is now the basis for the land accounts published by the European Environment Agency (Haines-Young & Weber, 2006) for its 34 member countries, and is updated every 6th year.

ENCA-QSP, the Ecosystem Natural Capital Accounts; Quick Start Package (Weber, 2014) published by the CBD to support the “implementation of the Aichi Biodiversity Target 2 on Integration of Biodiversity Values in National Accounting Systems in the context of the SEEA Experimental Ecosystem Accounts” is a framework based on a systemic approach (Weber, 2014). It is based on the Ecosystem Capital Accounts framework developed at the European Environment Agency (Weber, 2011). In ENCA-QSP, an ecosystem’s sustainable capacity to deliver services is measured from the system’s characteristics of productivity, intensity of use, and resilience, ecosystems being defined as socioecological systems. The simplified framework is built from three sets of spatially based accounts, for ecosystem carbon (biomass and atmospheric CO2), water, and ecological infrastructure integrity and biodiversity. The model is based on ecosystem functions and addresses ecosystem services such as the use of primary goods (biomass, water) and land. Impacts of service overuse are recorded first, consistent with socioeconomic statistics and the SNA classifications. In addition, ENCA-QSP accounts assess ecosystem functions accessibility and propose gateways for detailed assessments of specific ecosystem services. The core ENCA-QSP accounts summarize results using a multicriteria index derived from the three sets of accounts. It provides a measurement of ecosystems ecological value with a common unit called the ecosystem capability unit (ECU). A loss of total ecological value due to economic activity is ecosystem degradation; a gain is enhancement. The Quick Start Package is aimed at being supplemented in two ways. On the cost side, an ecological balance sheet (in ECU) is established for all economic sectors or agents, showing debts and credits. ECU values can be, in a second step, converted to money using restoration costs. On the benefit side, detailed accounts for key ecosystem services in physical units and in money can be connected to core accounts.

Accounting and Modeling

Accounts have three basic functions: controling the quality of the various numbers recorded in the books (taking stock of the past); measuring meaningful results regarding income and wealth (the present situation); and supporting forward-looking assessment models (the future). For example, national accounts allow for the computation of deficits or surpluses in budgets or international trade or payments, production, income, consumption, and investment and for forecasting of economic growth levels and consequences for employment and government tax revenue.

Regarding environmental accounting, several types of models can be mentioned:

Input-output modeling as a direct extension of the national accounts (De Haan & Keuning, 1996; Feng, Jinyan, Chenchen, & Chunhong, 2014).

Economic assessment of benefits, damage costs, national income or GDP (Brouwer et al., 1999; SEEA, 1993).

Valuation of ecosystem services (Ten Brink, 2011), Inclusive Wealth (UNU-IHDP & UNEP, 2012) or Total Wealth (World Bank, 2011b).

Biophysical modeling for assimilating heterogeneous data sets to common spatial and time patterns (ENCA-QSP, in Weber, 2014).

Forward-looking models: InVEST (Sharp, Chaplin-Kramer, Wood, Guerry, Tallis, & Ricketts, 2016), ARIES (Villa et al., 2014), QUICKScan (Verweij, Winograd, Pérez-Soba, Knapen, & van Randen, 2012). Although not accounts, these models follow accounting principles and use similar data.

Further Reading

  • Hecht, J. (2005). National environmental accounting: Bridging the gap between ecology and economy. Resources for the Future.
  • Vanoli, A. (2005). History of national accounting. IOS Press.


  • Adriaanse, A., Bringezu, S., Hammond, A., Moriguchi, Y., Rodenburg, E., Rogich, D., et al. (1997). Resource flows: The material basis of industrial economies. World Resources Institute.
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