Environmental Accounting & Valuation (HL IB Environmental Systems & Societies (ESS))
Revision Note
Author
Alistair MarjotExpertise
Biology & Environmental Systems and Societies
Environmental Accounting
Accounting is the process of systematically recording financial transactions, summarising them into financial statements, and analysing the results to provide insights into the financial health and performance of individuals, businesses or other organisations
It Involves various activities such as bookkeeping, financial reporting, and auditing
Environmental accounting (sometimes referred to as green accounting) aims to:
Assign economic value to natural resources
Track the depletion of these natural resources over time
Quantify (financially) the environmental costs and benefits associated with economic activities
Challenges in environmental accounting
Achieving a consensus on the economic value of natural resources is challenging due to differing perspectives among stakeholders
Different stakeholders may prioritise environmental preservation, economic growth, or social equity, leading to disagreements on the valuation of resources
Environmental accounting also faces challenges such as data limitations, valuation uncertainties, and the difficulty of combining environmental and economic data
Environmental accounts
Environmental accounts act as statistical frameworks that combine economic and environmental data
They provide a systematic way to measure:
The contribution of the environment to the economy
The impact of economic activities on the environment
For example, in national accounting systems, environmental accounts can track the contribution of sectors like agriculture, forestry, and fishing to the economy, as well as their environmental impacts such as deforestation or habitat destruction
Businesses can also use environmental accounting to assess the environmental costs associated with their operations, including pollution control measures or resource depletion
Real-world initiatives
The System of Environmental-Economic Accounting (SEEA), developed by the United Nations, is a good example of an environmental accounting initiative
It provides a standardised approach for compiling and organising data on the interactions between the economy and the environment
In addition, corporate sustainability reports that provide environmental performance metrics alongside financial data are becoming increasingly common
Non-Use Value
Economic value is often associated with the use of a resource or good
For example, a tree's economic value may be determined by its use in producing timber or paper
This means that resources or goods are commonly valued based on how they are utilised or consumed by individuals or society
However, there are cases where economic value cannot be established through use
This is known as non-use value
Non-use value refers to the inherent worth of a resource or good beyond its direct use
Examples of non-use value include:
Intrinsic value: the inherent worth of a species or ecosystem, regardless of its utility to humans
Option value: the value of preserving an environmental resource or ecosystem for potential future use or enjoyment
Bequest value: the value of preserving a resource or ecosystem for the benefit of future generations
Establishing non-use value
Non-use value is often determined through surveys that assess how much money people would be willing to pay for a common good, or how much financial compensation they would be willing to accept in return for the destruction of a common good
For example, after the Exxon Valdez oil spill in 1989, surveys were conducted to estimate the non-use value of preserving marine ecosystems affected by the spill
These surveys aimed to assess how much individuals would be willing to pay to prevent similar environmental disasters in the future or to restore the affected ecosystems to their pre-spill condition
By asking respondents hypothetical questions about their willingness to pay for conservation efforts or compensation for the damage caused by the spill, researchers could estimate the non-use value associated with preserving these ecosystems
This approach helped to quantify the intrinsic value of the marine environment (beyond its immediate use for economic activities like fishing or tourism)
Other examples of non-use value
The Great Barrier Reef in Australia has non-use value as a globally significant ecosystem
Surveys have been conducted to assess how much people would be willing to pay to protect it from threats such as climate change and pollution
National parks and protected areas often have non-use value for future generations and intrinsic value for their unique biodiversity
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